Document:

AMENDED AND RESTATED LICENSE AGREEMENT

 Exhibit 10.16 
  
 [********] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with
the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 
  
 TARGACEPT CONTRACT NO. 03-060-0147 
  
 AMENDED AND RESTATED 
 LICENSE AGREEMENT 
  
 This Amended and Restated License Agreement (this
“Agreement”) is made and entered into to be effective the 9th day of March 2004, by and between the UNIVERSITY OF SOUTH FLORIDA RESEARCH FOUNDATION, INC., a corporation not for profit under Chapter 617 of the Florida Statutes and a
direct support organization of the University of South Florida (“University”) pursuant to Section 1004.28 of the Florida Statutes, having its principal office at 4202 East Fowler Avenue, Tampa, Florida 33620, U.S.A. (hereinafter
referred to as “RESEARCH FOUNDATION”), and Targacept, Inc., a Delaware Corporation, having its principal office at 200 East First Street, Suite 300, Winston-Salem, North Carolina 27101-4165 (hereinafter referred to as
“LICENSEE”) and amends and restates in its entirety the License Agreement dated October 13, 1997, as amended, between RESEARCH FOUNDATION and LICENSEE, as assignee of Layton Bioscience, Inc. (the “Original
Agreement”). 
  
 WITNESSETH 
  
 WHEREAS, RESEARCH FOUNDATION is the exclusive licensee of certain
“Patent Rights” (as later defined herein) relating to the use of mecamylamine to treat neuropsychiatric disorders and has the right to grant licenses under said Patent Rights; 
  
 WHEREAS, RESEARCH FOUNDATION desires to have the Patent Rights utilized in the public interest and is willing to grant a
license thereunder; and 
  
 WHEREAS, LICENSEE intends to develop,
produce, manufacture, market and/or sell “Licensed Product(s)” (as later defined herein) and is willing to commit itself to a diligent program of exploiting the Patent Rights so that public utilization shall result therefrom; and

  
 WHEREAS, LICENSEE desires to obtain a license under the Patent
Rights upon the terms and conditions hereinafter set forth. 
  
 NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows: 
  
 ARTICLE I. DEFINITIONS 
  
 For the purposes of this Agreement, the following words and phrases shall have the following meanings: 
  

	 	1.1	“Annual License Fee” shall mean [********], and “Annual Rights Fee” means [********]. 

	 	1.2	“Competition” shall, with respect to any Licensed Product, be deemed to exist in a particular country for and after the first calendar quarter in which [********].

  

	 	1.3	“Competitive Product” shall mean, with respect to any Licensed Product, any pharmaceutical product containing an active ingredient that is the same compound as a Named
Compound contained in or comprising such Licensed Product, or any analog, salt, solvate, prodrug form, inclusion complex or metabolite thereof, that [********]. 

  

	 	1.4	“Confidential Information” shall mean, subject to Paragraph 15.3, information that is confidential, proprietary or otherwise not generally available to the public.

  

	 	1.5	“Effective Date” shall mean the date so identified above in the preamble to this Agreement. 

  

	 	1.6	“Improvement” shall mean, with respect to any Licensed Product, technology that [********]. 

  

	 	1.7	“Licensed Process” shall mean any process that relates to a Named Compound and infringes or would infringe, in whole or in part, a Valid Claim contained in the Patent
Rights. 

  

	 	1.8	“Licensed Product” shall mean any product or part thereof containing or comprising a Named Compound that: 

  

	 	(a)	infringes or would infringe, in whole or in part, a Valid Claim contained in the Patent Rights in the country in which such product or part thereof is made, used, leased or sold; or

  

	 	(b)	is made by a process that is a Licensed Process in the country in which such product is made, used or sold. 

  

	 	1.9	“LICENSEE” shall include, in addition to Targacept, Inc.: a related company of Targacept, Inc., the voting stock of which is, directly or indirectly, at least fifty
percent (50%) owned or controlled by Targacept, Inc.; an organization which directly or indirectly controls more than fifty percent (50%) of the voting stock of Targacept, Inc.; and an organization, the majority ownership of which is, directly or
indirectly, common to the ownership of Targacept, Inc.. References in this Paragraph 1.9 to “voting stock” shall mean capital stock entitled to vote in the election of the board of directors or the analogous body of a noncorporate entity.

  

	 	1.10	“Losses” shall mean all claims and expenses, including reasonable attorneys’ fees, actually incurred. 

  

	 	1.11	“Milestones” shall mean events defined in Appendix B. 

  

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	 	1.12	“Named Compounds” shall mean [********]. 

  

	 	1.13	“NDA Filing Date” shall mean the date on which LICENSEE (or its sublicensee or collaborative partner) files its first New Drug Application (or its equivalent) with the
United States Food and Drug Administration or any comparable foreign regulatory authority for the use of a Licensed Product to treat attention deficit hyperactivity disorder and/or any other neuropsychiatric disease or disorder in any country.

  

	 	1.14	“Net Sales” shall mean [********]. 

  

	 	1.15	“Option Invention” shall mean any discovery, compound, improvement, invention, idea, process or technique, whether or not patentable, that (i) is made, conceived or first
reduced to practice by RESEARCH FOUNDATION and (ii) without regard to any rights reserved under Paragraph 2.2, cannot reasonably be practiced without infringing the Patent Rights licensed to LICENSEE hereunder. 

  

	 	1.16	“Patent Rights” shall mean, collectively, (i) the patents and patent applications listed on Appendix A, (ii) all patents that issue from patent applications listed
on Appendix A and all reexaminations, reissues, revisions, substitutes, renewals or extensions thereof, and (iii) all other United States and foreign patents that issue from applications that claim priority to patents and patent applications
listed on Appendix A, including, without limitation, continuation applications, continuation-in-part applications, divisional applications, substitute applications, reissue applications or requests for examination and foreign applications of
any of the foregoing. 

  

	 	1.17	“Special Issue Dispute” shall mean a dispute between the parties as to whether (i) LICENSEE is meeting its diligence obligation hereunder or (ii) a condition that would
give rise to a royalty reduction under Paragraph 4.1(b)(i) or 4.1(c) has occurred or been met. 

  

	 	1.18	“Sublicense Fees” shall mean any fees (including the fair market value of any consideration paid other than in cash) received by LICENSEE for a sublicense of Patent
Rights, excluding (i) running royalties on the sale or lease of Licensed Products, (ii) payments specifically allocated to research and development for, or to the manufacture or supply of, a Licensed Product or Licensed Process, (iii) amounts
received by LICENSEE that it is required to repay (e.g., a loan) and (iv) payments received in exchange for securities of LICENSEE. 

  

	 	1.19	“Substantial LICENSEE IP Rights” shall mean any issued patent or pending patent application owned or licensed by LICENSEE that claims an Improvement, but excluding
Improvements for which both LICENSEE and RESEARCH FOUNDATION provided independent inventive contribution. 

  

	 	1.20	“Territory” shall mean the world. 

  

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	 	1.21	“Valid Claim” shall mean: (i) any claim of an issued patent that has not expired and that has not been held invalid or unenforceable by decision of a court or other
governmental agency of competent jurisdiction or been admitted to be invalid through reissue, disclaimer or otherwise; or (ii) any claim of a pending patent application that has not expired or become canceled, abandoned or otherwise disallowed.

  
 ARTICLE II. GRANT 
  

	 	2.1	(a) RESEARCH FOUNDATION hereby grants to LICENSEE the perpetual, exclusive right and license under the Patent Rights to research, develop, make, have made, use, market, distribute,
lease, sell, import and export Licensed Products and Licensed Processes for any and all indications in the Territory, with the right to practice all or any portion of the foregoing right and license through subcontractors which, unless specifically
sublicensed hereunder, shall not be considered sublicensees hereunder. 

  
 (b) In the event that RESEARCH FOUNDATION receives a bona fide third party offer whereby such third party would obtain a right or license under any of the Patent Rights for any purpose not exclusively licensed
to LICENSEE hereunder (the “Subject Rights”), (i) RESEARCH FOUNDATION shall notify LICENSEE of all material terms of such offer in writing (the “Subject Notice”) within ten (10) business days after its receipt by
RESEARCH FOUNDATION, which notice shall certify as to the receipt of such offer from a bona fide third party, and (ii) LICENSEE shall thereupon have a right of refusal to license the Subject Rights on the same terms set forth in the Subject
Notice. LICENSEE may exercise its right of first refusal at any time within [********] after its receipt of the Subject Notice by written notice to RESEARCH FOUNDATION, and, in such event, the parties shall work diligently towards execution
of a definitive license agreement reflecting the terms in the Subject Notice and, to the extent not inconsistent, the terms hereof; provided that, if mutually acceptable, the parties may elect instead to amend and restate this agreement to
incorporate the Subject Rights and associated terms. If LICENSEE’s right of refusal expires unexercised, RESEARCH FOUNDATION shall have the right to license the Subject Rights to such third party on the terms set forth in the Subject Notice;
provided that, in the event of any substantive change in such terms, RESEARCH FOUNDATION shall again provide the Subject Notice to LICENSEE and LICENSEE shall again have a right of first refusal as provided herein. LICENSEE shall, notwithstanding
the periods provided in this Paragraph 2.1(b), use good faith efforts to respond to the Subject Notice (whether the initial Subject Notice or a subsequent Subject Notice following a substantive change in terms) as promptly as reasonably practicable
within the applicable period. 
  
 (c) RESEARCH FOUNDATION: (i)
shall, within thirty (30) days of the identification of each Option Invention, report such Option Invention to LICENSEE, together with any patent disclosures and any supporting technical 

  

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data or other information it possesses that may be relevant to understanding the value or commercial significance of such Option Invention; and (ii) hereby
grants to LICENSEE a first option to negotiate an exclusive, worldwide, royalty-bearing commercially reasonable license (with the right to sublicense) to RESEARCH FOUNDATION’s rights in each Option Invention for any purpose. LICENSEE may
exercise any such option by providing written notice to RESEARCH FOUNDATION within sixty (60) days of its receipt of the notice of the applicable Option Invention. Upon exercise of the Option, the parties shall negotiate in good faith the terms of
such license based on [********]. 
  

	 	2.2	RESEARCH FOUNDATION reserves to the University the right to practice under the Patent Rights solely for the University’s internal research and education purposes; provided that
the foregoing rights shall be expressly subject to RESEARCH FOUNDATION’s obligations pursuant to Paragraph 15. 

  

	 	2.3	Notwithstanding anything herein to the contrary, in no event shall either RESEARCH FOUNDATION or University perform research sponsored by, or for the benefit of, a third party
for-profit entity where such research, if performed by such third party for-profit entity, would infringe or would be reasonably likely to infringe the Patent Rights licensed to LICENSEE hereunder. 

  

	 	2.4	The license granted hereunder shall not be construed to confer any rights upon LICENSEE by implication, estoppel or otherwise as to any technology except as specifically set forth
herein. 

  

	 	2.5	LICENSEE may grant exclusive or nonexclusive sublicenses to third-party sublicensees with respect to all or any portion of the license granted to LICENSEE hereunder only with the
approval of RESEARCH FOUNDATION, which shall: (i) be given unless RESEARCH FOUNDATION reasonably believes in good faith that the proposed sublicense will result in LICENSEE’s inability to fulfill its obligations hereunder; (ii) otherwise not be
unreasonably withheld or delayed; and (iii) be deemed given unless written notice to the contrary is received by LICENSEE within thirty (30) days after written notice requesting approval is received by RESEARCH FOUNDATION. RESEARCH FOUNDATION shall,
notwithstanding the period provided in this Paragraph 2.4, use good faith efforts to respond to LICENSEE’S written notice as promptly as reasonably practicable within such period. 

  

	 	2.6	LICENSEE agrees to forward to RESEARCH FOUNDATION a copy of any and all fully executed sublicense agreements contemplated by Paragraph 2.4. At the request of RESEARCH FOUNDATION,
LICENSEE shall also provide copies of all distribution agreements and other such agreements relative to the Licensed Products or involving rights granted to LICENSEE under the agreement. 

  

	 	2.7	 Termination of the license granted to LICENSEE in this Agreement shall terminate all sublicenses which may have been granted by LICENSEE; provided that any
sublicensee may elect to continue its sublicense by advising RESEARCH 

  

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FOUNDATION in writing, within (60) sixty days of the sublicensee’s receipt of written notice of such termination from RESEARCH FOUNDATION, of its
election and its agreement to assume all of the obligations to RESEARCH FOUNDATION (including obligations for payment) contained in this Agreement. Any sublicense granted by LICENSEE shall contain provisions corresponding to those of this paragraph
respecting termination and the conditions of continuance of sublicenses. 

  

	 	2.8	Except as otherwise provided in a research or other written agreement between the parties, each invention, discovery, proprietary development, data and information, in any medium or
manifestation, including any method, process, composition of matter, apparatus, device, system, product, article of manufacture or appliance made or developed after the Effective Date, and all intellectual property rights relating thereto, shall be
owned exclusively by the party making or developing it, without any accounting, compensation or other obligation hereunder to the other party. 

  
 ARTICLE III. DUE DILIGENCE 
  

	 	3.1	LICENSEE shall use commercially reasonable efforts (either alone or through research collaborations or alliances with research organizations, pharmaceutical companies or other third
parties) to market and sell, or to develop, one or more Licensed Products or Licensed Processes through a diligent program for exploitation of the Patent Rights, and LICENSEE’s failure to use such efforts shall be grounds for RESEARCH
FOUNDATION to terminate this Agreement pursuant to Paragraph 13.3. Without limiting the generality of the foregoing, until the NDA Filing Date, LICENSEE shall: (i) spend a minimum of [********]to conduct research and development of one or
more Licensed Products; provided that, for the avoidance of doubt, any or all of such amount may [********]; and (ii) deliver to RESEARCH FOUNDATION, at least annually, a brief report summarizing its research and development activities
completed since the last report, research and development activities currently in process, planned future research and development activities and research and development work being performed by third parties. If RESEARCH FOUNDATION believes
LICENSEE is failing to comply with its obligations under this Paragraph 3.1, RESEARCH FOUNDATION may send notice to the LICENSEE asserting such belief and the basis therefor. LICENSEE shall have sixty (60) days from its receipt of such notice either
to (i) commence compliance with its obligations under this Paragraph 3.1 to RESEARCH FOUNDATION’s reasonable satisfaction or (ii) send notice to RESEARCH FOUNDATION requesting that such issue be resolved in accordance with Article XII, in which
case the procedures set forth in Article XII shall be followed. 

  

	 	3.2	 LICENSEE will use commercially reasonable efforts to effect the NDA Filing Date on or before December 31, 2012; provided that the parties acknowledge that (i) the
foregoing target is expressly subject to significant scientific, clinical and 

  

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regulatory uncertainties and (ii) failure to meet such target shall not constitute a breach of this Agreement or entitle RESEARCH FOUNDATION to terminate
this Agreement if SPONSOR is in compliance with Paragraph 3.1, but shall entitle RESEARCH FOUNDATION, upon sixty (60) days written notice to LICENSEE, to make the license granted in Paragraph 2.1(a) nonexclusive. 

  

	 	3.3	LICENSEE may, but expressly without creating any binding obligation, (i) consider University to conduct or, if applicable, to coordinate particular pre-clinical or early-stage
clinical research in furtherance of LICENSEE’s diligence obligations hereunder and (ii) communicate with University researchers from time to time regarding the research and development of one or more Licensed Products hereunder.

  
 ARTICLE IV. FEES AND ROYALTIES

  

	 	4.1	For the rights, privileges and license granted hereunder, LICENSEE shall pay to RESEARCH FOUNDATION: 

  

	 	(a)	Milestone payments payable, if at all, at the times and upon achievement of the Milestones set forth on Appendix B. 

  

	 	(b)	Running royalties equal to the Applicable Royalty Amount. The “Applicable Royalty Amount” shall be [********] of Net Sales of Licensed Products in any country;
provided that, with respect to a particular Licensed Product in a particular country: 

  
 (i) if (A) [********] or (B) there exists Competition for such Licensed Product in such country, the Applicable Royalty Amount
shall be reduced to [********] of Net Sales of such Licensed Product in such country; and 
  
 (ii) if LICENSEE (or a sublicensee) deems it necessary or advisable to secure a third party license in order to practice in such country
any portion of the license granted by RESEARCH FOUNDATION hereunder (including, without limitation, the sale of Licensed Products), the Applicable Royalty Amount shall be reduced by [********]of the amounts paid to secure such third party
license, but in no event to an amount less than [********] of Net Sales of Licensed Products in such country. 
  
 Notwithstanding the foregoing: 
  
 (1) the obligations in this Paragraph 4.1(b) shall expire with respect to Net Sales of a particular Licensed Product in a particular
country on the date of expiration of the last-to-expire Valid Claim included in the Patent Rights covering, in whole or in part, such Licensed Product in such country; 
  

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 (2) if Licensed Products are sold or leased by a sublicensee, LICENSEE shall instead pay
to RESEARCH FOUNDATION the lesser of the amount calculated as provided above in this Paragraph 4.1(b) or [********] of the running royalties on the sale or lease of Licensed Products actually received by LICENSEE from such sublicensee;

  
 (3) the Company’s obligation to pay
royalties under this Paragraph 4.1(b) shall be imposed only once with respect to the same unit of a Licensed Product regardless of how many Patent Rights or Valid Claims pertain thereto; and 
  
 (4) all Annual License Fees, in the aggregate, paid by
LICENSEE hereunder as of the NDA Filing Date shall be creditable against running royalties due under this Paragraph 4.1, after any reduction resulting from application of the various subparagraphs of this Paragraph 4.1; provided that a maximum of
[********] shall be creditable annually under this subparagraph (4). [********] 
  

	 	(c)	[********] of all Sublicense Fees actually received by LICENSEE from any sublicensee, to be reduced to [********] if such sublicense is granted together (whether in
the same or in a related agreement) with Substantial LICENSEE IP Rights. 

  

	 	4.2	Royalty payments shall be paid in United States dollars in Tampa, Florida, or at such other place as RESEARCH FOUNDATION may reasonably designate consistent with the laws and
regulations controlling in any foreign country. Any withholding taxes that the LICENSEE is required by law to withhold on remittance of the royalty payments will be deducted from the royalty paid. If any currency conversion shall be required in
connection with the payment of royalties hereunder, such conversion shall be made by using the exchange rate prevailing at the Chase Manhattan Bank (N.A.) on the last business day of the calendar quarter reporting period to which such royalty
payments relate. 

  

	 	4.3	In addition to the foregoing, LICENSEE shall pay to RESEARCH FOUNDATION (i) the Annual License Fee, which obligation shall expire as of the NDA Filing Date, and (ii) for the rights
granted to LICENSEE in Paragraph 2.1(b), the Annual Rights Fee, each such payment to be made within thirty (30) days of each anniversary of the Effective Date in United States dollars. 

  
 ARTICLE V. REPORTS AND RECORDS 
  

	 	5.1	 LICENSEE shall keep full, true and accurate books of account containing all particulars that may be necessary for the purpose of showing the amounts payable to
RESEARCH FOUNDATION hereunder for five (5) years following the end of the calendar year to which they pertain. Such books and records shall be made 

  

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available, upon reasonable notice and during normal business hours, for the inspection of RESEARCH FOUNDATION or its agents (at the sole expense of RESEARCH
FOUNDATION) for the purpose of verifying LICENSEE’s royalty statement or compliance in other respects with this Agreement. This obligation to maintain accurate books of account and the right to inspect them shall survive termination of this
Agreement for the period described above. 

  

	 	5.2	LICENSEE, within sixty (60) days after March 31, June 30, September 30 and December 31, of each year, shall deliver to RESEARCH FOUNDATION true and accurate reports, giving such
particulars of the business conducted by LICENSEE and its sublicensees during the preceding three-month period under this Agreement as shall be pertinent to a royalty accounting hereunder, including an accounting for Licensed Processes used and
Licensed Products and the billings, deductions and royalties due with respect thereto. In the event the examination shows an underpayment, LICENSEE shall pay RESEARCH FOUNDATION the amounts underpaid. In addition, in the event the examination shows
an underpayment of more than five percent (5%) for any quarter, LICENSEE shall pay the RESEARCH FOUNDATION, in addition to the amounts underpaid, out-of-pocket costs of the audit and interest on the underpayment at the rate of [********].

  

	 	5.3	With each such report submitted, LICENSEE shall pay to RESEARCH FOUNDATION the royalties due and payable under this Agreement. If no royalties shall be due, LICENSEE shall so
report. 

  

	 	5.4	The royalty payments set forth in this Agreement shall, if overdue, bear interest until payment at a rate of [********]. The payment of such interest shall not foreclose
RESEARCH FOUNDATION from exercising any other rights it may have as a consequence of the lateness of the payment. 

  
 ARTICLE VI. PATENT PROSECUTION 
  

	 	6.1	 The filing and prosecution of all United States and foreign patent applications and maintenance of all United States and foreign patents within the Patent Rights
during the term of this Agreement shall be the responsibility of LICENSEE at its sole expense and acting in good faith. LICENSEE shall (i) provide, or direct its patent counsel to provide, to RESEARCH FOUNDATION copies of all material information
specifically relating to the prosecution, issuance and maintenance of the Patent Rights and (ii) give due consideration in good faith to comments timely received from RESEARCH FOUNDATION or its patent counsel. RESEARCH FOUNDATION agrees to promptly
provide to LICENSEE such assistance, information, and executed documents needed to facilitate the prosecution, issuance, and maintenance of the Patent Rights as LICENSEE may reasonably request and LICENSEE shall reimburse RESEARCH FOUNDATION for
reasonable out-of-pocket expenses incurred to provide such assistance, 

  

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information, and documents, subject to received of itemized statements and other appropriate supporting documentation. 

  

	 	6.2	In the event the LICENSEE determines that filing, prosecution or maintenance of any of the U.S. or foreign patent applications or patents within the Patent Rights is not justified
and so advises RESEARCH FOUNDATION in writing, RESEARCH FOUNDATION will then have the option to file, prosecute or maintain any such Patent Rights at its own expense. If RESEARCH FOUNDATION does so: (i) RESEARCH FOUNDATION will then have the option
to delete such U.S. or foreign patent applications or patents within said Patent Rights from the license granted hereunder for the territory covered thereby; (ii) LICENSEE will have no rights under the license granted hereunder for any such deleted
U.S. or foreign patent applications or patent; (iii) RESEARCH FOUNDATION will obtain all rights in and to such deleted U.S. or foreign patent applications or patents and will be free to exploit and to assign or license any such deleted U.S. or
foreign patent applications or patents to third parties without effect on the amount of royalties or other payments due to RESEARCH FOUNDATION under Article III. 

  
 ARTICLE VII. INFRINGEMENT 
  

	 	7.1	The parties shall inform each other promptly, in writing, of any alleged infringement of the Patent Rights by a third party and any available evidence thereof. Neither party will
settle or compromise any claim or action in a manner that imposes any restrictions or obligations on the other party without such other party’s written consent, which shall not be unreasonably withheld. 

  

	 	7.2	During the term of this Agreement, LICENSEE shall have the first right, but shall not be obligated, to prosecute at its own expense any such infringements of the Patent Rights and,
in furtherance of such right, RESEARCH FOUNDATION hereby agrees that LICENSEE may join RESEARCH FOUNDATION as a party plaintiff in any such suit, without expense to RESEARCH FOUNDATION. Except as provided in Paragraph 7.4, the total cost of any such
infringement action commenced solely by LICENSEE shall be borne by LICENSEE, and LICENSEE shall keep any recovery or damages for past infringement derived therefrom. Subject to Paragraph 7.1, LICENSEE shall be entitled to settle any such litigation
by agreement, consent, judgment, voluntary dismissal or otherwise. 

  

	 	7.3	 If within six (6) months after having been notified of any alleged infringement, LICENSEE shall have been unsuccessful in persuading the alleged infringer to desist
and shall not have brought and shall not be diligently prosecuting an infringement action, or if LICENSEE shall notify RESEARCH FOUNDATION at any time prior thereto of its intention not to bring suit against any alleged infringer, then, and in those
events only, RESEARCH FOUNDATION shall have the right, but shall not be obligated, to prosecute at its own expense any infringement of the Patent Rights. The total cost of any such infringement action commenced solely by RESEARCH FOUNDATION will be
borne by 

  

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RESEARCH FOUNDATION, and RESEARCH FOUNDATION will keep any recovery or damages for past infringement derived therefrom. Subject to Paragraph 7.1, RESEARCH
FOUNDATION shall be entitled to settle any such litigation by agreement, consent, judgment, voluntary dismissal or otherwise. 

  

	 	7.4	In the event that LICENSEE shall undertake the enforcement and/or defense of the Patent Rights by litigation, LICENSEE may withhold up to fifty percent (50%) of the royalties
otherwise thereafter due RESEARCH FOUNDATION hereunder and apply the same toward reimbursement of up to fifty percent (50%) of its expenses, including reasonable attorneys’ fees, in connection therewith. Any recovery by LICENSEE of damages for
past infringement in any such suit shall be applied first in satisfaction of any unreimbursed expenses and legal fees of LICENSEE relating to the suit and next toward reimbursement of RESEARCH FOUNDATION for any royalties past due or withheld and
applied pursuant to this Article VII. LICENSEE shall keep the balance remaining from any such recovery. 

  

	 	7.5	In the event that a declaratory judgment action alleging invalidity or noninfringement of any of the Patent Rights shall be brought against RESEARCH FOUNDATION, LICENSEE at its
option, shall have the right, within thirty (30) days after commencement of such action, to intervene and take over the sole defense of the action at its own expense, except as provided in Paragraph 7.4. In such event, LICENSEE shall keep any
recovery or damages derived therefrom or from any counterclaims asserted therein. 

  

	 	7.6	In any infringement suit instituted, or declaratory action defended, by either party to enforce or protect the Patent Rights pursuant to this Agreement, the other party hereto
shall, at the request and expense of the party initiating or defending such suit, cooperate in all respects and, to the extent possible, have its employees testify when requested and make available relevant records, papers, information, samples,
specimens, and the like. 

  

	 	7.7	RESEARCH FOUNDATION warrants and represents that it owns all right, title and interest in and to the Patent Rights, has the lawful right to grant the license provided in this
Agreement and that it has not granted rights or licenses in derogation of this Agreement. RESEARCH FOUNDATION agrees that, during the term of this Agreement or any license granted hereunder, RESEARCH FOUNDATION shall not enter into any other
agreements that conflict with the rights or obligations provided hereunder, including any rights and obligations that survive termination of this Agreement. 

  
 ARTICLE VIII. PRODUCT LIABILITY; INDEMNIFICATION 
  

	 	8.1	 LICENSEE shall, at all times during the term of this Agreement and thereafter, indemnify, defend and hold RESEARCH FOUNDATION, the University and their trustees,
officers, employees and affiliates, harmless against all Losses 

  

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arising directly out of the death of, or injury to, any person or persons or damage to property resulting from the LICENSEE’s or any of its
sublicensee’s production, manufacture, sale, use (both experimental and consumer), lease, consumption or advertisement of the Licensed Product(s), except to the extent such Losses arise, directly or indirectly, out of the negligence or
misconduct of RESEARCH FOUNDATION, the University or any of their respective trustees, officers, employees, agents, representatives or affiliates. 

  

	 	8.2	LICENSEE shall procure and maintain liability insurance in amounts customary in the relevant industry in which LICENSEE commercially exploits Licensed Products.

  

	 	8.3	EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, RESEARCH FOUNDATION MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESSED OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR PENDING. NOTWITHSTANDING ANYTHING IN THIS ARTICLE VIII OR ELSEWHERE HEREIN TO THE CONTRARY, NEITHER PARTY
SHALL BE LIABLE FOR LOSS OF PROFITS, LOSS OF USE OR ANY OTHER INCIDENTAL, CONSEQUENTIAL, EXEMPLARY OR SPECIAL DAMAGES WHATSOEVER EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 

  
 ARTICLE IX. EXPORT CONTROLS 
  

	 	9.1	It is understood that RESEARCH FOUNDATION is subject to United States laws and regulations controlling the export of technical data, computer software, laboratory prototypes and
other commodities (including the Arms Export Control Act, as amended and the Export Administration Act of 1979), and that its obligations hereunder are contingent on compliance with applicable United States export laws and regulations. The transfer
of certain technical data and commodities may require a license from the applicable agency of the United States Government and/or written assurances by LICENSEE that LICENSEE shall not export data or commodities to certain foreign countries without
prior approval of such agency. RESEARCH FOUNDATION neither represents that a license will not be required nor that, if required, it will be issued. 

  
 ARTICLE X. NON-USE OF NAMES 
  

	 	10.1	 LICENSEE shall not use the names of RESEARCH FOUNDATION, the University or of any of its employees, or any adaptation thereof, in any advertising, promotional or
sales literature without prior written consent obtained from RESEARCH FOUNDATION in each case, except that (i) LICENSEE may 

  

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state that it is licensed by RESEARCH FOUNDATION under one or more of the patents and/or applications comprising the Patent Rights and (ii) to the extent
required by law, regulation or court order. 

  

	 	10.2	RESEARCH FOUNDATION shall not use the name of LICENSEE or of any of its employees, or any adaptation thereof, in any advertising, promotional or sales literature without prior
written consent obtained from LICENSEE, except RESEARCH FOUNDATION to the extent required by law, regulation or court order. 

  
 ARTICLE XI. ASSIGNMENT 
  

	 	11.1	This Agreement is not assignable by either party without the consent of the other party except that (i) LICENSEE may assign this Agreement in connection with any merger,
consolidation, sale of all or substantially all of its assets or equity, or sale of a controlling interest in LICENSEE, and (ii) LICENSEE may assign this Agreement to another entity in which LICENSEE maintains at least a majority ownership interest.

  
 ARTICLE XII. DISPUTE RESOLUTION

  

	 	12.1	No party to this Agreement shall institute a proceeding in any court or administrative agency to resolve a Special Issue Dispute before that party has sought to resolve the Special
Issue Dispute through direct negotiation with the other party. If the dispute is not resolved within three weeks after a demand for direct negotiation, the parties shall attempt to resolve such Special Issue Dispute through mediation in Atlanta,
Georgia administered by the American Arbitration Association under its commercial mediation rules and procedures then in effect. The mediator shall be mutually acceptable to each of the parties. If the mediator is unable to facilitate a settlement
of the Special Issue Dispute within a reasonable period of time, as determined by the mediator, the mediator shall issue a written statement to the parties to that effect and the aggrieved party may then seek relief through final and binding
arbitration in Atlanta, Georgia administered by the American Arbitration Association under its commercial arbitration rules and procedures then in effect. All arbitration proceedings shall be before a board of three (3) arbitrators who are
knowledgeable about pharmaceutical development, and each party shall select one (1) arbitrator and the selected arbitrators shall select the third arbitrator. The arbitration proceedings shall be conducted in the English language and any award shall
be in United States dollars. The cost of the third arbitrator shall be divided equally between the parties and each party shall pay the costs of the arbitrator selected by it. The arbitrators shall have no power to add to, subtract from or modify
any of the terms or conditions of this Agreement, shall base any award on applicable laws and judicial precedent and include in such award a statement of the reasons upon which the award is based. 

  

 13 

	 	12.2	All applicable statutes of limitation and defenses based upon the passage of time shall be tolled while the procedures specified in this Article XII are pending. The parties shall
take such action, if any, required to effectuate such tolling 

  

	 	12.3	Each party is required to continue to perform its obligations under this Agreement pending final resolution of any Special Issue Dispute. 

  
 ARTICLE XIII. TERMINATION 
  

	 	13.1	RESEARCH FOUNDATION shall have the right to terminate this Agreement at any time upon notice to LICENSEE in the event either (a) If LICENSEE shall file in any court, pursuant to any
statute either of the United States or any state, a petition in bankruptcy or insolvency or for the appointment of a receiver or trustee of all or substantially all of LICENSEE’s property, or if LICENSEE shall make an assignment for the benefit
of creditors, or if LICENSEE shall commit any other affirmative act of insolvency; or (b) if there shall be filed against LICENSEE in any court, pursuant to any statute either of the United States or any state, an involuntary petition in bankruptcy
or insolvency or for reorganization, or if there shall be involuntarily appointed a receiver or trustee of all or substantially all of LICENSEE’s property, in either case unless such petition, assignment, affirmative act or appointment is set
aside or withdrawn or ceases to be in effect within one hundred twenty (120) days after the date of the filing. 

  

	 	13.2	If LICENSEE fails to pay RESEARCH FOUNDATION royalties due and payable hereunder, RESEARCH FOUNDATION shall have the right to terminate this Agreement on thirty (30) days notice,
unless LICENSEE shall pay RESEARCH FOUNDATION within the thirty (30) day period, all such royalties and interest due and payable. Upon the expiration of the thirty (30) day period and unless such termination notice shall have been withdrawn or
canceled during the 30-day period, if LICENSEE shall not have paid all such royalties and interest due and payable, the rights, privileges and license granted hereunder shall terminate. For the avoidance of doubt, failure by LICENSEE to pay the
Annual Rights Fee to RESEARCH FOUNDATION shall not give rise to a right of termination of this Agreement but, if such failure continues for ten (10) business days following receipt by LICENSEE of written notice thereof from RESEARCH FOUNDATION, the
rights granted to LICENSEE under Paragraph 2.1(b), but no other provision of this Agreement, shall terminate. 

  

	 	13.3	 Upon any material breach or default of this Agreement by LICENSEE, other than those occurrences set out in Paragraphs 12.1, 13.1 and 13.2 hereinabove, which shall
always take precedence in that order over any material breach or default referred to in this Paragraph 13.3, RESEARCH FOUNDATION shall have the right to terminate this Agreement and the rights, privileges and license granted hereunder on thirty (30)
days notice to LICENSEE. Such termination shall become effective unless (i) the termination notice shall have been withdrawn or canceled during the 30-day period, (ii) LICENSEE shall have cured such breach 

  

 14 

	 	 
or default prior to the expiration of the thirty (30) day period or (iii) at the expiration of such thirty (30) day period, LICENSEE can demonstrate to
RESEARCH FOUNDATION’s reasonable satisfaction that it is working diligently and in good faith to cure such breach or default, LICENSEE shall have an additional cure period, not to exceed ninety (90) days. 

  

	 	13.4	LICENSEE shall have the right to terminate this Agreement at any time upon written notice to RESEARCH FOUNDATION and payment of all amounts due RESEARCH FOUNDATION through the
effective date of the termination. 

  

	 	13.5	Upon termination of this Agreement for any reason, nothing herein shall be construed to release either party from any obligation that matured prior to the effective date of such
termination. LICENSEE may, however, after the effective date of such termination, sell all Licensed Products, and complete Licensed Products in the process of manufacture at the time of such termination and sell the same; provided that LICENSEE
shall pay to RESEARCH FOUNDATION the royalties thereon as required by Article IV and shall submit the reports required by Article V. 

  

	 	13.6	If not earlier terminated, this Agreement shall terminate on the date of expiration of the last-to-expire Valid Claim included in the Patent Rights, and LICENSEE shall thereupon
have the rights and licenses set forth in Paragraphs 2.1(a) and 2.4 without any further obligation to RESEARCH FOUNDATION hereunder, which rights and licenses shall survive such termination. 

  
 ARTICLE XIV. PAYMENTS, NOTICES AND OTHER COMMUNICATIONS

  

	 	14.1	Any payment, notice or other communication pursuant to this Agreement shall be given in writing and shall be deemed received on the date of personal delivery, one day after deposit
with a nationally recognized overnight delivery service with charges prepaid or two days after mailing if sent to such party by Certified First Class Mail, Postage Prepaid, addressed to it at its address below or as it shall designate by written
notice given to the other party. In the case of: 

  

			
	 RESEARCH FOUNDATION:
	 	LICENSEE:
		
	 USF Research Foundation, Inc.
 Attention: Business Manager
 USF Box 30445
 Tampa, Florida 33620-3044
	 	 Targacept, Inc.
 200 East First Street, Suite 300
 Winston-Salem, NC 27101-4165
 Attn:
Vice President, Business
 and Commercial Development

  
 ARTICLE XV.
CONFIDENTIALITY 
  

	 	15.1	 RESEARCH FOUNDATION and LICENSEE recognize that each party may need to provide certain of its Confidential Information from time to time to the 

  

 15 

	 	 
other party pursuant to this Agreement. The parties expressly agree that Confidential Information does not exist in written form only, but may also include
oral, printed, magnetic, electronic, computer-generated or other communications and information learned by inspection of tangible objects. RESEARCH FOUNDATION and LICENSEE agree to hold in confidence, in accordance with this Article XV, any
Confidential Information disclosed by one party to the other under this Agreement. For the purpose hereof, “hold in confidence” means that RESEARCH FOUNDATION and LICENSEE will not disclose the Information of the other party to a third
party and will protect the Information provided to it by the other party in the same manner in which it protects its own confidential information of similar nature, but will in no event use less than reasonable care. The Confidential Information
will remain the property of the party disclosing it. 

  

	 	15.2	The obligations of the receiving party to maintain confidentiality under this Agreement will survive its termination for ten (10) years thereafter. 

  

	 	15.3	Confidential Information does not include information that: 

  

	 	(i)	is already known to the receiving party prior to the Effective Date; 

  

	 	(ii)	is or becomes publicly known through no fault of receiving party; 

  

	 	(iii)	has been or is disclosed to the receiving party by a third party that the receiving party does not know (and is not reckless in not knowing) to be under an obligation of confidence
or secrecy to the disclosing party at the time of disclosure; 

  

	 	(iv)	is developed by employees or consultants of the receiving party who had no knowledge of the Confidential Information; 

  

	 	(v)	is approved for release by written authorization of the disclosing party; or 

  

	 	(vi)	is required to be disclosed by law, provided the receiving party promptly notifies the disclosing party in writing prior to such disclosure, considers in good faith any comments or
suggested changes to such disclosure from the disclosing party and gives the disclosing party a reasonable opportunity to prevent or limit the disclosure. 

  

	 	15.4	 The parties further agree that LICENSEE shall have the right to disclose Confidential Information to: (i) potential sublicensees, assignees or subcontractors for
the purpose of allowing any such potential sublicensee, assignee or subcontractor to evaluate whether to enter into a sublicense, assignment or subcontract; (ii) potential sublicensees, assignees or subcontractors, for the purpose of allowing such
sublicensee, assignee or subcontractor, as the case may be, to make, have made, use, research, develop, have developed, lease, market, offer to sell, sell, have sold, distribute, improve, import and export Licensed 

  

 16 

	 	 
Products; (iii) a purchaser or potential purchaser of all or substantially all of LICENSEE’s assets, or a party with which LICENSEE is then in
discussions regarding a potential business combination; and (iv) an investor or lender, or prospective investor or lender, in or to LICENSEE; provided, however, that, except in the case of an actual or prospective investor or lender, LICENSEE shall
obtain a confidentiality agreement (substantially similar in content to the provisions of this Paragraph 15) from the party to which such disclosures are to be made prior to any such disclosure. 

  
 ARTICLE XVI. MISCELLANEOUS PROVISIONS 
  

	 	16.1	This Agreement shall be construed, governed, interpreted and applied in accordance with the laws of the State of Florida, U.S.A., except that questions affecting the construction
and effect of any patent shall be determined by the law of the country in which the patent was granted. 

  

	 	16.2	The parties hereto acknowledge that this Agreement sets forth the entire Agreement and understanding, and supersedes and makes null and void any and all prior understandings and
agreements, of the parties hereto as to the subject matter hereof (including without limitation the Original Agreement and the letter between the RESEARCH FOUNDATION and LICENSEE dated April 29, 2003), and shall not be subject to any change or
modification except by the execution of a written instrument subscribed to by the parties hereto. 

  

	 	16.3	The provisions of this Agreement are severable, and in the event that any provisions of this Agreement shall be determined to be invalid or unenforceable under any controlling body
of the law, such invalidity or unenforceability shall not in any way affect the validity or enforceability of the remaining provisions hereof. 

  

	 	16.4	LICENSEE agrees to mark the Licensed Products sold in the United States (or their respective packagings or packaging inserts) with all applicable United States patent numbers. All
Licensed Products shipped to or sold in other countries (or their respective packagings or packaging inserts) shall be marked in such a manner as to conform with the patent laws and practice of the country of manufacture or sale.

  

	 	16.5	The failure of either party to assert a right hereunder or to insist upon compliance with any term or condition of this Agreement shall not constitute a waiver of that right or
excuse a similar subsequent failure to perform any such term or condition by the other party. 

  

	 	16.6	This Agreement will be binding and inure to the benefit of the parties hereto and their respective affiliates and permitted successors and assigns. 

  

	 	16.7	 The representations, warranties, covenants, and undertakings contained in this Agreement are for the sole benefit of the parties hereto and their permitted 

  

 17 

	 	 
successors and assigns and such representations, warranties, covenants, and undertakings will not be construed as conferring any rights on any other party,
other than the University. 

  

	 	16.8	Nothing contained in this Agreement will be deemed to place the parties hereto in a partnership, joint venture or agency relationship and neither party will have the right or
authority to obligate or bind the other party in any manner. 

  

	 	16.9	This Agreement may be executed in two counterparts, each of which will be deemed an original and both of which, taken together, shall constitute one and the same instrument.

  
 [remainder of page intentionally left blank]

  

 18 

 IN WITNESS WHEREOF, the parties have hereunto set their hands and seals and fully executed this Agreement the day and
year set forth below: 
  

									
	 UNIVERSITY OF SOUTH FLORIDA
 RESEARCH FOUNDATION, INC.
	 	 	 	 TARGACEPT, INC.

					
	 By
	 	 /s/ C P Carlucci
	 	 	 	 By
	 	 /s/ J. Donald deBethizy

	 Name
	 	 Carl P. Carlucci
	 	 	 	 Name
	 	 J. Donald deBethizy

	 Title
	 	 President
	 	 	 	 Title
	 	 President & CEO

  
 Acknowledged and Agreed to:

  

			
	 University of South Florida

		
	 By
	 	 /s/ Priscilla Pope

	 Name
	 	 Priscilla Pope

	 Title
	 	 Associate Vice President

  

 19 

 Appendix A 
  

Patent Applications 
  

					
	 No.

	 	 Date Filed

	 	 
	 60/055,234
	 	11-Aug-1997	 	 
			
	 08/935,364
	 	22-Sep-1997	 	 
			
	 US97/20689
	 	07-Nov-1997	 	 
	 US98/16634
	 	11-Aug-1998	 	 
			
	 09/198,882
	 	23-Nov-1998	 	 
			
	 09/461,087
	 	14-Dec-1999	 	 
			
	 09/526,403
	 	15-Mar-2000	 	 
			
	 09/398,720
	 	20-Sep-1999	 	 
			
	 60/112,534
	 	16-Dec-1998	 	 
			
	 US99/30137
	 	16-Dec-1999	 	 
	 US99/30153
	 	16-Dec-1999	 	 
			
	 09/882,934
	 	15-Jun-2001	 	 
	 09/882,935
	 	15-Jun-2001	 	 
			
	 10/441,947
	 	19-May-2003	 	 
			
	 Issued Patents
  
	 	 	 	 
	 No.

	 	 Date Filed

	 	 
	 6,034,079
	 	March 7, 2000	 	 

  

 20 

 Appendix B 
  

[********] 
  
 [Entire page has been redacted.] 
  

 21LICENSE AGREEMENT DATED OCTOBER 6, 1997

 Exhibit 10.17(a) 
  
 [********] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with
the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 
  
 RJR Contract No. 97-773-069 
  
 VCU-L9706 
  
 LICENSE AGREEMENT 
  
 THIS AGREEMENT is made and entered into this 6th day of October 1997, by and between

  
 RJ Reynolds Tobacco Company (hereinafter referred to as the
“LICENSEE”), with its principal place of business at 401 N. Main Street, Winston-Salem, North Carolina, 27102-1487 and place of operation at Bowman Gray Technical Center, 950 Reynolds Boulevard, Winston-Salem North Carolina, 27102-1487;
and, 
  
 VIRGINIA COMMONWEALTH UNIVERSITY INTELLECTUAL PROPERTY
FOUNDATION (hereinafter referred to as the “LICENSOR”), and with its principal place of operation at Virginia Commonwealth University, 1101 E. Marshall Street, Sanger Hall, Room 1-026, Richmond, Virginia 23298-0568. 
  
 WHEREAS, LICENSOR is the owner of all right, title, and interest in a U.S.
Patent Application entitled “Compounds and Pharmaceutical Compositions Thereof for Eliciting Analgesic Effects” invented by Drs. Martin and Damage at Virginia Commonwealth University (VC Invention #97-12); and, 
  
 WHEREAS LICENSEE is desirous of acquiring from LICENSOR certain rights set
forth below, and wishes to engage Virginia Commonwealth University in a related Sponsored Research Agreement as defined below, 
  
 NOW, THEREFORE, in consideration of the promises and the covenants set forth herein, LICENSOR and LICENSEE agree as follows: 
  
 I. DEFINITIONS 
  
 The following definitions shall apply in the interpretation of this Agreement. 

 
 1.1 “AFFILIATE” of any company means any corporation which, directly or
indirectly, controls or is controlled by, or is under direct or indirect common control with, such company; and for the purposes of this definition “control” (including “control by” and “under common control with”) as
used with respect to any corporation or company, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such corporation or company, through the ownership of more than 50%
of the voting shares. 
  
 1.2 “CALENDAR QUARTER” means the three-month
period ending March 31, June 30, September 30, or December 31 in any year. 
  
 1.3
“TECHNOLOGY” shall mean all the intellectual property in the FIELD OF USE including the patent application named above as well as continuations, continuations-in-part, divisional, reexaminations, reissues and extensions thereof both
foreign and domestic, owned or to be owned by LICENSOR. It does not include ADDITIONAL TECHNOLOGY, discoveries and inventions or other developments made during and under the currently negotiated Sponsored Research Agreement between Virginia
Commonwealth University and LICENSEE) or improvements to intellectual property developed during and under the Sponsored Research Agreement. Such discoveries made during and under the Sponsored Research Agreement will be subject of future
negotiation. 

 1.4 “LICENSED TECHNOLOGY” shall mean the patent application cited above and all patent applications filed from
and patents issuing from said patent application in the field which are owned or controlled by LICENSOR. 
  
 1.5 “LICENSED PRODUCTS” shall mean any product in the FIELD OF USE that incorporates, is covered by or is made, in whole or part, by the use of the LICENSED TECHNOLOGY. 
  
 1.6 “ADDITIONAL TECHNOLOGY” shall mean inventions, discoveries, information, and
know-how in the FIELD OF USE which may be developed under the Sponsored Research Agreement. 
  
 1.7 “FIELD OF USE” shall mean analgesia and applications related to pain control. VCU-IPF reserves the right to make, use, or sell the LICENSED TECHNOLOGY and LICENSED PRODUCTS in the area of smoking
cessation management. 
  
 1.8 “EFFECTIVE DATE” shall mean the date of
the Agreement set forth above. 
  
 1.9 “LICENSED TERRITORY” shall mean
worldwide. 
  
 1.91 “NET SALES” for purposes of computing the royalty
payment contemplated under the provisions below, means [********]. 
  
 1.92. “EFFECTIVE DATE shall mean the date of the agreement set forth above. 
  
 II. GRANT 
  
 2.1 LICENSOR grants to LICENSEE a
royalty bearing, worldwide, exclusive license under LICENSED TECHNOLOGY to make, have made, use, or sell LICENSED TECHNOLOGY and LICENSED PRODUCT in the FIELD OF USE defined above. This grant shall be subject to the payment by LICENSEE to LICENSOR
of all consideration as provided in this Agreement, and shall be further subject to the rights retained by LICENSOR and Virginia Commonwealth University to: 
  
 a. publish the scientific findings, subject to agreed upon provisions, from research related to LICENSED TECHNOLOGY; and, 
  

 2 

 b. use any information contained in the LICENSED TECHNOLOGY for research, teaching, and similar
noncommercial activities and other education-related purposes. 
  
 c. use the LICENSED TECHNOLOGY and LICENSED PRODUCTS for commercial purposes, including licensing, in the area of smoking cessation management. 
  
 2.2 LICENSEE shall have the right to grant sublicenses subject to the terms and conditions of this agreement. LICENSEE will attach and incorporate by reference the
provisions of this Agreement pertaining to payment obligations, patent applications, warranties, reporting requirements, and confidentiality, to any sub-license agreements entered into by LICENSEE. LICENSEE will provide LICENSOR with copies either
(I) of appropriate sections of sub-license agreements evidencing a third party or AFFILIATE sublicensee’s commitment to be bound by the terms and conditions of this Agreement and with sections pertaining to NET SALES within one month of their
being executed by the LICENSEE with the third party or AFFILIATE sublicensee, or (ii) other evidence of such commitment, which evidence is mutually acceptable to LICENSOR and LICENSEE. 
  
 2.3 LICENSOR hereby grants to LICENSEE an exclusive Option to acquire a license to any and all parts of the ADDITIONAL TECHNOLOGY that may
arise from execution of the Sponsored Research Agreement. The Option period on any part of the ADDITIONAL TECHNOLOGY will be for six (6) months from the date it is disclosed to LICENSEE. The Option will be deemed exercised by the LICENSEE when
LICENSEE notifies the LICENSOR in writing that it wishes to exercise its Option and enter into good faith negotiation for a license on a particular portion of the ADDITIONAL TECHNOLOGY. The LICENSEE shall retain no rights in, or options on
ADDITIONAL TECHNOLOGY OF LICENSOR developed under the Sponsored Research Agreement if LICENSEE fails to exercise its Option. 
  
 2.4 If LICENSEE exercises its Option under Section 2.3 of this Agreement, LICENSOR to the extent not prohibited by law or other patents, and subject to any rights of the
U.S. Government under 37 C.F.R 401, will enter into good faith negotiation to grant LICENSEE an exclusive license to make, have made, use, lease, sell, import and export technology developed under the Sponsored Research Agreement. 
  
 2.5 This Agreement shall terminate on the date of the last patent to expire on the LICENSED
TECHNOLOGY. 
  
 2.6 Nothing in this Agreement shall be construed to confer rights
upon LICENSEE by implication, estoppel, or otherwise to any technology or intellectual property other than the LICENSED TECHNOLOGY. 
  
 III. PAYMENT PROVISIONS 
  
 3.1 LICENSEE agrees to pay LICENSOR [********] within 30 days of the execution of this Agreement. 
  
 3.2 LICENSEE shall pay to LICENSOR all documented costs for the patent filing for LICENSED TECHNOLOGY within 30 days of the execution of
this agreement. 
  

 3 

 3.3 To maintain an exclusive license to the LICENSED TECHNOLOGY, LICENSEE agrees to make an annual minimum payment of
[********] due each year on the anniversary of the effective date of this Agreement. [********] 
  
 3.4 Licensee agrees to make the following milestone payments to LICENSOR: 
  
 a. [********] 
  
 c. [********] 
  
 d. [********] 
  
 3.5 LICENSEE shall pay to LICENSOR a running royalty of [********] based upon annual NET SALES for LICENSED PRODUCTS, or [********] of that amount received by LICENSEE from a third party, which ever is
less. 
  
 3.6. Royalty payments shall be based on NET SALES in any country where a
valid patent covering LICENSED TECHNOLOGY or LICENSED PRODUCT is in effect, or based on NET SALES of export product in any country where a valid patent covering LICENSED TECHNOLOGY is in effect and product is made for export. 
  
 IV. Diligence and Patent Prosecution 
  
 4.1 LICENSEE shall use reasonable efforts to bring one or more LICENSED PRODUCTS to market
through diligent efforts and to continue active, commercially reasonable research and development, and sub-licensing efforts for one or more LICENSED PRODUCTS. 
  

4.2 LICENSOR, shall apply for, seek issuance or registration of, and maintain patents and copyrights during the term of this Agreement on the LICENSED TECHNOLOGY for
subject matter protect able by patent or copyright using counsel which is mutually acceptable to both LICENSEE and LICENSOR. The management of the various tasks and procedures involved shall be the primary responsibility of LICENSOR. LICENSEE, at
the request of LICENSOR, shall assist LICENSOR in all such tasks and procedures. 
  

 4 

 4.3 All patents, patent applications, and copyrights on the LICENSED TECHNOLOGY shall be, assigned to LICENSOR, and
LICENSOR’s interest therein shall be recorded in the U.S. Patent and Trademark Office, U.S. Copyright Office, and corresponding foreign patent and copyright offices at the expense of LICENSOR. 
  
 4.4 LICENSOR shall provide LICENSEE with copies of all papers received from and to be filed
in the U.S. Patent and Trademark Office, U.S. Copyright Office, and corresponding foreign patent and copyright offices. 
  
 4.5 LICENSOR shall be entitled, in its discretion, to abandon any application or granted patent or copyright if it considers that the ongoing costs of the same are not
justified, provided that LICENSOR notifies LICENSEE prior to such abandonment and allows LICENSEE reasonable opportunity to avoid such abandonment. In no event shall such reasonable opportunity be less than one (l) month prior to abandonment. If
LICENSOR chooses to abandon an application or granted patent or copyright under this provision and LICENSEE, at its sole expense, continues pursuing the application, granted patent or copyright, LICENSOR shall retain no right to exclusively use or
exclusively exploit the technology claimed in a granted patent or copyright on the technology which LICENSEE later obtains in the country, territory or jurisdiction which granted the patent or copyright; however LICENSOR shall maintain a
non-exclusive right, limited to those rights enumerated in Section 2.1a, b and c. 
  
 4.6 LICENSEE may designate foreign countries in which it desires to have filed corresponding patent applications for LICENSED TECHNOLOGY, and LICENSEE shall be responsible for all costs associated with filing, prosecuting and maintaining
those patent applications in the designated foreign countries. If LICENSEE does not so designate such foreign countries, then LICENSOR, at its own expense may file, prosecute and maintain patent applications corresponding to LICENSED TECHNOLOGY.

  
 4.7 Subject to the provision of Section 4.6 LICENSEE shall pay to LICENSOR all
documented costs associated with patent prosecution and maintenance of the LICENSED TECHNOLOGY, within 30 days of receipt of an invoice from LICENSOR. In the event that the costs of patent prosecution and maintenance exceed [********] during
any calendar year, or in the event of a declaration of interference or appeal beyond final rejection, LICENSOR and LICENSEE shall negotiate in good faith toward arriving at a mutually acceptable manner in which the costs associated with patent
prosecution and maintenance shall be borne. In any event, the first [********] paid to LICENSOR by LICENSEE in any calendar year, except for those costs paid in connection with Section 3.2, shall be creditable against the annual minimum
payment due in accordance with Section 3.3 in that calendar year. 
  
 V. Reporting Obligations 
  
 5.1 LICENSEE, within sixty (60) days after
each calendar quarter of each year, shall deliver to LICENSOR true and accurate reports, pertaining to NET SALES of LICENSED PRODUCT which shall include at least the following information: 
  
 a) the identity of each LICENSED PRODUCT being developed, manufactured,
marketed and/or sold, 
  
 b) the stage of development of each
LICENSED PRODUCT each country in the TERRITORY; 
  
 c) the number
of each LICENSED PRODUCT manufactured and/or sold in each country in the TERRITORY, 
  
 d) NET SALES of LICENSED PRODUCT sold by the LICENSEE and all sublicensees, prepared in accordance with generally accepted accounting principles, on a country by country basis, for each LICENSED PRODUCT (a) above;

  

 5 

 e) any and all deductions from NET SALES made by LICENSEE; 
  
 f) names and addresses of all sublicensees of LICENSEE; 
  
 g) NET SALES derived from sublicensees; and 
  
 h) total royalties due. 
  
 5.2 With each report submitted under Section 5.1 of this Agreement, LICENSEE shall make all
payments to LICENSOR in US dollars due and payable under Section 3 of this Agreement. If no royalties are due, LICENSEE shall so report. 
  
 5.3 LICENSEE shall keep full, true and accurate books of account containing all particulars that may be necessary for the purpose of showing the amounts payable to
LICENSOR hereunder. Said books of account shall be kept at LICENSEE’s principal place of business. Said books and supporting data shall be open at all reasonable times for three (3) years following the end of the calendar year to which they
pertain, to the inspection of LICENSOR or its agents for the purpose of verifying LICENSEE’s royalty statement or compliance in other respects with this Agreement. Should such inspection lead to the discovery of a greater than [********]
discrepancy in reporting to LICENSOR’s detriment, LICENSEE shall pay the full cost of such inspection. . LICENSEE shall pay any amounts such inspection reveals to be due and owing within thirty (30) days of the receipt of an invoice for same.

  
 VI. INFRINGEMENT 
  
 6.1 LICENSEE and LICENSOR shall promptly inform each other in writing of any alleged
infringement of the LICENSED PATENTs by a third party. 
  
 6.2 During the term of
this agreement, LICENSOR will have the right, but shall not be obligated, to prosecute at its own expense all infringements of the LICENSED PATENTS and, in furtherance of such right, LICENSOR may include LICENSEE, upon agreement by LICENSEE, as a
party plaintiff in any such suit, at LICENSEE’S expense. Each party shall bear its own costs of prosecuting any such infringement action, and shall be entitled to prove and recover its damages, Upon mutual agreement of the parties, each may
assign to the other its right to sue for past, present, or future infringement of the LICENSED TECHNOLOGY, and to agree to a method to allocate damages recovered by the assignee of such rights. 
  
 6.3 LICENSOR or LICENSEE shall have three (3) months after having been notified of any
alleged infringement to investigate whether infringement can be established. If LICENSOR determines that infringement exits, then it shall have [********] to negotiate in good faith with the alleged infringer to resolve the dispute. If at the
end of such period the dispute is has nor been resolved, LICENSOR shall have [********] to commence prosecuting an infringement action (the filing period). If LICENSOR determines that infringement can be established and (a) at any time
decides not to pursue an action against the alleged infringer, or (b) fails to commence prosecuting an action before the end of the filing period, then LICENSOR shall notify LICENSEE of its intention not to bring suit against any alleged infringer
in the TERRITORY. In those events only LICENSEE shall have the right but shall not be obligated, to prosecute at its own expense any infringement of the LICENSED TECHNOLOGY, and LICENSOR hereby agrees at its discretion and upon terms to be mutually
agreed by the parties, to either be named as a plaintiff in any such proceedings or to assign its rights to sue for infringement. LICENSEE shall pay all of LICENSOR’S 

  

 6 

 
costs and reasonable attorney fees incurred in such action. No settlement, consent judgment, or other voluntary final disposition of the suit shall be
entered into without the consent of LICENSOR, which consent shall not be unreasonably withheld. LICENSEE hereby indemnifies LICENSOR against any order for costs or attorney fees that may be made against LICENSOR in such proceedings instituted by
LICENSEE. 
  
 6.4 In the event that LICENSOR shall undertake the enforcement
and/or defense of the LICENSED TECHNOLOGY by litigation, any monetary recovery by LICENSOR, shall be divide equally between LICENSOR and LICENSEE after all costs have been paid. In the event that LICENSEE undertakes the enforcement and/or defense of
the LICENSED PATENTS by litigation, any monetary recovery by LICENSEE shall be shared with LICENSOR after all costs are paid. 
  
 6.5 In any infringement suit that either party may institute to enforce the LICENSED TECHNOLOGY pursuant to this Agreement, the other party hereto shall, at the request
of the party initiating such suit and upon reasonable notice, cooperate in all respects and, to the extent possible, have its employees testify when requested and make available relevant records, papers, information samples, models, specimens and
the like. 
  
 6.6 LICENSEE, during the exclusive period of this Agreement, shall
have the sole right, subject to approval by LICENSOR, which shall not be unreasonably withheld, in accordance, with the terms and conditions herein to sublicense any alleged infringer in the TERRITORY for future use of LICENSED TECHNOLOGY. Prior to
the distribution of sublicensing fees received from an alleged infringer as specified in Section III, LICENSOR shall be compensated for any and all expenses incurred by it, if any, in that regard prior to the commencement of the sublicense with the
infringer. 
  
 6.7 In the event of any legal action alleging invalidity or
noninfringement of any of the LICENSED TECHNOLOGY shall be brought against LICENSEE, or LICENSOR, LICENSOR, at its option, shall have the right within [********] after the commencement of such action, to intervene and take over the sole
defense of the action at its own expense. If LICENSOR chooses not to intervene, LICENSEE shall have the option to intervene and take over the sole defense at its own expense. 
  
 VII. Termination 
  
 7.1 The provisions of this Agreement, having come into force on the Effective Date, shall, unless terminated earlier for any reason, continue in force in accordance with
their respective terms if any as indicated in section 3.4. 
  
 7.2 LICENSEE may
terminate this Agreement at any time by giving LICENSOR ninety (90) days written notice. In the event of termination of this Agreement by LICENSEE, LICENSEE shall have no further rights under this Agreement; however, LICENSEE will remain obligated
for any royalties due or other expenses incurred up until the date of termination. 
  
 7.3 LICENSOR may terminate this Agreement if LICENSEE: 
  
 a. fails to pay on the due date any sum due under section 3 of this Agreement; or 
  
 b. fails to provide reports on the due date specified under Section 5 of this Agreement. 
  

 7 

 7.4 Either party may forthwith terminate this Agreement by written notice to the other 
  
 d. anything analogous to any of the foregoing under the law of any
jurisdiction occurs in relation to that other party; or 
  
 e. if
the other party ceases, or threatens to cease, to carry on business. 
  
 7.5 No
relaxation, forbearance, delay or indulgence by either party in enforcing any of the terms of this Agreement or the granting of time by either party to the other shall prejudice, affect or restrict the rights and powers of the former hereunder nor
shall any waiver by either party of a breach of this Agreement be considered as a waiver of any subsequent breach of the same or any other provision hereof 
  
 7.6 The rights to terminate this Agreement given by this clause shall not prejudice any other right or remedy of either party in respect of the breach concerned (if any)
or any other breach. 
  
 VIII. Miscellaneous 
  
 8.1 Nothing in this Agreement shall create, or be deemed to create, a partnership, or the
relationship of principal and agent, between the parties. 
  
 8.2 LICENSEE shall
be entitled to assign this Agreement to any of its AFFILIATES taking over substantially all the business of LICENSEE relating to this Agreement or, with the consent of LICENSOR, which shall not be unreasonably be withheld, to any other company
taking over substantially all the business of LICENSEE relating to this Agreement and all or a major part of the voting shares in which are, or are to be floated on, a recognized exchange or otherwise publicly owned. 
  
 8.3 Subject to Section 8.2 of this Agreement, the clauses are personal to the parties and
neither party may assign, mortgage, charge or license any of its rights hereunder, nor may either party sub-contract or otherwise delegate any of its obligations hereunder, except with the prior written consent of the other party. 
  
 8.4 LICENSEE shall (i) to the extent reasonably practical, place in a conspicuous location on
all patented products made pursuant to this Agreement a patent notice in accordance with 35 U.S. C. §282 consisting of the word “Patent” or “Patents” and the number or numbers of the United States patent or patents licensed
hereunder and (ii) comply in all respects with the laws of the country of manufacture, and/or sale of the Technology with respect to marking such products so as to ensure LICENSOR of full protection and rights under such laws. LICENSEE shall include
the provisions of this clause in all sub-licenses with third parties and Affiliates. 
  
 8.5 LICENSEE shall at all times during the term of this Agreement and thereafter indemnify, defend and hold LICENSOR, its trustees, directors, officers, employees and affiliates harmless against all claims, proceedings, demands and
liabilities, including legal expenses and reasonable Adam’s fees, arising out of the death of or injury to any person or persons or out of any damages to property resulting from the research, development, production, manufacture, sale,
modification, use, import or advertisement of LICENSED PRODUCT or arising from any obligation of LICENSEE hereunder. 
  

 8 

 8.6 In the event that LICENSEE or a sublicensee of LICENSEE conducts studies involving human subjects and LICENSED
TECHNOLOGY, LICENSEE shall obtain and carry in full force and effect commercial, general liability insurance which shall protect LICENSEE and LICENSOR with respect to events set forth above. Such insurance shall be written by a reputable company
authorized to due business in the Commonwealth of Virginia, shall list LICENSOR as an additional named insured thereunder, shall be endorsed to include product liability coverage and shall require reasonable written notice to be given to LICENSOR
prior to any cancellation or material change thereof The limits of such insurance shall not be less than one million dollars ($1,000,000) per occurrence with an aggregate of five million ($5,000,000) for personal injury or death, and one million
dollars ($1,000,000) per occurrence with aggregate of three million dollars ($3,000,000) for property damage. LICENSEE shall provide LICENSOR with Certificates of Insurance evidencing same. 
  
 8.7 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, LICENSOR, ITS TRUSTEES,
DIRECTORS, OFFICERS, EMPLOYEES, AND AFFILIATES MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANT OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND VALIDITY OF THE
CLAIMS OF ANY PATENTS ON THE TECHNOLOGY ISSUED OR PENDING, OR FREEDOM OF A PRODUCT THAT EMBODIES TECHNOLOGY FROM INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE. IN NO
EVENT SHALL LICENSOR, ITS TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES, AND AFFILIATES BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING BUT NOT LIMITED TO ECONOMIC DAMAGE OR INJURY TO PROPERTY AND LOST PROFITS, WHETHER LICENSOR
SHALL BE ADVISED, SHALL HAVE OTHER REASON TO KNOW, OR IN FACT SHALL KNOW OF THE POSSIBILITY OF THE FOREGOING. LICENSOR REPRESENTS AND WARRANTS IN RESPECT TO THE LICENSED TECHNOLOGY THAT IT HAS LEGAL RIGHT TO EXTEND THE RIGHTS TO LICENSEE, AND THAT
IT HAS NOT MADE AND WILL NOT MAKE ANY COMMITMENTS TO OTHERS INCONSISTENT WITH OR IN DEROGATION OF SUCH RIGHTS. 
  
 8.8 For the purposes of this Agreement “Force Majeure” means any circumstances beyond the reasonable control of either party including, without limitation, any strike, lock-out, or other form of industrial
action. If either party is affected by Force Majeure, it shall forthwith notify the other party of the nature and extent thereof Neither party shall be deemed to be in breach of this Agreement, or otherwise be liable to the other, by reason of any
delay in performance, or the non-performance, of any of its obligations under this Agreement, to the extent that such delay or non-performance is due to any Force Majeure of which it has notified the other party, and the time for performance of that
obligation shall be extended accordingly. If the Force Majeure in question prevails for a continuous period in excess of [********], the parties shall enter into bona fide discussions with a view to alleviating its effects, or to agreeing
upon such alternative arrangements as may be fair and reasonable. 
  
 8.9 LICENSEE
shall not use the names or trademarks of LICENSOR, nor any adaptation thereof, nor the names of any of its employees, in any advertising, promotional or sales literature without prior written consent obtained from LICENSOR, or said employee, in each
case, except that the LICENSEE may state that it is a licensee of LICENSOR with respect to the LICENSED TECHNOLOGY. 
  

 9 

 8. 10 All Notices shall be made in writing to the individuals noted below at the addresses noted above, and shall be sent
by certified mail, returned receipt requested. If the individual to whom notices are to be given, or address where notices are to be sent changes for any party, that party shall promptly notify the other party accordingly: 
  
 Virginia Commonwealth University: 
  
 Director, Office of Technology Transfer Box 980568

 1101 E. Marshall Street 
 Sanger Hall Room 1-026 
 Virginia Commonwealth University 
 Richmond, VA 23298-0568 
  
 RJ Reynolds Tobacco Company: 
  
 Senior Counsel 
 Bowman Gray Center 
 950 Reynolds Boulevard 
 Winston-Salem, NC 27102-1487 
  
 8.11 This Agreement contains the entire and only agreement and understanding between the parties and supersedes all preexisting agreements between them respecting its
subject matter. Any representation, promises, or condition in connection with such subject matter which is not extension, incorporated in this Agreement shall not be binding on either party. No modification, renewal, wavier, and no termination of
this Agreement or any of its provisions shall be binding upon the party against whom enforcement of such modification, renewal, extension, waiver or termination is sough, unless made in writing and signed on behalf of such party by one of its duly
authorized officers. As used herein, the word “termination” includes any and all means of bringing an end prior to its expiration by its own terms this Agreement, or any provisions thereof, whether by release, discharge, abandonment or
otherwise. 
  
 8.12 This Agreement shall be construed, governed, interpreted and
applied in accordance with the laws of the Commonwealth of Virginia, U.S.A., except that questions affecting the construction and effect of any patent shall be determined by the law of the country in which the patent was granted. Any legal action or
proceeding relating to this Agreement or any document or instrument related hereto shall be brought only in the courts of the Commonwealth of Virginia in Richmond, Virginia, and by its execution and delivery of this Agreement, LICENSEE hereby
accepts for itself and in respect to its property, generally and unconditionally, the jurisdiction of the aforesaid courts. 
  
 8.13 This Agreement may be executed in one or more counterparts and any party hereto may execute any such counterparts each of which shall be deemed an original and all
of which, taken together, shall constitute but one and the same document. It shall not be necessary in making proof of this document or any counterpart hereof to produce or account for any of the other counterparts. 
  
 8.14 The provisions of this Agreement are severable, and in the event that any provisions of
this Agreement shall be determined to be invalid or unenforceable under any controlling body of the law, such invalidity and unenforceability shall not in any way affect the validity or enforceability of the remaining provisions hereof. In the event
the validity or unenforceability of any provision 

  

 10 

 
of this Agreement is brought into question because of the decision of a court of competent jurisdiction, LICENSOR, by written notice to LICENSEE may revise
the provision in question or may delete it entirely so as to comply with the decision of said court. 
  
 8.15 The failure of either party to assert a right hereunder or to insist upon compliance with any term or condition of this Agreement shall not constitute a waiver of that right or excuse a similar failure to perform
any such term or condition by the other party. 
  
 8.16 It is understood that
LICENSOR is subject to United States laws and regulations controlling the export of technical data, computer software, laboratory prototypes and other commodities (including the Anns Export Control Act, as amended and the United States Department of
Commerce Export Administration Act of 1979). The transfer of such items may require a license from the cognizant agency of the United States Government and/or written assurances by LICENSEE that LICENSEE shall not export data or commodities to
certain foreign countries without prior approval of such agency. LICENSOR neither represents that license shall not be required not that, if required, it shall be issued. 
  
 8.17 All reports and documents to be forwarded to LICENSOR shall be in the English Language. 
  
 8.18 All payments required under this Agreement shall be made in U.S. Dollars. LICENSEE
agrees to pay interest of [********] on any delinquent payments to LICENSOR, and pay for all costs and reasonable attorneys fees incurred by LICENSOR in collecting payments due to LICENSOR. 
  
 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in
duplicate as first above written. 
  

									
	 AGREED AND ACCEPTED:
	 	 	 	 
			
	 R. J. REYNOLDS TOBACCO COMPANY
	 	 	 	 
				
	 By:
	 	 /s/ Gary T. Burger
	 	 	 	 Date: 10/1/97

	 Print Name & Title
 Gary T. Burger, D.V.M.
 Senior Vice President, R&D
	 	 	 	 	 	 
			
	VIRGINIA COMMONWEALTH UNIVERSITY INTELLECTUAL RESEARCH FOUNDATION (VCU-IPF)	 	 	 	 
				
	 By:
	 	 /s/ Richard C. Franson
	 	 	 	 Date: 10/2/97

	 Print Name/Title
 Richard C. Franson, Ph.D.
 President, VCU-IPF
 Director, Office of Technology
 Transfer Virginia Commonwealth
 University
	 	 	 	 	 	 

  

 11

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