-----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, JPiU5nIo5R0dkV+08OgfOoEHzhq5RmuBs8gXZkSpEwHT9+ur8pDYByFLw/X4vlW8 tSNQxZrAf4pYfdY4UyE4/A== 0001104659-05-062151.txt : 20051222 0001104659-05-062151.hdr.sgml : 20051222 20051221201035 ACCESSION NUMBER: 0001104659-05-062151 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051222 DATE AS OF CHANGE: 20051221 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARIES VENTURES INC CENTRAL INDEX KEY: 0000772320 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 840987840 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-14136 FILM NUMBER: 051279836 BUSINESS ADDRESS: STREET 1: 3611 VALLEY CENTRE DRIVE, SUITE 525 CITY: SAN DIEGO STATE: CA ZIP: 92130 BUSINESS PHONE: (858) 794-3420 MAIL ADDRESS: STREET 1: 3611 VALLEY CENTRE DRIVE, SUITE 525 CITY: SAN DIEGO STATE: CA ZIP: 92130 FORMER COMPANY: FORMER CONFORMED NAME: CASMYN CORP DATE OF NAME CHANGE: 19941229 FORMER COMPANY: FORMER CONFORMED NAME: SUMMA METALS CORP DATE OF NAME CHANGE: 19940503 FORMER COMPANY: FORMER CONFORMED NAME: FINTECH INC DATE OF NAME CHANGE: 19940503 10KSB 1 a05-22067_110ksb.htm ANNUAL AND TRANSITION REPORTS OF SMALL BUSINESS ISSUERS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB

ANNUAL REPORT
under Section 13 or 15(d)
of the Securities Exchange Act of 1934

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2005

000-14136

(Commission file number)

ARIES VENTURES INC.

(Name of small business issuer in its charter)

Nevada		84-0987840
(State of incorporation)		(IRS Employer Identification No.)

3611 Valley Centre Drive, Suite 525 San Diego, California 92130		(858) 436-1000
(Address of principal executive offices)		(Issuer’s telephone number)

Securities registered under Section 12(b) of the Act:

None

Securities registered under Section 12(g) of the Act:

Common Stock, $0.01 par value per share

Check whether Aries Ventures Inc. (Aries) is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. o

Check whether Aries (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that Aries was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes o No

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of Aries’ knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. ý

Indicate by check mark whether Aries is a shell company (as defined in Rule 12b-2 of the Exchange Act.): o Yes ý No

Aries revenues for its most recent fiscal year were $0.

The aggregate market value of Aries’ common stock held by non-affiliates of Aries as of December 13, 2005 was approximately $49,867,740 (based on the closing sale price of $2.10 on December 13, 2005). For this purpose, all of Aries’ officers and directors and their affiliates were assumed to be affiliates of Aries.

Check whether Aries has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. ý Yes o No

As of December 21, 2005, 29,249,801 shares of Aries’ common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III (Items 9, 10, 11, 12 and 14) of this Form 10-KSB incorporates by reference portions of Aries’ definitive proxy statement for its Annual Meeting of Stockholders to be held in January 2006, to be filed no later than 120 days after the fiscal year end covered by this Form 10-KSB.

Transitional Small Business Disclosure Format (Check one): o Yes ý No

TABLE OF CONTENTS

		Page
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS		1

PART I

Item 1.	Description of Business	2

Item 2.	Description of Property	14

Item 3.	Legal Proceedings	14

Item 4.	Submission of Matters to a Vote of Security Holders	15

PART II

Item 5.	Market for Common Equity and Related Stockholder Matters	15

Item 6.	Management’s Discussion and Analysis or Plan of Operation	15

Item 7.	Financial Statements	29

Item 8.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	41

Item 8A.	Controls and Procedures	41

Item 8B.	Other Information	41

PART III

Item 9.	Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act	42

Item 10.	Executive Compensation	42

Item 11.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	42

Item 12.	Certain Relationships and Related Transactions	42

Item 13.	Exhibits	42

Item 14.	Principal Accountant Fees and Services	44

SIGNATURES		45

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

Certain statements in this report, including information incorporated by reference, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect current views about future events and financial performance based on certain assumptions. They include opinions, forecasts, intentions, plans, goals, projections, guidance, expectations, beliefs or other statements that are not statements of historical fact. Words such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “believes,” “anticipates,” “intends,” “estimates,” “approximates,” “predicts,” or “projects,” or the negative or other variation of such words, and similar expressions may identify a statement as a forward-looking statement. Any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business, our goals, strategies, focus and plans, and other characterizations of future events or circumstances, including statements expressing general optimism about future operating results and the development of our products, are forward-looking statements. Forward-looking statements in this report may include statements about:

• future financial and operating results;

• the conduct and outcome of regulatory submissions and clinical trials;

• the performance of Generx^TM and other product candidates and their potential to attract development partners and/or generate revenues;

• our beliefs and opinions about the safety and efficacy of our product candidates and the results of our clinical studies and trials;

• the development or commercialization of competitive products or medical procedures;

• our development of new product candidates;

• our growth, expansion and acquisition strategies;

• the outcome of litigation matters;

• our intellectual property rights and those of others, including actual or potential competitors;

• the ability to enter into acceptable relationships with one or more contract manufacturers or other service providers on which we may depend and the ability of such contract manufacturers or other service providers to manufacture biologics or provide services of an acceptable quality on a cost-effective basis;

• our personnel, consultants and collaborators;

• operations outside the United States;

• current and future economic and political conditions;

• overall industry and market performance;

• the impact of accounting pronouncements;

• management’s goals and plans for future operations; and

• other assumptions described in this report underlying or relating to any forward-looking statements.

The forward-looking statements in this report speak only as of the date of this report and caution should be taken not to place undue reliance on any such forward-looking statements. Forward-looking statements are subject to certain events, risks, and uncertainties that may be outside of our control. When considering forward-looking statements, you should carefully review the risks, uncertainties and other cautionary statements in this report as they identify certain important factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. These factors include, among others, the risks described under Item 6 and elsewhere in this report, as well as in other reports and documents we file with the SEC.

PART I

ITEM 1. DESCRIPTION OF BUSINESS

Overview and Recent Events

Aries Ventures Inc. was incorporated in Nevada on April 21, 2000 as a wholly-owned subsidiary of Casmyn Corp., a Colorado corporation, and merged with Casmyn Corp. on April 28, 2000, with Aries as the surviving corporation. As of September 30, 2005, Aries had no business operations and was focused on maintaining its corporate entity and seeking a new business opportunity.

On October 20, 2005, Aries completed a reverse merger (the “Merger”) with privately held Cardium Therapeutics, Inc., a Delaware corporation, whereby a newly formed and wholly-owned subsidiary of Aries was merged with and into Cardium. As a result, Cardium became a wholly-owned subsidiary of Aries. At the time of the Merger, Aries had divested itself of all its assets and investments other than $1.5 million in cash and had no outstanding contractual commitments.

We plan to hold a meeting of our stockholders in January 2006 to seek their approval, among other things, to merge Aries into Cardium, with Cardium as the surviving entity, for the purpose of effectively changing our state of incorporation from Nevada to Delaware, changing our name to Cardium Therapeutics, Inc. and more clearly reflecting our business plans and objectives following the Merger. Our common stock will continue to trade under the Aries Ventures name and ticker symbol until the completion of the merger of Aries into Cardium, provided such merger is approved by our stockholders, at which time our common stock would begin to trade under the Cardium Therapeutics name and with a new ticker symbol.

For financial reporting purposes, Cardium was the acquirer in the Merger. As a result, from and after the Merger, our fiscal year end will be December 31 (Cardium’s fiscal year end) and the assets, liabilities and historical operations reflected in the financial statements in our financial reports will be those of Cardium, beginning with our Annual Report on Form 10-KSB for the fiscal year ending December 31, 2005 to be filed with the SEC no later than March 31, 2006. Since the Merger occurred in October 2005 and this report contains financial information for periods through September 30, 2005, the assets, liabilities and historical operations reflected in the financial statements in this report under Item 7 are still those of pre-Merger Aries.

Unless the context requires otherwise, all references in this report to the “Company,” “Aries,” “we,” “our,” and “us” refer to Aries Ventures Inc. and, as applicable, its wholly-owned subsidiary Cardium.

Cardium’s Business

Overview

Cardium was incorporated in Delaware in December 2003 and is an interventional cardiology company focused on the late-stage clinical development and commercialization of DNA-based, myocardial-derived, growth factor therapeutics as potential treatments for coronary artery disease and heart attack. Upon the close of the Merger, Cardium acquired a portfolio of cardiovascular growth factor therapeutic assets from Schering AG (Germany) (“Schering”) and/or its affiliates for a purchase price of approximately $4,000,000 (“Schering Transaction”). Since the Merger, Cardium has continued its business under the name Cardium Therapeutics, Inc. as a wholly-owned subsidiary of Aries. In addition to the Schering Transaction, Cardium plans to also seek to broaden and expand its product base and financial resources through other corporate development transactions intended to enhance stockholder value.

Cardium’s initial primary focus will be the commercial development of cardiovascular-directed growth factor therapeutics for interventional cardiology applications based on the product portfolio acquired by Cardium from Schering, which products include Generx^TM and Corgentin^TM. Generx, based on myocardial-derived fibroblast growth factor 4 (mdFGF-4), is our lead product candidate and has advanced to Phase 2b/3 clinical studies. Generx is a non-surgical angiogenic therapy designed to be a one-time treatment with long-lasting therapeutic benefits for patients with recurrent angina due to coronary disease. Corgentin, a pre-clinical product candidate, is a next-generation therapeutic based on myocardial-derived insulin-like Growth Factor-I (mdIGF-I). Corgentin is being designed to be a one-time cardiomyocyte-directed treatment to promote the repair and restoration of damaged

cardiomyocytes and enhance cardiac function following a heart attack (acute myocardial infarction) through the beneficial cardiac effects of prolonged IGF-I protein expression.

In addition, Cardium has secured the rights to Genvascor^TM, a pre-clinical, DNA-based, endothelial nitric oxide synthase (eNOS) therapeutic. Genvascor is being designed to induce production of nitric oxide and is directed at mediating the effects of multiple growth factors to enhance neovascularization and increased blood flow for the potential treatment of patients with critical limb ischemia due to advanced peripheral arterial occlusive disease (PAOD). We may elect to develop Genvascor alone or in collaboration with a development partner.

The following chart summarizes certain attributes of the above-described product candidates acquired in connection with the Schering Transaction:

Product	Growth Factor	Indication	Mechanism of Action
Generx	Fibroblast Growth Factor-4 (FGF-4)	Recurrent angina due to coronary disease	Promote and enhance the growth of collateral circulation in ischemic heart disease
Corgentin	Insulin-like Growth Factor-I (IGF-I)	Acute coronary syndrome following myocardial infarction	Improve recovery of injured myocardium and restore function following heart attack
Genvascor	Endothelial Nitric Oxide Synthase (eNOS)	Critical limb ischemia due to advanced peripheral arterial occlusive disease	Promote multiple vasculoprotective effects and mediate growth factors to enhance neovascularization and increased blood flow to the ischemic limb

Business Strategy

The practical integration of pharmaceutical agents and medical devices, exemplified by the advent of drug-eluting stents, represents an important advancement in effective cardiovascular therapeutic innovation. Likewise, we believe that merging biologic therapy and medical device applications represents a new therapeutic product class, targeting the highly innovative and rapidly growing interventional cardiology market. Rather than simply directing drug therapy at alleviating clinical symptoms, DNA-based cardiovascular therapy attempts to leverage the body’s own physiologic responsiveness to treat the underlying cardiac disease. Cardium seeks to advance the current standard of care for patients with cardiovascular disease through the development of directed therapy to enhance the body’s natural healing process when used in concert with or, as a supplement to, existing vascular-directed or other therapies.

Building upon our core product candidates, our strategic goal is to develop a portfolio of medical products at various stages of development and secure additional financial resources to commercialize these products in a timely and effective basis. The key elements of our strategy are to:

• Initiate a redesigned clinical development program for Generx, which would include a new clinical study (AGENT-5) targeted to patients with recurrent angina and, with positive clinical data, initiate a pivotal Phase 3 clinical study (AGENT-6);

• Leverage our financial resources and focused corporate infrastructure through the use of contract manufacturers to produce clinical supplies and a contract research organization to manage or assist planned clinical studies;

• Advance the pre-clinical development of Corgentin and potentially seek partnering opportunities for the Corgentin and Genvascor product candidates;

• Seek to monetize the economic value of Cardium’s product portfolio by establishing strategic collaborations at appropriate valuation inflection points; and

• Seek to broaden and expand our product base and financial resources through other corporate development transactions in an attempt to enhance stockholder value, which could include acquiring other companies or product opportunities and/or securing additional capital.

We recognize that the practical realities of cardiovascular drug development in the current regulatory environment require sizable financial investment. In view of this, we plan to pursue clinical development strategies intended to facilitate collaborations and partnerships for joint development of our products at appropriate valuation inflection points during their clinical development cycle. In the future, we plan to aggressively seek access to other therapeutics and/or medical device opportunities, as well as medical-related technologies, to further strengthen and broaden our portfolio, and will consider the opportunistic acquisition of other companies having financial and development resources that offer the potential to enhance our near and long-term stockholder value.

Historical Background

In 1995, Christopher Reinhard, Cardium’s Co-Founder, and both Cardium’s and Aries’ Chairman, President and Chief Executive Officer, co-founded Collateral Therapeutics, Inc. (“Collateral Therapeutics”), a former Nasdaq listed public company, to commercialize medical discoveries and technology licensed from the University of California, San Diego related to the potential therapeutic application of methods of gene therapy to stimulate cardiac angiogenesis. In 1996, Collateral Therapeutics and Schering entered into a strategic research and development collaboration to commercially develop angiogenic gene therapy products based on Collateral Therapeutics’ technology platform, which included a portfolio of therapeutic genes, vectors and methods of gene therapy to enhance cardiac function. This research and development collaboration yielded two product candidates based on the human Fibroblast Growth Factor-4 gene (FGF-4) that entered clinical trials.

During the collaboration with Schering, Mr. Reinhard and other members of Collateral Therapeutics’ management team, several of whom have joined Cardium, successfully worked with Schering to promote Collateral Therapeutics’ lead product candidate through several human clinical trials that were principally funded and conducted by Schering and its United States affiliates, including Berlex Laboratories. In 2002, as a result of the success of the Collateral Therapeutics/Schering collaboration and following positive Phase 1/2 and Phase 2a clinical studies for Generx, Collateral Therapeutics was acquired by Schering for approximately $160 million. This acquisition included all of Collateral Therapeutics’ intellectual property and assets, including the rights to the lead product candidate, Generx. After completion of the acquisition by Schering, Mr. Reinhard continued as Chief Executive Officer of Collateral Therapeutics through December 2004.

Following the acquisition, Schering initiated a multi-center Phase 2b/3 clinical program that was designed to evaluate up to 1,000 patients in a U.S. study and a concurrent European study. However, although Phase 1/2 and subsequent Phase 2 clinical data were encouraging, Schering announced in January 2004 that an interim analysis of the Generx Phase 2b/3 (AGENT-3) U.S. clinical study suggested that the Phase 2b/3 (AGENT-3) study as designed appeared to not be sufficient to demonstrate efficacy and it elected to discontinue enrollment pending a review of the study. Schering also reported, however, that the study revealed no evidence of serious safety concerns. On June 15, 2004, Schering announced that it was terminating its cardiovascular research and development activities (including angiogenic DNA-based therapeutics and small molecule drugs) and refocusing on its core business areas. In November 2004, an internal retrospective subgroup analysis of the data from the AGENT-3 clinical study was completed by Schering and has provided positive efficacy insights and reconfirmed the positive safety data. As a result of this retrospective analysis, Cardium was formed to acquire Schering’s portfolio of clinical and pre-clinical stage cardiovascular growth factor therapeutic assets, including exclusive rights to Generx.

Generx Clinical Studies

Generx has been evaluated in studies of 663 patients (including 450 Generx-treated patients and 213 controls) in four multi-center, double-blind, placebo-controlled clinical studies. These studies have been conducted at over 70 U.S., Canadian, European and South American medical centers.

Results from two multi-center, randomized, double-blind, placebo-controlled studies (Phase 1/2 and Phase 2), conducted by Schering in collaboration with Collateral Therapeutics, have provided important safety and preliminary efficacy information. Based on intracoronary administration to 450 patients, Generx appears to be safe and well tolerated with no significant adverse side effects. Results from the Phase 1/2 study (AGENT-1) demonstrated that, in patients whose baseline exercise treadmill tests (“ETT”) were equal to, or less than 10 minutes, Generx showed a significant improvement in ETT time compared to patients that received the placebo control. A Phase 2 study (AGENT-2), designed to assess enhancement of myocardial perfusion (blood flow to the heart) following intracoronary delivery of Generx in patients with documented reversible ischemia measured by stress

adenosine single-photon emission computed tomography (SPECT) imaging, demonstrated that Generx provided improvement in myocardial perfusion in patients with moderate to severe angina.

Positive data from AGENT-1 and AGENT-2 supported the advancement of the Generx development program into two large-scale Phase 2b/3 trials worldwide (AGENT-3 and AGENT-4), which were designed to enroll up to 1,000 patients at more than 100 medical centers in the U.S., Canada, South America and Europe. Based on an interim analysis of 307 patients in the U.S.-based AGENT-3 study, the clinical data further confirmed the product’s positive safety profile and suggested improvements to study design in view of the level of placebo response observed among generally healthier patients. However, enrollment in the studies was stopped because, as designed, the studies were not considered sufficient to provide statistical evidence of efficacy. An independent Data Safety Monitoring Board monitored the studies and reported that there was no evidence of safety concerns. A detailed subgroup analysis of the AGENT-3 data confirmed that there were statistically significant improvements in the primary end-point (i.e. exercise treadmill testing or ETT) in the key patient populations. This subgroup analysis is believed to provide support for further clinical trial evaluation to demonstrate the safety and effectiveness of Generx in patients with myocardial ischemia and associated symptomatic recurrent angina.

The following chart summarizes the clinical development of Generx:

Date	Trial	Study Objective	No. of Patients	Clinical Results
1999	AGENT 1	First in Man U.S. Phase 1/2 Clinical Studies	79	Positive Safety & Preliminary Efficacy
2001	AGENT 2	Phase 2a Clinical Study Multi-Center, Randomized, Placebo-Controlled, U.S. Mechanism of Action Study Evaluation of Cardiac Perfusion	52	Positive Safety & Preliminary Efficacy, Positive Information About Mechanism of Action (Cardiac Perfusion)
2004	AGENT 3	Multi-Center, Randomized, Placebo-Controlled, U.S. Phase 2b/3 Clinical Study Evaluate Safety & Efficacy	416	Positive Safety, Efficacy Not Statistically Sufficient Based on Protocol Design
2004	AGENT 3 (Retrospective Subgroup Analysis)	Multi-Center, Randomized, Placebo-Controlled, U.S. Phase 2b/3 Clinical Study Evaluate Safety & Efficacy	416	Positive Safety and Statistically Significant Efficacy in Subgroup Patients (>55 years of age) with Severe Angina or Limited Exercise Capacity
2004	AGENT 4	Multi-Center, Randomized, Placebo-Controlled, Europe, Canada, South America Phase 2b/3 Clinical Study Evaluate Safety & Efficacy	116	Positive Safety, Efficacy Not Statistically Sufficient Based on Protocol Design
2006	Planned AGENT 5	Multi-Center, Randomized, Placebo-Controlled, U.S. Phase 2b/3 Clinical Study	TBD	Further Evaluate Safety, Explore Efficacy Using Modified Patient Population and Re-confirm Angiogenic Mechanism of Action (Cardiac Perfusion) Using Advanced Diagnostic Imaging

Comparative Anti-Anginal Therapeutic Approaches

During the past two decades several drugs have been approved by the United States Food and Drug Administration (“FDA”) for the management of chronic stable angina pectoris, including beta-blockers, nitrates and calcium channel blockers. These drugs were approved based upon improvement in total ETT time and, in general, have demonstrated placebo-corrected increases of approximately 20 to 50 seconds. However, no new class of medications to treat angina has been approved for over 15 years. Currently, fatty acid oxidation inhibitors such as Ranolazine are being developed as a potential new alternative to or addition to existing therapies. The clinical trial

experience in AGENT-3 suggests that in patients with more severe angina, Generx, after a one-time administration, can produce sustained increases in total ETT time that are clinically meaningful when considered in the context of these available therapies. Most importantly, the effects of Generx have been demonstrated in patients who are already receiving one or more chronic anti-anginal medications.

Looking comparatively, the Ranolazine^TM clinical trial data suggest that the magnitude of its effect is similar to the currently available drugs. For example, in the CARISA trial, Ranolazine achieved an approximately 24 second improvement in total ETT time over placebo at trough drug levels (as defined in the trial protocol). In addition to drug therapy, mechanical revascularization procedures such as percutaneous coronary intervention (“PCI”) and coronary artery bypass surgery graft (“CABG”) surgery are commonly employed interventional procedures used to manage patients with chronic angina. While there have been few published controlled clinical trials of PCI or CABG surgery that have collected ETT data, two studies that have directly compared PCI and CABG surgery using ETT have shown sustained improvements in total ETT time of approximately 90 to 114 seconds for PCI and 132 to 174 seconds for CABG surgery.

Comparative Clinical Data Based on
Total Exercise Treadmill Time: Change from Baseline

Study	Treatment Group	# Patients	Mean ETT Change in Seconds	p-Value
DNA-Based Angiogenic Therapy Generx [mdFGF-4] AGENT-3/4 Age > 55, Baseline ETT < 300 Seconds @ Six Months	Placebo Generx 10e9 v.p. dosage Generx 10e10 v.p. dosage	27 27 37	28.1 (11.5%) 92.0 (38.3%) 75.3 (31.2%)	— 0.03 0.02
Small Molecule Drug Ranolazine *CARISA Study(1) CVTherapeutics	Placebo Ranolazine 750 mg Ranolazine 1000 mg	258 272 261	91.7 (21.9%) 115.4 (27.7%) 115.8 (27.9%)	— 0.03 0.03
Mechanical Revascularizations American Heart Journal(2)	Coronary Artery Bypass Surgery PCI - Angioplasty	46 40	132 (29.7%) 114 (23.5%)	— —
Mechanical Revascularizations ACIP Study(3)	Coronary Artery Bypass Surgery PCI - Angioplasty	78 92	174 (34.9%) 90 (19.4%)	— —

*CARISA data are least square means and other study data are arithmetic means.

1. Chaitman BR, Pepine CJ, Parker JO, Skopal J, Chumakova G, et al. Effects of ranolazine with atenolol, amlodipine, or diltiazem on exercise tolerance and angina frequency in patients with severe chronic angina: a randomized controlled trial. JAMA 2004;291(3):309-316.

2. Mulcahy D, Keegan J, Phadke K, Wright C, Sparrow J, Purcell H, Fox K. Effects of coronary artery bypass surgery and angioplasty on the total ischemic burden: a study of exercise testing and ambulatory ST segment monitoring. Am Heart J 1992;123(3):597-603.

3. Bourassa MG, Knatterud GL, Pepine CJ, Sopko G, Rogers WJ, et al. Asymptomatic Cardiac Ischemia Pilot (ACIP) Study. Improvement of cardiac ischemia at 1 year after PTCA and CABG. Circ 1995;92(9 Suppl):II1-7.

These data confirmed earlier studies and suggested that the treatment could benefit patients with more serious angina that typically occurs as a result of advanced coronary artery disease. This may allow targeting patients who have had previous interventions such as angioplasty or bypass surgery, but have recurrent angina despite drug therapy. Furthermore, based on this substantial human clinical experience with Generx, coupled with unique insights regarding a particularly “responsive” patient population for what is considered to be the key efficacy end-point, we believe that Generx has the potential to obtain approvable clinical data in a pivotal trial in the foreseeable

future and ahead of potential competition.

We plan to redesign Schering’s Phase 2b/3 clinical study protocol and initiate AGENT-5, a new clinical study that would continue to evaluate Generx’s safety, assess the appropriateness of our modified clinical protocol design and reconfirm the FGF-4 angiogenic mechanism of action (utilizing advanced diagnostic cardiac imaging techniques). With positive data we hope to obtain from AGENT-5, we plan to further build on Schering’s six-year clinical development activities and advance forward with AGENT-6, a newly redesigned, Phase 3 pivotal study that would be structured and powered to serve as the basis for a regulatory submission seeking marketing approval from the FDA.

Generx Clinical Development Strategy

Since 1995, members of Cardium’s management, during their employment with Collateral Therapeutics and Schering, have had considerable experience in accomplishing regulatory clearance in pre-clinical research, pre-clinical toxicology, manufacturing, distribution and global clinical development of Generx that should allow Cardium to begin its clinical development program in a more favorable position than most of its competitors. As part of the Schering Transaction, Cardium received from Schering an active IND in the United States, Canada and several European and South American countries, and information about manufacturing and analytical processes approved by the FDA and the European Regulatory Agency.

Cardium plans to initiate AGENT-5, a multi-center, randomized, double-blind, placebo-controlled study to prospectively evaluate the efficacy and safety of mdFGF-4 in the patient population identified as responders in the retrospective analysis of AGENT-3. This trial may begin enrollment in the second quarter of 2006, assuming the successful manufacture of clinical supplies and the initiation or reinitiation of clinical sites. Approximately fifteen clinical sites would be expected to participate in this AGENT-5 study.

Corgentin Pre-Clinical Development

Corgentin, a pre-clinical product candidate, is a next-generation DNA-based therapeutic based on myocardial derived insulin-like growth factor-I (mdIGF-I) that is being designed as a one-time cardiomyocyte-derived treatment to promote the repair and restoration of damaged cardiomyocytes and enhance cardiac function following a heart attack (acute myocardial infarction) through the beneficial cardiac effects of prolonged IGF-I protein expression. We believe that myocardial derived IGF-I offers the potential to improve post-infarct cardiac healing through DNA-based, targeted myocardial cell delivery and resulting sustained cardiac-restorative bioactivity. Corgentin would be delivered using our methods of intracoronary cardiac administration. The biological properties of IGF-I, including inhibition of apoptosis, adaptive cardiomyocyte hypertrophy, recruitment of cardiac progenitor cells, as well as the induction of angiogenesis and enhancement of cardiac function, provide the rationale for the development of a therapy directed at myocardial repair and restoration. This biology predicts Corgentin’s potential to improve functional recovery and prevent ventricular dysfunction and the associated progression to congestive heart failure following myocardial infarction and reperfusion.

The safety of systemic IGF-I protein therapy has been confirmed in multiple human clinical studies for a number of medical indications. While there is abundant published scientific literature validating the multiple beneficial cardiac effects of IGF-I, systemic IGF-I protein delivery generally lacks the ability to target cardiomyocytes for effective therapy. We believe that by targeting the heart with intracoronary, DNA-coded, myocardial-directed delivery, using the methods pioneered for the Generx development program by Collateral Therapeutics and Schering, mdIGF-I has the potential to induce a positive biologic response. The targeted cardiomyocytes are expected to produce sustained therapeutic protein levels in the myocardium where it is needed. We estimate that over 1,000 patients have been treated with various dose levels of IGF-I protein, and 450 patients have received Generx via intracoronary administration of DNA-based myocardial delivery of the FGF-4 angiogenic growth factor. We believe the safety and preliminary efficacy from these studies provide further support for the clinical potential of Corgentin.

Collateral Therapeutics’ in vitro pre-clinical development studies provided data supporting the myocardial benefits of IGF-I in cell-based assays by protecting cardiomyocytes against apoptosis, inducing adaptive cardiomyocyte hypertrophy and inducing proliferation of human coronary artery endothelial cells. Cardium’s in vivo proof-of-concept pilot study in pigs, based on its coronary occlusion/reperfusion myocardial infarct model, tested intracoronary mdIGF-I administration to promote myocardial repair following a significant heart attack (myocardial infarction). This double-blind, randomized, placebo-controlled study was designed to simulate the clinical approach

in which Corgentin could be administered after emergency reperfusion therapy to a heart attack patient. Following infarction, echocardiographic analysis documented recovery and restoration of ventricular function and reversal of early left ventricular remodeling in the Corgentin-treated group, compared to placebo. Post-mortem analysis of the hearts provided histological evidence of the potential for post-infarct myocardial protection with this therapy. The initial clinical studies for Corgentin would be designed to seek product registration for use in patients with acute ST-elevation myocardial infarction undergoing percutaneous coronary intervention with or without associated fibrinolysis.

Corgentin Therapeutic Approach for Heart Attack

We will seek to advance the current standard of care for patients with acute coronary syndrome through the development of Corgentin to enhance myocardial healing in and around the infarct zone when used as an adjunct to existing vascular-directed pharmacologic and interventional therapies. As currently envisioned, Corgentin would be developed as a potential treatment to be administered for heart attack patients immediately following percutaneous coronary intervention. The objective of this treatment approach is focused on enhancing myocardial repair and restoration for heart cells that have been injured as a result of the heart attack. Today’s current standard of care is vascular-directed, focusing on restoring blood flow, while Corgentin would seek to broaden treatment to include a cardiomyocyte-directed therapy to repair cells that have been injured as a result of a heart attack.

It should be noted that even with the best of care and successful early intervention, about 30% of heart attack patients will eventually go on to develop congestive heart failure with decompensated coronary syndrome and the potential for eventual left ventricular remodeling. This explains in large part why heart failure remains an epidemic health problem despite improved treatments for acute cardiac events. A therapeutic approach such as Corgentin has the potential to change the clinical outcome for heart attack patients by slowing or preventing the development of decompensated coronary syndrome and subsequent heart failure.

To further confirm the utility of the Corgentin approach and establish its commercialization potential, we plan to develop additional pre-clinical information through sponsored studies. If confirmatory, we may then consider initiating clinical studies, on our own or with a corporate development partner.

Genvascor Pre-Clinical Development

As part of the Schering Transaction, Cardium also secured the rights to Genvascor, a pre-clinical, DNA-based, endothelial nitric oxide synthase (eNOS) therapeutic. This product candidate is being designed to induce production of nitric oxide directed at mediating the effects of multiple growth factors to enhance neovascularization and increased blood flow for the treatment of patients with critical limb ischemia due to advanced peripheral arterial occlusive disease. We may seek to develop additional pre-clinical information through sponsored studies and, if confirmatory, anticipate we would seek to further develop Genvascor either alone or through a corporate collaboration.

Nitric oxide (NO) is believed to play an important role in angiogenesis by mediating some of the effect of vascular endothelial growth factor (VEGF) and other growth factors and by inhibiting local anti-angiogenic mechanisms (e.g., VEGF receptor down-regulation). In the setting of atherosclerotic arterial disease and the presence of multiple concurrent cardiovascular risk factors, activation of vascular endothelial cells leads to reduced production of endothelial nitric oxide and impaired local angiogenesis. We believe that a treatment that re-establishes a sufficient level of bioavailable nitric oxide can potentially lead to enhanced neovascularization and increased blood flow to an ischemic limb. Based on its multiple vasculoprotective mechanisms, as well as the anti-inflammatory activity that nitric oxide exerts while also stimulating angiogenesis and arteriogenesis, treatment with Genvascor could lead to superior clinical efficacy to relieve peripheral limb ischemia over single growth factor treatments that are currently in development.

Critical limb ischemia due to advanced peripheral arterial occlusive disease (PAOD) is characterized by reduced blood flow and oxygen delivery with exercise or even at rest with severe disease, resulting in claudication (muscle pain) and eventual non-healing skin ulcers that can lead to gangrene. The estimated incidence of critical limb ischemia is 500-1000 per million per year in the United States. Progressive microcirculatory dysfunction and impairment of angiogenesis/arteriogenesis are crucial pathophysiologic determinants of critical limb ischemia. As critical limb ischemia progresses, deregulation of the microcirculation occurs, characterized by activation of white blood cells, platelet aggregation, plugging of capillaries, endothelial damage and release of free radicals, all of

which promote further ischemia leading to tissue damage and eventual tissue necrosis. The prognosis of patients with critical limb ischemia is very poor. The survival rate for patients with significant tissue necrosis without major amputation is less than 50% after one year. Many patients presenting with ischemic pain and ulcers are not suitable candidates for surgical revascularization or angioplasty due to diffuse, distal occlusive vascular disease. Current pharmacotherapy has had little impact on limb salvage in patients with advanced critical limb ischemia and, likewise, little symptomatic effect.

Angiogenesis and collateral vessel formation in an extremity are complex processes that require the coordination of multiple factors. Therefore, the potential efficacy of treatments currently under development using a single growth factor may be limited. We believe that the delivery of the gene directed at the production of nitric oxide to mediate the effect of multiple growth factors to induce angiogenesis represents a promising new approach for the treatment of critical limb ischemia. Nitric oxide availability to the tissues can reverse ischemia through multiple mechanisms including stimulating impaired angiogenesis, ameliorating existing microvascular dysfunction, restoring vasomotor (vasodilator) activity of existing vessels and contributing to the remodeling and maturation of existing collateral vessels. This “biology-based” revascularization of ischemic limb tissues could possibly be efficacious for patients who are not amenable to percutaneous or surgical revascularization.

The proprietary endothelial nitric oxide synthase mutant Cardium acquired in the Schering Transaction has an increased specific activity of the nitric oxide synthase enzyme, which induces the production of high local levels of nitric oxide. This production is not only independent of the level of endogenous growth factors present, but also is not inhibited by common concurrent risk factors such as hypercholesterolemia or increased oxidative stress, which are known to inhibit the activity of endogenous wildtype eNOS. The properties of this eNOS mutant, Genvascor, may predict a beneficial effect in chronic ischemic conditions. Significant improvement in revascularization and limb salvage has been shown with intramuscular delivery of Genvascor in eNOS-knock-out mouse models of chronic limb ischemia. Efficacy of Genvascor has also been demonstrated in mouse chronic limb ischemia models with reported functional deficiencies in eNOS due to diabetes, the most common cause of PAOD. Treatment with Genvascor therefore has the potential to be efficacious in patients with chronic limb ischemia who also exhibit severe endothelial nitric oxide deficiency, either due to genetic causes or due to metabolic or inflammatory factors. These properties may provide Genvascor a competitive advantage over single growth factor therapies in development as a novel therapy for symptomatic, severe PAOD.

Government Regulation

New drugs and biologics, including gene therapy and other DNA-based products, are subject to regulation under the federal Food, Drug, and Cosmetic Act. In addition, biologics are also regulated under the Public Health Service Act. We believe that the pharmaceutical products we are attempting to develop will be regulated either as biological products or as new drugs. Both statutes and their corresponding regulations govern, among other things, the testing, manufacturing, distribution, safety, efficacy, labeling, storage, record keeping, advertising and other promotional practices involving biologics or new drugs. FDA approval or other clearances must be obtained before clinical testing, and before manufacturing and marketing, of biologics and drugs. Obtaining FDA approval has historically been a costly and time-consuming process. Different regulatory regimes are applicable in other major markets.

In addition, any gene therapy and other DNA-based products we develop will require regulatory approvals before human trials and additional regulatory approvals before marketing. New biologics are subject to extensive regulation by the FDA and the Center for Biological Evaluation and Research and comparable agencies in other countries. Currently, each human-study protocol is reviewed by the FDA and, in some instances, the National Institutes of Health, on a case-by-case basis. The FDA and the National Institutes of Health have published guidance documents with respect to the development and submission of gene therapy protocols.

To commercialize our product candidates, we must sponsor and file an investigational new drug application and be responsible for initiating and overseeing the human studies to demonstrate the safety and efficacy and, for a biologic product, the potency, which are necessary to obtain FDA approval of any such products. For our newly sponsored investigational new drug applications, we will be required to select qualified investigators (usually physicians within medical institutions) to supervise the administration of the products, and we will be required to ensure that the investigations are conducted and monitored in accordance with FDA regulations and the general investigational plan and protocols contained in the investigational new drug application.

The FDA receives reports on the progress of each phase of testing, and it may require the modification, suspension, or termination of trials if an unwarranted risk is presented to patients. If the FDA imposes a clinical hold, trials may not recommence without FDA authorization and then only under terms authorized by the FDA. The investigational new drug application process can thus result in substantial delay and expense. Human gene therapy products, the primary area in which we are seeking to develop products, are a new category of therapeutics. Because this is a relatively new and expanding area of novel therapeutic interventions, there can be no assurance as to the length of the trial period, the number of patients the FDA will require to be enrolled in the trials to establish the safety, efficacy and potency of human gene therapy products, or that the data generated in these studies will be acceptable to the FDA to support marketing approval.

After the completion of trials of a new drug or biologic product, FDA marketing approval must be obtained. If the product is regulated as a biologic, the Center for Biological Evaluation and Research will require the submission and approval, depending on the type of biologic, of either a biologic license application or a product license application and a license application before commercial marketing of the biologic. If the product is classified as a new drug, we must file a new drug application with the Center for Drug Evaluation and Research and receive approval before commercial marketing of the drug. The new drug application or biologic license applications must include results of product development, laboratory, animal and human studies, and manufacturing information. The testing and approval processes require substantial time and effort and there can be no assurance that the FDA will accept the new drug application or biologic license applications for filing and, even if filed, that any approval will be granted on a timely basis, if at all. In the past, new drug applications and biologic license applications submitted to the FDA have taken, on average, one to two years to receive approval after submission of all test data. If questions arise during the FDA review process, approval can take more than two years.

Notwithstanding the submission of relevant data, the FDA may ultimately decide that the new drug application or biologic license application does not satisfy its regulatory criteria for approval and require additional studies. In addition, the FDA may condition marketing approval on the conduct or specific post-marketing studies to further evaluate safety and effectiveness. Rigorous and extensive FDA regulation of pharmaceutical products continues after approval, particularly with respect to compliance with current GMPs, reporting of adverse effects, advertising, promotion and marketing. Discovery of previously unknown problems or failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions.

Ethical, social and legal concerns about gene therapy, genetic testing and genetic research could result in additional regulations restricting or prohibiting the processes we or our suppliers may use. Federal and state agencies, congressional committees and foreign governments have expressed interest in further regulating biotechnology. More restrictive regulations or claims that our products are unsafe or pose a hazard could prevent us from commercializing any products.

In addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the Occupational Safety and Health Act, the Resource Conservancy and Recovery Act and the Toxic Substances Control Act, affect our business. These and other laws govern our use, handling and disposal of various biological, chemical and radioactive substances used in, and wastes generated by, our operations. If our operations result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. We believe that we are in material compliance with applicable environmental laws and that continued compliance therewith will not have a material adverse effect on our business. We cannot predict, however, how changes in these laws may affect our future operations.

We are also subject to a variety of other regulations in the United States, including those relating to bioterrorism, taxes, labor and employment, import and export, and intellectual property.

To the extent we have operations outside the United States, any such operations would be similarly regulated by various agencies and entities in the countries in which we operate. The regulations of these countries may conflict with those in the United States and may vary from country to country. In markets outside the United States, we may be required to obtain approvals, licenses or certifications from a country’s ministry of health or comparable agency before we begin operations or the marketing of products in that country. Approvals or licenses may be conditioned or unavailable for certain products. These regulations may limit our ability to enter certain markets outside the United States.

Competition

The pharmaceutical, biotechnology and medical device industries are intensely competitive. Any product candidate developed by us would compete with existing drugs, therapies and medical devices or procedures and with others under development. There are many pharmaceutical companies, biotechnology companies, medical device companies, public and private universities and research organizations actively engaged in research and development of products for the treatment of cardiovascular and vascular disease. Many of these organizations have financial, technical, research, clinical, manufacturing and marketing resources that are greater than ours. If a competing company develops or acquires rights to a more efficient, more effective, or safer competitive therapy for treatment of the same or similar diseases we have targeted, or one that offers significantly lower costs of treatment, our business, financial condition and results of operations could be materially adversely affected. In view of the relatively early stage of the industry, we believe that the most significant competitive factor in the field of gene therapy and biologics is the effectiveness and safety of a product candidate, as well as its relative safety, efficacy and cost as compared to other products, product candidates or approaches that may be useful for treating a particular disease condition.

We believe that our product development programs will be subject to significant competition from companies using alternative technologies, as well as to increasing competition from companies that develop and apply technologies similar to ours. Other companies may succeed in developing products earlier than we do, obtaining approvals for these products from the FDA more rapidly than we do or developing products that are safer, more effective or less expensive than those under development or proposed to be developed by us. We cannot assure you that research and development by others will not render our technology or product candidates obsolete or non-competitive or result in treatments superior to any therapy developed by us, or that any therapy developed by us will be preferred to any existing or newly developed technologies.

We are aware of products currently under development by competitors targeting the same or similar cardiovascular and vascular diseases as our Generx product development. These include biologic treatments using forms of genes and therapeutic proteins. For example, Corautus Genetics, Inc., pursuant to a development agreement with Boston Scientific, has initiated a clinical study to evaluate a non-viral delivery of vascular endothelial growth factor-2 (VEGF-2) DNA in the form of “naked” plasmid for the direct injection into the heart muscle of patients with severe angina. They have recently initiated a Phase 2 clinical study with plans to enroll patients with Class III or IV angina that are not suitable for traditional revascularization procedures. Additionally, GenVec, Inc. recently announced the initiation of a Phase 2 clinical study of BioByPass^™ Angiogen, which uses Vascular Endothelial Growth Factor-121 (VEGF-121) as a treatment for patients with severe coronary artery disease. This study will reportedly evaluate the effects of ETT time, heart function and quality of life in patients. Angiogen will apparently be administered to patients using direct injection into heart muscle using a guidance system (NOGA). GenVec previously announced a research collaboration with Cordis Corporation, a Johnson & Johnson company, to utilize the NOGA guidance delivery for its Angiogen product. We will also face competition from entities using other traditional methods, including new drugs and mechanical therapies, to treat cardiovascular and vascular disease.

Manufacturing Strategy

To leverage our experience and available financial resources, we do not plan to develop company-owned and operated manufacturing facilities. We plan to outsource all product manufacturing to a contract manufacturer of clinical drug products that operates at a manufacturing facility in compliance with current good manufacturing practices or “GMPs.” We may also seek to refine the current manufacturing process and final product formulation to achieve improvements in storage temperatures and the like.

Our management team already has experience with production of Adenovirus vector (“Adenovector”), DNA-based therapies, which is believed to be useful in understanding the unique requirements of our business. Schering, using their experience in the production of clinical grade, DNA-based drug products, has developed an adenovector manufacturing process employing the use of master viral banks and master cell banks. Technical transfer of process materials and methodologies from Schering to Cardium is expected to take place, combining expertise of both companies.

The FDA has established guidelines and standards for the development and commercialization of molecular and gene-based drug products i.e.: Guidance for Industry – CMC for Human Gene Therapy INDs November 2004, Sterile Drug Products Produced by Aseptic Processing September 2004, Human Somatic Cell Therapy and Gene

Therapy March 1998, PTC in the Characterization of Cell Lines Used to Produce Biologicals July 1993. These industry guidelines, among others, provide essential oversight with regard to process methodologies, product formulations and quality control standards to ensure the safety, efficacy and quality of these drug products.

Marketing and Sales

Our product candidates must undergo testing and development in clinical trials and pre-clinical studies. We do not currently have any products approved for marketing nor any present capacity to market and sell products that could be commercially developed based on our technology. If we should obtain any such marketing approvals, we expect that we would elect to engage in marketing or sales through or in collaboration with a commercialization partner, although we are not currently involved with such a partner.

Intellectual Property

As part of the Schering Transaction, pursuant to a Technology Transfer Agreement entered into between Cardium and Schering, Cardium acquired from Schering a portfolio of methods and compositions directed at the treatment of cardiovascular diseases. Cardium also has exclusive licenses to methods for introducing DNA to the heart and for improving heart muscle function, as well as to various biologics. Cardium’s resulting portfolio of cardiovascular product candidates and associated intellectual property include methods and genes applicable to the treatment of heart diseases, the promotion of healing, and the treatment of peripheral vascular disease. Our intellectual property portfolio currently includes more than five issued U.S. patents and more than 60 U.S. patent applications or foreign counterpart patents or patent applications. There can be no assurance that our intellectual property assets will be sufficient to protect our commercialization opportunities, nor that our planned commercialization activities will not infringe any intellectual property rights held or developed by third parties.

Cardium has entered into certain collaborative and licensing arrangements in connection with the Schering Transaction. We expect to continue evaluations of the safety, efficacy and possible commercialization of our therapeutic genes and methods of gene therapy. On the basis of such evaluations, we may alter our current research and development programs, clinical studies, partnering or other development or commercialization activities. Accordingly, we may elect to cancel, from time to time, one or more of the following arrangements with third parties, subject to any applicable accrued liabilities and, in certain cases, termination fees. Alternatively, the other parties to such arrangements may, in certain circumstances, be entitled to terminate the arrangements. Further, the amounts payable under certain of our arrangements may depend on the number of products or indications for which any particular technology licensed under such arrangement is used by us. Thus, any statement of potential fees payable by us under each agreement is subject to a high degree of potential variation from the amounts indicated herein.

Our business strategy includes the establishment of research collaborations to support and supplement our discovery, pre-clinical and clinical research and development phases of the product commercialization cycle, as well as the implementation of long-term strategic partnerships with major pharmaceutical and biotechnology companies and interventional cardiology and medical device companies, to support clinical trials and product commercialization activities, including product manufacturing, marketing and distribution.

Schering Agreement

Cardium entered into an agreement with Schering covering the transfer or license of certain assets and technology relating to (i) methods of gene therapy for the treatment of cardiovascular disease (including methods for the delivery of genes to the heart or vasculature and the use of angiogenic and/or non-angiogenic genes for the potential treatment of diseases of the heart or vasculature); (ii) therapeutic genes that include fibroblast growth factors (including FGF-4); insulin-like growth factors (including IGF-I); and potentially other related biologics (including mutant eNOS); and (3) other technology and know-how, including manufacturing and formulation technology, as well as data relating to the clinical development of Generx and corresponding FDA regulatory matters. Under this agreement, we paid Schering a $4 million up front fee in October 2005 and would be required to pay a $10 million milestone payment upon the first commercial sale of each resulting product. We also may be obligated to pay the following royalties to Schering: (i) 5% on net sales of an FGF-4 based product such as Generx, or (ii) 4% on net sales of other products developed based on technology transferred to Cardium by Schering. We are also obligated to reimburse Schering for patent expenses, including the expenses of any interference or other proceedings, accrued on or after April 1, 2005 in connection with the transferred technologies.

University of California License Agreement

In September 1995, Collateral Therapeutics entered into an agreement with the Regents of the University of California (“Regents”) pursuant to which the Regents granted to Collateral Therapeutics an exclusive license (with the right to sublicense) in the United States, and in foreign countries where the respective patent rights exist, to certain technology relating to angiogenic gene therapy, based on scientific discovery research conducted at a laboratory at the University of California. In June 1997, Collateral Therapeutics and the Regents entered into an exclusive license agreement (with the right to sublicense) in the United States, and in foreign countries where the respective patent rights exist, for certain technology relating to angiogenic gene therapy for congestive heart failure.

As part of the Schering Transaction, Cardium acquired Collateral Therapeutics’ rights and corresponding obligations under the September 1995 agreement, which in connection with the Schering Transaction was amended, among other things, to include the technology previously covered by the June 1997 agreement. The agreement as amended may be canceled by Cardium at any time on 60 days notice, following which Cardium would continue to be responsible only for obligations and liabilities accrued before termination. Under the agreement, Cardium is obligated to pay (1) an annual royalty fee of 2% based on net sales of products incorporating the technology licensed under the agreement, and (2) a minimum annual royalty fee (which may be offset against the net sales-based royalty fee) of $150,000 for 2009, $200,000 for 2010, $250,000 for 2011, $300,000 for 2012, $400,000 for 2013 and $500,000 for 2014 and thereafter. Cardium is also obligated to reimburse the Regents for ongoing patent expenses incurred in connection with the licensed technologies. Cardium is obligated to make milestone payments to the Regents of $100,000 payable on the earlier to occur of the beginning of new Phase II clinical trials in the United States or June 30, 2006, and $200,000, payable on the earlier to occur of the beginning of Phase II/III clinical trials in the United States or December 31, 2008.

The above agreement provides Cardium with exclusive rights (subject to any license rights of the U.S. government) to develop and commercialize technology covered by patent applications that have been filed in the United States and in foreign countries. Under the terms of the agreement, Cardium is required to diligently proceed with the development and commercialization of the products covered by the licensed patents. To demonstrate its diligence, Cardium is required to attain certain developmental milestones on or before deadlines set forth in the licenses. If and after Cardium receives marketing approval of the products, it will be required to market the products in the United States within six months thereafter. If there is a material breach of any of these agreements, which material breach remains uncured for 60 days, the breached agreement could be terminated by the Regents.

New York University Research and License Agreement

In March 1997, Collateral Therapeutics entered into an agreement with New York University (“NYU”) pursuant to which NYU granted to Collateral Therapeutics an exclusive worldwide license (with the right to sublicense) to certain technology covering development, manufacture, use and sale of gene therapy products based on FGF-4 for the treatment of coronary artery disease, peripheral vascular disease and congestive heart failure. This agreement was also assumed by Cardium in connection with the Schering Transaction and amended in certain respects pursuant to an agreement with NYU. Upon assumption, this agreement as amended provides Cardium with exclusive rights in such fields to develop and commercialize technology covered by the issued patent and patent applications that have been filed in the United States and in foreign countries. Pursuant to the agreement, Cardium is obligated to pay NYU license fees through the completion of the first full year of sales of licensed product equal to $50,000 per year. Cardium is also obligated to reimburse NYU for ongoing patent expenses incurred in connection with the licensed technologies. Should licensed products under the agreement reach the stage of filing of a product license application (PLA) and PLA approval or foreign equivalent thereof, Cardium could be obligated to pay up to an aggregate amount of approximately $1.8 million for each product in milestone payments. In addition, beginning in the year in which Cardium completes one full year of sales of licensed products and continuing thereafter until the agreement terminates or expires, Cardium could also be obligated to pay annual royalty fees equal to the greater of $500,000 or 3% on net sales of products incorporating the technology licensed under the agreement. Under the license agreement, Cardium is required to pursue development and commercialization of the licensed products. If there is a material breach of this agreement that remains uncured for 60 days (or 30 days in the case of unpaid amounts due), the breached agreement could be terminated by NYU.

Yale University License Agreement

In September 2000, Schering entered into an agreement with Yale University pursuant to which Yale University granted to Schering an exclusive worldwide license (with the right to sublicense) to certain technology covering

development, manufacture, use and sale of gene therapy products based on a phosphomimetic mutant of human endothelial nitric oxide synthase (eNOS) for the treatment of all cardiovascular diseases. As part of the Schering Transaction, Cardium assumed this agreement with Yale University and as such will be obligated to pay an annual license fee of $15,000, and make certain milestone payments during the development of the licensed products as follows: (i) $150,000 upon filing the first investigational new drug application for the first licensed product in any one of the United States, Japan or a country in the European Union; (ii) $825,000 upon treating the first patient in the second clinical trial in any one of the United States, Japan or a country in the European Union; (iii) $900,000 upon filing first Biologics License Application (BLA) or new drug application in the United States; (iv) $1.5 million upon the first commercial sale of a licensed product; and (v) $3 million upon first $10 million in net sales. If Cardium achieves sales of licensed products, Cardium would be required to pay a minimum royalty of $50,000 per year that is credited to an annual sales royalty equal to 4% of the first $250 million of net sales, 5% of the next $250 million of net sales and 6% of net sales in excess of $500 million. Under the terms of this agreement, Cardium is obligated to reimburse Yale University for ongoing patent expenses incurred in connection with the licensed technologies. If there is a material breach of this agreement that remains uncured for 60 days, the breached agreement could be terminated by Yale.

Employees

Cardium currently employs approximately 10 employees on a full time basis and expects to hire approximately six to eight additional employees during the next twelve months. Our employees are not represented by a collective bargaining agreement and we have not experienced any work stoppages as a result of labor disputes. We believe our relationship with our employees is good. Cardium also relies on various consultants and advisors to provide services to it.

ITEM 2. DESCRIPTION OF PROPERTY

As of September 30, 2005, Aries occupied offices provided by an affiliate on a month to month basis at 11111 Santa Monica Boulevard, Suite 1250, Los Angeles, California 90025. Effective on November 1, 2005, we entered into a two year lease with Kilroy Realty, L.P., a Delaware limited partnership (“Lease”), to lease approximately 5,727 square feet at 3611 Valley Centre Drive, Suite 525, San Diego, California 92130, the location of our current principal executive offices. The Lease contains two options, the first for an additional term of one year and the second for an additional term of two years. The second option is subject to a third party right of first refusal. During the first year of the Lease, our monthly installment of base rent will be approximately $21,500, which amount will increase by approximately four percent in the second year of the Lease. We will also be required to pay our proportionate share of operating and tax expenses for the office park in which our space is located.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we may become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business. These matters may relate to intellectual property, employment, tax, regulation, contract or other matters. The resolution of these matters as they arise will be subject to various uncertainties and, even if such claims are without merit, could result in the expenditure of significant financial and managerial resources. As of December 21, 2005, neither Aries nor its subsidiary Cardium were a party to any material pending legal proceeding nor was any of their property the subject of any material pending legal proceeding. It is anticipated, however, that we will be regularly engaged in various patent prosecution matters related to the technology we develop and/or license, including the technologies described in Item 1 above. For example, Collateral Therapeutics has assisted the University of California, as the licensor, in an interference proceeding involving the University of California’s technology for cardiovascular gene therapy and a pending patent application filed by Jeffrey Leiden et al. (a U.S. counterpart of international application PCT/US93/11133, which published as WO94/11506). In a related matter, Collateral Therapeutics successfully opposed a European counterpart to the Leiden PCT application (EP-B-668913), which led to a decision to revoke their patent grant in Europe. However, the patentee, Arch Development Corporation, has appealed from the decision against them. If the interference, opposition or other adverse proceedings were to ultimately be decided adversely, we may be compelled to seek a license to the Leiden technology, which may not be available on terms that we find commercially reasonable. In addition, such proceedings, even if decided in our favor, involve a lengthy process, are subject to appeal, and typically result in substantial costs and diversion of resources. Cardium is obligated to reimburse Schering for the expenses of any interference or other proceedings accrued on or after April 1, 2005 in connection with the technologies licensed.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We did not submit any matters to our stockholders for a vote during the fourth quarter ended September 30, 2005.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

Our common stock trades on the over-the-counter market (pink sheets) under the symbol “ARVT.” Below are the high and low closing prices of our common stock as reported by Nasdaq for each quarter of the fiscal years ended September 30, 2005 and 2004:

	Fiscal 2005				Fiscal 2004
	High		Low		High		Low
First Quarter	$	0.26	$	0.15	$	0.91	$	0.25
Second Quarter	$	0.15	$	0.15	$	0.55	$	0.25
Third Quarter	$	0.46	$	0.15	$	0.35	$	0.30
Fourth Quarter	$	1.51	$	0.46	$	0.30	$	0.25

The information above reflects inter-dealer prices, without retail mark-up, mark down or commissions, may not represent actual transactions and should not be deemed to reflect an established public trading market for our common stock.

Holders

As of December 2, 2005, there were approximately 362 stockholders of record of our common stock.

Dividends

During the last two fiscal years ended September 30, 2005 and 2004, no dividends were declared or paid on Aries’ common stock.

Recent Sales of Unregistered Securities

During the fiscal years ended September 30, 2005, 2004 and 2003, we did not sell any unregistered securities.

Repurchases

During the fourth quarter of fiscal 2005, we did not repurchase any shares of our common stock, nor were any repurchases made on our behalf.

ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following is a discussion of our intended plan of operation during the next 12 months. You should carefully review the risks described under this Item 7 and elsewhere in this report, which identify certain important factors that could cause our future financial condition and results of operations to vary.

Plan of Operation

Aries has not had revenues from operations during the last two fiscal years ended September 30, 2005 and 2004. As of September 30, 2005, Aries had no business operations and was focused on maintaining its corporate entity and seeking a new business opportunity.

On October 20, 2005, Aries completed a reverse merger with privately held Cardium Therapeutics, Inc., a Delaware corporation, whereby a newly formed and wholly-owned subsidiary of Aries was merged with and into Cardium. As

a result, Cardium became a wholly-owned subsidiary of Aries. At the time of the Merger, Aries had divested itself of all its assets and investments other than $1.5 million in cash and had no outstanding contractual commitments.

At the time of the Merger, we also closed a private placement of 19,325,651 shares of Aries common stock at a purchase price of $1.50 per share, which represented net proceeds of $25,552,390. A portion of the proceeds was used to acquire Cardium’s portfolio of cardiovascular growth factor therapeutic assets from Schering and/or its affiliates for a purchase price of approximately $4,000,000.

Since the Merger, Cardium has continued its business under the name Cardium Therapeutics, Inc. as a wholly-owned subsidiary of Aries. Cardium’s initial primary focus will be the commercial development of cardiovascular-directed growth factor therapeutics for interventional cardiology applications based on the product portfolio acquired by Cardium from Schering, which products include Generx^TM and Corgentin^TM. Generx, based on myocardial-derived fibroblast growth factor 4 (mdFGF-4), is our lead product candidate and has advanced to Phase 2b/3 clinical studies. Generx is a non-surgical angiogenic therapy designed to be a one-time treatment with long-lasting therapeutic benefits for patients with recurrent angina due to coronary disease. Corgentin, a pre-clinical product candidate, is a next-generation therapeutic based on myocardial-derived insulin-like Growth Factor-I (mdIGF-I). Corgentin is being designed to be a one-time cardiomyocyte-directed treatment to promote the repair and restoration of damaged cardiomyocytes and enhance cardiac function following a heart attack (acute myocardial infarction) through the beneficial cardiac effects of prolonged IGF-I protein expression.

Business Strategy

• Advance the pre-clinical development of Corgentin and potentially seek partnering opportunities for the Corgentin and Genvascor product candidates;

• Seek to monetize the economic value of Cardium’s product portfolio by establishing strategic collaborations at appropriate valuation inflection points; and

facilitate collaborations and partnerships for joint development of our products at appropriate valuation inflection points during their clinical development cycle. In the future, we plan to aggressively seek access to other therapeutics and/or medical device opportunities, as well as medical-related technologies, to further strengthen and broaden our portfolio, and will consider the opportunistic acquisition of other companies having financial and development resources that offer the potential to enhance our near and long-term stockholder value.

More detailed information about our potential products and our intended efforts to develop our products is included under Item 1 of this report.

Off-Balance Sheet Arrangements

As of September 30, 2005, we did not have any off-balance sheet debt nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have a material current or future effect on financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses.

Critical Accounting Policies and Estimates

Our financial statements included under Item 7 in this report have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of financial statements in accordance with GAAP requires that we make estimates and assumptions that affect the amounts reported in our financial statements and their accompanying notes. We have identified certain policies that we believe are important to the portrayal of our financial condition and results of operations. These policies require the application of significant judgment by our management. We base our estimates on our historical experience, industry standards, and various other assumptions that we believe are reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions. An adverse effect on our financial condition, changes in financial condition, and results of operations could occur if circumstances change that alter the various assumptions or conditions used in such estimates or assumptions. Our significant accounting policies are described in the notes to our financial statements.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share Based Payment” (SFAS 123R), a revision to SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS 123R supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and amends SFAS No. 95, “Statement of Cash Flows.” SFAS 123R requires that we measure the cost of employee services received in exchange for equity awards based on the grant date fair value of the awards. The cost will be recognized as compensation expense over the vesting period of the awards. We are required to adopt SFAS 123R effective for annual periods beginning after December 15, 2005. Under this method, we will begin recognizing compensation cost for equity-based compensation for all new or modified grants after the date of adoption. In addition, we will recognize the unvested portion of the grant date fair value of awards issued before adoption based on the fair values previously calculated for disclosure purposes over the remaining vesting period of the outstanding options and warrants. We are currently evaluating the potential effect that the adoption of SFAS 123R will have on our financial statements.

The Emerging Issues Tax Force (“EITF”) has adopted EITF Issue 04-8, “The Effect of Contingently Convertible Instruments on Diluted Earnings per Share.” The EITF reached a consensus that contingently convertible instruments, such as contingently convertible debt, contingently convertible preferred stock, and other such securities should be included in diluted earnings per share (if dilutive) regardless of whether the market price trigger has been met. The consensus became effective for reporting periods ending after December 15, 2004. The adoption of this pronouncement did not have an effect on our financial statements.

In September 2005, the FASB ratified the EITF’s Issue No. 05-7, “Accounting for Modifications to Conversion Options Embedded in Debt Instruments and Related Issues,” which addresses whether a modification to a conversion option that changes its fair value affects the recognition of interest expense for the associated debt instrument after the modification and whether a borrower should recognize a beneficial conversion feature, not a debt extinguishment, if a debt modification increases the intrinsic value of the debt.

In September 2005, the FASB ratified the following consensus reached in EITF Issue No. 05-8, “Income Tax Consequences of Issuing Convertible Debt with a Beneficial Conversion Feature:” (a) The issuance of convertible debt with a beneficial conversion feature results in a basis difference in applying SFAS No. 109, “Accounting for Income Taxes. Recognition of such a feature effectively creates a debt instrument and a separate equity instrument for book purposes, whereas the convertible debt is treated entirely as a debt instrument for income tax purposes; (b) The resulting basis difference should be deemed a temporary difference because it will result in a taxable amount when the recorded amount of the liability is recovered or settled; and (c) Recognition of deferred taxes for the temporary difference should be reported as an adjustment to additional paid-in capital.

Both of the above issues are effective in the first interim or annual reporting period commencing after December 15, 2005, with early application permitted. The effect of applying the consensus should be accounted for retroactively to all debt instruments containing a beneficial conversion feature that are subject to EITF Issue 00-27, “Application of Issue No. 98-5 to Certain Convertible Debt Instruments” (and thus is applicable to debt instruments converted or extinguished in prior periods but which are still presented in the financial statements). We do not believe this pronouncement will have a material impact on our financial statements.

Risks

You should carefully consider the risks described below, as well as the other information in this report, when evaluating our business and future prospects. If any of the following risks actually occur, our business, financial condition and results of operations could be seriously harmed. In that event, the market price of our common stock could decline and you could lose all or a portion of the value of your investment in our common stock.

Cardium is a development stage company formed in December 2003. We have incurred losses since inception and expect to incur significant net losses in the foreseeable future and may never become profitable.

Due to the development stage of Cardium’s business, our development and start-up costs, including significant amounts we expect to spend to fund the research and development activities and clinical trials for Generx and other product candidates, and our lack of revenue during our development stage, you should expect that we will sustain operating losses, which may be substantial, in the early years of operation. A large portion of our expenses are fixed, including expenses related to facilities, equipment and personnel. As a result, we expect our net losses from operations to continue for at least the next five years. Our ability to generate revenues and become profitable will depend on our ability, alone or with potential collaborators, to timely, efficiently and successfully complete the development of our product candidates, conduct pre-clinical and clinical tests, obtain necessary regulatory approvals, and manufacture and market our product candidates. There can be no assurance that any such events will occur or that we will ever become profitable.

Even if we do achieve profitability, we cannot predict the level of such profitability. If we sustain losses over an extended period of time, we may be unable to continue our business.

Cardium’s business prospects are difficult to evaluate because it is a new company.

Because Cardium has a short operating history, it may be difficult for you to assess our growth, partnering and earnings potential. It is likely that we will face many of the difficulties that companies in the early stages of their development often face. These include, among others: limited financial resources; developing and marketing a new product for which a market is not yet established and may never become established; delays in reaching our goals; challenges related to the development, approval and acceptance of a new technology or product; lack of revenues and cash flow; high start-up and development costs; competition from larger, more established companies; and difficultly recruiting qualified employees for management and other positions.

We may face these and other difficulties in the future, some of which may be beyond our control. If we are unable to successfully address these difficulties as they arise, our future growth and earnings will be negatively affected. We cannot be certain that our business strategy will be successful or that we will successfully address any problems that may arise.

We will need substantial additional funding to develop our products and for our future operations. If we are unable to obtain the funds necessary to do so, we may be required to delay, scale back or eliminate our product development or may be unable to continue our business.

The development of our product candidates will require a commitment of substantial funds in excess of the proceeds of from the private placement to conduct the costly and time-consuming research, pre-clinical and clinical testing necessary to obtain regulatory approvals and bring our products to market. Our future capital requirements will depend on many factors, including: the progress of our research and development programs; the progress, scope and results of our pre-clinical and clinical testing; the time and cost involved in obtaining regulatory approvals; the cost of manufacturing our product candidates; the cost of prosecuting, defending and enforcing patent claims and other intellectual property rights; competing technological and market developments; and our ability to establish and maintain collaborative and other arrangements with third parties to assist in bringing our products to market and the cost of such arrangements.

We will need to raise substantial additional capital to fund our future operations. We cannot be certain that additional financing will be available on acceptable terms, or at all. In recent years, it has been difficult for companies to raise capital due to a variety of factors, which may or may not continue. To the extent we raise additional capital through the sale of equity securities, the ownership position of existing stockholders could be substantially diluted. If additional funds are raised through the issuance of preferred stock or debt securities, these securities are likely to have rights, preferences and privileges senior to our common stock. Fluctuating interest rates could also increase the costs of any debt financing we may obtain.

Failure to successfully address ongoing liquidity requirements will have a material adverse effect on our business. If we are unable to obtain additional capital on acceptable terms when needed, we may be required to take actions that harm our business and our ability to achieve cash flow in the future, including possibly the surrender of our rights to some technologies or product opportunities, delaying our clinical trials or curtailing or ceasing operations.

If our right to use any intellectual property we intend to license or license from third parties is terminated or adversely affected, our financial condition, operations or ability to develop and commercialize our product candidates may be harmed.

We expect to substantially rely on licenses to use certain technologies that are material to our operations. For example, we have licensed patents, patent applications and other intellectual property from New York University for the use of the FGF-4 technology in our product candidates for vascular and cardiovascular disease. We also have obtained licenses from the University of California to use certain patents and patent applications relating to gene therapy delivery methods in connection with the use of FGF-4 and other molecules for gene therapy. We do not own the patents, patent applications and other intellectual property rights that underlie these licenses. We rely on our licensors to properly prosecute and enforce the patents, file patent applications and prevent infringement of those patents and patent applications.

While our licenses and associated agreements provide us with exclusive rights in specified fields, the scope of our rights under these and other licenses may be subject to dispute by our licensors or third parties. In addition, the licenses and technology transfer agreements noted above contain certain milestones that we must meet and certain minimum payments that we must make to maintain the licenses. There is no assurance that we will be able to meet such milestones or make such payments. Our licensors may terminate the licenses if we fail to meet the applicable milestones or make the applicable payments.

Cardium is an early stage company and currently has no products available for sale or use. Our product candidates require additional research, development, testing and regulatory approvals before marketing. We may be unable to develop, obtain regulatory approval or market any of our product candidates. If our product candidates are delayed or fail, our financial condition will be negatively affected, and we may have to curtail or cease our operations.

We are in the early stage of product development and currently do not sell any products and do not expect to have any products commercially available for several years, if at all. Our product candidates require additional research and development, clinical testing and regulatory clearances before marketing. There are many reasons that our product candidates may fail or not advance beyond clinical testing, including the possibility that: our product candidates may be ineffective, unsafe or associated with unacceptable side effects; our product candidates may fail

to receive necessary regulatory approvals or otherwise fail to meet applicable regulatory standards; our product candidates may be too expensive to develop, manufacture or market; physicians, patients, third-party payers or the medical community in general may not accept or use our proposed product; our potential collaborators may withdraw support for or otherwise impair the development and commercialization of our product candidates; other parties may hold or acquire proprietary rights that could prevent us or our potential collaborators from developing or marketing our product candidates; or others may develop equivalent or superior products.

In addition, our product candidates are subject to the risks of failure inherent in the development of gene therapy products based on innovative technologies. As a result, we are not able to predict whether our research, development and testing activities will result in any commercially viable products or applications. If our product candidates are delayed or we fail to successfully develop and commercialize our product candidates, our financial condition may be negatively affected, and we may have to curtail or cease our operations.

We may experience delays in our Generx or other clinical trials that could adversely affect our financial results and our commercial prospects.

To obtain regulatory approvals, we must, among other requirements, complete clinical trials showing that Generx is safe and effective for a particular indication. We plan to submit a protocol to the FDA in 2006 and plan to conduct verbal and written communications with the FDA to continue to evaluate our Generx product candidate. We plan on initiating our clinical trials in 2006 but there is no assurance we will be able to do so as the timing of the commencement of the trial may be dependent on, among other things, FDA reviews and other factors outside of our control. Furthermore, there can be no assurance that our clinical trials will in fact demonstrate that Generx is safe or effective.

Additionally, we may not be able to identify or recruit a significant number of acceptable patients or may experience delays in enrolling patients for our clinical trials for Generx. The FDA or we may suspend our clinical trials at any time if either believes that we are exposing the subjects participating in the trials to unacceptable health risks. The FDA or institutional review boards and/or institutional biosafety committees at the medical institutions and healthcare facilities where we sponsor clinical trials may suspend any trial indefinitely if they find deficiencies in the conduct of the trials.

Product development costs to us and our potential collaborators will increase if we have delays in testing or approvals or if we need to perform more or larger clinical trials than planned. We expect to continue to rely on third party clinical investigators at medical institutions and healthcare facilities to conduct our clinical trials, and, as a result, we may face additional delaying factors outside our control. Significant delays may adversely affect our financial results and the commercial prospects for our product candidates and delay our ability to become profitable.

If our product candidates do not successfully complete the clinical trial process, we will not be able to market them. Even successful clinical trials may not result in a marketable product and may not be entirely indicative of a product’s safety or efficacy.

Generx is the only product candidate currently in the clinical stage. Other product candidates are in the pre-clinical stage and there can be no assurance they will ever advance to clinical trials. For product candidates that advance to clinical testing, we cannot be certain that we or a collaborator will successfully complete the clinical trials necessary to receive regulatory product approvals. This process is lengthy and expensive. To obtain regulatory approvals, we or a collaborative partner must demonstrate through pre-clinical studies and clinical trials that our product candidates are safe and effective for use in at least one medical indication.

Many factors, known and unknown, can adversely affect clinical trials and the ability to evaluate a product’s efficacy. For example, clinical trials are often conducted with patients who have the most advanced stages of disease. During the course of treatment, these patients can die or suffer other adverse events for reasons that may or may not be related to the proposed product being tested. For instance, as reported in December 1999, the death of a patient enrolled in the Phase 1/2 trial for Generx, which occurred approximately five months after the one-time product administration, was determined to have been unlikely to be causally related to the therapy. However, even if unrelated to our product, such events can nevertheless adversely impact our clinical trials. As a result, our ability to ultimately develop and market the products and obtain revenues would suffer.

Our clinical trials may also be adversely impacted by patient deaths or problems that occur in other trials. For example, the death of a patient in another trial in 1999 who had received an adenoviral gene delivery vector expressing an ornithine transcarbamylase gene triggered several government investigations and reviews of past and ongoing gene therapy trials.

Deaths and other adverse events that occur in the conduct of clinical trials may result in an increase in governmental regulation or litigation, and could result in delays or halts being imposed upon clinical trials including our own. In addition, patients involved in clinical trials such as ours often have unknown as well as known health risks and pre-existing conditions. An adverse event may therefore appear to have been caused or exacerbated by the administration of study product, even if it was not actually related. Such consequences can also increase the risk that any potential adverse event in our trial could give rise to claims for damages against us, or could cause further delays or a halt of our clinical trial, any of which results would negatively affect us. In addition, fears regarding the potential consequences of gene therapy trials or the conduct of such trials could dissuade investigators or patients from participating in our trials, which could substantially delay or prevent our product development efforts.

Even promising results in pre-clinical studies and initial clinical trials do not ensure successful results in later clinical trials, which test broader human use of our products. Many companies in our industry have suffered significant setbacks in advanced clinical trials, despite promising results in earlier trials. Even successful clinical trials may not result in a marketable product or be indicative of the efficacy or safety of a product. Many factors or variables could effect the results of clinical trials and cause them to appear more promising than they may otherwise be. Product candidates that successfully complete clinical trials could ultimately be found to be unsafe or ineffective.

In addition, our ability to complete clinical trials depends on many factors, including obtaining adequate clinical supplies and having a sufficient rate of patient recruitment. For example, patient recruitment is a function of many factors, including: the size of the patient population; the proximity of patients to clinical sites; the eligibility criteria for the trial; the perceptions of investigators and patients regarding safety; and the availability of other treatment options.

Even if patients are successfully recruited, we cannot be sure that they will complete the treatment process. Delays in patient enrollment or treatment in clinical trials may result in increased costs, program delays or both.

With respect to markets in other countries, we or a partner will also be subject to regulatory requirements governing clinical trials in those countries. Even if we complete clinical trials, we may not be able to submit a marketing application. If we submit an application, the regulatory authorities may not review or approve it in a timely manner, if at all.

Our product candidates may have unacceptable side effects that could delay or prevent product approval.

Possible side effects of gene therapy technologies may be serious and life-threatening. The occurrence of any unacceptable side effects during or after pre-clinical and clinical testing of our product candidates could delay or prevent approval of our products and our revenues would suffer. For example, possible serious side effects of viral vector-based gene transfer include viral infections resulting from contamination with replication-competent viruses and inflammation or other injury to the heart or other parts of the body. In addition, the development or worsening of cancer in a patient may be a perceived or actual side effect of gene therapy technologies such as our own.

Furthermore, there is a possibility of side effects or decreased effectiveness associated with an immune response toward any viral vector or gene used in gene therapy. The possibility of such response may increase if there is a need to deliver the viral vector more than once.

Because we cannot predict whether or when we will obtain regulatory approval to commercialize our product candidates, we cannot predict the timing of any future revenue from these product candidates. To our knowledge, the FDA has not yet approved any gene therapy products.

We cannot commercialize any of our product candidates to generate revenue until the appropriate regulatory authorities have reviewed and approved the applications for our product candidates. We cannot assure you that the regulatory agencies will complete their review processes in a timely manner or that we will obtain regulatory approval for any product candidate we or our potential collaborators develop. Satisfaction of regulatory requirements typically takes many years, is dependent upon the type, complexity and novelty of the product and

requires the expenditure of substantial resources. Regulatory approval processes outside the United States include all or many of the risks associated with the FDA approval process and potentially others as well. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action or changes in FDA policy during the period of product development, clinical trials and FDA regulatory review.

Our technologies and product candidates are unproven and they may fail to gain market acceptance.

Our future depends on the success of our technologies and product candidates. Gene-based therapy is a new and rapidly evolving medial approach that has not been shown to be effective on a widespread basis. Biotechnology and pharmaceutical companies have successfully developed and commercialized only a limited number of gene-based products to date. In addition, no gene therapy product has received regulatory approval in the United States or internationally. Our product candidates, and the technology underlying them, are new and unproven and there is no guarantee that health care providers or patients will be interested in our products. Our success will depend in part on our ability to demonstrate the clinical benefits, reliability, safety and cost effectiveness of our product candidates and technology, as well as on our ability to continue to develop our product candidates to respond to competitive and technological changes. If the market does not accept our product candidates, when and if we are able to commercialize them, and the technology underlying them, we may never become profitable. It is difficult to predict the future growth of our business, if any, and the size of the market for our product candidates because the market and technology is continually evolving. There can be no assurance that our technologies and product candidates will prove superior to technologies and products that may currently be available or may become available in the future or that our technologies or research and development activities will result in any commercially profitable products.

We may not successfully establish and maintain collaborative and licensing arrangements, which could adversely affect our ability to develop and commercialize our product candidates.

Our strategy for the development, testing, manufacturing and commercialization of our product candidates generally relies on establishing and maintaining collaborations with corporate partners, licensors and other third parties. For example, we have licenses from New York University and the University of California relating to the use and delivery of our Generx product candidates for the treatment of vascular disease, as well as a relationship with Schering regarding the transfer of information about certain manufacturing and regulatory matters concerning our product candidates. We may not be able to maintain or expand these licenses and collaborations or establish additional licensing and collaboration arrangements necessary to develop and commercialize our product candidates. Even if we are able to maintain or establish licensing or collaboration arrangements, these arrangements may not be on favorable terms and may contain provisions that will restrict our ability to develop, test and market our product candidates. Any failure to maintain or establish licensing or collaboration arrangements on favorable terms could adversely affect our business prospects, financial condition or ability to develop and commercialize our product candidates.

We expect to rely at least in part on third party collaborators to perform a number of activities relating to the development and commercialization of our product candidates, including the manufacturing of product materials, the design and conduct of clinical trials, and potentially the obtaining of regulatory approvals and marketing and distribution of any successfully developed products. Our collaborative partners may also have or acquire rights to control aspects of our product development and clinical programs. As a result, we may not be able to conduct these programs in the manner or on the time schedule we currently contemplate. In addition, if any of these collaborative partners withdraw support for our programs or product candidates or otherwise impair their development, our business could be negatively affected. To the extent we undertake any of these activities internally, our expenses may increase.

In addition, our success depends on the performance of our collaborators of their responsibilities under these arrangements. Some potential collaborators may not perform their obligations in a timely fashion or in a manner satisfactory to us.

We will rely on third parties to manufacture our product candidates. There can be no guarantee that we can obtain sufficient and acceptable quantities of our product candidates on acceptable terms, which may delay or impair our ability to develop, test and market such products.

Our business strategy relies on third parties to manufacture and produce our product candidates and the catheters used to deliver the products in accordance with good manufacturing practices established by the FDA. These third party manufacturers are subject to extensive government regulation and must receive FDA approval before they can produce clinical material or commercial product.

Our product candidates may be in competition with other products for access to these facilities and may be subject to delays in manufacture if third parties give other products greater priority than our product candidates. These third parties also may not deliver sufficient quantities of our product candidates, manufacture our product candidates in accordance with specifications, or comply with applicable government regulations. Successful large-scale manufacturing of gene-based therapy products has been shown by very few companies, and it is anticipated that significant process development changes will be necessary for the commercial process.

Additionally, if the manufactured products fail to perform as specified, our business and reputation could be severely impacted. Our product materials will be produced by a third party collaborator, and we expect to enter into a manufacturing agreement for the production of additional product materials for anticipated clinical trials and initial commercial use. If any manufacturing agreement is terminated or any third party collaborator experiences a significant problem that could result in a delay or interruption in the supply of product materials to us, there are very few contract manufacturers who currently have the capability to produce our product candidates on acceptable terms, or on a timely and cost-effective basis. There can be no assurance that manufacturers on whom we will depend will be able to successfully produce our product candidates on acceptable terms, or on a timely or cost-effective basis. There can also be no assurance that manufacturers will be able to manufacture our products in accordance with our product specifications. We must have sufficient and acceptable quantities of our product materials to conduct our clinical trials and to market our product candidates, if and when such products have been approved by the FDA for marketing. If we are unable to obtain sufficient and acceptable quantities of our product material, we may be required to delay the clinical testing and marketing of our products.

If we do not comply with applicable regulatory requirements in the manufacture and distribution of our product candidates, we may incur penalties that may inhibit our ability to commercialize our products and adversely affect our revenue.

Our failure or the failure of our potential collaborators or third party manufacturers to comply with applicable FDA or other regulatory requirements including manufacturing, quality control, labeling, safety surveillance, promoting and reporting may result in criminal prosecution, civil penalties, recall or seizure of our products, total or partial suspension of production or an injunction, as well as other regulatory action against our product candidates or us. Discovery of previously unknown problems with a product, supplier, manufacturer or facility may result in restrictions on the sale of our products, including a withdrawal of such products from the market. The occurrence of any of these events would negatively impact our business and results of operations.

If we are unable to create and maintain sales, marketing and distribution capabilities or enter into agreements with third parties to perform those functions, we will not be able to commercialize our product candidates.

We currently have no sales, marketing or distribution capabilities. Therefore, to commercialize our product candidates, if and when such products have been approved and are ready for marketing, we expect to collaborate with third parties to perform these functions.

We have no experience in developing, training or managing a sales force and will incur substantial additional expenses if we are forced to market our future products directly. Developing a marketing and sales force is also time consuming and could delay launch of our future products. In addition, we will compete with many companies that currently have extensive and well-funded marketing and sales operations. Our marketing and sales efforts may be unable to compete successfully against these companies.

If we are unable to attract and retain key personnel and advisors, it may adversely affect our ability to obtain financing, pursue collaborations or develop our product candidates.

Our future success depends on our ability to attract, retain and motivate highly qualified management and scientific and regulatory personnel and advisors. To pursue our business strategy, we will need to hire or otherwise engage qualified scientific personnel and managers, including personnel with expertise in clinical trials, government regulation and manufacturing. Competition for qualified personnel is intense among companies, academic

institutions and other organizations. If we are unable to attract and retain key personnel and advisors, it may negatively affect our ability to successfully develop, test and commercialize our product candidates.

We will use hazardous and biological materials in our business. Any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly.

Our products and processes will involve the controlled storage, use and disposal of certain hazardous and biological materials and waste products. We and our suppliers and other collaborators are subject to federal, state and local regulations governing the use, manufacture, storage, handling and disposal of materials and waste products. Even if we and these suppliers and collaborators comply with the standards prescribed by law and regulation, the risk of accidental contamination or injury from hazardous materials cannot be completely eliminated. In the event of an accident, we could be held liable for any damages that result, and any liability could exceed the limits or fall outside the coverage of any insurance we may obtain and exceed our financial resources. We may not be able to maintain insurance on acceptable terms, or at all. We may incur significant costs to comply with current or future environmental laws and regulations.

Future acquisitions could disrupt our business and harm our financial condition.

To remain competitive, we may decide to acquire additional businesses, products and technologies. As we have limited experience in evaluating and completing acquisitions, our ability as an organization to make such acquisitions is unproven. Acquisitions could require significant capital infusions and could involve many risks, including, but not limited to, the following: we may have to issue convertible debt or equity securities to complete an acquisition, which would dilute our stockholders and could adversely affect the market price of our common stock; an acquisition may negatively impact our results of operations because it may require us to incur large one-time charges to earnings, amortize or write down amounts related to goodwill and other intangible assets, or incur or assume substantial debt or liabilities, or it may cause adverse tax consequences, substantial depreciation or deferred compensation charges; we may encounter difficulties in assimilating and integrating the business, technologies, products, personnel or operations of companies that we acquire; certain acquisitions may disrupt our relationship with existing collaborators who are competitive to the acquired business; acquisitions may require significant capital infusions and the acquired businesses, products or technologies may not generate sufficient revenue to offset acquisition costs; an acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract our management; acquisitions may involve the entry into a geographic or business market in which we have little or no prior experience; and key personnel of an acquired company may decide not to work for us.

To the extent we enter markets outside the United States, our business will be subject to political, economic, legal and social risks in those markets, which could adversely affect our business.

There are significant regulatory and legal barriers in markets outside the United States that we must overcome to the extent we enter or attempt to enter markets in countries other than the United States. We will be subject to the burden of complying with a wide variety of national and local laws, including multiple and possibly overlapping and conflicting laws. We also may experience difficulties adapting to new cultures, business customs and legal systems. Any sales and operations outside the United States would be subject to political, economic and social uncertainties including, among others: changes and limits in import and export controls; increases in custom duties and tariffs; changes in currency exchange rates; economic and political instability; changes in government regulations and laws; absence in some jurisdictions of effective laws to protect our intellectual property rights; and currency transfer and other restrictions and regulations that may limit our ability to sell certain products or repatriate profits to the United States.

Any changes related to these and other factors could adversely affect our business to the extent we enter markets outside the United States.

Negative public opinion and increased regulatory scrutiny of gene therapy and genetic research may adversely affect our ability to conduct our business or obtain regulatory approvals for our product candidates.

Ethical, social and legal concerns about gene therapy and genetic research could result in additional regulations restricting or prohibiting our products and processes we may use. More restrictive government regulations or negative public opinion may have a negative effect on our business or financial condition and may delay or impair the development and commercialization of our product candidates.

We are subject to significant government regulation with respect to our product candidates. Compliance with government regulation can be a costly and time-consuming process, with no assurance of ultimate regulatory approval. If these approvals are not obtained, we will not be able to sell our product candidates. To our knowledge, the FDA has not yet approved any gene therapy products.

We and our collaborators are subject to extensive and rigorous government regulation in the United States and abroad. The FDA, the National Institute of Health and comparable agencies in foreign countries impose many requirements on the introduction of new pharmaceutical products through lengthy and detailed clinical testing procedures and other costly and time consuming compliance procedures. These requirements vary widely from country to country and make it difficult to estimate when our product candidates will be commercially available, if at all. In addition, DNA-based therapies such as those being developed by us are relatively new and are only beginning to be tested in humans. Regulatory authorities may require us or our potential collaborators to demonstrate that our products are improved treatments relative to other therapies or may significantly modify the requirements governing gene therapies, which could result in regulatory delays or rejections. If we are delayed or fail to obtain required approvals for our product candidates, our operations and financial condition would be damaged. Neither we nor our potential commercialization partners may sell our products without applicable regulatory approvals. Numerous regulations in the United States and abroad also govern the manufacturing, safety, labeling, storage, record keeping, reporting and marketing of our product candidates. Compliance with these regulatory requirements is time consuming and expensive. If we fail to comply with regulatory requirements, either before approval or in marketing our products after approval, we could be subject to regulatory or judicial enforcement actions. These actions could result in withdrawal of existing approvals, product recalls, injunctions, civil penalties, criminal prosecution, and enhanced exposure to product liabilities.

We cannot assure you that our product candidates will prove safe and effective in clinical trials and will meet all of the applicable regulatory requirements needed to receive regulatory approval. We or a partner will need to conduct significant research, pre-clinical testing and clinical trials before we can file product approval applications with the FDA and similar regulatory authorities in other countries. Preclinical testing and clinical trials are long, expensive and uncertain processes. We may spend several years completing our testing for any particular product candidate, and failure can occur at any stage.

Even if we achieve positive results in early clinical trials, these results do not necessarily predict final results. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after achieving positive results in earlier trials. Negative or inconclusive results or adverse medical events during a clinical trial could cause the FDA or us to terminate a clinical trial or require that we repeat a clinical trial.

We face intense competition and must cope with rapid technological change, which may adversely affect our financial condition and/or our ability to successfully commercialize our product candidates.

Our competitors and potential competitors include large pharmaceutical and medical device companies and more established biotechnology companies. These companies have significantly greater financial and other resources and greater expertise than us in research and development, manufacturing, pre-clinical and clinical testing, obtaining regulatory approvals and marketing. This may make it easier for them to respond more quickly to new or changing opportunities, technologies or market needs. Small companies may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical companies or through acquisition or development of intellectual property rights. Our larger competitors may be able to devote greater resources to research and development, marketing, distribution and other activities that could provide them with a competitive advantage. Many of these competitors have significant products approved or in development and operate large, well-funded research and development programs. Our potential competitors also include academic institutions, governmental agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for product and clinical development and marketing.

We are engaged in DNA-based therapy. Our industry is characterized by extensive research and development, rapid technological change, frequent innovations and new product introductions, and evolving industry standards. Existing products and therapies to treat vascular and cardiovascular disease, including drugs and surgical procedures, will compete directly with the products that we are seeking to develop and market. In addition, our competitors may develop more effective or more affordable products, or achieve earlier patent protection or product commercialization and market penetration than us. As these competitors develop their technologies, they may

develop proprietary positions that prevent us from successfully commercializing our future products. To be successful, we must be able to adapt to rapidly changing technologies by continually enhancing our products and introducing new products. If we are unable to adapt, products and technologies developed by our competitors may render our product candidates uneconomical or obsolete, and we may not be successful in marketing our product candidates against competitors. We may never be able to capture and maintain the market share necessary for growth and profitability and there is no guarantee we will be able to compete successfully against current or future competitors.

Changes and reforms in the health care system or reimbursement policies may adversely affect the sale of our future products or our ability to obtain an adequate level of reimbursement or acceptable prices for our future products.

We currently have no products approved for marketing. Our ability to earn sufficient returns on our future products, if and when such products are approved and ready for marketing, will depend in part on the extent to which reimbursement for our products and related treatments will be available from government health administration authorities, private health coverage insurers, managed care organizations and other third-party payers. If we fail to obtain appropriate reimbursement, it could prevent us from successfully commercializing our future products.

There have been and continue to be efforts by governmental and third-party payers to contain or reduce the costs of health care through various means, including limiting coverage and the level of reimbursement. We expect that there will continue to be a number of legislative proposals to implement government controls and other reforms to limit coverage and reimbursement. The announcement of these proposals or reforms could impair our ability to raise capital. The adoption of these proposals or reforms could impair our operations and financial condition.

Additionally, third-party payers, including Medicare, are increasingly challenging the price of medical products and services and are limiting the reimbursement levels offered to consumers for these medical products and services. If purchasers or users of our future products are not able to obtain adequate reimbursement from third-party payers for the cost of using these products, they may forego or reduce their use. Significant uncertainty exists as to the reimbursement status of newly approved health care products, including gene therapy treatments, and whether adequate third-party coverage will be available.

If our product candidates are not effectively protected by valid, issued patents or if we are not otherwise able to protect our proprietary information, it could harm our business.

The success of our operations will depend in part on our ability and that of our licensors to: obtain patent protection for our methods of gene therapy, therapeutic genes and/or gene-delivery methods both in the United States and in other countries with substantial markets; defend patents once obtained; maintain trade secrets and operate without infringing upon the patents and proprietary rights of others; and obtain appropriate licenses upon reasonable terms to patents or proprietary rights held by others that are necessary or useful to us in commercializing our technology, both in the United States and in other countries with substantial markets.

If we are not able to maintain adequate patent protection for our product candidates, we may be unable to prevent our competitors from using our technology or technology that we license.

The patent positions of gene therapy technologies such as those being developed by us and our collaborators involve complex legal and factual uncertainties. As a result, we cannot be certain that we or our collaborators will be able to obtain adequate patent protection for our product candidates. There can be no assurance that (i) any patents will be issued from any pending or future patent applications of ours or our collaborators; (ii) the scope of any patent protection will be sufficient to provide us with competitive advantages; (iii) any patents obtained by us or our collaborators will be held valid if subsequently challenged; or (iv) others will not claim rights in or ownership of the patents and other proprietary rights we or our collaborators may hold. Unauthorized parties may try to copy aspects of our products and technologies or obtain and use information we consider proprietary. Policing the unauthorized use of our proprietary rights is difficult. We cannot guarantee that no harm or threat will be made to our or our collaborators’ intellectual property. In addition, changes in, or different interpretations of, patent laws in the United States and other countries may also adversely affect the scope of our patent protection and our competitive situation.

Due to the significant time lag between the filing of patent applications and the publication of such patents, we cannot be certain that our anticipated licensors were the first to file the patent applications we intend to license or,

even if they were the first to file, also were the first to invent, particularly with regards to patent rights in the United States. In addition, a number of pharmaceutical and biotechnology companies and research and academic institutions have developed technologies, filed patent applications or received patents on various technologies that may be related to our operations. Some of these technologies, applications or patents may conflict with our or our licensors’ technologies or patent applications. A conflict could limit the scope of the patents, if any, that we or our licensors may be able to obtain or result in denial of our or our licensors’ patent applications. If patents that cover our activities are issued to other companies, we may not be able to develop or obtain alternative technology.

Patents issued and patent applications filed internationally relating to gene therapy are numerous, and we cannot assure you that current and potential competitors or other third parties have not filed or received, or will not file or receive applications in the future for patents or obtain additional proprietary rights relating to products or processes used or proposed to be used by us.

Additionally, there is certain subject matter which is patentable in the United States but not generally patentable outside of the United States. Differences in what constitutes patentable subject matter in various countries may limit the protection we can obtain outside of the United States. For example, methods of treating humans are not patentable in many countries outside of the United States. These and other issues may prevent us from obtaining patent protection outside of the United States, which would have a material adverse effect on our business, financial condition and results of operations.

We may be subject to costly claims, and, if we are unsuccessful in resolving conflicts regarding patent rights, we may be prevented from developing or commercializing our product candidates.

There has been, and will likely continue to be, substantial litigation regarding patent and other intellectual property rights in the biotechnology industry. As the biotechnology industry expands and more patents are issued, the risk increases that our processes and product candidates may give rise to claims that they infringe on the patents of others. Others could bring legal actions against us claiming damages and seeking to stop clinical testing, manufacturing and marketing of the affected product or use of the affected process. Litigation may be necessary to enforce our or our licensors’ proprietary rights or to determine the enforceability, scope and validity of proprietary rights of others. If we become involved in litigation, it could be costly and divert our efforts and resources. In addition, if any of our competitors file patent applications in the United States claiming technology also invented by us or our licensors, we may need to participate in interference proceedings held by the U.S. Patent and Trademark Office to determine priority of invention and the right to a patent for the technology. Like litigation, interference proceedings can be lengthy and often result in substantial costs and diversion of resources.

Collateral Therapeutics has assisted the University of California, as the licensor, in one such interference proceeding involving the University of California’s technology for cardiovascular gene therapy and a pending patent application filed by Jeffrey Leiden et al. (a U.S. counterpart of international application PCT/US93/11133, which published as WO94/11506). In a related matter, Collateral Therapeutics successfully opposed a European counterpart to the Leiden PCT application (EP-B-668913), which led to a decision to revoke their patent grant in Europe. However, the patentee, Arch Development Corporation, has appealed from the decision against them. If the interference, opposition or other adverse proceedings were to ultimately be decided adversely, we may be compelled to seek a license to the Leiden technology, which may not be available on terms that we find commercially reasonable. In addition, such proceedings, even if decided in our favor, involve a lengthy process, are subject to appeal, and typically result in substantial costs and diversion of resources.

As more potentially competing patent applications are filed, and as more patents are actually issued, in the field of gene therapy and with respect to component methods or compositions that we may employ, the risk increases that we or our licensors may be subjected to litigation or other proceedings that claim damages or seek to stop our product development or commercialization efforts. Even if such patent applications or patents are ultimately proven to be invalid, unenforceable or non-infringed, such proceedings are generally expensive and time consuming and could consume a significant portion of our resources and substantially impair our product development efforts.

If there were an adverse outcome of any litigation or interference proceeding, we could have a potential liability for significant damages. In addition, we could be required to obtain a license to continue to make or market the affected product or use the affected process. Costs of a license may be substantial and could include ongoing royalties. We may not be able to obtain such a license on acceptable terms, or at all.

We may not have adequate protection for our unpatented proprietary information, which could adversely affect our competitive position.

We will substantially rely on trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position. However, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology. To protect our trade secrets, we may enter into confidentiality agreements with employees, consultants and potential collaborators. However, these agreements may not provide meaningful protection of our trade secrets or adequate remedies in the event of unauthorized use or disclosure of such information. Likewise, our trade secrets or know-how may become known through other means or be independently discovered by our competitors. Any of these events could prevent us from developing or commercializing our product candidates.

We face the risk of product liability claims, which could adversely affect our business and financial condition.

Our operations will expose us to product liability risks that are inherent in the testing, manufacturing and marketing of gene therapy products. Failure to obtain sufficient product liability insurance or otherwise protect against product liability claims could prevent or delay the commercialization of our product candidates or negatively affect our financial condition. Regardless of the merit or eventual outcome, product liability claims may result in withdrawal of product candidates from clinical trials, costs of litigation, damage to our reputation, substantial monetary awards to plaintiffs and decreased demand for products.

Product liability may result from harm to patients using our products, a complication that was either not communicated as a potential side-effect or was more extreme than communicated. We will require all patients enrolled in our clinical trials to sign consents, which explain the risks involved with participating in the trial. The consents, however, provide only a limited level of protection, and product liability insurance will be required. Additionally, we will indemnify the clinical centers and related parties in connection with losses they may incur through their involvement in the clinical trials. We may not be able to obtain or maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities.

The price of our common stock is expected to be volatile and an investment in our common stock could decline in value.

The market price of our common stock, and the market prices for securities of pharmaceutical and biotechnology companies in general, are expected to be highly volatile. The following factors, in addition to other risk factors described in this report, and the potentially low volume of trades in our common stock, may have a significant impact on the market price of our common stock, some of which are beyond our control: actual or anticipated variations in operating results; announcements of technological innovations; developments concerning any research and development, clinical trials, manufacturing, and marketing collaborations; new products or services that we or our competitors offer; the initiation, conduct and/or outcome of intellectual property and/or litigation matters; changes in financial estimates by securities analysts; conditions or trends in bio-pharmaceutical or other healthcare industries; global unrest, terrorist activities, and economic and other external factors; regulatory developments in the United States and other countries; changes in the economic performance and/or market valuations of other biotechnology and medical device companies; our announcement of significant acquisitions, strategic partnerships, joint ventures or capital commitments; additions or departures of key personnel; and sales or other transactions involving our common stock.

The stock market in general has recently experienced relatively large price and volume fluctuations. In particular, market prices of securities of biotechnology and medical device companies have experienced fluctuations that often have been unrelated or disproportionate to the operating results of these companies. Continued market fluctuations could result in extreme volatility in the price of the common stock, which could cause a decline in the value of the common stock. Prospective investors should also be aware that price volatility may be worse if the trading volume of the common stock is low.

ITEM 7. FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Aries Ventures Inc.

We have audited the accompanying balance sheet of Aries Ventures Inc. (the “Company”) as of September 30, 2005, and the related statements of operations, shareholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Aries Ventures Inc. as of September 30, 2005, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Marcum & Kliegman LLP
New York, New York
December 16, 2005

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Aries Ventures Inc.

We have audited the accompanying balance sheet of Aries Ventures Inc., a Nevada corporation (the “Company”) as of September 30, 2004, and the related statements of operations, shareholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Aries Ventures Inc. as of September 30, 2004, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States.

/s/ Weinberg & Company, P.A.
Boca Raton, Florida
December 17, 2004

Aries Ventures Inc.

Balance Sheets

	September 30,
	2005			2004

ASSETS

CURRENT
Cash and cash equivalents	$	2,513,262		$	2,686,241
Marketable securities	30,000			—
Prepaid expenses and other current assets	—			18,147
Total current assets	2,543,262			2,704,388

PROPERTY AND EQUIPMENT	27,363			27,363
Less: accumulated depreciation and amortization	(27,363		)	(26,642		)
	—			721

DEPOSITS	—			2,309
	—			2,309
	$	2,543,262		$	2,707,418

LIABILITIES

CURRENT
Accounts payable	$	576		$	50,045
Accrued liabilities	95,000			10,135
Total current liabilities	95,576			60,180

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS’ EQUITY
Preferred stock, $0.01 par value; Authorized – 10,000,000 shares; Issued and outstanding – None	—			—
Common stock, $0.01 par value; Authorized – 50,000,000 shares; Issued and outstanding 2,032,226 and 3,311,981 shares at September 30, 2005 and 2004 respectively	20,322			33,120
Additional paid-in capital	469,914			1,800,859
Retained earnings	1,957,450			2,157,002
Less: shares held in treasury at September 30, 2004 – 1,279,755 shares of common stock at cost	—			(1,343,743		)
	2,447,686			2,647,238
	$	2,543,262		$	2,707,418

See accompanying notes to financial statements.

Aries Ventures Inc.

Statements Of Operations

	Years Ended September 30,
	2005			2004

REVENUES	$	—		$	—

COSTS AND EXPENSES
General and administrative	249,408			349,525
Depreciation and amortization	721			506
Interest expense	725			768
Appreciation of marketable securities	(30,000		)	—
Interest income	(21,302		)	(5,202		)
NET LOSS	$	(199,552	)	$	(345,597	)

NET LOSS PER COMMON SHARE – BASIC AND DILUTED	$	(0.10	)	$	(0.16	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC AND DILUTED	2,032,226			2,200,063

See accompanying notes to financial statements.

Aries Ventures Inc.
Statements of Shareholders’ Equity
Years Ended September 30, 2005 and 2004

	Common Stock					Preferred Stock			Securities Held in			Additional Paid-in			Retained
	Shares		Par Value			Shares	Par Value		Treasury			Capital			Earnings			Total
Balance, September 30, 2003	3,311,981		$	33,120		—	$	—	$	—		$	1,800,859		$	2,502,599		$	4,336,578
Common stock repurchased	—		—			—	—		(1,343,743		)	—			—			(1,343,743		)
Net loss	—		—			—	—		—			—			(345,597		)	(345,597		)
Balance, September 30, 2004	3,311,981		33,120			—	—		(1,343,743		)	1,800,859			2,157,002			2,647,238
Retired treasury shares	(1,279,755	)	(12,798		)	—	—		1,343,743			(1,330,945		)	—			—
Net loss	—		—			—	—		—			—			(199,552		)	(199,552		)
Balance, September 30, 2005	2,032,226		$	20,322		—	$	—	$	—		$	469,914		$	1,957,450		$	2,447,686

See accompanying notes to financial statements.

Aries Ventures Inc.

Statements Of Cash Flows

	Years Ended September 30,
	2005			2004
OPERATING ACTIVITIES
Net loss	$	(199,552	)	$	(345,597	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	721			506
Appreciation of marketable securities	(30,000		)	—
Changes in operating assets and liabilities:
(Increase) decrease in:
Prepaid expenses and other assets	20,456			25,597
(Increase) decrease in:
Accounts payable	(49,469		)	(2,657		)
Accrued liabilities	84,865			(20,153		)

Net cash used in operating activities	(172,979		)	(342,304		)

INVESTING ACTIVITIES
Payments from related entity	—			65,250
Increase in amounts due from related entity	—			(38,356		)
Purchase of property and equipment	—			(119		)

Net cash provided by investing activities	—			26,775

FINANCING ACTIVITIES
Repurchase of securities	—			(1,343,743		)

Net cash used in financing activities	—			(1,343,743		)

CASH AND CASH EQUIVALENTS
Net decrease in cash and cash equivalents	(172,979		)	(1,659,272		)
Balance at beginning of year	2,686,241			4,345,513
Balance at end of year	$	2,513,262		$	2,686,241

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid for interest	$	725		$	768

Cash paid for taxes	$	—		$	—

See accompanying notes to financial statements.

ARIES VENTURES INC.

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2005 AND 2004

1. Organization and Business

Aries Ventures Inc. (“Aries” or the “Company”) was incorporated in Nevada on April 21, 2000. As of September 30, 2005, Aries had no business operations. On October 20, 2005, Aries completed a reverse merger with Cardium Therapeutics, Inc. (See Note 8.)

2. Summary of Significant Accounting Policies

a. Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

b. Cash and Cash Equivalents

Cash and cash equivalents include all highly-liquid investments with an original maturity of three months or less at the date of purchase. The Company minimizes its credit risk by investing its cash and cash equivalents with major banks and financial institutions located primarily in the United States. However, cash balances exceeded federally-insured levels by approximately $2,500,000 at September 30, 2005 and $2,700,000 at September 30, 2004.

c. Marketable Securities

Marketable securities held by are recorded at fair market value and are classified as trading securities. Unrealized gains and losses for trading securities are included in income on a current basis.

d. Property and Equipment

Depreciation of furniture, fixtures and office equipment is provided on the straight-line method over the estimated useful lives of the respective assets.

e. Loss Per Common Share

Loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding, plus the issuance of common shares, if dilutive, resulting from the exercise of outstanding stock options and warrants. These potentially dilutive securities were not included in the calculation of loss per share for the years ended September 30, 2005 and 2004 because the Company incurred a loss during such periods and thus their inclusion would have been anti-dilutive. Accordingly, basic and diluted loss per common share are the same for all periods presented.

As of September 30, 2005 and 2004, potentially dilutive securities consisted of outstanding Series A common stock purchase warrants and stock options to acquire 2,056,226 shares and 353,318 shares, respectively.

f. Stock-Based Compensation

The Company adopted the disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), for stock options and similar equity instruments (collectively, “Options”) issued to employees, and continues to apply the intrinsic value based method of accounting for options issued to employees prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issues to Employees,” rather than the fair value based method of accounting prescribed by SFAS No. 123. SFAS No. 123 also applies to transactions in

which an entity issues its equity instruments to acquire goods or services from non-employees. Those transactions must be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured.

On December 31, 2002, the FASB issued SFAS No. 148 (“SFAS No. 148”), “Accounting for Stock-Based Compensation-Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123, to provide an alternative method of transition to SFAS No. 123’s fair value method of accounting for stock based employee compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 and APB Opinion No. 28, “Interim Financial Reporting,” to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements.

The Black-Scholes option valuation model was used to estimate the fair value of the options granted during the year ended September 30, 2004. The model includes subjective input assumptions that can materially affect the fair value estimates. The model was developed for use in estimating the fair market value of options that have no vesting restrictions and are fully transferable. The expected volatility is estimated based on the most recent historical period of time equal to the weighted average life of the options granted. There were no stock options granted during fiscal 2005.

Had compensation cost for stock option grants made under the Employee Stock Option Plan and the Management Incentive Stock Option Plan been determined under SFAS No. 123, the Company’s net loss and net loss per common share for the years ended September 30, 2005 and 2004 would have been as follows:

	2005			2004
Net loss, as reported	$	(199,552	)	$	(345,597	)
Less: additional compensation pursuant to SFAS No. 123	—			(1,662		)
Net loss, as adjusted	$	(199,552	)	$	(347,259	)

Net loss per common share (basic and diluted), as adjusted	$	(0.10	)	$	(0.16	)

The fair value of the stock options granted for 2004 were estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rate 5%; dividend yield of 0%; stock price volatility of 100%; and expected life of five years.

g. Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share Based Payment” (SFAS 123R), a revision to SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS 123R supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and amends SFAS No. 95, “Statement of Cash Flows.” SFAS 123R requires that the Company measure the cost of employee services received in exchange for equity awards based on the grant date fair value of the awards. The cost will be recognized as compensation expense over the vesting period of the awards. The Company is required to adopt SFAS 123R effective for annual periods beginning after December 15, 2005. Under this method, the Company will begin recognizing compensation cost for equity-based compensation for all new or modified grants after the date of adoption. In addition, the Company will recognize the unvested portion of the grant date fair value of awards issued before adoption based on the fair values previously calculated for disclosure purposes over the remaining vesting period of the outstanding options and warrants. The Company is currently evaluating the potential effect that the adoption of SFAS 123R will have on its financial statements.

December 15, 2004. The adoption of this pronouncement did not have an effect on our financial statements.

In September 2005, the FASB ratified the following consensus reached in EITF Issue No. 05-8, “Income Tax Consequences of Issuing Convertible Debt with a Beneficial Conversion Feature:” (a) The issuance of convertible debt with a beneficial conversion feature results in a basis difference in applying SFAS No. 109, “Accounting for Income Taxes.” Recognition of such a feature effectively creates a debt instrument and a separate equity instrument for book purposes, whereas the convertible debt is treated entirely as a debt instrument for income tax purposes; (b) The resulting basis difference should be deemed a temporary difference because it will result in a taxable amount when the recorded amount of the liability is recovered or settled; and (c) Recognition of deferred taxes for the temporary difference should be reported as an adjustment to additional paid-in capital.

Both of the above issues are effective in the first interim or annual reporting period commencing after December 15, 2005, with early application permitted. The effect of applying the consensus should be accounted for retroactively to all debt instruments containing a beneficial conversion feature that are subject to EITF Issue 00-27, “Application of Issue No. 98-5 to Certain Convertible Debt Instruments” (and thus is applicable to debt instruments converted or extinguished in prior periods but which are still presented in the financial statements). Management does not believe this pronouncement will have a material impact on the Company’s financial statements.

3. Due from Related Party

During the years ended September 30, 2005 and 2004, the Company allocated certain common corporate services (consisting of rent, utilities, common area services, insurance and other office services) to Resource Ventures, Inc. (“Resource”), a related entity with certain common officers and directors. The allocation of common corporate services between the Company and Resource ceased effective December 31, 2004. Activity with respect to the allocation of such services is summarized as follows:

Balance, October 1, 2003	$	26,894
Amounts allocated to Resource	38,356
Payments by Resource to Company	(65,250		)
Balance, September 30, 2004	—
Amounts allocated to Resource	16,459
Payments by Resource to Company	(16,459		)
Balance, September 30, 2005	$	—

4. Commitments and Contingencies

a. Operating Leases

During the year ended September 30, 2004, the Company leased its executive and administrative offices under an operating lease that expired on September 30, 2004. Subsequent to September 30, 2004, such facilities were occupied on a month-to-month basis. Effective January 1, 2005, the Company moved to new offices on a month-to-month basis.

Rent expense for the years ended September 30, 2005 and 2004 was $9,655 and $22,441, respectively.

b. Employment Agreements

At September 30, 2004, the Company had employment agreements with its Chairman of the Board of Directors and its President and Chief Financial Officer, providing for compensation of $60,000 to each officer per year for the period from October 1, 2002 through September 30, 2005. The employment agreements also provide that in the event of a change in majority ownership of the Company, each such person has the option to terminate his employment with the Company and receive a payment equal to three times his base annual compensation.

Effective October 1, 2004, the Chairman and the President each agreed to reduce their compensation to $18,000 per year for the remainder of the term of the respective employment agreements.

Effective December 31, 2004, the Chairman resigned from the Board of Directors, and his employment agreement was terminated. No further compensation was required to be paid to the Chairman as a result of his termination.

The President received a bonus of $50,000 (paid in October 2005), which was recorded as a liability as of September 30, 2005.

5. Income Taxes

As of September 30, 2005, the Company had Federal net operating loss carryforwards of approximately $71,500,000 expiring in various years through 2024, portions of which may be used to offset future taxable income, if any. The Company has a deferred tax asset arising from such operating losses for which a full valuation allowance has been established due to the uncertainty as to their realizability in future periods.

Due to the restrictions imposed by the Internal Revenue Code of 1986, as amended, regarding substantial changes in ownership of companies with loss carryforwards, the utilization of the Company’s federal net operating loss carryforwards will likely be limited as a result of cumulative changes in stock ownership.

The Company’s net deferred tax assets (using a Federal corporate income rate of approximately 34%) consisted of the following at September 30, 2005 and 2004:

	September 30,
	2005			2004
Deferred tax assets:
Operating loss carryforwards	$	26,497,000		$	26,412,000
Valuation allowances	170,000			180,000
Depreciation	1,000			1,000
	26,668,000			26,593,000
Less: Valuation allowance	(26,668,000		)	(26,593,000		)
Net deferred tax assets	$	—		$	—

As a result of the Company’s significant operating loss carryforwards and the corresponding valuation allowance, no income tax benefit has been recorded at September 30, 2005 and 2004. The provision for income taxes using the statutory federal tax rate as compared to the Company’s effective tax rate is summarized as follows:

	September 30,
	2005		2004
Tax benefit at statutory rate	(34.0	)%	(34.0	)%
State income taxes	—		—
Adjustments to change in valuation allowance	34.0		34.0
	—		—

6. Related Party Transactions

In addition to the related party transactions described at Notes 3 and 4, the Company had the following related party transactions for the years ended September 30, 2005 and 2004:

During the years ended September 30, 2005 and 2004, the Company paid annual board committee fees of approximately $21,800 and $19,000, respectively, to non-employee directors.

7. Shareholders’ Equity

a. Common Stock

Effective November 17, 2003, the Company repurchased from an institutional shareholder 1,279,755 shares of common stock in a private transaction for an aggregate cash purchase price of $1,343,743. These securities have been classified as treasury securities in the Company’s balance sheet at September 30, 2004. On September 16, 2005, the Company retired the treasury shares and recorded them as a reduction in common stock and additional paid in capital. In connection with the purchase of such shares, the Company cancelled 1,194,755 associated warrants.

b. Stock Option Plans

Under the Company’s Employee Stock Option Plan, the Company may issue stock options to purchase a maximum of 353,318 shares of common stock of the Company. Under the Company’s Management Incentive Stock Option Plan, the Company may issue stock options to purchase a maximum of 247,323 shares of common stock of the Company. Both stock option plans were adopted by the Board of Directors on April 12, 2000, and are administered by the Board of Directors. At September 30, 2005, options to purchase 105,995 shares had been issued under the Employee Stock Option Plan and options to purchase 247,323 shares had been issued under the Management Incentive Stock Option Plan.

The purchase price for the shares subject to any incentive stock option granted under the Employee Stock Option Plan or the Management Incentive Stock Option Plan shall not be less than 100% of the fair market value of the shares of common stock of the Company on the date the option is granted (110% for stockholders who own in excess of 10% of the outstanding common stock). No option shall be exercisable after the expiration of 10 years after the date the option is granted. In addition, subject to certain exceptions, no option shall be exercisable after the expiration of three months after the date the optionee’s employment with the Company terminates if termination is for any reason other than permanent disability or death, or one year after the date the optionee’s employment terminates if termination is a result of death or permanent disability. Unless sooner terminated by the Board of Directors, both option plans expire on April 11, 2010.

Such options granted are exercisable for a period of five years. The exercise price of such options was the fair market value on the date of grant ($0.23 per share), except for the Chairman, a more than 10% stockholder of the Company; the exercise price of the Chairman’s option was 110% of the fair market value on the date of grant ($0.25 per share). The stock options vested in equal annual increments over three years.

Option activity under these stock option plans for the years ended September 30, 2004 and 2005 is summarized as follows:

	Number of Options	Exercise Price		Remaining Contractual Life (in years)
Balance outstanding, October 1, 2003	353,318	$	0.23-0.25

Options issued	—	—
Options exercised	—	—
Options expired	—	—
Balance outstanding, September 30, 2004	353,318	$	0.23-0.25	1.1

Options issued	—	—
Options exercised	—	—
Options expired	—	—
Balance outstanding, September 30, 2005	353,318	$	0.23-0.25	0.1
Options exercisable at September 30, 2005	353,318	$	0.23-0.25	0.1

c. Warrants

Warrant activity for the fiscal years ended September 30, 2005 and 2004 is summarized below. The Series A warrants entitle the holders to purchase one share of common stock at $6.00 per share.

	Number of Warrants		Exercise Price		Remaining Contractual Life (in years)
Balance outstanding, October 1, 2003	3,250,981		$	6.00

Warrants issued	—		—
Warrants exercised	—		—
Warrants expired	—		—
Warrants cancelled	(1,194,755	)	$	6.00
Balance outstanding, September 30, 2004	2,056,226		$	6.00

Warrants issued	—		—
Warrants exercised	—		—
Warrants expired	—		—
Warrants cancelled	—
Balance outstanding, September 30, 2005	2,056,226		$	6.00	0.1
Warrants exercisable at September 30, 2005	2,056,226		$	6.00	0.1

The warrants expired on November 11, 2005.

8. Subsequent Events

On October 20, 2005, Aries completed a reverse merger (the “Merger”) with privately held Cardium Therapeutics, Inc., whereby a newly formed and wholly-owned subsidiary of Aries was merged with and into Cardium. As a result, Cardium became a wholly-owned subsidiary of Aries. At the time of the Merger, Cardium had 7,850,000 shares of common stock outstanding, which, by virtue of the Merger, were converted into the right to receive one share of common stock of Aries for each share of common stock of Cardium, and Aries had 2,032,226 shares of its common stock outstanding. In addition, a three year warrant to purchase 400,000 shares of Aries common stock at an exercise price of $1.75 per share was issued to an Aries stockholder who held of record or beneficially more than 45% of the outstanding common stock of Aries prior to the Merger as consideration for such stockholder’s agreement not to sell any of such stockholder’s shares of Aries common stock for a period of approximately five

months from the effective time of the Merger, subject to certain exceptions based on the market value of such common stock. Aries also agreed to terminate all of its equity incentive plans and adopt Cardium’s 2005 Equity Incentive Plan.

At the time of the Merger, Aries had divested itself of all its assets and investments other than $1.5 million in cash and had no outstanding contractual commitments. To accomplish this, Aries formed Vestige Holdings, LLC, a Nevada limited liability company (“Vestige”), and prior to the effective time of the Merger transferred to Vestige $5,000 in cash and all of Aries’ non-cash assets. Before the Merger, Aries transferred all of its right, title and interest in and to Vestige to the holders of all of the then outstanding options, in consideration for the surrender and cancellation by the optionees of all of their options to acquire shares of Aries common stock under Aries’ Employee Stock Option Plan and/or Management Incentive Stock Option Plan, as such plans existed prior to the Merger. Immediately before the Merger, Aries declared a cash distribution to its stockholders of approximately $880,000 or $0.43 per share.

Concurrently with the Merger, Aries also closed a private placement of 19,325,651 shares of its common stock at a purchase price of $1.50 per share and received net proceeds of $25,552,390. In connection therewith, the placement agent received a five-year warrant to purchase 2,032,555 shares of the Aries’ common stock at an exercise price of $1.50 per share and selling commissions, marketing allowances and management fees totaling approximately $3,048,832. Investors who invested at least $1,000,000 in shares of common stock received a three-year warrant to buy 10% of the number of shares of common stock purchased in the private placement, at an exercise price of $1.75 per share. Shares underlying such warrants total 424,263. The warrants are fully exercisable.

In connection with the private placement, the Company incurred legal, accounting and other fees and expenses totaling approximately $387,000.

An officer of Cardium was repaid advances of $62,882 made to fund early start-up costs with the issuance of 41,922 shares of Aries common stock during October 2005.

Upon the close of the Merger and the private placement, Cardium acquired a portfolio of cardiovascular growth factor therapeutic assets from Schering AG (Germany) and/or its affiliates for a purchase price of approximately $4,000,000.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 8A. CONTROLS AND PROCEDURES

We maintain certain disclosure controls and procedures. They are designed to help ensure that material information is: (1) gathered and communicated to our management, including our principal executive and financial officers, on a timely basis; and (2) recorded, processed, summarized, reported and filed with the SEC as required under the Securities Exchange Act of 1934.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2005. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective for their intended purpose described above. There were no changes to our internal controls during the fourth quarter ended September 30, 2005 that have materially affected, or that are reasonably likely to materially affect, our internal controls.

ITEM 8B. OTHER INFORMATION

None.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

The information for this item is incorporated by reference to the sections “Our Board of Directors,” “Our Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,” and “Code of Ethics” in our definitive proxy statement for our Annual Meeting of Stockholders to be held in January 2006.

ITEM 10. EXECUTIVE COMPENSATION

The information for this item is incorporated by reference to the sections “Director Compensation” and “Executive Officer Compensation” in our definitive proxy statement for our Annual Meeting of Stockholders to be held in January 2006.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information for this item is incorporated by reference to the sections “Stock Holdings of Certain Owners and Management” and “Securities Authorized for Issuance Under Equity Compensation Plans” in our definitive proxy statement for our Annual Meeting of Stockholders to be held in January 2006.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information for this item is incorporated by reference to the section “Certain Relationships and Related Transactions” in our definitive proxy statement for our Annual Meeting of Stockholders to be held in January 2006.

ITEM 13. EXHIBITS

The following exhibit index shows those exhibits filed with this report and those incorporated by reference:

EXHIBIT INDEX

Exhibit Number	Description	Incorporated By Reference To
1.1	Placement Agency Agreement dated July 1, 2005 by and between Cardium Therapeutics, Inc. and National Securities Corporation	Exhibit 1.1 of Aries’ Current Report on Form 8-K dated October 20, 2005, filed with the commission on October 26, 2005

2.1	Debtor’s Second Amended Chapter 11 Plan of Reorganization	Exhibit 2.1 of Aries’ Current Report on Form 8-K dated March 31, 2000, filed with the commission on April 13, 2000

2.2	Order Confirming Debtor’s Second Amended Chapter 11 Plan or Reorganization	Exhibit 2.2 of Aries’ Current Report on Form 8-K dated March 31, 2000, filed with the commission on April 13, 2000

2.3	Order Authorizing Non-Material Modification of Debtor’s Second Amended Chapter 11 Plan of Reorganization	Exhibit 2.1 of Aries’ Current Report on Form 8-K dated June 1, 2000, filed with the commission on June 19, 2000

2.4	Articles and Plan of Merger of Casmyn Corp. and Aries Ventures Inc.	Exhibit 3.2 of Aries’ Current Report on Form 8-K dated April 28, 2000, filed with the commission on May 23, 2000

2.5	Agreement and Plan of Merger dated as of October 19, 2005 and effective as of October 20, 2005, by and among Aries Ventures Inc., Aries Acquisition Corporation and Cardium Therapeutics, Inc.	Exhibit 2.1 of Aries’ Current Report on Form 8-K dated October 20, 2005, filed with the commission on October 26, 2005

2.6	Certificate of Merger of Domestic Corporation as filed with the Delaware Secretary of State on October 20, 2005	Exhibit 2.1 of Aries’ Current Report on Form 8-K dated October 20, 2005, filed with the commission on October 26, 2005

3(i)	Articles of Incorporation of Aries Ventures Inc. filed with the Nevada Secretary of State on April 21, 2000	Exhibit 3.1 of Aries’ Current Report on Form 8-K dated April 28, 2000, filed with the commission on May 23, 2000

3(ii)	By-laws of Aries Ventures Inc. as adopted on April 28, 2000	Exhibit 3.3 of Aries’ Current Report on Form 8-K dated April 28, 2000, filed with the commission on May 23, 2000

4.1	Form of Warrant issued to National Securities Corporation as Placement Agent	Exhibit 4.1 of Aries’ Current Report on Form 8-K dated October 20, 2005, filed with the commission on October 26, 2005

4.2	Form of Warrant issued to Lead Investors and Mark Zucker	Exhibit 4.2 of Aries’ Current Report on Form 8-K dated October 20, 2005, filed with the commission on October 26, 2005

4.3	Form of Lock-Up Agreement executed by officers, directors and employees of Cardium Therapeutics, Inc.	Exhibit 4.3 of Aries’ Current Report on Form 8-K dated October 20, 2005, filed with the commission on October 26, 2005

10.1	Transfer, Consent to Transfer, Amendment and Assignment of License Agreement effective as of August 31, 2005, by and among New York University, Collateral Therapeutics, Inc. and Cardium Therapeutics, Inc.	Exhibit 10.1 of Aries’ Current Report on Form 8-K dated October 20, 2005, filed with the commission on October 26, 2005

10.2	Transfer, Consent to Transfer, Amendment and Assignment of License Agreement effective as of August 31, 2005, by and among Yale University, Schering Aktiengesellschaft and Cardium Therapeutics, Inc.	Exhibit 10.2 of Aries’ Current Report on Form 8-K dated October 20, 2005, filed with the commission on October 26,

10.3	Transfer, Consent to Transfer, Amendment and Assignment of License Agreement effective as of July 31, 2005, by and among the Regents of the University of California, Collateral Therapeutics, Inc. and Cardium Therapeutics, Inc.	Exhibit 10.3 of Aries’ Current Report on Form 8-K dated October 20, 2005, filed with the commission on October 26, 2005

10.4	Transfer, Consent to Transfer, Amendment and Assignment of License Agreement effective as of July 31, 2005, by and among the Regents of the University of California, Collateral Therapeutics, Inc. and Cardium Therapeutics, Inc.	Exhibit 10.4 of Aries’ Current Report on Form 8-K dated October 20, 2005, filed with the commission on October 26, 2005

10.5	Technology Transfer Agreement effective as of October 13, 2005, by and among Schering AG, Berlex, Inc., Collateral Therapeutics, Inc. and Cardium Therapeutics, Inc.	Exhibit 10.5 of Aries’ Current Report on Form 8-K dated October 20, 2005, filed with the commission on October 26, 2005

10.6	Amendment to the Exclusive License Agreement for “Angiogenesis Gene Therapy” effective as of October 20, 2005, between the Regents of the University of California and Cardium	Exhibit 10.6 of Aries’ Current Report on Form 8-K dated October 20, 2005, filed with the commission on October 26, 2005

10.7	Amendment to License Agreement effective as of	Exhibit 10.7 of Aries’ Current Report on

	October 20, 2005, by and between New York University and Cardium Therapeutics, Inc.	Form 8-K dated October 20, 2005, filed with the commission on October 26, 2005

10.8	Second Amendment to Exclusive License Agreement effective as of October 20, 2005, by and between Yale University and Cardium Therapeutics, Inc.	Exhibit 10.8 of Aries’ Current Report on Form 8-K dated October 20, 2005, filed with the commission on October 26, 2005

10.9	2005 Equity Incentive Plan as adopted effective as of October 20, 2005*	Exhibit 10.9 of Aries’ Current Report on Form 8-K dated October 20, 2005, filed with the commission on October 26, 2005

10.10	Employment Agreement dated as of October 20, 2005 by and between Aries Ventures Inc. and Christopher Reinhard*	Exhibit 10.10 of Aries’ Current Report on Form 8-K dated October 20, 2005, filed with the commission on October 26, 2005

10.11	Employment Agreement dated as of October 20, 2005 by and between Aries Ventures Inc. and Tyler Dylan*	Exhibit 10.11 of Aries’ Current Report on Form 8-K dated October 20, 2005, filed with the commission on October 26, 2005

10.12	Office Lease between Cardium and Kilroy Realty, L.P. dated as of September 30, 2005 and commencing on November 1, 2005	Filed herewith

10.13	Yale Exclusive License Agreement between Yale University and Schering Aktiengesellschaft dated September 8, 2000	Filed herewith

10.14	Research and License Agreement between New York University and Collateral Therapeutics, Inc. dated March 24, 1997 (with amendments dated April 28, 1998 and March 24, 2000)	Filed herewith

10.15	Exclusive License Agreement for “Angiogenesis Gene Therapy” between the Regents of the University of California and Collateral Therapeutics, Inc. dated as of September 27, 1995 (with amendments dated September 19, 1996, June 30, 1997, March 11, 1999 and February 8, 2000)	Filed herewith

31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer	Filed herewith

31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer	Filed herewith

32	Section 1350 Certification	Filed herewith

* Indicates management contract or compensatory plan or arrangement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information for this item is incorporated by reference to the sections “Audit Fees,” “Audit-Related Fees,” “Tax Fees,” “All Other Fees” and “Pre-Approval Polices and Procedures” in our definitive proxy statement for our Annual Meeting of Stockholders to be held in January 2006.

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, Aries Ventures Inc., the registrant, caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: December 21, 2005

	ARIES VENTURES INC.


	By:	/s/ Christopher J. Reinhard
		Christopher J. Reinhard, Chief Executive Officer

In accordance with the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Aries Ventures Inc., in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Christopher J. Reinhard	Chief Executive Officer and
(Christopher J. Reinhard)	Chairman of the Board of Directors	December 21, 2005
	(principal executive officer)

/s/ Dennis M. Mulroy	Chief Financial Officer
(Dennis M. Mulroy)	(principal financial officer and	December 21, 2005
	principal accounting officer)

/s/ Robert N. Weingarten	Director	December 21, 2005
(Robert N. Weingarten)

EX-10.12 2 a05-22067_1ex10d12.htm MATERIAL CONTRACTS

Exhibit 10.12

KILROY CENTRE DEL MAR

OFFICE LEASE

This Office Lease (the “Lease”), dated as of the date set forth in Section 1 of the Summary of Basic Lease Information (the “Summary”), below, is made by and between KILROY REALTY, L.P., a Delaware limited partnership (“Landlord”), and CARDIUM THERAPEUTICS, INC., a Delaware corporation (“Tenant”).

SUMMARY OF BASIC LEASE INFORMATION

	TERMS OF LEASE		DESCRIPTION

1.	Date:		September 30, 2005.

2.	Premises:

	2.1	Building:	That certain five (5)-story building (the “Building”) located at 3611 Valley Centre Drive, San Diego, California 92130, which Building contains 129,680 rentable square feet of space, and which Building is commonly referred to as “*Building 2*” within the “Project.”

	2.2	Premises:	5,727 rentable square feet of space located on the fifth (5th) floor of the Building and commonly known as Suite 525, as further set forth in Exhibit A to the Office Lease.

	2.3	Project:	The Building is part of a five (5) office-building project known as “Kilroy Centre Del Mar,” as further set forth in Article 1 of this Lease.

3.	Lease Term
	(Article 2):

	3.1	Length of Term:	Two (2) years and no (0) months.

	3.2	Lease Commencement Date:	November 1, 2005.

	3.3	Lease Expiration Date:	October 31, 2007.

	3.4	Option Term(s)	Two (2) options to renew, the first (1^st) for a term of one (1) year, and the second (2^nd) for a term of two (2) years, all as more particularly set forth in Section 2.2 of this Lease.

4.	Base Rent (Article 3):

					Monthly
			Monthly		Rental Rate
	Annual		Installment		per Rentable
Lease Year	Base Rent*		of Base Rent*		Square Foot*
1	$	257,715.00	$	21,476.25	$	3.750
2	$	268,023.00	$	22,335.25	$	3.900
First Option Term (Lease Year 3)	$	278,745.00	$	23,228.75	$	4.056

* The initial Annual Base Rent (and Monthly Installment of Base Rent) was calculated by multiplying the initial Monthly Rental Rate per Rentable Square Foot by the number of rentable square feet of space in the Premises. In all subsequent Lease Years, the calculation of Annual Base Rent (and Monthly Installment of Base Rent) reflects an annual increase of four percent (4.0%). Notwithstanding the calculations identified above, (i) in each instance the resulting Monthly Installment of Base Rent was rounded up or down, as applicable, to the nearest twenty-five cents ($0.25), (ii) the Annual Base Rent is, therefore, an amount equal to exactly twelve (12) times such rounded Monthly Installment of Base Rent amount, and (iii) the Monthly Rental Rate per Rentable Square Foot is, for all years following the first (1^st) Lease Year, only an approximation for reference purposes only.

5.		Base Year		Calendar year 2006
		(Article 4):

6.	Tenant’s Share	4.4163%.
	(Article 4):

7.	Permitted Use (Article 5):	To the extent the same complies with applicable laws and zoning and are otherwise consistent with the character of the Project as a first-class office building Project, Tenant shall use the Premises solely for general office use and uses incidental thereto.

8.	Security Deposit	$21,476.25.
	(Article 21):

9.	Parking Passes Ratio (Article 28):	Four (4) unreserved parking passes for every 1,000 usable square feet of the Premises.

10.	Address of Tenant	Address of Landlord (Section 29.12):
	(Section 29.11):

	Cardium Therapeutics, Inc. 11622 El Camino Real, Suite 300 San Diego, CA 92130 Attention: President (Prior to Lease Commencement Date)	Kilroy Realty, L.P. c/o Kilroy Realty Corporation 12200 West Olympic Boulevard, Suite 200 Los Angeles, California 90064 Attention: Legal Department

	and	with copies to:

	Cardium Therapeutics, Inc. 3611 Valley Centre Dr., Suite 525 San Diego, CA 92130 Attention: President (After Lease Commencement Date)	Kilroy Realty Corporation 3611 Valley Centre Drive, Suite 550 San Diego, California 92130 Attention: Mr. Brian Galligan
		And

		Allen Matkins Leck Gamble & Mallory LLP
		1901 Avenue of the Stars, Suite 1800
		Los Angeles, California 90067
		Attention: Anton N. Natsis, Esq.

11.	Broker(s) (Section 29.10):	The Irving Hughes Group (representing Tenant); CB Richard Ellis (representing Landlord)

ARTICLE I

PREMISES, BUILDING, PROJECT AND COMMON AREAS

1.1 The Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the premises set forth in Section 2.2 of the Summary (the “Premises”). The outline of the Premises is set forth in Exhibit A attached hereto and Landlord and Tenant hereby stipulate that, for purposes of this Lease, the “rentable square feet” of the Premises shall be deemed as set forth in Section 2.2 of the Summary. The parties hereto agree that the lease of the Premises is upon and subject to the terms, covenants and conditions (the “TCCs”) herein set forth, and Tenant covenants as a material part of the consideration for this Lease to keep and perform each and all of such TCCs by it to be kept and performed and that this Lease is made upon the condition of such performance. The parties hereto hereby acknowledge that the purpose of Exhibit A is to show the approximate location of the Premises in the “Building,” as that term is defined in Section 1.1.2, below, only, and such exhibit is not meant to constitute an agreement, representation or warranty as to the construction of the Premises, the precise area thereof or the specific location of the “Common Areas,” as that term is defined in Section 1.1.3, below, or the elements thereof or of the accessways to the Premises or the “Project,” as that term is defined in Section 1.1.2, below. Except as specifically set forth in this Lease, Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises. Tenant also acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty regarding the condition of the Premises, the Building or the Project or with respect to the suitability of any of the foregoing for the conduct of Tenant’s business, except as specifically set forth in this Lease. The taking of possession of the Premises by Tenant shall conclusively establish that the Premises and the Building were at such time in good and sanitary order, condition and repair.

1.2 The Building and the Project. The Premises are a part of the building set forth in Section 2.1 of the Summary (the “Building”). The Building is part of an office project known as “Kilroy Centre Del Mar.” The term “Project,” as used in this Lease, shall mean (i) the Building and the Common Areas, (ii) the land (which is improved with landscaping, parking facilities and other improvements) upon which the Building and the Common Areas are located, and (iii) the other office buildings located adjacent to the Building and the land upon which such adjacent office buildings are located.

1.3 Common Areas. Tenant shall have the non-exclusive right to use in common with other tenants in the Project, and subject to the rules and regulations referred to in Article 5 of this Lease, those portions of the Project which are provided, from time to time, for use in common by Landlord, Tenant and any other tenants of the Project (such areas, together with such other portions of the Project designated by Landlord, in its discretion, including certain areas designated for the exclusive use of certain tenants, or to be shared by Landlord and certain tenants, are collectively referred to herein as the “Common Areas”). The manner in which the Common Areas are maintained and operated shall be at the sole discretion of Landlord and the use thereof shall be subject to such rules, regulations and restrictions as Landlord may make from time to time, provided that such rules, regulations and restrictions do not unreasonably interfere with the rights granted to Tenant under this Lease and the permitted use granted under Section 5.1, below. Landlord reserves the right to close temporarily, make alterations or additions to, or change the location of elements of the Project and the Common Areas; provided that no such changes shall be permitted which materially reduce Tenant’s rights or access hereunder. Except when and where Tenant’s right of access is specifically excluded in this Lease, Tenant shall have the right of access to the Premises, the Building, and the Project parking facility twenty-four (24) hours per day, seven (7) days per week during the “Lease Term,” as that term is defined in Article 2, below.

ARTICLE 2

LEASE TERM; OPTION TERM(S)

2.1 Initial Lease Term. The TCCs and provisions of this Lease shall be effective as of the date of this Lease. The term of this Lease (the “Lease Term”) shall be as set forth in Section 3.1 of the Summary, shall commence on the date set forth in Section 3.2 of the Summary (the “Lease Commencement Date”), and shall terminate on the date set forth in Section 3.3 of the Summary (the “Lease Expiration Date”) unless this Lease is sooner terminated as hereinafter provided. For purposes of this Lease, the term “Lease Year” shall mean each consecutive twelve (12) month period during the Lease Term.

2.2 Option Terms.

2.2.1 Option Right. Landlord hereby grants the Tenant originally named herein (the “Original Tenant”) and its “Permitted Transferee,” as that term is set forth in Section 14.7 of this Lease, two (2) options to extend the Lease Term for the entire Premises, the first of which shall extend the Term for a period of one (1) year, and the second (2nd) of which shall further extend the Term for two (2) years (each, an “Option Term”); provided, however, such second such option to extend the Lease shall be subject and subordinate to the right of first refusal with regard to the Premises which has previously been granted to Peregrine Systems, Inc., a Delaware corporation (the “Superior Right Holder”) pursuant to its existing lease for all of floors 1 though 4 of the Building and a portion of the remainder of floor 5 of the Building. Such option shall be exercisable only by Notice delivered by Tenant to Landlord (the “Exercise Notice”) not less than six (6) months prior to the expiration of the then-applicable Lease Term, stating that Tenant is exercising such option, provided that, as of the date of delivery of such Exercise Notice, (i) Tenant is not then in default under this Lease (beyond any applicable notice and cure periods), (ii) Tenant has not been in default under this Lease (beyond any applicable notice and cure periods) more than once during the preceding twelve (12)-month period, and (iii) Tenant has not been in default under this Lease (beyond any applicable notice and cure periods) more than twice during the Lease Term. Upon the proper exercise of such option to extend (subject to the Superior Right Holder’s right of first refusal), and provided that, as of the end of the then applicable Lease Term, (A) Tenant is not in default under this Lease (beyond any applicable notice and cure periods), (B) Tenant has not been in default under this Lease (beyond any applicable notice and cure periods) more than once during the preceding twelve (12)-month period, and (C) Tenant has not been in default under this Lease (beyond any applicable notice and cure periods) more than twice during the Lease Term, then the Lease Term, as it applies to the entire Premises, shall be extended for the applicable period (i.e., by one (1) year with regard to the first such option to extend, and

by two (2) years with regard to the second such option to extend). The rights contained in this Section 2.2 shall only be exercised by the Original Tenant or its Permitted Transferee (and not any other assignee, sublessee or other transferee of the Original Tenant’s interest in this Lease) if Original Tenant and/or its Permitted Transferee is in occupancy of the entire then-existing Premises.

2.2.2 Option Rent. The Base Rent payable by Tenant during the first Option Term (the “1^st Option Rent”) shall be as set forth in Section 4 of the Summary. The Base Rent payable by Tenant during the second Option Term (the “2nd Option Rent”) shall be the “Market Rent,” as the same shall be determined in accordance with Exhibit B attached hereto. Throughout the Option Term(s), Tenant shall remain obligated to pay Additional Rent pursuant to the TCCs of Article 4 of this Lease.

2.3 Beneficial Occupancy. Notwithstanding the Lease Commencement Date, Landlord shall deliver possession of the Premises to Tenant, and Tenant shall have the right to occupy the Premises, commencing on the second (2nd) business day following the later to occur of (i) the full execution and delivery of this Lease between the parties, (ii) Tenant’s delivery to Landlord of the Security Deposit required pursuant to Section 8 of the Summary and Article 21 of this Lease, (iii) Tenant’s delivery to Landlord of the evidence of insurance required pursuant to Section 10.4 of this Lease, and (iv) Tenant’s delivery of written notification to Landlord of the satisfaction of the “Condition Precedent,” as that term is set forth in Section 2.4, below, or Tenant’s waiver of the same; provided, however, in connection with such period of beneficial occupancy, all of the terms and conditions of this Lease shall apply (other than Tenant’s obligation to pay Base Rent), as though the Lease Commencement Date had occurred (although the Lease Commencement Date shall not actually occur until November 1, 2005).

2.4 Condition Precedent; Early Termination. Landlord and Tenant hereby acknowledge and agree that, in accordance with the remaining TCCs of this Section 2.4, Tenant’s securing funding, on or before October 25, 2005, raised through National Securities Corporation, in an amount totaling no less than Twenty-Five Million and No/100 Dollars ($25,000,000.00) is a condition precedent to this Lease (the “Condition Precedent”). In connection with the foregoing, Tenant represents and warrants to Landlord that (x) National Securities Corporation has, as of the date of this Lease, received commitments for at least the first Twenty Million Dollars of such funding requirement, (y) Tenant shall proceed with commercially reasonable due diligence to do all things necessary or advisable to satisfy such Condition Precedent (i.e., to timely secure the remainder of such funding requirement) as soon as reasonably possible, and (z) Tenant shall immediately notify Landlord in writing upon satisfaction of such Condition Precedent (i.e., upon Tenant securing the remainder of such finding requirement). In the event the Condition Precedent is not satisfied on or before October 25, 2005, and Tenant has otherwise satisfied the TCCs of this Section 2.4, Tenant shall thereafter have the right to terminate this Lease immediately upon written notice (the “Termination Notice”) given to Landlord on or before 5:00 P.M. (Pacific Time) on Wednesday, October 26, 2005; provided, however, if such funding is nevertheless issued within thirty (30) days of Landlord’s receipt of such Termination Notice, then such Termination Notice shall be deemed rescinded and this Lease shall remain in full force and effect.

ARTICLE 3

BASE RENT

Tenant shall pay, without prior notice or demand, to Landlord or Landlord’s agent at the management office of the Project, or, at Landlord’s option, at such other place as Landlord may from time to time designate in writing, by a check for currency which, at the time of payment, is legal tender for private or public debts in the United States of America, base rent (“Base Rent”) as set forth in Section 4 of the Summary, payable in equal monthly installments as set forth in Section 4 of the Summary in advance on or before the first day of each and every calendar month during the Lease Term, without any setoff or deduction whatsoever. The Base Rent for the first full month of the Lease Term which occurs after the expiration of any free rent period shall be paid at the time of Tenant’s execution of this Lease. If any payment of Rent is for a period which is shorter than one month, the Rent for any such fractional month shall accrue on a daily basis during such fractional month and shall total an amount equal to the product of (i) a fraction, the numerator of which is the number of days in such fractional month (i.e., the number of days for which Rent is due) and the denominator of which is the actual number of days occurring in such calendar month, and (ii) the then-applicable Monthly Installment of Base Rent. All other payments or adjustments required to be made under the TCCs of this Lease that require proration on a time basis shall be prorated on the same basis.

ARTICLE 4

ADDITIONAL RENT

4.1 General Terms. In addition to paying the Base Rent specified in Article 3 of this Lease, Tenant shall pay “Tenant’s Share” of the annual “Direct Expenses,” as those terms are defined in Sections 4.2.6 and 4.2.2 of this Lease, respectively, which are in excess of the amount of Direct Expenses applicable to the “Base Year,” as that term is defined in Section 4.2.1, below; provided, however, that in no event shall any decrease in Direct Expenses for any Expense Year below Direct Expenses for the Base Year entitle Tenant to any decrease in Base Rent or any credit against sums due under this Lease. Such payments by Tenant, together with any and all other amounts payable by Tenant to Landlord pursuant to the TCCs of this Lease, are hereinafter collectively referred to as the “Additional Rent,” and the Base Rent and the Additional Rent are herein collectively referred to as “Rent.” All amounts due under this Article 4 as Additional Rent shall be payable for the same periods and in the same manner as the Base Rent; provided, however, the parties hereby acknowledge that the first monthly installment of Tenant’s Share of any “Estimated Excess,” as that term is set forth in, and pursuant to the terms and conditions of, Section 4.4.2 of this Lease, shall first be due and payable for the calendar month occurring immediately following the expiration of the Base Year. Without limitation on other obligations of Tenant which survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this Article 4 shall survive the expiration of the Lease Term.

4.2 Definitions of Key Terms Relating to Additional Rent. As used in this Article 4, the following terms shall have the meanings hereinafter set forth:

4.2.1 “Base Year” shall mean the period set forth in Section 5 of the Summary.

4.2.2 “Direct Expenses” shall mean “Operating Expenses” and “Tax Expenses.”

4.2.3 “Expense Year” shall mean each calendar year in which any portion of the Lease Term falls, through and including the calendar year in which the Lease Term expires, provided that Landlord, upon notice to Tenant, may change the Expense Year from time to time to any other twelve (12) consecutive month period, and, in the event of any such change, Tenant’s Share of Direct Expenses shall be equitably adjusted for any Expense Year involved in any such change.

4.2.4 “Operating Expenses” shall mean all expenses, costs and amounts of every kind and nature which Landlord pays or accrues during any Expense Year because of or in connection with the ownership, management, maintenance, security, repair, replacement, restoration or operation of the Project, or any portion thereof, in accordance with sound real estate management and accounting principles, consistently applied. Without limiting the generality of the foregoing, Operating Expenses shall specifically include any and all of the following: (i) the cost of supplying all utilities, the cost of operating, repairing, maintaining, and renovating the utility, telephone, mechanical, sanitary, storm drainage, and elevator systems, and the cost of maintenance and service contracts in connection therewith; (ii) the cost of licenses, certificates, permits and inspections and the cost of contesting any governmental enactments which may affect Operating Expenses, and the costs incurred in connection with a governmentally mandated transportation system management program or similar program; (iii) the cost of all insurance carried by Landlord in connection with the Project; (iv) the cost of landscaping, relamping, and all supplies, tools, equipment and materials used in the operation, repair and maintenance of the Project, or any portion thereof; (v) costs incurred in connection with the parking areas servicing the Project; (vi) fees and other costs, including management fees, consulting fees, legal fees and accounting fees, of all contractors and consultants in connection with the management, operation, maintenance and repair of the Project; (vii) payments under any equipment rental agreements and the fair rental value of any management office space; (viii) wages, salaries and other compensation and benefits, including taxes levied thereon, of all persons (other than persons generally considered to be higher in rank than the position of Project manager) engaged in the operation, maintenance and security of the Project; (ix) costs under any instrument pertaining to the sharing of costs by the Project; (x) operation, repair, maintenance and replacement of all systems and equipment and components thereof of the Building; (xi) the cost of janitorial, alarm, security and other services, replacement of wall and floor coverings, ceiling tiles and fixtures in common areas, maintenance and replacement of curbs and walkways, repair to roofs and re-roofing; (xii) amortization of the cost of acquiring or the rental expense of personal property used in the maintenance, operation and repair of the Project, or any portion thereof (which amortization calculation shall include interest at the “Interest Rate,” as that term is set forth in Article 25 of this Lease); (xiii) the cost of capital improvements or other costs incurred in connection with the Project (A) which are intended to effect economies in the operation or maintenance of the Project, or any portion thereof, (B) that are required to comply with present or anticipated conservation programs, (C) which are replacements or modifications of nonstructural items located in the Common Areas required to keep the Common Areas in good order or condition, or (D) that are required under any governmental law or regulation by a federal, state or local governmental agency, except for capital repairs, replacements or other improvements to remedy a condition existing prior to the Lease Commencement Date which an applicable governmental authority, if it had knowledge of such condition prior to the Lease Commencement Date, would have then required to be remedied pursuant to then-current governmental laws or regulations in their form existing as of the Lease Commencement Date and pursuant to the then-current interpretation of such governmental laws or regulations by the applicable governmental authority as of the Lease Commencement Date; provided, however, that any capital expenditure shall be amortized with interest at the Interest Rate over the shorter of (X) seven (7) years, or (Y) its useful life as Landlord shall reasonably determine in accordance with sound real estate management and accounting principles; (xiv) costs, fees, charges or assessments imposed by, or resulting from any mandate imposed on Landlord by, any federal, state or local government for fire and police protection, trash removal, community services, or other services which do not constitute “Tax Expenses” as that term is defined in Section 4.2.5, below; and (xv) payments under any easement, license, operating agreement, declaration, restrictive covenant, or instrument pertaining to the sharing of costs by the Building. Notwithstanding the foregoing, for purposes of this Lease, Operating Expenses shall not, however, include:

(a) costs, including marketing costs, legal fees, space planners’ fees, advertising and promotional expenses, and brokerage fees incurred in connection with the original construction or development, or original or future leasing of the Project, and costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements made for new tenants initially occupying space in the Project after the Lease Commencement Date or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Project (excluding, however, such costs relating to any common areas of the Project or parking facilities);

(b) except as set forth in items (xii), (xiii), and (xiv) above, depreciation, interest and principal payments on mortgages and other debt costs, if any, penalties and interest;

(c) costs for which the Landlord is reimbursed by any tenant or occupant of the Project or by insurance by its carrier or any tenant’s carrier or by anyone else, and electric power costs for which any tenant directly contracts with the local public service company;

(d) any bad debt loss, rent loss, or reserves for bad debts or rent loss;

(e) costs associated with the operation of the business of the partnership or entity which constitutes the Landlord, as the same are distinguished from the costs of operation of the Project (which shall specifically include, but not be limited to, accounting costs associated with the operation of the Project). Costs associated with the operation of the business of the partnership or entity which constitutes the Landlord include costs of partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of the Tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of the Landlord’s interest in the Project, and costs incurred in connection with any disputes between Landlord and its employees, between Landlord and Project management, or between Landlord and other tenants or occupants, and Landlord’s general corporate overhead and general and administrative expenses;

(f) the wages and benefits of any employee who does not devote substantially all of his or her employed time to the Project unless such wages and benefits are prorated to reflect time spent on operating and managing the Project vis-à-vis time spent on matters unrelated to operating and managing the Project; provided, that in no

event shall Operating Expenses for purposes of this Lease include wages and/or benefits attributable to personnel above the level of Project manager;

(g) amount paid as ground rental for the Project by the Landlord;

(h) overhead and profit increment paid to the Landlord or to subsidiaries or affiliates of the Landlord for services in the Project to the extent the same exceeds the costs of such services rendered by qualified, first-class unaffiliated third parties on a competitive basis;

(i) any compensation paid to clerks, attendants or other persons in commercial concessions operated by the Landlord, provided that any compensation paid to any concierge at the Project shall be includable as an Operating Expense;

(j) rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment which if purchased the cost of which would be excluded from Operating Expenses as a capital cost, except equipment not affixed to the Project which is used in providing janitorial or similar services and, further excepting from this exclusion such equipment rented or leased to remedy or ameliorate an emergency condition in the Project ;

(k) all items and services for which Tenant or any other tenant in the Project reimburses Landlord or which Landlord provides selectively to one or more tenants (other than Tenant) without reimbursement;

(l) costs, other than those incurred in ordinary maintenance and repair, for sculpture, paintings, fountains or other objects of art;

(m) any costs expressly excluded from Operating Expenses elsewhere in this Lease;

(n) rent for any office space occupied by Project management personnel to the extent the size or rental rate of such office space exceeds the size or fair market rental value of office space occupied by management personnel of the Comparable Buildings in the vicinity of the Building, with adjustment where appropriate for the size of the applicable project;

(o) costs to the extent arising from the negligence or willful misconduct of Landlord or its agents, employees, vendors, contractors, or providers of materials or services, which negligence or willful misconduct shall be deemed to include any failure by Landlord to timely comply with any applicable federal, state or local law or regulations; and

(p) costs incurred to comply with laws relating to the removal of hazardous material (as defined under applicable law) which was in existence in the Building or on the Project prior to the Lease Commencement Date, and was of such a nature that a federal, State or municipal governmental authority, if it had then had knowledge of the presence of such hazardous material, in the state, and under the conditions that it then existed in the Building or on the Project, would have then required the removal of such hazardous material or other remedial or containment action with respect thereto; and costs incurred to remove, remedy, contain, or treat hazardous material, which hazardous material is brought into the Building or onto the Project after the date hereof by Landlord or any other tenant of the Project and is of such a nature, at that time, that a federal, State or municipal governmental authority, if it had then had knowledge of the presence of such hazardous material, in the state, and under the conditions, that it then exists in the Building or on the Project, would have then required the removal of such hazardous material or other remedial or containment action with respect thereto.

If Landlord is not furnishing any particular work or service (the cost of which, if performed by Landlord, would be included in Operating Expenses) to a tenant who has undertaken to perform such work or service in lieu of the performance thereof by Landlord, Operating Expenses shall be deemed to be increased by an amount equal to the additional Operating Expenses which would reasonably have been incurred during such period by Landlord if it had at its own expense furnished such work or service to such tenant. If the Project is not at least ninety-five percent (95%) occupied during all or a portion of the Base Year or any Expense Year, Landlord may elect to make an appropriate adjustment to the components of Operating Expenses for such year to determine the amount of Operating Expenses that would have been incurred had the Project been ninety-five percent (95%) occupied; and the amount so determined shall be deemed to have been the amount of Operating Expenses for such year. Operating Expenses for the Base Year shall not include market-wide cost increases due to extraordinary circumstances, including, but not limited to, Force Majeure, boycotts, strikes, conservation surcharges, embargoes or shortages, or amortized costs relating to capital improvements. In no event shall the components of Direct Expenses for any Expense Year related to the cost of utilities or Project services or insurance costs be less than the corresponding components of Direct Expenses related to the cost of utilities and Project services and insurance costs in the Base Year. Landlord shall not (i) make a profit by charging items to Operating Expenses that are otherwise also charged separately to others and (ii) subject to Landlord’s right to adjust the components of Operating Expenses described above in this paragraph, collect Operating Expenses from Tenant and all other tenants in the Building in an amount in excess of what Landlord incurs for the items included in Operating Expenses.

4.2.5 Taxes.

4.2.5.1 “Tax Expenses” shall mean all federal, state, county, or local governmental or municipal taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary, (including, without limitation, real estate taxes, general and special assessments, transit taxes, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Tenant, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Project, or any portion thereof), which shall be paid or accrued during any Expense Year (without regard to any different fiscal year used by such governmental or municipal authority) because of or in connection with the ownership, leasing and operation of the Project, or any portion thereof.

4.2.5.2 Tax Expenses shall include, without limitation: (i) Any tax on the rent, right to rent or other income from the Project, or any portion thereof, or as against the business of leasing the Project, or any portion thereof; (ii) Any assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the voters of the State of California in the June 1978 election (“Proposition

13”) and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants, and, in further recognition of the decrease in the level and quality of governmental services and amenities as a result of Proposition 13, Tax Expenses shall also include any governmental or private assessments or the Project’s contribution towards a governmental or private cost-sharing agreement for the purpose of augmenting or improving the quality of services and amenities normally provided by governmental agencies; (iii) Any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the Rent payable hereunder, including, without limitation, any business or gross income tax or excise tax with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; and (iv) Any assessment, tax, fee, levy or charge, upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises.

4.2.5.3 Any costs and expenses (including, without limitation, reasonable attorneys’ fees) incurred in attempting to protest, reduce or minimize Tax Expenses shall be included in Tax Expenses in the Expense Year such expenses are paid. Except as set forth in Section 4.2.5.4, below, refunds of Tax Expenses shall be credited against Tax Expenses and refunded to Tenant regardless of when received, based on the Expense Year to which the refund is applicable, provided that in no event shall the amount to be refunded to Tenant for any such Expense Year exceed the total amount paid by Tenant as Additional Rent under this Article 4 for such Expense Year. If Tax Expenses for any period during the Lease Term or any extension thereof are increased after payment thereof for any reason, including, without limitation, error or reassessment by applicable governmental or municipal authorities, Tenant shall pay Landlord upon demand (but in no event more than thirty (30) days before due to such governmental or municipal authorities) Tenant’s Share of any such increased Tax Expenses included by Landlord as Building Tax Expenses pursuant to the TCCs of this Lease. Notwithstanding anything to the contrary contained in this Section 4.2.8 (except as set forth in Section 4.2.8.1, above), there shall be excluded from Tax Expenses (i) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal and state income taxes, and other taxes to the extent applicable to Landlord’s general or net income (as opposed to rents, receipts or income attributable to operations at the Project), (ii) any items included as Operating Expenses, and (iii) any items paid by Tenant under Section 4.5 of this Lease.

4.2.5.4 Notwithstanding anything to the contrary set forth in this Lease, the amount of Tax Expenses for the Base Year and any Expense Year shall be calculated without taking into account any decreases in real estate taxes obtained in connection with Proposition 8, and, therefore, the Tax Expenses in the Base Year and/or an Expense Year may be greater than those actually incurred by Landlord, but shall, nonetheless, be the Tax Expenses due under this Lease; provided that (i) any costs and expenses incurred by Landlord in securing any Proposition 8 reduction shall not be included in Direct Expenses for purposes of this Lease, and (ii) tax refunds under Proposition 8 shall not be deducted from Tax Expenses, but rather shall be the sole property of Landlord. Landlord and Tenant acknowledge that this Section 4.2.5.4 is not intended to in any way affect (A) the inclusion in Tax Expenses of the statutory two percent (2.0%) annual increase in Tax Expenses (as such statutory increase may be modified by subsequent legislation), or (B) the inclusion or exclusion of Tax Expenses pursuant to the terms of Proposition 13, which shall be governed pursuant to the terms of Sections 4.2.5.1 through 4.2.5.3, above.

4.2.6 “Tenant’s Share” shall mean the percentage set forth in Section 6 of the Summary, which percentage is not subject to change during the Lease Term.

4.3 Allocation of Direct Expenses. The parties acknowledge that the Building is a part of a multi-building project and that certain costs and expenses are incurred on a Project-wide basis, as opposed to be incurred solely with regard to the Building, and such Project-wide costs and expenses are therefore shared between the tenants of the Building and the tenants of the other buildings in the Project. Accordingly, as set forth in Section 4.2 above, to the extent Direct Expenses (which consists of Operating Expenses and Tax Expenses as set forth in Sections 4.2.4 and 4.2.5, above) are determined annually for the Project as a whole, a portion of such Direct Expenses (which portion shall be determined by Landlord on a reasonable and equitable basis), shall be allocated to the tenants of the Building (as opposed to the tenants of any other buildings in the Project) and such portion shall be included in the Direct Expenses for purposes of this Lease. As a result, it is hereby acknowledged that Direct Expenses for purposes of this Lease shall include (i) all Direct Expenses attributable solely to the Building, and (ii) such equitable portion of the Direct Expenses attributable to the Project as a whole.

4.4 Calculation and Payment of Additional Rent. If for any Expense Year ending or commencing within the Lease Term, Tenant’s Share of Direct Expenses for such Expense Year exceeds Tenant’s Share of Direct Expenses applicable to the Base Year, then Tenant shall pay to Landlord, in the manner set forth in Section 4.4.1, below, and as Additional Rent, an amount equal to the excess (the “Excess”).

4.4.1 Statement of Actual Building Direct Expenses and Payment by Tenant. Landlord shall give to Tenant following the end of each Expense Year, a statement (the “Statement”) which shall state in general major categories the Building Direct Expenses incurred or accrued for the Base Year or such preceding Expense Year, as applicable, and which shall indicate the amount of the Excess. Landlord shall use commercially reasonable efforts to deliver such Statement to Tenant on or before May 1 following the end of the Expense Year to which such Statement relates. Upon receipt of the Statement for each Expense Year commencing or ending during the Lease Term, if an Excess is present, Tenant shall pay, within thirty (30) days after receipt of the Statement, the full amount of the Excess for such Expense Year, less the amounts, if any, paid during such Expense Year as “Estimated Excess,” as that term is defined in Section 4.4.2, below, and if Tenant paid more as Estimated Excess than the actual Excess, Tenant shall receive a credit in the amount of Tenant’s overpayment against Rent next due under this Lease. The failure of Landlord to timely furnish the Statement for any Expense Year shall not prejudice Landlord or Tenant from enforcing its rights under this Article 4. Even though the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant’s Share of Building Direct Expenses for the Expense Year in which this Lease terminates, if an Excess is present, Tenant shall, within thirty (30) days after receipt of the Statement, pay to Landlord such amount, and if Tenant paid more as Estimated Excess than the actual Excess, Landlord shall, within thirty (30) days, deliver a check payable to Tenant in the amount of the overpayment. The provisions of this Section 4.4.1 shall survive the expiration or earlier termination of the Lease Term. Notwithstanding the immediately preceding sentence, Tenant shall not be responsible for Tenant’s Share of any Building Direct Expenses attributable to any Expense Year which are first billed to Tenant more than two (2) calendar years after the Lease Expiration Date, provided that in any event Tenant shall be responsible for Tenant’s Share of Direct

Expenses levied by any governmental authority or by any public utility companies at any time following the Lease Expiration Date which are attributable to any Expense Year.

4.4.2 Statement of Estimated Building Direct Expenses. In addition, Landlord shall give Tenant a yearly expense estimate statement (the “Estimate Statement”) which shall set forth in general major categories Landlord’s reasonable estimate (the “Estimate”) of what the total amount of Building Direct Expenses for the then-current Expense Year shall be and the estimated excess (the “Estimated Excess”) as calculated by comparing the Building Direct Expenses for such Expense Year, which shall be based upon the Estimate, to the amount of Building Direct Expenses for the Base Year. Landlord shall use commercially reasonable efforts to deliver such Estimate Statement to Tenant on or before May 1 following the end of the Expense Year to which such Estimate Statement relates. The failure of Landlord to timely furnish the Estimate Statement for any Expense Year shall not preclude Landlord from enforcing its rights to collect any Additional Rent under this Article 4, nor shall Landlord be prohibited from revising any Estimate Statement or Estimated Excess theretofore delivered to the extent necessary. Thereafter, Tenant shall pay, within thirty (30) days after receipt of the Estimate Statement, a fraction of the Estimated Excess for the then-current Expense Year (reduced by any amounts paid pursuant to the second to last sentence of this Section 4.4.2). Such fraction shall have as its numerator the number of months which have elapsed in such current Expense Year, including the month of such payment, and twelve (12) as its denominator. Until a new Estimate Statement is furnished (which Landlord shall have the right to deliver to Tenant at any time), Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated Excess set forth in the previous Estimate Statement delivered by Landlord to Tenant. Throughout the Lease Term Landlord shall maintain books and records with respect to Building Direct Expenses in accordance with generally accepted real estate accounting and management practices, consistently applied.

4.5 Taxes and Other Charges for Which Tenant Is Directly Responsible.

4.5.1 Tenant shall be liable for and shall pay ten (10) days before delinquency, taxes levied against Tenant’s equipment, furniture, fixtures and any other personal property located in or about the Premises. If any such taxes on Tenant’s equipment, furniture, fixtures and any other personal property are levied against Landlord or Landlord’s property or if the assessed value of Landlord’s property is increased by the inclusion therein of a value placed upon such equipment, furniture, fixtures or any other personal property and if Landlord pays the taxes based upon such increased assessment, which Landlord shall have the right to do regardless of the validity thereof but only under proper protest if requested by Tenant, Tenant shall upon demand repay to Landlord the taxes so levied against Landlord or the proportion of such taxes resulting from such increase in the assessment, as the case may be.

4.5.2 If the tenant improvements in the Premises, whether installed and/or paid for by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher than the valuation at which tenant improvements conforming to Landlord’s “building standard” in other space in the Building are assessed, then the Tax Expenses levied against Landlord or the property by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of Section 4.5.1, above.

4.5.3 Notwithstanding any contrary provision herein, Tenant shall pay prior to delinquency any (i) rent tax or sales tax, service tax, transfer tax or value added tax, or any other applicable tax on the rent or services herein or otherwise respecting this Lease, (ii) taxes assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion of the Project, including the Project parking facility; or (iii) taxes assessed upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises.

4.6 Landlord’s Books and Records. Upon Tenant’s written request given not more than ninety (90) days after Tenant’s receipt of a Statement for a particular Expense Year, and provided that Tenant is not then in default under this Lease beyond the applicable cure period provided in this Lease, Landlord shall furnish Tenant with such reasonable supporting documentation in connection with said Building Direct Expenses as Tenant may reasonably request. Landlord shall provide said information to Tenant within sixty (60) days after Tenant’s written request therefor. Within one hundred eighty (180) days after receipt of a Statement by Tenant (the “Review Period”), if Tenant disputes the amount of Additional Rent set forth in the Statement, an independent certified public accountant (which accountant (A) is a member of a nationally or regionally recognized accounting firm, and (B) is not working on a contingency fee basis), designated and paid for by Tenant, may, after reasonable notice to Landlord and at reasonable times, inspect Landlord’s records with respect to the Statement at Landlord’s offices, provided that Tenant is not then in default under this Lease (beyond any applicable notice and cure periods) and Tenant has paid all amounts required to be paid under the applicable Estimate Statement and Statement, as the case may be. In connection with such inspection, Tenant and Tenant’s agents must agree in advance to follow Landlord’s reasonable rules and procedures regarding inspections of Landlord’s records, and shall execute a commercially reasonable confidentiality agreement regarding such inspection. Tenant’s failure to dispute the amount of Additional Rent set forth in any Statement within the Review Period shall be deemed to be Tenant’s approval of such Statement and Tenant, thereafter, waives the right or ability to dispute the amounts set forth in such Statement. If after such inspection, Tenant still disputes such Additional Rent, a determination as to the proper amount shall be made, at Tenant’s expense, by an independent certified public accountant (the “Accountant”) selected by Landlord and subject to Tenant’s reasonable approval; provided that if such determination by the Accountant proves that Direct Expenses were overstated by more than five percent (5%), then the cost of the Accountant and the cost of such determination shall be paid for by Landlord. Tenant hereby acknowledges that Tenant’s sole right to inspect Landlord’s books and records and to contest the amount of Direct Expenses payable by Tenant shall be as set forth in this Section 4.6, and Tenant hereby waives any and all other rights pursuant to applicable law to inspect such books and records and/or to contest the amount of Direct Expenses payable by Tenant.

ARTICLE 5

USE OF PREMISES

Tenant shall use the Premises solely for the “Permitted Use,” as that term is defined in Section 7 of the Summary, and Tenant shall not use or permit the Premises to be used for any other purpose or purposes whatsoever without the prior written consent of Landlord, which may be withheld in Landlord’s sole and absolute discretion. Tenant covenants and agrees that it shall not use, or suffer or permit any person or persons to use, the Premises or any part thereof for any use or

purpose contrary to the reasonable rules and regulations promulgated by Landlord from time to time (“Rules and Regulations”), or in violation of the laws of the United States of America, the State of California, or the ordinances, regulations or requirements of the local municipal or county governing body or other lawful authorities having jurisdiction over the Building, or in a manner otherwise inconsistent with the character of the Project as a first-class office building Project. Tenant shall faithfully observe and comply with the Rules and Regulations.

ARTICLE 6

SERVICES AND UTILITIES

6.1 Standard Tenant Services. Landlord shall provide the following services and utilities.

6.1.1 Subject to reasonable change implemented by Landlord and all governmental rules, regulations and guidelines applicable thereto, Landlord shall provide heating and air conditioning when necessary for normal comfort for normal office use in the Premises (“HVAC”) from Monday through Friday from 7:30 a.m. to 6 p.m., and on Saturday from 9:00 a.m. to 1:00 p.m. (collectively, the “Building Hours”), except for the date of observation of locally and nationally recognized holidays (collectively, the “Holidays”). The daily time periods identified hereinabove are sometimes referred to as the “Business Hours.”

6.1.2 Landlord shall provided adequate electrical wiring and facilities and power for normal general office use as determined by Landlord. Tenant shall pay directly to the utility company pursuant to the utility company’s separate meters (or to Landlord in the event Landlord provides submeters instead of the utility company’s meters), the cost of all electricity provided to and/or consumed in the Premises (including normal and excess consumption and including the cost of electricity to operate the HVAC air handlers), which electricity shall be separately metered (as described above or otherwise equitably allocated and charged by Landlord to Tenant and other tenants of the Building). Tenant shall pay such cost (including the cost of such meters or submeters) within ten (10) days after demand and as Additional Rent under this Lease (and not as part of the Operating Expenses). Landlord shall designate the electricity utility provider from time to time.

6.1.3 As part of Operating Expenses, Landlord shall replace lamps, starters and ballasts for Building standard lighting fixtures within the Premises. In addition, Tenant shall bear the cost of replacement of lamps, starters and ballasts for non-Building standard lighting fixtures within the Premises.

6.1.4 Landlord shall provide city water from the regular Building outlets for drinking, lavatory and toilet purposes.

6.1.5 Landlord shall provide janitorial services five (5) days per week, except the date of observation of the Holidays, in and about the Premises and window washing services in a manner consistent with other comparable buildings in the vicinity of the Project.

6.1.6 Landlord shall provide nonexclusive, non-attended automatic passenger elevator service during the Building Hours, and shall have one elevator available at all other times.

6.1.7 Landlord shall provide nonexclusive freight elevator service subject to scheduling by Landlord.

Tenant shall cooperate fully with Landlord at all times and abide by all regulations and requirements that Landlord may reasonably prescribe for the proper functioning and protection of the HVAC, electrical, mechanical and plumbing systems.

6.2 Above Standard Tenant Services. Notwithstanding anything to the contrary set forth in Section 4 or this Article 6, Tenant shall directly pay to Landlord one hundred percent (100%) of the cost of all services required by Tenant to be provided by Landlord which are in excess of the services set forth in Section 6.1, above (collectively, the “Above-Standard Tenant Service”), including, but not limited to, (i) twenty-four (24) hour security services, (ii) twenty-four (24) hour porter service, (iii) any over-standard use more particularly identified in Section 6.3, below.

6.3 Overstandard Tenant Use. Tenant shall not, without Landlord’s prior written consent, use heat-generating machines, machines other than normal fractional horsepower office machines, or equipment or lighting other than Building standard lights in the Premises, which may affect the temperature otherwise maintained by the air conditioning system or increase the water normally furnished for the Premises by Landlord pursuant to the terms of Section 6.1 of this Lease. If such consent is given, Landlord shall have the right to install supplementary air conditioning units or other facilities in the Premises, including supplementary or additional metering devices, and the cost thereof, including the cost of installation, operation and maintenance, increased wear and tear on existing equipment and other similar charges, shall be paid by Tenant to Landlord upon billing by Landlord. If Tenant uses water, electricity, heat or air conditioning in excess of that supplied by Landlord pursuant to Section 6.1 of this Lease, Tenant shall pay to Landlord, upon billing, the cost of such excess consumption, the cost of the installation, operation, and maintenance of equipment which is installed in order to supply such excess consumption, and the cost of the increased wear and tear on existing equipment caused by such excess consumption; and Landlord may install devices to separately meter any increased use and in such event Tenant shall pay the increased cost directly to Landlord, on demand, at the rates charged by the public utility company furnishing the same, including the cost of such additional metering devices. Tenant’s use of electricity shall never exceed the capacity of the feeders to the Project or the risers or wiring installation, and Tenant shall not install or use or permit the installation or use of any computer or electronic data processing equipment in the Premises, without the prior written consent of Landlord. If Tenant desires to use heat, ventilation or air conditioning during hours other than those for which Landlord is obligated to supply such utilities pursuant to the terms of Section 6.1 of this Lease, Tenant shall give Landlord such prior notice, if any, as Landlord shall from time to time establish as appropriate, of Tenant’s desired use in order to supply such utilities, and Landlord shall supply such utilities to Tenant at such hourly cost to Tenant (which shall be treated as Additional Rent) as Landlord shall from time to time establish.

6.4 Interruption of Use. Tenant agrees that Landlord shall not be liable for damages, by abatement of Rent or otherwise, for Tenant’s failure to obtain, or for any failure to furnish or delay in furnishing, any service (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Building after reasonable effort to do so, by any accident or casualty whatsoever, by act or default of Tenant or other parties, or by any other cause; and such failures

or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant’s use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease. Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Tenant’s business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to Tenant’s failure to obtain, or for any failure to furnish any of the services or utilities as set forth in this Article 6.

ARTICLE 7

REPAIRS

Tenant shall, at Tenant’s own expense, keep the Premises, including all improvements, fixtures, equipment, window coverings, and furnishings therein, in good order, repair and condition (subject to reasonable wear and tear) at all times during the Lease Term; provided, however, in no event shall the foregoing requirement a higher standard or condition than that existing on the date the Premises were delivered to Tenant. In addition, Tenant shall, at Tenant’s own expense but under the supervision and subject to the prior approval of Landlord, and within any reasonable period of time specified by Landlord, promptly and adequately repair all damage to the Premises and replace or repair all damaged or broken fixtures and appurtenances; provided however, that, at Landlord’s option, or if Tenant fails to make such repairs, Landlord may, but need not, make such repairs and replacements, and Tenant shall pay Landlord the cost thereof, including a percentage of the cost thereof (to be uniformly established for the Building) sufficient to reimburse Landlord for any fees and other costs or expenses arising from Landlord’s involvement with such repairs and replacements forthwith upon being billed for same. Landlord may, but shall not be required to, enter the Premises at all reasonable times to make such repairs, alterations, improvements and additions to the Premises or to the Building or to any equipment located in the Building as Landlord shall desire or deem necessary or as Landlord may be required to do by governmental or quasi-governmental authority or court order or decree. Tenant hereby waives and releases its right to make repairs at Landlord’s expense under Sections 1941 and 1942 of the California Civil Code, or under any similar law, statute, or ordinance now or hereafter in effect.

ARTICLE 8

ADDITIONS AND ALTERATIONS

Tenant may not make any improvements, alterations, additions or changes to the Premises during the Lease Term without the consent of Landlord, which consent may be granted, withheld or conditioned in the sole and absolute discretion of Landlord. All improvements, fixtures and/or equipment which currently exist or may be installed or placed in or about the Premises, and all signs installed in, on or about the Premises, from time to time, shall be and become the property of Landlord, except that Tenant may remove any improvements, fixtures and/or equipment which Tenant can substantiate to Landlord have not been paid for with any tenant improvement allowance funds provided to Tenant by Landlord, provided Tenant repairs any damage to the Premises and Building caused by such removal.

ARTICLE 9

COVENANT AGAINST LIENS

Tenant has no authority or power to cause or permit any lien or encumbrance of any kind whatsoever, whether created by act of Tenant, operation of law or otherwise, to attach to or be placed upon the Building or Premises, and any and all liens and encumbrances created by Tenant shall attach to Tenant’s interest only. Tenant covenants and agrees not to suffer or permit any lien of mechanics or materialmen or others to be placed against the Building or the Premises with respect to work or services claimed to have been performed for or materials claimed to have been furnished to Tenant or the Premises, and, in case of any such lien attaching or notice of any lien, Tenant covenants and agrees to cause it to be immediately released and removed of record. Notwithstanding anything to the contrary set forth in this Lease, in the event that such lien is not released and removed on or before the date notice of such lien is delivered by Landlord to Tenant, Landlord, at its sole option, may immediately take all action necessary to release and remove such lien, without any duty to investigate the validity thereof, and all sums, costs and expenses, including reasonable attorneys’ fees and costs, incurred by Landlord in connection with such lien shall be deemed Additional Rent under this Lease and shall immediately be due and payable by Tenant.

ARTICLE 10

INSURANCE

10.1 Indemnification and Waiver. To the extent not prohibited by law, Landlord, its members, partners and their respective officers, agents, servants, employees, and independent contractors (collectively, “Landlord Parties”) shall not be liable for any damage either to person or property or resulting from the loss of use thereof, which damage is sustained by Tenant or by other persons claiming through Tenant. Tenant shall indemnify, defend, protect, and hold harmless Landlord Parties from any and all loss, cost, damage, expense and liability (including without limitation court costs and reasonable attorneys’ fees) incurred in connection with or arising from (i) any cause in, on or about the Premises, and (ii) any acts, omissions or negligence of Tenant or of any person claiming by, through or under Tenant, its partners, and their respective officers, agents, servants, employees, and independent contractors (collectively, the “Tenant Parties”), in, on or about the Project, in either event either prior to, during, or after the expiration of the Lease Term, provided that the terms of the foregoing indemnity shall not apply to the extent of the negligence or willful misconduct of the Landlord Parties, specifically including, but not limited to, Landlord’s failure to satisfy its compliance with Applicable Law as set forth in Article 24 of this Lease. The provisions of this Section 10.1 shall survive the expiration or sooner termination of this Lease with respect to any claims or liability occurring prior to such expiration or termination.

10.2 Tenant’s Compliance with Landlord’s Fire and Casualty Insurance. Tenant shall, at Tenant’s expense, comply as to the Premises with all insurance company requirements pertaining to the use of the Premises. If Tenant’s conduct or use of the Premises causes any increase in the premium for such insurance policies, then Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant’s expense, shall comply with all rules, orders, regulations or

requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body.

10.3 Tenant’s Insurance. Tenant shall maintain Commercial/Comprehensive General Liability Insurance covering the insured against claims of bodily injury, personal injury and property damage (including loss of use thereof) arising out of Tenant’s operations, and contractual liabilities (covering the performance by Tenant of its indemnity agreements) including a Broad Form endorsement covering the insuring provisions of this Lease and the performance by Tenant of the indemnity agreements set forth in Section 10.1 of this Lease, for limits of liability not less than $3,000,000.00 for each occurrence and $3,000,000.00 annual aggregate, with 0% Insured’s participation. In addition, Tenant shall carry Property Insurance covering (i) all office furniture, trade fixtures, office equipment, merchandise and all other items of Tenant’s property on the Premises installed by, for, or at the expense of Tenant, and (ii) all existing and/or future tenant improvements, alterations and additions to the Premises, including any improvements, alterations or additions installed at Tenant’s request above the ceiling of the Premises or below the floor of the Premises. Such insurance shall be written on an “all risks” of physical loss or damage basis, for the full replacement cost value new without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance and shall include a vandalism and malicious mischief endorsement, sprinkler leakage coverage and earthquake sprinkler leakage coverage. Furthermore, Tenant shall maintain (A) Worker’s Compensation or other similar insurance pursuant to all applicable state and local statutes and regulations, and Employer’s Liability Insurance or other similar insurance pursuant to all applicable state and local statutes and regulations, with a waiver of subrogation endorsement and with minimum limits of One Million and No/100 Dollars ($1,000,000.00) per employee and One Million and No/100 Dollars ($1,000,000.00) per occurrence, and (B) Comprehensive Automobile Liability Insurance covering all owned, hired, or non-owned vehicles with the following limits of liability: One Million Dollars ($1,000,000.00) combined single limit for bodily injury and property damage.

10.4 Form of Policies. The minimum limits of policies of insurance required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease. Such insurance shall (i) name Landlord, and any other party it so specifies, as an additional insured; (ii) specifically cover the liability assumed by Tenant under this Lease, including, but not limited to, Tenant’s obligations under Section 10.1 of this Lease; (iii) be issued by an insurance company having a rating of not less than A-VIII in Best’s Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the State of California; (iv) be primary insurance as to all claims thereunder and provide that any insurance carried by Landlord is excess and is non-contributing with any insurance requirement of Tenant; (v) provide that said insurance shall not be canceled or coverage changed unless thirty (30) days’ prior written notice shall have been given to Landlord and any mortgagee. Tenant shall deliver said policy or policies or certificates thereof to Landlord on or before the Lease Commencement Date and at least thirty (30) days before the expiration dates thereof. In the event Tenant shall fail to procure such insurance, or to deliver such policies or certificate, Landlord may, at its option, procure such policies for the account of Tenant, and the cost thereof shall be paid to Landlord as Additional Rent within five (5) days after delivery to Tenant of bills therefore.

10.5 Subrogation. Landlord and Tenant agree to have their respective insurance companies issuing property damage insurance waive any rights of subrogation that such companies may have against Landlord or Tenant, as the case may be, so long as the insurance carried by Landlord and Tenant, respectively, is not invalidated thereby. Notwithstanding anything to the contrary contained in this Lease, Landlord and Tenant hereby waive any right that either may have against the other on account of any loss or damage to their respective property to the extent such loss or damage is insurable under policies of insurance for fire and all risk coverage, theft, public liability, or other similar insurance.

10.6 Additional Insurance Obligations. Tenant shall carry and maintain during the entire Lease Term, at Tenant’s sole cost and expense, increased amounts of the insurance required to be carried by Tenant pursuant to this Article 10, and such other reasonable types of insurance coverage and in such reasonable amounts covering the Premises and Tenant’s operations therein, as may be reasonably requested by Landlord.

ARTICLE 11

DAMAGE AND DESTRUCTION

11.1 Repair of Damage to Premises by Landlord. If the Premises or any common areas of the Building serving or providing access to the Premises shall be damaged by fire or other casualty, Landlord shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Landlord’s reasonable control, and subject to all other terms of this Article 11, restore the base, shell and core of the Premises and such common areas. Such restoration shall be to substantially the same condition of the base, shell and core of the Premises and common areas prior to the casualty, except for modifications required by zoning and building codes and other laws or by the holder of a mortgage on the Building, or any other modifications to the common areas deemed desirable by Landlord, provided access to the Premises and any common restrooms serving the Premises shall not be materially impaired. Notwithstanding any other provision of this Lease, upon the occurrence of any damage to the Premises, Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant’s insurance carried under Section 10.3(ii) of this Lease, and Landlord shall use commercially reasonable efforts to repair any injury or damage to the tenant improvements installed in the Premises and shall return such tenant improvements to their original condition; provided that if the actual and reasonable cost of such repair by Landlord exceeds the amount of insurance proceeds received by Landlord from Tenant’s insurance carrier, as assigned by Tenant, the cost of such repairs shall be paid by Tenant to Landlord prior to Landlord’s repair of the damage; provided, however, to the extent the actual and reasonable cost of such repair by Landlord is less than the amount so assigned or otherwise delivered to Landlord, then any excess (i.e., the difference between the proceeds and the actual and reasonable cost of such repairs) shall be refunded to Tenant promptly upon completion of Landlord’s repair of such injury or damage. In connection with such repairs and replacements, Tenant shall, prior to the commencement of construction, submit to Landlord, for Landlord’s review and approval, all plans, specifications and working drawings relating thereto, and Landlord shall reasonably select the contractors to perform such improvement work. Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant’s business resulting in any way from such damage or the repair thereof; provided however, that if such fire or other casualty shall have damaged the Premises or common areas reasonably necessary to Tenant’s occupancy, and if such damage is not the result of the willful misconduct of Tenant or Tenant’s employees, contractors, licensees, or invitees,

Landlord shall allow Tenant a proportionate abatement of Rent, during the time and to the extent the Premises are unfit for occupancy for the purposes permitted under this Lease, and not occupied by Tenant as a result thereof.

11.2 Landlord’s Option to Repair. Notwithstanding the terms of Section 11.1 of this Lease, Landlord may elect not to rebuild and/or restore the Premises and/or Building and instead terminate this Lease by notifying Tenant in writing of such termination within sixty (60) days after the date of discovery of such damage, such notice to include a termination date giving Tenant ninety (90) days to vacate the Premises, but Landlord may so elect only if the Building shall be damaged by fire or other casualty or cause, whether or not the Premises are affected, and one or more of the following conditions is present: (i) repairs cannot reasonably be completed within one hundred eighty (180) days of the date of discovery of damage (when such repairs are made without the payment of overtime or other premiums); (ii) the holder of any mortgage on the Building shall require that the insurance proceeds or any portion thereof be used to retire the mortgage debt; or (iii) the damage is not fully covered, except for deductible amounts, by Landlord’s insurance policies. In addition, in the event that the Premises or the Building is destroyed or damaged to any substantial extent during the last twelve (12) months of the Lease Term (subject to Tenant’s timely delivery of an Exercise Notice with regard to any then-remaining Option Term pursuant to the TCCs of Section 2.2 of this Lease), then notwithstanding anything contained in this Article 11, Landlord shall have the option to terminate this Lease by giving written notice to Tenant of the exercise of such option within thirty (30) days after the date of such damage or destruction, in which event this Lease shall cease and terminate as of the date of such notice. Upon any such termination of this Lease pursuant to this Section 11.2, Tenant shall pay the Base Rent and Additional Rent, properly apportioned up to such date of termination, and both parties hereto shall thereafter be freed and discharged of all further obligations hereunder, except as provided for in provisions of this Lease which by their terms survive the expiration or earlier termination of the Lease Term. In the event that Landlord elects to not rebuild and/or restore the Premises and/or Building, but instead terminates this Lease pursuant to the TCCs of this Section 11.2, then Tenant shall be entitled to retain any “net” proceeds of its insurance policies maintained under Section 10.3(ii) after deducting the amount that would otherwise have been reasonably been required for, and applied toward, Landlord’s repair of damage to the Premises under Section 11.1, above.

11.3 Waiver of Statutory Provisions. The provisions of this Lease, including this Article 11, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, the Building or any other portion of the Project, and any statute or regulation of the state in which the Building is located, including, without limitation, Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building or any other portion of the Project.

ARTICLE 12

NONWAIVER

No waiver of any provision of this Lease shall be implied by any failure of Landlord to enforce any remedy on account of the violation of such provision, even if such violation shall continue or be repeated subsequently, any waiver by Landlord of any provision of this Lease may only be in writing, and no express waiver shall affect any provision other than the one specified in such waiver and that one only for the time and in the manner specifically stated. No receipt of monies by Landlord from Tenant after the termination of this Lease shall in any way alter the length of the Lease Term or of Tenant’s right of possession hereunder or after the giving of any notice shall reinstate, continue or extend the Lease Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit or after final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of said Rent shall not waive or affect said notice, suit or judgment.

ARTICLE 13

CONDEMNATION

If the whole or any material part of the Premises or Building shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction or remodeling of any part of the Premises or Building, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, this Lease shall terminate upon notice by either Landlord or Tenant to the other party. Landlord shall be entitled to receive the entire award or payment in connection therewith. Tenant hereby waives any and all rights it might otherwise have pursuant to Section 1265.130 of The California Code of Civil Procedure.

ARTICLE 14

ASSIGNMENT AND SUBLETTING

14.1 Transfers. Tenant shall not, without the prior written consent of Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise transfer, this Lease or any interest hereunder, permit any assignment, or other transfer of this Lease or any interest hereunder by operation of law, sublet the Premises or any part thereof, or enter into any license or concession agreements or otherwise permit the occupancy or use of the Premises or any part thereof by any persons other than Tenant and its employees and contractors. In connection with any such transfer contemplated by Tenant, Tenant shall submit a written request for consent notice to Landlord, together with any information reasonably required by Landlord which will enable Landlord to determine (i) the financial responsibility, character, and reputation of the proposed transferee, (ii) the nature of such transferee’s business, (iii) the proposed use of the applicable portion of the Premises, and (iv) any other reasonable consent parameters. Any transfer made without Landlord’s prior written consent shall, at Landlord’s option, be null, void and of no effect, and shall, at Landlord’s option, constitute a default by Tenant under this Lease. Whether or not Landlord consents to any proposed transfer, Tenant shall pay Landlord’s review and processing fees, as well as any reasonable professional fees (including, without limitation,

attorneys’, accounts’, architects’, engineers’ and consultants’ fees) incurred by Landlord, within thirty (30) days after written request by Landlord.

14.2 Landlord’s Consent. Landlord shall not unreasonably withhold its consent to any proposed Transfer of the Subject Space to the Transferee on the terms specified in the Transfer Notice. Without limitation as to other reasonable grounds for withholding consent, the parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply: (i) transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building or the Project; (ii) transferee is not a party of reasonable financial worth and/or financial stability in light of the responsibilities to be undertaken in connection with the transfer on the date consent is requested; (iii) transferee intends to use the applicable portion(s) of the Premises for purposes which are not permitted under this Lease; (iv) transferee is either a governmental agency or instrumentality thereof; or (v) the proposed transfer would cause a violation of another lease for space in the Project, or would give an occupant of the Project a right to cancel its lease. Notwithstanding anything to the contrary in this Lease, if Tenant or any proposed transferee claims that Landlord has unreasonably withheld or delayed its consent under Section 14.2 or otherwise has breached or acted unreasonably under this Article 14, their sole remedies shall be a declaratory judgment and an injunction for the relief sought without any monetary damages, and Tenant hereby waives all other remedies, including, without limitation, any right at law or equity to terminate this Lease, on its own behalf and, to the extent permitted under all applicable laws, on behalf of the proposed Transferee. Tenant shall indemnify, defend and hold harmless Landlord from any and all liability, losses, claims, damages, costs, expenses, causes of action and proceedings involving any third party or parties (including without limitation Tenant’s proposed subtenant or assignee) who claim they were damaged by Landlord’s wrongful withholding or conditioning of Landlord’s consent.

14.3 Transfer Premium. If Landlord consents to a proposed transfer, as a condition thereto which the parties hereby agree is reasonable, Tenant shall pay to Landlord fifty percent (50%) of any “Transfer Premium,” as that term is defined in this Section 14.3, received by Tenant from such Transferee. “Transfer Premium” shall mean all rent, additional rent or other consideration payable by such transferee in connection with the transfer in excess of the Rent and Additional Rent payable by Tenant under this Lease during the term of the transfer (on a per rentable square foot basis if less than all of the Premises is transferred), after deducting the reasonable expenses incurred by Tenant for (i) any changes, alterations and improvements to the Premises in connection with the Transfer, (ii) any improvement allowance or free base rent reasonably provided to the Transferee, and (iii) any brokerage commissions in connection with the Transfer. The Transfer Premium shall also include, but not be limited to, key money, bonus money or other cash consideration paid by transferee to Tenant in connection with such transfer, and any payment in excess of fair market value for services rendered by Tenant to transferee or for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to transferee in connection with such Transfer.

14.4 Landlord’s Option as to Subject Space. In the event that a proposed Transfer, if consented to, would cause fifty percent (50%) or more of the Premises to be subleased or licensed to a party (or parties) other than Original Tenant and/or a Permitted Transferee, then notwithstanding anything to the contrary contained in this Article 14, Landlord shall have the option, by giving written notice to Tenant within thirty (30) days after receipt of Tenant’s written request for consent to so transfer, to recapture the corresponding portion of the Premises. Such recapture notice shall cancel and terminate this Lease with respect to such portion of the Premises as of the effective date of the proposed transfer. In the event of a recapture by Landlord, if this Lease shall be canceled with respect to less than the entire Premises, the Rent reserved herein shall be prorated on the basis of the number of rentable square feet retained by Tenant in proportion to the number of rentable square feet contained in the Premises, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute written confirmation of the same. If Landlord declines, or fails to elect in a timely manner to recapture the subject space under this Section 14.4, then, provided Landlord has consented to the proposed transfer, Tenant shall be entitled to proceed to transfer the subject space to the proposed transferee, subject to provisions of this Article 14.

14.5 Effect of Transfer. If Landlord consents to a transfer, (i) the TCCs of this Lease shall in no way be deemed to have been waived or modified, (ii) such consent shall not be deemed consent to any further transfer by either Tenant or a transferee, (iii) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of all documentation pertaining to the transfer in form reasonably acceptable to Landlord, (iv) Tenant shall furnish upon Landlord’s request a complete statement, certified by an independent certified public accountant, or Tenant’s chief financial officer, setting forth in detail the computation of any Transfer Premium Tenant has derived and shall derive from such Transfer, and (v) no Transfer relating to this Lease or agreement entered into with respect thereto, whether with or without Landlord’s consent, shall relieve Tenant or any guarantor of the Lease from any liability under this Lease, including, without limitation, in connection with the subject space. Landlord or its authorized representatives shall have the right at all reasonable times to audit the books, records and papers of Tenant relating to any Transfer, and shall have the right to make copies thereof. If the Transfer Premium respecting any Transfer shall be found understated, Tenant shall, within thirty (30) days after demand, pay the deficiency, and if understated by more than five percent (5.0%), Tenant shall pay Landlord’s costs of such audit.

14.6 Occurrence of Default. Any transfer hereunder shall be subordinate and subject to the provisions of this Lease, and if this Lease shall be terminated during the term of any transfer, Landlord shall have the right to: (i) treat such transfer as cancelled and repossess the subject space by any lawful means, or (ii) require that such transferee attorn to and recognize Landlord as its landlord under any such transfer. If Tenant shall be in default under this Lease, Landlord is hereby irrevocably authorized, as Tenant’s agent and attorney-in-fact, to direct any transferee to make all payments under or in connection with the transfer directly to Landlord (which Landlord shall apply towards Tenant’s obligations under this Lease) until such default is cured. Such transferee shall rely on any representation by Landlord that Tenant is in default hereunder, without any need for confirmation thereof by Tenant. Upon any assignment, the assignee shall assume in writing all obligations and covenants of Tenant thereafter to be performed or observed under this Lease. No collection or acceptance of rent by Landlord from any transferee shall be deemed a waiver of any provision of this Article 14 or the approval of any transferee or a release of Tenant from any obligation under this Lease, whether theretofore or thereafter accruing; provided, however, that any collection or acceptance of Rent by Landlord from such transferee shall be applied against any corresponding obligation to pay Rent owed by Tenant hereunder. In no event shall Landlord’s enforcement of any provision of this Lease against any transferee be deemed a waiver of Landlord’s right to enforce any term of this Lease

against Tenant or any other person. If Tenant’s obligations hereunder have been guaranteed, Landlord’s consent to any Transfer shall not be effective unless the guarantor also consents to such Transfer.

14.7 Non-Transfers. Notwithstanding anything to the contrary contained in this Article 14, (i) an assignment or subletting of all or a portion of the Premises to an affiliate of Tenant (an entity which is controlled by, controls, or is under common control with, Tenant), (ii) an assignment of the Premises to an entity which acquires all or substantially all of the assets or interests (partnership, stock or other) of Tenant, or (iii) an assignment of the Premises to an entity which is the resulting entity of a merger or consolidation of Tenant, shall not be deemed a Transfer under this Article 14, provided that Tenant notifies Landlord of any such assignment or sublease and promptly supplies Landlord with any documents or information requested by Landlord regarding such assignment or sublease or such affiliate, and further provided that such assignment or sublease is not a subterfuge by Tenant to avoid its obligations under this Lease. The transferee under a transfer specified in items (i), (ii) or (iii) above shall be referred to as a “Permitted Transferee.” “Control,” as used in this Section 14.7, shall mean the ownership, directly or indirectly, of more than fifty percent (50%) of the voting securities of, or possession of the right to vote, in the ordinary direction of its affairs, of more than fifty percent (50%) of the voting interest in, any person or entity.

ARTICLE 15

OWNERSHIP AND REMOVAL OF TRADE FIXTURES

15.1 Surrender of Premises. No act or thing done by Landlord or any agent or employee of Landlord during the Lease Term shall be deemed to constitute an acceptance by Landlord of a surrender of the Premises unless such intent is specifically acknowledged in a writing signed by Landlord. The delivery of keys to the Premises to Landlord or any agent or employee of Landlord shall not constitute a surrender of the Premises or effect a termination of this Lease, whether or not the keys are thereafter retained by Landlord, and notwithstanding such delivery Tenant shall be entitled to the return of such keys at any reasonable time upon request until this Lease shall have been properly terminated.

15.2 Removal of Tenant Property by Tenant. Upon the expiration of the Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject to the provisions of this Article 15, quit and surrender possession of the Premises to Landlord in as good order and condition as when Tenant took possession and as thereafter improved by Landlord and/or Tenant, reasonable wear and tear and damage from casualty excepted. Upon such expiration or termination, Tenant shall, without expense to Landlord, remove or cause to be removed from the Premises all debris and rubbish, and such items of furniture, equipment, free-standing cabinet work, and other articles of personal property owned by Tenant or installed or placed by Tenant at its expense in the Premises, and such similar articles of any other persons claiming under Tenant, as Landlord may, in its sole discretion, require to be removed, and Tenant shall repair at its own expense all damage to the Premises and Building resulting from such removal.

ARTICLE 16

HOLDING OVER

If Tenant holds over after the expiration of the Lease Term hereof, with or without the express or implied consent of Landlord, such tenancy shall be from month-to-month only, and shall not constitute a renewal hereof or an extension for any further term, and in such case Base Rent shall be payable at a monthly rate equal to one hundred fifty percent (150%) of the Base Rent applicable during the last rental period of the Lease Term under this Lease. Such month-to-month tenancy shall be subject to every other term, covenant and agreement contained herein. Nothing contained in this Article 16 shall be construed as consent by Landlord to any holding over by Tenant, and Landlord expressly reserves the right to require Tenant to surrender possession of the Premises to Landlord as provided in this Lease upon the expiration or other termination of this Lease. The provisions of this Article 16 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or at law. If Tenant fails to surrender the Premises upon the termination or expiration of this Lease, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys’ fees) and liability resulting from such failure, including, without limiting the generality of the foregoing, any claims made by any succeeding tenant founded upon such failure to surrender, and any lost profits to Landlord resulting therefrom.

ARTICLE 17

ESTOPPEL CERTIFICATES

Within ten (10) days following a request in writing by Landlord, Tenant shall execute and deliver to Landlord an estoppel certificate, which, as submitted by Landlord, shall be substantially in the form of Exhibit C, attached hereto, (or such other form as may be required by any prospective mortgagee or purchaser of the Project, or any portion thereof), indicating therein any exceptions thereto that may exist at that time, and shall also contain any other information reasonably requested by Landlord or Landlord’s mortgagee or prospective mortgagee. Tenant shall execute and deliver whatever other instruments may be reasonably required for such purposes. At any time during the Lease Term, Landlord may require Tenant to provide Landlord with a current financial statement and financial statements of the two (2) years prior to the current financial statement year. Such statements shall be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant. Failure of Tenant to timely execute and deliver such estoppel certificate or other instruments shall constitute an acceptance of the Premises and an acknowledgment by Tenant that statements included in the estoppel certificate are true and correct, without exception.

ARTICLE 18

SUBORDINATION

This Lease is subject and subordinate to all present and future ground or underlying leases of the Project and to the lien of any mortgages or trust deeds, now or hereafter in force against the Project and the Building, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all advances made or hereafter to be made upon the security of such mortgages or trust deeds, unless the holders of such mortgages or trust deeds, or the lessors under such ground lease or underlying leases, require in writing that this Lease be superior thereto. Tenant covenants and agrees in the event any proceedings are brought for the foreclosure of any such mortgage, or if any ground or underlying lease is terminated, to attorn, without any deductions or set-offs whatsoever, to the purchaser upon any such foreclosure sale, or to the lessor of such ground or underlying lease, as the case may be, if so requested to do so by such purchaser or lessor, and to recognize such purchaser or lessor as the lessor under this Lease. Tenant shall, within five (5) days of request by Landlord, execute such further instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm the subordination or superiority of this Lease to any such mortgages, trust deeds, ground leases or underlying leases. Tenant hereby irrevocably authorizes Landlord to execute and deliver in the name of Tenant any such instrument or instruments if Tenant fails to do so, provided that such authorization shall in no way relieve Tenant from the obligation of executing such instruments of subordination or superiority. Tenant waives the provisions of any current or future statute, rule or law which may give or purport to give Tenant any right or election to terminate or otherwise adversely affect this Lease and the obligations of the Tenant hereunder in the event of any foreclosure proceeding or sale.

ARTICLE 19

DEFAULTS; REMEDIES

19.1 Events of Default. Events of Default. The occurrence of any of the following shall constitute a default of this Lease by Tenant:

19.1.1 Any failure by Tenant to pay any Rent or any other charge required to be paid under this Lease, or any part thereof, within five (5) business days following Tenant’s receipt of a written notice from Landlord that the same was not paid when due; or

19.1.2 Except where a specific time period is otherwise set forth for Tenant’s performance in this Lease, (in which event the failure to perform by Tenant within such time period shall be a default by Tenant under this Section 19.1.2, unless cured within five (5) business days following Tenant’s receipt of a written notice from Landlord that the same was not observed or performed when required) any failure by Tenant to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant where such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; provided that if the nature of such default is such that the same cannot reasonably be cured within such thirty (30) day period, Tenant shall not be deemed to be in default if it diligently commences such cure within such period and thereafter diligently proceeds to rectify and cure such default, but in no event exceeding a period of time in excess of sixty (60) days after written notice thereof from Landlord to Tenant; or

19.1.3 To the extent permitted by law, a general assignment by Tenant or any guarantor of this Lease for the benefit of creditors, or the taking of any corporate action in furtherance of bankruptcy or dissolution whether or not there exists any proceeding under an insolvency or bankruptcy law, or the filing by or against Tenant or any guarantor of any proceeding under an insolvency or bankruptcy law, unless in the case of a proceeding filed against Tenant or any guarantor the same is dismissed within sixty (60) days, or the appointment of a trustee or receiver to take possession of all or substantially all of the assets of Tenant or any guarantor, unless possession is restored to Tenant or such guarantor within thirty (30) days, or any execution or other judicially authorized seizure of all or substantially all of Tenant’s assets located upon the Premises or of Tenant’s interest in this Lease, unless such seizure is discharged within thirty (30) days; or

19.1.4 The failure by Tenant to observe or perform according to the provisions of Articles 5, 14, 17 or 18 of this Lease where such failure continues for more than five (5) business days after written notice from Landlord that the same was not observed or performed when required.

The notice periods provided herein are in lieu of, and not in addition to, any notice periods provided by law.

19.2 Remedies Upon Default. Upon the occurrence of any event of default by Tenant, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity (all of which remedies shall be distinct, separate and cumulative), the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.

19.2.1 Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim or damages therefore; and Landlord may recover from Tenant the following: (i) the worth at the time of award of any unpaid rent which has been earned at the time of such termination; plus (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus (iv) any other amount reasonably necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease, specifically including but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and (v) at Landlord’s election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law. The term “rent” as used in this Section 19.2.1 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others. As used in Sections 19.2.1(i) and (ii), above, the “worth at the time of award” shall be computed by allowing interest at the rate set forth in Article 24 of this Lease, but in no case greater than the maximum amount of such interest

permitted by law. As used in Section 19.2.1(iii) above, the “worth at the time of award” shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).

19.2.2 Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee’s breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations). Accordingly, if Landlord does not elect to terminate this Lease on account of any default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all rent as it becomes due.

19.2.3 Landlord shall at all times have the rights and remedies (which shall be cumulative with each other and cumulative and in addition to those rights and remedies available under Sections 19.2.1 and 19.2.2, above, or any law or other provision of this Lease), without prior demand or notice except as required by applicable law, to seek any declaratory, injunctive or other equitable relief, and specifically enforce this Lease, or restrain or enjoin a violation or breach of any provision hereof.

19.3 Waiver of Default. No waiver by Landlord or Tenant of any violation or breach of any of the terms, provisions and covenants herein contained shall be deemed or construed to constitute a waiver of any other or later violation or breach of the same or any other of the terms, provisions, and covenants herein contained. Forbearance by Landlord in enforcement of one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of such default. The acceptance of any Rent hereunder by Landlord following the occurrence of any default, whether or not known to Landlord, shall not be deemed a waiver of any such default, except only a default in the payment of the Rent so accepted.

ARTICLE 20

FORCE MAJEURE

Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, inability to obtain services, labor, or materials or reasonable substitutes therefore, governmental actions, civil commotions, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, except with respect to the obligations imposed with regard to Rent and other charges to be paid by Tenant pursuant to this Lease (collectively, the “Force Majeure”), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party’s performance caused by a Force Majeure.

ARTICLE 21

SECURITY DEPOSIT

21.1 Security Deposit. Concurrent with Tenant’s execution of this Lease, Tenant shall deposit with Landlord a security deposit (the “Security Deposit”) in the amount set forth in Section 8 of the Summary, as security for the faithful performance by Tenant of all of its obligations under this Lease.

21.2 Application of Security Deposit. If Tenant defaults with respect to any provisions of this Lease, including, but not limited to, the provisions relating to the payment of Rent, the removal of property and the repair of resultant damage, Landlord may, without notice to Tenant, but shall not be required to apply all or any part of the Security Deposit for the payment of any Rent or any other sum in default and Tenant shall, upon demand therefor, restore the Security Deposit to its original amount. Any unapplied portion of the Security Deposit shall be returned to Tenant, or, at Landlord’s option, to the last assignee of Tenant’s interest hereunder, within sixty (60) days following the expiration of the Lease Term. Tenant shall not be entitled to any interest on the Security Deposit. Tenant hereby waives the provisions of Section 1950.7 of the California Civil Code, or any successor statute.

ARTICLE 22

SUBSTITUTION OF OTHER PREMISES

Landlord shall have the right to move Tenant, upon one hundred twenty (120) days’ prior written notice of the date of such move, to other space in the Project (the “Substitute Premises”) reasonably similar to the Premises in terms of size, design, amenities, access and improvements, and all terms hereof shall apply to the new space with equal force. In such event, Landlord shall (i) give Tenant prior notice and a concurrent opportunity to inspect any proposed Substitute Premises, (ii) provide Tenant, at Landlord’s sole cost and expense, a reasonable allowance for moving expenses, stationery, business cards and related items to replace those which become obsolete by such move, (iii) provide Tenant, at Landlord’s sole cost and expense, with tenant improvements at least equal in quality to those in the Premises and shall move Tenant’s effects to the new space at Landlord’s sole cost and expense at such time and in such manner as to inconvenience Tenant as little as reasonably practicable. Simultaneously with such relocation of the Premises, the parties shall immediately execute an amendment to this Lease stating the relocation of the Premises. In no event shall Tenant’s Rent be increased unless Tenant has requested a space larger than the Premises at the time of notice of relocation or unless Tenant has then currently been in negotiations with Landlord for expansion space. Alternatively, in the event that the rentable square footage of the new space is smaller than that of the Premises, Tenant’s Share and Tenant’s rental obligations under this Lease (on a per rentable square foot basis) shall be proportionately decreased.

ARTICLE 23

SIGNS

23.1 Directory Signage. A building directory is located in the lobby of the Building (the “Directory”). Tenant shall have the right, at Landlord’s initial cost and expense, to have one strip in such Directory identifying Tenant, its

suite number and location; provided, however, any subsequent modifications to such strip shall be at Tenant’s sole cost and expense.

23.2 Suite Signage. Tenant shall be entitled, Landlord’s initial cost, to identification signage outside of Tenant’s Premises on the floor on which Tenant’s Premises are located; provided, however, any subsequent modifications to such identification signage shall be at Tenant’s sole cost and expense. The location, quality, design, style, lighting and size of such signage shall be consistent with the Landlord’s Building standard signage program and shall be subject to Landlord’s prior written approval, in its sole discretion. Upon the expiration or earlier termination of this Lease, Tenant shall be responsible, at its sole cost and expense, for the removal of such signage and the repair of all damage to the Building caused by such removal.

23.3 Prohibited Signage and Other Items. Any signs, notices, logos, pictures, names or advertisements which are installed and that have not been individually approved by Landlord may be removed without notice by Landlord at the sole expense of Tenant. Tenant may not install any signs on the exterior or roof of the Building or the common areas of the Building or the Project. Any signs, window coverings, or blinds (even if the same are located behind the Landlord approved window coverings for the Building), or other items visible from the exterior of the Premises or Building are subject to the prior approval of Landlord, in its sole discretion.

ARTICLE 24

COMPLIANCE WITH LAW

Tenant shall not do anything or suffer anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or other governmental rule, regulation or requirement now in force or which may hereafter be enacted or promulgated (collectively, “Applicable Laws”). At its sole cost and expense, Tenant shall promptly comply with all such Applicable Laws which relate to (i) Tenant’s use of the Premises for non-general office use, (ii) the Alterations or Tenant Improvements in the Premises, or (iii) the Base Building, but, as to the Base Building, only to the extent such obligations are triggered by Tenant’s Alterations, the Tenant Improvements, or use of the Premises for non-general office use. Should any standard or regulation now or hereafter be imposed on Landlord or Tenant by a state, federal or local governmental body charged with the establishment, regulation and enforcement of occupational, health or safety standards for employers, employees, landlords or tenants, then Tenant agrees, at its sole cost and expense, to comply promptly with such standards or regulations. Landlord shall comply with all Applicable Laws relating to the Base Building, provided that compliance with such Applicable Laws is not the responsibility of Tenant under this Lease, and provided further that Landlord’s failure to comply therewith would prohibit Tenant from obtaining or maintaining a certificate of occupancy for the Premises, or would unreasonably and materially affect the safety of Tenant’s employees or create a significant health hazard for Tenant’s employees or otherwise prevent or materially impair Tenant’s use of the Premises. Landlord shall be permitted to include in Operating Expenses any costs or expenses incurred by Landlord under this Article 24 to the extent consistent with the terms of Section 4.2.4, above.

ARTICLE 25

LATE CHARGES

If any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlord’s designee within five (5) business days following Tenant’s receipt of written notice from Landlord that the same was not received when due, then Tenant shall pay to Landlord a late charge equal to five percent (5%) of the amount due plus any reasonable attorneys’ fees actually incurred by Landlord by reason of Tenant’s failure to pay Rent and/or other charges when due hereunder. The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord’s other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord’s remedies in any manner. In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid when due shall thereafter bear interest until paid at a rate equal to ten percent (10%) per annum, provided that in no case shall such rate be higher than the highest rate permitted by applicable law.

ARTICLE 26

LANDLORD’S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT

All covenants and agreements to be kept or performed by Tenant under this Lease shall be performed by Tenant at Tenant’s sole cost and expense and without any reduction of Rent. If Tenant shall fail to perform any of its obligations under this Lease, within a reasonable time after such performance is required by the terms of this Lease, Landlord may, but shall not be obligated to, after reasonable prior notice to Tenant, make any such payment or perform any such act on Tenant’s part without waiving its right based upon any default of Tenant and without releasing Tenant from any obligations hereunder. Except as may be specifically provided to the contrary in this Lease, Tenant shall pay to Landlord, within fifteen (15) days after delivery by Landlord to Tenant of statements therefore: (i) sums equal to expenditures reasonably made and obligations incurred by Landlord in connection with the remedying by Landlord of Tenant’s defaults pursuant to the provisions of this Article 21; (ii) sums equal to all losses, costs, liabilities, damages and expenses referred to in Article 10 of this Lease; and (iii) sums equal to all expenditures made and obligations incurred by Landlord in collecting or attempting to collect the Rent or in enforcing or attempting to enforce any rights of Landlord under this Lease or pursuant to law, including, without limitation, all legal fees and other amounts so expended. Tenant’s obligations under this Article 21 shall survive the expiration or sooner termination of the Lease Term.

ARTICLE 27

ENTRY BY LANDLORD

Landlord reserves the right at all reasonable times and upon reasonable notice to the Tenant to enter the Premises to (i) inspect them; (ii) show the Premises to prospective purchasers, mortgagees or tenants, or to the ground or underlying

lessors; (iii) post notices of non-responsibility; or (iv) alter, improve or repair the Premises or the Building if necessary to comply with current building codes or other applicable laws, or for structural alterations, repairs or improvements to the Building. Notwithstanding anything to the contrary contained in this Article 22, Landlord may enter the Premises at any time to (A) perform services required of Landlord; (B) take possession due to any breach of this Lease in the manner provided herein; and (C) perform any covenants of Tenant which Tenant fails to perform. Any such entries shall be without the abatement of Rent and shall include the right to take such reasonable steps as required to accomplish the stated purposes. Tenant hereby waives any claims for damages or for any injuries or inconvenience to or interference with Tenant’s business, lost profits, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. For each of the above purposes, Landlord shall at all times have a key with which to unlock all the doors in the Premises, excluding Tenant’s vaults, safes and special security areas designated in advance by Tenant. In an emergency, Landlord shall have the right to use any means that Landlord may deem proper to open the doors in and to the Premises. Any entry into the Premises in the manner hereinbefore described shall not be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an actual or constructive eviction of Tenant from any portion of the Premises.

ARTICLE 28

TENANT PARKING

Tenant and the Tenant’s parties (including Tenant’s visitors) shall be entitled to utilize, without charge during the initial Lease Term, commencing on the Lease Commencement Date, the number of parking passes set forth in Section 9 of the Summary, on a monthly basis throughout the Lease Term, which parking permits shall pertain to the Project parking areas; provided, however, during any Option Term, Tenant shall rent such parking passes from Landlord and shall pay to Landlord therefore, on a monthly basis, the prevailing rate charged from time to time at the location of such parking passes. Notwithstanding anything to the contrary set forth in the immediately preceding sentence, Tenant shall be responsible for the full amount of any taxes imposed by any governmental authority in connection with Tenant’s use of such parking passes or Tenant’s use of the Project parking facility. Tenant’s continued right to use the parking passes is conditioned upon Tenant abiding by all rules and regulations which are prescribed from time to time for the orderly operation and use of the Project parking facility, including any sticker or other identification system established by Landlord, Tenant’s cooperation in seeing that Tenant’s employees and visitors also comply with such rules and regulations and Tenant not being in default under this Lease (beyond any applicable notice and cure periods). Landlord specifically reserves the right to change the size, configuration, design, layout and all other aspects of the Project parking facility at any time and Tenant acknowledges and agrees that Landlord may, without incurring any liability to Tenant and without any abatement of Rent under this Lease, from time to time, close-off or restrict access to the Project parking facility for purposes of permitting or facilitating any such construction, alteration or improvements. Landlord may delegate its responsibilities hereunder to a parking operator in which case such parking operator shall have all the rights of control attributed hereby to the Landlord. The parking passes to which Tenant is entitled pursuant to this Article 28 are provided to Tenant solely for use by Tenant’s own personnel and such passes may not be transferred, assigned, subleased or otherwise alienated by Tenant without Landlord’s prior approval. Tenant may validate visitor parking by such method or methods as the Landlord may establish, at the validation rate from time to time generally applicable to visitor parking.

ARTICLE 29

MISCELLANEOUS PROVISIONS

29.1 Transfer of Landlord’s Interest. Tenant acknowledges that Landlord has the right to transfer all or any portion of its interest in the Building and in this Lease, and Tenant agrees that in the event of any such transfer, Landlord shall automatically be released from all liability under this Lease and Tenant agrees to look solely to such transferee for the performance of Landlord’s obligations hereunder after the date of transfer and such transferee shall be deemed to have fully assumed and be liable for all obligations of this Lease to be performed by Landlord, including the return of any Security Deposit, and Tenant shall attorn to such transferee; provided, however, Landlord shall remain responsible to Tenant for Landlord’s obligations which arose prior to the date of such transfer pursuant to the terms and condition of this Lease. The liability of any transferee of Landlord shall be limited to the interest of such transferee in the Building and such transferee shall be without personal liability under this Lease, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant. Tenant further acknowledges that Landlord may assign its interest in this Lease to a mortgage lender as additional security and agrees that such an assignment shall not release Landlord from its obligations hereunder and that Tenant shall continue to look to Landlord for the performance of its obligations hereunder.

29.2 Time of Essence. Time is of the essence of this Lease and each of its provisions.

29.3 No Air Rights. No rights to any view or to light or air over any property, whether belonging to Landlord or any other person, are granted to Tenant by this Lease. If at any time any windows of the Premises are temporarily darkened or the light or view therefrom is obstructed by reason of any repairs, improvements, maintenance or cleaning in or about the Project, the same shall be without liability to Landlord and without any reduction or diminution of Tenant’s obligations under this Lease.

29.4 Prohibition Against Recording. Neither this Lease, nor any memorandum, affidavit or other writing with respect thereto, shall be recorded by Tenant or by anyone acting through, under or on behalf of Tenant.

29.5 Landlord’s Title. Landlord’s title is and always shall be paramount to the title of Tenant. Nothing herein contained shall empower Tenant to do any act which can, shall or may encumber the title of Landlord.

29.6 Application of Payments. Landlord shall have the right to apply payments received from Tenant pursuant to this Lease, regardless of Tenant’s designation of such payments, to satisfy any obligations of Tenant hereunder, in such order and amounts as Landlord, in its sole discretion, may elect.

29.7 Partial Invalidity. If any term, provision or condition contained in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each

and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by law.

29.8 Landlord Exculpation. It is expressly understood and agreed that notwithstanding anything in this Lease to the contrary, and notwithstanding any applicable law to the contrary, the liability of Landlord and the Landlord Parties hereunder (including any successor landlord) and any recourse by Tenant against Landlord or the Landlord Parties shall be limited solely and exclusively to an amount which is equal to the lesser of (a) the interest of Landlord in the Building or (b) the equity interest Landlord would have in the Building if the Building were encumbered by third-party debt in an amount equal to eighty percent (80%) of the value of the Building (as such value is determined by Landlord), and neither Landlord, nor any of the Landlord Parties shall have any personal liability therefore, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant. Notwithstanding any contrary provision herein, neither Landlord nor the Landlord Parties shall be liable under any circumstances for injury or damage to, or interference with, Tenant’s business, including but not limited to, loss of profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use, in each case, however occurring.

29.9 Entire Agreement. It is understood and acknowledged that there are no oral agreements between the parties hereto affecting this Lease and this Lease supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease. This Lease and any side letter or separate agreement executed by Landlord and Tenant in connection with this Lease and dated of even date herewith contain all of the terms, covenants, conditions, warranties and agreements of the parties relating in any manner to the rental, use and occupancy of the Premises, shall be considered to be the only agreement between the parties hereto and their representatives and agents, and none of the terms, covenants, conditions or provisions of this Lease can be modified, deleted or added to except in writing signed by the parties hereto. All negotiations and oral agreements acceptable to both parties have been merged into and are included herein. There are no other representations or warranties between the parties, and all reliance with respect to representations is based totally upon the representations and agreements contained in this Lease.

29.10 Waiver of Redemption by Tenant. Tenant hereby waives for Tenant and for all those claiming under Tenant all right now or hereafter existing to redeem by order or judgment of any court or by any legal process or writ, Tenant’s right of occupancy of the Premises after any termination of this Lease.

29.11 Notices. All notices, demands, statements or communications (collectively, “Notices”) given or required to be given by either party to the other hereunder shall be in writing, shall be sent by United States certified or registered mail, postage prepaid, return receipt requested, or delivered personally (i) to Tenant at the appropriate address set forth in Section 9 of the Summary, or to such other place as Tenant may from time to time designate in a Notice to Landlord; or (ii) to Landlord at the addresses set forth in Section 9 of the Summary, or to such other firm or to such other place as Landlord may from time to time designate in a Notice to Tenant. Any Notice will be deemed given on the date it is mailed as provided in this Section 29.11 or upon the date personal delivery is made. If Tenant is notified of the identity and address of Landlord’s mortgagee or ground or underlying lessor, Tenant shall give to such mortgagee or ground or underlying lessor written notice of any default by Landlord under the terms of this Lease by registered or certified mail, and such mortgagee or ground or underlying lessor shall be given a reasonable opportunity to cure such default prior to Tenant’s exercising any remedy available to Tenant.

29.12 Attorneys’ Fees. If either party commences litigation against the other for the specific performance of this Lease, for damages for the breach hereof or otherwise for enforcement of any remedy hereunder, the prevailing party shall be entitled to recover from the other party such costs and reasonable attorneys’ fees as may have been incurred, including any and all costs incurred in enforcing, perfecting and executing such judgment.

29.13 Governing Law. This Lease shall be construed and enforced in accordance with the laws of the State of

California.

29.14 Brokers. Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only the real estate brokers or agents specified in Section 11 of the Summary (the “Brokers”), and that they know of no other real estate broker or agent (other than the Brokers) who is entitled to a commission in connection with this Lease. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent (other than the Brokers) occurring by, through, or under the indemnifying party.

29.15 Independent Covenants. This Lease shall be construed as though the covenants herein between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, Tenant shall not be entitled to make any repairs or perform any acts hereunder at Landlord’s expense or to any setoff of the Rent or other amounts owing hereunder against Landlord.

29.16 No Representations or Warranties by Landlord. Except as expressly set forth in this Lease to the contrary, Tenant hereby specifically acknowledges and agrees that (i) Landlord has made no representations or warranties to Tenant with regard to any of the following, and (ii) Landlord has no obligation and has made no promises with regard to any of the following: (A) the alteration, remodeling, improvement, renovations, repair or decoration of the Premises, Building, common areas (including any parking facilities) or any part thereof, (B) the condition, appearance and configuration of the Premises, Building, the common areas (including any parking facilities) or any part thereof, and/or (C) the “Redevelopment,” as that term is set forth in Section 29.17, below. However, Tenant hereby acknowledges that Landlord is currently engaged in, or anticipates that it will engage during the Lease Term in, such Redevelopment.

29.17 Development & Redevelopment of the Building and Project.

29.17.1 Subdivision. Landlord reserves the right to further subdivide all or a portion of the Project. Tenant agrees to execute and deliver, upon demand by Landlord and in the form requested by Landlord, any additional documents needed to conform this Lease to the circumstances resulting from such subdivision.

29.17.2 The Other Improvements. If portions of the Project or property adjacent to the Project (collectively, the “Other Improvements”) are owned by an entity other than Landlord, Landlord, at its option, may enter into an agreement with the owner or owners of any or all of the Other Improvements to provide (i) for reciprocal rights of access and/or use of the Project and the Other Improvements, (ii) for the common management, operation, maintenance, improvement and/or repair of all or any portion of the Project and the Other Improvements, (iii) for the allocation of a portion of the Direct Expenses to the Other Improvements and the operating expenses and taxes for the Other Improvements to the Project, and (iv) for the use or improvement of the Other Improvements and/or the Project in connection with the improvement, construction, and/or excavation of the Other Improvements and/or the Project. Nothing contained herein shall be deemed or construed to limit or otherwise affect Landlord’s right to convey all or any portion of the Project or any other of Landlord’s rights described in this Lease.

29.18 Hazardous Substances.

29.18.1 Definitions. For purposes of this Lease, the following definitions shall apply: “Hazardous Material(s)” shall mean any solid, liquid or gaseous substance or material that is described or characterized as a toxic or hazardous substance, waste, material, pollutant, contaminant or infectious waste, or any matter that in certain specified quantities would be injurious to the public health or welfare, or words of similar import, in any of the “Environmental Laws,” as that term is defined below, or any other words which are intended to define, list or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity or reproductive toxicity and includes, without limitation, asbestos, petroleum (including crude oil or any fraction thereof, natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel, or any mixture thereof), petroleum products, polychlorinated biphenyls, urea formaldehyde, radon gas, nuclear or radioactive matter, medical waste, soot, vapors, fumes, acids, alkalis, chemicals, microbial matters (such as molds, fungi or other bacterial matters), biological agents and chemicals which may cause adverse health effects, including but not limited to, cancers and /or toxicity. “Environmental Laws” shall mean any and all federal, state, local or quasi-governmental laws (whether under common law, statute or otherwise), ordinances, decrees, codes, rulings, awards, rules, regulations or guidance or policy documents now or hereafter enacted or promulgated and as amended from time to time, in any way relating to (i) the protection of the environment, the health and safety of persons (including employees), property or the public welfare from actual or potential release, discharge, escape or emission (whether past or present) of any Hazardous Materials or (ii) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of any Hazardous Materials.

29.18.2 Compliance with Environmental Laws. Landlord covenants that during the Lease Term, Landlord shall comply with all Environmental Laws in accordance with, and as required by, the TCCs of Article 24 of this Lease. Tenant represents and warrants that, except as herein set forth, it will not use, store or dispose of any Hazardous Materials in or on the Premises. However, notwithstanding the preceding sentence, Landlord agrees that Tenant may use, store and properly dispose of commonly available household cleaners and chemicals to maintain the Premises and Tenant’s routine office operations (such as printer toner and copier toner) (hereinafter the “Permitted Chemicals”). Landlord and Tenant acknowledge that any or all of the Permitted Chemicals described in this paragraph may constitute Hazardous Materials. However, Tenant may use, store and dispose of same, provided that in doing so, Tenant fully complies with all Environmental Laws.

29.18.3 Landlord’s Right of Environmental Audit. Landlord may, upon reasonable notice to Tenant, be granted access to and enter the Premises no more than once annually to perform or cause to have performed an environmental inspection, site assessment or audit. Such environmental inspector or auditor may be chosen by Landlord, in its sole discretion, and be performed at Landlord’s sole cost and expense. To the extent that the report prepared upon such inspection, assessment or audit, indicates the presence of Hazardous Materials in violation of Environmental Laws, or provides recommendations or suggestions to prohibit the release, discharge, escape or emission of any Hazardous Materials at, upon, under or within the Premises, or to comply with any Environmental Laws, Tenant shall promptly, at Tenant’s sole expense, comply with such recommendations or suggestions, including, but not limited to performing such additional investigative or subsurface investigations or remediation(s) as recommended by such inspector or auditor. Notwithstanding the above, if at any time, Landlord has actual notice or reasonable cause to believe that Tenant has violated, or permitted any violations of any Environmental Law, then Landlord will be entitled to perform its environmental inspection, assessment or audit at any time, notwithstanding the above mentioned annual limitation, and Tenant must reimburse Landlord for the cost or fees incurred for such as Additional Rent.

29.18.4 Indemnifications. Landlord agrees to indemnify, defend, protect and hold harmless the Tenant Parties from and against any liability, obligation, damage or costs, including without limitation, attorneys’ fees and costs, resulting directly or indirectly from any use, presence, removal or disposal of any Hazardous Materials to the extent such liability, obligation, damage or costs was a result of actions (i) caused by Landlord or Landlord Parties, or (ii) knowingly permitted by Landlord or Landlord Parties regardless of the identity of the party taking such action (excepting Tenant and any Tenant Parties). Tenant agrees to indemnify, defend, protect and hold harmless the Landlord Parties from and against any liability, obligation, damage or costs, including without limitation, attorneys’ fees and costs, resulting directly or indirectly from any use, presence, removal or disposal of any Hazardous Materials or breach of any provision of this section, to the extent such liability, obligation, damage or costs was a result of actions caused or permitted by Tenant or a Tenant Party.

[Signature Page Immediately Follows]

IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the day and date first above written.

“LANDLORD”:

KILROY REALTY, L.P., a Delaware limited partnership

By:	Kilroy Realty Corporation, a Maryland corporation, General Partner

	By:

		Its:

	By:

		Its:


“TENANT”:

CARDIUM THERAPEUTICS, INC., a Delaware corporation,

By:

	Its:

By:

	Its:

EXHIBIT A

KILROY CENTRE DEL MAR

OUTLINE OF PREMISES

[ATTACHED]

EXHIBIT B

KILROY CENTRE DEL MAR

MARKET RENT

In connection with Tenant’s exercise of its second option to extend the Lease Term pursuant to Section 2.2 of the Lease, the 2^ndOption Rent shall be determined in accordance with the TCCs of this Exhibit B.

1. Market Rent. For purposes of this Lease, the term “Market Rent” shall mean rent (including additional rent and considering any “base year” or “expense stop” applicable thereto), including all escalations, at which tenants, as of the commencement of the second Option Term are, pursuant to transactions completed within the eighteen (18) months prior to the first day of such second Option Term, leasing non-sublease, non-encumbered, non-synthetic, non-equity space (unless such space was leased pursuant to a definition of “fair market” comparable to the definition of Market Rent) comparable in size, location and quality to the Premises for a “Comparable Term,” as that term is defined in this Section 2.2.2 (the “Comparable Deals”), which comparable space is located in the “Comparable Buildings,” as that term is defined in this Section 2.2.2, giving appropriate consideration to the annual rental rates per rentable square foot (adjusting the base rent component of such rate to reflect a net value after accounting for whether or not utility expenses are directly paid by the tenant such as Tenant’s direct utility payments provided for in Section 6.1 of this Lease), the standard of measurement by which the rentable square footage is measured, the ratio of rentable square feet to usable square feet, and taking into consideration only, and granting only, the following concessions (provided that the rent payable in Comparable Deals in which the terms of such Comparable Deals are determined by use of a discounted fair market rate formula shall be equitably increased in order that such Comparable Deals will not reflect a discounted rate) (collectively, the “Rent Concessions”): (a) rental abatement concessions or build-out periods, if any, being granted such tenants in connection with such comparable spaces; (b) tenant improvements or allowances provided or to be provided for such comparable space, taking into account the value of the existing improvements in the Premises, such value to be based upon the age, quality and layout of the improvements and the extent to which the same could be utilized by general office users as contrasted with this specific Tenant, (c) Proposition 13 protection, and (d) all other monetary concessions, if any, being granted such tenants in connection with such comparable space; provided, however, that notwithstanding anything to the contrary herein, no consideration shall be given to the fact that Landlord is or is not required to pay a real estate brokerage commission in connection with the applicable term or the fact that the Comparable Deals do or do not involve the payment of real estate brokerage commissions. The term “Comparable Term” shall refer to the length of the lease term, without consideration of options to extend such term, for the space in question. In addition, the determination of the Market Rent shall include a determination as to whether, and if so to what extent, Tenant must provide Landlord with financial security, such as a letter of credit or guaranty, for Tenant’s rent obligations during any Option Term. Such determination shall be made by reviewing the extent of financial security then generally being imposed in Comparable Transactions upon tenants of comparable financial condition and credit history to the then existing financial condition and credit history of Tenant (with appropriate adjustments to account for differences in the then-existing financial condition of Tenant and such other tenants). If in determining the Market Rent, Tenant is entitled to a tenant improvement or comparable allowance for the improvement of the Premises (the “Option Term TI Allowance”), Landlord may, at Landlord’s sole option, elect any or a portion of the following: (A) to grant some or all of the Option Term TI Allowance to Tenant in the form as described above (i.e., as an improvement allowance), and/or (B) to reduce the rental rate component of the Market Rent to be an effective rental rate which takes into consideration that Tenant will not receive the total dollar value of such excess Option Term TI Allowance (in which case the Option Term TI Allowance evidenced in the effective rental rate shall not be granted to Tenant). The term “Comparable Buildings” shall mean the Building and other first-class office buildings which are comparable to the Building in terms of age (based upon the date of completion of construction or major renovation as to the building containing the portion of the Premises in question), quality of construction, level of services and amenities, size and appearance, and are located in the Del Mar, California area (the (“Comparable Area”).

2. Tenant’s and Landlord’s Market Rent Calculations. Concurrently with Tenant’s delivery of its Exercise Notice to Landlord, Tenant shall deliver to Landlord Tenant’s calculation of the Market Rent (the “Tenant’s 2nd Option Rent Calculation”). Landlord shall deliver notice (the “Landlord Response Notice”) to Tenant on or before the date which is thirty (30) days after Landlord’s receipt of the Exercise Notice and Tenant’s 2nd Option Rent Calculation (the “Landlord Response Date”), stating that (A) Landlord is accepting Tenant’s 2nd Option Rent Calculation as the Market Rent, or (B) rejecting Tenant’s 2nd Option Rent Calculation and setting forth Landlord’s calculation of the Market Rent (the “Landlord’s 2nd Option Rent Calculation”). Within ten (10) business days of its receipt of the Landlord Response Notice, Tenant may, at its option, accept the Market Rent contained in the Landlord’s 2nd Option Rent Calculation. If Tenant does not affirmatively accept or Tenant rejects the Market Rent specified in the Landlord’s 2nd Option Rent Calculation, the parties shall follow the procedure, and the Market Rent shall be determined as set forth in Section 3, below.

3. Determination of Market Rent. In the event Tenant objects or is deemed to have objected to the Market Rent, Landlord and Tenant shall attempt to agree upon the Market Rent using reasonable good-faith efforts. If Landlord and Tenant fail to reach agreement within sixty (60) days following Tenant’s objection or deemed objection to the Landlord’s 2nd Option Rent Calculation (the “Outside Agreement Date”), then in connection with the 2nd Option Rent, Landlord’s 2nd Option Rent Calculation and Tenant’s 2nd Option Rent Calculation, each as previously delivered to the other party, shall be submitted to the arbitrators pursuant to the TCCs of this Section 3, and (ii) in connection with any other contested calculation of market Rent, the parties shall each make a separate determination of the Market Rent and shall submit the same to the arbitrators pursuant to the TCCs of this Section 3. The submittals shall be made concurrently with the selection of the arbitrators pursuant to this Section 3 and shall be submitted to arbitration in accordance with Section 3.1 through 3.7 of this Exhibit B, but subject to the conditions, when appropriate, of Section 2, above.

3.1 Landlord and Tenant shall each appoint one arbitrator who shall by profession be a real estate broker, appraiser or attorney who shall have been active over the five (5) year period ending on the date of such appointment in the leasing (or appraisal, as the case may be) of first-class office properties in the Comparable Area. The determination of the arbitrators shall be limited solely to the issue of whether Landlord’s or Tenant’s submitted Market Rent, is the closest to the actual Market Rent as determined by the arbitrators, taking into account the requirements of

Section 1 of this Exhibit B. Each such arbitrator shall be appointed within fifteen (15) days after the Outside Agreement Date. Landlord and Tenant may consult with their selected arbitrators prior to appointment and may select an arbitrator who is favorable to their respective positions. The arbitrators so selected by Landlord and Tenant shall be deemed (“Advocate Arbitrators”).

3.2 The two Advocate Arbitrators so appointed shall be specifically required pursuant to an engagement letter within ten (10) days of the date of the appointment of the last appointed Advocate Arbitrator agree upon and appoint a third arbitrator (“Neutral Arbitrator”) who shall be qualified under the same criteria set forth hereinabove for qualification of the two Advocate Arbitrators except that neither the Landlord or Tenant or either party’s Advocate Arbitrator may, directly or indirectly, consult with the Neutral Arbitrator prior to subsequent to his or her appearance. The Neutral Arbitrator shall be retained via an engagement letter jointly prepared by Landlord’s counsel and Tenant’s counsel.

3.3 The three arbitrators shall within thirty (30) days of the appointment of the Neutral Arbitrator reach a decision as to Market Rent and determine whether the Landlord’s or Tenant’s determination of Market Rent as submitted pursuant to this Section 3 and Section 2, above, is closest to Market Rent as determined by the arbitrators and simultaneously publish a ruling (“Award”) indicating whether Landlord’s 2nd Option Rent Calculation or Tenant’s 2ndOption Rent Calculation is closest to the Market Rent as determined by the arbitrators. Following notification of the Award, the Landlord’s 2nd Option Rent Calculation or Tenant’s 2nd Option Rent Calculation, whichever is selected by the arbitrators as being closest to Market Rent shall become the 2nd Option Rent.

3.4 The Award issued by the majority of the three arbitrators shall be binding upon Landlord and

Tenant.

3.5 If either Landlord or Tenant fail to appoint an Advocate Arbitrator within fifteen (15) days after the Outside Agreement Date, either party may petition the presiding judge of the Superior Court of San Diego County to appoint such Advocate Arbitrator subject to the criteria in Section 3.1 of this Exhibit B, or if he or she refuses to act, either party may petition any judge having jurisdiction over the parties to appoint such Advocate Arbitrator.

3.6 If the two Advocate Arbitrators fail to agree upon and appoint the Neutral Arbitrator, then either party may petition the presiding judge of the Superior Court of San Diego County to appoint the Neutral Arbitrator, subject to criteria in Section 3.1 of this Exhibit B, or if he or she refuses to act, either party may petition any judge having jurisdiction over the parties to appoint such arbitrator.

3.7 The cost of arbitration shall be paid by Landlord and Tenant equally.

EXHIBIT C

KILROY CENTRE DEL MAR

FORM OF TENANT’S ESTOPPEL CERTIFICATE

The undersigned as Tenant under that certain Office Lease (the “Lease”) made and entered into as of , 2004 by and between as Landlord, and the undersigned as Tenant, for Premises on the floor(s) of the office building located at , , California , certifies as follows:

1. Attached hereto as Exhibit A is a true and correct copy of the Lease and all amendments and modifications thereto. The documents contained in Exhibit A represent the entire agreement between the parties as to the Premises.

2. The undersigned currently occupies the Premises described in the Lease, the Lease Term commenced on , and the Lease Term expires on , and the undersigned has no option to terminate or cancel the Lease or to purchase all or any part of the Premises, the Building and/or the Project.

3. Base Rent became payable on .

4. The Lease is in full force and effect and has not been modified, supplemented or amended in any way except as provided in Exhibit A.

5. Tenant has not transferred, assigned, or sublet any portion of the Premises nor entered into any license or concession agreements with respect thereto except as follows: .

6. Tenant shall not modify the documents contained in Exhibit A without the prior written consent of Landlord’s mortgagee.

7. All monthly installments of Base Rent, all Additional Rent and all monthly installments of estimated Additional Rent have been paid when due through . The current monthly installment of Base Rent is $ .

8. All conditions of the Lease to be performed by Landlord necessary to the enforceability of the Lease have been satisfied and Landlord is not in default thereunder. In addition, the undersigned has not delivered any notice to Landlord regarding a default by Landlord thereunder.

9. No rental has been paid more than thirty (30) days in advance and no security has been deposited with Landlord except as provided in the Lease.

10. As of the date hereof, there are no existing defenses or offsets, or, to the undersigned’s knowledge, claims or any basis for a claim, that the undersigned has against Landlord.

11. If Tenant is a corporation or partnership, each individual executing this Estoppel Certificate on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in California and that Tenant has full right and authority to execute and deliver this Estoppel Certificate and that each person signing on behalf of Tenant is authorized to do so.

12. There are no actions pending against the undersigned under the bankruptcy or similar laws of the United States or any state.

13. Other than in compliance with all applicable laws and incidental to the ordinary course of the use of the Premises, the undersigned has not used or stored any hazardous substances in the Premises.

14. To the undersigned’s knowledge, all tenant improvement work to be performed by Landlord under the Lease has been completed in accordance with the Lease and has been accepted by the undersigned and all reimbursements and allowances due to the undersigned under the Lease in connection with any tenant improvement work have been paid in full.

The undersigned acknowledges that this Estoppel Certificate may be delivered to Landlord or to a prospective mortgagee or prospective purchaser, and acknowledges that said prospective mortgagee or prospective purchaser will be relying upon the statements contained herein in making the loan or acquiring the property of which the Premises are a part and that receipt by it of this certificate is a condition of making such loan or acquiring such property.

Executed at on the day of , 200 .

“Tenant”:


		,
a

By:
	Its:

By:
	Its:

OFFICE LEASE

KILROY REALTY

KILROY CENTRE DEL MAR

KILROY REALTY, L.P.,

a Delaware limited partnership,

as Landlord,

and

CARDIUM THERAPEUTICS, INC.,

a Delaware corporation,

as Tenant.

TABLE OF CONTENTS

		Page

ARTICLE 1	PREMISES, BUILDING, PROJECT, AND COMMON AREAS	1
ARTICLE 2	LEASE TERM; OPTION TERM(S)	1
ARTICLE 3	BASE RENT	2
ARTICLE 4	ADDITIONAL RENT	2
ARTICLE 5	USE OF PREMISES	6
ARTICLE 6	SERVICES AND UTILITIES	7
ARTICLE 7	REPAIRS	8
ARTICLE 8	ADDITIONS AND ALTERATIONS	8
ARTICLE 9	COVENANT AGAINST LIENS	8
ARTICLE 10	INSURANCE	8
ARTICLE 11	DAMAGE AND DESTRUCTION	9
ARTICLE 12	NONWAIVER	10
ARTICLE 13	CONDEMNATION	10
ARTICLE 14	ASSIGNMENT AND SUBLETTING	10
ARTICLE 15	OWNERSHIP AND REMOVAL OF TRADE FIXTURES	12
ARTICLE 16	HOLDING OVER	12
ARTICLE 17	ESTOPPEL CERTIFICATES	12
ARTICLE 18	SUBORDINATION	13
ARTICLE 19	DEFAULTS; REMEDIES	13
ARTICLE 20	FORCE MAJEURE	14
ARTICLE 21	SECURITY DEPOSIT	14
ARTICLE 22	SUBSTITUTION OF OTHER PREMISES	14
ARTICLE 23	SIGNS	14
ARTICLE 24	COMPLIANCE WITH LAW	15
ARTICLE 25	LATE CHARGES	15
ARTICLE 26	LANDLORD’S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT	15
ARTICLE 27	ENTRY BY LANDLORD	15
ARTICLE 28	TENANT PARKING	16
ARTICLE 29	MISCELLANEOUS PROVISIONS	16

INDEX

	Page(s)

1^st Option Rent	2
2^nd Option Rent	2
Accountant	6
Additional Rent	2
Applicable Laws	15
Base Rent	2
Base Year	3
Condition Precedent	2
Control	12
Direct Expenses	3
Environmental Laws	18
Estimate	6
Estimate Statement	6
Estimated Excess	6
Excess	5
Exercise Notice	1
Expense Year	3
Force Majeure	14
Hazardous Material(s)	18
HVAC	7
Landlord	iii
Landlord Parties	8
Lease	iii
Lease Commencement Date	1
Lease Expiration Date	1
Lease Term	1
Lease Year	1
Operating Expenses	3
Option Term	1
Other Improvements	18
Permitted Transferee	12
Premises	1
Proposition 13	4
Rent	2
Review Period	6
Security Deposit	14
Statement	5
Summary	iii
Superior Right Holder	1
Tax Expenses	4
Tenant	iii
Tenant Parties	8
Tenant’s Share	5
Termination Notice	2
Transfer Premium	11

EX-10.13 3 a05-22067_1ex10d13.htm MATERIAL CONTRACTS

Exhibit 10.13

YALE EXCLUSIVE LICENSE AGREEMENT

THIS AGREEMENT by and between YALE UNIVERSITY, a corporation organized and existing under and by virtue of a charter granted by the general assembly of the Colony and State of Connecticut and located in New Haven, Connecticut (“YALE”), and SCHERING AKTIENGESELLSCHAFT with Offices in Müllerstrasse 178, D-13353, Berlin, Germany (“LICENSEE”) shall be effective the date of final execution below (“Effective Date”). Each of LICENSEE on one hand and YALE on the other hand, is referred to a “Party” and collectively as the “Parties.”

In the course of research conducted under YALE auspices, Dr. William Sessa, in the Department of Pharmacology at YALE (the “INVENTOR”), produced an Invention entitled “eNOS Mutations Useful For Gene Therapy and Therapeutic Screening” (the “INVENTION”); and

Pursuant to an assignment by the INVENTOR to YALE of all his right, title and interest in and to the INVENTION and any resulting patents, YALE is the owner of the INVENTION, subject to rights reserved by the U.S. government; and

LICENSEE wishes to obtain a license to the INVENTION and any resulting patents, and YALE is willing to grant such a license to LICENSEE subject to the terms and conditions of this Agreement;

Therefore, in consideration of these statements, the parties agree as follows:

ARTICLE 1 DEFINITIONS

The following terms used in this Agreement shall be defined as set forth below:

1.1 “AFFILIATE” means any entity or person that directly or indirectly controls, is controlled by or is under common control with LICENSEE. For purposes of this definition, “control” means possession of the power to direct the management of such entity or person, whether through ownership of more than 50% of voting securities, by contract or otherwise.

1.2 “CONFIDENTIAL INFORMATION” means any and all information, KNOW-HOW, and data, technical or non-technical, which relates to LICENSED INTELLECTUAL PROPERTY or to the Agreement itself and which is disclosed to one Party by the other Party during the negotiation of or under this Agreement.

1.3 “DILIGENCE REPORTS” has the meaning set forth in Section 6.2.

1.4 “FIELD” means all cardiovascular-related therapeutic uses of LICENSED INTELLECTUAL PROPERTY that does not involve small molecule drug delivery.

1.5 “FIRST COMMERCIAL SALE” means the date LICENSEE or an AFFILIATE or sublicensee of LICENSEE first sells commercially, pursuant to a REGULATORY APPROVAL, a LICENSED PRODUCT in United States, Japan or any country of the European Union; provided however, that where such first commercial sale has occurred in any country for which pricing, or reimbursement approval is necessary for widespread sale, then such sale shall not be deemed a FIRST COMMERCIAL SALE until such pricing or reimbursement approval has been obtained.

1.6 “IND” means an investigational new drug application required to be filed with the Federal Food, Drug and Cosmetic Administration pursuant to 21 C.F.R. §312, as such regulations may be amended from time to time, to test drug products in humans or foreign equivalent.

1.7 “KNOW-HOW means information that relates to the LICENSED INTELLECTUAL PROPERTY and is contained in manuscripts, the Office of Cooperative Research at Yale invention disclosure form, or other documents or information which is disclosed by the INVENTORS of the LICENSED INTELLECTUAL PROPERTY and which is useful, but not patentable.

1.8 “LICENSED INTELLECTUAL PROPERTY” means the INVENTION as covered by the United States or foreign patent application(s) and patents(s) arising out of the provisional patent application attached as Appendix “A” and owned by YALE during the term of this Agreement and includes LICENSED INTELLECTUAL PROPERTY referred to in the The Research Agreement between LICENSEE and YALE as of the Effective Date (see Appendix B), together with any continuations, continuations-in-part, and any divisional, or substitute patents, any reissues or re-examinations of any such applications or patents, and any extension of the term of any such patent.

1.9 “LICENSED METHODS” means any method, procedure, process or other subject matter, the manufacture, use or sale of which without a license from YALE, would infringe any ISSUED CLAIM of the LICENSED INTELLECTUAL PROPERTY.

1.10 “LICENSED PRODUCTS” means any products, apparatus, kit, or component part thereof in the FIELD, the manufacture, use or sale of which without a license from YALE, would infringe any ISSUED CLAIM of the LICENSED INTELLECTUAL PROPERTY,

1.11 “LICENSED TERRITORY” shall mean the whole world.

1.12 “ISSUED CLAIM” means a claim of an issued patent or patent application claiming the LICENSED INTELLECTUAL PROPERTY that has not been held unenforceable, unpatentable or invalid by a decision of a court or government agency of competent jurisdiction, unappealable or unappealed within the time allowed to appeal, and which has not been admitted to be invalid or unenforceable through re-issue, re-examination, disclaimer or otherwise.

1.13 “NDA” means a new drug application filed with the FDA pursuant to 21 C.F.R. 200, as such regulations may be amended for approval by such agency for the sale of LICENSED PRODUCT in the United States. Reference to NDA includes, to the extent applicable, an biologies license application.

1.14 “NET SALES: means the amount invoiced by LICENSEE, an Affiliate or permitted sublicensee for sales of LICENSED PRODUCTS, as the case may be, to a third party, less deductions for (i) shipping or freight charges prepaid or allowed, and other charges such as insurance, relating thereto as is customary in LICENSEE’S normal business practices; (ii) sales and excise taxes or customs duties paid by the

selling party and any other governmental charge imposed upon the sales of such LICENSED PRODUCTS, as the case may be; (iii) distributors fees, rebates, or allowances actually granted, allowed or incurred; (iv) quantity cash discounts or chargebacks actually granted, allowed or incurred in the ordinary course of business in connection with the sale of such LICENSED PRODUCT, as the case may be; (v) allowances or credits to customers, not in excess of the selling price of such LICENSED PRODUCTS, as the case may be, on account of governmental requirements, rejection, outdating recalls or for value of returned trade goods of such LICENSED PRODUCTS, as the case may be; and (vi) an estimate for bad debts determined in accordance with such Party’s normal accounting procedures consistently applied within and across its pharmaceutical operating units, whether or not invoiced to the customer. For the purpose of calculating LICENSEE’S NET SALES, the Parties recognize that (a) LICENSEE’S customers may include persons in the chain of commerce who enter into agreements with LICENSEE as to price even though title to the LICENSED PRODUCT, as the case may be, does not pass directly from LICENSEE to such customers, and even thought payment for such LICENSED PRODUCT, as the case may be, is not made by such customers directly to LICENSEE and (b) in such cases chargebacks paid by LICENSEE to or thorough a third party (such as a wholesaler) can be deducted by LICENSEE from gross revenue in order to calculate a Party’s NET SALES. Any deductions listed above which involve payment by LICENSEE shall be taken as a deduction against aggregate sales for the period in which the payment is made. Sales of LICENSED PRODUCTS, as the case may be, between a Party and its Affiliates solely for research or clinical testing purposes shall be excluded from the computation of NET SALES.

1.15 “PHASE I CLINICAL TRlAL(S)” means a Phase I clinical trial for a LICENSED PRODUCT as described in 21 C.F.R. §312 (a).

1.16 “REGULATORY APPROVAL”, means any approvals, product and/or establishment licenses, registrations, or authorizations of any federal, state or local regulatory agency, department, bureau or other governmental entity, necessary for the manufacture, use, storage, importation, export, transport or sale of LICENSED PRODUCT in a regulatory jurisdiction.

ARTICLE 2 LICENSE GRANT AND TERM

2.1 Subject to all the terms and conditions of this Agreement, YALE hereby grants to LICENSEE an exclusive, worldwide license, under the LICENSED INTELLECTUAL PROPERTY within the FIELD, with the right to grant sublicenses, to make, have made, use, sell, offer to sell, import and export LICENSED PRODUCTS and to practice any LICENSED METHOD (the “LICENSE”).

2.2 The LICENSE is expressly made subject to Yale’s reservation of the right to make, use and practice the LICENSED INTELLECTUAL PROPERTY for its own non-commercial purposes. Nothing in this Agreement shall be construed to grant by implication, estoppel or otherwise any licenses under patents of YALE other than the LICENSED INTELLECTUAL PROPERTY.

2.3 Unless terminated earlier as provided in Article 12, the LICENSE shall commence on the date of full execution of this Agreement and the LICENSE, shall automatically end on the date of the last to expire of the patents described in the LICENSED INTELLECTUAL PROPERTY.

2.4 If LICENSED INTELLECTUAL PROPERTY exists in countries outside the U.S., the LICENSE granted in Article 2.1 shall automatically convert to a paid-up, non-exclusive license, on a country-by-country basis when the last to expire of the patents as described in the LICENSED INTELLECTUAL PROPERTY in that country expires,

2.5 Appendix B is incorporated and a part of this Agreement.

ARTICLE 3 SUBLICENSES

3.1 YALE hereby grants to LICENSEE the right to sublicense the right to make, use, sell, offer to sell, import or export any LICENSED PRODUCT and to practice any LICENSED METHOD, provided this Agreement is in effect and LICENSEE is not in breach.

3.2 Any sublicense granted by LICENSEE shall include substantially the same Definitions, and provisions on Due Diligence, Confidentiality and Publicity, Reporting Requirements, Indemnification, Insurance and Warranties, Patent Notices and Use of Yale’s Name: provided further, such sublicenses do not relieve LICENSEE from the royalty rate obligations of Article 5 of this Agreement.

3.3 If, prior to LICENSEE reaching the “B3” decision, that is, to file an IND and initiate Phase I CLINICAL TRIALS in the United States with respect to a LICENSED PRODUCT, LICENSEE enters into a sublicense with a third party with respect to such LICENSED PRODUCT for such third party to Solely develop and commercialize such LICENSED PRODUCT, then LICENSEE shall pay to YALE Thirty (30%) Percent of any lump sum fee, milestone payment, or advance payment received by LICENSEE from any sublicensee. “Solely” means that Schering does not retain any rights to develop and commercialize such LICENSED PRODUCT, that is, for the avoidance of doubt, Schering acts in the nature of a broker and grant all its rights and responsibilities to a third party.

3.4 LICENSEE shall promptly:

a) provide YALE with a copy of each sublicense granted by LICENSEE under this Agreement and any amendments to such sublicense or termination of it;

b) guarantee to pay all payments due YALE from sublicenses; and

c) summarize and deliver copies of all reports due to LICENSEE from sublicensees.

ARTICLE 4 LICENSE ISSUE FEE

4.1 LICENSEE shall pay to YALE, upon execution of this Agreement, a non-refundable license issue fee of Fifty Thousand ($50,000.00) Dollars. Said fee is not an advance upon Earned Royalties.

4.2 LICENSEE shall pay the following milestone payments. Milestone payments are paid once only on the first LICENSED PRODUCT that meets such milestone regardless of the number of LICENSED PRODUCTS, the number of times a milestone is reached or number of indications for such LICENSED PRODUCT (S).

4.2.1 One Hundred-Fifty Thousand ($150,000.00) Dollars:

upon entering LICENSEE’S “B2” phase of drug development (preclinical development dossier and regulatory toxicity).

4.2.2 Eight Hundred-Twenty-Five Thousand ($825,000.00) Dollars:

upon filing the first 1ND for the first LICENSED PRODUCT in any one of the United States, or Japan or a country in the European Union.

4.2.3 Nine Hundred Thousand ($900,000.00) Dollars:

upon filing first BLA or NDA in the United States.

4.2.4 One Million Five Hundred Thousand ($1,500,000.00) Dollars:

upon the FIRST COMMERCIAL SALE of the first LICENSED PRODUCT.

4.2.5 Three Million ($3,000,000.00) Dollars:

upon first Ten Million ($10,000,000.00) Dollars in NET SALES.

4.3 Neither the license issue fee of Article 4.1 nor the milestone payments of Article 4.2 shall be credited against royalties payable under Article 5. If there is no ISSUED CLAIM in the LICENSED INTELLECTUAL PROPERTY claiming the LICENSED PRODUCT in whole or in part, then LICENSEE shall not pay the Milestones stated in Sections 4.2.4 and 4.2.5.

ARTICLE 5 ROYALTIES

5.1 Provided there is a ISSUED CLAIM in such country, as consideration for the license granted under this Agreement LICENSEE on a country-by-country basis shall pay to YALE an earned royalty of NET SALES in each calendar year as follows:

4% on NET SALES up to $250 million

5% on NET SALES greater than $250 million and less than $500 million

6% on NET SALES greater than $500 million

5.2 LICENSEE shall pay all royalties accruing to YALE within thirty (30) days after the end of each calendar quarter (March 31, June 30, September 30 and December 31) in which NET SALES occur.

5.3 During the term of this Agreement, LICENSEE agrees to pay an annual License Maintenance Fee (“LMF”) commencing on the January 1 after the date of final execution and every January 1 thereafter until the January 1 that LICENSEE starts to pay Minimum Royalty Payments under Article 5.4. The LMF shall be Fifteen Thousand ($15,000.00) Dollars.

5.3.1 The LMF shall not be owed YALE in those years in which LICENSEE is funding Professor Sessa’s laboratory with a minimum of Seventy Five Thousand ($75,000.00) Dollars in direct costs.

5.4 Provided royalties are due pursuant to Section 5.1 of this Agreement, during the term of this Agreement, LICENSEE agrees to pay YALE annual Minimum Royalty Payments (“MRP”), commencing on the first January 1 to occur Six (6) months after the date of the FIRST COMMERCIAL SALE in the United States. The MRP shall be in the

amount of Fifty Thousand Dollars ($50,000.00). LICENSEE shall continue to pay the MRP until the end of the term of the last to expire ISSUED CLAIM in the LICENSED INTELLECTUAL PROPERTY that claims the LICENSED PRODUCT. YALE shall fully credit each MRP made against any Earned Royalties payable by LICENSEE in the same year.

5.5 If it is established that any ISSUED CLAIM is dominated by another patent and LICENSEE is required to obtain a license from a third party in order to practice the LICENSED INTELLECTUAL PROPERTY, then royalty payment due YALE may be reduced by the royalty and payments made to such third party, but in no event may LICENSEE reduce the earned royalty on NET SALES by more than Forty Percent (40%). LICENSEE shall justify any such deduction to YALE.

YALE shall pay any and all taxes levied on account of royalties or other payments that it receives from LICENSEE under this Agreement. If laws or regulations require that taxes be withheld, LICENSEE will (i) deduct those taxes from the remittable royalty, (ii) timely pay the taxes to the proper taxing authority, and (iii) send proof of payment to YALE within thirty (30) days of receipt of confirmation of payment from the relevant taxing authority. LICENSEE agrees to make all lawful and reasonable efforts to minimize such taxes to YALE.

5.6 Payments by LICENSEE under this Agreement shall be paid to YALE in U.S. dollars by wire transfer of immediately available funds to an account at a commercial bank designated by YALE. Where payments are based on NET SALES in countries other than the United States, the amount of such NET SALES expressed in the currency of each country shall be converted first into Deutsche Marks, or if the Deutsche Mark shall have been replaced by the Euro, into Euros, and then into U.S. dollars at the average exchange rate (calculated at the average of the “bid” and “asked” exchange rate) for the applicable quarter, provided, however, that the conversion of the currency in question into Deutsche Marks or Euros prior to conversion into U.S. dollars shall be for calculation purposes only, and no additional fee or commission will be incurred as a consequence of the multiple currency conversions. In determining the average exchange rate for any quarter, the standard shall be the exchange rate quoted by the Frankfurt Fixing or any appropriate successor rate fixing procedure then in effect between European First Class Banks for the applicable currency at 1:00 p.m. on the last business day of the applicable quarter. If there is no Frankfurt Fixing or appropriate successor rate fixing procedure in effect as of any date of determination, the Parties shall agree on another reference rate. If overdue, the royalties and any other payments due under this Agreement, shall bear interest until payment at a per annum rate two percent (2%) above the prime rate in effect at Citibank on the due date. The payment of such interest shall not foreclose YALE from exercising any other right it may have as a consequence of the lateness of any payment.

ARTICLE 6 DUE DILIGENCE

6.1 LICENSEE shall plan and as soon as practicable after execution of this Agreement, implement appropriate research and development, testing and production

efforts directed toward commercialization of the LICENSED PRODUCTS and/or LICENSED METHODS and shall provide to YALE a copy of such plan (“Plan”), which is incorporated into this Agreement and attached as “Appendix C” and which shall be reviewed annually.

6.1.1 The Plan shall discuss, in detail, the LICENSEE’s goals and objectives with regards to pursuing development plans for the LICENSED INTELLECTUAL PROPERTY using various gene therapy vectors.

6.2 Within thirty (30) days of the anniversary of the date of final execution of this Agreement, LICENSEE shall provide diligence reports (“DILIGENCE REPORTS”) to YALE, indicating progress and problems to date in commercialization, and a forecast and schedule of major events required to market the LICENSED PRODUCTS.

6.3 If at any time LICENSEE abandons or suspends its development or marketing or its intent to market the LICENSED PRODUCTS and or LICENSED METHODS for a period exceeding ninety (90) days, LICENSEE shall immediately notify YALE giving reasons and a statement of its intended actions,

6.4 If LICENSEE shall fail to use commercially reasonable efforts to implement the Plan, YALE shall send LICENSEE a written notice concerning such alleged failure. YALE and LICENSEE shall meet to discuss such alleged failure. If, after such discussion, LICENSEE is failing to use commercially reasonable efforts to implement the Plan, then YALE shall be entitled to terminate this Agreement in accordance with Article 12.5.

ARTICLE 7 CONFIDENTIALITY AND PUBLICITY

7.1 YALE and LICENSEE each recognize that the other’s CONFIDENTIAL INFORMATION constitutes highly valuable information. Subject to the Parties’ rights and obligations pursuant to this Agreement, YALE and LICENSEE agree that during the term of this Agreement and for five years thereafter, they:

a) will keep confidential and will cause their Affiliates to keep confidential, the other’s CONFIDENTIAL INFORMATION by taking whatever action it would take to preserve the confidentiality of its own CONFIDENTIAL INFORMATION; and

b) will only disclose that part of the other’s CONFIDENTIAL INFORMATION that is necessary for those officers, employees or agents who need to know to carry out its responsibilities under this Agreement; and

c) will, not disclose the other’s CONFIDENTIAL INFORMATION to any third parties except sublicensees under any circumstance without written permission from the other Party; and

d) will, within sixty (60) days of the request of the other Party upon termination of this Agreement, return all the CONFIDENTIAL INFORMATION disclosed to the other Party pursuant to this Agreement except for one copy which may be retained by the Recipient for monitoring compliance with Article 7.

7.2 The obligations of confidentiality described above shall not pertain to that part of the CONFIDENTIAL INFORMATION which:

a) was known to the recipient Party prior to the disclosure by the disclosing Party; or

b) is or becomes publicly known through no fault or omission attributable to the recipient Party; or

c) is rightfully given to the recipient Party from sources independent of the disclosing Party; or

d) is required to be disclosed by law in the opinion of recipient Party’s General Counsel, but only after prompt written notice to the owner of the CONFIDENTIAL INFORMATION and opportunity to seek a protective order or to agree to such disclosure,

7.2 Publicity. Except as required by law, neither Party may disclose the terms of this Agreement without the written consent of the other Party.

ARTICLE 8 REPORTS, RECORDS AND INSPECTIONS

8.1 LICENSEE shall keep, and shall cause each of its Affiliates and sublicensees to keep full and accurate books of account containing all particulars that may be necessary for the purpose of calculating NET SALES and all payments to YALE. Such books of account shall be kept in their principal place of business and, with all necessary supporting data, shall for three (3) years next following the end of the calendar year to which each shall pertain be open for inspection by an independent certified accountant selected by YALE and reasonable acceptable to LICENSEE upon reasonable notice during normal business hours at YALE’S expense for the sole purpose of verifying payments or compliance with this Agreement, but in not event more than once a each calendar year. All information and data shall be use only for the purpose of verifying payments. In the event that such inspection shall indicate that in any calendar year the payments that should have been paid by LICENSEE are at least five (5%) percent greater than those that were actually paid by LICENSEE, then LICENSEE shall pay the cost of such inspection. All underpayments and overpayments are immediately due and payable.

8.2 LICENSEE and its sublicensees shall keep and maintain complete and accurate records and books containing an accurate accounting of all data in sufficient detail to enable verification of EARNED ROYALTIES and other payments under this Agreement. LICENSEE shall preserve such book and record for THREE (3) years after the sales recorded were actually made. Such books and records shall be open to inspection by YALE or an independent certified public accountant, at YALE’s expense, during normal business hours upon TEN (10) days prior written notice, for the purpose of verifying the accuracy of the reports and computations rendered by LICENSEE.

ARTICLE 9 PATENT PROTECTION

9.1 The patent applications covering the INVENTION and the dates they were filed are listed in Appendix “A.” It is understood that as of the date of final execution of this Agreement no patent protection exists in the U.S. or any foreign country but only the potential to realize the same.

9.2 With regards to the United States, YALE, at LICENSEE’S request, shall file patent applications and continuations-in-part in YALE’S name and at LICENSEE’S expense, covering the INVENTION and thereafter, YALE shall prosecute such patent applications. YALE shall consult with LICENSEE as to the preparation, filing, prosecution and maintenance of patent applications for the INVENTION and any patents resulting therefrom and shall promptly furnish LICENSEE with copies of documents relevant to such consultation. Within thirty (30) days of receiving such documents from YALE or as soon as reasonably practical in the event a response is required imminently, LICENSEE will provide YALE with comments or suggestions relating to such documents. YALE will give due consideration to any modifications or additions suggested by LICENSEE. Any and all U.S. patent applications, continuations-in-part, and resulting patents claiming the INVENTION where inventors are solely employees of YALE shall remain the property of YALE. All other U.S. patents, patent applications, continuations and continuations-in-part that are subject to this Agreement and arising out of the Research Agreement shall be owned pursuant to the terms stated in Section 8 of the Research Agreement.

9.3 With regards to all intended international filings, all conversions of international applications according to the Patent Cooperation Treaty into national or regional patent applications, and all filings of translations of a granted European patent in the national patent offices of the member states of the European Patent Convention in relation to the Licensed Intellectual Property, YALE shall inform LICENSEE as soon as possible but in no event less than thirty (30) days prior to such intended international filings, conversions or national filings. LICENSEE will notify YALE if it wishes YALE to prosecute such Licensed Intellectual Property in the following group of countries at LICENSEE’S expense: United States, Japan, Australia, Canada, Europe (only member states of the European Patent Convention). Upon such notification, YALE agrees to file patent applications in such countries. In addition, if requested by LICENSEE in writing, YALE shall file in additional countries designated by LICENSEE, provided that LICENSEE agrees to pay for the costs associated with such additional filings. If LICENSEE chooses not to proceed with the filing and/or prosecution of any of the Licensed Intellectual Property in any country of the countries listed above, it shall notify YALE not less than thirty (30) days prior to the day on which LICENSEE intends such patent filing and/or prosecution to cease, or as soon as reasonably practical in the event a response is required before eminently. In such case, LICENSEE shall not be obligated to pay on-going patent expenses for such Licensed Intellectual Property in such country, and LICENSEE’S rights under this Agreement may be terminated, solely with respect to that country pursuant to Section 12.5.

In the event YALE wishes to file and/or prosecute the Licensed Intellectual Property in any country other than the countries listed above, and LICENSEE does not agree to file, YALE may file at its own expense and LICENSEE shall not be obligated to pay on-going patent expenses for such patent application or patent in such country. In such case, LICENSEE’S rights under this Agreement may by terminated, solely with respect to that country pursuant to Section 12.5. For the avoidance of any doubt, LICENSEE acknowledges that YALE, at its sole discretion, may cease prosecution of such patent application or maintenance of any patent resulting therefrom in such country at any time. Upon the filing of such patent application, YALE shall notify LICENSEE that Yale has filed a patent application in such country. YALE shall have the right to license its rights in such patent application and/or patent in such country to a third party, provided however, that YALE agrees that during the seven (7) years period from the filing of the

patent application in such country, before accepting an offer from a third party, YALE will give LICENSEE the opportunity to obtain a license to such patent application and/or patent at the same financial compensation that a third party is willing to pay to YALE, YALE shall inform LICENSEE of such offer and shall allow LICENSEE sixty (60) days in which to elect whether to license YALE’S interest in such rights under the terms of such offer.

9.4 The costs mentioned in Articles 9.2 and 9.3 shall include, but are not limited to any taxes, annuities, working fees, maintenance fees, renewal and extension charges. Payment of such costs shall be made, at YALE’s option, either directly to patent counsel selected by YALE and reasonably acceptable to LICENSEE. In either case, LICENSEE shall make payment directly to the appropriate patent counsel within Thirty (30) Days of receiving their invoice. If LICENSEE fails to make payment within the thirty day period, LICENSEE shall be obligated to pay any reasonable late charges incurred by YALE as a result of such delay.

9.5 All U.S. patent applications covering the INVENTION shall be prepared, prosecuted, filed and maintained by independent patent counsel chosen by YALE and reasonably acceptable to LICENSEE. Said independent patent counsel shall be ultimately responsible to LICENSEE for patents, patent applications, continuations and continuations-in-part that disclose and claim the INVENTION. YALE shall instruct patent counsel to keep both YALE and LICENSEE fully informed of the progress of all such patent applications and patents, and to give both YALE and LICENSEE reasonable opportunity to comment on the type and scope of useful claims and the nature of supporting disclosures. YALE will not finally abandon any patent application for which LICENSEE is bearing expenses without LICENSEE’s written consent. The Party directing prosecution shall have no liability to the other Party for damages, whether direct, indirect or incidental, consequential or otherwise, allegedly arising from its good faith decisions, actions and omissions in connection with such prosecution, except as provided in Article 9.

9.6 LICENSEE shall apply, and shall require sublicensees to apply, the patent marking notices required by the law of any country where LICENSED PRODUCTS are made, sold or used, to the extent feasible and practical, and in accordance with the applicable patent laws of that country.

9.7 LICENSEE accepts responsibility for costs incurred by YALE as of the Effective Date for the conversion of U.S. patent #60/129550 originally filed April 16, 1999, in an amount of not to exceed $15,000. LICENSEE shall pay such amount not later than thirty (30) days following receipt of an invoice from YALE.

ARTICLE 10 INFRINGEMENT AND LITIGATION

10.1 Each Party shall promptly notify the other in writing in the event that it obtains knowledge of infringing activity by third parties, is sued or threatened with an infringement suit in any country as a result of activities that concern the LICENSED INTELLECTUAL PROPERTY.

10.2 a) LICENSEE shall have the sole obligation to defend the LICENSED INTELLECTUAL PROPERTY against infringement or interference by third parties. This

obligation includes bringing any legal action for infringement and defending any counter claim of invalidity or action of a third party for declaratory judgment for non-infringement or non-interference. LICENSEE may settle such suits solely in its own name and solely at its own expense and through counsel of its own selection. LICENSEE shall bear the expense of such legal actions and shall obtain all the benefits from it. Any recoveries with respect to such patent infringement shall be divided as follows: (i) LICENSEE shall recover its expenses; (ii) YALE shall receive a royalty percentage as specified in Article 5; and (iii) LICENSEE shall retain any remaining amount as revenue.

b) Except for providing reasonable assistance, at the request and expense of LICENSEE, YALE shall have no obligation regarding the legal actions described in Article 10.2 unless required to participate by law. However, YALE shall have the right to participate in any such action through its own counsel and at its own expense.

c) In the event LICENSEE fails to initiate or participate in the actions described in Article 10.2(a) within six (6) months of written notice from YALE. YALE shall have the right to initiate such legal action to uphold the LICENSED INTELLECTUAL PROPERTY and, provided YALE initiates such action in such country, YALE may terminate the LICENSEE’s license in such country.

10.3 In the event LICENSEE is permanently enjoined from exercising its license right granted under this Agreement pursuant to an infringement action brought by a third party, or if both LICENSEE and YALE elect not to undertake the defense or settlement of a suit alleging infringement for a period of six (6) months from notice of such suit, then the LICENSEE shall have the right to terminate this Agreement in the country where the suit was filed with respect to the licensed patent following thirty (30) days written notice to YALE and in accordance with the terms of Article 12.

ARTICLE 11 USE OF YALE’s AND LICENSEE’S NAMES

11.1 LICENSEE shall not use the name “Yale” or “Yale University”, nor any adaptation of it, nor the names of any of its employees, for any purpose without prior written consent obtained from YALE or said employee in each instance, except that LICENSEE may state that it is licensed by YALE under one or more of the patents and/or applications comprising the LICENSED INTELLECTUAL PROPERTY. YALE shall not use the name of “Schering” or “Berlex” nor any adaptation of such names, nor the names of any of its employees, for any purpose without prior written consent obtained from LICENSEE or said employee in each instance.

ARTICLE 12 TERMINATION

12.1 Upon termination of this Agreement, for material breach by LICENSEE as determined by a final judgement of a court of competent jurisdiction all rights and licenses granted to LICENSEE under the terms of this Agreement are terminated and YALE has the option to terminate any sublicense granted by LICENSEE. Upon such termination LICENSEE shall cease to manufacture LICENSED PRODUCTS and within sixty (60) days of the effective date of termination LICENSEE shall return to YALE:

a) the last report, and

b) all payments prorated to the date of termination.

LICENSEE shall have the right to sell all LICENSED PRODUCT in inventory at the time of termination. All such sales of LICENSED PRODUCT shall be subject to the terms of this Agreement, as in effect prior to termination.

12.2 Termination of this Agreement shall not affect any rights or obligations accrued prior to the effective date of such termination and specifically LICENSEE’s obligation to pay all royalties and other payments specified by Article 5. Articles 1, and 7, the preservation and inspection obligations of Article 8, Article 11, and the indemnification obligations of Article 13 all survive any such termination.

12.3 The rights provided in this Article 12 shall be in addition and without prejudice to any other rights which the parties may have with respect to any breach or violations of the provisions of this Agreement.

12.4 Waiver by either Party of one or more defaults or breaches shall not deprive such Party of the right to terminate because of any subsequent default or breach.

12.5 YALE may terminate this Agreement, and such termination shall be automatically effective at the end of sixty (60) days written notice or the period specified below, in the event LICENSEE:

a) fails to make any payment whatsoever due and payable pursuant to this Agreement unless LICENSEE shall make all such payments within said sixty (60) day period; provided that (i)YALE has sent LICENSEE a prior written notice that such payment is due and payable, and (ii)YALE intends to exercise its right to terminate pursuant to this Section 12.5, and (iii) LICENSEE fails to cure within thirty (30) days of the end of such sixty (60) day period or

b) shall cease to carry on its business, then this Agreement also terminates automatically without any notice to LICENSEE, or

c) fails to have adequate insurance as described in Article 13, or

d) commits a material breach as determined by a final judgement of a court of competent jurisdiction

12.6 LICENSEE shall have the right to terminate this Agreement:

a) at any time on six (6) months notice to YALE provided LICENSEE is not in breach and upon payment of all amounts due YALE throughout the effective date of termination. Upon written notice from YALE, LlCENSEE shall provide YALE with any and all data prepared in development of the LICENSED PRODUCTS or METHODS.

ARTICLE 13 INDEMNIFICATION; INSURANCE; NO WARRANTIES

13.1 LICENSEE shall defend, indemnify and hold harmless YALE, its, trustees, directors, officers, employees, and agents against any and all claims, demands, damages, losses and expenses of any nature, including legal expenses and attorney’s fees arising out of:

a) the death, personal injury, or illness of any person or out of damage to any property resulting from

b) the production, manufacture, sale, use, lease, or other disposition or consumption or advertisement of the LICENSED PRODUCTS by LICENSEE or other transferees; or in connection with

c) any statement, representation or warranty of LICENSEE or other transferees with respect to the LICENSED PRODUCTS.

13.2 LICENSEE is self insured and/or maintains third party liability insurance adequate to cover liability claims that arise out of manufacture, use or sale of LICENSED PRODUCTS.

13.3 a) YALE makes NO REPRESENTATIONS or WARRANTIES that any LICENSED INTELLECTUAL PROPERTY claims, issued or pending, are valid, or that the manufacture, use, sale or other disposal of the LICENSED PRODUCTS does NOT infringe upon any patent or other rights NOT vested in YALE.

b) YALE disclaims all warranties whatsoever with respect to the LICENSED INTELLECTUAL PROPERTY and the LICENSED PRODUCTS either express or implied, including, but not limited to warranties or merchantability or fitness for a particular purpose. LICENSEE shall make no statements, representation or warranties whatsoever to any third parties which are inconsistent with such disclaimer by YALE.

ARTICLE 14 NOTICES, PAYMENTS

14.1 Any payment, notice or other communication required by this Agreement shall be sent by Registered or Certified first class U.S. Mail, postage prepaid, and shall be deemed delivered if sent to the following addresses or to such other address as such Party shall designate by written notice to the other Party:

FOR YALE:		FOR LICENSEE:


Director		Schering Aktiengesellschaft
YALE UNIVERSITY		13342 Berlin
Office of Cooperative Research		Germany
P.O. Box 208366		Attention: Legal Department
155 Whitney Avenue, Room 210
New Haven, CT 06520-8336		Berlex Biosciences
		15049 San Pablo Avenue
		Richmond, CA 94804
		Attention: Legal Department

ARTICLE 15 LAWS AND REGULATIONS

15.1 This Agreement shall be governed by and in accordance with the laws of the state of Connecticut except where the federal laws of the United States are applicable and have precedence.

15.2 LICENSEE shall comply with all foreign and United States federal, state, and local laws, regulations, rules and orders applicable to the testing, production, transportation, packaging, labeling, export, sale and use of the LICENSED PRODUCTS. In particular, LICENSEE shall be responsible for assuring compliance with all U.S. export laws and regulations applicable to this license and LICENSEE’s activities under this Agreement.

ARTICLE 16 MISCELLANEOUS

16.1 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.

16.2 Entire Agreement. This Agreement constitutes the entire agreement of the parties relating to the LICENSED INTELLECTUAL PROPERTY, and all prior representations and understandings are superseded by this Agreement.

16.3 Severability. The provisions of this Agreement shall be deemed separable. If any part of this Agreement is rendered void, invalid, or unenforceable, such shall not affect the validity or enforceability of the remainder of this Agreement unless the part or parts which are void, invalid or unenforceable shall substantially impair the value of the entire Agreement as to either Party.

16.4 Headings. Paragraph headings are inserted for convenience of reference only and do not form a part of this Agreement.

16.5 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.

16.6 Amendment; Assignment. This Agreement may not be amended except by written agreement executed by each of the parties, and shall not be assigned by LICENSEE except with the written consent of YALE; provided however, LICENSEE may perform some or all of its obligations under this Agreement through Affiliates, provided however, LICENSEE shall remain responsible for and be a guarantor of the performance by its Affiliates and shall cause its Affiliates to comply with the provisions of this Agreement in connection with such performance. LICENSEE shall not permit any of its AFFILIATES to commit any act (including any act of omission) that LICENSEE is prohibited hereunder from committing directly.

16.7 Surviving Rights. The rights and obligations set forth in this Agreement shall extend beyond the term or termination of the Agreement only to the extent expressly provided for herein, or the extent that the survival of such rights or obligations are necessary to permit their complete fulfillment or dischange.

IN WITNESS to their Agreement the parties have caused this Agreement to be executed in duplicate originals by their duly authorized representatives.

Yale University		Schering AG
/s/ Jon Soderstrom
Jon Soderstrom
Managing Director, [ILLEGIBLE]
		Name	/s/ [ILLEGIBLE]
Cooperative Research		Title
Date	6/29/00	Date	09/08/2000

		Name	/s/ [ILLEGIBLE]
		Title
		Date	09/08/2000

EX-10.14 4 a05-22067_1ex10d14.htm MATERIAL CONTRACTS

Exhibit 10.14

AGREEMENT

Between

NEW YORK UNIVERSITY

and

COLLATERAL THERAPEUTICS, INC.

NYU/COLLATERAL THERAPEUTICS

Research & License Agreement

INDEX

Section 1	Definitions	page 1
Section 2	Effective Date	page 4
Section 3	Performance of the NYU Research Project	page 4
Section 4	Funding of the NYU Research Project	page 5
Section 5	Title	page 5
Section 6	Patents and Patent Applications	page 6
Section 7	Grant of License	page 8
Section 8	Payments for License	page 9
Section 9	Method of Payment	page 12
Section 10	Development and Commercialization	page 13
Section 11	Confidential Information	page 15
Section 12	Publication	page 15
Section 13	Liability and Indemnification	page 16
Section 14	Security for Indemnification	page 17
Section 15	Expiry and Termination	page 18
Section 16	Representations and Warranties by CORPORATION	page 19
Section 17	Representations and Warranties by NYU	page 20
Section 18	No Assignment	page 21
Section 19	Use of Name	page 21
Section 20	Miscellaneous	page 22


	Appendix I Pre Existing Inventions

	Appendix II Research Program

	Appendix III Development Plan

RESEARCH AND LICENSE AGREEMENT

This Agreement, effective as of March 24, 1997 (the “Effective Date”), is by and between NEW YORK UNIVERSITY (hereinafter “NYU”), a corporation organized and existing under the laws of the State of New York and having a place of business at 70 Washington Square South, New York, New York 10012 and COLLATERAL THERAPEUTICS, INC. (hereinafter “CORPORATION”), a corporation organized and existing under the laws of the State of California, having its principal office at 9360 Towne Centre Drive, San Diego, California 92121.

RECITALS

WHEREAS, Dr. Claudio Basilico of NYU (hereinafter “the NYU Scientist”), together with other co-inventors, has made certain inventions all as more particularly described in an issued U.S. patent and U.S. patent applications and foreign patent applications owned by NYU, in each case identified in annexed Appendix I and forming an integral part hereof (hereinafter “the Pre-Existing Inventions”);

WHEREAS, NYU is willing to perform the NYU Research Project (as hereinafter defined);

WHEREAS, CORPORATION is prepared to sponsor the NYU Research Project;

WHEREAS, subject to the terms and conditions hereinafter set forth, NYU is willing to grant to CORPORATION and CORPORATION is willing to accept from NYU the License (as hereinafter defined);

NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein, the parties hereto hereby agree as follows:

1. Definitions.

(a) “Calendar Year” shall mean any consecutive period of twelve months commencing on the first day of January of any year.

(b) “Corporation Entity” shall mean any company or other legal entity which controls, or is controlled by, or is under common control with, CORPORATION; control means the holding of fifty percent (50%) or more of (i) the capital and/or (ii) the voting rights and/or (iii) the right to elect or appoint directors.

(d) “FGF-4” shall mean Fibroblast Growth Factor 4 the amino acid sequence of which is provided in Figure 1 in the article by P. Delli Bovi, A.M. Curatola, F. G. Kern, A. Greco, M. Ittmann, and C. Basilico published in Cell, Volume 50, pages 729-737, August 28, 1987.

(e) “Field” shall mean gene therapy for coronary artery disease, congestive heart failure, and peripheral vascular disease.

(f) “GI Agreement” shall mean, collectively (i) the Agreement, dated as of February 6, 1989, between NYU and Genetics Institute, Inc. (“GI”), as amended by the Amendment, dated February 25, 1997, and (ii) the Settlement Agreement, dated August 22, 1996, between NYU and GI.

(g) “License” shall mean the exclusive worldwide license to practice the Research Technology (as hereinafter defined) for the development, manufacture, use and sale of the Licensed Products (as hereinafter defined) in the Field and the exclusive worldwide right to sublicense such rights in accordance with Section 7(c).

(h) “Licensed Products” shall mean products comprising a nucleic acid sequence encoding FGF-4 or fragments or analogs thereof, in each case which are covered by a claim of any unexpired patent within the NYU Patents (as hereinafter defined) which has not been disclaimed or held invalid by a court of competent jurisdiction from which no appeal can be taken or of any active patent application within the NYU Patents, or which utilize all or any portion of NYU Know-How.

(i) “Net Sales” shall mean the total amount invoiced in connection with sales of Licensed Products by CORPORATION, any Corporation Entity or any sublicensee of CORPORATION, any Corporation Entity or a sublicensee in accordance with Section 7(c)(iii), in each case to end users; provided that Net Sales shall (i) not include any amounts invoiced in connection with sales of Licensed Products for (A) transportation charges, including insurance relating thereto, or (B) sales and excise taxes, value-added taxes or customs duties paid by the

person selling or distributing any Licensed Product or any other governmental charges imposed upon the sale or distribution of any Licensed Product; and (ii) be adjusted to reflect any deductions to amounts invoiced to take account of (X) distributors’ fees, rebates, allowances or sales commissions actually granted, allowed or incurred and credits for returns or (Y) quantity or case discounts, cash discounts or chargebacks actually granted, allowed or incurred in the ordinary course of business in connection with the sale or distribution of any Licensed Product; provided, further, that Net Sales shall not include amounts invoiced by CORPORATION to any person or entity that is a Corporation Entity or a sublicensee of CORPORATION or a Corporation Entity under the License.

(j) “NYU Know-How” shall mean the Pre-Existing Inventions, any proprietary information or proprietary materials including, but not limited to, pharmaceutical, chemical, biological and biochemical products, information and trade secrets, know-how, technical and non-technical data, materials, methods and processes and any drawings, plans, diagrams, specifications and/or other documents containing such information, discovered, developed or acquired by, or on behalf of students or employees of NYU during the term and in the course of the NYU Research Project.

(k) “NYU Patents” shall mean all United States and foreign patents and patent applications, and any divisions, continuations, in whole or in part, reissues, re-examinations, renewals and extensions thereof, and pending applications therefor:

(1) which claim Pre-Existing Inventions and which are identified on annexed Appendix I; or

(2) which claim inventions that are made, in whole or in part, by students or employees of NYU during the term and in the course of the NYU Research Project.

(l) “Research Period” shall mean the three-year period commencing on the Effective Date hereof and any extension thereof as to which NYU and CORPORATION shall mutually agree in writing.

(m) “NYU Research Project” shall mean the investigations at NYU during the Research Period into the Field under the supervision of the NYU Scientist in

accordance with the research program, described in annexed Appendix II, which forms an integral part hereof.

(n) “Research Technology” shall mean all NYU Patents and NYU Know-How.

(o) “Total Net Sales” shall mean the aggregate Net Sales of CORPORATION, any Corporation Entity and any sublicensee of CORPORATION or any Corporation Entity to end users of Licensed Products.

2. Effective Date.

This Agreement shall be effective as of the date first written above and shall remain in full force and effect until it expires or is terminated in accordance with Section 16 hereof.

3 Performance of the NYU Research Project.

(a) In consideration of the sums to be paid to NYU as set forth in Section 4 below, NYU undertakes to perform the NYU Research Project under the supervision of the NYU Scientist during the Research Period, as such Project may be amended in accordance with Section 20(f). If, during the Research Period the NYU Scientist shall cease to supervise the NYU Research Project, then NYU shall promptly so notify CORPORATION and shall endeavor to find among the scientists of NYU a Scientist acceptable to CORPORATION to continue the supervision of the NYU Research Project. If NYU is unable to find such a Scientist acceptable to CORPORATION within three months after such notice to CORPORATION, CORPORATION shall have the option to terminate its funding of the NYU Research Project. CORPORATION shall promptly advise NYU in writing if CORPORATION so elects. Such termination of funding pursuant to this Section 3(a) shall not terminate this Agreement or the License granted herein. Nothing herein contained shall be deemed to impose an obligation on NYU to find a replacement for the NYU Scientist.

(b) Nothing contained in this Agreement shall be construed as a warranty on the part of NYU that any results or inventions will be achieved by the NYU Research Project, or that the Research Technology and/or any other results or inventions achieved by the NYU Research Project, if any, are or will be commercially exploitable and furthermore, NYU makes

no warranties whatsoever as to the commercial or scientific value of the Research Technology and/or as to any results which may be achieved in the NYU Research Project.

(c) NYU will have full authority and responsibility for the NYU Research Project. All students and employees of NYU who work on the NYU Research Project will do so as employees or students of NYU, and not as employees of CORPORATION.

(d) NYU shall provide to CORPORATION a report on the NYU Research Project within ninety (90) days following the end of each twelve-month period occurring during the Research Period.

4. Funding of the NYU Research Project.

(a) As compensation to NYU for work to be performed on the NYU Research Project during the Research Period, subject to any earlier termination of the Research Project pursuant to Section 3(a) hereof, CORPORATION will pay NYU the total sum of $600,000, payable in six equal consecutive installments of $100,000, on the Effective Date and at six month intervals following such Date.

(b) Nothing in this Agreement shall be interpreted to prohibit NYU (or the NYU Scientist) from obtaining additional financing or research grants for the NYU Research Project from government agencies, which grants or financing may render all or part of the NYU Research Project and the results thereof subject to the patent rights of the U.S. Government and its agencies, as set forth in Title 35 U.S.C.§200 et seq.

5. Title.

(a) Subject to the License granted to CORPORATION hereunder, it is hereby agreed that all right, title and interest, in and to the Research Technology, and in and to any drawings, plans, diagrams, specifications, and other documents containing any of the Research Technology shall vest solely in NYU. At the request of NYU, CORPORATION shall take all steps as may be necessary to give full effect to said right, title and interest of NYU including, but not limited to, the execution of any documents that may be required to record such right, title and interest with the appropriate agency or government office.

(b) Subject to the License granted to CORPORATION hereunder, for so long as the NYU Scientist is employed by NYU, any and all inventions made by such NYU Scientist and relating to the Field shall be owned solely by NYU.

6. Patents and Patent Applications.

(a) NYU will promptly disclose to CORPORATION in writing any inventions which constitute potential NYU Patents developed in the course of the NYU Research Project.

(b) At the initiative of CORPORATION or NYU, the parties shall consult with each other regarding the prosecution of all patent applications within NYU Patents (excluding any Pre-Existing Invention). Such patent applications shall be filed, prosecuted and maintained by the law firm of Darby & Darby or by other patent counsel jointly selected by NYU and CORPORATION. Copies of all such patent applications and patent office actions shall be forwarded to each of NYU and CORPORATION.

NYU and CORPORATION shall each also have the right to have such patent applications and patent office actions independently reviewed by other patent counsel separately retained by NYU or CORPORATION, upon prior notice to and consent of the other party, which consent shall not unreasonably be withheld.

(c) All applications and proceedings with respect to NYU Patents (other than those relating to any Pre-Existing Invention) shall be filed, prosecuted and maintained by NYU at the expense of CORPORATION. Against the submission of invoices, CORPORATION shall reimburse NYU for all costs and fees incurred by NYU during the term of this Agreement, in connection with the filing, maintenance, prosecution, protection and the like of such patents.

(d) NYU and CORPORATION shall assist, and cause their respective employees and consultants to assist each other, in assembling inventorship information and data for the filing and prosecution of patent applications on inventions pertaining to the Research Technology.

(e) If at any time during the term of this Agreement CORPORATION decides that it is undesirable, as to one or more countries, to prosecute or maintain any patents or patent applications within the NYU Patents (other than those relating to any Pre-Existing Invention), it shall give prompt written notice thereof to NYU, and upon receipt of such notice CORPORATION shall be released from its obligations to bear all of the expenses to be incurred thereafter as to such countries in conjunction with such patent(s) or patent application(s) and such patent(s) or application(s) shall be deleted from the Research Technology and NYU shall be free to grant rights in and to the Research Technology in such countries to third parties, without further notice or obligation to CORPORATION, and the CORPORATION shall have no rights whatsoever to exploit the Research Technology in such countries.

(f) Under the GI Agreement, provisions exist to determine the circumstances under which patent protection will be obtained by NYU with respect to any Pre-Existing Invention. For patent applications with respect to Pre-Existing Inventions, copies of such applications and office actions shall be forwarded to CORPORATION who may consult with NYU with regard thereto. CORPORATION agrees, upon presentation of supporting documentation, to reimburse NYU for one quarter (1/4) of the expenses incurred by NYU as of the Effective Date in connection with obtaining such patent protection. In the event that such separate provisions result in a situation where patent protection in any country is not pursued by NYU because of a lack of funding pursuant to such provisions, then NYU shall notify CORPORATION thereof and CORPORATION shall have the option to pay NYU to pursue such patent protection.

(g) Nothing herein contained shall be deemed to be a warranty by NYU that

(i) NYU can or will be able to obtain any patent or patents on any patent application or applications in the NYU Patents or any portion thereof, or that any of the NYU Patents will afford adequate or commercially worthwhile protection, or

(ii) that the manufacture, use, or sale of any element of the Research Technology or any Licensed Product will not infringe any patent(s) of a third party.

7. Grant of License.

(a) Subject to the terms and conditions hereinafter set forth, and subject to any rights of the U.S. Government pursuant to Title 35 of the United States Code §200 et seq., NYU hereby grants to CORPORATION and CORPORATION hereby accepts from NYU the License.

(b) The License granted to CORPORATION in Section 7(a) hereto shall commence upon the Effective Date and shall remain in force on a country-by-country basis, if not previously terminated under the terms of this Agreement, for fifteen (15) years from the Date of First Commercial Sale in such country or until the expiration date of the last patent within the NYU Patents in any such country to expire, whichever shall be later. CORPORATION shall inform NYU in writing of the Date of First Commercial Sale with respect to each Licensed Product in each country as soon as practicable after the making of each such first commercial sale.

(c) CORPORATION shall be entitled to grant sublicenses under the License on terms and conditions in compliance and not inconsistent with the terms and conditions of this Agreement (except that the rate of royalty may be at higher rates than those set forth in this Agreement) (i) to a Corporation Entity or (ii) to other third parties for consideration and in an arms-length transaction. All sublicenses shall only be granted by CORPORATION under a written agreement, a copy of which shall be provided by CORPORATION to NYU as soon as practicable after the signing thereof. Each sublicense granted by CORPORATION hereunder shall be subject and subordinate to the terms and conditions of this License Agreement and shall contain (inter-alia) the following provisions:

(1) the sublicense shall expire automatically on the termination of the License;

(2) the sublicense shall not be assignable, in whole or in part;

(3) the sublicensee shall not grant further sublicenses, except that a sublicensee may grant a further sublicense solely for purposes of effecting distribution of Licensed Products to end users on the same terms required for sublicenses under this Section 7(c);

(4) both during the term of the sublicense and thereafter the sublicensee shall agree to a confidentiality obligation similar to that imposed on CORPORATION in Section 11 below, and that the sublicensee shall impose on its employees, both during the terms of their employment and thereafter, a similar undertaking of confidentiality; and

(5) the sublicense agreement shall include the text of Sections 13 and 14 of this Agreement and shall state that NYU is an intended third party beneficiary of such sublicense agreement for the purpose of enforcing such indemnification and insurance provisions.

8. Payments for License.

(a) In consideration for the grant and during the term of the License with respect to each Licensed Product, CORPORATION shall pay to NYU:

(1) On the Effective Date, a non-refundable, non-creditable license issue fee of one hundred thousand dollars ($100,000);

(2) On the first anniversary of the Effective Date and on each subsequent anniversary thereof, a non-refundable, non-creditable license maintenance fee of twenty-five thousand dollars ($25,000); provided that such fee shall cease to be payable on the first anniversary of the Effective Date following the completion by CORPORATION of one full year of sales of Licensed Products in accordance with the terms of this Agreement;

(3) Upon the achievement of the following technical milestones with respect to any Licensed Product, the payments as indicated below:

Milestone	Payments

Upon the filing of an initial Investigational New Drug Application (or foreign equivalent thereof) for each new Licensed Product	$	250,000

Upon the filing of a Product License Application (or foreign equivalent thereof) for each Licensed Product	$	500,000

Upon the approval of a Product License Application (or foreign equivalent thereof) for each Licensed Product	$	1,000,000

provided that only one payment shall be made at each milestone for each separate Licensed Product notwithstanding the number of applications that may be filed and approved in various countries for each such separate Licensed Product.

(4) With respect to sales of Licensed Products a royalty of 3% of Total Net Sales during each calendar year.

(b) For the purpose of computing the royalties due to NYU hereunder, the year shall be divided into two parts ending on June 30 and December 31. Not later than one hundred thirty (130) days after each December and June in each Calendar Year during the term of the License, CORPORATION shall submit to NYU a full and detailed report of royalties or payments due NYU under the terms of this Agreement for the preceding half year (hereinafter “the Half-Year Report”), setting forth the Total Net Sales and Net Sales of each of CORPORATION, each Corporation Entity and each sublicensee of CORPORATION, any Corporation Entity or sublicensee permitted under Section 7(c)(iii) and/or lump sum payments and all other payments or consideration from sublicensees upon which such royalties are computed and including at least:

(i) the quantity of Licensed Products used, sold, transferred or otherwise disposed of on a country-by-country basis;

(ii) the selling price of each Licensed Product;

(iii) the deductions permitted under subsection l(i) hereof to arrive at Net Sales; and

iv) the royalty computations and subject of payment.

If no royalties or other payments are due, a statement shall be sent to NYU stating such fact. Payment of the full amount of any royalties or other payments due to NYU for the preceding half year shall accompany each Half-year Report on royalties and payments. CORPORATION shall keep for a period of at least six (6) years after the date of entry, full, accurate and compete books and records consistent with sound business and accounting practices and in such form and in such detail as to enable the determination of the amounts due to NYU from CORPORATION pursuant to the terms of this Agreement.

(c) Within ninety (90) days after the end of each Calendar Year, commencing on the Date of First Commercial Sale CORPORATION shall furnish NYU with a report (hereinafter the “Annual Report”), certified by an independent certified public accountant, relating to the royalties and other payments due to NYU pursuant to this Agreement in respect of the Calendar Year covered by such Annual Report and containing the same details as those specified in Section 8(b) above in respect of the Half-Year Report.

(d) On reasonable notice and during regular business hours, NYU or the authorized representative of NYU shall each have the right to inspect the books of accounts, records and other relevant documentation of CORPORATION or of Corporation Entity and the sublicensees of CORPORATION, Corporation Entity and any sublicensee insofar as they relate to the production, marketing and sale of the Licensed Products, in order to ascertain or verify the amount of royalties and other payments due to NYU hereunder, and the accuracy of the information provided to NYU in the aforementioned reports. NYU shall also have the right, not more than once each calendar year, to audit CORPORATION’s books and financial records for the purpose of verifying full

payment by CORPORATION of its royalty obligations hereunder. Such audits shall be conducted during normal business hours and shall not interfere with CORPORATION’s conduct of its business. Each such audit shall be at NYU’s expense, unless a particular audit reveals an underpayment of ten percent (10%) or more of the amount that should have been paid to NYU for the period audited, in which case CORPORATION shall bear the expense of such audit. In the event of any underpayment of royalties, CORPORATION shall promptly remit to NYU all amounts due.

(e) Beginning in the year in which CORPORATION completes one full year of sales of Licensed Products and continuing thereafter until this Agreement shall terminate or expire, CORPORATION agrees that if the total royalties paid to NYU under subsection 8 (a) (4) hereof do not amount to five hundred thousand dollars ($500,000) in each Calendar Year, CORPORATION will pay to NYU within one hundred thirty (130) days after the end of each such Calendar Year, as additional royalty, the difference between the amount of the total royalties paid to NYU by CORPORATION in such Calendar Year and five hundred thousand dollars ($500,000), failing which NYU shall have the right solely at its election, upon written notice to CORPORATION, to either terminate this Agreement for cause or to declare the License granted herein to CORPORATION to be non-exclusive.

(f) CORPORATION shall, and shall cause each Corporation Entity and sublicensee of CORPORATION, Corporation Entity or a sublicensee, to effect sales of Licensed Products to third parties on commercially reasonable, arm’s length terms.

9. Method of Payment.

(a) Royalties and other payments due to NYU hereunder shall be paid to NYU in United States dollars. Any such royalties on or other payments relating to transactions in a foreign currency shall be converted into United States dollars based on the closing buying rate of the Morgan Guaranty Trust Company of New York applicable to transactions under exchange regulations for the particular currency on the last business day of the accounting period for which such royalty or other payment is due.

(b) CORPORATION shall be responsible for payment to NYU of all royalties due on sale, transfer or disposition of Licensed Products by Corporation Entity or by the sublicensees of CORPORATION, Corporation Entity or a sublicensee.

10. Development and Commercialization.

(a) It shall be within the judgment of CORPORATION in what manner to proceed with the development of Licensed Products for commercialization; provided that CORPORATION shall use efforts, consistent with its sound and reasonable business practices and technical judgment, to effect introduction of Licensed Products into the commercial market. CORPORATION shall be deemed to satisfy the due diligence requirements of this Section 10(a) by: (i) preparing and filing an Investigational New Drug Application for a Licensed Product within three (3) years following the Effective Date; (ii) preparing and filing an application for marketing approval of a Licensed Product in the United States, Canada, or a country within the European Union within six (6) years following the Effective Date; and (iii) obtaining marketing approval of a Licensed Product in the United State, Canada, or a country within the European Union within eight (8) years following the Effective Date. Corporation’s Development Plan is annexed hereto as Appendix III.

(b) Provided that applicable laws, rules and regulations require that the performance of the tests, trials, studies and other activities required by subsection (a) above shall be carried out in accordance with FDA current Good Laboratory Practices, current Good Manufacturing Practices and current Good Clinical Practices and in a manner acceptable to the relevant health authorities, CORPORATION shall carry out such tests, trials, studies and other activities in accordance with such Practices and in a manner acceptable to the relevant health authorities. Furthermore, the Licensed Products shall be produced in accordance with FDA current Good Manufacturing Practice procedures in a facility which has been licensed by the FDA to manufacture such Licensed Products, provided that applicable laws, rules and regulations so require.

Products in each country in which approval has been received (as described in Section 10(a)) and to continue diligently thereafter to commercialize the Licensed Products in each such country in a manner consistent with sound and reasonable business practices.

(d) CORPORATION shall provide NYU with written reports on all activities and actions undertaken by CORPORATION to develop and commercialize the Licensed Products; such reports shall be made within sixty (60) days after each six (6) months of the duration of this Agreement, commencing six months after the Effective Date.

(e) If CORPORATION shall not satisfy the requirements set forth in Section 10(a) (unless such delay or failure is necessitated by FDA or other regulatory agencies or unless NYU and CORPORATION have mutually agreed to amend the Development Plan because of unforeseen circumstances) NYU shall notify CORPORATION in writing of CORPORATION’S failure and shall allow CORPORATION sixty (60) days to cure such failure. Upon receiving such notice, CORPORATION may elect to extend such diligence period and all subsequent diligence periods relating to such Licensed Product for one twelve (12) month period upon written certification to NYU that CORPORATION is continuing product development work with respect to a Licensed Product and payment to NYU of a fee equal to $100,000. After the expiration of any such twelve-month period, CORPORATION may elect to further extend its diligence obligations under Section 10(a) with respect to such Licensed Product for successive one-year periods upon (i) written notice to NYU, (ii) certification by CORPORATION that it is continuing to diligently develop such Licensed Product and, together with its sublicensee(s), will spend no less than three million dollars ($3,000,000) in each Calendar Year on development of such Product and (iii) payment to NYU prior to the beginning of such year of an amount equal to $500,000, representing minimum annual royalties with respect to such Product. CORPORATION’s failure to cure a delay in the diligence requirements to NYU’s reasonable satisfaction or elect and satisfy the requirements of one of the options set forth above within such 60-day period shall be a material breach of this Agreement.

11. Confidential Information.

(a) Except as otherwise provided in Section 11(b) and 11(c) below CORPORATION shall maintain any and all of the Research Technology in confidence and shall not release or disclose any tangible or intangible component thereof to any third party without first receiving the prior written consent of NYU to said release or disclosure; provided that CORPORATION may, without NYU’s consent, disclose Research Technology to sublicensees pursuant to Section 7, CORPORATION Entities and consultants engaged by CORPORATION, in each case pursuant to a confidentiality agreement requiring such party to maintain any and all of the Research Technology in confidence and not release or disclose any tangible or intangible component thereof to any third party without first receiving the prior written consent of NYU to said release or disclosure.

(b) The obligations of confidentiality set forth in Section 11(a) shall not apply to any component of the Research Technology which was part of the public domain prior to the Effective Date of this Agreement or which becomes a part of the public domain not due to some unauthorized act by or omission of CORPORATION after the effective date of this Agreement or which is disclosed to CORPORATION by a third party who has the right to make such disclosure.

(c) The provisions of Section 11(a) notwithstanding, CORPORATION may disclose the Research Technology to third parties who need to know the same in order to secure regulatory approval for the sale of Licensed Products.

12. Publication.

(a) Prior to submission for publication of a manuscript describing the results of any aspect of the NYU Research Project, NYU shall send CORPORATION a copy of the manuscript to be submitted by overnight mail or facsimile transmission, and shall allow CORPORATION thirty (30) days from the date of such mailing to determine whether the manuscript contains such subject matter for which patent protection should be sought prior to publication of such manuscript, for the purpose of protecting an invention made by the NYU Scientist during the course and within the term of the NYU Research Project.

Should CORPORATION believe the subject matter of the manuscript contains a patentable invention, then, prior to the expiration of such 30-day period from the mailing date of such manuscript to CORPORATION by NYU, CORPORATION shall give written notification to NYU of:

(i) its determination that such manuscript contains patentable subject matter for which patent protection should be sought; and

(ii) the countries in which such patent protection should be sought.

(b) After the expiration of such 30-day period from the date of mailing such manuscript to CORPORATION, unless NYU has received the written notice specified above from CORPORATION, NYU shall be free to submit such manuscript for publication to publish the disclosed research results in any manner consistent with academic, standards.

(c) Upon receipt of such written notice from CORPORATION, NYU will thereafter delay submission of the manuscript for an additional period of up to sixty (60) days to permit the preparation and filing in accordance with Section 6 hereof of a U.S. patent application by NYU on, the subject matter to be disclosed in such manuscript. After expiration of such 60-day period, or the filing of a patent application on each such invention, whichever shall occur first, NYU shall be free to submit the manuscript and to publish the disclosed results.

13. Liability and Indemnification.

(a) CORPORATION shall indemnify, defend and hold harmless NYU and its trustees, officers, medical and professional staff, employees, students and agents and their respective successors, heirs and assigns (the “Indemnitees”) , against any liability, damage, loss or expense (including reasonable attorneys’ fees and expenses of litigation) incurred by or imposed upon the Indemnitees or any one of them in connection with any claims, suits, actions, demands or judgments (i) arising out of the design, production, manufacture, sale, use in commerce or in human clinical trials, lease, or promotion by CORPORATION, a Corporation Entity or an agent of CORPORATION, or by a sublicensee of CORPORATION, a

Corporation Entity or a sublicensee, of any Licensed Product, process or service relating to, or developed pursuant to, this Agreement or (ii) arising out of any other activities to be carried out pursuant to this Agreement.

(b) With respect to an Indemnitee, CORPORATION’S indemnification under subsection (a)(i) of this Section 13 shall apply to any liability, damage, loss or expense whether or not it is attributable to the negligent activities of such Indemnitee, CORPORATION’s indemnification obligation under subsection (a)(ii) of this Section 13 shall not apply to any liability, damage, loss or expense to the extent that it is attributable to the negligent activities of any such Indemnitee.

(c) CORPORATION agrees, at its own expense, to provide attorneys reasonably acceptable to NYU to defend against any actions brought or filed against any Indemnitee with respect to the subject of indemnity to which such Indemnitee is entitled hereunder, whether or not such actions are rightfully brought.

14. Security for Idemnification.

(a) At such time as any Licensed Product, process or service relating to, or developed pursuant to, this Agreement is being commercially distributed or sold (other than for the purpose of obtaining regulatory approvals) by CORPORATION or by a sublicensee, Corporation Entity or agent of CORPORATION, CORPORATION shall at its sole cost and expense procure and maintain, or cause, a sublicensee, Corporation Entity or agent of CORPORATION to procure and maintain, policies of comprehensive general liability insurance in amounts not less than $5,000,000.00 per incident and $10,000,000.00 annual aggregate and naming the Indemnitees as additional insureds. Such comprehensive general liability insurance shall provide (i) product liability coverage and (ii) broad form contractual liability coverage for CORPORATION’s indemnification under Section 13 of this Agreement. If CORPORATION elects to self-insure all or part of the limits described above (including deductibles or retentions which are in excess of $250,000 annual aggregate) such self-insurance program must be acceptable to NYU.

The minimum amounts of insurance coverage required under this Section 14 shall not be construed to create a limit of CORPORATION’s liability with respect to its indemnification under Section 13 of this Agreement.

(b) CORPORATION shall provide NYU with written evidence of such insurance upon request of NYU. CORPORATION shall provide NYU with written noticed at least sixty (60) days prior to the cancellation, non-renewal or material change in such insurance; if CORPORATION does not obtain replacement insurance providing comparable coverage within such sixty (60) day period, NYU shall have the right to terminate this Agreement effective at the end of such sixty (60) day period without notice or any additional waiting periods.

(c) CORPORATION shall maintain such comprehensive general liability insurance beyond the expiration or termination of this Agreement during (i) the period that any product, process or service, relating to, or developed pursuant to, this Agreement is being commercially distributed or sold (other than for the purpose of obtaining regulatory approvals) by CORPORATION or by a sublicensee, Corporation Entity or agent of CORPORATION and (ii) a reasonable period after the period referred to in (c)(i) above which in no event shall be less than fifteen (15) years.

15. Expiry and Termination.

(a) Unless earlier terminated pursuant to this Section 15 or Section 8(e), hereof, this Agreement shall expire upon the expiration of the period of the License in all countries as set forth in Section 7(b) above.

(b) At any time prior to expiration of this Agreement, either party may terminate this Agreement forthwith for cause, as “cause” is described below, by giving written notice to the other party. Cause for termination by one party of this Agreement shall be deemed to exist if the other party materially breaches or defaults in the performance or observance of any of the provisions of this Agreement and such breach or default is not cured within sixty (60) days or, in the case of failure to pay

any amounts due hereunder, thirty (30) days (unless otherwise specified herein) after the giving of notice by the other party specifying such breach or default, or if either NYU or CORPORATION discontinues its business or becomes insolvent or bankrupt.

(c) In the event that CORPORATION determines, at any time following the end of the Research Period, to cease all development or commercialization of all Licensed Products covered by this Agreement, CORPORATION may terminate this Agreement by notifying NYU in writing thereof no less than one hundred twenty (120) days prior to the date of termination.

(d) Any amount payable hereunder by one of the parties to the other, which has not been paid by the date on which such payment is due, shall bear interest from such date until the date on which such payment is made, at the rate of two percent (2%) per annum in excess of the prime rate prevailing at the Citibank, N.A., in New York, during the period of arrears and such amount and the interest thereon may be set off against any amount due, whether in terms of this Agreement or otherwise, to the party in default by any non-defaulting party.

(e) Upon termination of this Agreement for any reason and prior to expiration as set forth in Section 15(a) hereof, all rights in and to the Research Technology shall revert to NYU, and CORPORATION shall not be entitled to make any further use whatsoever of the Research Technology.

(f) Termination of this Agreement shall not relieve either party of any obligation to the other party incurred prior to such termination.

(g) Sections 5, 11, 13, 14, 15 and 19 hereof shall survive and remain in full force and effect after any termination, cancellation or expiration of this Agreement.

16. Representations and Warranties by CORPORATION.

CORPORATION hereby represents and warrants to NYU as follows:

(1) CORPORATION is a corporation duly organized, validly existing and in good standing under the laws of the State of California. CORPORATION has been granted all requisite power and authority to carry

on its business and to own and operate its properties and assets. The execution, delivery and performance of this Agreement have been duly authorized by the Board of Directors of CORPORATION;

(2) There is no pending or, to CORPORATION’s knowledge, threatened litigation involving CORPORATION which would have any effect on this Agreement or on CORPORATION’s ability to perform its obligations hereunder;

(3) There is no indenture, contract, or agreement to which CORPORATION is a party or by which CORPORATION is bound which prohibits or would prohibit the execution and delivery by CORPORATION of this Agreement or the performance or observance by CORPORATION of any term or condition of this Agreement; and

(4) CORPORATION has received and reviewed copies of the GI Agreement (with the exception of those sections of the February 6, 1989 Agreement following section 4.1) and understands and accepts the terms thereof that it has received and reviewed.

17. Representations and Warranties by NYU.

NYU hereby represents and warrants to CORPORATION as follows:

(1) NYU is a corporation duly organized, validly existing and in good standing under the laws of the State of New York. NYU has been granted all requisite power and authority to carry on its business and to own and operate its properties and assets. The execution, delivery and performance of this Agreement have been duly authorized by the Board of Trustees of NYU.

(2) There is no pending or, to NYU’s knowledge, threatened litigation involving NYU which would have any effect on this Agreement or on NYU’s ability to perform its obligations hereunder; and

(3) There is no indenture, contract, or agreement to which NYU is a party or by which NYU is bound which prohibits or would prohibit the execution and delivery by NYU of this Agreement or the performance or observance by NYU of any term or condition of this Agreement.

(4) As of the Effective Date, NYU is not aware of any prior art that would invalidate any patent or patent claim, or that would prevent from issuing any patent application covered by the NYU Patents.

18. No Assignment.

Neither CORPORATION nor NYU shall have the right to assign, delegate or transfer at any time to any party, in whole or in part, any or all of the rights, duties and interest herein granted without first obtaining the written consent of the other to such assignment, which consent shall not be unreasonably withheld; provided that (i) CORPORATION may, without the prior consent of NYU, assign all of its rights and obligations under this Agreement to a third party in connection with a merger or corporate restructuring of CORPORATION or a sale of all or substantially all of its assets, following written notice thereof and execution by the third party with NYU of an agreement to be bound by the terms of this Agreement and (ii) NYU may assign its interest in this Agreement in whole or in part without the consent of CORPORATION if such assignee (A) is a parent, subsidiary, affiliate or related entity to NYU or (B) is an entity that acquires substantially all of the ownership interests or assets of NYU or New York University Medical Center (or any successor to the foregoing) or (C) is an entity formed by NYU or New York University Medical Center (or any successor to the foregoing) and other institutions, one of the purposes of which is to perform the activities for which NYU is obligated pursuant to this Agreement.

19. Use of Name.

Without the prior written consent of the other party, neither CORPORATION nor NYU shall use the name of the other party or any adaptation thereof or of any staff member, employee or student of the other party:

(i) in any product labeling, advertising, promotional or sales literature;

(ii) in connection with any public or private offering or in conjunction with any application for regulatory approval, unless disclosure is otherwise required by law, in which case either party may make factual statements concerning the Agreement or file copies of the Agreement after providing the other party with an opportunity

to comment and reasonable time within which to do so on such statement in draft.

Except as provided herein, neither NYU nor CORPORATION will issue public announcements about this Agreement or the status or existence of the NYU Research Project without prior written approval of the other party.

20. Miscellaneous.

(a) In carrying out this Agreement the parties shall comply with all local, state and federal laws and regulations including but not limited to, the provisions of Title 35 United States Code §200 et seq. and 15 CFR §368 et seq.

(b) If any provision of this Agreement is determined to be invalid or void, the remaining provisions shall remain in effect.

(c) This Agreement shall be deemed to have been made in the State of New York and shall be governed and interpreted in all respects under the laws of the State of New York.

(d) Any dispute arising under this Agreement shall be resolved in an action in the courts of New York State or the federal courts located in New York State, and the parties hereby consent to personal jurisdiction of such courts in any action.

(e) All payments or notices required or permitted to be given under this Agreement shall be given in writing and shall be effective when either personally delivered or deposited, postage prepaid, in the United States registered or certified mail, addressed as follows:

To NYU: New York University Medical Center
550 First Avenue
New York, NY 10016

Attention: Isaac T. Kohlberg
Vice President for
Industrial Liaison

and

Office of Legal Counsel
New York University
Bobst Library
70 Washington Square South
New York, NY 10012

Attention: Kathy L. Schulz
Associate General Counsel

To CORPORATION:

Collateral Therapeutics, Inc.
9360 Towne Centre Drive
San Diego, California 92121

Attention: Jack W. Reich, PhD
President and Chief
Executive Officer

or such other address or addresses as either party may hereafter specify by written notice to the other. Such notices and communications shall be deemed effective on the date of delivery or fourteen (14) days after having been sent by registered or certified mail, whichever is earlier.

(f) This Agreement (and the annexed Appendices) constitute the entire Agreement between the parties and no variation, modification or waiver of any of the terms or conditions hereof shall be deemed valid unless made in writing and signed by both parties hereto. This Agreement supersedes any and all prior agreements or understandings, whether oral or written, between CORPORATION and NYU.

(g) No waiver by either party of any non-performance or violation by the other party of any of the covenants, obligations or agreements of such other party hereunder shall be deemed to be a waiver of any subsequent violation or non-performance of the same or any other covenant, agreement or obligation, nor shall forbearance by any party be deemed to be a waiver by such party of its rights or remedies with respect to such violation or non-
performance.

(h) The descriptive headings contained in this Agreement are included for convenience and reference only and shall not be held to expand, modify or aid

in the interpretation, construction or meaning of this Agreement.

(i) It is not the intent of the parties to create a partnership or joint venture or to assume partnership responsibility or liability. The obligations of the parties shall be limited to those set out herein and such obligations shall be several and not joint.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date and year first above written.

	NEW YORK UNIVERSITY


	By:	/s/ Isaac T. Kohlberg
		Isaac T. Kohlberg

	Title:	Vice President for Industrial Liaison

	Date:	3/24/97


	Collateral Therapeutics, Inc.


	By:	/s/ Christopher J. Reinhard
		Christopher J. Reinhard

	Title	Chief Operating Officer

	Date:	3-21-97

Appendix I

Pre-existing NYU Patent and Patent Applications:

US patent 5,459,250 entitled “Truncated Mammalian Growth Factor DNA Sequence” and US patent applications Serial No. 08/056,482 filed May 3, 1993, Serial No. 08/478,485 filed June 7, 1995, Serial No. 08/478,486 filed June 7, 1995, Rule 60 continuing patent application filed December 31, 1996 and US divisional patent application filed February 13, 1997.

PCT filing /US90/06702 filed November 15, 1990
Serial No. 91900453 Europe filed June 12, 1992
Serial No, 2,068,871 Canada filed May 15, 1992
Serial No, 501065/1991 Japan filed August 19, 1992
Serial No, 68942/91 Australia filed November 15, 1990

APPENDIX I

PRE-EXISTING NYU PATENTS AND PATENT APPLICATIONS

U.S. APPLICATIONS	Serial No.	Filing Date	Status

Mammalian Growth Factor	07/062,925	6/16/87	ABANDONED

Mammalian Growth Factor	07/177,506	4/4/88	ABANDONED
(CIP of 07/062,925)

Mammalian Growth Factor	07/806,771	12/6/91	ABANDONED
(Cont. of 07/177,506)

Mammalian Growth Factor	07/901,705	6/22/92	ABANDONED
(CIP of 07/806,771)

Mammalian Growth Factor	08/056,482	5/3/93	Allowed - Issue Fee Paid 1/1/97
(Cont. of 07/806, 771)

Truncated Mammalian Growth Factor DNA Sequence (Cont. of 07/901,705)	08/187,780	1/25/94	Issued - U.S. Patent No. 5,459,250

Mammalian Growth Factor (Div. of 08/187,780)	08/478,485	6/7/95	Pending

Mammalian Growth Factor (Div. of 08/187,780)	08/478,486	6/7/95	Pending

Mammalian Growth Factor (Cont. of 08/056,482)	Not yet assigned	12/31/96	Pending

Mammalian Growth Factor (Div. of 08/056,482)	Not yet assigned	2/13/97	Pending

FOREIGN APPLICATIONS

The following patents and patent applications are based upon International Application No. PCT/US90/06702, filed November 15, 1990 and all are entitled “NON GLYCOSYLATED FGF-4 AND COMPOSITIONS CONTAINING THE SAME”.

Country	Application No.	Filing Date	Status

Australia	68942/91	11/15/90	Issued 2/24/94 Patent No. 642,947

Canada	2,068,871	11/15/90	Pending

EPC	91900453	11/15/90	Pending

Japan	501065/1991	11/15/90	Pending

APPENDIX II

RESEARCH PROGRAM

THIRD GENERATION FGF-4 MOLECULES

BACKGROUND

The FGFs family includes at least nine growth factors which show a variable degree of homology within a conserved “core” region. Although originally identified for their growth promoting activity in fibroblasts, FGFs affect the proliferation or differentiation of a variety of cells of mesenchymal and -neuroectodermal origin. Furthermore, many FGFs have been shown to be angiogenic in vivo and in vitro. The action of FGFs is mediated by their interaction with the high affinity FGF receptors that also constitute a gene family of Receptor Tyrosine Kinases (RTK). (Basilico and Moscatelli, 1992)

The receptors for the FGF family of growth factors are encoded by four distinct but homologous genes called FGFR-1/flg, FGFR-2/bek, FGFR-3 and FGFR-4 These membrane-spanning receptors have tyrosine kinase domains in their intracellular regions while their extracellular portion consists of three immunoglobulin (Ig)-like loops. Alternative splice variants of receptors 1, 2 and 3 have been isolated which have alternative amino acids in the second half of Ig-loop III which are encoded in three separate exons (IIIa, IIIb and IIIc). This region is important in ligand-binding and variants of each receptor type have different affinities for the various FGFs, In general, the receptors have overlapping ligand-binding specificities with each receptor being able to bind more than one ligand (Ornitz et al, 1996). The most restricted specificity is seen in the case of the KGF receptor - a IIIb-splice variant of FGFR-2, which binds only FGF-7 (KGF), while the IIIc form can bind FGF-1, FGF-2, FGF-4, FGF-5 and FGF-9 but not FGF-7. Binding of FGF to FGFR is modulated by the

interaction of the ligand with heparin or Heparin sulfate proteoglycans (HSPG) (Yayon et al, 1991). While the major effect of heparin binding on the FGF-FGFR interaction is not fully clarified, it is generally agreed that a sustained activation of FGFR signaling cannot be achieved in the absence of heparin or HSPG. Heparin binding does not appear to alter the conformation of FGFs, but is known to stabilize them and affect binding affinity. This could result from ligand oligomerization, which in turn influences sustained receptor dimerization (Roghani et al, 1994 Spivak-Kroizman et al, 1994). As mentioned above, binding of FGFs to their receptors exhibits only partial specificity. Thus the tissue distribution of FGFR expression, the presence and concentration of a specific ligand, and the relative affinity of the ligand -receptor interaction will all determine whether a specific FGF can activate a specific FGFR in a tissue or organ.

FGFs (and thus FGF signaling) have been implicated in a variety of physiological and pathological processes. As mentioned above, many FGFs are angiogenic, because they can interact with specific receptors (mainly FGFR-1) which are present on the surface of vascular endothelial cells. In addition to induce proliferation of fibroblasts and in some cases of epithelial cells, they are potent neurotrophic factors, as they increase the survival of neurons in culture, and may influence the proliferation and differentiation of neuronal progenitor cells (Temple and Qian, 1995). FGFs can also induce or inhibit differentiation in a variety of cell types (e.g. of myoblasts into myotubes). Furthermore, several FGFs have been identified as oncogenes, because their ectopic expression can create an autocrine growth loop in cells expressing the appropriate receptors. They can also function as tumor progression agents by inducing tumor vascularization (Basilico and Moscatelli, 1992).

In spite of an impressive number of publications, the roles that FGFs play vivo in tissue homeostasis, regeneration and development are only beginning to be understood. Several lines of evidence indicate that FGF signaling plays a major role in development. FGF signaling has been shown to be important for mesoderm induction in Xenopus (Amaya et al, 1991; Amaya et al, 1993). Developmental abnormalities are associated with knock-out of the FGF-4, FGF-8 and FGF-3 genes as well as of FGFR-1 and FGFR-2 (Mansour et al, 1993; Deng et al, 1994; Yamaguchi et al, 1994; Feldman et al, 1995) and targeting of dominant-negative receptor molecules to various organs in transgenic mice also results in a variety of defects in development (Werner et al, 1993; Peters et al, 1994; Mima et al, 1995; Campochiaro et al, 1996). Furthermore, a number of autosomally dominant genetic syndromes leading to bone malformations, including achondroplasia, Crouzon syndrome, thanatophoric dysplasia etc., have been linked to mutations in FGFR-1, 2 and 3 (Muenke and Schell, 1995). These mutations, which occur in different regions of the receptor molecules, appear to share the property of being “activating”/mutations, ie. to produce a receptor which signals in a ligand-independent manner (Webster and Donoghue, 1996; Galvin et al 1996; Naski et al, 1996; Li et al, 1997). However, the precise mechanism by which uncontrolled FGF signaling leads to skeletal and skull malformations has not yet been elucidated.

The situation in the adult is far less clear. While many FGFs have been shown to be angiogenic in a variety of experimental settings, and exert other important effects on tissue homeostatis (e.g. promote neuronal survival) (Basilico and Moscatelli, 1992; Baird, 1994), studies on mice in which specific FGF genes which are normally expressed in the adult have been inactivated by homologous recombination has produced somewhat surprising results. Knock-out of FGF-5 only produces a long-hair phenotype (Hebert et al, 1994), and no defect in wound healing

has been associated with the knock-out of FGF-7 (Guo et al, 1996). Knock-out of one of the FGF prototypes, FGF-2 (basic FGF) produces no overt phenotype, although subtle defects have begun to emerge (Ortega S. and Basilico, C., unpublished results). A likely explanation for these observations is that the FGF family of growth factors exhibits a high degree of redundancy, such that one FGF can easily fulfill the function of another (e.g. FGF-1 for FGF-2).

The answer to some of the questions raised above will undoubtedly derive from the many experiments of gene knock-out, transgenic expression etc: that are being carried out in our as well as in other laboratories, and will certainly suggest rational and perhaps unexpected indications for FGFs in clinical interventions. For present and future usages of FGFs in a clinical setting it will be however desirable to create new FGF molecules with broader spectrum of action and higher potency or stability. We plan to create such molecules, starting from FGF-4, which is the main subject of this research agreement FGF-4 is normally only expressed during development, where it plays an important role in post-implantation development and limb bud formation. It is a secreted protein which has already been shown to be a potent mitogen for a variety of cells and to be angiogenic in vivo.

SPECIFIC AIMS OF THE RESEARCH PROGRAM

As mentioned above, FGFs exhibit only partial specificity for binding to their receptors. For example, while at present FGF-1 appears to be the ligand capable of binding and activating with very high affinity all known FGF receptor isoforms (Ornitz et al, 1996), FGF-1 is quite unstable and may not be the best universal activator. Similarly, FGF-4 binds with high affinity to FGFR-2 and with somewhat lower affinity to FGFR-1, but does not bind with high affinity FGFR-3 and-4, FGF-2

binds equally well FGFR-1 and-2, but is a poor ligand for all other receptors. It would be desirable therefore for experiments of gene therapy or for any clinical use to develop FGF ligands which either bind only one of the receptors, or exhibit broad specificity together with high potency. Furthermore, in clinical application of molecules, such as FGF-4, immunogenicity could pose a problem. Thus, if possible, it would be also desirable to generate a new FGF ligand with low immunogenicity.

We already know from previous studies that subtle alterations in the ligand structure can result in higher affinity receptor binding. A case in point is the K140 truncated FGF-4 molecule (Bellosta et al, 1993), which binds FGFR-1 and FGFR-2 (but not FGFR-3 and -4) with higher affinity than FGF-4, and is consequently about 5 times more potent as a mitogen in cells expressing these receptors. Preliminary studies also indicate that K140 is more stable than FGF-4. We propose therefore to study the possibility of creating, starting from the FGF-4 molecule, and maintaining its secreting properties, new FGF ligands with increased binding efficiency to specific receptors, with an emphasis on receptors expressed in cardiac myocytes or heart endothelial cells. In addition we will try to create molecules which are more stable and possibly less immunogenic than the ones presently available. This investigation will require a preliminary study of exactly what type of receptors are expressed in the heart tissues. Although the available evidence suggests that it is mainly FGFR-1, this will have to be confirmed. Furthermore, the design of new FGF-4 molecules would obviously benefit from the knowledge of the tridimensional structure of FGF-4. We plan to collaborate with a group of x-ray crystallographers to obtain this information. The crystal structures of FGF-1 and FGF-2 are known, and some knowledge can also be derived from those.

The strategy that we plan to follow will consist of creating either N-terminally shorter FGF-4 molecules, similar to the K140 molecule previously described, chimeric molecules between FGF-4 and other FGFs, or specific mutations in conserved and non-conserved domains of FGF-4 (or K140). The receptor binding domain(s) of FGF molecules have not yet been precisely identified, possibly because they are conformational domains. It is however known that specific regions of these molecules contribute to receptor binding specificity (Seddon et al, 1995) and this knowledge will help in designing new FGF molecules. According to the most recently published data (Ornitz et al, 1996) FGF-4 is a highly potent activator of FGFR-1, FGFR-2 (the IIIc isoforms) and of FGFR-4. These data however are at some variance with our binding data, which indicate a binding affinity decreasing from FGFR-2c > FGFR-lc > FGFR4. While these discrepancies may be explained by a variety of factors, it is clear that FGF-4 binds to and activates poorly the FGFR-2b form. Since this receptor is preferentially expressed in cells of ectodermal origin (e.g. keratinocytes) it would be desirable to obtain an FGF-4 molecule capable of activating FGFR-2b as well as the other receptors. This will be the first objective of this program. Mutant FGF-molecules will be expressed in mammalian cells as secreted proteins, or in bacteria as mature proteins, and tested in vitro for receptor activation, mitogenicity, stability, etc. Cell lines expressing specific FGF receptors as well as a variety of endothelial cell lines are all available in our laboratory.

REFERENCES

Amaya, E., Musci, T.J. and Kirschner, M.W. (1991) Cell 66:257-270

Amaya E., Stein, P.A., Musci, T.J. and Kirschner, M.W. (1993) Development 118:477-487

Baird, A. (1994) Curr. Opin. Neurobiol. 4:78-86

Basilico, C. and Moscatelli, D. (1992) Adv. Cancer Res, 59:115-165

Bellosta, P., Talarico, D., Rogers, D. and Basilico, C. (1993) J of Cell Biol 121:705-713

Campochiaro, P.A., Chang, M., Ohsato, M., Vinores, S.A., Nie, Z., Hjelmeland, L., Mansukhani, A., Basilico, C. and Zack, D.J. (1996) J. Neurosci. 16:1679-1688

Deng, C.X., Wynshaw-Boris, A., Shen, M.M., Daugherty, C., Ornitz, D.M. and Leder, P. (1994) Genes & Dev. 8:3045-3057

Feldman, B., Poureymirous, W., Papaioannou, V.E., DeChiara, T.M. and Goldfarb, M.(1995) Science 267:246-248

Galvin, B.D., Hart, K.C., Meyer, A.N., Webster, M.K. and Donoghue, D.J. (1996) Proc. Natl. Acad. Sci. 93:7894-7899

Li, Y., Mangasarian, K., Mansukhani, A. and Basilico, C. (1997) Oncogene, in press

Mima, T., Ueno, H., Fischman, D.A., Williams, L.T. and Mikawa, T. (1995) Proc. Natl. Acad. Sci. 92:467-471

Muenke, M. and Schell V. (1995) TIGS 11:308-313

Naski, M.C., Wang, Q., Xu, J. and Ornitz, D.M. (1996) Nature Genetics 13:233-237

Ornitz, D.M., Xu, J., Colvin, J.S., McEwen, D.G., MacArthur, C.A., Coulier, F., Gao, G. and Goldfarb, M. (1996) J. Biol. Chem. 271:15292-15297

Peters, K., Werner, S., Liao, X., Wert, S., Whitsett, J. and Williams, L. (1994) EMBO J. 13:3296-3301

Roghani, M., Mansukhani, A., Dell’Era, P., Bellosta, P., Basilico, C., Rifkin, D.B. and Moscatelli, D. (1994) J. Biol. Chem. 269:3976-3984

Seddon, A.P., Aviezer, D., Li, L.Y., Bohlen, P. and Yayon, A. (1995) Biochemistry 34:731-736

Spivak-Kroizman, T., Lemmon, M.A., Dikic, I., Ladbury, J.E., Pinchasi, D, Huang, J., Jaye, M., Crumley, G., Schlessinger, J., and Lax L. (1994) Cell 79:1015-1024

Temple, S. and Qian, X. (1995) Neuron 15:249-252

Webster, M.K. and Donoghue, D.J. (1996) EMBOJ. 15:520-527

Werner, S., Weinberg, W., Liao, X., Peters, K.G., Blessing, M., Yuspa, S.H., Weiner, R.L. and Williams, L.T. (1993) EMBO J. 12:2635-2643

Yamaguchi, T.P., Kendraprasad, H., Henkemeyer, M and Rossant, J. (1994) Genes & Dev. 8:3032-3044

Appendix III. Collateral Therapeutics Development Plan

Anglogenesis: Myocardial Ischemia Draft Timeline

Activity

Duration

Start

Finish

1997

1998

1999

2000

2001

2002

2003

2004

Anglogensis: Myocardial Ischemia

344w

3/1/97

10/3/03

FGF-4 gene Identified

3/1/97

File IND

5/29/98

File PLA with FDA

9/27/02

PLA approval

10/3/03

Project: Anglogenesis

Date: 3/3/97

*	Task
**	Milestone
***	Critical
****	Progress
@	Summary

Anglogenesis: Peripheral Vascular Disease Draft Timeline

Activity

Duration

Start

Finish

1997

1998

1999

2000

2001

2002

2003

2004

Anglogensis: Peripheral Vascular Diseas

312w

1/1/97

12/24/03

Pre-clinicial research

98w

1/1/97

11/3/93

Recombinant adenovirus/In vitro testi

39w

1/1/97

9/30/97

In vivo studies(plg)

62w

2/26/97

6/5/98

Toxcology studies

28w

5/6/98

11/3/98

Pharmacodynamics study

39.2w

6/27/97

5/27/98

Formulation & stability studies

39w

10/1/97

6/30/98

File IND

11/3/98

Clinical

221w

10/1/97

12/25/01

Pilot product manufacturing

70w

10/1/97

2/2/99

Clinicial studies

143w

12/16/98

9/11/01

File market approval with FDA

12/25/01

Marketing

52W

12/26/01

12/24/02

Large scale production

52W

12/26/01

12/24/02

Product marketing/sales

12/24/02

Project: Peripheral Vascular Dise

Date: 3/13/97

*	Task
**	Milestone
****	Progress
@	Summary

FIRST AMENDMENT TO AGREEMENT

This First Amendment to Agreement (hereafter “Amendment”) is effective on April 28, 1998 by and between COLLATERAL THERAPEUTICS INC., a corporation organized and existing under the laws of California, having a place of business at 9360 Town Centre Drive, San Diego, California 92121 (hereafter “CORPORATION”); and NEW YORK UNIVERSITY, a corporation organized and existing under the laws of the State of New York, having a place of business at 70 Washington Square South, New York, New York 10012 (hereafter “NYU”),

WITNESSETH:

WHEREAS, CORPORATION and NYU entered into a certain agreement made and effective as of March 24, 1997 (the “Agreement”), pursuant to which, inter alia. CORPORATION undertook to sponsor certain research at NYU and NYU granted to CORPORATION a license to certain Research Technology (as such term is defined in the Agreement); and

WHEREAS, CORPORATION and NYU desire to expand the scope of the research under the terms and conditions of the Agreement as specified herein; and

WHEREAS, NYU desires to perform such research; and

WHEREAS, CORPORATION desires to provide additional research funds to NYU for the performance of such research by NYU;

NOW, THEREFORE, in consideration of the premises and the covenants, conditions and promises set forth below, the parties hereto hereby agree as follows:

1. Except as expressly provided for herein, all terms and conditions of the Agreement shall remain in full force and effect.

2. Terms which are defined in the Agreement shall have the same meanings when used in this Amendment, unless a different definition is given herein.

3. Section 1(m) of the Agreement shall be, and hereby is, amended in its entirety so that, as amended, said Section 1(m) shall read as follows:

1(m) “NYU Research Project” shall mean the investigations at NYU during the Research Period into the Field under the supervision of the NYU Scientist in accordance with the research program, described in annexed Appendix II and in annexed Exhibit A to the Amendment, each of which forms an integral part hereof.

4. Section 4(a) of the Agreement shall be, and hereby is, amended in its entirety so that, as amended, said Section 4(A) shall read as follows:

4(a) As compensation to NYU for work to be performed on the NYU Research Project during the Research Period, subject to any earlier termination of the Research Project pursuant to Section 3(a) hereof, CORPORATION will pay NYU the total sum of $675,000, payable in six successive semiannual installments, commencing on the Effective Date; the first three installments shall be in the amount of $100,000 each; the fourth installment shall be in the amount of $175,000; the fifth and sixth installments shall be in the amount of $100,000 each.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as follows:

NEW YORK UNIVERSITY				COLLATERAL THERAPEUTICS, INC,

By:	/s/ [ILLEGIBLE]			By:	/s/ [ILLEGIBLE]

Title:			Vice President for Industrial Liaison	Title:			COO & CFO

Date		5.1.98		Date:		April 29, 1998

EXHIBIT A

Specific Aims

Our plan is to construct a mammalian expression vector expressing a truncated form of FGF-4 (K140, Bellosta, et al, J Cell. Biol. 121:705-713, 1993). This truncated form of FGF-4 was shown to result from the spontaneous cleavage of unglycosylated FGF-4 molecules at position 66 of the FGF-4 precursor protein, and was shown to have higher biological activity and receptor binding affinity than the wild-type, mature FGF-4. Thus such a molecule should have desirable properties in experiments aimed at inducing collateral circulation in the myocardium of patients with coronary stenosis.

Research Plan

We have plasmids expressing the unglycosylated mutant of FGF-4, whose protein product is cleaved in tissue culture by a cellular protease to produce K140. However, since this protease is unknown, there is no guarantee that it may be expressed in all tissues and operate efficiently in vivo. Therefore we will construct a plasmid which should only produce directly the K140 protein. The strategy to produce this plasmid will be as follows: We will create two deletions (see diagram) linking the FGF-4 signal peptide to the N-terminus of K140, that should produce three possible peptides differing only in the number of Alanines (1, 2 or 3) at their N-terminus. The FGF-4 signal peptide naturally causes cleavage in two positions in the FGF-4 precursor protein, downstream of A30 or A31 and presumably this type of cleavage will be preserved in the internally deleted molecule, which should produce mature forms of 140 amino acids (K140, 2A at the N-terminus) 141 (3A at the N-terminus), or 139 (1A at the N-terminus). We do not know whether the presence of an additional Alanine or the lack of one will alter the properties of K140, although that seems unlikely, and that is the reason why it may be useful to have two constructs. The construction of these plasmids although apparently simple is going to be laborious because of the high GC content of the 5’ of the FGF-4 cDNA. The method which will be used is the following:

pGemKS3A (encoding the wild type FGF-4) will be linearized with Pvul and subjected to PCR. Primers used will be GGG GGC GCC GCC GCG GCC GTC CAG AGC GGC GCC GGC (spanning the deletion from nt 342 to 441) and SP6. The PCR product will be cloned in the TA vector (Invitrogen) and used as a template for two rounds of PCRs with oligos extending the 5’ end till bp 258 of the FGF-4 cDNA (including a Eco47III site at 281 bp). These two rounds of PCRs will be performed by preheating the samples at 94° C for 10 minutes and PCR performed as before except that the annealing temperature will be 65° C and include 10% DMSO. For each round the PCR product will be gel purified. The product will be cloned into TA vector and sequenced to verify the deletion junction. The presence of the Eco47III site will be verified by restriction digestion. This site will be used to insert the Eco47III fragment from pGEMKS3B containing the 281 bp 5’ end fragment of the FGF-4 cDNA. All PCR generated mutations downstream of the deletion will be eliminated by cloning the NgoM1 fragment containing the deletion into the PGEMKS3B vector cut with NgOM1 in order to reconstitute the deletion-containing

full length coding sequence. Finally, the EcoRI fragment containing the full length cDNA encoding the internally deleted FGF-4 will be isolated, and subcloned into p91023B mammalian expression vector.

Once the deleted molecules are constructed, they will be inserted into a mammalian expression vector and tested for expression, production and secretion of the correct protein, and biological activity of the protein produced. This will be tested in a mitogenic assay comparing it to known amounts of recombinant FGF-4, and by testing the ability of the plasmids encoding the deleted molecule to transform NIH3T3 cells. We will also determine the stability of the protein produced upon thermal inactivation. If these assays prove satisfactory, the mutated cDNA will be available for insertion into Adenovirus vectors and testing in the pig model of coronary stenosis.

1	MSGPGTAAVALLPAVLLALLAPWAGRGGAAAPTAPNGTLEAELERRWESL	50

51	VALSLARLPVAAQPKE K140AAVQSGAGDYLLGIKRLRRLYCNVGIGFHLQALP	100

101	DGRIGGAHADTRDSLLELSPVERGVVSIFGVASRFFVAMSSKGKLYGSPF	150

151	FTDECTFKEILLPNNYNAYESYKYPGMFUALSKNGKTKKGNRVSPTMKVT	200

201	HFLPRL	206

1) Amino acid sequence of the human K-FGF precursor protein. The hydrophobic signal peptide is underlined. The arrows indicate the sites of cleavage of the mature, secreted form of K-FGF. Asterisks indicate the glycosylation signal. The bracket indicates the sites of cleavage which generates the 15-kD K140 protein.

MSGPGTAAVALLPAVLLALLAPWAGRGGAAAAAVQSGAGD

MSGPGTAAVALLPAVLLALLAPWAGRGGAAAAVQSGAGD

2) Sequence encoded in the deleted molecules. The arrows indicate the expected sites of cleavage downstream of the signal peptide.

SECOND AMENDMENT TO AGREEMENT

This Second Amendment to Agreement (hereafter “Second Amendment”) is effective on March 24, 2000 by and between COLLATERAL THERAPEUTICS INC., a corporation organized and existing under the laws of Delaware, having a place of business at 11622 El Camino Real, San Diego, California 92130 (hereafter “CORPORATION”); and NEW YORK UNIVERSITY, a corporation organized and existing under the laws of the State of New York, having a place of business at 70 Washington Square South, New York, New York 10012 (hereafter “NYU”).

WITNESSETH:

WHEREAS, CORPORATION and NYU entered into a certain agreement made and effective as of March 24, 1997 and First Amendment to Agreement effective as of April 28, 1998 (together the “Agreement”), pursuant to which, inter alia, CORPORATION undertook to sponsor certain research at NYU and NYU granted to CORPORATION a license to certain Research Technology (as such term is defined in the Agreement); and

WHEREAS, CORPORATION and NYU desire to extend the term of the research period and expand the scope of the research under the terms and conditions of the Agreement as specified herein; and

WHEREAS, NYU desires to perform such research; and

WHEREAS, CORPORATION desires to provide additional research funds to NYU for the performance of such research by NYU;

NOW, THEREFORE, in consideration of the premises and the covenants, conditions and promises set forth below, the parties hereto hereby agree as follows:

1. Except as expressly provided for herein, all terms and conditions of the Agreement shall remain in full force and effect.

2. Terms which are defined in the Agreement shall have the same meanings when used in this Second Amendment, unless a different definition is given herein.

3. Section 1(1) of the Agreement shall be, and hereby is, amended in its entirety so that, as amended, said Section 1(1) shall read as follows:

1(1) “Research Period” shall mean the six-year period commencing on the Effective Date hereof and any extension thereof as to which NYU and CORPORATION shall mutually agree in writing.

4. Section 1(m) of the Agreement shall be, and hereby is, amended in its entirety so that, as amended, said Section 1(m) shall read as follows:

1(m) “NYU Research Project” shall mean the investigations at NYU during the Research Period into the Field under the supervision of the NYU Scientist in accordance with the research program, described in annexed Appendix II, in annexed Exhibit A to the First Amendment, and in annexed Exhibit A to the Second Amendment each of which forms an integral part hereof.

5. Section 4(a) of the Agreement shall be, and hereby is, amended in its entirety so that, as amended, said Section 4(A) shall read as follows:

4(a) As compensation to NYU for work performed on the NYU Research Project during the Research Period, subject to any earlier termination of the Research Project pursuant to Section 3(a) hereof, CORPORATION will pay NYU (i) the sum of $675,000, payable in six successive semiannual installments, commencing on the Effective Date; the first three installments shall be in the amount of $100,000 each; the fourth installment shall be in the amount of $175,000; the fifth and sixth installments shall be in the amount of $100,000 each; NYU acknowledges that as of September 28, 1999, CORPORATION has paid this amount in full; and (ii) the sum of $396,000 payable in six, equal, successive semiannual installments, the first of which shall be due within fifteen (15) days after the signature of this Second Amendment by the last party to sign (the “Execution Date”).

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as follows:

NEW YORK UNIVERSITY			COLLATERAL THERAPEUTICS, INC.

By:	/s/ [ILLEGIBLE]		By:	/s/ [ILLEGIBLE]
	Vice Dean for Industrial Liaison			President and Chief Operating Officer
	and Research Administration

Date:		7/24/00	Date:		07-05-00

EXHIBIT A

to the Second Amendment

Structural and biological analysis of the interaction of FGF4 with FGF receptors

INTRODUCTION

The family of fibroblast growth factors (FGF) is one of the largest family of growth factors with a multiplicity of biological functions which impact on a variety of biological processes. FGFs can affect the proliferation and differentiation of a variety of cells of mesenchymal and neuro-ectodermal origin, and it has become evident that, clearly the most important role of FGF signaling is during development (1,2).

FGF signaling has been shown to play a major role in a number of developmental processes, including embryonic mesoderm induction and post-implantation blastocyst development. FGF signaling is also essential for the development of limb and lungs and unregulated FGF signaling leads to a variety of human bone morphogenic disorders, including dwarfism and craniosynostosis syndromes. FGFs are also potent angiogenic factors; the sprouting of new blood vessels from a pre-existing one is an essential physiological process in development, but also plays a major role in human diseases, such as diabetic retinopathy, arteriosclerosis, and cancer (2).

The FGF family includes at present twenty-two members including four (FGF11- 14, FHF) which may not be bonafide FGFs. Ten (FGF1-10) are best characterized (1,2). FGFs action is mediated by their interaction with high affinity receptors. FGF receptors (FGFR) also constitute a family of four related, membrane spanning tyrosine kinases, with a conserved structure, including three Ig-like loops in the extracellular domain, and a split cytoplasmic tyrosine kinase domain (1-3). The FGFR genes produce m-RNAs which can undergo alternative splicing to produce different FGFR isoforms. Splicing alternatives which result in modification of the sequence of the third Ig loop are biologically important, as they can alter the binding specificity of the receptor. Binding

of FGFs to their receptors shows only partial and overlapping specificity, such that one receptor can bind multiple ligands with variable affinity (3,4).

This complex system of ligand-receptor specificity is also characterized by the fact that FGFs need to interact with the so called low-affinity receptors, which consist of cell surface Heparan sulfate proteoglycans (HSPG) and can be replaced by soluble heparin, in order to activate FGFRs (5). Receptor activation requires interaction of FGFs with HSPG or heparin. These molecules simultaneously interact with the receptor forming a trimeric receptor-heparin-ligand structure (6,7). Heparin oligosaccharides also exhibit considerable specificity in ligand/receptor interaction (8). Thus the interaction of FGFs with their receptors is regulated at a variety of levels, including growth factor expression, specificity of receptor binding and interaction with HSPG.

FGFs range in molecular weight from 18 to 29 kDa and show 13-71% aminoacid identity. All members share a conserved, centrally located, “core” region, of about 100 aminoacids, common to all FGFs (1,2). Outside of this “core” structure, their sequences diverge considerably.

The FGFR family includes four identified genes and numerous subtypes of alternative spliced isoforms, particularly within the FGFR1 and FGFR2 genes (3,9). FGFRs have an extracellular domain which binds the ligand, a transmembrane segment and a cytoplasmic tyrosine kinase domain, which can be activated by phosphorylation. The extracellular portion comprises three Ig-like domains, Dl, D2, and D3, with an acidic stretch of approximately 30 residues, between Dl and D2. Isoforms generated by alternative splicing include receptors that lack Ig-like domain D1 or both D1 and the acidic box, as well as variants having two alternative sequences, called IIIb and IIIc for the C-terminal half of the third Ig-like D3 domain (3,9). As alluded to above, these latter splice forms alter ligand specificity, in agreement with the finding that D3 is an

important site for ligand binding (see below). Furthermore, the IIIc forms of FGFR1 and FGFR2 are expressed exclusively in mesenchymally derived cells, while the IIIb forms are expressed in cells of epithelial origin. Members of the FGFs family bind FGFRs with varying affinities. FGF1 binds with high affinity to the four receptors and to all the known isoforms. FGF4 binds FGFR1 and FGFR2 with high affinity, and FGFR3 and FGFR4 with a lower affinity. FGF3, FGF7 and FGF10 only interact with the IIIb splice variant form of FGFR2, (also known as the KGFR)(4).

Experiments of gene knock-out in mice have revealed considerable redundancy in the FGF gene family, perhaps not surprising since multiple FGFs can activate the same receptor (2). This could be one of the reasons why so far an angiogenic phenotype has not been demonstrated in any single FGF knock-out mice. Nevertheless, a considerable body of evidence indicates that most of the FGFs are potent angiogenic agents in a variety of experimental animal models. The most important FGFs for angiogenesis are probably those which can interact with FGFR1 and FGFR2 (IIIc), which are the major FGFRs expressed by endothelial cells, FGF4, on which we have concentrated most of our studies, is angiogenic in mice, rabbit and pig hearts.

Recently the crystal structures of FGF2 bound to the extracellular domain of FGFR1, and that of FGF1 bound to FGFR2 have been determined (6,7). The crystal structure of the extracellular ligand binding domain of FGFRl (D2 and D3) in complex with FGF2 at 2.8 A resolution shows two FGF2 molecules (residues 16-144), two D2-3 molecules (residues 149-359) in 1:1 complex, and four sulfate ions (6). The structure of the FGF1/FGFR2 complex is very similar (7). The dimeric structure is stabilized by direct receptor-receptor interaction (D2-D2) and interaction between FGF2 and D2 of the other receptor in the dimer. The two FGF2 molecules are on opposite sides of the dimer and are not in contact. A positively charged canyon is formed between the two

D2 domains of FGFR, extending onto the heparin binding sites of the ligand. This canyon is likely to make-up the heparin binding site of the receptor. A ternary structure is formed, probably occurring first by binding of FGF to FGFR in a 1:1 complex, which then associate into signaling dimers in the presence of heparin (6). Thus the specificity of FGF interaction with FGFR depends on a variety of factors: 1) Binding of the ligand to the D2 and D3 domains and intervening sequences. 2) Binding of the ligand as well as of the receptor to heparin or specific heparin sulfate proteoglycans. 3) Interaction between the D2 domains of dimerizing receptor molecules. Modification of any of these parameters would alter the ability of each ligand to interact with specific FGER, suggesting that a structural and mutational analysis of the precise contact points between ligand and receptor, and/or ligand and heparin could be fruitful for the creation of novel FGF molecules.

SPECIFIC AIMS

1. To obtain the crystal structure of FGF4 bound to its highest affinity receptor, FGFR2.

2) To identify the FGF4 residues that contact FGFR and mediate its activation.

3) To utilize the knowledge generated by the studies described above to create FGF4 mutants with novel or broader affinity to FGFR and possibly FGFR antagonists.

PRELIMINARY REULTS

In order to obtain a detailed insight into the three-dimensional structure of FGF4, we determined its crystal structure at 2.8A resolution (Figure 1). For these studies we used a cDNA encoding only a truncated FGF4 molecule missing the first 43 N-terminal

aminoacids of the mature protein. The protein expressed and purified from bacteria has full biological activity, in line with the observation that a truncated FGF4 molecule lacking the 35 N-terminal residues (32-67; residues 1-31 encode for the signal peptide) retains potent biological activity and displays higher receptor binding affinity compared to that of full length FGF4 (10). Based on the crystal structure, we predicted that residues F129, FF135/136, FF15Q/151, Y172, that are exposed to the surface of the molecule, could be relevant for FGF4 receptor binding. However, when FGF4 molecules in which these residues had been mutated were tested for biological activity, some of these predictions turned out not to be correct, since mutation of these residues did not affect the biological activity of FGF4 (see Table 1). Because of the similarity between FGF2 and FGF4, we thus superimposed the structure of FGF4 on that of FGF2 in complex with FGFR1 (Figures 2 and 3). By analyzing the data of the complex, we identified residues Y87, Y166, E159, L203, R205 as possible primary interacting sites between FGF4 and D2 and D3 of FGFR1. Some of these predictions are in agreement with previous studies on the importance of these FGF residues in receptor binding. Replacement of Y24 and Y103 by alanine in FGF2, which correspond to residues 87 and166 in FGF4, resulted in a dramatic decrease in FGFR1 binding. Substitution of E96 with alanine in FGF2, corresponding to E196 in FGF4, also results in more than 100 fold reduction in receptor binding (11).

We have created a series of FGF4 mutants by site directed mutagenesis (Table 1). We have expressed and produced the mutants in a mammalian system using COS cells and subsequently analyzed the biological activity of these mutants in a DNA synthesis assay, using NIH3T3 cells (Figure 4). The results of these experiments are summarized in Table 1. Unfortunately, many of the mutants constructed appear not to be efficiently produced in COS cells. Thus we plan to express these mutants in bacteria, purify these

factors and determine their ability to bind and activate FGF receptors in comparison to that of wild type FGF4 (see below). It should also be mentioned that the use of bacterially produced, recombinant FGF4 molecules will allow us much more precise determination of their receptor affinity, interaction with heparin, etc. than is possible using supernatants from transfected COS cells.

AIM 1. Crystal structure of FGF4 bound to FGFR2.

As discussed above, a number of predictions on the FGF4 domains which interact and play a role in the activation of FGFR were made on the basis of the crystal structure of this growth factor in isolation, but these predictions are not always correct, as clearly conformational changes occur during receptor-ligand interaction or interaction of the ligand/receptor with heparin. The superimposition of FGF4 on the known structure of FGF2 bound to FGFR1 allows more accurate predictions, but still suffers from the problem of relying on the conservation of FGF structure and is unlikely to highlight unique features of FGF4 or of its interaction with FGFR (Figures 2 and 3). We plan therefore to obtain the crystal structure of FGF4 bound to FGFR2, its highest affinity receptor. We will use the FGF4 construct described above (missing the 43 N-terminal aminoacids) because it has full biological activity and easier to express and purify to high concentration. Similarly we will use FGFR2 molecules containing only D2 and D3 as previously used for the structure of the FGF2/FGFR1 complex. Proteins will be expressed in E. Coli and we will follow the strategy described in ref. (6).

Another interesting aspect of the interaction between FGF and FGFR is the role and sites of interaction of heparin with the receptor and the ligand (Figure 3). The two structures recently described were obtained in the absence of heparin. Thus the heparin sites of interaction were inferred from the position of sulfate ions on the structure. It

should be very interesting to verify whether these hypotheses are correct, and whether they also apply to FGF4, and therefore we will attempt to obtain the structure of FGF4/FGFR2 complex in the presence or absence of specific heparin oligosaccharides (classical heparin preparations are too heterogeneous for crystallographic studies). This will be important for future studies and possible modification of the heparin binding sites on the ligand or the receptor.

AIM 2. Identification of residues that are relevant for the binding of FGF4 with its high affinity receptors.

Since the mutants, FF150/151GG, FF135/136AA, Y166A and N167A are not produced and/or secreted in COS cells (see Table 1), we have decided to change our strategy and to produce all mutants in bacteria. As described under Preliminary Results we superimposed the structure of FGF4 with that of FGF2 in complex with D2 and D3 of FGFR1 (Figure 2). Based on the model that was generated, we have identified residues Y87, Y166, E159, L203, R205 of the FGF4 as likely to be directly involved in high affinity receptor binding. By molecular dynamics calculations however, we have determined that the residues F129, F136 and F151 could also be relevant for the stability of the binding of FGF4 with the receptor.

Switch aminoacid mutagenesis has and will be carried out following the Quick Change TM site directed mutagenesis kit (Strategene) using the pET15b-FGF4 vector as a template. This plasmid was used for the production of FGF4 used for the crystal structure. In the pET15b vector the FGF4 cDNA was cloned under the LacZ T7 inducible promoter (Novagene). The presence of the mutation in the cDNA will be analyzed by sequencing and the production and purification of the mutant protein will be done according to the protocol described in Plotnikov et al (6), The biological activity

of the purified proteins will be tested in a DNA synthesis assay using NIH3T3 cells and compared to that of wild-type FGF4. Studies on the affinity of the FGF4 mutants with its high receptors will be performed by Scatchard analysis on a CHO cell line expressing FGFR2. Briefly, the purified protein will be iodinated using the 125-1 labeled Bolton-Hunter reagent. Scatchard assays will be performed as described in (10). Relatives dissociation constants (Kd) of the mutants will be calculated and compared with that of wt-FGF4. These results will be confirmed also by competition experiments for binding to FGFR2, using iodinated FGF4 or FGF2 as the ligand (10). As previously described, FGF2 binds FGFR2 with the same high affinity as FGF4 (4). In order to study if binding of the FGF4 mutants with its high affinity receptor results in weaker receptor activation, we will also analyze the ability of the mutants to phosphorylate FGFRs. These experiments will be performed by conventional receptor phosphorylation assays using CHO cells expressing FGFR2. Briefly, CHO-FGFR2 cells will be serum starved for 24 hours and treated for 10 minutes with 100 ng of either wt FGF4 or the mutants. Cells will be lysed in 1% Triton buffer and subjected to immunoprecipitation using anti-FGFR2 antiserum. Immunoprecipitates will be resolved in SDS-PAGE and proteins blotted on a nitrocellulose membrane. Immunoblotting will be performed using anti phosphoytyrosine and anti FGFR2 antisera.

While these experiments are in progress, we should be able to obtain the crystal structure of FGF4 bound to FGFR2, As discussed above, this is likely to provide more precise information on the FGF4/FGFR2 interaction, that should complement, extend or correct some of the predictions made on the basis of superimposing FGF4 on the FGF2/FGFR1 complex. In particular, the results of the experiments in the presence of heparin should be very useful. Thus, similarly to what is described above, we will

generate new mutants of FGF4 and test their ability to interact with the receptor, and with heparin.

Taken together, these experiments should provide a comprehensive description of the mechanisms determining the interaction of FGF4 with its receptor and suggest strategies to design mutated forms of FGF4 with increased, decreased, or broader binding of FGFRs.

AIM 3. Creation of FGF4 mutants with novel or broader binding specificity to FGFR.

Structure-based site directed mutagenesis in FGFs identified two putative receptor binding sites: a primary site that contributes to most of the high affinity interaction of FGFs with FGFRs, and a secondary site that exhibits low receptor binding affinity but is required for receptor activation. It was suggested that the secondary binding site may confer to FGFs the ability to bind the FGFRs with different affinities (12). FGF7 is ideal for this type of study since it only recognizes the FGFR2bIII isoform, or KGFR (13). Since FGF4 does not bind KGFR with appreciable affinity (4), it is possible to study if substitution of particular residues of the FGF7 molecule into the FGF4 increases binding of the new chimeric FGF4/FGF7 for KGFR. Based on the model that was generated with the crystal structure of FGF7 (14), we believe that the b4/b5 loop from aminoacid 103 to 107 (RTVAV) of FGF7 is probably relevant for its biological activity and for its receptor binding affinity to KGFR. Based on subsequent studies of this and other models, we also predict that the substitution of A106 of FGF7 with valine would increase the probability of binding of the new chimera to KGFR. We will substitute the residues SRVER from aminoacid 119 to 123 of FGF4 with the aminoacid RTVVV from aminoacid 103 to 107 of FGF7.

Switch aminoacids mutagenesis will be carried out by site directed mutagenesis as described above, using the pET15b-FGF4 vector as a template. The protein will be expressed in bacteria and purified as described (6). The chimeric FGF4/FGF7 will be tested for its ability to bind and activate KGFR. We will initially express the KGFR in CHO-DG44 cells which do not express any of the member of the FGFR family (1). The plasmid encoding for the KGFR cDNA will be transfected into the CHO cells together with an excess of a plasmid encoding for the resistance for Neomycin. Positive clones will be selected and expression of the receptor will be tested in western blot analysis using an antibody that recognizes the KGFR. Affinity of the chimera FGF4/FGF7 for KGFR will be calculated and compared with that of wt-FGF7. Schatchard analysis and competition experiments will be performed using CHO expressing KGFR or FGFR2, for which FGF4 has high affinity (4). We will also analyze the ability of the chimeric FGF4/FGF7 ligand to activate the KGFR receptor in phosphorylation experiments. Briefly, CHO cells expressing either the KGFR or the FGFR2 will be serum starved for 24 hours and increasing concentration of FGF4/FGF7 will be added to the cells for 10 minutes. KGFR will be immunoprecipitated from total cell lysates and its level of phosphorylation will be analyzed by immunoblot experiments using antiphosphotyrosine antiserum. As a positive control we will use wt-FGF4 and wt-FGF7 for FGFR2 and KGFR phosphorylation.

While these studies will provide useful information on the possibility of designing new FGF4 molecules, it is not clear whether the chimeric FGF4/FGF7 molecule will have practical uses. We will therefore construct new mutants of FGF4 based on the structure of FGF4 complexed with FGFR2, compared to that of the FGFR2/FGFR1 complex. It is very difficult at this moment to indicate which mutations we will perform; as the choice will dependent on identifying the critical sites of FGF4

interaction with its receptor and heparin. The goal would be that of creating FGF4 molecules with tighter “fit” for the receptors, or perhaps capable of a more stable association. In the long run, although it is again difficult to outline a precise strategy at the moment, we would like to create FGFR antagonists, i.e. ligands which will bind FGFR with high affinity, but will not activate signal transduction. These ligands would therefore compete with FGF4 (or other FGFs) and inhibit receptor activation. Such ligands could in principle be truncated FGF polypeptides which only interact with the D2 or D3 domain of the receptor or molecules which are incapable of binding the heparin “bridge” spanning the heparin binding canyon of the receptor.

REFERENCES

1) Basilico C., and Moscatelli, D. 1992. The FGF family of growth factors and oncogenes. Adv. Cancer Res. 59:115-165.

2) Goldfarb, M. 1996. Functions of fibroblast growth factors in vertebrate development. Cytokine & Growth Rev. 7:311-325

3) Johnson, D.E., and Williams, L.T. 1993. Structural and functional diversity in the FGF receptor multigene family. Adv. Cancer Res. 60:1-41.

4) Ornitz, D.M., Xu, J., Colvin, J.S., McEwen, D.G., MacArthur, C.A., Coulier, F., Gao, G., and Goldfarb, M. 1996. Receptor specificity of the fibroblast growth factor family. J. Biol. Chem. 271:15292-15297.

5) Yayon, A., Klagsbrun, M., Esko, J.D., Leder, P., and Ornitz, D.M. 1991. Cell surface, heparin-like molecules are required for binding of basic fibroblast growth factor to its high affinity receptor. Cell 64:841-848.

6) Plotnikov, A.N., Schlessinger, J., Hubbard, S.R., and Mohammadi, M. 1999. Structural basis for FGF receptor dimerization and activation. Cell 98:641-650.

7) Stauber, D.J., DiGabriele, A.D., and Hendrickson, W.A. 2000. Structural interactions of fibroblast growth factor receptor with its ligands. Proc. Natl. Acad. Sci. USA 97:49-54.

8) Ornitz, D.M. 20000. FGFs, heparan sulfate and FGFRs: complex interactions essential for development. Bioessays 22:108-112.

9) McKeehan, W.L., Wang, F., and Kan, M. 1998. The heparan sulfate-fibroblast growth factor family: diversity of structure and function. Prog. Nucleic Acid Res. Mol. Biol. 59:135-176.

10) Bellosta, P., Talarico, D., Rogers, D., and Basilico, C. 1993. Cleavage of K-FGF produces a truncated molecule with increased biological activity and receptor binding affinity. J Cell Biol. 121:705-713.

11) Zhu, H., Ramnarayan, K. Anchin, J., Miao, W.Y., Sereno, A., Millman, L., Zheng, J., Balaji, V.N., and Wolff, M.E. 1995. Glu-96 of basic fibroblast growth factor is essential for high affinity receptor binding. Identification by structure-based site-directed mutagenesis. J. Biol. Chem. 270:21869-21874.

12) Sher, I., Weizman, A., Lubinsky-Mink, S., Lang, T., Adir, N., Schomburg, D., and Ron, D. 1999. Mutations uncouple human fibroblast growth factor (FGF)-7 biological activity and receptor binding and support broad specificity in the secondary receptor binding site of FGFs. J. Biol. Chem. 274:35016-35022.

13) Werner, S. 1998. Keratinocyte growth factor: a unique playaer in epithelial repair processes. Cytokine Growth Factor Rev. 9:153-165.

14) Osslund, T.D., Syed, R., Singer, E., Hsu, E.W., Nybo, R., Chen, B.L., Harvey, T., Arakawa, T., Narhi, LO., Chirino, A., and Morris, C.F. 1998. Correlation between the 1.6 A crystal structure and mutational analysis of keratinocyte growth factor. Protein Sci. 7:1681-1690.

figures

Figure 1. Ribbon diagram of the FGF4 structure. The amino and carboxyl termini are indicated by NT and CT. The b strands of FGF4 are labeled from 1 to 12, starting from the N-terminus.

Figure 2. Superimposition of the FGF4 molecule in place of FGF2 binding to the D2 (green) and D3 (blue) domains of FGFRl. As can be seen by comparison with ref (6), although the “fit” is quite good, three regions of FGF4 (marked in red) clash with the receptor structure, highlighting the limitations of this “superimposition” approach.

Figure 3. A. Molecular surface representation of the putative FGF4-FGFR1 complex, viewed from the top. FGF4 is in orange, the D2 domains of FGFRl are in green.

B. Surface change distribution of the complex, also viewed from the top. Blue and red represent positive or negative electrostatic potential, respectively. The positively charged canyon, i.e. the putative heparin binding site, runs between the two D2 domains in the dimer extending to the adjoining ligands. Sulfate ions are marked.

Figure 4. Mitogenic activity in quiescent NIH3T3 cells of FGF4 mutants. Cells were serum starved in 0.5% serum for 48 hrs. Supernatant from COS cells containing the secreted proteins was added to the medium at the relative concentration of 1:100, 1:250 and 1:1000 as indicated. Cells were labeled after 16 hrs. with 1 µCi of 3H-Thymidine for 6 hrs. and radioactivity incorporated into DNA was counted after TCA precipitation.

Table 1. BIOLOGICAL ACTIVITY OF FGF4 MUTATIONS

FGF4 WT	+++

Y87A	-

F129A (the F129 residue is unique to FGF4)	-

F135A	+/-

F136A	NT

FF135/136AA	not expressed/secreted

F150A	+++

F151A	NT

FF150/151GG	not expressed/secreted

E159A	NT

Y166A	not expressed/secreted

N167A	not expressed/secreted

Y172A	+++

L203A	NT

R205A (unique to FGF4)	NT

Mitogenic activity of the FGF4 mutants was calculated by Thymidine incorporation assays as described in Figure 4 +++ high activity; +/- low activity (less than 20,000 cpm at 1:100 conc.); - no activity (no increase in cpm over background); NT = not tested.

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24.	Government Approval or Registration	34
25.	Export Control Laws	34
26.	Force Majeure	34
27.	Confidentiality	35
28.	Miscellaneous	37

U.C. Case No. 94-161-1,-3

Revised: 7/13/95 (SH)

Draft date: September 25, 1995

Exclusive License Agreement

for

Angiogenesis Gene Therapy

This license agreement (“Agreement”) is effective this 27^th day of September, 1995, by and between The Regents of the University of California (“The Regents”), a California corporation, having its statewide administrative offices at 300 Lakeside Drive, 22nd Floor, Oakland, California 94612-3550 and Collateral Therapeutics (“Licensee”), a California corporation, having a principal place of business at 9360 Towne Centre Drive, San Diego, California 92121.

Recitals

Whereas, certain inventions, relating to “Angiogenesis Gene Therapy” (“Invention”), useful for angiogenesis, were made at the University of California, San Diego (“UCSD”) and are described and claimed in certain patent applications, naming Drs. H. Kirk Hammond, Frank Giordano, and

Wolfgang Dillmann as co-inventors, identified in the below defined Patent Rights;

Whereas, Licensee entered into a Letter of Intent (“Letter of Intent”), having U.C. Agreement Control No. 95-30-0891, effective March 27, 1995, that provided the Licensee with a time-limited exclusive right to negotiate for a license to the Patent Rights;

Whereas, under 35 USC 200-212, The Regents may elect to retain title to any invention (including the Invention) made by it, in whole or in part, under U.S. Government funding;

Whereas, if The Regents elects to retain title to the Invention, then the law requires that The Regents grant to the U.S. Government a nontransferable, paid-up, nonexclusive, irrevocable license to use the Invention by or on behalf of the U.S. Government throughout the world;

Whereas, The Regents elected on September 19, 1995, to retain title to the Invention and granted the required licenses to the U.S. Government;

Whereas, H. Kirk Hammond, M.D., is an employee of the Veterans Administration Medical Center (“VA”);

Whereas, 37 CFR §501.6(a)(2) allows the VA to release the Invention to Dr. Hammond, under certain conditions;

Whereas, Dr. Hammond, also an employee of The Regents, is under obligation to assign to The Regents the rights in the Invention that were released to him by the VA;

Whereas, Licensee is a “small entity” as defined in 37 CFR Section 1.9 and a “small-business concern” defined at 15 U.S.C. §632;

Whereas, both parties recognize that royalties due under this Agreement will be paid on issued patents and pending patent applications that are being prosecuted diligently and in good faith;

Whereas, Licensee requested an exclusive license to the Patent Rights from The Regents; and

Whereas, The Regents wish to grant an exclusive license to the Patent Rights to Licensee so that products and other benefits derived from the Invention can be enjoyed by the general public.

The parties agree as follows:

1. Definitions

As used in this Agreement, the following terms will have the meaning set forth below:

1.1 “Patent Rights” means all U.S. patents and patent applications and foreign patents and patent applications assigned to The Regents, and in the case of foreign patents and patent applications those requested under Paragraph 14.4 herein, including any reissues, extensions, substitutions, continuations, divisions, and continuations-in-part applications (only to the extent, however, that claims in the continuations-in-part applications are entitled to the priority filing date of the parent patent application) based on and including the following:

1.1.1 any subject matter claimed in or described according to the requirements of 35 USC Section 112 in U.S. Patent Application Serial Number 08/396,207, entitled “Gene Therapy for Myocardial Ischemia,” filed February 28, 1995, by Dr. H. Kirk Hammond, et al., and assigned to The Regents; and

1.1.2 any subject matter claimed in or described according to the requirements of 35 USC Section 112 in U.S. Patent Application Serial Number [ILLEGIBLE], entitled “Gene Therapy for Myocardial Ischemia”, filed June 7, 1995, by Dr. H. Kirk Hammond, et al., and assigned to The Regents.

1.2 “Patent Products” means:

1.2.1 any kit, composition of matter, material, or product;

1.2.2 any kit, composition of matter, material, or product to be used in a manner requiring the performance of the Patent Method; or

1.2.3 any kit, composition of matter, material, or product produced by the Patent Method;

to the extent that the manufacture, use, or sale of such kit, composition of matter, material, or product, in a particular country, would fall within the scope of (1) an unexpired claim of a patent under Patent Rights in that country or (2) a pending claim of a pending patent application that is being prosecuted diligently and in good faith in that country, were it issued as a claim in a patent under Patent Rights in that country in which such application is pending. This definition of Patent Products also includes a service either used by Licensee or provided by Licensee to its customers when such service requires the practice of the Patent Method.

1.3 “Patent Method” means any process or method, the use or practice of which in a country would fall within the scope of (1) an unexpired claim of a patent under Patent Rights in that country or (2) a pending claim of a pending application that is being prosecuted diligently and in good faith in that country, were it issued as a claim in a patent under Patent Rights in that country in which such application is pending.

1.4 “Net Sales” means the gross invoice prices from the sale of Patent Products by Licensee, an Affiliate, a Joint Venture, or a sublicensee

to independent third parties for cash or other forms of consideration in accordance with Generally Accepted Accounting Principles limited to the following deductions (if not already deducted from the gross invoice price and at rates customary within the industry): (a) allowances (actually paid and limited to rejections, returns, and prompt payment and volume discounts granted to customers of Patent Products, whether in cash or Patent Products in lieu of cash); (b) freight, transport packing, insurance charges associated with transportation; and (c) taxes, tariff, or import/export duties based on sales when included in gross sales, but not value-added taxes or taxes assessed on income derived from such sales.

1.5 “Affiliate(s)” of Licensee means any entity which, directly or indirectly, controls Licensee, is controlled by Licensee, or is under common control with Licensee (“control” for these purposes being defined as the actual, present capacity to elect a majority of the directors of such affiliate, or if not, the capacity to elect the members that control fifty percent (50%) of the outstanding stock or other voting rights entitled to elect directors) provided, however, that in any country where the local law will not permit foreign equity participation of a majority, then an “Affiliate” will include any company in which Licensee will own or control, directly or indirectly, the maximum percentage of such outstanding stock or voting rights permitted by

local law. Each reference to Licensee herein will be meant to include its Affiliates.

1.6 “Joint Venture” means any separate entity established pursuant to an agreement between a third party and Licensee to constitute a vehicle for commercializing patent products, in which the separate entity manufactures, uses, purchases, sells, or acquires Patent Products from Licensee. Each reference to Licensee herein will be meant to include its Joint Venture(s).

2. Grant

2.1 Subject to the terms of this Agreement, subject to the licenses granted to the U.S. Government as set forth in the Recitals above, and subject to the obligations of Section 2.5 below, The Regents hereby grants to Licensee exclusive licenses under Patent Rights to make, use, sell, offer for sale, and import Patent Products and to practice the Patent Method where Patent Rights exist.

2.2 The Regents also grants to Licensee the exclusive right to issue sublicenses to third parties to make, use, sell, offer for sale, and import Patent Products and to practice the Patent Method, provided Licensee retains current exclusive rights thereto under this Agreement. To the extent applicable, such sublicenses will include all of the rights of and obligations

due to The Regents (and, if applicable, the U.S. Government, including 35 USC Sections 200-21 2 and the implementing regulations), including the payment of royalties in Article 4, (Royalties) that are contained in this Agreement,

2.3 Licensee will notify The Regents of each sublicense granted hereunder and provide The Regents with a copy of each sublicense. Licensee will collect and pay all royalties due The Regents as set forth in Paragraph 4.1 below (and guarantee all such payments due from sublicensees). Licensee will require sublicensees to provide it with progress and royalty reports in accordance with the provisions herein, and Licensee will collect and deliver to The Regents all such reports due from sublicensees.

2.4 Upon termination of this Agreement for any reason, The Regents, at its sole discretion, will determine whether any or all sublicenses will be canceled or assigned to The Regents.

2.5 Nothing in this Agreement will be deemed to limit the right of The Regents to publish any and all technical data resulting from any research performed by The Regents relating to the Invention and to make and use Patent Product(s), Patent Method(s), and associated technology solely for educational and noncommercial research purposes.

3. License Issue Fee

3.1 As partial consideration for all the rights and licenses granted to Licensee, Licensee will pay to The Regents a license issue fee of Five Hundred and Fifty Thousand Dollars ($550,000) according to the following schedule:

3.1.1 Seventy-Five Thousand Dollars ($75,000) within thirty (30) days after the execution of this Agreement by both parties;

3.1.2 Seventy-Five Thousand Dollars ($75,000) on or before June 30, 1997;

3.1.3 Fifty Thousand Dollars ($50,000) on or before December 31, 1998;

3.1.4 One Hundred Thousand Dollars ($100,000) on orbefore June 30, 2000; and

3.1.5 Two Hundred and Fifty Thousand Dollars ($250,000) on or before December 31, 2001.

3.2 The fees set forth in Paragraph 3.1 above are non-refundable, non-creditable, and not an advance against royalties.

4. Royalties

4.1 As further consideration for all the rights and licenses granted to Licensee, Licensee also will pay to The Regents an earned royalty at the rate of two percent (2%) based on the Net Sales of Patent Products.

4.2 Paragraphs 1.1, 1.2, and 1.3 define Patent Rights, Patent Product, and Patent Method so that royalties will be payable only on Patent Products covered by either a pending patent application that is being prosecuted diligently and in good faith in a relevant country or by an issued patent in a relevant country. Earned royalties will accrue in each country for the duration of any issued patent within Patent Rights in that country and wilt be payable to The Regents when Patent Products are invoiced, or if not invoiced, when delivered to a third party for the purpose of patient administration for purposes other than clinical trials. Licensee, its Affiliates, Joint Ventures, and sublicensees will not use Patent Products or Patent Methods for administration to patients in any business of the Licensee, or of its Affiliates, Joint Ventures, and sublicensees without payment of applicable royalty on Net Sales to be calculated on retail sales prices as if the sales transaction had occurred at arm’s-length to an unrelated third party.

4.3 Royalties accruing to The Regents will be paid to The Regents quarterly on or before the following dates of each calendar year:

February 28 for the calendar quarter ending December 31

May 31 for the calendar quarter ending March 31

August 31 for the calendar quarter ending June 30

November 30 for the calendar quarter ending September 30

Each such payment will be for royalties which accrued up to the most recently completed calendar quarter of Licensee.

4.4 Beginning in the year 2003, Licensee will pay to The Regents a minimum annual royalty in the amounts and at the times set forth below:

2003	-	$	100,000

2004	-	$	250,000

2005	-	$	400,000

2006	-	$	650,000

2007	-	$	750,000

In each succeeding calendar year after The year 2007, Licensee will pay a minimum annual royalty of Seven Hundred and Fifty Thousand ($750,000) for the life of this Agreement. Each minimum annual royalty payment must be paid to The Regents by February 28 of each year fallowing the calendar year in which royalties accrued. Royalties paid during the prior calendar year will be credited against the minimal annual royalty payment due and owing for the prior calendar year.

4.5 All monies due The Regents will be payable in United States funds collectible at par in San Francisco, California. When Patent Products are sold for monies other than United States dollars, the earned royalties will first be determined in the foreign currency of the country in which such Patent Products were sold and then converted into equivalent United States

funds. The exchange rate will be that rate quoted in the Wall Street Journal on the last business day of the reporting period.

4.6 Earned royalties on sales of Patent Products occurring in any country outside the United States will not be reduced by any taxes, fees, or other charges imposed by the government of such country except those taxes, fees, and charges allowed under the provisions of Paragraph 1.4 (Net Sales). Licensee will be responsible for all bank transfer charges.

4.7 Notwithstanding the provisions of Article 26. (Force Majeure), if at any time legal restrictions prevent prompt remittance of part or all royalties owed to The Regents by Licensee with respect to any country where a Patent Product is sold or distributed, Licensee will convert the amount owed to The Regents into United States funds and will pay The Regents directly from another source of funds for the amount impounded.

4.8 In the event that any patent or any claim thereof included within the Patent Rights is held invalid or unenforceable in a final decision by a court of competent jurisdiction and last resort and from which no appeal has or can be taken, all obligation to pay royalties based on such patent or claim or any claim patentably indistinct therefrom will cease as of the date of such final decision. Licensee will not, however, be relieved from paying any royalties that accrued before such decision or that are based on another patent or claim that has not expired or that is not involved in such decision.

4.9 No royalties will be collected or paid hereunder to The Ragents on Patent Products sold to the account of the U.S. Government. Licensee and its sublicensee will reduce the amount charged for Patent Products distributed to the United Stares Government by an amount equal to the royalty for such Patent Products otherwise due The Regents as provided herein.

5. Due Diligence

5.1 Licensee, upon execution of this Agreement, will diligently proceed with the development, manufacture and sale of Patent Products. In this regard, The Regents acknowledges that the technology covered by this Agreement has only recently been invented and that substantial additional effort, expense and time, as well as regulatory approval, will be required before manufacture and sales of any Patent Products will be possible. Meeting the requirements of Section 5.3 below shall be deemed to satisfy the due diligence requirements of this Article 5.

5.2 Licensee will be entitled to exercise prudent and reasonable business judgment in the manner in which it meets its due diligence obligations hereunder, including under Section 5.3 below. In no case, however, will Licensee be wholly relieved of its obligations to meet each of the due diligence provisions of Paragraph 5.3 below.

5.3 If Licensee is unable to perform any of the following:

5.3.1 begin Phase I Clinical Trials in the United States for Patent Products on or before June 30, 1997; and

5.3.2 enter pivotal clinical trials (a combination of Phase II and Phase III Clinical Trials) in the United States for said Patent Products on or before December 31, 1998; and

5.3.3 file far marketing approval in the United States for said Patent Product on or before December 31, 2001; and

5.3.4 market Patent Products in the United States within six (6) months after receiving marketing approval of such Patent Products from the U.S. Food and Drug Administration; and

5.3.5 diligently and earnestly fill the market demand for Patent Products following commencement of marketing at any time during the exclusive period of this Agreement;

then The Regents will have the right and option to terminate this Agreement or reduce the exclusive licenses granted to Licensee to non-exclusive licenses in accordance with Paragraph 5.4 hereof. The exercise of this right and option by The Regents supersedes the rights granted in Article 2. (Grant).

5.4 To exercise either the right to terminate this Agreement or reduce the exclusive licenses granted to Licensee to non-exclusive licenses for lack of diligence required in this Article 5. (Due Diligence), The Regents will give Licensee written notice of the deficiency. Licensee thereafter has

60 (sixty) days to cure the deficiency. Licensee shall be entitled to a one-time extension of each of the dates set forth in Subparagraphs 5.3.1 through 5.3.4 (which have not been met) by one (1) additional year to cure the deficiency upon payment of One Hundred Thousand Dollars ($100,000) to The Regents, provided that such payment is received by The Regents within sixty (60) days of receipt of written notice by The Regents of Licensee’s deficiency. The One Hundred Thousand Dollar ($100,000) payment has the effect of extending the subject date and all subsequent dates by one (1) year. If The Regents has not received the One Hundred Thousand Dollar ($100,000) payment by the end of the sixty (60)-day period, or written tangible evidence satisfactory to The Regents that the deficiency has been cured by the end of the sixty (60)-day period, then The Regents may, at its option, terminate this Agreement or reduce the exclusive licenses granted to Licensee to non-exclusive licenses by giving written notice to Licensee. These notices will be subject to Article 18, (Notices).

6. Progress and Royalty Reports

6.1 Beginning February 28, 1996, and semi-annually thereafter, Licensee will submit to The Regents a progress report covering activities by Licensee related to the development, including clinical trials and testing, of all Patent Products and the obtaining of the governmental approvals necessary

for marketing. These progress reports will be provided to The Regents to cover the progress of the research and development of the Patent Products until their first commercial sale in the United States.

6.2 The progress reports submitted under Paragraph 6.1 will include, but not be limited to, the following topics so that The Regents may be able to determine the progress of the development of Patent Products:

• summary of work completed;

• summary of work in progress;

• current schedule of anticipated events or milestones specified in Paragraph 5.3 and the datas when said milestones have been met or will be met, as of the time of the report;

• market introduction date of Patent Products; and

• activities of sublicensees, if any.

6.3 Licensee will also report to The Regents in its immediately subsequent progress and royalty report the date of first commercial sale of a Patent Product(s) in each country where the Licensee has sought marketing approval.

6.4 After the first commercial sale of a Patent Product, Licensee will provide The Regents with quarterly royalty reports to The Regents on or before each February 28, May 31, August 31, and November 30 of each year. Each such royalty report will cover the most recently completed

calendar quarter of Licensee (October through December, January through March, April through June, and July through September) and will show:

6.4.1 the gross sales and Net Sales of Patent Products sold by Licensee and reported to Licensee as sold by its sublicensees during the most recently completed calendar quarter;

6.4.2 the number of Patent Products sold or distributed by Licensee and reported to Licenses as sold or distributed by its sublicensees;

6.4.3 the royalties, in U.S. dollars, payable hereunder with respect to Net Sales; and

6.4.4 the exchange rates used, if any.

6.5 If no sales of Patent Products have been made during any reporting period after the first commercial sale of a Patent Product, then a statement to this effect is required.

7. Books and Records

7.1 Licensee will keep books and records accurately showing all Patent Products manufactured, used, and/or sold under the terms of this Agreement. Such books and records will be preserved for at least four (4) years after the date of the royalty payment to which they pertain and will be open to inspection by representatives or agents of The Regents at reasonable times to determine the accuracy of the books and records and to determine compliance by Licenses with the terms of this Agreement.

7.2 The fees and expenses of representatives of The Regents performing such an examination will be borne by The Regents. However, if an error in royalties of more than five percent (5%) of the total royalties due for any year is discovered, then the fees and expenses of these representatives will be borne by Licensee.

8. Life of the Agreement

8.1 Unless otherwise terminated by operation of law or by acts of the parties in accordance with the terms of this Agreement, this Agreement will be in force from the effective date recited on page one and will remain in effect for the life of the last-to-expire patent licensed under this Agreement, or until the last patent application licensed under this Agreement is abandoned.

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

Article	3	License Issue Fee

Article	7	Books and Records

Article	11	Disposition of Patent Products on Hand Upon Termination

Article	12	Use of Names and Trademarks

Paragraph	14.6	Patent Prosecution and Maintenance

Article	17	Indemnification

Article	22	Failure to Perform

Article	27	Confidentiality

9. Termination by The Regents

9.1 If Licensee should violate or fail to perform any material term or covenant of this Agreement, then The Regents may give written notice of such default (“Notice of Default”) to Licensee. If Licensee should fail to repair such default within sixty (60) days after the date of such notice takes effect, The Regents will have the right to terminate this Agreement and the licenses herein by a second written notice (“Notice of Termination”) to Licensee. If a Notice of Termination is sent to Licensee, this Agreement will automatically terminate on the date such notice takes effect. Such termination will not relieve Licensee of its obligation to pay any royalty or license fees owing at the time of such termination and will not impair any accrued right of The Regents. These notices will be subject to Article 18. (Notices).

10. Termination by Licensee

10.1 Licensee will have the right at any time to terminate this Agreement in whole or as to any portion of Patent Rights by giving notice in writing to The Regents. Such Notice of Termination will be subject to Article 18. (Notices) and termination of this Agreement will be effective sixty (60) days after the effective date thereof.

10.2 Any termination pursuant to the above paragraph will not relieve The Regents or Licensee of any obligation or liability accrued hereunder prior to such termination or rescind anything done by The Regents or Licenses or any payments made to The Regents hereunder prior to the time such termination becomes effective, and such termination will not affect in any manner any rights of The Regents or Licensee arising under this Agreement prior to such termination.

11. Disposition of Patent Products on Hand Upon Termination

11.1 Upon termination of this Agreement, Licensee will have the privilege of disposing of all previously made or partially made Patent Products, but no more, within a period of one hundred twenty (120) days, provided, however, that the sale of such Patent Products will be subject to the terms of this Agreement including, but not limited to the payment of fees and reimbursement for patent costs and the payment of royalties based on

the Net Sales of Patent Products at the rates and at the times provided herein and the rendering of reports in connection therewith.

12. Use of Names and Trademarks

12.1 Nothing contained in this Agreement will be construed as conferring any right to use in advertising, publicity, or other promotional activities any name, trade name, trademark, or other designation of either party hereto by the other (including contraction, abbreviation or simulation of any of the foregoing). Unless required by law, the use by Licensee of the name “The Regents of the University of California” or the name of any campus of the University of California for use in advertising, publicity, or other promotional activities is expressly prohibited.

12.2 It is understood that The Regents will be free to release to the inventors and senior administrative officials employed by The Regents the terms of this Agreement upon their request. If such release is made, The Regents will request that such terms will be kept in confidence in accordance with the provisions of Article 27. (Confidentiality) and not be disclosed to others. It is further understood that should a third party inquire whether a license to Patent Rights is available, The Regents may disclose the existence of this Agreement and the Extent of the grant in Article 2. (Grant) to such third party, but will not disclose the name of Licensee, except where The

Regents is required to release such information under either the California Public Records Act or other applicable law.

13. Limited Warranty

13.1 The Regents warrants to Licensee that it has the lawful right to grant this license, and that it has not granted any rights or licenses to Patent Rights, other than to the U.S. Government, in derogation of this Agreement.

13.2 This license and the associated Invention are provided WITHOUT WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESSED OR IMPLIED. THE REGENTS MAKES NO REPRESENTATION OR WARRANTY THAT THE INVENTION, PATENT PRODUCTS, OR PATENT METHOD WILL NOT INFRINGE ANY PATENT OR OTHER PROPRIETARY RIGHT.

13.3 IN NO EVENT WILL THE REGENTS BE LIABLE FOR ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS LICENSE OR THE USE OF THE INVENTION, PATENT METHOD, OR PATENT PRODUCTS.

13.4 Nothing in this Agreement will be construed as:

13.4.1 a warranty or representation by The Regents as to the validity, enforceability, or scope of any Patent Rights; or

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

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

13.4.4 conferring by implication, estoppel, or otherwise any license or rights under any patents of The Regents other than Patent Rights as defined herein, regardless of whether such patents are dominant or subordinate to Patent Rights; or

13.4.5 an obligation to furnish any know-how not provided in Patent Rights.

14. Patent Prosecution and Maintenance

14.1 The Regents will diligently prosecute and maintain the United States and foreign patents comprising Patent Rights using counsel of its choice. The Regents will promptly provide Licensee with copies of all relevant documentation so that Licensee may be currently and promptly informed and apprised of the continuing prosecution, and may comment upon such documentation sufficiently in advance of any initial deadline for filing a response, provided, however, that if Licensee has not commented upon such documentation prior to the initial deadline for filing a response with the relevant government patent office or The Regents must act to preserve Patent Rights, The Regents will be free to respond appropriately

without consideration of comments by Licensee, if any. Both parties hereto will keep this documentation in confidence in accordance with the provisions of Article 27. (Confidentiality) herein. The Regents’ counsel will take instructions only from The Regents.

14.2 The Regents will use all reasonable efforts to amend any patent application to include claims requested by Licensee and required to protect the Patent Products contemplated to be sold or Patent Method to be practiced under this Agreement.

14.3 The Regents and Licensee will cooperate in applying for an extension of the term of any patent included within Patent Rights, if appropriate, under the Drug Price Competition and Patent Term Restoration Act of 1 984, Licensee will prepare all such documents, and The Regents will execute such documents and will take such additional action as Licensee may reasonably request in connection therewith.

14.4 The Regents will, at the request of Licensee, file, prosecute, and maintain patent applications and patents covered by Patent Rights in foreign countries if available. Licensee must notify The Regents within nine (9) months of the filing of the corresponding United States application of its decision to request The Regents to file foreign counterpart patent applications. This notice concerning foreign filing must be in writing and must identify the countries desired. The absence of such a notice from

Licensee to The Regents within the nine (9)-month period will be considered an election by Licensee not to request The Regents to secure foreign patent rights an behalf of Licensee. The Regents wilt have the right to file patent applications at its own expense in any country Licensee has not included in its list of desired countries, and such applications and resultant patents, if any, will not be included in the licenses granted under this Agreement unless Licensee agrees in writing to pay all costs associated with any such patent application(s) and provided the rights of said patent application(s) are available at the time Licensee agrees to pay the associated costs.

14.5 All past, present and future costs of preparing, filing, prosecuting and maintaining all United States and foreign patent applications and all costs and fees relating to the preparation and filing of patents covered by Patent Rights in Paragraph 1.1 will be borne by Licensee. This includes all patent preparation and prosecution costs incurred by The Regents prior to the execution of this Agreement. Such costs will be due upon execution of this Agreement and will be payable at the time that the license issue fee is payable. The costs of all interferences and oppositions will be considered prosecution expenses and also will be borne by Licensee. Licensee will reimburse The Regents for all costs and charges within thirty (30) days following receipt of an itemized invoice from The Regents for same.

14.6 The obligation of Licenses to underwrite and to pay patent preparation, filing, prosecution, maintenance, and related costs will continue for such costs as may be incurred during the three (3)-month period after receipt by either party of a Notice of Termination for ail non-cancelable obligations made prior to the receipt of said Notice of Termination, Licensee will reimburse The Regents for all patent costs incurred during the term of the Agreement and for three (3) months thereafter whether or not invoices for such costs are received during the three (3)-month period after receipt of a Notice of Termination. Licensee may with respect to any particular patent application or patent terminate its obligations with the patent application or patent in any or ail designated countries upon three months written notice to The Regents. The Regents may continue prosecution and/or maintenance of such application(s) or patent(s) at its sole discretion and expense, provided, however, that Licensee will have no further right or licenses thereunder.

14.7 Licensee will have a continuing responsibility to keep The Regents informed of its large/small entity status (as defined by the United States Patent and Trademark Office) of itself and its sublicensees.

15. Patent Marking

15.1 Licensee will mark all Patent Products made, used or sold under the terms of this Agreement, or their containers, in accordance with the applicable patent marking laws.

16. Patent Infringement.

16.1 In the event that Licensee learns of the substantial infringement of any patent licensed under this Agreement, Licensee will call the attention of The Regents thereto in writing and will provide The Regents with reasonable evidence of such infringement. Both parties to this Agreement acknowledge that during the period and in a jurisdiction where Licensee has exclusive rights under this Agreement, neither will notify a third party of the infringement of any of Patent Rights without first obtaining consent of the other party, which consent will not be unreasonably withheld. Both parties will use their best efforts in cooperation with each other to terminate such infringement without litigation.

1 6.2 Licensee may request that The Regents take legal action against the infringement of Patent Rights. Such request must be made in writing and must include reasonable evidence of such infringement and damages to Licensee. If the infringing activity has not been abated within ninety (90)

days following the effective date of such request, The Regents will have the right to elect to:

16.2.1 commence suit on its own account; or

16.2.2 refuse to participate in such suit

and The Regents will give notice of its election in writing to Licensee by the end of the one hundredth (100th) day after receiving notice of such request from Licensee. Licensee may thereafter bring suit for patent infringement if and only if The Regents elects not to commence suit and if the infringement occurred during the period and in a jurisdiction where Licensee had exclusive rights under this Agreement. However, in the event Licensee elects to bring suit in accordance with this paragraph, The Regents may thereafter join such suit at its own expense, but the Licensee will control the lawsuit.

16.3 Such legal action as is decided upon will be at the expense of the party on account of whom suit is brought and all recoveries recovered thereby will belong to such party, provided, however, that legal action brought jointly by The Regents and Licensee and participated in by both will be at the joint expense of the parties and all recoveries will be allocated in the following order: a) to each party reimbursement in equal amounts of the attorney’s costs, fees, and other related expenses to the extent each party paid for such costs, fees, and expenses until all such costs, fees, and

expenses are consumed for each party; and b) any remaining amount shared jointly by them in proportion to the share of expenses paid by each party.

16.4 Each party will cooperate with the other in litigation proceedings instituted hereunder but at the expense of the party on account of whom suit is brought. Such litigation will be controlled by the party bringing the suit, provided, however, that The Regents may be represented by counsel of its choice in any suit brought by Licensee.

17. Indemnification

17.1 Licensee will (and will require its sublicensees to) indemnify, hold harmless, and defend The Regents, its officers, employees, and agents; the sponsors of the research that led to the Invention; the inventors of any invention covered by Patent Rights (including the Patent Products and Patent Method contemplated thereunder) and their employers against any and all claims, suits, losses, damage, costs, fees, and expenses resulting from or arising out of exercise of this license or any sublicense. This indemnification will include, but will not be limited to, any product liability.

17.2 Licensee, at its sole cost and expense, will insure its activities in connection with the work under this Agreement and obtain, keep in force, and maintain insurance as follows: (or an equivalent program of self insurance)

At the initiation of clinical trials, Comprehensive or Commercial Form General Liability Insurance (contractual liability included) with limits as follows up to and until Licensee enters Phase III Clinical Trials:

(a)	Each Occurrence	$	3,000,000
(b)	Products/Completed Operations Aggregate	$	3,000,000
(c)	Personal and Advertising injury	$	3,000,000
(d)	General Aggregate (commercial form only)	$	3,000,000

Comprehensive or Commercial Form General Liability Insurance (contractual liability included) with limits as follows after Licensee enters

Phase III Clinical Trials:

(a)	Each Occurrence	$	5,000,000
(b)	Products/Completed Operations Aggregate	$	5,000,000
(c)	Personal and Advertising Injury	$	5,000,000
(d)	General Aggregate (commercial form only)	$	5,000,000

It should be expressly understood, however, that the coverages and limits referred to under the above will not in any way limit the liability of Licensee. Licensee will furnish The Regents with certificates of insurance evidencing compliance with all requirements. Such certificates will:

(a) Provide for thirty (30)-day advance written notice to The Regents of any modification;

(b) Indicate that The Regents has been endorsed as an additional Insured under the coverages referred to under the above; and

(c) Include a provision that the coverages will be primary and will not participate with nor will be excess over any valid and collectable insurance or program of self-insurance carried or maintained by The Regents.

17.3 The Regents will immediately notify Licensee in writing of any claim or suit brought against The Regents in respect of which The Regents intends to invoke the provisions of this Article 17. (Indemnification). Licensee will keep The Regents informed as appropriate and necessary on a current basis of its defense of any claims pursuant to this Article 17. (Indemnification).

18. Notices

18.1 Any notice or payment required to be given to either party will be deemed to have been properly given and to be effective (a) on the date of delivery if delivered in person or (b) five days after mailing if mailed by first-class certified mail, postage paid, to the respective addresses given below, or to another address as it may designate by written notice given to the other party.

In the case of Licensee:		COLLATERAL THERAPEUTICS
		9360 Towne Centre Drive
		San Diego, CA 92121
		Tel: (619) 622-4100
		Fax: (619) 587-3518
		Attention: Jack Reich, Ph.D.

In the case of The Regents:	THE REGENTS OF THE UNIVERSITY
	OF CALIFORNIA
	1320 Harbor Bay Parkway, Suite 150
	Alameda, California 94502
	Tel: (510) 743-6600
	Fax: (510) 748-6639
	Attention:	Terence A. Feuerborn
		Executive Director
		Research Administration and
		Technology Transfer
	Referring to: U.C. Case No. 94-161-1,-3

19. Assignability

19.1 This Agreement is binding upon and will inure to the benefit of The Regents, its successors and assigns, but will be personal to Licensee and assignable by Licensee only with the written consent of The Regents, which consent shall not be unreasonably withheld.

20. Late Payments

20.1 In the event royalty payments or fees or patent prosecution costs are not received by The Regents when due, Licensee will pay to The Regents interest charges at a rate of ten percent (10%) simple interest per annum. Such interest will be calculated from the date payment was due until actually received by The Regents. Acceptance by The Regents of any late payment interest from Licensee under this Paragraph 20 will in no way affect the provision of Article 21. (Waiver) herein.

21. Waiver

21.1 It is agreed that no waiver by either party hereto of any breach or default of any of the covenants or agreements herein set forth will be deemed a waiver as to any subsequent and/or similar breach or default.

22. Failure to Perform

22.1 In the event of a failure of performance due under the terms of this Agreement and if it becomes necessary for either party to undertake legal action against the other on account thereof, then the prevailing party will be entitled to reasonable attorney’s fees in addition to casts and necessary disbursements.

23. Governing Laws

23.1 THIS AGREEMENT WILL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, excluding any choice of law rules that would direct the application of the laws of another jurisdiction, but the scope and validity of any patent or patent application will be governed by the applicable laws of the country of such patent or patent application.

24. Government Approval or Registration

24.1 If this Agreement or any associated transaction is required by the law of any nation to be either approved or registered with any governmental agency, Licensee will assume all legal obligations to do so. Licensee will notify The Regents if it becomes aware that this Agreement is subject to a United States or foreign government reporting or approval requirement. Licensee will make all necessary filings and pay all costs including fees, penalties, and all other out-of-pocket costs associated with such reporting or approval process.

25. Export Control Laws

25.1 Licensee will observe all applicable United States and foreign laws with respect to the transfer of Patent Products and related technical data to foreign countries, including, without limitation, the International Traffic in Arms Regulations (1TAR) and the Export Administration Regulations.

26. Force Majeure

26.1 The parties to this Agreement will be excused from any performance required hereunder if such performance is rendered impossible or unfeasible due to any acts of God, catastrophes, or other major events

beyond their reasonable control, including, without limitation, war, riot, and insurrection; laws, proclamations, edicts, ordinances, or regulations; strikes, lock-outs, or other serious labor disputes; and floods, fires, explosions, or other natural disasters. However, any party to this Agreement will have the right to terminate this Agreement upon thirty (30) days’ prior written notice if either party is unable to fulfill its obligations under this Agreement due to any of the causes mentioned above and such inability continues for a period of one year. Notices will be subject to Article 18. (Notices).

27. Confidentiality

27.1 Licensee and The Regents respectively will treat and maintain the proprietary business, patent prosecution, software, engineering drawings, process and technical information, and other proprietary information of the other party (“Proprietary Information”) in confidence using at least the same degree of care as that party uses to protect its own proprietary information of a like nature for a period from the date of disclosure until five (5) years after the date of termination of this Agreement.

27.2 Proprietary Information will be labeled or marked confidential or as otherwise similarly appropriate by the disclosing party, or if the Proprietary Information is orally disclosed, it will be reduced to writing or some other physically tangible form, marked and labeled as set forth above

by the disclosing party and delivered to the receiving party within thirty (30) days after the oral disclosure as a record of the disclosure and the confidential nature thereof. Notwithstanding the foregoing, Licensee and The Regents may use and disclose Proprietary Information to its employees, agents, consultants, and contractors having a need to know the Proprietary Information and, in the case of Licensee, its sublicensees, provided that any such parties are bound by a like duty of confidentiality.

27.3 Nothing contained herein will in any way restrict or impair the right of Licensee or The Regents to use, disclose, or otherwise deal with any Proprietary Information:

27.3.1 that recipient can demonstrate by written records was previously known to it;

27.3.2 that is now, or becomes in the future, public knowledge other than through acts or omissions of recipient;

27.3.3 that is lawfully obtained without restrictions by recipient from sources independent of the disclosing party;

27.3.4 that is required to be disclosed to a governmental entity or agency in connection with seeking any governmental or regulatory approval, or pursuant to the lawful requirement or request of a governmental entity or agency;

27.3.5 that is furnished to a third party by the recipient with a need to know and with similar confidentiality restrictions imposed on such third party, as evidenced in writing, or

27.3.6 that The Regents is required to disclose pursuant to the California Public Records Act or other applicable law.

27.4 Upon termination of this Agreement, Licensee and The Regents will destroy or return to the disclosing party proprietary information received from the other in its possession within fifteen (15) days following the effective date of termination. Licensee and The Regents will provide each other, within thirty (30) days following termination, with a written notice that Proprietary Information has been returned or destroyed. Each party may, however, retain one copy of Proprietary Information for archival purposes in nonworking files.

28. Miscellaneous

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

28.2 The licenses and any sublicenses granted hereunder will be subject to any legal obligations to the U.S. Government including those set forth in 35 U.S.C. 200-212 and applicable governmental implementing regulations. Because this Agreement grants the exclusive right to use or sell the Patent Products in the United States, Licensee acknowledges that

Patent Products will be manufactured substantially in the United States as required under 35 USC Section 204.

28.3 The manufacture of Patent Products will be in accordance with any applicable government importation laws and regulations of a particular country on Patent Products made outside the particular country in which such Patent Products are to be used or sold.

28.4 Licensee will obtain all necessary governmental approvals in each country where it intends to sell or manufacture and use Patent Products or permit others to manufacture, use, or sell Patent Products.

28.5 This Agreement will not be binding upon the parties until it has been signed below on behalf of each party, in which event, it will be effective as of the date recited on page one.

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

28.7 This Agreement embodies the entire understanding of the parties and will supersede all previous communications, representations or understandings, either oral or written, between the parties relating to the subject matter hereof. The Letter of intent specified in the Recitals in this Agreement is hereby terminated.

28.8 In case any of the provisions contained in this Agreement are held to be invalid, illegal, or unenforceable in any respect, such invalidity,

illegality, or unenforceability will not affect any other provisions hereof, but this Agreement will be construed as if such invalid or illegal or unenforceable provisions had never been contained herein.

The Regents and Licensee execute this Agreement in duplicate originals by their respective, authorized officers on the date indicated.

Collateral Therapeutics:			The Regents of the University of California:


By	/s/ Jack W. Reich Ph.D.		By	/s/ Terence A. Feuerborn
	(Signature)			(Signature)

Name		JACK W. REICH, Ph.D.	Name		Terence A. Feuerborn
		(Please Print)

Title		PRESIDENT AND C.E.O.	Title		Executive Director
					Research Administration and
					Technology Transfer

Date		Sept. 27, 1995	Date		9-28-95

Approval as to legal form:	/s/ ILLEGIBLE	9//24/95
	[SEAL]	Date

1st Amendment

to the Exclusive License Agreement

between

The Regents of the University of California

and

Collateral Therapeutics, Inc.

for

“Angiogenesis Gene Therapy”

UC Case No. 94-161-1, -3

1st Amendment to the Exclusive License Agreement

for “Angiogenesis Gene Therapy”

This Amendment is made and is effective this 19^thday of Sept.,1996, by and between The Regents of the University of California (“The Regents”), a California corporation, having its statewide administrative offices at 300 Lakeside Drive, 22nd Floor, Oakland, California 94612-3550, and Collateral Therapeutics, Inc. (“Licensee”), a California corporation, have a principal place of business at 9360 Towne Centre Drive, San Diego, California 92121.

RECITALS

WHEREAS, Licensee and The Regents entered into a license agreement entitled “Exclusive License Agreement for Angiogenesis Gene Therapy,” effective on September 27, 1995, having U.C. Agreement Control Number 96-04-0203 (“License Agreement”), and covering licensure to Licensee by The Regents of rights in certain inventions developed by Dr. H. Kirk Hammond, et al. (“Inventor”) at the University of California, San Diego (“UCSD”) and claimed in U.S. Patent Application Serial Nos. 08/396,207 and 08/485,472;

	U.C. AGREEMENT
	CONTROL NUMBER
	96-04-0203 B

Whereas, in accordance with Paragraph 2.3 of the License Agreement, Licensee has notified The Regents of its intent to enter into a sublicense agreement with Schering Aktiengesellschaft (“Schering AG”);

Whereas, Schering AG will use its resources to further develop the Patent Products so that the technology licensed under the sublicense agreement may be developed, utilized, and marketed and the products therefrom and other benefits may be enjoyed by the general public;

Whereas, Licensee desires to amend the License Agreement to reflect that, upon termination of the License Agreement, any sublicenses to Schering AG will be assigned to The Regents;

Whereas, Licensee and The Regents desire to amend the License Agreement to redefine Patent Rights to exclude two continuing patent applications entitled “Gene Therapy for Myocardial Ischemia” filed in the names of Dr. Wolfgang Dillmann, Dr. Ruben Mestril, and Dr. Frank Giordano and any continuing patent applications thereof;

Whereas, Licensee and The Regents desire to amend the License Agreement to reflect the above changes;

Now, Therefore, in consideration of the foregoing and the mutual promises and covenants contained herein, the parties hereto agree as follows:

1. Paragraph 1.1 (Definitions) of the License Agreement shall be replaced in its entirety with the following Paragraphs 1.1a and 1.1b:

1.1a “Patent Rights” means all U.S. patents and patent applications and foreign patents and patent applications assigned to The Regents, and in the case of foreign patents and patent applications those requested under Paragraph 14.4 herein, including any reissues, extensions, substitutions, continuations, divisions, and continuations-in-part applications (only to the extent, however, that claims in the continuations-in-part applications are entitled to the priority filing date of the parent patent application) based on and including the following:

1.1.1. any subject matter claimed in or described according to the requirements of 35 USC Section 112 in U.S. Patent Application Serial Number 08/396,207, entitled “Gene Therapy for Myocardial Ischemia,” filed February 28, 1995, by Dr. H. Kirk Hammond, et al., and assigned to The Regents; and

1.1.2. any subject matter claimed in or described according to the requirements of 35 USC Section 112 in U.S. Patent Application Serial Number 08/485,472, entitled “Gene Therapy for Myocardial Ischemia,” filed June 7, 1995, by Dr. H. Kirk Hammond, Dr. Wolfgang

Dillmann, and Dr. Frank Giordano, and assigned to The Regents.

1.1b The subject matter relating to the use of heat-shock proteins described and claimed in U.S. Patent Application Serial Number 08/481,122 entitled “Gene Therapy for Myocardial Ischemia,” filed June 7, 1995, by Dr. Wolfgang Dillmann, Dr. Ruben Mestril, and Dr. Frank Giordano and U.S. Patent Application Serial Number 08/660,387 entitled “Gene Therapy for Myocardial Ischemia,” filed June 7, 1996, by Dr. Wolfgang Dillmann, Dr. Ruben Mestril, and Dr. Frank Giordano and any continuing applications thereof are expressly excluded from this Agreement. The excluded patent applications specified in this Paragraph 1.1b do not and will not claim any angiogenesis gene therapy or gene therapy delivery subject matter that is described and/or claimed in any of the patent applications referred to in Paragraph 1.1a above.

2. Paragraph 2.4 (Grant) of the License Agreement shall be replaced in its entirety with the following:

2.4 Except as provided below, upon termination of this Agreement for any reason, The Regents, at its sole discretion, will determine whether any or all sublicenses will be canceled or assigned to The Regents. Notwithstanding the foregoing, any sublicenses to

Schering AG will be assigned to The Regents. The Regents will not be bound by any duties or obligations contained in any sublicense that extend beyond the duties and obligations of The Regents in this Agreement.

In Witness Whereof, both The Regents and Licensee have executed this Amendments, in duplicate originals, by their respective officers hereunto duly authorized, on the day and year hereinafter written.

COLLATERAL THERAPEUTICS, INC.			THE REGENTS OF THE UNIVERSITY OF CALIFORNIA


By	/s/ Jack W. Reich, Ph.D.		By	/s/ Candace L. Voelker
	(Signature)			(Signature)

Name		JACK W. REICH, Ph.D.	Name		Candace L. Voelker

Title		PRESIDENT & C.E.O.	Title		Associate Director
					Office of Technology Transfer

Date		Sept. 19, 1996	Date		9/19/96

Approval as to legal form:	/s/ ILLEGIBLE	9-19-96
	[SEAL]	Date

2nd Amendment

to the Exclusive License Agreement

between

The Regents of the University of California

and

Collateral Therapeutics, Inc.

for

“Angiogenesis Gene Therapy’

UC Case No. 94-161-1,-3

	U.C. AGREEMENT
	CONTROL NUMBER
	96-04-0203C

2nd Amendment to the Exclusive License Agreement
for “Angiogenesis Gene Therapy”

This amendment (‘“Amendment’”) is effective this 30^th day of June, 1997, by and between The Regents of the University of California (“The Regents”), a California corporation, having its statewide administrative offices at 300 Lakeside Drive, 22nd Floor, Oakland, California 94612-3550, and Collateral Therapeutics, Inc. (“Licensee”), a California corporation, having a principal place of business at 9360 Towne Centre Drive, San Diego, California 92121.

RECITALS

WHEREAS, Licensee and The Regents entered into a license agreement entitled “Exclusive License Agreement for Angiogenesis Gene Therapy,” effective on September 29, 1995, having U.C. Agreement Control Number 96-04-0203 (“License Agreement”), and covering licensure to Licensee by The Regents of rights in certain inventions developed by Dr. H. Kirk Hammond, et al. (“Inventor”) at the University of California, San Diego (“UCSD”) and claimed in Patent Rights (as defined in the License Agreement);

Whereas, Licensee and The Regents amended the License Agreement on September 19, 1996, to redefine Patent Rights and to grant Licensee rights to enter into a sublicense agreement with Schering Aktiengesellschaft;

Whereas, Licensee has experienced unforeseen difficulties in obtaining rights in materials desired for the development of the invention:

Whereas, Licensee desires to amend the License Agreement to extend the diligence provisions provided in Paragraph 5.3 in order to accommodate the above-cited unforeseen difficulties so that it can continue development of the invention; and

Whereas, The Regents desires that the invention be developed, utilized, and marketed to the fullest extent so that the products therefrom may be enjoyed by the general public and, therefore, is willing to amend the Agreement;

Now, Therefore, in consideration of the foregoing and the mutual promises and covenants contained herein, the parties hereto agree as follows:

1. Paragraph 5.3 (Due Diligence) of the License Agreement shall be replaced in its entirety with the following:

“5.3 If Licensee is unable to perform any of the following:

5.3.1 begin Phase I Clinical Trials in the United States for Patent Products on or before June 30, 1998; and

5.3.2 enter pivotal clinical trials (a combination of Phase II and Phase III Clinical Trials) in the United States for said Patent Products on or before December 31, 1999; and

5.3.3 file for marketing approval in the United States for said Patent Product on or before December 31, 2002; and

5.3.4 market Patent Products in the United States within six (6) months after receiving marketing approval of such Patent Products from the U.S. Food and Drug Administration; and

5.3.5 diligently and earnestly fill the market demand for Patent Products following commencement of marketing

at any time during the exclusive period of this Agreement;

This Amendment is not intended to, and it is agreed that it does not, expressly or by implication, affect in any way, any other provisions of the Exclusive License Agreement for Angiogenesis Gene Therapy, dated September 29, 1995, which are intended to remain in full force and effect.

COLLATERAL THERAPEUTICS, INC.			THE REGENTS OF THE UNIVERSITY OF CALIFORNIA

By	/s/ Jack W. Reich, Ph.D.		By	/s/ Candace L. Voelker
	(Signature)			(Signature)

Name		JACK W. REICH, Ph.D.	Name		Candace L. Voelker

Title		President & CEO	Title		Associate Director
					Office of Technology Transfer

Date		6-24-97	Date		6/30/97

Approval as to legal form:	/s/ [ILLEGIBLE]	[ILLEGIBLE]
	[SEAL]	Date

3^rd Amendment to
the Exclusive License Agreement

between

The Regents of the University of California

and

Collateral Therapeutics

UC Case No. 94-161

Agreement No. 96-04-0203

3^rd AMENDMENT TO THE EXCLUSIVE LICENSE AGREEMENT FOR

ANGIOGENESIS GENE THERAPY

This amendment (Amendment) is effective this 11^th day of March 1999 between The Regents of the University of California (“The Regents’’), a California corporation having its statewide administrative offices at 1111 Franklin Street, 12^th Floor, Oakland, California 94607-5200, and Collateral Therapeutics (“Licensee”), a Delaware corporation having a principal place of business at 11622 El Camino Real, San Diego California 92130.

RECITALS

Licensee and The Regents entered into a license agreement entitled “Exclusive License Agreement for Angiogenesis Gene Therapy,” effective on September 27, 1995 (UC Agreement Control Number 96-04-0203). The above described license agreement (the “Agreement”) was amended by mutual agreement of the parties on September 19, 1996 and again on June 30, 1997;

Licensee has requested that some provisions of Article 5 (Due Diligence) be amended and extended so that Licensee can remain in compliance with the Agreement and achieve product approval under feasible diligence provisions. The Regents has agreed to this Third Amendment so that the products licensed under the Agreement may be developed for the benefit of the general public.

The Regents and the Licensee agree as follows:

Subparagraph 5.3.2 of Article 5 (Diligence) is removed in its entirely from the Agreement and replaced with the following:

5.3.2 Submit a Phase III (large scale) clinical trial protocol to the U.S. Food and Drug Administration on or before December 31, 1999; and

This Third Amendment does not, expressly or by implication, affects any other provision of the Agreement in any way.

The Regents and Licensee have executed this Third Amendment in duplicate originals, by their respective and duly authorized officers on the day and year written below.

COLLATERAL THERAPUETICS			THE REGENTS OF THE UNIVERSITY OF CALIFORNIA


By	/s/ Jack W. Reich, Ph.D.		By	/s/ Candace L. Voelker
	(Signature)			(Signature)

Name		Jack W. Reich	Name		Candace L. Voelker
Title		President and CEO	Title		Associate Director
					Office of Technology Transfer

Date		April 8, 1999	Date		4/23/99

4th Amendment to

the Exclusive License Agreement

between

The Regents of the University of California

and

Collateral Therapeutics

UC Case No. 94-161

Agreement Control No. 96-04-0203

	U.C. AGREEMENT
	CONTROL NUMBER
	96-04-0203 RevH

4th AMENDMENT TO THE EXCLUSIVE LICENSE AGREEMENT FOR

ANGIOGENESIS GENE THERAPY

This amendment (Amendment) is effective this 8^th day of February, 2000 between The Regents of the University of California (“The Regents”), a California corporation, having its statewide administrative offices at 1111 Franklin Street, 12’^h Floor, Oakland, California 94607-5200, and Collateral Therapeutics (“Licensee”), a Delaware corporation, having a principal place of business at 11622 El Camino Real. San Diego, California 92130.

RECITALS

Licensee and The Regents entered into a license agreement entitled “Exclusive License Agreement for Angiogenesis Gene Therapy,” effective an September 27, 1995 (U.C. Agreement Control Number 96-04-0203). The above described license agreement (the ‘‘Agreement”) was amended by mutual agreement of the parties on September 19, 1996, on June 30, 1997, and on March 11, 1999;

In response to an unforeseen and unavoidable delay in the regulatory approval process, Licensee has asked The Regents to extend the term of a diligence provision (Article 5) in the Agreement;

Licensee so requests and the Regents accedes to the Licensee’s request so that the Licensee can remain in compliance with the Agreement and achieve product approval within a feasible time period;

In consideration for this Fourth Amendment, Licensee will make an early payment of the License Issue Fee due under Subparagraph 3.1.4 of the Agreement.

The parties therefore agree to amend the Agreement as follows:

1. Subparagraph 3.1.4 of Article 3 (License Issue Fee) is removed in its entirety and replaced with the following:

3.1.4 One Hundred Thousand Dollars ($100,000) on or before January 20, 2000; and

2. Subparagraph 5.3.2 of Article 5 (Diligence) is removed in its entirety from the Agreement and replaced with the following;

5.3.2 Submit a Phase III (large scale) clinical trial protocol to the U.S. Food and Drug Administration on or before July 31, 2000; and

This Fourth Amendment does not, expressly or by implication, affect any other provision of the Agreement in any way.

The Regents and Licensee have executed this Fourth Amendment, in duplicate originals, by their respective and duly authorized officers on the day and year written below.

COLLATERAL THERAPUETICS			THE REGENTS OF THE UNIVERSITY OF CALIFORNIA


By	/s/ Jack W. Reich, Ph.D.		By	/s/ Candace Voelker
	(Signature)			(Signature)

Name		Jack W. Reich	Name		Candace L. Voelker
Title		Chief Executive Officer	Title		Associate Director,
					Office of Technology Transfer

Date		Feb. 8, 2000	Date		2/9/00

Approved as to legal form:	/s/ P. Martin Simpson, Jr.		2/7/96
	[SEAL]		Date

EX-31.1 6 a05-22067_1ex31d1.htm 302 CERTIFICATION

Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to

Rule 13a-14(a)/15d-14(a)

I, Christopher J. Reinhard, Chief Executive Officer of Aries Ventures Inc., certify that:

1. I have reviewed this Annual Report on Form 10-KSB of Aries Ventures Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4. The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5. The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

Date: December 21, 2005

	/s/ Christopher J. Reinhard
	Christopher J. Reinhard, Chief Executive Officer

EX-31.2 7 a05-22067_1ex31d2.htm 302 CERTIFICATION

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to

Rule 13a-14(a)/15d-14(a)

I, Dennis M. Mulroy, Chief Financial Officer of Aries Ventures Inc., certify that:

1. I have reviewed this Annual Report on Form 10-KSB of Aries Ventures Inc.;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

Date: December 21, 2005

	/s/ Dennis M. Mulroy
	Dennis M. Mulroy, Chief Financial Officer

EX-32 8 a05-22067_1ex32.htm 906 CERTIFICATION

Exhibit 32

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Aries Ventures Inc., a Nevada corporation, does hereby certify, to such officer’s knowledge, that the Annual Report on Form 10-KSB for the fiscal year ended September 30, 2005 of Aries Ventures Inc. fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Aries Ventures Inc.

Date: December 21, 2005	/s/ Christopher J. Reinhard
	Christopher J. Reinhard, Chief Executive Officer


Date: December 21, 2005	/s/ Dennis M. Mulroy
	Dennis M. Mulroy, Chief Financial Officer

The foregoing certification is furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-KSB or as a separate disclosure document.