-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ey+J2/6uo+ZxBbad6Yz91HwFXAU376bh810RhvzcIUbjl7San2VqRSp07rybFrUH f6cjB5NDxqXn8CeajE1LQg== 0000950123-97-004397.txt : 19970520 0000950123-97-004397.hdr.sgml : 19970520 ACCESSION NUMBER: 0000950123-97-004397 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ONCOGENE SCIENCE INC CENTRAL INDEX KEY: 0000729922 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 133159796 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15190 FILM NUMBER: 97607518 BUSINESS ADDRESS: STREET 1: 106 CHARLES LINDBERGH BLVD CITY: UNIONDALE STATE: NY ZIP: 11553 BUSINESS PHONE: 5162220023 MAIL ADDRESS: STREET 1: 106 CHARLES LINDBERGH BLVD CITY: UNIONDALE STATE: NY ZIP: 11553-3649 10-Q 1 FORM 10-Q 1 WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 ------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------- --------------------- Commission file number 0-15190 ---------------------------------------------------------- ONCOGENE SCIENCE, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 13-3159796 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 106 Charles Lindbergh Blvd., Uniondale, New York 11553 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 516-222-0023 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: At April 30, 1997 the registrant had outstanding 21,293,597 shares of common stock .$01 par value. 2 ONCOGENE SCIENCE, INC. AND SUBSIDIARIES INDEX
Page No. PART I - FINANCIAL INFORMATION - UNAUDITED 3-7 Item 1. Financial Statements Consolidated Balance Sheets - March 31, 1997 and September 30, 1996 3 Consolidated Statements of Operations - Three months ended March 31, 1997 and 1996 4 Consolidated Statements of Operations - Six months ended March 31, 1997 and 1996 5 Consolidated Statements of Cash Flows - Six months ended March 31, 1997 and 1996 6-7 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-11 PART II - OTHER INFORMATION 11-14 SIGNATURES 15 EXHIBIT INDEX 16
* * * * 3 PART I. FINANCIAL INFORMATION - UNAUDITED ITEM 1. FINANCIAL STATEMENTS ONCOGENE SCIENCE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, September 30, Assets 1997 1996 ------------- ------------- (unaudited) Current assets: Cash and cash equivalents $ 8,660,409 $ 13,409,866 Short-term investments 27,331,322 34,132,879 Receivables, including trade receivables of $333,718 and $215,201 at March 31,1997 and September 30, 1996, respectively 1,634,092 2,031,950 Interest receivable 403,309 480,050 Grants receivable 242,638 331,014 Prepaid expenses and other 841,011 623,827 ------------- ------------- Total current assets 39,112,781 51,009,586 ------------- ------------- Property, equipment and leasehold improvements - net 6,738,644 6,495,112 Compound library assets - net 6,997,829 5,048,584 Loans to officers and employees 37,342 37,342 Other assets 939,333 300,949 Intangible assets - net 9,915,112 10,645,481 ------------- ------------- $ 63,741,041 $ 73,537,054 ============= ============= Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses $ 2,559,602 $ 3,686,638 Current portion of unearned revenue 1,033,819 141,541 ------------- ------------- Total current liabilities 3,593,421 3,828,179 ------------- ------------- Other liabilities: Long-term portion of unearned revenue 75,835 104,497 Loan payable 198,104 83,244 Deferred acquisition costs 610,735 590,675 Accrued postretirement benefits cost 705,396 643,500 ------------- ------------- Total liabilities 5,183,491 5,250,095 ------------- ------------- Stockholders' equity: Common stock, $.01 par value; 50,000,000 shares authorized, 21,293,597 and 22,175,214 issued and outstanding at March 31, 1997 and September 30, 1996, respectively 221,914 221,752 Additional paid-in capital 104,467,797 104,347,231 Treasury stock (6,284,866) - Accumulated deficit (39,756,615) (36,071,476) Cumulative translation adjustments (51,480) (5,355) Unrealized holding loss on short-term investments (39,200) (205,193) ------------- ------------- Total stockholders' equity 58,557,550 68,286,959 ------------- ------------- Commitments and contingencies $ 63,741,041 $ 73,537,054 ============= =============
See accompanying notes to consolidated financial statements. 4 ONCOGENE SCIENCE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31, --------------------------------- Revenues: 1997 1996 ------------ ------------ Collaborative program revenues, principally from related parties $ 4,647,481 $ 2,298,649 Other research revenue 519,974 247,564 ------------ ------------ 5,167,455 2,546,213 ------------ ------------ Expenses: Research and development 4,469,910 3,231,892 Selling, general and administrative 1,817,517 1,361,539 Amortization of intangibles 365,187 363,188 ------------ ------------ 6,652,614 4,956,619 ------------ ------------ Loss from operations (1,485,159) (2,410,406) Other income(expense): Net investment income 533,528 390,540 Other (37,053) 26,116 ------------ ------------ Net loss $ (988,684) $ (1,993,750) ============ ============ Weighted average number of shares of common stock outstanding 22,090,652 18,016,251 ============ ============ Net loss per weighted share of common stock outstanding $ (.04) $ (.11) ============ ============
See accompanying notes to consolidated financial statements. 5 ONCOGENE SCIENCE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Six Months Ended March 31, --------------------------------- Revenues: 1997 1996 ------------ ------------ Collaborative program revenues, principally from related parties $ 6,480,663 $ 4,286,107 Other research revenue 1,001,581 536,354 ------------ ------------ 7,482,244 4,822,461 ------------ ------------ Expenses: Research and development 7,944,243 5,915,154 Selling, general and administrative 3,586,376 2,714,941 Amortization of intangibles 730,369 726,377 ------------ ------------ 12,260,988 9,356,472 ------------ ------------ Loss from operations (4,778,744) (4,534,011) Other income (expense): Net investment income 1,136,986 755,065 Other (43,381) 14,602 ------------ ------------ Net loss $ (3,685,139) $ (3,764,344) ============ ============ Weighted average number of shares of common stock outstanding 22,083,730 17,745,190 ============ ============ Net loss per weighted share of common stock outstanding $ (.17) $ (.21) ============ ============
See accompanying notes to consolidated financial statements. 6 ONCOGENE SCIENCE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended March 31, -------------------------------- 1997 1996 ----------- ----------- Cash flows from operating activities: Net loss $(3,685,139) $(3,764,344) Adjustments to reconcile net loss to net cash used by operating activities: Gain (loss) on sale of investments 16,776 (61,276) Depreciation and amortization 1,294,388 665,312 Amortization of intangibles 730,369 726,377 Foreign exchange (gain) loss (46,125) 15,449 Changes in assets and liabilities: Receivables 397,858 (1,809,041) Interest receivable 76,741 (186,502) Grants receivable 88,376 217,491 Prepaid expenses and other (217,184) (168,315) Other receivables - (332,112) Other assets (638,384) (55,169) Accounts payable and accrued expenses (1,127,036) (1,037,745) Unearned revenue 863,616 (87,163) Accrued postretirement benefits cost 61,896 67,815 ----------- ----------- Net cash used by operating activities $(2,183,848) $(5,809,223) ----------- -----------
continued 7 ONCOGENE SCIENCE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED)
Six Months Ended March 31, --------------------------------- 1997 1996 ------------ ------------ Cash flows from investing activities: Additions to short-term investments $ (3,920,205) $(22,564,209) Maturities and sales of short-term investments 10,870,979 11,286,155 Additions to property, equipment and leasehold improvements (987,165) (385,548) Net change in loans to officers and employees - 173 ------------ ------------ Net cash provided by (used in) investing activities 5,963,609 (11,663,429) ------------ ------------ Cash flows from financing activities: Net proceeds from issuance of common stock - 27,995,708 Proceeds from exercise of stock options and employee stock purchase plan 85,862 323,183 Net proceeds from loans payable 114,860 - Other 20,060 - Purchase of treasury stock (8,750,000) - ------------ ------------ Net cash (used in) provided by financing activities (8,529,218) 28,318,891 Net (decrease) increase in cash and cash equivalents (4,749,457) 10,846,239 Cash and cash equivalents at beginning of period 13,409,866 17,919,609 ------------ ------------ Cash and cash equivalents at end of period $ 8,660,409 $ 28,765,848 ============ ============ Non-cash transactions: Issuance of treasury stock for acquisition of license to the Dow compound library $ 2,500,000 - ============ ============
See accompanying notes to consolidated financial statements. 8 ONCOGENE SCIENCE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) Basis of Presentation In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly Oncogene Science, Inc.'s (the "Company") financial position as of March 31, 1997 and September 30, 1996, its results of operations for the three and six months ended March 31, 1997 and 1996 and its cash flows for the six months ended March 31, 1997 and 1996. Certain reclassifications have been made to the prior period financial statements to conform them to the current presentation. It is recommended that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto in the Company's 1996 Annual Report on Form 10-K. Results for interim periods are not necessarily indicative of results for the entire year. Net loss per share of common stock outstanding is based on the weighted average number of shares outstanding. Common share equivalents (stock options) are not included in the computation for the three months and six months ended March 31, 1997 and 1996 since their inclusion would be anti-dilutive. (2) Treasury Stock On February 18, 1997, the Company repurchased all 1.25 million shares of the Company's common stock held by Becton, Dickinson and Company ("Becton") for an aggregate price of $8.75 million. The Company's collaborative research agreement with Becton had ended on its scheduled expiration date of September 30, 1996. (3) Compound Library License On March 18, 1997, the Company entered into a license agreement with The Dow Chemical Company ("Dow") giving the Company exclusive worldwide rights to use more than 140,000 compounds for screening and potential development of small molecule drugs and cosmeceuticals. The initial payment for the license was approximately 350,000 shares of the Company's common stock. Dow is also entitled to royalty payments from any new drug products that may result from the screening of the compound library. The common stock issued to Dow was from the shares held in treasury as a result of the Becton repurchase. The Company will amortize the license agreement cost on a straight-line basis over a five-year period, which represents the estimated period over which the compounds will be used in the Company's research and development efforts. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE AND SIX MONTHS ENDED MARCH 31, 1997 AND 1996 REVENUES Revenues for the three and six months ended March 31, 1997 were approximately $5.2 million and $7.5 million, respectively, representing increases of $2.6 million and $2.7 million or 103% and 55%, respectively, compared to revenues of $2.5 million and $4.8 million, respectively, reported for the three and six months ended March 31, 1996. Collaborative program revenues increased approximately $2.3 million and $2.2 million or 102% and 51%, respectively. This was largely due to three new collaborative research and license agreements with: (1) Hoechst Marion Roussel, Inc. ("HMRI"), to develop orally active, small molecule drugs for the treatment of chronic anemia;(2)Sankyo Company, Ltd.("Sankyo") of Japan to discover and develop novel pharmaceutical products to treat influenza; and (3) Bayer Corporation ("Bayer") for the continuing development of serum-based cancer diagnostics. Included in these revenues was a $1.0 million initiation fee from HMRI in connection with the chronic anemia program. The increase in revenues was partially offset by a decrease in revenues related to the completion on December 31, 1996 of the funded discovery phase of the Company's collaborative program with Wyeth-Ayerst Laboratories relating to the discovery and development of drugs for the treatment of diabetes and osteoporosis. Other research revenues, representing primarily government grants and service revenue from the pharmaceutical division of the Company's Aston Molecules Ltd. ("Aston") subsidiary, increased approximately $272,000 and $465,000, respectively. The increases were due primarily to the inclusion of the service revenues of Aston, which the Company acquired in September 1996. Aston's service business is supplemental to the Company's internal medicinal chemistry operations. EXPENSES The Company's operating expenses increased by approximately $1.7 million and $2.9 million or 34% and 31%, respectively, for the three and six months ended March 31, 1997, compared to the three and six months ended March 31, 1996. Research and development expenses increased approximately $1.2 million and $2.0 million or 38% and 34%, respectively. This increase was attributable to the expansion of the Company's joint venture with BioChem Pharma (International) Inc. ("BioChem Pharma") and the new collaborative agreements with Sankyo and HMRI. Additional expenses were also associated with the expansion of the Company's natural products discovery and medicinal chemistry operations at its MYCOsearch, Inc. ("MYCOsearch") and Aston subsidiaries as well as amortization expense on MYCOsearch's library of fungal cultures. The Company acquired MYCOsearch in April 1996. Selling, general and administrative expenses increased approximately $456,000 and $871,000, respectively. These increases were primarily related to the expenses associated with the Company's recent corporate development activities and the general and administrative costs associated with the Company's recently acquired subsidiaries. OTHER INCOME AND EXPENSE Investment income increased approximately $143,000 and $382,000 or 37% and 51%, respectively, for the three and six months ended March 31, 1997 compared to the three and six months ended March 31, 1996. This increase was largely due to the investment of the proceeds of approximately $30.3 million from the Company's public sale of common stock in April 1996. 10 LIQUIDITY AND CAPITAL RESOURCES At March 31, 1997, working capital (representing primarily cash, cash equivalent and short-term investments) aggregated approximately $35.5 million. In April 1996, the Company completed a public offering of its common stock as well as the sale of 500,000 shares of common stock to BioChem Pharma that provided total net proceeds of approximately $30.3 million. In February 1997, the Company repurchased 1.25 million shares of its common stock from Becton for an aggregate price of $8.75 million in connection with the expiration of the Company's cancer diagnostics collaboration with Becton at the end of fiscal 1996. The Company is dependent upon collaborative research revenues, government research grants, interest income and cash balances, and will remain so until products developed from its technology are successfully commercialized. The Company and HMRI have jointly announced an agreement in principle to continue under one overall agreement as opposed to the separate collaborative programs previously formed between the Company and each of Hoechst AG ("Hoechst"), Hoechst Roussel Pharmaceuticals, Inc. ("HRPI") and Marion Merrell Dow Inc. ("MMDI"). During 1995, the pharmaceutical operations of Hoechst, HRPI and MMDI were consolidated into HMRI, and HMRI is conducting a review of all its research and development programs. In accordance with the agreement in principle, HMRI is expected to provide up to $12.5 million in research funding for five years. HMRI and the Company have not yet executed a new definitive overall agreement. The Company commenced a serum-based cancer diagnostic products research collaboration with Bayer in January 1997. Bayer will provide annual research funding of $1.5 million for the first two years of this five-year program and $1.0 million for each subsequent year. The Company believes that with the funding from its collaborative research programs (assuming no milestone payments or royalties), government research grants, interest income, and cash balances, its financial resources are adequate for its operations for approximately the next four years based on its current business plan. However, the Company's capital requirements may vary as a result of a number of factors, including competitive and technological developments, funds required for expansion of the Company's technology platform, including possible joint ventures, collaborations and acquisitions, potential milestone payments, and the time and expense required to obtain governmental approval of products, some of which factors are beyond the Company's control. In the absence of obtaining milestone payments, additional ventures, collaborations or acquisitions, the Company expects to continue its current level of expenditures and capital investment over the next several years to enhance its drug discovery technologies, pursue internal proprietary drug discovery programs, and to commit resources to existing co-ventures with pharmaceutical companies. Examples of such ventures include the formation of Anaderm Research Corporation in April 1996 with Pfizer Inc. and New York University, the Company's co-venture with BioChem Pharma, which commenced in May 1996, and the Company's co-venture with Sepracor, Inc. ("Sepracor"), which commenced in March 1997. Generally the Company expects to commit greater resources to such programs in exchange for greater commercialization rights, as compared to its traditional collaborative research programs in which the Company receives research funding and royalties on sales of commercialized products. There can be no assurance that scheduled payments will be made by third parties, that current agreements will not be canceled, that government research grants will continue to be received at current levels, that milestone payments will be 11 made, or that unanticipated events requiring the expenditure of funds will not occur. Further, there can be no assurance that the Company will be able to obtain any additional required funds on acceptable terms, if at all. Failure to obtain additional funds when required would have a material adverse effect on the Company's business, financial condition and results of operations. FORWARD LOOKING STATEMENTS A number of the matters and subject areas discussed in this report that are not historical or factual deal with potential future circumstances and developments. The discussion of such matters and subject areas is qualified by the inherent risks and uncertainties surrounding future expectations generally, and such discussion may materially differ from the Company's actual future experience involving any one or more of such matters and subject areas. An example of this is the discussion in this Item 2 of Part I describing the Company's expectations with regard to the consolidation of its collaborative research programs with HMRI. Factors that may arise in the future that prevent the execution of a definitive overall agreement with HMRI include possible technological developments by competitors that render the compounds being pursued by HMRI and the Company less commercially viable, shifts in strategic direction on the part of HMRI that would de-emphasize the therapeutic areas or technologies in which the Company is involved, and negative results in the Company's current programs with HMRI. The forward looking statements described above, as well as all other discussions contained herein that may deal with potential future circumstances and developments, are also subject generally to other risks and uncertainties that are described from time to time in the Company's reports and registration statements filed with the Securities and Exchange Commission. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company's annual meeting of stockholders was held March 19, 1997. The following nine directors were elected:
Name For Withholding Authority ---- --- --------------------- 1. Edwin A. Gee, Ph.D. 19,332,190 shares 228,225 shares 2. Gary E. Frashier 19,334,260 shares 226,155 shares 3. Steve M. Peltzman 19,334,060 shares 226,355 shares 4. G. Morgan Browne 19,334,260 shares 226,155 shares 5. John H. French, II 19,333,860 shares 226,555 shares 6. Daryl K. Granner, MD 19,334,260 shares 226,155 shares 7. Walter M. Lovenberg, Ph.D. 19,334,260 shares 226,155 shares 8. Gary Takata 19,334,130 shares 226,285 shares 9. John P. White 19,333,560 shares 226,855 shares
12 In addition, the following matters were voted upon: (1) the appointment of KPMG Peat Marwick LLP as auditors for fiscal year ended September 30, 1997 was ratified (19,493,970 shares voted in favor, 35,570 shares voted against and 30,875 shares abstained); and (2) a proposal to adopt the Company's 1997 Incentive and Non-Qualified Stock Option Plan was approved (11,444,552 shares voted in favor, 2,406,421 shares voted against, 98,830 shares abstained and there were 5,610,612 broker non-votes). ITEM 5. OTHER INFORMATION COLLABORATION WITH HOECHST MARION ROUSSEL, INC. Effective as of January 1, 1997, the Company entered into a Collaborative Research and License Agreement with HMRI to develop orally active, small molecule inducers of erythropoietin gene expression for the treatment of anemia due to chronic renal failure and anemia associated with chemotherapy for AIDS and cancer. The collaboration is focused on the preclinical and clinical development of lead compounds previously discovered by the Company from its natural products and combinatorial chemistry libraries and from HMRI's compound library. Under the terms of the agreement, a research committee, with equal representation from the Company and HMRI, prepares and approves research plans and reviews and evaluates progress under the plans. Both the Company and HMRI are contributing medicinal chemistry and preclinical optimization teams under the agreement. HMRI has the exclusive right to conduct preclinical and clinical development of drug candidates emerging from the program. The Company may receive from HMRI up to $30 million in research funding, milestone payments and success fees depending on HMRI's clinical success. The Company has granted to HMRI exclusive, worldwide licenses to, among other things, use, manufacture and sell products resulting from the collaboration. In exchange for these licenses, HMRI will pay the Company royalties on the sales by HMRI of any products resulting from the collaboration. The duration of the licenses is coextensive with the lives of the patents related to the licensed compounds. The Company and HMRI have mutually exclusive rights and obligations to prosecute and maintain patent rights related to specified areas of the research under the agreement. Generally, the Company and HMRI are prohibited during the term of the collaboration from pursuing or sponsoring research and development of compounds and products in the target area other than pursuant to the agreement without the approval of the research committee. The term of the agreement is segmented into three periods: (1) an option period which terminates on March 31, 1998; (2) a contract period term which continues until March 31, 2000; and (3) a development phase which commences March 31, 1998 for as long as HMRI continues development activities. During the option period, the agreement may be terminated by mutual written agreement of the parties. If HMRI elects not to participate in the contract period term or discontinues participation during the contract period term or development phase, it will offer the Company and the Company may accept the license rights to develop and commercialize the compounds and products of the collaboration, subject to payment of royalties by the Company to HMRI. The agreement is also subject to early termination in the event of certain defaults by the parties. 13 COLLABORATION WITH SANKYO COMPANY, LTD. Effective as of February 12, 1997, the Company entered into a Collaborative Research and License Agreement with Sankyo to be conducted in partnership with MRC Collaborative Center ("MRC CC"), London, U.K. The collaboration is focused on discovering and developing novel pharmaceutical products to treat influenza. Under the terms of the agreement, a research committee will be formed consisting of three representatives from Sankyo, two representatives from the Company and one representative from MRC CC. The committee will monitor the progress of the research program and direct the objectives, tasks and required activities of the collaboration. The Company is responsible for conducting research as directed by the research committee, including, without limitation, compound screening, in exchange for research funding from Sankyo. Sankyo has the responsibility and the exclusive right to conduct preclinical and clinical development of all candidate compounds in exchange for milestone payments to the Company. The Company and MRC CC have granted to Sankyo exclusive, worldwide licenses to, among other things, use, manufacture and sell all products resulting from the collaboration. In exchange for these licenses, Sankyo will pay to the Company and MRC CC license fees and royalties on product sales. The duration of the licenses is coextensive with the lives of the patents related to the licensed compound. If Sankyo discontinues development of all candidate compounds, the Company will have the sole and exclusive right to develop, use, manufacture and sell all products resulting from the collaboration, and it will pay royalties to Sankyo. Each of the parties has rights and obligations to prosecute and maintain patent rights related to specified areas of the research under the agreement. Generally, the Company, Sankyo and MRC CC are prohibited during the term of the contract from pursuing or sponsoring research and development of compounds and products in the anti-influenza area other than pursuant to the agreement. The agreement is for a term of three years, with the option to extend for an additional one or two year period upon conditions and terms acceptable to the Company, Sankyo and MRC CC. The agreement is subject to early termination in the event of certain defaults by the parties. CO-VENTURE WITH SEPRACOR, INC. On March 7, 1997, the Company entered into a Collaborative Research, Development and Commercialization Agreement with Sepracor. Under this agreement, the parties will seek to discover and develop certain anti-infective agents and anti-inflammatory agents. A joint steering committee consisting of equal representation from each of the parties will manage all aspects of the research program. The Company and Sepracor will commit equal resources to the program, including, among other things, access to all their respective compound libraries and dedicated teams of research scientists. Generally, the parties will share equally the commercialization rights throughout the world of products derived from the program and will share equally the profits from sale of such products, except that in the case of drugs that target two specified microbes, Sepracor will receive 75% of such profits. The agreement is for a term of three years, with automatic successive one-year renewal terms thereafter (subject to the right of either party to terminate the agreement at the end of each term). The agreement is subject to early termination in the event of specified defaults by either party. The Company and Sepracor are prohibited from conducting independently any research within the scope of the co-venture without the consent of the joint steering committee. 14 LICENSE AGREEMENT WITH THE DOW CHEMICAL COMPANY On March 18, 1997, the Company entered into a License Agreement with Dow pursuant to which the Company acquired exclusive worldwide rights with respect to Dow's library of more than 140,000 compounds for the purposes of discovery and development of small molecular weight pharmaceuticals and cosmeceuticals. The duration of this license is coextensive with the life of the last to expire of the patents related to the licensed compounds (or 20 years if no patents are filed). In exchange for these rights, the Company issued to Dow approximately 350,000 shares of common stock and will pay royalties to Dow on sales of products derived from the licensed compounds, if any. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS. 3.1 Certificate of Incorporation, as amended (1) 3.2 By-Laws, as amended (1) *10.1 EPO Collaborative Research and License Agreement, dated as of January 1, 1997 between the Company and Hoechst Marion Roussel, Inc. *10.2 Collaborative Research, Development, and License Agreement dated as of February 12, 1997 by and among the Company, Sankyo Company, Ltd., and MRC Collaborative Center. *10.3 Collaborative Research, Development and Commercialization Agreement dated as of March 7, 1997 between the Company and Sepracor, Inc. *10.4 License Agreement dated as of March 18, 1997 between the Company and The Dow Chemical Company. 27 Financial Data Schedule ------------------------ * Portions of this exhibit have been redacted and are the subject of a confidential treatment request filed with the Secretary of the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (1) Included as an exhibit to the Company's registration statement on Form S-3 (File No. 333-937) initially filed on February 14, 1996, and incorporated herein by reference. (B) REPORTS ON FORM 8-K. Not Applicable. 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ONCOGENE SCIENCE, INC. (Registrant) Date May 15, 1997 /s/ Gary E. Frashier ------------ -------------------------- Gary E. Frashier Chief Executive Officer Date May 15, 1997 /s/ Robert L. Van Nostrand ------------- -------------------------- Robert L. Van Nostrand Vice President and Chief Financial Officer 16 EXHIBIT INDEX
Exhibit No. Description - ----------- ----------- 3.1 Certificate of Incorporation, as amended (1) 3.2 By-Laws, as amended (1) *10.1 EPO Collaborative Research and License agreement, dated as of January 1, 1997 between the Company and Hoechst Marion Roussel, Inc. *10.2 Collaborative Research, Development, and License Agreement dated as of February 12, 1997 by and among the Company, Sankyo Company, Ltd., and MRC Collaborative Center. *10.3 Collaborative Research, Development and Commercialization Agreement dated as of March 7, 1997 between the Company and Sepracor, Inc. *10.4 License Agreement dated as of March 18, 1997 between the Company and The Dow Chemical Company. 27 Financial Data Schedule
------------------ * Portions of this exhibit have been redacted and are subject to a confidential treatment request filed with the Secretary of the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (1) Included as an exhibit to the Company's registration statement on Form S-3 (File No. 333-937) initially filed on February 14, 1996, and incorporated herein by reference. EX-10.1 2 EPO COLLABORATIVE RESEARCH AGREEMENT 1 Portions of this Exhibit 10.1 have been redacted and are the subject of a confidential treatment request filed with the Secretary of the Securities and Exchange Commission. 2 ================================================================================ EPO COLLABORATIVE RESEARCH AND LICENSE AGREEMENT BY AND BETWEEN HOECHST MARION ROUSSEL, INC. AND ONCOGENE SCIENCE, INC. EFFECTIVE AS OF JANUARY 1, 1997 ================================================================================ 3 TABLE OF CONTENTS
Page 1. Definitions ...................................................................... 2 1.1 "Affiliate" ...................................................................... 2 1.2 "Allocated Overhead" ............................................................. 3 1.3 "Compound" ....................................................................... 3 1.4 "Confidential Information" ....................................................... 3 1.5 "Contract Period" ................................................................ 3 1.6 "Contract Period Research Plan" .................................................. 3 1.7 "Contract Period Research Program" ............................................... 4 1.8 "Development Phase" .............................................................. 4 1.9 "Development Phase Plan" ......................................................... 4 1.10 "Development Phase Program" ...................................................... 4 1.11 "Effective Date" ................................................................. 4 1.12 "EPO" ............................................................................ 4 1.13 "Event of Default" ............................................................... 4 1.14 "FDA" ............................................................................ 4 1.15 "Funding Payments" ............................................................... 4 1.16 "HMRI Compound" .................................................................. 5 1.17 "HMRI Confidential Information" .................................................. 5 1.18 "HMRI Improvements" .............................................................. 5 1.19 "HMRI Patents" ................................................................... 5 1.20 "HMRI Product" ................................................................... 5 1.21 "HMRI Technology" ................................................................ 6 1.22 "Improvements" ................................................................... 6 1.23 "Joint Improvements" ............................................................. 7 1.24 "Joint Patent" ................................................................... 7 1.25 "Materials" ...................................................................... 7 1.26 "NDA" ............................................................................ 7 1.27 "Net Sales" ...................................................................... 7 1.28 "Option Period" .................................................................. 9 1.29 "Option Period Research Plan" .................................................... 9 1.30 "Option Period Research Program" ................................................. 9 1.31 "OSI Compound" ................................................................... 9 1.32 "OSI Confidential Information" ................................................... 9 1.33 "OSI Improvements" ............................................................... 10 1.34 "OSI Patents" .................................................................... 10 1.35 "OSI Product" .................................................................... 10 1.36 "OSI Technology" ................................................................. 10 1.37 "Products" ....................................................................... 11 1.38 "Research Management Committee" .................................................. 11 1.39 "Research Plans" ................................................................. 11 1.40 "Research Programs" .............................................................. 11
4 1.41 "Target" ................................................................ 11 1.42 "Technology" ............................................................ 11 1.43 "Third Party" ........................................................... 12 1.44 "Valid Claim" ........................................................... 12 2. Collaborative Research Programs and Development Phase Program .................... 12 2.1 Research Plans and Development Phase Plan ............................... 12 2.2 Exclusivity ............................................................. 14 2.3 Research Management Committee ........................................... 16 2.4 Reports and Materials ................................................... 18 2.5 Laboratory Facilities and Personnel ..................................... 19 2.6 Diligent Efforts ........................................................ 19 3. Funding of the Research Program .................................................. 20 3.1 Option Period Funding ................................................... 20 3.2 Contract Period Funding ................................................. 21 3.3 Milestone Payments ...................................................... 24 3.4 Success Fees ............................................................ 25 4. Treatment of Confidential Information ............................................ 26 4.1 Confidentiality ......................................................... 26 4.2 Publication ............................................................. 27 4.3 Publicity ............................................................... 28 4.4 Disclosure of Inventions 28 4.5 Restrictions on Transferring Materials .................................. 28 4.6 Permitted Use of Confidential Information ............................... 29 5. Licenses and Royalties ........................................................... 30 5.1 Grant of Licenses ....................................................... 30 5.2 Paid-Up License ......................................................... 32 5.3 Obligations ............................................................. 32 5.4 Sublicenses ............................................................. 32 5.5 Ownership of Improvements ............................................... 33 5.6 Rights to Product Improvements .......................................... 34 5.7 Technical Assistance .................................................... 35 5.8 Royalties, Payments of Royalties, Accounting for Royalties, Records ..... 35 6. Provisions Concerning the Filing, Prosecution and Maintenance of Patent Rights ........................................................................... 43 6.1 OSI Filing, Prosecution and Maintenance ................................. 43 6.2 HMRI Filing, Prosecution and Maintenance ................................ 44 6.3 Joint Filing, Prosecution and Maintenance ............................... 45 6.4 Reimbursement of Expenses ............................................... 47 6.5 Patent Extensions ....................................................... 48 6.6 Legal Action ............................................................ 48
iii 5 7. Acquisition of Rights from Third Parties ......................................... 52 8. Term, Termination and Disengagement .............................................. 53 8.1 Term .................................................................... 53 8.2 Termination of the Agreement During the Option Period ................... 54 8.3 Termination of Research Funding ......................................... 54 8.4 Termination Upon an Event of Default .................................... 55 8.5 Change of Control ....................................................... 57 8.6 Survival ................................................................ 58 9. Representations and Warranties ................................................... 58 9.1 Status .................................................................. 58 9.2 Authority ............................................................... 58 9.3 Binding Obligation ...................................................... 59 9.4 No Conflicting Obligations .............................................. 59 9.5 Good Title .............................................................. 59 9.6 Right to Grant Licenses ................................................. 59 10. Covenants of OSI ................................................................. 60 10.1 Affirmative Covenants of OSI Other Than Reporting Requirements .......... 60 11. Dispute Resolution ............................................................... 60 11.1 Mediation Committee ..................................................... 60 11.2 Non-Arbitrable Issues ................................................... 61 11.3 Scope of Arbitration .................................................... 61 11.4 Arbitration Panel ....................................................... 61 11.5 Designation of Rules, Situs, Governing Law .............................. 62 11.6 Procedure ............................................................... 63 11.7 Authority of Arbitrators ................................................ 66 11.8 Awards .................................................................. 66 12. Notices .......................................................................... 67 13. Governing Law .................................................................... 67 14. Miscellaneous .................................................................... 68 14.1 Binding Effect .......................................................... 68 14.2 Headings ................................................................ 68 14.3 Counterparts ............................................................ 68 14.4 Amendment; Waiver; etc. ................................................. 68 14.5 No Third Party Beneficiaries ............................................ 68 14.6 Assignment and Successors ............................................... 68 14.7 Compliance with Antitrust/Competition Law ............................... 69 EXHIBIT A OPTION PERIOD RESEARCH PLAN ..................................................... 71
iv 6 EPO COLLABORATIVE RESEARCH AND LICENSE AGREEMENT This EPO COLLABORATIVE RESEARCH AND LICENSE AGREEMENT (the "Agreement") effective as of January 1, 1997, by and between HOECHST MARION ROUSSEL, INC. ("HMRI"), a Delaware corporation, with offices at Route 202-206, P.O. Box 6800, Bridgewater, New Jersey 08807-0800, and ONCOGENE SCIENCE, INC. ("OSI"), a Delaware corporation, with its principal office at 106 Charles Lindbergh Boulevard, Uniondale, New York 11553. WHEREAS, OSI has certain proprietary technology for identifying the effect of compounds on genes and gene products which is useful in the process of developing products for the treatment of human diseases, and in particular has discovered compounds from both the OSI and HMRI libraries which induce expression of the EPO gene directed to the Target; WHEREAS, HMRI has the capability to undertake research for the discovery and evaluation of agents for the treatment of disease and also the capability for clinical development, manufacturing and marketing of such drugs, including agents directed to the Target; WHEREAS, the Agreement provides for an Option Period Research Program, a Contract Period Research Program, a Development Phase, the grant of licenses in certain events and other provisions which are applicable to some or all of the periods and activities provided for in this Agreement; and 7 WHEREAS, HMRI and OSI wish to collaborate in research and development of orally active, small molecule inducers of EPO gene expression from the Compounds discovered by OSI to increase the expression of EPO. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements contained in this Agreement and intending to be legally bound, the parties agree as follows: 1. Definitions Whenever used in this Agreement, the terms defined in this Article 1 shall have the meanings specified. 1.1 "Affiliate" means any corporation or other legal entity owning, directly or indirectly, more than fifty percent (50%) of the voting capital shares or similar voting securities of HMRI or OSI; any corporation or other legal entity more than fifty percent (50%) of the voting capital shares or similar voting rights of which is owned, directly or indirectly, by HMRI or OSI; or any corporation or other legal entity more than fifty percent (50%) of the voting capital shares or similar voting rights of which is owned, directly or indirectly, by a corporation or other legal entity which owns, directly or indirectly, more than fifty percent (50%) of the voting capital shares or similar voting securities of HMRI or OSI. Notwithstanding the foregoing, an Affiliate shall not be a corporation or other legal entity which is not actually controlled by HMRI or its Affiliates, on the one hand (for example, without limitation, Copley Pharmaceuticals, Inc. or its subsidiaries), or OSI or its Affiliates, on the other hand. -2- 8 1.2 "Allocated Overhead" means the amount of overhead, including general and administrative costs, determined in accordance with generally accepted accounting principles, incurred by OSI and allocated to the Research Programs in the same proportion that the total person-hours of work performed by OSI employees in the Research Programs bears to the total person-hours of work performed by OSI employees in all OSI research programs, or such other customary allocation basis or overhead recovery basis that may be agreed in writing between the parties. 1.3 "Compound" means any compound or its derivatives from OSI's library or HMRI's library so designated from time to time by the Research Management Committee, including, without limitation: (a) ** and its derivatives, a novel, patentable small molecule synthetic discovered from the OSI library; (b) ** and its derivatives, a small molecule synthetic discovered from the HMRI compound library; and (c) ** and its derivatives, a novel, patentable small molecule natural product discovered from the OSI library. 1.4 "Confidential Information" means HMRI Confidential Information and OSI Confidential Information, either separately or collectively, as may be applicable. 1.5 "Contract Period" has the meaning set forth in Section 8.1.2 hereof. 1.6 "Contract Period Research Plan" means the written research plan to be carried out during the Contract Period by HMRI and OSI pursuant to this Agreement as described in Section 2.1.3 hereof. - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -3- 9 1.7 "Contract Period Research Program" means the collaborative research program conducted by HMRI and OSI during the Contract Period pursuant to this Agreement as described in Section 2.1.3 hereof, with the goals of studying the mechanism of action and conducting other research necessary to profile a Compound, if such is deemed necessary by the parties. 1.8 "Development Phase" has the meaning set forth in Section 8.1.3 hereof. 1.9 "Development Phase Plan" means the written plan to be carried out during the Development Phase by HMRI pursuant to this Agreement as described in Section 2.1.4 hereof. 1.10 "Development Phase Program" means the development program conducted by HMRI during the Development Phase pursuant to the Agreement as described in Section 2.1.4, with the goals of demonstrating proof-of-principle in humans and developing Compounds into Products. 1.11 "Effective Date" means January 1, 1997. 1.12 "EPO" means the Erythropoietin protein. 1.13 "Event of Default" has the meaning set forth in Section 8.4.1 hereof. 1.14 "FDA" means the United States Food and Drug Administration. 1.15 "Funding Payments" has the meaning set forth in Section 3.2 hereof. -4- 10 1.16 "HMRI Compound" means ** and its derivatives and any other compound and its derivatives from HMRI's library so designated from time to time by the Research Management Committee. 1.17 "HMRI Confidential Information" means all information about any element of HMRI Technology which is disclosed by HMRI to OSI and designated "Confidential" in writing at the time of such disclosure, subject to the exceptions set forth in Section 4.6 hereof. The HMRI Confidential Information shall also include all HMRI Improvements. 1.18 "HMRI Improvements" has the meaning set forth in Section 5.5 hereof. 1.19 "HMRI Patents" means the patents and patent applications owned or filed by HMRI, both foreign and domestic, arising in the course of conducting the Research Programs or the Development Phase Program, which relate to the research, development, manufacture, composition, derivatives, use or sale of HMRI Compounds or HMRI Products, including, without limitation, all substitutions, extensions, Supplementary Protection Certificates, reissues, renewals, divisions, continuations, continuations in part, utility models and certificates of invention thereof, all of which shall be from time to time identified to the Research Management Committee. 1.20 "HMRI Product" means a product derived from the Research Programs or the Development Phase Program containing a HMRI Compound sold for the - --------------------- ** This portion redacted pursuant to a request for confidential treatment. -5- 11 treatment or management of any disease state in a human patient or any other human therapeutic indication, in each case directed to the Target. 1.21 "HMRI Technology" means Technology owned or licensed as of the date hereof or acquired during the term of the Option Period, the Contract Period or the Development Phase as set forth in Sections 8.1.1, 8.1.2 and 8.1.3 hereof by (i) HMRI or (ii) the pharmaceutical or biotechnology business of any entity within the Hoechst AG pharmaceuticals group or any successor thereof, that is useful for work on the Target and that is applicable to the objectives of the Research Programs or the Development Phase Program, but only to the extent that HMRI is legally entitled to disclose such acquired Technology and use it in the Research Programs or the Development Phase Program. 1.22 "Improvements" means any and all inventions and patents, discoveries, methods, ideas, works of authorship, know-how, show-how, data, clinical and preclinical results, information, and any physical, chemical or biological material, including any replication or any part of such material, techniques and Technology, whether or not patentable or subject to other forms of protection, which (i) are made, created, developed, written, conceived, or reduced to practice, or which are licensed or otherwise acquired from Third Parties (to the extent the agreeing party is legally enabled to disclose and use the same in the Research Programs or the Development Phase Program), in the course of, arising out of, or as a result of either party's research in the course of conducting the Research Programs or the Development Phase Program, and (ii) are related to the Target. Improvements include all rights relating to the protection of trade secrets and confidential information, and any right analogous -6- 12 to those set forth herein, which relate to, are embodied in or are appurtenant to such discoveries, methods, ideas, etc. 1.23 "Joint Improvements" has the meaning set forth in Section 5.5 hereof. 1.24 "Joint Patent" means the patents and patent applications owned or filed jointly by HMRI and OSI, both foreign and domestic, arising in the course of conducting the Research Programs or the Development Phase Program, including patents and patent applications arising from Joint Improvements, which relate to the research, development, manufacture, composition, derivative, use or sale of HMRI Compounds or HMRI Products or OSI Compounds or OSI Products and which are not HMRI Patents nor OSI Patents, including, without limitation, all substitutions, extensions, Supplementary Protection Certificates, reissues, renewals, divisions, continuations, continuations in part, utility models and certificates of invention thereof, all of which shall be from time to time identified to the Research Management Committee. 1.25 "Materials" has the meaning set forth in Section 2.4.2 hereof. 1.26 "NDA" shall mean any and all applications (New Drug Applications) submitted to the FDA under Sections 505, 507 or 512 of the Food, Drug & Cosmetic Act and applicable regulations related to a Product, including without limitation, full NDA's, "paper" NDA's and abbreviated NDA's (ANDA's). 1.27 "Net Sales" shall mean the gross revenues from the first sales of a Product by a party, its Affiliates and/or its sublicensees to Third Parties, less deductions for: -7- 13 (a) standard transportation charges, including insurance, consistent with custom in the industry; (b) import, export, sales, use and excise taxes, tariffs and duties paid or allowed by a selling party and any other governmental charges imposed upon the production, importation, use or sale of a Product; (c) normal and customary quantity discounts (including volume or formulary or other positioning discounts paid or credited to any wholesaler, purchaser or Third Party payor or other contractee as a result of a contractual arrangement specific to a Product), cash discounts (including discounts for prompt payment), and customary trade promotional allowances and credits, in the ordinary course of a party's, its Affiliates' or its sublicensees' business; (d) discounts (including retroactive price reductions or a statutorily required reimbursement) mandated by or granted in response to state, provincial or federal law or regulation; (e) allowances or credits to customers on account of recalls, rejection or return (including for spoiled, damaged and outdated goods) in the ordinary course of business; (f) rebates paid or credited to any government or agency or any Third Party payor, administrator or contractee; (g) wholesaler charge-backs allowed and taken in amounts customary in the trade; -8- 14 (h) deductions for uncollectible accounts; and (i) broker's or agent's commissions. The computation of Net Sales shall not include sales between or among a party and its Affiliates or sublicensees, except where such Affiliates or sublicensees are end users. 1.28 "Option Period" has the meaning set forth in Section 8.1.1 hereof. 1.29 "Option Period Research Plan" means the written research plan to be carried out during the Option Period by HMRI and OSI pursuant to this Agreement as described in Section 2.1.1 hereof. 1.30 "Option Period Research Program" means the collaborative research program to be carried out during the Option Period by HMRI and OSI pursuant to this Agreement as described in Section 2.1.1 hereof with the goal of identifying one or more clinical development candidates directed to the Target. 1.31 "OSI Compound" means ** or ** and their derivatives and any other compound and its derivatives from OSI's library so designated from time to time by the Research Management Committee. 1.32 "OSI Confidential Information" means all information about any element of OSI Technology which is disclosed by OSI to HMRI, and designated "Confidential" - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -9- 15 in writing by OSI at the time of such disclosure, subject to the exceptions set forth in Section 4.6 hereof. OSI Confidential Information shall also include all OSI Improvements. 1.33 "OSI Improvements" has the meaning set forth in Section 5.5 hereof. 1.34 "OSI Patents" means the patents and patent applications owned or filed by OSI, both foreign and domestic, arising in the course of conducting the Research Programs or the Development Phase Program, which relate to the research, development, manufacture, composition, derivatives, use or sale of OSI Compounds or OSI Products, including, without limitation, all substitutions, extensions, Supplementary Protection Certificates, reissues, renewals, divisions, continuations, continuations in part, utility models and certificates of invention thereof, all of which shall be from time to time identified to the Research Management Committee. 1.35 "OSI Product" means a product derived from the Research Programs or the Development Phase Program containing an OSI Compound sold for the treatment or management of any disease state in a human patient or any other human therapeutic indication, in each case directed to the Target. 1.36 "OSI Technology" means Technology owned or licensed as of the date hereof or acquired during the term of the Option Period, the Contract Period or the Development Phase as set forth in Sections 8.1.1, 8.1.2 and 8.1.3 hereof by OSI or its Affiliates, that is useful for work on the Target and that is applicable to the objectives of the Research Programs or the Development Phase Program, but only to the extent that OSI is legally entitled -10- 16 to disclose such acquired Technology and use it in the Research Programs or the Development Phase Program. 1.37 "Products" means the HMRI Products and the OSI Products, collectively. 1.38 "Research Management Committee" has the meaning specified in Section 2.3 hereof. 1.39 "Research Plans" means the Option Period Research Plan and the Contract Period Research Plan, collectively. 1.40 "Research Programs" means the Option Period Research Program and the Contract Period Research Program, collectively. 1.41 "Target" means ** . 1.42 "Technology" means and includes all tangible or intangible know- how, trade secrets, inventions (whether or not patentable), data, clinical and preclinical results and any physical, chemical or biological material that pertain to the development of human therapeutic products, including all laboratory notebooks, research plans, cultures, strains, vectors, genes and gene fragments and their sequences, cell lines, hybridoma cell lines, monoclonal and polyclonal antibodies, proteins and protein fragments, non-protein chemical structures and methods for synthesis, structure-activity relationships, computer models of - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -11- 17 chemical structures, computer software, assay methodology, processes, materials and methods for production, recovery and purification of nature products, formulas, plans, specifications, characteristics, equipment and equipment designs, marketing surveys and plans, business plans and experience. 1.43 "Third Party" means any individual, estate, trust, partnership, joint venture, association, firm, corporation, company or other entity, other than the parties hereto and their respective Affiliates and predecessors. 1.44 "Valid Claim" means a claim of an issued patent so long as such claim shall not have been disclaimed by both (i) HMRI and (ii) OSI, or shall not have been held invalid or unenforceable in a final decision rendered by a tribunal of competent jurisdiction from which no appeal has been or can be taken. 2. Collaborative Research Programs and Development Phase Program 2.1 Research Plans and Development Phase Plan. 2.1.1 The first two quarters of the Option Period Research Program will be conducted pursuant to the Option Period Research Plan annexed as Exhibit A. The third, fourth and fifth quarters of the Option Period Research Program shall be conducted pursuant to a further Option Period Research Plan prepared and approved by the Research Management Committee in accordance with the funding stipulations set forth in Section 3.1 hereof and set forth with the minutes of the Research Management Committee. 2.1.2 No later than forty-five (45) days before the end of the Option Period, HMRI will notify OSI in writing whether HMRI elects (a) to participate in the -12- 18 Contract Period Research Program and, accordingly, fund the Contract Period Research Program in accordance with Section 3.2 hereof, and (b) to participate in the Development Phase Program. If HMRI elects to participate in the Contract Period Research Program and the Development Phase Program, the parties will implement the Contract Period Research Plan and HMRI will implement the Development Phase Plan following the completion of the Option Period Research Program. As more fully set out in Sections 5.1.2 and 8.3, if HMRI (i) elects not to participate in the Contract Period Research Program, (ii) commences participation in the Contract Period Research Program and thereafter discontinues such participation by ceasing funding of the Contract Period Research Program in accordance with the provisions of Section 3.2 hereof, or (iii) elects not to continue its participation in the Development Phase Program, HMRI will offer OSI the license rights set forth in Section 5.1.2 hereof. If OSI accepts such a license, OSI shall (x) notify HMRI in writing within forty-five (45) days after receipt of (A) HMRI's notification of HMRI's election not to participate in the Contract Period Research Program, or (B) HMRI's election not to continue its participation in the Contract Period Research Program, or (C) HMRI's election not to continue its participation in the Development Phase Program, and (y) pay HMRI the licensing fees and royalties set forth in Sections 5.8.3 and 5.8.4 hereof. If OSI does not accept such a license, then the parties shall use reasonable best efforts to license any Compounds and/or Product(s) to a Third Party and to equally share the proceeds from such licenses. 2.1.3 The Contract Period Research Program will be conducted pursuant to the Contract Period Research Plan. The Contract Period Research Plan for the -13- 19 months following the expiration of the Option Period until December 31 of such year shall be prepared and approved by the Research Management Committee and set forth with the minutes of a meeting of the Research Management Committee, which shall be held before the end of the Option Period. Thereafter, the Contract Period Research Plan for each succeeding calendar quarter shall be prepared and approved by the Research Management Committee at a meeting of the Research Management Committee held prior to the end of the period referred to immediately above and each succeeding quarter until the end of the Contract Period and shall be set forth within the minutes of such meeting. 2.1.4 The Development Phase Program will be conducted pursuant to the Development Phase Plan which shall be the sole responsibility of HMRI to prepare during the Development Phase. All pre-clinical and clinical development shall likewise be the sole responsibility of HMRI to be carried out, with HMRI solely responsible for all costs related thereto. HMRI shall furnish to OSI written status reports within thirty (30) days of July 1 and the end of each calendar year describing the work accomplished by HMRI under the Development Phase Program during such period. 2.2 Exclusivity. 2.2.1 OSI agrees that during the Option Period and, if HMRI elects to participate in the Contract Period Research Program and the Development Phase Program, the Contract Period and the Development Phase, neither OSI nor any of its Affiliates shall conduct research itself, sponsor any other research, or engage in any research sponsored by any Third Party if such research relates to the Target, unless agreed to and confirmed in -14- 20 writing by the Research Management Committee. If OSI becomes aware during the Option Period, the Contract Period or the Development Phase of an opportunity which it desires to pursue to sponsor other research having any of the objectives of the Research Programs or the Development Phase Program or to engage in such research sponsored by a Third Party, it shall promptly notify HMRI of such opportunity, and HMRI and OSI shall consider whether such opportunity can be incorporated into the Research Programs or the Development Phase Program or otherwise used to further the purposes of the Research Programs or the Development Phase Program to their mutual advantage. 2.2.2 HMRI agrees that during the Option Period and, if HMRI elects to participate in the Contract Period Research Program and the Development Phase Program, the Contract Period and the Development Phase, neither HMRI nor any of its Affiliates shall sponsor any other research, or engage in any research involving any Third Party if such research relates to the Target, unless agreed to and confirmed in writing by the Research Management Committee. If HMRI becomes aware during the Option Period, the Contract Period or the Development Phase of an opportunity which it desires to pursue to sponsor other research having any of the objectives of the Research Programs or the Development Phase Program or to engage in such research involving a Third Party, it shall promptly notify OSI of such opportunity, and HMRI and OSI shall consider whether such opportunity can be incorporated into the Research Programs or the Development Phase Program or otherwise used to further the purposes of the Research Programs or the Development Phase Program to their mutual advantage. -15- 21 2.3 Research Management Committee. 2.3.1 The parties shall establish a Research Management Committee, which shall exist so long as HMRI is funding the Research Programs under this Agreement and which may co-exist with any other committees which may be formed pursuant to Section 2.3.9 hereof, for the following purposes and for any other purpose specifically set forth in this Agreement: (a) to prepare and approve (i) the Option Period Research Plan for the third, fourth and fifth quarters of the Option Period and (ii) the Contract Period Research Plan for each calendar quarter in advance of the beginning of such calendar quarter during the Contract Period in accordance with the provisions of Section 2.1.3 hereof; (b) to review and evaluate progress under the Research Plans; (c) to direct the implementation of the Research Plans; and (d) to modify the Research Plans as appropriate, and to coordinate and monitor publication of research results obtained from the exchange of information and materials that relate to the Research Programs. 2.3.2 Membership. HMRI and OSI each shall appoint, in its sole discretion, three members to the Research Management Committee. Substitutes may be appointed at any time. The members initially shall be: -16- 22
HMRI Appointees OSI Appointees ** **
2.3.3 Co-Chairs. The Research Management Committee shall be co-chaired by one of the members appointed by HMRI and by one of the members appointed by OSI. The co-chairs shall together establish the agenda for meetings and coordinate the Research Programs and follow-up actions. 2.3.4 Meetings. The Research Management Committee shall meet at least four times per year, at places and on dates selected by each party in turn. Representatives of HMRI or OSI or both, in addition to members of the Research Management Committee, may attend such meetings at the invitation of either party. 2.3.5 Minutes. The Research Management Committee shall keep accurate minutes of its deliberations and shall record all proposed decisions and all actions recommended or taken. The minutes shall be delivered in draft form to all Research Management Committee members within ten (10) working days after each meeting. The party hosting the meeting shall be responsible for the preparation of the minutes. Draft minutes shall be edited by the co-chairs and shall be issued in final form only with the co-chairs' approval and agreement. The minutes shall include the approved Contract Period Research Plan for the next succeeding calendar quarter and, from time to time as provided for herein, reports on progress - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -17- 23 under the Option Period Research Plan or Contract Period Research Plan, as the case may be, then in effect. 2.3.6 Decisions. All decisions or actions of the Research Management Committee shall be made by majority of the members. In the event of a tie vote of the Research Management Committee which cannot be broken by the mutual agreement of the chairs, the dispute resolution provisions of Section 11 hereof shall apply. 2.3.7 Expenses. HMRI and OSI shall each bear all expenses of their respective members related to the participation on the Research Management Committee. 2.3.8 Subcommittees. The Research Management Committee shall have authority to appoint subcommittees (which may include persons who are not members of the Research Management Committee) and delegate to such subcommittees powers and duties determined by the Research Management Committee. 2.3.9 Future Committees. During the term of this Agreement, the parties will discuss the necessity for and composition of other committees. 2.4 Reports and Materials. 2.4.1 Reports. During the Research Programs, HMRI and OSI shall each furnish to the Research Management Committee: (a) summary written reports within fifteen (15) days after the end of each calendar quarter, commencing on the Effective Date, describing its progress under the Research Programs; and -18- 24 (b) comprehensive written reports within thirty (30) days after the end of each calendar year, describing in detail the work accomplished by it under the Research Programs during the year and discussing and evaluating the results of such work. 2.4.2 Materials. OSI and HMRI shall, during the Option Period and the Contract Period, as a matter of course as described in the Research Plans or upon the written request of a party, furnish to the requesting party samples of biochemical, biological or synthetic chemical materials ("Materials") which are part of the Joint Improvements, OSI Technology or HMRI Technology, and which are necessary for such party to carry out its responsibilities under the Research Plans. 2.5 Laboratory Facilities and Personnel. OSI and HMRI shall each provide suitable laboratory facilities, equipment and personnel for the work to be done by each of them diligently to carry out their respective activities under the Research Programs. Initially, it is contemplated that OSI will assign duties under the Research Plans to the full-time equivalent of (a) five (5) chemists and (b) eight (8) biologists, and HMRI will assign duties under the Research Plans to the full-time equivalent of (i) five (5) chemists and (ii) four (4) pharmacologists or biologists. 2.6 Diligent Efforts. HMRI and OSI each shall use commercially reasonable diligent efforts to achieve the objectives of the Research Programs and the Development Phase Program. Specifically, to achieve the objectives of the Research Programs and the Development Phase Program, HMRI will use diligent and good faith efforts and standard -19- 25 procedures consistent with those used with HMRI's own internal compounds and products of like potential and consistent with reasonable commercial judgment: (a) to advance the pharmacological assessment of the Compounds in order to select those worthy of further investigation; (b) to make derivatives related to the Compounds to determine the relationship between structure and activity, and to identify potential clinical development candidates; (c) to select clinical development candidates; (d) to assess safety and efficacy of the selected development candidates in animals and in human patients under conditions designed to yield data suitable for inclusion in submission(s) necessary to obtain market authorization; and (e) to develop manufacturing methods and pharmaceutical formulations for those selected candidates. 3. Funding of the Research Program. 3.1 Option Period Funding. During the Option Period, HMRI shall pay OSI ** to implement OSI's portion of the Option Period Research Plan. The Research Management Committee may determine, at its discretion, to increase the payment to OSI during the Option Period from ** to an amount which shall not exceed ** . HMRI shall make its payments to OSI during the Option Period quarterly in advance on the first day of the calendar - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -20- 26 quarter, in an amount equal to ** of the total sum due OSI during the Option Period. Within forty-five (45) days following the end of each such calendar quarter, OSI shall submit to HMRI a statement setting forth the date, nature and amount of the expenses incurred during such quarter. 3.2 Contract Period Funding. If HMRI elects to participate in the Contract Period Research Program, HMRI shall pay OSI's total actual research costs in carrying out the Contract Period Research Plan, plus Allocated Overhead (the "Funding Payments"). The total amount of Funding Payments shall not be less than ** in the first twelve (12) month period of the Contract Period, nor less than ** in the second twelve (12) month period of the Contract Period, unless, in each instance, the Research Management Committee, which shall supervise the conduct of the research and the expenditure of the funds, determines that such amounts cannot be effectively expended, in which event the total amount of Funding Payments in either or both such twelve (12) month periods may be less than the amounts stated above as determined by the Research Management Committee. 3.2.1 Prior to the beginning of each calendar year (or part thereof) during the Contract Period, the Research Management Committee shall approve a budget which shall set forth the work to be accomplished during each calendar quarter and the payment to be made. The budget so created will be in form and detail as the Research Management Committee - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -21- 27 shall determine and shall be delivered to both parties in time to be included in each party's internal budgeting process. 3.2.2 HMRI shall make prepayments to OSI of the Funding Payments quarterly in advance for work scheduled to be performed by OSI during any calendar quarter. The amounts of such prepayments shall be based upon the budget described in Section 3.2.1 hereof. Adjustments as necessary to reflect the work actually performed by OSI shall be made at the end of each calendar quarter. Within thirty (30) days of the close of a calendar quarter, OSI shall invoice HMRI for the amount actually spent by OSI during the calendar quarter plus Allocated Overhead for such quarter. If actual expenditures plus Allocated Overhead during such quarter are less than the prepayment (and in the case of the first and second twelve (12) month periods of the Contract Period, less than ** and ** respectively), OSI shall pay HMRI on the date of the invoice the difference between the prepayment and the actual expenditures. If actual expenditures as approved by the Research Management Committee exceed the prepayment, HMRI shall pay OSI the difference within thirty (30) days of the date of the invoice. 3.2.3 The amount of the Funding Payment for each calendar quarter shall be based on the work in progress pursuant to the Contract Period Research Plan and the associated annual budget. 3.2.4 OSI shall keep for three (3) years from the expiration of this - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -22- 28 Agreement complete and accurate records of its expenditures of Funding Payments received by it. The records shall conform to generally accepted accounting principles as applied to a similar company similarly situated. HMRI shall have the right at its own expense during the term of this Agreement and during the subsequent three (3) year period to obtain from the independent certified public accountant employed by OSI for public reporting purposes an audit of said records to verify the accuracy of such expenditures, pursuant to the Contract Period Research Plan. OSI shall make its records available for inspection by the independent certified public accountant during regular business hours at the place or places where such records are customarily kept, upon reasonable notice from HMRI, to the extent reasonably necessary to verify the accuracy of the expenditures and required reports. This right of inspection shall not be exercised more than once in any calendar year and not more than once with respect to records covering any specific period of time, unless a subsequent inspection reveals discrepancies which may have also occurred during such prior period of time. HMRI agrees to hold in strict confidence all information concerning such expenditures, other than their total amounts, and all information learned in the course of any audit or inspection, except to the extent that it is necessary for HMRI to reveal the information in order to enforce any rights it may have pursuant to this Agreement or if disclosure is required by law. The failure of HMRI to request verification of any expenditures before the expiration of the three (3) year period referred to above shall be considered acceptance of the accuracy of the invoices for such expenditures, and OSI shall have no obligation to maintain any records pertaining to such expenditures beyond the three-year period. The results of the inspection shall be binding on both parties. If the results -23- 29 of the audit indicate that HMRI overpaid OSI with respect to such expenditures, OSI shall immediately pay to HMRI in cash the amount of such discrepancy. 3.2.5 The parties agree that all payments made to OSI pursuant to Section 3.2 constitute contract research expenses under Section 41 of the Internal Revenue Code of 1986. 3.2.6 The parties agree to use good faith efforts to conduct the research contemplated under this Agreement efficiently so as to minimize the expenditures made under this Agreement. 3.3 Milestone Payments. 3.3.1 Option Period Milestones. Subject to the provisions of Section 5.8.11, on the date of execution of this Agreement, HMRI will pay OSI ** as an initiation fee. Subject to the provisions of Section 5.8.11 hereof, upon first demonstration of a Compound having in vivo efficacy in a rat model or in vitro efficacy in primary primates' liver or kidney cells with respect to the Target, HMRI will pay OSI ** . For purposes of this Section 3.3.1, the Research Management Committee shall determine the efficacy criteria for each of the in vivo milestone and the in vitro milestone. 3.3.2 Contract Period Milestones. Subject to the provisions of Section 5.8.11, if HMRI elects to participate in the Contract Period Research Program, at the - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -24- 30 commencement of the Contract Period, HMRI shall make a milestone payment to OSI of an additional ** . If the Contract Period and/or Development Phase is continuing, subject to the provisions of Section 5.8.11, upon initiation of Phase III clinical trials, HMRI shall make an additional milestone payment to OSI of ** . If the Contract Period and/or Development Phase is continuing, subject to the provisions of Section 5.8.11 hereof, upon approval of an NDA by the FDA or equivalent European marketing approval for any Product, HMRI shall pay OSI an additional ** milestone fee. 3.3.3 Each milestone payment referred to in Sections 3.3.1 and 3.3.2 is to be paid by HMRI only once even though there may be more than one (1) agent, Compound, derivative, etc. which may be involved in the Research Programs or Development Phase Program or submissions to/approvals by the FDA. In addition, if HMRI elects to discontinue its participation in either of the Research Programs, HMRI's obligations hereunder to make milestone payments shall cease. 3.4 Success Fees. If HMRI should commercialize the Products, upon cumulative Net Sales of HMRI, its Affiliates and sublicensees of all Products reaching: (a) ** in the aggregate worldwide, HMRI shall pay OSI a one (1) time fee of ** ; (b) ** in the aggregate worldwide, HMRI shall pay OSI an additional one (1) time fee of ** ; and - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -25- 31 (c) ** in the aggregate worldwide, HMRI shall pay OSI an additional one (1) time fee of ** . 4. Treatment of Confidential Information 4.1 Confidentiality. 4.1.1 Subject to the disclosure obligations set forth in Sections 4.3 and 4.4 hereof and publication rights set forth in Section 4.2 hereof, (i) HMRI agrees that during the period of the Research Programs and the Development Phase and for five (5) years following termination of the Agreement, it will keep confidential, and will cause its Affiliates to keep confidential, all OSI Confidential Information, and neither HMRI nor any of its Affiliates shall use OSI Confidential Information except as expressly permitted in this Agreement and (ii) OSI agrees that during the period of the Research Programs and the Development Phase and for five (5) years following termination of the Agreement, it will keep confidential, and will cause its Affiliates to keep confidential, all HMRI Confidential Information, and neither OSI nor any of its Affiliates shall use HMRI Confidential Information except as expressly permitted in this Agreement. 4.1.2 HMRI and OSI acknowledge that the OSI Confidential Information and HMRI Confidential Information is highly valuable, proprietary, confidential information, and each party agrees that any disclosure of the other party's Confidential Information to any officer, employee or agent of such party or of any of its Affiliates shall be - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -26- 32 made only if and to the extent necessary to carry out its responsibilities under this Agreement and shall be limited to the maximum extent possible consistent with such responsibilities. Subject to Section 4.6 hereof, each party agrees not to disclose the other party's Confidential Information to any Third Parties under any circumstance without written permission. Each party shall take such action, and shall cause its Affiliates to take such action, to preserve the confidentiality of each other party's Confidential Information as they would customarily take to preserve the confidentiality of their own confidential information. 4.1.3 Each party represents that all of its employees participating in the Research Programs and the Development Phase Program who shall have access to the other party's Confidential Information are bound by agreement to maintain such information in confidence. Consultants will be similarly bound. 4.2 Publication. Section 4.1 hereof to the contrary notwithstanding, the results obtained in the course of the Research Programs or the Development Phase Program may be submitted for publication following scientific review by the Research Management Committee or any other committee charged with such review and subsequent approval by OSI's and HMRI's managements. After receipt of the proposed publication by HMRI's and OSI's managements, written approval or disapproval shall be provided within thirty (30) days for a manuscript, within fourteen (14) days for an abstract for presentation at, or inclusion in the proceedings of, a scientific meeting, and within fourteen (14) days for a transcript of an oral presentation to be given at a scientific meeting. The contribution of each party shall be noted in all publications or presentations by acknowledgement or coauthorship, whichever is appropriate. -27- 33 4.3 Publicity. Except as required by law, no party may disclose the existence of this Agreement nor the research described in it except with the written consent of the other party, which consent shall not be unreasonably withheld. Neither party will issue a press release with regard to matters relating to this Agreement without the other party's consent, which consent shall not be unreasonably withheld. The party desiring to make any such public announcement or other disclosure shall provide the other party with a written copy of the proposed announcement or disclosure in sufficient time prior to the proposed public release to allow such other party to comment upon the nature, text and timing of such announcement or disclosure prior to the proposed public release. 4.4 Disclosure of Inventions. Each party shall promptly inform the other party about all Improvements concerning the Target that are conceived, made or developed in the course of carrying out the Research Programs and the Development Phase by employees of, or consultants to, that party solely or jointly with employees of, or consultants to, the other party. This Agreement shall not be construed to obligate a party to disclose to the other party any Improvements which do not concern the Target. 4.5 Restrictions on Transferring Materials. HMRI and OSI recognize that the Materials which are part of OSI Technology, HMRI Technology, or Joint Improvements represent valuable commercial assets. Therefore, throughout the Option Period and, if HMRI elects to participate in the Contract Period Research Program and the Development Phase Program, the Contract Period and the Development Phase and for five (5) years after termination of the Agreement (unless the other party consents thereto, which consent shall not be -28- 34 unreasonably withheld), each of OSI and HMRI agree not to transfer to any Third Party any such Materials which constitute Technology owned solely by the other party to this Agreement. Additionally, throughout the Option Period and, if HMRI elects to participate in the Contract Period Research Program and the Development Phase Program, the Contract Period and the Development Phase and for five (5) years following termination of the Agreement, OSI and HMRI agree not to transfer to any Third Party any Materials which are part of the Joint Improvements, unless prior consent for any such transfer is obtained from the other party, which consent shall not be unreasonably withheld, and unless such Third Party agrees as a condition of any such transfer not to transfer the Materials further and to use the Materials only for research purposes not directed toward the development of Compounds or Products. 4.6 Permitted Use of Confidential Information. Nothing contained herein will in any way restrict or impair any party's right to use, disclose or otherwise deal with any Confidential Information which: (a) at the time of disclosure is properly in the public domain or thereafter becomes part of the public domain by publication or otherwise through no breach of this Agreement by the party receiving such information; (b) the party receiving such information can establish by competent evidence that such information was properly in its possession prior to the time of the disclosure; -29- 35 (c) is independently and properly made available as a matter of right to the party receiving such information by a Third Party who is not thereby in violation of a confidential relationship; (d) is information which is required to be included in patent applications filed under Article 6 or required to be provided to a government agency in order for HMRI to obtain approvals to market Products, or for OSI to make a Product for HMRI hereunder; provided, however, that HMRI Confidential Information or OSI Confidential Information shall not be disclosed in any such patent application or otherwise without the prior written consent of HMRI or OSI, respectively, which consent shall not be unreasonably withheld; (e) is information which is required to be disclosed to customers, users and prescribers of a Product, or which is reasonably necessary to disclose in connection with the ethical marketing of a Product; provided, however, that no OSI Confidential Information or HMRI Confidential Information will be so disclosed without the prior written consent of OSI or HMRI, respectively, which consent will not be unreasonably withheld; or (f) is information required to be disclosed by law or by a court order, in each of which cases the disclosing party shall timely inform the other and use its best efforts to limit the disclosure and maintain confidentiality to the extent possible and will permit the other party to limit such disclosure. 5. Licenses and Royalties 5.1 Grant of Licenses. -30- 36 5.1.1 License to HMRI. OSI hereby grants to HMRI a worldwide exclusive license, including the right to sublicense, under the OSI Technology, the OSI Patents, the OSI Improvements, and OSI rights in the Joint Improvements and Joint Patents to develop, make, have made, use, sell and have sold Products, which license shall be exclusive (even as to OSI) (a) for so long as HMRI is obligated to pay a royalty under Sections 5.8.1 or 5.8.2 and (b) thereafter in accordance with Section 5.2 hereof. HMRI agrees that OSI shall be identified on the packaging of all Products on which HMRI is obligated to pay royalties, subject to legal and commercial requirements on a country-by-country basis and in a manner in accordance with such legal and commercial requirements. 5.1.2 License to OSI. In the event that HMRI (a) elects not to participate in the Contract Period Research Program, or (b) discontinues its participation in the Contract Period Research Program prior to the end of the Contract Period by ceasing funding of the Contract Period Research Program in accordance with the provisions of Section 3.2 hereof, or (c) elects not to continue its participation in the Development Phase Program, HMRI will offer to OSI, and OSI may accept (in each case in accordance with Section 1.1.2 hereof), a worldwide non-exclusive license under the HMRI Technology, the HMRI Patents, the HMRI Improvements and the HMRI rights in the Joint Improvements and Joint Patents to develop, make, have made, use and sell Products, and such license shall be exclusive, with the right to sublicense, to the extent that it relates to HMRI Patents or Joint Patents having claims which cover Compounds used in research and development as well as Products approved by the FDA or equivalent authority outside the U.S. and (a) for so long as OSI is obligated to pay a royalty -31- 37 under Section 5.8.3 or 5.8.4 hereof and (b) thereafter in accordance with Section 5.2 hereof. 5.2 Paid-Up License. Provided that HMRI or OSI, as the case may be, has satisfied all of its obligations to pay royalties hereunder with respect to a particular Product, such party shall have a paid-up exclusive royalty-free license to manufacture, have manufactured, use, sell and have sold such Product in each country after the expiration of such party's last obligation to pay royalties on its Net Sales of such Product in such country. 5.3 Obligations. 5.3.1 Either HMRI or OSI, as the case may be, shall use commercially reasonably diligent efforts to exploit the Products commercially. This requirement shall be deemed satisfied if such party uses substantially the same degree of diligence it uses with respect to products of similar commercial potential developed by such party outside of this Agreement. 5.3.2 If HMRI elects to discontinue development of a Compound, it shall so notify OSI and shall offer in writing to OSI the right of first refusal to license the Compound. OSI shall exercise such right by notifying HMRI in writing, within ninety (90) days of receipt from HMRI of the terms of such a license, of its intent to enter into such license. If OSI fails to respond within such ninety (90) day period or determines within such ninety (90) day period not to enter into such a license with HMRI, HMRI may license such Compound to a Third Party. 5.4 Sublicenses. If either HMRI or OSI grants a sublicense pursuant to Article 5, such party shall guarantee that any sublicensee fulfills all of its obligations under -32- 38 this Agreement. In the event HMRI or OSI grants sublicenses under Article 5 to others to make, have made, use, sell or have sold Compounds or Products, such sublicenses shall include an obligation of the sublicensees to account for and report all Net Sales of Compounds or Products on the same basis as if such sales were Net Sales of Products by such party, and such party shall pay royalties to the other party under this Agreement as if the Net Sales of the sublicensee were Net Sales of the sublicensor. 5.5 Ownership of Improvements. In accordance with the United States laws of inventorship, OSI and HMRI shall each own the entire right, title and interest in and to any Improvements made or discovered solely by its respective employees ("OSI Improvements," and "HMRI Improvements," respectively) and OSI and HMRI shall own jointly all Improvements made or discovered jointly by their respective employees during the Research Programs or the Development Phase Program ("Joint Improvements"). Each party represents and agrees that all employees and other persons acting on its behalf in performing its obligations under this Agreement shall be obligated to assign to such party or as such party shall direct (to the extent the agreeing party is legally enabled to disclose and use the same in the Research Programs and the Development Phase Program), all Improvements made or developed by such employee or other person. In the case of Joint Improvements, OSI and HMRI each agree to undertake to enforce such obligations (to the extent the agreeing party is legally enabled to disclose and use the same in the Research Programs and the Development Phase Program) (including, where appropriate, by legal action) considering, among other things, the commercial value of such Joint Improvements. The foregoing "obligations to assign" shall not be deemed to impose on either -33- 39 party an obligation with respect to future agreements with Third Parties requiring the use or disclosure of technology obtained or developed pursuant to such Third Party agreement in connection with this Agreement. 5.6 Rights to Product Improvements. For a period of five (5) years from the termination of the Research Programs, provided that HMRI shall have fully performed its obligations thereunder, HMRI shall be deemed to have acquired an exclusive (non-exclusive in the countries of the world in which this section might otherwise be deemed to violate restrictive trade practices laws), worldwide, royalty-free license to any OSI Improvements to any Compounds or Products. Thereafter, HMRI shall have the sole (i.e., exclusive except as to use only by OSI), worldwide, royalty-free license to any OSI Improvements to any Compounds or Products. OSI shall promptly and fully notify HMRI of any such OSI Improvements. All such OSI Improvements shall be included within the scope of this Agreement. In the event that HMRI (a) elects not to participate in the Contract Period Research Program or (b) discontinues its participation in the Contract Period Research Program prior to the end of the Contract Period by ceasing funding of the Contract Period Research Program in accordance with the provisions of Section 3.2 hereof, or (c) elects not to continue its participation in the Development Phase Program, and OSI accepts the license offered by HMRI upon any of the events listed above, for a period of five (5) years from the date of acceptance of such license by OSI, OSI shall be deemed to have acquired an exclusive (non-exclusive in the countries of the world in which this section might otherwise be deemed to violate restrictive trade practices laws), worldwide, royalty-free license to any HMRI Improvements to any Compounds or Products. Thereafter, -34- 40 OSI shall have the sole (i.e., exclusive except as to use only by HMRI), worldwide, royalty-free license to any HMRI Improvements to any Compounds or Products. HMRI shall promptly and fully notify OSI of any such HMRI Improvements. All such HMRI Improvements shall be included within the scope of this Agreement. 5.7 Technical Assistance. HMRI or OSI, as the case may be, shall provide to the other party or any Affiliate or sublicensee of the other party, at the other party's request and expense, any assistance reasonably necessary to enable the other party or such Affiliate or sublicensee to manufacture, have manufactured, use, sell or have sold each Product and to enjoy fully all the rights granted to the other party pursuant to this Agreement. 5.8 Royalties, Payments of Royalties, Accounting for Royalties, Records. 5.8.1 License to HMRI - Royalties - Patented Products. HMRI shall pay OSI a royalty at the rate of ** of the Net Sales by HMRI, its Affiliates and sublicensees of each Product, the manufacture, use, or sale of which is covered by a Valid Claim of an OSI Patent, an HMRI Patent, or a Joint Patent, if any such OSI Patent, HMRI Patent or Joint Patent covers (a) the active ingredient of a Product or (b) the use of the active ingredient in a Product if such use is approved for marketing by the FDA or equivalent authority outside the U.S., only if the OSI Patent, HMRI Patent or Joint Patent and the approval are in the country where the marketing of such Product occurs. HMRI shall continue to pay such royalty - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -35- 41 on Net Sales of each Product in each country so long as the manufacture, use and/or sale of such Product would infringe on a Valid Claim of an OSI Patent, HMRI Patent or a Joint Patent with respect to such Product in such country. The obligation for HMRI to pay royalties in each such country shall cease at the time such infringement no longer occurs. 5.8.2 License to HMRI - Royalties - Technology. Only if royalties have never been payable pursuant to Section 5.8.1 hereof with regard to a Product in a particular country, HMRI shall pay OSI a royalty at ** of the rate set forth in Section 5.8.1 hereof on the Net Sales by HMRI, its Affiliates and sublicensees of each such Product which would not infringe a Valid Claim of an OSI Patent, an HMRI Patent or a Joint Patent or which may be covered by an OSI Patent, an HMRI Patent or a Joint Patent if such OSI Patent, HMRI Patent or Joint Patent does not cause the royalty payment set forth in Section 5.8.1 to apply to the sale of such Product. Such royalty shall be paid in each country of the world for ten (10) years from the date of first commercial sale of such Product in each such country, except that in the case of countries that are member states of the European Union such obligation to pay royalties shall terminate on the earlier of the termination of said ten (10) year period or the date on which such Improvements enter the public domain. 5.8.3 License to OSI - Royalties - Patented Products. If HMRI elects not to participate in the Contract Period Research Program and/or the Development Phase Program and OSI accepts the grant of license set forth in Section 5.1.2 hereof, OSI shall pay - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -36- 42 HMRI a royalty at the rate of ** of Net Sales by OSI, its Affiliates and sublicensees of each Product, the manufacture, use, or sale of which is covered by a Valid Claim of an OSI Patent, an HMRI Patent, or a Joint Patent, if any such OSI Patent, HMRI Patent or Joint Patent covers (a) the active ingredient of a Product or (b) the use of the active ingredient in a Product if such use is approved for marketing by the FDA or equivalent authority outside the U.S., only if the OSI Patent, HMRI Patent or Joint Patent and the approval are in the country where the marketing of such Product occurs. If (a) HMRI commences participation in the Contract Period Research Program and subsequently discontinues its participation prior to the termination of the Contract Period by ceasing funding of the Contract Period Research Program in accordance with the provisions of Section 3.2 hereof or discontinues its participation in the Development Phase Program, and (b) OSI accepts the grant of license set forth in Section 5.1.2 hereof, OSI shall pay HMRI royalties at the following rates on the Net Sales by OSI, its Affiliates and sublicensees of each Product, the manufacture, use, or sale of which is covered by a Valid Claim of an OSI Patent, an HMRI Patent, or a Joint Patent, if any such OSI Patent, HMRI Patent or Joint Patent covers (a) the active ingredient of a Product or (b) the use of the active ingredient in a Product if such use is approved for marketing by the FDA or equivalent authority outside the U.S., only if the OSI Patent, HMRI Patent or Joint Patent and the approval are in the country where the marketing of such Product occurs: - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -37- 43 (i) ** if HMRI's discontinuance occurred following commencement of the Contract Period but prior to commencement of Phase I clinical trials with regard to such Product; (ii) ** if HMRI's discontinuance occurred after commencement of Phase I clinical trials with regard to such Product but prior to commencement of Phase II clinical trials with regard to such Product; (iii) ** if HMRI's discontinuance occurred after commencement of Phase II clinical trials with regard to such Product but prior to commencement of Phase III clinical trials with regard to such Product; and (iv) ** if HMRI's discontinuance occurred after commencement of Phase III clinical trials with regard to such Product. OSI shall continue to pay such royalty on Net Sales of each Product in each country so long as the manufacture, use and/or sale of such Product would infringe on a Valid Claim of an OSI Patent, HMRI Patent or a Joint Patent with respect to such Product in such country. The obligation for OSI to pay royalties in each such country shall cease at the time such infringement no longer occurs.. 5.8.4 License to OSI - Royalties - Technology. Only if royalties have never been payable pursuant to Section 5.8.3 hereof with regard to a Product in a particular country, OSI shall pay HMRI a royalty at ** of the rate set forth in Section 5.8.3 hereof on - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -38- 44 the Net Sales by OSI, its Affiliates and sublicensees of each such Product which would not infringe a Valid Claim of an OSI Patent, an HMRI Patent or a Joint Patent or which may be covered by an OSI Patent, an HMRI Patent or a Joint Patent if such OSI Patent, HMRI Patent or Joint Patent does not cause the royalty payment set forth in Section 5.8.3 to apply to the sale of such Product. Such royalty shall be paid in each country of the world for ten (10) years from the date of first commercial sale of such Product in each such country, except that in the case of countries that are member states of the European Union such obligation to pay royalties shall terminate on the earlier of the termination of said ten (10) year period or the date on which such Improvements enter the public domain. 5.8.5 License to OSI - Licensing Fee. In addition to the royalties set forth in Sections 5.8.3 and 5.8.4 above, if OSI accepts the grant of license set forth in Section 5.1.2 hereof, OSI shall pay HMRI at the time of such acceptance a one (1) time ** licensing fee. 5.8.6 Third Party Royalties. (a) For Technology used in the Research Programs and/or the commercialization of any Product directed to the Target, any royalty payable to any Third Party, including, without limitation, royalties paid for licensed compounds (other than royalties arising out of OSI Technology or HMRI Technology) and any lump sum payment made to a Third Party as a license fee or otherwise shall be borne first (as between HMRI and OSI) - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -39- 45 by the party holding the license, under Section 5.1.1 or 5.1.2, to develop, make, have made, use, sell and have sold Products, provided that an amount equal to twenty-five percent (25%) of any such Third Party royalty or payment may be offset against any royalties due to the party entitled to royalties under Section 5.8.1, 5.8.2 , 5.8.3 or 5.8.4, as the case may be, but only to the extent that the amount paid to such party is equal to or greater than fifty percent (50%) of the total royalty that would otherwise be due to such party under Section 5.8.1, 5.8.2, 5.8.3 or 5.8.4, as the case may be, for the relevant period. (b) Any royalty payable to any Third Party arising out of OSI Technology or HMRI Technology shall be payable solely by OSI or HMRI, respectively. 5.8.7 Payment Dates. Royalties shall be paid by HMRI or OSI, as the case may be, on Net Sales within ninety (90) days after the end of each calendar quarter in which such Net Sales are made. Such payments shall be accompanied by a statement showing the Net Sales of each Product in each country and a calculation of the amount of royalty due. 5.8.8 Accounting. The Net Sales used for computing the royalties payable to OSI by HMRI, or to HMRI by OSI, as the case may be, shall be computed and paid in U.S. Dollars. For purposes of determining the amount of royalties due with respect to Net Sales in any foreign currency, the amount shall be computed generally by converting the foreign currency amount into U.S. Dollars using for each month's calculation the foreign currency exchange rate on the last day of the preceding month or such other method as is consistent with internal foreign currency translation procedures of the party paying the royalties, as actually used by such party on a consistent basis in preparing its audited financial statements. -40- 46 5.8.9 Records. HMRI or OSI, as the case may be, shall keep for three (3) years from the date of each payment of royalties complete and accurate records of Net Sales by such party, its Affiliates and sublicensees of each Product in sufficient detail to allow the accruing royalties to be determined accurately. The party to whom royalties are due shall have the right for a period of three (3) years after receiving any report or statement with respect to royalties due and payable to obtain at its expense from the independent certified public accountant used by the other party for public reporting an audit of the relevant records of the other party to verify such report or statement. The party owing royalties shall make its records available for inspection by such independent certified public accountant during regular business hours at such place or places where such records are customarily kept, upon reasonable notice from the other party, to the extent reasonably necessary to verify the accuracy of the reports and payments. Such inspection right shall not be exercised more than once in any calendar year nor more than once with respect to sales in any given period, unless a subsequent inspection reveals discrepancies which may have also occurred during such period. Such independent certified public accountant shall report to the party to whom royalties are due only as to the accuracy of the Net Sales computation and royalty payments. Such party agrees to hold in strict confidence all information concerning royalty payments and reports, and all information learned in the course of any audit or inspection, except to the extent necessary for such party to reveal such information in order to enforce its rights under this Agreement or disclosure is required by law. The failure of such party to request verification of any report or statement during the three (3) year period shall be considered acceptance of the accuracy of such report, and the party -41- 47 owing royalties shall have no obligation to maintain records pertaining to such report or statement beyond the three (3) year period. The results of the inspection shall be binding on both parties. 5.8.10 Withholding Taxes. All amounts owing to a party entitled to royalties as specified in this Agreement shall be paid net of all applicable taxes, fees, and other charges excluding only taxes on the income of the party owing royalties. The party owing royalties will assist the other party in minimizing the withholding tax applicable to any payment made by the party owing royalties hereunder and in claiming tax refunds at the other party's request. 5.8.11 Credit Against Royalty. HMRI shall have as a credit against its royalty obligation of ** of the amounts of the initiation fee and milestone payments set forth in Section 3.3 hereof up to a maximum credit of ** . 5.8.12 Other Forms of Remuneration. If either party receives compensation from sales of Products which includes lump sum payments or payments in a manner other than one for which royalties based on Net Sales would be the appropriate measure, such as compensation through a co-marketing or joint venture arrangement, the parties will negotiate in good faith an appropriate compensation arrangement by which the party which - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -42- 48 otherwise would be entitled to royalties will be remunerated for the licenses granted in Section 5.1 hereof. 6. Provisions Concerning the Filing, Prosecution and Maintenance of Patent Rights. The following provisions relate to the filing, prosecution and maintenance of OSI Patents, patents involving Joint Improvements, and HMRI Patents: 6.1 OSI Filing, Prosecution and Maintenance. OSI shall have the exclusive right and obligation: (a) to file applications for letters patent on any patentable invention included in OSI Improvements, or in Joint Improvements which relate to cell lines, cloning of cell lines and methodologies for determining the effect of compounds on biochemical processes; provided, however, that OSI shall provide to HMRI copies of all patent applications prior to filing for the purpose of obtaining substantive comment of HMRI patent counsel, consult with HMRI regarding countries in which such patent applications should be filed, and shall file patent applications in those countries where HMRI requests that OSI file; and further provided, that OSI, at its option and expense, may file in countries where HMRI does not request that OSI file; (b) to prosecute all pending and new patent applications involving OSI Compounds or included within OSI Improvements, or Joint Improvements which relate to cell lines, cloning of cell lines and methodologies for determining effect of compounds on biochemical processes, and to respond to oppositions filed by Third Parties against the grant of letters patent for such applications, provided that OSI shall also provide to HMRI copies of -43- 49 all documents relating to prosecution of all patent applications and/or oppositions filed by Third Parties in a timely manner for the purpose of obtaining substantive comment of HMRI patent counsel; (c) to maintain in force any letters patent included in OSI Patents by duly filing all necessary papers and paying any fees required by the patent laws of the particular country in which such letters patent were granted; (d) to notify HMRI in a timely manner of any decision to abandon a pending patent application or an issued patent included in OSI Patents. Thereafter, HMRI shall have the option, at its expense, of continuing to prosecute any such pending patent application or of keeping the issued patent in force; and (e) to provide to HMRI every six (6) months a report detailing the status of all patent applications that are part of OSI Patents. 6.2 HMRI Filing, Prosecution and Maintenance. HMRI shall have the exclusive right and obligation: (a) to file applications for letters patent on any patentable invention included in HMRI Improvements, or in Joint Improvements which relate to new compounds and therapeutic uses or manufacturing processes of known compounds; provided, however, that HMRI provide to OSI copies of all patent applications prior to filing for the purpose of obtaining substantive comment of OSI patent counsel, consult with OSI regarding countries in which such patent applications should be filed, and shall file patent applications in -44- 50 those countries where OSI requests that HMRI file; and further provided, that HMRI, at its option and expense, may file in countries where OSI does not request that HMRI file; (b) to prosecute all pending and new patent applications involving HMRI Compounds or included within HMRI Improvements, or Joint Improvements which relate to new compounds and therapeutic uses or manufacturing processes of known compounds, and to respond to oppositions filed by Third Parties against the grant of letters patent for such applications; provided that HMRI shall also provide to OSI copies of all documents relating to prosecution of all patent applications and/or oppositions filed by Third Parties in a timely manner for the purpose of obtaining substantive comment of OSI patent counsel; (c) to maintain in force any letters patent included in HMRI Patents by duly filing all necessary papers and paying any fees required by the patent laws of the particular country in which such letters patent were granted; (d) to notify OSI in a timely manner of any decision to abandon a pending patent application or an issued patent included in HMRI Patents. Thereafter, OSI shall have the option, at its expense, of continuing to prosecute any such pending patent application or of keeping the issued patent in force; and (e) to provide to OSI every six (6) months a report detailing the status of all patent applications that are part of HMRI Patents. 6.3 Joint Filing, Prosecution and Maintenance. OSI and HMRI shall jointly have the right and obligation: -45- 51 (a) to file applications for letters patent on any patentable invention which are not the subject of applications filed by either OSI or HMRI pursuant to Section 6.1 or 6.2, and which arise in the course of conducting the Research Programs or the Development Phase Program; and the parties shall determine with respect to each such application the party ("Responsible Party") which shall have the primary responsibility as to such application; provided, however, that the Responsible Party shall provide to the other party copies of all patent applications prior to filing for the purpose of obtaining substantive comment of the other party's patent counsel, consult with the other party regarding countries in which such patent applications should be filed, and shall file patent applications in those countries where the other party requests that the Responsible Party file; and further provided, that the Responsible Party, at its option and expense, may file in countries where the other party does not request that the Responsible Party file; (b) to prosecute all pending and new patent applications involving Joint Improvements which are not the subject of applications prosecuted pursuant to Sections 6.1 or 6.2, and to respond to oppositions filed by Third Parties against the grant of letters patent for such applications; provided that the Responsible Party shall also provide to the other party copies of all documents relating to prosecution of all patent applications and/or oppositions filed by Third Parties in a timely manner for the purpose of obtaining substantive comment of the other party's patent counsel; (c) to maintain in force any letters patent included in Joint Patents by duly filing all necessary papers and paying any fees required by the patent laws of -46- 52 the particular country in which such letters patent were granted; and the Responsible Party shall have primary responsibility to do so; (d) to decide to abandon a pending patent application or an issued patent included in Joint Patents; if the parties cannot reach agreement on a decision to abandon a pending patent application or an issued patent included in Joint Patents, the party opposing abandonment shall have the option, at its expense, of continuing to prosecute any such pending patent application or of keeping the issued patent in force, and the party proposing abandonment shall assign to the other party its rights in such pending patent application or issued patent; and (e) to have the Responsible Party prepare every six (6) months a report detailing the status of all patent applications that are part of Joint Patents. 6.4 Reimbursement of Expenses. 6.4.1 HMRI will reimburse OSI for its reasonable out-of-pocket costs incurred after the Effective Date to file, prosecute, issue, maintain and extend patent applications and patents within the OSI Patents or within those Joint Patents for which OSI is the Responsible Party in countries in which HMRI has requested OSI to file that OSI would not have otherwise filed. 6.4.2 OSI agrees to utilize the in-house patent services and capabilities of HMRI wherever practicable. OSI will reimburse HMRI for its reasonable out-of-pocket costs incurred after the Effective Date to file, prosecute, issue, maintain and extend patent applications and patents within HMRI Patents or within those Joint Patents for which -47- 53 HMRI is the Responsible Party in countries in which OSI has requested HMRI to file that HMRI would not have otherwise filed. 6.5 Patent Extensions. In the event any patent in the Joint Patents, OSI Patents or HMRI Patents is eligible for extension or Supplementary Protection Certificate, the Research Management Committee shall determine for which patents, applications for extension shall be filed. 6.6 Legal Action. 6.6.1 Actual or Threatened Disclosure or Infringement. When information comes to the attention of either HMRI or OSI to the effect that an HMRI Patent, OSI Patent or Joint Patent or Joint Improvement relating to a Compound or Product have been or are threatened to be unlawfully disclosed or that any of the rights granted by this Agreement has been or is threatened to be unlawfully infringed, such party shall notify the other party in writing and HMRI shall have the right at its expense to take such action as it may deem necessary to prosecute or prevent such unlawful disclosure or infringement, including the right to bring or defend any suit, action or proceeding involving any such disclosure or infringement. HMRI shall notify OSI promptly of the receipt of any such information and of the commencement of any such suit, action or proceeding. If HMRI determines that it is necessary or desirable for OSI to join any such suit, action, or proceeding, OSI shall execute all papers and perform such other acts as may be reasonably required to permit HMRI to act in OSI's name. In the event that HMRI brings a suit, it shall have the right first to reimburse itself out of any sums recovered in such suit or in its settlement for all reasonable costs and expenses of every kind and character, -48- 54 including reasonable attorney's fees, involved in the prosecution of any suit, and twenty-five percent (25%) of any funds that shall remain from said recovery shall be distributed to OSI and the balance of such funds shall be retained by HMRI. If HMRI does not, within one hundred twenty (120) days after giving notice to OSI of the above-described information, notify OSI of HMRI's intent to bring suit against any infringer, OSI shall have the right to bring suit for such alleged infringement, but it shall not be obligated to do so, and may cause HMRI to be joined as a party plaintiff, if appropriate, in which event OSI shall hold HMRI free, clear, and harmless from any and all costs and expenses of such litigation, including attorney's fees, and any sums recovered in any such suit or in its settlement shall belong to OSI. However, twenty-five percent (25%) of any such sums received by OSI, after deduction of the costs and expenses of litigation, including attorney's fees paid, shall be paid to HMRI. Each party shall always have the right to be represented by counsel of its own selection and at its own expense in any suit instituted by the other for infringement, under the terms of this Section. If HMRI lacks standing to bring any such suit, action, or proceeding, then OSI shall do so at the request of HMRI and at HMRI's expense. 6.6.2 Defense of Infringement Claims. If OSI or HMRI, or any of their respective licensees or their customers, shall be sued by a Third Party for infringement of a patent because of the research, development, manufacture, use or sale of Products, the party which has been sued shall promptly notify the other in writing of the institution of such suit. HMRI shall have the right (including the right to exclusive control of the defense of any such suit, action, or proceeding and the exclusive right to compromise, litigate, settle, or otherwise -49- 55 dispose of any such suit, action, or proceeding), but not the obligation, to defend or settle any such suit, action, or proceeding and OSI shall furnish to HMRI all necessary information and assistance in connection therewith. The parties shall share the expenses (including the amount of any settlement, or any final judgment finding infringement) of implementing the agreed defense on the following basis: (a) If the alleged infringement is due to the use of OSI Technology, then the expenses shall be borne equally by HMRI and OSI. (b) Notwithstanding Section 6.6.2(a), if the alleged infringement is due to the sale of a Product by either HMRI or OSI, as the case may be, then the party making such sale shall bear seventy-five percent (75%) of the expense and the other party (i.e., the party entitled to a royalty) shall bear twenty-five percent (25%) of the expense; provided that the sole obligation of the party entitled to a royalty will be paid in the form of a fifty percent (50%) reduction during the pendency of the action (but not after it has been concluded) in the royalty otherwise payable to such party or a fifty percent (50%) credit against future royalties until such party's share of the expenses of such suit are recovered. If such suit results in any award or settlement paid in favor of HMRI or OSI, such amount shall be shared in the same proportion as the expenses of such suit have been actually borne. The share of the expenses of any suit of any party entitled to a royalty shall be limited to the foregoing royalty reduction and if the royalty reduction and such party's share of any award shall not be sufficient to cover its share of the expenses of such suit, such party shall not be obligated to make up the shortfall. If it is agreed that if one party shall conduct the defense, the other shall have the right to be -50- 56 represented by advisory counsel of its own selection, at its own expense, and shall cooperate fully in the defense of such suit and furnish to the other all evidence and assistance in its control. 6.6.3 Hold Harmless. OSI agrees to defend, protect, indemnify, and hold harmless HMRI and any sublicensee of HMRI, from and against any loss or expense arising from any proven claim of a Third Party that it has been granted rights by OSI, and that HMRI or any sublicensee of HMRI in exercising their rights granted to HMRI by OSI pursuant to this Agreement, has infringed upon such rights granted to such Third Party by OSI. If HMRI grants to OSI a license hereunder, OSI agrees to defend, protect, indemnify and hold harmless HMRI from and against any liability, claim, loss, cost or expense arising from any claim for product liability based upon OSI's manufacture, use, or sale of any Product, except to the extent such liability, claim, loss, or expense also results from the negligence or willful misconduct of HMRI, its employees and agents. If OSI grants to HMRI a license hereunder, HMRI agrees to defend, protect, indemnify, and hold harmless OSI from and against any liability, claim, loss, cost, or expense arising from any claim for product liability based upon HMRI's manufacture, use, or sale of any Product except to the extent such liability, claim, loss or expense also results from the negligence or willful misconduct of OSI, its employees and agents. 6.6.4 Third Party Licenses. If HMRI and OSI agree that the manufacture, use, or sale by HMRI or OSI, as the case may be, of a Product in any country would infringe a patent owned by a Third Party, the party holding the license under Section 5.1.1 or 5.1.2 to develop, make, have made, use, sell and have sold such Product shall attempt to obtain a license under such patent. If such party obtains a license under such patent, then fifty -51- 57 percent (50%) of any payments made by such party to such Third Party shall be deductible from royalty payments due from such party to the party entitled to royalties pursuant to this Agreement; provided, however, that in no event shall royalties payable to the party entitled to royalties be reduced by more than twenty-five percent (25%) as a result of all such deductions. All such computations, payments, and adjustments shall be on a country by country and patent by patent basis. If either HMRI or OSI is of the opinion that such manufacture, use, or sale would not infringe such patent owned by a Third Party, the party holding the license under Section 5.1.1 or 5.1.2 to develop, make, have made, use, sell and have sold such Product may, at its election and expense, bring suit against such Third Party seeking a declaration that such patent is invalid or not infringed by such party's manufacture, use or sale of such Product, or may bring opposition, nullity, or other proceedings against such patent, as appropriate. If the party holding the license does not bring such suit, or is successful in such suit, such party shall continue to pay royalties in such country as provided in Article 5. If such party is unsuccessful in such suit, it shall join the other party in an attempt to obtain a license under such patent, and royalty payments made to such Third Party for such license shall be as provided in this Section. 7. Acquisition of Rights from Third Parties. During the Option Period, the Contract Period and the Development Phase, OSI and HMRI shall promptly notify each other in writing of any and all opportunities to acquire in any manner from Third Parties, technology -52- 58 or patents which may be useful in, or may relate to the Research Programs or the Development Phase Program. The notifying party shall decide if such rights should be acquired and, if so, whether it desires to make the acquisition or (if agreeable to the other party) whether (a) the other party should make the acquisition or (b) such acquisition should be made jointly. If acquired, such rights shall be deemed part of the Technology of the party making the acquisition or if jointly acquired, then part of Joint Improvements. 8. Term, Termination and Disengagement 8.1 Term. 8.1.1 Term of Option Period. The term of the Option Period shall commence on the Effective Date and shall terminate on March 31, 1998, unless extended or sooner terminated by mutual written agreement of the parties, or as otherwise provided in this Agreement. 8.1.2 Term of Contract Period. The term of the Contract Period shall commence at the end of the Option Period upon notice from HMRI to OSI pursuant to Section 2.1.2 hereof that HMRI elects to participate in the Contract Period Research Program, and shall continue for twenty-four (24) months, unless extended or sooner terminated by mutual written agreement of the parties, or as otherwise provided in this Agreement. 8.1.3 Term of Development Phase. The Development Phase of this Agreement shall commence at the end of the Option Period upon notice from HMRI to OSI pursuant to Section 2.1.2 hereof that HMRI elects to participate in the Development Phase Program (and, for a period of time, may be coexistent with the Contract Period) and shall -53- 59 continue for as long as HMRI is continuing development activities with regard to a Compound or Product. The Development Phase shall not commence if HMRI unilaterally elects not to participate in the Contract Period Research Program. 8.1.4 Term of This Agreement. The term of this Agreement shall continue until the expiration of the last obligation of either party to pay royalties in a country. 8.2 Termination of the Agreement During the Option Period. If, during the Option Period, HMRI and OSI determine by mutual written agreement to discontinue activity under this Agreement, this Agreement shall terminate, subject to Section 8.6 hereof, and the respective rights brought to the collaboration by each party shall revert to such party and the parties shall negotiate in good faith with respect to the division of any joint rights (i.e., Joint Improvements and Joint Patents) created under this Agreement. 8.3 Termination of Research Funding. 8.3.1 Termination of Research Funding by HMRI at End of Option Period. If HMRI does not elect to participate in the Contract Period Research Program at the end of the Option Period, HMRI will offer to OSI a worldwide license as more fully set forth in Section 5.1.2 hereof. This Agreement shall thereupon terminate, subject to the provisions of Section 8.6 hereof. 8.3.2 Termination of Research Funding by HMRI During Contract Period. If, at the end of the Option Period, HMRI exercises its option to participate in the Contract Period Research Program and, thereafter, during the Contract Period, either discontinues its participation in the Contract Period Research Program by ceasing funding of the -54- 60 Contract Period Research Program in accordance with the provisions of Section 3.2 hereof, or otherwise does not diligently continue its efforts to develop a Compound or Product, OSI shall have the option to be granted a worldwide license by HMRI on the terms set forth in Section 5.1.2 of this Agreement. The Contract Period and this Agreement shall thereupon terminate, subject to the provisions of Section 8.6 hereof. If HMRI does diligently continue its development efforts throughout the Contract Period, this Agreement shall continue and HMRI shall be granted the license provided for in Section 5.1.1 as set forth therein. 8.3.3 Termination by HMRI During Development Phase. If, at the end of the Option Period, HMRI exercises its option to participate in the Development Phase Program and, thereafter, during the Development Phase, either discontinues its participation in the Development Phase Program or otherwise does not diligently continue its efforts to develop a Compound or Product, OSI shall have the option to be granted a worldwide license by HMRI on the terms set forth in Section 5.1.2 of this Agreement. The Development Phase and this Agreement shall thereupon terminate, subject to the provisions of Section 8.6 hereof. If HMRI does diligently continue its development efforts throughout the Development Phase, this Agreement shall continue and HMRI shall be granted the license provided for in Section 5.1.1 as set forth therein. 8.3.4 Termination Not Deemed a Breach. The parties acknowledge that none of the activities of HMRI referred to in this Section 8.3 shall be deemed to be a breach of this Agreement by HMRI. 8.4 Termination Upon an Event of Default. -55- 61 8.4.1 The following events shall constitute events of default ("Events of Default"): (a) Any material representation or warranty by OSI or HMRI, or any of their officers, under or in connection with this Agreement shall prove to have been incorrect in any material respect when made. (b) OSI or HMRI shall fail in any material respect to perform or observe any material term, covenant or understanding contained in this Agreement or in any of the other documents or instruments delivered pursuant to, or concurrently with, this Agreement, and any such failure shall remain unremedied for thirty (30) days after written notice to the failing party. 8.4.2 Upon the occurrence of an Event of Default, the party not responsible may, by notice to the other party, terminate this Agreement subject to compliance with the terms of Article 11 (Dispute Resolution). If HMRI is the terminating party, at HMRI's option (a) the license in Section 5.1.1 (if in effect at such time) and the obligation to pay royalties as provided in Sections 5.8.1 and 5.8.2 shall continue or (b) the license in Section 5.1.2 (if in effect at such time) and the obligation to pay royalties as provided in Sections 5.8.3 and 5.8.4 shall continue, as the case may be. If OSI is the terminating party, at OSI's option (i) the license in Section 5.1.1 (if in effect at such time) and the obligation to pay royalties as provided in Sections 5.8.1 and 5.8.2 shall continue or (ii) the license in Section 5.1.2 (if in effect at such time) and the obligation to pay royalties provided in Sections 5.8.3 and 5.8.4 shall continue, as the case may be. -56- 62 8.5 Change of Control. 8.5.1 A "Change of Control" shall be deemed to have occurred if, after the date of this Agreement, (i) any Third Party acquires a majority of the shares of a party or acquires a right to control the voting of a majority of shares of a party, (ii) any Third Party acquires sufficient shares or the right to control the votes of sufficient shares to enable such Third Party to elect a majority of the board of directors of a party, or (iii) any Third Party acquires the power through share ownership or otherwise to designate a majority of the board of directors of a party. 8.5.2 Upon a Change of Control during the Option Period, the respective rights brought to the collaboration by each party shall revert to such party and the parties shall negotiate in good faith with respect to the division of any joint rights (i.e., Joint Improvements and Joint Patents) created under this Agreement and this Agreement shall thereupon terminate, subject to the provisions of Section 8.6 hereof. 8.5.3 Upon a Change of Control during the Contract Period or the Development Phase, thereafter for a period of six (6) months after such Change of Control, either party may terminate this Agreement upon three (3) months' written notice to the other party. If HMRI is the terminating party and such termination occurs prior to the expiration of the Contract Period, OSI shall have the option to be granted a worldwide license by HMRI on the terms set forth in Section 5.1.2 hereof. If OSI is the terminating party or if HMRI is the terminating party and such termination occurs following the expiration of the Contract Period, HMRI shall have the option to be granted the license provided for in Section 5.1.1 hereof. -57- 63 8.6 Survival. Upon termination pursuant to Section 8.1.4 or 8.2 hereof, the following sections of this Agreement shall survive such termination: Sections 1, 4, 12 and 13. Upon termination pursuant to Sections 8.3, 8.4 or 8.5 hereof, the following sections of this Agreement shall survive such termination if OSI has (or exercises its option to obtain) a worldwide license as provided in Section 5.1.2 hereof: Sections 1, 4, 5.1.2, 5.2, 5.3.1, 5.4, 5.5, 5.6, 5.7, 5.8.3, 5.8.4, 5.8.5, 5.8.6, 5.8.7, 5.8.8, 5.8.9, 5.8.10, 5.8.12, 6, 9.6, 11, 12, 13 and 14.7. Upon termination pursuant to Section 8.4 or 8.5 hereof, the following sections of this Agreement shall survive such termination if HMRI has a worldwide license as provided in Section 5.1.1 hereof: Sections 1, 4, 5.1.1, 5.2, 5.3.1, 5.4, 5.5, 5.6, 5.7, 5.8.1, 5.8.2, 5.8.6, 5.8.7, 5.8.8, 5.8.9, 5.8.10, 5.8.11, 5.8.12, 6, 9.6, 11, 12, 13 and 14.7. Upon termination pursuant to Section 8.3, 8.4 or 8.5 if neither party has (or exercises its option to obtain) a worldwide license as provided in Section 5.1 hereof, the following sections of this Agreement shall survive: 1, 2.1.2 (last sentence), 4, 6, 12, 13 and 14.7. 9. Representations and Warranties. OSI and HMRI each represents and warrants as follows: 9.1 Status. It is a corporation, validly existing and in good standing under the laws of Delaware, and has all requisite power and authority, corporate or otherwise, to conduct its business as now being conducted, to own, lease and operate its properties and to execute, deliver and perform this Agreement. 9.2 Authority. The execution, delivery and performance by it of this Agreement have been duly authorized by all necessary corporate action and do not and will not -58- 64 (a) require any consent or approval of its stockholders, (b) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to it or any provision of its charter or by-laws or (c) result in a breach of or constitute a default under any material agreement, mortgage, lease, license, permit or other instrument or obligation to which it is a party or by which it or its properties may be bound or affected. 9.3 Binding Obligation. This Agreement is a legal, valid and binding obligation of it enforceable against it in accordance with its terms and conditions, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws, from time to time in effect, affecting creditor's rights generally. 9.4 No Conflicting Obligations. It is not under any obligation to any Third Party, contractual or otherwise, that is conflicting or inconsistent in any respect with the terms of this Agreement or that would impede the diligent and complete fulfillment of its obligations. 9.5 Good Title. It has good and marketable title to or valid leases or licenses for, all of its properties, rights and assets necessary for the fulfillment of its responsibilities hereunder and the Research Programs and the Development Phase Program, subject to no claim of any Third Party other than the relevant lessors or licensors. 9.6 Right to Grant Licenses. It has the right to grant to the other the licenses granted pursuant to this Agreement, and that the licenses so granted do not conflict with or violate the terms of any agreement between either of them and any Third Party. -59- 65 10. Covenants of OSI 10.1 Affirmative Covenants of OSI Other Than Reporting Requirements. From and after the Effective Date, OSI shall: (a) maintain and preserve its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified as a foreign corporation in good standing in each jurisdiction in which such qualification is from time to time necessary or desirable in view of its business and operations or the ownership of its properties. (b) comply in all material respects with the requirements of all applicable laws, rules, regulations and orders of any government authority to the extent necessary to conduct the Research Programs. 11. Dispute Resolution. 11.1 Mediation Committee. The Chief Executive Officer of OSI and the Chief Scientific Officer of HMRI shall constitute the Mediation Committee. In the event OSI or HMRI believes that the other has breached the Agreement or failed to meet a condition or milestone required to be met, or a dispute has arisen between the parties, the parties agree that, before any party initiates arbitration proceedings pursuant to Section 11.6, it shall give the other party notice and shall demand that the members of the Mediation Committee attempt to resolve the matter amicably. If the Mediation Committee is unable to resolve a matter via telephone, telefax or other written or oral contact within five (5) days of submission of the matter to it, the Mediation Committee shall meet in person, not later than fifteen (15) days following submission -60- 66 of the matter to it, at a mutually convenient place to attempt in good faith to resolve the dispute. If the Mediation Committee is unable to resolve a dispute on any matter other than those set forth in Section 11.2 herein, unless a mutually acceptable extension is agreed upon by the Mediation Committee, either side shall have the right, but not the obligation, to initiate arbitration proceedings respecting the matter under review, in accordance with Section 11.6. 11.2 Non-Arbitrable Issues. Matters relating to modification of the Research Programs and the Development Phase Program shall not be submitted to arbitration. 11.3 Scope of Arbitration. The parties agree that all disputes except those set forth in Section 11.2 above arising under this Agreement shall be resolved by arbitration in accordance with the provisions of this Article 11; provided, however, that during the period of arbitration on any dispute the parties shall continue to fulfill their obligations as set forth in this Agreement. 11.4 Arbitration Panel. The arbitration shall be held before a panel of three (3) persons ("Arbitration Panel"). 11.4.1 Selection. Within fifteen (15) days of the appointment of the two initial arbitrators, the two arbitrators so appointed shall appoint the third arbitrator, who shall be an attorney and shall act as chair of the Arbitration Panel. 11.4.2 Qualifications. The two arbitrators selected by the parties hereto shall have experience in the pharmaceutical and/or biotechnology industry. None of the arbitrators shall be employed or retained by or otherwise related to OSI or HMRI. -61- 67 11.4.3 Failure to Name. If a party fails to name its arbitrator within thirty (30) days of the receipt of the Notice of Arbitration, then the arbitrator already named shall immediately select the second arbitrator. The two arbitrators so appointed shall appoint the third arbitrator, who shall be an attorney and shall act as chair of the Arbitration Panel. 11.4.4 Right to Select Replacement. In the event that an arbitrator refuses or is otherwise unable to serve as such, the party or the other arbitrator(s) as the case may be, who selected such arbitrator shall have the right to select his/her replacement. Such replacement shall be selected within fifteen (15) days of the refusal or inability by such arbitrator to serve. 11.5 Designation of Rules, Situs, Governing Law. 11.5.1 Designation of Rules. The parties agree that the arbitrators shall apply the Federal Rules of Evidence as they are applied in cases tried to a court sitting without a jury; unless the parties agree otherwise, the opinions of expert witnesses shall not be admissible. The parties agree that discovery proceedings shall be limited to: (a) the dispute; (b) depositions of those persons having direct knowledge of the dispute; and (c) submission of all documents which relate to the dispute. 11.5.2 Situs. The arbitration hearing shall be held in New York unless otherwise mutually agreed. 11.5.3 Governing Law. The arbitrators shall interpret the Agreement in accordance with the laws of New York. -62- 68 11.6 Procedure. 11.6.1 Conciliation Period. No party shall send a Notice of Arbitration in connection with a dispute under this Article 11 unless at least thirty (30) days prior to the date of such Notice of Arbitration, such party shall have furnished to the other parties written notice of its intent to send a Notice of Arbitration in connection with a dispute. Such 30-day period is referred to as the "Conciliation Period." During the Conciliation Period, the parties shall attempt in good faith to settle the dispute. 11.6.2 Notice of Arbitration. The party seeking to institute arbitration ("Claimant") shall do so by sending the other party ("Respondent") a written notice of arbitration ("Notice of Arbitration"). The Notice of Arbitration shall set forth in detail the nature of the dispute. The Notice of Arbitration shall also designate the arbitrator appointed by the Claimant and set forth a full Curriculum Vitae or resume showing that the arbitrator meets the qualifications set forth in Section 11.4 2. 11.6.3 Response. Within thirty (30) days of the Notice of Arbitration, the Respondent shall send the Claimant a written Response including any counterclaims ("Response"). The Response shall also designate the arbitrator appointed by the Respondent and set forth a full Curriculum Vitae or resume showing that the arbitrator meets the qualifications set forth in Section 11.4.2. If the Response sets forth a counterclaim, the Claimant may, within fifteen (15) days of the receipt of the Response, deliver to the Respondent and the arbitrators a Rejoinder ("Rejoinder") answering such counterclaim. -63- 69 11.6.4 Discovery. Within sixty (60) days of the date of the Response, each party shall submit to the other party and to the arbitrators one (1) copy of all documents in the possession, custody or control of the party or its Affiliates, which are relevant for a settlement of the dispute set forth in the Notice of Arbitration, Response or Rejoinder. Within forty-five (45) days of the date of the Response, each party shall submit to the other party a list of all witnesses intended to be called at the hearing. Each party shall use its best efforts to make available for deposition within thirty (30) days after the delivery of the list of witnesses at each party's respective location of its operations, all of its agents, employees, and Affiliates who have direct knowledge of the dispute at such times and places that shall not unreasonably disrupt the business of the other party. The Chair of the Arbitration Panel shall determine all discovery disputes and may enforce a decision by imposing appropriate sanctions on the non-complying party(s). 11.6.5 Record. A stenographic record of all proceedings shall be made and oaths administered by a duly licensed and qualified court reporter. The court reporter shall prepare five (5) copies of the stenographic record of such proceeding and shall send one (1) copy to each of the arbitrators and to each of the parties within seven (7) days of the relevant proceeding under this Section. 11.6.6 Attendance at Hearing. Each party may be represented by an attorney at all hearings before the Arbitration Panel. The Arbitration Panel shall have the power to require the exclusion of any witness, other than a party or other essential person, during the testimony of any other witness. Unless the law provides to the contrary, the -64- 70 arbitration may proceed in the absence of any party or representative who, after due notice, fails to be present or fails to obtain a postponement. An award shall not be made solely on the default of a party; the Arbitration Panel shall require the party who is present to submit such evidence as it may require for the making of an award. 11.6.7 Postponement of Hearing. The Arbitration Panel, for good cause shown, may postpone any hearing under any of the following conditions: (i) upon the request of a party, (ii) upon its own initiative, and (iii) upon mutual agreement by the parties. 11.6.8 Post-Hearing Filings. Any post-hearing briefs shall be made by the parties to the Arbitration Panel and the other party within fourteen (14) business days following the hearing. Each party shall be afforded an opportunity to examine any post-hearing filings and to provide a response to the Arbitration Panel within seven (7) business days of the receipt of a post-hearing filing. 11.6.9 Award Opinion. The Arbitration Panel shall issue an opinion with respect to any dispute and may formulate its own remedy and need not select the position of either party. The arbitrators shall issue a Final Decision within one (1) month from the final hearing on any dispute. Such opinion shall be written in the form of "Findings of Fact" and "Conclusions of Law," and shall include the reasons for a decision. A Final Decision shall be binding on both parties and non-appealable. 11.6.10 Rehearing. The parties agree that a rehearing shall only be allowed in the event that the Chair of the Arbitration Panel is unable or unwilling to continue performance of the duties of an arbitrator. -65- 71 11.6.11 Confidentiality. All arbitration proceedings hereunder shall be conducted on a confidential basis. The parties and the arbitrators shall not disclose or otherwise make public any information revealed during the proceedings or any Final Decision which may result from the proceedings. 11.6.12 Waiver. Any arbitration proceeding hereunder must be instituted within two (2) years after the controversy or claim arose. Failure to send a Notice of Arbitration within such two-year period shall constitute an absolute bar to the institution of any proceedings respecting such controversy or claim, and a waiver thereof. 11.7 Authority of Arbitrators. 11.7.1 Awards. The arbitrators shall have the power to award money damages and equitable relief such as rescission, specific performance and injunctive relief. The arbitrators shall not award punitive or exemplary damages nor any damages based on a claim for tortious conduct. 11.7.2 Modification of Article 11. The Arbitration Panel shall not have the power to amend, change or alter any provision of this Article 11 without the express written consent of all parties. 11.8 Awards. 11.8.1 Judgment. Judgment upon the award rendered by the arbitrators shall be enforceable in any court of competent jurisdiction. Each party agrees to submit to the personal jurisdiction of that court for purposes of the enforcement of any such award. -66- 72 11.8.2 Fees and Expenses. All fees of the arbitrators and the court stenographer shall be paid by the party who does not prevail in the arbitration as determined by the arbitrators. In the event a settlement occurs before the issuance of a Final Decision, the parties shall unless otherwise agreed, each pay an equal portion of any fees of the arbitrators and the court stenographer and the cost of any transcripts. All other arbitration-related expenses shall be borne by the party incurring such expenses. 12. Notices. All notices shall be mailed via certified mail, return receipt requested, telecopy or courier addressed as follows, or to such other address as may be designated from time to time: If to HMRI: At its address as set forth at the beginning of this Agreement. Attention: Senior Vice President, Business Development & Strategic Planning Telecopy: (908) 231-3619 with copy to: Office of the General Counsel Telecopy: (908) 231-2243 If to OSI: At its address as set forth at the beginning of this Agreement Telecopy: Attention: Chief Executive Officer Notices shall be deemed given as of the date of receipt. 13. Governing Law. This Agreement shall be construed in accordance with the laws of the State of New York, except those laws relating to choice of law or conflicts of law. -67- 73 14. Miscellaneous. 14.1 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective legal representatives, successors and permitted assigns. 14.2 Headings. Paragraph headings are inserted for convenience of reference only and do not form a part of this Agreement. 14.3 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original. 14.4 Amendment; Waiver; etc. This Agreement may be amended, modified, superseded or canceled, and any of the terms may be waived, only by a written instrument executed by each party or, in the cause of waiver, by the party or parties waiving compliance. The delay or failure of any party at any time or times to require performance of any provision shall in no manner affect the rights at a later time to enforce the same. 14.5 No Third Party Beneficiaries. No person not a party to this Agreement, including any employee of any party to this Agreement, shall have or acquire any rights by reason of this Agreement. Nothing contained in this Agreement shall be deemed to constitute the parties partners with each other or any Third Party. 14.6 Assignment and Successors. This Agreement may not be assigned by either party, except that the parties may assign this Agreement and their rights and interests, in whole or in part, to any of their Affiliates, or any purchaser of all or substantially all of its assets or to any successor corporation resulting from any merger or consolidation with or into -68- 74 such corporation, provided that such assignor shall remain primarily liable for its obligations hereunder. 14.7 Compliance with Antitrust/Competition Law. The parties acknowledge and undertake that they shall use commercially reasonable efforts to comply with all applicable antitrust/competition laws which may relate to this Agreement from time to time, including, without limitation, requirements of the European Union pursuant to Article 85 of the Treaty of Rome. Without limiting the generality of the foregoing: (a) the parties shall cooperate in good faith to notify this Agreement with the Commission of the European Union for individual exemption from the application of Article 85 of the Treaty of Rome, or otherwise undertake appropriate actions, upon the reasonable request of HMRI, to ensure compliance with applicable European Union law, including, without limitation, in the event that (i) the parties' production of the Products and products which are considered by users to be equivalent in view of their characteristics, price and intended use exceeds ten percent (10%) of the market in the European Union or a substantial part thereof, or (ii) HMRI determines to distribute products manufactured by Third Parties which are competitive with the Products; (b) in the event of the amendment or substitution of Regulation 418/85 (19 December 1984, OJ 1985 L53/5) by the European Union or any other relevant change in applicable European Union law, or in the event that HMRI reasonably determines or is advised by legal counsel that the provisions of this Agreement are not in compliance with applicable European Union law or other applicable antitrust or competition laws, the parties shall -69- 75 negotiate in good faith to amend this Agreement pursuant to HMRI's reasonable request to comply with applicable European Union law or such other laws; and (c) each party and its Affiliates hereby releases the other party and its Affiliates for any claim or liability arising out of or related to the non-compliance of the provisions of this Agreement with any applicable antitrust or competition law. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives. HOECHST MARION ROUSSEL, INC. By:________________________________________________ Name: Frank Douglas Title: Executive Vice President Research and Development ONCOGENE SCIENCE, INC. By:________________________________________________ Name: Robert Van Nostrand Title: Vice President and Chief Financial Officer -70- EX-10.2 3 COLLABORATIVE RESEARCH AGREEMENT 1 Portions of this Exhibit 10.2 have been redacted and are the subject of a confidential treatment request filed with the Secretary of the Securities and Exchange Commission. 2 COLLABORATIVE RESEARCH, DEVELOPMENT, AND LICENSE AGREEMENT This COLLABORATIVE RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT ("Agreement"), made as of February 12th, 1997, by and among SANKYO COMPANY, LIMITED, a Japanese Corporation whose principal place of business is situated at 5-1, Nihonbashi-Honcho, 3-chome, Chuo-ku, Tokyo 103, Japan ("SANKYO"), MRC COLLABORATIVE CENTRE whose principal place of business is situated at 1-3 Burtonhole Lane, Mill Hill, London NW7 1AD, England ("MRC CC"), and ONCOGENE SCIENCE, INC., a Delaware corporation whose principal place of business is situated at 106 Charles Lindbergh Boulevard, Uniondale, New York 11553, U.S.A. ("OSI"). WITNESSETH: WHEREAS, OSI has certain proprietary technology for identifying the effect of compounds on genes and gene products which is useful in the process of developing products for the treatment of human diseases; WHEREAS, MRC CC has expertise in the area of antiviral drug discovery and, in particular, has developed the technology and skills (including animal models), and has facilities to work with live viruses at containment levels 2 and 3, in order to discover and profile lead compounds; and WHEREAS, SANKYO is a fully-integrated Japanese pharmaceutical company which discovers, develops, manufactures, markets and sells pharmaceutical products. WHEREAS, SANKYO, MRC CC and OSI wish to collaborate in research to identify and develop anti-influenza drugs. 3 NOW, THEREFORE, in view of the forgoing premises which are hereby incorporated as part of this Agreement and in consideration of the mutual covenants herein contained, the parties agree as follows: 1. Definitions The following terms as used in this Agreement shall have the meanings set forth in this Article: 1.1 "Affiliate" means, in respect of a party hereto, any corporation or other legal entity owning, directly or indirectly, fifty percent or more of the voting capital shares or similar voting securities of said party; any corporation or other legal entity fifty percent or more of the voting capital shares or similar voting rights of which is owned, directly or indirectly, by said party; or any corporation or other legal entity fifty percent or more of the voting capital shares or similar voting rights of which is owned, directly or indirectly, by a corporation or other legal entity which owns, directly or indirectly, fifty percent or more of the voting capital shares or similar voting securities of said party. 1.2 "Allocated Overhead" means the amount of overhead, including general and administrative costs, determined in accordance with generally accepted accounting principles, incurred by OSI or MRC CC, as the case may be, and allocated to the Research Program in the same proportion that the total man-hours of work performed in the Research Program bears to the total man-hours of work performed in all OSI or MRC CC, as the case may be, research programs, or -2- 4 such other customary allocation basis or overhead recovery basis that may be agreed in writing between the parties. 1.3 "Approved Compound" means a Candidate Compound which satisfies the Approved Compound Criteria and is designated as an Approved Compound by the Research Committee pursuant to section 3.2. 1.4 "Approved Compound Criteria" means the detailed scientific and economic criteria agreed upon by the Research Committee for determining whether Compound is suitable for initiation of Phase I human clinical trials. 1.5 "Candidate Compound" means each Compound which the Research Committee has determined satisfies the Candidate Compound Criteria and thus is suitable for presentation to SANKYO for further preclinical studies. 1.6 "Candidate Compound Criteria" means the detailed scientific criteria agreed upon by the Research Committee for determining whether a Compound is suitable for initiation of further preclinical studies. 1.7 "Compound" means any compound or derivative thereof, the use of which in connection with an Identified Target has been identified or discovered in the course of conducting the Research Program. 1.8 "Confidential Information" means all information about any aspect of MRC CC, OSI and SANKYO, as the case may be, which is disclosed by such party (the "disclosing party") to another party (the "receiving party") pursuant to this Agreement and designated "Confidential" in writing by the disclosing party at the time of disclosure (or, if disclosed orally, within ten (10) days thereafter) to the -3- 5 extent that such information as of the date of disclosure is not (i) known to the other parties to this Agreement other than by virtue of a prior or contemporaneous confidential disclosure by the disclosing party or (ii) disclosed in the published literature, or otherwise generally known to the public, or (iii) obtained from a third party that has no obligation of confidentiality to the disclosing party in respect of such information. Each party's Confidential Information shall also include all Technology Improvements of such party. 1.9 "Contract Period" means the period for conducting the Research Program defined in Article 2.6, unless earlier terminated as hereinafter set forth in this Agreement, provided, however, such period shall not apply to nor limit the term of the licenses granted SANKYO hereunder. 1.10 "Effective Date" means the date as of which this Agreement is made as stated on page 1 hereof. 1.11 "Event of Termination" has the meaning set forth in Section 8.2. 1.12 "Field" means prevention and treatment of influenza and such other disease targets in human patients as may be mutually agreed to by the parties. 1.13 "Funding Payments" has the meaning set forth in Section 2.7.1. 1.14 "Identified Target" means a Target which has been the subject of research carried out under the Research Program. The initial Identified Targets are set forth in Schedule "A" and "B", as it may be modified from time to time. -4- 6 1.15 "Internal Project Costing" shall mean OSI's or MRC CC's total actual research costs, in carrying out the Research Program, plus Allocated Overhead, plus Unallocated Overhead. 1.16 "Joint Technology Improvements" means Joint Technology Improvements as defined in Section 1.33. 1.17 "License Agreement" means a license agreement as described in Section 3.4.1 with respect to an Approved Compound to be developed as a Product. 1.18 "Materials" means the biochemical, biological or synthetic chemical materials as described in section 2.10.4. 1.19 "MRC CC Technology" means Technology that is or was; (a) developed by employees of or consultants to, MRC CC alone or jointly with third parties, other than OSI or SANKYO, prior to the Effective Date of this Agreement or in the course of activities not related to the Research Program; or (b) acquired by purchase, license, assignment or other means from third parties by MRC CC prior to the Effective Date of this Agreement or since that date that would not otherwise be part of Joint Technology Improvements, but only to the extent that MRC CC is legally entitled to disclose such acquired Technology and use it in the Research Program. 1.20 "Net Sales" means the actual gross sales amount of the Products sold by SANKYO or any Affiliates or sublicensees of SANKYO to customers less the following items; -5- 7 (a) Trade, cash and quantity discounts (including prime vendor rebates actually allowed); (b) Broker's or agent's commissions, if any, actually allowed or paid; (c) Returns, allowances, free replacements and adjustments actually granted customers; (d) Freight insurance and other transportation costs; (e) Taxes paid by SANKYO or any Affiliates or sublicensees of SANKYO in association with the sale of the Products, tariffs, duties and other similar governmental charge. 1.21 "OSI Technology" means Technology that is or was; (a) developed by employees of or consultants to, OSI alone or jointly with third parties, other than SANKYO or MRC CC, prior to the Effective Date of this Agreement or in the course of activities not related to the Research Program; or (b) acquired by purchase, license, assignment or other means from third parties by OSI prior to the Effective Date of this Agreement or since that date that would not otherwise be part of Joint Technology Improvements, but only to the extent that OSI is legally entitled to disclose such acquired Technology and use it in the Research Program. 1.22 "Patent Rights" means the patent and patent applications owned or filed by MRC CC, OSI and SANKYO, as the case may be ("MRC CC Patent Rights", "OSI Patent Rights", and "SANKYO Patent Rights"), or jointly owned or filed by MRC CC, OSI and/or SANKYO ("Joint Patent Rights"), both foreign and domestic, -6- 8 now existing (except in the case of SANKYO) or hereafter arising (i) in the course of conducting the Research Program or (ii) from the use of or derived from drug discovery Technology developed in the course of conducting the Research Program, which relate to the research, development, manufacture, or composition, of Compounds and derivatives thereof, or the use or sale of Compounds or Products, including, without limitation, all substitutions, extensions, Supplementary Protection Certificates, reissues, renewals, divisions, continuations, continuations in part, utility models and certificates of invention thereof. 1.23 "Person" means any individual, estate, trust, partnership, joint venture, association, firm, corporation, company, or other legal entity. 1.24 "Product" means (i) any pharmaceutical finished dosage forms which contains a Compound or Compounds and/or (ii) any compound or compounds sold for the treatment or prevention of any Influenza disease state and such other disease state and such other disease targets in human patients as may be mutually agreed to by the parties that employs Patent Rights, OSI Technology, MRC CC Technology, SANKYO Technology and OSI Technology Improvements, MRC Technology Improvements, SANKYO Technology Improvements or Joint Technology Improvements. 1.25 "Quarterly Expense Report" has the meaning set forth in Section 2.7.2 hereof. -7- 9 1.26 "Research Collaboration" means the research collaboration among OSI, MRC CC and SANKYO to discover and evaluate the Compounds and to develop Products to be commercialized in the Territory pursuant to this Agreement. 1.27 "Research Committee" has the meaning set forth in Section 2.9. 1.28 "Research Program" means the collaborative research program conducted by SANKYO, MRC CC and OSI under this Agreement. 1.29 "SANKYO Technology" means Technology that is or was: (a) developed by employees of or consultants to SANKYO alone or jointly with third parties, other than OSI or MRC CC, prior to the Effective Date of this Agreement or in the course of activities not related to the Research Program; or (b) acquired by purchase, license, assignment or other means from third parties by SANKYO prior to the Effective Date of this Agreement or since that date that would not otherwise be part of Joint Technology Improvements, but only to the extent that SANKYO is legally entitled to disclose such acquired Technology and use it in the Research Program. 1.30 "Semi-Annual Expense Report" has the meaning set forth in Section 2.7.2 hereof. 1.31 "Target" means the biochemical processes in humans related to human disease associated with the genes, gene products, receptors, peptides and proteins. 1.32 "Technology" means and includes all tangible or intangible know-how, trade secrets, inventions (whether or not patentable), data, clinical and preclinical. results and any physical, chemical or biological materials that pertain to Identified Targets, including all laboratory notebooks, research plans, cultures, strains, -8- 10 vectors, genes and gene fragments and their sequences, cell lines, hybridoma cell lines, monoclonal and polygonal antibodies, proteins and protein fragments, non- protein chemical structures and methods for synthesis, structure-activity relationships, computer models of chemical structures, computer software, assay methodology, processes, materials and methods for production, recovery and purification of nature products, formulas, plans, specifications, characteristics, equipment and equipment designs, marketing surveys and plans, business plans, know-how, experience and trade secrets. 1.33 "Technology Improvements" mean any and all inventions, discoveries, methods, ideas, works of authorship, know-how, show-how, data, clinical and preclinical results, information, and any physical, chemical or biological material, including any replication or any part of such material, techniques and Technology, whether or not patentable or subject to other forms of protection, which (i) are made, created, developed, written, conceived, or reduced to practice, or which are licensed or otherwise acquired from third parties (to the extent the agreeing party is legally enabled to disclose and use the same in the Research Program), in the course of, arising out of, derived from or as a result of any party's research (a) in the course of conducting the Research Program or (b) using drug discovery Technology developed in the course of conducting the Research Program, and (ii) pertaining to Identified Targets. Improvements includes all rights relating to the protection of trade secrets and confidential information, and any right analogues -9- 11 to those set forth herein, which relate to, are embodied in or are appurtenant to such discoveries, methods, ideas, etc. OSI, SANKYO and MRC CC shall each own the entire right, title, and interest in and to any Technology Improvements made or discovered solely by their respective employees (the "OSI Technology Improvements," "SANKYO Technology Improvements" and "MRC CC Technology Improvements") and shall own jointly all Technology Improvements made or discovered jointly by employees of two or three of such parties (the "Joint Technology Improvements"). Each party represents and agrees that all employees and other persons acting on its behalf in performing its obligations under this Agreement shall be obligated under a binding written agreement to assign to such party or as such party shall direct, all Technology Improvements made or developed by such employee or other person. In the case of Joint Technology Improvements, OSI, SANKYO and MRC CC agree to undertake to enforce such agreements (including, where appropriate, by legal action) considering, among other things, the commercial value of such Technology Improvements. 1.34 "Territory" means all countries throughout the world. 1.35 "Unallocated Overhead" those portions of overhead costs not allocated to specific projects to be calculated at ten percent of the sum of the actual research costs and the allocated overhead. 1.36 "Valid Claim" means a claim of an issued patent so long as such claim shall not have been disclaimed by SANKYO, OSI and MRC CC, as the case may be, or -10- 12 shall not have been held invalid in a final decision rendered by a tribunal of competent jurisdiction from which no appeal has been or can be taken. 2. Research Collaboration 2.1 Research Collaboration. The parties agree to undertake the Research Collaboration pursuant to the terms of this Agreement. 2.2 OSI's Obligations. For purposes of the Research Collaboration, OSI shall, in consultation with SANKYO, MRC CC and the Research Committee, and in accordance with the research work plan and budget set forth on Schedule "A" attached hereto, as updated and amended from time to time, conduct the Research Program during the Contract Period. Upon SANKYO's request, OSI shall transfer to SANKYO, free of charge, any and all assay systems of screening elaborated by OSI under the Research Program to have SANKYO perform its own screening tests for the Compounds arising from SANKYO's library. OSI shall provide SANKYO with any technical assistance, if necessary, to enable SANKYO to do such screening tests effectively. OSI shall only be obligated to provide the initial Materials, including necessary reagents, cell lines, clones and antibodies as described in Schedule "C" (subject to amendment as mutually agreed upon by the parties hereto), so as to enable SANKYO to commence screening. Thereafter, SANKYO shall furnish such Materials at its own expense. The rights granted hereunder shall not include any rights to the robotics technology used herein. -11- 13 2.3 MRC CC's Obligations. For purposes of the Research Collaboration, MRC CC shall, in consultation with SANKYO, OSI and the Research Committee, and in accordance with the research work plan and budget set forth on Schedule "B" attached hereto, as updated and amended from time to time, conduct the Research Program during the Contract Period. This will include the evaluation of Compounds in cell cultures and in animal models of infection. 2.4 Exploitation of Compounds. 2.4.1 SANKYO's Obligations. SANKYO shall contribute to the Research Collaboration, among other things, (i) by participating in screening Compounds arising from its own library, (ii) by conducting extended medicinal chemistry of the Compounds derived from OSI and SANKYO libraries, (iii) by evaluating Compounds in useful and conventional animal models to select possible Candidate Compounds and Approved Compounds, (iv) by conducting such testing as may be required for initiation of Phase I clinical trials of Approved Compounds, including but not limited to physico-chemistry, pharmacology, toxicology, ADME and other studies as required, and (v) by applying its scientific and technical expertise to problems and issues identified by the Research Committee relevant to the Research Collaboration. SANKYO shall use reasonably diligent efforts to exploit any Approved Compound in respect of which it exercises its option pursuant to Article 3.3. This requirement shall be deemed satisfied if SANKYO uses the same degree of diligence it uses with respect to products developed by SANKYO outside of this -12- 14 Agreement. If SANKYO elects to discontinue development of a Compound pursuant to the Research Program, it shall so notify OSI immediately. The parties shall discuss the possibility of SANKYO licensing the Compound to OSI. SANKYO shall not license such Compound to any other party on terms more favorable than those offered to OSI. 2.4.2 Discontinuation of Development. If SANKYO discontinues development of all Compounds pursuant to the Research Program then SANKYO shall immediately notify OSI thereof and OSI shall have the sole and exclusive right, subject to the payment of royalties as set forth in this Article 2.4.2, to pursue development of any and all Compounds, and to develop, make, have made, use, and sell Products containing any Compound, provided, however, this clause shall not apply to any Compound which SANKYO has included in a sub-license to a third party prior to its decision to discontinue development of all Compounds. No royalties, milestone payments or any other payments shall be payable by OSI to the other parties hereto with respect to such Compounds; provided, however, that (i) OSI shall pay to SANKYO a royalty at the rate of ** of the Net Sales of OSI for each Product derived from such Compound, the manufacture, use or sale of which is covered by a Valid Claim of the Patent Rights, which royalty OSI shall continue to pay in each applicable country until the expiration of the last Valid Claim under the Patent Rights applicable to such Product expires in such - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -13- 15 country or (ii) OSI shall pay to SANKYO a royalty at the rate of ** of the Net Sales of OSI for each Product derived from such Compound which not covered by a Valid Claim under the Patent Rights, which royalty OSI shall continue to pay in each applicable country for ten (10) years from the date of first commercial sale of such Product in each such country. This Article 2.4.2 shall survive the expiration or prior termination of this Agreement. 2.5 Mutual Obligations. 2.5.1 Evaluation and Information Exchange. OSI, MRC CC and SANKYO shall cooperate in good faith in the evaluation of Compounds. In the furtherance of such cooperation, OSI, MRC CC and SANKYO shall, free of charge, exchange research, development, pre-clinical, clinical, regulatory and other technical information relating to the Research Collaboration and the development of Products during the Contract Period. Written quarterly scientific reports shall be prepared by all parties within thirty (30) days after the end of each three (3) month period during the term of the Research Collaboration. In addition, joint technical meetings shall be held in accordance with Section 2.9.2 hereof. 2.5.2 Exclusive Collaboration. During the Contract Period, OSI, MRC CC and SANKYO agree that the Research Program shall be the exclusive mechanism for research and development of Compounds and Products in the anti-influenza area for commercialization in the Territory. - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -14- 16 2.6 Contract Period. The Contract Period shall commence on the Effective Date, and shall expire on the third anniversary of this date, except as such term may be extended pursuant to Section 2.8 hereof or terminated pursuant to Article 8. 2.7 Research Funding and Expense Reports. 2.7.1 Funding Payments by SANKYO. Subject to the terms and conditions set forth herein, in pursuit of the Research Collaboration, SANKYO agrees to bear the actual costs and expenses (including applicable overhead costs) incurred by OSI and MRC CC in order to conduct the anti-influenza research and development work under the Research Collaboration up to an aggregate of ** U.S. Dollars to OSI and ** U.K. pounds to MRC CC over a three (3) year period, payable in quarterly installments in accordance with the research work plan and budget set forth on Schedule "A" and "B" attached hereto, commencing with the first quarterly payment within (30) days of the Effective Date. Each subsequent quarterly payment shall be made by SANKYO not less than thirty (30) days prior to the commencement of each calendar quarter during such three (3) year period in accordance with the research work plan and budget set forth on Schedule "A and B" attached hereto. All quarterly payments to be made by SANKYO under this Section shall be made by bank wire transfer in immediately available funds to the receiving party's account as notified pursuant to Article 10, unless the receiving party otherwise notifies SANKYO in writing at least fourteen (14) days before such payment is due. - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -15- 17 All payments due OSI shall be paid in United States Dollars, all payments due MRC CC shall be paid in Pounds Sterling. If any payment due hereunder is denominated or calculated in or relation to any currency other than United States Dollars or Pound Sterling, the exchange rate quoted by a major bank in Tokyo from which SANKYO remits such payment to OSI and MRC CC on the day of such remittance shall apply. Notwithstanding any provision herein to the contrary, SANKYO shall have no obligation to make any payment hereunder in the event any of the other par-ties hereto are in material breach of their obligations hereunder or have otherwise failed to perform the Research Program. 2.7.2 Reports by OSI and MRC CC. Within forty-five (45) days after the end of each calendar quarter during the Contract Period, OSI and MRC CC shall each forward to SANKYO a written progress report of estimated expenses (a "Quarterly Expense Report") for the Research Collaboration. Each Quarterly Expense Report shall include personnel time expended on the project sorted by functional area and actual costs and Allocated Overhead and Unallocated Overhead for that quarterly period. Within sixty (60) days of the end of each six (6) month period within a project year (ending on September 30 and March 31, respectively, of each project year), OSI and MRC CC shall each provide a more detailed report of project expenses (a "Semi-Annual Expense Report") using OSI's and MRC CC's Internal Project Costing system. Each Semi-Annual Expense Report shall set forth OSI's and MRC CC's standard project expense categories which -16- 18 currently include salaries and related employee benefits, cost center expenses for direct project personnel, direct project expenses (collected in a dedicated cost center), indirect research expenses, allocations of support services (which include facilities, information systems and other central services), and allocations of corporate general and administrative overhead. The Semi-Annual Expense Report shall replace the Quarterly Expense Reports for the calendar quarters ending on September 30 and March 31, respectively, of each project year, and no Quarterly Expense Report shall be required for such quarters. Upon the giving of fourteen (14) days' prior written notice, a SANKYO designated independent certified public accountant, at the expense of SANKYO, may inspect the supporting documentation for any Quarterly Expense Report and/or Semi-Annual Expense Report. Such inspection shall take place at OSI's and MRC CC's corporate offices. One (1) inspection may be requested per each six (6) month period within a project year. The inspection for any semi-annual period may be requested at any time within a period of one (1) year following receipt of the Semi-Annual Expense Report by SANKYO. However, if such inspection uncovers an understatement or overstatement of five percent (5%) or greater due to an error in the application of the OSI's and MRC CC's project costing system or a material deficiency in other supporting documentation, then SANKYO may request up to two (2) additional inspections for review, and OSI or MRC CC, as the case may be, shall reimburse SANKYO for the cost of said audit and make good any understatement. In addition, OSI or MRC CC, as the case may be, -17- 19 shall undertake appropriate steps to remedy the reoccurrence of any such error or deficiency. The principles and procedures established for OSI's and MRC CC's project cost system shall be used to determine and calculate project expenses. 2.7.3 Additional Option. On SANKYO's request, OSI will use commercially reasonable efforts to conduct mechanism of action studies in the laboratory of Dr. ** and Drs. ** and ** at an estimated cost of ** US Dollars ** . On SANKYO's request, OSI will conduct high speed combinatorial chemistry analoging on up to four (4) lead series emerging from the screens at an estimated cost of ** US Dollars ** . Three months notice will be required for the initiation of chemistry resources. 2.8 Extension of the Contract Period. In the event that OSI, MRC CC and SANKYO agree at any time prior to three (3) months before the expiration of the initial Contract Period, the Contract Period shall be extended for an additional one (1) or two (2) years upon terms and conditions mutually acceptable to OSI, MRC CC and SANKYO. Research funding to be borne by SANKYO for this extended period shall not exceed an aggregate of ** US Dollars ** a year for the activities of OSI and MRC CC. - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -18- 20 2.9 Joint Collaborative Research Committee ("Research Committee"). 2.9.1 Establishment of the Research Committee. A Joint Collaborative Research Committee ("Research Committee") shall be established to supervise and manage the Research Collaboration. The Research Committee shall consist of six (6) members, with three (3) designees from SANKYO, two (2) designees from OSI and one (1) designee from MRC CC. In the event any member of the Research Committee shall resign or be replaced, OSI or MRC CC or SANKYO, as the case may be, may designate a replacement and shall provide the other party with advance notice thereof. The designated members may, where appropriate, be accompanied by company scientists for the purpose of presenting the results of the Research Program. OSI or MRC CC or SANKYO reserve the right to designate one alternate member who may attend any Research Committee meeting that the original designate is unable to attend. 2.9.2 Research Committee Meetings/Tasks. The Research Committee shall meet at least three (3) times per year during the Contract Period and at least once during the year following the completion or termination of the Contract Period. The location of such meetings shall alternate among OSI's office in Uniondale, MRC CC's office in London and SANKYO's offices in Tokyo. Any additional meetings shall be at times and places agreed to by OSI, MRC CC and SANKYO and may be conducted by telephone, or in any other manner as the parties shall agree. At its meetings, the Research Committee will discuss the annual Research Program objectives, review and discuss patent status, monitor progress of the -19- 21 Research Program, and discuss and direct objectives, tasks and required activities of the Research Collaboration. The Research Committee meetings shall also act as the initial forum for any disputes which might arise under the Research Collaboration. The Research Committee shall establish Candidate Compound Criteria as well as Approved Compound Criteria. The detailed minutes of all joint technical meetings shall be distributed within thirty (30) days after such meetings. 2.9.3 Chair. The Research Committee shall be chaired by one of the members appointed by SANKYO. The co-chair shall be appointed by OSI. The chair and co-chair shall work together to establish the agenda for meetings and to coordinate the Research Program and follow-up actions. 2.9.4 Voting. All decisions of the Research Committee shall be made by majority vote of the members comprising OSI, MRC CC and SANKYO. In the event of a tie vote the Chair shall have a casting vote. 2.10 Records and Reports. 2.10.1 Record Keeping. OSI, MRC CC and SANKYO shall each maintain records in sufficient detail and in good scientific manner appropriate for patent purposes and as will properly reflect all work done and results achieved in the performance of the Research Program (including all data in the form required under any applicable governmental regulations). OSI, MRC CC and SANKYO shall each provide the other with the right to inspect and copy such records to the extent reasonably required for the performance of its obligations under this Agreement; -20- 22 provided that each party shall maintain such records and the information of the other contained therein in confidence in accordance with Article 4 below and shall not use such records or information except to the extent otherwise permitted by this Agreement. 2.10.2 Quarterly Summary Reports. During the Research Program, each party shall furnish to the Research Committee and the other party summary reports within fifteen (15) days after the end of each three (3) month period, commencing on the Effective Date, describing its progress under the Research Program. 2.10.3 Annual Reports. At least thirty (30) days prior to each annual Research Committee administrative meeting, each party shall separately prepare and submit to the Research Committee and the other party a concise written report which shall (i) summarize the work on the Research Program performed in the course of the past year; (ii) list the Compounds conceived, synthesized or identified during the past year; (iii) identify any Compounds that are being, or may be considered by the Research Committee as Candidate Compounds and/or Approved Compounds; (iv) briefly outline the work plan and budget for the Research Program during the ongoing year; and (v) list the Compounds to be synthesized and tested during the ongoing year. The first Research Committee meeting of each contract year will be the annual Research Committee administrative meeting. 2.11 Materials. MRC CC, OSI and SANKYO shall, during the Contract Period as a matter of course as directed by the Research Committee or upon each other's oral or written request, furnish to each other samples of biochemical, biological or -21- 23 synthetic chemical materials ("Materials") which are part of SANKYO Technology, OSI Technology, MRC CC Technology, SANKYO Technology Improvements, OSI Technology Improvements, MRC CC Technology Improvements or Joint Technology Improvements and which are necessary for each party to carry out its responsibilities under the Research Program. To the extent that the quantities of Materials requested by either party exceed the quantities set forth in Schedule "C", the requesting party shall reimburse the other party for the reasonable costs of such Materials if they are furnished and if reimbursement is requested. 3. Technology Disclosure Fee, Identification and Development of Compounds and Option to Develop 3.1 Technology Disclosure Fee. SANKYO shall pay to OSI a technology disclosure fee of ** U.S. Dollars ** within thirty (30) days of the Effective Date, which will be distributed between OSI and MRC CC as they have agreed. 3.2 Identification of Compound(s) and Presentation to SANKYO of Candidate Compounds. During the Contract Period, each party shall promptly inform the Research Committee and other parties of each Compound arising from the Research Program which it believes to be suitable for further development as a Candidate Compound. In accordance with its responsibilities under Section 2.9 hereof, the Research Committee shall meet promptly after being so informed by OSI, MRC CC and/or SANKYO in order to determine whether to designate such - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -22- 24 compound as a Candidate Compound. If the Research Committee votes to designate such Compound as a Candidate Compound, then SANKYO shall conduct, under the directions of the Research Committee, necessary testing for this Candidate Compound in conformity with the Approved Compound Criteria and report the results to the Research Committee and other parties as to whether SANKYO believes such Candidate Compound is suitable for consideration as an Approved Compound. In accordance with its responsibilities under Section 2.9 hereof, the Research Committee shall meet promptly after being so informed by SANKYO in order to determine whether to designate such a Candidate Compound as an Approved Compound. If SANKYO, OSI or MRC CC votes not to designate such a Candidate Compound as an Approved Compound due to lack of experimental data and the like then whichever party so votes shall provide a list of reasonable experiments to be carried out by OSI, MRC CC and/or SANKYO that can be completed within one (1) year of the date that the Research Committee voted not to designate this Candidate Compound as an Approved Compound. At the end of this one (1) year period or at such earlier time as the designated experiments have been completed, the Research Committee shall again consider whether to designate such a Candidate Compound as an Approved Compound. 3.3 SANKYO Option to Develop Approved Compounds. SANKYO shall have the exclusive option, exercisable within one hundred eighty (180) days after the Research Committee designates a Compound as an Approved Compound, to pursue development of such Approved Compound. SANKYO shall exercise its -23- 25 option under this Section 3.3 by delivering to OSI and MRC CC a written notice in accordance with Article 10 hereof stating its election to develop the Approved Compound identified in such notice. Sankyo's right to pursue development hereunder shall not be limited to one Approved Compound but shall apply to any and all Compounds qualifying or designated as an Approved Compound. 3.4 License Agreement and Milestone Payments. 3.4.1 License Agreement. If SANKYO exercises its option in accordance with Section 3.3 hereof, OSI, MRC CC and SANKYO may enter into a more definitive License Agreement concerning SANKYO's development of such Approved Compound and any anti-influenza agents derived from the Research Collaboration. The failure of the parties to execute a License Agreement shall in no way limit or terminate the rights granted SANKYO pursuant to Articles 3 and 5. 3.4.2 Contents of License Agreement. Any such License Agreement entered into shall grant to SANKYO an exclusive license under the Technology (excluding SANKYO Technology), Patent Rights (excluding SANKYO Patent Rights) and/or Technology Improvements (excluding SANKYO Technology Improvements), with the right to sublicense, to develop, use and sell applicable Products in the Territory. In the event of the granting of such a sublicense, SANKYO guarantees the performance of the sublicensees as the same obligations as SANKYO hereunder. SANKYO's right and license to develop, use and sell any Product shall be conditioned upon SANKYO fulfilling its obligation to pay the milestone payments and royalties as set forth herein. -24- 26 3.5 Milestone Payment. SANKYO shall make each milestone payments (2/3 of which shall be for the account of OSI and 1/3 for the account of MRC CC) as listed below with respect to the first Approved Compound. So long as each such payment is timely made by SANKYO to OSI and MRC CC, then SANKYO shall maintain its exclusive rights to continue development of the Approved Compound to the next stage, at which time SANKYO shall determine whether to make the next payment to OSI and MRC CC and proceed to the next stage of development. The parties agree that the below milestone payments shall not be made by SANKYO to OSI and MRC CC for each Approved Compound but be made only once for any one Approved Compound which payment shall be deemed to satisfy such obligation for the entire project, the aim of which is to develop and sell any anti-influenza Products derived from the Research Collaboration herein. (a) ** US Dollars ** within thirty (30) days after the date of filing an IND or equivalent for the Approved Compound in any country. (b) ** US Dollars ** within Ninety (90) days after the Phase II clinical investigators' meeting provided SANKYO decides to initiate Phase III clinical trials of the Approved Compound in any country. Such decision by SANKYO to initiate Phase III clinical trials shall be made within ninety (90) days after the end of Phase II clinical investigator's meeting. - -------------------- ** This portion redacted pursuant to a request for confidential treatment. -25- 27 (c) ** U.S. Dollars ** within thirty (30) days from the date of the filing of an NDA or equivalent for the Approved Compound in any country. (d) ** U.S. Dollars ** within thirty (30) days after the date of approval of an NDA or equivalent for the Approved Compound in any country. 3.6 Substituted Compound in Lieu of Approved Compound. If at any time during the development of an Approved Compound (pursuant to the terms of the License Agreement) the parties must discontinue the development of such Approved Compound due to (i) clinical trial results concerning the safety or efficacy of such Approved Compound which are unacceptable to the regulatory agency governing approval of such Compound for commercial sale, or (ii) a determination is made that such Approved Compound would or does infringe the patents rights of a third party, then Sankyo shall have the rights to pursue development pursuant to Section 3.3 with respect to one (1) or more substituted Compounds (the "Substituted Compound") in lieu of the Approved Compound so abandoned (the "Abandoned Compound"). The Substituted Compound must be a Compound which is designated and presented by the Research Committee and approved by SANKYO as an Approved Compound in accordance with Section 3.2 and 3.3 hereof. The milestone payments paid pursuant to Section 3.5 hereof with respect to the Abandoned Compound shall constitute consideration for the rights granted - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -26- 28 by OSI, and MRC CC to SANKYO with respect to the Substituted Compound substituted in lieu thereof, and no additional milestone payment by SANKYO to OSI and MRC CC other than milestone payments which have not been paid with respect to the Abandoned Compound shall be required in consideration of such rights to the Substituted Compound granted by OSI and MRC CC. In such event, the parties shall execute a new License Agreement with respect to the Substituted Compound comprising substantially the same terms and condition. 4. Treatment of Confidential Information. 4.1 Confidentiality. 4.1.1 MRC CC, SANKYO and OSI recognize that the other's Confidential Information constitute highly valuable proprietary, confidential information. Subject to the disclosure obligations and publication rights set forth below, MRC CC, SANKYO and OSI agree that they will keep confidential, and will cause their Affiliates to keep confidential, all Confidential Information of the other parties hereto. Nor shall any of the parties hereto use any Confidential Information of the other parties except as expressly permitted in this Agreement. 4.1.2 Each of the parties hereto acknowledges that the Confidential Information of the other parties is highly valuable, proprietary, confidential information, and each party agrees that disclosure of the other party's Confidential Information to any officer, employee, agent or of any of its Affiliates shall be made only if and to the extent necessary to carry out its responsibilities under this Agreement and shall be limited to the maximum extent possible consistent with such -27- 29 responsibilities. Each party agrees not to disclose the other's Confidential Information to any third party (other than consultants) under any circumstance without written permission. Each party shall take such action, and shall cause its Affiliates to take such action, to preserve the confidentiality of each other party's Confidential Information as they would customarily take to preserve the confidentiality of their own confidential information. 4.1.3 Each party represents that all of its employees participating in the Research Program who shall have access to the other party's Confidential Information are bound, by agreement to maintain such information in confidence. Consultants shall be similarly bound. 4.2 Publication. Section 4.1 to the contrary notwithstanding, the results obtained in the course of the Research Program may be submitted for publication following scientific review by the Research Committee and subsequent approval by OSI's, MRC CC's and SANKYO's managements. After receipt of the proposed publication by both OSI's, MRC CC's and SANKYO's managements, written approval or disapproval shall be provided within thirty (30) days for a manuscript, within fourteen (14) days for an abstract for presentation at, or inclusion in the proceedings of, a scientific meeting, and within fourteen (14) days for a transcript of an oral presentation to be given at a scientific meeting. 4.3 Publicity. Except as required by law, no party may disclose the existence of this Agreement nor the research described in it except with the written consent of the other party, which consent shall not be unreasonably withheld. -28- 30 4.4 Disclosure of Technology Improvements. Each party shall promptly inform the other parties about all Technology Improvements that are conceived, made or developed in the course of carrying out the Research Program by employees of, or consultants to, either of them solely, or jointly with employees of, or consultants to the other. This Agreement shall not be construed to obligate either party to disclose to the other any Technology Improvement which does not arise under the Research Program. 4.5 Restrictions on Transferring Materials. MRC CC, SANKYO and OSI recognize that the Materials which are part of SANKYO Technology, OSI Technology, MRC CC Technology, SANKYO Technology Improvements, OSI Technology Improvements, MRC CC Technology Improvements or Joint Technology Improvements, represent valuable proprietary commercial assets. Therefore, each party agrees not to transfer to any third party any such Materials which constitute Technology or Confidential Information owned in whole or in part by another party without the prior written consent of such party. 4.6 Permitted Use of Confidential Information. Nothing contained herein will in any way restrict or impair any party's right to use, disclose or otherwise deal with any Confidential Information which: (a) at the time of disclosure is properly in the public domain or thereafter becomes part of the public domain by publication or otherwise through no breach of this Agreement by the party receiving such information; -29- 31 (b) the party receiving such information can establish by competent evidence that such information was properly in its possession prior to the time of the disclosure; (c) is independently and properly made available as a matter of right to the party receiving such information by a third party who is not thereby in violation of a confidential relationship with a party, or an Affiliate thereof, to this Agreement; (d) is information which is required to be included in patent applications filed under Article 6 or required to be provided to a government agency in order for SANKYO to obtain approvals to market a hereunder; provided, however, that no SANKYO, OSI or MRC CC Confidential Information shall be disclosed in any such patent application or otherwise without the prior written consent of the other party which consent shall not be unreasonably withheld; (e) is information which is required to be disclosed to customers, users and prescribers of a Product or which is reasonably necessary to disclose in connection with the ethical marketing of a Product; provided, however, that no OSI Confidential Information will be so disclosed without the prior written consent of OSI, which consent will not be unreasonably withheld and no MRC CC Confidential Information will be so disclosed without the written consent of MRC CC, which consent will not be unreasonably withheld; or (f) is information required to be disclosed by law or by a court order in each of which cases the disclosing party shall timely inform the other and use its best -30- 32 efforts to limit the disclosure and maintain confidentiality to the extent possible and will permit the other party to limit such disclosure. 5. License and Royalty. 5.1 Grant of Licenses. The parties hereby agree that subject to the terms and conditions set forth herein SANKYO shall have the sole and exclusive right to pursue development of any and all Compounds, and to develop, make, have made, use, and sell Products containing any Compound. In addition, OSI and MRC CC each respectively grant the following rights: (a) OSI hereby grants to SANKYO an irrevocable worldwide license, including the right to sublicense, under the OSI Technology, the OSI Patent Rights, the OSI Technology Improvements, and OSI rights in the Joint Technology Improvements to pursue development of any and all Approved Compounds and to develop, make, have made, use, and sell Products, which license shall be exclusive for so long as SANKYO is obligated to pay a royalty under Sections 5.7.1 or 5.7.2. SANKYO agrees that OSI shall be identified on the packaging of all Products on which SANKYO is obligated to pay royalties. This paragraph 5.1 shall not be construed to grant SANKYO a license to use the OSI Patent Rights, OSI Technology or OSI Technology Improvements except as they relate to the Research Program and the Products. (b) MRC CC hereby grants to SANKYO an irrevocable worldwide license, including the right to sublicense, under the MRC CC Technology, the MRC CC Patent Rights, the MRC CC Technology Improvements, and MRC CC's rights in -31- 33 the Joint Technology Improvements to pursue development of all Approved Compounds and to develop, make, have made, use, and sell Products, which license shall be exclusive for so long as SANKYO is obligated to pay a royalty under Sections 5.7.1 or 5.7.2. This paragraph 5.1 shall not be construed to grant SANKYO a license to use the MRC CC Patent Rights, MRC CC Technology or MRC CC Technology Improvements except as they relate to the Research Program and the Products. 5.2 Grants of Research Licenses. OSI, MRC CC and SANKYO each grants to the other a nonexclusive, irrevocable, worldwide, royalty-free, perpetual license, including the right to grant sublicenses to Affiliates, to make and use its Technology Improvements for all research purposes other than the sale or manufacture for sale of products or processes. 5.3 Paid-Up License. With respect to each country, provided that SANKYO has satisfied all of its then current obligations to pay royalties hereunder, SANKYO shall have a paid-up license permitting the royalty-free manufacture, use, and sale of each Product in such country after the expiration of SANKYO's last obligation to pay royalties on the NET SALES of such Product in such country. 5.4 Sublicenses. If SANKYO grants a sublicense pursuant to Section 5.1, SANKYO shall guarantee that any such sublicensee shall fulfill all of SANKYO's obligations under this Agreement. In the event SANKYO grants sublicenses under Article 5 to another party to make, use, or sell Products, such sublicenses shall include an obligation of the sublicensees to account for and report all NET SALES of -32- 34 such Products on the same basis as if such sales were NET SALES of Products by SANKYO, and SANKYO shall pay royalties to OSI and MRC CC under this Agreement as if the NET SALES of the sublicensee were NET SALES of the sublicensor. 5.5 Right to Product Improvements. SANKYO shall acquire an exclusive (nonexclusive in the countries of the world in which this Section might otherwise be deemed to violate restrictive trade practices laws), worldwide, royalty-free license to any product improvements made by OSI or MRC CC in respect of any Products. OSI and MRC CC shall promptly and fully notify SANKYO of any such product improvements made by OSI and MRC CC, including costs. All such improvements shall be included within the scope of this Agreement. 5.6 Technical Assistance. MRC CC and OSI shall provide SANKYO or any Affiliate or sublicensee of SANKYO, at SANKYO's request and expense, with any assistance reasonably necessary to enable SANKYO or such Affiliate or sublicensee to manufacture, use, or sell any Product and to enjoy fully all the rights granted to SANKYO pursuant to this Agreement. 5.7 Royalties, Payment of Royalties, Accounting for Royalties, Records. 5.7.1 Patented Products. SANKYO shall pay a royalty at the rate of ** of the NET SALES of each Product (2/3 of which shall be for the account of OSI and 1/3 of which shall be for the account of MRC CC), the manufacture, use, or sale of - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -33- 35 which is covered by a Valid Claim of the Patent Rights. In the event that OSI's contribution is limited to preparation of assay systems for screening, the royalty rate payable from SANKYO shall be ** of the NET SALES of each Product (2/3 of which shall be for the account of OSI and 1/3 of which shall be for the account of MRC CC). With respect to each Product, SANKYO shall continue to pay such royalty on the sales of such Product in each country until the expiration of the last Valid Claim under the Patent Rights applicable to such Product expires in such country. 5.7.2 Technology. SANKYO shall pay a royalty at the rate of ** of the NET SALES of each Product (2/3 of which shall be for the account of OSI and 1/3 of which shall be for the account of MRC CC) which is not covered by a Valid Claim of the Patent Rights. In the event that OSI's contribution is limited to preparation of assay system for screening, the royalty rate payable from SANKYO shall be ** of the Net Sales of each Product (2/3 of which shall be for the account of OSI and 1/3 of which shall be for the account of MRC CC). Such royalty shall be paid on the sales of each Product in each country of the world for ten (10) years from the date of first commercial sale of such Product in each such country, said obligation to pay royalties shall terminate on the earlier of the termination of said ten year period or the date on which such Technology enters the public domain. - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. -34- 36 5.7.3 Third Party Royalty. (a) Any royalty payable to any third party including but not limited to royalties paid for licensed compounds (other than royalties arising out of OSI Technology, MRC CC Technology or SANKYO Technology), shall be borne first by SANKYO, provided that an amount up to Fifty Percent (50%) of any such third party royalty may be offset against any royalties due OSI and MRC CC in any year under Section 5.7.1 or 5.7.2 but only to the extent that the amount paid to OSI or MRC CC in any year is not less than Seventy-five Percent (75%) of the total royalty that would otherwise be due to OSI or MRC CC under Section 5.7.1 or 5.7.2 for the relevant period. (b) Any royalty payable to any third party arising out of OSI Technology, SANKYO Technology, or MRC CC Technology shall be payable solely by OSI, SANKYO, or MRC CC, as the case may be, respectively. 5.7.4 Payment Dates. Royalties shall be paid by SANKYO on NET SALES within ninety (90) days after the end of each calendar quarter in which such NET SALES are made. Such payments shall be accompanied by a statement showing the NET SALES of each Product by SANKYO in each country, the applicable royalty rate for such Product, and a calculation of the amount of royalty due. 5.7.5 Accounting. The royalties payable to OSI and MRC CC shall be computed and paid in U.S. Dollars. For purposes of determining the amount of royalties due with respect to NET SALES in any foreign currency, the amount shall be computed generally by converting the foreign currency amount into U.S. Dollars -35- 37 using for each month's calculation the foreign currency exchange rate as published in the Wall Street Journal on the date such royalty is paid or due, whichever is earlier. 5.7.6 Records. SANKYO shall keep for three (3) years from the date of each payment of royalties complete and accurate records of sales by SANKYO of each Product in sufficient detail to allow the accruing royalties to be determined accurately. OSI (on behalf of itself and MRC CC) shall have the right for a period of three (3) years after receiving any report or statement with respect to royalties due and payable to obtain at its expense from the independent certified public accountant used by SANKYO for public reporting an audit of the relevant records of SANKYO to verify such report or statement. SANKYO shall make its records available for inspection by such independent certified public accountant during regular business hours at such place or places where such records are customarily kept, upon reasonable notice from OSI, to the extent reasonably necessary to verify the accuracy of the reports and payments. Such inspection right shall not be exercised more than once in any calendar year nor more than once with respect to sales in any given period. OSI agrees to hold in strict confidence all information concerning royalty payments and reports, and all information learned in the course of any audit or inspection, except to the extent necessary for OSI to reveal such information in order to enforce its rights under this Agreement or when disclosure is required by law. The failure of OSI to request verification of any report or statement during said three (3) year period shall be considered -36- 38 acceptance of the accuracy of such report, and SANKYO shall have no obligation to maintain records pertaining to such report or statement beyond said three (3) year period. The results of the inspection shall be binding on both parties. 5.7.7 Withholding: (a) Payments. All amounts payable under Section 2.7.1, 3.1 and 3.5 shall represent the actual proceeds to be received by OSI and MRC CC after any applicable deductions have been made, including without limitation any withholding taxes. OSI and MRC CC agree to reasonably cooperate with SANKYO in obtaining a refund of any withholding taxes paid by SANKYO with respect to any payments to OSI and MRC CC hereunder. In the event that OSI and MRC CC are successful in obtaining any refund of tax withholding amounts paid by SANKYO under Sections 2.7.1, 3.1 and 3.5 of this Agreement, OSI and MRC CC agree to promptly remit such refund amount to SANKYO. (b) Royalty Payments. SANKYO may withhold from royalties due to OSI and MRC CC under Sections 5.7.1 and 5.7.2 amounts for payment of any withholding tax that is required by law to be paid to any taxing authority with respect to such royalty amounts due to OSI and MRC CC; provided, however, that in regard to any such tax withholding SANKYO shall give OSI and MRC CC such documents, and provide any other cooperation or assistance on a reasonable basis, as may be necessary to enable OSI and MRC CC to claim exemption therefrom to receive a full refund of such withholding tax or claim a foreign tax credit and shall upon -37- 39 OSI's and MRC CC's request give proper evidence from time to time as to the payment of such tax. 5.8 Manufacturing Rights. SANKYO shall maintain all manufacturing rights to Compounds and Products in the Territory. SANKYO shall also have the right to transfer its right to manufacture, at its discretion, to its Affiliates or any sublicensees of SANKYO. 6. Provisions Concerning the Filing, Prosecution and Maintenance of Patent Rights. The following provisions relate to the filing, prosecution and maintenance of MRC CC Patent Rights, OSI Patent Rights, Joint Patent Rights, and SANKYO Patent Rights: 6.1 OSI Filing: Prosecution and Maintenance. OSI shall have the exclusive right and obligation: (a) to file applications, at its expense (subject to reimbursement as herein after provided), for letters patent on any patentable invention included in OSI Technology Improvements or in Joint Technology Improvements which relate to cell lines, cloning of cell lines and methodologies for determining the effect of compounds on biochemical processes; provided, however, that OSI shall provide to MRC CC and SANKYO copies of all patent applications prior to filing for the purpose of obtaining the substantive comments of MRC CC and SANKYO patent counsel and shall consult with MRC CC and SANKYO regarding countries in which such patent applications should be filed and shall file patent applications in those countries where MRC CC and SANKYO requests that OSI file; and further -38- 40 provided, that OSI, at its option and expense, may file in countries where MRC CC and SANKYO do not request that OSI file; (b) to prosecute, at its expense (subject to reimbursement as hereinafter provided), all pending and new patent applications included within OSI Technology Improvements or Joint Technology Improvements which relate to cell lines, cloning of cell lines and methodologies for determining effect of compounds on biochemical processes and to respond to oppositions filed by third parties against the grant of letters patent for such applications, provided that OSI shall also provide to MRC CC and SANKYO copies of all documents relating to the prosecution of all patent applications in a timely manner for the purpose of obtaining the substantive comments of MRC CC and SANKYO patent counsel; (c) to maintain in force, at its expense (subject to reimbursement as hereinafter provided), any letters patent included in OSI Patent Rights by duly filing all necessary papers and paying any fees required by the patent laws of the particular country in which such letters patent were granted; (d) to notify MRC CC and SANKYO in a timely manner of any decision to abandon a pending patent application or an issued patent included in OSI Patent Rights. Thereafter, MRC CC and SANKYO shall have the option, at their expense, of continuing to prosecute any such pending patent application or of keeping the issued patent in force; and (e) to provide to MRC CC and SANKYO every six (6) months a report detailing the status of all patent applications that are part of OSI Patent Rights. -39- 41 6.2 SANKYO Filing: Prosecution and Maintenance. SANKYO shall have the exclusive right and obligation: (a) to file applications, at its expense, subject to reimbursement as hereinafter provided, for letters patent on any patentable invention included in SANKYO Technology Improvements or in Joint Technology Improvements which relate to new compounds and therapeutic uses or manufacturing processes of known compounds; provided, however, that SANKYO shall provide to MRC CC and OSI copies of all patent applications prior to filing for the purpose of obtaining the substantive comments of MRC CC and OSI patent counsel and shall consult with MRC CC and OSI regarding countries in which such patent applications should be filed and shall file patent applications in those countries where MRC CC and OSI requests that SANKYO file; and further provided, that SANKYO, at its option and expense, may file in countries where OSI does not request that SANKYO file; (b) to prosecute, at its expense, subject to reimbursement as hereinafter provided, all pending and new patent applications included within SANKYO Technology Improvements or Joint Technology Improvements which relate to new compounds and therapeutic uses of known compounds and to respond to oppositions fled by third parties against the grant of letters patent for such applications; provided that SANKYO shall also provide to MRC CC and OSI copies of all documents relating to the prosecution of all patent applications in a -40- 42 timely manner for the purpose of obtaining the substantive comments of MRC CC and OSI patent counsel; (c) to maintain in force, at its expense, subject to reimbursement as hereinafter provided, any letters patent included in SANKYO Patent Rights by duly filing all necessary papers and paying any fees required by the patent laws of the particular country in which such letters patent were granted; (d) to notify MRC CC and OSI in a timely manner of any decision to abandon pending patent application or an issued patent included in SANKYO Patent Rights. Thereafter, MRC CC and OSI shall have the option, at their expense, of continuing to prosecute any such pending patent application or of keeping the issued patent in force; and (e) to provide to MRC CC and OSI every six (6) months a report detailing the status of all patent applications that are part of SANKYO Patent Rights. 6.3 MRC CC Filing: Prosecution and Maintenance. MRC CC shall have the exclusive right and obligation: (a) to file applications, at its expense, subject to reimbursement as hereinafter provided, for letters patent on any patentable invention included in MRC CC Technology Improvements or Joint Technology Improvements which relate to cell culture models or animal models of infection and methodologies for determining the effects or mechanism of action of compounds on viral infection in living cells and animals; provided, however, that MRC CC shall provide SANKYO and OSI with copies of all patent applications prior to filing for the purpose of obtaining -41- 43 the substantive comments of SANKYO and OSI patent counsel and consult with SANKYO and OSI regarding countries in which such patent applications should be filed and shall file patent applications in those countries where SANKYO and OSI requests that MRC CC file; and further provided, that MRC CC, at its option and expense, may file in countries where SANKYO and OSI do not request that MRC CC file; (b) to prosecute, at its expense, subject to reimbursement as hereinafter provided, all pending and new patent applications included within MRC CC Technology Improvements or Joint Technology Improvements which relate to cell culture models or animal models of infection and methodologies for determining the effects or mechanism of action of compounds on viral infection in living cells and animals; and to respond to oppositions filed by third parties against the grant of letters patent for such applications; provided that MRC CC shall also provide to SANKYO and OSI copies of all documents relating to the prosecution of all patent applications in a timely manner for the purpose of obtaining the substantive comments of SANKYO and OSI patent counsel; (c) to maintain in force, at its expense, subject to reimbursement as hereinafter provided, any letters patent included in MRC CC Patent Rights by duly filing all necessary papers and paying any fees required by the patent laws of the particular country in which such letters patent were granted; (d) to notify OSI and SANKYO in a timely manner of any decision to abandon a pending patent application or an issued patent included in MRC CC Patent -42- 44 Rights. Thereafter, OSI and SANKYO shall have the option, at their expense, of continuing to prosecute any such pending patent application or of keeping the issued patent in force; and (e) to provide to OSI and SANKYO every six (6) months a report detailing the status of all patent applications that are part of MRC CC Patent Rights. 6.4 Reimbursement of Expenses. SANKYO will reimburse OSI and MRC CC for their reasonable out-of-pocket costs incurred after the Effective Date to file, prosecute, issue, maintain and extend patent applications and Patent Rights within OSI Patent Rights and MRC CC Patent Rights in countries in which SANKYO has requested OSI or MRC CC to file that OSI or MRC CC would have not otherwise filed. OSI and MRC CC will reimburse SANKYO for its reasonable out-of-pocket costs incurred after the Effective Date to file, prosecute, issue, maintain and extend patent applications and Patent Rights within the SANKYO Patent Rights in countries which OSI and MRC CC has requested SANKYO to file that SANKYO would not have otherwise filed. 6.5 Patent Extensions. In the event any patent in OSI Patent Rights, MRC CC Patent Rights, SANKYO Patent Rights or Joint Patent Rights is eligible for extension or Supplementary Protection Certificate, the Research Committee shall determine for which Patent Rights, applications for extension shall be filed. 6.6 Legal Action. 6.6.1 Actual or Threatened Disclosure or Infringement. When information comes to the attention of SANKYO to the effect that any Patent Rights or Joint Technology -43- 45 Improvements relating to a Product have been or are threatened to be unlawfully disclosed or that any of the rights granted by or created pursuant to this Agreement have been or are threatened to be unlawfully infringed, SANKYO shall have the right, at its expense, to take such action as it may deem necessary to prosecute or prevent such unlawful disclosure or infringement, including the right to bring or defend any suit, action or proceeding involving any such disclosure or infringement. SANKYO shall notify OSI and MRC CC promptly of the receipt of any such information and of the commencement of any such suit, action or proceeding. If SANKYO determines that it is necessary or desirable for OSI or MRC CC to join any such suit, action, or proceeding, OSI or MRC CC, as the case may be, shall execute all papers and perform such other acts as may be reasonably required to permit SANKYO to act in OSI's or MRC CC's name. In the event that SANKYO brings a suit, it shall have the right to reimburse itself out of any sums recovered in such suit or in its settlement for all reasonable costs and expenses of every kind and character, including reasonable attorney's fees, involved in the prosecution of any suit. If Sankyo does not, within one hundred twenty (120) days after giving notice to OSI and MRC CC of the above-described information, notify OSI or MRC CC, as the case may be, of SANKYO's intent to bring suit against any infringer, OSI or MRC CC shall have the right to bring suit for such alleged infringement, but it shall not be obligated to do so, and may cause SANKYO to be joined as a party plaintiff, if appropriate, in which event OSI or MRC CC, as the case may be, -44- 46 shall hold SANKYO free, clear, and harmless from any and all costs and expenses of such litigation, including attorney's fees, and any sums recovered in any such suit or in its settlement shall belong to OSI or MRC CC, as the case may be. Each party shall always have the right to be represented by counsel of its own selection and at its own expense in any suit instituted by the other for infringement, under the terms of this Section. If SANKYO lacks standing to bring any such suit, action, or proceeding, then OSI or MRC CC, as the case may be, shall do so at the request of SANKYO and at SANKYO's expense. 6.6.2 Defense of Infringement Claims. If OSI or MRC CC, as the case may be, or SANKYO, any of their respective licensees or their customers shall be sued by a third party for infringement of a patent because of the research, development, manufacture, use or sale of Products, the party which has been sued shall promptly notify the other parties to this Agreement in writing of the institution of such suit. OSI or MRC CC, as the case may be, shall give to SANKYO all authority (including the right to exclusive control of the defense of any such suit, action, or proceeding and the exclusive right to compromise, litigate, settle, or otherwise dispose of any such suit, action, or proceeding), information and assistance necessary to defend or settle any such suit, action, or proceedings. The parties shall share the expenses of implementing the agreed defense on the following basis; (a) If the alleged infringement is due to the use of OSI Technology and/or OSI Technology Improvement, then the expenses shall be borne by OSI. -45- 47 (b) If the alleged infringement is due to the use of SANKYO Technology and/or SANKYO Technology Improvements, then the expenses shall be borne by SANKYO. (c) If the alleged infringement is due to the use of MRC CC Technology and/or MRC CC Technology Improvements, then the expenses shall be borne by MRC CC. (d) If the alleged infringement is due to the use of Joint Technology Improvements, then the expenses shall be borne by equally among SANKYO, OSI and MRC CC. 6.6.3 Hold Harmless. OSI or MRC CC agree to defend, protect, indemnify, and hold SANKYO and any sublicensee of SANKYO harmless, from and against any liability, claim, loss, cost or expense arising from any claim or suit by a third party to the extent that such claim or suit is due to the exercise by SANKYO of any rights granted hereunder by OSI or MRC CC pursuant to OSI Patent Rights, OSI Technology, or OSI Technology Improvements, or MRC CC Patent Rights, MRC CC Technology, or MRC CC Technology Improvements, as the case may be, infringing upon the patent or other intellectual property rights of said third party. SANKYO agrees to defend, protect, indemnify, and hold harmless OSI and MRC CC from and against any liability, claim, loss, cost, or expense arising from any claim or suit for product liability based upon SANKYO's manufacture, use, or sale of any Product. -46- 48 6.6.4 Third Party Licenses. If SANKYO and OSI and MRC CC agree the manufacture, use, or sale by SANKYO of a Product in any country would infringe a patent owned by a third party, SANKYO and OSI and MRC CC shall attempt to obtain a license under such patent. If SANKYO obtains a license under such patent, any payments made by SANKYO to such third party shall be deductible from royalty payments due from SANKYO to OSI and MRC CC pursuant to Section 5.7.3 of this Agreement. All such payments shall be on a country by country and patent by patent basis. If either SANKYO, OSI or MRC CC is of the opinion that such manufacture, use, or sale would not infringe such patent owned by a third party, SANKYO may, at its election, bring suit against such third party seeking a declaration that such patent is invalid or not infringed by SANKYO's manufacture, use or sale of the Product involved, or may bring opposition, nullification, or other proceedings against such patent, as appropriate. If SANKYO is successful in such suit, SANKYO shall continue to pay royalties in such country as provided in Article 5. If SANKYO does not bring such suit or is unsuccessful in such suit, it shall join OSI or MRC CC, as the case may be, in an attempt to obtain a license under such patent, and royalty payments made by SANKYO to such third party for such license shall be as hereinabove provided. 7. Other Rights of the Parties. 7.1 Other Rights of the Parties. Except as hereinabove provided, OSI and MRC CC shall have the right to apply for, and receive grants or contracts from, public and private sources, including without limitation, the National-Institutes of Health, the -47- 49 American Cancer Society, and the National Science Foundation. Except as hereinabove provided, OSI and MRC CC shall also have the right to enter into coverture arrangements, whether written or oral, with third parties to develop any product. 7.2 Acquisition of Rights from Third Parties. During the Contract Period, OSI, MRC CC and SANKYO shall promptly notify each other in writing of any and all opportunities to acquire in any manner from third parties, technology or patents which may be useful in, or may relate to the Research Program. The Research Committee shall decide if such rights should be acquired and, if so, whether by OSI, SANKYO or MRC CC. If acquired, such rights shall become part of Joint Technology Improvements or Joint Patent Rights. 8. Term, Extension, Termination and Disengagement. 8.1 Term. Subject to the continuing rights and obligations set forth in Articles 2.4, 2.8, 3, 4, 5 and 6, this Agreement and the parties obligations pursuant to the Research Program shall expire at the end of the Contract Period. It is further contemplated by the parties however that a more definitive License Agreement superseding the license granted herein will be executed by the parties prior to commencement of clinical trials and/or the sale of any Product, such License Agreement to be based on the license terms and conditions set forth herein. Notwithstanding such intention, the parties further acknowledge that in the event they fail to execute such additional License Agreement, the license granted -48- 50 SANKYO hereunder in respect of the Compounds and Products shall remain in full force and effect according to its terms and conditions. 8.2 Events of Termination. The following events shall constitute events of termination ("Events of Termination"). (a) Any material representation or warranty by OSI, MRC CC or SANKYO, or any of its officers, under or in connection with this Agreement shall prove to have been incorrect in any material respect when made. (b) OSI, MRC CC or SANKYO shall fail in any material respect to perform or observe any term, covenant or understanding contained in this Agreement or in any of the other documents or instruments delivered pursuant to, or concurrently with, this Agreement, and any such failure shall remain unremedied for thirty (30) days after written notice to the failing party. In the event that a material failure on the part of MRC CC shall have remained unremedied for thirty (30) days of written notice by SANKYO to MRC CC as provided above in this Article 8.2 (b) said event being deemed by SANKYO to be a material breach of this Agreement, then SANKYO may, at its sole discretion, permit OSI to cure said material breach and in such event OSI shall be able to substitute itself for MRC CC hereunder. (c) The occurrence of a change of control of one of the parties. A change of control shall be deemed to have occurred if, after the Effective Date of this Agreement, (i) any Person acquires a majority of the shares of a party or acquires a right to control the voting of a majority of shares of a party, (ii) any Person -49- 51 acquires sufficient shares or the right to control the votes of sufficient shares to enable such Person to elect a majority of the board of directors of a party, or (iii) any Person acquires the power through share ownership or otherwise to designate a majority of the board of directors of a party. 8.3 Termination. Upon the occurrence of any Event of Termination, the party not responsible may, by notice to the other party, terminate this Agreement, but such termination shall not affect the obligation to pay royalties hereunder or under the License Agreement contemplated hereby; provided, however, that Article 2.4.2 shall survive any termination of this Agreement hereunder. 9. Representations and Warranties. OSI, SANKYO, MRC C and MRC CC each represents and warrants as follows: 9.1 It is a corporation duly organized, validly existing and is in good standing under the laws of its place of incorporation, is qualified to do business and is in good standing as a foreign cooperation in each jurisdiction in which the conduct of its business or the ownership of its properties requires such qualification and has all requisite power and authority, corporate or otherwise, to conduct its business as it is now being conducted, to own, lease and operate its properties and to execute, deliver and perform this Agreement. 9.2 The execution, delivery and performance by it of this Agreement have been duly authorized by all necessary corporate action and do not and will not (a) require any consent or approval of its stockholders, (b) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award -50- 52 presently in effect having applicability to it or any provision of its charter or by-laws or (c) result in a breach of or constitute a default under any material agreement, mortgage, lease, license, permit or other instrument or obligation to which it is a party or by which it or its properties may be bound or affected. 9.3 This Agreement is a legal, valid and binding obligation of it enforceable against it in accordance with its terms and conditions, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws, from time to time in effect, affecting creditor's rights generally. 9.4 It is not under any obligation to any Person, contractual or otherwise, that is conflicting or inconsistent in any respect with the terms of this Agreement or that would impede the diligent and complete fulfillment of its obligations. 9.5 It has good and marketable title to or valid leases or licenses for, all of its properties, rights and assets necessary for the fulfillment of its responsibilities and the Research Program, subject to no claim of any third party other than the relevant lessors or licensors. 9.6 OSI, MRC CC, and SANKYO each have the right to grant to each other the licenses granted by them pursuant to this Agreement, and that the licenses so granted do not conflict with or violate the terms of any agreement between them and any third party. 9.7 OSI and MRC CC hereby covenant and agree to cooperate and take all steps reasonable requested by SANKYO to register or otherwise perfect in any country of the Territory any and all of the rights granted SANKYO hereunder. -51- 53 10. Notices. All notices shall be mailed via certified mail, return receipt requested, or courier addressed as follows, or to such other address as may be designated from time to time: If to SANKYO: To SANKYO at 2-58, Hiromachi, 1-chome, Shinagawaku, Tokyo 140, Japan Attention: Director, Biological Research Laboratories If to OSI: To OSI at its address as set forth at the beginning of this Agreement Attention: President If to MRC CC: To MRC CC at its address as set forth at the beginning of this Agreement Attention: Commercial Director Notices shall be deemed given as of the date of receipt. 11. Governing Law and Disputes. This Agreement shall be construed in accordance with the laws of the State of New York. Any disputes, controversies or difficulties which may arise out of or in relation to this Agreement shall be settled amicably between the parties. In the event the parties fail to do so, such dispute, controversy, etc. shall be finally settled by arbitration at the place of the defendant's domicile by the International Chamber of Commerce ("ICC") pursuant to the arbitration rules of the ICC and by arbitrators to be appointed according to said rules. The award in the said arbitration shall be final and binding upon the parties. -52- 54 12. Miscellaneous. 12.1 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. 12.2 Headings. Paragraph headings are inserted for convenience of reference only and do not form a part of this Agreement. 12.3 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original. 12.4 Amendment: Waiver etc. This Agreement may be amended, modified, superseded or canceled, and any of the terms may be waived, only by a written instrument executed by each party or, in the cause of waiver, by the party or parties waiving compliance. The delay or failure of any party at any time or times to require performance of any provision shall in no manner affect their rights at a later time to enforce the same. 12.5 No Third Party Beneficiaries. No person not a party to this Agreement, including any employee of any party to this Agreement, shall have or acquire any rights by reason of this Agreement. Nothing contained in this Agreement shall be deemed to constitute a partnership between the parties or with any other Person. 12.6 Assignment and Successors. This Agreement may not be assigned by either party, except that the parties may assign this Agreement and their rights and interests, in whole or in part, to any of their Affiliates, any purchaser of all or substantially all of its assets or to any successor corporation resulting from any merger or consolidation with or into such corporation, provided, however, in the -53- 55 event an Affiliate to which this Agreement is assigned no longer is as Affiliate as such term is defined herein, such assignment shall, at the option of the other parties hereto, become null and void and revert back to the assignor. -54- 56 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives. SANKYO COMPANY, LIMITED By:_____________________________________ Yoshihiko Baba Title: MANAGING DIRECTOR ONCOGENE SCIENCE, INC. By:_____________________________________ Title: Sr. Vice President, Drug Discovery MRC COLLABORATIVE CENTRE By:_____________________________________ Title: COMMERCIAL DIRECTOR WITNESS: SUMMIT PHARMACEUTICALS INTERNATIONAL CORP. By:_____________________________ AKIKAZU TAMAI Title: PRESIDENT & CEO -55- EX-10.3 4 COLLABORATIVE RESEARCH COMMERCIALIZATION AGREEMENT 1 Portions of this Exhibit 10.3 have been redacted and are the subject of a confidential treatment request filed with the Secretary of the Securities and Exchange Commission. 2 ONCOGENE SCIENCE, INC. AND SEPRACOR, INC. MARCH 7, 1997 COLLABORATIVE RESEARCH, DEVELOPMENT AND COMMERCIALIZATION AGREEMENT 3 TABLE OF CONTENTS
Page ---- ARTICLE 1 INTERPRETATION 2 1.1 Defined Terms ........................................................... 2 ARTICLE 2 RESEARCH PROGRAM 8 2.1 General ................................................................. 8 2.2 Scope ................................................................... 8 2.3 General Obligations of the Parties ...................................... 8 2.4 Joint Steering Committee ................................................ 9 2.4.1 Purpose .......................................................... 9 2.4.2 Expansion of Research Program .................................... 10 2.4.3 Composition ...................................................... 10 2.4.4 Voting ........................................................... 10 2.4.5 Chair ............................................................ 10 2.4.6 Meetings ......................................................... 10 2.4.7 Expenses ......................................................... 11 2.5 Joint Development Committee ............................................. 11 2.5.1 Purpose .......................................................... 11 2.5.2 Composition ...................................................... 11 2.5.3 Voting ........................................................... 11 2.5.4 Chair ............................................................ 11 2.5.5 Meetings ......................................................... 11 2.5.6 Reports .......................................................... 12 2.5.7 Expense .......................................................... 12 2.6 Reports ................................................................. 12 2.7 Laboratory Facilities ................................................... 12 2.8 Research Staff .......................................................... 12 2.9 Inspections ............................................................. 12 2.10 Patent and Confidential Information Agreements .......................... 13 2.11 Flexibility ............................................................. 13 2.12 Arrangements with Independent Third Parties ............................. 13 2.13 No Independent Research within the Scope of the Research Program ........ 13 2.14 Other Research Permitted ................................................ 13 2.15 Clinical Data ........................................................... 13 2.16 Lead Compounds .......................................................... 13
i 4 ARTICLE 3 COSTS AND EXPENSES OF THE RESEARCH PROGRAM 14 3.1 Payment of Costs and Expenses ........................................... 14 ARTICLE 4 SECRET INFORMATION 14 4.1 General ................................................................. 14 4.2 Treatment of Secret Information ......................................... 14 4.3 Press Releases and Announcements ........................................ 15 4.4 Publications ............................................................ 15 ARTICLE 5 INTELLECTUAL PROPERTY RIGHTS 16 5.1 General ................................................................. 16 5.2 Research ................................................................ 16 5.3 Maintenance of Joint Patent Rights ...................................... 16 5.4 Infringement ............................................................ 17 5.5 Costs for Applying, Prosecuting and Maintaining ......................... 17 5.6 Disclosure of Inventions ................................................ 17 5.7 Ownership of Joint Intellectual Property ................................ 17 5.8 Copies of Patent Applications ........................................... 18 5.9 Other Patent Rights ..................................................... 18 5.10 Indemnification ......................................................... 19 ARTICLE 6 DEVELOPMENT AND COMMERCIALIZATION 19 6.1 Decision to Commercialize ............................................... 19 6.2 Commercialization Agreement ............................................. 19 6.3 Content of Commercialization Agreement .................................. 19 6.4 No Support .............................................................. 20 ARTICLE 7 OTHER RESEARCH VENTURES ETC. 21 7.1 Acquisition of Rights from Third Parties ................................ 21
ii 5 ARTICLE 8 TERM, EXTENSION, TERMINATION AND DISENGAGEMENT 21 8.1 Term .................................................................... 21 8.2 Events of Termination ................................................... 21 ARTICLE 9 CONSEQUENCES OF TERMINATION 22 9.1 Licenses upon Termination ............................................... 22 9.2 Termination upon the Occurrence of an Event of Termination .............. 23 9.3 Survival of Obligations; Return of Confidential Information ............. 24 ARTICLE 10 REPRESENTATIONS AND WARRANTIES 24 ARTICLE 11 COVENANTS 25 11.1 Affirmative Covenants Other than Reporting Requirements 25 ARTICLE 12 DISPUTE RESOLUTION 25 ARTICLE 13 NOTICES 26 ARTICLE 14 MISCELLANEOUS 26 14.1 Binding Effect .......................................................... 26 14.2 Headings ................................................................ 26 14.3 Entire Agreement ........................................................ 26 14.4 Severability ............................................................ 27 14.5 Counterparts ............................................................ 27 14.6 Amendment, Waiver, etc .................................................. 27 14.7 Force Majeure ........................................................... 27 14.8 Independent Contractor .................................................. 27 14.9 Assignment and Successors ............................................... 27 14.10 Governing Law ........................................................... 28
iii 6 COLLABORATIVE RESEARCH, DEVELOPMENT AND COMMERCIALIZATION AGREEMENT BETWEEN: SEPRACOR INC., a corporation incorporated under the laws of Delaware and having its principal place of business at 111 Locke Drive, Marlborough, Massachusetts (hereinafter called "Sepracor"). AND: ONCOGENE SCIENCE, INC., a corporation incorporated under the laws of Delaware and having its principal place of business at 106 Charles Lindbergh Boulevard, Uniondale, New York, 11553 (hereinafter called "Oncogene"). AS OF: 7 March, 1997 WHEREAS Sepracor and its Affiliates possess technology in the area of synthesis of libraries, including lead-seeking libraries and lead-optimizing libraries; WHEREAS Oncogene and its Affiliates possess technology in the areas of assay development, assay validation, high-throughput screening, in vitro assay methodology, and chemical synthesis; WHEREAS each of Sepracor and its Affiliates and Oncogene and its Affiliates is currently conducting research in respect of anti-infective agents which target certain illnesses and with respect to steroid chronic inflammatory targets associated with certain illnesses; WHEREAS Sepracor and its Affiliates, on the one hand, and Oncogene and its Affiliates, on the other hand, have decided to collaborate and combine their efforts in connection with the research, development and commercialization of anti-infective agents which primarily target bacterial or fungal microbes, and in connection with the research, development and commercialization of anti-inflammatory agents that target steroid chronic inflammatory targets represented by steroid receptors; WHEREAS Sepracor and its Affiliates and Oncogene and its Affiliates are willing to use their research facilities, scientists, research assistants, technicians and other personnel to conduct their obligations under this Agreement. 7 NOW THEREFORE, THE PARTIES AGREE AS FOLLOWS: ARTICLE 1 INTERPRETATION 1.1 DEFINED TERMS. In this Agreement, unless the context or subject matter is inconsistent therewith, the following terms and expressions shall have the following meanings: (a) "ACQUISITION" shall have the meaning ascribed thereto at Section 8.2(e) hereof. (b) "AFFILIATE" shall mean, with respect to any Person (including a Party), any other Person which directly or indirectly controls or is controlled by, or is under direct or indirect common control with, such first mentioned Person or any Person which is directly or indirectly controlled by a Person which controls the first mentioned Person; for the purpose of this definition, "CONTROL" shall mean, with respect to any Person (including any Party), the ownership of more than 50% of the voting shares or other voting equity of that Person. This definition notwithstanding, neither Versicor nor BioSepra shall be considered to be affiliates of Sepracor for the purposes of this Agreement. (c) "AGREEMENT" shall mean this collaborative research, development and commercialization agreement and all instruments supplemental hereto or in amendment or in confirmation HEREOF; "HEREIN", "HEREOF", "HERETO", "HEREUNDER" and similar expressions mean and refer to this Agreement and not to any particular article, section, subsection or other subdivision; "ARTICLE", "SECTION", SUBSECTION" or other subdivision of this Agreement shall mean and refers to the specific article, section, subsection or other said subdivision of this Agreement. (d) "COMMERCIAL PRODUCT" shall mean any and all products in Final Pharmaceutical Form comprising Lead Compounds and any and all formulations, mixtures or compositions thereof emanating from the Research Program pursued pursuant to this Agreement, the making or use of which embodies any of Sepracor Technology, Oncogene Technology or Joint Technology and in respect of which Sepracor and Oncogene each has rights to commercialize pursuant to this Agreement or any other agreement executed between the Parties in furtherance to this Agreement. (e) "COMMERCIALIZATION AGREEMENT" shall have the meaning ascribed thereto at Section 6.2 hereof. 2 8 (f) "COMMITMENT YEAR" shall mean each calendar year during the term of this Agreement and, in respect of the First Commitment Year, the period commencing on the Effective Date and terminating on December 31, 1997. (g) "COMPOUND" shall mean any compound being evaluated in connection with the Field by the Parties pursuant to the Research Program or developed by Sepracor and Oncogene and/or their respective Affiliates pursuant to the provisions of this Agreement. (h) "CONFIDENTIAL INFORMATION" shall mean Sepracor Confidential Information or Oncogene Confidential Information, as the case may be. (i) "DEFICIENCY AMOUNT" shall have the meaning ascribed thereto at Section 2.4.1 hereof. (j) "DEVELOPMENT CANDIDATE" shall mean a Lead Compound which has been designated by the Joint Steering Committee as a potential Commercial Product and which should be the subject of a Development Program. (k) "DEVELOPMENT PROGRAM" shall mean the written development plan to be approved by the Joint Steering Committee describing the development and other obligations of each Party in respect of the development of any Compound for pre-clinical and clinical development, which plan shall be approved by the Joint Steering Committee no later than ninety (90) days following the declaration by the Joint Steering Committee that a Lead Compound has been designated as a Development Candidate, failing which the matter shall be referred to the President of Sepracor and the Chief Executive Officer of Oncogene for discussion and resolution. (l) "EFFECTIVE DATE" shall mean the date first appearing above. (m) "ELECTING PARTY" shall have the meaning ascribed thereto at Section 9.1 hereof. (n) "ELECTION NOTICE" shall have the meaning ascribed thereto at Section 9.1 hereof. (o) "EVENT OF TERMINATION" shall have the meaning ascribed thereto at Section 8.2 hereof. (p) "FDA" shall mean the United States Food and Drug Administration. (q) "FIELD" shall mean, unless otherwise determined by the Joint Steering Committee pursuant to Section 2.2, research, development, marketing, 3 9 distribution, and sale of ** including, without limitation, ** and such other bacterial and fungal targets, particularly resistant strains of such, designated on a target by target basis by the Joint Steering Committee, and, research, development, marketing, distribution, and sale of ** also as designated by the Joint Steering Committee on a target by target basis. (r) "FINAL PHARMACEUTICAL FORM" shall mean any presentation of a Commercial Product in any final packaged and labeled dosage form suitable for sale to and use by an end user. (s) "FULL DEVELOPMENT" shall mean the first of the two events described at Section 6.2 to occur. (t) "INDEMNIFIED PARTY" shall have the meaning ascribed thereto at Section 5.10 hereof. (u) "INDEMNIFYING PARTY" shall have the meaning ascribed thereto at Section 5.10 hereof. (v) "INDEPENDENT THIRD PARTY" shall mean any Person other than Sepracor, Oncogene and/or any of their respective Affiliates. (w) "INITIAL TERM" shall have the meaning ascribed thereto at Section 8.1 hereof. (x) "JOINT DEVELOPMENT COMMITTEE" or "JDC" shall have the meaning ascribed thereto at Section 2.5 hereof. (y) "JOINT STEERING COMMITTEE" or "JSC" shall have the meaning ascribed thereto at Section 2.4 hereof. (z) "JOINT TECHNOLOGY" shall mean and include all technology and information including all inventions, chemical structures and methods for synthesis, structure-activity relationships, assay methodology, methods, processes, formulae, plans, specifications, characteristics, equipment and equipment designs, know how, trade secrets, discoveries, formulations and biological, toxicological and clinical data that are conceived jointly by employees or agents of, or consultants to, Sepracor and Oncogene, or licensed in the Field jointly by the Parties or on behalf of the Parties during the term of this Agreement, such that Sepracor and Oncogene each own an undivided interest therein. - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. 4 10 (aa) "LEAD COMPOUND" shall mean, subject to the provisions of Section 2.16, any Compound designated as a Lead Compound by the Joint Steering Committee and which has demonstrated such properties of chemical structure, potency, mechanism of action, selectivity and non-cytotoxicity as deemed necessary by the JSC for such Compound to be a potential candidate for chemical optimization studies. (bb) "NET INVOICED SALES VALUE" shall mean the gross invoice price charged for Commercial Products sold by Sepracor, Oncogene and/or their respective Affiliates and sublicensees to Independent Third Parties, less all allowances or credits granted on such sales, including those in respect of rejected or returned goods, recalls, transportation charge or allowances, insurance charges, normal and customary quantity and trade discounts (including managed care rebates), and taxes or other governmental charges on, or measured by, the sale, transportation, or use of Commercial Products, which Sepracor, Oncogene and/or their respective Affiliates and sublicensees have to pay or absorb on such sales. (cc) "SALES" shall mean any Commercial Products sold in a particular country by either Party and/or their respective Affiliates and sublicensees to an Independent Third Party. (dd) "NON-ELECTING PARTY" shall have the meaning ascribed thereto at Section 9.1 hereof. (ee) "NOTICE" shall have the meaning ascribed thereto at Section 9.1 hereof. (ff) "NOTICE OF OPPORTUNITY" shall have the meaning ascribed thereto at Section 9.1 hereof. (gg) "NOTIFYING PARTY" shall have the meaning ascribed thereto at Section 9.2 hereof. (hh) "ONCOGENE CONFIDENTIAL INFORMATION" shall mean all confidential information disclosed to Sepracor orally and subsequently confirmed in writing as "CONFIDENTIAL" or designated as "CONFIDENTIAL" by Oncogene or its Affiliates at the time of disclosure to Sepracor, to the extent that such information as of the date of disclosure to Sepracor is not (i) demonstrably known to Sepracor other than by virtue of a prior confidential disclosure to Sepracor by Oncogene or its Affiliates, or (ii) disclosed in the published literature or otherwise to the public through no fault of Sepracor, its Affiliates, employees or consultants, or (iii) obtained from an Independent Third Party having no obligation of confidentiality to Oncogene or its Affiliates with respect to such information. 5 11 (ii) "ONCOGENE TECHNOLOGY" shall mean and include all technology and technical information relating to a Compound, including all inventions, chemical structures and methods for synthesis, structure-activity relationships, assay methodology, methods, processes, formulae, plans, specifications, characteristics, equipment and equipment designs, know how, trade secrets, discoveries, results, formulations and biological, toxicological and clinical data and physical, chemical or biological material that is conceived solely by employees or agents of, or consultants to, Oncogene and/or its Affiliates, prior to or during the term of this Agreement or acquired by purchase, license, assignment or other means from third parties prior to or during the term of this Agreement that is not Joint Technology, but only to the extent that Oncogene or its Affiliates is legally entitled to disclose such Technology and technical information and use it in connection with the performance by it of its obligations hereunder. (jj) "PARTIES" shall mean Sepracor and Oncogene; and "PARTY" shall mean any one of them. (kk) "PATENT EXPENSES" shall mean all external fees and costs incurred by a Party in financing the activities leading to a Patent Right, including, without limitation, few and reasonable attorneys' charges in connection with the preparation filing, prosecution, maintenance and defense of the Patent Rights and translation charges. (ll) "PATENT RIGHTS" shall mean all patents and patent applications, including any divisional, continuation, continuation-in-part, reissue, renewal or extension thereof, or substitute therefor, any registration or confirmation thereof, relating to any Technology, Compounds or Commercial Products, their methods of manufacture or uses of intermediates therefor, or formulations thereof. "ONCOGENE PATENT RIGHTS" shall mean Patent Rights claiming inventions that are conceived solely by employees or consultants of Oncogene or its Affiliates. "JOINT PATENT RIGHTS" shall mean Patent Rights claiming inventions that are conceived solely by employees, agents, or consultants of Oncogene and employees or consultants of Sepracor and of their respective Affiliates. "SEPRACOR PATENT RIGHTS" shall mean Patent Rights claiming inventions that are conceived jointly by employees, agents, or consultants of Sepracor or its Affiliates. (mm) "PERSON" shall mean any individual, corporation, company, cooperative, partnership, trust, unincorporated association or any other entity which possesses a juridical personality, including any governmental authorities or body of competent jurisdiction; and pronouns when referring to a Person, shall have a similar extended meaning. 6 12 (nn) "PROGRAM REPRESENTATIVE" shall mean an employee of a Party designated by such Party as its representative for consultation and communication with the other Party. Any Party may change its Program Representative at any time by written notice given to the other Party or designate more than one Program Representative provided that each of its representatives shall be assigned different responsibilities. (oo) "RENEWAL PERIOD" shall have the meaning ascribed thereto at Section 8.1 hereof. (pp) "RESEARCH PROGRAM" shall mean the written research plan annexed hereto as Schedule A, as subsequently revised or replaced by the Joint Steering Committee, which plan describes the research and other obligations to be carried out during each Commitment Year by each of Sepracor and Oncogene and their Affiliates. (qq) "SECRET INFORMATION" shall have the meaning ascribed thereto at Section 4.1 hereof. (rr) "SEPRACOR CONFIDENTIAL INFORMATION" shall mean all confidential information disclosed to Oncogene orally and subsequently confirmed in writing as "CONFIDENTIAL" or designated as "CONFIDENTIAL" by Sepracor or its Affiliates at the time of disclosure to Oncogene, to the extent that such information as of the date of disclosure to Oncogene is not (i) demonstrably known to Oncogene other than by virtue of a prior confidential disclosure to Oncogene by Sepracor or its Affiliates, or (ii) disclosed in the published literature or otherwise to the public through no fault of Oncogene, its Affiliates, employees or consultants, or (iii) obtained from an Independent Third Party having no obligation of confidentiality to Sepracor or its Affiliates with respect to such information. (ss) "SEPRACOR TECHNOLOGY" shall mean and include all technology and technical information relating to a Compound, including all inventions, chemical structures and methods for synthesis, structure activity relationships, assay methodology, methods, processes, formulae, plans, specifications, characteristics, equipment and equipment designs, know how, trade secrets, discoveries, results, formulations and biological, toxicological and clinical data and physical, chemical or biological material that is conceived solely by employees or agents of, or consultants to, Sepracor and/or its Affiliates, prior to or during the term of this Agreement or acquired by purchase, license, assignment or other means from third parties prior to or during the term of this Agreement that is not Joint Technology, but only to the extent that Sepracor or its Affiliates is legally entitled to disclose such Technology and technical information and use it in connection with the performance by it of its obligations hereunder. 7 13 (tt) "SUBMITTED LICENSE" shall have the meaning ascribed thereto at Section 9.1 hereof. (uu) "TARGET" shall have the meaning ascribed thereto at Section 8.2 hereof. (vv) "TECHNOLOGY" shall mean, collectively, Sepracor Technology, Oncogene Technology and Joint Technology. ARTICLE 2 RESEARCH PROGRAM 2.1 GENERAL. Subject to the terms and conditions of this Agreement, each of Sepracor and Oncogene agrees, as of the Effective Date, to undertake and to cause its Affiliates to undertake, the Research Program and, in the Field, to collaborate in respect thereof. 2.2 SCOPE. The Research Program shall involve the identification, research and development of Lead Compounds derived from Sepracor Technology, Oncogene Technology and Joint Technology or which may be contained in any compound library prepared by or on behalf of any Party or to which the Parties and their Affiliates hereto have access to and the right to use in connection with this Agreement in respect of the Field with the goal of identifying Development Candidates among such Lead Compounds. 2.3 GENERAL OBLIGATIONS OF THE PARTIES. During the term of this Agreement, the Parties hereto hereby agree to diligently pursue the following, and to cause their respective Affiliates to diligently pursue the following, to the extent that it is reasonably necessary to the purpose of this Agreement and in accordance with the Research Program: (a) Each of Sepracor and Oncogene and/or their respective Affiliates has synthesized and isolated and/or shall continue to synthesize and/or isolate Compounds for use within the Field. (b) Each of Sepracor and Oncogene and/or their respective Affiliates shall provide the other Party with information concerning, and, if required by the JDC, with samples of, Compounds for use within the Field, including those which pass primary screening in order that the other Party may collaborate in the evaluation of potential activity as antibacterial or anti-fungal agents. (c) Each of Sepracor and Oncogene shall aid, and shall cause their respective Affiliates to aid, the other Party in the fulfillment of its obligations hereunder, provide structural chemistry analysis and access to combinatorial chemistry technology, and scale up potential Compounds for in vitro and in vivo studies, 8 14 and provide through in vitro and in vivo evaluations, toxicity and mechanisms of action studies in order to select, as promptly as possible, Lead Compounds for development. (d) Each of Sepracor and Oncogene shall provide to the other Party access, limited for use or access by such other Party in the Field, to compound libraries made by it or on its behalf or to which it has access and the right to use in connection with the conduct of the Research Program. (e) Each of Sepracor and Oncogene shall, and each shall cause its Affiliates to, conduct research and development activities in respect of targets identified by the JSC. (f) Sepracor and Oncogene agree, on their behalf and on behalf of their respective Affiliates, (i) to fulfill their respective obligations under, and pursue the goals of, the Research Program and (ii) to perform their responsibilities as outlined in the Research Program or allocated to it by the Joint Steering Committee. (g) Each of Sepracor and Oncogene agrees to utilize laboratory facilities and equipment and research staff in accordance with the provisions hereof to fulfill its obligations hereunder and to give effect to the intention of the Parties to collaborate in the Field. 2.4 JOINT STEERING COMMITTEE. 2.4.1 PURPOSE. A steering committee (the "Joint Steering Committee" or "JSC") is hereby established by Sepracor and Oncogene, and will begin functioning within fifteen (15) days of the date of this Agreement, to manage all business and commercial aspects between the Parties pursuant to this Agreement (including financial planning, resource allocation, prioritization, addition of new targets within the Field), agree upon and assign responsibilities (other than specific scientific tasks) within the Research Program to each Party, approve the annual budgets to be spent by each Party during any Commitment Year and review and monitor work conducted by the Joint Development Committee and to process and approve technical and scientific recommendations of the JDC. In particular, the JSC will be responsible, throughout the term of this Agreement, for (a) selecting targets and reviewing the Research Program and revising it as necessary, (b) for preparing, monitoring and revising on an annual basis the budgets necessary for the performance by the Parties of their obligations pursuant to the Research Program and this Agreement, (c) monitoring the fulfillment by each Party of its obligations pursuant to this Agreement, (d) designating any Compounds as Lead Compounds, (e) determining the allocation between the Parties of their resources in connection with the conduct of the Research Program, (f) designating Development 9 15 Candidates, (g) negotiating and soliciting, if appropriate, third parties to collaborate for purposes of conducting the Research Program, (h) determining on an annual basis the amount, if any, (the "Deficiency Amount") owed by one party to the other in order that contributions of both Parties during any Commitment Year referred to in Section 2.8 be approximately the same, and (i) determining the GAAP rules and principles applicable for purposes of the accounting and maintenance of books and records by both Parties. Either Party may in committee propose that the Parties commence development of a promising Lead Compound. 2.4.2 EXPANSION OF RESEARCH PROGRAM. Save for the first Commitment Year, in which case the Research Program is defined as set out in Schedule A of this Agreement and a general outline in respect of the other Commitment Years, the JSC shall define the Research Program in each Commitment Year and amend, if it deems appropriate, the Field. 2.4.3 COMPOSITION. Sepracor and Oncogene each shall appoint, in their sole discretion, three (3) members to the JSC. Alternates or replacements of any Party may be appointed by such Party at any time by notice to the other Party. Initially the members shall be: for Sepracor: for Oncogene: 2.4.4 VOTING. Each member of the JSC shall have one vote, and decisions shall be made by unanimity. Where a vote does not produce a unanimous decision, the matters at issue shall be submitted to the President of Sepracor and the Chief Executive Officer of Oncogene for discussion and resolution. 2.4.5 CHAIR. A Chairperson shall be nominated alternatively by Sepracor and Oncogene for one year terms, the first term being served by a nominee appointed by Oncogene. 2.4.6 MEETINGS. Meetings shall be convened four times each year at times determined by the JSC . The JSC, however, may unanimously agree to meet more or less frequently. Representatives of Oncogene, Sepracor, or both, in addition to members of the JSC, may attend meetings but shall have no voting rights. Meetings shall be held alternatively at each Party's facilities. Minutes of each meeting shall be prepared by a representative of the host party and distributed to all members of the JSC within thirty (30) days following any meeting. 10 16 2.4.7 EXPENSES. The Parties will each bear their own expenses and those expenses related to the participation of their appointees to the JSC. 2.5 JOINT DEVELOPMENT COMMITTEE 2.5.1 PURPOSE. A "JOINT DEVELOPMENT COMMITTEE" (or "JDC") shall be established by the JSC to (a) manage, agree upon and assign specific responsibilities within the Research Program and the Development Program to each Party; (b) prepare and review the Research Program and the Development Program, revising it as necessary; (c) recommend to the JSC any Compound as Lead Compounds; (d) recommend to the JSC any Lead Compounds as Development Candidates; (e) participate in all aspects of the planning and development work carried out on any Development Candidate; (f) determine the responsibilities of each Party in seeking regulatory approvals; (g) manage and deal with such other responsibilities which may, from time to time, be delegated to it by the Joint Steering Committee; and (h) review and discuss scientific questions which may arise in connection with the execution of the Research Program and scientific inventions, breakthroughs or developments in the Field made pursuant to the Research Program. 2.5.2 COMPOSITION. Sepracor and Oncogene each shall appoint, in their sole discretion, three (3) members to the JDC. Replacements of any Party may be appointed by such Party at any time by notice to the other Party. 2.5.3 VOTING. Each member of the Joint Development Committee shall have one vote, and decisions shall be made by unanimity, subject to approval by the Joint Steering Committee. Where a vote does not produce a unanimous decision, the matters at issue shall be submitted to the JSC for discussion and resolution. 2.5.4 CHAIR. A Chairperson shall be nominated alternatively by Sepracor and On-cogene for one year terms, the first term being served by a nominee appointed by Sepracor. 2.5.5 MEETINGS. Meetings of the JDC shall be held four times each year at times determined unanimously by the JDC. The JDC, however, may unanimously agree to meet more or less frequently. Representatives of Oncogene, Sepracor, or both, in addition to members of the Joint Development Committee, may attend meetings but shall have no voting rights. Meetings shall be held alternatively at each Party's facilities. Minutes of each meeting shall be prepared by a representative of the host party and distributed to all members of the JDC within fifteen (15) days after each meeting. 11 17 2.5.6 REPORTS. During the term of this Agreement, each Party shall cause its contingent to the JDC to prepare and submit to the Joint Steering Committee a summary report within thirty (30) days following the end of each calendar quarter, describing the work accomplished and progress under the Research Program during the preceding calendar quarter, discussing and evaluating the results of such work, and recommending any qualified Compounds to be designated as Lead Compounds. 2.5.7 EXPENSE. The Parties will each bear their own expenses and those expenses related to the participation of their appointees on the Joint Development Committee. 2.6 REPORTS. During the term of this Agreement, Sepracor and Oncogene each shall provide to the JSC and to the other Party access to primary data derived or used in connection with the performance by it of its obligations hereunder and on a quarterly basis and no later than thirty (30) days following the end of each Commitment Year, a statement of all costs and expenses incurred by such Party and its Affiliates pursuant to Section 3.1. 2.7 LABORATORY FACILITIES. Sepracor and Oncogene each agree to utilize, or cause their respective Affiliates to utilize, suitable laboratory facilities and equipment for carrying out its obligations under the Research Program and this Agreement. 2.8 RESEARCH STAFF. Each of Sepracor and Oncogene shall, no later than fifteen (15) days following commencement of JSC function under this Agreement, appoint research teams comprised of such number of suitably qualified scientists and other personnel as may be determined by the JSC to be reasonably necessary in order to achieve the goals of the Research Program and Development Program, it being understood that, unless otherwise agreed in writing by the Parties, over the term of this Agreement, (a) each Party shall have contributed, in terms of out-of-pocket expenses incurred during the term of this Agreement by the Parties and their Affiliates (including salaries and such other costs and expenses referred to in Section 3.1 hereof), approximately equally in connection with the performance of their obligations under the Research Program and this Agreement, and (b) such contribution are estimated to total up to approximately $12 million (or approximately up to $6 million by each Party) for the initial three year period. 2.9 INSPECTIONS. Sepracor and Oncogene shall each have the right to arrange for its employees, external consultants, and such other persons as it may reasonably delegate, to visit the other Party at its offices and laboratories and to discuss work under the Research Program and its results in detail with the other Party's Program Representative, the staff, and consultants of the other Party; provided that such visits are during normal business hours, have been arranged on not less than ten (10) business days notice and shall not unreasonably interrupt the operations of the other Party. 12 18 2.10 PATENT AND CONFIDENTIAL INFORMATION AGREEMENTS. Each of Sepracor and Oncogene shall require all of its employees, all employees of its Affiliates and all Independent Third Parties involved in, or associated with the Research Program to have executed an agreement for the assignment of inventions and for the protection of Secret Information in such reasonable form as may from time to time be used by Sepracor and Oncogene for such purpose. 2.11 FLEXIBILITY. In conducting its research and other obligations under this Agreement, each of Sepracor and Oncogene shall have and maintain sufficient flexibility to allow a shift in effort and emphasis within the Research Program that will, in the opinion of the JSC, achieve the best results in the attainment of the objectives of the Research and Development Programs. 2.12 ARRANGEMENTS WITH INDEPENDENT THIRD PARTIES. Each of Sepracor and Oncogene shall have the right to contract with its Affiliates and Independent Third Parties for work, consulting services, or the financing of the costs of its work or of its share of the costs of work in connection with the Research Program General form agreements that shall be used by each of the Parties for Independent Third Parties that function as investigators or consultants are appended hereto and have been approved for general use. Material deviations from these forms will be subject to prior approval by the other party, which approval shall not unreasonably be withheld and shall be decided within thirty (30) days of receipt of a request for approval. 2.13 NO INDEPENDENT RESEARCH WITHIN THE SCOPE OF THE RESEARCH PROGRAM. During the term of this Agreement, the Parties to this Agreement shall not undertake independent research, either directly or indirectly through any Affiliate or any other Person, in any area falling within the Field or which competes with any Compound being developed pursuant to this Agreement without the consent of the Joint Steering Committee. 2.14 OTHER RESEARCH PERMITTED. The Parties and their Affiliates have the right to conduct research on Compounds and use its own Technology and Joint Technology outside the Field alone or in collaboration with third parties, notwithstanding their potential utility of such Compounds in the Field. 2.15 CLINICAL DATA. All clinical data obtained from studies conducted pursuant to the Research Program and the Development Program shall be jointly owned by Sepracor and Oncogene and may be used by either Party and its Affiliates outside the Field, it being understood that any such Party shall not, in the course of such use or conduct, take or omit to take any action which would cause prejudice to the other Party or to the Research or Development Programs. 2.16 LEAD COMPOUNDS. Notwithstanding any provision of this Agreement, if a Compound is not designated as a Development Candidate within two (2) years following its designation by the JSC as a Lead Compound, such Lead Compound shall cease to be 13 19 considered a Compound within the meaning of this Agreement and neither party shall have any continuing obligation to the other in respect of development or commercialization thereof. ARTICLE 3 COSTS AND EXPENSES OF THE RESEARCH PROGRAM 3.1 PAYMENT OF COSTS AND EXPENSES. Each Party shall be responsible for all expenses and costs incurred by it and its employees, its Affiliates and its consultants in the performance of such Party's obligations hereunder, including, without limitation, in respect of Patent Expenses relating to Joint Patent Rights for which it is responsible, salaries of its employees, fees of its consultants, materials, equipment and administrative expenses and travel costs of its employees, employees of its Affiliates and consultants. Each party shall document such costs and expenses in accordance with the methods to be established by the JSC. In order that each party bears an equal share of such costs and expenses, a Party shall reimburse the other Party the Deficiency Amount within ninety (90) days from the end of any year. ARTICLE 4 SECRET INFORMATION 4.1 GENERAL. Each of Sepracor and Oncogene recognizes that the other Party's Confidential Information, Sepracor Technology, Oncogene Technology, Joint Technology (collectively, the "Secret Information") all constitute highly valuable proprietary confidential information. 4.2 TREATMENT OF SECRET INFORMATION. (a) Subject to the disclosure obligations set forth in this Article 4, each of Sepracor and Oncogene agree that, during the term of this Agreement, each Party will maintain, and shall cause its Affiliates to maintain, the Secret Information of the other in confidence and shall not disclose, divulge or otherwise communicate such Secret Information to Independent Third Parties (except those bound to secrecy pursuant to Section 2.10 above), or use it for any purpose except pursuant to, and in order to carry out the terms and objectives of this Agreement. Notwithstanding any provision of this Agreement, Sepracor and Oncogene hereby agree that they shall, together with their Affiliates, be entitled to use, outside of the Field, its own Confidential Information, its own Technology, and its share of Joint Technology obtained during the term of this Agreement. (b) Each Party further agrees to exercise, and shall cause its Affiliates to exercise, reasonable precautions to prevent and restrain the unauthorized disclosure of 14 20 such Secret Information by any of its directors, officers, employees, consultants, subcontractors, sublicensees or agents or those of its Affiliates. (c) Each Party shall maintain, and shall cause its Affiliates to maintain, the other Party's Confidential Information in confidence. During the term of this Agreement and for a period of ten (10) years thereafter each Party shall not disclose, divulge or otherwise communicate the other Party's Confidential Information to Independent Third Parties except those bound by secrecy pursuant to Section 2.10 above or in the event of an assignment by such Party of its rights hereunder in accordance with the provisions hereof. 4.3 PRESS RELEASES AND ANNOUNCEMENTS. (a) Neither Oncogene or Sepracor shall, and Oncogene and Sepracor shall cause their Affiliates not to, issue any press release or other public announcement relating to or disclosing any Secret Information (other than its own Confidential Information or its own Technology) without the prior written consent of the other Party, except where such announcements or press releases are required by law for the purposes of securing the registration of, and or governmental approval to market, in accordance with this Agreement, any Commercial Products, or for the procurement of patent protection of a Joint Patent Right. Notwithstanding the foregoing, each Party shall have the right to disclose the existence of this Agreement in any prospectus, offering memorandum or other document or filing required by applicable securities laws or other applicable law or regulation. (b) Where a press release or public announcement is required by law, the Party required to disclose Secret Information shall inform the other Party and provide it with a copy of any such press release or public announcement prior to release. (c) Each of Sepracor and Oncogene shall inform the other Party of any Secret Information which it is required to disclose. 4.4 PUBLICATIONS. Notwithstanding the provisions of Sections 4.1, 4.2 and 4.3, a Party or its Affiliates may submit the results obtained in the course of the Research Program for publication subject to approval of the JSC. The Parties further recognize, however, that the JSC's right to approve or prohibit publication may be subject to the publication rights of third party investigators as contemplated in Section 2.12 above. 15 21 ARTICLE 5 INTELLECTUAL PROPERTY RIGHTS 5.1 GENERAL. The following provisions relate to inventions and know-how conceived, directly or indirectly through Affiliates, by Sepracor or Oncogene or Sepracor and Oncogene, jointly, during the course of carrying out the Research Program. 5.2 RESEARCH. All Technology, information, data, discoveries and inventions arising from programs of research carried out by Oncogene and its Affiliates, on the one hand, or by Sepracor and its Affiliates, on the other hand, and all intellectual property rights relating thereto shall be the exclusive property of Oncogene or Sepracor and their Affiliates, as the case may be. 5.3 MAINTENANCE OF JOINT PATENT RIGHTS. The JSC shall appoint either Sepracor or Oncogene on a case by case basis as the party responsible for taking all necessary actions to obtain, sustain and enforce patent protection for Joint Patent Rights including, without derogation from the foregoing: (a) Filing applications for patents on any patentable inventions included within Joint Patent Rights; provided that any Party wishing to file such application shall inform the other Party and the Joint Steering Committee regarding countries in which such applications should be filed; the JSC shall determine which countries where such applications shall be made; (b) Prosecuting all pending and new patent applications included within Joint Patent Rights and responding to opposition or any other form of action for invalidity or revocation of Patent Rights filed by Independent Third Parties against the grant of patents for such applications; (c) Maintaining in force any patents included within Joint Patent Rights by duly filing all necessary papers and paying any fees required by the patent laws of the particular country in which such patents were granted. Each Party shall undertake to provide all necessary assistance to the JSC and the other Party to achieve the objectives of this Section 5.3. The responsible Party shall continue to prosecute and maintain all relevant patent rights relating to Joint Technology within the Field in full consultation with the JSC. Each Party shall keep the other Party informed as to all developments with respect to Joint Patent Rights by copying all documents and correspondence related to such protection and maintenance. If the JSC decides to abandon a patent application or an issued patent included within Joint Patent Rights, any Party whose appointees on the JSC shall have voted against such abandonment shall have the option, at its expense, of continuing to prosecute any such patent application or of keeping the issued patent in force. If a Party elects to 16 22 file, at its own expense, patent applications in respect of Joint Patent Rights in countries in which the JSC has elected not to file, such Party shall have the unrestricted right to negotiate licenses with Independent Third Parties in such nonelected countries or exploit it directly. 5.4 INFRINGEMENT. Each Party shall promptly inform the other Party of any suspected infringement of any Joint Patent Rights. During the term of this Agreement, both Parties shall have the right to institute an action for infringement of the Joint Patent Rights against such Independent Third Party in accordance with the following: (a) Both Parties shall institute suit jointly, the suit shall be brought in both their names and the out-of-pocket costs thereof shall be borne equally. Once accounting is made for such equal bearing of costs any recovery or settlement received by a Party in excess of the total, equally shared out of pocket costs shall be shared equally. The JSC shall decide upon the manner in which any Party shall exercise control over such action. Any Party may, if it so desires, also be represented by separate counsel of its own selection, the fees for which counsel shall be paid by it. (b) In the absence of agreement to institute a suit jointly, any Party may institute suit, and, at its option, name the other Party as a plaintiff. The Party instituting shall bear the entire costs of such litigation, including defending any counterclaims brought against the other Party and paying any judgments rendered against the other Party, and shall be entitled to retain the entire amount of any recovery or settlement. (c) Should either Party commence a suit under the provisions of this Section 5.4 and thereafter elect to abandon such suit, the abandoning Party shall give timely notice to the other Party who may, if it so desires, continue prosecution of such suit, provided that the sharing of expenses and any recovery in such suit shall be as agreed upon between both Parties. 5.5 COSTS FOR APPLYING, PROSECUTING AND MAINTAINING. The costs of applying for, prosecuting and maintaining patent applications and patents as specified in Section 5.3 shall be borne equally by Sepracor and Oncogene. 5.6 DISCLOSURE OF INVENTIONS. Each of Sepracor and Oncogene shall promptly inform the other Party of all inventions and Joint Technology that are conceived in the course of carrying out the Research Program by its respective employees, agents, Affiliates or consultants, whether invented solely or jointly with employees of or consultants to the other Party. 5.7 OWNERSHIP OF JOINT INTELLECTUAL PROPERTY. Sepracor and Oncogene shall jointly own the entire right, title and interest in all Technology, patents, know how and other 17 23 rights in any idea, design, invention, discovery, improvement or other creation, including any Compound, method or apparatus conceived jointly by employees, agents, or consultants Sepracor and employees, agents, or consultants of Oncogene, in the course of the Research Program. The commercial exploitation by Sepracor and Oncogene as joint owners of their rights is subject to the provisions of Article 6 of this Agreement. 5.8 COPIES OF PATENT APPLICATIONS. Each Party shall provide to the other Party, as to those applications which it is filing, copies of all patent applications for Joint Patent Rights prior to filing, for the purpose of obtaining comments and advice from the other Party's patent advisors and the other Party's approval to so file which approval shall be provided within a reasonable time. Upon the other Party's approval, such Party shall be free to file said patent applications. Such Party shall also consult with the other Party on the prosecution of said applications and provide to such Party copies of all substantive documents relating to the prosecution of said applications. Such Party shall provide to the other Party every six (6) months a report detailing the status of all patent applications that are part of Joint Patent Rights. 5.9 OTHER PATENT RIGHTS. Each Party shall be responsible at its sole expense and discretion for taking all necessary actions to obtain, sustain and enforce patent protection for its sole Patent Rights, including the following: (a) Filing applications for patents on any patentable inventions; (b) Prosecuting all pending and new patent applications and responding to opposition or any other form of action for invalidity or revocation of Patent Rights filed by Independent Third Parties against the grant of patents for such application; (c) Maintaining in force any patents by duly filing all necessary papers and paying any fees required by the patent legislation of the particular country in which such patents were granted. In the event that a Party institutes suit to protect its own Patent Rights against suspected infringement involving manufacture, use, or sale of a Development Candidate or Commercial Product aside from a Development Candidate or Commercial Product that targets ** or ** it shall notify the other Party who shall have the option, to be exercised in writing no later than thirty (30) days from receipt of the notice, to elect to assume 50% of all expenses relating to such suit, including attorneys' fees, in which case any recovery or settlement received by the Party having instituted suit shall be shared equally by both Parties. In the event that a Party - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. 18 24 institutes suit to protect its own Patent Rights against suspected infringement involving anufacture, use, or sale of a Development Candidate or Commercial Product that targets ** or ** it shall notify the other Party who shall have the option, to be exercised in writing no later than thirty (30) days from receipt of the notice, to elect to assume 25% of all expenses relating to such suit in the case of Oncogene's election, or 75% of all expenses relating to such suit in the case of Sepracor's election, including attorneys' fees, in which case any recovery or settlement received by the Party having instituted suit shall be shared by the Parties in proportion to their share of expenses. The Party having instituted suit shall have the authority to make all decisions concerning such suit, including without limitation, the right to compromise the claim. 5.10 INDEMNIFICATION. Each Party (the "INDEMNIFYING PARTY") shall indemnify the other Party, its directors, officers, employees and consultants (the "INDEMNIFIED PARTY") from and against any and all claims, demands, losses, liabilities, expenses or damages which the Indemnified Party may suffer, pay or incur as a result of claims, demands or suits against the Indemnified Party arising or alleged to arise by reason of or in connection with any and all personal injury and property damage caused or contributed to, in whole or in part, by the Indemnifying Party's actions or infringement. ARTICLE 6 DEVELOPMENT AND COMMERCIALIZATION 6.1 DECISION TO COMMERCIALIZE. The Joint Steering Committee has the authority, following recommendation from the JDC, to determine that a Lead Compound is suitable for development and therefore qualifies as a Development Candidate. This authority of the JSC is governed by Section 2.4. 6.2 COMMERCIALIZATION AGREEMENT. Where a Compound has been designated as a Development Candidate, the Parties shall enter into a commercialization agreement (the "COMMERCIALIZATION AGREEMENT") for the development and commercialization of that Compound as soon as possible after the first to occur of the following events: (a) the decision to enter into a full clinical development program as approved by the JSC, or (b) the beginning of Phase III clinical studies, conducted to support the application for marketing approval of the Development Candidate for an indication. 6.3 CONTENT OF COMMERCIALIZATION AGREEMENT. The Commercialization Agreement shall provide that the Parties shall both have commercialization rights worldwide, and the parties intend to jointly exploit any Commercial Products in the Field and share in the - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. 19 25 profits from such exploitation in the same proportion as they share in the expenses incurred under this Agreement in developing such Commercial Products. The mechanism for commercialization will be negotiated between the Parties through good faith negotiations; it shall take into account the respective contributions of the Parties pursuant to Section 2.8, and profits should, unless otherwise agreed to by the Parties, be essentially equally shared between the Parties, except in the cases of Commercial Products within either of the two classes of (a) ** and (b) ** where Sepracor will receive ** and Oncogene ** of profits. The Parties agree that they shall both have commercialization rights world wide. The Commercialization Agreement shall provide that rights hereunder may be sublicensed to a third party by mutual agreement of the Parties, and to any affiliate of a Party. 6.4 NO SUPPORT. If any Party's representatives on the JSC or JDC declines to support the advancement of a Compound to a Lead Compound stage or a Lead Compound to a development stage for reasons which may include, but are not limited to, the proposed market being outside the scope of its interest or being too small, and the other Party's representatives on the JSC or JDC support the advancement of said Compound to a Lead Compound stage or of a Lead Compound to a development stage with an objective of commercialization of said Compound, then the JSC or JDC, as the case may be, shall record a notice ("NOTICE OF OPPORTUNITY") in the minutes of the meeting where the representatives express such positions. For a period of sixty (60) days after the date of such Notice of Opportunity the Parties shall negotiate in good faith to resolve the issue in a mutually agreeable manner. If the Parties are unable to resolve the issue, then, for a period of one hundred and twenty (120) days thereafter, the Party having supported the advancement of the Compound or the Lead Compound (the "NOTIFYING PARTNER") shall have a first right to undertake worldwide development and commercialization of such Compound or Lead Compound. Upon the Notifying Party exercising such right, such Party shall be granted a worldwide exclusive license from the other Party under all relevant intellectual property which shall contain usual terms and conditions for agreements of that type and provide for the payment by the Notifying Party to the other Party of royalties of ** of Net Invoiced Sales Value to be paid within thirty (30) days following the end of any calendar quarter. If, at any time, a Party which has commenced development on a Compound or a Lead Compound, halts such development, then the other Party shall have the right to undertake development of said Compound or Lead Compound, under the same mechanism and subject to the same conditions as described in this Section 6.4. - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. 20 26 ARTICLE 7 OTHER RESEARCH VENTURES ETC. 7.1 ACQUISITION OF RIGHTS FROM THIRD PARTIES. During the term of this Agreement, Sepracor and Oncogene shall promptly notify the other in writing of any and all opportunities to acquire from Independent Third Parties, whether by license, assignment or otherwise, technology or patents which may be useful in, or may relate to, the purposes of the Research Program. Sepracor and Oncogene shall work together in a manner mutually agreeable and beneficial to secure third party technology or patents which they have determined would be useful in or relate to the purpose of the Research Program. Each Party shall (a) inform the other Party of all third party technology or patents that may be useful or relate to the Research Program, (b) solicit the other Party's participation and approval in the formulation and implementation of a strategy for securing such technology or patents and, (c) provide status reports on the progress of such strategy. ARTICLE 8 TERM, EXTENSION, TERMINATION AND DISENGAGEMENT 8.1 TERM. The initial term (the "INITIAL TERM") of this Agreement shall be three (3) years, commencing on the Effective Date. Following the expiration of the Initial Term, this Agreement shall be automatically renewed for additional successive one-year periods (each, a "RENEWAL PERIOD") unless either Party gives the other notice of its intent not to renew one hundred and twenty (120) days prior to the expiration of the Initial Term or any Renewal Period, as the case may be. 8.2 EVENTS OF TERMINATION. The following events shall constitute events of termination (each an "EVENT OF TERMINATION"): (a) Any representation or warranty by Sepracor or Oncogene in this Agreement proves incorrect, or inaccurate, in any material respect when made or deemed made as determined by an independent arbitrator and the defaulting Party does not remedy or cure such incorrect or inaccurate representation or warranty within sixty (60) days following written notice from the other Party of such breach. (b) Sepracor or Oncogene fails to perform or observe any term of this Agreement or Schedules thereto and such failure remains unremedied for a period of sixty (60) days following written notice thereof from the nondefaulting Party or such longer period if the defaulting Party is diligently taking action to remedy such failure. 21 27 (c) Sepracor or Oncogene makes an assignment for the benefit of its creditors, becomes insolvent, files a petition in bankruptcy, petitions or applies to any tribunal for the appointment of a custodian, receiver or any trustee for it or a substantial part of its assets, or commences any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or if there has been filed any such petition or application against Sepracor or Oncogene, or any such proceeding has been commenced against it, in which an order for relief is entered or which remains undismissed for a period of sixty (60) days or more; or Sepracor or Oncogene by any act or omission indicates its consent to, approval of or acquiescence in, any such petition, application or proceeding or order for relief or the appointment of a custodian, receiver or any trustee for it or any substantial part of any of its properties, or is the subject of any such custodianship, receivership or trusteeship that continues undischarged for a period of sixty (60) days or more. (d) Sepracor or Oncogene generally fails to pay its debts as such debts become due. (e) In respect of any Party, if a Person acquires (the "Acquisition") shares of such Party (the "Target"), directly or indirectly, which carry the right to cast, in the aggregate, more than 50% of the votes for the election of directors. ARTICLE 9 CONSEQUENCES OF TERMINATION 9.1 LICENSES UPON TERMINATION. Before the expiration of a period of one hundred and twenty (120) days following delivery of a notice pursuant to Section 8.1, either Party (the "ELECTING PARTY") may, by written notice (the "NOTICE") accompanied by a Submitted License (as defined hereinafter) at its option offer to the other Party: (a) to have an exclusive worldwide license for any or all of the Joint Patent Rights or Joint Technology in accordance with the terms and conditions of an agreement to be submitted by the Electing Party to the other Party (the "SUBMITTED LICENSE"); or (b) to grant to the other Party (the "NON-ELECTING PARTY") an exclusive worldwide license for such Joint Patent Rights or Joint Technology in accordance with the Submitted License. The Non-Electing Party shall have the option to either (i) grant to the Electing Party a worldwide exclusive license for such Joint Patent Rights or Joint Technology in accordance with the terms and conditions of the Submitted License, or (ii) to have an exclusive worldwide license for such Joint Patent Rights or Joint Technology in accordance with the terms of the Submitted License. 22 28 Such election may be made by the Non-Electing Party in writing, addressed to the Electing Party (the "ELECTION NOTICE") within ninety (90) days following receipt of the Notice, failing which he shall be deemed to have elected to grant the Electing Party a license upon the terms of the Submitted License. The Parties shall execute a license based on the Submitted License within six (6) months following receipt by the Electing Party of the Election Notice. 9.2 TERMINATION UPON THE OCCURRENCE OF AN EVENT OF TERMINATION. Upon the occurrence of any Event of Termination set forth in Section 8.2 (a) - (d), for a period of sixty (60) days from the date of the occurrence of any Event of Termination, the Parties shall negotiate in good faith to resolve the issue in a mutually agreeable manner, and if the Parties are unable to resolve the issue, then the Party not responsible for such Event of Termination may, by notice to the other Party, terminate this Agreement. In the event of any termination by a Party (the "NOTIFYING PARTY") pursuant to Section 8.2 (a) - (d), all Joint Technology and Joint Patent Rights shall become the sole exclusive property of the Notifying Party, and the other Party shall execute and perform all transfers and assignments to the Notifying Party which are required by law. Upon the occurrence of an Event of Termination set forth in Section 8.2(e), the Party, the shares of which are not being acquired (the "OTHER PARTY"), shall, within sixty (60) days of its knowledge of such Event of Termination, choose one of the following options: (a) Continue the Agreement in full force and effect, in which event the Target shall not be considered to be in default hereunder; (b) Terminate the Agreement and be granted an exclusive license by the Target to all Joint Technology and Joint Patent Rights pursuant to which the Other Party shall pay to the Target royalties on Net Sales made by the Other Party and its Affiliates in the amount of ** of Net Invoiced Sales Value for Commercial Products which were not, at the time of termination, in Full Development or ** of Net Invoiced Sales Value for Commercial Products which were, at the time of termination, in Full Development but for which a Commercialization Agreement is not yet in effect; or (c) Terminate the Agreement and grant an exclusive license to the Target to all Joint Technology and Joint Patent Rights pursuant to which the Target shall pay to the Other Party royalties on Net Sales made by the Target and its Affiliates in the amount of ** of Net Invoiced Sales Value for Commercial Products which were not, at the time of termination, in Full Development or ** of Net Invoiced Sales Value for Commercial Products which were, at the time of termination, in Full Development but for which a Commercialization Agreement is not yet in effect. - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. 23 29 9.3 SURVIVAL OF OBLIGATIONS; RETURN OF CONFIDENTIAL INFORMATION. Notwithstanding any termination of this Agreement, the obligations of the Parties with respect to the protection and nondisclosure of Confidential Information, including those set forth in Article 4, shall survive and continue to be enforceable. Upon any termination of this Agreement, each Party shall promptly return to the other Party all of that other Party's Confidential Information, and all copies thereof. Sepracor and Oncogene acknowledge that after termination of this Agreement each Party will be free to use its own Confidential Information and Technology without restriction. ARTICLE 10 REPRESENTATIONS AND WARRANTIES Each of Sepracor and Oncogene represents and warrants as follows: (a) GOOD STANDING. It is a corporation duly organized, validly existing and is in good standing under the laws of its jurisdiction of incorporation and has all requisite power and authority, corporate or otherwise, to conduct its business as now being conducted, to own, lease and operate its properties and to execute, deliver and perform this Agreement. (b) PROPER AUTHORIZATION. The execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of its stockholders, (ii) violate any provision of any law, rule, regulation, order, writ, judgment, in- junction, decree, determination or award presently in effect having applicability to it or any provision of its charter or by-laws, or (iii) result in a breach of or constitute a default under any material agreement, mortgage, lease, license, permit or other instrument or obligation to which it is a party or by which it or its properties may be bound or affected. (c) BINDING AGREEMENT. This Agreement is a legal, valid and binding obligation of it, enforceable against it in accordance with its terms and conditions, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws, from time to time in effect, affecting creditors' rights generally. (d) ABSENCE OF CONFLICT. It is not under any obligation to any Person, contractual or otherwise, that is conflicting or inconsistent in any respect with the terms of this Agreement or that would impede the diligent and complete fulfillment of its obligations hereunder. (e) TITLE. Each of Sepracor and Oncogene for itself represents it has good and marketable title to or valid leases or licenses for, all of its properties, rights and assets, excluding patent property, to be used in the fulfillment of its 24 30 responsibilities under the Research Program, subject to no claim of any third party other than the relevant lessors or licensors. ARTICLE 11 COVENANTS 11.1 AFFIRMATIVE COVENANTS OTHER THAN REPORTING REQUIREMENTS. Throughout the term of this Agreement, each of Sepracor and Oncogene shall: (a) Comply in all material respects with the requirements of all applicable laws, rules, regulations and orders of any government authority to the extent necessary to conduct the Research Program; (b) Maintain and preserve all of its properties, rights and assets to be used in the proper conduct of the Research Program in good working order and condition in accordance with the general practice of other companies of similar size and character; (c) Conduct all experiments related to the Research Program and maintain all facilities used in connection therewith in accordance with applicable research guidelines, and with all applicable federal, state, and local environmental requirements; (d) Pay to the other Party, if any, any Deficiency Amount determined by the JSC. ARTICLE 12 DISPUTE RESOLUTION Any and all disputes arising between the parties under this Agreement shall be resolved using proceedings in the following order: (i) good faith negotiations between executives of the parties having full authority to negotiate and resolve the dispute; (ii) if such negotiations fail to bring about a resolution within sixty days of notice of the dispute, non-binding mediation at a mutually acceptable location in accordance with the rules of the Center for Public Resources, with costs shared equally; (iii) the procedures of this Article 12 are exclusive; however, nothing in this Article 12 shall preclude either party from taking any action necessary to preclude imminent and irreparable harm. If such mediation fails, the matter of differences shall be determined by arbitration. Arbitration shall be conducted under the Commercial Arbitration Rules of the American Arbitration Association by one (1) person appointed by the Parties or, if the Parties cannot agree within thirty (30) days following notification by one Party that it wishes to refer a matter to arbitration, by such person empowered by the American Arbitration Association to so appoint an arbitrator. Arbitration shall take place in a location agreed to by the Parties, or absent such agreement, chosen by the arbitrator. The decision of the arbitrator shall be final and binding on both Parties. The fees and expenses of the arbitrator shall be borne equally by the Parties. 25 31 ARTICLE 13 NOTICES Any notice, statement, payment or other document required to be given hereunder shall be in writing and shall be given either personally, by mailing the same, postage prepaid, by certified or registered mail (return receipt requested), in the absence of an actual or apprehended disruption of mail service or delivered by telecopier addressed as follows, or to such other Addresses as may be designated from time to time by notice given, in the manner provided in this Article 13. If to Sepracor: Sepracor Inc. 111 Locke Drive Marlborough, Massachusetts 01451 Attention: Chief Executive Officer Telecopier: (508) 460-8118 If to Oncogene: Oncogene Science, Inc. 106 Charles Lindbergh Blvd. Uniondale, New York 11553-3649 Attention: Chief Executive Officer Telecopier: (516) 745-6429 Notices given personally shall be deemed given as of the date delivered. Notices given by telecopier shall be deemed given on the first business day following the date of transmission. Mailed notices shall be deemed given on the fifth business day following the date of such mailing. ARTICLE 14 MISCELLANEOUS 14.1 BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective legal representatives, successors and permitted as- signs. 14.2 HEADINGS. The headings contained in this Agreement are for convenience of reference only and do not form a part of this Agreement, and no construction or inference shall be derived therefrom. 14.3 ENTIRE AGREEMENT. This Agreement and the documents and other agreements referred to herein or signed concurrently herewith set forth the entire agreement and understanding of the Parties. 26 32 14.4 SEVERABILITY. In the event that any provision of this Agreement is held by a court of competent jurisdiction to be unenforceable because it is invalid or in conflict with any law of any relevant jurisdiction, the validity of the remaining provisions shall be construed and enforced as if the Agreement did not contain the particular provisions held to be unenforceable. 14.5 COUNTERPARTS. This Agreement may be executed simultaneously 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. 14.6 AMENDMENT, WAIVER, ETC. This Agreement may be amended, modified, superseded or canceled, and any of the terms hereof may be waived, only by a written instrument executed by each Party hereto or, in the case of waiver, by the Party or Parties waiving compliance. The delay or failure of any Party at any time or times to require performance of any provision hereof shall in no manner affect the rights at a later time to enforce the same. No waiver by any Party of any condition or of the breach of any term contained in this Agreement, whether by conduct or otherwise, in any one or more instance, shall be deemed to be, or construed as, a further or continuing waiver of any such condition or of the breach of such term or any other term of this Agreement. 14.7 FORCE MAJEURE. In the event that either Party is prevented from or is unable to perform any of its obligations under this Agreement due to any act of God, fire, casualty, flood, war, strike, lockout, failure of public utilities, injunction of any act, exercise, assertion or requirement of governmental authority, including any governmental law, order, or regulation permanently or temporarily prohibiting or reducing the level of research and development work hereunder, epidemic, destruction of production facilities, riots, insurrection, inability to procure or use materials, labor, equipment, transportation or energy sufficient to meet experimentation needs, or any other cause beyond the reasonable control of the Party invoking this Article 14 if such Party shall have used its best efforts to avoid such occurrence, such Party shall give notice to the other Party in writing promptly, and thereupon the affected Party's performance shall be excused and the time for performance shall be extended for the period of delay or inability to perform due to such occurrence. 14.8 INDEPENDENT CONTRACTOR. Nothing in this Agreement shall be construed as constituting both Parties as partners or joint venturers with respect to this Agreement. Both Parties are independent contractors under this Agreement. 14.9 ASSIGNMENT AND SUCCESSORS. This Agreement and the rights and interests hereunder may not be assigned by either Party in whole or in part except to an Affiliate, a purchaser of all or substantially all of the assets of a Party or to any successor corporation resulting from any merger or consolidation of either Party with or into such corporation. 27 33 14.10 GOVERNING LAW. This Agreement shall be construed and interpreted in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as a sealed instrument in their names by their properly and duly authorized representatives as of the date first written above. SEPRACOR INC. By: /s/ ---------------------------------------- Date: 3-4-97 -------------------------------------- ONCOGENE SCIENCE, INC. By: /s/ Gary E. Frashier ---------------------------------------- Date: 3-7-97 ---------------------------------------- 28 EX-10.4 5 LICENSE AGREEMENT 1 Portions of this Exhibit 10.4 have been redacted and are the subject of a confidential treatment request filed with the Secretary of the Securities and Exchange Commission. 2 - -------------------------------------------------------------------------------- ONCOGENE SCIENCE, INC. AND THE DOW CHEMICAL COMPANY - -------------------------------------------------------------------------------- LICENSE 3 TABLE OF CONTENTS ARTICLE 1 - DEFINITIONS................................................................................ 2 ARTICLE 2 - GRANT OF LICENSE........................................................................... 6 ARTICLE 3 - COMPOUND TRANSFER.......................................................................... 7 ARTICLE 4 - OSI DEVELOPMENT, OTHER ACTIVITY, DILIGENCE................................................. 9 ARTICLE 5 - PATENT RIGHTS.............................................................................. 10 ARTICLE 6 - PAYMENTS AND ROYALTIES..................................................................... 12 ARTICLE 7 - CONFIDENTIALITY............................................................................ 20 ARTICLE 8 - THIRD PARTY INFRINGEMENT CLAIMS............................................................ 23 ARTICLE 9 - PATENT ENFORCEMENT LITIGATION.............................................................. 24 ARTICLE 10 - U.S. EXPORT CONTROL AND GOVERNMENT LICENSES............................................... 25 ARTICLE 11 - PRODUCT LIABILITY AND INDEMNIFICATION..................................................... 26 ARTICLE 12 - WARRANTY, DISCLAIMER, GUARANTEE........................................................... 27 ARTICLE 13 - TERM AND TERMINATION...................................................................... 28 ARTICLE 14 - FORCE MAJEURE............................................................................. 30 ARTICLE 15 - CONSENTS.................................................................................. 31 ARTICLE 16 - NOTICES................................................................................... 31 ARTICLE 17 - DISPUTE RESOLUTION........................................................................ 33 ARTICLE 18 - ASSIGNMENT................................................................................ 34 ARTICLE 19 - MISCELLANEOUS PROVISIONS.................................................................. 34 EXHIBIT A - DowElanco/OSI Provisions EXHIBIT B - Dow Patents EXHIBIT C - OSI Patents EXHIBIT D - Joint Patents EXHIBIT E - Letter of Intent EXHIBIT F - Private Placement Investment Representations
4 LICENSE AGREEMENT THIS license agreement (hereinafter "License") is made between THE DOW CHEMICAL COMPANY (hereinafter "DOW"), a corporation duly formed and existing under the laws of the State of Delaware, having a place of business at 2030 Dow Center, Midland, Michigan 48674, United States of America, and Oncogene Science, Inc. (hereinafter "OSI"), a corporation duly formed and existing under the laws of Delaware having a place of business at 106 Charles Lindbergh Blvd., Uniondale, NY 11553; WITNESSETH: WHEREAS, DOW possess an extensive compound library, including their structures and other data; and WHEREAS, DOW has proprietary rights in the compounds; and WHEREAS, OSI desires to undertake the further evaluation of these compounds and, if any compounds are found to be active in the pharmaceutical area, then appropriate development and commercial exploitation of said compounds; and WHEREAS, OSI desires to obtain an exclusive, global license to these compounds for specific pharmaceutical uses; and WHEREAS, DOW is willing to grant said license. NOW, THEREFORE, DOW and OSI, in consideration of the mutual covenants contained herein, agree as follows: 5 ARTICLE 1 - DEFINITIONS When used in this License, the following terms shall have the meanings set out below, unless the context requires otherwise. The singular shall be interpreted as including the plural and vice versa, unless the context clearly indicates otherwise. 1.1 "AFFILIATE" means a corporation or any other entity that at any time during the term of this License directly or indirectly through one or more intermediaries is CONTROLLED by the designated Party, but only for so long as the relationship exists. A corporation or other entity shall no longer be an AFFILIATE when through loss, divestment, dilution or other reduction of a Party's ownership, the Party loses CONTROL of such corporation or other entity. 1.2 "APPROVAL" means final approval by a REGULATORY AUTHORITY in any country where applicable in the TERRITORY, for commercial marketing of PRODUCT, including for example approval of final labeling and price approval. 1.3 "COMPOUNDS" means DOW's K-list of compounds, including samples thereof, including simple modifications appropriate to either a pro-drug form of the active compound or as the active compound [e.g., changing its charge by forming an anionic, neutral, or cationic form, or simple amide or ester form, or solubility (such as its salt form), or pH characteristics, or its bifunctional coordinate (e.g., isothiocyanate or carboxylate) but excluding modifications which lead to novel compounds with enhanced biological activity] and all chemical structures thereof in data base format, in the physical possession of DowElanco, which total at least 140,000, which included in that total are any COMPOUNDS or COMPOUND DERIVATIVES in OSI's possession prior to the EFFECTIVE DATE (except for any COMPOUNDS that may later be found to belong to a third party which are deemed ab initio excluded from this License), and may be further defined as follows: 1.3.1 "CATEGORY 1 COMPOUNDS" means COMPOUNDS which are within the scope of the claims of a DOW composition, formulation or method of use PATENT which has issued or issues during the term of this License. 1.3.2 "CATEGORY 2 COMPOUNDS" means COMPOUND DERIVATIVES made by OSI based upon CATEGORY 1 COMPOUNDS. 1.3.3 "CATEGORY 3 COMPOUNDS" means COMPOUNDS that are known to the public (within the meaning of patent laws), but with respect to which rights may belong to a third party, and which are not within CATEGORY 1 COMPOUNDS. 2 6 1.3.4 "CATEGORY 4 COMPOUNDS" means COMPOUNDS that are unknown to the public (within the meaning of patent laws), and which are not within CATEGORY 1 COMPOUNDS. 1.3.5 "CATEGORY 5 COMPOUNDS" means COMPOUND DERIVATIVES made by OSI based upon CATEGORY 4 COMPOUNDS. 1.4 "COMPOUND DERIVATIVES" means COMPOUNDS that have been physically modified by OSI, CONTRACTUAL COLLABORATORS or sublicensees in a manner other than by simple modifications appropriate to either a pro-drug form of the active compound or as the active compound from the sample supplied by DOW. 1.5 "CONFIDENTIAL INFORMATION" means any information of either Party regarding PATENTS, MANUFACTURE, TECHNOLOGY or PRODUCT, financial terms of this License, and business development plans for a PRODUCT, and does not include information excluded under Article 7.2. 1.6 "CONTRACTUAL COLLABORATORS" means a corporation or other entity with which OSI collaborates in the FIELD. 1.7 "CONTROL" or "CONTROLLED" shall mean, in the case of a corporation, ownership or control, directly or indirectly, of more than fifty percent (50%) of the shares of stock entitled to vote for the election of directors and, in the case of an entity other than a corporation, ownership or control, directly or indirectly, of more than 50% of the assets or the ability in the case of either a corporate or non-corporate entity to direct the management and affairs of such entity. 1.8 "DowElanco" means a partnership organized under the laws of the State of Indiana and is an AFFILIATE of DOW as of the EFFECTIVE DATE. 1.9 "EFFECTIVE DATE" means the date of the last signature of the Parties to this License. 1.10 "FDA" means the United States Food and Drug Administration or any successor U.S. governmental agency performing similar functions. 1.11 "FIELD" means the use in humans of the COMPOUNDS or COMPOUND DERIVATIVES by or on behalf of OSI for the development of small molecular weight compounds as HUMAN THERAPEUTIC PRODUCTS or HUMAN COSMECEUTICAL PRODUCTS. Notwithstanding the above, this FIELD shall NOT include any agricultural uses as defined by the expected agreement between DowElanco and OSI and that definition will be attached hereto promptly after execution of that agreement and made a part hereof in APPENDIX A. 3 7 1.12 "GMPs" means the Good Manufacturing Practices as defined from time to time in the United States Food, Drug and Cosmetics Act and related regulations or any successor laws or regulations governing the manufacture of the PRODUCT in the United States. 1.13 "HUMAN COSMECEUTICAL PRODUCTS" means any prescription product or any product sold under a governmental approval containing COMPOUNDS or COMPOUND DERIVATIVES for the treatment or management of any cosmetic condition in a human, excluding use as a diagnostic agent, derived from research conducted by or for OSI. 1.14 "HUMAN THERAPEUTIC PRODUCTS" means any PRODUCT containing one or more COMPOUNDS or COMPOUND DERIVATIVES for the treatment or management of any disease state in a human patient, excluding use as a diagnostic agent, derived from research conducted by or for OSI. 1.15 "LETTER OF INTENT" means a letter of intent between DOW and OSI, effective December 16, 1996, relevant to this License for COMPOUNDS, a copy is attached hereto for reference as APPENDIX E. 1.16 "MANUFACTURE" means a process to make a COMPOUND or a COMPOUND DERIVATIVE as a component for a PRODUCT, or as components intended for a PRODUCT (e.g., any type of PRODUCT or COMPOUND or COMPOUND DERIVATIVE) or instructions for preparing a PRODUCT. 1.17 "NET SALES" shall mean the amount invoiced on sales of PRODUCT by OSI and its AFFILIATES to a THIRD PARTY, less the following deductions to the extent included in the amounts invoiced: (i) trade, cash or quantity discounts actually allowed (including those granted under contractual arrangements with HMOs and similar organizations), granted from the invoiced amount and taken; and (ii) amounts repaid or credited by reason of rejections, defects or returns or because of retroactive price reductions; and (iii) insurance, shipping and handling, if included in the amount invoiced; and (iv) rebates paid pursuant to government regulations; and (v) taxes or governmental charges for export/import fees in the TERRITORY on the sales of PRODUCT to said THIRD PARTY, if included in said invoiced amount, whether denominated as value added 4 8 taxes, sales taxes, or excise taxes, to the extent included in said invoiced amount. NET SALES shall not include sales between or among OSI and its AFFILIATES. 1.18 "PATENTS" means all patent applications and patents, together with any continuations, divisions, reissues, registrations, confirmations, patents-of-addition, and extensions of the foregoing, which claims cover the process or MANUFACTURE, use or sale of COMPOUND, COMPOUND DERIVATIVE or PRODUCT in the TERRITORY. 1.18.1 "DOW PATENTS" means PATENTS in the FIELD which are owned, licensed or controlled by DOW or which become owned, licensed or controlled by DOW during the life of this License and shall be listed in APPENDIX B, which shall be reviewed and updated annually upon identification of a PRODUCT by OSI, to be attached hereto and made a part hereof. 1.18.2 "OSI PATENTS" means PATENTS in the FIELD which are owned, licensed or controlled by OSI or which become owned, licensed or controlled by OSI during the life of this License and shall be listed in APPENDIX C, which shall be reviewed and updated annually upon identification of a PRODUCT by OSI, to be attached hereto and made a part hereof. 1.18.3 "JOINT PATENTS" means those PATENTS in the FIELD which are jointly owned by both DOW and OSI and shall be listed in APPENDIX D, which shall be reviewed and updated annually upon identification of a PRODUCT by OSI, to be attached hereto and made a part hereof. 1.19 "PRODUCT" means a COMPOUND or COMPOUND DERIVATIVE, its composition or formulation, in either its bulk form or in its finished dosage form, for use in the FIELD. 1.20 "REGULATORY AUTHORITY" means the agency corresponding to the FDA of each country in the TERRITORY. 1.21 "SAMPLING PERIOD" means eighteen (18) months from the EFFECTIVE DATE. 1.22 "TECHNOLOGY" means data for a lead COMPOUND (which has been identified in writing by OSI to DOW), including for example toxicity, physical properties, and process to make them. 1.23 "TERRITORY" means the world. 5 9 1.24 "THIRD PARTY" means anyone, other than OSI, OSI's AFFILIATES or OSI's CONTRACTUAL COLLABORATORS. Thus THIRD PARTY includes, without limitation, physicians, hospitals, clinics, hospice facilities, patients, distributors, marketing or distribution partners, and sublicensees. ARTICLE 2 - GRANT OF LICENSE 2.1 Grant of License - DOW hereby grants to OSI, and OSI hereby accepts: 2.1.1 an EXCLUSIVE license to use the COMPOUNDS to make, have made, use, evaluate, screen, sell and have sold PRODUCT in the TERRITORY for use in the FIELD, and an exclusive license under the PATENTS when listed in APPENDICES B and D to make, have made, use, evaluate, screen, sell and have sold PRODUCT in the TERRITORY for use in the FIELD; this License being fully exclusive, to the exclusion of DOW and its AFFILIATES, but subject to Article 2.3, and effective for the duration of this License; and 2.1.2 an EXCLUSIVE license to use the COMPOUND DERIVATIVES to make or have made, use, evaluate, screen, sell and have sold in the TERRITORY for use in the FIELD and an exclusive license under the PATENTS when listed in APPENDIX D to make or have made, use, evaluate, screen, sell and have sold PRODUCT in the TERRITORY for use in the FIELD; and 2.1.3 subject to a right of first for refusal to DOW under Article 2.4, a NON-EXCLUSIVE right to MANUFACTURE for use in the FIELD in the TERRITORY; and 2.1.4 a NON-EXCLUSIVE license for TECHNOLOGY, after a lead COMPOUND has been designated to DOW in writing by OSI and DOW has obtained any required internal technology release, but only if the TECHNOLOGY is available to DOW and requested in writing by OSI, necessary to MANUFACTURE PRODUCT for use in the FIELD in the TERRITORY. 2.2 Sublicensing - The exclusive licenses under Article 2.1.1 and 2.1.2 to OSI include the right to sublicense third parties and CONTRACTUAL COLLABORATORS, whether or not AFFILIATES of OSI, including the right to enter into distributor contracts. OSI will make and will be responsible for all payments to DOW as a result of all activities and sales of PRODUCT in the FIELD in the TERRITORY by such sublicensee, CONTRACTUAL COLLABORATORS and AFFILIATES. OSI will also be responsible for the observance by all sublicensees, CONTRACTUAL COLLABORATORS and AFFILIATES of all applicable provisions of this License, and will use its reasonable, good faith efforts to cause all sublicensees to observe the covenants in this License (i.e., regarding confidentiality, maintenance of records and reporting of NET SALES and royalty payments, and exchanges of information). All 6 10 such sublicenses shall be in writing. In the event that OSI cannot or refuses to enforce its sublicense provisions, then DOW shall have the right to enforce any such provisions for its own benefit. 2.3 Reservations and Grant Back - DOW reserves for itself and its AFFILIATES the exclusive right to make, have made, use, sell, have sold, export/import and license COMPOUNDS or PRODUCTS for use OUTSIDE the FIELD in the TERRITORY, including the right to use the PATENTS listed in APPENDICES B through D. OSI is aware that DowElanco may sell COMPOUNDS for agricultural uses as defined in APPENDIX A under this reservation. 2.4 Right of First Refusal to DOW - In the event that a COMPOUND or COMPOUND DERIVATIVE is to be commercialized using a DOW commercial or developed process in its manufacture and a manufacturing partner is desired by OSI, other than a CONTRACTUAL COLLABORATOR, DOW is hereby granted a right of first refusal to MANUFACTURE. It is understood that DOW is not hereby obligated to MANUFACTURE. If DOW does MANUFACTURE, then DOW agrees not to make PRODUCT for the FIELD for anyone other than for or on behalf of OSI, and OSI and DOW shall negotiate the terms of such agreement for MANUFACTURE using their good faith efforts. 2.5 TECHNOLOGY - If DOW does not exercise its right to MANUFACTURE under Article 2.4, then at DOW's option either DOW shall (a) (i) negotiate a license with OSI or its manufacturer using good faith efforts or (ii) hold OSI harmless or (b) permit OSI to MANUFACTURE using processes of its choice (i.e., other than those proprietary to DOW) but without any hold harmless guarantee. ARTICLE 3 - COMPOUND TRANSFER 3.1 DOW Obligations - DOW or its designee (e.g., DowElanco) shall provide to OSI over the SAMPLING PERIOD at least a 5 mg sample of each COMPOUND and its structure, including a new supply of the approximately 50,000 COMPOUNDS previously received by OSI. If less than 5 mg are available of a given COMPOUND, then 2 mg are to be supplied and the reduced amount noted with the shipment. DowElanco and OSI shall mutually agree as to the timing of the shipment of these samples of COMPOUNDS. As of the date of the LETTER OF INTENT, DOW estimates that at least 140,000 COMPOUNDS are available to OSI. On COMPOUNDS which become active leads for the FIELD (as identified to DOW in writing by OSI), DOW shall share with OSI, to the extent legally possible and acceptable to DOW for its release and readily available, its TECHNOLOGY on any lead COMPOUND and other relevant information, but in accord with DOW's policy and right to MANUFACTURE under Article 2.4. Which COMPOUNDS are supplied to OSI of the approximately 140,000 COMPOUNDS is solely at the discretion of 7 11 DOW, but is intended to include all COMPOUNDS that meet appropriate quantity, integrity of sample and structure, and ownership criteria. 3.2 Sample of COMPOUNDS Costs - DOW agrees to supply each available COMPOUND that has reasonable sample integrity as determined by DOW (or DowElanco) and as further mentioned in Article 3.1. OSI shall pay DOW ** Dollars for each sample, payable to DOW within thirty (30) days of invoice for the shipped samples. If a further sample of 5 mg or less is desired by OSI, then, if available in inventory without depletion of that inventory (meaning at least 10 mg of the sample COMPOUND must be retained in the inventory), then the sample shall be provided and that cost shall also be ** per sample, paid to DOW. If re-supply of the sample is necessary or the quantity desired of the sample is greater than 5 mg, then refer to Article 3.3. 3.3 COMPOUND Re-Supply - If OSI desires more quantity of a given sample COMPOUND from DOW than provided in the initial sampling under Article 3.2, then OSI shall consult with DOW with respect to the re-supply of that COMPOUND, indicating the quantity required in writing. DOW shall provide a written estimate of the cost to supply that amount of COMPOUND and, if mutually agreeable, that cost shall be paid to DOW within thirty (30) days from the receipt of invoice by OSI after OSI's receipt of the sample. If OSI desires to make additional COMPOUND in non-commercial quantities, not using GMP procedures, without using any DOW process TECHNOLOGY, then OSI may do so. OSI can request the synthetic route to make additional COMPOUND, and DOW may elect to supply or not supply such synthetic route at DOW's sole discretion. 3.4 DowElanco Requirements - DOW shall receive a copy of the signed agreement between DowElanco and OSI regarding the rights to receipt by DowElanco of about 140,000 extracts from OSI for agrochemical purposes (attached hereto as part of APPENDIX A). If APPENDIX A is not received by DOW by July 1, 1997, the sample costs stated in Article 3.2 shall change from ** per sample to ** per sample. DOW shall invoice any cost difference for COMPOUND samples received by OSI by July 1, 1997, whereupon the cost is fixed for further invoice of samples. 3.5 Control of COMPOUNDS - OSI shall maintain sole physical control of the COMPOUNDS and COMPOUND DERIVATIVES. However, OSI may have PRODUCT sent to THIRD PARTIES for usual trials and testing under an appropriate agreement which includes confidentiality. 3.6 Prior samples of COMPOUNDS - OSI, as of the date of the LETTER OF INTENT, has small microtiter plates of about 50,000 COMPOUNDS in its possession. DOW - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. 8 12 represents that those COMPOUNDS are DOW's property and form a portion of the total number COMPOUNDS to be supplied under Article 3.1. Any information obtained by OSI's prior evaluation of these COMPOUNDS is subject to the terms of this License. ARTICLE 4 - OSI DEVELOPMENT, OTHER ACTIVITY, DILIGENCE 4.1 Development and Marketing Efforts for PRODUCT - OSI shall use commercially reasonable, good faith efforts to carry out developmental work on COMPOUNDS, COMPOUND DERIVATIVES and PRODUCTS as it believes necessary and to file or cause others to file applications with the REGULATORY AUTHORITIES as OSI deems necessary to enable commercialization of PRODUCTS. For purposes of this License, "commercially reasonable, good faith efforts" shall mean efforts reasonably consistent with those efforts used by OSI with regard to its developmental work and commercial activities for its own products, on an overall basis, deemed to have similar commercial potential, consistent with its business, research and development practices, and applicable legal and regulatory requirements. For OSI to have been deemed by DOW to have used their commercially reasonable, good faith efforts, DOW expects that in the TERRITORY OSI should: 4.1.1 Employ the COMPOUNDS and COMPOUND DERIVATIVES in current and future OSI proprietary drug discovery programs to the extent that OSI's CONTRACTUAL COLLABORATORS permit it to do so; 4.1.2 Make the COMPOUNDS and COMPOUND DERIVATIVES available to existing OSI pharmaceutical partners as sublicensees; and 4.1.3 Include the COMPOUNDS and COMPOUND DERIVATIVES as part of OSI's portfolio of technology available to new pharmaceutical partners as sublicensees. 4.2 Research Progress - OSI shall keep DOW informed of its PRODUCT discovery efforts for commercialization of COMPOUNDS or COMPOUND DERIVATIVES or PRODUCTS that show interest for use in the FIELD and develop as active leads (not later than with the quarterly reports in Articles 4.3 and 6.5). 4.3 Reports by OSI - Subject to Article 4.4, OSI shall report to DOW orally on a calendar quarterly basis (such as by a meeting of respective personnel) and annually in January on a written basis of the results obtained on its use of the COMPOUNDS and COMPOUND DERIVATIVES, including but not limited to: the utility of a possible PRODUCT, lead COMPOUNDS and COMPOUND DERIVATIVES, and the classification under Article 1.3 by CATEGORY of such possible PRODUCT (which such classification shall be binding unless objected to by DOW in writing within sixty (60) days from the date of the report); estimated market size in the TERRITORY 9 13 when developed; possible partners; and the identity of any sublicensee. If any COMPOUND or COMPOUND DERIVATIVE has been submitted for APPROVAL to a REGULATORY AUTHORITY or is APPROVED, DOW shall be notified immediately, and OSI shall not wait until the required quarterly report to so notify DOW. 4.4 Restricted Information - Neither Party shall be obligated to disclose to the other any information that it is contractually or legally prohibited from disclosing to the other. In the event such a restriction applies, the affected Party will notify the other Party, and the Parties will use their good faith efforts, including obtaining necessary consents or permits, to accomplish disclosure of such information by consent or lawful means. 4.5 Clinical and Preclinical Studies - OSI shall use its commercially reasonable efforts to carry out such further studies of COMPOUNDS, COMPOUND DERIVATIVES and PRODUCTS as it deems necessary or advisable to develop a PRODUCT and in order to file such forms for APPROVAL with the REGULATORY AUTHORITIES for commercialization in the TERRITORY. 4.6 OSI Responsibility - As between DOW and OSI, OSI shall be solely responsible for the planning, design, expense and execution of all its developmental work and commercialization with COMPOUNDS, COMPOUND DERIVATIVES and PRODUCTS for the TERRITORY after the EFFECTIVE DATE. 4.7 Regulatory Costs - After the EFFECTIVE DATE all regulatory costs for APPROVALS in the TERRITORY shall be borne by OSI. 4.8 Failure to Attain APPROVAL - If OSI fails to have any COMPOUND, COMPOUND DERIVATIVE or PRODUCT attain APPROVAL (OSI and DOW are aware that these COMPOUNDS are unknown for activity in the FIELD), then both DOW and OSI accept the risk under this License that such a result could occur. The provisions of Article 13 shall apply, particularly Article 13.2. 4.9 Future Research - Upon the EFFECTIVE DATE, OSI agrees that any research conducted by DOW or its AFFILIATES on COMPOUNDS for use OUTSIDE the FIELD need not be reported to OSI. Only if OSI requests that DOW make a specific COMPOUND or COMPOUND DERIVATIVE, at OSI's expense and DOW agrees, would that COMPOUND or COMPOUND DERIVATIVE then be included within the terms of this License. ARTICLE 5 - PATENT RIGHTS 5.1 DOW to Maintain DOW PATENTS - DOW shall be responsible at its own cost and expense for prosecuting the patent applications in PATENTS listed in APPENDIX B and 10 14 for maintaining and extending the PATENTS listed on APPENDIX B. DOW shall use good faith efforts to prosecute, issue and maintain all PATENTS in APPENDIX B. DOW shall identify any PATENTS to be listed on APPENDIX B when OSI identifies to DOW a lead COMPOUND or COMPOUND DERIVATIVE. 5.2 OSI to Assist DOW in extension or restoration of PATENTS listed in APPENDIX B - Although DOW shall be responsible for extension or restoration of PATENTS listed on APPENDIX B, OSI agrees to provide DOW with reasonably requested records, information and assistance to achieve, where possible, the extension or restoration of any PATENTS in the TERRITORY. 5.3 Notice of Patent Lapse - DOW shall advise OSI of the grant, lapse, nullification, revocation, surrender, or invalidation of any of the PATENTS at the annual update of the PATENT listing for APPENDIX B. 5.4 JOINT PATENTS - In those instances where joint inventions between DOW and OSI (or its AFFILIATE or sublicensee) result in a patentable invention [e.g., where a COMPOUND or COMPOUND DERIVATIVE has not been previously published and OSI (or its AFFILIATE or sublicensee) has discovered a new utility such that, for example, both compound and use claims are possible], then DOW and OSI shall mutually determine, using their good faith efforts, whether DOW or OSI shall file a patent application, whether the patent application has joint ownership and joint claim structure, and which Party should prosecute the patent application and pay the annuities. Such PATENTS shall be listed on APPENDIX D. If DOW has responsibility for the joint PATENTS, then Articles 5.1, 5.2 and 5.3 shall also pertain to any PATENTS listed on APPENDIX D. Thus OSI shall have rights to such joint PATENTS for use in the FIELD provided OSI or its AFFILIATE is one of the joint owners; however, if the other joint owner is a sublicensee, then only DOW's rights are granted to OSI under Article 2.1.2. 5.5 Hold Harmless for OSI's MANUFACTURE - Without limiting the royalty obligations provided in this License, if OSI or CONTRACTUAL COLLABORATOR MANUFACTURES, then DOW grants OSI or CONTRACTUAL COLLABORATOR an immunity from suit by DOW for the grant under Article 2 under DOW PATENTS. 5.6 OSI to Maintain OSI's PATENTS - OSI shall be responsible at its own cost and expense for prosecuting the patent applications in PATENTS listed in APPENDIX C and for maintaining and extending the PATENTS listed on APPENDIX C. OSI shall use good faith efforts to prosecute, issue and maintain all PATENTS in APPENDIX C. OSI shall identify any PATENTS to be listed on APPENDIX C when DOW identifies in writing to OSI a lead COMPOUND for use OUTSIDE the FIELD. 11 15 ARTICLE 6 - PAYMENTS AND ROYALTIES 6.1 Initial Payment - OSI shall pay to DOW, within ten (10) days from the EFFECTIVE DATE, ** Dollars paid in OSI common stock with the number of shares owed computed from a ** . (Number of shares equals 352,162 at a computed average price of ** per share.) 6.1.1 Upon DOW's request, OSI will (as long as it is a public reporting company), as promptly as reasonably possible, exercise its best efforts to cause the registration under the Securities Act of 1933, as amended (the "Securities Act"), of the shares of common stock delivered to DOW hereunder (the "Shares") for disposition in accordance with DOW's intended method of disposition stated in DOW's request. DOW may request, and OSI shall undertake, a maximum of two registrations pursuant to this Article 6.1.1. 6.1.2 If OSI at any time within 6 years after the EFFECTIVE DATE proposes to register any of its securities under the Securities Act for the purpose of an underwritten public offering by OSI of its common stock for cash, it will at each such time give written notice to DOW of its intention to do so. Upon DOW's request, given within 20 days after receipt of such notice, if OSI does in fact register any of its securities, OSI will use its best efforts to cause the Shares which OSI has been requested to register by DOW to be included in such registration for the purpose of sale by DOW in such public offering of the Shares so registered. The foregoing obligations of OSI pursuant to this Article 6.1.2 shall be subject to the reasonable restrictions and requirements imposed by the underwriters in their sole discretion solely for the purposes of ensuring the success of the public offering and provided that DOW accepts the terms of the underwriting agreement between OSI and the underwriters to the extent OSI accepts such terms. 6.1.3 If and whenever OSI is obligated or required to use its best efforts by the provisions of Article 6.1.1, to effect registration of any Shares under the Securities Act, as expeditiously as possible OSI will use its best efforts to: (1) prepare and file with the Securities and Exchange Commission (the "Commission") a registration statement with respect to such Shares and cause such registration statement to become and remain effective, provided, that the OSI shall not be required to keep such registration statement effective, or to prepare and file any amendments or - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. 12 16 supplements thereto, later than 180 days after the date on which such registration statement becomes effective under the Securities Act; and (2) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provision of the Securities Act with respect to the disposition of all Shares covered by such registration statement, subject, however, to the proviso contained in the immediately preceding Article 6.1.3, clause (1). 6.1.4 If and whenever OSI is obligated to use its best efforts under Article 6.1.1 or 6.1.2 to effect registration of any Shares under the Securities Act, OSI will use its best efforts to: (1) furnish to DOW such numbers of copies of a prospectus, including, if applicable, a preliminary prospectus, in conformity with the requirements of the Securities Act as DOW may reasonably request in order to facilitate the disposition of such Shares; and (2) register or qualify the Shares covered by such registration statement under such other securities or blue sky laws of such jurisdictions in the United States as DOW shall reasonably request to enable DOW to consummate the disposition in such jurisdictions in the United States of such Shares; and (3) furnish to DOW at the time of the disposition of Shares by DOW an opinion of counsel for OSI to the effect that the registration statement covering such Shares has been filed with the Commission under the Securities Act and has been made effective by order of the Commission, that a prospectus meeting the requirements of the Securities Act is available for delivery, that no stop order has been issued by the Commission suspending the effectiveness of such registration statement and that, to the best of such counsel's knowledge, no proceedings for the issuance of such a stop order are threatened or contemplated; and (4) furnish to DOW at the time of the disposition of Shares by DOW a Blue Sky Memorandum prepared by counsel to OSI (or, is applicable, counsel to the underwriters) to the effect that the applicable provisions of the securities or blue sky law of each state in which the Company shall be required, pursuant to clause (4) of Article 6.1.3 to register or qualify such Shares, have been complied with or that compliance therewith is not necessary by virtue of US federal law. 13 17 6.1.5 For any registration of Shares under the Securities Act pursuant to this Article 6.1, OSI shall pay all expenses incurred by it in complying with this Article 6.1 and DOW in connection therewith (including without limitation all registration and filing fees, printing expenses, fees and disbursements of counsel for OSI and expenses of any special audits incident to or required by any such registration), but excluding underwriting discounts and commissions, if any, associated with the Shares sold by DOW and fees and disbursements of counsel to DOW. In connection with any underwritten public offering of OSI's common stock, if requested by OSI or an underwriter of such offering, DOW will agree not to sell or otherwise transfer or dispose of any common stock or other securities of OSI (other than such securities included on DOW's behalf in such offering) for a period of up to 180 days following the effective date of the registration statement related to such offering (the "Lock-up"), provided that OSI and all other shareholders of OSI owning 5% or more of OSI common stock agree to Lock-up agreements identical to that to which DOW agrees. In addition, DOW agrees not to sell the OSI stock received hereunder for six months from the EFFECTIVE DATE (the "Stand Still"). However, notwithstanding this Lock-up and Stand Still, if OSI is merged with or acquired by another entity such that the control (50% or more) of the management of OSI is no longer solely that of OSI, then DOW may sell or tender this stock at any time in accord with applicable securities laws. 6.1.6 In the event of any registration under the Securities Act of any Shares pursuant to this Article 6.1, to the extent permitted by law, OSI hereby agrees to indemnify and hold harmless DOW and each other person, if any, who controls DOW within the meaning of the Securities Act and each underwriter and any controlling person of any such underwriter against any losses, claims, damages, or liabilities, joint or several, to which DOW or any underwriter or such controlling person may become subject under the Securities Act or otherwise, in so far as such losses, claims, damages or, liabilities (or proceedings in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which such Shares were registered under the Securities Act, in any preliminary prospectus or final prospectus contained therein, or in any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of such prospectus, in the light of circumstances under which they were made) not misleading, and will reimburse DOW and each underwriter and each such controlling person for any legal or any other expenses reasonably incurred by DOW or any underwriter or any such controlling person in connection with investigating or defending any such loss, claim, damage, liability or proceeding, provided, OSI will not be liable in any such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon an untrue 14 18 statement or alleged untrue statement or omission or alleged omission made in such registration statement, said preliminary or final prospectus or said amendment or supplement in reliance upon and in conformity with written information furnished to OSI by DOW or such controlling or participating person, as the case may be, specifically for use in the preparation of such registration statement; provided, however, that the indemnity agreement contained in this Article 6.1.6 shall not apply to amounts paid in settlement of any such loss, claim, damage or liability if such settlement is effected without the consent of OSI, which consent shall not be unreasonably withheld. 6.1.7 In the event of any registration under the Securities Act of any Shares pursuant to this Article 6.1, to the extent permitted by law, DOW agrees to indemnify and hold harmless OSI and each other person, if any, who controls OSI within the meaning of the Securities Act and each underwriter and any controlling person of any such underwriter against any losses, claims, damages, or liabilities, joint or several, to which OSI or controlling person thereof or such underwriter or controlling person thereof may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or proceedings in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which such Shares were registered under the Securities Act, in any preliminary prospectus or final prospectus contained therein, or in any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of any such prospectus, in light of the circumstances under which they were made) not misleading, and will reimburse OSI and each controlling person thereof and any underwriter and any controlling person thereof for any legal or any other expenses reasonably incurred by OSI or any controlling person thereof or any underwriter and any controlling person thereof in connection with investigating or defending any such loss, claim, damage, liability or proceeding; provided, however, that DOW's obligation with respect to such indemnification (and hold harmless undertaking) will exist only to the extent any such misstatement or omission occurs in reliance upon and in conformity with written information furnished by DOW expressly for use in connection with such registration; and provided further that the indemnity agreement contained in this Article 6.1.7 shall not apply to amounts paid in settlement of any such loss, claim, damage or liability if such settlement is effected without the consent of DOW, which consent shall not be unreasonably withheld. 6.1.8 Upon the effectiveness of any registration statement filed pursuant to this Article 6.1, OSI will, in good faith, cooperate with DOW in connection with the disposition by DOW of the Shares by providing instructions to OSI's 15 19 counsel and OSI's transfer agent promptly to take the necessary actions within their control (e.g., in the case of counsel, delivering an opinion to the transfer agent regarding the registration and transferability of the Shares) to permit DOW to dispose of the Shares in accordance with DOW's intended disposition thereof. Further, to the extent consistent with applicable law and regulation, upon demand of DOW and DOW's delivery to OSI of the certificate or certificates representing the Shares, OSI will cause its transfer agent to deliver to DOW a new certificate or certificates representing the Shares, but not bearing any restrictive legend. 6.1.9 If at any time of DOW's request for registration of Shares under such Article, counsel for OSI provides an opinion to OSI and DOW that DOW may lawfully sell the Shares on the public market without restriction in the absence of such registration (e.g. pursuant to Rule 144 under the Securities Act), DOW will give due consideration to such advice with a view toward not requiring such registration, provided that DOW will not be required to pursue such sale without registration if DOW, in its sole discretion, determines that such sale without registration may (a) result in DOW obtaining a lower price for the Shares, (b) require DOW to qualify to do business or consent to service of process in any jurisdiction, or (c) not result in the broadest distribution of the Shares possible. 6.1.10 DOW hereby makes the representations and warranties set forth in APPENDIX F as attached hereto and made a part hereof. 6.1.11 This payment shall not be creditable against any other payments and is non-refundable. 6.2 Payment for License under PATENTS - OSI will pay DOW royalties as follows: 6.2.1 If OSI directly markets a PRODUCT, then OSI shall pay DOW royalties on NET SALES of PRODUCT based on the specified categories as follows: - CATEGORY 1 COMPOUNDS - ** percent; - CATEGORY 2 COMPOUNDS - ** percent; - CATEGORY 3 COMPOUNDS - ** percent; - CATEGORY 4 COMPOUNDS, where DOW is responsible for JOINT PATENTS - ** percent; and where OSI is responsible for JOINT PATENTS - ** percent; and - CATEGORY 5 COMPOUNDS - ** . - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. 16 20 6.2.2 If OSI participates in a venture or any type of collaboration with a CONTRACTUAL COLLABORATOR which includes COMPOUNDS, COMPOUND DERIVATIVES or PRODUCT in which OSI receives a payment, then OSI shall pay DOW the following amounts based on the specified categories as follows: - CATEGORY 1 COMPOUNDS - ** percent of the amount received by OSI; - CATEGORY 2 COMPOUNDS - ** percent of the amount received by OSI; - CATEGORY 3 COMPOUNDS - ** percent due; - CATEGORY 4 COMPOUNDS, where DOW is responsible for JOINT PATENTS - ** percent of the amount received by OSI: and where OSI is responsible for JOINT PATENTS - ** percent of the amount received by OSI; and - CATEGORY 5 COMPOUNDS - ** percent of the amount received by OSI; provided, however, that in no case shall the amounts set forth above exceed the amounts to which DOW would have otherwise been entitled pursuant to Article 6.2.1 had OSI directly marketed the PRODUCTS. 6.2.3 If OSI sublicenses the COMPOUNDS or COMPOUND DERIVATIVES or PRODUCTS to a THIRD PARTY, then OSI shall pay DOW the following amounts based on the specified categories: - CATEGORY 1 COMPOUNDS - ** percent of the amount received by OSI; - CATEGORY 2 COMPOUNDS - ** percent of the amount received by OSI; - CATEGORY 3 COMPOUNDS - ** percent due; - CATEGORY 4 COMPOUNDS, where DOW is responsible for JOINT PATENTS - ** percent of the amount received by OSI; and where OSI is responsible for JOINT PATENTS - ** percent of the amount received by OSI; and - CATEGORY 5 COMPOUNDS - ** percent of the amount received by OSI; provided, however, that in no case shall the amounts set forth above exceed the amounts to which DOW would have otherwise been entitled pursuant to Article 6.2.1 had OSI directly marketed the PRODUCTS. - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. 17 21 6.2.4 The Parties will negotiate in good faith an appropriate compensation arrangement in the event that PRODUCTS are sold directly or indirectly by OSI or if OSI is otherwise recompensed in a manner other than as described as ARTICLE 6.2.1, 6.2.2 or 6.2.3. Additionally, if either Party is uncertain whether a PRODUCT contains a COMPOUND or COMPOUND DERIVATIVE, the Parties shall use their good faith efforts to reach agreement as to which CATEGORY the PRODUCT is to be computed. If the Parties are unable to reach mutual agreement, then the provisions of Article 17 shall be used. 6.3 PATENT Royalty under APPENDIX D - If OSI is responsible for the JOINT PATENTS with respect to CATEGORY 4 COMPOUNDS, listed on APPENDIX D as discussed in Article 5.4, and the PRODUCT is within the scope of such a PATENT, then the royalty due to DOW as stated in Article 6.2 shall be reduced in each instance as follows: 6.3.1 If OSI directly markets the PRODUCT, then OSI shall pay DOW ** percent royalty on NET SALES; and 6.3.2 If OSI participates in a venture or any type of collaboration which includes CATEGORY 4 COMPOUNDS in which OSI receives a payment relevant to or pro rata for CATEGORY 4 COMPOUNDS having any value (e.g., cash, stock warrants), then OSI shall pay DOW ** percent of OSI's payment; and 6.3.3 If OSI sublicenses the CATEGORY 4 COMPOUNDS to a THIRD PARTY, then OSI shall pay DOW ** percent of any payment having any value (as defined in Article 6.3.2) received by OSI. 6.4 No royalties are due under Article 6.2 or 6.3 after the last to expire PATENT on APPENDIX B or D expires and, if available, after any patent term restoration or extension term ceases. No royalties are due under Article 6.2 or 6.3 under any claim of a PATENT which is held invalid by a court of competent jurisdiction from which no appeal is or can be taken. 6.5 Quarterly Royalty Reports and Payments - Within ninety (90) days after the close of each calendar quarter, OSI shall submit a report on the NET SALES of PRODUCT for the TERRITORY in sufficient detail to enable a calculation of the royalty and payments due in accord with Article 6 and payment of the royalty and other payments (if any) due. Prior to commercialization one written annual report after the close of the fourth quarter and quarterly oral reports are due from the EFFECTIVE DATE at - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. 18 22 the close of each calendar quarter. Once commercialization of a PRODUCT has begun, then there shall be quarterly written reports received by DOW thirty (30) days from the close of each calendar quarter. 6.6 Payments - A written report, including: the amount of payment with the date the payment was made; an itemized payment listing; and date of this License under which payment is being made and the number designated in a letter to be furnished by DOW, shall be sent to: The Dow Chemical Company Royalty Accounting 2020 Dow Center Midland, MI 48674 USA. Payment shall be by wire transfer to THE DOW CHEMICAL COMPANY and sent to: ** 6.7 Books of Account - OSI shall maintain true and complete books of account containing an accurate record of all data necessary for the proper computation of royalty payments due from it or on behalf of any AFFILIATE. Such records shall be maintained for at least five (5) years after the date of the pertinent royalty payment. 6.8 Audit Right - DOW shall have the right, either through a certified public accountant employed by DOW or through a firm of independent public accountants to whom OSI has no reasonable objection, to examine the books of account of OSI at reasonable times within three (3) years after the end of the calendar year to which they relate (but not more than once in each calendar year) for the purpose of verifying the correctness of any report concerning diligence under Article 4.3 or payment of royalties under Article 6. Such examination shall be made during normal business hours, with twenty-four (24) hours notice, at the place of business of OSI. The information furnished as a result of any such examination shall be maintained in confidence on the terms specified in Article 7. The fees and expenses of such an audit shall be borne by DOW. If any such audit shows any underpayment or overcharge, a correcting payment or refund shall be made within thirty (30) days of OSI's receipt of the auditors' statement. If such error is material (meaning +/-5%), then if OSI owes DOW from such material error, OSI shall be subject to a penalty as if the payment were - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. 19 23 deemed late in accord with Article 6.10. Should OSI fail to make any correcting payment within sixty (60) days from receipt of the auditors' statement, then DOW shall have the right to terminate this License under Article 13.5. If OSI has made an overpayment, then the amount shall be credited against the next quarterly payment. 6.9 Withholding Tax Payments - If any taxes for DOW's account, withholding or otherwise, are levied by any taxing authority in the TERRITORY in connection with the receipt by DOW of any amounts payable under Article 6 of this License according to any tax treaty or agreement between the United States and a country in the TERRITORY, then OSI shall have the right to pay such taxes to the local tax authorities and then payment to DOW of the net amount due after reduction by the amount of such taxes, together with: (i) evidence of payment of such taxes and a translation thereof into English, (ii) indication of the amount of such tax paid, and (iii) indication of the country in the TERRITORY and the authority to whom it was paid, and (iv) compliance with OSI's royalty reporting obligations under this License. However, if DOW still requires further information, the report due under Article 6.5 may also be requested by DOW and OSI shall promptly provide that information. 6.10 Late Payments - Royalty payments not remitted or deposited by the due date shall bear interest at the current prime rate plus ** established by a leading New York bank, such as CitiBank, as published in The Wall Street Journal. Should OSI fail to make any late payment within ninety (90) days from its due date, then DOW shall have the right to terminate this License under Article 13.5 upon fifteen (15) days written notice to OSI to allow cure. ARTICLE 7 - CONFIDENTIALITY 7.1 Each Party shall use good faith efforts to retain in confidence and not disclose to any third party each other's CONFIDENTIAL INFORMATION, PATENTS, and any samples of COMPOUND, COMPOUND DERIVATIVE or PRODUCT, the FIELD being developed, and business information for the development of PRODUCT, disclosed pursuant to the terms of this License. Such "good faith efforts" shall mean - ----------------------- ** This portion redacted pursuant to a request for confidential treatment. 20 24 the same degree of care, but no less than a reasonable degree of care, as the receiving Party uses to protect its own CONFIDENTIAL INFORMATION of a like nature. OSI shall use the same good faith efforts with respect to the COMPOUNDS already in its possession. 7.2 Excepted from the obligation of confidence under Article 7.1 is that information which: (a) is available, or becomes available, to the general public without fault of the receiving Party; or (b) is obtained by the receiving Party without an obligation of confidence from a third party (other than a governmental agency or REGULATORY AUTHORITIES) who is rightfully in possession of such information and is under no obligation of confidentiality to the disclosing Party concerning such information; or (c) is required by law or by court order to be disclosed by the receiving Party in which cases the receiving Party will use its best efforts to limit such disclosure to that required by law and to maintain the confidentiality of the disclosed information to the extent possible under a protective order; or (d) must be necessarily disclosed to REGULATORY AUTHORITIES to permit OSI to sell PRODUCT in the FIELD; or (e) may be disclosed to a OSI sublicensee under confidentiality terms at least as strict as those of this License; or (f) may be disclosed to DowElanco as necessary as DOW's designee for supply of the COMPOUNDS; or (g) is released from confidentiality in writing by the disclosing Party; or (h) is permitted to be disclosed by Article 7.4. For the purpose of Article 7.1, a specific COMPOUND or its TECHNOLOGY or COMPOUND DERIVATIVE shall not be deemed to be within the foregoing exceptions merely because it is embraced by more general information in the public domain, or in the possession of the receiving Party. In addition, any combination of features shall not be deemed to be within the foregoing exceptions merely because individual features are in the public domain or in the possession of the receiving Party, but only if the combination itself and its principle of operation and process to make it are in the public domain or in the possession of the receiving Party. 21 25 7.3 Notwithstanding the provisions of Article 7.1, if the receiving Party becomes legally compelled to disclose any of the disclosing Party's COMPOUNDS, TECHNOLOGY or COMPOUND DERIVATIVES, the receiving Party shall promptly advise the disclosing Party of such required disclosure in order that the disclosing Party may seek a protective order or such other remedy as the disclosing Party may consider appropriate in the circumstances. The receiving Party shall disclose only that portion of the COMPOUNDS, TECHNOLOGY or COMPOUND DERIVATIVES which it is legally required to disclose. Such a disclosure shall not release the receiving Party with respect to the COMPOUNDS, TECHNOLOGY or COMPOUND DERIVATIVES so disclosed except to the extent of permitting the required disclosure. 7.4 Disclosure to AFFILIATES, Contractors - OSI may disclose COMPOUNDS to its AFFILIATES, sublicensees, consultants, CONTRACTUAL COLLABORATORS and, when permitted herein, its clinical investigators, contractors (parties under contract with OSI or its AFFILIATES for the custom manufacturing or shipping of PRODUCT, conduct of clinical studies or obtention of registration of PRODUCT with a REGULATORY AUTHORITY in the TERRITORY), as may be necessary to exercise the rights granted hereunder and to register and prepare for commercialization of PRODUCT, and to commercialize PRODUCT under this License, under conditions of confidentiality at least as stringent as those set out in Articles 7.1, 7.2 and 7.3. 7.5 Document Return - In the event of termination of this License under Article 13.2, 13.3 (if the breach is by OSI), 13.4, or 13.5 prior to its normal expiration, OSI will cease its use of the COMPOUNDS (CATEGORY 1 COMPOUNDS, CATEGORY 4 COMPOUNDS), and other CONFIDENTIAL INFORMATION provided hereunder and, on DOW's request, within sixty (60) days either return all such CONFIDENTIAL INFORMATION, including any copies thereof, COMPOUNDS in whatever media or form, or will promptly destroy the same and certify such destruction to DOW; except that such CONFIDENTIAL INFORMATION as is or has become no longer subject to confidentiality under Article 7.1 need not be returned or destroyed. Notwithstanding the foregoing, OSI may retain such documents as are necessary for it to discharge its surviving obligations hereunder and its legal obligations to the governmental authorities; and OSI may retain such copies of documents as may be necessary for the defense of product liability or other litigation or similar proceedings relating to PRODUCT, and may retain one copy thereof in its legal department as a record of what was transmitted. 7.6 Survival of Confidentiality - Termination of this License for any reason shall not relieve the Parties of their obligations under Article 7. The provisions of Article 7 shall survive termination of this License for ten (10) years. 22 26 ARTICLE 8 - THIRD PARTY INFRINGEMENT CLAIMS 8.1 Defense of Third Party Patent Claims - If a claim is brought by a third party that manufacture, use or sale of a COMPOUND, COMPOUND DERIVATIVE or PRODUCT in the TERRITORY (regardless of use) infringes a patent of such third party, OSI will give prompt written notice to DOW of such claim, if it concerns a PATENT on APPENDIX B, or, if DOW is responsible, a PATENT on APPENDIX D. DOW shall have the sole discretion and right to seek to dispose of said claim or to conduct the defense of any suit resulting from such claim if OUTSIDE the FIELD in the TERRITORY. OSI at its option and expense may participate in any suit resulting from such claim that directly affects its market in the FIELD in the TERRITORY. If a claim is brought by a third party that manufacture, use or sale of a COMPOUND, COMPOUND DERIVATIVE or PRODUCT in the TERRITORY (regardless of use) infringes a patent of such third party, OSI will give prompt written notice to DOW of such claim, if it concerns a PATENT on APPENDIX D and OSI is responsible. DOW shall have the sole discretion and right to seek to dispose of said claim or to conduct the defense of any suit resulting from such claim if OUTSIDE the FIELD in the TERRITORY. OSI shall be responsible for any suit resulting from such claim or to dispose of said claim at its expense within the FIELD in the TERRITORY. 8.2 Mutual Decisions - From the EFFECTIVE DATE and using their good faith efforts, OSI and DOW shall discuss any claim or suit brought by a third party for patent infringement that such third party's patent is infringed by the manufacture, use or sale of COMPOUND or PRODUCT by OSI or its AFFILIATES in the FIELD in the TERRITORY. Specifically, OSI and DOW shall mutually try to agree on: 8.2.1 the strategy for such suit or claim, e.g. whether to negotiate a settlement, sue or withdraw from the country in the TERRITORY in which infringement is claimed; 8.2.2 the basis to be determined for sharing the costs of litigation, damages awarded, and royalty to be paid to the third party; 8.2.3 which Party should conduct the defense or if both OSI and DOW should jointly defend; and 8.2.4 the consequences of such decisions, such as amendment to this License with regard to royalties due to DOW or termination of this License. 8.3 Third Party License - The Parties shall use their good faith efforts (either individually or together) to negotiate any necessary agreement for royalty payment to third parties with a view to enabling PRODUCT to be commercialized in the FIELD in the TERRITORY. Until a lead COMPOUND or lead COMPOUND DERIVATIVE is 23 27 selected by OSI and notified to DOW, neither OSI nor DOW cannot determine whether any such agreement with a third party is necessary. ARTICLE 9 - PATENT ENFORCEMENT LITIGATION 9.1 Prosecution by DOW - DOW, at its sole discretion, may take action on its own behalf and expense to institute any action or proceeding by reason of infringement of any of the PATENTS listed on APPENDIX B or for which DOW is responsible listed on APPENDIX D; however, OSI shall be notified in advance in accord with Article 16.1. If either Party learns of any infringement of a PATENT or misappropriation of TECHNOLOGY or trade secrets by a third party, it shall promptly notify the other Party. DOW shall have the first right, at its own expense, to prosecute all litigation against a third party infringer who may be infringing a PATENT. OSI shall provide all reasonable cooperation, including any necessary use of its name, required to prosecute such litigation. OSI shall be consulted at its expense concerning the litigation. DOW will bear the costs and shall be entitled to any recovery obtained from such litigation, settlement or compromise thereof. 9.2 Prosecution by OSI - If DOW does not prosecute such infringer or otherwise abate such infringement (which infringement must be of commercial significance to OSI in DOW's reasonable business opinion) within ninety (90) days after giving or receiving notification of such infringement in the TERRITORY, unless an extension of the term is mutually agreed upon by the Parties, then, OSI shall have the right to prosecute such infringer at its own expense in the FIELD in the TERRITORY for PATENTS in APPENDICES B or D and shall be entitled to retain any recovery obtained from such litigation, settlement or compromise thereof. OSI's cost of litigation in any quarter may be credited against up to fifty (50%) percent of the royalties due to DOW under Articles 6.2 and 6.3 in the following quarter. However, OSI shall place all royalties due to DOW in escrow from the date of filing the suit until the action or proceeding is finally concluded whereupon: 9.2.1 if the PATENT in the country in the TERRITORY is held valid (whether infringed or not), then the royalties in escrow (after deduction of OSI's cost of litigation as referred to hereinabove) shall be paid to DOW; or 9.2.2 if the PATENT in the country in the TERRITORY is held invalid (whether infringed or not), then (a) the royalties in escrow shall be paid to OSI and (b) DOW shall reimburse OSI's cost of such litigation up to fifty thousand dollars (US$50,000) in each country in the TERRITORY where suit was determined for a PATENT. 24 28 At OSI's request, DOW shall cooperate with OSI in such litigation, including joining in said litigation. DOW shall also cooperate, at OSI's expense, by way of providing access to evidence and witnesses available to DOW. 9.3 Prosecution by neither OSI or DOW - If DOW and OSI mutually decide that neither DOW nor OSI will defend the PATENT in the FIELD in the particular country in the TERRITORY, then the royalty under Article 6.2 or 6.3 for that PATENT in that country becomes zero (0%) percent upon that decision date, unless mutually agreed to be reconsidered at a later time. 9.4 Invalidity - In the event that a PATENT in the TERRITORY is finally declared invalid or unenforceable in a judicial or administrative proceeding from which no appeal is or can be taken, then from and after that date no royalties under Article 6.2 or 6.3 shall be paid on the basis of that PATENT in the relevant country of the TERRITORY, provided, however, that royalties due for other PATENTS in the TERRITORY not so held invalid or unenforceable shall not be affected. 9.5 Settlement - Any settlement of an infringement suit, whether brought by DOW or by OSI, shall be subject to the consent of both Parties, which consent shall not be unreasonably withheld. 9.6 Cooperation - Each Party shall cooperate with the other Party to the extent reasonably requested in any legal action: (i) brought by a third party against one Party; or (ii) brought by a third party against both of them; or (iii) taken against a third party by either Party; regarding PATENTS in the FIELD in the TERRITORY, and each Party shall have the right to participate in any defense, compromise or settlement to the extent that, in its judgment, it may be prejudiced thereby. In addition, OSI shall not settle any claim or suit in any manner that shall adversely affect any PATENTS, require any payment by DOW or reduce the royalty due to DOW under Article 6 without the prior written consent of DOW, except as provided in Article 9.2. ARTICLE 10 - U.S. EXPORT CONTROL AND GOVERNMENT LICENSES 10.1 Compliance - OSI agrees to comply, at its expense, with all necessary United States governmental regulations with respect to export of COMPOUNDS, COMPOUND DERIVATIVES, TECHNOLOGY and any PRODUCTS in the TERRITORY. OSI agrees to not export or re-export any PRODUCTS, COMPOUND, COMPOUND DERIVATIVE or TECHNOLOGY received from DOW or the direct products of such 25 29 technology to any prohibited country listed in the U.S. Export Administration Regulations unless properly authorized by the U.S. Government. OSI shall be responsible for the acts of its AFFILIATES, CONTRACTUAL COLLABORATORS, contractors, consultants and sublicensees. OSI assumes all liability if it or its AFFILIATES, CONTRACTUAL COLLABORATORS, or sublicensees fails to obtain any of the necessary licenses or commits any violations of the United States Export Laws or Regulations (15 C.F.R. Section 700 et seq.). OSI shall indemnify DOW for such acts and for any breach of compliance. 10.2 Licenses - OSI agrees to obtain all necessary licenses, at its expense, and to comply with all applicable regulations of agencies, such as REGULATORY AUTHORITIES, in the TERRITORY and use GMP methods to the extent required with respect to COMPOUNDS, COMPOUND DERIVATIVES and PRODUCTS. 10.3 Clearances - OSI agrees to obtain all necessary clearances, at its expense, from any government in the TERRITORY for import, export or re-export with respect to the COMPOUNDS, COMPOUND DERIVATIVES or PRODUCTS. ARTICLE 11 - PRODUCT LIABILITY AND INDEMNIFICATION 11.1 Indemnity by DOW - DOW shall indemnify and hold OSI, its agents, directors, officers, employees and AFFILIATES harmless from and against any and all liabilities, claims, demands, damages, costs, expenses or money judgments (including reasonable attorneys' fees and expenses) incurred by or rendered against any of them for personal injury, sickness, disease or death or property damage which directly arise out of the intentional misconduct or negligence of DOW; provided, however, that OSI shall give DOW notice in writing as soon as practicable of any such claim or lawsuit and shall permit DOW to undertake the defense thereof at DOW's expense. If DOW should MANUFACTURE, then the terms for indemnity shall be as set forth in that agreement. DOW indemnifies OSI with respect to a breach by DOW of any of its representations, warranties or covenants contained in this License or any agreement contemplated by the terms of this License. However, (i) OSI will cooperate in such defense by providing access to witnesses and evidence available to it. OSI shall have the right to participate in any defense to the extent that in its judgment, OSI may be prejudiced thereby; and (ii) in any claim or suit in which OSI seeks indemnification by DOW, OSI shall not settle, offer to settle or admit liability or damages in any such claim or suit without the prior written consent of DOW. 26 30 11.2 Indemnity by OSI - OSI shall indemnify and hold DOW and AFFILIATES, and their respective agents, directors, officers, employees harmless from and against any and all liabilities, claims, demands, damages, costs, expenses or money judgments (including reasonable attorneys' fees and expenses) incurred by or rendered against any of them for personal injury, sickness, disease or death or property damage which arise out of (i) the manufacturing, testing, use, promotion, sale or distribution of COMPOUNDS, COMPOUND DERIVATIVES or PRODUCT by OSI, its AFFILIATES, CONTRACTUAL COLLABORATORS or sublicensees, except for those instances provided in Article 11.1 for which DOW is obligated to indemnify OSI; or (ii) the breach by OSI of any of its representations, warranties or covenants contained in this License or any agreement contemplated by the terms of this License; and provided, however, that DOW shall give OSI notice in writing accord with Article 16.1 as soon as practicable of any such claim or lawsuit and shall permit OSI to undertake the defense thereof at OSI's expense. However, (i) DOW will cooperate in such defense by providing access to witnesses and evidence available to it. DOW shall have the right to participate in any defense to the extent that in its judgment, DOW may be prejudiced thereby; and (ii) In any claim or suit in which DOW seeks indemnification by OSI, DOW shall not settle, offer to settle or admit liability or damages in any such claim or suit without the prior written consent of OSI. ARTICLE 12 - WARRANTY, DISCLAIMER, GUARANTEE 12.1 Belief of Accuracy - DOW represents that COMPOUNDS, TECHNOLOGY and any other CONFIDENTIAL INFORMATION transferred or provided to OSI hereunder are believed to be accurate and complete as of their current status at DOW on the EFFECTIVE DATE (NO representation is made by DOW on behalf of DowElanco), and that DOW's interpretations and conclusions drawn therefrom were made in good faith and in the exercise of DOW's scientific judgment as of the dates of the documents contained therein, and that to the best of DOW's knowledge, data when generated that was subject to regulations regarding Good Laboratory Practices and Good Clinical Practices and other FDA regulations is in compliance with such regulations. However, DOW does not warrant or represent that such information is or will be sufficient to obtain APPROVAL to market PRODUCT or to commercially produce COMPOUNDS, COMPOUND DERIVATIVES or PRODUCT or to 27 31 commercialize COMPOUNDS, COMPOUND DERIVATIVES or PRODUCT with REGULATORY AUTHORITIES in the TERRITORY or that OSI shall be free to practice or sell any COMPOUND or COMPOUND DERIVATIVE or PRODUCT. 12.2 OSI Representation - OSI will be solely relying on its own evaluation of COMPOUNDS, TECHNOLOGY and the other CONFIDENTIAL INFORMATION transferred or provided to it hereunder and on its own medical and scientific expertise in using the same in its development and commercialization of COMPOUNDS, COMPOUND DERIVATIVES and PRODUCT. 12.3 Validity, Non-Infringement - DOW DOES NOT WARRANT that the manufacture, use and sale of a PRODUCT does not fall within the scope of THIRD PARTY patents or the industrial property rights of a THIRD PARTY. Until a PRODUCT is identified by OSI, DOW DOES NOT WARRANT that any PATENTS exist, either belonging to DOW or to a THIRD PARTY. 12.4 Disclaimer of Warranties as to DOW PATENTS - DOW makes NO representation that the inventions covered in any PATENTS are patentable or that the PATENTS are or will be valid or enforceable, NOR does DOW warrant or represent that the exercise of the rights licensed hereunder is free from infringement of patent rights of THIRD PARTIES. Should any infringement or damages be alleged, suit brought or damages collected therefore, NO damages are permitted to be collected from DOW, and OSI shall hold DOW harmless from any such suit, claim, action for damages or threat thereof. ARTICLE 13 - TERM AND TERMINATION 13.1 Term - Unless terminated under the provisions of this Article 13, this License shall continue in effect until the expiration of all PATENTS listed on APPENDICES B or D, or if no PATENTS are filed, then the term shall be twenty (20) years; provided, however, that Article 13.7 shall survive termination of this License. When this License expires under this Article 13.1, the licenses granted under this License shall be paid-up; however, any payments still due under Articles 6.2 and 6.3 will continue until paid in full for the period prior to such termination. 13.2 Failure to Use License - If OSI and its AFFILIATES shall have: (i) discontinued selling a given COMPOUND or PRODUCT in commercial quantities using their good faith efforts in accord with Article 4 to commercialize; or 28 32 (ii) not commercialized any COMPOUNDS, COMPOUND DERIVATIVES or PRODUCT in accord with Article 4; or (iii) not found any lead COMPOUND or COMPOUND DERIVATIVE within five (5) years from the EFFECTIVE DATE, or (iv) not run at least three (3) screens on the appropriate COMPOUNDS per twelve-month period; then in the case of (ii), (iii) and (iv) above either OSI or DOW shall have the right to terminate this License in whole, or in the case of (i) above, terminate this License only as to that given COMPOUND or PRODUCT, upon three (3) months written notice. If termination under this Article 13.2 results voluntarily, then OSI shall promptly supply to DOW all registration information for REGULATORY AUTHORITIES that is available to OSI or its AFFILIATES for use by DOW, its AFFILIATES or sublicensees for a fair consideration to OSI. 13.3 Termination for Breach - In the event of a material breach by either DOW or OSI of any of the obligations contained in this License, the other Party shall be entitled to terminate this License by notice in writing under Article 16.1, provided that such notice shall specify the breach or breaches. If the said breach or breaches are capable of remedy, the Party committing such breach or breaches shall be entitled to a period of sixty (60) days from the delivery of such notice in which to remedy or to undertake to remedy the same. In the case the defaulting Party shall fail to remedy the breach or to undertake to remedy the breach to the satisfaction of the injured Party, the injured Party shall have the right to cancel this License in whole or only terminate those rights and obligations relating to the particular breach by simple notification to the Party in default. Failure of a Party to exercise its rights under this Article 13.3 shall not be construed as a waiver as to future breaches whether or not they are similar. 13.4 Termination by OSI - OSI may surrender and terminate this License on three (3) months written notice to DOW. OSI will disclose to DOW its reasons for any such termination. 13.5 Termination by DOW - DOW shall have the further right to terminate this License immediately on written notice to OSI if: (a) OSI shall cease to carry on business or shall go into liquidation or a receiver shall be appointed to OSI's assets; or (b) OSI shall become bankrupt or insolvent or unable to meet any of its financial obligations on their due dates; or 29 33 (c) OSI fails to meet every payment in accord with Article 6, including cure periods; or (d) OSI breaches without cure any of the Export regulations of Article 10. 13.6 On Termination - OSI shall, upon termination of this License by DOW under Articles 13.2, 13.3 or 13.5 or termination by OSI under Article 13.2, 13.3 or 13.4: (a) return to DOW all copies of documents containing COMPOUNDS and their data and any materials received from DOW under confidentiality and CONFIDENTIAL INFORMATION concerning COMPOUNDS and PRODUCT in the FIELD; (b) pay to DOW all payments and royalties due or accrued at the termination date within thirty (30) days after termination; and (c) make no further use of, or permit any use by any THIRD PARTY or CONTRACTUAL COLLABORATOR, of any kind of any and all COMPOUNDS disclosed hereunder by DOW, except to the extent such information has become public knowledge other than through fault of OSI, and make no further use of the surviving JOINT PATENTS or DOW PATENTS. 13.7 Survival of Certain Obligations - On termination of this License: the obligations of confidentiality set forth in Article 7 shall survive for the time stated therein; payments due under Article 6 shall survive for the terms specified; Export Control compliance set forth in Article 10 shall survive indefinitely; and the indemnification obligations set forth in Article 11 shall also survive as to all claims or actions arising from events which occurred before termination. ARTICLE 14 - FORCE MAJEURE 14.1 Event of Force Majeure - In the event that performance under this License, or any obligation hereunder, is hindered, delayed or prevented by reason of acts of God, strikes, lockouts, labor troubles, intervention of any governmental authority, fire, riots, insurrections, invasions, war or other reason of similar nature beyond the reasonable control of the Party (including the failure of DowElanco to deliver on a timely basis, as notified to DOW by OSI) and are without its fault or negligence, then performance of that act shall be excused for the period of the delay and the period for the performance of that act shall be extended for an equivalent period. 14.2 Notification - Upon occurrence of an event of force majeure, the affected Party shall promptly notify the other Party in writing, setting forth the nature of the occurrence, its expected duration and how that Party's performance is affected. The affected Party 30 34 shall resume the performance of its obligations as soon as practicable after the force majeure event ceases. ARTICLE 15 - CONSENTS 15.1 Commitments - DOW agrees to take reasonable efforts to maintain in full force and effect the agreements or written commitments which DOW has made prior to the EFFECTIVE DATE for COMPOUND or PRODUCT in the TERRITORY. 15.2 Agreements - DOW may enter into other agreements for licensees for COMPOUNDS OUTSIDE the FIELD in the TERRITORY. If this occurs, DOW shall notify OSI, if legally possible, of the identity of that entity and the field. ARTICLE 16 - NOTICES 16.1 Official - Any notice, request or communication specifically provided for or permitted to be given under this License must be in writing and may be delivered by hand delivery, courier service, or electronic transmission such as telex, facsimile, telegram or electronic mail, and shall be deemed effective as of the time of actual delivery thereof to the addressee. For purposes of notice the addresses of the Parties shall be as follows: DOW: The Dow Chemical Company 2030 Dow Center Midland, Michigan 48674 USA Attention: Michael J. Mintz, PhD Director External Technology Telephone: 517-636-9458 Facsimile: 517-636-8127 31 35 with a copy to: The Dow Chemical Company Patent Department 1790 Building, Washington Street Midland, Michigan 48674 USA Attention: Karen L. Kimble, JD Senior Counsel Telephone: 517-636-1687 Facsimile: 517-638-9786 OSI: Oncogene Science, Inc. 106 Charles Lindbergh Blvd. Uniondale, NY 11553 USA Attention: Colin Goddard, PhD Executive Vice President and Chief Operating Officer Telephone: 516-222-0023 Facsimile: 516-745-6429 with a copy to: Oncogene Science, Inc. 106 Charles Lindbergh Blvd. Uniondale, NY 11553 USA Attention: Robert L. Van Nostrand Chief Financial Officer Telephone: 516-222-0023 Facsimile: 516-222-0409 16.2 Each Party may change its address and its representative for notice by the giving of notice thereof in the manner provided in Article 16.1. 32 36 ARTICLE 17- DISPUTE RESOLUTION 17.1 Choice of Law - This License shall be governed by the laws of the State of Delaware, excepting its conflict of laws principles, in all respects of validity, construction and performance, except that all questions concerning the construction, validity, coverage or infringement of patents or PATENTS shall be decided in accordance with the patent law of the country where the patent was granted. 17.2 Disputes - Both Parties shall make good faith efforts to resolve any questions concerning construction and performance under this License, excluding PATENTS, by: 17.2.1 Notice, contact and resolution, all proceedings and documents in English, between the Parties listed under Article 16.1 within one hundred twenty (120) days from the date of the notice by negotiation either by telephone or by meeting in Detroit, Michigan; and 17.2.2 If unsuccessful under Article 17.2.1, then senior executive management with settlement authority and counsel of DOW and OSI shall meet at a mutually agreeable location within sixty (60) days from a date of notice that Article 17.2.1 failed to resolve the issues. Counsel shall present the legal and factual arguments to such executives in English, with supporting evidence if necessary, and resolution by these executives is expected within ten (10) days, which may be reduced to writing in English as an amendment to this License; and 17.2.3 If such executives have not met or resolved the issues under Article 17.2.2, then within seventy five (75) days from the date of the notice under Article 17.2.1, the Parties shall submit the issues to arbitration in Chicago, Illinois, in English, in accordance with the Rules of the American Arbitration Association ("AAA"), which may be modified by the Parties, and judgment shall not be binding. The Parties agree that the following procedures shall be adhered to even though they may, in part, not be in full conformance with said Rules: (a) Three Arbitrators shall be selected from a list of at least 20 arbitrators selected by the AAA and Parties composed of experts in the area(s) of the dispute (for example, for a patent issue patent counsel with chemistry or pharmaceutical expertise who are practicing or retired partners in law firms or retired in-house corporate patent counsel not affiliated with the Parties with at least 15 years of experience in patent law and knowledge of the pertinent laws of any country and the subject area of the dispute). The arbitration proceedings and reports shall be in English. The time from the beginning of submission for arbitration and conclusion of any oral or written proceedings shall not exceed six (6) months; and 33 37 (b) Limited discovery to only that which each Party has a substantial, demonstrable need, and shall be conducted in the most expeditious and cost-effective manner. The Arbitrators shall resolve any issues with regard to the discovery. Decision by the Arbitrators shall be given in writing within thirty (30) days from the end of oral proceedings; and (c) Although the decision by the Arbitrators is non-binding, should either Party then litigate in a Court of competent jurisdiction for the Parties, either Party may introduce the decision reached by Arbitration with its supporting evidence. ARTICLE 18 - ASSIGNMENT 18.1 Assignment - Neither Party to this License shall assign any rights hereunder without the prior written consent of the other Party, such consent not to be unreasonably withheld. It being agreed, however, that without such consent being required from DOW, OSI may assign to its AFFILIATES, but DOW must be notified in writing in accord with Article 16.1. 18.2 Consolidation, Reorganization or Merger - Should OSI be consolidated, reorganized or merged with another entity, this License may be assigned to the successor entity or the assignee of all or substantially all of OSI's business and assets related to COMPOUNDS, COMPOUND DERIVATIVES or PRODUCT without DOW's prior written consent. However, OSI shall promptly notify DOW prior to such action in accord with Article 16.1. It being understood that provisions for payments to DOW by such entity must remain as in Article 6. 18.3 Effect on Successors and Assignees - This License shall inure to the benefit of and be binding upon such successors and permitted assignees. ARTICLE 19 - MISCELLANEOUS PROVISIONS 19.1 Amendments - This License may be amended only in writing executed by both Parties. 19.2 Entirety of Agreement - This License sets forth the entire agreement and understanding between the Parties hereto with respect to COMPOUNDS, COMPOUND DERIVATIVES and PRODUCTS for their commercialization in the TERRITORY for use in the FIELD. The Parties agree that this License is in compliance with the LETTER OF INTENT and that the confidentiality provisions contained therein are in force until the EFFECTIVE DATE. 34 38 19.3 Severability - If any term or provision under this License is deemed invalid under the laws of a particular country or jurisdiction, the invalidity shall not invalidate the whole License but it shall be construed as if not containing that particular term or provision for that particular country or jurisdiction and the rights and obligations of the Parties shall be construed and enforced accordingly. The Parties shall negotiate in good faith a substitute provision as an addendum to this License for that particular country or jurisdiction in compliance with the law to as nearly as possible retain the Parties intent in legally valid language. 19.4 Waivers, Cumulative Remedies - A waiver by either Party of any term or condition of this License in any one instance shall not be deemed construed to be a waiver of such term or condition for any similar instance in the future or of any subsequent breach hereof. All rights, remedies, undertakings, obligations and agreements contained in this License shall be cumulative and none of them shall be a limitation of any other remedy, right, undertaking, obligation or agreement of either Party. 19.5 Publicity - Neither DOW nor OSI shall make the financial terms of this License public, except as required by law. With regard to a filing with the US Securities and Exchange Commission OSI shall seek confidential treatment of information considered confidential by DOW. Any press release or publicity of this License shall be reviewed and approved by both Parties prior to any release. 19.6 Headings - Headings in this License are included herein for ease of reference and shall not affect the meaning of the provisions of this License, nor shall they have any other legal effect. 19.7 Other Documents - Each Party agrees to execute such additional papers or documents in customary legal form and to make such governmental filings or applications as may be necessary or desirable to effect the purposes of this License and carry out its provisions. 19.8 Cooperation - OSI and DOW shall use good faith efforts to cooperate with respect to any issues that concern the development of the PRODUCT under this License. OSI is aware that competition in the TERRITORY is likely if no PATENTS exist or are obtained and OSI accepts this License with that knowledge. 35 39 IN WITNESS WHEREOF, the Parties have duly executed duplicate originals of this License by their appropriate authorized representative. This License shall be void ab initio if not signed by both Parties prior to April 1, 1997. This date is a one month extension of time from the date stated in the LETTER OF INTENT, and this time extension is acceptable to both Parties. Such License is subject to management and/or Board approval by each Party. Should the Parties fail to reach agreement for the License by that date, then either the date may be extended by mutual written consent or the negotiations may be terminated. THE DOW CHEMICAL COMPANY ONCOGENE SCIENCE, INC. By: /s/ Fred P. Corson By: /s/ Colin Goddard ------------------------------- ---------------------------- Name: Fred P. Corson Name: Colin Goddard Title: Vice President Title: Executive Vice President Research and Development and Chief Operating Officer Date: March 16, 1997 Date: March 18, 1997 ------------------------------- ----------------------------
36 EX-27 6 FINANCIAL DATA SCHEDULE
5 1 U.S. DOLLARS 6-MOS SEP-30-1997 JAN-01-1997 MAR-31-1997 1 8,660,409 27,331,322 1,634,092 37,974 0 39,112,781 16,339,716 9,601,072 63,741,041 3,593,421 0 0 0 221,914 58,335,636 63,741,041 0 5,167,455 0 6,652,614 37,053 0 629 (988,684) 0 0 0 0 0 (988,684) (0.04) (0.04)
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