Document:

Exhibit 10.4

 

EMPLOYEE MATTERS AGREEMENT

 

by and between

 

IRONWOOD PHARMACEUTICALS, INC.

 

and

 

CYCLERION THERAPEUTICS, INC.

 

Dated as of         , 2019

 

 

EMPLOYEE MATTERS AGREEMENT

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
ARTICLE I   DEFINITIONS
    	
 
    	
1
    
	
 
    	
 
    	
 
    
	
Section 1.1.
    	
General
    	
 
    	
1
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE II   TRANSFER OF CYCLERION EMPLOYEES; GENERAL PRINCIPLES
    	
 
    	
6
    
	
 
    	
 
    	
 
    
	
Section 2.1.
    	
Transfer of Employment   to Cyclerion of Additional Employees; Post-Effective Time Transfers;   Independent Contractors
    	
 
    	
6
    
	
Section 2.2.
    	
Assumption and   Retention of Liabilities
    	
 
    	
6
    
	
Section 2.3.
    	
Cyclerion Participation   in the Ironwood Plans
    	
 
    	
7
    
	
Section 2.4.
    	
Sponsorship of the   Cyclerion Plans
    	
 
    	
7
    
	
Section 2.5.
    	
No Duplication of   Benefits; Service and Other Credit
    	
 
    	
7
    
	
Section 2.6.
    	
Reimbursements
    	
 
    	
8
    
	
Section 2.7.
    	
Approval of Plans
    	
 
    	
8
    
	
Section 2.8.
    	
Delivery of Shares;   Registration Statement
    	
 
    	
8
    
	
Section 2.9.
    	
Labor Relations
    	
 
    	
8
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE III   DEFINED CONTRIBUTION AND NON-QUALIFIED DEFERRED COMPENSATION PLANS
    	
 
    	
9
    
	
 
    	
 
    	
 
    
	
Section 3.1.
    	
401(k) Plan
    	
 
    	
9
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE IV   HEALTH AND WELFARE PLANS; PAYROLL; COBRA AND VACATION
    	
 
    	
10
    
	
 
    	
 
    	
 
    
	
Section 4.1.
    	
Cessation of   Participation in Ironwood Health and Welfare Plans
    	
 
    	
10
    
	
Section 4.2.
    	
Allocation of Health   and Welfare Plan Liabilities
    	
 
    	
10
    
	
Section 4.3.
    	
Flexible Spending Plan   Treatment
    	
 
    	
11
    
	
Section 4.4.
    	
Workers’ Compensation   Liabilities
    	
 
    	
11
    
	
Section 4.5.
    	
Payroll Taxes and   Reporting
    	
 
    	
12
    
	
Section 4.6.
    	
COBRA and HIPAA   Compliance
    	
 
    	
12
    
	
Section 4.7.
    	
Vacation and Paid Time   Off
    	
 
    	
13
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE V   INCENTIVE COMPENSATION, EQUITY COMPENSATION AND OTHER BENEFITS
    	
 
    	
13
    
	
 
    	
 
    	
 
    
	
Section 5.1.
    	
Annual Cash-Based   Incentive Plans
    	
 
    	
13
    
	
Section 5.2.
    	
Awards under the   Ironwood Equity-Based Plans
    	
 
    	
13
    

 

i

 

	
Section 5.3.
    	
Ironwood ESPP
    	
 
    	
19
    
	
Section 5.4.
    	
Blackout Period
    	
 
    	
19
    
	
Section 5.5.
    	
Section 409A
    	
 
    	
19
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE VI   GENERAL AND ADMINISTRATIVE
    	
 
    	
20
    
	
 
    	
 
    	
 
    
	
Section 6.1.
    	
Sharing of Participant Information
    	
 
    	
20
    
	
Section 6.2.
    	
No Third Party   Beneficiaries
    	
 
    	
20
    
	
Section 6.3.
    	
Audit Rights with   Respect to Information Provided
    	
 
    	
20
    
	
Section 6.4.
    	
Fiduciary Matters
    	
 
    	
20
    
	
Section 6.5.
    	
Consent of Third   Parties
    	
 
    	
21
    
	
Section 6.6.
    	
Assignment of   “Claw-Back” or Recoupment Rights
    	
 
    	
21
    
	
Section 6.7.
    	
Proprietary Information   and Inventions Agreements
    	
 
    	
21
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE VII   DISPUTE RESOLUTION
    	
 
    	
21
    
	
 
    	
 
    	
 
    
	
Section 7.1.
    	
Negotiation
    	
 
    	
21
    
	
Section 7.2.
    	
Arbitration
    	
 
    	
22
    
	
Section 7.3.
    	
Continuity of Service   and Performance
    	
 
    	
22
    
	
Section 7.4.
    	
Injunctive or Other   Equity Relief
    	
 
    	
22
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE VIII   MISCELLANEOUS
    	
 
    	
22
    
	
 
    	
 
    	
 
    
	
Section 8.1.
    	
Complete Agreement;   Construction
    	
 
    	
22
    
	
Section 8.2.
    	
Transaction Agreements
    	
 
    	
22
    
	
Section 8.3.
    	
Counterparts
    	
 
    	
22
    
	
Section 8.4.
    	
Survival of Agreements
    	
 
    	
23
    
	
Section 8.5.
    	
Expenses
    	
 
    	
23
    
	
Section 8.6.
    	
Notices
    	
 
    	
23
    
	
Section 8.7.
    	
Waivers
    	
 
    	
24
    
	
Section 8.8.
    	
Assignment
    	
 
    	
24
    
	
Section 8.9.
    	
Successors and Assigns
    	
 
    	
24
    
	
Section 8.10.
    	
Termination and   Amendment
    	
 
    	
24
    
	
Section 8.11.
    	
Payment Terms
    	
 
    	
24
    
	
Section 8.12.
    	
Subsidiaries
    	
 
    	
25
    
	
Section 8.13.
    	
Third Party   Beneficiaries
    	
 
    	
25
    
	
Section 8.14.
    	
Titles and Headings
    	
 
    	
25
    
	
Section 8.15.
    	
Governing Law
    	
 
    	
25
    
	
Section 8.16.
    	
Severability
    	
 
    	
25
    

 

ii

 

	
Section 8.17.
    	
Interpretation
    	
 
    	
26
    
	
Section 8.18.
    	
No Duplication; No   Double Recovery
    	
 
    	
26
    
	
Section 8.19.
    	
No Waiver
    	
 
    	
26
    
	
Section 8.20.
    	
Transfer of Records and   Information
    	
 
    	
26
    
	
Section 8.21.
    	
Cooperation
    	
 
    	
26
    

 

iii

 

EMPLOYEE MATTERS AGREEMENT

 

This EMPLOYEE MATTERS AGREEMENT (this “Agreement”), dated as of      , 2019, is entered into by and between Ironwood Pharmaceuticals, Inc. (“Ironwood”), a Delaware corporation, and Cyclerion Therapeutics, Inc. (“Cyclerion”), a Massachusetts corporation and a wholly owned subsidiary of Ironwood.  Capitalized terms used and not defined herein shall have the meaning set forth in the Separation Agreement between the Parties, dated as of        ,       (the “Separation Agreement”).

 

W I T N E S S E T H:

 

WHEREAS, as contemplated by the Separation Agreement, Ironwood and Cyclerion desire to enter into this Agreement to provide for the allocation of Assets, Liabilities, and responsibilities with respect to certain matters relating to employees and other individual service providers (including employee compensation and benefit plans and programs) between them.

 

NOW, THEREFORE, the Parties, intending to be legally bound, agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

Section 1.1.                                 General.  For purposes of this Agreement the following terms shall have the meaning ascribed to them in this Article I.

 

(1)                                 “2005 Plan” means the Ironwood Pharmaceuticals, Inc. Amended and Restated 2005 Stock Incentive Plan.

 

(2)                                 “2010 Plan” means the Ironwood Pharmaceuticals, Inc. Amended and Restated 2010 Employee, Director and Consultant Equity Incentive Plan.

 

(3)                                 “Action” means any demand, action, claim, suit, countersuit, arbitration, inquiry, subpoena, case, litigation, proceeding or investigation (whether civil, criminal, administrative or investigative) by or before any court or grand jury, any Governmental Entity or any arbitration or mediation tribunal.

 

(4)                                 “Adjustment Fraction” means a fraction, the numerator of which is the volume-weighted average trading price of Ironwood Common Stock (trading “regular way”) on the ten (10) trading days immediately prior to the date upon which the Distribution Effective Time occurs, as reported on Bloomberg, and the denominator of which is the Ironwood Post-Distribution Stock Price.

 

(5)                                 “Assets” means all rights, title and ownership interests in and to all rights, properties, claims, Contracts, businesses, or assets (including goodwill), wherever located (including in the possession of vendors or other third parties or elsewhere), of every kind, character and description, whether real, personal or mixed, tangible or intangible, whether accrued, contingent or otherwise, in each case, whether or not recorded or reflected on the books

 

 

and records or financial statements of any Person.  Except as otherwise specifically set forth herein, in the Separation Agreement or in the Tax Matters Agreement, the rights and obligations of the Parties with respect to Taxes shall be governed by the Tax Matters Agreement and, therefore, Taxes (including any Tax items, attributes or rights to receive any Tax Refunds (as defined in the Tax Matters Agreement)) shall not be treated as Assets governed by this Agreement.

 

(6)                                 “COBRA” means the continuation coverage requirements for “group health plans” under Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and as codified in Code Section 4980B and ERISA Sections 601 through 608.

 

(7)                                 “Code” means the Internal Revenue Code of 1986, as amended, or any successor federal income tax law.  Reference to a specific Code provision also includes any proposed, temporary, or final regulation in force under that provision.

 

(8)                                 “Consents” means any consents, waivers, notices, reports or other filings to be obtained from or made, including with respect to any Contract, or any registrations, licenses, permits, authorizations to be obtained from, or approvals from, or notification requirements to, any Third Parties, including any Governmental Entity.

 

(9)                                 “Conversion Fraction” means a fraction, the numerator of which is the volume-weighted average trading price of Ironwood Common Stock (trading “regular way”) on the ten (10) trading days immediately prior to the date upon which the Distribution Effective Time occurs and the denominator of which is the Purchase Price (as such term is used in the Stock Purchase Agreement).

 

(10)                          “Cyclerion 401(k) Plan” means the tax-qualified defined contribution savings plan with a cash or deferred arrangement under Section 401(k) of the Code adopted by Cyclerion or a Cyclerion Group member prior to the Distribution Effective Time.

 

(11)                          “Cyclerion Common Stock” means the common stock of Cyclerion, no par value.

 

(12)                          “Cyclerion Employee” means any individual who, as of the Distribution Effective Time, is either actively employed by or then on a leave of absence from Cyclerion or a Cyclerion Group member (including maternity, paternity, family, sick, disability leave, qualified military service under the Uniformed Services Employment and Reemployment Rights Act of 1994, and leave under the Family Medical Leave Act and other approved leaves) or who is employed by Ironwood or an Ironwood Group member and who becomes a Cyclerion Employee pursuant to the operation of this Agreement.

 

(13)                          “Cyclerion ESPP” has the meaning set forth in Section 2.7.

 

(14)                          “Cyclerion FSAs” has the meaning set forth in Section 4.3.

 

(15)                          “Cyclerion Group” means (a) Cyclerion and each entity that is a Subsidiary of Cyclerion or will be a Subsidiary of Cyclerion immediately following the Distribution Effective Time and (b) on and after the Distribution Effective Time, Cyclerion and any entity that is a Subsidiary of Cyclerion.

 

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(16)                          “Cyclerion Health and Welfare Plans” has the meaning set forth in Section 4.1.

 

(17)                          “Cyclerion Omnibus Equity Plan” means the Cyclerion Omnibus Equity Plan adopted by Cyclerion prior to the Distribution Effective Time.

 

(18)                          “Cyclerion Participant” means any individual who is a Cyclerion Employee or a Former Cyclerion Employee, and any beneficiary, dependent, or alternate payee of such individual, as the context requires.

 

(19)                          “Cyclerion Pharmaceutical Business” means: (i) the business, operations and activities conducted at any time prior to the Distribution Effective Time by either Party or any of its Subsidiaries to the extent relating to, arising out of or resulting from the Cyclerion Product Candidates (including the discovery, research and development of such Cyclerion Product Candidates worldwide) or similar to the services to be provided under the Development Agreement; and (ii) the Cyclerion Discovery Programs.

 

(20)                          “Cyclerion RSU” means a restricted stock unit that represents a general unsecured promise by Cyclerion to deliver a share of Cyclerion Common Stock (or an amount in cash determined by reference to the value of a share of Cyclerion Common Stock), which restricted stock unit is granted as part of the adjustment to Ironwood RSUs as set forth in Section 5.2(c).

 

(21)                          “Dispute Notice” has the meaning set forth in Section 7.1.

 

(22)                          “Disputes” has the meaning set forth in Section 7.1.

 

(23)                          “Distribution Date” means the date, as shall be determined by the Board of Directors of Ironwood, on which the Distribution occurs.

 

(24)                          “Distribution Effective Time” means 12:01 a.m. on            , 2019, Eastern time, on the Distribution Date.

 

(25)                          “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.  Reference to a specific provision of ERISA also includes any proposed, temporary, or final regulation in force under that provision.

 

(26)                          “Former Cyclerion Employee” means any individual whose employment with either Party or any of its respective Subsidiaries and Affiliates terminated for any reason before the Distribution Effective Time, and who was primarily engaged in providing services to the Cyclerion Pharmaceutical Business as of the date of his or her termination of employment.

 

(27)                          “Former Ironwood Employee” means any individual whose employment with an Ironwood Group member terminated for any reason before the Distribution Effective Time, other than a Former Cyclerion Employee.

 

(28)                          “Governmental Entity” means any nation or government, any state, municipality or other political subdivision thereof and any entity, body, agency, commission, department, board, bureau or court, whether domestic, foreign, multinational, or supranational exercising

 

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executive, legislative, judicial, regulatory, self-regulatory or administrative functions of or pertaining to government and any executive official thereof.

 

(29)                          “Group” means (a) with respect to Ironwood, the Ironwood Group and (b) with respect to Cyclerion, the Cyclerion Group, as the context requires.

 

(30)                          “HIPAA” means the health insurance portability and accountability requirements for “group health plans” under the Health Insurance Portability and Accountability Act of 1996, as amended.

 

(31)                          “Incentive Stock Option” means an option which qualifies as an incentive stock option under the provisions of Section 422 of the Code.

 

(32)                          “Indemnifiable Loss” means any and all Liabilities, including damages, losses, deficiencies, obligations, penalties, judgments, settlements, claims, payments, fines and other costs and expenses of any and all Actions and demands, assessments, judgments, settlements and compromises relating thereto and the reasonable fees and expenses of attorneys’, accountants’, consultants’ and other professionals’ incurred in the investigation or defense thereof or the enforcement of rights hereunder.

 

(33)                          “Indemnifying Party” means, with respect to any Direct Claim or Third Party Claim, the Party which is or may be required pursuant to Article VI of the Separation Agreement to provide indemnification pursuant to such claim.

 

(34)                          “Ironwood 401(k) Plan” means the Ironwood Pharmaceuticals, Inc. 401(k) Savings Plan.

 

(35)                          “Ironwood Common Stock” means the Class A common stock, par value $0.001 per share, of Ironwood.

 

(36)                          “Ironwood Employee” means any individual who, as of the Distribution Effective Time, is either receiving compensation from a member of the Ironwood Group which is to be reported on IRS Form W-2 (in the case of individuals employed in the United States) or who is on the payroll of an Ironwood Group member (in the case of individuals outside the United States), but does not include any Cyclerion Employee.

 

(37)                          “Ironwood Equity-Based Plans” means the 2005 Plan and the 2010 Plan.

 

(38)                          “Ironwood ESPP” means the Amended and Restated Ironwood 2010 Employee Stock Purchase Plan.

 

(39)                          “Ironwood FSAs” has the meaning set forth in Section 4.3.

 

(40)                          “Ironwood Group” means (a) prior to the Distribution Effective Time, Ironwood and each entity that will be a Subsidiary of Ironwood immediately following the Distribution Effective Time and (b) from and after the Distribution Effective Time, Ironwood and each entity that is a Subsidiary of Ironwood.

 

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(41)                          “Ironwood Health and Welfare Plans” means the health and welfare plans sponsored and maintained by Ironwood or any Ironwood Group member immediately prior to the Distribution Effective Time which provide group health, life, dental, accidental death and dismemberment, health care reimbursements, dependent care assistance and disability benefits.

 

(42)                          “Ironwood Participant” means any individual who is an Ironwood Employee or a Former Ironwood Employee, and any beneficiary, dependent, or alternate payee of such individual, as the context requires.

 

(43)                          “Ironwood Post-Distribution Stock Price” means a number equal to (a) the aggregate value of all shares of Ironwood Common Stock outstanding immediately following the Distribution Effective Time minus the aggregate value of all shares of Cyclerion Common Stock outstanding immediately following the Distribution Effective Time, each as determined on a fully-diluted basis pursuant to the treasury stock method, divided by (b) the number of shares of Ironwood Common Stock outstanding immediately following the Distribution Effective Time, as determined on a fully-diluted treasury stock method basis.

 

(44)                          “Ironwood Restricted Stock” means Ironwood Common Stock subject to restrictions requiring that it be delivered or offered for sale to Ironwood if specified service or performance-based conditions are not satisfied granted by Ironwood prior to the Distribution Date pursuant to the Ironwood Equity-Based Plans.

 

(45)                          “Ironwood RSU” means a restricted stock unit that represents a general unsecured promise by Ironwood to deliver a share of Ironwood Common Stock (or an amount in cash determined by reference to the value of a share of Ironwood Common Stock).

 

(46)                          “Liabilities” means any and all indebtedness, liabilities, costs, expenses, interest and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured, known or unknown, reserved or unreserved, or determined or determinable, including those arising under any Law, Action, or in connection with any dispute, whether asserted or unasserted, or order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Entity and those arising under any Contract or any fines, damages or equitable relief which may be imposed and including all costs and expenses related thereto.  Except as otherwise specifically set forth herein, in the Separation Agreement or in the Tax Matters Agreement, the rights and obligations of the Parties with respect to Taxes shall be governed by the Tax Matters Agreement and, therefore, Taxes shall not be treated as Liabilities governed by this Agreement.

 

(47)                          “Option” when immediately preceded by “Ironwood” means an option (either nonqualified or an Incentive Stock Option) to purchase Ironwood Common Stock granted by Ironwood prior to the Distribution Date pursuant to the Ironwood Equity-Based Plans and when immediately preceded by “Cyclerion” means an option (either nonqualified or an Incentive Stock Option) to purchase Cyclerion Common Stock, which option is granted pursuant to the Cyclerion Omnibus Equity Plan as part of the adjustment to Ironwood Options as set forth in Section 5.2(a).

 

(48)                          “Plan” when immediately preceded by “Ironwood” means any plan, policy, program, payroll practice, on-going arrangement, contract, trust, insurance policy or other

 

5

 

agreement or funding vehicle (including an Ironwood Health and Welfare Plan) for which the eligible classes of participants include employees or former employees of Ironwood or an Ironwood Group member (which may include employees of Cyclerion Group members prior to the Distribution Effective Time), and when immediately preceded by “Cyclerion,” means any plan, policy, program, payroll practice, on-going arrangement, contract, trust, insurance policy or other agreement or funding vehicle (including a Cyclerion Health and Welfare Plan) for which the eligible classes of participants are limited to employees or former employees (and their eligible dependents) of Cyclerion or a Cyclerion Group member, but no other Ironwood Group member.

 

(49)                          “Stock Purchase Agreement” means the Common Stock Purchase Agreement by and between Cyclerion Therapeutics, Inc. and the Investors named therein, dated as of       , 2019.

 

ARTICLE II

 

TRANSFER OF CYCLERION EMPLOYEES; GENERAL PRINCIPLES

 

Section 2.1.                                 Transfer of Employment to Cyclerion of Additional Employees; Post-Effective Time Transfers; Independent Contractors.

 

(a)                                 Following the date hereof and prior to the Distribution Effective Time, Ironwood and Cyclerion may cause the employment of individuals designated by Ironwood who are not employed by a Cyclerion Group member as of the date hereof to be transferred to a Cyclerion Group member.

 

(b)                                 In the event that Ironwood determines following the Distribution Effective Time that any individual employed outside the United States (other than an individual who the Parties intend to be a Cyclerion Employee) has inadvertently become employed by a member of the Cyclerion Group (due to the operation of transfer of undertakings or similar law or regulation), the Parties shall cooperate and take such actions as may be reasonably necessary in order to cause the employment of such individuals to be promptly transferred to a member of the Ironwood Group.

 

(c)                                  The Parties shall cooperate and take such actions as may be reasonably necessary in order to minimize potential statutory, contractual, plan-based or other severance or similar obligations to the Parties or their Affiliates in connection with any transfers of employment described in this Section 2.1.

 

(d)                                 Cyclerion will determine which, if any, temporary workers, individual consultants or independent contractors who are performing service primarily related to the Cyclerion Pharmaceutical Business, it wishes to transfer to Cyclerion and, the Parties shall use reasonable efforts to transfer the individual or to assign the applicable Contract to a member of the Cyclerion Group and Cyclerion shall, or shall cause a member of the Cyclerion Group to, assume and perform such Contract.

 

Section 2.2.                                 Assumption and Retention of Liabilities.  Ironwood and Cyclerion intend that employment-related Liabilities associated with Ironwood Participants are to be retained or assumed by Ironwood or an Ironwood Group member (other than, for the avoidance of doubt, a

 

6

 

Cyclerion Group member), and employment-related Liabilities associated with Cyclerion Participants are to be assumed by Cyclerion or a Cyclerion Group member, in each case, except as specifically set forth herein.  Accordingly, as of the Distribution Effective Time:

 

(a)                                 Ironwood or the applicable member of the Ironwood Group hereby retains or assumes and agrees to pay, perform, fulfill, and discharge, except as expressly provided in this Agreement, (i) all Liabilities arising under or related to Ironwood Plans, (ii) all employment or service-related Liabilities with respect to (A) all Ironwood Participants and (B) any individual who is, or was, an independent contractor, temporary employee, temporary service worker, consultant, freelancer, agency employee, leased employee, on-call worker, incidental worker, or non-payroll worker or in any other employment or similar relationship primarily connected to Ironwood or an Ironwood Group member and (iii) any Liabilities expressly transferred or allocated to Ironwood or an Ironwood Group member under this Agreement (it being understood and agreed that the provisions of this Agreement do not create or constitute a source of any such Liability); and

 

(b)                                 Cyclerion hereby retains or assumes and agrees to pay, perform, fulfill, and discharge, except as expressly provided in this Agreement, (i) all Liabilities arising under or related to Cyclerion Plans, (ii) all employment or service-related Liabilities with respect to (A) all Cyclerion Participants and (B) any individual who is, or was, an independent contractor, temporary employee, temporary service worker, consultant, freelancer, agency employee, leased employee, on-call worker, incidental worker, or non-payroll worker or in any other employment or similar relationship primarily connected to Cyclerion or a Cyclerion Group member, including, without limitation, for both (A) and (B) hereof, any such Liabilities that may have arisen or that may be based upon events that occurred while such Cyclerion Participant or other individual was employed by or otherwise provided services to Ironwood or an Ironwood Group member, and (iii) any Liabilities expressly transferred or allocated to Cyclerion or a Cyclerion Group member under this Agreement.

 

Section 2.3.                                 Cyclerion Participation in the Ironwood Plans.  Except as expressly provided in Article V of this Agreement, effective not later than the Distribution Effective Time, Cyclerion and each Cyclerion Group member shall cease to be a participating company in each Ironwood Plan, and Ironwood and Cyclerion shall take all necessary action before the Distribution Effective Time to effectuate such cessation as a participating company.

 

Section 2.4.                                 Sponsorship of the Cyclerion Plans.  Effective no later than immediately prior to the Distribution Effective Time, Ironwood and Cyclerion shall take such actions (if any) as are required to cause Cyclerion or a Cyclerion Group member to assume, sole sponsorship of, and all Liabilities with respect to, each Cyclerion Plan.

 

Section 2.5.                                 No Duplication of Benefits; Service and Other Credit.  Ironwood and Cyclerion shall adopt, or cause to be adopted, all reasonable and necessary amendments and procedures to prevent Cyclerion Participants from receiving duplicative benefits from the Ironwood Plans and the Cyclerion Plans. With respect to Cyclerion Employees, each Cyclerion Plan shall provide that for purposes of determining eligibility to participate, vesting, and entitlement to benefits, service prior to the Distribution Effective Time with Ironwood or an Ironwood Group member shall be treated as service with Cyclerion or the applicable Cyclerion

 

7

 

Group member.  Such service also shall apply for purposes of satisfying any waiting periods, evidence of insurability requirements, or the application of any preexisting condition limitations under any Cyclerion Plan.  Each Cyclerion Plan shall, to the extent practicable, waive pre-existing condition limitations with respect to Cyclerion Employees.  Cyclerion shall honor any deductibles incurred by Cyclerion Employees and their eligible dependents under any Ironwood medical plan (but not, for the avoidance of doubt, under any Ironwood dental plan) in which they participated immediately prior to the Distribution Effective Time during the then-elapsed portion of the calendar year prior to the Distribution Effective Time for purposes of satisfying any deductibles or out-of-pocket maximums under the Cyclerion Plans in which they are eligible to participate after the Distribution Effective Time in the same plan year in which such deductibles were incurred.  For the avoidance of doubt, Cyclerion shall not be required to honor any co-payments incurred by Cyclerion Employees or their eligible dependents under any Ironwood Health and Welfare Plan for purposes of satisfying any out-of-pocket maximums under the Cyclerion Plans in which they are eligible to participate after the Distribution Effective Time.

 

Section 2.6.                                 Reimbursements.  From time to time after the Distribution Effective Time, the Parties shall reimburse one another, within sixty (60) days following reasonable request of the Party requesting reimbursement and the presentation by such Party of such substantiating documentation as the other Party shall reasonably request, for the cost of any Liabilities satisfied or assumed by the Party requesting reimbursement or its Affiliates that are made, pursuant to this Agreement, the responsibility of the other Party or any of its Affiliates.

 

Section 2.7.                                 Approval of Plans.  Prior to the Distribution Effective Time, Ironwood shall have caused Cyclerion to adopt the Cyclerion Omnibus Equity Plan and an employee stock purchase plan intended to meet the requirements of Section 423 of the Code and the regulations promulgated thereunder (the “Cyclerion ESPP”) and have taken all actions as may be necessary to approve the Cyclerion Omnibus Equity Plan and the Cyclerion ESPP in order to satisfy the applicable requirements of the Code and the applicable rules and regulations of the NASDAQ.

 

Section 2.8.                                 Delivery of Shares; Registration Statement.  From and after the Distribution Effective Time, Ironwood shall have sole responsibility for delivery of shares of Ironwood Common Stock pursuant to awards issued under an Ironwood Plan in satisfaction of any obligations to deliver such shares under such Ironwood Plan (including delivery to Cyclerion Employees and Former Cyclerion Employees) and shall do so without compensation from any Cyclerion Group member.  From and after the Distribution Effective Time, Cyclerion shall have sole responsibility for delivery of shares of Cyclerion Common Stock pursuant to awards issued under a Cyclerion Plan in satisfaction of any obligations to deliver such shares under the Cyclerion Plans (including delivery to Ironwood Employees and Former Ironwood Employees) and shall do so without compensation from any Ironwood Group member.  Cyclerion shall cause a registration statement on Form S-8 (or other appropriate form) to be filed with respect to such issued or issuable shares prior to the Distribution Effective Time and shall cause such registration to remain in effect for so long as there may be an obligation to deliver Cyclerion shares under such Cyclerion and/or Ironwood Plans.  Ironwood shall use commercially reasonable efforts to assist Cyclerion in completing such registration.

 

Section 2.9.                                 Labor Relations.  To the extent required by applicable Law or any agreement with a labor union, works council or similar employee organization, the Parties shall

 

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cooperate to provide notice, engage in consultation and take any similar action which may be required on its part in connection with the Separation.

 

ARTICLE III

 

DEFINED CONTRIBUTION AND NON-QUALIFIED DEFERRED COMPENSATION PLANS

 

Section 3.1.                                 401(k) Plan.

 

(a)                                 Establishment of Plan and Trust.  Prior to the Distribution Effective Time, Ironwood shall cause Cyclerion or a Cyclerion Group member to adopt the Cyclerion 401(k) Plan, which shall be substantially similar in all material respects to the Ironwood 401(k) Plan, and any trust agreements, other plan documents, summary plan descriptions, notices and enrollment materials reasonably necessary to implement the Cyclerion 401(k) Plan, and shall cause trustees to be appointed for such plan.  Each Cyclerion Employee who was eligible to participate in the Ironwood 401(k) Plan immediately prior to the effective date of the Cyclerion 401(k) Plan (or prior to the Distribution Effective Time, if later) shall be eligible to participate in the Cyclerion 401(k) Plan as of its effective date, and the participation of each Cyclerion Employee in the Ironwood 401(k) Plan shall cease as of such date.  All other Cyclerion Employees shall become eligible to participate in the Cyclerion 401(k) Plan as provided under the terms of such plan.

 

(b)                                 Assumption of Liabilities and Transfer of Assets.  In accordance with applicable Law, Ironwood and Cyclerion shall cause, in the manner described herein, the accounts under the Ironwood 401(k) Plan of each Cyclerion Employee to be transferred to the Cyclerion 401(k) Plan on, or as soon as practicable after, the effective date of the Cyclerion 401(k) Plan and prior to the Distribution Date.  On, or as soon as practicable after, the effective date of the Cyclerion 401(k) Plan, and prior to the Distribution Date: (i) Ironwood shall cause the accounts (including any outstanding loan balances) of each Cyclerion Employee in the Ironwood 401(k) Plan to be transferred from the trust established under the Ironwood 401(k) Plan to the trust established under the Cyclerion 401(k) Plan ; (ii) the Cyclerion 401(k) Plan shall assume and be solely responsible for all Liabilities under the Cyclerion 401(k) Plan relating to the accounts that are so transferred as of the time of such transfer; and (iii) Cyclerion shall cause such transferred accounts to be accepted by the Cyclerion 401(k) Plan and its related trust and shall cause the Cyclerion 401(k) Plan to satisfy all protected benefit requirements under Section 411(d)(6) of Code and applicable Law with respect to the transferred accounts.

 

(c)                                  Severance from Employment.  Participants in the Ironwood 401(k) Plan will not be treated as having experienced a severance from employment, within the meaning of Section 401(k)(2)(B)(i) of the Code, for purposes of such plans as a result of the Separation or the occurrence of the Distribution Effective Time.

 

(d)                                 Post-Distribution Effective Time Contributions.  If any Cyclerion Employees are entitled to employer matching contributions under Section 1.11(a)(2) of the Ironwood 401(k) Plan (or any other employer contributions under such plan) with respect to contributions made by Cyclerion Employees into the Ironwood 401(k) Plan in the 2019 plan year

 

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prior to the Distribution Effective Time, and such employer matching contributions have not yet been deposited into the Cyclerion Employees’ accounts under the Ironwood 401(k) Plan as of the date such accounts are transferred from the trust established under the Ironwood 401(k) Plan to the trust established under the Cyclerion 401(k) Plan as set forth in Section 3.1(b), then Ironwood shall contribute the amount of such employer matching contributions (and other employer contributions, if any) into the applicable Cyclerion Employees’ accounts under the Ironwood 401(k) Plan as soon as practicable following the determination of such employer matching contribution (and other employer contribution, if any) amounts.  Ironwood shall then cause the amount of such employer matching contributions (and other employer contributions, if any) to be transferred to the Cyclerion 401(k) Plan in the manner set forth in Section 3.1(b) as soon as practicable following their deposit into the Ironwood 401(k) Plan, and Cyclerion shall cause such transferred amounts to be accepted by the Cyclerion 401(k) Plan.

 

ARTICLE IV

 

HEALTH AND WELFARE PLANS; PAYROLL; COBRA AND VACATION

 

Section 4.1.                                 Cessation of Participation in Ironwood Health and Welfare Plans.  Prior to the Distribution Effective Time, Cyclerion shall establish health and welfare plans (the “Cyclerion Health and Welfare Plans”) which generally correspond to the Ironwood Health and Welfare Plans in which Cyclerion Employees participate immediately prior to the Distribution Effective Time.  As of the Distribution Effective Time, Cyclerion Employees shall cease to participate in the Ironwood Health and Welfare Plans and shall, as applicable, commence participation in the corresponding Cyclerion Health and Welfare Plan in which they have enrolled.  Cyclerion shall cause Cyclerion Employees and their covered dependents who participate in Ironwood Health and Welfare Plans immediately before the Distribution Effective Time to be automatically enrolled as of the Distribution Effective Time in such Cyclerion Health and Welfare Plans as are made available to the Cyclerion Employee.  The transfer of employment from Ironwood or an Ironwood Group member to Cyclerion or a Cyclerion Group member prior to or as of the Distribution Effective Time shall not be treated as a “qualifying event” with respect to any Cyclerion Employee under the Ironwood Health and Welfare Plans or the Cyclerion Health and Welfare Plans.

 

Section 4.2.                                 Allocation of Health and Welfare Plan Liabilities.  All outstanding Liabilities relating to, arising out of, or resulting from health and welfare coverage or claims incurred by or on behalf of Cyclerion Employees or their covered dependents under the Ironwood Health and Welfare Plans on or before the Distribution Effective Time shall be retained by Ironwood.  Any Liabilities relating to, arising out of, or resulting from health and welfare coverage or claims incurred by or on behalf of Cyclerion Employees or their covered dependents under the Ironwood Health and Welfare Plans following the Distribution Effective Time shall be assumed by Cyclerion; provided, however, that to the extent such a Liability is covered under an insurance policy maintained with respect to an Ironwood Health and Welfare Plan regardless of when the Liability arises, and such Liability is not covered under an insurance policy maintained with respect to a Cyclerion Health and Welfare Plan, such Liability shall be retained by Ironwood to the extent of such coverage; and provided further, however, that to the extent that Ironwood receives prior to the Distribution Effective Time an invoice from a service provider billing Ironwood for a service or product relating to health or welfare coverage for

 

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Cyclerion Employees or their covered dependents following the Distribution Effective Time, Ironwood shall be responsible for paying such invoice and Cyclerion shall reimburse Ironwood for any amount paid by Ironwood.  For purposes of this Agreement, a claim shall be incurred upon the date upon which service or product giving rise to the Liability was provided. Any payments, repayments, reimbursements or credits consisting of, or representing, dividends, demutualizations, premium refunds, rebates, subrogation or similar reimbursements, overpayments, class action recoveries, or like payments under, or relating to, any Ironwood Health or Welfare Plan whenever occurring shall remain the property solely of Ironwood and neither Cyclerion, any Cyclerion Group member nor any Cyclerion Participant shall have any interest in or right to such Ironwood property.

 

Section 4.3.                                 Flexible Spending Plan Treatment.  Prior to the Distribution Effective Time, Cyclerion shall establish a dependent care spending account and a medical care spending account (the “Cyclerion FSAs”) effective as of the Distribution Effective Time, which Cyclerion FSAs shall have terms that are substantially identical to the analogous Ironwood dependent care and medical care flexible spending accounts (the “Ironwood FSAs”) as in effect immediately prior to the Distribution Effective Time.  Cyclerion and Ironwood shall take all steps necessary or appropriate so that the account balances (positive or negative) under the Ironwood FSAs of each Cyclerion Employee who has elected to participate therein in the year in which the Distribution Effective Time occurs shall be transferred on, or as soon as practicable after, the Distribution Effective Time from the Ironwood FSAs to the corresponding Cyclerion FSAs.  The Cyclerion FSAs shall assume responsibility as of the Distribution Effective Time for all outstanding dependent care and medical care claims under the Ironwood FSAs of each Cyclerion Employee for the year in which the Distribution Effective Time occurs and shall assume the rights of and agree to perform the obligations of the analogous Ironwood FSA from and after the Distribution Effective Time.  Cyclerion shall take all steps necessary or appropriate so that the contribution elections of each such Cyclerion Employee as in effect immediately before the Distribution Effective Time remain in effect under the Cyclerion FSAs following the Distribution Effective Time. As soon as practicable, after the Distribution Effective Time, Ironwood shall transfer to Cyclerion an amount equal to the total contributions made to the Ironwood FSAs by Cyclerion Employees in respect of the plan year in which the Distribution Effective Time occurs, reduced by an amount equal to the total claims already paid to Cyclerion Employees in respect of such plan year. From and after the Distribution Effective Time, Ironwood shall provide Cyclerion with such information such entity may reasonably request to enable it to verify any claims information pertaining to an Ironwood FSA.

 

Section 4.4.                                 Workers’ Compensation Liabilities.  All workers’ compensation Liabilities relating to, arising out of, or resulting from any claim by Cyclerion Employees or Former Cyclerion Employees that result from an accident or from an occupational disease which is incurred or becomes manifest, as the case may be, on or before the Distribution Effective Time and while such individual was employed by Ironwood or an Ironwood Group member shall be retained by Ironwood.  Any workers’ compensation Liabilities relating to, arising out of, or resulting from any claim by Cyclerion Employees or Former Cyclerion Employees that result from an accident or from an occupational disease which is incurred or becomes manifest, as the case may be, following the Distribution Effective Time shall be assumed by Cyclerion; provided, however, that to the extent such a Liability is covered under a workers compensation insurance policy of Ironwood or an Ironwood Group member regardless of when the Liability arises, and

 

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such Liability is not covered under a workers compensation insurance policy of Cyclerion or a Cyclerion Group member, such Liability shall be retained by Ironwood or an Ironwood Group member to the extent of such coverage; and provided further, however, that to the extent that Ironwood or an Ironwood Group member, as applicable,  receives prior to the Distribution Effective Time an invoice for a covered expense with respect to such Liability, Ironwood shall be responsible for paying such invoice and Cyclerion shall reimburse Ironwood for any amount paid by Ironwood.  Notwithstanding the foregoing, Cyclerion shall assume worker’s compensation Liabilities to the extent they are imposed on Cyclerion under applicable Law or where the injury or illness related to the Liability is aggravated or subject to further injury after the Distribution Effective Time.  A Liability which must be paid due to the existence of a deductible shall not be deemed to be covered by a workers compensation insurance policy for purposes of this Section 4.4.  Subject to the foregoing, Cyclerion and each Cyclerion Group member shall also be solely responsible for all workers’ compensation Liabilities relating to, arising out of, or resulting from any claim incurred for a compensable injury sustained by a Cyclerion Employee that results from an accident or from an occupational disease which is incurred or becomes manifest, as the case may be, after the Distribution Effective Time.  Ironwood, each Ironwood Group member, Cyclerion and each Cyclerion Group member shall cooperate with respect to processing of claims, any notification to appropriate governmental agencies of the disposition and the issuance of new, or the transfer of existing, workers’ compensation insurance policies and claims handling contracts.

 

Section 4.5.                                 Payroll Taxes and Reporting.  Ironwood and Cyclerion (i) shall, to the extent practicable, treat Cyclerion (or a Cyclerion Group member designated by Cyclerion) as a “successor employer” and Ironwood (or the appropriate Ironwood Group member) as a “predecessor,” within the meaning of Sections 3121(a)(1) and 3306(b)(1) of the Code, with respect to Cyclerion Employees for purposes of taxes imposed under the United States Federal Unemployment Tax Act or the United States Federal Insurance Contributions Act, and (ii) hereby agree to use commercially reasonable efforts to implement the standard procedure described in Section 4 of Revenue Procedure 2004-53.  Without limiting in any manner the obligations and Liabilities of the Parties under the Tax Matters Agreement, including all withholding obligations otherwise set forth therein, Ironwood, each Ironwood Group member, Cyclerion and each Cyclerion Group member shall each bear its responsibility for payroll tax obligations and for the proper reporting to the appropriate governmental authorities of compensation earned by their respective employees after the Distribution Effective Time, including compensation related to the exercise of stock options or the vesting or exercise of other equity awards, including in instances where such equity awards are with respect to the equity of the other Party.

 

Section 4.6.                                 COBRA and HIPAA Compliance.  Ironwood or an Ironwood Group member shall retain the responsibility for administering compliance with the health care continuation requirements of COBRA for any COBRA qualified beneficiaries who incur a COBRA qualifying event or loss of coverage under the Ironwood Health and Welfare Plans at any time before the Distribution Effective Time.  Cyclerion shall be responsible for administering compliance with the health care continuation requirements of COBRA, and the corresponding provisions of the Cyclerion Health and Welfare Plans with respect to Cyclerion Participants who incur a COBRA qualifying event or loss of coverage under the Cyclerion Health and Welfare Plans at any time upon or after the Distribution Effective Time.

 

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Section 4.7.                                 Vacation and Paid Time Off.  As of the Distribution Effective Time, the applicable Cyclerion Group member shall credit each Cyclerion Employee with the vacation that such individual has accrued immediately prior to the Distribution Effective Time in accordance with the vacation and personnel policies applicable to such employee immediately prior to the Distribution Effective Time.

 

ARTICLE V

 

INCENTIVE COMPENSATION, EQUITY COMPENSATION AND OTHER BENEFITS

 

Section 5.1.                                 Annual Cash-Based Incentive Plans.  As of the Distribution Effective Time, Cyclerion shall assume the obligation, if any, to pay each Cyclerion Employee who is participating in an annual cash incentive bonus program in respect of 2019 performance (whether payable in fiscal year 2019 or fiscal year 2020) of Ironwood or an Ironwood Group member such Cyclerion Employee’s incentive bonus under such plan, based upon the amount accrued by Ironwood in respect of such obligations.  Cyclerion shall cause such payments to be made to the applicable Cyclerion Employees at the time such payments are made under the corresponding Ironwood incentive bonus program.

 

Section 5.2.                                 Awards under the Ironwood Equity-Based Plans.  Ironwood and, where applicable, Cyclerion shall take all actions necessary or appropriate so that each outstanding Ironwood Option, share of Ironwood Restricted Stock and Ironwood RSU outstanding immediately prior to the Distribution Effective Time shall be adjusted as set forth in this Section 5.2.

 

(a)                                 Options.

 

(i)                                     Vested Ironwood Options.  Subject to Section 5.2(a)(ii), upon the Distribution Effective Time, each vested Ironwood Option, whether held by an Ironwood Participant or a Cyclerion Participant, will be equitably adjusted in accordance with the Distribution, such that each Ironwood Participant or Cyclerion Participant who holds vested Ironwood Options shall, upon the Distribution Effective Time, hold vested Ironwood Options and vested Cyclerion Options.

 

(1)                                 The number of shares of Ironwood Common Stock subject to the vested adjusted Ironwood Option will be equal to the number of shares of Ironwood Common Stock subject to the option immediately prior to the Distribution Effective Time.  The per share exercise price of the vested adjusted Ironwood Option will be equal to the per share exercise price of the original Ironwood Option divided by the Adjustment Fraction, with the result being rounded up to the nearest whole cent.  Each vested adjusted Ironwood Option shall be subject to the same terms and conditions regarding type (whether an Incentive Stock Option or a nonqualified Option), term, and other provisions regarding exercise as set forth in the original Ironwood Option

 

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(including, for the avoidance of doubt, that a Cyclerion Participant will not be deemed to have experienced a termination of employment for purposes of any post-termination exercise provisions applicable to such vested adjusted Ironwood Option so long as he or she remains in continued employment with Cyclerion).

 

(2)                                 The number of shares of Cyclerion Common Stock subject to the vested Cyclerion Option will be equal to the number of shares of Ironwood Common Stock subject to the option immediately prior to the Distribution Effective Time divided by      , with the result being rounded down to the nearest whole share.  The per share exercise price of the vested Cyclerion Option will be equal to the per share exercise price of the original Ironwood Option divided by the Conversion Fraction, with the result being rounded up to the nearest whole cent.  Each vested Cyclerion Option shall be subject to the same terms and conditions regarding type (whether an Incentive Stock Option or a nonqualified Option), term, and other provisions regarding exercise as set forth in the original Ironwood Option (including, for the avoidance of doubt, that an Ironwood Participant will not be deemed to have experienced a termination of employment for purposes of any post-termination exercise provisions applicable to such vested Cyclerion Option so long as he or she remains in continued employment with Ironwood).

 

(ii)                                  Vested Ironwood Incentive Stock Options under the 2010 Plan.

 

(1)                                 Incentive Stock Options held by Ironwood Participants.  Notwithstanding anything to the contrary herein, unless an Ironwood Participant has, pursuant to Section 23 of the 2010 Plan, submitted a written request to the Administrator of the 2010 Plan to convert his or her vested Ironwood Incentive Stock Options into vested non-statutory Options to purchase Ironwood Common Stock (in which case, Section 5.2(a)(i) shall apply to such awards), upon the Distribution Effective Time, each vested Ironwood Incentive Stock Option granted pursuant to the 2010 Plan held by an Ironwood Participant will be equitably adjusted solely into a vested adjusted Ironwood Incentive Stock Option.  The number of shares of Ironwood Common Stock subject to the vested adjusted Ironwood Incentive Stock Option will be equal to the number of shares of Ironwood Common Stock subject to the option immediately prior to the Distribution Effective Time multiplied by the

 

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Adjustment Fraction, with the result being rounded down to the nearest whole share.  The per share exercise price of the adjusted Ironwood Incentive Stock Option will be equal to the per share exercise price of the original Ironwood Incentive Stock Option divided by the Adjustment Fraction, with the result being rounded up to the nearest whole cent.  Each vested adjusted Ironwood Incentive Stock Option shall be subject to the same terms and conditions regarding type (whether an Incentive Stock Option or a nonqualified Option), term, and other provisions regarding exercise as set forth in the original Ironwood Incentive Stock Option.

 

(2)                                 Incentive Stock Options held by Cyclerion Participants. Notwithstanding anything to the contrary herein, unless a Cyclerion Participant has, pursuant to Section 23 of the 2010 Plan, submitted a written request to the Administrator of the 2010 Plan to convert his or her vested Ironwood Incentive Stock Options into vested non-statutory Options to purchase Ironwood Common Stock (in which case, Section 5.2(a)(i) shall apply to such awards), upon the Distribution Effective Time, each vested Ironwood Incentive Stock Option granted under the 2010 Plan held by a Cyclerion Participant will be converted into a vested Cyclerion Incentive Stock Option.  The number of shares of Cyclerion Common Stock subject to the vested Cyclerion Incentive Stock Option will be equal to the number of shares of Ironwood Common Stock subject to the option immediately prior to the Distribution Effective Time multiplied by the Conversion Fraction, with the result being rounded down to the nearest whole share.  The per share exercise price of the Cyclerion Incentive Stock Option will be equal to the per share exercise price of the original Ironwood Incentive Stock Option divided by the Conversion Fraction, with the result being rounded up to the nearest whole cent.  Each vested Cyclerion Incentive Stock Option shall be subject to the same terms and conditions regarding type (whether an Incentive Stock Option or a nonqualified Option), term, and other provisions regarding exercise as set forth in the original Ironwood Incentive Stock Option.

 

(iii)                               Unvested Ironwood Options held by Ironwood Participants. Upon the Distribution Effective Time, each unvested Ironwood Option held by an Ironwood Participant will be equitably adjusted solely into an unvested adjusted Ironwood Option.  The number of shares of Ironwood Common Stock subject to the unvested adjusted Ironwood Option will be equal to the number of shares of Ironwood Common

 

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Stock subject to the option immediately prior to the Distribution Effective Time multiplied by the Adjustment Fraction, with the result being rounded down to the nearest whole share.  The per share exercise price of the unvested adjusted Ironwood Option will be equal to the per share exercise price of the original Ironwood Option divided by the Adjustment Fraction, with the result being rounded up to the nearest whole cent.  Each unvested adjusted Ironwood Option shall be subject to the same terms and conditions regarding type (whether an Incentive Stock Option or a nonqualified Option), term, vesting, and other provisions regarding exercise as set forth in the original Ironwood Option.

 

(iv)                              Unvested Ironwood Options held by Cyclerion Participants.  Upon the Distribution Effective Time, each unvested Ironwood Option held by a Cyclerion Participant will be converted into an unvested Cyclerion Option.  The number of shares of Cyclerion Common Stock subject to the unvested Cyclerion Option will be equal to the number of shares of Ironwood Common Stock subject to the option immediately prior to the Distribution Effective Time multiplied by the Conversion Fraction, with the result being rounded down to the nearest whole share.  The per share exercise price of the unvested Cyclerion Option will be equal to the per share exercise price of the original Ironwood Option divided by the Conversion Fraction, with the result being rounded up to the nearest whole cent.  Each unvested Cyclerion Option shall be subject to the same terms and conditions regarding type (whether an Incentive Stock Option or a nonqualified Option), term, vesting (including, for the avoidance of doubt, that each Cyclerion Participant will receive service credit for purposes of vesting for periods of employment with Ironwood prior to the Distribution Effective Time), and other provisions regarding exercise as set forth in the original Ironwood Option; provided, however, that each Cyclerion Option held by Mark Currie that vests upon the attainment of specified performance criteria shall be adjusted to provide that the relevant performance criteria applies to performance of Cyclerion following the Distribution Effective Time.

 

(v)                                 Extended Exercisability of Options.  Any extended period of exercisability applicable to stock options held by an individual listed on Schedule 5.2(a)(v) to which such individual becomes entitled pursuant to an Executive Severance Agreement entered into prior to the Distribution Effective Time between such individual and Ironwood or Cyclerion, as applicable (or if such individual has not yet entered into an Executive Severance Agreement with Ironwood or Cyclerion, as applicable, the extended period of exercisability set forth opposite such individuals name on Schedule 5.2(a)(v)) shall apply to any adjusted Ironwood Options and any Cyclerion Options issued in accordance with this Section 5.2.

 

(b)                                 Ironwood Restricted Stock.

 

(i)                                     Ironwood Restricted Stock held by Ironwood Participants.  Upon the Distribution Effective Time, each share of Ironwood Restricted Stock held by an Ironwood Participant will be equitably adjusted solely into shares of adjusted Ironwood Restricted Stock.  The number of shares of adjusted Ironwood Restricted Stock will be equal to the number of shares of Ironwood Restricted Stock immediately prior to the Distribution Effective Time multiplied by the Adjustment Fraction, with the result being

 

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rounded down to the nearest whole share.  Each adjusted Ironwood Restricted Stock award shall be subject to the same terms and conditions regarding term, vesting, and other provisions as set forth in the original Ironwood Restricted Stock award.  For the avoidance of doubt, the adjusted Ironwood Restricted Stock shall continue to vest only for so long as the applicable Ironwood Participant continues to serve on the Board of Directors of Ironwood.

 

(ii)                                  Ironwood Restricted Stock held by Cyclerion Participants.  Upon the Distribution Effective Time, each share of Ironwood Restricted Stock held by a Cyclerion Participant will be equitably adjusted solely into shares of adjusted Cyclerion Restricted Stock.  The number of shares of Cyclerion Restricted Stock will be equal to the number of shares of Ironwood Restricted Stock immediately prior to the Distribution Effective Time multiplied by the Conversion Fraction, with the result being rounded down to the nearest whole share.  Each Cyclerion Restricted Stock award shall be subject to the same terms and conditions regarding term, vesting, and other provisions as set forth in the original Ironwood Restricted Stock award.  For the avoidance of doubt, the Cyclerion Restricted Stock shall continue to vest only for so long as the applicable Cyclerion Participant continues to serve on the Board of Directors of Cyclerion.

 

(c)                                  Ironwood RSUs.

 

(i)                                     Ironwood RSUs held by Ironwood Participants.  Upon the Distribution Effective Time, each Ironwood RSU held by an Ironwood Participant will be equitably adjusted solely into an adjusted Ironwood RSU.  The number of shares of Ironwood Common Stock subject to the adjusted Ironwood RSU will be equal to the number of shares of Ironwood Common Stock subject to the Ironwood RSU immediately prior to the Distribution Effective Time multiplied by the Adjustment Fraction, with the result being rounded down to the nearest whole share.  Each adjusted Ironwood RSU shall be subject to the same terms and conditions regarding term, vesting, and other provisions as set forth in the original Ironwood RSU award.

 

(ii)                                  Ironwood RSUs held by Cyclerion Participants.  Except as otherwise provided in this Section 5.2(c)(ii), upon the Distribution Effective Time, each Ironwood RSU held by a Cyclerion Participant will be equitably adjusted solely into an Cyclerion RSU.  The number of shares of Cyclerion Common Stock subject to the Cyclerion RSU will be equal to the number of shares of Ironwood Common Stock subject to the Ironwood RSU immediately prior to the Distribution Effective Time multiplied by the Conversion Fraction, with the result being rounded down to the nearest whole share.  Each Cyclerion RSU shall be subject to the same terms and conditions regarding term, vesting (including, for the avoidance of doubt, that each Cyclerion Participant will receive service credit for purposes of vesting for periods of employment with Ironwood prior to the Distribution Effective Time), and other provisions as set forth in the original Ironwood RSU award.  Notwithstanding anything to the contrary in this Section 5.2(c)(ii), each Ironwood RSU granted on July 31, 2018 and designated as a “recognition award” will be adjusted as provided in Section 5.2(c)(i).

 

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(d)                                 Delivery; Withholding.

 

(i)                                     Delivery.  Cyclerion shall be solely responsible for the issuance of Cyclerion Common Stock in respect of the grant, exercise and/or vesting of Cyclerion Options and Cyclerion RSUs (regardless of the holder thereof).  Ironwood shall be solely responsible for the issuance of Ironwood Common Stock in respect of the grant, exercise, and/or vesting of Ironwood Options, Ironwood Restricted Stock and Ironwood RSUs (regardless of the holder thereof).

 

(ii)                                  Withholding and Reporting. Following the Distribution Effective Time, (i) Cyclerion shall be solely responsible for all income, payroll and other tax remittance and reporting related to the compensation of Cyclerion Participants in respect of Cyclerion Options and Cyclerion RSUs and Ironwood Options, Ironwood Restricted Stock and Ironwood RSUs and (ii) Ironwood shall be solely responsible for all income, payroll and other tax remittance and reporting related to the compensation of Ironwood Participants in respect of Cyclerion Options and Cyclerion RSUs and Ironwood Options, Ironwood Restricted Stock and Ironwood RSUs. The Parties will cooperate and communicate with each other and with third-party providers to effectuate the withholding and remittance of any such taxes, as well as any required tax reporting, in a timely, efficient and appropriate manner.  To the maximum extent permitted under applicable Law, Ironwood and Cyclerion shall share, and shall cause each member of its respective Group to share, with each other and their respective agents and vendors all information reasonably necessary for the efficient and accurate administration of each of the Ironwood Equity-Based Plans and the Cyclerion Omnibus Equity Plan, including but not limited to information regarding terminations of employment and the attainment of any specified performance criteria set forth in any awards of Ironwood or Cyclerion Options, Restricted Stock or RSUs.

 

(e)                                  Allocation of Tax Deduction.  The allocation of any deduction in respect of equity based awards held by Ironwood or Cyclerion Participants will be governed by Section 3.09 of the Tax Matters Agreement.

 

(f)                                   Partial Interests in Shares.  To the extent that any adjustment described in this Section 5.2 results in any fractional interest in shares, such fractional interest shall be rounded down to the nearest whole share and Ironwood or Cyclerion, as the case may be, shall pay to their respective employees as soon as practicable following the Separation Date a payment in cash equal to such fractional share interest multiplied by the volume-weighted average trading price of the Ironwood Common Stock or Cyclerion Common Stock, as the case may be, on the ten (10) trading days immediately following the date upon which the Separation Effective Time occurs.

 

(g)                                  Administration.  Each of Ironwood and Cyclerion shall establish an appropriate administration system (through E*TRADE Securities LLC and Computershare Limited) in order to handle exercises and delivery of shares in an orderly manner and provide reasonable levels of service for equity award holders.  Upon the Distribution Effective Time, Cyclerion shall succeed to all administrative and interpretive and other rights of Ironwood with respect to awards converted into awards with respect to Cyclerion Common Stock hereunder.  Each of Ironwood and Cyclerion agree that it shall engage E*TRADE Securities LLC as its stock plan administrator until the date on which all Cyclerion Options and RSUs held by Ironwood

 

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Participants and all Ironwood Options, Restricted Stock and RSUs held by Cyclerion Participants have vested (or, with respect to Options, vested and been exercised), expired, terminated or been forfeited or cancelled.  Notwithstanding the foregoing sentence, Ironwood or Cyclerion may engage a stock plan administrator other than E*TRADE Securities LLC with the written consent of the other party.

 

(h)                                 No Effect on Subsequent Awards.  The provisions of this Section 5.2 shall have no effect on the terms and conditions of equity and equity-based awards granted following the Distribution Date by Ironwood or Cyclerion.

 

(i)                                     No Termination of Employment or Service.  Holders of equity or equity-based awards described in this Section 5.2 will not be treated as having experienced a termination of employment or service for purposes of such awards as a result of the Separation or the occurrence of the Distribution Effective Time.

 

Section 5.3.                                 Ironwood ESPP.  As of the Distribution Effective Time, the participation of Cyclerion Employees in the Ironwood ESPP shall terminate and, as soon as practicable following the Distribution Date, the Cyclerion Employees shall receive a lump sum amount in respect of their payroll deductions not previously used to purchase Ironwood Common Stock in accordance with the terms of the Ironwood ESPP.

 

Section 5.4.                                 Blackout Period.

 

(a)                                 During the period beginning as of the Record Date and ending as of the date that is eight (8) weeks following the Distribution Date (the “Blackout Period”), no Ironwood Participant or Cyclerion Participant who holds vested Ironwood Options may exercise such Ironwood Options.

 

(b)                                 If the employment of an Ironwood Employee or a Cyclerion Employee is terminated during the Blackout Period, and the entity employing such individual (the “Employing Entity”), determines to extend the period of exercisability applicable to stock options held by such Ironwood Employee or Cyclerion Employee, the entity that does not employ such individual (the “Non-Employing Entity”) shall also elect to extend the period of exercisability applicable to any stock options held by such individual in the Non-Employing Entity; provided, however, that the Non-Employing Entity shall not be required to extend the period of exercisability for such stock options for any period longer than is necessary to provide such individual the opportunity to exercise his or her stock options in the Non-Employing Entity for the period of time provided in the applicable award agreement.

 

Section 5.5.                                 Section 409A. The Parties agree that their intent is that all payments and benefits under this Agreement will comply with or be exempt from Section 409A of the Code to the extent applicable.  This Agreement shall be interpreted such that all such payments and benefits either comply with or are exempt from Section 409A of the Code, and all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A of the Code.  Notwithstanding anything in this Agreement to the contrary, Ironwood and Cyclerion agree to negotiate in good faith regarding the need for any treatment of any payments or benefits hereunder different from that otherwise provided

 

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herein to ensure that the treatment of Ironwood or Cyclerion Options, RSUs, Restricted Stock or other compensation hereunder does not cause the imposition of a tax under Section 409A of the Code.

 

ARTICLE VI

 

GENERAL AND ADMINISTRATIVE

 

Section 6.1.                                 Sharing of Participant Information.  To the maximum extent permitted under applicable Law, Ironwood and Cyclerion shall share, and shall cause each member of its respective Group to share, with each other and their respective agents and vendors all participant information reasonably necessary for the efficient and accurate administration of each of the Ironwood Plans and the Cyclerion Plans. Ironwood and Cyclerion and their respective authorized agents shall, subject to applicable Laws on confidentiality, be given reasonable and timely access to, and may make copies of, all information relating to the subjects of this Agreement in the custody of the other Party, to the extent necessary for such administration.

 

Section 6.2.                                 No Third Party Beneficiaries.  No provision of this Agreement or the Separation Agreement shall be construed to create any right, or accelerate entitlement, to any compensation or benefit whatsoever on the part of any future, present, or former employee of Ironwood, an Ironwood Group member, Cyclerion, or a Cyclerion Group member under this Agreement, the Separation Agreement, any Ironwood Plan or Cyclerion Plan or otherwise.  Except as expressly provided in this Agreement, nothing in this Agreement shall preclude Cyclerion or any Cyclerion Group member, at any time after the Distribution Effective Time, from amending, merging, modifying, terminating, eliminating, reducing, or otherwise altering in any respect any Cyclerion Plan, any benefit under any Cyclerion Plan or any trust, insurance policy or funding vehicle related to any Cyclerion Plan; and (iii) except as expressly provided in this Agreement, nothing in this Agreement shall preclude Ironwood or any Ironwood Group member, at any time after the Distribution Effective Time, from amending, merging, modifying, terminating, eliminating, reducing, or otherwise altering in any respect any Ironwood Plan, any benefit under any Ironwood Plan or any trust, insurance policy or funding vehicle related to any Ironwood Plan.

 

Section 6.3.                                 Audit Rights with Respect to Information Provided.  Each of Ironwood and Cyclerion, and their duly authorized representatives, shall have the right to conduct reasonable audits with respect to all information provided to it by the other Party pursuant to this Agreement.  The Parties shall cooperate to determine the procedures and guidelines for conducting audits under this Section 6.3, which shall require reasonable advance notice by the auditing Party.  The auditing Party shall have the right to make copies of any relevant records at its expense, subject to applicable Law.  Failure of a third party service provider to provide information shall not constitute a breach of this Section 6.3; provided, that the applicable Party has timely requested the information from such service provider

 

Section 6.4.                                 Fiduciary Matters.  Ironwood and Cyclerion each acknowledge that actions required to be taken pursuant to this Agreement may be subject to fiduciary duties or standards of conduct under ERISA or other applicable Law, and no Party shall be deemed to be in violation of this Agreement if it fails to comply with any provisions hereof based upon its

 

20

 

good faith determination (as supported by advice from counsel experienced in such matters) that to do so would violate such a fiduciary duty or standard. Each Party shall be responsible for taking such actions as are deemed necessary and appropriate to comply with its own fiduciary responsibilities and shall fully release and indemnify the other Party for any Liabilities caused by the failure to satisfy any such responsibility.

 

Section 6.5.                                 Consent of Third Parties.  If any provision of this Agreement is dependent on the consent of any third party (such as a vendor or Governmental Entity), Ironwood and Cyclerion shall use commercially reasonable efforts to obtain such consent, and if such consent is not obtained, to implement the applicable provisions of this Agreement to the full extent practicable.  If any provision of this Agreement cannot be implemented due to the failure of such third party to consent, Ironwood and Cyclerion shall negotiate in good faith to implement the provision in a mutually satisfactory manner.  The phrase “commercially reasonable efforts” as used herein shall not be construed to require the incurrence of any non-routine or unreasonable expense or liability or the waiver of any right.

 

Section 6.6.                                 Assignment of “Claw-Back” or Recoupment Rights.  To the extent a member of the Ironwood Group holds any repayment “claw-back” or recoupment rights with respect to remuneration paid or provided to Cyclerion Employees (e.g., the right to require repayment of compensation upon a termination of employment or misconduct by the employee) in connection with any relocation benefit, sign-on bonus, tuition benefit or otherwise, such rights are hereby assigned to Cyclerion upon the Distribution Effective Time, it being agreed that the transactions contemplated by the Separation Agreement shall not, in and of themselves, trigger any such repayment or recoupment right.  The Parties shall cooperate to execute any further documentation as may be necessary to evidence such assignment.

 

Section 6.7.                                 Proprietary Information and Inventions Agreements.  Effective as of the Distribution Effective Time, Ironwood shall, or shall cause the appropriate member of the Ironwood Group to, waive such rights under any proprietary information, confidentiality, inventions, restrictive covenant or similar agreement between any Cyclerion Employee and any Ironwood Group member as Ironwood determines in its discretion to be necessary or appropriate to permit such Cyclerion Employee to perform her services to Cyclerion or a Cyclerion Group member from and after the Distribution Effective Time.

 

ARTICLE VII

 

DISPUTE RESOLUTION

 

Section 7.1.                                 Negotiation.  A Party seeking resolution of (i) a controversy, dispute or Action arising out of, in connection with, or in relation to the interpretation, performance, nonperformance, validity or breach of this Agreement or otherwise arising out of, or in any way related to, this Agreement or the transaction contemplated hereby, including any Action based on contract, tort, statute or constitution (collectively, “Disputes”) shall provide written notice of such Dispute to the other Party, specifying the terms of such Dispute in reasonable detail (“Dispute Notice”).  The appropriate executives of the Parties who have authority to settle the Dispute (or such other individuals designated by the respective executives) shall attempt to resolve the Dispute through good faith negotiation for a reasonable period of time; provided, that

 

21

 

such reasonable period shall not, unless otherwise agreed by the Parties in writing, exceed fifteen (15) days from the time of receipt by a Party of the Dispute Notice.  If the Dispute has not been resolved within fifteen (15) days after receipt of the Dispute Notice, the respective Chief Executive Officers or their respective designees (with full settlement authority) of Ironwood and Cyclerion shall meet in person (or where necessary, by phone) at a mutually acceptable time and, if applicable, place, and thereafter as often as they reasonably deem necessary, to attempt in good faith to resolve the Dispute.  Any contractual time period or deadline under this Agreement or any Ancillary Agreement to which such Dispute relates occurring after the Dispute Notice is received shall not be deemed to have passed until such Dispute has been resolved pursuant to this Article VII.

 

Section 7.2.                                 Arbitration.  Any Dispute that is not resolved pursuant to Section 7.1 within thirty (30) days after receipt of a Dispute Notice shall be resolved by final and binding arbitration pursuant to the procedures set forth in Section 8.2 of the Separation Agreement.

 

Section 7.3.                                 Continuity of Service and Performance.  Unless otherwise agreed in writing, the Parties shall continue to provide service and honor all other commitments under this Agreement during the course of a Dispute with respect to all matters not subject to such Dispute.

 

Section 7.4.                                 Injunctive or Other Equity Relief.  Nothing contained in this Agreement shall deny any Party the right to seek injunctive or other equitable relief in the context of a bona fide emergency or prospective irreparable harm, and such an action may be filed and maintained notwithstanding any ongoing arbitration proceeding; provided, however, that any other relief not expressly permitted under this Section 7.4 must be pursued in accordance with Section 7.2, with all remedies being cumulative to the extent allowed by applicable Law.  The Parties further agree that any action brought under this Section 7.4 shall be brought exclusively in the state or federal courts within the Commonwealth of Massachusetts and that such courts shall have personal jurisdiction over the Parties in such action.

 

ARTICLE VIII

 

MISCELLANEOUS

 

Section 8.1.                                 Complete Agreement; Construction.  This Agreement shall constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments, course of dealings and writings with respect to such subject matter.  In the event and to the extent that there shall be a conflict between the provisions of this Agreement and the provisions of the Separation Agreement, this Agreement shall prevail.

 

Section 8.2.                                 Transaction Agreements.  Except as expressly set forth herein, this Agreement is not intended to address, and should not be interpreted to address, the matters specifically and expressly covered by the other Transaction Agreements.

 

Section 8.3.                                 Counterparts.  This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become

 

22

 

effective when one or more such counterparts have been signed by each of the Parties and delivered to each of the Parties.

 

Section 8.4.                                 Survival of Agreements.  Except as otherwise contemplated by this Agreement, all covenants and agreements of the Parties contained in this Agreement shall survive the Distribution Effective Time and remain in full force and effect in accordance with their applicable terms.

 

Section 8.5.                                 Expenses.

 

(a)                                 Except as otherwise expressly provided in this Agreement, or as otherwise agreed to in writing by the Parties, all out-of-pocket fees and expenses incurred at or prior to the Distribution Effective Time in connection with, and as required by, the preparation, execution, delivery and implementation of this Agreement shall be borne and paid by Ironwood.

 

(b)                                 Except as otherwise expressly provided in this Agreement (including this Section 8.4), or as otherwise agreed to in writing by the Parties, each Party shall bear its own costs and expenses incurred or accrued after the Distribution Effective Time; provided, however, that, except as otherwise expressly provided in this Agreement, any fees, costs and expenses incurred in obtaining any Consents or novation from a Third Party in connection with the Transfer to or Assumption by a Party or its Subsidiary of any Assets or Liabilities in connection with the Separation shall be borne by the Party or its Subsidiary to which such Assets are being Transferred or which is Assuming such Liabilities.

 

Section 8.6.                                 Notices.  All notices, requests, claims, demands and other communications under this Agreement shall be in English, shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile with receipt confirmed (followed by delivery of an original via overnight courier service) or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 8.6):

 

To Ironwood:

Ironwood Pharmaceuticals, Inc.

301 Binney Street

Cambridge, MA 02142

United States

Attn: General Counsel

Phone: 617-621-7722

Facsimile: 617-588-0623

 

To Cyclerion:

Cyclerion Therapeutics, Inc.

301 Binney Street

Cambridge, MA 02142

United States

Attn: Chief Financial Officer

Phone:

Facsimile:

 

23

 

Section 8.7.                                 Waivers.  The delay or failure of either Party to exercise or enforce any of its rights under this Agreement will not constitute, or be deemed to be, a waiver of those rights, nor will any single or partial exercise of any such rights preclude any other or further exercise thereof or the exercise of any other right.  No waiver of any provision of this Agreement will be effective unless it is in writing and signed by the Party against which it is being enforced.

 

Section 8.8.                                 Assignment.  No Party may assign any rights or delegate any obligations arising under Agreement, in whole or in part, directly or indirectly, without the prior written consent of the other Party (such consent not to be unreasonably withheld, conditioned or delayed), and any attempt to so assign any rights or delegate any obligations arising under this Agreement without such consent shall be void.  Notwithstanding the foregoing, no such consent shall be required for any such assignment or delegation (i) with respect to Ironwood, to a Subsidiary of Ironwood (so long as such Subsidiary remains a Subsidiary of Ironwood), (ii) with respect to Cyclerion, to a Subsidiary of Cyclerion (so long as such Subsidiary remains a Subsidiary of Cyclerion) or (iii) to a bona fide Third Party in connection with a merger, reorganization, consolidation or the sale of all or substantially all the assets of a Party so long as the resulting, surviving or transferee entity assumes all the obligations of the assigning Party by operation of Law or pursuant to an agreement in form and substance reasonably satisfactory to the non-assigning Party; provided, however, that in the case of each of the preceding clauses (i) and (ii), no assignment permitted by this Section 8.7 shall release the assigning Party from liability for the full performance of its obligations under this Agreement.  It is understood and agreed that any Party may cause any of its Subsidiaries to perform any or all of its obligations hereunder, and may designate any of its Subsidiaries to receive any of its entitlements hereunder.

 

Section 8.9.                                 Successors and Assigns.  The provisions of this Agreement and the obligations and rights hereunder shall be binding upon, inure to the benefit of and be enforceable by (and against) the Parties and their respective successors (whether by merger, acquisition of assets or otherwise) and permitted assigns.

 

Section 8.10.                          Termination and Amendment.  This Agreement may be terminated, modified or amended, and the Distribution may be amended, modified or abandoned, at any time prior to the Distribution Effective Time by and in the sole and absolute discretion of Ironwood without the approval of Cyclerion or the stockholders of Ironwood.  In the event of such termination, no Party shall have any liability of any kind to the other Party or any other Person by reason of such termination.  After the Distribution Effective Time, this Agreement may not be terminated, modified or amended except by an agreement in writing signed by Ironwood and Cyclerion.

 

Section 8.11.                          Payment Terms.

 

(a)                                 Except as otherwise expressly provided to the contrary in this Agreement, any amount to be paid or reimbursed by a Party (and/or a member of such Party’s Group) to the other Party (and/or a member of such other Party’s Group) under this Agreement shall be paid or reimbursed hereunder within sixty (60) days after presentation of an invoice or a written demand

 

24

 

therefor, in either case setting forth, or accompanied by, reasonable documentation or other reasonable explanation supporting such amount.

 

(b)                                 Except as expressly provided to the contrary in this Agreement, any amount not paid when due pursuant to this Agreement (and any amount billed or otherwise invoiced or demanded and properly payable that is not paid within sixty (60) days of such bill, invoice or other demand) shall bear interest at a rate per annum equal to the Prime Rate, from time to time in effect, plus two percent (2%), calculated for the actual number of days elapsed, accrued from the date on which such payment was due up to the date of the actual receipt of payment.

 

(c)                                  Without the consent of the party receiving any payment under this Agreement specifying otherwise, all payments to be made by either Ironwood or Cyclerion under this Agreement shall be made in U.S. dollars.  Except as expressly provided herein, any amount which is not expressed in U.S. dollars shall be converted into U.S. dollars by using the exchange rate published on Bloomberg at 5:00 p.m., Eastern time, on the day before the relevant date, or in The Wall Street Journal, Eastern Edition, on such date if not so published on Bloomberg.  Except as expressly provided herein, in the event that any indemnification payment required to be made hereunder may be denominated in a currency other than U.S. dollars, the amount of such payment shall be converted into U.S. dollars on the date notice of the claim is given to the Indemnifying Party.

 

Section 8.12.                          Subsidiaries.  Each of the Parties shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary of such Party or by any entity that becomes a Subsidiary of such Party at or after the Distribution Effective Time, in each case to the extent such Subsidiary remains a Subsidiary of the applicable Party.

 

Section 8.13.                          Third Party Beneficiaries.  This Agreement is solely for the benefit of the Parties and shall not be deemed to confer upon any Person other than the Parties any remedy, claim, liability, reimbursement, cause of Action or other right beyond any that exist without reference to this Agreement.

 

Section 8.14.                          Titles and Headings.  Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

 

Section 8.15.                          Governing Law.  This Agreement will be governed by, construed and interpreted in accordance with the Laws of the Commonwealth of Massachusetts, U.S.A., without reference to principles of conflicts of Laws.

 

Section 8.16.                          Severability.  In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby.  The Parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic

 

25

 

effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

 

Section 8.17.                          Interpretation.  Interpretation of this Agreement shall be governed by the following rules of construction: (a) words in the singular shall be held to include the plural and vice versa, and words of one gender shall be held to include the other gender as the context requires; (b) references to the terms “Section,” “paragraph,” “clause,” “Exhibit” and “Schedule” are references to the Sections, paragraphs, clauses, Exhibits and Schedules of this Agreement unless otherwise specified; (c) the terms “hereof,” “herein,” “hereby,” “hereto,” and derivative or similar words refer to this entire Agreement, including the Schedules and Exhibits hereto; (d) references to “$” shall mean U.S. dollars; (e) the word “including” and words of similar import when used in this Agreement shall mean “including without limitation,” unless otherwise specified; (f) the word “or” shall not be exclusive; (g) references to “written” or “in writing” include in electronic form; (h) unless the context requires otherwise, references to “party” shall mean Ironwood or Cyclerion, as appropriate, and references to “parties” shall mean Ironwood and Cyclerion; (i) provisions shall apply, when appropriate, to successive events and transactions; (j) the table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement; (k) Ironwood and Cyclerion have each participated in the negotiation and drafting of this Agreement and if an ambiguity or question of interpretation should arise, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or burdening either party by virtue of the authorship of any of the provisions in this Agreement or any interim drafts of this Agreement; and (l) a reference to any Person includes such Person’s successors and permitted assigns.

 

Section 8.18.                          No Duplication; No Double Recovery.  Nothing in this Agreement is intended to confer to or impose upon any Party a duplicative right, entitlement, obligation or recovery with respect to any matter arising out of the same facts and circumstances.

 

Section 8.19.                          No Waiver.  No failure to exercise and no delay in exercising, on the part of any Party, any right, remedy, power or privilege hereunder shall operate as a waiver hereof or thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

 

Section 8.20.                          Transfer of Records and Information.  Subject to applicable Law, Ironwood shall transfer to Cyclerion any and all employment records and information (including, but not limited to, any Form I-9, Form W-2 or other Internal Revenue Service forms) with respect to Cyclerion Employees and other records reasonably required by Cyclerion to enable Cyclerion properly to carry out its obligations under this Agreement. Such transfer of records and information generally shall occur as soon as administratively practicable on or after the Distribution Effective Time. Each Party will permit the other Party reasonable access to employee records and information, to the extent reasonably necessary for such accessing Party to carry out its obligations hereunder (subject to applicable Law).

 

Section 8.21.                          Cooperation.  The Parties agree to reasonably cooperate to effect the terms and conditions of this Agreement, from and after the date hereof.

 

26

 

[Signature Page Follows.]

 

27

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day and year first above written.

 

	
 
    	
IRONWOOD   PHARMACEUTICALS, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
CYCLERION   THERAPEUTICS, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    

 

[Signature Page to Employee Matters Agreement]Exhibit 10.5

 

DEVELOPMENT AGREEMENT

 

by and between

 

IRONWOOD PHARMACEUTICALS, INC.

 

and

 

CYCLERION THERAPEUTICS, INC.

 

Dated as of   , 2019

 

 

DEVELOPMENT AGREEMENT

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    
	
ARTICLE I   DEFINITIONS AND INTERPRETATION
    	
1
    
	
Section 1.1.
    	
General
    	
1
    
	
Section 1.2.
    	
Interpretation
    	
2
    
	
ARTICLE II   SERVICES AND GOVERNANCE
    	
3
    
	
Section 2.1.
    	
Service Schedule
    	
3
    
	
Section 2.2.
    	
Joint Steering   Committee
    	
3
    
	
Section 2.3.
    	
Provision of Services
    	
4
    
	
Section 2.4.
    	
Inspections
    	
4
    
	
Section 2.5.
    	
Location; On-Site   Security Procedures
    	
4
    
	
Section 2.6.
    	
Data Submission and   Verification
    	
5
    
	
Section 2.7.
    	
Standard Operating   Procedures
    	
5
    
	
Section 2.8.
    	
Regulatory Inspections
    	
5
    
	
Section 2.9.
    	
Subcontracting
    	
5
    
	
ARTICLE III   REPRESENTATIONS, WARRANTIES AND COVENANTS BY CYCLERION
    	
6
    
	
Section 3.1.
    	
Due Authorization
    	
6
    
	
Section 3.2.
    	
No Impairment
    	
6
    
	
Section 3.3.
    	
No Conflict
    	
6
    
	
Section 3.4.
    	
Compliance
    	
6
    
	
Section 3.5.
    	
No Infringement
    	
7
    
	
Section 3.6.
    	
Absence of Debarment
    	
7
    
	
ARTICLE IV   COMPENSATION
    	
7
    
	
Section 4.1.
    	
Budget
    	
7
    
	
Section 4.2.
    	
FTE Rate Adjustment
    	
8
    
	
Section 4.3.
    	
Invoice; Payment Terms
    	
8
    
	
Section 4.4.
    	
Taxes
    	
9
    
	
Section 4.5.
    	
Fair Market Value
    	
9
    
	
Section 4.6.
    	
No Right to Set-Off
    	
9
    
	
Section 4.7.
    	
Financial Records;   Audits
    	
9
    
	
ARTICLE V   PROPRIETARY RIGHTS
    	
10
    
	
Section 5.1.
    	
Materials
    	
10
    

 

i

 

	
Section 5.2.
    	
Inventions
    	
10
    
	
Section 5.3.
    	
Limited License
    	
11
    
	
Section 5.4.
    	
Cooperation
    	
11
    
	
Section 5.5.
    	
Cyclerion Property
    	
11
    
	
Section 5.6.
    	
Work at Third Party   Facilities
    	
12
    
	
Section 5.7.
    	
Records
    	
12
    
	
ARTICLE VI   CONFIDENTIALITY
    	
12
    
	
Section 6.1.
    	
Definition
    	
12
    
	
Section 6.2.
    	
Obligations
    	
12
    
	
Section 6.3.
    	
Exceptions
    	
13
    
	
ARTICLE VII   DISPUTE RESOLUTION
    	
13
    
	
Section 7.1.
    	
Negotiation
    	
13
    
	
Section 7.2.
    	
Arbitration
    	
14
    
	
Section 7.3.
    	
Continuity of Service   and Performance
    	
15
    
	
ARTICLE VIII   INDEMNIFICATION; LIMITATION ON LIABILITY; INSURANCE
    	
15
    
	
Section 8.1.
    	
Indemnification by   Cyclerion
    	
15
    
	
Section 8.2.
    	
Indemnification by   Ironwood
    	
15
    
	
Section 8.3.
    	
Indemnification   Procedures
    	
15
    
	
Section 8.4.
    	
Sole Remedy
    	
16
    
	
Section 8.5.
    	
Limitation on Liability
    	
16
    
	
Section 8.6.
    	
Insurance
    	
17
    
	
ARTICLE IX TERM   AND TERMINATION
    	
17
    
	
Section 9.1.
    	
Term
    	
17
    
	
Section 9.2.
    	
Termination by Ironwood
    	
17
    
	
Section 9.3.
    	
Effect of Termination   or Expiration
    	
17
    
	
ARTICLE X   MISCELLANEOUS
    	
18
    
	
Section 10.1.
    	
Complete Agreement;   Construction
    	
18
    
	
Section 10.2.
    	
Counterparts
    	
18
    
	
Section 10.3.
    	
Notices
    	
18
    
	
Section 10.4.
    	
Waivers
    	
19
    
	
Section 10.5.
    	
Force Majeure
    	
19
    
	
Section 10.6.
    	
Assignment
    	
20
    
	
Section 10.7.
    	
Successors and Assigns
    	
20
    
	
Section 10.8.
    	
Third Party   Beneficiaries
    	
20
    

 

ii

 

	
Section 10.9.
    	
Titles and Headings
    	
20
    
	
Section 10.10.
    	
Appendices
    	
20
    
	
Section 10.11.
    	
Governing Law
    	
20
    
	
Section 10.12.
    	
Severability
    	
21
    
	
Section 10.13.
    	
Interpretation
    	
21
    
	
Section 10.14.
    	
No Duplication; No   Double Recovery
    	
21
    
	
Section 10.15.
    	
Independent Contractor   Status
    	
21
    

 

	
Appendix A
    	
Service Schedule
    
	
Appendix B
    	
Ironwood’s Security Procedures
    
	
Appendix C
    	
Quarterly Statement
    
	
Appendix D
    	
Ironwood’s Travel and Expense Policy
    
	
Appendix E
    	
Initial Budget
    

 

iii

 

DEVELOPMENT AGREEMENT

 

This DEVELOPMENT AGREEMENT (this “Agreement”), dated as of        , 2019 (the “Effective Date”), is entered into by and between Ironwood Pharmaceuticals, Inc. (“Ironwood”), a Delaware corporation, and Cyclerion Therapeutics, Inc. (“Cyclerion”), a Massachusetts corporation.  “Party” or “Parties” means Ironwood or Cyclerion, individually or collectively, as the case may be.

 

W I T N E S S E T H:

 

WHEREAS, Ironwood controls certain patents related to human pharmaceutical products (“Products”), including the compound IW-3718, linaclotide, and related intellectual property;

 

WHEREAS, Cyclerion engages in research and development of soluble guanylate cyclase stimulator products in any field; and

 

WHEREAS, Ironwood wishes to commission Cyclerion to perform, and Cyclerion wishes to provide, its unique research and development capabilities to develop Products of Ironwood, including a delayed-release formulation linaclotide product.

 

NOW, THEREFORE In consideration of the agreements and mutual covenants contained in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Ironwood and Cyclerion agree as set forth herein:

 

ARTICLE I

 

DEFINITIONS AND INTERPRETATION

 

Section 1.1.                                 General.  Unless otherwise specifically provided herein, the following capitalized terms will have the following meanings.  Any capitalized term used herein but not defined in this Section 1.1 will have the meaning ascribed to it in this Agreement.

 

(1)                                      “Affiliate” means, with respect to each Party, any corporation, company, partnership, joint venture or firm which controls, is controlled by or is under common control with that Party.  As used in this Section 1.1(1) “control” means (i) in the case of corporate entities, direct or indirect ownership of shares of capital stock having at least fifty percent (50%) of the votes available in any election of directors (or such lesser percentage that is the maximum allowed to be owned by a foreign corporation in a particular jurisdiction), and (ii) in the case of non-corporate entities, the direct or indirect power to manage, direct, or cause the direction of, the management and policies of the non-corporate entity or the power to elect at least fifty percent (50%) of the members of the governing body of such non-corporate entity.

 

(2)                                      “Deliverables” means those deliverables of the Services set forth in Appendix A hereto.

 

 

(3)                                      “Executive Officers” means Thomas McCourt, President of Ironwood (or a designee of such officer) and Mark Currie, President of Research & Development of Cyclerion (or a designee of such officer).

 

(4)                                      “FTE Rate” means the amount to be paid per full-time equivalent of Cyclerion under this Agreement on an annual basis. The FTE Rate as of the Effective Date will be three hundred and fifteen thousand dollars ($315,000), as such rate may be amended from time to time by the mutual written consent of the Parties or in accordance with this Agreement.  The FTE Rate for a full-time equivalent for a calendar month shall equal one-twelfth (1/12th) of the foregoing annual rate and the FTE Rate for a full-time equivalent for a calendar quarter shall equal one-fourth (1/4th) of the foregoing annual rate.

 

(5)                                 “Internal Costs” shall mean, for any Services conducted during a given period of time during the Term, (a) the FTE Rate plus fifteen percent (15%) of such FTE Rate multiplied by the number of full-time equivalents of Cyclerion performing such Services in accordance with this Agreement during such period of time plus (b) any other costs directly related to the provision of such Services during such period of time under this Agreement, as agreed upon between the Parties in writing.

 

(6)                                 “Inventions” means inventions, discoveries, improvements, ideas, designs, processes, techniques, formulations, strategies, products, substances, computer programs, works of authorship, databases, mask works, trade secrets, know-how, information, data, documentation, reports, research and other creations (whether or not patentable or subject to copyright or trade secret protection).

 

(7)                                 “Ironwood Invention” means any Invention (i) arising or derived from or made through the use of Ironwood’s Confidential Information or (ii) arising or derived from or made in the performance of the Services or the creation of the Deliverables that specifically relates to one or more Products (including the formulation or manufacture thereof) (i.e. not an Invention that is generally applicable to pharmaceutical products).

 

(8)                                 “Representatives” means, with respect to each Party to this Agreement, its directors, officers, employees, agents, contractors and consultants.

 

(9)                                 “Services” means all of the services to be provided by or on behalf of Cyclerion under this Agreement and described in the Service Schedule hereto, as such Service Schedule may be updated and supplemented from time to time in accordance with the provisions of this Agreement.  “Service” means each such service.

 

(10)                          “Third Party” means any person or entity other than Ironwood, Cyclerion or their Affiliates.

 

Section 1.2.                                 Interpretation.  Except where the context otherwise requires, the singular will include the plural, the plural will include the singular, the use of any gender will be applicable to all genders, and the word “or” means “and/or.” References to a number of days, unless otherwise specified, means calendar days.  The captions of this Agreement are for convenience of reference only and do not define, describe, extend or limit the scope or intent of any provision contained in this Agreement.  The terms “including,” “include,” or “includes” are

 

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not intended to limit generality of any description preceding such term.  The language of this Agreement will be deemed to be the language mutually chosen by the Parties, and no rule of strict construction will be applied against either Party.  Unless otherwise expressly specified, references to Ironwood include Ironwood’s Affiliates, and references to Cyclerion include Cyclerion’s Affiliates.

 

ARTICLE II

 

SERVICES AND GOVERNANCE

 

Section 2.1.                                 Service Schedule.  All Services or Deliverables to be provided by Cyclerion under this Agreement are set forth in Appendix A (as may be amended from time to time in accordance with this Agreement, the “Service Schedule”).  At all times, the Service Schedule shall be in writing and, at a minimum, identify and adequately describe the Services, the Deliverables and a delivery or completion date.  The Service Schedule may only be amended by the JSC (as defined in Section 2.2).  In the event either Party would like to amend the Services to be provided under this Agreement, it may submit a proposed amendment of the Service Schedule to the JSC and such amendment shall only be made to the Service Schedule under this Agreement upon approval of such amendment by the JSC and amendment of the Budget (as defined in Section 4.1) by the JSC as necessary to contemplate such additional Services.  Notwithstanding anything to the contrary in the Service Schedule, this Agreement shall govern all Services and to the extent there is any conflict, discrepancy or inconsistency between the Service Schedule and the terms of this Agreement, the terms of this Agreement shall control, unless the Service Schedule specifically references the conflict, discrepancy or inconsistency and provides that it shall govern.

 

Section 2.2.                                 Joint Steering Committee.

 

(a)                                 Within thirty (30) days after the Effective Date, the Parties shall establish, and have the first meeting of, a joint steering committee (the “Joint Steering Committee” or “JSC”).  Unless otherwise agreed by the Parties, the Joint Steering Committee shall be comprised of three (3) representatives from each Party with one (1) representative with relevant decision-making authority from each Party such that the JSC is able to effectuate all of its decisions within the scope of its responsibilities as set forth in this Agreement.  Either Party may replace or substitute its respective representatives to the JSC at any time with prior notice to the other Party, provided that such replacement or substitute is of comparable authority within that Party.  Upon mutual agreement of the Parties, additional representatives or consultants may be invited to attend a JSC meeting, subject to such representatives’ and consultants’ written agreement to comply with the requirements of Article VI.  Each Party shall bear its own expenses relating to attendance at such meetings by its representatives and its invited representatives or consultants (if any).  The JSC may create such subcommittees or project teams as it deems necessary to carry out its responsibilities.

 

(b)                                 The JSC shall be responsible for the oversight of the provision of the Services during the Term and performing those duties and making those decisions expressly reserved for the JSC under this Agreement, including the approval of the Service Schedule and Budget (and amendments to each).  The JSC shall not have responsibility or any decision-

 

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making authority over the day-to-day provision of Services under this Agreement.  Neither the JSC nor any subcommittee or project team shall have the power to amend, modify or waive compliance under this Agreement.  Notwithstanding anything to the contrary in this Agreement, no decision by either Party, or the JSC, shall be effective if such decision requires the other Party to breach any obligation under this Agreement or applicable law and all determinations made by the JSC shall be subject to and shall comply with the terms of this Agreement.

 

(c)                                  The JSC shall meet in accordance with a schedule established by mutual written agreement of the Parties, at least once per calendar quarter (and more frequently as the JSC determines is necessary to fulfill its responsibilities), with the location for such meetings alternating between each Party’s facilities (or such other locations as are determined by the JSC).  Alternatively, if the Parties agree, the JSC may meet by means of teleconference, videoconference or other similar communications equipment.  A quorum of at least one JSC member appointed by each Party shall be present at or shall otherwise participate in each Joint Steering Committee meeting.

 

(d)                                 The JSC shall act by unanimous agreement of its members, with each Party having one vote.  If the JSC, after fifteen (15) calendar days (or such other period as the Parties may otherwise mutually agree) fails to reach such a unanimous decision, then the Executive Officers shall meet promptly thereafter and shall negotiate in good faith to resolve the issue as soon as is practicable.  Agreement by Executive Officers under this Section 2.2(d) shall be deemed agreement and approval by the JSC for purposes of this Agreement.

 

Section 2.3.                                 Provision of Services.  Cyclerion shall perform the Services in a professional, diligent and timely manner consistent with the industry standards prevailing for comparable services and in accordance with this Agreement, including the Service Schedule.    To the extent a more specific standard of care is specified in the Service Schedule with respect to any Service, Cyclerion shall comply with such more specific standard.  Notwithstanding any provision of this Agreement to the contrary, Cyclerion shall not be required to (a) perform any Service in any manner that violates or contravenes any restrictions imposed on Cyclerion by applicable law, (b) perform any Service in any manner that breaches or contravenes any contractual obligations owed by Cyclerion to any Third Party(ies) or (c) perform any Service to the extent that the conduct of such would, in the good faith belief of Cyclerion, infringe, violate or misappropriate intellectual property rights of any Third Party.

 

Section 2.4.                                 Inspections.  Ironwood may, upon reasonable prior notice to Cyclerion (such notice to be no less than ten (10) days prior to the relevant inspection) and during normal business hours, inspect the facilities used to render any Services, including books and records pertaining to the Services, to review the performance of Services and confirm that Services are being performed in accordance with the terms of this Agreement (including the Service Schedule) and applicable laws. To the extent Ironwood performs any such inspection, Ironwood shall comply with Cyclerion’s reasonable security procedures.

 

Section 2.5.                                 Location; On-Site Security Procedures.  Cyclerion shall perform the Services for Ironwood at the premises of Cyclerion except for those Services, if any, that to be performed at a different location that is identified in the Service Schedule.  Each Party agrees that all of its and its Affiliates’ employees shall, and that it shall use commercially reasonable

 

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efforts to cause its Representatives’ employees to, when on the property of the other Party or any of its Affiliates, or when given access to any facilities, information, systems, infrastructure or personnel of the other Party or any of its Affiliates, conform to the policies and procedures of such other Party and any of its Affiliates, as applicable, concerning health, safety, conduct and security which are made known to the Party receiving such access from time to time.  To the extent Cyclerion performs any of the Services on Ironwood premises, Cyclerion shall comply with Ironwood’s Security Procedures, as set forth and defined in Appendix B hereto.

 

Section 2.6.                                 Data Submission and Verification.  Cyclerion will provide to Ironwood (a) a copy of all raw data generated in the conduct of the Services in a format mutually agreed upon by Ironwood and Cyclerion and (b) any databases and technical reports described in the Service Schedule.  Cyclerion shall verify the accuracy of the data contained in all databases or reports provided by it against the raw data and will attach a signed statement attesting to such verification to each database or report provided to Ironwood.  As per Ironwood’s requirements as provided to Cyclerion in advance, Cyclerion will ensure that the database format is compatible with relevant existing databases of Ironwood.

 

Section 2.7.                                 Standard Operating Procedures.  Upon Ironwood’s request, Cyclerion will provide Ironwood with its standard operating procedures and policies relevant to the performance of Services.

 

Section 2.8.                                 Regulatory Inspections.  If any governmental or regulatory authority of appropriate jurisdiction conducts, or gives notice of intent to conduct, an inspection of the books and records of Cyclerion relevant to the Services or any facility of Cyclerion where Services are performed, Cyclerion shall as soon as practicable, and in no event less than one (1) business day, provide Ironwood with written notice thereof.  To the extent the inspection relates to or impacts Services performed for Ironwood, Cyclerion shall furnish Ironwood with all material information, including copies of all communications pertinent to such inspection and, further, Ironwood shall have the right, if permitted under applicable law and by the relevant authority, to be present at any such inspection and to review and comment on any communication with such governmental or regulatory authority in each case only in respect of that portion of such inspection or communication as pertains to the Services.  Cyclerion shall cause its Permitted Subcontractors (as defined in Section 2.9 below), Affiliates and Representatives involved in the performance of the Services that are the subject of such governmental inspection or who are performing the Services at the facility that is the subject of such government inspection to cooperate with such inspection.  Cyclerion and its Affiliates shall promptly take all steps necessary to correct any deficiencies related to the Services noted by such inspecting authority during the inspection.  Unless prohibited by applicable law or the relevant authority, Cyclerion shall not send or submit, and shall cause its Affiliates, Representatives and any Permitted Subcontractors to not send or submit, any communication to a regulatory authority that is in response to a notice to inspect or other regulatory action or proposed regulatory action, or any other non-routine regulatory matter, that references Ironwood or any of its respective Affiliates or any Services, without first allowing Ironwood to review and comment upon such communication.

 

Section 2.9.                                 Subcontracting.  Cyclerion may not, in whole or in part, subcontract or delegate the performance of any Services without Ironwood’s consent except to a Party

 

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designated as a Permitted Subcontractor in the Service Schedule; provided that in the event Cyclerion provides Ironwood with evidence that certain subcontracting or delegation is necessary or beneficial to Cyclerion’s performance under this Agreement, Ironwood shall not unreasonably withhold, delay or condition its consent to such subcontracting or delegation.  “Permitted Subcontractor” means a Third Party to whom the performance of such Service has been subcontracted or delegated with Ironwood’s prior written consent.  Cyclerion shall remain liable for and indemnify Ironwood against any and all liabilities arising in connection with, the performance of any Services subcontracted or delegated to any Affiliate or Third Party.

 

ARTICLE III

 

REPRESENTATIONS, WARRANTIES AND COVENANTS BY CYCLERION

 

Section 3.1.                                 Due Authorization.  Cyclerion has the full power and authority to enter into and perform this Agreement and this Agreement is a valid and binding obligation of Cyclerion, enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors.

 

Section 3.2.                                 No Impairment.  Cyclerion shall not enter into any agreement that would materially impair its ability to perform its obligations hereunder.

 

Section 3.3.                                 No Conflict.  Cyclerion shall not enter into any agreement, either written or oral, that would conflict with Cyclerion’s obligations under this Agreement.

 

Section 3.4.                                 Compliance.  In performing the Services and creating and delivering the Deliverables, Cyclerion shall comply with all applicable federal, state and local laws, regulations, professional standards, and industry codes, ordinances and orders, as amended from time to time, including (i) the Foreign Corrupt Practices Act of 1977 and the UK Bribery Act, (ii) the federal anti-kickback statute (42 U.S.C. §1320a-7b(b)), and state anti-kickback and other laws restricting gifts to, relationships with and information from prescribers, (iii) the federal Food and Drug Administration laws, regulations and guidance, including the federal Food, Drug and Cosmetic Act and the Prescription Drug Marketing Act, (iv) those governing the purchase and sale of securities while in possession of material, non-public information about a company, (v) state and federal privacy and data security laws, including the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and Chapter 93H of The Massachusetts General Laws and its implementing regulations, 201 CMR 17.00, and (vi) Good Laboratory Practices (“GLP”) and Good Clinical Practices (“GCP”).  During the Term, upon Ironwood’s reasonable request, Cyclerion will provide Ironwood with a copy of its policies and procedures concerning compliance with the foregoing, as applicable, and a written certification (not more frequently than annually) that its performance of the Services complies with this Section 3.4.  During the Term, Cyclerion shall promptly notify Ironwood in writing of any known or expected violations of this Section 3.4.  In addition, Cyclerion will comply with all reasonable and applicable Ironwood policies and procedures as provided in writing to Cyclerion to the extent such policies and procedures comply with applicable law and are reasonably consistent with general industry standards.

 

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Section 3.5.                                 No Infringement.  To the best of Cyclerion’s knowledge, the provision of Services under this Agreement will not infringe or violate any patent, copyright, trade secret or other proprietary or intellectual property right of any Third Party.  In addition, Cyclerion represents and warrants that all Deliverables shall be delivered free of any claim of infringement of any patent, trade secret, copyright, trademark or any other proprietary or intellectual right of any person.  Within 180 days of providing a Deliverable, if any Deliverable is determined to be infringing, or in Ironwood’s reasonable opinion is likely to be the subject of a claim of infringement, without limiting any other right or remedy of Ironwood under this Agreement or applicable law, Cyclerion shall at its expense and option either (i) procure the right for Ironwood to continue using it, (ii) replace it with a non-infringing equivalent, (iii) modify it to make it non-infringing, or (iv) direct the return of the Deliverable and refund to Ironwood the fees paid for such Deliverable less a reasonable amount for Ironwood’s use of the Deliverable up to the time of return.

 

Section 3.6.                                 Absence of Debarment.  Cyclerion represents and warrants that it, its Affiliates, Representatives, any Permitted Subcontractors and any other person used by Cyclerion to perform the Services (a) has not been debarred, convicted, and is not subject to any pending debarment or conviction, pursuant to section 306 of the United States Food Drug and Cosmetic Act, 21 U.S.C. § 335a, (b) has not been listed by any government or regulatory agencies as (i) ineligible to participate in any government healthcare programs or government procurement or non-procurement programs (as that term is defined in 42 U.S.C. 1320a-7b(f)) or excluded, debarred, suspended or otherwise made ineligible to participate in any such programs, or (ii) disqualified or restricted, from receiving investigational products pursuant to the government or regulatory agency’s regulations, or (c) has not been convicted of a criminal offense related to the provision of healthcare items or services, and is not the subject of any such pending action, suit, claim, investigation or proceeding.  Cyclerion will promptly inform Ironwood in writing if Cyclerion or any person who is performing Services has been or becomes subject to any of the foregoing, or if any action, suit, claim, investigation, or proceeding relating to the foregoing is pending or threatened.

 

ARTICLE IV

 

COMPENSATION

 

Section 4.1.                                 Budget.

 

(a)                                 An initial budget setting forth, on a Service-by-Service basis, (i) the Internal Costs to be expended in the performance of the Services through the end of the first full calendar quarter following the Effective Date and (ii) an allowance for reasonable and documented out-of-pocket business expenses to be incurred by Cyclerion (the “OOP Service Expenses”) in the performance of the Services through the end of the first full calendar quarter following the Effective Date is attached as Appendix E (such budget, as amended and updated from time to time in accordance with this Agreement, the “Budget”).  Sixty (60) days prior to the end of each full calendar quarter during the Term, the JSC shall meet to update the Budget for the following calendar quarter, such update to be in the form of an amendment to the Budget approved by the JSC and to reflect the Internal Costs and the OOP Service Expenses to be expended in the performance of Services in such following calendar quarter.

 

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(b)                                 In the event that the JSC cannot agree on an updated Budget for an upcoming calendar quarter (including via the escalation procedure described in Section 2.2(d)) in forty (40) calendar days (i.e. twenty (20) calendar days prior to the end of the calendar quarter), the matter shall be resolved by an expert with at least ten (10) years’ experience in services similar to the Services under this Agreement (an “Expert”), such Expert to be mutually agreed upon by the Parties in accordance with this Section 4.1; provided that if the Parties cannot decide on such an Expert in five (5) calendar days, each Party shall pick one (1) Expert and such Experts shall select a third Expert to form a three-member Expert panel.  In all cases, no later than ten (10) days prior to the end of any full calendar quarter, if a Budget for the next calendar quarter has not been decided upon by the JSC, the relevant Expert or Experts shall be chosen for resolution of the dispute and each Party shall have submitted to such Expert and Experts the Budget it believes, in good faith, to be an accurate representation of the Internal Costs and the OOP Service Expenses to be reasonably incurred in the performance of Services in the following calendar quarter, along with any supporting documentation it believes would be helpful for the determination of the Expert or Experts.  The Parties shall request that the Expert or Experts select, out of the two (2) proposed Budgets submitted by the Parties, the Budget that most closely reflects what the Expert or Experts believe, in good faith, to be an accurate representation of the Budget for the following calendar quarter (based on the description of the Budget in this Agreement), such determination to be made prior to the beginning of the following calendar quarter.  Upon such determination by the Expert or Experts, such determination shall be deemed binding, final and non-appealable and the selected Budget shall be the “Budget” for the following calendar quarter under this Agreement.

 

Section 4.2.                                 FTE Rate Adjustment.  Following the end of the first partial calendar year of the Term, the FTE Rate used to calculate Internal Costs for each subsequent calendar year during the Term shall be adjusted annually during the first calendar quarter of such subsequent calendar year based on the change in the rate of the Employment Cost Index for total compensation for the “management, professional and related” occupational group, as published by the United States Department of Labor, Bureau of Labor Statistics from the beginning to end of the previous calendar year (or any similar index agreed upon by the Parties if such index ceases to be compiled and published).

 

Section 4.3.                                 Invoice; Payment Terms.

 

(a)                                 Cyclerion will provide Ironwood with a preliminary quarterly statement six (6) business days after the close of each calendar quarter and a final quarterly statement ten (10) business days after the close of each calendar quarter, both in the form attached as Appendix C (each, a “Quarterly Statement”), which Quarterly Statement shall reflect, on a Service-by-Service basis, Cyclerion’s good faith estimate of the Internal Costs and OOP Services Expense payable for the Services for the preceding calendar quarter and incurred in accordance with this Agreement.

 

(b)                                 Not later than twenty-five (25) days after the last day of each calendar quarter (or, if the Term ends during a calendar quarter, the last day of the Term), Cyclerion shall invoice Ironwood for Internal Costs and OOP Service Expenses incurred during such calendar quarter in accordance with this Agreement (including the Budget) and as full consideration for the Services rendered under this Agreement, subject to the terms of this Agreement (including

 

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Section 4.3(c)), Ironwood shall pay Cyclerion the Internal Costs and OOP Services Expense for such Services.  To be valid, invoices must be in writing, contain such detail as Ironwood may reasonably require, be submitted and payable in U.S. Dollars and be accompanied (or preceded) by Cyclerion’s completed and signed U.S. Internal Revenue Service Form W-9, Request for Tax Payer Identification Number and Certification, or other applicable tax withholding form.  Invoices and the completed Form W-9 must be emailed to ap@ironwoodpharma.com or sent to Accounts Payable, Ironwood Pharmaceuticals, Inc., 301 Binney Street, Cambridge, MA 02142.  Ironwood will pay all undisputed amounts invoiced within thirty (30) days of its receipt of a valid invoice.

 

(c)                                  Notwithstanding anything in the Agreement to the contrary, in no event shall Ironwood be responsible for (i) any OOP Service Expenses (A) incurred by Cyclerion in a calendar quarter in excess of fifty thousand dollars ($50,000) over the amount of OOP Service Expenses in the Budget for such calendar quarter without the JSC’s prior written approval, (B) that are not in accordance with Ironwood’s Travel and Expense Policy, as attached as Appendix D, as may be updated from time to time and provided to Cyclerion or (C) that are not incurred in such calendar quarter, unless otherwise agreed to by the JSC or (ii) any Internal Costs incurred by Cyclerion in a calendar quarter in the performance of a Service in excess of one hundred and ten percent (110%) of the approved amount for Internal Costs for such Service in the Budget for such calendar quarter, unless otherwise agreed to by the JSC.

 

Section 4.4.                                 Taxes.  Ironwood shall make all payments to Cyclerion without deduction or withholding for taxes including income tax withholding, Value Added Tax (“VAT”), duties, sales tax or a similar tax except to the extent any such deduction or withholding is required by the tax laws of any federal, state, provincial or foreign government.  In the event a deduction or withholding for taxes is applicable, Ironwood shall submit such deduction or withholding for taxes to the appropriate governmental authority and shall provide a tax certificate to Cyclerion.  In the event VAT or sales tax applies to the Services, Cyclerion shall invoice such tax to Ironwood, as a reimbursable expense, and Cyclerion shall remit such tax to the relevant government authority.  Cyclerion and Ironwood shall mutually cooperate to minimize any amount of tax assessed in respect of the performance of Services hereunder or as a deduction or withholding of taxes, including through the prompt completion and filing of any relevant tax forms with the relevant tax authorities.

 

Section 4.5.                                 Fair Market Value.  The Parties agree that the amount of compensation payable under this Agreement reflects (or will reflect) the fair market value of the Services and is consistent with arm’s length transactions for services of the kind as the Services.

 

Section 4.6.                                 No Right to Set-Off.  Each Party hereto acknowledges and agrees that it shall not be permitted to set-off any amount owed by such Party pursuant to this Agreement against any amount or obligation owed to such Party or an Affiliate hereunder or pursuant to any other agreement between, on the one hand, a Party or its Affiliate and on the other hand, the other Party or its Affiliate (such agreement, a “Party Agreement”).

 

Section 4.7.                                 Financial Records; Audits.  Cyclerion shall keep true, complete and accurate records, receipts and other supporting data as Ironwood may reasonably require to verify the amounts invoiced to, and paid by, Ironwood under this Agreement.  Cyclerion shall

 

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make such records available for audit by Ironwood or an independent accounting firm appointed by Ironwood for a period of three (3) years after the date on which the applicable Services have been completed.  Such audits will be made no more than once each calendar year during ordinary business hours and upon reasonable prior notice; provided, however, that an audit “For Cause” may be conducted more frequently.  For the purpose of this Section 4.7, an audit shall be deemed “For Cause” in the event that either (a) the last audit conducted by Ironwood or an independent accounting firm appointed by Ironwood has found material overpayments made by Ironwood or (b) Ironwood reasonably believes in good faith that Cyclerion is requesting reimbursement of amounts improperly under this Agreement.  To the extent that such audit reveals any overpayments or underpayments by Ironwood, Ironwood shall make up the amount of shortfall or, if applicable, Cyclerion shall refund the amount of overpayment made by Ironwood, within thirty (30) days from the receipt of the audit results.  Cyclerion shall provide reasonable assistance, including making available members of its staff, to facilitate such audits.

 

ARTICLE V

 

PROPRIETARY RIGHTS

 

Section 5.1.                                 Materials.  All documentation, information, data, and biological, chemical and other materials controlled by Ironwood and furnished to Cyclerion by or on behalf of Ironwood (the “Materials”) and all associated intellectual property rights will remain the exclusive property and Confidential Information of Ironwood.  Cyclerion shall use Materials provided by Ironwood only as necessary to perform the Services and shall treat the Materials in accordance with the requirements of this Section 5.1.  Cyclerion shall not use or evaluate such Materials or any portions thereof for any other purpose except as directed or permitted in writing by Ironwood.  Without Ironwood’s prior written consent, Cyclerion shall not analyze or reverse-engineer such Materials, or transfer or make the Materials available to Third Parties.

 

Section 5.2.                                 Inventions.

 

(a)                                 Cyclerion assigns and agrees to assign to Ironwood all rights in the United States and throughout the world to the Ironwood Inventions.  Ironwood shall exclusively own all Ironwood Inventions and all right, title and interest therein shall be exclusively vested in Ironwood.  Ironwood Inventions will constitute Confidential Information of Ironwood, and Cyclerion shall protect such Confidential Information in accordance with Article VI below.  For purposes of the copyright laws of the United States, Ironwood Inventions will constitute “works made for hire” as defined under the United States Copyright Act, 17 U.S.C. 101, except to the extent such Inventions cannot by law be “works made for hire,” in which case, Cyclerion irrevocably assigns all copyrights in the Ironwood Inventions, including the right to prepare derivative works, to Ironwood.  Cyclerion represents and warrants to Ironwood that all Cyclerion Representatives involved in providing Services or creating Deliverables have entered into, or will enter into prior to commencing the Services, a written agreement which assigns to Cyclerion all Inventions created by such Cyclerion Representatives during the course of his or her employment by, or other provision of services to, Cyclerion.

 

(b)                                 Ownership of Inventions that are not Ironwood Inventions shall follow inventorship.  Inventorship will be determined in accordance with United States patent laws

 

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(regardless of where the applicable activities occurred).  Cyclerion hereby grants, a non-exclusive, worldwide, royalty-free, fully paid up, sublicensable license to Ironwood under Cyclerion’s right, title and interest in any Inventions not assigned to Ironwood pursuant to Section 5.2(a) and arising or derived from or made in the performance of the Services or the creation of the Deliverables to research, develop, make, have made, use, sell, offer for sale, have sold, import, perform and practice products in all fields, including any Products.  Cyclerion will provide to Ironwood a copy of tangible embodiments of Inventions promptly following any request by Ironwood and, in any event, within ten (10) days after the end of the Term.

 

Section 5.3.                                 Limited License.  Subject to the terms and conditions of this Agreement, Ironwood hereby grants to Cyclerion a non-exclusive, royalty-free and fully paid-up license (sublicensable only to Permitted Subcontractors) under Ironwood’s right, title and interest to (a) intellectual property rights Controlled by Ironwood as of the Effective Date and (b) Ironwood Inventions, in each case of clauses (a) and (b) that are necessary for Cyclerion to perform the Services in accordance with and under this Agreement, solely for use in the performance of Services under and pursuant to this Agreement.  For the purposes of this Section 5.3, “Control” means, with respect to any intellectual property right, the legal authority or right (without taking into account any rights granted by Cyclerion to Ironwood under this Agreement) of Ironwood to grant a license or sublicense of or under such intellectual property rights to Cyclerion under this Section 5.3, without first breaching the terms of any agreement with a Third Party in existence as of the time Ironwood would first be required hereunder to grant Cyclerion such license or sublicense.

 

Section 5.4.                                 Cooperation.  During and after the Term of this Agreement, Cyclerion shall, and shall cause its Affiliates, Representatives and any Permitted Subcontractors to, cooperate fully in obtaining patent and other proprietary protection for any patentable Ironwood Inventions, all in the name of Ironwood and at Ironwood’s cost and expense.  Such cooperation will include, without limitation, executing and delivering all requested applications, assignments and other documents, and taking such other measures as Ironwood may reasonably request to perfect and enforce Ironwood’s rights in the Ironwood Inventions.  Cyclerion irrevocably designates and appoints Ironwood its agent and attorney-in-fact to execute, file and deliver any such documents and do all other lawfully permitted acts on behalf of Cyclerion, its Affiliates and Representatives if Cyclerion, its Affiliates or Representatives fail to do so to Ironwood’s reasonable satisfaction.

 

Section 5.5.                                 Cyclerion Property.  Notwithstanding the foregoing, Cyclerion will retain full ownership rights in and to all inventions, processes, know-how, trade secrets, improvements and other materials developed or obtained or licensed from third parties by Cyclerion and its Affiliates (collectively, the “Cyclerion Property”) prior to or independent of the performance of its obligations under this Agreement and without access to, or use of, Ironwood’s Confidential Information, regardless of whether such Cyclerion Property is used in connection with Cyclerion’s performance of the Services or creation of the Deliverables.  Cyclerion hereby grants to Ironwood a perpetual, non-exclusive, fully paid-up, royalty-free, irrevocable worldwide license, with the right to grant sublicenses, to use Cyclerion Property solely to the extent required for Ironwood’s use of the Deliverables, including the use of Deliverables in a product.

 

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Section 5.6.                                 Work at Third Party Facilities.  Except as permitted under the applicable Service Schedule, Cyclerion shall not transfer Materials to any Third Party or use any Third Party facilities or intellectual property in performing the Services without Ironwood’s prior written consent.

 

Section 5.7.                                 Records.  Cyclerion shall maintain all materials and all other data and documentation obtained or generated by Cyclerion in the course of preparing for and providing Services hereunder, including all computerized records and files (the “Records”) in a secure area reasonably protected from fire, theft and destruction.  These Records will be “Works Made for Hire” and will remain the exclusive property of Ironwood.  Records will be retained by Cyclerion for a period of seven (7) years, or longer if required under applicable law or regulation, unless Ironwood requests that such Records be delivered to Ironwood or to its designee in such form as is then currently in the possession of Cyclerion, in which case Cyclerion shall so deliver such Records to the extent they are not otherwise required to be stored or maintained by Cyclerion as a matter of law or regulation.  In no event will Cyclerion dispose of any such Records without first giving Ironwood sixty (60) days’ prior written notice of its intent to do so.  Cyclerion may, however, retain copies of any Records as are reasonably necessary for regulatory or insurance purposes, subject to Cyclerion’s obligation of confidentiality.

 

ARTICLE VI

 

CONFIDENTIALITY

 

Section 6.1.                                 Definition.  “Confidential Information” with respect to Ironwood means any and all non-public scientific, medical, regulatory, technical, financial, strategic, commercial or business information or data in written, oral, visual, electronic or other form owned, possessed or used by Ironwood, and learned of by Cyclerion or developed by Cyclerion in connection with the Services, whether or not labeled “Confidential”, including but not limited to (a) Deliverables, Materials, scientific data and sequence information, (b) development and marketing plans, regulatory and business strategies, financial information, forecasts, personnel information and customer lists of Ironwood, and (c) all information of Third Parties that Ironwood has an obligation to keep confidential.  “Confidential Information” with respect to Cyclerion means any and all non-public, scientific, medical, regulatory, technical, financial, strategic, commercial or business information, or data in written, oral, visual, electronic or other form owned, possessed or used by Cyclerion and learned of by Ironwood in connection with the Services, whether or not labeled as “Confidential,” including development and marketing plans and business strategies and Third Party information, provided, however that the Deliverables shall not qualify as Confidential Information of Cyclerion.

 

Section 6.2.                                 Obligations.  The Party receiving information (the “Recipient”) will use any Confidential Information of the other Party (the “Disclosing Party”) solely to perform the Services or exercise its rights or perform its obligations under this Agreement and will treat the Disclosing Party’s Confidential Information with the same degree of care it uses to protect its own confidential information, but in no event with less than a reasonable degree of care.  The Recipient will not directly or indirectly publish, disseminate or otherwise disclose, use for its own benefit or for the benefit of a third party, deliver or make available to any third party, any of

 

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the Disclosing Party’s Confidential Information, without the prior written consent of the Disclosing Party, other than to the Disclosing Party’s Affiliates, Representatives and any Permitted Subcontractors who have a need to know such Confidential Information in the course of the performance of their duties under this Agreement and who are bound to protect the confidentiality of the Confidential Information consistent with the terms of this Agreement.  The Recipient shall enforce the confidentiality obligations of its Affiliates, Representatives and any Permitted Subcontractors and shall be responsible for any breach of such obligations by such persons.  The Recipient shall notify the Disclosing Party of any breach by Recipient or Recipient’s Affiliates, Representatives and any Permitted Subcontractors of the obligations under this Section 6.2 as soon as practicable upon becoming aware of such breach.  The provisions of this Article VI shall remain in effect for a period of seven (7) years after the expiration or termination of this Agreement.

 

Section 6.3.                                 Exceptions.  Confidential Information shall not include any information that the Recipient can demonstrate by competent written record:

 

(a)                                 is or later becomes generally available to the public by use, publication or the like, through no wrongful act or omission or negligence on the part of the Recipient, its Affiliates or its Representatives;

 

(b)                                 is disclosed without restriction to the Recipient by a third party who is in legal possession of such information and whose disclosure to the Recipient does not violate any contractual, legal or fiduciary obligation to the Disclosing Party or any third party;

 

(c)                                  is lawfully in the Recipient’s possession (by means other than prior disclosure from the Disclosing Party) without any obligation to maintain confidentiality at the time of its receipt hereunder; or

 

(d)                                 is independently developed by the Recipient without aid, use or benefit of Confidential Information.

 

In the event that the Recipient is required by law or court order to disclose any Confidential Information, the Recipient will give the Disclosing Party prompt notice thereof so that the Disclosing Party may seek an appropriate protective order to obtain confidential treatment for such disclosed information.  In addition, the Recipient will (i) take all reasonable actions to obtain confidential treatment for any disclosed Confidential Information; (ii) reasonably cooperate with the Disclosing Party in its efforts to seek such a protective order; and (iii) limit such disclosure of the Disclosing Party’s Confidential Information to the fullest extent permitted under applicable law.

 

ARTICLE VII

 

DISPUTE RESOLUTION

 

Section 7.1.                                 Negotiation.  A Party seeking resolution of a controversy, dispute or action arising out of, in connection with, or in relation to the interpretation, performance, nonperformance, validity or breach of this Agreement or otherwise arising out of, or in any way related to, this Agreement or the transactions contemplated hereby or thereby, including any

 

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action based on contract, tort, statute or constitution (excluding any matters that are subject to resolution as provided in Section 4.1(b), the disputes referenced above in this Section 7.1 are, collectively, “Disputes”) shall provide written notice of such Dispute to the other Party, specifying the terms of such Dispute in reasonable detail (“Dispute Notice”).  The appropriate executives of the Parties who have authority to settle the Dispute (or such other individuals designated by the respective executives) shall attempt to resolve the Dispute through good faith negotiation for a reasonable period of time; provided that such reasonable period shall not, unless otherwise agreed by the Parties in writing, exceed fifteen (15) days from the time of receipt by a Party of the Dispute Notice.  If the Dispute has not been resolved within fifteen (15) days after receipt of the Dispute Notice, the respective Chief Executive Officers or their respective designees (with full settlement authority) of Ironwood and Cyclerion shall meet in person (or where necessary, by phone) at a mutually acceptable time and, if applicable, place, and thereafter as often as they reasonably deem necessary, to attempt in good faith to resolve the Dispute.  Any contractual time period or deadline under this Agreement to which such Dispute relates occurring after the Dispute Notice is received shall not be deemed to have passed until such Dispute has been resolved pursuant to this Article VII.

 

Section 7.2.                                 Arbitration.

 

(a)                                 Claims.  Any Dispute that is not resolved pursuant to Section 7.1 within thirty (30) days after receipt of a Dispute Notice shall be resolved by final and binding arbitration before a panel of three (3) experts with relevant industry experience (the “Arbitrators”).  One (1) Arbitrator shall be chosen by Ironwood and one (1) Arbitrator shall be chosen by Cyclerion within forty-five (45) of receipt of a Dispute Notice.  The third (3rd) Arbitrator shall be chosen by mutual agreement of the Arbitrator chosen by Ironwood and the Arbitrator chosen by Cyclerion within fifteen (15) days of the date that the last of such Arbitrators was appointed.  The Arbitrators shall be administered by the International Chamber of Commerce (the “Administrator”) in accordance with its then existing arbitrator rules or procedures regarding commercial or business disputes.  The arbitration shall be held in Boston, Massachusetts.  The Arbitrators shall be instructed by the Parties to complete the arbitration within ninety (90) days after selection of the third (3rd) Arbitrator.

 

(b)                                 Arbitrators’ Award.  The Arbitrators shall, within fifteen (15) days after the conclusion of the arbitration hearing, issue a written award and statement of decision describing the essential findings and conclusions on which the award is based, including the calculation of any damages awarded.  The decision or award rendered by the Arbitrators shall be final and non-appealable, and judgment may be entered upon it in accordance with the laws of the Commonwealth of Massachusetts or any other court of competent jurisdiction.  The Arbitrators shall be authorized to award compensatory damages, but shall not be authorized (i) to award non-economic damages, such as for emotional distress, pain and suffering or loss of consortium, (ii) to award punitive damages, or (iii) to reform, modify or materially change this Agreement; provided, however, that the limitations described in the foregoing clauses (i) and (ii) shall not apply if such damages are statutorily imposed.

 

(c)                                  Costs.  Each Party shall bear its own attorney’s fees, costs and disbursements arising out of the arbitration and the costs of the Arbitrator selected by it, and shall pay an equal share of the fees and costs of the third (3rd) Arbitrator; provided, however, that

 

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the Arbitrators shall be authorized to determine whether a Party is the prevailing Party, and if so, to award to that prevailing Party reimbursement for its reasonable attorneys’ fees, costs and disbursements (including, for example, expert witness fees and expenses, photocopy charges, travel expenses, etc.), and/or the fees and costs of the Administrator and the Arbitrators.

 

(d)                                 Injunctive or Other Equity Relief.  Nothing contained in this Agreement shall deny any Party the right to seek injunctive or other equitable relief from a court of competent jurisdiction in the context of a bona fide emergency or prospective irreparable harm, and such an action may be filed and maintained notwithstanding any ongoing arbitration proceeding.

 

Section 7.3.                                 Continuity of Service and Performance.  Unless otherwise agreed in writing, the Parties shall continue to provide service and honor all other commitments under this Agreement during the course of a Dispute with respect to all matters not subject to such Dispute.

 

ARTICLE VIII

 

INDEMNIFICATION; LIMITATION ON LIABILITY; INSURANCE

 

Section 8.1.                                 Indemnification by Cyclerion.  Subject to Section 8.5, Cyclerion shall defend, indemnify and hold harmless Ironwood, its Affiliates and each of their respective directors, officers, employees, agents, licensors, successors and assigns (collectively, the “Ironwood Indemnitees”) from any loss, liability or expense incurred in connection with a claim, demand, action, suit or proceeding (a “Claim”), arising from or related to (a) Cyclerion’s breach of any of its obligations, representations or warranties under this Agreement or (b) the gross negligence, willful misconduct or fraud by Cyclerion, its Affiliates, its Representatives or any Permitted Subcontractors; provided, however, that Cyclerion shall have no such obligation with respect to any Claim to the extent that such Claim arises from the gross negligence, willful misconduct or fraud by the Ironwood Indemnitees, or the material breach by Ironwood of any of its obligations under this Agreement.

 

Section 8.2.                                 Indemnification by Ironwood.  Subject to Section 8.5, Ironwood shall defend, indemnify and hold harmless Cyclerion, its Affiliates and each of their respective directors, officers, employees, agents, licensors, successors and assigns (collectively, the “Cyclerion Indemnitees”) from any loss, liability or expense incurred in connection with a Claim, arising from or related to (a) Ironwood’s breach of any of its obligations, representations or warranties under this Agreement or (b) the gross negligence, willful misconduct or fraud by Ironwood, its Affiliates or its Representatives; provided, however that Ironwood shall have no such obligation with respect to any Claim to the extent that such Claim arises from the gross negligence, willful misconduct or fraud by the Cyclerion Indemnitees, or the material breach by Cyclerion of any of its obligations under this Agreement.

 

Section 8.3.                                 Indemnification Procedures.  The Party seeking to be indemnified (the “Indemnified Party”) shall provide prompt written notice of a Claim or events likely to give rise to a Claim to the Party with the obligation to indemnify (the “Indemnifying Party”) (in any event within sufficient time so as not to prejudice the defense of such Claim).  The Indemnifying Party shall be given the opportunity at all times to control the defense of the Claim, with the

 

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cooperation and assistance of the Indemnified Party; provided, however, that the Indemnifying Party shall not settle any Claim with an admission of liability or wrongdoing by the Indemnified Party without such Party’s prior written consent.

 

Section 8.4.                                 Sole Remedy.  Subject to Section 3.5, indemnification pursuant to this Article VIII represents the Parties’ sole and exclusive remedy under this Agreement, provided that, if Cyclerion commits an error with respect to, incorrectly performs or fails to perform any Service, at Ironwood’s request, without prejudice to any other rights or remedies Ironwood may have, Cyclerion shall use commercially reasonable efforts to correct such error, re-perform such Service or perform such Service, as applicable, at no additional cost to Ironwood.  To the extent the Cyclerion is unable to provide in its entirety a Service because of a delay which excuses performance pursuant to Section 10.5, Cyclerion shall allocate such resources or products as are then currently available to it and necessary for the performance of such Service ratably between Cyclerion for its own account and Ironwood for the performance of such Services hereunder.

 

Section 8.5.                                 Limitation on Liability.

 

(a)                                 The aggregate liabilities of Cyclerion under this Agreement for any act or failure to act in connection herewith (including the performance or breach of this Agreement), or from the sale, delivery, provision or use of any Services provided under or contemplated by this Agreement, whether in contract, tort (including negligence and strict liability) or otherwise, at law or equity, shall not exceed the aggregate amount of Internal Costs and OOP Service Expenses paid (and not previously paid back as a liability under this Section 8.5(a)) to Cyclerion (or its Affiliates) under this Agreement prior to the date on which Cyclerion’s (or its applicable Affiliate’s or Representative’s) action or inaction giving rise to the applicable liability arises or occurs; provided that if such action or inaction occurs during the first year of the Term, the aggregate liabilities of Cyclerion and its Affiliates related to such action or inaction will not exceed the aggregate amount of Internal Costs and OOP Service Expenses actually paid and payable (and not previously paid back as a liability hereunder) in the first twelve (12) months of the Term.

 

(b)                                 Notwithstanding anything to the contrary contained in this Agreement, Cyclerion will not be liable to Ironwood or any of its Affiliates, whether in contract, tort (including negligence and strict liability) or otherwise, at law or equity, for any special, indirect, incidental, punitive or consequential damages whatsoever (including lost profits or damages calculated on multiples of earnings approaches), which in any way arise out of, relate to or are a consequence of, the performance or nonperformance by Cyclerion (including any Affiliates and Permitted Subcontractors, in each case, providing the applicable Services) under this Agreement or the provision of, or failure to provide, any Services under this Agreement, including with respect to loss of profits, business interruptions or claims of customers.

 

(c)                                  The limitations in Section 8.5 shall not apply with respect to any liability arising out of, relating to or in connection with (i) any Third Party claim to the extent paid to a Party pursuant to an indemnification obligation to the other Party for such liability under Section 8.1 or Section 8.2, (ii) any breach of Article VI or (iii) the gross negligence, willful misconduct, or fraud of or by the Party to be charged.

 

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Section 8.6.                                 Insurance.  Each Party hereto shall, throughout the term of this Agreement, carry appropriate insurance with a reputable insurance company covering property damage, business interruptions, automobile and general liability insurance (including contractual liability) to protect its own business and property interests; provided that each Party shall be permitted to reasonably self-insure against the liabilities specified in Article VII.

 

ARTICLE IX

 

TERM AND TERMINATION

 

Section 9.1.                                 Term.  This Agreement will commence on the Effective Date and continue for, subject to this Article IX, two (2) years (the “Initial Term”).  This Agreement will automatically renew for subsequent periods of one (1) year each (each a “Renewal Term,” and together with the Initial Term, the “Term”) unless either Party notifies the other at least six (6) months’ prior to the expiration of the then current Initial Term or Renewal Term, as applicable, of its intent not to renew.  Any Service shall commence on its respective effective date and shall terminate upon the completion of such Service and delivery of the Deliverable(s) to be provided for such Service, unless otherwise set forth on the Service Schedule or earlier terminated in accordance with this Article IX.  Notwithstanding the foregoing, if any Service has begun prior to this Agreement’s expiration and remains ongoing at what would otherwise be this Agreement’s expiration, then this Agreement shall not expire and shall continue in full force and effect until Cyclerion’s completion of any unperformed obligations under any such Service only.

 

Section 9.2.                                 Termination by Ironwood.  Ironwood may terminate this Agreement or any Service at any time and for any reason upon six (6) months’ prior written notice to Cyclerion.

 

Section 9.3.                                 Effect of Termination or Expiration.  Upon expiration of this Agreement, neither Cyclerion nor Ironwood shall have any further obligations under this Agreement, except that:

 

(a)                                 Cyclerion shall deliver to Ironwood or, at Ironwood’s option, dispose of, any Materials in its possession or control and all Deliverables developed through termination or expiration;

 

(b)                                 No later than thirty (30) days after the date of the completed performance of any wind-down instructions from Ironwood, Cyclerion shall provide Ironwood with a final reconciliation containing an itemized accounting of Services performed, expenses incurred and payments received to determine any and all amounts owed to or by each Party.  Ironwood will pay Cyclerion all undisputed fees for Services performed and all permitted reimbursable expenses through the expiration date in accordance with the provisions of this Agreement.  In addition, Ironwood will reimburse Cyclerion for all reasonable, non-cancellable obligations to Third Parties incurred by Cyclerion in the course of its performance of Services and any reasonable costs incurred in connection with performing Ironwood’s wind-down instructions, in each case in accordance with the provisions of this Agreement.  Cyclerion will promptly refund any monies paid in advance by Ironwood for Services not rendered and in excess of any

 

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applicable payments owed by Ironwood under this Agreement.  Any net amount owed by either Party will be paid within thirty (30) days following receipt of the itemized accounting;

 

(c)                                  A Party that has received the other Party’s Confidential Information will promptly return to the Disclosing Party or destroy all Confidential Information and all tangible items relating to such Confidential Information, and all copies thereof in the possession or control of the receiving Party, such Party’s Affiliates, Representatives or any Permitted Subcontractors, provided to the recipient under this Agreement which has been terminated or has expired; provided, however, that the receiving Party of the other Party’s Confidential Information may retain one (1) copy in the separate files of such receiving Party’s legal counsel solely for legal compliance purposes and with respect to electronic copies, the Receiving Party shall (i) be obligated to use only commercially reasonable efforts to remove all active copies and (ii) not be obligated to delete archival copies retained in accordance with its normal procedures, or to remove any hidden or partial copies; provided further, however, that notwithstanding anything to contrary herein, all retained Confidential Information shall continue to be subject to the confidentiality and non-use obligations set forth herein.  Upon the Disclosing Party’s request, an authorized Representative of the receiving Party of the other Party’s Confidential Information shall certify to such receiving Party’s compliance with this Section 9.3(c).

 

(d)                                 The terms, conditions and obligations under Article III (Representations, Warranties and Covenants by Cyclerion), Article IV (Compensation), Article V (Proprietary Rights), Article VI (Confidentiality), Article VIII (Indemnification; Limitation on Liability; Insurance), Section 9.3 (Effect of Termination or Expiration) and Section 10.11 (Governing Law) will survive any such termination or expiration.

 

ARTICLE X

 

MISCELLANEOUS

 

Section 10.1.                          Complete Agreement; Construction.  This Agreement, including the Appendices, shall constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments, course of dealings and writings with respect to such subject matter.  In the event of any inconsistency between this Agreement and any Schedule hereto, the Schedule shall prevail.

 

Section 10.2.                          Counterparts.  This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the Parties and delivered to each of the Parties.

 

Section 10.3.                          Notices.  All notices, requests, claims, demands and other communications under this Agreement shall be in English, shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile with receipt confirmed (followed by delivery of an original via overnight courier service) or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as will be specified in a notice given in accordance with this Section 10.3):

 

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To Ironwood:

 

Ironwood Pharmaceuticals, Inc.
 301 Binney Street
 Cambridge, MA 02142
 United States
 Attn:  General Counsel
 Phone:  617-621-7722
 Fax:  617-588-0623

 

To Cyclerion:

 

Cyclerion Therapeutics, Inc.
 301 Binney Street

Cambridge, MA 02142

United States
 Attn: Chief Financial Officer

Phone:  
 Fax:

 

Section 10.4.                          Waivers.  The delay or failure by either Party to exercise or enforce any of its rights under this Agreement will not constitute, or be deemed to be, a waiver of those rights, nor will any single or partial exercise of any such rights preclude any other or further exercise thereof or the exercise of any other right.  No waiver of any provision of this Agreement will be effective unless it is in writing and signed by the Party against which it is being enforced.

 

Section 10.5.                          Force Majeure.

 

(a)                                 Neither Party hereto will be liable for delay in performance (other than the payment of money) of its obligations to the extent caused by events which could not have been foreseen and are beyond the reasonable control of the Party affected (an event of “Force Majeure”), including (i) acts of God, the elements, epidemics, explosions, accidents, landslides, lightning, earthquakes, fires, storms (including tornadoes and hurricanes or tornado and hurricane warnings), sinkholes, floods, or washouts; (ii) labor shortage or trouble including strikes or injunctions (whether or not within the reasonable control of such Party and provided that the settlement of strikes and other labor disputes shall be entirely within the discretion of the Party experiencing the difficulty); (iii) inability to obtain material, equipment or transportation; (iv) national defense requirements, war, blockades, insurrections, sabotage, terrorism, riots, arrests and restraints of the government, either federal or state, civil or military (including any governmental taking by eminent domain or otherwise); or (v) any changes in applicable law, regulation or rule or the enforcement thereof by any governmental or regulatory agency having jurisdiction, that limits or prevents a Party from performing its obligations hereunder or any notice from any such agency of its intention to fine or penalize such Party or otherwise impede or limit such Party’s ability to perform its obligations hereunder.

 

(b)                                 Cyclerion shall endeavor to provide to Ironwood uninterrupted Services through the Term.  In the event, however, that (i) Cyclerion is wholly or partially prevented from

 

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providing a Service or Services either temporarily or permanently by reason of any Force Majeure event, or (ii) the Cyclerion, in the exercise of its reasonable good faith judgment, deems it necessary to suspend delivery of a Service hereunder for purposes of inspection, maintenance, repair, replacement of equipment parts or structures, or similar activities consistent with past practices, Cyclerion shall not be obligated to deliver the affected part of such Service during such periods, and, in the case of the immediately preceding clause (ii), Cyclerion shall cooperate with Ironwood with respect to the timing of such interruption.

 

Section 10.6.                          Assignment.  Except as provided herein, neither Party may assign any rights or delegate any obligations arising under this Agreement, in whole or in part, directly or indirectly, without the prior written consent of the other Party (such consent not to be unreasonably withheld, conditioned or delayed), and any attempt to so assign any rights or delegate any obligations arising under this Agreement without such consent will be void.  Notwithstanding the foregoing, no such consent shall be required for any such assignment or delegation (a) with respect to Ironwood, (i) to an Affiliate of Ironwood (so long as such Affiliate remains an Affiliate of Ironwood) or (ii) to a bona fide Third Party in connection with a merger, reorganization, consolidation or the sale of all or substantially all the assets of Ironwood or (b) with respect to Cyclerion, to an Affiliate controlled (as defined in Section 1.1(1)) by Cyclerion (so long as such Affiliate remains controlled by Cyclerion), in each case so long as the resulting, surviving or transferee entity assumes all the obligations of the assigning Party by operation of law or pursuant to the agreement governing such transaction; and further provided, however, that any incremental taxes that result from the assignment or are imposed on the non-assigning Party shall be borne by the assigning Party or its assignee.

 

Section 10.7.                          Successors and Assigns.  The provisions of this Agreement and the obligations and rights hereunder shall be binding upon, inure to the benefit of and be enforceable by (and against) the Parties and their respective successors (whether by merger, acquisition of assets or otherwise) and permitted assigns.

 

Section 10.8.                          Third Party Beneficiaries.  Except as provided in Article VIII with respect to persons entitled to claim indemnification hereunder, this Agreement is solely for the benefit of the Parties and will not be deemed to confer upon person other than the Parties any remedy, claim, liability, reimbursement, cause of action or other right beyond any that exist without reference to this Agreement.

 

Section 10.9.                          Titles and Headings.  Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

 

Section 10.10.                   Appendices.  The Appendices shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein.

 

Section 10.11.                   Governing Law.  This Agreement will be governed by, construed and interpreted in accordance with the laws of the Commonwealth of Massachusetts, U.S.A., without reference to principles of conflicts of laws.

 

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Section 10.12.                   Severability.  In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby.  The Parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

 

Section 10.13.                   Interpretation.  Interpretation of this Agreement shall be governed by the following rules of construction: (a) words in the singular shall be held to include the plural and vice versa, and words of one gender shall be held to include the other gender as the context requires; (b) references to the terms “Section,” “paragraph,” “clause,” “Exhibit” and “Schedule” are references to the Sections, paragraphs, clauses, Exhibits and Schedules of this Agreement unless otherwise specified; (c) the terms “hereof,” “herein,” “hereby,” “hereto,” and derivative or similar words refer to this entire Agreement, including the Schedules and Exhibits hereto; (d) references to “$” shall mean U.S. dollars; (e) the word “including” and words of similar import when used in this Agreement shall mean “including without limitation,” unless otherwise specified; (f) the word “or” shall not be exclusive; (g) references to “written” or “in writing” include in electronic form; (h) unless the context requires otherwise, references to “Party” shall mean Ironwood or Cyclerion, as appropriate, and references to “Parties” shall mean Ironwood and Cyclerion; (i) provisions shall apply, when appropriate, to successive events and transactions; (j) the table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement; (k) Ironwood and Cyclerion have each participated in the negotiation and drafting of this Agreement and if an ambiguity or question of interpretation should arise, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or burdening either Party by virtue of the authorship of any of the provisions in this Agreement or any interim drafts of this Agreement; and (l) a reference to any person includes such person’s successors and permitted assigns.

 

Section 10.14.                   No Duplication; No Double Recovery.  Nothing in this Agreement is intended to confer to or impose upon any Party a duplicative right, entitlement, obligation or recovery with respect to any matter arising out of the same facts and circumstances.

 

Section 10.15.                   Independent Contractor Status.  Cyclerion will be deemed to be an independent contractor to Ironwood.  Nothing contained in this Agreement will create or be deemed to create the relationship of employer and employee between Cyclerion and Ironwood.  The relationship created between Cyclerion and Ironwood pursuant to or by this Agreement is not and will not be one of partnership or joint venture.  No Party to this Agreement will, by reason hereof, be deemed to be a partner or a joint venture of the other Party hereto in the conduct of their respective businesses or the conduct of the activities contemplated by this Agreement.  Except as specifically and explicitly provided in this Agreement, and subject to and in accordance with the provisions hereof, no Party to this Agreement is now, will become, or will be deemed to be a an agent or representative of the other Party.  Except as herein explicitly and specifically provided, neither Party shall have any authority or authorization, of any nature whatsoever, to speak for or bind the other Party to this Agreement.

 

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[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day and year first above written.

 

	
 
    	
IRONWOOD PHARMACEUTICALS, INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    
	
 
    	
Title:
    
	
 
    	
 
    
	
 
    	
CYCLERION THERAPEUTICS, INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    
	
 
    	
Title:
    

 

[Signature Page to Development Agreement]

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