Document:

Exhibit 10.10

 

 

LICENSE
AGREEMENT

 

For

MEASUREMENT
OF LIPOPROTEIN SUBSPECIES

Between

BERKELEY HEARTLAB, INC.

and

THE REGENTS OF THE UNIVERSITY OF CALIFORNIA

through the

Ernest
Orlando Lawrence

BERKELEY NATIONAL LABORATORY

 

[***] indicates
material that has been omitted pursuant to a request for confidential
treatment. The omitted material has been filed separately with the Securities
and Exchange Commission.

 

 

 

TABLE OF CONTENTS

 

	
  1.
  BACKGROUND

  	
  1

  
	
  2.
  DEFINITIONS

  	
  1

  
	
  3.
  LICENSE GRANT

  	
  3

  
	
  4.
  LICENSE ISSUE FEE

  	
  3

  
	
  5.
  ROYALTIES AND PAYMENTS

  	
  3

  
	
  6.
  PERFORMANCE REQUIREMENTS

  	
  5

  
	
  7.
  PROGRESS AND ROYALTY REPORTS

  	
  6

  
	
  8.
  BOOKS AND RECORDS

  	
  7

  
	
  9.
  LIFE OF THE AGREEMENT

  	
  7

  
	
  10.
  TERMINATION BY BERKELEY LAB

  	
  7

  
	
  11.
  TERMINATION BY HEARTLAB

  	
  7

  
	
  12.
  DISPOSITION OF LICENSED PRODUCTS ON HAND UPON TERMINATION

  	
  8

  
	
  13.
  USE OF NAMES AND TRADEMARKS AND NONDISCLOSURE OF AGREEMENT

  	
  8

  
	
  14.
  LIMITED WARRANTY

  	
  8

  
	
  15.
  PATENT PROSECUTION AND MAINTENANCE

  	
  9

  
	
  16.
  PATENT INFRINGEMENT

  	
  10

  
	
  17.
  WAIVER

  	
  10

  
	
  18.
  ASSIGNMENT

  	
  10

  
	
  19.
  INDEMNIFICATION

  	
  11

  
	
  20. LATE
  PAYMENTS

  	
  11

  
	
  21.
  NOTICES

  	
  12

  
	
  22.
  U.S. MANUFACTURE

  	
  12

  
	
  23.
  PATENT MARKING

  	
  12

  
	
  24.
  GOVERNMENT APPROVAL OR REGISTRATION

  	
  12

  
	
  25.
  EXPORT CONTROL LAWS

  	
  13

  
	
  26.
  FORCE MAJEURE

  	
  13

  
	
  27.
  MISCELLANEOUS

  	
  13

  

 

[***] indicates
material that has been omitted pursuant to a request for confidential
treatment. The omitted material has been filed separately with the Securities
and Exchange Commission.

 

 

L-97-1203

 

 

LICENSE AGREEMENT FOR

MEASUREMENT OF LIPOPROTEIN SUBSPECIES

 

This license
agreement (the “Agreement”) is entered into by The Regents of the University of
California (“The Regents”), Department of Energy contract-operators of the
Ernest Orlando Lawrence Berkeley National Laboratory, 1 Cyclotron Road,
Berkeley, CA 94720, (jointly, “Berkeley Lab”), and Berkeley Heartlab, Inc.,
a California corporation (“HeartLab”) having its principal place of business at
1875 South Grant Ave, Suite 700, San Mateo, CA 94402.

 

1.  BACKGROUND

 

1.1           Certain inventions, generally characterized as measurement of
lipoprotein subspecies (Berkeley Lab reference number IB-1054), (the “Invention”),
were made in the course of research at Berkeley Lab and are covered by a U.S.
patent application and other proprietary rights.

 

1.2           The United States Department of Energy (“DOE”) sponsored
development of the Invention under Contract DE-AC03-76SF00098 between DOE and
The Regents (the “DOE Contract”). 
Consequently, this Agreement and the resulting license are subject to
overriding obligations to the federal government pursuant to the provisions of
the applicable law or regulations.

 

1.3           Berkeley Lab wants the Invention developed and used to the
fullest extent so that the general public enjoys the benefits.

 

1.4           HeartLab wants to obtain certain rights from Berkeley Lab for
the commercial development, manufacture, use, and sale of the Invention.

 

1.5           HeartLab is a “small business firm” as defined at Section 2
of Public Law 85-536 (15 U.S.C. 632).

 

Therefore the parties agree
as follows:

 

2.  DEFINITIONS

 

2.1           “Affiliate” of a party means any entity that, directly or
indirectly, controls that party, is controlled by that party or is under common
control with that party; “control” for these purposes means the actual, present
capacity to elect a majority of the directors or other managing authority of
such entity.

 

2.2           “Alternative Methodology Product” means any product or
service of HeartLab that performs substantially similar functions to inventions
claimed in a Licensed Patent (whether more highly automated or not) and whose
use, approval by the Federal Drug Administration, or attractiveness to the
market depends at least in a material part on Proprietary Rights.  Nothing in this Agreement shall create any
Berkeley Lab ownership interest to such Alternative Methodology Products, but
such products are subject to royalties to the extent provided in Section 5.1.

 

2.3           ‘‘Effective Date” means
April 30, 1997.

 

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TTD/VW

 

[***] indicates material that has been omitted
pursuant to a request for confidential treatment. The omitted material has been
filed separately with the Securities and Exchange Commission.

 

1

 

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2.4           “Highly Inflationary Currency” means the currency of any
economy with a cumulative inflation rate of 100% or more over the most recent
three calendar years, as measured by consumer price indices published by the
International Monetary Fund (International Financial Statistics), Washington,
D.C.

 

2.5           “Licensed Method” means any method, procedure, process or
other subject matter whose use or practice would constitute, but for the
license Berkeley Lab grants to HeartLab under this Agreement, an infringement
of any claim in the Licensed Patents.

 

2.6           “Licensed Patent” means US Patent Application Serial Number
[***]; any corresponding foreign patent application or patent for which
HeartLab has met the requirements of Article 15; any division,
reexamination, continuation, continuation-in-part (excluding new matter
contained and claimed in that continuation-in-part),application of any of the
foregoing or of which such application is a successor; any patents issuing on
any of the foregoing, and all renewals, reissues and extensions thereof.

 

2.7           “Licensed Product” means any product or service that employs
or is produced by the practice of inventions claimed in a Licensed Patent and
whose manufacture, use or sale would constitute, but for the license Berkeley
Lab grants to HeartLab under this Agreement, an infringement of any Valid Claim
in the Licensed Patents.

 

2.8           “Proprietary Rights” means information related to the
Invention, including data, drawings and sketches, designs, test results, and
information of a like nature, whether patentable or not, developed by [***] or
others working under their direct supervision at Ernest Orlando Lawrence
Berkeley National Laboratory. 
Proprietary Rights also includes copyright in the foregoing, to the
extent Berkeley Lab obtains the right to assert copyright under its DOE
Contract.

 

2.9           “Selling Price” for the purpose of computing royalties means [***]

 

4/29/97; TTD/VW

 

[***] indicates material that has been omitted
pursuant to a request for confidential treatment. The omitted material has been
filed separately with the Securities and Exchange Commission.

 

2

 

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2.10         “Valid Claim” means either (a) a claim in a pending
patent application that has not been pending for more than four (4) years from
its filing date and that has not been abandoned; or (b) a claim of an
issued and unexpired patent that has not been held unenforceable, unpatentable
or invalid by a decision of a court or government agency of competent
jurisdiction, unappealable or unappealed within the time allowed for appeal and
that has not been admitted by the holder of the patent to be invalid or unenforceable
through reissue, disclaimer or otherwise.

 

3.  LICENSE GRANT

 

3.1           Subject to the limitations set forth in this Agreement,
Berkeley Lab grants to HeartLab the limited (by the terms of Sections 3.2
and 3.7) exclusive, royalty-bearing license, under the Licensed Patents and
Proprietary Rights, to make, use, and sell Licensed Products and Alternative
Methodology Products and to practice Licensed Methods.

 

3.2           Any license under this Agreement is subject to the
following:  (a) DOE’s royalty-free
license for federal government practice only, and (b) DOE’s option to
grant licenses either if reasonable steps to commercialize the Invention are
not carried out or in order to meet federal regulations.  HeartLab shall use commercially reasonable
best efforts to commercialize Licensed Products.

 

3.3           Berkeley Lab also grants to HeartLab the right to issue
royalty-bearing sublicenses to make, use, and sell Licensed Products,
Alternative Methodology Products or to practice Licensed Methods; provided,
however, that HeartLab may issue such sublicenses only if HeartLab has current
exclusive rights under this Agreement.

 

3.4           Any sublicense HeartLab grants must be consistent with all
the rights and obligations due Berkeley Lab and the United States Government
under this Agreement, including, without limitation, the license back to the
United States Government.

 

3.5           HeartLab shall provide Berkeley Lab with a copy of each
sublicense issued under this Agreement; collect payment of all royalties due
Berkeley Lab from sublicensees; and summarize and deliver all reports due
Berkeley Lab from sublicensees under Article 7 (PROGRESS AND ROYALTY
REPORTS).

 

3.6           If this Agreement terminates for any reason, Berkeley Lab, at
its sole discretion, shall determine whether HeartLab must cancel or assign to
Berkeley Lab any or all sublicenses.

 

3.7           Berkeley Lab expressly reserves the right to use the
Invention and associated technology solely for noncommercial educational and
research purposes.

 

4.  LICENSE ISSUE FEE

 

4.1           HeartLab shall pay Berkeley Lab a license issue fee of [***]
payable as follows:  (a) [***]
within [***]; (b) an additional [***]
by [***]

 

4/29/97; TTD/VW

 

[***] indicates material that has been omitted
pursuant to a request for confidential treatment. The omitted material has been
filed separately with the Securities and Exchange Commission.

 

3

 

L-97-1203

 

 

; (c) and the remaining [***] by [***].

 

4.2           This fee is non-refundable and is not an advance against
royalties.

 

5.  ROYALTIES AND PAYMENTS

 

5.1           HeartLab shall pay to Berkeley Lab an earned royalty of [***]
of the Selling Price of each Licensed Product HeartLab sells.  That [***] royalty represents a royalty of
[***] of Selling Price for the license of Licensed Patents and [***] of Selling
Price for the license of Proprietary Rights. 
The parties understand that the [***] royalty rate only applies to sales
in countries where there is a Valid Claim in the Licensed Patents that claims
the manufacture, use or sale of the Licensed Product; in all other countries,
the [***] royalty rate applies.  In
addition, HeartLab shall pay to Berkeley Lab an earned royalty of [***] of the
Selling Price of each Alternate Methodology Product HeartLab or its sublicensee
or Affiliate sell.

 

5.2           Under this Agreement a Licensed Product is considered to be
sold when reimbursed, or if not invoiced, when delivered to a third party.  But when the last patent covering a Licensed
Product expires or when the license terminates, any shipment made on or before
the day of that expiration or termination that has not been billed out before
is considered as sold (and therefore subject to royalty).  Berkeley Lab shall credit royalties that
HeartLab pays on a Licensed Product that the customer later rejects, returns or
does not accept.

 

5.3           For each sublicense, HeartLab shall pay Berkeley Lab the same
royalties it would pay if HeartLab was making, using, or selling Licensed
Products under this Agreement.  The
royalties paid to HeartLab may exceed the royalties paid to Berkeley Lab.

 

5.4           HeartLab shall pay to Berkeley Lab by August 31 of each
year the difference between the earned royalties for that calendar year already
paid to Berkeley Lab and the minimum annual royalty set forth in the following
schedule.  Berkeley Lab shall credit that
minimum annual royalty paid against the earned royalty due and owing for the
calendar year in which HeartLab made the minimum payment.

 

	
  Calendar Year

  	
   

  	
  Minimum Annual Royalty

  	
   

  
	
  1997

  	
   

  	
  $

  	
  [***]

  	
   

  
	
  1998

  	
   

  	
  $

  	
  [***]

  	
   

  
	
  1999

  	
   

  	
  $

  	
  [***]

  	
   

  
	
  2000 and each year thereafter

  	
   

  	
  $

  	
  [***]

  	
   

  

 

If HeartLab’s rights convert to non-exclusive, the
minimum annual royalty amounts set forth in this Section 5.4 shall [***].

 

5.5           HeartLab shall send payment for royalties accruing to
Berkeley Lab quarterly together with its royalty report under
paragraph 7.4.

 

5.6           HeartLab shall make checks payable to “The Regents of the
University of California (Berkeley Lab/L-97-1203).”  HeartLab shall pay Berkeley Lab only in
United States dollars.  If a Licensed
Product is sold for moneys other than United States dollars (not including
Highly Inflationary Currency), HeartLab shall first determine the earned roy-

 

4/29/97; TTD/VW

 

[***] indicates material that has been omitted
pursuant to a request for confidential treatment. The omitted material has been
filed separately with the Securities and Exchange Commission.

 

4

 

L-97-1203

 

 

alties in the foreign currency of
the country in which the Licensed Product was sold and then convert them into
equivalent United States dollars at the closing exchange rate published by The Wall Street Journal on the last
business day of the reporting period.  If
a Licensed Product is sold for a Highly Inflationary Currency, HeartLab shall
convert the sales subject to royalties into equivalent United States funds
using the closing exchange rates in effect on the date of invoicing (or if no
invoicing, of delivery) as published by The
Wall Street Journal.  HeartLab
shall quote the exchange rate in the Continental method (local currency per
U.S. dollar).

 

5.7           HeartLab may not reduce royalties payable by any taxes, fees,
or other charges imposed on the remittance of royalty income, except for
applicable withholding taxes imposed for Berkeley Lab’s account, if any.
HeartLab is also responsible for all bank transfer charges.

 

5.8           If HeartLab cannot promptly remit any royalties for sales in
any country where a Licensed Product is sold because of legal restrictions,
HeartLab may deposit in United States funds royalties due Berkeley Lab to
Berkeley Lab’s account in a bank or other depository in that country.  If HeartLab is not permitted to deposit those
payments in U.S. funds under the laws of that country, HeartLab may deposit
those payments in the local currency to Berkeley Lab’s account in a bank or
other depository in that country.

 

5.9           If a court of competent jurisdiction and last resort holds
invalid any patent or any of the patent claims within Berkeley Lab’s Patent
Rights in a final decision from which no appeal has or can be taken, HeartLab’s
obligation to pay royalties based on that patent or claim will cease as of the
date of that final decision.  HeartLab,
however, shall pay any royalties that accrued before that decision or that are
based on another patent or claim not involved in that decision or that are
based on Proprietary Rights.

 

5.10         HeartLab has no duty to pay Berkeley Lab royalties under this
Agreement on a Licensed Product HeartLab sells to the United States Government
including any United States Government agency. 
HeartLab shall reduce the amount charged for a Licensed Product sold to
the United States Government by an amount equal to the royalty otherwise due
Berkeley Lab.

 

6.  PERFORMANCE REQUIREMENTS

 

6.1           HeartLab shall diligently proceed with the development,
manufacture and sale of Licensed Products and/or Alternate Methodology Products
and shall diligently endeavor to market them within a reasonable time after the
Effective Date in quantities sufficient to meet the market demand.

 

6.2           HeartLab shall make commercially reasonable efforts to obtain
all necessary governmental approvals for the manufacture, use and sale of
Licensed Products and/or Alternate Methodology Products.

 

6.3           HeartLab is entitled to exercise prudent and reasonable
business judgment in meeting its performance requirements under this Agreement.

 

6.4           Subject to Section 6.3, if HeartLab is unable to perform
any of the following, then Berkeley Lab upon 60 days notice may either
terminate this Agreement or reduce this

 

4/29/97; TTD/VW

 

[***] indicates material that has been omitted
pursuant to a request for confidential treatment. The omitted material has been
filed separately with the Securities and Exchange Commission.

 

5

 

L-97-1203

 

limited exclusive license to a
nonexclusive license, which is Berkeley Lab’s sole and exclusive remedy for
such failure:

 

[***]

 

6.5           If Berkeley Lab has the right under Section 6.4 and
grants a non-exclusive license to any other party upon royalty rates more
favorable than those of this Agreement after reducing this license to a
non-exclusive license, then [***]

 

6.6           HeartLab and Berkeley Lab by mutual written consent may amend
or extend the requirements of paragraph 6.4.1 at the written request of
HeartLab in response to legitimate business reasons, including changes in
regulatory requirements, market conditions, or other reasonably unforseeable
circumstances.

 

7.  PROGRESS AND ROYALTY REPORTS

 

7.1           Beginning November 30, 1997 and semi-annually
thereafter, HeartLab shall submit to Berkeley Lab a summary progress report
covering HeartLab’s activities related to the development and testing of all
Licensed Products and/or Alternate Methodology Products.

 

7.2           The progress reports HeartLab submits under
Paragraph 7.1 must include, but not be limited to, the following topics:

 

7.2.1        market plans for introduction of new Licensed Products and
Alternate Methodology Products; and

 

7.2.2        number of full-time equivalent (FTEs) employees or agents
working on the development or marketing of Licensed Products and/or Alternate
Methodology Products.

 

7.3           HeartLab shall also report to Berkeley Lab in its immediately
subsequent royalty report on the date of first commercial sale of each Licensed
Product and/or Alternate Methodology Products in the U.S. and in each other
country.

 

7.4           After the first commercial sale of a Licensed Product and/or
Alternate Methodology Products anywhere in the world, HeartLab shall make
quarterly royalty reports to Berkeley Lab on or before February 28, May 31,
August 31 and November 30 of each year.  Each royalty report must cover the most
recently completed calendar quarter and must show:

 

7.4.1        the Selling Price of each type of Licensed Product and/or
Alternate Methodology Products sold by HeartLab;

 

7.4.2        the number of each type of Licensed Product and/or Alternate
Methodology Products sold;

 

4/29/97; TTD/VW

 

[***] indicates material that has been omitted
pursuant to a request for confidential treatment. The omitted material has been
filed separately with the Securities and Exchange Commission.

 

6

 

L-97-1203

 

7.4.3        the royalties, in U.S. dollars, payable under this Agreement
on those sales;

 

7.4.4        the exchange rates used in calculating the royalty due;

 

7.4.5        the royalties on government sales that otherwise would have
been due under Paragraph 5.10; and

 

7.4.6        for each sublicense, if any:

 

(1)           the sublicensee;

 

(2)           the number, description, and aggregate Selling Prices of
Licensed Products that the sublicensee sold or otherwise disposed of;

 

(3)           the exchange rates used in calculating the royalties due Berkeley
Lab from the sublicensee’s sales.

 

7.5           If no sales of Licensed
Products have been made during any reporting period, HeartLab shall make a
statement to this effect.

 

8.  BOOKS AND RECORDS

 

8.1           HeartLab shall keep books and records accurately showing all
Licensed Products manufactured, used, or sold under the terms of this
Agreement.  HeartLab shall preserve those
books and records for at least five years from the date of the royalty payment
to which they pertain and shall open them to inspection by representatives or
agents of Berkeley Lab at reasonable times.

 

8.2           Berkeley Lab shall bear the fees and expenses of Berkeley Lab’s
representatives performing the examination of the books and records.  But if the representatives discover an error
in royalties of more than 5% of the total royalties due for any year, then
HeartLab shall bear the fees and expenses of these representatives and the
difference between the earned royalties and the reported royalties (which shall
be subject to the provisions of Article 20 (LATE PAYMENTS)).

 

9.  LIFE OF THE AGREEMENT

 

9.1           Unless otherwise terminated by operation of law or by acts of
the parties in accordance with the terms of this Agreement, this Agreement
commences on the Effective Date and expires concurrently with the
last-to-expire issued Licensed Patent, or if no such Licensed Patent issues, at
ten (10) years from the Effective Date.

 

9.2           Any termination of this Agreement shall not affect the rights
and obligations set forth in the following Articles:

 

Article 8              Books and Records

 

Article 12            Disposition of Licensed
Products on Hand upon Termination

 

Article 13            Use of Names and Trademarks
and Nondisclosure of Agreement

 

4/29/97;
TTD/VW

 

[***] indicates material that has been omitted
pursuant to a request for confidential treatment. The omitted material has been
filed separately with the Securities and Exchange Commission.

 

7

 

L-97-1203

 

 

Article 19            Indemnification

 

Article 25            Export Control Laws

 

9.3           Termination does not affect in any manner any rights of
Berkeley Lab arising under this Agreement before the termination. After
expiration of the Agreement as provided in  9.1, HeartLab shall retain a
nonexclusive, royalty-free license under the Proprietary Rights for all
purposes.

 

10.  TERMINATION BY BERKELEY LAB

 

10.1         If HeartLab violates or fails to perform any material term of
this Agreement, then Berkeley Lab may give written notice of such default
(“Default Notice”) to HeartLab. 
If HeartLab fails to cure that default and provide Berkeley Lab with
tangible evidence of the cure within [***] days of the Default Notice, Berkeley
Lab may terminate this Agreement and the licenses granted by a second written
notice (“Termination Notice”) to HeartLab. 
If Berkeley Lab sends a Termination Notice to HeartLab, this Agreement
automatically terminates on the effective date of the Termination Notice.

 

11.  TERMINATION BY HEARTLAB

 

11.1         HeartLab at any time may terminate this Agreement in whole or
as to any portion of the Licensed Patents or Proprietary Rights by giving
written notice to Berkeley Lab. 
HeartLab’s termination of this Agreement will be
effective [***] days after its notice.

 

12.  DISPOSITION OF LICENSED PRODUCTS

ON HAND UPON TERMINATION

 

12.1         Within [***] days
of termination of this Agreement for any reason, HeartLab shall
provide Berkeley Lab with a written inventory of all Licensed Products in
process of manufacture or in stock. 
HeartLab shall dispose of those Licensed Products within [***] days of
termination.  The sale of any Licensed
Product within the [***] days is subject to the terms of this Agreement.

 

13.  USE OF NAMES AND TRADEMARKS AND

NONDISCLOSURE OF AGREEMENT

 

13.1         In accordance with California Education Code Section 92000,
HeartLab shall not use the name, “University of California, Ernest Orlando
Lawrence Berkeley National Laboratory, Department of Energy National Laboratory”
or shortened forms or adaptations of it (the “UC Name”), or make reference or
allusion to it in any advertisement, labeling or publicity relating to a
Licensed Product, except with the prior written permission of Berkeley Lab.

 

13.2         Neither party may disclose the terms of this Agreement to a
third party without express written permission of the other party, except when
required under either the California Public Records Act or other applicable law
or court order.  Notwithstanding the
foregoing, Berkeley Lab may disclose the existence of this Agreement and the
extent of the grant in Article 3, but shall not otherwise disclose the
terms of this Agreement, except to the DOE, and HeartLab may disclose the
Agreement in confidence to bona fide potential investors or acquirers.

 

4/29/97;
TTD/VW

 

[***] indicates material that has been omitted
pursuant to a request for confidential treatment. The omitted material has been
filed separately with the Securities and Exchange Commission.

 

8

 

L-97-1203

 

 

14.  LIMITED WARRANTY

 

14.1         Berkeley Lab warrants to HeartLab that it has the lawful
right to grant this license.

 

14.2         This license and the associated Invention are provided
WITHOUT WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY
OTHER WARRANTY, EXPRESS OR IMPLIED. BERKELEY LAB MAKES NO REPRESENTATION OR
WARRANTY THAT LICENSED PRODUCTS OR LICENSED METHODS WILL NOT INFRINGE ANY
PATENT OR OTHER PROPRIETARY RIGHT.

 

14.3         IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS
LICENSE OR THE USE OF THE INVENTION OR LICENSED PRODUCTS.

 

14.4         Nothing in this Agreement may be construed as:

 

	
  14.4.1

  	
  a
  warranty or representation by Berkeley Lab as to the validity or scope of any
  of Berkeley Lab’s rights in Licensed Patents;

  
	
   

  	
   

  
	
  14.4.2

  	
  a
  warranty or representation that anything made, used, sold or otherwise
  disposed of under any license granted in this Agreement is or will be free
  from infringement of patents of third parties;

  
	
   

  	
   

  
	
  14.4.3

  	
  an
  obligation to bring or prosecute actions or suits against third parties for patent
  infringement, except as specifically provided for in Article 16 (Patent
  Infringement); or

  
	
   

  	
   

  
	
  14.4.4

  	
  a grant
  by implication, estoppel or otherwise of any license or rights under any
  patents of Berkeley Lab other than Licensed Patents, regardless of whether
  such patents are dominant or subordinate to Licensed Patents;

  
	
   

  	
   

  
	
  14.4.5

  	
  an
  obligation to furnish any know-how not provided in Licensed Patents other
  than Proprietary Rights existing on the Effective Date.

  

 

15.  PATENT PROSECUTION AND MAINTENANCE

 

15.1         Berkeley Lab shall diligently maintain the United States
patents for Licensed Patents using counsel of its choice.  Berkeley Lab shall bear the cost of
preparing, filing, prosecuting and maintaining any United States patent covered
by this Agreement.

 

15.2         HeartLab may request that Berkeley Lab seek patent protection
on the Invention in foreign countries if available.  Berkeley Lab has no obligation to take action
to file foreign patent applications on behalf of HeartLab until the following
occurs:

 

	
  15.2.1

  	
  HeartLab
  makes that request in writing to Berkeley Lab by May 1, 1997. The
  absence of the required notice from HeartLab to Berkeley Lab acts as an
  election not to secure foreign rights.

  
	
   

  	
   

  
	
  15.2.2

  	
  That
  notice also identifies the countries HeartLab desires.

  

 

4/29/97;
TTD/VW

 

[***] indicates material that has been omitted
pursuant to a request for confidential treatment. The omitted material has been
filed separately with the Securities and Exchange Commission.

 

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  15.2.3

  	
  HeartLab
  pays Berkeley Lab the foreign license fee as set forth in
  paragraph 15.3.

  

 

15.3         The foreign license fee for each foreign counterpart to a
United States patent application shall be as follows:

 

	
  [***]

  	
   

  

 

15.4         Berkeley Lab shall bear the expense of preparing, filing and
prosecuting all foreign patent applications that Berkeley Lab files at
HeartLab’s request.  HeartLab shall bear
the expense of maintaining all resulting patents.  Berkeley Lab will hold those patents in its
name and obtain them using counsel of its choice.

 

15.5         Berkeley Lab may file patent applications at its own expense
in any country in which HeartLab has not elected to secure patent rights.  Those applications and resultant patents
shall not be subject to this Agreement.

 

15.6         Berkeley Lab shall provide HeartLab in a timely fashion with
copies of all relevant documentation so that HeartLab is informed of the
continuing prosecution of Licensed Patents and any foreign patent applications
Berkeley Lab files under paragraph 15.2 and has the opportunity to make
suggestions regarding such prosecution. 
HeartLab shall keep this documentation confidential. Berkeley Lab shall
use all reasonable efforts to amend any patent application to include claims
reasonably requested by Heart-Lab to protect the products contemplated to be
sold under this Agreement.

 

16.  PATENT INFRINGEMENT

 

16.1         If HeartLab learns of the substantial infringement of any of
Berkeley Lab’s Patent Rights, HeartLab shall so inform Berkeley Lab in writing
and shall provide Berkeley Lab with reasonable evidence of the
infringement.  During the period and in a
jurisdiction where HeartLab has exclusive rights under this Agreement, neither
party may notify a third party of the infringement of any of Berkeley Lab’s
Patent Rights without first obtaining written consent of the other party, which
consent shall not be unreasonably denied. 
Both parties shall use their best efforts in cooperation with each other
to terminate such infringement without litigation.

 

16.2         HeartLab may request that Berkeley Lab take legal action
against the infringement of Berkeley Lab’s Patent Rights.  HeartLab shall make that request in writing
and include reasonable evidence of the infringement and damages to
HeartLab.  If the infringing activity has
not been abated within [***] days of that request, Berkeley Lab may elect
to:  (a) commence suit on its own
account; or (b) refuse to participate in the suit. Berkeley Lab 

 

4/29/97;
TTD/VW

 

[***] indicates material that has been omitted
pursuant to a request for confidential treatment. The omitted material has been
filed separately with the Securities and Exchange Commission.

 

10

 

L-97-1203

 

 

shall give written notice of its
election to HeartLab by [***] after receiving notice of the request from
HeartLab. HeartLab may thereafter bring suit for patent infringement only if
Berkeley Lab elects not to commence suit and if the infringement occurred
during the period and in a jurisdiction where HeartLab has exclusive rights
under this Agreement.  If, however,
HeartLab elects to bring suit in accordance with this paragraph, Berkeley Lab
may thereafter join such suit at its own expense.

 

16.3         Such legal action as is decided upon must be at the expense
of the party on account of whom suit is brought and all consequent recoveries
belong to that party. But if Berkeley Lab and HeartLab jointly bring legal
action and fully participate in it, the parties must jointly share both the
expense and all recoveries in proportion to the share of expense each party
pays.

 

16.4         Each party shall cooperate with the other in litigation
proceedings instituted under this Agreement but at the expense of the party on
account of whom suit is brought.  The
party bringing the suit will control that litigation, except that Berkeley Lab
may elect to be represented by counsel of its choice in any suit brought by
HeartLab.

 

17.  WAIVER

 

17.1         The waiver of any breach of any term of this Agreement does
not waive any other breach of that or any other term.

 

18.  ASSIGNMENT

 

18.1         This Agreement is binding upon and
shall inure to the benefit of Berkeley Lab, its successors and assigns.  HeartLab may assign this Agreement upon
notice to Berkeley Lab to a HeartLab Affiliate or to a successor in interest by
way of acquisition, merger or sale of all or substantially all of HeartLab’s
assets.  Any other attempt by HeartLab to
assign this Agreement is void unless HeartLab obtains the prior written consent
of Berkeley Lab; Berkeley Lab shall not unreasonably withhold that consent.

 

19.  INDEMNIFICATION

 

19.1         HeartLab agrees to indemnify, hold harmless and defend
Berkeley Lab, its officers, employees, and agents; the sponsors of the research
that led to the Invention; and the inventors of the patents and patent
applications in Licensed Patents and their employers against any and all
claims, suits, losses, damage, costs, fees, and expenses resulting from or
arising out of exercise of this license or any sublicense except to the degree
attributable to Berkeley Lab’s own negligence or willful misconduct.  HeartLab shall pay all costs incurred by
Berkeley Lab in enforcing this indemnification, including reasonable attorney
fees.

 

19.2         HeartLab, at its sole expense, shall insure its activities in
connection with the work under this Agreement and obtain and keep in force
Comprehensive or Commercial Form General Liability Insurance (contractual
liability and products liability included) with limits as follows:

 

	
  19.2.1

  	
  Each
  Occurrence

  	
   

  	
  $

  	
  [***]

  
	
  19.2.2

  	
  Products/Completed
  Operations Aggregate

  	
   

  	
  $

  	
  [***]

  

 

4/29/97;
TTD/VW

 

[***] indicates material that has been omitted
pursuant to a request for confidential treatment. The omitted material has been
filed separately with the Securities and Exchange Commission.

 

11

 

L-97-1203

 

 

	
  19.2.3

  	
  Personal
  and Advertising Injury

  	
   

  	
  $

  	
  [***]

  
	
  19.2.4

  	
  General
  Aggregate (commercial form only)

  	
   

  	
  $

  	
  [***]

  

 

19.3         The coverages and limits referred to in this Article 19
do not in any way limit the liability of HeartLab. HeartLab shall furnish
Berkeley Lab with certificates of insurance, including renewals, evidencing
compliance with all requirements at least 30 days prior to the first commercial
sale, use or distribution of a Licensed Product or Licensed Method.

 

	
  19.3.1

  	
  If such
  insurance is written on a claims-made form, coverage shall provide for a
  retroactive date of placement on or before the Effective Date.

  
	
   

  	
   

  
	
  19.3.2

  	
  HeartLab
  shall maintain the general liability insurance specified during: (a) the
  period that the Licensed Product or Method is being commercially distributed
  or sold (other than for the purpose of obtaining regulatory approvals) by
  HeartLab or by a sublicensee, Affiliate, or agent of HeartLab, and (b) a
  reasonable period thereafter, but in no event less than five years.

  

 

19.4         The insurance coverage of paragraph 19.2 must:

 

	
  19.4.1

  	
  Indicate
  that DOE, “The Regents of the University of California” and its officers,
  employees, students, and agents, are endorsed as additional insureds.

  
	
   

  	
   

  
	
  19.4.2

  	
  Include a
  provision that the coverages are primary and do not participate with, nor are
  excess over, any valid and collectible insurance or program of self-insurance
  carried or maintained by Berkeley Lab.

  

 

20.  LATE PAYMENTS

 

20.1         If HeartLab is late in making a payment to Berkeley Lab by
more than [***] after the payment is due, HeartLab shall pay to Berkeley Lab
such reasonable administrative fees and interest as Berkeley Lab
generally charges third parties on overdue accounts.

 

21.  NOTICES

 

21.1         Any payment, notice or other communication this Agreement
requires or permits either party to give must be in writing to the appropriate
address given below, or to such other address as one party designates by
written notice to the other party.  The
parties deem payment, notice or other communication to have been properly given
and to be effective (a) on the date of delivery if delivered in person; (b) on
the fourth day after mailing if mailed by first-class mail, postage paid; (c) on
the second day after delivery to an overnight courier service such as Federal
Express, if sent by such a service; or (d) upon confirmed transmission by
telecopier.  The parties’ addresses are
as follows:

 

4/29/97;
TTD/VW

 

[***] indicates material that has been omitted pursuant
to a request for confidential treatment. The omitted material has been filed
separately with the Securities and Exchange Commission.

 

12

 

L-97-1203

 

 

	
  For payments to Berkeley Lab:

  

  Ernest O. Lawrence

  Berkeley National
  Laboratory

  Accounting/Financial Management

  P.O. Box 528

  Berkeley, California 94701

  Attention: Licensing
  Accountant

  Fax: 510/486-5995

  Telephone: 510/486-7113

  	
   

  	
  For all other notices to Berkeley Lab:

  

  Ernest O. Lawrence

     Berkeley National Laboratory

  Technology Transfer Department

  Mailstop 90-1070

  One Cyclotron Road
 Berkeley, California 94720

  Attention: Licensing Manager

  Fax: 510/486-6457

  Telephone: 510/486-6467

  
	
   

  	
   

  	
   

  
	
  In the case of HeartLab:

  

  1875 South Grant Ave, Suite 700

  San Mateo, CA 94402

  Attention: Dr. Robert Swift, CEO

  Fax: 415/372-1948

  Telephone: 415/372-1941

  	
   

  	
   

  

 

22.  U.S. MANUFACTURE

 

22.1         HeartLab
shall have Licensed Products produced for sale in the United States
manufactured substantially in the United States so long as HeartLab has current
exclusive rights.

 

23.  PATENT MARKING

 

23.1         HeartLab
shall mark all Licensed Products made, used or sold under this Agreement, or
their containers, in accordance with the applicable patent marking laws.

 

24.  GOVERNMENT APPROVAL OR REGISTRATION

 

24.1         If the law of any nation requires that any governmental
agency either approve or register this Agreement or any associated transaction,
HeartLab shall assume all legal obligation to do so.  HeartLab shall notify Berkeley Lab if it
becomes aware that this Agreement is subject to a U.S. or foreign government
reporting or approval requirement. 
HeartLab shall make all necessary filings and pay all costs, including
fees, penalties, and all other costs associated with such reporting or approval
process.

 

25.  EXPORT CONTROL LAWS

 

25.1         HeartLab shall observe all applicable United States and
foreign laws and regulations with respect to the transfer of Licensed Products
and related technical data, including, without limitation, the International
Traffic in Arms Regulations (ITAR) and the Export Administration Regulations.

 

4/29/97;
TTD/VW

 

[***] indicates material that has been omitted
pursuant to a request for confidential treatment. The omitted material has been
filed separately with the Securities and Exchange Commission.

 

13

 

L-97-1203

 

 

26.  FORCE MAJEURE

 

26.1         If a party’s performance required under this Agreement is
rendered impossible or unfeasible due to any catastrophes or other major events
beyond its reasonable control, including, without limitation, the following,
the parties are excused from performance: 
war, riot, and insurrection; laws, proclamations, edicts, ordinances or
regulations; strikes, lockouts or other serious labor disputes; and floods, fires,
explosions, or other natural disasters. 
When such events abate, the parties’ respective obligations under this
Agreement must resume.

 

27.  MISCELLANEOUS

 

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

 

27.2         This Agreement is not binding upon the parties until it is
signed below on behalf of each party.

 

27.3         No amendment or modification hereof shall be valid or binding
upon the parties unless made in writing and signed on behalf of each party.

 

27.4         This Agreement embodies the entire and final understanding of
the parties on this subject. It supersedes any previous representations,
agreements, or understandings, whether oral or written.

 

27.5         If a court of competent jurisdiction holds any provision of
this Agreement invalid, illegal or unenforceable in any respect, this Agreement
must be construed as if that invalid or illegal or unenforceable provision is
severed from the Agreement.  All other
provisions of this Agreement must continue without regard to the severed
provision, provided that the remaining provisions of the Agreement are in
accordance with the intention of the parties.

 

27.6         This Agreement must be interpreted under California law.

 

Berkeley Lab and HeartLab
execute this Agreement in duplicate originals through their duly authorized
respective officers in one or more counterparts, that taken together, are but
one instrument.

 

	
  THE REGENTS OF THE UNIVERSITY
  OF CALIFORNIA, THROUGH THE ERNEST ORLANDO LAWRENCE BERKELEY NATIONAL
  LABORATORY

  	
   

  	
  BERKELEY HEARTLAB, INC.

  
	
   

  	
   

  	
   

  
	
  By 

  	
  /s/ Piermaria Oddone

  	
   

  	
  By 

  	
  /s/ Robert L. Swift

  
	
   

  	
  (Signature)

  	
   

  	
   

  	
  (Signature)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By 

  	
  Piermaria Oddone

  	
   

  	
  By 

  	
  Robert Swift

  
	
   

  	
  (Please Print)

  	
   

  	
   

  	
  (Please Print}

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title

  	
  Deputy Laboratory Director

  	
   

  	
  Title

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Date 

  	
  April 30/97

  	
   

  	
  Date

  	
  April 30, 97

  
	
   

  	
   

  	
   

  
	
  Approved as to form

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
                    /s/
  Glenn R. Woods

  	
   

  	
   

  
	
  GLENN R. WOODS

  	
   

  	
   

  
	
  LAWRENCE BERKELEY
  LABORATORY

  	
   

  	
   

  
									

 

4/29/97;
TTD/VW

 

[***] indicates material that has been omitted
pursuant to a request for confidential treatment. The omitted material has been
filed separately with the Securities and Exchange Commission.

 

14Exhibit 10.11

 

RESEARCH COLLABORATION AND
LICENSE AGREEMENT

 

between

 

MERCK & CO., INC.

 

and

 

ARRIS PHARMACEUTICAL
CORPORATION

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

 

TABLE OF CONTENTS

 

	
  ARTICLE I DEFINITIONS

  	
  1

  
	
   

  	
   

  
	
  ARTICLE II RESEARCH PROGRAM

  	
  8

  
	
   

  	
   

  	
   

  
	
  2.1

  	
  General

  	
  8

  
	
   

  	
   

  	
   

  
	
  2.2

  	
  Conduct of Research

  	
  8

  
	
   

  	
   

  	
   

  
	
  2.3

  	
  Use of Research Funding

  	
  8

  
	
   

  	
   

  	
   

  
	
  2.4

  	
  Exchange of Information

  	
  8

  
	
   

  	
   

  	
   

  
	
  2.5

  	
  Joint Research Committee

  	
  8

  
	
   

  	
   

  	
   

  
	
  2.6

  	
  Records and Reports

  	
  8

  
	
   

  	
   

  	
   

  
	
   

  	
  2.6.1

  	
  Records

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.6.2

  	
  Copies and Inspection of Records

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.6.3

  	
  Quarterly Reports

  	
  9

  
	
   

  	
   

  	
   

  
	
  2.7

  	
  Research Program Information and Inventions

  	
  9

  
	
   

  	
   

  	
   

  
	
  2.8

  	
  Research Program Term

  	
  9

  
	
   

  	
   

  	
   

  
	
  2.9

  	
  ARRIS Delta Technology

  	
  10

  
	
   

  	
   

  	
   

  
	
  2.10

  	
  Rights to Compounds

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE III LICENSE; DEVELOPMENT AND COMMERCIALIZATION

  	
  11

  
	
   

  	
   

  	
   

  
	
  3.1

  	
  Research License Grants

  	
  11

  
	
   

  	
   

  	
   

  
	
  3.2

  	
  Commercialization License

  	
  12

  
	
   

  	
   

  	
   

  
	
  3.3

  	
  Development and Commercialization

  	
  12

  
	
   

  	
   

  	
   

  
	
  3.4

  	
  Exclusivity in Field

  	
  12

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV CONFIDENTIALITY AND PUBLICATION

  	
  12

  
	
   

  	
   

  	
   

  
	
  4.1

  	
  Nondisclosure Obligations

  	
  12

  
	
   

  	
   

  	
   

  
	
  4.2

  	
  Restriction on ARRIS Delta Technology

  	
  12

  
	
   

  	
   

  	
   

  
	
  4.3

  	
  Exceptions

  	
  12

  
	
   

  	
   

  	
   

  
	
  4.4

  	
  Permitted Disclosure of Proprietary Information

  	
  13

  
	
   

  	
   

  	
   

  
	
  4.5

  	
  Publication

  	
  13

  
	
   

  	
   

  	
   

  
	
  4.6

  	
  Press Releases

  	
  14

  
	
   

  	
   

  	
   

  
	
  ARTICLE V PAYMENTS; ROYALTIES AND REPORTS

  	
  14

  
	
   

  	
   

  	
   

  
	
  5.1

  	
  Commitment Fee

  	
  14

  
	
   

  	
   

  	
   

  
	
  5.2

  	
  Research Program Funding

  	
  14

  
	
   

  	
   

  	
   

  
	
  5.3

  	
  Milestone Payments

  	
  15

  

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

i

 

	
  5.4

  	
  Royalties

  	
  16

  
	
   

  	
   

  	
   

  
	
   

  	
  5.4.1

  	
  Royalties Payable By MERCK

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.4.2

  	
  Managed Pharmaceutical Contracts

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.4.3

  	
  Change in Sales Practices

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.4.4

  	
  Bulk Compound

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.4.5

  	
  Compulsory Licenses

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.4.6

  	
  Third Party Licenses

  	
  18

  
	
   

  	
   

  	
   

  
	
  5.5

  	
  Reports; Payment of Royalty

  	
  18

  
	
   

  	
   

  	
   

  
	
  5.6

  	
  Audits

  	
  19

  
	
   

  	
   

  	
   

  
	
  5.7

  	
  Income Tax Withholding

  	
  20

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI REPRESENTATIONS AND WARRANTIES

  	
  20

  
	
   

  	
   

  	
   

  
	
  6.1

  	
  Arris Representations and Warranties

  	
  20

  
	
   

  	
   

  	
   

  
	
  6.2

  	
  Merck Representations and Warranties

  	
  21

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII PATENT MATTERS

  	
  21

  
	
   

  	
   

  	
   

  
	
  7.1

  	
  Filing

  	
  21

  
	
   

  	
   

  	
   

  
	
  7.2

  	
  Right to Prosecute and Maintain Patents

  	
  22

  
	
   

  	
   

  	
   

  
	
  7.3

  	
  Interference, Opposition, Reexamination and Reissue

  	
  23

  
	
   

  	
   

  	
   

  
	
  7.4

  	
  Enforcement and Defense

  	
  23

  
	
   

  	
   

  	
   

  
	
  7.5

  	
  Patent Term Restoration

  	
  25

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII TERM AND TERMINATION

  	
  25

  
	
   

  	
   

  	
   

  
	
  8.1

  	
  Term and Expiration

  	
  25

  
	
   

  	
   

  	
   

  
	
  8.2

  	
  Termination by MERCK

  	
  25

  
	
   

  	
   

  	
   

  
	
  8.3

  	
  Termination

  	
  27

  
	
   

  	
   

  	
   

  
	
   

  	
  8.3.1

  	
  Termination for Cause

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.3.2

  	
  Effect of Termination for Bankruptcy

  	
  28

  
	
   

  	
   

  	
   

  
	
  8.4

  	
  Effect of Expiration or Termination

  	
  28

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX MISCELLANEOUS

  	
  29

  
	
   

  	
   

  	
   

  
	
  9.1

  	
  Force Majeure

  	
  29

  
	
   

  	
   

  	
   

  
	
  9.2

  	
  Excused Performance

  	
  29

  
	
   

  	
   

  	
   

  
	
  9.3

  	
  Binding Effect; Assignment

  	
  29

  
	
   

  	
   

  	
   

  
	
  9.4

  	
  Consequences of Certain Assignments by ARRIS

  	
  30

  
	
   

  	
   

  	
   

  
	
  9.5

  	
  Severability

  	
  31

  
	
   

  	
   

  	
   

  
	
  9.6

  	
  Use of Names

  	
  31

  
					

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

ii

 

	
  9.7

  	
  Notices

  	
  31

  
	
   

  	
   

  	
   

  
	
  9.8

  	
  Applicable Law

  	
  32

  
	
   

  	
   

  	
   

  
	
  9.9

  	
  Arbitration

  	
  32

  
	
   

  	
   

  	
   

  
	
  9.10

  	
  Entire Agreement

  	
  33

  
	
   

  	
   

  	
   

  
	
  9.11

  	
  Headings

  	
  33

  
	
   

  	
   

  	
   

  
	
  9.12

  	
  Independent Contractors

  	
  33

  
	
   

  	
   

  	
   

  
	
  9.13

  	
  Waiver

  	
  33

  
	
   

  	
   

  	
   

  
	
  9.14

  	
  Counterparts

  	
  33

  

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

iii

 

RESEARCH COLLABORATION AND LICENSE AGREEMENT

 

THIS AGREEMENT is effective as of November,
1996 (the “Effective Date”), between MERCK & CO., INC., a corporation
organized and existing under the laws of New Jersey (“MERCK”) and ARRIS
PHARMACEUTICAL CORPORATION, a corporation organized and existing under the laws
of Delaware (“ARRIS”).

 

WITNESSETH:

 

WHEREAS, ARRIS has developed ARRIS Know-How
(as defined below) and has rights to ARRIS Patents (as defined below);

 

WHEREAS, MERCK and ARRIS desire to enter into
a research collaboration upon the terms and conditions set forth herein;

 

WHEREAS, MERCK desires to obtain a license
under the ARRIS Patents and ARRIS Know-How, upon the terms and conditions set
forth herein;

 

NOW, THEREFORE, in consideration of the
foregoing and the mutual covenants contained herein, the parties hereby agree
as follows:

 

ARTICLE I

DEFINITIONS

 

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

 

1.1                                 “Active Compound” shall mean any
compound in purified form that

 

(A)

 

(1)                                  is
a [***] compound characterized by having the ability to inhibit (or, in the
case of a prodrug, an active species of which inhibits) human cathepsin K or human
cathepsin L [***] and having greater than [***] in an [***] wherein the
concentration of the compound is not greater than [***], and

 

(2)                                  satisfies
one or more of the following:

 

(a)                                  is
discovered, identified or synthesized by or on behalf of ARRIS and/or MERCK, or
an Affiliate of either of them, pursuant to work conducted under this
Agreement, and is determined by the JRC to

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

1

 

meet the criteria of Subsection 1.1(A)(1) above either [***]
pursuant to work conducted under [***] or (ii) [***] pursuant to work
deriving directly from or based directly upon the results of the work conducted
under the Agreement; or

 

(b)                                 is
acquired prior to the end of the Research Program Term (including without
limitation acquisition of rights thereto) by ARRIS or MERCK, or an Affiliate of
either of them, from a third party, on an absolute or contingent basis (such as
rights under an option), and is determined by the JRC to meet the criteria of
Subsection 1.1(A)(1) above pursuant to work conducted under this Agreement
during the Research Program Term; or

 

(c)                                  is
generically described within a claim describing a genus of compounds the
utility of which is given as human cathepsin K or human cathepsin L inhibition,
as defined in any pending or issued claim of any unexpired ARRIS Patent, MERCK
Patent or Collaboration Patent filed in the United States or Japan or as a
European Patent Application, or as a Patent Cooperation Treaty (“PCT”)
application designating the United States and the contracting states of the
European Patent Convention, and as to which the JRC determines that at least
one member of such genus meets the requirements of either Subsection 1.1(A)(1)(a) or
1.1(A)(1)(b) above, PROVIDED THAT such compound is synthesized and assayed
[***]; or

 

(B)

 

(1)                                  is
(a) identified to the JRC from the ARRIS library by ARRIS or from the
MERCK library by MERCK, or (b) discovered or synthesized by or on behalf
of ARRIS and/or MERCK, or an Affiliate of either of them pursuant to work
conducted under this Agreement [***], or (c) acquired by ARRIS or MERCK,
or an Affiliate of either of them, pursuant to work conducted under this
Agreement prior to [***], and (2) is designated an Active Compound by the
JRC by [***].

 

Notwithstanding the provisions of Subsections
1.1(A) and (B) above, Active Compounds shall not include:

 

(x) Any compound that meets the
requirements for being an Active Compound as set forth above but that has not
been determined to be or selected as a Program Compound by the later of: (i) [***],

 

[***] indicates material that has been omitted
pursuant to a request for confidential treatment. The omitted material has been
filed separately with the Securities and Exchange Commission.

 

2

 

or (ii) [***] by a party hereunder; or

 

(y) Any compound marketed by MERCK or
its Affiliates as of the Effective Date; or

 

(z) Any compound for which MERCK as of
the Effective Date is conducting human clinical trials or has filed an IND
(which has not been abandoned or withdrawn), provided that such compound is not
known as of the Effective Date to have human cathepsin K and/or L inhibitory
activity.

 

1.2                                 “ARRIS Delta Technology” shall mean
that specific technology, methods, techniques, materials, know-how, inventions,
information and data described generally in a letter from ARRIS to MERCK of
even date with this Agreement, all improvements to and inventions incorporating
the ARRIS Delta Technology (but excluding (i) Active Compounds, (ii) any
improved or modified Active Compounds which are themselves Active Compounds and
(iii) those inventions which arise from the use by MERCK or its Affiliates
or sublicensees of ARRIS Delta Technology to the extent permitted under Section 4.3
of this Agreement) made prior to [***], and the Patents owned or Controlled by
ARRIS at any time covering the foregoing.

 

1.3                                 “Affiliate” shall mean (i) any
corporation or business entity of which more than 50% of the securities or
other ownership interests representing the equity, the voting stock or general
partnership interest are owned, controlled or held, directly or indirectly, by
MERCK or ARRIS; or (ii) any corporation or business entity which, directly
or indirectly, owns, controls or holds 50% (or the maximum ownership interest
permitted by law) or more of the securities or other ownership interests
representing the equity, the voting stock or, if applicable, the general
partnership interest, of MERCK or ARRIS.

 

1.4                                 “ARRIS Know-How” shall mean all
information, materials and technology, including without limitation methods,
techniques, know-how, inventions, data, ARRIS Research Information, Technology
and Improvements, to the extent (a) owned or Controlled by ARRIS or an
ARRIS Affiliate at any time prior to [***], and (b) necessary or useful to
the work MERCK shall perform in the Field pursuant to the Agreement, but
excluding ARRIS Patents, Collaboration Patents, and ARRIS Delta Technology.

 

1.5                                 “ARRIS Patents” shall mean all
Patents owned or Controlled by ARRIS that claim (a) Active Compounds, the
manufacture or use of Active Compounds, or methods or materials used for
discovering, identifying, or assaying for Active Compounds, or (b) to the
extent not covered in subsection (a), any ARRIS Know-How or ARRIS Research
Information, where such Patents cover inventions made prior to [***], but excluding
the ARRIS Delta Technology.

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

3

 

1.6                                 “ARRIS Research Information” shall
mean all Research Program Information and Inventions developed or invented
solely by ARRIS (including by its employees, agents or consultants).

 

1.7                                 “Calendar Quarter” shall mean the
respective periods of three consecutive calendar months ending on March 31,
June 30, September 30 and December 31.

 

1.8                                 “Calendar Year” shall mean each
successive period of 12 months commencing on January 1 and ending on December 31.

 

1.9                                 “Combination Product” shall mean a
Licensed Product which includes one or more active ingredients other than a
Program Compound in combination with one or more Program Compounds.

 

1.10                           “Collaboration Patents” shall mean
all Patents that claim inventions in Research Program Information and
Inventions that are invented jointly by ARRIS and MERCK (including by their
respective employees, agents or consultants).

 

1.11                           “Collaboration Research Information”
shall mean all Research Program Information and Inventions developed or
invented jointly by ARRIS and MERCK (including by their respective employees,
agents or consultants).

 

1.12                           “Control” shall mean, with respect
to a compound, material, information or intellectual property right, possession
by a party of a license with the right to sublicense existing as of the
Effective Date or that is acquired during the term of this Agreement.

 

1.13                           “Field” shall mean the discovery,
identification, synthesis, assaying, manufacture, and research use of Active
Compounds and the clinical development of Program Compounds and the
manufacture, use, sale or importation of Licensed Products.

 

1.14                           “First Commercial Sale” shall mean,
with respect to any Licensed Product, the first sale by MERCK or its Affiliates
or sublicensees to a third party intended for end use or consumption of such
Licensed Product in a country after all required approvals, including marketing
and pricing approvals, have been granted by the governing health authority of
such country.

 

1.15                           “Improvement” shall mean any
enhancement in the manufacture, formulation, ingredients, preparation,
presentation, means of delivery, dosage or packaging of Program Compound or
Licensed Product.

 

1.16                           “JRC” shall mean the Joint Research
Committee described in Section 2.5 of this Agreement.

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

4

 

1.17                           “Licensed Product” shall mean a
preparation in final form for sale by prescription, over-the-counter or any
other method for any and all uses, including, without limitation, in humans
and/or animals and/or agriculture, and all other uses, which contains a Program
Compound, including, without limitation, any Combination Product.

 

1.18                           “MERCK Know-How” shall mean all
information, materials, and technology, including without limitation methods,
techniques, know-how, inventions, data, MERCK Research Information, Technology
or Improvements, to the extent (a) owned or Controlled by MERCK or a MERCK
Affiliate at any time prior to [***], and (b) in the reasonable opinion of
MERCK necessary or useful to the work ARRIS shall perform in the Field pursuant
to the Agreement, but excluding MERCK Patents, and Collaboration Patents.

 

1.19                           “MERCK Research Information” shall
mean all Research Program Information and Inventions developed or invented
solely by MERCK (including by its employees, agents or consultants).

 

1.20                           “MERCK Patents” shall mean all
Patents owned or Controlled by MERCK that claim (a) Active Compounds, the
manufacture or use of Active Compounds, or methods or materials used for
discovering, identifying, or assaying for Active Compounds, or (b) to the
extent not covered in subsection (a), any MERCK Know-How or MERCK Research
Information, where such Patents cover inventions made prior to [***].

 

1.21                           “Net Sales” shall mean [***]
Licensed Product sold by MERCK, its Affiliates or sublicensees (which term does
not include distributors) to the first independent third party after deducting,
if not previously deducted, from the amount invoiced:

 

(a)                                  trade and quantity discounts;

 

(b)                                 credits and allowances on account of
returned or rejected products;

 

(c)                                  rebates, chargebacks and other amounts
paid on sale or dispensing of Licensed Product;

 

(d)                                 [***];

 

(e)                                  [***]; and

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

5

 

(f)                                    [***] used for [***] Licensed
Product as it is sold, to the extent included within the gross invoice price of
Licensed Product.

 

With respect to sales of Combination
Products, Net Sales shall be calculated on the basis of the invoice price of
Licensed Product(s) containing the same weight of Program Compound sold
without other active ingredients.  If
such Licensed Product is not sold without other active ingredients, Net Sales
shall be calculated on the basis of [***] which shall be the [***] which shall
be the [***], but in no event shall such [***] shall be determined [***] in
accordance with [***].

 

1.22                           “Patents” shall mean any and all
issued patents and patent applications (which shall be deemed to include
certificates of invention and applications for certificates of invention) and
including all divisions, continuations, continuations-in-part, reissues,
renewals, extensions, supplementary protection certificates or the like of any of
the foregoing patents and patent applications and foreign equivalents thereof.

 

1.23                           “Program Compound” shall mean

 

(a)                                  an Active Compound that:

 

(i)                                     has [***] against human cathepsin K
or L;

 

(ii)                                  [***];

 

(iii)                               if a human cathepsin K inhibitor,
has greater than [***]; or, if a human cathepsin L           inhibitor, has  greater than [***]; and

 

(iv)                              [***];

or

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

6

 

(b)                                 any other Active Compound designated
as a Program Compound by the JRC by the [***]; or

 

(c)                                  any compound deemed to be a Program
Compound as provided in Section 2.10(d) of this Agreement.

 

1.24                           “Proprietary Information” shall mean
all scientific, clinical, regulatory, marketing, financial and commercial
information or data, whether communicated in writing, orally or by any other
means, that is provided by one party to the other party in connection with this
Agreement.  Proprietary Information shall
include, without limitation, MERCK Know-How, ARRIS Know-How and ARRIS Delta
Technology.

 

1.25                           “Research Program Information and
Inventions” shall mean all discoveries, Improvements, processes, formulas,
data, inventions, know-how and trade secrets, patentable or otherwise,
developed or discovered under or arising from the parties’ work, alone or
jointly, under the Research Program.

 

1.26                           “Research Program” shall mean the
collaborative research effort between the parties as set forth in Article II
of this Agreement and Attachment 2.1 hereto.

 

1.27                           “Technology” shall mean all
polynucleotides encoding human cathepsins, the expression vectors and systems
containing the coding regions of the polynucleotides encoding the human
cathepsins, various organisms (including, but not limited to, [***])
transformed with the polynucleotides encoding the human cathepsins and required
for the production of recombinant human cathepsin polypeptides, protocols and
biochemical expertise involved in the activation and purification of human
cathepsins, [***], substrates, assays, non-reversible and reversible inhibitors
of human cathepsins, and all additional know-how involved in the design of cathepsin
inhibitors.

 

1.28                           “Territory” shall mean all of the
countries in the world.

 

1.29                           “Valid Patent Claim” shall mean a
claim of an issued and unexpired patent included within the ARRIS Patents,
MERCK Patents or Collaboration Patents, which has not been revoked or held
unenforceable or invalid by a decision of a court or other 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 or disclaimer or otherwise.

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

7

 

ARTICLE II

RESEARCH PROGRAM

 

2.1           General.  ARRIS and MERCK shall engage in the Research
Program upon the terms and conditions set forth in this Agreement.  The activities to be undertaken during the
Research Program are set forth in Attachment 2.1 which may be amended from time
to time upon the mutual written agreement of the authorized representatives of
the parties.

 

2.2           Conduct of Research.  ARRIS and MERCK each shall conduct the
Research Program in good scientific manner, and in compliance in all material
respects with all requirements of applicable laws, rules and regulations
and all applicable good laboratory practices to attempt to achieve their
objectives efficiently and expeditiously.

 

2.3           Use of Research Funding.  ARRIS shall apply the research funding it
receives from MERCK under this Agreement in accordance with the Research
Program attached hereto as Attachment 2.1, as such may be amended from time to
time upon the mutual written agreement of authorized representatives of the
parties.

 

2.4           Exchange of Information.  Upon execution of this Agreement, ARRIS shall
disclose to MERCK in English and in writing all ARRIS Know-How not previously
disclosed.  During the term of this
Agreement, ARRIS shall also promptly disclose to MERCK in English and in writing
on an ongoing basis all ARRIS Know-How. 
MERCK shall promptly disclose to ARRIS during the term of this Agreement
MERCK Know-How which MERCK determines, in its discretion, may be necessary or
useful to ARRIS in the performance of the Research Program.

 

2.5           Joint Research Committee.  The parties shall form a Joint Research
Committee (“JRC”) which shall be composed of three scientists from each party
and chaired by MERCK.  The JRC shall meet
at least monthly during the Research Program Term to monitor and evaluate the
progress of and direct the Research Program. 
The JRC may designate compounds as Active Compounds in accordance with
Subsection 1.1(B) or Program Compounds in accordance with Subsection 1.23(b) during
the period ending on [***].  Such meetings
may be face-to-face or by teleconference or videoconference, except that there
must be one face-to-face meeting approximately every three months at
alternating sites.  In the event of any
unresolved differences between the parties with respect to issues that come
before the JRC, [***].

 

2.6           Records and Reports.

 

2.6.1        Records. 
ARRIS and MERCK each shall maintain records which shall be complete and
accurate and shall fully and properly reflect all work done and

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

8

 

results achieved in the
performance of the Research Program in sufficient detail and in good scientific
manner appropriate for patent and regulatory purposes.

 

2.6.2        Copies and Inspection of Records.  MERCK shall have the right, during normal
business hours and upon reasonable notice no more than [***], to inspect and
copy all of the records of ARRIS referenced in Section 2.6.1, except that
ARRIS need not disclose any data or information relating to compounds in ARRIS’s
library as of the Effective Date that do not meet the criteria in Subsection
1.1(A)(1).  MERCK shall maintain such
records and the information disclosed therein in confidence in accordance with Section 4.1.  MERCK shall have the right to arrange for a
reasonable number of its employees, agents and outside consultants to visit
ARRIS at its offices and laboratories during normal business hours and upon
reasonable notice, and to discuss the Research Program and its results in
detail with the technical personnel and consultants of ARRIS.  All inspections, copying and visits hereunder
shall be conducted in a manner so as not to disrupt ARRIS’s business or cause
any disclosure of any other ARRIS confidential information.

 

2.6.3        Quarterly Reports.  Within 30 days following the end of each
Calendar Quarter during the term of this Agreement, ARRIS shall provide to
MERCK a written progress report which shall describe the work performed to date
on the Research Program, evaluate the work performed in relation to the goals
of the Research Program and provide such other information required by the
Research Program or reasonably requested by MERCK relating to the progress of
the goals or performance of the Research Program.  Upon request, ARRIS shall provide copies of
the records described in Section 2.6.1. above (excluding the data and
information excluded as set forth in Section 2.6.2).

 

2.7           Research Program Information and
Inventions.  The Research Program
Information and Inventions developed or invented under this Agreement shall be
owned as follows:

 

(a)           ARRIS
Research Information shall be owned [***];

 

(b)           MERCK
Research Information shall be owned [***]; and

 

(c)           Collaboration
Research Information shall be owned [***].

 

Each party shall promptly disclose to the
other the development, making, conception and reduction to practice of all
Research Program Information and Inventions. 
ARRIS shall not be required to disclose to MERCK the invention or
development of ARRIS Delta Technology except to the extent such inventions or
developments relate directly to the Field.

 

2.8           Research Program Term.  Except as otherwise provided herein, the term
of the Research Program shall commence on the Effective Date and continue for a

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

9

 

period of two years (or three
years if extended as provided below in this Section 2.8) (the “Research
Program Term”), except that MERCK may terminate the Research Program and this
Agreement in accordance with Section 8.2. 
The parties by mutual written agreement executed by authorized
representatives may extend the Research Program Term for one additional
year.  Upon extension of the Research
Program Term, if applicable, Attachment 2.1 setting forth the Research Program
shall be amended in writing by mutual agreement.

 

2.9           ARRIS Delta Technology.  As part of its efforts under the Research
Program, ARRIS shall use all reasonable efforts to apply the ARRIS Delta Technology
to the identification, discovery and synthesis of Active Compounds.  The ARRIS Delta Technology shall remain
proprietary to ARRIS.  MERCK agrees not
to make any use of the Delta Technology, except as may be permitted under Section 4.3
of this Agreement.  The parties
understand and agree, however, that incident to MERCK’s research and
development activities in collaboration with ARRIS under the Research Program,
MERCK and/or its Affiliates (including their respective employees or agents)
may make inventions or developments relating to or based upon the ARRIS Delta
Technology.  MERCK hereby assigns to
ARRIS all improvements to and inventions incorporating the ARRIS Delta
Technology (excluding (i) Active Compounds, (ii) any improved or
modified Active Compounds which are themselves Active Compounds and (iii) those
inventions which arise from the use of ARRIS Delta Technology by MERCK or its
Affiliates or sublicensees as may be permitted under Section 4.3 of this
Agreement) made during the Agreement.

 

2.10         Rights to Compounds.  The parties contemplate that each of them
will make compounds from its library available for testing for purposes of this
Agreement and that additional compounds may be invented and/or synthesized in
the course of the Research Program.  In
respect of such compounds, the parties agree as follows:

 

(a)           Pre-existing
compounds which are tested in the Research Program and are determined, under
the provisions of Section 1.1, not to be Active Compounds shall revert to
the party which made such compound available, without any restriction under
this Agreement.

 

(b)           Compounds
which are invented in the course of the Research Program shall be owned [***]
each such compound, with compounds which are invented jointly by  the parties [***], and all such compounds that
are determined under the provisions of Section 1.1 not to be Active
Compounds shall [***] such compounds, [***] under this Agreement.

 

(c)          Active
Compounds shall not be subject to clinical evelopment (but shall be available
for pre-clinical investigation) by either party except pursuant to the terms of
this Agreement unless and until such Active

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

10

 

Compound is
released from this Agreement.  Active
Compounds shall be released from this Agreement if such Active Compound is not
determined to be or designated as a Program Compound under the provisions of Section 1.23
by the later of: (i) [***], or (ii) [***] such Active Compound was
first synthesized by a party hereunder. 
Rights in Active Compounds which are released from this Agreement shall
be determined in accordance with subsections (a) and (b) above.

 

(d)           Neither
party shall develop or market any compound that at any time during the periods
specified in Section 1.1 met the definition of Active Compound under Section 1.1,
even if such compound later was released from the terms of this Agreement as
provided in subsection (c) above and subsection (x) of Section 1.1,
except pursuant to the terms of this Agreement if such compound is developed
for its inhibition of cathepsin K or L. 
Any such compound developed shall be deemed a Program Compound for all
purposes hereunder.

 

(e)           Program
Compounds shall be developed and marketed only in accordance with the terms of
this Agreement.

 

(f)            No
implied license under patent rights is granted under this Section 2.10.

 

ARTICLE III

LICENSE; DEVELOPMENT AND COMMERCIALIZATION

 

3.1           Research License Grants.

 

(a)           Upon
the terms and conditions set forth herein, ARRIS hereby grants MERCK the sole
license under the ARRIS Know-How and the ARRIS Patents solely as necessary to conduct
the discovery, research and development of Active Compounds under this
Agreement.  The foregoing license may be
sublicensed to MERCK Affiliates and, with the consent of the parties, to third
party sublicensees.

 

(b)           Upon
the terms and conditions set forth herein, MERCK hereby grants ARRIS the sole
license under the MERCK Know-How and the MERCK Patents solely as necessary to
conduct the discovery, research and development of Active Compounds under this
Agreement.

 

(c)           As
used in Subsections 3.1(a) and (b) above, the phrase “sole license”
shall mean that the licensor has not granted and shall not grant to any third
party during the term of this Agreement the license rights granted to the
licensee in the applicable Subsection.

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

11

 

3.2           Commercialization License.  Upon the terms and conditions set forth
herein, ARRIS hereby grants MERCK the exclusive license under the ARRIS
Know-How and the ARRIS Patents and ARRIS’ interest in the Collaboration
Research Information and the Collaboration Patents solely to develop, make, have
made, use, import and sell Program Compounds and Licensed Products in the
Territory.  The foregoing license may be
sublicensed to MERCK Affiliates and third party sublicensees.

 

3.3           Development and
Commercialization.  MERCK shall use [***]
in developing and commercializing [***] pharmaceutical products, at its own
expense, to develop and commercialize a Licensed Product in such countries in
the Territory [***].

 

3.4           Exclusivity in Field.  ARRIS and MERCK each covenant to the other
that during the period commencing on the Effective Date and continuing until
[***], it will conduct no activity concerning discovering, identifying,
researching or developing compounds which meet the criteria of Subsection
1.1(A)(1) except pursuant to this Agreement (provided that the foregoing
shall not prevent a party or its Affiliates from conducting pre-clinical
investigations on such compounds for uses outside of their inhibition of
cathepsin K or cathepsin L). The foregoing shall not be interpreted to limit
the other obligations under this Agreement, including without limitation those
under Sections 2.9 and 2.10 and Article IV.

 

ARTICLE IV

CONFIDENTIALITY AND PUBLICATION

 

4.1           Nondisclosure Obligations.  All Proprietary Information disclosed by one
party to the other hereunder shall be maintained in confidence by the receiving
party and shall not be disclosed to any non-party or used for any purpose
except as expressly permitted herein without the prior written consent of the
other party to this Agreement, except that the foregoing shall not apply to the
extent provided in Section 4.3 below.

 

4.2           Restriction on ARRIS Delta
Technology.  MERCK agrees [***] not to
disclose ARRIS Delta Technology to any of its employees except to those MERCK
employees who reasonably require same for the purposes of this Agreement and
who have been apprised of the confidential nature of such disclosure.

 

4.3           Exceptions.  The non-use and non-disclosure obligations of
Sections 4.1 and 4.2 shall not apply to the extent that the Proprietary
Information:

 

(a)           is
known by the receiving party at the time of its receipt, and not through a
prior disclosure by the disclosing party, as documented by business records;

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

12

 

(b)           is
properly in the public domain;

 

(c)           is
subsequently disclosed to the receiving party by a third party who may lawfully
do so and is not under an obligation of confidentiality to the disclosing
party; or

 

(d)           is
developed by the receiving party independently of Proprietary Information
received from the disclosing party.

 

4.4           Permitted Disclosure of Proprietary
Information.  Notwithstanding Section 4.1,
a party receiving Proprietary Information of the other party may disclose such
Proprietary Information:

 

(a)           to
governmental or other regulatory agencies in order to gain approval to conduct
clinical trials or to market Licensed Product, but such disclosure may be only
to the extent reasonably necessary to obtain such authorizations;

 

(b)           by
MERCK to its permitted sublicensees, agents, consultants, Affiliates and/or
other third parties to the extent necessary for the research and development,
manufacturing and/or marketing of the Licensed Product (or for such parties to
determine their interest in performing such activities) in accordance with this
Agreement on the condition that such third parties agree to be bound by the
confidentiality obligations contained within this Agreement, PROVIDED the term
of confidentiality for such third parties shall be no less than [***], or

 

(c)           if
required to be disclosed by law or court order, provided that notice is promptly
delivered to the other party in order to provide an opportunity to challenge or
limit the disclosure obligations.

 

(d)           Notwithstanding
the foregoing, [***].

 

4.5           Publication.  MERCK and ARRIS each acknowledge the other’s
interest in publishing its results to obtain recognition within the scientific
community and to advance the state of scientific knowledge.  Each party also recognizes the mutual
interest in obtaining valid patent protection and in protecting business
interests and trade secret information. 
Consequently, either party, its employees, agents or consultants wishing
to make such a publication shall deliver to the other party a copy of the
proposed written publication or an outline of an oral disclosure at least [***]
prior to submission for publication or presentation.  The reviewing party shall have the right (a) to
propose modifications to the publication for patent reasons, trade secret
reasons or business reasons or (b) to request a reasonable delay in
publication or presentation in order to protect know-how and patentable
information.  If

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

13

 

the reviewing party requests a
delay, the publishing party shall delay submission or presentation for [***]
after the filing of the initial patent application to enable patent
applications protecting each party’s rights in such information to be filed in
accordance with Article VII below. 
Upon expiration of such [***], the publishing party shall be free to
proceed with the publication or presentation. 
If the reviewing party requests modifications to the publication, the
publishing party shall edit such publication to prevent disclosure of trade
secret or proprietary business information prior to submission of the
publication or presentation.

 

4.6           Press Releases.  Each party shall have the right to make
public announcements concerning this Agreement or the subject matter hereof,
provided that the other party shall have reasonable opportunity and the right
to approve the content of such announcement prior to its being made, which
approval shall not be delayed or unreasonably withheld.  MERCK shall have reasonable opportunity and
the right to review all filings describing the terms of this Agreement, prior
to their submittal by ARRIS to the SEC, including all proposed redacted copies
of this Agreement.  ARRIS shall give due
respect to any reasonable and timely request by MERCK with respect thereto,
including confidential treatment of selected portions of this Agreement.

 

ARTICLE V

PAYMENTS; ROYALTIES AND REPORTS

 

5.1           Commitment Fee.  In consideration of ARRIS’s commitment to
perform its obligations under the Research Program and for access to the ARRIS
Know-How granted hereunder, MERCK shall pay ARRIS a non-refundable commitment
fee of [***] upon execution of this Agreement by both parties.

 

5.2           Research Program Funding.  In consideration for ARRIS’s performance of
its obligations under the Research Program, and subject to the terms and
conditions contained herein, MERCK shall pay ARRIS:

 

(a)           For
the First Year of the Research Program Term: an amount equal to [***] (representing
[***] per Full Time Equivalent (“FTE”) for [***]), payable in four equal
quarterly installments of [***] each. 
The first such quarterly installment of [***] shall be due upon
execution of this Agreement by both parties. 
The remaining three such quarterly installments of [***] each shall be
due on the first day of the respective three month period, i.e., on February 1,
1997, May 1, 1997 and August 1, 1997. 
Should the parties agree to amend the Research Program to require [***]
additional FTEs during the First Year, the additional payment for such FTE(s) shall
equal [***] per FTE.

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

14

 

(b)           For
the Second Year of the Research Program Term: an amount equal to [***]
(representing [***] per FTE for [***]), payable in four quarterly installments
of [***] each.  Such quarterly
installments shall be due on the first day of the respective three month
period, i.e., on November 1, 1997, February 1, 1998, May 1, 1998
and August 1, 1998.  If the JRC
determines to accelerate the Research Program during the Second Year by
requiring up to as many as [***] during the Second Year, the parties shall
amend the Research Program accordingly and the additional payment for such FTE(s) shall
equal [***] per FTE.

 

(c)           For
any Third Year of the Research Program Term: If the Research Program Term is
extended for a Third Year as set forth in Section 2.8 above, payments for
such Third Year shall equal [***] per required FTE.

 

5.3           Milestone Payments.  Subject to the terms and conditions of this
Agreement, MERCK shall pay to ARRIS the following milestone payments:

 

(a)           [***]
upon [***] set forth in Section [***] of this Agreement;

 

(b)           [***]
upon [***] of a [***];

 

(c)           [***]
upon [***] of a Program Compound for [***] as defined by MERCK;

 

(d)           [***]
upon [***] of [***] using a Program Compound;

 

(e)           [***]
upon [***] of [***] using a Program Compound;

 

(f)            [***]
upon [***] a Licensed Product for [***];

 

(g)           [***]
upon [***] a Licensed Product in the [***].

 

ARRIS shall notify MERCK in writing within
[***] upon the achievement of the milestone described in (b) above, and
MERCK shall pay ARRIS the appropriate milestone payment within [***] of its
receipt of such notice.  MERCK shall
notify ARRIS in writing within [***] upon the achievement of

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

15

 

each milestone described in (a) and (c) through
(g) above, and upon such notice shall pay ARRIS the appropriate milestone
payment.

 

The milestone payments described in (a) through
(c) above shall be payable only upon the initial achievement of such
milestone and no amounts shall be due hereunder for subsequent or repeated
achievement of such milestone.

 

The milestone payments described in (d) through
(g) above shall be payable only upon the achievement of each such
milestone for the [***] a particular milestone event.  Notwithstanding the foregoing, if a Program
Compound is approved and marketed as a Licensed Product, and MERCK elects to
develop or to continue developing, e.g., as a second generation product,
another Program Compound (which does not contain the same Program Compound or
any salt form, different formulation, or stereo-isomer thereof as such Licensed
Product) as a Licensed Product, MERCK shall make the required payment for [***]
described in [***] any such [***], which shall include payment of all milestone
payments described in [***] that were [***] of such Licensed Product.

 

[***] of each milestone payment made for the
achievement of a milestone described in (f) and (g) as set forth
above [***] for the Program Compound for which such milestone was paid;
PROVIDED, HOWEVER, that the [***] for such Program Compound [***] in such year.

 

5.4           Royalties.

 

5.4.1        Royalties Payable By MERCK.  Subject to the terms and conditions of this
Agreement, MERCK shall pay to ARRIS royalties during each Calendar Year on a
country-by-country basis:

 

(a)           if
the Licensed Product is covered by a Valid Patent Claim in the country of sale,
then:

 

(i)            an amount equal to [***] of the Net
Sales of such Licensed Products in such countries, until the total annual Net
Sales of Licensed Products by MERCK, its Affiliates or sublicensees equals
[***];

 

(ii)           for that amount of annual Net Sales
of Licensed Products by MERCK, its Affiliates or sublicensees greater than
[***] and less than or equal to [***], an amount equal to [***]

 

[***] indicates material that
has been omitted pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange Commission.

 

16

 

of such Net Sales in such countries; and

 

(iii)          for that amount of annual Net Sales of
Licensed Products by MERCK, its Affiliates or sublicensees greater than [***],
an amount equal to [***] of such Net Sales in such countries; or

 

(b)           for
sales in countries other than those covered in Subsection 5.4.1(a) above:

 

(i)            an amount equal to [***] of the Net
Sales of such Licensed Products in such countries, until the total annual Net
Sales of Licensed Products by MERCK, its Affiliates or sublicensees equals
[***];

 

(ii)           for that amount of annual Net Sales
of Licensed Products by MERCK, its Affiliates or sublicensees greater than
[***] and less than or equal to [***], an amount equal to [***] of such Net
Sales in such countries; and

 

(iii)          for that amount of annual Net Sales of
Licensed Products by MERCK, its Affiliates or sublicensees greater than [***],
an amount equal to [***] of such Net Sales in such countries.

 

Royalties on each Licensed Product at the
rates set forth above shall be effective as of the date of First Commercial
Sale of Licensed Product in a country and shall continue until either (i) the
expiration of the last applicable patent on such Licensed Product in such
country in the case of sales under Subsection 5.4.1(a) above or (ii) until
the [***] in such country in the case of sales of Licensed Product under
Subsection 5.4.1(b) above, in each case subject to the following
conditions:

 

(x) that only one royalty shall be due
with respect to the same unit of Licensed Product;

 

(y) that no royalties shall be due upon
the sale or other transfer among MERCK, its Affiliates or sublicensees, but in
such cases the royalty shall be due and calculated upon MERCK’s or its
Affiliate’s or its sublicensee’s Net Sales to the first independent third
party; and

 

(z) no royalties shall accrue on the
disposition without charge of Licensed Product in reasonable quantities by
MERCK, its Affiliates or its sublicensees as samples (promotion or otherwise)
or as donations (for

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

17

 

example, to non-profit institutions or
government agencies for a non-commercial purpose).

 

5.4.2        Managed Pharmaceutical Contracts.  MERCK may sell Licensed Products to an
independent third party (such as a retailer or wholesaler) and may subsequently
perform services relating to Licensed Products and other products under a
managed pharmaceutical benefits contract or other similar contract.  In such cases, Net Sales shall be based [***]
in Section 1.21, [***] receive compensation arising from the performance
of such services.

 

5.4.3        Change in Sales Practices.  The parties acknowledge that during the term
of this Agreement, MERCK’s sales practices for the marketing and distribution
of Licensed Product may change to the extent to which the calculation of the
payment for royalties on Net Sales may become impractical or even
impossible.  In such event the parties
agree to meet and discuss in good faith new ways of compensating ARRIS to the
extent currently contemplated under Section 5.4.1.

 

5.4.4        Bulk Compound.  In a country other than a Major Market
Country (which shall be for purposes of this Section the United States,
the United Kingdom, France, Canada, Germany, Japan, Italy and Spain) in those
cases where MERCK sells bulk Program Compound to a third party other than a
sublicensee rather than Licensed Product in packaged form, and is unable to
determine Net Sales, the royalty obligations of this Article V shall be
[***].

 

5.4.5        Compulsory Licenses.  If a compulsory license is granted with
respect to Licensed Product in any country in the Territory with a royalty rate
lower than the royalty rate provided by Section 5.4.1., then the royalty
rate to be paid by MERCK on Net Sales in that country under Section 5.4.1
shall be [***].

 

5.4.6        Third Party Licenses.  If one or more patent licenses from a third
party or parties are required by MERCK, its Affiliates and/or sublicensees to
develop, make, have made, use, sell or import Compound or Licensed Product in a
particular country (“Third Party Patent License(s)”), any royalties actually
paid by MERCK under such Third Party Patent License(s) with respect to
sale of such Licensed Product in such country based on rates [***] the rates to
be paid ARRIS under Section 5.4.1(a) with respect to such sales,
shall be credited against the royalty payments to be paid ARRIS by MERCK with
respect to the sale of such Licensed Products in such country; PROVIDED,
HOWEVER, that the royalties payable to ARRIS in any given year shall not be
reduced by more than [***] in such year.

 

5.5           Reports; Payment of Royalty.  Following the First Commercial Sale of a
Licensed Product and during the term of the Agreement, MERCK shall furnish

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

18

 

to ARRIS a quarterly written
report for the Calendar Quarter showing the sales of all Licensed Products
subject to royalty payments sold by MERCK, its Affiliates and its sublicensees
in the Territory during the reporting period and the royalties payable under
this Agreement.  Reports shall be due on
the [***] following the close of each Calendar Quarter.  Royalties that have accrued in a particular
Calendar Quarter shall be due and payable on the date such royalty report is
due.  MERCK shall keep complete and
accurate records in sufficient detail to enable the royalties payable hereunder
to be determined.

 

5.6           Audits.

 

(a)           Upon
the written request of ARRIS and not more than once in each Calendar Year,
MERCK shall permit an independent certified public accounting firm of
nationally recognized standing selected by ARRIS and reasonably acceptable to
MERCK, at ARRIS’s expense, to have access during normal business hours to such
of the records of MERCK as may be reasonably necessary to verify the accuracy
of the royalty reports hereunder for any Calendar Year ending not more than
[***] prior to the date of such request. The accounting firm shall disclose to
ARRIS only whether the royalty reports are correct or incorrect and the
specific details concerning any discrepancies. 
No other information shall be provided to ARRIS.

 

(b)           If
such accounting firm correctly concludes that additional royalties were owed
during such period, MERCK shall pay [***] of the date ARRIS delivers to MERCK
such accounting firm’s written report so correctly concluding.

 

(c)           MERCK
shall include in each sublicense granted by it pursuant to this Agreement a
provision requiring the sublicensee to make reports to MERCK, to keep and
maintain records of sales made pursuant to such sublicense and to grant access
to such records by ARRIS’s independent accountant to the same extent required
of MERCK under this Agreement.  Upon the
expiration of [***] following the end of any Calendar Year, the calculation of
royalties payable with respect to such Calendar Year shall be binding and
conclusive upon ARRIS, and MERCK and its sublicensees shall be released from
any liability or accountability with respect to royalties for such Calendar
Year.

 

(d)           ARRIS
shall treat all information subject to review under this Section 5.6 or
under any sublicense agreement in accordance with the confidentiality provisions
of Article IV of this Agreement, and shall cause its accounting firm to
enter into an acceptable confidentiality agreement with MERCK obligating such
firm to retain all such financial information in confidence pursuant to such
confidentiality agreement.

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

19

 

(e)           Payment
Exchange Rate.  All payments to be made
by MERCK to ARRIS under this Agreement shall be made in United States dollars
and may be paid by check made to the order of ARRIS or bank wire transfer in
immediately available funds to such bank account in the United States
designated in writing by ARRIS from time to time.  In the case of sales outside the United
States, the rate of exchange to be used in computing the amount of currency
equivalent in United States dollars due ARRIS shall be the rate of exchange
used by MERCK in its worldwide accounting system, prevailing on the fourth to
the last MERCK business day of the Calendar Quarter during which such sales
were made, which shall be generally reflective of then prevailing actual
currency exchange rates.

 

5.7           Income Tax Withholding.  If laws, rules or regulations require
withholding of income taxes or other taxes imposed upon payments set forth in
this Article V, MERCK shall make such withholding payments as required and
subtract such withholding payments from the payments set forth in this Article V.
MERCK shall submit appropriate proof of payment of the withholding taxes to
ARRIS within a reasonable period of time.

 

ARTICLE VI

REPRESENTATIONS AND WARRANTIES

 

6.1           Arris Representations and
Warranties.  ARRIS represents and
warrants to MERCK that as of the date of this Agreement:

 

(a)           to
the best of ARRIS’s knowledge, the ARRIS Patents and ARRIS Know-How existing as
of the Effective Date are subsisting and are not invalid or unenforceable, in
whole or in part;

 

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

 

(c)           to
the best of ARRIS’s knowledge, the ARRIS Patents, ARRIS Know-How and ARRIS Delta
Technology practiced as permitted herein do not infringe on any intellectual
property rights owned by any third party, and do not result from a
misappropriation by ARRIS of any property owned by any third party;

 

(d)           there
are no claims, judgments or settlements against or owed by ARRIS or pending or
threatened claims or litigation relating to the ARRIS Patents, ARRIS Know-How
and ARRIS Delta Technology;

 

(e)           it
has disclosed to MERCK all relevant information regarding the ARRIS Patents and
ARRIS Know-How reasonably relating to activities under this Agreement;

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

20

 

(f)            that
during the course of the Research Program, ARRIS will not knowingly infringe
any valid patents; and

 

(g)           [***]
of the Effective Date of this Agreement and [***] hereunder was [***].

 

6.2           Merck Representations and
Warranties.  MERCK represents and
warrants to ARRIS that as of the date of this Agreement it has the full right,
power and authority to enter into this Agreement, to perform the Research
Program and to grant the licenses granted under Section 3.1(b) hereof.

 

ARTICLE VII

PATENT MATTERS

 

7.1           Filing, Prosecution and Maintenance
of Patents.

 

(a)           Each
party agrees at its expense to file, prosecute and maintain in the Territory,
upon appropriate consultation with the other party, United States patent
applications relating to the Research Program Information and Inventions owned
in whole or in part by such party, and, with respect to ARRIS, the inventions
in the ARRIS Patents licensed to MERCK under this Agreement; PROVIDED, HOWEVER,
with respect to Collaboration Research Information, [***] obligation to file,
prosecute, and maintain at its expense the United States patent applications
for such inventions and [***] fully and shall cause its employees to cooperate
fully on the filing and prosecution of such patents. In each case, the filing
party shall give the non-filing party an opportunity to review the text of the
application before filing, shall consult with the non-filing party with respect
thereto, and shall supply the non-filing party with a copy of the application
as filed, together with notice of its filing date and serial number.  Each party shall keep the other advised of
the status of the actual and prospective patent filings and upon the request of
the other party, provide advance copies of any papers related to the filing,
prosecution and maintenance of such patent filings.  Each party promptly shall give notice to the
other of the grant, lapse, revocation, surrender, invalidation or abandonment
of any Patents for which the party is responsible hereunder for the filing,
prosecution and maintenance.

 

(b)           Each
party agrees to file, within one year of the filing date of any patent
application it files pursuant to Subsection 7.1(a), a counterpart International
Application under the PCT designating all member countries and any additional
counterpart national patent applications in non-PCT member states so requested
by the other party and to maintain and/or prosecute such applications.  [***] for the [***]

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

21

 

pursuant to
this Subsection 7.1(b).  The costs and expenses
relating to filing, prosecuting and/or maintaining all national patent
applications in non-PCT member countries and all national patent applications
arising from the National Stage of any PCT patent applications filed pursuant
to this Subsection 7.1(b) [***]. 
For Collaboration Patents, MERCK shall file any United States
non-provisional and PCT patent applications and bear all costs and expenses
related to such filings.

 

(c)           Each
party agrees to be responsible for maintaining through the end of its term each
patent issuing from any patent application it files pursuant to Subsections 7.1(a) and
(b).  [***] for the [***] of each United
States patent issuing from any patent application it files pursuant to
Subsection 7.1(a).  The costs and
expenses relating to the maintenance of each patent issuing from any patent
application filed pursuant to Subsection 7.1(b) shall be [***].

 

(d)           Notwithstanding
the foregoing, ARRIS shall have the first right to file and prosecute all
patent applications claiming Active Compounds identified, designed or developed
using or based upon the ARRIS Delta Technology. 
Such applications shall be reviewed by MERCK prior to filing.  All such patent prosecution efforts shall be
paid for as provided in Subsections 7.1(a) through (c) above.

 

7.2           Right to Prosecute and Maintain
Patents.

 

(a)           Each
party shall give timely notice to the other of its decision to forego filing of
any patent application required under Section 7.1 or to cease prosecution
and/or maintenance of such applications or patents and, in such case, shall
permit the other party, [***], to continue prosecution or maintenance
[***].  If the other party elects to
continue prosecution or maintenance, or to file based on such party’s election
not to file pursuant to Section 7.1 above, such notifying party shall
execute such documents and perform such acts [***] as may be reasonably
necessary to permit the other party to continue such prosecution or
maintenance.  Any patents or patent applications
so prosecuted or maintained shall be assigned to such other party.

 

(b)           Notwithstanding
any provisions of this Agreement, either party, upon appropriate consultation
with and assent by the other party, may forego or postpone the filing of any
patent applications required under Section 7.1 of this Agreement or may
terminate the prosecution and/or maintenance or have the other party take
responsibility for filing, prosecuting and/or maintaining any patent
applications or other Patents

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

22

 

required,
filed or perfected under or pursuant to Section 7.1 without any loss of
rights granted or provided for under this Agreement.

 

7.3           Interference, Opposition,
Reexamination and Reissue.

 

(a)           Each
party, within ten days of learning of such event, shall inform the other party
of any request for, or filing or declaration of, any interference, opposition,
or reexamination relating to the ARRIS Patents or Collaboration Patents.  MERCK and ARRIS thereafter shall consult and
cooperate fully to determine a course of action with respect to any such
proceeding.  MERCK shall have the right
to review and approve any submission to be made in connection with such
proceeding.

 

(b)           ARRIS
shall not institute any opposition, reexamination, or reissue proceeding
relating to the ARRIS Patents or Collaboration Patents without the prior
written consent of MERCK, which consent shall not unreasonably be withheld.

 

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

 

(d)           Each
party [***] proceeding relating to any patent application it files pursuant to
Subsection 7.1(a) or patent issuing therefrom.  The parties shall [***] any interference,
opposition, reexamination or reissue proceeding relating to any patent
application filed under Subsection 7.1(b) or patent issuing therefrom.

 

7.4           Enforcement and Defense.

 

(a)           Each
party shall give the other notice of either (x) any infringement of ARRIS
Patents or Collaboration Patents in the Field, or (y) any misappropriation
or misuse of ARRIS Know-How, that may come to ARRIS’s attention.  MERCK and ARRIS thereafter shall consult and
cooperate fully to determine a course of action including, without limitation,
the commencement of legal action by either or both of MERCK and ARRIS, to
terminate any infringement of such patent rights in the Field or any
misappropriation or misuse of ARRIS Know-How in the Field.  However, ARRIS, upon notice to MERCK, shall
have the first right to initiate and prosecute such legal action [***] in the
name of ARRIS (and, if appropriate, MERCK), or to control the defense of

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

23

 

any
declaratory judgment action relating to ARRIS Patents, Collaboration Patents or
ARRIS Know-How.  ARRIS promptly shall
inform MERCK if it elects not to exercise such first right, and if such
infringement or misuse materially adversely affects MERCK’s efforts under this
Agreement, MERCK thereafter shall have the right either to initiate and
prosecute such action or to control the defense of such declaratory judgment
action in the name of MERCK and, if necessary, ARRIS.

 

(b)           If
ARRIS elects not to initiate and prosecute an action as provided in Subsection
7.4(a), and, due to material adverse effect on MERCK, MERCK has the right and
chose to prosecute an action, the cost of any agreed-upon course of action to
terminate infringement of ARRIS Patents or Collaboration Patents,
misappropriation or misuse of ARRIS Know-How, including the costs of any legal
action commenced or the defense of any declaratory judgment, [***].  Any proceeds from such action [***] will be
[***].

 

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

 

(d)           Any
recovery obtained by either or both MERCK and ARRIS, in connection with or as a
result of any action contemplated by this Section 7.4 to terminate an
infringement or misuse where such infringement or misuse materially adversely
affects MERCK’s efforts under the Agreement, whether by settlement or
otherwise, shall be shared in order as follows:

 

(i)            [***] for such action, then [***];

 

(ii)           if [***], then any proceeds shall be
[***].

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

24

 

(e)           ARRIS
shall inform MERCK of any certification regarding any ARRIS Patents it has
received pursuant to either 21 U.S.C. Sections 355(b)(2)(A)(iv) or
(j)(2)(A)(vii)(IV) or under [***] and shall provide MERCK with a copy of
such certification within five days of receipt. 
ARRIS’s and MERCK’s rights with respect to the initiation and
prosecution of any legal action as a result of such certification or any
recovery obtained as a result of such legal action shall be as defined in
Subsections 7.4(a) through (d) hereof; PROVIDED, HOWEVER, that ARRIS
shall exercise its first right to initiate and prosecute any action and shall
inform MERCK of such decision within ten days of receipt of the certification,
after which time MERCK shall have the right to initiate and prosecute such
action.

 

(f)            For
any action for which the parties are [***] which is [***] shall control the
action.  If the parties are [***] shall
control the action.

 

7.5           Patent Term Restoration.  The parties shall cooperate in obtaining
patent term restoration or supplemental protection certificates or their
equivalents in any country in the Territory where applicable to ARRIS
Patents.  If elections with respect to
obtaining such patent term restoration are to be made, [***] shall have the
right to make the election and [***] shall abide by such election.

 

ARTICLE VIII

TERM AND TERMINATION

 

8.1           Term and Expiration.  This Agreement shall be effective as of the
Effective Date and, unless terminated earlier under Sections 8.2 or 8.3 below,
shall continue in effect until expiration of all royalty obligations
hereunder.  Upon expiration of this
Agreement due to expiration of all royalty obligations hereunder, MERCK’s
licenses pursuant to Section 3.1 shall become fully paid-up, perpetual
licenses.

 

8.2           Termination by MERCK.  Notwithstanding anything to the contrary
herein, MERCK shall have the right to terminate this Agreement

 

(a)           at
any time after the end of the Research Program Term for any reason by giving
[***] advance written notice to ARRIS; or

 

(b)           during
the Research Program Term, upon [***] written notice, solely in the event that
MERCK in its reasonable judgment exercised in good faith determines that

 

(i)            the parties have demonstrated, [***]

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

25

 

, or

 

(ii)           [***].

 

[***] under Subsection 8.2 (b)(i) above
is one that would demonstrate that [***].

 

In the event of termination under this Section 8.2,

 

(i)            the rights and obligations
hereunder, including any payment obligations not due or accrued as of the
termination date, shall terminate, and

 

(ii)           MERCK shall have [***] for all
internal research purposes excluding inhibition of cathepsin K or L, and

 

(iii)          To the extent not previously disclosed
under Section 2.7, upon termination of this Agreement pursuant to this Section 8.2,
MERCK shall disclose to ARRIS the development, making, conception and reduction
to practice of all Research Program Information and Inventions as of the
effective date of such termination. 
ARRIS shall have the option to obtain an exclusive license under MERCK’s
interest in the Research Program Information and Inventions and the
Collaboration Patents solely for use in discovering, developing, making, using,
importing and selling inhibitors of cathepsin K and L, and an exclusive license
under the MERCK Patents solely for use in discovering, developing, making,
using, importing and selling inhibitors of cathepsin K and L pursuant to a
license agreement to be negotiated in good faith by the parties promptly after
the exercise of such option. ARRIS shall have the right to exercise such option
within a [***] of the effective date of termination of this Agreement under
this Section 8.2, after which period such option shall expire if
unexercised.  Such license agreement
shall contain at least the following terms: (a) that ARRIS [***] to be
[***] (b) that ARRIS shall not [***]; (c) that ARRIS shall not [***]

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

26

 

[***]; (d) that ARRIS shall not [***]; (e) that
ARRIS shall [***] with respect to [***] having [***]; (f) that ARRIS shall
[***] of the license agreement; (g) that ARRIS shall [***] of the [***]
with respect to [***] under the license; (h) that ARRIS shall [***] as
follows: (i) with respect to [***] and are [***] of this Agreement on the
terms set forth in [***], and (ii) [***] with respect to [***] which are
commercialized by ARRIS under the license; and (i) [***] to any [***] as
of the Effective Date. Such license agreement also shall contain such other
commercially reasonable terms as typically are in license agreements.  Upon exercise by ARRIS of such option, MERCK
and ARRIS promptly thereafter shall negotiate in good faith and enter into such
license agreement.

 

8.3           Termination.

 

8.3.1        Termination for Cause.  This Agreement may be terminated by notice by
either party at any time during the term of this Agreement:

 

(a)           if
the other party is in breach of its material obligations hereunder by causes
and reasons within its control and has not cured such breach within [***] after
receipt of a letter requesting such cure; or

 

(b)           in
the event ARRIS materially breaches its obligations during the Research Program
Term, and fails to cure such breach within [***] after notice of such breach,
then MERCK may, in lieu of termination under Subsection 8.3.1(a) above,
terminate the Research Program, the research license granted to ARRIS under
Subsection 3.1(b) and all of MERCK’s obligations to fund any further
research hereunder, PROVIDED, HOWEVER that all other rights and obligations of
MERCK and ARRIS hereunder shall be preserved, including without limitation, the
licenses

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

27

 

retained by
MERCK under Subsection 3.1(a) and Section 3.2 of this Agreement.

 

(c)           In
the event ARRIS materially breaches its obligations at any time during the term
of this Agreement and MERCK either notifies ARRIS of the termination of this
Agreement under Section 8.3.1(a) or initiates arbitration against
ARRIS for breach of this Agreement, or both, any [***] may be [***] of this
Agreement [***].

 

8.3.2        Effect of Termination
for Bankruptcy.

 

If this Agreement is terminated by ARRIS or
its appointed trustee based on bankruptcy, all rights and licenses granted
under or pursuant to this Agreement by ARRIS to MERCK are, and shall otherwise
be deemed to be, for purposes of Section 365(n) of the Bankruptcy
Code, licenses of rights to “intellectual property” as defined under Section 101(52)
of the Bankruptcy Code.  The parties agree
that MERCK, as a licensee of such rights under this Agreement, shall retain and
may fully exercise all of its rights and elections under the Bankruptcy
Code.  The parties further agree that, in
the event of the commencement of a bankruptcy proceeding by or against ARRIS
under the Bankruptcy Code, MERCK shall be entitled to a complete duplicate of
(or complete access to, as appropriate) any such intellectual property and all
embodiments of such intellectual property upon written request therefore by MERCK.  Such intellectual property and all
embodiments thereof promptly shall be delivered to MERCK (i) upon any such
commencement of a bankruptcy proceeding upon written request therefore by
MERCK, unless ARRIS elects to continue to perform all of its obligations under
this Agreement or (ii) if not delivered under (i) above, upon the
rejection of this Agreement by or on behalf of ARRIS upon written request
therefore by MERCK.

 

8.4           Effect of Expiration or
Termination.  Expiration or termination
of this Agreement shall not relieve the parties of any obligation accruing
prior to such expiration or termination, and the provisions of Sections 2.6,
2.7, 2.9, 2.10, Sections 3.1 and 3.2 to the extent provided in Article VIII,
5.6, and Articles I, IV, VII, VIII and IX shall survive the termination or
expiration of the Agreement, with Article IV continuing in effect for
[***] thereafter.  Any expiration or
early termination of this Agreement shall be without prejudice to the rights of
either party against the other accrued or accruing under this Agreement prior
to termination, including, without limitation, the obligation to pay royalties
for Licensed Products or Program Compound sold prior to such termination.

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

28

 

ARTICLE IX

MISCELLANEOUS

 

9.1           Force Majeure.  Neither party shall be held liable or
responsible to the other party nor be deemed to have defaulted under or
breached this Agreement for failure or delay in fulfilling or performing any
term of this Agreement when such failure or delay is caused by or results from
causes beyond the reasonable control of the affected party including, but not
limited to, fire, floods, mudslides, earthquakes, embargoes, war, acts of war
(whether war be declared or not), insurrections, riots, civil commotions,
strikes, lockouts or other labor disturbances, acts of God or acts, omissions
or delays in acting by any governmental authority or the other party. The
affected party shall notify the other party of such force majeure circumstances
as soon as reasonably practical.

 

9.2           Excused Performance.  The obligation of MERCK with respect to any
Licensed Product under Section 3.3 is expressly conditioned upon [***]
relating to the [***].  The obligation of
MERCK to develop or market any such Licensed Product shall be delayed or
suspended so long as [***].  All
judgments as to [***] shall be made by [***].

 

9.3           Binding Effect; Assignment.  This Agreement shall inure to the benefit of
and be binding upon each party and its successors and permitted assigns.  Except as otherwise provided in Subsections
9.3(a) and (b), neither party shall, directly or indirectly, assign this
Agreement or any of its rights or obligations hereunder without the prior
written consent of the other party. 
Without limiting the generality of the foregoing, a merger, acquisition
or change of control of a party hereto shall be deemed to be an
assignment.  As used in this Section 9.3,
change of control shall mean a transaction pursuant to which a person or group
acting in concert, other than the currently controlling person or group,
immediately after such transaction shall effectively control election of
directors, but shall not include changes in the identity of owners of a party’s
publicly held stock not involving any stock owner achieving ownership of more
than [***] of a party’s publicly held stock entitled to vote for the election
of directors.

 

(a)           Notwithstanding
the foregoing, MERCK may, without consent, assign this Agreement and its rights
and obligations hereunder to an Affiliate or in connection with the transfer or
sale of all or substantially all of its assets related to the Licensed Product
or the business, or in the event of its merger or consolidation or change of
control or similar transaction.  Any such
assignee shall assume all obligations of its assignor under the Agreement.

 

(b)           Notwithstanding
the foregoing, ARRIS may assign this Agreement without consent in connection
with a merger of, acquisition of, or sale of

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

29

 

all or
substantially all of the assets of ARRIS, PROVIDED, HOWEVER, that such
assignment shall be [***] of the obligations of ARRIS hereunder, and further
that if such merger, acquisition or sale of assets [***], where ARRIS is not
the surviving entity, then such assignment shall be subject to Section 9.4
below.  In the event of any such
assignment by ARRIS hereunder, the licenses granted MERCK hereunder shall not
cover any intellectual property of such assignee not previously Controlled by
ARRIS existing prior to the date of such assignment.

 

9.4           Consequences of Certain Assignments
by ARRIS.  In the event that ARRIS,
during the Research Program Term, assigns this Agreement as permitted in Section 9.3(b) [***],
ARRIS, immediately upon its ability [***] such merger, acquisition or sale,
shall [***] merger, acquisition or sale and MERCK may, at its choice, on
written notice to such assignee given at any time within 30 days of such
assignment, [***] shall be [***] the assignment of this Agreement:

 

(a)           [***]
and any further obligation [***] research efforts under the Research
Program.  After such [***], PROVIDED
HOWEVER, that the [***] as specified under Section [***] shall be [***]
shall be equal to the number of days in the Research Program Term from the
Effective Date to the [***];

 

(b)           [***],
and immediately thereafter such assignee shall [***] hereunder;

 

(c)          possession,
during the Research Program Term, of the [***] and under [***] and the [***]
under this Agreement.  The [***] during
the Research Program Term to MERCK Affiliates and to third party sublicensees;
and

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

30

 

(d)           possession
of a [***] at the end of the Research Program Term.

 

(e)           For
purposes of Subsections 9.4 (a), (c) and (d) above and Article I,
the “Research Program Term” shall have the period of time such term had under
the provisions of Section 2.8 just prior to the assignment of the
Agreement by ARRIS.

 

Upon any such assignment, and whether or not
[***] in Subsections 9.4(a) through (d) above, MERCK shall retain all
of its rights under this Agreement, including without limitation the licenses
granted to MERCK in Sections 3.1(a) and 3.2 of this Agreement.

 

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

 

9.6           Use of Names.  Neither party may use the names of the other
party or those of its Affiliates, sublicensees, employees, agents or
consultants or any of their trademarks, names, logotypes or symbols without the
prior written consent of the other party.

 

9.7           Notices.  All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally, sent by telecopier (and promptly confirmed by personal delivery,
registered or certified mail or overnight courier), sent by
nationally-recognized overnight courier or sent by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:

 

if to ARRIS, to:

Arris Pharmaceutical Corporation 

385 Oyster Point Boulevard, Suite 3 

South San Francisco, California 94080 

Attention: President, Chief Executive Officer 

Telecopier No.: 415/829-1067

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

31

 

with a copy to:  Cooley Godward
LLP

3000 El Camino Real

Palo Alto, California 94306

Attention: Robert L. Jones, Esq.
 Telecopier No.: 
415/857-0603

 

if to MERCK, to:  Merck &
Co., Inc.

One Merck Drive

P.O. Box 100

Whitehouse Station, NJ 08889-0100

Attention: Office of Secretary

Telecopier No.: 908/735-1246

 

with a copy to:   Attention:
Office of Assistant General Counsel

Telecopier No.: 908/735-1226

 

or to such other address as the party to whom
notice is to be given may have furnished to the other party in writing in
accordance herewith.  Any such
communication shall be deemed to have been given when delivered if personally
delivered or sent by telecopier on a business day, on the business day after
dispatch if sent by nationally-recognized overnight courier and on the third
business day following the date of mailing if sent by mail.

 

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

 

9.9           Arbitration.  Any disputes arising between the parties
relating to, arising out of or in any way connected with this Agreement or any
term or condition hereof, or the performance by either party of its obligations
hereunder, whether before or after termination of the Agreement, shall be
finally resolved by binding arbitration. 
Whenever a party shall decide to institute arbitration proceedings, it
shall give written notice to that effect to the other party.  The party giving such notice shall refrain
from instituting the arbitration proceedings for a period of [***] following
such notice.  During such period, the
parties shall make good faith efforts to amicably resolve the dispute without
arbitration.  Any arbitration hereunder
shall be conducted under the rules of the American Arbitration
Association.  Each such arbitration shall
be conducted by a panel of three arbitrators: one arbitrator shall be appointed
by each of MERCK and the ARRIS and the third shall be appointed by the American
Arbitration Association.  Any such
arbitration shall be held in New York, New York.  The arbitrators shall have the authority to
grant specific performance.  Judgment
upon the award so rendered may be entered in any court having jurisdiction or
application may be made to such court for judicial acceptance of any award and
an order of enforcement, as the case may be. 
In no event shall a demand for arbitration be made after the date when
institution

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

32

 

of a legal or equitable
proceeding based on such claim, dispute or other matter in question would be
barred by the applicable statute of limitations.

 

9.10         Entire Agreement.  This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof.  All express or implied agreements and
understandings, either oral or written, heretofore made are expressly merged in
and made a part of this Agreement.  This
Agreement may be amended, or any term hereof modified, only by a written
instrument duly executed by both parties hereto.

 

9.11         Headings.  The captions to the Articles, Sections and
Subsections of this Agreement are not a part of the Agreement, but are merely
guides or labels to assist in locating and reading the Articles, Sections and
Subsections.

 

9.12         Independent Contractors.  ARRIS and MERCK shall be independent
contractors and the relationship between them shall not constitute a
partnership, joint venture or agency. 
Neither party shall have the authority to make any statements,
representations or commitments of any kind, or to take any action, which shall
be binding on the other, without the prior written consent of the other party.

 

9.13         Waiver. 
The waiver by a party of any right under this Agreement or of the other
party’s failure to perform or breach shall not be a waiver of any other right,
failure or breach whether of a similar nature or otherwise.

 

9.14         Counterparts.  This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

 

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

 

	
  MERCK & CO., INC.

  	
  ARRIS PHARMACEUTICAL CORPORATION

  
	
   

  	
   

  
	
  BY:

  	
  /s/

  	
   

  	
  BY:

  	
  /s/

  
	
   

  	
  Raymond V. Gilmartin

  	
   

  	
  John P. Walker

  
	
  TITLE:

  	
  Chairman, President and Chief 

  	
  TITLE: 

  	
  President & Chief Executive Officer

  
	
   

  	
  Executive Officer

  	
   

  
	
  DATE:

  	
  November 6, 1996

  	
  DATE:

  	
  November 6, 1996

  
						

 

[***] indicates material that has been
omitted pursuant to a request for confidential treatment. The omitted material
has been filed separately with the Securities and Exchange Commission.

 

33

 

ATTACHMENT
2.1

 

RESEARCH
PROGRAM

 

1. [***]

 

2. [***]

 

3. [***]

 

4. [***]

 

5. [***]

 

6. [***]

 

7. [***]

 

a. [***]

 

b. [***]

 

c. [***]

 

[***] indicates material that
has been omitted pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange Commission.

 

34

 

APPENDIX
A-1

 

[***]

 

[***] indicates material that
has been omitted pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange Commission.

 

35

 

APPENDIX
A-2

 

[***]

 

[***] indicates material that
has been omitted pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange Commission.

 

36

 

APPENDIX
B

 

[***]

 

[***] indicates material that
has been omitted pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange Commission.

 

37

 

APPENDIX
C

 

[***]

 

[***] indicates material that
has been omitted pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange Commission.

 

38

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