Document:

Exhibit 10.11

 

RESEARCH COLLABORATION AND
LICENSE AGREEMENT

 

between

 

MERCK & CO., INC.

 

and

 

ARRIS PHARMACEUTICAL
CORPORATION

 

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

 

 

TABLE OF CONTENTS

 

	
  ARTICLE I DEFINITIONS

  	
  1

  
	
   

  	
   

  
	
  ARTICLE II RESEARCH PROGRAM

  	
  8

  
	
   

  	
   

  	
   

  
	
  2.1

  	
  General

  	
  8

  
	
   

  	
   

  	
   

  
	
  2.2

  	
  Conduct of Research

  	
  8

  
	
   

  	
   

  	
   

  
	
  2.3

  	
  Use of Research Funding

  	
  8

  
	
   

  	
   

  	
   

  
	
  2.4

  	
  Exchange of Information

  	
  8

  
	
   

  	
   

  	
   

  
	
  2.5

  	
  Joint Research Committee

  	
  8

  
	
   

  	
   

  	
   

  
	
  2.6

  	
  Records and Reports

  	
  8

  
	
   

  	
   

  	
   

  
	
   

  	
  2.6.1

  	
  Records

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.6.2

  	
  Copies and Inspection of Records

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.6.3

  	
  Quarterly Reports

  	
  9

  
	
   

  	
   

  	
   

  
	
  2.7

  	
  Research Program Information and Inventions

  	
  9

  
	
   

  	
   

  	
   

  
	
  2.8

  	
  Research Program Term

  	
  9

  
	
   

  	
   

  	
   

  
	
  2.9

  	
  ARRIS Delta Technology

  	
  10

  
	
   

  	
   

  	
   

  
	
  2.10

  	
  Rights to Compounds

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE III LICENSE; DEVELOPMENT AND COMMERCIALIZATION

  	
  11

  
	
   

  	
   

  	
   

  
	
  3.1

  	
  Research License Grants

  	
  11

  
	
   

  	
   

  	
   

  
	
  3.2

  	
  Commercialization License

  	
  12

  
	
   

  	
   

  	
   

  
	
  3.3

  	
  Development and Commercialization

  	
  12

  
	
   

  	
   

  	
   

  
	
  3.4

  	
  Exclusivity in Field

  	
  12

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV CONFIDENTIALITY AND PUBLICATION

  	
  12

  
	
   

  	
   

  	
   

  
	
  4.1

  	
  Nondisclosure Obligations

  	
  12

  
	
   

  	
   

  	
   

  
	
  4.2

  	
  Restriction on ARRIS Delta Technology

  	
  12

  
	
   

  	
   

  	
   

  
	
  4.3

  	
  Exceptions

  	
  12

  
	
   

  	
   

  	
   

  
	
  4.4

  	
  Permitted Disclosure of Proprietary Information

  	
  13

  
	
   

  	
   

  	
   

  
	
  4.5

  	
  Publication

  	
  13

  
	
   

  	
   

  	
   

  
	
  4.6

  	
  Press Releases

  	
  14

  
	
   

  	
   

  	
   

  
	
  ARTICLE V PAYMENTS; ROYALTIES AND REPORTS

  	
  14

  
	
   

  	
   

  	
   

  
	
  5.1

  	
  Commitment Fee

  	
  14

  
	
   

  	
   

  	
   

  
	
  5.2

  	
  Research Program Funding

  	
  14

  
	
   

  	
   

  	
   

  
	
  5.3

  	
  Milestone Payments

  	
  15

  

 

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

 

i

 

	
  5.4

  	
  Royalties

  	
  16

  
	
   

  	
   

  	
   

  
	
   

  	
  5.4.1

  	
  Royalties Payable By MERCK

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.4.2

  	
  Managed Pharmaceutical Contracts

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.4.3

  	
  Change in Sales Practices

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.4.4

  	
  Bulk Compound

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.4.5

  	
  Compulsory Licenses

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.4.6

  	
  Third Party Licenses

  	
  18

  
	
   

  	
   

  	
   

  
	
  5.5

  	
  Reports; Payment of Royalty

  	
  18

  
	
   

  	
   

  	
   

  
	
  5.6

  	
  Audits

  	
  19

  
	
   

  	
   

  	
   

  
	
  5.7

  	
  Income Tax Withholding

  	
  20

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI REPRESENTATIONS AND WARRANTIES

  	
  20

  
	
   

  	
   

  	
   

  
	
  6.1

  	
  Arris Representations and Warranties

  	
  20

  
	
   

  	
   

  	
   

  
	
  6.2

  	
  Merck Representations and Warranties

  	
  21

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII PATENT MATTERS

  	
  21

  
	
   

  	
   

  	
   

  
	
  7.1

  	
  Filing

  	
  21

  
	
   

  	
   

  	
   

  
	
  7.2

  	
  Right to Prosecute and Maintain Patents

  	
  22

  
	
   

  	
   

  	
   

  
	
  7.3

  	
  Interference, Opposition, Reexamination and Reissue

  	
  23

  
	
   

  	
   

  	
   

  
	
  7.4

  	
  Enforcement and Defense

  	
  23

  
	
   

  	
   

  	
   

  
	
  7.5

  	
  Patent Term Restoration

  	
  25

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII TERM AND TERMINATION

  	
  25

  
	
   

  	
   

  	
   

  
	
  8.1

  	
  Term and Expiration

  	
  25

  
	
   

  	
   

  	
   

  
	
  8.2

  	
  Termination by MERCK

  	
  25

  
	
   

  	
   

  	
   

  
	
  8.3

  	
  Termination

  	
  27

  
	
   

  	
   

  	
   

  
	
   

  	
  8.3.1

  	
  Termination for Cause

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.3.2

  	
  Effect of Termination for Bankruptcy

  	
  28

  
	
   

  	
   

  	
   

  
	
  8.4

  	
  Effect of Expiration or Termination

  	
  28

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX MISCELLANEOUS

  	
  29

  
	
   

  	
   

  	
   

  
	
  9.1

  	
  Force Majeure

  	
  29

  
	
   

  	
   

  	
   

  
	
  9.2

  	
  Excused Performance

  	
  29

  
	
   

  	
   

  	
   

  
	
  9.3

  	
  Binding Effect; Assignment

  	
  29

  
	
   

  	
   

  	
   

  
	
  9.4

  	
  Consequences of Certain Assignments by ARRIS

  	
  30

  
	
   

  	
   

  	
   

  
	
  9.5

  	
  Severability

  	
  31

  
	
   

  	
   

  	
   

  
	
  9.6

  	
  Use of Names

  	
  31

  
					

 

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

 

ii

 

	
  9.7

  	
  Notices

  	
  31

  
	
   

  	
   

  	
   

  
	
  9.8

  	
  Applicable Law

  	
  32

  
	
   

  	
   

  	
   

  
	
  9.9

  	
  Arbitration

  	
  32

  
	
   

  	
   

  	
   

  
	
  9.10

  	
  Entire Agreement

  	
  33

  
	
   

  	
   

  	
   

  
	
  9.11

  	
  Headings

  	
  33

  
	
   

  	
   

  	
   

  
	
  9.12

  	
  Independent Contractors

  	
  33

  
	
   

  	
   

  	
   

  
	
  9.13

  	
  Waiver

  	
  33

  
	
   

  	
   

  	
   

  
	
  9.14

  	
  Counterparts

  	
  33

  

 

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

 

iii

 

RESEARCH COLLABORATION AND LICENSE AGREEMENT

 

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

 

WITNESSETH:

 

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

 

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

 

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

 

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

 

ARTICLE I

DEFINITIONS

 

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

 

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

 

(A)

 

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

 

(2)                                  satisfies
one or more of the following:

 

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

 

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

 

1

 

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

 

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

 

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

 

(B)

 

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

 

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

 

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

 

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

 

2

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

3

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

4

 

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

 

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

 

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

 

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

 

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

 

(a)                                  trade and quantity discounts;

 

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

 

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

 

(d)                                 [***];

 

(e)                                  [***]; and

 

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

 

5

 

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

 

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

 

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

 

1.23                           “Program Compound” shall mean

 

(a)                                  an Active Compound that:

 

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

 

(ii)                                  [***];

 

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

 

(iv)                              [***];

or

 

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

 

6

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

1.29                           “Valid Patent Claim” shall mean a
claim of an issued and unexpired patent included within the ARRIS Patents,
MERCK Patents or Collaboration Patents, which has not been revoked or held
unenforceable or invalid by a decision of a court or other governmental agency
of competent jurisdiction, unappealable or unappealed within the time allowed
for appeal, and which has not been disclaimed, denied or admitted to be invalid
or unenforceable through reissue or disclaimer or otherwise.

 

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

 

7

 

ARTICLE II

RESEARCH PROGRAM

 

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

 

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

 

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

 

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

 

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

 

2.6           Records and Reports.

 

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

 

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

 

8

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

9

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

10

 

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

 

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

 

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

 

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

 

ARTICLE III

LICENSE; DEVELOPMENT AND COMMERCIALIZATION

 

3.1           Research License Grants.

 

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

 

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

 

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

 

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

 

11

 

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

 

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

 

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

 

ARTICLE IV

CONFIDENTIALITY AND PUBLICATION

 

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

 

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

 

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

 

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

 

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

 

12

 

(b)           is
properly in the public domain;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

13

 

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

 

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

 

ARTICLE V

PAYMENTS; ROYALTIES AND REPORTS

 

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

 

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

 

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

 

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

 

14

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

15

 

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

 

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

 

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

 

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

 

5.4           Royalties.

 

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

 

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

 

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

 

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

 

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

 

16

 

of such Net Sales in such countries; and

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

17

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

18

 

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

 

5.6           Audits.

 

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

 

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

 

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

 

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

 

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

 

19

 

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

 

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

 

ARTICLE VI

REPRESENTATIONS AND WARRANTIES

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

20

 

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

 

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

 

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

 

ARTICLE VII

PATENT MATTERS

 

7.1           Filing, Prosecution and Maintenance
of Patents.

 

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

 

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

 

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

 

21

 

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

 

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

 

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

 

7.2           Right to Prosecute and Maintain
Patents.

 

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

 

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

 

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

 

22

 

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

 

7.3           Interference, Opposition,
Reexamination and Reissue.

 

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

 

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

 

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

 

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

 

7.4           Enforcement and Defense.

 

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

 

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

 

23

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

24

 

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

 

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

 

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

 

ARTICLE VIII

TERM AND TERMINATION

 

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

 

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

 

(a)           at
any time after the end of the Research Program Term for any reason by giving 90
days advance written notice to ARRIS; or

 

(b)           during
the Research Program Term, upon sixty 60 days written notice, solely in the
event that MERCK in its reasonable judgment exercised in good faith determines
that

 

(i)            the parties have demonstrated, to
reasonable scientific certainty using appropriate experiments, that inhibition
of cathepsin K is not valid as a suitable target for development of a
pharmaceutical product for [***]

 

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

 

25

 

, or

 

(ii)           issued third party patents make it
commercially impracticable to continue conduction the Research Program.

 

Such appropriate experiment under Subsection
8.2 (b)(i) above is one that would demonstrate that inhibition of cathespin K
activity in vivo does not result in significant reduction of [***] in such in
vivo model.

 

In the event of termination under this Section 8.2,

 

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

 

(ii)           MERCK shall have [***] license to use
the ARRIS Know-How and the ARRIS Research Information for all internal research
purposes excluding inhibition of cathepsin K or L, and

 

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

 

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

 

26

 

(a) that ARRIS may select specific inhibitor
Active Compounds to be covered by the license agreement and exclude remaining
Active Compounds owned by MERCK; (b) that ARRIS shall not be licensed to
develop, make, use, import or sell any compound which in MERCK’s sole judgment
has failed Safety Assessment; (c) that ARRIS shall not be licensed to develop,
make, use or import or sell any compound which in MERCK’s sole judgment has
exhibited any significant clinical adverse effect(s); (d) that ARRIS shall not
develop, make, use, import or sell any licensed compound which in ARRIS’s
reasonable judgment lacks a reasonable level of efficacy; (e) that ARRIS shall
indemnify MERCK fully with respect to products covered by the license and
maintain liability insurance to MERCK’s satisfaction having at least the same
coverage and limits as the insurance MERCK then maintains; (f) that ARRIS shall
pay MERCK the sum of $[***] upon the parties’ execution of of the license
agreement; (g) that ARRIS shall repay to MERCK upon the parties’ execution of
the license agreement all milestone amounts set forth in Subsections 5.3(c)
through (g) previously paid with respect to each compound ARRIS pursues under
the license; (h) that ARRIS shall pay MERCK royalties as follows: (i) with
respect to all Active Compounds which are in clinical development by MERCK, its
Affiliates or sublicensees at the time of termination under this Section 8.2
and are commercialized by ARRIS, the percentages set forth in Subsections
5.4.1(a) and (b) of this Agreement on the terms set forth in such Section 5.4),
and (ii) [***] with respect to all other Active Compounds which are
commercialized by ARRIS under the license; and (i) such agreement, and any
economic obligations thereunder, shall not cover or apply to any ARRIS
compounds existing as of the Effective Date. Such license agreement also shall
contain such other commercially reasonable terms as typically are in license
agreements.  Upon exercise by ARRIS of
such option, MERCK and ARRIS promptly thereafter shall negotiate in good faith
and enter into such license agreement.

 

8.3           Termination.

 

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

 

(a)           if
the other party is in breach of its material obligations hereunder by causes
and reasons within its control and has not cured such breach within 90 days
after receipt of a letter requesting such cure; or

 

(b)           in
the event ARRIS materially breaches its obligations during the Research Program
Term, and fails to cure such breach within 90 days after notice of such breach,
then MERCK may, in lieu of termination under Subsection 8.3.1(a) above,
terminate the Research Program, the research license granted to ARRIS under
Subsection 3.1(b) and all of MERCK’s obligations to fund any further
research hereunder, PROVIDED, HOWEVER that all other rights and obligations of
MERCK and ARRIS hereunder shall be preserved, including without limitation, the
licenses

 

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

 

27

 

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

 

(c)           In
the event ARRIS materially breaches its obligations at any time during the term
of this Agreement and MERCK either notifies ARRIS of the termination of this
Agreement under Section 8.3.1(a) or initiates arbitration against
ARRIS for breach of this Agreement, or both, any milestone payments that MERCK
may be required to pay to ARRIS pursuant to Section 5.3 of this Agreement shall
be paid by MERCK instead into an escrow account pending the resolution of the
arbitration or other agreement of the parties.

 

8.3.2        Effect of Termination
for Bankruptcy.

 

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

 

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

 

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

 

28

 

ARTICLE IX

MISCELLANEOUS

 

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

 

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

 

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

 

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

 

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

 

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

 

29

 

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

 

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

 

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

 

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

 

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

 

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

 

30

 

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

 

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

 

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

 

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

 

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

 

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

 

if to ARRIS, to:

Arris Pharmaceutical Corporation 

385 Oyster Point Boulevard, Suite 3 

South San Francisco, California 94080 

Attention: President, Chief Executive Officer 

Telecopier No.: 415/829-1067

 

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

 

31

 

with a copy to:  Cooley Godward
LLP

3000 El Camino Real

Palo Alto, California 94306

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

 

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

One Merck Drive

P.O. Box 100

Whitehouse Station, NJ 08889-0100

Attention: Office of Secretary

Telecopier No.: 908/735-1246

 

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

Telecopier No.: 908/735-1226

 

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

 

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

 

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

 

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

 

32

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

	
  MERCK & CO., INC.

  	
  ARRIS PHARMACEUTICAL CORPORATION

  
	
   

  	
   

  
	
  BY:

  	
  /s/

  	
   

  	
  BY:

  	
  /s/

  
	
   

  	
  Raymond V. Gilmartin

  	
   

  	
  John P. Walker

  
	
  TITLE:

  	
  Chairman, President and Chief 

  	
  TITLE: 

  	
  President & Chief Executive Officer

  
	
   

  	
  Executive Officer

  	
   

  
	
  DATE:

  	
  November 6, 1996

  	
  DATE:

  	
  November 6, 1996

  
						

 

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

 

33

 

ATTACHMENT
2.1

 

RESEARCH
PROGRAM

 

1. [***]

 

2. [***]

 

3. [***]

 

4. [***]

 

5. [***]

 

6. [***]

 

7. [***]

 

a. [***]

 

b. [***]

 

c. [***]

 

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

 

34

 

APPENDIX
A-1

 

[***]

 

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

 

35

 

APPENDIX
A-2

 

[***]

 

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

 

36

 

APPENDIX
B

 

[***]

 

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

 

37

 

APPENDIX
C

 

[***]

 

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

 

38Exhibit 10.14

 

THIRD AMENDMENT TO AGREEMENT

 

This is the third amendment to the Research
Collaboration and License Agreement between MERCK & CO., INC., a
corporation organized and existing under the laws of New Jersey (“MERCK”) and
ARRIS PHARMACEUTICAL CORPORATION, a corporation organized and existing under
the laws of Delaware, now known as Axys Pharmaceuticals, Inc. (“Axys”)
made as of November 6, 1996 (the “Agreement”).  The purpose of this third amendment is to
extend the Research Program Term through November 5, 2000, and to [***].

 

1.     In accordance with the provisions of Section 2.8
and Section 5.2(d) of the Agreement and subject to MERCK’s right to
terminate the Research Program and the Agreement in accordance with Section 8.2,
the Research Program Term is extended through November 5, 2000, and the
parties agree that [***] FTEs will be required during the period [***].  The FTEs for the period [***] shall be payable
at an annual rate of [***] per FTE. The FTEs for the period [***] shall be
payable at an annual rate of [***] per FTE.

 

2.     Attachment 2.1 setting forth the Research
Program is hereby amended to include the additional research work set forth on
the attachment to this third amendment.

 

3.     Capitalized terms used and not otherwise
defined herein shall have the respective meanings set forth in the Agreement.  The Agreement, together with the first
amendment dated February 9, 1998, the second amendment dated November 5,
1998 and this third amendment contain the entire understanding of the parties with
respect to their subject matter.  All
express or implied agreements and understandings, either oral or written,
heretofore made are expressly merged in and made a part of the Agreement as
amended by the first, second and third amendments.  All other terms and conditions of the
Agreement, as amended, continue in full force and effect.  The Agreement and its amendments may be
amended, or any term thereof modified, only by a written instrument duly
executed by both parties hereto.

 

IN WITNESS WHEREOF, the parties have entered
into this Amendment as of 18 November, 1999.

 

	
  MERCK & CO., INC.

  	
   

  	
  AXYS PHARMACEUTICAL, INC.

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Roger M. Perlmutter, M.D., Ph.D

  	
   

  	
  By:

  	
  /s/ John P. Walker

  
	
   

  	
  Roger M. Perlmutter, M.D., Ph.D.

  	
   

  	
   

  	
  John P. Walker

  
	
   

  	
  Executive Vice President

  	
   

  	
   

  	
  Chairman

  
	
   

  	
  Worldwide Basic Research

  	
   

  	
   

  	
  Chief Executive Officer

  
	
   

  	
  And Preclinical Development

  	
   

  	
   

  	
   

  

 

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

 

1

 

Attachment
2.1

Research Program

 

ATTACHMENT 2.1

 

RESEARCH  PROGRAM

 

The work outlined below,
initiated [***], will be completed by November 5, 2000.

 

	
  1.

  	
   

  	
  [***]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [***]

  
	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  [***]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [***]

  
	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  [***]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [***]

  
	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  [***]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [***]

  
	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
  [***]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [***]

  
	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
  [***]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [***]

  
	
   

  	
   

  	
   

  
	
  7

  	
   

  	
  [***]

  
	
   

  	
   

  	
   

  
	
  a.

  	
   

  	
  [***]

  
	
   

  	
   

  	
   

  
	
  b.

  	
   

  	
  [***]

  
	
   

  	
   

  	
   

  
	
  c.

  	
   

  	
  [***]

  
	
   

  	
   

  	
   

  
	
  d.

  	
   

  	
  [***]

  

 

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

 

2

 

APPENDIX A

 

[***]

 

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

 

3

 

APPENDIX B

 

[***]

 

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

 

4

 

APPENDIX C

 

[***]

 

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

 

5

 

APPENDIX D

 

[***]

 

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

 

6

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