Document:

EXHIBIT
10.17

 

***CONFIDENTIAL PORTIONS
OF THIS AGREEMENT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

 

 

LICENSE
AGREEMENT

 

 

Dated as of October 28, 2008

 

 

By and Between

 

 

Lpath, Inc.

 

 

And

 

 

Merck KGaA

 

 

***CONFIDENTIAL PORTIONS
OF THIS AGREEMENT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 1

  	
  DEFINITIONS

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
  1.1

  	
  “Adverse Event”

  	
   

  	
  7

  
	
  1.2

  	
  “Affiliate”

  	
   

  	
  7

  
	
  1.3

  	
  “Calendar Quarter”

  	
   

  	
  8

  
	
  1.4

  	
  “Calendar Year”

  	
   

  	
  8

  
	
  1.5

  	
  “Clinical Trial”

  	
   

  	
  8

  
	
  1.6

  	
  “Change of Control”

  	
   

  	
  8

  
	
  1.7

  	
  “Combination Product”

  	
   

  	
  8

  
	
  1.8

  	
  “Commercialization” or
  “Commercialize”

  	
   

  	
  8

  
	
  1.9

  	
  “Commercially Reasonable Efforts”

  	
   

  	
  9

  
	
  1.10

  	
  “Competing Product”

  	
   

  	
  9

  
	
  1.11

  	
  “Compound”

  	
   

  	
  9

  
	
  1.12

  	
  “Compulsory License”

  	
   

  	
  9

  
	
  1.13

  	
  “Confidential Information”

  	
   

  	
  9

  
	
  1.14

  	
  “Controlled”

  	
   

  	
  10

  
	
  1.15

  	
  “Cover”,
  “Covering” or “Covered”

  	
   

  	
  10

  
	
  1.16

  	
  “Development” or “Develop”

  	
   

  	
  10

  
	
  1.17

  	
  “Development Plan”

  	
   

  	
  10

  
	
  1.18

  	
  “Development Transfer Date

  	
   

  	
  10

  
	
  1.19

  	
  “EMEA”

  	
   

  	
  10

  
	
  1.20

  	
  “Existing Third Party Agreement(s)”

  	
   

  	
  11

  
	
  1.21

  	
  “FDA”

  	
   

  	
  11

  
	
  1.22

  	
  “Field”

  	
   

  	
  11

  
	
  1.23

  	
  “First Commercial Sale”

  	
   

  	
  11

  
	
  1.24

  	
  “Governmental Body”

  	
   

  	
  11

  
	
  1.25

  	
  “IND”

  	
   

  	
  11

  
	
  1.26

  	
  “Indication”

  	
   

  	
  11

  
	
  1.27

  	
  “Initial Development Period”

  	
   

  	
  12

  
	
  1.28

  	
  “Initiation”

  	
   

  	
  12

  
	
  1.29

  	
  “iSONEP”

  	
   

  	
  12

  
	
  1.30

  	
  “Know-How”

  	
   

  	
  12

  
	
  1.31

  	
  “Knowledge”

  	
   

  	
  12

  
	
  1.32

  	
  “Law” or “Laws”

  	
   

  	
  12

  
	
  1.33

  	
  “Licensed Product”

  	
   

  	
  12

  
	
  1.34

  	
  “Lpath Current Phase I Trial”

  	
   

  	
  13

  
	
  1.35

  	
  “Lpath Know-How”

  	
   

  	
  13

  
	
  1.36

  	
  “Lpath Materials”

  	
   

  	
  13

  
	
  1.37

  	
  “Lpath Patents”

  	
   

  	
  13

  
	
  1.38

  	
  “Lpath Technology”

  	
   

  	
  13

  
	
  1.39

  	
  “Major Market(s)”

  	
   

  	
  14

  
	
  1.40

  	
  “Major Market Countries in Europe”

  	
   

  	
  14

  

 

2

 

***CONFIDENTIAL PORTIONS
OF THIS AGREEMENT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION
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TABLE OF CONTENTS

(Continued)

 

	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  1.41

  	
  “Merck Competitor”

  	
   

  	
  14

  
	
  1.42

  	
  “NDA”

  	
   

  	
  14

  
	
  1.43

  	
  “NDA Acceptance”

  	
   

  	
  14

  
	
   

  	
  “Net Sales”

  	
   

  	
  14

  
	
  1.45

  	
  “Ocular Product”

  	
   

  	
  14

  
	
  1.46

  	
  “Out-of-Pocket Expenses”

  	
   

  	
  14

  
	
  1.47

  	
  “Patent Right”

  	
   

  	
  14

  
	
  1.48

  	
  “Person”

  	
   

  	
  15

  
	
  1.49

  	
  “Phase I Trial”

  	
   

  	
  15

  
	
  1.50

  	
  “Phase II Trial”

  	
   

  	
  15

  
	
  1.51

  	
  “Phase III Trial”

  	
   

  	
  15

  
	
  1.52

  	
  “Phase IV Studies”

  	
   

  	
  15

  
	
  1.53

  	
  “Price Approvals”

  	
   

  	
  15

  
	
  1.54

  	
  “Regulatory Authority”

  	
   

  	
  15

  
	
  1.55

  	
  “Regulatory Approval”

  	
   

  	
  15

  
	
  1.56

  	
  “Royalty Term”

  	
   

  	
  16

  
	
  1.57

  	
  “S1P”

  	
   

  	
  16

  
	
  1.58

  	
  “Sublicensee”

  	
   

  	
  16

  
	
  1.59

  	
  “Territory”

  	
   

  	
  16

  
	
  1.60

  	
  “Third Party”

  	
   

  	
  16

  
	
  1.61

  	
  “Third Party License Agreement”

  	
   

  	
  16

  
	
  1.62

  	
  “Transitional Development Costs”

  	
   

  	
  16

  
	
  1.63

  	
  “USD” or “$”

  	
   

  	
  16

  
	
  1.64

  	
  “Valid Claim”

  	
   

  	
  16

  
	
  1.65

  	
  Other Terms

  	
   

  	
  17

  
	
  1.66

  	
  Interpretation

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 2

  	
  LICENSES AND OTHER RIGHTS

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  2.1

  	
  Grant of License to Merck

  	
   

  	
  18

  
	
  2.2

  	
  Limited
  Lpath Rights; Existing Third Party Agreements

  	
   

  	
  18

  
	
  2.3

  	
  Sublicensing by Merck

  	
   

  	
  19

  
	
  2.4

  	
  Exclusivity

  	
   

  	
  19

  
	
  2.5

  	
  No Use
  for Ocular Indications; No Use for Other Products

  	
   

  	
  19

  
	
  2.6

  	
  Licenses to *** and ***

  	
   

  	
  20

  
	
  2.7

  	
  Right of First Negotiation

  	
   

  	
  20

  
	
  2.8

  	
  Right of First Refusal

  	
   

  	
  20

  
	
  2.9

  	
  Retained Rights; No Implied Rights

  	
   

  	
  22

  
	
  2.10

  	
  Patent Challenges

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 3

  	
  PRODUCT
  DEVELOPMENT AND COMMERCIALIZATION

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  3.1

  	
  Development during Initial
  Development Period and its Extension

  	
   

  	
  22

  

 

3

 

***CONFIDENTIAL PORTIONS
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TABLE OF CONTENTS

(Continued)

 

	
   

  	
   

  	
   

  	
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  3.2

  	
  Joint Steering Committee during
  Initial Development Period

  	
   

  	
  23

  
	
  3.3

  	
  Development Transfer Notice

  	
   

  	
  25

  
	
  3.4

  	
  Development upon Development
  Transfer Notice

  	
   

  	
  25

  
	
  3.5

  	
  Clinical
  Trial On-Going as of the Development Transfer Date

  	
   

  	
  26

  
	
  3.6

  	
  Reimbursement
  of Transitional Development Costs after Receipt of Development Transfer
  Notice

  	
   

  	
  27

  
	
  3.7

  	
  Technology Transfer

  	
   

  	
  27

  
	
  3.8

  	
  Manufacturing Technology Transfer;
  Purchase of Clinical Trial Supplies

  	
   

  	
  28

  
	
  3.9

  	
  Procedures
  for Technology Transfer

  	
   

  	
  28

  
	
  3.10

  	
  Lpath Support in the Development

  	
   

  	
  29

  
	
  3.11

  	
  *** of Licensed Products

  	
   

  	
  29

  
	
  3.12

  	
  Commercialization

  	
   

  	
  30

  
	
  3.13

  	
  Manufacturing and Supply

  	
   

  	
  30

  
	
  3.14

  	
  Diligence by Merck

  	
   

  	
  31

  
	
  3.15

  	
  Annual
  Reporting

  	
   

  	
  34

  
	
  3.16

  	
  Trademarks

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 4

  	
  REGULATORY
  MATTERS

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
  4.1

  	
  Regulatory
  Filings

  	
   

  	
  34

  
	
  4.2

  	
  Communications with Authorities

  	
   

  	
  35

  
	
  4.3

  	
  Adverse
  Event Reporting

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 5

  	
  FINANCIAL PROVISIONS

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  
	
  5.1

  	
  Initial Fee

  	
   

  	
  36

  
	
  5.2

  	
  Monthly Funding

  	
   

  	
  37

  
	
  5.3

  	
  Initial Development Period
  Milestone Payments

  	
   

  	
  37

  
	
  5.4

  	
  Development Transfer Fee

  	
   

  	
  38

  
	
  5.5

  	
  Unpaid Development Milestones and
  Unpaid Monthly Funding in Addition to Development Transfer Fee

  	
   

  	
  39

  
	
  5.6

  	
  Milestone Payments

  	
   

  	
  39

  
	
  5.7

  	
  Commercial Event Payments

  	
   

  	
  40

  
	
  5.8

  	
  Royalty Payments for Licensed
  Products

  	
   

  	
  41

  
	
  5.9

  	
  Existing Third Party License
  Agreements

  	
   

  	
  41

  
	
  5.10

  	
  *** Reimbursements

  	
   

  	
  42

  
	
  5.11

  	
  Timing of Payment

  	
   

  	
  42

  
	
  5.12

  	
  Payments, Currency and Invoicing

  	
   

  	
  42

  
	
  5.13

  	
  Royalty Reports and Records
  Retention

  	
   

  	
  43

  
	
  5.14

  	
  Legal Restrictions

  	
   

  	
  43

  
	
  5.15

  	
  *** Payments

  	
   

  	
  43

  
	
  5.16

  	
  Audits

  	
   

  	
  43

  
	
  5.17

  	
  Compulsory License

  	
   

  	
  44

  

 

4

 

***CONFIDENTIAL PORTIONS
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TABLE OF CONTENTS

(Continued)

 

	
   

  	
   

  	
   

  	
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  5.18

  	
  Taxes

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 6

  	
  INVENTIONS AND PATENTS

  	
   

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
  6.1

  	
  Certification
  Under Drug Price Competition and Patent Restoration Act

  	
   

  	
  45

  
	
  6.2

  	
  Listing
  of Patents

  	
   

  	
  45

  
	
  6.3

  	
  Title to Inventions

  	
   

  	
  45

  
	
  6.4

  	
  Further Assurances

  	
   

  	
  46

  
	
  6.5

  	
  Patent Prosecution and Maintenance

  	
   

  	
  46

  
	
  6.6

  	
  Enforcement of Patents

  	
   

  	
  48

  
	
  6.7

  	
  Third Party Actions Claiming
  Infringement

  	
   

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 7

  	
  CONFIDENTIALITY

  	
   

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
  7.1

  	
  Confidentiality Obligations

  	
   

  	
  51

  
	
  7.2

  	
  Publications

  	
   

  	
  52

  
	
  7.3

  	
  Press Releases and Disclosure

  	
   

  	
  54

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 8

  	
  REPRESENTATIONS,
  WARRANTIES AND COVENANTS

  	
   

  	
  55

  
	
   

  	
   

  	
   

  	
   

  
	
  8.1

  	
  Representations and Warranties of
  Both Parties

  	
   

  	
  55

  
	
  8.2

  	
  Additional Representations and
  Warranties of Lpath

  	
   

  	
  55

  
	
  8.3

  	
  Lpath Covenants

  	
   

  	
  57

  
	
  8.4

  	
  Merck’s Covenants

  	
   

  	
  58

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 9

  	
  INDEMNIFICATION AND INSURANCE

  	
   

  	
  58

  
	
   

  	
   

  	
   

  	
   

  
	
  9.1

  	
  Indemnification by Merck

  	
   

  	
  58

  
	
  9.2

  	
  Indemnification by Lpath

  	
   

  	
  59

  
	
  9.3

  	
  No Consequential Damages

  	
   

  	
  59

  
	
  9.4

  	
  Notification of Claims; Conditions
  to Indemnification Obligations

  	
   

  	
  60

  
	
  9.5

  	
  Insurance

  	
   

  	
  60

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 10

  	
  TERM AND TERMINATION

  	
   

  	
  60

  
	
   

  	
   

  	
   

  	
   

  
	
  10.1

  	
  Term and Expiration

  	
   

  	
  60

  
	
  10.2

  	
  ***

  	
  61

  
	
  10.3

  	
  Termination for No Delivery of
  Development Transfer Notice

  	
   

  	
  61

  
	
  10.4

  	
  ***

  	
  61

  
	
  10.5

  	
  Termination upon Material Breach

  	
   

  	
  61

  
	
  10.6

  	
  Competing Product Acquisition

  	
   

  	
  62

  
	
  10.7

  	
  General Effects of Termination or
  Expiration

  	
   

  	
  62

  
	
  10.8

  	
  Specific Effects of Termination ***
  by Lpath pursuant to Section 10.5

  	
   

  	
  63

  
	
  10.9

  	
  Specific Effects of Termination ***

  	
   

  	
  63

  
	
  10.10

  	
  Partial Termination Under Section 10.4
  Pursuant to Section 3.14(b)

  	
   

  	
  63

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 11

  	
  DISPUTE RESOLUTION

  	
   

  	
  63

  
					

 

5

 

***CONFIDENTIAL PORTIONS
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TABLE OF CONTENTS

(Continued)

 

	
   

  	
   

  	
   

  	
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  11.1

  	
  Disputes

  	
   

  	
  63

  
	
  11.2

  	
  Escalation to Executive Officers

  	
   

  	
  64

  
	
  11.3

  	
  Arbitration

  	
   

  	
  64

  
	
  11.4

  	
  Expedited Arbitration for Certain
  Matters

  	
   

  	
  64

  
	
  11.5

  	
  Provisional Remedies

  	
   

  	
  65

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 12

  	
  MISCELLANEOUS PROVISIONS

  	
   

  	
  66

  
	
   

  	
   

  	
   

  	
   

  
	
  12.1

  	
  Relationship of the Parties

  	
   

  	
  66

  
	
  12.2

  	
  Assignment

  	
   

  	
  66

  
	
  12.3

  	
  Performance by Affiliates

  	
   

  	
  66

  
	
  12.4

  	
  Protection under
  Section 365(n) US Bankruptcy Code

  	
   

  	
  66

  
	
  12.5

  	
  Change of
  Control

  	
   

  	
  67

  
	
  12.6

  	
  Further Actions

  	
   

  	
  67

  
	
  12.7

  	
  Accounting Procedures

  	
   

  	
  67

  
	
  12.8

  	
  Force Majeure

  	
   

  	
  67

  
	
  12.9

  	
  No Trademark Rights

  	
   

  	
  67

  
	
  12.10

  	
  Entire Agreement of the Parties;
  Amendments

  	
   

  	
  68

  
	
  12.11

  	
  Captions

  	
   

  	
  68

  
	
  12.12

  	
  Governing Law

  	
   

  	
  68

  
	
  12.13

  	
  Notices and Deliveries

  	
   

  	
  68

  
	
  12.14

  	
  Waiver

  	
   

  	
  69

  
	
  12.15

  	
  Rights of Third Parties

  	
   

  	
  69

  
	
  12.16

  	
  Severability

  	
   

  	
  69

  
	
  12.17

  	
  Counterparts

  	
   

  	
  69

  

 

6

 

***CONFIDENTIAL PORTIONS
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LICENSE
AGREEMENT

 

THIS LICENSE AGREEMENT (the “Agreement”) is dated as of October 28, 2008 (the “Effective
Date”) by and between Lpath, Inc.,
a corporation organized under the laws of Nevada having its place of business
at 6335 Ferris Square, Suite A, San Diego, California, United States of
America (“Lpath”), and MERCK KGaA,
a general partnership limited by shares organized under German law having a
place of business at Frankfurter Strasse 250, 64293 Darmstadt, Germany (“Merck”).
Lpath and Merck may each be referred to herein as a “Party” or, collectively,
as “Parties.”

 

RECITALS:

 

WHEREAS,
Lpath is a pharmaceutical company engaged in the discovery and development of
the Compound (as hereinafter defined) and pharmaceutical products comprising
the Compound (including Licensed Products, as hereinafter defined);

 

WHEREAS,
Merck, through its Merck Serono division and its Affiliates (as hereinafter
defined) is engaged in the research, development and commercialization of
pharmaceuticals products, and Merck is interested in developing and
commercializing Licensed Products comprising the Compound in the Field (as
hereinafter defined); and

 

WHEREAS,
Merck desires to license from Lpath and Lpath wishes to license to Merck, on an
exclusive, worldwide basis, the right to develop and commercialize Licensed
Products comprising the Compound for Indications (as hereinafter defined) and
therapeutic areas in the Field.

 

NOW, THEREFORE,
in consideration of the various promises and undertakings set forth herein, the
Parties agree as follows:

 

ARTICLE 1

DEFINITIONS

 

Unless otherwise
specifically provided herein, the following terms shall have the following
meanings:

 

1.1                                “Adverse Event”
means any serious untoward medical occurrence in a patient or subject who is
administered a Licensed Product or Compound, but only if and to the extent that
such serious untoward medical occurrence is required under applicable Laws to
be reported to the FDA or any other Regulatory Authority.

 

1.2                                “Affiliate” shall mean, in relation to any Party, any
Person who directly or indirectly controls, is controlled by, or is under
common control with, such Party.  For
purposes of this definition of Affiliate, “control” means: (a) ownership
of

 

7

 

***CONFIDENTIAL PORTIONS
OF THIS AGREEMENT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

 

more than *** of the voting rights, shares or other equity interest of
the applicable entity; and/or (b) the power to direct or cause direction
of all aspects of the management and policies of the applicable entity (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise).

 

1.3                                “Calendar Quarter” means each three (3) month period
commencing January 1, April 1, July 1 or October 1.

 

1.4                                “Calendar Year” means the period beginning on the 1st of January and ending on
the 31st of December of
the same year.

 

1.5                                “Clinical Trial” means a clinical trial in human subjects that
has been approved by a Regulatory Authority and is designed to measure the
safety and/or efficacy of a Licensed Product. 
Clinical Trials shall include Phase I Trials, Phase II Trials and Phase
III Trials.

 

1.6                                “Change of
Control” means  (a) a
transaction or series of related transactions that results in the sale or other
disposition of all or substantially all of a Party’s assets; or (b) a
merger or consolidation in which a Party is not the surviving corporation or in
which, if a Party is the surviving corporation, the shareholders of such Party
immediately prior to the consummation of such merger or consolidation do not,
immediately after consummation of such merger or consolidation, own stock or
other securities of the Party that possess a majority of the voting power of
all of the Party’s outstanding stock and other securities and the power to
elect a majority of the members of the Party’s board of directors; or (c) a
transaction or series of related transactions (which may include without
limitation a tender offer for a Party’s stock or the issuance, sale or exchange
of stock of a Party) if the shareholders of such Party immediately prior to the
initial such transaction do not, immediately after consummation of such
transaction or any of such related transactions, own stock or other securities
of the Party that possess a majority of the voting power of all of the Party’s
outstanding stock and other securities and the power to elect a majority of the
members of the Party’s board of directors; provided,
that a Change of Control excludes (A) any transaction (or series of
related transactions) in which the pre-transaction stockholders of the
applicable Party own more than 50% of the outstanding capital stock or equity
interests of the surviving or acquiring entity or its parent, and (B) bona
fide equity financings of Lpath by financial investors (i.e., by investors that
are not pharmaceutical companies).

 

1.7                                “*** Product” means a product containing the Licensed
Product together with ***.

 

1.8                                “Commercialization” or “Commercialize”
means any and all activities
undertaken after Regulatory Approval of an NDA for a particular Licensed

 

8

 

***CONFIDENTIAL PORTIONS
OF THIS AGREEMENT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

 

Product
and that relate to the marketing, promoting, distributing, importing for sale,
offering for sale, and selling of the Licensed Product, and interacting with
Regulatory Authorities regarding the foregoing. 
Commercialization shall also include Phase IV Studies.

 

1.9                                “Commercially Reasonable Efforts”
means, (a) with respect
to the efforts to be expended by any Party with respect to any objective, such
reasonable, diligent, and good faith efforts as such Party would normally use
to accomplish a similar objective under similar circumstances, and (b) with
respect to any objective relating to Development or Commercialization of a
Licensed Product by Merck, the application by Merck, consistent with the
exercise of its prudent scientific and business judgment, of diligent efforts
and resources to fulfill the obligation in issue, consistent with the level of
efforts Merck would devote to a product at a similar stage in its product life
as the Licensed Product and having profit potential and strategic value
comparable to that of the Licensed Product, taking into account the following
factors: scientific, development, technical, commercial and regulatory factors,
target product profiles, product labeling, past performance, the regulatory
environment and competitive market conditions in the therapeutic area safety
and efficacy of a subject product, and the strength of its proprietary
position, all based on conditions then prevailing. Commercially Reasonable
Efforts will not mean that Merck commits that it will actually accomplish the
applicable task.

 

1.10                          “Competing Product”
means, with respect to Licensed Product, any therapeutic agent, whether a
chemical or a biological entity, that ***. Notwithstanding the foregoing, the
Parties agree that iSONEPTM and other Ocular Products, and products outside the
Field, for purposes of this Agreement shall not be considered Competing
Products.

 

1.11                          “Compound” means (a) sonepcizumab, a humanized
monoclonal antibody having the sequence described in Schedule 1.11
in any formulation, (b) any human, murine, chimera
or other version thereof), and/or (c) any modification, derivative, fragment or any conjugate of the
compounds set forth in clauses (a) and (b) above, in each case which
binds with, and scavenges or otherwise modulates the activity of, S1P.

 

1.12                          “Compulsory License”
means a compulsory license under Lpath Technology obtained by a Third Party
through the order, decree, or grant of a competent Governmental Body or court,
authorizing such Third Party to develop, make, have made, use, sell, offer to
sell or import a Competing Product or Licensed Product in any country in the
Field in the Territory.

 

1.13                          “Confidential Information” of a Party means such Party’s confidential
information relating to its business, operations and products, including but
not limited to, any technical information, Know-How, trade secrets, or
inventions 

 

9

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.

 

(whether patentable or not)
that it discloses to the other Party under this Agreement.

 

1.14                          “Controlled” means, with respect to (a) Patent
Rights, (b) Know-How or (c) biological, chemical or physical
material, that the Party or one of its Affiliates owns or has a license or
sublicense to such right, item, or material (and additionally, in the case of
material, has the right to physical possession of such material) and has the
ability to grant a license or sublicense to such right, item or material as
provided for in this Agreement without:  (i) violating
the terms of any agreement or other arrangement with any Third Party; or
(ii) the granting Party being required (except in the case of the Existing
Third Party Agreement) to pay royalties or any other consideration to any Third
Party that would not have been required to be paid by the granting Party to
such Third Party had the right or license not been provided to the other Party
under this Agreement, unless the Party receiving the license or sublicense
hereunder agrees in writing to bear all such payment obligations to such Third
Party. 
It is understood and agreed that such reimbursements shall be taken into
account for purposes of Section 5.10(a).

 

1.15                          “Cover”, “Covering” or “Covered” means, with respect to a Licensed
Product, that the using, selling, or offering for sale of such Licensed Product
would, but for ownership of, or a license granted under this Agreement to the
relevant Patent Rights, infringe a Valid Claim of the relevant Patent Rights in
the country in which the activity occurs.

 

1.16                          “Development” or “Develop” means, with respect
to a Licensed Product, the performance of all pre-clinical and clinical
development (including, without limitation, toxicology, pharmacology, test
method development and stability testing, process development, formulation
development, quality control development, statistical analysis, Clinical Trials
(excluding Clinical Trials post-Regulatory Approval of an NDA for the
applicable Licensed Product), and manufacturing and regulatory activities that
are required to obtain Regulatory Approval of such Licensed Product in the
Territory under this Agreement.

 

1.17                          “Development Plan” means the outline of the development plan
for Licensed Product attached to this Agreement as Schedule 1.17, or a
modified or amended version of such development plan as permitted herein.

 

1.18                          “Development Transfer Date” shall mean the first date on
which Merck has (on or before such date): (i) delivered to Lpath a
Development Transfer Notice in accordance with this Agreement; (ii) made
payment of the first installment of the development transfer fee in accordance
with Section 5.4(a) herein; and (iii) made payment of any unpaid
Development Milestone and any unpaid monthly funding in accordance with Section 5.5
herein.

 

1.19                          “EMEA” means the European Medicines Agency or any
successor agency.

 

10

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.

 

1.20                          “Existing Third Party
Agreement(s)” means the Agreement(s) set
forth on Schedule 1.20 hereto.

 

1.21                          “FDA” means the United States Food and Drug
Administration, or a successor federal agency thereto.

 

1.22                          “Field” means all *** uses for any human *** disease
or condition; provided, however,
that the Field shall exclude (x) all *** uses for any human *** ocular
Indications and (y) all non-in-vivo
diagnostic uses for any human*** cardiovascular Indication.

 

1.23                          “First Commercial Sale” means, with respect to a Licensed Product in
any country, the first commercial transfer, or disposition, for value of such
Licensed Product in such country to a Third Party by Merck, an Affiliate of
Merck or a Sublicensee, after all Regulatory Approvals for an NDA (or other
applicable approvals in the case of Licensed Products for diagnostic uses in
the Field) have been obtained in such country.

 

1.24                          “Governmental Body” means any: (a) nation, principality,
state, commonwealth, province, territory, county, municipality, district or
other jurisdiction of any nature; (b) federal, state, local, municipal,
foreign or other government; (c) governmental or quasi-governmental
authority of any nature (including any governmental division, subdivision,
department, agency, bureau, branch, office, commission, council, board,
instrumentality, officer, official, representative, organization, unit, body or
entity and any court or other tribunal); (d) multi-national or
supranational organization or body; or (e) individual, entity, or body
exercising, or entitled to exercise, any executive, legislative, judicial,
administrative, regulatory, police, military or taxing authority or power of
any nature.

 

1.25                          “IND” means an investigational new drug application
filed with the FDA or the equivalent application or filing filed with any
equivalent agency or Governmental Body outside the United States (including any
supra-national entity such as in the European Union) for approval to commence
Clinical Trials in such jurisdiction, and including all regulations at 21 CFR §
312 et. seq. and equivalent foreign regulations.

 

1.26                          “Indication” means a generally acknowledged disease or
condition, a significant manifestation of a disease or condition, or symptoms
associated with a disease or condition or a risk for a disease or
condition.  For the avoidance of doubt,
all variants of a single disease or condition (whether classified by severity
or otherwise) shall be treated as the same Indication.  Notwithstanding the foregoing and only with
respect to non-diagnostic oncology-related milestone payments set forth in Section 5.6.1,
“Indication” as used in the table of Section 5.6.1 shall mean

 

11

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.

 

a
specific disease indication differentiated by tumor types (as opposed to
different labels within the same tumor types).

 

1.27                          “Initial Development Period” means the period of twelve (12) months from
the Effective Date, together with any extension thereof.

 

1.28                          “Initiation” of a Clinical Trial means the
***dosing***patient*** such Clinical Trial.

 

1.29                          “iSONEP” means
the ocular formulation of sonepcizumab which Lpath is developing, as of the
Effective Date, for ocular Indications under the trademark iSONEPTM.

 

1.30                          “Know-How” means any scientific or technical
information, results and data of any type whatsoever, in any tangible or
intangible form whatsoever, that is not in the public domain or otherwise
publicly known, including, without limitation, discoveries, inventions, trade
secrets, databases, practices, protocols, regulatory filings, methods,
processes, techniques, biological and other materials, reagents,
specifications, formulations, formulae, data (including pharmacological,
biological, chemical, toxicological and clinical information) analytical,
quality control, and stability data, studies and procedures), and manufacturing
process and development information, results and data, whether or not
patentable, all to the extent not claimed or disclosed in a patent.  “Know How”
excludes Patent Rights.

 

1.31                          “Knowledge” means, with respect to a matter that is the
subject of a given representation, or warranty of Lpath, the knowledge,
information or belief that any officer or director of Lpath, or such other
employee of Lpath who would reasonably be expected to have knowledge of the
matter in question, has, or should reasonably be expected to have, with respect
to the relevant subject matter. “Knowingly”
means with Knowledge.

 

1.32                          “Law” or “Laws” means all applicable laws, statutes, rules,
regulations, ordinances and other pronouncements having the binding effect of
law of any Governmental Body.

 

1.33                          “Licensed Product” means any pharmaceutical product (including
without limitation any diagnostic product) containing or comprising the
Compound in any formulation designed and intended for use in and for the
Field.  For clarity, Licensed Product
shall exclude (a) any pharmaceutical product (including pharmaceutical
products comprising sonepcizumab) in a
formulation designed and intended for use with respect to human *** ocular Indications and (b) any
diagnostic product outside the Field.

 

12

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.

 

1.34                          “Lpath Current Phase I Trial” means the Phase I Trial that Lpath is
conducting as of the Effective Date, a Phase I Trial with the number LT1009-ONC-001,
and the title “A Multicenter Open Label Single Arm Phase I Dose Escalation
Study of ASONEP (sonepcizumab-LT1009) Administered as a Single Agent Weekly to
Subjects with Refractory Advanced Solid Tumors”, or modifications or amendments
thereto in accordance with the Development Plan then in effect.

 

1.35                          “Lpath Know-How” means all Know-How that is (i) Controlled
by Lpath as of the Effective Date or thereafter during the Initial Development
Period and is necessary or useful, and (ii) Controlled by Lpath after the
termination of the Initial Development Period, but during the Term of this
Agreement that is reasonably necessary, in the research, Development,
manufacture, use, or Commercialization of the Licensed Products as such
Licensed Products exist at the termination of the Initial Development Period.

 

1.36                          “Lpath Materials” means all chemical, biological or physical
materials Controlled by Lpath as of the Effective Date or thereafter during the
Initial Development Period which are necessary or useful in the research and
Development of the Licensed Products as such Licensed Products exist at the
termination of the Initial Development Period.

 

1.37                          “Lpath Patents” means the Patent Rights set forth on Schedule
1.37 hereto and all other Patent Rights that are (i) Controlled by
Lpath as of the Effective Date or during the Initial Development Period and
that are necessary or useful for the manufacture, use, or sale of the Licensed
Products in and for the Field or (ii) Controlled by Lpath after the
termination of the Initial Development Period, but during the Term of this
Agreement, that are reasonably necessary for the manufacture, use, or sale of
Licensed Products in and for the Field, as such Licensed Products are
manufactured and formulated by Lpath as of the end of the Initial Development
Period.  To the Knowledge of Lpath, The
Patent Rights set forth on Schedule 1.37 constitute all such Patent
Rights Controlled by Lpath as of the Effective Date.

 

1.38                          “Lpath Technology” means the Lpath Patents, the Lpath Know-How
and the Lpath Materials.  In the
event that Lpath undergoes a Change of Control, then: (a) Lpath Technology
shall continue to include all Lpath Technology Controlled by Lpath immediately
prior to such Change of Control, (b) Lpath Technology shall not include or
be deemed to include any Patent Rights or other intellectual property rights
owned or Controlled by the entity acquiring Lpath (the “Acquirer”) or any
Affiliate of Acquirer prior to such Change of Control, or thereafter developed
or made by Acquirer or its Affiliates independently of Merck, except to the
extent claiming (X) the composition of matter of any Compound Developed by
Lpath prior to, or during, the Initial Development Period and/or (Y) the
use of Licensed Product(s) in the Field.

 

13

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.

 

1.39                          “Major Market(s)” means any of *** and ***.

 

1.40                          “Major Market Countries ***” means *** and ***.

 

1.41                          “Merck Competitor” means any company that (itself or through an
Affiliate) markets or sells any antibody product
that binds to, and scavenges or otherwise modulates the activity of, S1P, or any other product that binds to, and
scavenges or otherwise modulates, S1P, which antibody product or other product
is, or could reasonably be expected to be (taking into account applicable
labeling and regulatory approvals), in competition with any Licensed Product for
non-diagnostic uses in the Field.

 

1.42                          “NDA” means a New Drug Application filed pursuant
to the requirements of the FDA, as more fully defined in 21 CFR.§ 314.3 et
seq, a Biologics License Application filed pursuant to the requirements of the
FDA, as more fully defined in 21 CFR § 601, and any equivalent application
filed in any country in the Territory, together, in each case, with all
additions, deletions or supplements thereto.

 

1.43                          “NDA Acceptance” means the receipt of notice from the relevant
Regulatory Authority that an NDA for the Licensed Product has met all the
criteria for filing acceptance.

 

“Net Sales” means the ***If a Licensed Product is sold in
the form of ***then for the purpose of calculating royalties owed under this
Agreement on sales of the Combination Product, Net Sales shall be ***

 

1.45                          “Ocular Product” means iSONEP and any other pharmaceutical
product containing or comprising the Compound that is formulated and intended
for use for ocular Indications.

 

1.46                          “Out-of-Pocket
Expenses” means expenses actually paid by Lpath to any Third Party
which is either (i) not an Affiliate of Lpath, or (ii) is an
Affiliate of Lpath where such payment is limited to reimbursing such Affiliate
with such expenses actually paid by such Affiliate to a Third Party which is
not an Affiliate

 

1.47                          “Patent Right” means: (a) an issued or granted patent,
including any extension, supplemental protection certificate, registration,
confirmation, reissue, reexamination, extension or renewal thereof; (b) a
pending patent application, including any continuation, divisional,
continuation-in-part, substitute or provisional application thereof; and (c) all
counterparts or foreign equivalents of any of the foregoing issued by or filed
in any country or other jurisdiction.

 

14

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.

 

1.48                          “Person” means any natural person, corporation, firm,
business trust, joint venture, association, organization, company, partnership
or other business entity, or any government or agency or political subdivision
thereof.

 

1.49                           “Phase I Trial” means a clinical trial in which the
Licensed Product is administered to human subjects (which may include multiple
dose levels) with the primary purpose of determining safety, metabolism, and
pharmacokinetic and pharmacodynamic properties of the Licensed Product, and
consistent with 21 CFR § 312.21(a).

 

1.50                          “Phase II Trial” means a clinical trial of the Licensed
Product in human patients, the principal purposes of which are to make a
preliminary determination that the Licensed Product is safe for its intended
use, to determine its optimal dose, and to obtain sufficient information about
the Licensed Product’s efficacy to permit the design of Phase III Trials, and
consistent with 21 CFR 312.21(b).

 

1.51                          “Phase III Trial” means a human clinical trial of the Licensed
Product, which trial is designed (a) to establish that the Licensed
Product is safe and efficacious for its intended use; (b) to define
warnings, precautions and adverse reactions that are associated with the
Licensed Product in the dosage range to be prescribed; and (c) consistent
with 21 CFR § 312.21(c).

 

1.52                          “Phase IV Studies” means a study or data collection effort for
the Licensed Product that is initiated in the Territory after receipt of
Regulatory Approval for the Licensed Product.

 

1.53                          “Price Approvals” means in those countries in the Territory
where Regulatory Authorities may approve or determine pricing and/or pricing
reimbursement for pharmaceutical products, such approval or determination.

 

1.54                          “Regulatory Authority” means (a) the FDA, (b) the EMEA or
the European Commission, or (c) any regulatory body with similar
regulatory authority over pharmaceutical or biotechnology products in any other
jurisdiction anywhere in the world.

 

1.55                          “Regulatory Approval” means, with respect to a given Licensed
Product, any and all approvals, licenses, registrations, or authorizations of
the relevant Regulatory Authority (including Price Approvals), necessary for
the Development and/or Commercialization of such Licensed Product in a
particular country or jurisdiction.  For
the avoidance of doubt, Regulatory Approval in the United States shall be
deemed to occur upon approval of the applicable NDA (as defined above) in the
United States, and shall not be construed to require a determination or
approval of reimbursements by government-funded programs such as, for example,
Medicare reimbursements, VA reimbursements, and the like.

 

15

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.

 

1.56                          “Royalty Term” means, on a Licensed Product-by-Licensed
Product and country-by-country basis, the period from the First Commercial Sale
of a Licensed Product until the latest of (a) the last date on which the
Licensed Product is Covered by a Valid Claim within the Lpath Patents in such
country, and (b) ten (10) years after First Commercial Sale of such
Licensed Product in such country.

 

1.57                          “S1P” means the target sphingosine-1-phosphate.

 

1.58                          ***.

 

1.59                          “Territory” means all countries of the world.

 

1.60                          “Third Party” means any Person other than Lpath, Merck or
Affiliates of either of them***.

 

1.61                          “Third Party License Agreement” means any agreement entered into with a Third
Party, by Merck or its Affiliates ***, or any amendment or supplement thereto,
whereby royalties, fees or other payments are to be made to the Third Party in
connection with the grant of rights under
intellectual property rights owned or Controlled by a Third Party that are
necessary for, or used in, the manufacture, use or sale a Licensed Product.

 

1.62                          “Transitional  Development Costs” means Lpath’s reasonable
Out-of-Pocket Expenses incurred by Lpath after the Development Transfer Date
that are directly and solely attributable to the achievement of work or activities
performed by or on behalf of Lpath after the Development Transfer Date toward
the completion of the On-Going Trial.

 

1.63                          “USD” or “$” means the lawful currency of the United
States of America.

 

1.64                          “Valid
Claim” means a claim of an issued and unexpired patent that has not
lapsed or been revoked, abandoned or held unenforceable or invalid by a final
decision of a court or governmental or supra-governmental agency of competent
jurisdiction, unappealable or unappealed within the time allowed for appeal,
and which has not been disclaimed, denied or admitted to be invalid or
unenforceable through reissue, reexamination or disclaimer or otherwise.

 

16

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.

 

1.65                          Other Terms.  The definition of each of the following terms is set forth in the
section of the Agreement indicated below:

 

	
  Term

  	
   

  	
  Section Defined

  
	
  “Adverse
  Experience”

  	
   

  	
  4.3(a)

  
	
  “Affected Area”

  	
   

  	
  10.10

  
	
  “Agreement”

  	
   

  	
  preamble

  
	
  “Asia”

  	
   

  	
  3.14(b)(3)

  
	
  “Aeres Agreement”

  	
   

  	
  2.2(b)

  
	
  “Aeres IP”

  	
   

  	
  2.2(b)

  
	
  “Cease”

  	
   

  	
  3.14(b)(2)

  
	
  “Controlling Party”

  	
   

  	
  6.7(c)

  
	
  “Core Countries”

  	
   

  	
  6.5(a)

  
	
  “Development Milestone 1,”

  	
   

  	
  5.3

  
	
  “Development Milestone 2,”

  	
   

  	
  5.3

  
	
  “Development Milestone 3,”

  	
   

  	
  5.3

  
	
  “Development Milestone 4”

  	
   

  	
  5.3

  
	
  “Development Support”

  	
   

  	
  3.10

  
	
  “Development Transfer
  Notice”

  	
   

  	
  3.3

  
	
  “Enforcement Action”

  	
   

  	
  6.6(a)

  
	
  “Europe”

  	
   

  	
  3.14(b)(3)

  
	
  “Executive Officers”

  	
   

  	
  11.2

  
	
  “Existing Product”

  	
   

  	
  5.3

  
	
  “Infringing Activities”

  	
   

  	
  6.6(a)

  
	
  “Initiate” and
  “Initiating”

  	
   

  	
  6.6(a)

  
	
  “Inventions”

  	
   

  	
  6.3(b)

  
	
  “***”

  	
   

  	
  6.3(b)

  
	
  “***”

  	
   

  	
  6.5(d)

  
	
  “Joint Steering
  Committee”; “JSC”

  	
   

  	
  3.2

  
	
  “Lpath”

  	
   

  	
  preamble

  
	
  “Lpath ***”

  	
   

  	
  3.11(b)

  
	
  “Lpath Indemnitees”

  	
   

  	
  9.1

  
	
  “Lpath Pipeline Product”

  	
   

  	
  2.7

  
	
  “Manufacturing Support”

  	
   

  	
  3.13

  
	
  “Manufacturing Technology Transfer”

  	
   

  	
  3.8

  
	
  “Manufacturing Technology Transfer Plan”

  	
   

  	
  3.8

  
	
  “Marks”

  	
   

  	
  3.16

  
	
  “Merck”

  	
   

  	
  preamble

  
	
  “Merck Indemnitees”

  	
   

  	
  9.2

  
	
  “Merck Trial
  Monitor”

  	
   

  	
  3.5

  
	
  “Negotiation Notice”

  	
   

  	
  2.7

  
	
  “Negotiation Right Term”

  	
   

  	
  2.7

  
	
  “North America”

  	
   

  	
  3.14(b)(3)

  
	
  “On-Going Trial”

  	
   

  	
  3.5

  
	
  “Party”; “Parties”

  	
   

  	
  preamble

  
	
  “Patent Challenge”

  	
   

  	
  2.10

  
	
  “Proposed Agreement”

  	
   

  	
  2.8

  
	
  “Prosecuting Party”

  	
   

  	
  6.5(d)

  
	
  “Prosecution and
  Maintenance”

  	
   

  	
  6.5(a)

  
	
  “Refusal Right Termination
  Date”

  	
   

  	
  2.8

  
	
  “North America”

  	
   

  	
  3.14(b)(3)

  
	
  “Resulting Product”

  	
   

  	
  5.3

  
	
  “Serious Adverse
  Experience”

  	
   

  	
  4.3(b)

  
	
  “Support”

  	
   

  	
  2.10

  
	
  “Technology
  Transfer Plan”

  	
   

  	
  3.7

  
	
  “Term”

  	
   

  	
  10.1

  
	
  “Third Party Action”

  	
   

  	
  6.7(a)

  

 

17

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.

 

1.66                          Interpretation.  The
captions and headings to this Agreement are for convenience only, and are to be
of no force or effect in construing or interpreting any of the provisions of
this Agreement.  Unless specified to the
contrary, references to Articles, Sections or Exhibits mean the particular
Articles, Sections or Exhibits to this Agreement and references to this Agreement
include all Exhibits hereto.  Unless
context otherwise clearly requires, whenever used in this Agreement:  (i) “include” or “including” shall be
construed as if followed by the words “but not limited to” or “without
limitation” or words of similar import; (ii) the word “or” shall be
construed as the inclusive meaning identified with the phrase “and/or;” (iii) provisions that require that a
Party, the Parties or any committee or team hereunder “agree,” “consent” or “approve”
or the like shall require that such agreement, consent or approval be specific
and in writing, whether by written agreement, letter, written approval of
minutes or otherwise; and (iv) references to any specific Law or article,
section or other division thereof shall be deemed to include the then-current
amendments thereto or any replacement Law thereof.  This Agreement was prepared in the English
language, which language shall govern the interpretation of, and any dispute
regarding, the terms of this Agreement.

 

ARTICLE 2

LICENSES AND OTHER RIGHTS

 

2.1                                Grant of License to Merck. Subject to the terms and conditions of this
Agreement, Lpath hereby grants to Merck an exclusive (even as to Lpath, other
than for activities to be conducted by Lpath under this Agreement), worldwide,
royalty-bearing license and sublicense, as applicable, (with the right to
sublicense subject to the provisions of Section 2.3) under the Lpath Technology
to research, Develop, make, have made, import, export, use and Commercialize
Licensed Products solely in and for the Field in the Territory.

 

2.2                                Limited Lpath Rights; Existing Third Party Agreements.

 

(a)          It is understood and
agreed that with respect to any aspect of the Lpath Technology for which Lpath
has less than fully exclusive, worldwide rights (i.e., co-exclusive,
non-exclusive, limited territorial and/or otherwise restricted rights), the
license provided in Section 2.1 shall be limited to the scope of those
rights that Lpath and/or its Affiliates Controls and has the right to
sublicense to Merck.

 

18

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.

 

(b)         With respect to the
Patent Rights and other rights that are licensed or conveyed to Lpath under the
Existing Third Party Agreements and sublicensed to Merck hereunder, it is
understood and agreed that the terms of this Agreement shall be subject and
subordinate to the terms and provisions of the applicable Existing Third Party
Agreement, including Section 4.8 of the Research Collaboration Agreement
between Aeres Biomedical Limited (“Aeres”) and Lpath dated August 2, 2005
(the “Aeres Agreement”).

 

2.3                                *** Merck. 
Merck shall have the right to grant sublicenses subject to the following
conditions:

 

***

 

2.4                                Exclusivity.  In
partial consideration for the licenses and rights conveyed herein, each Party
covenants, on its own behalf and on behalf of its Affiliates, not to develop, make, have made, sell, or have sold, during
the Term of this Agreement, any antibody product that, *** nor enter into any
relationship with any Third Party with respect to such activities, except as
such activities relate to the Development and Commercialization with respect to
Compound and Licensed Product pursuant to this Agreement; provided,
however, that nothing herein shall
prevent Lpath and its Affiliates and its Third Party licensees from
researching, Developing, manufacturing, distributing, marketing, selling or
otherwise Commercializing Ocular Products (including the drug known as of the
Effective Date as iSONEPTM, or other Ocular Products comprising sonepcizumab),
or other products containing Compounds, in each case for use outside the Field
in any country of the Territory, or from licensing one or more Third Parties to
do the same.  As used herein, “antibody
product” includes any ***.  The
aforementioned restrictions (i) shall remain in effect in the event of a
Change of Control of Lpath involving a Merck Competitor, but shall not apply
with respect to any Competing Product described in Section 10.6 which
Lpath elects to retain (and does not discontinue and cease development),
subject to the terms and conditions set forth in Section 10.6, and (ii) shall
otherwise apply to any successor to, or assignee of, either Party.

 

2.5                                 No Use for Ocular Indications; No Use for Other Products.  Merck covenants and agrees that Merck and its
Affiliates and Sublicensees shall not, during the Term of this Agreement,
Develop or Commercialize any ocular formulation of any Compound or Licensed
Product for use outside the Field, including for ocular Indications, and shall
not seek Regulatory Approval of any Compound or Licensed Product for treatment,
prevention or palliation of ocular Indications.

 

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CONFIDENTIAL TREATMENT.

 

Merck and its Affiliates
shall not Develop or Commercialize (or license or authorize any Third Party to
Develop or Commercialize) any Compound other than as a Licensed Product in the
Field pursuant to the terms and conditions of this Agreement.

 

2.6                                Licenses to *** and ***.  For
the avoidance of doubt, the license to Merck under the Lpath Technology set forth
in Section 2.1 includes a license under ***.  *** hereby grants to *** an ***, to practice
any and *** *** to research, Develop, make, have made, import, export, use and
Commercialize Ocular Products and other products containing Compounds, in each
case outside the Field.

 

2.7                                Right of First
Negotiation.  In the event that Merck (a) delivers a
Development Transfer Notice to Lpath and (b) makes the corresponding
payments to Lpath, all in accordance with the timelines and provisions of this
Agreement, then Lpath shall grant to Merck, for a period of *** from delivery
of the Development Transfer Notice (the “Negotiation
Right Term”), an exclusive right of first negotiation to acquire an
*** license under Lpath’s Patent Rights and Know-How to develop, make, have
made, import, export, use, offer for sale and sell products comprising Lpath’s
next most advanced antibody product (exclusive of any Ocular Product) that is
Controlled by Lpath within Lpath’s development pipeline for (among other
Indications) oncology (the “Lpath Pipeline
Product”), as follows:  (i) Lpath
will provide notice (a “Negotiation Notice”)
before it enters into term sheet stage negotiations with a Third Party during
the Negotiation Right Term with respect to the Lpath Pipeline Product, and in
such event within *** the Parties shall commence negotiations, unless Merck
notifies Lpath that Merck does not wish to enter into such negotiations; (ii) such
negotiations shall continue for up to *** following the Negotiation Notice, or
such longer period as the Parties may agree; (iii) if Lpath and Merck do
not reach agreement within such *** period, or such longer period as the
Parties may agree, Lpath’s obligations under this Section 2.7 shall
terminate, and Lpath may thereafter enter into any agreement with any Third
Party with respect to development, manufacture and commercialization of the
Lpath Pipeline Product, or pursue such product itself, without further
obligation to Merck under this Section 2.7.  For clarity, and notwithstanding the
foregoing, the right of first negotiation set forth in this Section 2.7
shall not apply with respect to any antibody, molecule or product with respect
to which Lpath or its Affiliate has granted any Third Party an option, license
or other right to commercialize, or to obtain commercial rights, prior to the
Development Transfer Date.

 

2.8                                Right of First Refusal.  In the event that (a) Merck has paid to Lpath under this Agreement
an amount equal to or greater than USD ***($***), and (b) the Agreement
terminates pursuant to Section 10.3 for Merck’s failure to deliver a
Development Transfer Notice, or pursuant to Section 10.2 prior to the end
of the Initial Development Period, and (c) the reason for such termination
is (1) failure

 

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CONFIDENTIAL TREATMENT.

 

to
achieve one or more of the Development Milestones described in Section 5.3,
or (2) that the Licensed Product otherwise fails in clinical development
such that moving the Licensed Product forward into Phase II clinical
development is not viable, then Merck shall have, for a period of *** following
termination (the “Refusal Right Termination
Date”), a right of first refusal to the Lpath Pipeline Product.  The Parties agree that a “Right of First Refusal” as used herein
shall mean that, in the event that Lpath negotiates with any Third Party rights
to the Lpath Pipeline Product (whether by way of conveying a license, option or
other right to obtain development or commercial rights with respect to the
Lpath Pipeline Product), then Lpath shall notify Merck in writing prior to
entering into any such Third Party agreement and, before Lpath enters into any
such agreement with a Third Party, shall offer to Merck the right to enter into
such Third Party agreement on the same terms and conditions as it would be
entered into by Lpath and such Third Party, such offer to be accompanied by a
proposed written agreement therefor (a “Proposed
Agreement”) and all information in Lpath’s control as is reasonably
necessary or useful for Merck to evaluate its interest in the Lpath Pipeline
Product available for license (including information and data regarding safety,
efficacy, toxicity, potential side effects and any and all marketing approval
filings).  In the event that Merck does
not exercise its right of first refusal within *** after such complete offer,
then Lpath shall be free to grant the license to such Third Party under the
terms so offered to Merck.  In the event
that Lpath offers a Proposed Agreement to Merck prior to the Refusal Right
Termination Date and Merck does not exercise its right to enter into the
Proposed Agreement within the applicable *** period, and Lpath and the
applicable Third Party (i.e., the same Third Party with which Lpath negotiated
the terms and conditions that were offered in the applicable Proposed Agreement
that was offered to Merck) subsequently, but prior to the date that is ***
after the Refusal Right Termination Date, negotiate different terms and
conditions that are, overall, more favorable to such Third Party than those
offered to Merck in the Proposed Agreement, then Lpath shall have to offer a
right of first refusal to Merck again before entering into such agreement with
such Third Party or any of its Affiliates, and the provision described above
shall be applied again (but shall not be applied, or construed to apply, in a
manner that extends any obligations of Lpath hereunder beyond the date that is
*** after the Refusal Right Termination Date). 
Lpath shall have no further obligation to Merck whatsoever pursuant to
this Section 2.8 after the date that is *** after the Refusal Right
Termination Date.  In addition, Lpath shall
have no further obligation to Merck pursuant to this Section 2.8 after the
Refusal Right Termination Date except as expressly set forth above with respect
to a Proposed Agreement that has been offered by Lpath to Merck on or before
the Refusal Right Expiration Date.  For
clarity, the Right of First Refusal set forth in this Section 2.8 shall
only apply with respect to a single Lpath Pipeline Product, and if at any time
Merck and Lpath enter into an agreement whereby Merck obtains a license, option
or other right with respect to

 

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CONFIDENTIAL TREATMENT.

 

an
Lpath Pipeline Product, the provisions of this Section 2.8 shall not apply
with respect to any other Lpath product.

 

2.9                                Retained Rights; No Implied
Rights.  Lpath expressly retains all rights with
respect to the research, Development, manufacture, import, export, use and
Commercialization in the Territory of Ocular Products (including the drug
product iSONEPTM and any other ocular formulations of sonepcizumab, as well as
uses of sonepcizumab for any and all ocular Indications) and other product
containing Compounds for use outside the Field, and grants no rights to Merck under
this Agreement with respect to the foregoing. 
Each Party acknowledges that the rights and licenses granted under this Article 2
and elsewhere in this Agreement are limited to the scope expressly
granted.  Accordingly, except for the
rights expressly granted under this Agreement, no right, title, or interest of
any nature whatsoever is granted whether by implication, estoppel, reliance, or
otherwise, by either Party to the other Party. 
All rights with respect to Know-How, Patent Rights or other intellectual
property rights that are not specifically granted herein are reserved to the
owner thereof.

 

2.10                          Patent Challenges.  In partial consideration for the licenses granted herein, Merck agrees
that it shall not, and shall ensure that its Affiliates do not, at any time
during the Term of this Agreement, commence, participate in or actively support
in any way (“Support”) any
challenge to the validity, enforceability, or claim construction of any claim
within the Lpath Patents, or coverage of Licensed Products by the Lpath
Technology (each, a “Patent Challenge”).   In any event, and independent of the
foregoing, if at any time during the Term of this Agreement Merck or any of its
Affiliates commences, participates in, or Supports any Patent Challenge, Lpath
may terminate this Agreement in its entirety, such termination effective
immediately upon written notice to Merck.

 

ARTICLE 3

 

PRODUCT DEVELOPMENT AND COMMERCIALIZATION

 

3.1                                Development during Initial
Development Period and its Extension.  Notwithstanding the exclusive
license grant by Lpath to Merck pursuant to Article 2 above, during the
Initial Development Period, Lpath shall use Commercially Reasonable Efforts to
Develop the Licensed Product for non-diagnostic uses in accordance with the
Development Plan.  Prior to the
Development Transfer Date, in the event that Clinical Trial data, Adverse
Events, or other causes out of the reasonable control of Lpath cause compliance
with the then-current Development Plan to be no longer feasible using
Commercially Reasonable Efforts, Lpath may modify, revise or amend the
Development Plan as reasonably required to accommodate such circumstances,
provided that Lpath shall not make any change to the Development Plan that
materially affects (in an adverse manner) the Development of Licensed Products
for *** uses in the Field

 

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CONFIDENTIAL TREATMENT.

 

without
the prior consultation, advice and approval of Merck, not to be unreasonably
withheld, conditioned or delayed; provided,
however, that Merck’s approval
shall not be required for changes made to the Lpath Current Phase I Trial (or
any Ongoing Trial) to comply with the direction of Lpath’s clinical advisory
board.  In addition, if one or more of
the milestones set forth in Section 5.3 is not achieved and Merck has not
provided the Development Transfer Notice described in Section 3.3, then
Lpath may elect not to acquire supplies of Licensed Products for the conduct of
Phase II (or later stage) Clinical Trials, and may amend or modify the
Development Plan accordingly, without the prior approval of Merck; provided, however,
that Lpath shall notify Merck in writing if Lpath so elects not to acquire such
clinical trial supplies and, if requested in writing by Merck (which request
may be made at Merck’s sole discretion), Lpath shall use Commercially
Reasonable Efforts to obtain such clinical supplies for Phase II (or later
stage) Clinical Trials at Merck’s expense. 
During the period prior to the Development Transfer Date, Lpath shall
propose to Merck in writing any and all material changes to the Development
Plan requiring Merck’s approval, and Merck shall review such proposed change
and respond, including a statement of Merck’s approval or disapproval of such
proposed change, within ten (10) days. 
In the event that Merck withholds, conditions or delays its approval of
a proposed change to the Development Plan, and Lpath disputes whether such
withholding, condition or delay is reasonable, such matter shall be resolved in
accordance with Section 11.4 (unless earlier resolved by the Parties in
accordance with Section 11.2).  With
respect to the Licensed Product Merck shall fund Lpath Development activities
through monthly payments to the extent set forth in Article 5 below.  Further, the Parties acknowledge that
Development Milestone 1, Development Milestone 2, Development Milestone 3 and
Development Milestone 4 shall, upon their accomplishment, trigger certain
payments (as set forth in Article 5 below).  Merck shall have the right, at its choice, to
extend the Initial Development Period for one (1) additional period which
additional period shall be between one (1) and six (6) months (so
that the maximum of the Initial Development Period shall be eighteen (18)
months) by sending a written notice to Lpath any time during the Initial
Development Period, but no later than one (1) month prior to the
expiration of the Initial Development Period. 
The Parties acknowledge that any such extension shall require additional
funding by Merck to the extent set forth in Article 5 below.

 

3.2                                Joint Steering Committee
during Initial Development Period.  Promptly following the Effective
Date, and for a period of *** after the ***, the Parties shall establish and
maintain a joint steering committee (“JSC”).

 

(a)                                  Composition of the Joint
Steering Committee.  The JSC shall consist of no more than three (3) representatives
of each Party who shall be designated by each Party promptly after the
Effective Date.  A representative
designated by *** shall have the chair of the JSC.  The Parties may appoint substitutes or
alternates 

 

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CONFIDENTIAL TREATMENT.

 

for
the JSC members at any time by written notice. 
The representatives shall have appropriate technical credentials,
experience and knowledge, and sufficient authority to ensure acceptance and
execution of JSC decisions within their organizations.

 

(b)                                 JSC Meetings and Meeting
Minutes.  The JSC shall meet at least every *** either
in person at a place mutually agreed among the JSC members or by means of a
telephone— or video-conference.  The JSC
may also act without a formal meeting by a written memorandum signed by the JSC
members. Such additional meetings shall be held, or action without a meeting
shall be taken, whenever either Party calls for any action by the JSC.
Representatives of each Party other than the JSC members may attend JSC
meetings at the invitation of either Party with the prior approval of the other
Party, which approval shall not be unreasonably withheld.  The chairman of the JSC shall be responsible
for keeping accurate minutes of its deliberations which record all proposed
decisions and all actions recommended or taken.

 

(c)                                  Quorum; Voting; Decisions.  At
each JSC meeting, at least one (1) member appointed by each Party present
in person or by telephone shall constitute a quorum. The JSC shall attempt to
make all decisions by consensus taking all JSC members suggestions, opinions
and proposals into good faith consideration. In the event that the JSC is
unable to resolve any matter before it as set forth above, each Party shall
designate a senior executive officer with authority to resolve such matter, and
such designated executive officers of the Parties shall meet (in person or by
telephone) to attempt to reach agreement promptly, but in no event later than
twenty-one (21) days, following written request of either Party for such
meeting.  If, following any such meeting,
the matter has not been resolved, then Lpath shall have the right to decide such
matter with respect to matters arising prior to the Development Transfer Date,
and Merck shall have the right to decide such matter with respect to matters
arising after the Development Transfer Date, in each case only after good faith
consideration of the arguments brought forward by all JSC members, including
the JSC members designated by the other Party; provided,
however, that: (i) neither
Party shall have the authority to unilaterally (i.e., without the other Party’s
consent) make a decision in a manner (x) that is inconsistent with the
express terms and conditions of this Agreement or (y) that unilaterally
requires the other Party to undertake activities that such other Party has not
agreed to perform; and (ii) Merck shall not have the authority to
unilaterally (i.e., without Lpath’s consent) halt, alter, amend or revise the
conduct of any On-Going Clinical Trial during the period prior to complete
transfer of responsibility for all activities and costs for performing such
Clinical Trial from Lpath to Merck.

 

(d)                                 Expenses. 
Lpath and Merck shall each bear all expenses of their respective JSC
members related to their participation on the JSC.

 

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CONFIDENTIAL TREATMENT.

 

(e)                                  Role and Responsibilities of
the JSC.  The JSC shall provide the basis for Lpath and
Merck to openly share all information and data relevant for the Development of
Licensed Product in the Field, in particular the progress made by Lpath in
accomplishing Development Milestones 1 through 4, and including (for the
avoidance of doubt) sharing of data and results related to Licensed Products
which were obtained by Lpath before the Effective Date but following the
completion of Merck’s due diligence review. 
The JSC shall also serve as the forum for revising, expanding and
fine-tuning the Development Plan with the aim of progressing the Development of
Licensed Product in and for the Field, including the goal of facilitating
applicable Phase II Trials.  The JSC
shall further oversee, coordinate and approve the Parties’ Development
activities during the Initial Development Period, and also certain Development
activities that Merck may want to perform during the Initial Development
Period.  Lastly, for the *** period
following the ***, the JSC shall oversee and coordinate the Parties’
Development transfer activities.

 

3.3                                Development Transfer Notice. 
Merck shall have the right, any time during the Initial Development
Period but no later than *** before the last day of the Initial Development
Period (as extended pursuant to the terms of this Agreement), to notify Lpath
in writing of its decision to take over from Lpath and transfer all Development
activities to Merck, whether to Merck directly or to a Third Party designated
by Merck (the “Development Transfer Notice”).  Unless Merck both (a) provides Lpath
with a Development Transfer Notice as specified in this Section 3.3 by the
specified deadline and (b) makes the payments to Lpath pursuant to Section 5.4(a) and
5.5 herein, Lpath shall not be obligated to transfer Development of the
Licensed Product to Merck, and this Agreement shall immediately terminate upon
expiration of the Initial Development Period pursuant to Section 10.3
(Termination for No Delivery of Development Transfer Notice).

 

3.4                                Development upon Development
Transfer Notice.  From and after the Development Transfer Date
Merck shall have the exclusive right during the Term to research and Develop
the Licensed Product in the Field and to conduct (either itself or through its
Affiliates, agents, subcontractors ***) all Clinical Trials and non-clinical
studies Merck believes appropriate to obtain Regulatory Approval for the
Licensed Product in any Indication within the Field.  The Development of each Licensed Product
shall be governed by a development plan that describes the proposed overall
program of Development (the “Development Plan”),
which Development Plan will be updated by Merck at least *** after the
Development Transfer Date.  Following the
Development Transfer Date and thereafter during the Term of this Agreement,
Merck (i) shall have the sole right and responsibility for preparing the
Development Plan for each Licensed Product, and (ii) shall have the sole
decision-making authority regarding each Development Plan and the Development
of each Licensed Product in the Field, including the determination 

 

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of
which Indications to pursue in Development, in each case consistent with the
terms and conditions of this Agreement.

 

3.5                                Clinical Trial On-Going as
of the Development Transfer Date. Following the Development Transfer Date, the Parties shall use
Commercially Reasonable Efforts to transition to Merck, as quickly as
reasonably possible, the conduct of any Clinical Trial in the Field initiated
by Lpath (i.e., for which at least one human subject has been dosed) prior to
the Development Transfer Date and on-going as of the Development Transfer Date
(an “On-Going Trial”).  To facilitate continued Development of the
Product during the transition, Lpath shall continue, and shall use Commercially
Reasonable Efforts to continue, the conduct of any On-Going Clinical Trial as
Merck may reasonably request, and at Merck’s expense as further specified in Section 3.6,
until such time as Merck is able to take responsibility for the conduct of such
On-Going Clinical Trial; provided,
however, that Lpath shall not be
obligated to continue such activities for a period of more than *** after the
Development Transfer Date unless otherwise agreed by Lpath.  Lpath shall, in conducting any activities for
an On-Going Trial, conduct its activities in a good scientific manner and in
compliance with all applicable Laws, and cGCP and cGLP standards, as
applicable.  Merck shall, within thirty
(30) days of the Development Transfer Date, appoint a representative that shall
be an active member of the Lpath team responsible for monitoring, and
coordinating with Lpath regarding, the conduct of the On-Going Trial (the “Merck Trial Monitor”), and Lpath hereby
accepts that the Merck Trial Monitor shall participate as an active member that
oversees and monitors the conduct of the On-Going Trial until such time as the
conduct of the On-Going Clinical Trial can be transferred to Merck.  During such time, the Merck Trial Monitor
shall in particular: (i) be informed by Lpath, on a regular basis as
reasonably required by the Merck Trial Monitor, of all events and activities
related to the On-Going Trial, (ii) take part in discussions and
interactions with the sites and the Regulatory Authorities for the On-Going
Trial and, if Lpath does not arrange for, or fails to participate in, any
required meeting or communication with applicable sites or Regulatory
Authorities, shall have the right to take direct contact with such sites and
Regulatory Authorities, provided it has informed Lpath thereof in advance and
provided Lpath an opportunity to participate; and (iii) take part in all
decisions related to the On-Going Trial and Lpath hereby accepts that, after
the Development Transfer Date, no material decisions relating to the On-Going
Trial shall be taken without the prior written consent of the Merck Trial
Monitor (which consent, if given, shall be provided in a timely manner so as
not to delay the conduct of the On-Going Trial).  Lpath shall, within thirty (30) days after
the Development Transfer Date, deliver to the Merck Trial Monitor copies (in
electronic or hard copy form) of all relevant materials, data and regulatory information
(including all INDs) related to the On-Going Trial, whether written or
electronic, including all relevant clinical safety and efficacy data and all
regulatory data and information related to the use and sale of the Licensed 

 

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Product
in the Field.  Within thirty (30) days
after the end of each Calendar Quarter during the On-Going Trial, Lpath shall
deliver to the Merck Trial Monitor new materials, data and information in its
possession relating to the On-Going Trial, and shall use Commercially
Reasonable Efforts to do so in an orderly fashion and in a manner such that
confidentiality in the delivered information is preserved in all material
respects.

 

3.6                                Reimbursement of
Transitional Development Costs after Receipt of Development Transfer Notice. All Transitional Development Costs relating
to the On-Going Trial after the Development Transfer Date, but for greater
certainty not for expenses incurred by Lpath for the Lpath Current Phase I
Trial prior to and after the Development Transfer Date, shall be paid by Merck
subject to, and in accordance with, all of the provisions of Section 3.5 and
this Section 3.6.  Within *** of the
end of *** month during which Lpath conducts activities for the On-Going Trial,
Lpath shall submit an invoice to Merck for the Transitional Development Costs
relating to the On-Going Trial Lpath incurred during such ***, consistent with
the approved budget and plan, setting forth in reasonable detail such
Transitional Development Costs. 
Following receipt of such written invoice, Merck shall, within *** after
receipt of such written report, reimburse Lpath those budgeted and approved
Transitional Development Costs incurred by Lpath relating to the On-Going Trial
during such ***.

 

3.7        Technology Transfer.  After
the Development Transfer Date, Lpath shall use Commercially Reasonable Efforts
to promptly transfer to Merck as soon as reasonably practical, ***, all Lpath
Know-How, including any preclinical data, clinical data, assays and associated
materials, protocols, procedures and any other information in Lpath’s
possession or control, that is reasonably necessary or useful to continue or
initiate Development of, or in seeking Regulatory Approval for, Licensed
Products.  For clarity, Lpath shall at
all times have the right to retain reasonable quantities of tangible materials
(if any) within such Lpath Know-How, and may use them, and authorize others to
use them, in connection with Ocular Products or other products outside the
Field.  Merck shall use Commercially
Reasonable Efforts to cooperate and facilitate such transfer, and the Parties
shall use Commercially Reasonable Efforts to complete such transfer within ***
after the Development Transfer Date. 
Details shall be set forth in a technology transfer plan to be agreed
upon by the Parties (“Technology Transfer
Plan”) which plan shall set forth agreed-upon steps for an adequate
technology transfer and timelines therefore, an outline of which is attached to
this Agreement as Schedule 3.7. 
In addition, and without limiting the generality of the foregoing, upon
Merck’s request Lpath shall (i) promptly assign to Merck all applications
and filings made with any Regulatory Authority solely applicable to the
Development or Commercialization of Licensed Products in and for the Field (and
not applicable to any Ocular Product or other product outside the Field),
including any applicable IND and orphan drug designations with respect thereto,
(ii) use 

 

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Commercially
Reasonable Efforts to assign to Merck all agreements related solely to the
conduct of any Clinical Trial in and for the Field with respect to Licensed
Product and to seek any required Third Party consents therefor (provided that
such Commercially Reasonable Efforts shall not require Lpath to make payments
or provide other consideration to any Third Party in consideration therewith),
and (iii) assign to Merck all agreements, if any, related solely to the
manufacture, supply or distribution of clinical supplies of Licensed Product
for Clinical Trials in the Field (to the extent such agreement is specific to
Clinical Trials in the Field, and not related to Ocular Products or other
products outside the Field).  For
clarity, notwithstanding the foregoing, Lpath shall have the right to retain,
and shall not be required to assign to Merck, (A) any applications and
filings made with any Regulatory Authority related to Ocular Products
(including IND number 100786), (B) any agreements which relate to clinical
trials of Ocular Products, or (C) any agreement related to the
manufacture, supply or distribution of, or which otherwise relate to, Ocular
Products or other products outside the Field.

 

3.8        Manufacturing Technology
Transfer; Purchase of Clinical Trial Supplies.  After
the Development Transfer Date, Lpath shall use Commercially Reasonable Efforts
to promptly transfer to Merck as soon as reasonably practical*** a copy of all
Lpath Know-How and reasonable quantities of all Lpath Materials that are
reasonably necessary or useful for the manufacture of the Licensed
Products.  For clarity, Lpath shall at
all times have the right to retain reasonable quantities of such Lpath Know-How
and Lpath Materials, and may use them, and authorize others to use them, in
connection with Ocular Products or other products outside the Field.  The technology transfer described in this Section 3.8
shall be referred to as the “Manufacturing
Technology Transfer” and shall be conducted in accordance with the
manufacturing technology transfer plan attached (the “Manufacturing Technology Transfer Plan”)
which plan shall set forth agreed-upon steps for an adequate manufacturing
technology transfer and timelines therefore, an outline of which is attached to
this Agreement as Schedule 3.8. 
In the event that Lpath has purchased supplies of Licensed Products for
use in the conduct of Phase II Clinical Trial (or has ordered such supply from
its Third Party contract manufacturer) in quantities and costs pre-agreed with
Merck, Merck shall purchase such clinical trials supplies from Lpath (or
purchase the right for delivery of clinical trials supplies so ordered) at one
hundred percent (100%) of Lpath’s cost.

 

3.9        Procedures for Technology
Transfer.  The Parties shall each use Commercially
Reasonable Efforts to conduct the technology transfers set forth in Section 3.7
and Section 3.8 in an orderly fashion and in a manner such that the value,
usefulness and confidentiality of the transferred Lpath Know-How and Lpath
Materials are preserved during such transfer in all material respects.  During the Initial Development Period, Lpath
shall provide to Merck full and prompt disclosure but in no event less
frequently than ***, of any material Lpath Know-How or Lpath 

 

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Materials
that become Controlled by Lpath and that would be necessary or useful to Merck
to conduct its activities or exercise its rights as contemplated hereunder
after the Initial Development Period, and if the Agreement is not earlier
terminated, shall transfer such Lpath Know-How and Lpath Materials to Merck
after the  Development Transfer Date as
set forth in the preceding sections.

 

3.10                          Lpath Support in the
Development.  For a period of *** starting from the
Development Transfer Date, Lpath shall make its employees that are
knowledgeable of the Compound, its properties and functions, reasonably
available to Merck for scientific and technical explanations, advice and
on-site support, that may reasonably be required by Merck, relating to the
Development and registration of the Compound (solely as such Development and registration
relate to Licensed Products in and for the Field) and the Licensed Products
(the “Development Support”).  The Parties agree that the Development
Support for such *** period shall, unless agreed otherwise by Lpath, not exceed
a total of *** and additional reasonable availability for communication via
telephone and email, for which activities Lpath shall bear its internal costs
(including personnel costs).  In the
event that Development Support beyond the limitations described in the
aforementioned sentence is required by Merck, then Lpath and Merck shall agree
on the scope of these additional activities, and Merck shall reimburse Lpath
for Lpath’s personnel costs (such personnel costs to be charged to Merck at
***of the ***).  Merck shall reimburse
Lpath for Lpath’s reasonable Out-of-Pocket Expenses incurred in providing the
Development Support, subject however to Lpath providing Merck with documented
evidence of such Expenses having been incurred. 
In the event that Merck decides to utilize the personnel of a contract
manufacturer of Lpath (an “Lpath Manufacturer”) for support in connection with
training, set-up or other assistance in establishing Merck’s (or its
Affiliate’s*** *** or contract manufacturer’s) procedures and capabilities for
the manufacture or supply of Licensed Products, Merck shall be responsible to
directly pay such Lpath Manufacturer for such services or shall reimburse Lpath
for Out-of-Pocket Expenses charged to Lpath by the Lpath Manufacturer for such
support.

 

3.11                        ***of Licensed Products.

 

(a)                                  Efforts to *** for Use in
the Field.  Merck and its Affiliates shall use***
Commercially Reasonable Efforts to use a formulation of Licensed Product that
is both (i) designed and intended for use in the Field and (ii) intended
to minimize off-label uses.

 

(b)                                 Notice and Discussion of
***.  Without limiting the foregoing Section 3.11(a),
in the event that Merck or its Affiliate considers developing *** for the
Licensed Product that differs from the *** by or for Lpath (as of the Development
Transfer Date) intended for use, or used, in Phase II Trials in the Field
(the “Lpath ***”), Merck shall
inform Lpath in writing in advance, and provide details of each such new or
modified *** being considered.  Upon
request 

 

29

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

of
Lpath, the Parties shall promptly, within ten (10) days (and in any
event prior to Merck’s or its Affiliate’s implementation of such ***), meet to
discuss in good faith (i) whether such *** would reasonably and
objectively be expected to increase the likelihood that the *** would be used
*** (as compared to the Lpath ***), and (ii) possible alternatives to such
*** which may be less likely to increase potential for use ***.  (The Parties acknowledge that Merck may have
already considered one or more such possible alternatives, and that the Parties
may discuss the reasons for Merck’s decisions not to pursue such
alternatives.)  Only if, after such good
faith discussion and consideration of alternatives by the Parties (which
discussions shall take no longer than ***), no reasonable *** exists, then
nothing herein shall restrict Merck from developing a *** that provides maximum
***.

 

3.12                        Commercialization.  Subject to the terms and conditions of this Agreement, Merck shall have
the sole authority and the exclusive right to Commercialize the Licensed
Products in the Field itself or through one or more Third Parties selected by
Merck and shall have the sole authority and responsibility in all matters
relating to the Commercialization of the Licensed Products.

 

3.13                          Manufacturing and
Supply.  Subject to the terms and conditions of this
Agreement, Merck shall have the exclusive right after the Development Transfer
Date to manufacture the Licensed Products and corresponding Compound for the
Field itself or through one or more Third Parties selected by Merck.  For clarity, the foregoing shall not be
construed to preclude Lpath’s (or its Affiliate’s or a Third Party licensee’s)
manufacture of Ocular Products and other products outside the Field, and
corresponding Compounds for such Ocular Products and other Products outside the
Field.  Starting from the Development Transfer
Date, Lpath shall for a period of up to *** make its employees that are
knowledgeable on the manufacture of the Compound (solely as such manufacture
relates to Licensed Products in the and for the Field) and the Licensed Product
reasonably available to Merck for scientific and technical explanations, advice
and on-site support, that may reasonably be required by Merck, relating to the
manufacture of the Compound (solely as such Development and registration relate
to Licensed Products in the and for the Field) and the Licensed Products and
the Manufacturing Technology Transfer (the “Manufacturing
Support”).  Merck shall
reimburse Lpath for Lpath’s Out-of-Pocket Expenses incurred in providing the
Manufacturing Support, subject to Lpath providing Merck with documented
evidence of such Expenses having been incurred, and the limitations applicable
to Development Support set forth in Section 3.10 shall likewise apply to
the Manufacturing Support such that the Manufacturing Support shall be deemed
to be included in the Development Support as the same is limited in Section 3.10.

 

30

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.

 

3.14                          Diligence by Merck.

 

(a)           Commercially Reasonable
Efforts.  With respect to ***
uses of Licensed Product, Merck shall use Commercially Reasonable Efforts to (a) Develop
at least one Licensed Product in the Field, in accordance with the applicable
Development Plan as updated and/or amended from time to time, and (b) launch
at least one Licensed Product in each Major Market as soon as reasonably
practical after receiving Regulatory Approval in such Major Market, and if
legally possible, without violating Third Parties’ intellectual property rights
or other rights.  Merck shall have the
exclusive right to determine, in its sole discretion, the launch strategy for
such Licensed Products, based on its exercise of Commercially Reasonable
Efforts and the availability of any necessary Third Party licenses or other
rights.  Activities by Merck’s Affiliates
*** will be considered as Merck’s activities under this Agreement for purposes
of determining whether Merck has complied with any obligation to use
Commercially Reasonably Efforts.  Lpath
expressly acknowledges that Merck shall have the right but not the obligation,
and nothing in this Agreement shall be construed as if Merck was under the
obligation, to Develop or Commercialize a Licensed Product in Indications other
than ***, whether using Commercially Reasonable Efforts or any other lesser
diligence standard.  Lpath acknowledges
expressly further that Merck shall be free to decide, as Merck in its sole
determination considers appropriate, whether or not to Develop or Commercialize
a Licensed Product in the Field for Indications other than non-diagnostic
oncology but if Merck so decides, then any such Development and
Commercialization shall be subject to the terms of this Agreement.

 

(b)           Cessation of Development
and Commercialization.

 

(1)          Notice; Lpath Inquiry.  If Merck Ceases Development and
Commercialization of ***Licensed Product (for *** uses) in the Field in *** of
the Major Market Countries *** ***, Merck shall promptly notify Lpath in
writing and identify the applicable Major Market Country(ies).  In addition, Merck agrees to confirm,
promptly following written inquiry by Lpath, whether Merck has Ceased
Development and Commercialization of at least *** Licensed Product (for *** uses)
in the Field in *** *** of the Major Market Countries ***.  If Merck Ceases Development and
Commercialization of at least *** Licensed Product (for *** uses) in the Field
in *** of the Major Market Countries ***, then the provisions of Section 3.14(b)(3) (and
Section 3.14(b)(4), if applicable) shall apply.  In the event that there is a dispute between
the Parties as to whether Merck has Ceased Development and Commercialization of
at least *** Licensed Product (for *** uses) in the Field in *** of the Major
Market Countries ***, such matter shall be resolved in accordance with Section 11.4
(unless earlier resolved by the Parties in accordance with Section 11.2).

 

31

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

(2)          Definition of “Cease”.  As used in Section 3.14(b), to “Cease” Development and Commercialization of
Licensed Products (for non-diagnostic uses) in the Field means:

 

(A)          Merck notifies Lpath in writing that it has made a decision
not to obtain (or a decision to discontinue seeking) Regulatory Approval for,
or, once Regulatory Approval is received, not to launch and Commercialize, at
least one Licensed Product (for non-diagnostic uses) in the Field in the
applicable Major Market(s) ; or

 

(B)           Merck has in fact discontinued Development and
Commercialization activities for *** Licensed Products (for *** uses) in the
Field for the applicable Major Market(s) ;

 

provided, however,
that for purposes of clause 3.14(b)(2)(B):

 

(X)          until Regulatory Approval has been obtained (for *** uses)
for the first Licensed Product either in *** Major Market Countries ***,
activities conducted for the Development of Licensed Products for *** Major
Market Countries ***, shall be deemed activities for the Development of
Licensed Products for ***;

 

(Y)           until Regulatory Approval has been obtained (for *** uses)
both for any Licensed Product in *** Major Market Countries ***, activities
conducted for the Development of Licensed Products for *** (prior to first
Regulatory Approval of a Licensed Product in ***) *** Major Market Countries
*** (prior to first Regulatory Approval of a Licensed Product *** Major Market
Country ***) shall be deemed activities for the Development of Licensed
Products for ***; and

 

(Z)           Once Regulatory Approval for the first Licensed Product
has been obtained (for *** uses) (i) in *** Major Market Country ***,
Development activities (excluding Phase IV Studies and other activities to
support the approved label) in *** shall deemed activities for the Development
of Licensed Product *** Major Market Countries ***, and (ii) *** Major
Market Countries ***, but not in ***, Development activities (excluding Phase IV
Studies and other activities to support the approved label) in such so approved
Major Market Country(ies) *** shall deemed activities for the Development of
Licensed Product in ***.

 

(3)          Consequences of Cessation.  Subject to Section 3.14(b)(4), if Merck
Ceases Development and Commercialization of *** Licensed Product (for *** uses)
in the Field *** Major Market Countries ***, then this Agreement shall be
deemed terminated (effective *** after the written notice or confirmation
provided by Merck pursuant to Section 3.14(b)(1) or upon 

 

32

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

determination in accordance
with Section 11.4 that Development and Commercialization has Ceased, as
applicable) for convenience by Merck pursuant to Section 10.4 with respect
to (i) all countries in ***, if Merck has so Ceased Development and
Commercialization of *** Licensed Product for ***, (ii) ***, if Merck has
so Ceased Development and Commercialization of *** Licensed Product for ***
Major Market Countries ***, and (iii) ***, if Merck has so Ceased
Development and Commercialization of *** Licensed Products for ***; provided, however,
that in the event this Agreement terminates with respect to *** pursuant to
this Section 3.14(b)(3) and Merck or its Affiliate *** has submitted
an NDA for any Licensed Product (for *** uses) in *** at the time of such
termination, then such termination shall not apply with respect to ***, as
applicable.  In the event that this
Agreement has been terminated with respect to ***, then this Agreement shall
concurrently terminate with respect to ***. 
As used herein, “***” means
***, “***” means ***, and “***” means the countries listed on Schedule 3.14(b)(3).  Lpath expressly acknowledges and agrees that
a Cessation of Development and Commercialization of Licensed Products (for ***
uses) in the Field (i) shall in no event be considered a material breach
by Merck of this Agreement, (ii) Section 10.5 of this Agreement shall
not apply, and (iii) shall in no event entitle Lpath to seek damages from Merck
based on such Cessation (provided, for clarity, that the foregoing shall not be
construed to release Merck from other liabilities, if any, accrued prior to
such Cessation, or arising from a breach by Merck of the provisions of Article 10
or Schedule 10.8, or with respect to future payment and other obligations
pursuant to this Agreement in the event this Agreement is not terminated in its
entirety).

 

(4)          No Cessation Following
Launch in *** if Licensed Product Failed.  Notwithstanding Section 3.14(b)(3), if: (i)
Merck has obtained Regulatory Approval and is Commercializing a Licensed
Product (for *** uses) in *** Major Market Countries ***;  (ii) while Merck continues such
Commercialization referred to in (i), Merck Ceases Development and
Commercialization of at least one Licensed Products (for *** uses) in another
Major Market; and (iii) the reason for Merck Ceasing Development and
Commercialization in such Major Market is based upon clinical trial results
which do not support continued conduct of activities for the next stage of
Development for the applicable Major Market for which Merck has Ceased Development
and Commercialization, then Section 3.14(b)(3) shall not apply to
terminate this Agreement with respect to the applicable territory for so long
as Merck Commercializes such Licensed Product (for *** uses) in *** Major
Market Countries ***.  In the event that
there is a dispute between the Parties as to whether the clinical trial results
do not support continued conduct of activities for the next stage of
Development for the applicable Major Market, such matter shall be resolved in
accordance with Section 11.4 (unless earlier resolved by the Parties in
accordance with Section 11.2).

 

33

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

3.15                          Annual Reporting.  Merck shall, on each anniversary of receipt by Lpath of the Development
Transfer Notice, provide Lpath with a written report summarizing in reasonable
detail its Development and, as applicable, Commercialization activities
conducted during the prior Calendar Year.

 

3.16                          Trademarks.  As between Lpath and Merck, Merck shall have the sole authority to
select, register, maintain, and defend trademarks for the Licensed Products for
use in the Field (the “Marks”) and
shall own all such Marks.  For clarity,
Lath hereby expressly retains all right, title, and interest in the trademarks
iSONEPTM and ASONEPTM, and shall own and have the sole authority to select any
trademarks used in connection with Ocular Products (including formulations of sonepcizumab
intended for use in ocular Indications); Lpath grants no rights, expressly or
by implication, to Merck with respect to such trademarks, except that Lpath
shall, at Merck’s request, grant to Merck an exclusive license to use the
trademark ASONEPTM solely in connection with the Commercialization of Licensed
Product in a manner consistent with the terms and conditions of this
Agreement.  Such license shall ***, and
shall after the Royalty Term ***.  All
uses of the Marks shall comply with all applicable laws and regulations
(including, without limitation, those laws and regulations particularly
applying to the proper use and designation of trademarks in the applicable
countries).  Neither Party shall, without
the other Party’s prior written consent, use any trademarks of the other Party
or use any trademarks confusingly similar to trademarks of the other Party.

 

ARTICLE 4

REGULATORY
MATTERS

 

4.1                                Regulatory Filings.  As between Merck and Lpath, after delivery of
the Development Transfer Notice, Merck shall own and maintain all regulatory
filings and Regulatory Approvals for the Licensed Products, including all INDs
and NDAs.  It is understood and agreed
that nothing herein shall preclude Lpath or its Affiliates from referencing IND
number 100429 in regulatory filings for Ocular Products, or using data therein
in support of regulatory filings for Ocular Products, or from authorizing Third
Parties to do so.  Lpath shall provide
reasonable assistance to Merck, its Affiliates *** in the preparation of and
filing for any INDs, IND amendments or NDAs with respect to Licensed Products
for use in the Field.  Such assistance
shall include, in particular, Lpath providing Merck with a complete electronic
copy of all relevant documentation submitted to the FDA in the context of IND
number 100429 necessary to enable Merck to submit its own IND for Licensed
Products in the Field, and to allow Merck to cross-reference such INDs held by
Lpath.  Merck shall provide Lpath with
complete electronic copies of filings (including serial submissions) submitted
to the FDA and EMEA; provided, however, that Lpath shall not have any
right of reference with respect to data contained therein (other than data, if
any, that was 

 

34

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

included, at the time of
transfer, in an IND or other regulatory filing transferred from Lpath to Merck
and other data, if any, that was otherwise provided to Merck by Lpath) unless
Merck agrees in writing.  For the
avoidance of doubt, Lpath retains the right to use data generated by Lpath (or
its Affiliates, contractors or licensees) in support of Development and
Commercialization (including use in regulatory filings) for Ocular Products or
other products outside the Field, regardless of whether such data is provided
to Merck hereunder for use in connection with Licensed Products in the Field.

 

4.2                                Communications with
Authorities. Merck (or one
of its ***) shall be responsible for and act as the sole point of contact for
communications with Regulatory Authorities in connection with the Development,
Commercialization, and manufacturing of Licensed Products after the end of the
communications relating to the Ongoing Trial that were initiated by Lpath
before the Development Transfer Date. 
Following the Development Transfer Date, Lpath shall not initiate, with
respect to any Licensed Product, any meetings or contact with Regulatory
Authorities without Merck’s prior written consent.  To the extent Lpath receives any written or
oral communication from any Regulatory Authority relating to a Licensed Product
in the Field, Lpath shall (i) refer such Regulatory Authority to Merck,
and (ii) as soon as reasonably practicable, notify Merck and provide Merck
with a copy of any written communication received by Lpath or, if applicable,
complete and accurate minutes of such oral communication.

 

4.3                                Adverse Event Reporting.

 

(a)           The Parties agree, within *** after the Development
Transfer Date, to commence negotiations of a detailed pharmacovigilance
agreement.  Such pharmacovigilance
agreement shall provide for the exchange by the Parties of any information of
which a Party becomes aware in the Territory concerning any side effect,
injury, toxicity or sensitivity reaction, or any unexpected incident, in or
involving a research patient or subject or, in the case of non-clinical
studies, an animal in a toxicology study, and the seriousness thereof, whether
or not determined to be attributable to any Licensed Product or Compound
(hereinafter “Adverse Experience”),
including information regarding Adverse Experiences received by either Party
from Third Parties.  It is understood
that each Party and its Affiliates or licensees/sublicensees shall have the
right to disclose such information as reasonably necessary to comply with
Regulatory Authorities within the Territory with respect to their filings and
activities related to Compounds, Licensed Products or Ocular Products, as
applicable.

 

(b)           With respect to Adverse Experiences that are serious and
associated with the use of any Licensed Product, whether or not determined to
be attributable to any such Licensed Product (hereinafter “Serious Adverse Experience”), (i) in
the event either Party receives a Serious Adverse Experience report from any
Third Party, the Party receiving such report shall notify the other Party in
writing 

 

35

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

within two (2) calendar
days of receipt of such report, and (ii) in the event a Serious Adverse
Experience report is to be generated by either Party, such Party shall provide
its report to the other within four (4) calendar days for death and life
threatening, and seven (7) calendar days for all other Serious Adverse
Experience reports.

 

(c)           With respect to INDs filed by Merck, Merck shall be
responsible for reporting to Regulatory Authorities any Adverse Events, whether
in non-clinical or clinical studies for or during Commercialization of any
Licensed Product in the Field in compliance with the requirements of the United
States Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 321 et seq., the
regulations promulgated thereunder, and equivalent foreign Laws.  It is understood that these Adverse
Experience reporting requirement provisions are based on the policies and
procedures of Merck and regulatory requirements.

 

(d)           The relevant information can be transmitted by e-mail,
facsimile, overnight courier or any other means the Parties agree in the
separate pharmacovigilance agreement.

 

	
  Transmission to Lpath:

  	
   

  	
  Drug Safety

  
	
   

  	
   

  	
  Vice President of Drug Development

  
	
   

  	
   

  	
  Lpath, Inc.

  
	
   

  	
   

  	
  6335 Ferris Square, Suite A

  
	
   

  	
   

  	
  San Diego, California 92121

  
	
   

  	
   

  	
  United States of America

  
	
   

  	
   

  	
  ***

  
	
   

  	
   

  	
  Facsimile: 1-858-678-0900

  
	
   

  	
   

  	
   

  
	
  Transmission to Merck:

  	
   

  	
  Global Drug Safety

  
	
   

  	
   

  	
  Frankfurter Straße 250

  
	
   

  	
   

  	
  64293 Darmstadt, Germany

  
	
   

  	
   

  	
  Drug Safety Mailbox:

  
	
   

  	
   

  	
  Drug.safety@merck.de

  
	
   

  	
   

  	
  Facsimile: ***

  

 

ARTICLE 5

FINANCIAL PROVISIONS

 

5.1                                Initial Fee.  In partial consideration of Lpath’s grant of the rights and licenses to
Merck and performance of its obligations hereunder, Merck shall make, or cause
to be made, to Lpath a one time payment of USD four million ($ 4,000,000) ***.

 

36

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

5.2                                Monthly Funding. 
Commencing with the first full calendar month after the Effective Date,
Merck shall make monthly payments of USD *** during each month of the Initial
Development Period, whether extended or not. Such payments shall be made
initially on the *** day of the first full calendar month after the Effective
Date and on or before that monthly anniversary for each month that Lpath
activities during the Initial Development Period will be funded.  In addition, in the event that (i) Merck
elects to extend the Initial Development Period, as such extension is provided
for in Section 3.1, and ***, then, in addition to and together with the
*** funding described above, Merck shall make payment to Lpath, per extended
month, of a monthly extension fee in the amount of ***such that the monthly
funding totals USD ***($ ***). In the event, however, that (i) Merck
elects to extend the Initial Development Period, as such extension is provided
for in Section 3.1, and (ii) ***Development Milestones 1 through
4***, so that the *** funding remains at ***.

 

5.3                                Initial Development Period
Milestone Payments.  In recognition of Lpath achieving certain
milestones during the Initial Development Period; Merck shall make, or cause to
be made, to Lpath, milestone payments of USD *** ($ ***)*** after the first
achievement of each of the following milestone events:

 

Development
Milestone 1:

 

Improvement of current cell line production or
development of a new cell line with a level of expression at least ***. The
purified antibody produced from the new clone or improved production using the
current clone shall, for purposes of this Section 5.3 and the Development Plan
only, be referred to as the “Resulting Product”***.

 

Development
Milestone 2:

 

Completion***of the
following:***(a)            Repeat-dose
toxicity study (at least 13 weeks) in non-human primates including immunotox
endpoints***.

 

Development Milestone 3:

 

Demonstration using currently available clinical
material, that (a) the Product has a terminal elimination half-life in humans
of at least ***.

 

Development Milestone 4:

 

Any one of the following from Clinical Trials of
Licensed Products: 

 

(a)                                  Provide evidence demonstrating dose related
effect across at least two (2) Product dose levels on biomarker(s) that are
considered a direct function of S1P pathway inhibition ***or relevant surrogate
biomarkers ***) 

 

37

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

measured using a generally
used and scientifically accepted assay;*** [or]***.

 

***.

 

For greater certainty, the
Parties understand and agree that the total of Merck’s Development Milestone
payments under this Section 5.3 shall in no event exceed USD eight million ($
8,000,000).  Lpath shall promptly notify
Merck in writing of the occurrence of any such milestone event, and deliver to
Merck all supporting documentation.

 

5.4                                Development Transfer
Fee.  Upon delivery by Merck to Lpath of the Development Transfer Notice a
development transfer fee in the amount of USD***twenty eight million ($
28,000,000) shall become due and payable in the following installments:

 

(a)         USD *** ($ ***) within ten (10) days of receipt by Lpath of the
Development Transfer Notice;

 

(b)        USD *** ($ ***) within ten (10) days of delivery by Lpath to
Merck of a Phase I Trial report (which may be a preliminary or interim report,
provided that in any event the Phase Ia portion of the report is complete)
containing data from the Phase I Trial(s) that does not contraindicate
Phase II Trial(s);

 

(c)         USD *** ($ ***) within ten (10) days of completion of the Technology
Transfer Plan and the Manufacturing Transfer Plan, as agreed by the JSC;

 

(d)        USD *** ($ ***) within ten (10) days of (i) delivery by Lpath to Merck
of an outline of a draft protocol for a Phase II Trial (including required and
completed supporting key preclinical studies), and (ii) the earlier of (aa) 180
days after the Development Transfer Notice, or (bb) Initiation of the first
Phase II Trial sponsored by Merck (or its Affiliate or Sublicensee), provided however, that irrespective of the conditions set
forth in (i) and (ii) above, payment will be made by Merck pursuant to this
subsection (d) in any event within ten (10) days of Initiation of the first
Phase II Trial sponsored by Merck (or its Affiliate or Sublicensee);

 

(e)         USD *** ($ ***) within ten (10) days of the first grant by the United
States Patent and Trademark Office of a patent claim within the Lpath Patents
that covers *** ; and 

 

(f)           USD *** ($ ***) within ten (10) days of the first grant by the European
Patent Office of a patent claim within the Lpath Patents that covers ***.

 

38

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

5.5          Unpaid
Development Milestones and Unpaid Monthly Funding in Addition to Development
Transfer Fee.  Upon delivery by Merck to Lpath of the
Development Transfer Notice, Merck shall make the following payments to Lpath,
which payments shall be made in addition to the payments set forth in Section 5.4
above and concurrent with the payment set forth in Section 5.4(a):

 

(a) All Development
Milestone payments set forth in Section 5.3 above, that have not been paid
already by Merck, whether or not the milestone events described in Development
Milestones 1 through 4 have been met, and

 

(b) any monthly funding
set forth in Section 5.2 above for any remaining month of the Initial
Development Period (which shall be deemed to be extended for the purposes of
this Section 5.5(b) such that it is eighteen (18) months) for which
the monthly funding has not already been paid for by Merck prior to sending the
Development Transfer Notice.

 

5.6       Milestone Payments.  As
further partial consideration for Lpath’s grant of the rights and licenses to
Merck and performance of its obligations under this Agreement, Merck shall
make, or cause to be made to Lpath, the following milestone payments within ***
after the *** milestone events with respect to the *** Licensed Product to
reach the applicable milestone.  The
Parties understand and agree that the milestone payments shall differ, as
specified below, based on ***.  Merck
shall notify Lpath in writing within *** of the occurrence of any such
milestone event.

 

5.6.1                                                                         Milestone Payments For ***

 

	
  ***

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  
	
  ***

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  
	
  ***

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  
	
  ***

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  
	
  ***

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  
	
  ***

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  
	
  ***

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  ***

  	
   

  

 

39

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

5.6.2                                                                             Milestone Payments For ***

 

	
  ***

  	
   

  	
  ***

  	
   

  
	
  ***

  	
   

  	
  ***

  	
   

  
	
  ***

  	
   

  	
  ***

  	
   

  
	
  ***

  	
   

  	
  ***

  	
   

  
	
  ***

  	
   

  	
  ***

  	
   

  
	
   

  	
   

  	
  ***

  	
   

  

 

5.6.3                                                                             Milestone Payments For ***

 

	
  ***

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  
	
  ***

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  
	
  ***

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  
	
  ***

  	
   

  	
  ***

  	
   

  	
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  ***

  	
   

  	
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  ***

  	
   

  
	
  ***

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  
	
  ***

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  ***

  	
   

  

 

5.6.4                        A milestone event that occurs in or with
respect to the *** shall mean any such event in or with respect to any one of
***.

 

5.6.5                        With respect to each milestone event listed
above in this Section 5.6, the milestone payment to be made under this
Agreement shall be due and payable ***.

 

5.6.6                        If, upon achievement of any milestone event
described in Sections 5.6.1, 5.6.2, and 5.6.3 for the first commercial sale of
a Licensed Product in *** for ***.

 

5.7                                 Commercial Event Payments

 

As further partial
consideration for Lpath’s grant of rights and licenses to Merck and performance
of its obligations under this Agreement, Merck shall pay Lpath the following
amounts for the first achievement of the following commercial event milestones:

 

***if the worldwide
aggregate Net Sales for all Licensed Products exceed for the first time USD
***if the worldwide aggregate Net Sales for all Licensed Products exceed
cumulatively for the first time USD ***Merck shall notify Lpath in writing
within *** following its achievement of each such commercial event, and the
corresponding commercial event payment shall be made by Merck within *** of
***.

 

40

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

For the avoidance of doubt,
each aforementioned commercial event payment shall be payable ***.

 

 

5.8                                                 Royalty Payments for Licensed Products.

 

(a)           As further consideration for Lpath’s
performance of its obligations under this Agreement and its grant of the rights
and licenses to Merck hereunder, Merck shall, during the Royalty Term (on a
Licensed Product-by Licensed Product and a country-by-country basis), pay to
Lpath running royalties on Net Sales of Licensed Products, at the percentage
rates set forth below determined based on Net Sales of all Licensed Products in
the Territory, (subject to Sections 5.10(a) through (c) below):

 

	
  ***

  	
   

  	
  ***

  	
   

  
	
  ***

  	
   

  	
  ***

  	
   

  
	
  ***

  	
   

  	
  ***

  	
   

  
	
  ***

  	
   

  	
  ***

  	
   

  
	
  ***

  	
   

  	
  ***

  	
   

  

 

For clarity, the applicable
royalty rate(s) for the purposes of calculating the royalties payable by
Merck shall be determined based upon the aggregate Net Sales of all Licensed
Products sold in ***.  By way of
illustration, assume in *** that (i) worldwide *** aggregate Net Sales of
all Licensed Products were ***, and (ii) ***.  The total royalties due and payable by Merck
to Lpath for such Net Sales would be ***

 

(b)   For purposes of determining whether a royalty threshold or a commercial
event milestone described in Section 5.7 above, has been attained, only
Net Sales that are subject to a royalty payment shall be included in the total
amount of Net Sales and any Net Sales for which the Royalty Term has expired
shall be excluded.  In addition, in no
event shall the manufacture of a Licensed Product give rise to a royalty
obligation.  For clarity, Merck’s
obligation to pay royalties to Lpath under this Article 5 is imposed only
once with respect to the same unit of Licensed Product regardless of the number
of Lpath Patents pertaining thereto.

 

5.9                                 Existing Third Party License
Agreements.  Lpath shall maintain the Existing Third Party
License Agreements set forth in Schedule 1.20 at its own cost and
expense, and shall continue to be responsible for making payments to such Third
Parties in a timely manner and to the extent set forth in each of such Existing
Third Party License Agreement, subject to Merck meeting its obligations under
this Agreement, including timely payment of all amounts due to Lpath hereunder.  Notwithstanding the foregoing, Merck agrees
to reimburse Lpath for 100% of the payments owed by Lpath to Lonza Biologics
PLC (“Lonza”) pursuant to that 

 

41

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

certain license agreement
between Lpath and Lonza dated August 8, 2006 for use by Lpath and its
collaborators of Lonza’s proprietary manufacturing technology for expression
systems used in manufacture of the Compound for Lpath prior to the Effective
Date.

 

5.10                           ***Reimbursements

 

(a)           Subject to the terms herein including the ***
with respect to Net Sales of Licensed Products under Section 5.10(b) below,
if Merck, its Affiliates *** enter into *** Agreement(s) for intellectual
property reasonably necessary for the Development or Commercialization of
Licensed Products, the royalties due to Lpath under Section *** with
respect to Net Sales *** shall be ***. 
For clarity, *** *** with respect to Licensed Products for which ***
pursuant to Section *** shall be ***this Section 5.10(a).  If the Third Party License Agreement covers
products other than the Licensed Product, Merck shall *** consistent with
International Financial Reporting Standards and with Merck’s internal
accounting for such amounts.  Lpath shall be responsible for the
timely payment of any amounts due under any Existing Third Party Agreement, and
in the event that Lpath shall fail to make any payment when due under such
Existing Third Party Agreement and does not do so *** after receiving written
notice of such failure, Merck shall thereafter have the right to make such
payment directly to such Third Party on behalf of Lpath and in such event, (i) Merck
shall promptly notify Lpath in writing, and (ii) Lpath shall, within ***
of such notification, reimburse Merck one hundred percent (100%) of any such
amounts paid by Merck***.

 

(b)           In no event shall the royalty payments due to
Lpath by Merck at the then-applicable royalty rates be ***the first sentence of
Section 5.10(a) and Section 5.10(c).  In the event that Merck is not able to ***
under this Section 5.10(b) with respect to the Licensed Product due
to *** this Section 5.10 (b) with respect to the Licensed Product, Merck
shall be *** Section 5.8 pertaining to the Licensed Product in ***, provided  however,
that ***.

 

5.11                           ***Timing
of Payment.  Royalties payable
under Section 5.8(a) shall accrue at the time *** Licensed Product
*** and royalty obligations that have accrued during *** shall be paid, ***
within *** after the end of *** *** during which the royalty obligation ***.

 

5.12                           Payments, Currency and
Invoicing.  Each payment to Lpath under this Agreement,
once made, shall be non-refundable and non-creditable against any other payment
due to Lpath herein.  All payments to Lpath hereunder
shall be made by deposit of US Dollars in the requisite amount to such bank
account as Lpath may from time to time designate by written notice to
Merck.  With respect to sales not denominated
in US Dollars, royalty amounts owed shall first be calculated in the currency
of sale, and then such amounts shall be converted into 

 

42

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

US Dollars using the
exchange rate of ***.  The Parties may *** at the place
of payment or remittance.

 

5.13                           Royalty Reports and Records
Retention.  Within *** after the end of each *** during
which the Licensed Products have been sold, Merck shall deliver to Lpath, ***
***, a written report, on *** basis, of Net Sales for such *** subject to
royalty payments. Such report shall be deemed “Confidential Information” of
Merck subject to the obligations of Article 7 of this Agreement. For ***
after each sale of the Licensed Product, Merck shall keep (and shall ensure
that its Affiliates *** shall keep) complete and accurate records of such sale
in sufficient detail to confirm the accuracy of the royalty calculations
hereunder.

 

5.14                           Legal Restrictions. If at any time legal restrictions prevent the
remittance by Merck of all or any part of royalties on Net Sales in any
country, Merck shall have the right and option to make such payment by
depositing the amount thereof in local currency to an account in the name of
Lpath in a bank or other depository selected by Lpath in such country.

 

5.15                           *** Payments.  All payments under this Agreement shall *** *** (a) *** (b) ***.  *** ***.

 

5.16                           Audits.

 

(a)           During the Term and for one Calendar Year
thereafter, upon the written request of Lpath, and not *** each ***, Merck
shall permit, and shall cause its Affiliates *** to permit, an independent
certified public accounting firm of nationally recognized standing selected by
Lpath, and reasonably acceptable to Merck or such Affiliate ***, to have access
to and to review, during normal business hours upon reasonable prior written
notice, the applicable records of Merck and its Affiliates *** to verify the
accuracy of the royalty reports and payments under this Article 5. Such
review may cover the records for sales made in any Calendar Year ending not
more than two (2) years prior to the date of such request. Any records so
provided shall not be audited more than *** (unless a discrepancy is identified
in such audit and subsequent audit of such records is reasonably necessary to
resolve a dispute between the Parties regarding such discrepancy). The
accounting firm shall disclose to Lpath and Merck only whether the royalty
reports are correct or incorrect and the specific details concerning any
discrepancies.  No other information
shall be provided to Lpath.

 

(b)           If such accounting firm concludes that
additional royalties were owed during such period, Merck shall pay the
additional royalties within *** after the date Lpath delivers to Merck such
accounting firm’s written report.  If
such accounting firm concludes that an overpayment was made, such overpayment
shall be fully creditable against amounts payable in subsequent payment
periods. Lpath shall pay for the cost of such audits, provided that, if
auditing firm 

 

43

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

determines that there has
been an underpayment of greater than *** of the total amount of royalties owed
by Merck during the auditing period at issue, Merck shall reimburse Lpath for
all costs related to such audit.

 

(c)           Each Party shall treat all information that
it receives under this Section 5.16 in accordance with the confidentiality
provisions of Article 7 of this Agreement, and shall cause its accounting
firm to enter into an acceptable confidentiality agreement with the other Party
obligating such firm to retain all such financial information in confidence
pursuant to such confidentiality agreement, except to the extent necessary for
such Party to enforce its rights under the Agreement.

 

5.17                           Compulsory License. In the event that Lpath or Merck receives a
request for or notification of a Compulsory License anywhere in the world, it
shall promptly notify the other Party. If any Third Party obtains a Compulsory
License in the Territory, then Lpath or Merck (whoever has first notice) shall
promptly notify the other Party. For the avoidance of doubt, for purposes of
calculating the royalties due Lpath under Section 5.8 with respect to
sales of the Licensed Product by any compulsory licensee, Merck’s Net Sales
from such sales shall be calculated based solely on the actual royalty
payments, if any, paid by the compulsory licensee to Merck or its Affiliates
under the Compulsory License.

 

5.18                           Taxes.

 

(a)                                    Lpath shall be responsible for the payment of
any and all taxes levied on account of royalties and other payments paid to
Lpath by Merck or its *** under this Agreement, other than any value added tax
or similar tax. If applicable Law requires that taxes be deducted and withheld
from royalties or other payments paid under this Agreement, Merck shall (a) deduct
those taxes from the payment; (b) pay the taxes to the proper Governmental
Body; (c) send evidence of the obligation together with proof of payment
to Lpath within *** following such payment, such evidence and proof to be
reasonably satisfactory to Lpath; (d) remit to Lpath the net amount, after
deductions or withholding made under this Section 5.18(a), and (e) cooperate
with Lpath in any way reasonably requested by Lpath, to obtain available
reductions, credits or refunds of such taxes. 
Notwithstanding the foregoing, if Lpath provides Merck with a written
confirmation from the competent U.S. tax authority that Lpath has its tax
residence in the United States and any other documents necessary for the
application of the tax rate set forth in the Double Taxation Convention
existing between Germany and the United States of America, then Merck shall not
withhold any German tax from royalties paid or payments for rights to Lpath
under this Agreement so long as the exemption from withholding tax set forth in
such Double Taxation Convention remains in effect.  For purposes of this Section 5.18(a),
the Parties assume that Lpath shall be the beneficial owner of both the royalty
payments and the payments for the rights.

 

44

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

(b)                                    It is understood and agreed between the
Parties that any payments described in this Agreement are expressed exclusive
of any value added tax or similar tax imposed upon such payments.  Value added tax shall be added to all such
payments where applicable .

 

ARTICLE 6

INVENTIONS AND PATENTS

 

6.1                                 Certification Under Drug
Price Competition and Patent Restoration Act.  Each Party shall immediately
give written notice to the other Party of any certification of which they
become aware filed pursuant to 21 U.S.C. Section 355(b)(2)(A) (or any
amendment or successor statute thereto) claiming that any Lpath Patents
covering Compound or Licensed Product, or the manufacture or use of each of the
foregoing in or for the Field, are invalid or unenforceable, or that
infringement will not arise from the manufacture, use or sale of a product by a
Third Party.

 

6.2                                 Listing of Patents. 
Merck shall have the sole right to determine, with respect to Licensed
Products in the Field, which of the Lpath Patents, if any, shall be listed for
inclusion in the Approved Drug Products with Therapeutic Equivalence
Evaluations pursuant to 21 U.S.C. Section 355, or any successor law in the
United States, together with any comparable laws or regulations in any other
country in the Territory.

 

6.3                                 Title to Inventions.

 

(a)           Lpath retains ownership of all Lpath
Technology and Lpath Confidential Information owned by Lpath as of the
Effective Date, and Merck retains ownership of all Merck Technology and Merck
Confidential Information owned by Merck as of the Effective Date.

 

(b)           As between the Parties, with respect to all
inventions and other subject matter conceived, generated, or otherwise made in
connection with the performance of activities pursuant to this Agreement,
together with all intellectual property rights therein, including Patent
Rights, (collectively, “Inventions”)
made after the Effective Date and prior to termination of the Initial
Development Period, (i) Lpath shall own all right, title and interest in
all such Inventions made solely by Lpath personnel, (ii) Merck shall own
all right, title and interest in all such Inventions made solely by Merck
personnel, and (iii) *** all right, title and interest in all such
Inventions that are made jointly by personnel of Merck and Lpath (“***”), in each case, for the avoidance of
doubt, subject to the license(s) to the other Party set forth herein for
so long as such license remains in effect. 
***.

 

45

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

(c)           Inventorship of inventions and other
intellectual property created by the Parties in connection with this Agreement
shall be determined in accordance with United States Patent Law.

 

6.4                                 Further Assurances.   Lpath shall require all of its employees, and use its best efforts to
require its contractors and agents, and any Affiliates and Third Parties
working on its behalf under this Agreement (and their respective employees,
contractors and agents), to assign to Lpath any Lpath Technology.

 

6.5                                 Patent Prosecution and
Maintenance.

 

(a)                   Lpath Patents. 
Lpath shall have the sole right to control the Prosecution and
Maintenance of Lpath Patents, in its discretion and at its expense; provided, however,
that Lpath agrees to Prosecute and Maintain such Lpath Patents in at least the
territories specified in Schedule 6.5(a) (the “Core Countries”) during the term of Merck’s
license hereunder, unless otherwise agreed by Merck.  Lpath shall keep Merck reasonably informed of
the course of the Prosecution and Maintenance of Lpath Patents or related
proceedings (e.g. interferences, oppositions, reexaminations, reissues,
revocations or nullifications) in *** in a timely manner, and shall reasonably
consider the advice and recommendations of Merck.  Lpath and Merck further agree that Merck
shall have a reasonable opportunity to review and comment, either directly or
indirectly through outside patent counsel selected by Merck and reasonably acceptable
to Lpath, on the design and implementation of Lpath patent strategy to the
extent Lpath Patents are concerned, and Lpath shall reasonably consider Merck’s
comments.  In the event that Merck
requests that Lpath file, Prosecute and/or Maintain any Lpath Patent in a
country outside the Core Countries in which Lpath has not elected to do so,
Lpath agrees to undertake such filing, Prosecution and/or Maintenance at Merck’s
expense.  Lpath may determine, in its
sole discretion, to abandon, cease prosecution or not maintain or prepare and
file (including, without limitation, filing of a priority patent application
and filing of a patent application in any jurisdiction in the Territory
claiming priority to a priority application) any Lpath Patent anywhere in the
Territory, subject to Section 6.5(b). 
For purposes of this Agreement, “Prosecution
and Maintenance” means, with regard to a Patent, the preparing,
filing, prosecuting and maintenance of such Patent, as well as re-examinations,
reissues, requests for Patent term extensions and the like with respect to such
Patent, together with the conduct of interferences, the offence and defense of
oppositions and other similar proceedings with respect to the particular
Patent; and “Prosecute and Maintain”
shall have the correlative meaning.  At
Lpath’s request, Merck will provide Lpath with reasonable assistance in
prosecuting Lpath Patents to the extent possible, including providing such data
in Merck’s Control that is, in Lpath’s reasonable judgment, needed to support
the prosecution of an Lpath Patent. 
Lpath shall provide Merck with a *** update of the complete patent
status of the Lpath 

 

46

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

Patents in all Core
Countries and such other countries where Lpath Prosecutes and Maintains Lpath
Patents at Merck’s request.

 

(b)                   Election not to Prosecute or
Maintain Lpath Patents.  If Lpath elects not to Prosecute or Maintain
an Lpath Patent in any country or possession in the Territory, then it shall
notify Merck in writing at least *** before any deadline applicable to the
filing, prosecution or maintenance of such Lpath Patent, as the case may be, or
any other date by which an action must be taken to establish or preserve such
Lpath Patent in such country or possession. 
In such case, by no later than *** before any deadline applicable to the
filing, prosecution or maintenance of such Lpath Patent, or any other date by
which an action must be taken to establish or preserve such Lpath Patent in
such country or possession, Merck shall have the right, but not the obligation,
to pursue the filing or support the continued Prosecution or Maintenance of
such Lpath Patent (which shall remain an Lpath Patent), at Merck’s expense; provided, however,
that if one or more such countries is a Core Country, or a country in which
Merck has requested that Lpath Prosecute and Maintain such Lpath Patent at
Merck’s expense as provided in Section 6.5(a), then with respect to ***
*** for purposes of *** (including application of the provisions of Section ***).

 

(c)                   Patent Term Extension.  With
respect to patent term extensions, the Parties shall cooperate in determining,
if applicable, which of such Lpath Patents should be extended, and Lpath shall
use Commercially Reasonable Efforts to obtain patent term extensions for such
Lpath Patents.  Merck shall provide Lpath
with all relevant information, documentation and assistance in this
respect.  Any such assistance, supply of
information and consultation shall be provided promptly. In the event that any
election with respect to obtaining patent term extensions is to be made, Merck
shall have the right to make such elections in its sole discretion.

 

(d)                   *** ***.  With
respect to any *** ***, each Party shall promptly disclose to the JSC (or, if
the JSC has been dissolved, directly to the other Party) any *** made by or
under its authority during the Term of this Agreement.  *** shall have the *** be responsible for,
and control the Prosecution and Maintenance of Patents covering such *** (“***”) in each country.  If *** elects in its sole discretion not to
Prosecute or Maintain a *** in any country or possession in the Territory, then
it shall notify *** in writing at least *** before any deadline applicable to
the filing, prosecution or maintenance of such ***, as the case may be, or any
other date by which an action must be taken to establish or preserve such ***
in such country or possession, and in such case *** shall have the right, but
not the obligation, to pursue the filing or support the continued Prosecution
or Maintenance of such *** (which shall remain a ***).  The Parties shall ***Prosecution and
Maintenance of ***; provided, however, that upon *** written notice,
either Party may elect not to ***Prosecution and Maintenance of 

 

47

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

***, in which event (i) the
other Party shall be free, in its discretion, to control the Prosecution and
Maintenance of such *** in such country ***, and (ii) if either Party so
elects *** Prosecution and Maintenance for a ***, such Party shall no longer
*** hereunder with respect to such *** in the applicable country.  For clarity, the election of either Party ***
Prosecution and Maintenance of any *** shall not affect ***.  The Party controlling Prosecution and
Maintenance of a *** (the “Prosecuting Party”)
shall provide the other an opportunity to review and comment upon the text of
the applications within the *** filed after the Effective Date at least ***
before filing with any patent office. 
The Prosecuting Party shall provide the other Party with an electronic
copy of each patent application within the*** as filed, together with notice of
its filing date and serial number.  The
Prosecuting Party shall keep the other Party advised of the status of all
material communications to and from applicable patent offices, actual and
prospective filings or submissions regarding ***, and shall give the other
Party an opportunity to review and comment in advance on any such communications,
filing and submissions proposed to be sent to any patent office.  Each Party agrees to provide the other Party
with all information necessary or desirable to enable the other Party to comply
with the duty of candor/duty of disclosure requirements of any patent
authority.

 

6.6                                 Enforcement of Patents.

 

(a)           Notice.  If
either Party believes that an Lpath Patent *** is being infringed by a Third
Party or if a Third Party claims that any Lpath Patent *** is invalid or
unenforceable, in each case with respect to such Third Party’s manufacture,
sale, offer for sale, use or importation of a Licensed Product in and for the
Field (collectively, “Infringing Activities”),
the Party possessing such knowledge or belief shall notify the other Party and
provide it with details of such infringement or claim that are known by such
Party.  As between the Parties, the right
to enforce such Lpath Patent *** with respect to such infringement, or to
defend any declaratory judgment action with respect thereto, or to compromise
or settle such infringement claim or declaratory judgment action, in each case
to the extent the same pertains to Infringing Activities (each, an “Enforcement Action”) shall be as set forth
in this Section 6.6.  For purposes
of this Agreement, “Initiating” or
to “Initiate”, with respect to an
Enforcement Action, refers to bringing an infringement claim or defending a
declaratory judgment action, or compromising or settling such infringement
claim or declaratory judgment action. 
For clarity, this Section shall not apply with respect to alleged
infringing activities with respect to Ocular Products or other products outside
the Field.

 

(b)           Right to bring an Action.  Merck
shall have the primary right to attempt to resolve such Infringing Activities,
including by taking and controlling an Enforcement Action with respect to the
Lpath Patents ***.  If Merck does not
intend to prosecute or defend an Enforcement Action, Merck shall promptly 

 

48

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

inform Lpath.  If Merck does not take an Enforcement Action
with respect to such an infringement or claim within *** following notice
thereof or a request by Lpath to do so, Lpath shall have the right to take and
control an Enforcement Action in the name of either *** Parties.  The Party taking such Enforcement Action
shall have the sole and exclusive right to select counsel for any suit
initiated by it pursuant to this Section 6.6.  Notwithstanding the foregoing, in the event
that Merck has tried to prosecute or defend an Enforcement Action, and the
competent court has denied Merck’s standing to prosecute or defend, then Lpath
shall, upon Merck’s request, prosecute or defend such Enforcement Action at
Merck’s expense.

 

(c)           Costs of an Action. 
Subject to the respective indemnity obligations of the Parties set forth
in Article 9, the Party taking an Enforcement Action under Section 6.6(b) shall
pay all costs associated with such Enforcement Action, other than (subject to Section 6.6(e))
the expenses of the other Party if the other Party elects to join such
Enforcement Action.  Each Party shall
have the right to join an Enforcement Action taken by the other Party at its
own expense.

 

(d)           Settlement. 
Neither Party shall settle or consent to any judgment or otherwise
compromise any Enforcement Action by admitting that any Lpath Patent or Joint
Patent is invalid or unenforceable without the other Party’s prior written
consent, which consent shall not be unreasonably withheld or delayed, and, (i) in
the case of Lpath, Lpath may not settle or otherwise compromise an Enforcement
Action in a way that adversely affects or would be reasonably expected to
adversely effect Merck’s rights or benefits hereunder with respect to the
Licensed Product in and for the Field, without Merck’s prior written consent,
which consent shall not be unreasonably withheld or delayed, and (ii) in
the case of Merck, Merck may not settle or otherwise compromise an Enforcement
Action in a way that adversely affects or would be reasonably expected to
adversely effect Lpath’s rights or benefits with respect to Ocular Products or
other products outside the Field without Lpath’s prior written consent, which
consent shall not be unreasonably withheld or delayed.

 

(e)           Reasonable Assistance.  The
Party not taking an Enforcement Action shall provide reasonable assistance to
the other Party, including providing access to relevant documents and other
evidence and making its employees available, subject to the other Party’s
reimbursement of any out-of-pocket expenses incurred by the non-enforcing or
non-defending Party in providing such assistance.

 

(f)           Distribution of Amounts Recovered.  Any
amounts recovered by the Party taking an Enforcement Action pursuant to this Section 6.6,
whether by settlement or judgment, shall first be applied to pro-rata
reimbursement of the unreimbursed legal fees and expenses incurred by the
Parties in such Enforcement Action, and any remainder shall be shared between
the Parties with the Party taking or controlling the Enforcement Action
receiving *** of any 

 

49

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

amount recovered and the
other Party *** of any amount recovered. 
If in connection with settlement of such an Enforcement Action Merck or
its Affiliate ***; provided, however, that if such ***.

 

6.7                                Third Party Actions Claiming
Infringement.

 

(a)           Notice.  If a
Party becomes aware of any claim or action by a Third Party against either
Party that claims that the Licensed Product, or its use, Development,
manufacture or sale in or for the Field infringes such Third Party’s
intellectual property rights (each, a “Third
Party Action”), such Party shall promptly notify the other Party of
all details regarding such claim or action that is reasonably available to such
Party.

 

(b)           Right to Defend.  Merck
shall have the primary right, at its sole expense, but not the obligation, to
defend a Third Party Action described in Section 6.7(a) through
counsel of its choosing, subject to Section 6.7(c).  Lpath shall have the right to join any
defense brought by Merck, with its own counsel at its own expense, or in the
event that Merck declines or fails to assert its intention to defend such Third
Party Action within *** of receipt/sending of notice under Section 6.7(a),
then Lpath shall have the right, but not the obligation, to defend such Third
Party Action to the extent legally permissible. 
The Party defending such Third Party Action shall have the sole and
exclusive right to select its counsel for such Third Party Action.

 

(c)           Consultation.  The
Party defending a Third Party Action pursuant to Section 6.7(b) shall
be the “Controlling Party.”  The Controlling Party shall consult with the
non-Controlling Party on all material aspects of the defense.  The non-Controlling Party shall have a
reasonable opportunity for meaningful participation in decision-making and
formulation of defense strategy.  The
Parties shall reasonably cooperate with each other in all such actions or
proceedings.  The non-Controlling Party
will be entitled to be represented by independent counsel of its own choice at
its own expense.

 

(d)           Appeal. In the event that a judgment in a Third
Party Action is entered against the Controlling Party and an appeal is
available, the Controlling Party shall have the first right, but not the
obligation, to file such appeal.  In the
event the Controlling Party does not desire to file such an appeal, it will
promptly, in a reasonable time period (i.e., with sufficient time for the
non-Controlling Party to take whatever action may be necessary) prior to the
date on which such right to appeal will lapse or otherwise diminish, permit the
non-Controlling Party to pursue such appeal at such non-Controlling Party’s own
cost and expense.  If applicable Law
requires the other Party’s involvement in an appeal, the other Party shall be a
nominal party of the appeal and shall provide reasonable cooperation to the
appealing Party at the appealing Party’s expense.

 

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***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

(e)           Costs of an Action. 
Subject to the respective indemnity obligations of the Parties set forth
in Article 9, the Controlling Party shall pay all costs associated with
such Third Party Action other than the expenses of the other Party if the other
Party elects to join such Action.  Each
Party shall have the right to join an Third Party Action defended by the other
Party, at its own expense.

 

(f)           No Settlement Without Consent.  No
Controlling Party shall settle or otherwise compromise any Third Party Action
by admitting that any Lpath Patent or Joint Patent is invalid or unenforceable
without the non-Controlling Party’s prior written consent, and, (i) in the
case of Lpath, Lpath may not settle or otherwise compromise a Third Party
Action in a way that adversely affects or would be reasonably expected to
adversely effect Merck’s rights and benefits hereunder with respect to the
Licensed Product in and for the Field without Merck’s prior written consent,
which consent shall not be unreasonably withheld, conditioned or delayed, and (ii) in
the case of Merck, Merck may not settle or otherwise compromise an Enforcement
Action in a way that adversely affects or would be reasonably expected to
adversely effect Lpath’s rights or benefits with respect to Ocular Products or
other products outside the Field without Lpath’s prior written consent, which
consent shall not be unreasonably withheld or delayed.

 

ARTICLE 7

CONFIDENTIALITY

 

7.1                                Confidentiality
Obligations.  Each Party agrees that, for the Term and for
*** thereafter, such Party shall, and shall ensure that its officers,
directors, employees and agents shall, keep completely confidential and not
publish or otherwise disclose and not use for any purpose except as expressly
permitted hereunder, or in the exercise of such Party’s rights or licenses
hereunder, any Confidential Information disclosed to it by the other Party
pursuant to this Agreement.  The
foregoing obligations shall not apply to any Confidential Information disclosed
by a Party hereunder to the extent that the receiving Party can demonstrate
that such Confidential Information:

 

(a)           was already known to the receiving Party or
its Affiliates, other than under an obligation of confidentiality, at the time
of disclosure;

 

(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;

 

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***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

(d)           was subsequently lawfully disclosed to the
receiving Party or its Affiliates by a Third Party without an obligation of
confidentiality other than in contravention of a confidentiality obligation of
such Third Party to the disclosing Party; or

 

(e)           was developed or discovered by employees or
agents of the receiving Party or its Affiliates who had no access to the
Confidential Information of the disclosing Party.

 

Notwithstanding the above
obligations of confidentiality and non-use, a Party may disclose information to
the extent that such disclosure is reasonably necessary in connection with:

 

(i)                              filing or prosecuting patent applications,
subject to the terms of Section 6.5;

 

(ii)                                prosecuting or defending litigation;

 

(iii)                            conducting pre-clinical studies or Clinical Trials;

 

(iv)                             seeking Regulatory Approval of the Licensed
Product; or

 

(v)                           complying with applicable Law, including
securities Law and the rules of any securities exchange or market on which
a Party’s securities are listed or traded.

 

In making any disclosures
set forth in clauses (i) through (v) above, the disclosing Party
shall, where reasonably practicable, give such advance notice to the other
Party of such disclosure requirement as is reasonable under the circumstances
and will use its reasonable efforts to cooperate with the other Party in order
to secure confidential treatment of such Confidential Information required to
be disclosed. In addition, in connection with any permitted filing by either
Party of this Agreement with any Governmental Body, included but not limited to
the U.S. Securities and Exchange Commission Agreement, the filing Party shall
endeavor to obtain confidential treatment of economic, trade secret information
and such other information as may be requested by the other Party, and shall
provide the other Party with the proposed confidential treatment request with
reasonable time for such other Party to provide comments, and shall include in
such confidential treatment request all reasonable comments of the other Party.

 

7.2                                Publications.

 

(a)          Merck shall not publish any information relating to the Compound or
Licensed Products prior to the Development Transfer Date without Lpath’s 

 

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***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

prior written consent.  Thereafter, Merck shall have the right to
make publications relating to Compounds and Licensed Products, in each case in
the Field, as it chooses, in its sole discretion, without the approval of
Lpath. Notwithstanding the preceding sentence, with respect to publications and
presentations submitted or disclosed by Merck prior to the first anniversary of
the Development Transfer Date, Merck agrees to deliver to Lpath a copy of the
proposed written publication or an outline of an oral disclosure at least ***
prior to submission for publication or presentation in which case Lpath shall
have the right (aa) to propose modifications to the publication or presentation
for patent reasons or trade secret reasons, and (bb) to request a reasonable delay
in publication or presentation in order to protect patentable information.  If Lpath requests a delay within such ***
period from the Development Transfer Date, then Merck shall delay submission or
presentation for a period of up to an additional *** to enable the filing of
patent applications.  Upon expiration of
such additional *** period, Merck shall be free to proceed with the publication
or presentation.  If Lpath, within such
*** period from the Development Transfer Date, requests modifications to the
publication or presentation, Merck shall edit such publication to prevent
disclosure of trade secret or proprietary business information prior to
submission of the publication or presentation.

 

(b)         Lpath shall have the right to make publications relating to the
Compounds or Ocular Products, including iSONEP, in each case outside the Field,
or other products outside the Field, as it chooses, in its sole discretion,
without the approval of Merck.

 

(c)          With respect to (i) Lpath’s Third Party collaborators for Compound
and Licensed Products in the Field (who are listed in Schedule 7.2
attached hereto), (ii) Lpath Current Phase I Trial, and (iii) any
other Ongoing Trial, the Parties agree that on and after the Effective Date of
this Agreement Lpath shall have the right to publish the results created or
developed by or in the course of (i) through (iii), provided that Lpath
delivers to Merck a copy of the proposed written publication or an outline of
an oral disclosure at least *** prior to submission for publication or
presentation.  Merck shall have the right
(aa) to propose modifications to the publication or presentation for patent
reasons or trade secret reasons, and (bb) to request a reasonable delay in
publication or presentation in order to protect patentable information.  If Merck requests a delay, Lpath shall delay
submission or presentation for a period of up to an additional *** to enable
the filing of patent applications.  Upon
expiration of such additional *** period, Lpath shall be free to proceed with
the publication or presentation.  If
Merck requests modifications to the publication or presentation, Lpath shall
edit such publication to prevent disclosure of trade secret or proprietary
business information prior to submission of the publication or
presentation.  For clarity, after the 

 

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***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

Development Transfer Date,
Merck shall have the right, subject to the terms and conditions of this
Agreement, to use, in and for the Development of Licensed Products in the
Field, any data created or developed (i) by Lpath’s Third Party collaborators
for Compound and Licensed Products in the Field, (ii) in the Lpath Current
Phase I Trial, and (iii) in any other Ongoing Trial without further
compensation of Lpath or Lpath’s Third Party collaborators.  Notwithstanding the foregoing, the Parties
acknowledge and agree that terms of this Section 7.2(c) shall apply,
with respect to Lpath’s Third Party collaborators for Compound and Licensed
Products in the Field, only to the extent Lpath has such rights under its
agreement(s) with the applicable Third Party collaborator.

 

7.3                                Press Releases and
Disclosure.

 

(a)          The proposed public announcement by the Parties of the execution of
this Agreement is set forth on Schedule 7.3 hereto.

 

(b)         Each Party may make
such public announcements or disclosures as are reasonably required to comply with applicable Law, including
filings required to be made under applicable rule of a public securities
exchange, or as required by court order. 
In the event that either Party is reasonably required to make a public
announcement or disclosure to comply with applicable Law, including filings
required to be made under applicable rule of a public securities exchange,
or as required by court order, the Party required to make such announcement or
disclosure, if it legally may, shall give the other Party at least two days to
review and comment on such disclosure. 
If a Party is not legally able, or if it is not reasonably practicable,
to give notice under the previous sentence, the disclosing Party shall disclose
only that information reasonably required to be disclosed under Law and shall
furnish the other Party with a copy of its disclosure as soon as practicable
after the making thereof.  The Parties
acknowledge that achievement of milestones for which Merck makes payments to
Lpath hereunder is material to Lpath.

 

(c)          After the Development Transfer Date, Merck shall have the right to make
any press releases with respect to Licensed Products in the Field as it
chooses, in its sole discretion, provided that Lpath shall have the opportunity
to review and comment upon any such press releases at least *** in advance of
its release.  Except to the extent
otherwise provided in Section 7.3(b), Merck shall not disclose information
or data (or activities of Lpath, its Affiliates or licensees) concerning Ocular
Products or other products containing Compounds outside the Field, or
concerning Licensed Products that have reverted to Lpath without the prior
written consent of Lpath.

 

(d)         After the Development Transfer Date, except to the extent otherwise
provided in Section 7.3(b), Lpath shall not disclose information or data
concerning 

 

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***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

Licensed Products in the
Field (other than Licensed Products that have reverted to Lpath), or
confidential information of Merck regarding Merck’s (or its Affiliates’ ***)
activities regarding the foregoing without the prior written consent of Merck.

 

(e)          Each Party shall be entitled to include in a press release or public
announcement the contents of any press release or public announcement has
previously been made in accordance with this Section 7.3 (including the initial
press release described in Section 7.3(a)), or other information that has
previously been publicly disclosed.

 

ARTICLE 8

REPRESENTATIONS, WARRANTIES AND COVENANTS

 

8.1                                Representations and
Warranties of Both Parties.  Each Party represents and warrants to the
other Party that, as of the Effective Date:

 

(a)           such Party is duly organized and validly
existing under the Laws of the jurisdiction of its incorporation or
organization;

 

(b)           such Party has taken all action necessary to
authorize the execution and delivery of this Agreement and the performance of
its obligations under this Agreement;

 

(c)           this Agreement is a legal and valid
obligation of such Party, binding upon such Party and enforceable against such
Party in accordance with the terms of this Agreement, except as enforcement may
be limited by applicable bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors’
rights generally and by general equitable principles.  The execution, delivery and performance of
this Agreement by such Party does not conflict with, breach or create in any
Third Party the right to accelerate, terminate or modify any agreement or
instrument to which such Party is a party or by which such Party is bound, and
does not violate any Law of any Governmental Body having authority over such
Party;

 

(d)           no consent by any Third Party or Governmental
Body is required with respect to the execution and delivery of this Agreement
by either Party or the consummation by either Party of the transactions
contemplated hereby; and

 

(e)           such Party has all right, power and authority
to enter into this Agreement, to perform its obligations under this Agreement.

 

8.2                                Additional Representations
and Warranties of Lpath. Lpath
represents and warrants to Merck, as of the Effective Date that:

 

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***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

(a)           To Lpath’s Knowledge, no claims have been
asserted or threatened in writing by any Person (i) challenging the
validity, effectiveness, enforceability, or ownership of Lpath Patents, and/or (ii) claiming
that Lpath’s activities prior to the Effective Date in connection with the
manufacture and Development of Licensed Products infringes any intellectual
property right of any Person;

 

(b)           To the Knowledge of Lpath, there is no
material unauthorized  use, infringement
or misappropriation of any Lpath Technology related to Licensed Products by any
employee or former employee, or any other Third Party;

 

(c)           To the Knowledge of Lpath, the Lpath Patents
are not the subject of any litigation procedure, discovery process,
interference, reisssue, reexamination, opposition, appeal proceedings or any
other legal dispute;

 

(d)           Lpath has no Knowledge of any Patent Rights
Controlled by Lpath as of the Effective Date (other than the Lpath Patents)
that are directly related to, and are necessary for, the manufacture, use or
sale of the Licensed Products in the Field;

 

(e)           Lpath has no Knowledge of any Know-How
Controlled by Lpath as of the Effective Date (other than the Lpath Know-How)
that is directly related to, and necessary for, the manufacture, use or sale of
the Licensed Products in the Field;

 

(f)           it has the full right to provide the Lpath
Materials to Merck and to transfer to Merck all right, title and interest in
and to the Lpath Material to be provided to Merck pursuant to this Agreement;

 

(g)          all employees of Lpath who have performed any
activities on its behalf in connection with research regarding the Compound
have assigned to Lpath the whole of their rights in any intellectual property
made, discovered or developed by them as a result of such  research, and no Third Party has any rights
to any such intellectual property;

 

(h)          Lpath has sufficient right, title and
interest in and to the Lpath Technology, by ownership or license, to convey to
Merck the licenses and rights as set forth herein, and such licenses and rights
do not conflict with any other agreement between Lpath and any Third Party,
including, for greater certainty, Lpath’s Third Party collaborators for
Compound and Licensed Products in the Field (who are listed in Schedule 7.2
attached hereto);

 

(i)           Lpath has the right, power and authority to
grant to Merck the rights granted to Merck hereunder with respect to the
Existing Third Party Agreements set forth on to Schedule 1.20.  In particular, the grant of such sublicense
requires no consent, waiver or other action by any party to the Existing Third
Party Agreements;

 

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***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.

 

(j)           As of the Effective Date, each of the
Existing Third Party Agreements is in full force and effect and Lpath is not in
breach or default in the performance of its obligations under any of the
Existing Third Party Agreements.  Lpath
has not received any notice from any Third Party of any breach, default or
non-compliance of Lpath under the terms of any of the Existing Third Party
Agreements.

 

(k)          Lpath has provided to Merck an accurate, true
and complete copy of each of the Existing Third Party Agreements, as amended as
of the Effective Date.  There have been
no amendments or other modification to any of the Existing Third Party
Agreements as of the Effective Date, except as have been disclosed to Merck in
writing;  and

 

(l)           Lpath has provided to Merck or made available
for Merck’s review all material information and data in Lpath’s Control as of
the Effective Date in connection with the Licensed Product and the transactions
contemplated under this Agreement upon Merck’s request.

 

8.3                                Lpath Covenants.  Lpath covenants to Merck that:

 

(a)           Lpath shall fulfill all of its obligations,
including but not limited to its payment obligations, under any Existing Third
Party Agreement;

 

(b)           Lpath shall not amend, waive or otherwise
alter any of Lpath’s rights under any Existing Third Party Agreement in any
manner that adversely affects the sublicense to Merck under such Existing Third
Party Agreement as set forth in this Agreement. Lpath shall promptly notify
Merck of any notice of default under, or termination or amendment of, any
Existing Third Party Agreement;

 

(c)           Lpath shall not, for as long as Merck enjoys
rights with respect to Licensed Products in and for the Field under this
Agreement, grant rights in or with respect to any Licensed Product to any Third
Party, in a manner inconsistent with the grants and other rights conveyed to
Merck under this Agreement; and

 

(d)           For so long as Merck retains its exclusive
license set forth in Section 2.1 (and provided that such license has not
been *** as set forth in Section ***), Lpath shall not provide Licensed
Products or Compounds to any Third Party for the conduct of activities in the
Field (including those Third Party Collaborators set forth on Schedule 7.2
after the Effective Date) without the prior consent of Merck.  Notwithstanding the foregoing, Lpath may
provide Licensed Products and Compounds and related biological materials to
contract manufacturers and to Third Party researchers or service providers as reasonably
necessary to conduct the Development Plan during the Initial Development
Period, provided that Lpath notifies Merck’s representatives to the JSC and
provides an opportunity for discussion prior to entering into any definitive
agreement therefor.  For clarity, 

 

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***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

this Section 8.3(d) shall
not be construed to restrict Lpath’s activities with respect to Compounds,
Ocular Products or other products with respect to the conduct of activities
outside the Field.

 

8.4                                Merck’s Covenants. 
Merck covenants to Lpath that:

 

(a)           Merck
shall not, and shall ensure that its Affiliates do not, exercise any of the
license rights granted to Merck pursuant to Section 2.1 above prior to the
Development Transfer Date, except as otherwise approved in writing in advance
by Lpath;

 

(b)           Merck shall not, and shall ensure that its
Affiliates*** and subcontractors do not, use any Lpath Materials (or
modifications, derivatives or improvements of such Lpath Materials) or Lpath
Know-How provided to Merck under this Agreement to research, Develop,
manufacture or Commercialize any Ocular Products or any other product that is
not a Licensed Product pursuant to this Agreement;

 

(c)           Merck shall not, and shall ensure that its
Affiliates *** do not, (i) conduct any Clinical Trials for any Licensed
Product for any Indication outside the Field or (ii) seek Regulatory
Approval (including seeking labeling changes) for any Licensed Product for any
Indication outside the Field;

 

(d)           Merck and its Affiliates shall use***
Commercially Reasonable Efforts to maintain a final formulation of each
Licensed Product that is both (i) designed and intended for use in and for
the Field and (ii) intended to minimize off-label uses;

 

(e)           Merck and its Affiliates shall use***
Commercially Reasonable Efforts not to distribute Licensed Products to
ophthalmologists; and

 

(f)           Merck and its Affiliates shall conduct all
activities in connection with the research, Development, manufacture, import,
export, use and Commercialization of Compounds and/or Licensed Products in
compliance with applicable Laws.

 

ARTICLE 9

INDEMNIFICATION AND INSURANCE

 

9.1                                Indemnification by
Merck.  Merck shall indemnify, defend and hold Lpath
and its Affiliates and each of their respective employees, officers, directors
and agents (the “Lpath Indemnitees”)
harmless from and against any and all liability, damage, loss, cost or expense (including
reasonable attorneys’ fees) to the extent arising out of Third Party claims or
suits related to (a) the development, manufacture, marketing, distribution,
promotion, use or sale by Merck or its Affiliates, *** assignees, designees or
agents, or their employees, contractors, 

 

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***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.

 

agents
or representatives, of any Licensed Product; (b) actions taken or omitted
to be taken by Merck or its Affiliates, *** assignees, designees or agents, or
their employees, contractors, agents or representatives, in performing its
obligations under this Agreement; or (c) breach by Merck of its
representations and warranties or its covenants set forth in Article 8; provided, however,
that Merck’s obligations pursuant to this Section 9.1 shall not apply to
the extent such claims or suits (i) result from the negligence or willful
misconduct of any of the Lpath Indemnitees; (ii) arise out of breach by
Lpath of its representations, warranties or covenants set forth in Article 8;
(iii) are based on actions taken or omitted to be taken by Lpath or its
Affiliates, sublicensees, assignees, designees or agents, or their employees,
agents or representatives, in breach of its obligations with respect to
activities which may be performed by Lpath under this Agreement; or (iv) arise
from the manufacture, use or sale of Ocular Products (or other products outside
the Field) by or under authority of Lpath or its Affiliates or licensees.

 

9.2           Indemnification by Lpath.   Lpath shall indemnify, defend and hold Merck
and its Affiliates and each of their respective agents, employees, officers and
directors (the “Merck Indemnitees”)
harmless from and against any and all liability, damage, loss, cost or expense
(including reasonable attorney’s fees) to the extent arising out of Third Party
claims or suits related to (a) actions taken or omitted to be taken
by Lpath or its Affiliates, sublicensees, assignees, designees or agents, or
their employees, contractors, agents or representatives, in performing its obligations under this Agreement
(including its performance of the Lpath Current Phase I Trial and any Ongoing
Trial, whether prior to or after the Effective Date); (b) any research,
development, manufacture, marketing, distribution, promotion, export, import,
use or sale by Lpath or its Affiliates, sublicensees, assignees,
designees or agents, or their employees, contractors, agents or
representatives, of iSONEPTM or any
other Ocular Products (or other products outside the Field); or (c) breach
by Lpath of its representations, warranties or covenants set forth in Article 8;
provided, however,
that Lpath’s obligations pursuant to this Section 9.2 shall not apply to
the extent such claims or suits (i) result from the negligence or willful
misconduct of any of the Merck Indemnitees; (ii) arise out of a breach by
Merck of its representations and warranties or its covenant set forth in Article 8;
(iii) are based on actions taken or omitted to be taken by Merck or
its Affiliates, *** assignees, designees or agents, or their employees,
contractors, agents or representatives, in breach of its obligations with
respect to activities which may be performed by Merck under this Agreement; or (iv) arise
from the manufacture, use or sale of Licensed Products by or under authority of
Merck or its Affiliates ***.

 

9.3           No Consequential Damages.  IN NO EVENT SHALL EITHER PARTY OR ANY OF ITS
AFFILIATES BE LIABLE TO THE OTHER PARTY OR ANY OF ITS AFFILIATES FOR SPECIAL,
INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, WHETHER IN CONTRACT, 

 

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***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.

 

WARRANTY, TORT, NEGLIGENCE,
STRICT LIABILITY OR OTHERWISE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
ANY BREACH THEREOF.

 

9.4           Notification of Claims; Conditions to Indemnification Obligations.  As a
condition to a Party’s right to receive indemnification under this Article 9,
it shall (a) promptly notify the other Party as soon as it becomes aware
of a claim or suit for which indemnification may be sought pursuant hereto, (b) cooperate,
and cause the individual indemnitees to cooperate, with the indemnifying Party
in the defense, settlement or compromise of such claim or suit, and (c) permit
the indemnifying Party to control the defense, settlement or compromise of such
claim or suit, including the right to select defense counsel.  In no event, however, may the indemnifying
Party compromise or settle any claim or suit in a manner which admits fault or
negligence on the part of the indemnified Party or any indemnitee without the
prior written consent of the indemnified Party. The indemnifying Party shall
have no liability under this Article 9 with respect to claims or suits
settled or compromised without its prior written consent.

 

9.5           Insurance.  During the Initial Development Period with
respect to Lpath Development activities for Licensed Product under this
Agreement, and with respect to any Ocular Products and other products
containing Compounds outside the Field as long as Lpath is developing or
commercializing the same, Lpath shall obtain and maintain, at its sole cost and
expense, product liability insurance (including any self-insured arrangements)
in amounts, that are reasonable and customary to cover its activities
anticipated under this Agreement.  During
the term of this Agreement, Merck shall obtain and maintain, at its sole cost
and expense, product liability insurance (including any self-insured
arrangements) in amounts that are reasonable and customary to cover its
activities anticipated under this Agreement. 
It is understood and agreed that this insurance shall not be construed
to limit either Party’s liability with respect to its indemnification
obligations hereunder.  Each Party shall
provide to the other Party upon request documentation evidencing the insurance
such Party is required to obtain and keep in force under this Section 9.5.

 

ARTICLE 10

TERM AND TERMINATION

 

10.1         Term and Expiration.  The term of this Agreement (the “Term”) shall commence on the Effective Date and, unless
earlier terminated as provided in this Article 10, shall continue in full
force and effect, on a country-by-country and Licensed Product-by-Licensed
Product basis until expiration of all royalty or other payment obligation in
such country with respect to such Licensed Product, at which time this
Agreement shall expire with respect to such Licensed Product in such
country.  Upon expiration of the Royalty
Term with respect to any Licensed Product, and provided that Merck has made all
required payments and is 

 

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***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

not otherwise in breach of
this Agreement, then as of the effective date of such expiration and on a
Licensed Product-by-Licensed Product and a country-by-country basis, the
license from Lpath to Merck under Section 2.1 shall convert to a ***
license under the Lpath Technology to make, have made, use, import, export,
offer for sale and sell such Licensed Product solely in and for the Field in
the applicable country.

 

10.2         ***

 

10.3         Termination for No Delivery of Development Transfer Notice.  This Agreement shall immediately and automatically terminate in its
entirety upon expiration of the Initial Development Period (as extended
pursuant to the terms of this Agreement) in the event that Merck does not both (a) provide
Lpath with a Development Transfer Notice as specified in Section 3.3 and (b) make the payments to
Lpath pursuant to Section 5.4(a) and 5.5 herein, in each case within the timeframes
specified therein.

 

10.4         ***

 

10.5         Termination upon Material
Breach.

 

(a)   If a Party breaches any of its material obligations under the
Agreement, the Party not in default may give to the breaching Party a written
notice specifying the nature of the default, requiring it to cure such breach,
and stating its intention to terminate this Agreement if such breach is not
cured within *** (or, with respect to breach of a payment obligation under this
Agreement, ***).  If such breach is not
cured within *** (or, with respect to breach of a payment obligation under this
Agreement, ***) after the receipt of such notice, the Party not in default
shall be entitled to terminate this Agreement by written notice to the other
Party.

 

(b)   In the event that Merck fails to fulfill its obligations under Section 3.14(a) (and
does not cure such failure as provided in Section 10.5(a)), Lpath’s sole
and exclusive remedy shall be to terminate this Agreement as provided in Section 10.5(a) above,
provided that if such breach only relates to one or more specific countries,
such termination shall only be with respect to such countries.  The foregoing shall not be construed to
release Merck with respect to the obligations set forth in Section 10.7
(other than Section 10.7(c)) or Section 10.8.

 

(c)   Any dispute regarding an alleged material breach of this Agreement
shall be resolved in accordance with Article 11 hereof.  In the event that the Party that has
allegedly materially breached this Agreement disputes such breach and the
resulting termination of this Agreement, then any consequences of termination
described in this Article 10 shall only apply from and after such time as
such termination has been upheld in a final judgment from which no appeal can
be taken, or that is unappealed with the time allowed for appeal, or such time
as the Party allegedly in material breach is no longer disputing such
termination.

 

(d)   In the event Merck has the
right to terminate this Agreement under Section 10.5(a) and it has been
determined in a final judgment from which no appeal can be taken, or that is
unappealed within the time allowed for appeal, that Lpath has breached a
material obligation of this Agreement, Merck may elect not to terminate this
Agreement, and Merck shall have the right, at its choice, to either (i) enforce
against Lpath separately, or (ii) offset against its financial obligations
hereunder, the amount of any damages resulting from such material breach by
Lpath that are awarded to Merck pursuant to such final judgment .

 

61

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

10.6         Competing
Product Acquisition.  If Lpath
(or one of its Affiliates or its successor in interest) acquires a Third Party
that, among other products, has a Competing Product (as opposed to a scenario
in which Lpath only acquires a Competing Product from a Third Party, which
right Lpath shall not have during the Term of this Agreement), then Lpath shall
deliver to Merck as soon as possible (and in any event within ***) after Lpath
acquires such Third Party a written
notification of Lpath’s election, in its sole discretion, either to divest or
retain all of its rights, title and interest in and to such Competing Product,
or to discontinue and cease all development in connection with such Competing
Product.  If Lpath elects to retain such
Competing Product and does not discontinue and cease all development in
connection with such Competing Product, Merck shall have the right, at its sole
discretion, upon *** notice to Lpath (and provided that Lpath does not cease
all development in connection with, or divest, such Competing Product within such
*** period) ***payments due to Lpath under Article 5***, and the
provisions of Section 12.5 shall apply. 
In the event that Lpath undergoes a Change of Control which results in
Lpath being controlled by a Third Party that has a Competing Product, then Lpath
shall not be under the obligation to divest such Competing Product, and Merck
shall not have ***payments to Lpath under Article 5, but the provisions of
Section 12.5 shall apply.

 

10.7         General Effects of Termination or
Expiration.

 

(a)   Termination of Rights.
   All licenses and rights granted by Lpath under this Agreement
shall terminate immediately.

 

(b)   Accrued
Obligations.   Expiration or termination of this
Agreement for any reason shall not release either Party of any obligation or
liability which, at the time of such expiration or termination, has already
accrued to the other Party or which is attributable to a period prior to such
expiration or termination.

 

(c)   Non-Exclusive
Remedy.   Except as (and to the extent) otherwise
provided in Section 10.5(b) with respect to termination for Merck’s
breach of Section 3.14(a), termination of this Agreement by a Party shall
be without prejudice to other remedies such Party may have at law or equity.

 

62

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

(d)   General
Survival.   The following provisions of this
Agreement shall survive expiration or termination of this Agreement for any
reason (but solely for the time periods provided in such Articles and Sections,
if a time period is specified therein): 
Articles 9 and 11; Sections 2.6, 2.7, 2.8, 5.11, 5.12. 5.13. 5.14, 5.15,
5.16, 5.18, 6.3, 6.4, 7.1, 10.7, 12.12 and 12.13; Lpath’s right of reference
pursuant to Section 4.1 (until such time as the applicable regulatory
filing is transferred to Lpath pursuant to the applicable termination
provision); Sections 6.6 and 6.7 (solely with respect to litigation, if
any, under the applicable section that was initiated prior to the effective
date of termination); the various notice and reporting obligations set forth
herein (until such time as the notice and reporting obligations applicable to
the time period up to and including the effective date of such termination have
been fulfilled).  Each of
Sections 10.8, 10.9 and/or 10.10 shall survive the type(s) of
terminations of this Agreement which are the subject of such section, as
applicable.  Except as otherwise provided
in this Article 10, all rights and obligations of the Parties under this
Agreement shall terminate upon expiration or termination of this Agreement for
any reason.

 

10.8         Specific
Effects of Termination *** *** by Lpath pursuant to Section 10.5.  If *** Lpath terminates this Agreement
pursuant to Section 10.5, the consequences set forth in Schedule 10.8
shall apply.

 

10.9         Specific
Effects of Termination ***.  Upon
termination of this Agreement pursuant to ***the obligation for Merck to make
milestone payments to Lpath as provided for in Article 5 ***Development
Milestone Payments during the Initial Development Period that have ***in
accordance with Section 5.3 above *** 
In addition, clauses (c), (d), and (g) of Schedule 10.8
shall apply to the extent, if any, such matters are applicable as of the
effective date of such termination.

 

10.10      Partial
Termination Under Section ***. 
Upon termination of this Agreement under Section *** with respect
to one or more ***, but not as to the entire Territory (each such terminated
territory referred to as an “Affected Area”),
then *** and Paragraph 2 of Schedule 10.8 shall each apply to the
extent applicable to the Affected Area.

 

ARTICLE 11

DISPUTE RESOLUTION

 

11.1         Disputes.  The Parties recognize that disputes as to
certain matters may from time to time arise during the Term which relate to
either Party’s rights and/or obligations hereunder.  It is the objective of the Parties to
establish procedures to facilitate the resolution of disputes relating to or
arising under this Agreement in an expedient manner by mutual cooperation and
without resort to litigation.  In the
event that the Parties are unable to resolve such dispute within *** from the
day that one Party had designated the issue as a dispute, then either Party
shall 

 

63

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

have
the right to escalate such matter to senior management as set forth in Section 11.2.

 

11.2         Escalation to Executive Officers.  Either Party may, by written
notice to the other Party, request that a dispute that remained unresolved for
a period of *** as set forth in Section 11.1 be resolved by the President
of Merck’s pharmaceutical division (or his designee) (the “Merck Serono
President”) and the Chief Executive Officer of Lpath (or his
designee) (collectively, the “Executive
Officers”), within *** of their first consideration of such dispute,
but in all cases within *** after a Party’s written request for resolution by
the Executive Officers.  If the Executive
Officers cannot resolve such dispute within such *** period, either Party may
proceed to enforce any and all of its rights with respect to such dispute in
accordance with Section 11.3 or Section 11.4, as applicable.

 

11.3         Arbitration.  The Parties agree that, except for disputes
to be submitted for expedited arbitration pursuant to Section 11.4, any
dispute or controversy relating to or arising
out of or in connection with this Agreement, or the validity, enforceability,
construction, performance or breach hereof, which is not resolved under Section 11.2,
shall be finally settled by binding arbitration under this Section 11.3 under the *** by a panel of three
arbitrators, one appointed by each of the Parties, and the third elected by the
two arbitrators so appointed, all in accordance with the rules thereof and
the decisions of the arbitrator shall be final and binding on the Parties
hereto.  The place of the arbitration
proceeding shall be in ***.  The
Parties agree that the decision shall be the sole, exclusive and binding remedy
between them regarding determination of the matters presented to the
arbitrators.  The
costs of such arbitration, including
administrative and arbitrator’s fees, shall be shared equally by the
Parties, and each Party shall bear its own expenses and attorney’s fees incurred in connection with the
arbitration.  The Parties shall use good
faith efforts to complete arbitration under this Section 11.3 within ***
following the initiation of such arbitration. 
The arbitrator shall establish reasonable additional procedures to
facilitate and complete such arbitration within such *** period.

 

11.4         Expedited Arbitration for Certain Matters.

 

(a)   The Parties agree that with respect to (i) any dispute described
in Section *** regarding the reasonableness of ***, (each, an “Expedited Arbitration Issue”), such Expedited Arbitration
Issue, if not resolved under Section 11.2, shall be finally settled by
binding arbitration under this Section 11.4.  Arbitration pursuant to this Section 11.4
shall be conducted in accordance with the applicable rules of the *** (the
“***”), except as modified in this Section 11.4.  Such arbitration shall be conducted in *** or
such other location as the Parties may mutually agree.

 

64

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.

 

(b)   Upon written request of either
Party, such matter shall be submitted to a single neutral arbitrator (the “Expedited Process Arbitrator”) who is (i) mutually
acceptable to both Parties and (ii) recognized as an expert in the area of
clinical development and regulatory approval of monoclonal antibody
therapeutics.  If the Parties cannot
agree upon such an Expedited Process Arbitrator within *** after written
request of either Party to refer such matter to arbitration, then each Party
shall (a) prepare and submit within *** a list of at least *** and no more
than *** potential Expedited Process Arbitrators with appropriate
qualifications, and the *** administrator shall select the Expedited Process
Arbitrator from such lists.

 

(c)   For disputes under Section ***,
within *** after, and otherwise *** after, selecting the Expedited Process
Arbitrator, each Party shall present the Expedited Process Arbitrator with
evidence and arguments as to the Expedited Arbitration Issue(s) presented.  For disputes under Section ***, within
*** after, and otherwise within *** after, selection of the Expedited Process
Arbitrator, the Expedited Process Arbitrator shall issue a written determination
and select the position of either one Party or the other as to each Expedited
Arbitration Issue in dispute (i.e., whether ***).

 

(d)   The Expedited Process Arbitrator’s determination shall be final and
binding upon the Parties as to each Expedited Arbitration Issue presented, but
all other determinations (if any) made by the Expedited Process Arbitrator
shall be non-binding (except as provided in the following sentence).  The Parties shall divide equally the
administrative charges, arbitrator’s fees and related expenses of arbitration
under this Section 11.4, but each Party shall pay its own attorneys’ fees
incurred in connection therewith; provided, however,  that if the Expedited Process Arbitrator
determines that the non-prevailing Party acted unreasonably or without good
faith in disputing the matters or circumstances at issue, then the Expedited
Process Arbitrator may, in his or her discretion, require that the
non-prevailing Party pay all of the administrative charges, arbitrator’s fees
and related expenses of such arbitration as, well as the reasonable attorneys’
fees and other out-of-pocket costs, incurred by the prevailing Party in
connection with such issues.

 

11.5         Provisional Remedies.  Nothing in this Agreement shall limit the
right of either Party to seek to obtain in any court of competent jurisdiction
any equitable or interim relief or provisional remedy, including injunctive
relief,
pending resolution under Section 11.1, 11.2, 11.3 or 11.4 as applicable,
that may be necessary to protect the rights or property of that Party. 
Seeking or obtaining such equitable or interim relief or provisional
remedy in a court shall not be deemed a waiver of the agreement to
arbitrate.  For clarity, any such
equitable remedies shall be cumulative and not exclusive and are in addition to
any other remedies that either Party may have under this Agreement or
applicable Law.

 

65

 

***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

ARTICLE 12

MISCELLANEOUS PROVISIONS

 

12.1         Relationship of the Parties.  Nothing in this Agreement is intended or
shall be deemed to constitute a partnership, agency, joint venture or
employer-employee relationship between the Parties.

 

12.2         Assignment.

 

(a)   Except as expressly provided herein, neither this Agreement nor any
interest hereunder shall be assignable, nor any other obligation delegable, by
either Party without the prior written consent of the other Party (not to be
unreasonably withheld or delayed). 
Notwithstanding the foregoing, either Party may assign this Agreement
without the consent of the other Party to (a) any Affiliate or (b) a
successor to substantially all of the business of the assigning Party to which
this Agreement relates, whether by merger, sale of stock, sale of assets or
similar transaction, operation of law or otherwise.

 

(b)   No assignment under this Section 12.2 shall relieve the assigning
Party of any of its responsibilities or obligations hereunder and provided,
further, that as a condition of such assignment, the assignee shall agree to be
bound by all obligations of the assigning Party hereunder.

 

(c)   This Agreement shall be binding upon the successors and permitted
assigns of the Parties.

 

(d)   Any assignment not in accordance with this Section 12.2 shall be
void.

 

12.3         Performance by Affiliates.  Merck shall have the right to
have any of its obligations hereunder performed, or its rights hereunder
exercised, by, any of its Affiliates and the performance of such obligations by
any such Affiliate(s) shall be deemed to be performance by Merck; provided, however, Merck
shall be responsible for ensuring the performance of its obligations under this
Agreement and that any failure of any Affiliate performing obligations of Merck
hereunder shall be deemed to be a failure by Merck to perform such obligations.

 

12.4         Protection under Section 365(n) US Bankruptcy Code.  All rights and licenses granted under or pursuant to this Agreement by
Lpath are, and shall otherwise be deemed to be, for purposes of Section 365(n) of
the U.S. Bankruptcy Code, if applicable, licenses of right to “intellectual
property” as defined under Section 101 of the U.S. Bankruptcy Code. The
Parties agree that Merck, as licensee of such rights under this Agreement, shall
retain and may fully exercise all of its rights and elections under the U.S.
Bankruptcy Code.  The Parties further
agree that, in the event of the commencement of a bankruptcy proceeding by or
against Lpath under the U.S. Bankruptcy Code, Merck shall be entitled to a
complete 

 

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***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

duplicate of (or complete
access to, as appropriate) any such intellectual property and all embodiments
of such intellectual property, which, if not already in Merck’s possession,
shall be promptly delivered to it (a) upon any such commencement of a
bankruptcy proceeding upon Merck’s written request therefor, unless Lpath
elects to continue to perform all of its obligations under this Agreement or (b) if
not delivered under clause (a), following the rejection of this Agreement by
Lpath upon written request therefor by Merck.

 

12.5         Change of Control. In the event of a Change of Control of
Lpath involving a Merck Competitor or the acquisition by Lpath of a Competing
Product, then as from the date of such Change of Control or acquisition, Merck
shall cease to have any reporting obligations pursuant to Section 3.15.  For clarity, Merck’s obligations to provide
royalty reports pursuant to Section 5.13 shall survive a Change of Control
of Lpath.

 

12.6         Further Actions.  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.

 

12.7         Accounting Procedures.  Each Party shall calculate all amounts
hereunder and perform other accounting procedures required hereunder and
applicable to it in accordance with either, as applicable (a) United
States generally accepted accounting principles (US GAAP) or (b) International
Financial Reporting Standard (IFRS), whichever is normally used by such Party
to calculate its financial position, and in each case consistently applied by
such Party.

 

12.8         Force Majeure.  Neither Party shall be liable to the other
for failure or delay in the performance of any of its obligations under this
Agreement for the time and to the extent such failure or delay is caused by
acts of God, earthquake, riot, civil commotion, terrorism, war, strikes or
other labor disputes, fire, flood, failure or delay of transportation, default
by suppliers or unavailability of raw materials, governmental acts or
restrictions or any other reason which is beyond the control of the respective
Party.  The Party affected by force
majeure shall provide the other Party with full particulars thereof as soon as
it becomes aware of the same (including its best estimate of the likely extent
and duration of the interference with its activities), and will use
Commercially Reasonable Efforts to overcome the difficulties created thereby
and to resume performance of its obligations hereunder as soon as practicable.  If the performance of any such obligation
under this Agreement is delayed owing to such a force majeure for any
continuous period of more than one hundred eighty (180) days, the Parties
hereto will consult with respect to an equitable solution, including the
possibility of the mutual termination of this Agreement.

 

12.9         No Trademark Rights.  No right, express or implied, is granted by
this Agreement to a Party to use in any manner the name or any other trade name
or

 

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***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.

 

trademark of the other Party
in connection with the performance of this Agreement or otherwise, except as
otherwise provided in Section 3.16.

 

12.10       Entire Agreement of the Parties; Amendments.  This Agreement and the schedules and exhibits hereto constitute and
contain the entire understanding and agreement of the Parties respecting the
subject matter hereof and cancel and supersede any and all prior negotiations,
correspondence, understandings and agreements between the Parties, whether oral
or written, regarding such subject matter. No waiver, modification or amendment
of any provision of this Agreement shall be valid or effective unless made in a
writing referencing this Agreement and signed by a duly authorized officer of
each Party.

 

12.11       Captions.  The captions to this Agreement are for
convenience only, and are to be of no force or effect in construing or
interpreting any of the provisions of this Agreement.

 

12.12       Governing Law.  This Agreement shall be governed by and
interpreted in accordance with the laws of ***, excluding the application of
any conflict of laws principles that would require application of ***; provided, however, that
matters of intellectual property law shall be determined in accordance with the
national intellectual property laws relevant to the intellectual property at
issue.

 

12.13       Notices and Deliveries.  Any notice, request, approval or consent
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been sufficiently given if delivered in person,
transmitted by facsimile (receipt verified) or by express courier service
(signature required) to the Party to which it is directed at its address or
facsimile number shown below or such other address or facsimile number as such
Party shall have last given by notice to the other Party.

 

If to Merck, addressed to:

 

Merck KGaA

c/o Merck Serono International S.A.

9, Chemin des Mines

1202 Geneva

Switzerland

Attn: 
Alliance Management

Facsimile:  ***

 

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***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.

 

With a copy to:

 

Merck KGaA

Frankfurter Strasse 250

D-64293 Darmstadt

Germany

Attn:  Merck Serono Legal Department

Facsimile:  ***

 

If to Lpath, addressed to:

 

LPATH, Inc.

6335 Ferris Square, Suite A

San Diego, CA  92121

Attention:  
President and CEO

 

12.14                  Waiver.  A waiver by either Party of any of the terms and conditions of this
Agreement in any instance shall not be deemed or construed to be a waiver of
such term or condition for the future, or of any other term or condition
hereof.  All rights, remedies,
undertakings, obligations and agreements contained in this Agreement shall be
cumulative and none of them shall be in limitation of any other remedy, right,
undertaking, obligation or agreement of either Party.

 

12.15      Rights of Third Parties.  The Parties to this Agreement
do not intend that any term of this Agreement shall be enforceable by virtue of
*** or otherwise by any Person who is not a Party to this Agreement.

 

12.16      Severability.  When possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable Law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable Law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.  The Parties
shall make a good faith effort to replace the invalid or unenforceable
provision with a valid one which in its economic effect is most consistent with
the invalid or unenforceable provision.

 

12.17      Counterparts.  This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, and all of which
together will be deemed to be one and the same instrument.  A facsimile copy of this Agreement, including
the signature pages, will be deemed an original.

 

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***CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed and delivered by their respective duly authorized officers as of the
day and year first above written, each copy of which shall for all purposes be
deemed to be an original.

 

 

	
  LPATH, Inc.

  	
   

  	
  MERCK KGaA

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
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70Exhibit 4.2

 

OAK VALLEY BANCORP

 

2008 Equity Plan

 

THIS
2008 EQUITY PLAN is hereby adopted by the Board of Directors of Oak Valley
Bancorp, a California corporation (the “Company”) on May 1, 2008, subject
to approval by the shareholders of the Company below.

 

ARTICLE I

 

PURPOSE AND EFFECTIVE DATE

 

1.1                                 Purpose. The purpose of the Plan is to provide
financial incentives for selected Employees, Advisors and Non-Employee
Directors, thereby promoting the long-term growth and financial success of the
Company by (a) attracting and retaining Employees, Advisors and
Non-Employee Directors of outstanding ability, (b) strengthening the
Company’s capability to develop, maintain, and direct a competent management
team, (c) providing an effective means for selected Employees, Advisors
and Non-Employee Directors to acquire and maintain ownership of Company Stock, (d) motivating
Employees to achieve long-range Performance Goals and objectives, and (e) providing
incentive compensation opportunities competitive with peer financial
institution holding companies.

 

1.2                                 Effective Date and Expiration
of Plan. The Plan will be
effective upon its adoption by the Board and approval by affirmative vote of
the Shareholders required under applicable rules and procedures, including
those prescribed under Sections 162(m) and 422 of the Code and applicable
NASDAQ rules (the “Effective Date”). 
Unless earlier terminated by the Board pursuant to Section 12.2,
the Plan shall terminate on the tenth anniversary of its Effective Date.  No Award shall be made pursuant to the Plan
after its termination date, but Awards made prior to the termination date may
extend beyond that date.  Notwithstanding
the foregoing, no Incentive Stock Options may be granted more than ten years
after the earlier of (a) the adoption of this Plan by the Board or (b) the
Effective Date.

 

ARTICLE II

 

DEFINITIONS

 

The following words and
phrases, as used in the Plan, shall have the meanings set forth in this
section.  When applying these definitions
and any other word, term or phrase used in this Plan, the form of any word,
term or phrase will include any and all of its other forms.

 

2.1                                 Advisor means any advisor who renders bona fide
services to the Company and/or one or more of the Subsidiaries as an advisory
or marketing board member and who is neither an Employee nor a director of the
Company or any Subsidiary; provided that the services rendered are not in
connection with the offer or sale of securities in a capital-raising
transaction and do not directly or indirectly promote or maintain a market for
the Company’s securities.

 

2.2                                 Award means, individually or collectively, any
Option, SAR, Restricted Stock, Restricted Stock, Performance Stock, or
unrestricted Company Stock Award.

 

2.3                                 Award Agreement means the written agreement between the
Company and each Participant that describes the terms and conditions of each
Award.  If there is a conflict between
the terms of the Plan and the Award Agreement, the terms of the Plan will
govern.

 

2.4                                 Board means the Board of Directors of the Company.

 

2.5                                 Cause with respect to any Participant, means: (a) Gross
negligence or gross neglect of duties; or (b) Commission of a felony or of
a gross misdemeanor involving moral turpitude in connection with the
Participant’s employment or service, as the case may be, with the Company or
any of its Subsidiaries; or (c) Fraud, disloyalty, dishonesty or willful
violation of any law or significant Company policy committed in connection with
the Participant’s employment or provision of services, as the case may be; or (d) Issuance
of an order for removal of the Participant by any agency which regulates the
activities of the Company or any of its Subsidiaries.  Any determination of “Cause” under this Plan
shall be made by the Committee in its sole discretion.

 

2.6                                 Company means Oak Valley Bancorp, a California
corporation.

 

2.7                                 Company Director means a non-employee member of the Board.

 

2.8                                 Company Stock means the Company’s common shares, without par
value per share.

 

2.9                                 Code means the Internal Revenue Code of 1986, as
amended or superseded after the Effective Date, and any applicable rulings or
regulations issued thereunder.

 

2.10                           Committee means the Compensation Committee of the Board
or a subcommittee thereof.

 

2.11                           Disability means: (a) with respect to an Incentive
Stock Option, “disabled” within the meaning of Section 22(e)(3) of
the Code; (b) with respect to any Award subject to Section 409A of
the Code, “disabled” as defined under Section 409A of the Code; and (c) with
respect to any Award not described in subsections (a) and (b) of this
Section 2.11, a long-term disability as defined by the Company’s or
Subsidiary’s group disability insurance plan, or any successor plan that is
applicable to such Participant at the time of his or her Termination.

 

2.12                           Effective Date means the date on which the Plan is approved
by the Shareholders of the Company, as provided in Section 1.2.

 

2.13                           Employee means any person who, on any applicable date,
is a common law employee of the Company or any Subsidiary.  A worker who is classified as other than a
common law employee but who is subsequently reclassified as a common law
employee of the Company or any Subsidiary for any reason and on any basis

 

 

will
be treated as a common law employee only from the date that reclassification
occurs and will not retroactively be reclassified as an Employee for any
purpose of this Plan.

 

2.14                           Exchange Act means the Securities Exchange Act of 1934, as
amended.

 

2.15                           Exercise Price means the amount, if any, that a Participant
must pay to exercise an Award (other than an Option).

 

2.16                           Fair Market Value means, as of any specified date, an amount
equal to the reported closing price on the specified date of a share of Company
Stock on NASDAQ or any other established stock exchange or quotation system on
which the Company Stock is then listed or traded or, if no shares of Company
Stock have been traded on such date, the closing price of a share of Company
Stock on NASDAQ or such other established stock exchange or quotation system as
reported on the first day prior thereto on which shares of Company Stock were
so traded. If the preceding sentence does not apply, Fair Market Value shall be
determined in good faith by the Committee using other reasonable means.

 

2.17                           Fiscal Year means the fiscal year of the Company, which is
the 52 week period ending on December 31.

 

2.18                           Incentive Stock Option means an option within the meaning of Section 422
of the Code.

 

2.19                           Non-Employee Director means either a Company Director or a
Subsidiary Director.

 

2.20                           Nonqualified Stock Option means an option granted under the Plan other
than an Incentive Stock Option.

 

2.21                           Option means either a Nonqualified Stock Option or an
Incentive Stock Option to purchase Company Stock.

 

2.22                           Option Price means the price at which Company Stock may be
purchased under an Option.

 

2.23                           Participant means an Employee, a Advisor or a Non-Employee
Director to whom an Award has been made under the Plan.

 

2.24                           Performance Goals means goals established by the Committee
pursuant to Section 4.5.

 

2.25                           Performance Period means a period of time over which performance
is measured.

 

2.26                           Personal Representative means the person or persons who, upon the
death, Disability, or incompetency of a Participant, shall have acquired, by
will or by the laws of descent and distribution or by other legal proceedings,
the right to exercise an Option or SAR or the right to any Restricted Stock
Award theretofore granted or made to such Participant.

 

2.27                           Plan means the Oak Valley Bancorp 2008 Equity Plan.

 

2.28                           [Intentionally Omitted].

 

2.29                           Restricted Performance Stock means Company Stock subject to Performance
Goals.

 

2.30                           Restricted Stock means Company Stock subject to the terms and
conditions provided in Article VI and including Restricted Performance
Stock.

 

2.31                           Restricted Stock Award means an Award granted under Article VI.

 

2.32                           Restriction Period means a period of time determined under Section 6.2
during which Restricted Stock is subject to the terms and conditions provided
in Section 6.3..

 

2.33                           SAR means a stock appreciation right granted under
Section 5.7.

 

2.34                           Shareholders mean the shareholders of the Company.

 

2.35                           Subsidiary means a corporation or other entity the
majority of the voting stock of which is owned directly or indirectly by the
Company.

 

2.36                           Subsidiary Director means a non-employee member of the board of
directors of a Subsidiary who is not also a Company Director.

 

2.37                           Termination means (i) in
the case of an Employee, a cessation of the employee-employer relationship
between the Employee and the Company or a Subsidiary for any reason, including,
but not by way of limitation, a termination by resignation, discharge, death,
Disability, retirement, but excluding any such termination where there is a
simultaneous commencement or continuation of status as a Advisor or as a
Director; (ii) in the case of a Advisor, a cessation of the service
relationship between the Advisor and the Company or a Subsidiary for any
reason, including, but not by way of limitation, a termination by resignation,
discharge, death, Disability, but excluding any such termination where there is
a simultaneous commencement or continuation of status as an Employee or as a
Director; and (iii) in the case of a Director, a cessation of the Director’s
service on the Board for any reason, including, but not by way of limitation, a
termination by resignation, death, Disability, retirement or non-reelection to
the Board, but excluding any such termination where there is a simultaneous
commencement or continuation of status as an Employee or as a Advisor.

 

 

ARTICLE III

 

ADMINISTRATION

 

3.1                                 Committee to Administer. The Plan shall be administered by the
Committee, in accordance with its charter, as adopted from time to time by the
Board; provided, however, that the Board has the authority to grant Awards to
Company Directors.

 

3.2                                 Powers of Committee.

 

(a)          The Committee and the Board shall have full
power and authority to interpret and administer the Plan and to establish and
amend rules and regulations for its administration. Any action or decision
by the Board or the Committee shall be final, binding and conclusive with
respect to the interpretation of the Plan and any Award made under it.

 

(b)         Subject to the provisions of the Plan, the
Committee or the Board, as the case may be, shall have authority, in its
discretion, to determine those Employees, Consultants/Advisors and Non-Employee
Directors who shall receive an Award; the time or times when such Award shall
be made; the vesting schedule, if any, for the Award; and the type of Award to
be granted, the number of shares of Company Stock to be subject to each Option
and Restricted Stock Award, and all other terms and conditions of any Award.

 

(c)          The Committee or the Board, as the case may
be, shall determine and set forth in an Award Agreement the terms of each
Award, including such terms, restrictions, and provisions as shall be necessary
to cause certain Options to qualify as Incentive Stock Options. The Committee
or the Board, as the case may be, may correct any defect or supply any omission
or reconcile any inconsistency in the Plan or in any Award Agreement, in such
manner and to the extent the Committee or the Board, as appropriate, shall
determine in order to carry out the purposes of the Plan. The Committee or the
Board, as the case may be, may, in its discretion, accelerate (i) the date
on which any Option or SAR may be exercised or (ii) the date of
termination of the restrictions applicable to a Restricted Stock Award, if the
Committee or the Board, as appropriate, determines that to do so will be in the
best interests of the Company and the Participants in the Plan.

 

ARTICLE IV

 

AWARDS

 

4.1                                 Awards.  Awards under the Plan shall consist of Incentive Stock Options,
Nonqualified Stock Options, SARs, Restricted Stock, Restricted Performance
Stock and unrestricted Company Stock. All Awards shall be subject to the terms
and conditions of the Plan and to such other terms and conditions consistent
with the Plan as the Committee or the Board, as the case may b e, deems
appropriate. Awards under a particular section of the Plan need not be uniform
and Awards under two or more sections may be combined in one Award Agreement.
Any combination of Awards may be granted at one time and on more than one
occasion to the same Employee, Advisor or Non-Employee Director. Awards of
Restricted Performance Stock shall be earned solely upon attainment of
Performance Goals and the Committee shall have no discretion to increase such
Awards.

 

4.2                                 Eligibility for Awards.  An Award may be made to any Employee or Advisor selected by the
Committee. In making this selection and in determining the form and amount of
the Award, the Committee may give consideration to the functions and
responsibilities of the respective Employee and/or Advisor, his or her present
and potential contributions to the success of the Company or any of its
Subsidiaries, the value of his or her services to the Company or any of its
Subsidiaries, and such other factors deemed relevant by the Committee.
Non-Employee Directors are eligible to receive Awards pursuant to Article VII.

 

4.3                                 Shares Available Under the
Plan.

 

(a)                                  The Company Stock to be offered under the Plan
pursuant to Options, SARs, Restricted Performance Stock and Restricted Stock
and unrestricted Company Stock Awards must be (i) Company Stock previously
issued and outstanding and reacquired by the Company or (ii) authorized
but unissued Company Stock not reserved for any other purpose. Subject to
adjustment under Section 12.2, the number of shares of Company Stock that
may be issued pursuant to Awards under the Plan (the “Section 4.3 Limit”)  shall
not exceed, in the aggregate, 1,500,000 shares.

 

(b)                                 Any shares of Company Stock subject to
Restricted Stock or unrestricted Company Stock Awards shall not exceed Fifty
Percent (50%) of the total shares available under the Plan and the maximum
number of shares of Company Stock that may be issued subject to Incentive Stock
Options is 1,500,000 subject to adjustment under Section 12.1.  The Section 4.3 Limit shall not have
counted against it:  (i) the number
of shares of Company Stock subject to an Option or any other Award which is
equal to the number of shares of Company Stock tendered by a Participant to the
Company in payment of the Option Price of such Option or the Exercise Price of
such other Award, as applicable; (ii) shares of Company Stock subject to
an Award which for any reason terminates by expiration, forfeiture,
cancellation or otherwise without having been exercised or paid; (iii) shares
of Company Stock withheld from any Award to satisfy a Participant’s tax
withholding obligations or, if applicable, to pay the Option Price of an Option
or the Exercise Price of any other Award; (iv) if an SAR is settled in
whole or in part by the issuance of shares of Company Stock, the number of
shares of Company Stock which represents the difference between (A) the
number of shares of Company Stock which remain subject to such SAR on the date
of such settlement and (B) the number of shares of Company Stock actually
issued upon settlement of such SAR; or (v) the number of shares of Company
Stock subject to an Option which is equal to the number of shares of Company
Stock acquired by the Company on the open market using the cash proceeds
received by the Company from the exercise of such Option; provided, however,
that such number of shares of Company Stock shall in no event be greater than
the number which is determined by dividing (A) the amount of cash proceeds
received by the Company from the Participant upon the exercise of such Option
by (B) the Fair Market Value of a share of the Company Stock on the date
of exercise of such Option.

 

(c)                                  No awards shall be granted under the 1998 Oak
Valley Bank Stock Option Plan on and after the date on which the merger and
reorganization is approved by the Shareholders.

 

4.4                                 Annual Limitation on Awards. The maximum number of shares of Company Stock
subject to Restricted Stock awarded to any Employee or Advisor with respect to
a Performance Period or Restriction Period 
may not exceed 150,000 shares of Company Stock for each Fiscal Year
included in such Performance Period or Restriction Period.  The maximum number of shares of Company Stock
for which Options or SARs may be granted to any Participant in any one Fiscal
Year shall not exceed 150,000 subject to adjustment under Section 12.1.

 

 

4.5                                 General Performance Goals.

 

(a)                                  Performance Goals relating to the payment or
vesting of an Award that is intended to qualify as “performance-based
compensation” under Section 162(m) of the Code will be comprised of
one or more of the following performance criteria as the Committee may deem
appropriate:

 

	
  (i)

  	
  Earnings
  per share (actual or targeted growth);

  
	
  (ii)

  	
  Net
  income after capital costs;

  
	
  (iii)

  	
  Net
  income (before or after taxes);

  
	
  (iv)

  	
  Return
  measures (including, but not limited to, return on average assets,
  risk-adjusted return on capital, or return on average equity);

  
	
  (v)

  	
  Efficiency
  ratio;

  
	
  (vi)

  	
  Full-time
  equivalency control;

  
	
  (vii)

  	
  Stock
  price (including, but not limited to, growth measures and total shareholder return);

  
	
  (viii)

  	
  Noninterest
  income compared to net interest income ratio;

  
	
  (ix)

  	
  Expense
  targets;

  
	
  (x)

  	
  Operating
  efficiency;

  
	
  (xi)

  	
  Credit
  quality measures;

  
	
  (xii)

  	
  Customer
  satisfaction measures;

  
	
  (xiii)

  	
  Loan
  growth;

  
	
  (xiv)

  	
  Deposit
  growth;

  
	
  (xv)

  	
  Net
  interest margin;

  
	
  (xvi)

  	
  Fee
  income; and

  
	
  (xvii)

  	
  Operating
  expense.

  

 

(b)                                 For any Awards not intended
to qualify as “performance-based compensation” under Section 162(m) of
the Code, the Committee may establish Performance Goals based on the
performance criteria listed in Section 4.5(a) or other performance
criteria as it deems appropriate.

 

(c)                                  Any of the performance criteria listed in Section 4.5(a) may
be applied solely with reference to the Company and/or any Subsidiary or
relatively between the Company and/or any Subsidiary and one or more unrelated
entities.  In addition, different
performance criteria may be applied to individual Participants or to groups of
Participants and, as specified by the Committee, may be based on results
achieved (i) separately by the Company or any Subsidiary, (ii) any
combination of the Company and the Subsidiaries or (iii) any combination
of business units or divisions of the Company and the Subsidiaries.

 

(d)                                 With respect to each Performance Period, the
Committee will establish the Performance Goals in writing no later than the
earlier of (i) 90 days after the beginning of the Performance Period or (ii) expiration
of 25 percent of the Performance Period.

 

(e)                                  Except as otherwise provided in the Plan or
the Award Agreement, as of the end of each Performance Period, the Committee
will certify in writing the extent to which a Participant has or has not met
the Participant’s Performance Goal.  To
the extent permitted under Section 162(m) of the Code, if applicable,
the Committee may disregard or offset the effect of any special charges or
gains or cumulative effect of a change in accounting in determining the
attainment of Performance Goals.

 

(f)                                    To the extent permitted under Section 162(m) of
the Code, if applicable, the Committee shall make (i) appropriate
adjustments to performance criteria to reflect the effect on any performance
criteria of any stock dividend or stock split affecting Company Stock,
recapitalization, merger, consolidation, combination, spin-off, distribution of
assets to Shareholders, exchange of shares or similar corporate change and (ii) similar
adjustments to any portion of performance criteria that is not based on Company
Stock but which is affected by an event having an effect similar to those just
described.

 

ARTICLE V

 

OPTIONS AND STOCK APPRECIATION RIGHTS

 

5.1                                 Award of Options.  The Committee may, from time to time, and on such terms and conditions
as the Committee may prescribe, award (a) Incentive Stock Options, subject
to Section 5.5, to any eligible Employee of the Company or any parent or
subsidiary corporation (as permitted under Sections 422 and 424 of the Code)
and (b) Nonqualified Stock Options to any Employee or Advisor.

 

5.2                                 Period of Option.

 

(a)                                  An Option granted under the Plan shall be
exercisable only in accordance with the vesting schedule approved by the
Committee. The Committee may in its discretion prescribe additional conditions,
restrictions or terms on the vesting of an Option, including the full or
partial attainment of Performance Goals pursuant to Section 4.5. After the
Option vests, the Option may be exercised at any time during the term of the
Option, in whole or in installments, as specified in the related Award
Agreement.  Subject to Article X and
except as provided in Section 5.5, the duration of each Option shall not
be more than ten years from the date of grant.

 

(b)                                 Except as provided in Article X, a
Participant may not exercise an Option unless such Participant is then, and
continually (except for sick leave, military service, or other approved leave
of absence) after the grant of the Option has been, an Employee, Advisor, or
Non-Employee Director.

 

5.3                                 Award Agreement. Each Option shall be evidenced by an Award
Agreement. The Award Agreement shall specify whether the Option is intended to
be an Incentive Stock Option or a Nonqualified Stock Option.

 

5.4                                 Option Price, Exercise and
Payment.

 

(a)                                  Except as provided in Section 5.5, the
Option Price of Company Stock under each Option shall be determined by the
Committee but shall be a price not less than 100 percent of the Fair Market
Value of Company Stock at the close of business on the date such Option is
granted.

 

(b)                                 Subject to Section 12.2, the Committee
may not (i) amend an Option to reduce its Option Price, (ii) cancel
an Option and regrant an Option with a lower Option Price than the original
Option Price of the cancelled Option, or (iii) take any other action
(whether in the form of an amendment, cancellation or replacement grant) that
has the effect of “repricing” an Option, as defined under applicable NASDAQ rules or
the rules of the established stock exchange or quotation system on which
the Company Stock  is then listed or
traded.

 

 

(c)                                  Vested Options
may be exercised from time to time by giving written notice to the Chief Financial
Officer of the Company or the Secretary of the Committee, or his or her
designee, specifying the number of shares to be purchased. The notice of
exercise shall be accompanied by payment in full of the Option Price in cash or
the Option Price may be paid in whole or in part through the transfer to the
Company of shares of Company Stock in accordance with procedures established by
the Committee from time to time.  In
addition, full payment of the purchased shares may be effected through a
broker-dealer sale and remittance procedure pursuant to which the Participant (i) shall
provide irrevocable written instructions to a designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the Company, out
of the sale proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased shares plus all
applicable federal, state and local income and employment taxes required to be
withheld by the Company by reason of such purchase and (ii) shall provide
written directives to the Company to deliver the certificates for the purchased
sales directly to such brokerage firm in order to complete the sale
transaction.

 

(d)                                 In the event such Option Price is paid, in
whole or in part, with shares of Company Stock, the portion of the Option Price
so paid shall be equal to the value, as of the date of exercise of the Option,
of such shares. The value of such shares shall be equal to the number of such
shares multiplied by the Fair Market Value of such shares on the trading day
coincident with the date of exercise of such Option (or the immediately
preceding trading day if the date of exercise is not a trading day). The
Company shall not issue or transfer Company Stock upon exercise of an Option
until the Option Price is fully paid.

 

5.5                                 Limitations on Incentive
Stock Options.  Each provision of the Plan and each Award
Agreement relating to an Incentive Stock Option shall be construed so that each
Incentive Stock Option shall be an incentive stock option as defined in Section 422
of the Code, and any provisions of the Award Agreement thereof that cannot be
so construed shall be disregarded.  No
Incentive Stock Option may be granted to any Employee who, at the time of such
grant, owns stock possessing more than 10 percent of the total combined voting
power of all classes of stock of the Company or of its parent or subsidiary
corporation (as determined under Sections 422 and 424 of the Code), unless (a) the
Option Price for such Incentive Stock Option is at least 110 percent of the
Fair Market Value of a share of Company Stock on the date the Incentive Stock
Option is granted and (b) such Incentive Stock Option may not be exercised
more than five years after it is granted. 
Notwithstanding anything in the Plan to the contrary, to the extent
required by the Code, the exercise of Incentive Stock Options granted under the
Plan shall be subject to the $100,000 calendar year limit as set forth in Section 422
of the Code; provided that, to the extent any grant exceeds such $100,000
calendar year limit, the portion of such granted Option shall be deemed a
Nonqualified Stock Option in accordance with Section 422 of the Code.

 

5.6                                 Rights and Privileges. A Participant shall
have no rights as a Shareholder with respect to any shares of Company Stock
covered by an Option until the issuance of such shares to the Participant.

 

5.7                                 Award of SARs.

 

(a)                                  The Committee may, from time to time, and on
such terms and conditions as the Committee may prescribe, award SARs to any
Employee and/or Advisor.

 

(b)                                 A SAR shall represent the right to receive
payment of an amount equal to (i) the amount by which the Fair Market
Value of one share of Company Stock on the trading day immediately preceding
the date of exercise of the SAR exceeds the Exercise Price multiplied by (ii) the
number of shares covered by the SAR. 
Payment of the amount to which a Participant is entitled upon the
exercise of a SAR shall be made in cash, Company Stock, or partly in cash and
partly in Company Stock at the discretion of the Committee.  The shares shall be valued at their Fair
Market Value on the date of exercise.

 

(c)                                  SARs awarded under the Plan shall be evidenced
by an Award Agreement between the Company and the Participant.

 

(d)                                 The Committee may prescribe conditions and
limitations on the exercise of any SAR. SARs may be exercised only when the
Fair Market Value of a share of Company Stock exceeds the Exercise Price.

 

(e)                                  A SAR shall be exercisable only by written
notice to the Chief Financial Officer of the Company or the Secretary of the
Committee, or his or her designee.

 

(f)                                    To the extent not previously exercised, all
SARs shall automatically be exercised on the last trading day prior to their
expiration, so long as the Fair Market Value of a share of Company Stock
exceeds the Exercise Price, unless prior to such day the holder instructs the
Chief Financial Officer or Secretary of the Committee, otherwise in writing.

 

(g)                                 Subject to Article X, each SAR shall
expire on a date determined by the Committee at the time of grant.

 

ARTICLE VI

 

RESTRICTED STOCK

 

6.1                                 Award of Restricted Stock. The Committee may make a Restricted Stock
Award to any Employee and/or Advisor, subject to this Article VI and to
such other terms and conditions as the Committee may prescribe.

 

6.2                                 Restriction Period. At the time of making a Restricted Stock
Award, the Committee shall establish the Restriction Period applicable to such
Award. The Committee may establish different Restriction Periods from time to
time and each Restricted Stock Award may have a different Restriction Period,
in the discretion of the Committee. Restriction Periods, when established for a
Restricted Stock Award, shall not be changed except as permitted by Section 6.3.

 

6.3                                 Other Terms and Conditions. Company Stock, when awarded pursuant to a
Restricted Stock Award, will be represented in a book entry account in the name
of the Participant who receives the Restricted Stock Award. The Participant
shall be entitled to receive dividends during the Restriction Period and shall
have the right to vote such Restricted Stock and shall have all other
Shareholder  rights, with the exception
that (i) unless otherwise provided by the Committee, if any dividends are
paid in shares of Company Stock, those shares will be subject to the same
restrictions as the shares of Restricted Stock with respect to which they were
issued, (ii) the Participant will not be entitled to delivery of any stock
certificate evidencing the Company Stock underlying the Restricted Stock Award
during the Restriction Period, (iii) the Company will retain custody of
the Restricted Stock during the Restriction Period, and (iv) a breach of a
restriction or a breach of the terms and conditions established by the
Committee pursuant to the Restricted Stock Award will cause a forfeiture of the
Restricted Stock Award. The Committee may, in addition, prescribe additional
restrictions, terms, or conditions upon or to the Restricted Stock Award
including the attainment of Performance Goals in accordance with Section 4.5.

 

6.4                                 Restricted Stock Award
Agreement. Each Restricted
Stock Award shall be evidenced by an Award Agreement.

 

 

6.5                                 Payment for Restricted Stock.
Restricted Stock Awards may
be made by the Committee under which the Participant shall not be required to
make any payment for the Company Stock or, in the alternative, under which the
Participant, as a condition to the Restricted Stock Award, shall pay all (or
any lesser amount than all) of the Fair Market Value of the Company Stock,
determined as of the date the Restricted Stock Award is made. If the latter,
such purchase price shall be paid in cash as provided in the Award Agreement.

 

ARTICLE VII

 

AWARDS FOR NON-EMPLOYEE DIRECTORS

 

7.1                                 Awards to Non-Employee
Directors. The Board shall
determine all Awards to Company Directors. The Board or the Committee, as the
case may be, retains the discretionary authority to make Awards to Non-Employee
Directors and any type of Award (other than Incentive Stock Options) may be
granted to Non-Employee Directors under this Plan. All such Awards shall be
subject to the terms and conditions of the Plan and to such other terms and
conditions consistent with the Plan as the Board or the Committee, as the case
may be, deems appropriate.

 

7.2                                 No Right to Continuance as a
Director. None of the actions
of the Company in establishing the Plan, the actions taken by the Company, the
Board, or the Committee under the Plan, or the granting of any Award under the
Plan shall be deemed (i) to create any obligation on the part of the Board
or the board of directors of the applicable Subsidiary to nominate any
Non-Employee Director for reelection or (ii) to be evidence of any
agreement or understanding, express or implied, that the Non-Employee Director
has a right to continue as a Non-Employee Director for any period of time or at
any particular rate of compensation.

 

ARTICLE VIII

 

UNRESTRICTED COMPANY STOCK AWARDS FOR EMPLOYEES AND/OR

ADVISORS

 

8.1                                 The Committee may make awards of unrestricted
Company Stock to Employees and/or Consultants/Advisors on such terms and
conditions as the Committee may prescribe.

 

ARTICLE IX

 

[Intentionally Omitted]

 

ARTICLE X

 

GENERAL TERMINATION PROVISIONS

 

10.1                           Termination. Subject to Article XI and unless
otherwise specified in the applicable Award Agreement, the following provisions
will govern the treatment of a Participant’s outstanding Awards following a
Participant’s Termination.

 

(a)                                  Upon the Participant’s Termination, any Awards
that are not vested and/or exercisable on the date of such Termination will
immediately terminate and be of no further force and effect.

 

(b)                                 If the Participant Terminates for any reason
other than (i) death, (ii) Disability, or (iii) discharge for
Cause, such Participant’s outstanding SARs or Options may be exercised at any
time within three months after such Termination, to the extent of the number of
shares covered by such Options or SARs which are exercisable at the date of
such Termination; except that an Option or SAR shall not be exercisable on any
date beyond the expiration date of such Option or SAR.

 

(c)                                  Upon a Termination for Cause, any Options or
SARs held by the Participant (whether or not then exercisable) shall expire and
any rights thereunder shall terminate immediately.  Any non-vested Restricted Stock Awards of such
Participant shall immediately be forfeited and any rights thereunder shall
terminate.

 

(d)                                 Upon a Termination due to the Participant’s
death, any SARs or Options that are then exercisable may be exercised by the
Participant’s Personal Representative at any time before the earlier of (i) one
year after the Participant’s death or (ii) the expiration date of the
Award.

 

(e)                                  Upon a Termination due to the Participant’s
Disability, any SARs or Options that are then exercisable may be exercised by
the Participant at any time before the earlier of (i) one year after the
date of such Termination or (ii) the expiration date of the Award;
provided, however, that an Option which is intended to qualify as an Incentive
Stock Option will only be treated as such to the extent it complies with the
requirements of Section 422 of the Code.

 

ARTICLE XI

 

CHANGE IN CONTROL OF THE COMPANY

 

11.1                           Contrary Provisions.  Notwithstanding anything contained in the Plan to the contrary, the
provisions of this Article XI shall govern and supersede any inconsistent
terms or provisions of the Plan.

 

11.2                           Definitions

 

(a)                                  Change in Control.  For
purposes of this Plan, Change in Control shall mean a change in the ownership
or effective control of the Company or in the ownership of a substantial
portion of the assets of the Company (within the meaning of Section 409A
of the Code.

 

(i)                                     Change in Actual Control shall mean the acquisition by any one person,
or more than one person acting as a group (as defined in Section 11.2(a)(iv),
below) of ownership of stock of the Company that, together with stock held by
such person or group, constitutes more than 50 percent of the total fair market
value or total voting power of the stock of the Company.  However, if any one person, or more than one
person acting as a group, is 

 

 

considered
to own more than 50 percent of the total fair market value or total voting
power of the stock of the Company, the acquisition of additional stock by the
same person or persons is not considered to cause a Change in Actual Control of
the Company (or to cause a Change in Effective Control of the Company (within
the meaning of Section 11.2(a)(ii)). An increase in the percentage of
stock owned by any one person, or persons acting as a group, as a result of a
transaction in which the Company acquires its stock in exchange for property
will be treated as an acquisition of stock for purposes of this Section 11.2(a)(i).

 

(ii)                                  Change in Effective Control shall mean:

 

(A)                              The acquisition by any one person, or more
than one person acting as a group (as defined in Section 11.2(a)(iv),
below), during any 12-month period of ownership of stock of the Company
possessing 35 percent or more of the total voting power of the stock of the
Company; or

 

(B)                                The replacement of a majority of members of
the Board during any 12-month period by directors whose appointment or election
is not endorsed by a majority of the members of the Board prior to the date of
the appointment or election in accordance with Treasury Regulation §
1.409A-1(g)(5)(vi)(A)(2).

 

Notwithstanding
the foregoing, if any one person, or more than one person acting as a group, is
considered to effectively control the Company (within the meaning of this Section 11.2(a)(ii)),
the acquisition of additional control of the Company by the same person or
persons is not considered to cause a Change in Control.

 

(iii)                               Change in the Ownership of
the Company’s Assets shall
mean the acquisition by any one person, or more than one person acting as a
group (as defined in Section 11.2(a)(iv), below), during any 12-month
period of assets from the Company that have a total gross fair market value
equal to or more than 40 percent of the total gross fair market value of all of
the assets of the Company immediately prior to such acquisition or acquisitions.

 

Notwithstanding
the foregoing, there is no change in control event under this Section 11.2(a) when
there is a transfer to an entity that is controlled by the Shareholders
immediately after the transfer.

 

(iv)                              Persons acting as a group. For purposes of this Section 11.2(a),
persons will not be considered to be acting as a group solely because they
purchase or own stock of the same corporation at the same time, or as a result
of the same public offering. However, persons will be considered to be acting as
a group if they are owners of a corporation that enters into a merger,
consolidation, purchase or acquisition of stock, or similar business
transaction with the corporation. If a person, including an entity, owns stock
in both corporations that enter into a merger, consolidation, purchase or
acquisition of stock, or similar transaction, such shareholder is considered to
be acting as a group with other shareholders in a corporation only with respect
to the ownership in that corporation prior to the transaction giving rise to
the change and not with respect to the ownership interest in the other
corporation.

 

11.3                          Effect of Change in Control
on Certain Awards.

 

(a)                                  If the Company is not the surviving
corporation following a Change in Control, and the surviving corporation
following such Change in Control or the acquiring corporation (such surviving
corporation or acquiring corporation is hereinafter referred to as the “Acquiror”)
does not assume the outstanding Options, SARs, Restricted Stock, or Restricted
Performance Stock or does not substitute equivalent equity awards relating to
the securities of such Acquiror or its affiliates for such Awards, then all
such Awards shall become immediately and fully exercisable (or in the case of
Restricted Stock, fully vested and all restrictions will immediately lapse). In
the case of Restricted Performance Stock, the target payout opportunities under
all outstanding Awards of Restricted Performance Stock shall be deemed to have
been fully earned based on targeted performance being attained as of the
effective date of the Change in Control. 
In addition, the Board or its designee may, in its sole discretion,
provide for a cash payment to be made to each Participant for the outstanding
Options, Restricted Stock, Restricted Performance Stock, or SARs upon the
consummation of the Change in Control, determined on the basis of the fair
market value that would be received in such Change in Control by the holders of
the Company’s securities relating to such Awards. Notwithstanding the
foregoing, any Option intended to be an Incentive Stock Option under Section 422
of the Code shall be adjusted in a manner to preserve such status.

 

	
  (b)

  	
  If the Company is the surviving corporation following a Change in
  Control, or the Acquiror assumes the outstanding Options, SARs, Restricted
  Stock, or Restricted Performance Stock or substitutes equivalent equity
  awards relating to the securities of such Acquiror or its affiliates for such
  Awards, then all such Awards or such substitutes therefor shall remain
  outstanding and be governed by their respective terms and the provisions of
  the Plan.

  
	
   

  	
   

  
	
  (c)

  	
  If (i) a Participant Terminates without Cause within twenty-four
  (24) months following a Change in Control, and (ii) the Company is the
  surviving corporation following such Change in Control, or the Acquiror
  assumes the outstanding Options, SARs, Restricted Stock, or Restricted
  Performance Stock or substitutes equivalent equity awards relating to the
  securities of such Acquiror or its affiliates for such Awards, then all
  outstanding Options, SARs, Restricted Stock, or Restricted Performance Stock
  shall become immediately and fully exercisable (or in the case of Restricted
  Stock, fully vested and all restrictions will immediately lapse). In the case
  of Restricted Performance Stock, the target payout opportunities under all
  outstanding Awards of Restricted Performance Stock shall be deemed to have
  been fully earned based on targeted performance being attained.

  
	
   

  	
   

  
	
  (d)

  	
  If (i) the employment of a Participant with the Company and its
  Subsidiaries is terminated for Cause within twenty-four (24) months following
  a Change in Control and (ii) the Company is the surviving corporation
  following such Change in Control, or the Acquiror assumes the outstanding
  Options, SARs, Restricted Stock, or Restricted Performance Stock or
  substitutes equivalent equity awards relating to the securities of such
  Acquiror or its affiliates for such Awards, then any Options or SARs of such
  Participant shall expire, and any non-vested Restricted Stock or Restricted
  Performance Stock shall be forfeited, and any rights under such Awards shall
  terminate immediately.

  
	
   

  	
   

  
	
  (e)

  	
  Outstanding Options or SARs which vest in accordance with
  Section 11.3, may be exercised by the Participant in accordance with
  Article X; provided, however, that a Participant whose Options or SARs
  become exercisable in accordance with Section 11.3(c) may exercise
  such Options or SARs at any time within one year after such Termination,
  except that an Option or SAR shall not be exercisable on any date beyond the
  expiration date of such Option or SAR. In the event of a Participant’s death
  after such Termination, such Options or SARs may be exercised by the
  Participant’s Personal Representative at any time before the earlier of (i) one
  year after the Participant’s death or (ii) the expiration date of the
  Award; provided, however, that, an Option which is intended to qualify as an
  Incentive Stock Option will only be treated as such to the extent it complies
  with the requirements of Section 422 of the Code.

  

 

11.4                           Amendment or
Termination.  This Article XI shall not be amended or
terminated at any time if any such amendment or termination would adversely
affect the rights of any Participant under the Plan.

 

 

ARTICLE
XII

 

MISCELLANEOUS
PROVISIONS

 

12.1                           Adjustments Upon Changes in
Stock. In case of any
reorganization, recapitalization, reclassification, stock split, stock
dividend, distribution, combination of shares, merger, consolidation, rights
offering, or any other changes in the corporate structure or shares of the
Company, appropriate adjustments may be made by the Committee or the Board, as
the case may be, (or if the Company is not the surviving corporation in any
such transaction, the board of directors of the surviving corporation) in the
aggregate number and kind of shares subject to the Plan, and the number and
kind of shares and the Option Price per share subject to outstanding Options or
which may be issued under outstanding Restricted Stock Awards or pursuant to
unrestricted Company Stock Awards. Appropriate adjustments may also be made by
the Committee or the Board, as the case may be, in the terms of any Awards
under the Plan, subject to Article XI, to reflect such changes and to
modify any other terms of outstanding Awards on an equitable basis. Any such
adjustments made by the Committee or the Board pursuant to this Section 12.1
shall be conclusive and binding for all purposes under the Plan.

 

12.2                           Amendment, Suspension, and
Termination of Plan.

 

(a)                                 The Board may suspend or terminate the Plan or
any portion thereof at any time, and may amend the Plan from time to time in
such respects as the Board may deem advisable in order that any Awards
thereunder shall conform to any change in applicable laws or regulations or in
any other respect the Board may deem to be in the best interests of the
Company; provided, however, that no such amendment shall, without  approval, (i) except as provided in Section 12.1,
increase the number of shares of Company Stock which may be issued under the
Plan, (ii) expand the types of awards available to Participants under the
Plan, (iii) materially expand the class of employees and/or Advisors
eligible to participate in the Plan, (iv) materially change the method of
determining the Option Price of Options; (v) delete or limit the provision
in Section 5.4 prohibiting the repricing of Options; (vi) extend the
termination date of the Plan or (vii) be made to the extent that
Shareholder approval is required to satisfy applicable law, regulation or any
securities stock exchange, market or other quotation system on or through which
the Company Stock is listed or traded. No such amendment, suspension, or
termination shall materially adversely alter or impair any outstanding Options,
SARs or shares of Restricted Stock without the consent of the Participant
affected thereby.

 

(b)                                The Committee may amend or modify any
outstanding Options, SARs, or Restricted Stock Awards in any manner to the
extent that the Committee would have had the authority under the Plan initially
to award such Options, SARs, or Restricted Stock Awards, as so modified or
amended, including without limitation, to change the date or dates as of which
such Options or SARs may be exercised, or to remove the restrictions on shares
of Restricted Stock.

 

(c)                                  Notwithstanding the foregoing, the Plan and
any Award Agreements may be amended without any additional consideration to
affected Participants to the extent necessary to comply with, or avoid
penalties under, Section 409A of the Code, even if those amendments
reduce, restrict or eliminate rights granted prior to such amendments.

 

12.3                           Nonuniform Determinations. The Committee’s (or, if applicable, the Board’s)
determinations under the Plan, including without limitation, (a) the
determination of the Employees, Advisors and Non-Employee Directors to receive
Awards, (b) the form, amount, and timing of any Awards, (c) the terms
and provisions of any Awards and (d) the Award Agreements evidencing the
same, need not be uniform and may be made by it selectively among Employees,
Advisors and/or Non-Employee Directors who receive, or who are eligible to
receive, Awards under the Plan, whether or not such Employees,
Consultants/Advisors and/or Non-Employee Directors are similarly situated.

 

12.4                           General Restriction. Each Award under the Plan shall be subject to
the condition that, if at any time the Committee shall determine that (a) the
listing, registration, or qualification of the shares of Company Stock subject
or related thereto upon NASDAQ or any other established stock exchange, market
or quotation system or under any state or federal law, (b) the consent or
approval of any government or regulatory body, or (c) an agreement by the
Participant with respect thereto, is necessary or desirable, then such Award
shall not become exercisable in whole or in part unless such listing,
registration, qualification, consent, approval, or agreement shall have been
effected or obtained free of any conditions not acceptable to the Committee.

 

12.5                           No Right To Employment. None of the actions of the Company in
establishing the Plan, the actions taken by the Company, the Board or the
Committee under the Plan, or the granting of any Award under the Plan shall be
deemed (a) to create any obligation on the part of the Company or any
Subsidiary to retain any person in the employ of, or continue the provision of
services to, the Company or any Subsidiary, or (b) to be evidence of any
agreement or understanding, express or implied, that the person has a right to
continue as an employee, consultant, or advisor for any period of time or at
any particular rate of compensation.

 

12.6                           Governing Law. The provisions of the Plan shall take
precedence over any conflicting provision contained in an Award Agreement. All
matters relating to the Plan or to Awards granted hereunder shall be governed
by and construed in accordance with the laws of the State of California without
regard to the principles of conflict of laws.

 

12.7                           Trust Arrangement. All benefits under the Plan represent an
unsecured promise to pay by the Company. The Plan shall be unfunded and the
benefits hereunder shall be paid only from the general assets of the Company
resulting in the Participants having no greater rights than the Company’s
general creditors; provided, however, nothing herein shall prevent or prohibit
the Company from establishing a trust or other arrangement for the purpose of
providing for the payment of the benefits payable under the Plan.

 

12.8                           Indemnification of Board and
Committee. Indemnification of
the members of the Board and/or the members of the Committee shall be in
accordance with the charter documents of the Company, as amended by the
Shareholders from time to time, and any agreements issued consistent therewith.

 

12.9                           No Impact on Benefits.  Awards
are not compensation for purposes of calculating a Participant’s rights under
any employee benefit plan that does not specifically require the inclusion of
Awards in calculating benefits.

 

12.10                     Beneficiary Designation.  Each
Participant may name a beneficiary or beneficiaries to receive or exercise any
vested Award that is unpaid or unexercised at the Participant’s death.  Unless otherwise provided in the beneficiary
designation, each designation will revoke all prior designations made by the
same Participant, must be made on a form prescribed by the Committee and will
be effective only when filed in writing with the Committee.  If a Participant has not made an effective
beneficiary designation, the deceased Participant’s beneficiary will be the
Participant’s surviving spouse or, if none, the deceased Participant’s
estate.  The identity of a Participant’s
designated beneficiary will be based only on the information included in the
latest beneficiary designation form completed by the Participant and will not
be inferred from any other evidence.

 

12.11                     Tax Withholding.  The
Company shall have the power and the right to deduct or withhold, or require a
Participant to remit to the Company, the minimum statutory amount to satisfy
federal, state and local taxes required by law or regulation to be withheld
with respect to any taxable event arising as a result of the Plan.  With respect to withholding required upon any
taxable event arising as a result of an Award granted hereunder, a Participant
may elect, subject to the approval of the Committee, to satisfy the withholding
requirement, in whole or in part, by having the Company withhold shares of
Company Stock having a Fair Market Value on the date the tax is to be
determined equal to the minimum statutory total tax that could be imposed on
the transaction.  All such elections
shall be irrevocable, made in writing and signed by the Participant, and shall
be subject to any restrictions or limitations that the Committee, in its sole
discretion, deems appropriate.

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