-----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, D822OSU/RM48c5vo1/eLL+iHy4AWd9NGnYQYRXDSf3ajdHXgy3RGtWXIkh5jSZ+u GvWZMjN4gDdf9wGMPkIZxQ== 0000891618-98-003881.txt : 19980817 0000891618-98-003881.hdr.sgml : 19980817 ACCESSION NUMBER: 0000891618-98-003881 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXYS PHARMECUETICALS INC CENTRAL INDEX KEY: 0000913056 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 222969941 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22788 FILM NUMBER: 98687358 BUSINESS ADDRESS: STREET 1: 180 KIMBALL WAY CITY: SOUTH SAN FRANCISCO STATE: CA ZIP: 94080 BUSINESS PHONE: 4157378600 MAIL ADDRESS: STREET 1: 385 OYSTER POINT BLVD STREET 2: SUITE 3 CITY: SOUTH SAN FRANCISCO STATE: CA ZIP: 94080 FORMER COMPANY: FORMER CONFORMED NAME: ARRIS PHARMACEUTICAL CORP/DE/ DATE OF NAME CHANGE: 19931005 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1998 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 ------------------------ FORM 10-Q ------------------------ [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________. COMMISSION FILE NUMBER: 0-22788 AXYS PHARMACEUTICALS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-2969941 -------- ---------- (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION)
180 KIMBALL WAY SOUTH SAN FRANCISCO, CALIFORNIA 94080 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (650) 829-1000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No The number of outstanding shares of the registrant's Common Stock, $0.001 par value, was 30,138,892 as of July 31, 1998. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 AXYS PHARMACEUTICALS, INC. INDEX
PAGE ---- PART I: FINANCIAL INFORMATION Item 1. Financial Statements (unaudited)* Condensed Consolidated Balance Sheets -- June 30, 1998 and December 31, 1997........................................... 3 Condensed Consolidated Statements of Operations -- Three and six months ended June 30, 1998 and 1997..................... 4 Condensed Consolidated Statements of Cash Flows -- Six months ended June 30, 1998 and 1997......................... 5 Notes to Condensed Consolidated Financial Statements -- June 30, 1998.................................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 10 Item 3. Quantitative and Qualitative Disclosure About Market Risk... 15 PART II: OTHER INFORMATION Item 1. Legal Proceedings........................................... 16 Item 2. Changes in Securities....................................... 16 Item 3. Defaults Upon Senior Securities............................. 16 Item 4. Submission of Matters to a Vote of Security Holders......... 16 Item 5. Other Information........................................... 16 Item 6. Exhibits and Reports on Form 8-K............................ 17 Signatures............................................................ 18
- --------------- * The financial information contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997, filed with the Securities and Exchange Commission on March 31, 1998. 2 3 AXYS PHARMACEUTICALS, INC. PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS
JUNE 30, 1998 DECEMBER 31, (UNAUDITED) 1997(1)(2) ----------- ------------ (IN THOUSANDS) Current assets: Cash and cash equivalents................................. $ 39,075 $22,398 Short-term marketable investments......................... 42,664 30,470 Prepaid expenses and other current assets................. 5,107 4,103 -------- ------- Total current assets................................... 86,846 57,511 Property and equipment, net................................. 20,824 14,454 Investment in joint venture................................. 3,395 -- Note receivable from officer................................ 605 775 Other assets................................................ 4,784 844 -------- ------- TOTAL ASSETS...................................... $116,454 $73,584 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 3,787 $ 1,622 Accrued compensation...................................... 2,552 1,793 Other accrued liabilities................................. 2,858 2,148 Current portion of deferred revenue....................... 7,620 5,410 Current portion of capital lease and debt obligations..... 7,318 3,390 -------- ------- Total current liabilities.............................. 24,135 14,363 Deferred revenue, noncurrent................................ -- 726 Capital lease and debt obligations, net of current portion................................................... 19,681 14,605 Minority interest in Xyris Corporation...................... 500 -- Stockholders' equity: Preferred stock........................................... -- -- Common stock.............................................. 289,102 117,786 Note receivable from officer.............................. -- (125) Accumulated deficit....................................... (216,964) (73,771) -------- ------- Total stockholders' equity............................. 72,138 43,890 -------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $116,454 $73,584 ======== =======
- --------------- (1) The balance sheet at December 31, 1997 has been derived from the audited financial statement at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. (2) Represents the balances of Arris Pharmaceutical Corporation only. See accompanying notes to condensed consolidated financial statements. 3 4 AXYS PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ -------------------- 1998 1997* 1998 1997* ------- ------- --------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues.......................................... $ 9,097 $ 6,176 $ 17,531 $12,865 Operating expenses: Research and development........................ 13,887 7,467 29,374 15,314 General and administrative...................... 3,690 1,588 7,122 3,203 Acquired in-process research and development.... -- -- 124,888 -- ------- ------- --------- ------- Total operating expenses................ 17,577 9,055 161,384 18,517 ------- ------- --------- ------- Operating loss.................................... (8,480) (2,879) (143,853) (5,652) Interest income................................... 1,288 819 2,669 1,768 Interest expense.................................. (539) (159) (1,107) (381) Equity interest in loss of joint venture.......... (445) (902) ------- ------- --------- ------- Net loss.......................................... $(8,176) $(2,219) $(143,193) $(4,265) ======= ======= ========= ======= Basic and diluted net loss per share.............. $ (0.27) $ (0.15) $ (4.87) $ (0.29) ======= ======= ========= ======= Shares used in computing basic and diluted net loss per share.................................. 29,999 14,966 29,390 14,932 ======= ======= ========= =======
- --------------- * Reflects the results of Arris Pharmaceutical Corporation only. See accompanying notes to condensed consolidated financial statements. 4 5 AXYS PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, -------------------- 1998 1997* --------- ------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................... $(143,193) $(4,265) Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities: Depreciation and amortization............................. 4,394 2,112 Equity interest in loss of joint venture.................. 902 -- Forgiveness of note receivable from officer............... 125 -- Acquired in-process research and development.............. 124,888 -- Changes in assets and liabilities: Prepaid expenses and other current assets.............. 986 (613) Other assets........................................... (3,357) (63) Accounts payable, accrued liabilities and deferred revenue............................................... (8,810) (3,294) --------- ------- Net cash used in operating activities....................... (24,065) (6,123) --------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Available-for-sale securities: Purchases................................................. (19,301) -- Maturities................................................ 49,019 749 Purchase of held-to-maturity security Purchases................................................. -- (9,683) Maturities................................................ -- 28,392 Purchase of restricted cash................................. -- (4,000) Acquisition of Sequana, net of cash......................... 13,270 -- Investment in joint venture................................. (2,000) -- Purchase of property and equipment.......................... (2,332) (4,295) --------- ------- Net cash provided by investing activities................... 38,656 11,163 --------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock.................. 1,586 528 Proceeds from notes receivable.............................. 603 -- Proceeds from notes payable and lease financing............. 2,000 4,350 Proceeds from minority interest............................. 500 -- Principal payments on notes payable and capital leases...... (3,143) (1,289) --------- ------- Net cash provided by financing activities................... 1,546 3,589 --------- ------- Net increase in cash and cash equivalents................... 16,137 8,629 Cash and cash equivalents, beginning of period.............. 22,938 10,822 --------- ------- Cash and cash equivalents, end of period.................... $ 39,075 $19,451 ========= =======
- --------------- * Reflects the results of Arris Pharmaceutical Corporation only. See accompanying notes to condensed consolidated financial statements. 5 6 AXYS PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 (UNAUDITED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Axys Pharmaceuticals, Inc., a Delaware corporation ("Axys" or the "Company"), formerly known as Arris Pharmaceutical Corporation ("Arris"), is a leader in the integration of drug discovery technologies from gene identification through clinical development. Axys has research collaborations with world-class pharmaceutical companies that are focused on the discovery of small molecule therapeutics and cover a broad range of therapeutic areas, including respiratory, cardiovascular, metabolic and infectious diseases, as well as oncology and central nervous system disorders. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Arris Protease, Inc., Arris Pharmaceuticals Canada, Inc., Sequana Therapeutics, Inc. ("Sequana") (see "Acquisition of Sequana," Note 2) and its wholly owned subsidiary, NemaPharm, Inc., and a majority ownership in Xyris Corporation (see "Formation of Xyris Corporation," Note 4). All significant intercompany accounts and transactions have been eliminated. BASIS OF PRESENTATION The unaudited consolidated financial statements included herein have been prepared by the Company according to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in complete financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The financial statements reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to state fairly the financial position and results of operations as of and for the periods indicated. The results of operations for the three and six month periods ended June 30, 1998 are not necessarily indicative of the results to be expected for subsequent quarters or the full fiscal year. These financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company's 1997 Annual Report on Form 10-K filed with the Securities and Exchange Commission. 2. ACQUISITION OF SEQUANA On January 8, 1998, the Company acquired all of the outstanding capital stock of Sequana, a genomics company that uses industrial-scale gene discovery technology and functional genomics to discover and characterize genes that are believed to cause certain common diseases. The Company issued 14,618,013 shares of Axys Common Stock in exchange for all the outstanding common stock of Sequana, on the basis of 1.35 shares of Axys' common stock for one share of Sequana common stock. The purchase price of $174.1 million consisted of (i) the issuance of 14,618,013 shares of Company common stock valued at $168.1 million, in exchange for all outstanding Sequana capital stock, (ii) the issuance of Company warrants valued at $1.6 million in exchange for all outstanding Sequana warrants, (iii) severance costs totaling $1.2 million, and (iv) transaction costs totaling $3.2 million. 6 7 AXYS PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998 (UNAUDITED) The allocation of the purchase price was determined as follows: Net tangible assets acquired........................... $ 45,882,000 Intangible assets acquired: Workforce............................................ 3,300,000 In-process technology.................................. 124,888,000 ------------ Total........................................ $174,070,000 ============
The acquisition has been accounted for as a purchase and accordingly, the original purchase price was allocated to acquired assets and assumed liabilities based upon their fair value at the date of acquisition. The purchase price has been allocated to assets acquired and to in-process research and development which has been charged as an expense in the Axys consolidated financial statements for the six months ended June 30, 1998. Intangibles acquired in the acquisition are being amortized on a straight line basis over 36 months. The operating results of Sequana from January 1, 1998 to June 30, 1998 have been included in the Company's consolidated results of operations. The operating results of Sequana from January 1, 1998 to January 8, 1998 (the date of acquisition) are considered immaterial. As part of the Company's acquisition of Sequana, the Company also obtained 50% ownership of Genos Biosciences, Inc. ("Genos") (see "Investment in Joint Venture," Note 3). The following unaudited pro forma financial summary is presented as if the operations of the Company and Sequana were combined as of December 31, 1996. The unaudited pro forma combined results are not necessarily indicative of the actual results that would have occurred had the acquisition been consummated at that date, or of the future operations of the combined entities. Nonrecurring charges, such as the acquired in-process research and development charge of $124.9 million are not reflected in the following pro forma financial summary. PRO FORMA FINANCIAL SUMMARY FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
3 MONTHS ENDED 6 MONTHS ENDED JUNE 30, 1997 JUNE 30, 1997 -------------- -------------- Contract Revenues.............................. $12,233 $ 21,431 Net Loss....................................... $(5,786) $(14,781) Basic and diluted net loss per share........... $ (0.19) $ (0.49)
3. INVESTMENT IN JOINT VENTURE In January 1997, Sequana and Memorial Sloan-Kettering Cancer Center ("MSKCC") formed Genos, a joint venture focused on the research and identification of genes and related genetic information believed to be of value in the prognosis, diagnosis and positive treatment of certain common cancers. Sequana and MSKCC each own 50% of Genos and have committed to make capital contributions of approximately $5 million each to fund its initial operations. As of June 30, 1998, Sequana had invested $5.2 million in Genos, meeting its initial commitment. The investment in Genos is accounted for under the equity method. Under the terms of the agreement, Sequana licensed certain of its technology to Genos and has contracted with Genos to conduct research and provide certain other services to the joint venture. Payments to date for such research and services have not been material. In connection with the formation of Genos, Sequana sold a warrant to MSKCC to purchase 350,000 shares of the Sequana's common stock. That warrant was assumed by the Company as part of the 7 8 AXYS PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998 (UNAUDITED) acquisition of Sequana on January 8, 1998, and was converted to a warrant to purchase an aggregate of 472,500 shares at a price of $12.87 per share. 4. FORMATION OF XYRIS CORPORATION In June 1998, in connection with the formation of Xyris Corporation, a California corporation and majority-owned subsidiary of the Company ("Xyris"), the Company and Bay City Capital LLC, a San Francisco based private merchant bank ("BCC"), each received Series A Preferred Stock of Xyris. Xyris was established in May 1998 to leverage Axys' existing pharmaceutical technology in the agricultural market. In exchange for 2,950,000 shares of Xyris' Series A Preferred Stock, representing 82% of the total outstanding shares of Xyris capital stock, the Company granted to Xyris the right, for a limited period to negotiate an exclusive license in the field of agriculture to all Axys technology, including its genomics, combinatorial chemistry and small molecule drug discovery technology. BCC purchased Xyris Series A Preferred Stock for cash. In connection with BCC's purchase, the Company issued an option (the "Put Option") to BCC, granting BCC the right to require the Company to purchase from BCC all of the 150,000 shares of Series A Preferred Stock of Xyris (the "Xyris Stock") held by BCC. If the Put Option is exercised, the Company would purchase the Xyris Stock with shares of the Company's Common Stock, at its then market price, with an aggregate market value on the date the Put Option is exercised equal to $499,500, rounded down to the nearest whole number of shares. The Put Option will terminate upon the earlier of January 5, 1999 or the occurrence of certain other events, including the execution of an exclusive license in the field of agriculture to all Axys technology. 5. NOTE PAYABLE The Company has two lines of credit, one with Sumitomo Bank, Limited ("Sumitomo") and one with Sumitomo and Silicon Valley Bank jointly, to provide up to $27 million dollars in debt financing. The loans are subject to certain financial covenants over the course of the agreements. Interest is computed at various rates based on a Eurodollar rate and the bank's prime rate, and range from 7.3% to 7.9%, and 8.5%, respectively, at June 30, 1998. Interest and principal payments are due monthly on $5.7 million of the balance and interest only payments are due quarterly on $15.8 million of the balance, until September 30, 1998, at which time principal and interest will be payable in 48 monthly installments under both lines of credit. The Company was in compliance with all covenants under both lines of credit at June 30, 1998. The balance outstanding on these loans at June 30, 1998 was $21.9 million. 6. COMPREHENSIVE INCOME As of January 1, 1998, the Company adopted Financial Accounting Standards Board's Statement No. 130, "Reporting Comprehensive Income" (Statement 130). Statement 130 establishes new rules for the reporting and display of comprehensive income and its components. Accordingly, the adoption of this statement had no impact on the Company's net income or stockholders' equity. Comprehensive income is the same as net income, as there are no adjustments reported in stockholders' equity which are to be included in the computation. 8 9 AXYS PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998 (UNAUDITED) 7. RECENT ACCOUNTING PRONOUNCEMENTS As of January 1, 1998, the Company adopted the Financial Accounting Standards Board's Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information" (Statement 131). Statement 131 superseded Statement No. 14, Financial Reporting for Segments of a Business Enterprise. Statement 131 established standards for the way that public business enterprises report information about operation segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. Statement 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers. The adoption of Statement 131 did not affect the results of operations or financial position of the Company, but may affect the disclosure of the segment information at December 31, 1998. In March 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS132"). SFAS 132 does not change the recognition or measurement of pension or postretirement benefit plans, but revises and standardizes disclosure requirements for pensions and other postretirement benefits. The adoption of SFAS 132 has no impact on the Company's results of operations or financial condition. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Financial Instruments and for Hedging Activities" ("SFAS 133") which provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. SFAS 133 is effective for years beginning after June 15, 1999 and is not anticipated to have an impact on the Company's results of operations or financial condition when adopted. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. The Company expressly disclaims any obligation to update this information or publicly release any revisions or reflect events or circumstances after the date of this report. The Company's actual results could differ significantly from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below under "Certain Business Risks," as well as elsewhere herein, together with those discussed in "Item 1. Business" and "Additional Risk Factors" in the Company's report on Form 10-K for the fiscal year ended December 31, 1997, filed with the Securities and Exchange Commission on March 31, 1998. OVERVIEW Since its inception in April 1989, the Company has devoted substantially all of its resources to its research and development programs. To date, the Company's only source of revenue has been its corporate collaborations with Pharmacia & Upjohn, Inc. and its predecessors ("PNU"), Amgen, Inc. ("Amgen"), Bayer AG ("Bayer"), SmithKline Beecham Corporation ("SB"), Merck & Co. ("Merck"), Abbott Laboratories ("Abbott"), and Bristol-Myers Squibb ("BMS"). In addition, through its acquisition of Sequana on January 8, 1998, the following corporate collaborations are included with the revenue sources listed above, Boehringer Ingelheim International GmbH ("BI"), Corange International Ltd. ("Corange"), Parke-Davis ("PD"), and Glaxo-Wellcome ("Glaxo"). These collaborations have taken a variety of forms including, in each case, certain of the following elements: payments to the Company of an up-front commitment fee and license fees, purchase of the Company's common stock, research funding payments, purchase of compounds produced, reimbursement of patient collection costs, milestone payments when milestones are achieved, and royalties upon the sale of any resulting products. Where appropriate, the up-front commitment fees have been recorded as deferred revenue until earned. In May 1998, the Company and Glaxo announced that following a review of their relationship, the companies will discontinue their collaboration to discover genes associated with type 2 diabetes mellitus and obesity. Under the terms of the dissolution agreement, Axys was granted exclusive rights to all obesity family samples and data and non-exclusive rights to certain type 2 diabetes samples and data. In June 1998, in connection with the formation of Xyris Corporation, a California corporation and majority-owned subsidiary of the Company ("Xyris"), the Company and Bay City Capital LLC, a San Francisco based private merchant bank ("BCC"), each received Series A Preferred Stock of Xyris. Xyris was established in May 1998 to leverage Axys' existing pharmaceutical technology in the agricultural market. In exchange for 2,950,000 shares of Xyris' Series A Preferred Stock, representing 82% of the total outstanding shares of Xyris' capital stock, the Company granted to Xyris the right, for a limited period to negotiate an exclusive license in the field of agriculture to all Axys technology, including its genomics, combinatorial chemistry and small molecule drug discovery technology. BCC purchased Xyris' Series A Preferred Stock for cash. Also in June 1998, in connection with BCC's purchase of Xyris' Series A Preferred Stock, the Company issued an option (the "Put Option") granting BCC the right to require the Company to purchase from BCC all of the 150,000 shares of Series A Preferred Stock of Xyris (the "Xyris Stock") held by BCC. If the Put Option is exercised, the Company would purchase the Xyris Stock with shares of the Company's Common Stock, at its then market price, with an aggregate market value on the date the Put Option is exercised equal to $499,500, rounded down to the nearest whole number of shares. The Put Option will terminate upon the earlier of January 5, 1999 or the occurrence of certain other events, including the execution of an exclusive license in the field of agriculture to all Axys technology. In June 1998, the Company announced an alliance with Roche Bioscience ("RBS") in the area of functional genomics. The alliance will focus on evaluating the function of genes provided by RBS that 10 11 may serve as drug targets in the development of therapies for pain and other conditions involving peripheral nervous system disorders. The alliance provides for an upfront fee plus research support. In June 1998, the Company announced an agreement between the Company's Advanced Technologies Division and Parke-Davis ("PD"), the Pharmaceutical Research Division of Warner-Lambert, to provide PD with a generic compound screening library consisting of multiple small molecule synthetic organic compound libraries created using the Company's combinatorial chemistry technologies. The agreement consists of the delivery to PD by the Company of compounds over three years and also calls for Axys to provide PD with the enabling technologies and protocols for recreating the library and making directed libraries, as well as other compounds. In July 1998, the Company announced a collaboration with Signal Pharmaceuticals, Inc. ("Signal"), for the accelerated discovery of compounds that interact with specific cell signaling pathways. Signal has developed proprietary assays for these signaling pathways which Signal will use to screen small molecules derived from Axys' Advanced Technologies Division's compound libraries. The agreement provides that Axys will receive an upfront fee, as well as other payments upon the achievement of certain research and development milestones. In July 1998, the Company announced an agreement with Wyeth-Ayerst Laboratories ("WA"), a division of American Home Products, to conduct a clinical trial to study the role played by an Axys proprietary gene variant, or polymorphism, in drug metabolism. The trial is designed to evaluate the effect of the polymorphism on the metabolism of two classes of marketed drugs to determine if patients who have the gene variant metabolize the drugs differently. Under the terms of the agreement, WA will conduct the clinical study and Axys will provide patient genotyping and certain intellectual property. In August 1998, the Company received written notification from Corange that, due to a change in research priorities following the Roche Group's acquisition of Corange, Corange was exercising, effective as of mid-February 1999, its contractual right to bring to a conclusion its osteoporosis collaboration with the Company, including its related research support. Through mid-February 1999, Corange remains contractually obligated to continue its research funding and to make milestone-related payments if any milestones are achieved. After the collaboration is concluded in mid-February 1999, the Company expects to have the right to use the jointly-developed research results and to have the right to pursue this osteoporosis research. The Company is currently considering whether, after mid-February 1999, to continue this research by itself, to continue this research with a new partner, or to suspend this research and reallocate the resources currently devoted to it to other research efforts. The Company has not been profitable since inception and expects to incur substantial losses for at least the next several years, primarily due to the cost of its research and development programs, including preclinical studies and human clinical trials. The Company expects that losses will fluctuate from quarter to quarter, that such fluctuations may be substantial, and that results from prior quarters may not be indicative of future operating results. As of June 30, 1998, the Company's accumulated deficit was approximately $217 million. Included in the Company's accumulated deficit at June 30, 1998 was approximately $147 million of acquired in-process research and development from the acquisition of Khepri Pharmaceuticals, Inc. in 1995 and the acquisition of Sequana in January 1998. 11 12 RESULTS OF OPERATIONS The following discussion of results of operations compares the combined pro forma operating results for the three-and six-months ended June 30, 1997 (see table below) of the Company and Sequana as if the acquisition had been effective as of December 31, 1996 and the Company's consolidated operating results for the three- and six- month periods ended June 30, 1998. PRO FORMA OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1997 JUNE 30, 1997 ------------------ ---------------- (IN THOUSANDS) Revenues.................................. $12,233 $ 21,431 Operating expenses: Research and development................ 15,126 30,486 General and administrative.............. 2,893 5,726 ------- -------- Total operating expenses.................. 18,019 36,212 ------- -------- Operating Loss............................ $(5,786) $(14,781) ======= ========
REVENUES The Company's revenues on a pro forma basis decreased to $9.1 million and $17.5 million for the three and six-month periods ended June 30, 1998, respectively, compared to $12.2 million and $21.4 million, respectively, for the comparable periods in 1997. All of the Company's revenues presently are attributable to the Company's collaborations. Although revenues for the three- and six-months ended June 30, 1998 were lower than for the same periods in 1997, revenues for the three- and six-month periods ended June 30, 1998 were positively affected, primarily due to: (i) the inclusion of the full effects of the research funding for the collaboration with PD to develop novel therapeutic products for the treatment of schizophrenia and bipolar disorder; and (ii) the inclusion of the full effects of the research funding for the collaboration with BMS to develop small molecule inhibitors of proteases involved in hepatitis C virus infection. These revenue increases were more than offset by (i) the ending of the research funded portion of a tryptase inhibitor collaboration with Bayer during the fourth quarter of 1997; (ii) a planned reduction in research support with Merck to develop small molecule inhibitors of proteases involved in osteoporosis; and (iii) an overall reduction (despite record second quarter 1998 revenues) for the six-month period ended June 30, 1998 from the shipments of small molecule synthetic organic compounds under two of the Company's combinatorial chemistry collaborations with PNU and PD. The Company started shipping under the combinatorial collaboration with PD in June 1998. Under the existing collaboration with PNU, the Company has shipped approximately 109,000 compounds to date (250,000 total compounds are due under the three-year agreement). RESEARCH AND DEVELOPMENT Research and development expenses decreased to $13.9 million and $29.4 million for the three and six-month periods ended June 30, 1998, respectively, from $15.1 and $30.5 million in the comparable periods in 1997. The expense reduction for the three- and six-month periods ended June 30, 1998 was primarily due to reduced chemical consumption used in the production of small molecule synthetic organic compounds (since fewer compounds were produced in the three- and six-months ended June 30, 1998 compared to the same period in 1997), as well as lower outside consulting fees associated with clinical trials in 1997 (calculated on a pro forma basis) as compared to 1998. Research and development expenses as a percentage of total expenses, without the consideration of acquired in-process research and development expenses of $124.9 million, has decreased to approximately 79% of total expenses for the three- and six-months ended June 30, 1998, compared to 83% for the comparable periods in 1997. The Company expects that its research and development costs will increase for the remainder of 1998 in absolute dollars when compared to pro forma amounts in 1997, primarily as a 12 13 result of further expansion of its proprietary research programs, and the conduct of preclinical studies and clinical trials. GENERAL AND ADMINISTRATIVE The Company's general and administrative expenses increased to $3.7 million and $7.1 million, respectively, for the three- and six-month periods ended June 30, 1998, from $2.9 and $5.7 million in the comparable periods in 1997. The increase in expenses was primarily due to transition costs resulting from the acquisition of Sequana (see "Acquired in-process research and development" below), and administrative costs of closing down the Cambridge, Massachusetts operation of Sequana's NemaPharm, Inc. subsidiary and relocating the activities to South San Francisco, California, as well as an increase in headcount and facilities required to support additional research programs. Some of the reoccurring administrative costs common to both companies were eliminated by combining the two companies. General and administrative expenses as a percentage of total expenses, without the consideration of acquired in-process research and development expenses of $124.9 million, represented approximately 21% for the three- and six-month periods ended June 30, 1998, compared to 16% for the comparable periods in 1997. The Company expects its general and administrative costs will increase for the remainder of 1998 in absolute dollars when compared to pro forma amounts in 1997, in order to provide corporate support for expanding research and development efforts. EQUITY INTEREST IN LOSS OF JOINT VENTURE The equity interest in loss of joint venture at June 30, 1998 represents the Company's portion of the losses for the three- and six-months ended June 30, 1998 of Genos Biosciences, Inc. ("Genos"). The Company holds a 50% interest in Genos. Genos expects to incur increased operating losses in future periods as it expands its research and development activities. Such losses will result in corresponding changes in the Company's equity in net loss of joint venture. ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT On January 8, 1998, the Company acquired Sequana, a genomics company based in La Jolla, California. The acquisition was a tax-free reorganization accounted for as a purchase. The Company issued approximately 14,620,000 shares of its common stock in exchange for all the outstanding common stock of Sequana, on the basis of 1.35 shares of the Company's common stock for one share of Sequana common stock. The direct transaction costs associated with the acquisition were approximately $3.2 million. The total purchase price of approximately $174 million was allocated to the assets acquired and liabilities assumed based upon the fair value on the date of the acquisition. Approximately $125 million of the purchase price was allocated to in-process research and development and charged to expense at March 31, 1998. INTEREST INCOME AND EXPENSE Interest income increased to $1.3 million and $2.7 million, respectively, for the three- and six-months period, ended June 30, 1998, compared to $819,000 and $1.8 million, respectively, for the comparable periods in 1997. The increases were primarily due to the average cash balances between the periods, resulting from the combination of the Company's cash and Sequana's cash. In addition, the receipt of proceeds from research funding, collection of revenues from the shipment of compounds under the collaborations with PNU and PD, and reimbursement of patient collection fees by the Company's collaborators have helped to sustain the cash levels. Interest expense increased to $538,000 and $1.1 million, respectively, for the three- and six-month periods ended June 30, 1998, from $159,000 and $381,000, respectively, for the comparable periods in 1997. The interest expense increases were primarily due to higher debt balances from the combination of the Company's and Sequana's debt financing. The Company has primarily drawn down its lines of credit to purchase equipment and make leasehold improvements. The Company expects interest expense to fluctuate as financing needs change for future expansion of the Company's facilities and acquisition of laboratory equipment. 13 14 LIQUIDITY AND CAPITAL RESOURCES The Company has financed its operations since inception primarily through private and public offerings of its capital stock and through corporate collaborations. As of June 30, 1998, the Company had realized approximately $95 million in net proceeds from offerings of its capital stock. In addition, the Company had realized $91.7 million since inception from its corporate collaborations. The Company's principal sources of liquidity are its cash and marketable investments, which totaled $81.7 million as of June 30, 1998. The Company has two lines of credit totaling $27 million in borrowing capacity. As of June 30, 1998, the Company had borrowed a total of $21.7 million and had $4.2 million remaining available under the agreements. Under the terms of the loan agreement, the time available to draw down on one of the lines of credit has expired. Net cash used in operating activities during the six-month period ended June 30, 1998 was $24.1 million, compared to $6.1 million in the same period in 1997. The increase was primarily due to the increase in net loss for the six months ended June 30, 1998 and the timing of cash received under the Company's collaboration agreements. Cash used in operating activities is expected to fluctuate from quarter to quarter depending, in part, upon the timing and amounts, if any, of cash received from existing and any new collaboration agreements. The Company also spent approximately $2.3 million for the purchase of property, plant and equipment during the six months ended June 30, 1998. Additional equipment is expected to be needed as the Company increases its research and development activities. The Company's revenues presently are attributable to collaborations with PNU, Merck, BMS, BI, Corange, PD, Glaxo, and RBS. The research support for the Factor Xa program with PNU is currently under revision with an effort being made to repartner this program. The osteoporosis program with Merck extends through the fourth quarter of 1998. As discussed above, the research support from Corange for the osteoporosis collaboration with Corange will continue through mid-February 1999, at which time it will end. The combinatorial chemistry collaborations with PNU and PD, and all other collaborations, extend beyond the next 12 months. If the Company is unable to renew or replace any of these collaborations, such events may have a material adverse effect on the Company's business, financial condition and results of operations. The Company expects that its existing capital resources, including research and development revenues from existing collaborations, will enable the Company to maintain current and planned operations for at least three years. The Company will need to raise substantial additional capital to fund its operations beyond the end of such period. The Company expects that it will seek such additional funding through new collaborations, through the extension of existing collaborations or through public or private equity or debt financing. There can be no assurance that the Company will be able to enter into new collaborations on acceptable terms, or at all, or that additional financing will be available to the Company on acceptable terms, or at all. Any additional funds raised by issuing equity securities may result in further dilution to stockholders. If adequate funds are not available, the Company may be required to delay, to reduce the scope of, or to eliminate one or more of its research or development programs or to obtain funds through arrangements with collaborative partners or others that may require the Company to relinquish rights to certain of its technologies or products that the Company would otherwise seek to develop or commercialize itself. CERTAIN BUSINESS RISKS The Company is at an early stage of development. The Company's technologies are, in many cases, new and all are still under development. All of the Company's proposed products are in research or development and will require significant additional research and development efforts prior to any commercial use, including extensive preclinical and clinical testing, as well as lengthy regulatory approval. There can be no assurance that the Company's research and development efforts will be 14 15 successful, that any of its proposed products will prove to be safe and efficacious in clinical trials or that any commercially successful products will ultimately be developed by the Company. In addition, many of the Company's currently proposed products are subject to development and licensing arrangements with the Company's collaborators. Therefore, the Company is dependent on the research and development efforts of these collaborators. Moreover, the Company is entitled only to a portion of the revenues, if any, realized from the commercial sale of any of the proposed products covered by the collaborations. The Company has experienced significant operating losses since its inception and expects to incur significant operating losses over at least the next several years. The development of the Company's technology and proposed products will require a commitment of substantial funds to conduct these costly and time consuming activities. All of the Company's revenues to date have been received pursuant to the Company's collaborations. Should the Company or its collaborators fail to perform in accordance with the terms of their agreements, any consequent loss of revenue under the agreements could have a material adverse effect on the Company's business, financial condition and results of operations. The proposed products under development by the Company have never been manufactured on a commercial scale and there can be no assurance that such products can be manufactured at a cost or in quantities necessary to make them commercially viable. The Company has no sales, marketing or distribution capability. If any of its proposed products subject to collaborative agreements are successfully developed, the Company must rely on its collaborators to market such products. If the Company develops any products which are not subject to collaborative agreements, it must either rely on other pharmaceutical companies to market such products or must develop a marketing and sales force with technical expertise and supporting distribution capability in order to market such products directly. The foregoing risks reflect the Company's early stage of development and the nature of the Company's industry and products. Also inherent in the Company's stage of development is a range of additional risks, including competition, uncertainties regarding protection of patents and proprietary rights, government regulation and uncertainties related to clinical trials and regarding health care reform. These risks and uncertainties are discussed further in "Item 1. -- Business -- Additional Risk Factors" on the Company's report on Form 10-K for the year ended December 31, 1997, filed by the Company on March 31, 1998. IMPACT OF THE YEAR 2000 The Company has initiated modification of its information technology systems to recognize the year 2000 and has begun converting critical hardware and data processing systems. The Company expects the project to be substantially complete by early 1999. The Company does not expect this project to have a significant effect on operations, and the costs of modification are expected to be insignificant. The Company is in the process of replacing its finance information system which will be year 2000 compliant. In addition, the Company is evaluating significant vendors and other third parties which could have an effect on the Company's operations to ensure Year 2000 compliance by such vendors and third parties. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Not Applicable. 15 16 PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES In June 1998, the Company issued an option (the "Put Option") to Bay City Capital Fund I ("BCC"), granting BCC the right to require the Company to purchase from BCC all of the 150,000 shares of Series A Preferred Stock of Xyris Corporation (the "Xyris Stock") held by BCC. If the Put Option is exercised, the Company would purchase the Xyris Stock with shares of the Company's Common Stock, at its then market price, with an aggregate market value on the date the Put Option is exercised equal to $499,500.00, rounded down to the nearest whole number of shares. The Put Option was granted in connection with a Series A Preferred Stock Purchase Agreement between BCC, Xyris Corporation and the Company, whereby BCC purchased Series A Preferred Stock of Xyris Corporation in connection with the initial funding of Xyris Corporation as a majority owned agricultural subsidiary of the Company. The Put Option will terminate upon the earlier of January 5, 1999 or the occurrence of certain other events, including the execution of an exclusive license in the field of agriculture to all Axys Technology. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's 1998 Annual Meeting of Stockholders was held on May 27, 1998. Stockholders were asked (i) to elect directors to serve for the ensuing year and until their successors are elected; and (ii) to ratify the selection of Ernst & Young LLP as independent auditors of the Company for its fiscal year ending December 31, 1998. All of the matters were approved by the stockholders of the Company. The number of shares voted for, against and withheld for each matter were:
ELECTION OF DIRECTORS: IN FAVOR WITHHELD ---------------------- ---------- -------- John P. Walker........................................ 22,538,577 152,764 Ann M. Arvin, M.D. ................................... 22,590,203 101,138 Brook H. Byers........................................ 22,521,027 170,314 Anthony B. Evnin, Ph.D. .............................. 22,518,127 173,214 Vaughn M. Kailian..................................... 22,592,672 98,669 Donald Kennedy, Ph.D. ................................ 22,534,922 156,419 Irvin Lerner.......................................... 22,537,643 153,698 J. Leighton Read, M.D. ............................... 22,578,958 112,383
BROKER FOR AGAINST ABSTAIN NON-VOTES ---------- ------- ------- --------- Selection of Ernst & Young LLP: 22,614,346 58,538 18,457 7,306,844
ITEM 5. OTHER INFORMATION Pursuant to the Company's bylaws, stockholders who wish to bring matters or propose nominees for director at the Company's 1999 annual meeting of stockholders must provide specified information to the Company between February 26, 1999 and March 28, 1999 (unless such matters are included in the Company's proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended). 16 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF DOCUMENTS ------- ------------------------ 10.4* 1997 Equity Incentive Plan 10.87** Termination of Collaborative Research Agreement between Sequana and Glaxo Wellcome, Inc., effective February 1, 1998. 10.88** Combinatorial Chemistry Agreement between the Company and Warner-Lambert Company, dated May 15, 1998. 10.89** Collaboration Agreement by and among the Company and its subsidiaries, NemaPharm, Inc. and Sequana, and Roche Bioscience, dated June 1, 1998. 27 Financial Data Schedule
- --------------- * Compensatory Benefit Plan. ** Confidential treatment has been requested with respect to certain portions of this exhibit. (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed by the Company during the period covered by this report. 17 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AXYS PHARMACEUTICALS, INC. Date: August 13, 1998 By: /s/ FREDERICK J. RUEGSEGGER ------------------------------------ Frederick J. Ruegsegger Senior Vice President Finance and Corporate Development and Chief Financial Officer (Principal Financial and Accounting Officer and Authorized Officer) 18 19 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENTS ------- ------------------------ 10.4* 1997 Equity Incentive Plan 10.87** Termination of Collaborative Research Agreement between Sequana and Glaxo Wellcome, Inc., effective February 1, 1998. 10.88** Combinatorial Chemistry Agreement between the Company and Warner-Lambert Company, dated May 15, 1998. 10.89** Collaboration Agreement by and among the Company and its subsidiaries, NemaPharm, Inc. and Sequana, and Roche Bioscience, dated June 1, 1998. 27 Financial Data Schedule
- --------------- * Compensatory Benefit Plan. ** Confidential treatment has been requested with respect to certain portions of this exhibit. EX-10.4 2 1997 EQUITY INCENTIVE PLAN 1 Exhibit 10.4 ARRIS PHARMACEUTICAL CORPORATION 1997 EQUITY INCENTIVE PLAN ADOPTED NOVEMBER 10, 1997 APPROVED BY STOCKHOLDERS JANUARY 7, 1998 1. PURPOSES. (a) The purpose of the Plan is to provide a means by which selected Employees and Directors of and Consultants to the Company and its Affiliates may be given an opportunity to benefit from increases in value of the common stock of the Company ("Common Stock") through the granting of (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses and (iv) rights to purchase restricted stock, all as defined below. (b) The Company, by means of the Plan, seeks to retain the services of persons who are now Employees, Directors or Consultants, to secure and retain the services of new Employees, Directors and Consultants, and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. (c) The Company intends that the Stock Awards issued under the Plan shall, in the discretion of the Board or any Committee to which responsibility for administration of the Plan has been delegated pursuant to subsection 3(c), be either (i) Options granted pursuant to Section 6 hereof, including Incentive Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to purchase restricted stock granted pursuant to Section 7 hereof. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and a separate certificate or certificates will be issued for shares purchased on exercise of each type of Option. 2. DEFINITIONS. (a) "Affiliate" means any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f) respectively, of the Code, or such other parent corporation or subsidiary corporation designated by the Board. (b) "Board" means the Board of Directors of the Company. (c) "Code" means the Internal Revenue Code of 1986, as amended. (d) "Committee" means a committee appointed by the Board in accordance with subsection 3(c) of the Plan. (e) "Company" means Arris Pharmaceutical Corporation, a Delaware corporation. (f) "Consultant" means any person, including an advisor, engaged by the Company or an Affiliate to render consulting services and who is compensated for such services, provided that the term "Consultant" shall not include Directors who are paid only a director's fee by the Company or who are not compensated by the Company for their services as Directors. (g) "Continuous Service" means the employment or relationship as a Director or Consultant is not interrupted or terminated. The Board, in its sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of: (i) any leave of absence approved by the Board, including sick leave, military leave, or any other personal leave; or (ii) transfers between locations of the Company or between the Company, Affiliates or their successors. (h) "Director" means a member of the Board. (i) "Disability" means total and permanent disability as defined in Section 22(e) of the Code. E-1 2 (j) "Employee" means any person, including Officers and Directors, employed by the Company or any Affiliate of the Company. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (k) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (l) "Fair Market Value" means, as of any date, the value of the Common Stock of the Company determined as follows: (1) If the Common Stock is listed on any established stock exchange, or traded on the Nasdaq National Market or The Nasdaq SmallCap Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in Common Stock) on the last market trading day prior to determination, as reported in The Wall Street Journal or such other source as the Board deems reliable; (2) In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board. (m) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (n) "Non-Employee Director" means a Director who either (i) is not a current Employee or Officer of the Company or its parent or subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or subsidiary for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act of 1933 ("Regulation S-K"), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation SK, and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-employee director" for purposes of Rule 16b-3. (o) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option. (p) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (q) "Option" means a stock option granted pursuant to the Plan. (r) "Option Agreement" means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (s) "Optionee" means a person to whom an Option is granted pursuant to the Plan. (t) "Outside Director" means a Director who either (i) is not a current employee of the Company or an "affiliated corporation" (within the meaning of Treasury regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an "affiliated corporation" receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an "affiliated corporation" at any time, and is not currently receiving direct or indirect remuneration from the Company or an "affiliated corporation" for services in any capacity other than as a Director, or (ii) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code. (u) "Plan" means this 1997 Equity Incentive Plan. (v) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. (w) "Stock Award" means any right granted under the Plan, including any Option, any stock bonus, and any right to purchase restricted stock. E-2 3 (x) "Stock Award Agreement" means a written agreement between the Company and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan. 3. ADMINISTRATION. (a) The Plan shall be administered by the Board unless and until the Board delegates administration to a Committee, as provided in subsection 3(c). (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (1) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; whether a Stock Award will be an Incentive Stock Option, a Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock, or a combination of the foregoing; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive stock pursuant to a Stock Award; and the number of shares with respect to which a Stock Award shall be granted to each such person. (2) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (3) To amend the Plan or a Stock Award as provided in Section 12. (4) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan. (c) The Board may delegate administration of the Plan to a committee or committees ("Committee") of two (2) or more members of the Board. In the discretion of the Board, a Committee may consist solely of two (2) or more Non-Employee Directors, in accordance with Rule 16b-3, or solely of two (2) or more Outside Directors, in accordance with Code Section 162(m). If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board (and references in this Plan to the Board shall thereafter be to the Committee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. Notwithstanding anything in this Section 3 to the contrary, the Board or the Committee may delegate to a committee of one or more members of the Board the authority to grant options to eligible persons who are not then subject to Section 16 of the Exchange Act and to eligible persons with respect to whom the Company does not wish to comply with Section 162(m) of the Code. 4. SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of Section 11 relating to adjustments upon changes in stock, the stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate two million five hundred thousand (2,500,000) shares of Common Stock. In the event a Stock Award shall for any reason expire or otherwise terminate after the date of grant, in whole or in part, without having been exercised in full (or vested in the case of restricted stock), the stock not acquired under such Stock Award shall revert to and again become available for issuance under the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 5. ELIGIBILITY. (a) Incentive Stock Options may be granted only to Employees. Stock Awards other than Incentive Stock Options may be granted only to Employees, Directors or Consultants. E-3 4 (b) No person shall be eligible for the grant of an Incentive Stock Option if, at the time of grant, such person owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of such stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant. (c) Subject to the provisions of Section 11 relating to adjustments upon changes in stock, no person shall be eligible to be granted Stock Awards covering more than five hundred thousand (500,000) shares of Common Stock in any calendar year. 6. OPTION PROVISIONS. Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: (a) Term. No Option shall be exercisable after the expiration of ten (10) years from the date it was granted. (b) Price. The exercise price of each Option shall be not less than one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date of grant. Notwithstanding the foregoing, an Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. (c) Consideration. The purchase price of stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised, or (ii) at the discretion of the Board or Committee, at the time of the grant of the Option, (A) by delivery to the Company of other Common Stock of the Company, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other Common Stock of the Company) with the person to whom the Option is granted or to whom the Option is transferred pursuant to subsection 6(d), or (C) in any other form of legal consideration that may be acceptable to the Board. In the case of any deferred payment arrangement, interest shall be payable at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. (d) Transferability. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the Incentive Stock Option is granted only by such person. A Nonstatutory Stock Option may be transferred to the extent provided in the Option Agreement; provided that if the Option Agreement does not expressly permit the transfer of a Nonstatutory Stock Option, the Nonstatutory Stock Option shall not be transferable except by will, by the laws of descent and distribution or pursuant to a domestic relations order satisfying the requirements of Rule 16b-3, and shall be exercisable during the lifetime of the person to whom the Option is granted only by such person or any transferee pursuant to a domestic relations order. Notwithstanding the foregoing, the person to whom the Option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the Option. (e) Vesting. The total number of shares of stock subject to an Option may, but need not, be allotted in periodic installments (which may, but need not, be equal). The Option Agreement may provide that from time to time during each of such installment periods, the Option may become exercisable ("vest") with respect to some or all of the shares allotted to that period, and may be exercised with respect to some or all of the shares allotted to such period and/or any prior period as to which the Option became vested but was not E-4 5 fully exercised. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The provisions of this subsection 6(e) are subject to any Option provisions governing the minimum number of shares as to which an Option may be exercised. (f) Termination of Continuous Service. In the event an Optionee's Continuous Service terminates (other than upon the Optionee's death or disability), the Optionee may exercise his or her Option within such period of time designated by the Board, which shall in no event be later than the expiration of the term of the Option as set forth in the Option Agreement (the "Post-Termination Exercise Period") and only to the extent that the Optionee was entitled to exercise the Option on the date Optionee's Continuous Service terminates. In the case of an Incentive Stock Option, the Board shall determine the Post-Termination Exercise Period at the time the Option is granted, and the term of such PostTermination Exercise Period shall in no event exceed ninety (90) days from the date of termination. In addition, the Board may at any time, with the consent of the Optionee, extend the Post-Termination Exercise Period and provide for continued vesting; provided however, that any extension of such period by the Board in excess of ninety (90) days from the date of termination shall cause an Incentive Stock Option so extended to become a Nonstatutory Stock Option, effective as of the date of Board action. If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified in the Option Agreement or as otherwise determined above, the Option shall terminate, and the shares covered by such Option shall revert to the Plan. Notwithstanding the foregoing, the Board shall have the power to permit an Option to continue to vest during the Post-Termination Exercise Period. An Optionee's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionee's Continuous Service (other than upon the Optionee's death or disability) would be prohibited at any time solely because the issuance of Shares would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the first paragraph of this subsection 6(f), or (ii) the expiration of a period of ninety (90) days after the termination of the Optionee's Continuous Service during which the exercise of the Option would not be in violation of such registration requirements. (g) Disability of Optionee. In the event an Optionee's Continuous Service terminates as a result of the Optionee's disability, the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it at the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (h) Death of Optionee. In the event of the death of an Optionee during, or within a ninety (90)-day period after the termination of, the Optionee's Continuous Service, the Option may be exercised to the extent vested by the Optionee's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionee's death pursuant to subsection 6(d), but only within the period ending on the earlier of (i) the date twelve (12) months following the date of death (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of such Option as set forth in the Option Agreement. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. E-5 6 (i) Early Exercise. The Option may, but need not, include a provision whereby the Optionee may elect at any time while an Employee, Director or Consultant to exercise the Option as to any part or all of the shares subject to the Option prior to the full vesting of the Option. Any unvested shares so purchased may be subject to a repurchase right in favor of the Company or to any other restriction the Board determines to be appropriate. 7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK. Each stock bonus or restricted stock purchase agreement shall be in such form and shall contain such terms and conditions as the Board or Committee shall deem appropriate. The terms and conditions of stock bonus or restricted stock purchase agreements may change from time to time, and the terms and conditions of separate agreements need not be identical, but each stock bonus or restricted stock purchase agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions as appropriate: (a) Purchase Price. The purchase price under each restricted stock purchase agreement shall be such amount as the Board or Committee shall determine and designate in such agreement but in no event shall the purchase price be less than one hundred percent (100%) of the stock's Fair Market Value on the date such award is made. Notwithstanding the foregoing, the Board or Committee may determine that eligible participants in the Plan may be awarded stock pursuant to a stock bonus agreement in consideration for past services actually rendered to the Company for its benefit. (b) Transferability. No rights under a stock bonus or restricted stock purchase agreement shall be transferable except by will or the laws of descent and distribution or, if the agreement so provides, pursuant to a domestic relations order satisfying the requirements of Rule 16b-3, so long as stock awarded under such agreement remains subject to the terms of any restrictive covenant (such as a repurchase option or reacquisition option) in favor of the Company. (c) Consideration. The purchase price of stock acquired pursuant to a stock purchase agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the discretion of the Board or Committee, according to a deferred payment or other arrangement with the person to whom the stock is sold, except that the stock's "par value" (as defined by the Delaware General Corporation Law) shall not be paid by deferred payment; or (iii) in any other form of legal consideration that may be acceptable to the Board or Committee in its discretion. Notwithstanding the foregoing, the Board or Committee to which administration of the Plan has been delegated may award stock pursuant to a stock bonus agreement in consideration for past services actually rendered to the Company for its benefit. (d) Vesting. Shares of stock sold or awarded under the Plan may, but need not, be subject to a repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board or Committee. (e) Termination of Continuous Service. In the event a Participant's Continuous Service terminates, the Company may repurchase or otherwise reacquire any or all of the shares of stock held by that person which have not vested as of the date of termination under the terms of the stock bonus or restricted stock purchase agreement between the Company and such person. 8. COVENANTS OF THE COMPANY. (a) During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of stock required to satisfy such Stock Awards. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares under Stock Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act of 1933, as amended (the "Securities Act") either the Plan, any Stock Award or any stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance E-6 7 and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Stock Awards unless and until such authority is obtained. 9. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to Stock Awards shall constitute general funds of the Company. 10. MISCELLANEOUS. (a) The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest. (b) Neither an Employee, Director nor a Consultant nor any person to whom a Stock Award is transferred in accordance with the Plan shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Stock Award unless and until such person has satisfied all requirements for exercise of the Stock Award pursuant to its terms. (c) Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Employee, Consultant or other holder of Stock Awards any right to continue in the employ of the Company or any Affiliate, or to continue serving as a Consultant and Director, or shall affect the right of the Company or any Affiliate to terminate the employment of any Employee with or without notice and with or without cause, or the right to terminate the relationship of any Consultant pursuant to the terms of such Consultant's agreement with the Company or Affiliate or service as a Director pursuant to the Company's By-Laws. (d) To the extent that the aggregate Fair Market Value (determined at the time of grant) of stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year under this Plan and all other plans of the Company and its Affiliates exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options. (e) The Company may require any person to whom a Stock Award is granted, or any person to whom a Stock Award is transferred in accordance with the Plan, as a condition of exercising or acquiring stock under any Stock Award, (1) to give written assurances satisfactory to the Company as to such person's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the Stock Award for such person's own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise or acquisition of stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act, or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock. (f) To the extent provided by the terms of a Stock Award Agreement, the person to whom a Stock Award is granted may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of stock under a Stock Award by any of the following means or by a combination of such means: (1) tendering a cash payment; (2) authorizing the Company to withhold shares from the shares of the Common Stock otherwise issuable to the participant as a result of the exercise or acquisition of stock under the Stock Award; or (3) delivering to the Company owned and unencumbered shares of the Common Stock of the Company. E-7 8 11. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan, or subject to any Stock Award, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan and the maximum number of shares subject to award to any person during any calendar year, and the outstanding Stock Awards will be appropriately adjusted in the class(es) and number of shares and price per share of stock subject to such outstanding Stock Awards. Such adjustments shall be made by the Board or Committee, the determination of which shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a "transaction not involving the receipt of consideration by the Company.") (b) In the event of: (1) a dissolution, liquidation or sale of substantially all of the assets of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which the Company is the surviving corporation but the shares of the Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) the acquisition by any person, entity or group within the meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or any Affiliate of the Company) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of directors, then to the extent permitted by applicable law: (i) any surviving corporation (or an Affiliate thereof) shall assume any Stock Awards outstanding under the Plan or shall substitute similar Stock Awards for those outstanding under the Plan, or (ii) such Stock Awards shall continue in full force and effect. In the event any surviving corporation (or an Affiliate) refuses to assume or continue such Stock Awards, or to substitute similar Stock Awards for those outstanding under the Plan, then, with respect to Stock Awards held by persons then performing services as Employees, Directors or Consultants, the time during which such Stock Awards may be exercised shall be accelerated and the Stock Awards terminated if not exercised prior to such event. 12. AMENDMENT OF THE PLAN AND STOCK AWARDS. (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 11 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary for the Plan to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities exchange listing requirements. (b) The Board may in its sole discretion submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers. (c) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees, Directors or Consultants with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith. (d) Rights and obligations under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing. E-8 9 (e) The Board at any time, and from time to time, may amend the terms of any one or more Stock Award; provided, however, that the rights and obligations under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing. 13. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate ten (10) years from the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any Stock Award granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except with the consent of the person to whom the Stock Award was granted. 14. EFFECTIVE DATE OF PLAN. This Plan shall become effective on the date of adoption by the Board, but no Stock Awards granted under the Plan shall be exercised unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board. E-9 EX-10.87 3 TERMINATION OF COLLABORATIVE RESEARCH AGREEMENT 1 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THE DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Exhibit 10.87 TERMINATION OF COLLABORATIVE RESEARCH AGREEMENT BETWEEN SEQUANA THERAPEUTICS, INC. AND GLAXO WELLCOME INC. (f/k/a GLAXO INC.) This Termination of Collaborative Research Agreement (the "Termination Agreement") effective as of February 1, 1998 (the "Effective Date"), by and between Sequana Therapeutics, Inc., a California corporation ("Sequana") and Glaxo Wellcome Inc., a North Carolina corporation and successor in interest to Glaxo Inc. ("Glaxo"), and terminates the Collaborative Research Agreement entered into as of July 27, 1994, as amended effective February 16, 1996 and October 2, 1997, by and between Glaxo and Sequana (the "Collaboration Agreement"). WHEREAS, the Parties desire to terminate the Collaboration Agreement. NOW, THEREFORE, in consideration of the foregoing premises and of the mutual promises and covenants set forth below, for other good and valuable consideration, the receipt and sufficiency of which the Parties acknowledge, the Parties intending to be legally bound, agree as follows: 1. Unless otherwise defined in this Termination Agreement, capitalized terms shall have the meanings given to them in the Collaboration Agreement. 2. The Collaboration Agreement is hereby terminated and, except as set forth herein, shall be of no further force or effect, such termination to be effective as of the Effective Date. Except as specifically granted herein, all rights, privileges, obligations and licenses granted under the Collaboration Agreement are canceled. 3. Sequana shall waive any notice of termination requirements set forth in Section 8.4 of the Collaboration Agreement with the effect that the termination shall be effective as of the Effective Date. 4. Sequana shall deliver to Glaxo, within [*] following the Effective Date, all DNA samples, phenotypes, pedigrees, genotyping results and analyses and all other chemical and biological samples relating to the NIDDM Database that are set forth in Appendix A which is attached hereto and incorporated herein by reference. Such delivery shall be performed in accordance with instructions provided by Glaxo. Sequana shall not be permitted to use such samples for any purpose after the Effective Date and prior to delivery to Glaxo. 5. Glaxo shall [*] pursuant to Section 2.3 (iii) of the Collaboration Agreement. 6. The [*] by the Parties for the [*] * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 1. 2 [*] pursuant to Section 2.4 of the Collaboration Agreement shall [*] will be made by either Party to the other Party pursuant to Section 2.4 of the Collaboration Agreement. 7. The Parties acknowledge and agree that Article X of the Collaboration Agreement shall survive termination for a period of [*] commencing on the Effective Date. The Parties acknowledge and agree that Article IX of the Collaboration Agreement shall survive termination. The Parties further acknowledge and agree that all DNA samples, phenotypes, pedigrees, genotyping results and analyses and all other chemical and biological samples relating to the NIDDM Database will be deemed Confidential Information whose use and disclosure is restricted by Article IX of the Collaboration Agreement; provided, however, that Glaxo shall be permitted to disclose Confidential Information that is owned by it pursuant to Sections 14 and 17 below; provided, further, that Sequana shall be permitted to disclose Confidential Information that is covered by the specific licenses granted to Sequana pursuant to Sections 15, 16 and 17 of this Termination Agreement. 8. The Parties agree that the term "NIDDM Database", as defined in the Collaboration Agreement, shall include DNA, phenotypes, pedigrees, genotyping results and analyses and all other chemical and biological samples relating thereto. 9. Subject to the restrictions set forth herein, each Party is permitted, either alone or with third parties, to engage in de novo studies in the Field and in the field of obesity. In the event Sequana should engage in such studies, it may not use the NIDDM Database unless such access is expressly granted to Sequana pursuant to this Termination Agreement. 10. Each Party shall be permitted to use its respective Technology and Results, either alone or with third parties, except with respect to the NIDDM Database. Neither Party shall be required to disclose its respective Technology or Results, excluding the NIDDM Database, to the other Party. 11. The Parties agree that no genes have been, or will be designated as Disease Genes by the JRPC. 12. [*] shall be paid pursuant to the Collaboration Agreement. 13. Further meetings of the JRPC, if any, shall be held for the purpose of addressing (a) matters with respect to termination of the Collaboration Agreement or (b) matters specifically set forth herein. Such JRPC meetings, if any, will be conducted in accordance with the procedural requirements set forth in Article III of the Collaboration Agreement. 14. Sequana hereby [*]. Sequana represents and warrants that it has made no assignment of its rights, obligations and interests under the Collaboration Agreement to a third party which would interfere with its ability to make the assignment herein. 15. Glaxo hereby grants to Sequana and Sequana hereby accepts a perpetual * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 2. 3 paid-up, non- exclusive, world-wide license (with the right to grant sublicenses) to use the [*] and [*] contained in the NIDDM Database for any purpose. Each party will provide the other, within [*] of the Effective Date, with a detailed inventory of DNA samples with respect to [*]. To the extent either party possesses [*] of the DNA samples, such party shall deliver to the other party an amount that would cause each party to have [*] of the DNA samples. The delivery of DNA samples shall occur within [*] after the inventory determination described above. 16. Glaxo hereby grants to Sequana and Sequana hereby accepts a perpetual, paid-up, exclusive (even as to Glaxo), world-wide license (with the right to grant sublicenses) to use the [*] generated from such studies that are contained in the NIDDM Database studies for any purpose. Glaxo will provide Sequana, within thirty (30) days after the Effective Date, with all pedigree, phenotype and genotype data with respect to the [*] studies that Glaxo has in its possession. Specifically, Glaxo shall be obligated to deliver (a) genotype data on [*], pedigree information for [*], qualitative analysis results for [*] and quantitative analysis results for [*] all with respect to the [*], and (b) genotype data on [*], pedigree information on [*], phenotypes on [*], and [*] analyses with respect to the [*] study. 17. (a) Subject to the provisions set forth in Section 17(b)(i) below, Glaxo hereby grants to Sequana and Sequana hereby accepts a paid-up, non-exclusive, world-wide license (with the right to grant sublicenses) to use The [*], the [*] (including DNA, phenotype, pedigree and genotype data) contained in the NIDDM Database and collected during the term of the collaboration Agreement (the [*]), for any purpose, subject to the conditions set forth in (b) below. (b) As a condition to the license granted in (a) above, Sequana agrees that it shall comply with each of the following conditions. (i) The license granted in (a) above shall terminate with respect to the DNA samples on the [*] anniversary of the Effective Date (the "[*] Termination Date"). (ii) During the [*]-year period following the Effective Date, Sequana shall supply Glaxo [*] through use of the [*], either alone or with third parties. (iii) Sequana shall deliver to Glaxo, within [*] following the [*] Termination Date, all DNA samples from the [*]. Sequana shall not be permitted to use such samples for any purpose after the [*] Termination Date and prior to delivery to Glaxo. Sequana shall be permitted to retain and use any data generated through use of such samples. (c) Glaxo hereby grants to Sequana and Sequana hereby accepts a paid-up, non-exclusive, world-wide license to use (with the right to grant sublicenses) the [*] (including DNA samples and phenotype data) being collected pursuant to the ongoing collection of such data and samples by the * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 3. 4 [*] (the "Triad Set"), for any purpose, subject to the conditions set forth in (d) below. (d) As a condition to the license granted in (c) above, Sequana agrees that it shall comply with each of the following conditions: (i) The Parties obligations set forth herein with respect to the Triad Set shall terminate on the [*] anniversary of the Effective Date (the "Triad Termination Date"). (ii) Glaxo shall be responsible for preparing DNA from blood samples provided by the [*]. DNA, and corresponding phenotypic and pedigree data, will be prepared and delivered on an ongoing basis and will be divided [*] the [*], Sequana and Glaxo. (iii) Sequana agrees to pay Glaxo an amount equal to [*] of the cost of the Triad Set. Such amount shall be delivered to Anita Baker, Glaxo Wellcome Inc., Five Moore Drive, P.O. Box 13398, Research Triangle Park, North Carolina 27709-3398 and must be received no later than [*] immediately following the Effective Date; provided, however, that in the event the cost of the Triad Set should increase or decrease for any reason, Glaxo or Sequana, respectively, will reimburse the other party for [*] of the amount of such decrease or increase. (iv) During the [*] year period following the Effective Date, Sequana shall supply Glaxo with [*] through use of the Triad Set, either alone or with third parties. (v) At the Triad Termination Date, Sequana shall be permitted to retain and use all genotype, pedigree and phenotype data generated by Sequana through use of the Triad Set for any purpose. 18. Sequana hereby grants to Glaxo and Glaxo hereby accepts a perpetual, royalty-free, non-exclusive, world-wide license to use the following software packages for research purposes only: (a) [*] - algorithm implemented in the [*] programming language designed to identify genotypes that are involved in [*] in [*] data; and (b) [*] algorithm-algorithm designed to categorize [*] into bins based on [*]. Included in the rights granted pursuant to this Paragraph 18 shall be Glaxo's right to all executable codes, source codes and source code documentation in existence as of the Effective Date with respect to the software packages. Glaxo shall have [*] any [*] the rights granted in this Paragraph 18 without the prior written consent of Sequana. 19. Neither Party hereto shall issue any press release or other publicity materials, or make any representation with respect to the existence of the Termination Agreement or the subject matter hereto without the prior written consent of the other Party. However, this restriction shall not apply to disclosures required by law or regulation, except that, in any event, the Parties shall coordinate to the extent possible with respect to the wording of any such announcement. 20. Each Party hereby covenants and represents to the other Party that it has full right and authority to enter into this Termination Agreement. 21. This Termination Agreement shall not be assignable by either Party hereto, except to an Affiliate, without the prior written consent of the other Party. * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 4. 5 22. This Termination Agreement represents the entire understanding and agreement between the Parties hereto with respect to the subject matter hereof. This Termination Agreement may be amended, modified, supplemented or changed only by an agreement in writing which is signed by each Party. 23. This Termination Agreement shall be governed, construed and enforced in accordance with the laws of the State of North Carolina, without giving effect to the principles of conflicts of laws of such state. 24. This Termination Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto cause this Termination Agreement to be duly executed in its name and on its behalf, as of the Effective Date. SEQUANA THERAPEUTICS, INC. GLAXO WELLCOME INC. By: /s/ Daniel H. Petree By: /s/ Lee E. Babiss ------------------------------- -------------------------------------- Name: Daniel H. Petree Name: Lee E. Babiss ----------------------------- ------------------------------------ 5. 6 APPENDIX A Set forth below is a list of the DNA samples, phenotype, genotype and pedigree results and analyses and all other chemical and biological samples that Sequana is obligated to deliver to Glaxo pursuant to the terms and conditions of Section 5 of the Termination Agreement. 1. [*] of the DNA samples and any other chemical or biological samples from the [*] and the [*], as determined in accordance with the provisions of Section 15 of the Termination Agreement. 2. [*] of the DNA samples and any other chemical or biological samples from the [*]. 3. Updated pedigree and phenotype files with respect to each of the [*], the [*] and the [*]. 4. All DNA, genotyping results, pedigree and phenotypes and analyses from the [*], the [*] and the [*]. 5. All other DNA samples, phenotype, genotype and pedigree results and analyses and all other chemical and biological samples not specifically set forth herein, but which Sequana is obligated to deliver pursuant to Section 5 of the Termination Agreement. * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 1. EX-10.88 4 COMBINATORIAL CHEMISTRY AGREEMENT 1 Exhibit 10.88 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THE DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. COMBINATORIAL CHEMISTRY AGREEMENT BETWEEN AXYS PHARMACEUTICALS, INC. AND WARNER-LAMBERT COMPANY MAY 15, 1998 2 TABLE OF CONTENTS
PAGE 1. DEFINITIONS..............................................................................................1 1.1 "Affiliate".....................................................................................1 1.2 "Axys Compound".................................................................................1 1.3 "Axys Know-How".................................................................................2 1.4 "Axys Patents"..................................................................................2 1.5 "Axys Restricted Information"...................................................................2 1.6 "Compound"......................................................................................2 1.7 "Compound Patent"...............................................................................2 1.8 "Confidential Information"......................................................................2 1.9 "Controlled"....................................................................................2 1.10 "General Screening".............................................................................2 1.11 "Information"...................................................................................3 1.12 "Library".......................................................................................3 1.13 "Licensed Product"..............................................................................3 1.14 "Protocol"......................................................................................3 1.15 "Scaffold"......................................................................................3 1.16 "Selected Protocol".............................................................................3 1.17 "Software"......................................................................................3 1.18 "Technology Committee"..........................................................................3 1.19 "Warner-Lambert Compound".......................................................................3 2. DEVELOPMENT AND TRANSFER OF LIBRARY......................................................................3 2.1 Library Synthesis...............................................................................3 2.2 Selection of Protocols..........................................................................4 2.3 Delivery of Compounds...........................................................................4 2.4 Technology Committee............................................................................5 2.5 Right to Use Compounds - Warner-Lambert.........................................................5 2.6 Right to Use Compounds - Axys...................................................................6
3 2.7 Limited Right to Select Compounds to Commercialize..............................................6 2.8 [*] Regarding Protocols.........................................................................7 2.9 Software Modifications..........................................................................7 3. TECHNOLOGY TRANSFER AND LICENSE..........................................................................8 3.1 Transfer of Chemistry Technology................................................................8 3.2 Technology and Library License Rights...........................................................8 3.3 Limited Commercial Licenses.....................................................................9 3.4 License Limitations.............................................................................9 4. PAYMENTS................................................................................................10 4.1 Compound Purchase Prices.......................................................................10 4.2 Royalty on Compounds...........................................................................10 5. INTELLECTUAL PROPERTY MATTERS...........................................................................11 5.1 Ownership......................................................................................11 5.2 Limitation on Patent Applications..............................................................11 5.3 Additional Licenses............................................................................12 5.4 Enforcement of Patents.........................................................................12 5.5 Third Party Patent Rights......................................................................12 6. CONFIDENTIALITY.........................................................................................13 6.1 Confidentiality Obligations....................................................................13 6.2 Press Releases.................................................................................14 6.3 Publications...................................................................................14 7. INDEMNIFICATION.........................................................................................14 7.1 Indemnification by Warner-Lambert..............................................................14 7.2 Indemnification by Axys........................................................................15 8. TERMINATION AND EXPIRATION..............................................................................16 8.1 Term and Termination...........................................................................16 8.2 Termination by Warner-Lambert [*]..............................................................16
* "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 4 TABLE OF CONTENTS (CONTINUED)
PAGE 8.3 Termination Upon Material Breach...............................................................16 8.4 Consequences of Termination....................................................................17 8.5 Accrued Rights; Surviving Obligations..........................................................18 8.6 Rights in Bankruptcy...........................................................................18 9. MISCELLANEOUS PROVISIONS................................................................................18 9.1 Relationship of the Parties....................................................................18 9.2 Assignments....................................................................................18 9.3 Disclaimer of Warranties.......................................................................19 9.4 Representations and Warranties.................................................................19 9.5 Further Actions................................................................................20 9.6 Force Majeure..................................................................................20 9.7 No Trademark Rights............................................................................21 9.8 Entire Agreement of the Parties; Amendments....................................................21 9.9 Captions.......................................................................................21 9.10 Applicable Law.................................................................................21 9.11 Disputes.......................................................................................21 9.12 Notices and Deliveries.........................................................................21 9.13 No Consequential Damages.......................................................................22 9.14 Waiver.........................................................................................23 9.15 Compliance with Law............................................................................23 9.16 Severability...................................................................................23 9.17 Counterparts...................................................................................23
5 COMBINATORIAL CHEMISTRY AGREEMENT THIS COMBINATORIAL CHEMISTRY AGREEMENT (the "Agreement") is made and entered into effective as of May 15, 1998 (the "Effective Date"), by and between AXYS PHARMACEUTICALS, INC., a Delaware corporation having a place of business at 180 Kimball Way, South San Francisco, CA 94080 ("Axys"), and WARNER-LAMBERT COMPANY, a Delaware corporation having a place of business at 2800 Plymouth Road, Ann Arbor, Michigan 48105 ("Warner-Lambert"). Axys and Warner-Lambert may be referred to herein as a "Party" or, collectively, as "Parties." RECITALS A. Axys has developed and owns certain technology and intellectual property rights relating to combinatorial chemistry and the synthesis of diverse chemistry libraries using combinatorial techniques. B. Warner-Lambert desires to obtain from Axys a co-exclusive library of [*] compounds to be synthesized pursuant to protocols developed by Axys and a license to use the Axys combinatorial chemistry technology and intellectual property rights for Warner-Lambert' own internal drug discovery and development programs. C. Axys is willing to grant such rights to Warner-Lambert and to synthesize and deliver to Warner-Lambert such compound library pursuant to the following terms and conditions. NOW, THEREFORE, the Parties agree as follows: 1. DEFINITIONS 1.1 "AFFILIATE" means, with respect to a Party, any individual or entity that controls, is controlled by, or is under common control with, such Party. For this definition, the term "control" shall refer to (a) the ownership, directly or indirectly, of at least 50% of the voting securities or other ownership interest of an entity, or (b) the possession, directly or indirectly, of the power to direct the management or policies of an entity, whether through the ownership of voting securities, by contract or otherwise. 1.2 "AXYS COMPOUND" means a Compound that has been selected by Axys [*] (either by Axys or its Affiliate or licensee) and [*], but only for so long as such Compound is itself the subject of [*], in any form or formulation, by Axys or its Affiliate or sublicensee. * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 1. 6 1.3 "AXYS KNOW-HOW" means Information Controlled by Axys during the Agreement that comprises [*] that is necessary to enable Warner-Lambert to [*]. 1.4 "AXYS PATENTS" means all patents and patent applications Controlled by Axys during the Agreement that claim inventions which constitute the Axys Know-How. 1.5 "AXYS RESTRICTED INFORMATION" means all confidential Information of Axys, other than Axys Know-How and Axys Patents, that is learned by the employees of Warner-Lambert who work at Axys as permitted under Section 3.1 at any time they are at an Axys facility. 1.6 "COMPOUND" means any individual chemical compound within the Library, a sample of which is provided and the structure of which is disclosed to Warner-Lambert by Axys. 1.7 "COMPOUND PATENT" means any patent application filed by or on behalf of Warner-Lambert and/or Axys under Section 5.2(b) that claims an Axys Compound or a Warner-Lambert Compound and all patents issuing from such applications, and including any reissues, reexaminations, or extensions of such patents. 1.8 "CONFIDENTIAL INFORMATION" means the Information of a Party that it considers proprietary and/or confidential, and that, if disclosed under this Agreement in written, graphic or electronic form, is marked or otherwise designated as "confidential" or "proprietary" or the equivalent and, if disclosed orally, is characterized as "confidential" or "proprietary" by the disclosing Party at the time of such disclosure. In addition, the Axys Restricted Information shall be deemed to be the Confidential Information of Axys. 1.9 "CONTROLLED" means, with respect to an item of information or intellectual property right, possession of the ability to grant access and a license as provided for herein under such item or right without violating the terms of any agreement or other arrangements with or rights of any Third Party. 1.10 "GENERAL SCREENING" means use of the Library or any Compounds in the Library in assays to screen for activity against targets in the pursuit of the identification of lead compounds or structures in drug discovery and development programs, where the party conducting such screening is permitted to screen the Library or any Compounds against [*], unless otherwise agree to in writing by Axys and Warner-Lambert. * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 2. 7 1.11 "INFORMATION" means information and data of any type and in any tangible or intangible form, including without limitation inventions, practices, methods, techniques, specifications, formulations, formulae, knowledge, know-how, skill, experience, test data, analytical and quality control data, stability data, results of studies and patent and other legal information or descriptions. 1.12 "LIBRARY" means the collection of approximately [*] different chemical compounds to be synthesized by Axys and provided to Warner-Lambert under the terms of Article 2 of this Agreement. 1.13 "LICENSED PRODUCT" means any product (including any formulation thereof without regards to method of delivery or administration) that contains a Warner-Lambert Compound. 1.14 "PROTOCOL" means a detailed set of combinatorial chemistry synthetic methods and standard operating procedures designed to be used for synthesizing a set of related compounds using combinatorial chemistry techniques. 1.15 "SCAFFOLD" means the substructure common to a set of compounds related by the use of a particular Protocol to synthesize such compounds. 1.16 "SELECTED PROTOCOL" means a Protocol that has been selected by the Technology Committee pursuant to Section 2.2, which Protocol shall contain at a minimum the enabling information outlined in Exhibit A attached hereto. 1.17 "SOFTWARE" means the proprietary software of Axys [*], in object and source code form, including improvements thereto made during the Agreement. 1.18 "TECHNOLOGY COMMITTEE" means the committee formed by the Parties under Section 2.4 of the Agreement. 1.19 "WARNER-LAMBERT COMPOUND" means a Compound that has been selected by Warner-Lambert for [*] but only for so long as such Compound is itself the * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 3. 8 subject of [*] in any form or formulation, by Warner-Lambert or its Affiliate or sublicensee. 2. DEVELOPMENT AND TRANSFER OF LIBRARY 2.1 LIBRARY SYNTHESIS. Commencing promptly after the Effective Date, Axys will use commercially reasonable efforts to synthesize Compounds to be provided to Warner-Lambert as part of the Library. Such Compounds shall be synthesized using the Selected Protocols. The Library will contain Compounds based on between [*] and [*] different Selected Protocols. Axys will use commercially reasonable efforts to [*] Selected Protocols. Axys will ensure that the Library [*] using a particular Selected Protocol represented in the Library (as such number may be adjusted as provided in Section 2.8). 2.2 SELECTION OF PROTOCOLS. During the term of the Agreement, Warner-Lambert, through the Technology Committee, shall first choose and accept as Selected Protocols at least [*] out of a total of [*] proposed by Axys. Such selection shall be made based upon review by Warner-Lambert of the [*]. It is understood that [*] Protocols exist at Axys as of the Effective Date. Second, the Technology Committee shall have the responsibility for choosing the additional Selected Protocols needed to complete the Library, as follows: The Technology Committee shall diligently review and evaluate in good faith new proposals and ideas or plans for Scaffolds to be used to create new Protocols that either Party proposes to be selected for development into Selected Protocols by Axys. The Technology Committee shall attempt to reach agreement on whether to select or reject a proposed Scaffold as soon as possible. All such proposals for Scaffolds that are selected by the Technology Committee shall then be investigated by Axys to determine if Axys can develop and validate a Protocol for creating a library of compounds around such Scaffold. If Axys is able to create and validate a Protocol based on such selected Scaffold, such Protocol shall be deemed a "Selected Protocol" under the Agreement. If the Technology Committee cannot reach agreement to select a proposed Scaffold promptly after it has been proposed, or if after such selection Axys is not able after reasonable efforts to create and validate a Protocol based on such Scaffold, then such Scaffolds (and its related Protocol, if any) shall be deemed rejected, and each Party then will use diligent, good faith efforts to propose to the Technology Committee different proposals for Scaffolds for review in order for Axys to prepare and select the additional needed Selected Protocols. The Parties agree to work cooperatively together to * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 4. 9 select the additional needed Scaffolds for Selected Protocols in a timely fashion to allow Axys sufficient time to complete delivery of the Library within the schedule set forth in Section 2.3. 2.3 DELIVERY OF COMPOUNDS. Axys shall use commercially reasonable efforts to deliver the Compounds in the Library to Warner-Lambert according to the following schedule: [*] Compounds to be delivered by the end of [*], and the remainder to be delivered by Axys [*] thereafter at an annual rate of approximately [*] Compounds per year. If Axys is able to produce and deliver the Compounds at a faster rate than contemplated above, then, if mutually agreed with Warner-Lambert, Axys may deliver such Compounds as they become available for delivery. The Compounds shall be delivered in 96 well plates with an 88 well array format with approximately [*] (which is approximately[*]) of each Compound present in the shipment, or in such other reasonable format as is reasonably requested by Warner-Lambert, provided that any additional cost to Axys required to prepare or ship such other format shall be paid by Warner-Lambert. Each shipment shall be accompanied by a confidential description of the identity and structure of each Compound in such shipment. Accompanying each shipment will be the results of the analysis of each Compound, performed by Axys according to the method of analysis set forth in Exhibit B attached hereto. 2.4 TECHNOLOGY COMMITTEE. Within thirty (30) days of the Effective Date, Axys and Warner-Lambert will form a committee consisting of two (2) representatives of each Party (the "Technology Committee") and shall conduct the first meeting of such committee. The Technology Committee shall meet on a regular basis as agreed upon by the members of the Technology Committee (but no more than once per quarter), (a) to discuss and implement the means for an orderly and reasonable transfer of the Axys Know-How, (b) to discuss proposals for Scaffolds proposed by either Party for selection and to select additional Selected Protocols for use by Axys in completing the Library, (c) to assess and approve the diversity of the Compounds to be made under each Selected Protocol in order to maximize the chemical diversity in the Library, and (d) to discuss and resolve any other non-business aspects of the relationship of the Parties under the Agreement that require attention. The Technology Committee shall act by unanimous consent, and may meet by telephone, videoconference or in face-to-face meetings, as agreed upon by the members of the committee. A Chairperson shall be appointed for each meeting of the Technology Committee by the members of the committee and shall be responsible for issuing an agenda for the meeting, conducting and chairing the meeting * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 5. 10 and preparing the minutes for the meeting, and such other tasks as assigned by the committee. Each Party may change its representatives on the Technology Committee as it deems appropriate, and may send non-voting representatives to attend committee meetings as observers. 2.5 RIGHT TO USE COMPOUNDS - WARNER-LAMBERT. All intellectual property rights existing as of the Effective Date and relating to the Library and the Compounds, and any Information of Axys relating thereto, shall be and remain the intellectual property of Axys. Subject to the terms of this Agreement, Warner-Lambert and its Affiliates shall have the right to use the Library and the Compounds therein solely in Warner-Lambert's and its Affiliates' internal drug discovery, medicinal chemistry, development and commercialization programs, and for use in research, development and commercialization programs pursuant to collaborative research agreements with third parties, provided that, such third party corporate partners are not permitted to use the Library or Compounds for General Screening. Warner-Lambert shall be permitted to transfer the Library or individual Compounds only (a) to Affiliates solely to use in such Affiliate's internal drug discovery, development and commercialization programs, or (b) to third party contractors or outside researchers who perform screening in assays on behalf of Warner-Lambert or its Affiliates solely as part of Warner-Lambert's or its Affiliates' internal or collaborative drug discovery, development and commercialization programs as provided above in this Section and provided that such third party contractors or outside researchers are subject to written confidentiality agreements at least as restrictive as the provisions of Article 6. Except as expressly permitted in the foregoing or as permitted in Section 6.3, Warner-Lambert covenants that it and its Affiliates shall not transfer or disclose the Library or Compounds to any third party for any purpose. Warner-Lambert and its Affiliates may use the Information generated by the uses of the Library or Compounds permitted above for any purpose subject to and in compliance with the limitations in this Agreement. 2.6 RIGHT TO USE COMPOUNDS - AXYS. Axys covenants that during the term of the Agreement, it shall not (a) provide the Library or any significant portion thereof to any third party pharmaceutical company for use in General Screening, or (b) provide a library of compounds synthesized using the Selected Protocols (but not including any Compounds) to more than a total of [*] third party pharmaceutical companies for use in General Screening. Axys and its Affiliates shall retain full rights to use the Library and the Compounds for all internal purposes, including without limitation General Screening, combinatorial chemistry and medicinal chemistry, and drug discovery, development and commercialization activities of Axys and its Affiliates. For clarity, it is understood that * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 6 11 Axys also retains the right to use the Library and the Compounds in screening for activity in assays for specific targets covered by research, development or commercialization programs pursuant to collaborative research agreements with third parties, and to provide the Library or Compounds, or a library of compounds made using the Selected Protocols, to third party corporate partners of Axys or its Affiliates for use by such partner in screening for activity in specific assays for targets covered by the research, development or commercialization program between such corporate partner and Axys (or its Affiliate, as applicable), provided that, such third party corporate partner is not permitted to use the Library or Compounds for General Screening. Axys covenants that during the term of the Agreement it shall not provide the structures for the Compounds to any third party other than a third party to whom Axys has provided Compounds as permitted above. 2.7 LIMITED RIGHT TO SELECT COMPOUNDS TO COMMERCIALIZE. If Warner-Lambert (or its Affiliate) determines that a particular Compound (but excluding the Axys Compounds) has potential therapeutic or prophylactic utility sufficient to select such Compound as a "Lead Candidate" for which Warner-Lambert will initiate GLP toxicology studies and other significant preclinical testing that is required to develop the data needed to submit an IND for initiating human clinical trials on the Compound as a drug candidate, with the intention of commercializing such Compound as a drug product, then Warner-Lambert may give Axys notice to that effect, and such Compound shall, unless such Compound is at the time of such notice an Axys Compound, thereafter be deemed a "Warner-Lambert Compound" for so long as Warner-Lambert or its Affiliate or sublicensee or assignee continues ongoing, diligent development efforts on or, if subject to a regulatory approval, continues commercial sales of such Compound. If such diligent efforts or such sales cease to continue with respect to a particular Warner-Lambert Compound, then such Compound shall cease to be a Warner-Lambert Compound and shall revert to being solely a Compound. If Axys (or its Affiliate or licensee) determines that a particular Compound (but excluding the Warner-Lambert Compounds) has potential therapeutic or prophylactic utility sufficient to select such Compound for GLP toxicology studies and other significant preclinical testing that is required to develop the data needed to submit an IND for initiating into human clinical trials on the Compound as a drug candidate, with the intention of commercializing such Compound as a drug product, then Axys may give Warner-Lambert notice to that effect, and such Compound shall, unless such Compound is at the time of such notice a Warner-Lambert Compound, thereafter be deemed an "Axys Compound" for so long as Axys or its Affiliate or licensee or assignee continues ongoing, diligent development efforts on or, if subject to a regulatory approval, continues commercial sales of such Compound. If such diligent * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 7 12 efforts or such sales cease to continue with respect to a particular Axys Compound, then such Compound shall cease to be an Axys Compound and shall revert to being solely a Compound. 2.8 [*] REGARDING PROTOCOLS. Axys covenants that if, during the term of this Agreement, Axys [*] to this Agreement, at least [*], and such agreement stipulates that the [*] that Axys is permitted to provide to Warner-Lambert in the Library under Section 2.1, then if requested by Warner-Lambert, Axys will [*] Selected Protocol (as set forth in Section 2.1) for the remaining term of the Agreement to the [*] unless Axys and Warner-Lambert otherwise agree in writing. This Section 2.8 shall terminate and be of no further force or effect immediately [*] by Axys. 2.9 SOFTWARE MODIFICATIONS. The Technology Committee shall, on a reasonable and acceptable time frame, review and discuss the Software to determine if there are mutually agreeable modifications to the Software that would serve to enhance the functionality of the Software to both Parties. The Parties may agree to conduct such modifications cooperatively, under terms to be agreed upon at that time. 3. TECHNOLOGY TRANSFER AND LICENSE 3.1 TRANSFER OF CHEMISTRY TECHNOLOGY. Commencing promptly after the Effective Date, Axys will commence the transfer to Warner-Lambert, on an orderly basis, of the Axys Know-How, copies of the issued Axys Patents, and the Software. Such transfer will be managed and coordinated by the Technology Committee, formed as provided in Section 3.4 below. The schedule for such transfer will be reasonable, provided that Axys will complete transfer of the Axys Know-How relating directly to a particular Selected Protocol within [*] days of the date of selection of such Selected Protocol under Section 2.2. In addition, Warner-Lambert may provide, at its cost and expense, up to [*] Warner-Lambert scientists to work at Axys during the period of technology transfer to assist and direct the transfer to Warner-Lambert of the Axys Know-How; provided that access or exposure to Axys Restricted Information by the Warner-Lambert scientists shall be subject to the provisions of Article 6, and that such number of scientists may not exceed an average of [*] per month during such transfer period. Any such Warner-Lambert scientists that work at Axys under the terms of this Section 3.1 shall be restricted from access to any Axys facilities or locations other than * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 8 13 those necessary for completing the transfer of Axys Know-How as provided above. Further, Axys shall use reasonable efforts to limit and restrict such Warner-Lambert scientists from access or exposure to any Axys confidential information that is not Axys Know-How. If Axys makes improvements to the Software during the Agreement, such improved Software shall be provided to Warner-Lambert promptly thereafter. 3.2 TECHNOLOGY AND LIBRARY LICENSE RIGHTS. (a) Subject to the terms of this Agreement, Axys hereby grants Warner-Lambert the non-exclusive, worldwide, fully paid-up, perpetual (subject to termination under Article 12) license to use and practice the Axys Know-How and Axys Patents solely for Warner-Lambert's permitted use of the Library and Compounds under Section 2.3, and including the right of Warner-Lambert to synthesize the Compounds for use as permitted in Section 2.3. (b) Subject to the terms of this Agreement, Axys hereby grants Warner-Lambert the non-exclusive, worldwide, fully paid-up, perpetual (subject to termination under Article 12) license to use the Software solely in conjunction with Warner-Lambert' or its Affiliates' permitted use of the Library under Section 2.3, and to copy the Software to the extent necessary for conducting the foregoing permitted use of such Software. The foregoing license rights may be sublicensed to a third party without the prior written consent of Axys in conjunction with and in compliance with Warner-Lambert's permitted use of the Library and Compounds under Section 2.3 and only to the extent needed to accomplish such permitted purposes, and Warner-Lambert and its Affiliates covenant that they will not transfer or disclose any such Axys Know-How or Software to any third party except as part of such permitted sublicenses and only subject to limitations consistent with the above restrictions. 3.3 LIMITED COMMERCIAL LICENSES. (a) Subject to the terms of this Agreement, Axys hereby grants Warner-Lambert the exclusive, worldwide, perpetual (subject to termination under Article 12), royalty-bearing license, with the right to sublicense, under Axys' interest in the Compound Patents solely for Warner-Lambert, its Affiliates and sublicensees to make, have made, import, use, offer for sale and sell Licensed Products. (b) Subject to the terms of this Agreement, Warner-Lambert hereby grants Axys the exclusive, worldwide, perpetual (subject to termination under Article 12), * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 9 14 royalty-free license, with the right to sublicense, under Warner-Lambert' interest in the Compound Patents solely for Axys, its Affiliates and licensees to make, have made, import, use, offer for sale and sell products containing the Axys Compounds. 3.4 LICENSE LIMITATIONS. Warner-Lambert understands and agrees that its rights granted in Section 3.2 under the Axys Know-How, Axys Patents, and the Software are non-exclusive, and that Axys retains all its rights to use all such technology, Information and intellectual property rights for its own purposes and to license or disclose such technology, Information and intellectual property rights to third parties without restriction, subject only to the restrictions, and to the licenses and other rights granted Warner-Lambert, under this Agreement. Warner-Lambert covenants that it and its Affiliates shall not use or practice the Axys Know-How, Axys Patents and Software for any use or purpose except as expressly permitted in Section 3.2 and 3.3(a), that it will not grant any sublicenses to any third party under such Information or intellectual property rights except as expressly permitted under Section 3.2 or 3.3(a), and that it will not sell or otherwise commercialize any Compound unless it has been selected as a Warner-Lambert Compound and is sold as a Licensed Product, but excluding from the foregoing limitation any Compound that is discovered or synthesized by Warner-Lambert or its Affiliates completely independent of any activity permitted under this Agreement and without reliance on any Axys Know-How, Axys Patents or other Axys Confidential Information disclosed to Warner-Lambert. Warner-Lambert acknowledges that the source code for the Software contains the valuable trade secrets of Axys, and Warner-Lambert covenants that it and its Affiliates shall not distribute the Software to any third party except to the extent permitted by Axys in writing. 4. PAYMENTS 4.1 COMPOUND PURCHASE PRICES. Warner-Lambert shall pay Axys a purchase price for each Compound delivered hereunder as provided below: (a) Warner-Lambert shall pay Axys [*] for each of the first [*] Compounds delivered to Warner-Lambert by Axys under the terms of Article 2; (b) Warner-Lambert shall pay Axys [*] for each of the next [*] Compounds delivered to Warner-Lambert by Axys under the terms of Article 2; and (c) Warner-Lambert shall pay Axys [*] for each of the remaining [*] Compounds delivered to Warner-Lambert by Axys. * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 10 15 Such payments shall be made within [*] days of delivery of an invoice from Axys regarding such delivered Compounds, which invoice shall be submitted promptly upon delivery of the Compounds by Axys under the terms of Section 2.2. Warner-Lambert shall be responsible for payment [*] on the sale or transfer of the Compounds, Axys Know-How, Software or Axys Patents under the terms of this Agreement, other than [*] based upon [*] of Axys. 4.2 ROYALTY ON COMPOUNDS. Warner-Lambert shall pay Axys a royalty on sales of Licensed Products equal to [*] of the Net Sales of the Licensed Products by Warner-Lambert, its Affiliates and sublicensees in countries where the manufacture, use or sale of such Licensed Product (or the Warner-Lambert Compound therein) is covered by a claim in an issued patent that claims the composition of matter of the Compound that is an active ingredient in such Licensed Product and for which Axys or an Axys employee or contractor is an inventor, provided that the Compound in the Licensed Product was made using [*] as provided in Section 2.2. As used herein, "Net Sales" shall mean [*] after deduction for the following items (i) [*]; (ii) [*]; (iii) [*]; (iv) [*]; (v) [*]; (vi) [*] and (vii) [*]. 5. INTELLECTUAL PROPERTY MATTERS 5.1 OWNERSHIP. All intellectual property rights in and to the Library, Compounds, Selected Protocols, Axys Know-How, Axys Patents, and the Software owned or Controlled by Axys as of the Effective Date shall remain exclusively with Axys, subject only to the license rights granted to Warner-Lambert under Sections 2.3 and 3.2. Axys shall own the entire right, title and interest in and to any inventions and * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 11 16 Information, and all intellectual property rights therein, developed solely by employees or agents of Axys in the course of this Agreement. Warner-Lambert shall own the entire right, title and interest in and to any inventions and Information, and all intellectual property rights therein, developed solely by employees or agents of Warner-Lambert in the course of this Agreement. The Parties shall own jointly the entire right, title and interest in and to any inventions and Information, and all intellectual property rights therein, developed jointly by employees or agents of Axys and employees or agents of Warner-Lambert in the course of this Agreement. Notwithstanding the foregoing, Warner-Lambert hereby grants to Axys the right, under any rights Warner-Lambert may have or obtain in the Selected Protocols and the Scaffolds on which they are based, if any, to use the Selected Protocols to make, use and sell compounds for all purposes, subject to the limitations in Section 2.6. Further, it is understood that Warner-Lambert will own the physical samples of the Compounds provided by Axys hereunder. 5.2 LIMITATION ON PATENT APPLICATIONS. (a) The Parties agree that each Party and its Affiliates shall not file or prosecute any patent applications that specifically claim or otherwise describe any Compound(s); provided that the foregoing shall not apply with respect to any Compound(s) that is or are discovered or synthesized by Warner-Lambert or its Affiliates completely independent of any activity permitted under this Agreement and without reliance on any Axys Know-How, Axys Patents or other Axys Confidential Information disclosed to Warner-Lambert. Axys will not provide the Library to any third party without obtaining the third party's promise, in writing, not to file or prosecute any patent applications that specifically claim or otherwise describe any Compound(s) (except for Compounds independently discovered or synthesized by such party), and to grant Axys a license under any patent owned by such party that claim (either specifically or generically) a Compound for Axys and its Affiliates and sublicensees (including Warner-Lambert) to make, have made, import, use, offer for sale and sell such Compound (other than patents claiming such independently discovered Compounds). (b) Notwithstanding subsection (a) above, a Party may file and prosecute patent applications that specifically claim or otherwise describe a Compound or Compounds, but only if (i) the Party has defined a preliminary structural activity relationship around such Compound(s); (ii) the Party has prepared and evaluated related compounds outside the Library in support of the structural activity relationship; and (iii) * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 12 17 the claims to or descriptions of the Compound(s) are essential in order to meet best mode requirements or to protect preferred embodiments or otherwise to support claims in such patent application. 5.3 ADDITIONAL LICENSES. Axys hereby grants to Warner-Lambert a non-exclusive, world-wide, perpetual (subject to termination under Article 12), fully paid-up license under any issued patents owned by Axys or its Affiliate that claim (either specifically or generically) a Compound solely for Warner-Lambert and its Affiliates and permitted sublicensees to make, have made, import, and use such Compound solely for the purposes permitted in Section 2.5. Warner-Lambert hereby grants to Axys a non-exclusive, world-wide, perpetual (subject to termination under Article 12), fully paid-up license, with right to sublicense, under issued patents owned by Warner-Lambert or its Affiliate that claim (either specifically or generically) a Compound solely for Axys and its Affiliates and sublicensees to make, have made, import, use, offer for sale and sell such Compound as permitted in Section 2.6, but excluding from the foregoing license any Warner-Lambert patent claiming a Compound that is discovered or synthesized by Warner-Lambert or its Affiliates completely independent of any activity permitted under this Agreement and without reliance on any Axys Know-How, Axys Patents or other Axys Confidential Information disclosed to Warner-Lambert. 5.4 ENFORCEMENT OF PATENTS. If Warner-Lambert becomes aware of any actions of a third party that it considers infringing upon any Axys Patent, it shall notify Axys and provide all evidence of such infringement that is reasonably available. Axys shall have the sole and exclusive right, at its own expense, to attempt to terminate such infringement by commercially appropriate steps, including suit. Warner-Lambert shall provide reasonable assistance to Axys in enforcing the Axys Patents, at Axys's request and expense, including providing access to relevant documents and other evidence and making its employees available. Any amounts recovered by Axys, whether by settlement or judgment, shall be retained by Axys. 5.5 THIRD PARTY PATENT RIGHTS. If any warning letter or other notice of infringement is received by a Party, or action, suit or proceeding is brought against a Party alleging infringement of a patent right of any third party in the manufacture, use or sale of a Compound or use of the Axys Know-How or Axys Patents or Software as permitted herein, the Parties shall promptly discuss and decide the best way to respond. * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 13 18 6. CONFIDENTIALITY 6.1 CONFIDENTIALITY OBLIGATIONS. Each Party agrees that, for the term of this Agreement and for [*] thereafter, such Party shall keep, and shall ensure that its officers, directors, employees and agents keep, completely confidential and shall not publish or otherwise disclose and shall not use for any purpose except as expressly permitted hereunder any Confidential Information furnished to it by the other Party pursuant to this Agreement; except that the foregoing obligations shall not apply to any Information to the extent that it can be established by such receiving Party that such Information: (a) was already known to the receiving Party or any of its Affiliates, other than pursuant to an obligation of confidentiality owed to the disclosing Party, at the time of disclosure; (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party; (c) became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving Party in breach of this Agreement; or (d) was subsequently lawfully disclosed to the receiving Party or its Affiliates by a Third Party other than in contravention of a confidentiality obligation of such Third Party to the disclosing Party; or (e) was developed or discovered by employees of the receiving Party or its Affiliates who had no access to the Confidential Information of the disclosing Party. Notwithstanding the foregoing, Warner-Lambert shall not use for any purpose the Axys Restricted Information. Further, each Party may disclose the other's Confidential Information only to the extent such disclosure is necessary in prosecuting or defending litigation or complying with applicable governmental laws or regulations, provided that if a Party is required to make any such disclosure of the other Party's Confidential Information, it will, whenever reasonably possible, give advance notice to the latter Party of such disclosure requirement, will cooperate with the other Party in its efforts to secure confidential treatment of such Information prior to its disclosure (whether through protective orders or confidentiality agreements or otherwise), and will use reasonable efforts to limit the extent of such disclosure and, if requested by the other Party because of an inability of such other Party to seek confidential treatment, to secure confidential * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 14 19 treatment of such Information prior to its disclosure (whether through protective orders or confidentiality agreements or otherwise). 6.2 PRESS RELEASES. Except as required by law or in accordance with Section 6.3, neither Party shall have the right to make any public announcements concerning this Agreement or the subject matter hereof without the prior written consent of the other, which shall not be unreasonably withheld. Notwithstanding the foregoing, the Parties agree that (a) each Party may make public disclosures regarding Compounds in clinical development or commercialization; and (b) each Party may desire or be required to issue press releases relating to the Agreement or activities thereunder, and the Parties agree to consult with each reasonably and in good faith with respect to the text of such press releases (under this subsection (b)) prior to the issuance thereof, provided that a Party may not unreasonably withhold consent to such releases. All such public disclosures with respect to this Agreement must be accurate and comply with applicable law and regulations. Except as set forth in Section 6.2(a) hereof, in the event of a required or desired public announcement, such Party shall provide the other Party with a reasonable opportunity and the right to approve the content of such announcement prior to its being made, which approval shall not be delayed or unreasonably withheld. Each Party agrees that any filings it makes with the SEC describing the terms of this Agreement shall be consistent with the prior press releases and other public disclosures of such terms. 6.3 PUBLICATIONS. Notwithstanding the terms of Section 6.2, either Party may publish Information that such Party discovered or developed in its research, development or commercialization activities derived from use of the Library or any Compound without the consent of or notice to the other Party, provided, however, that no such publication may contain the structure of a Compound or Information that reasonably may be interpreted to disclose the structure of a Compound unless: (a) the publishing Party has [*]; (b) such structure is [*]; (c) such structure was [*]; or (d) the other Party has consented in writing to such disclosure. * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 15 20 7. INDEMNIFICATION 7.1 INDEMNIFICATION BY WARNER-LAMBERT. Warner-Lambert shall indemnify, defend and hold Axys and its agents, employees, officers and directors (the "Axys Indemnitees") harmless from and against any and all liability, damage, loss, cost or expense (including reasonable attorneys' fees) arising out of Third Party claims or suits related to (a) Warner-Lambert's or its Affiliate's negligence, willful misconduct or breach of this Agreement; or (b) the manufacture, use or sale of Compounds or products containing Compounds or any compound based upon or derived therefrom by Warner-Lambert and its Affiliates, sublicensees, distributors and agents, except to the extent such claims or suits result from the active negligence or willful misconduct of or breach of the Agreement by any of the Axys Indemnitees or the manufacture, use or sale to third parties of Compounds or products containing Compounds or any compound based upon or derived therefrom by Axys and its Affiliates, other licensees (i.e., excluding Warner-Lambert) distributors or agents. Upon the assertion of any such claim or suit, the Axys Indemnitees shall promptly notify Warner-Lambert thereof, and Warner-Lambert shall appoint counsel reasonably acceptable to the Axys Indemnitees to represent the Axys Indemnitees with respect to any claim or suit for which indemnification is sought, provided that Warner-Lambert shall have sole control over the defense and settlement of such claim or suit. As a condition to obtaining indemnification hereunder, the Axys Indemnitees shall not settle or attempt to settle or defend or attempt to defend any such claim or suit without the prior written consent of Warner-Lambert, unless they shall have first waived their rights to indemnification hereunder; provided that the foregoing shall in no way limit Axys' right to challenge or defend against a claim (whether by Warner-Lambert or any third party) that the claim or suit that is the subject of a claim for indemnification by Axys hereunder results from the active negligence or willful misconduct of or breach of the Agreement by any of the Axys Indemnitees. 7.2 INDEMNIFICATION BY AXYS. Axys shall indemnify, defend and hold Warner-Lambert and its agents, employees, officers and directors (the "Warner-Lambert Indemnitees") harmless from and against any and all liability, damage, loss, cost or expense (including reasonable attorney's fees) arising out of Third Party claims or suits related to (a) Axys's negligence, willful misconduct or breach of this Agreement, except to the extent that such claims or suits result from (i) the manufacture, use, or sale or Compound or products containing Compounds or any compound based upon or derived * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 16 21 therefrom by Warner-Lambert and its Affiliates, sublicensees, distributors and agents, or (ii) the active negligence or willful misconduct of or breach of this Agreement by any of the Warner-Lambert Indemnitees; or (b) the manufacture, use or sale to third parties by Axys, its Affiliates, third party licensees, distributors or agents of Compounds or products containing Compounds or any compound based upon or derived therefrom (but excluding from the foregoing exception any claims or suits that relate to use or sale of the physical samples of Compounds provided to Warner-Lambert hereunder); or (c) personal or property damage arising during the course of manufacture of the Compounds by Axys. Upon the assertion of any such claim or suit, the Warner-Lambert Indemnitees shall promptly notify Axys thereof, and Axys shall appoint counsel reasonably acceptable to the Warner-Lambert Indemnitees to represent the Warner-Lambert Indemnitees with respect to any claim or suit for which indemnification is sought, provided that Axys shall have sole control over the defense and settlement of such claim or suit. As a condition to obtaining indemnification hereunder, the Warner-Lambert Indemnitees shall not settle or attempt to settle or defend or attempt to defend any such claim or suit without the prior written consent of Axys, unless they shall have first waived their rights to indemnification hereunder; provided that the foregoing shall in no way limit Warner-Lambert's right to challenge or defend against a claim (whether by Axys or any third party) that the claim or suit that is the subject of a claim for indemnification by Warner-Lambert hereunder results from the active negligence or willful misconduct of or breach of the Agreement by any of the Warner-Lambert Indemnitees. 8. TERMINATION AND EXPIRATION 8.1 TERM AND TERMINATION. This Agreement shall commence upon the Effective Date and, unless earlier terminated as provided herein, shall expire on the [*] anniversary of the Effective Date or, if later, upon the completion of delivery of the Library. The license and other rights granted to Warner-Lambert under Sections 2.5, 2.7, 3.2, 3.3(a), 3.4 and 5.3 shall survive such expiration, subject to compliance by Warner-Lambert and its Affiliates with all limitations on the practice of such license rights set forth in such Sections. The license rights granted to Axys under Section 3.3(b) shall survive such expiration. 8.2 TERMINATION BY WARNER-LAMBERT FOR [*]. Warner-Lambert shall have the right, subject to the provisions of Section 9.11, to terminate the Agreement upon [*] written notice if Axys has materially failed to comply with the [*] provided that such termination shall not be effective if Axys cures such failure prior to the end of such [*] * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 17 22 period. The license and other rights granted to Warner-Lambert under Sections 2.5, 2.7, 3.2, 3.3(a), 3.4 and 5.3 shall survive such termination with respect to the Compounds already delivered and paid for by Warner-Lambert, subject to compliance by Warner-Lambert and its Affiliates with all limitations on the practice of such license rights set forth in such Sections. The license rights granted to Axys under Section 3.3(b) shall survive such termination. 8.3 TERMINATION UPON MATERIAL BREACH. (a) Failure by a Party to comply with any of its material obligations contained herein shall entitle the Party not in default to give to the Party in default notice specifying the nature of the default, requiring it to make good or otherwise cure such default, and stating its intention to terminate if such default is not cured. If such default is not cured within [*] after the date of such notice (or, if such default cannot be cured within such [*] period, if the Party in default does not commence and diligently continue actions to cure such default), the Party not in default shall be entitled, without prejudice to any of its other rights conferred on it by this Agreement, and in addition to any other remedies available to it by law or in equity, to terminate this Agreement; provided, however, that such right to terminate shall be stayed in the event that, during such [*] day period, the Party alleged to have been in default shall have initiated dispute resolution proceedings in accordance with Section 9.11 with respect to the alleged default, which stay shall last so long as the initiating Party diligently and in good faith pursues the prompt resolution of such proceedings, and provided further that if such default is by Warner-Lambert and is limited to a default with respect to obligations as to particular Compounds, then Axys may not terminate the entire Agreement but may terminate the Agreement, and all the rights of Warner-Lambert, only with respect to such Compounds. (b) The right of a Party to terminate this Agreement, as provided above, shall not be affected in any way by its waiver or failure to take action with respect to any prior default. A Party may waive its right to terminate this Agreement with respect to a particular default, provided that any such waiver shall not constitute a waiver of, and such Party shall retain all rights to pursue, any and all other remedies it may have at law or in equity of such default by the other Party. 8.4 CONSEQUENCES OF TERMINATION. * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 18 23 (a) Upon termination of this Agreement by Warner-Lambert pursuant to Section 8.3 for the uncured material breach of Axys, then: (i) the license and other rights granted under Sections 2.5, 3.2, 3.3(a) and 5.3 shall survive termination subject to compliance with all limitations in such Sections and in Section 3.4; (ii) Axys shall promptly return all Confidential Information of Warner-Lambert in its possession; (iii) all obligations and rights of Axys to provide additional Compounds shall terminate; (iv) Warner-Lambert shall retain the right to use the Compounds already delivered and paid for as permitted under the Agreement; and (v) Warner-Lambert may retain exclusive rights to up to [*], regardless of whether Warner-Lambert or its Affiliate or sublicensee complies with the obligations of diligence or continued sales under Section 2.7 to maintain such Compounds as Warner-Lambert Compounds. (b) Upon termination of this Agreement by Axys pursuant to Section 8.3, in its entirety or only as to particular Compounds, as applicable, for the uncured material breach of Warner-Lambert, then: (i) all licenses and other rights granted by Axys to Warner-Lambert under the Agreement, or, if applicable, under the Agreement as to the particular Compounds so terminated, shall terminate; (ii) Warner-Lambert shall return all existing samples of the Compounds that are subject to the termination and all rights to use such Compounds shall terminate and revert to Axys; (iii) if the entire Agreement is terminated, all obligations of Axys to provide additional Compounds shall terminate, and (iv) the license rights granted to Axys by Warner-Lambert in Section 5.3 shall survive termination any such termination. 8.5 ACCRUED RIGHTS; SURVIVING OBLIGATIONS. (a) Termination, relinquishment or expiration of this Agreement for any reason shall be without prejudice to any rights which shall have accrued to the benefit of a Party prior to such termination, or expiration. Such termination, relinquishment or expiration shall not relieve a Party from obligations which are expressly indicated to survive termination or expiration of this Agreement. (b) Without limiting the foregoing, Sections 5.1, 5.2 and 5.4 and Articles 1, 6, 7 and 8 of this Agreement shall survive the expiration or termination of this Agreement. 8.6 RIGHTS IN BANKRUPTCY. All rights and licenses granted under or pursuant to this Agreement by Warner-Lambert or Axys are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of right to "intellectual property" as defined under Section 101 of the U.S. Bankruptcy Code. The Parties agree * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 19 24 that the Parties, as licensees of such rights under this Agreement, shall retain and may fully exercise all of their rights and elections under the U.S. Bankruptcy Code. The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against either Party under the U.S. Bankruptcy Code, the Party hereto which is not a party to such proceeding shall be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments of such intellectual property, and same, if not already in their possession, shall be promptly delivered to them (i) upon any such commencement of a bankruptcy proceeding upon their written request therefor, unless the Party subject to such proceeding elects to continue to perform all of its obligations under this Agreement or (ii) if not delivered under (i) above, following the rejection of this Agreement by or on behalf of the Party subject to such proceeding upon written request therefor by an non-subject Party. 9. MISCELLANEOUS PROVISIONS 9.1 RELATIONSHIP OF THE PARTIES. Nothing in this Agreement is intended or shall be deemed to constitute a partnership, agency or employer-employee relationship between the Parties. Neither Party shall incur any debts or make any commitments for the other. 9.2 ASSIGNMENTS. Except as expressly provided herein, neither this Agreement nor any interest hereunder shall be assignable, nor any other obligation delegable, by a Party without the prior written consent of the other; provided, however, that a Party may assign this Agreement to any Affiliate or to any successor in interest by way of merger or sale of all or substantially all of its assets in a manner such that the assignee shall be liable and responsible for the performance and observance of all such Party's duties and obligations hereunder, but provided that if such assignee is an Affiliate of the assigning Party, such Party shall guarantee the performance by such Affiliate of all its obligations under the Agreement. This Agreement shall be binding upon the successors and permitted assigns of the Parties; provided, however, that in the event that Axys is acquired, the Axys Know-How and the Axys Patents shall not include any information or intellectual property rights owned by the acquiring company as of the date of such acquisition, unless previously licensed to Axys. Any assignment not in accordance with this Section 9.2 shall be void. 9.3 DISCLAIMER OF WARRANTIES. THE PARTIES EXPRESSLY DISCLAIM ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY, FITNESS FOR A * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 20 25 PARTICULAR PURPOSE, OR NON-INFRINGEMENT OF THIRD PARTY RIGHTS, UNLESS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT. 9.4 REPRESENTATIONS AND WARRANTIES. (a) Each Party represents and warrants to the other Party that, as of the date of this Agreement: (i) such Party is duly organized and validly existing under the laws of the state of its incorporation and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof; (ii) such Party has taken all corporate action necessary to authorize the execution and delivery of this Agreement and the performance of its obligations under this Agreement; and (iii) this Agreement is a legal and valid obligation of such Party, binding upon such Party and enforceable against such Party in accordance with the terms of this Agreement, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws affecting creditors' rights, and subject to general equity principles and to limitations on availability of equitable relief, including specific performance. All consents, approvals and authorizations from all governmental authorities or other Third Parties required to be obtained by such Party in connection with this Agreement have been obtained. (iv) such Party has obtained written confidentiality agreements from each of its employees and consultants who have access to the Confidential Information of the other Party hereunder, whether in the form of general confidentiality agreements from the employees obtained at the time of commencement of such employees' employment by such Party or otherwise, which agreements obligate such persons to maintain as confidential all confidential information obtained by such Party in confidence from a third party. (b) Axys represents and warrants to Warner-Lambert that as of the date of this Agreement: (i) to Axys' knowledge, the Axys Patents, Axys Know-How and the Software existing as of the Effective Date are subsisting and are not invalid or unenforceable, in whole or in part; * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 21. 26 (ii) it has the full right, power and authority to enter into this Agreement and to grant the licenses granted under Article 3 hereof; (iii) to Axys' knowledge, the Axys Patents, Axys Know-How and the Software existing as of the Effective Date practiced as permitted herein do not infringe on any intellectual property rights owned or controlled by any Third Party; (iv) the execution, delivery and performance of this Agreement by Axys does not constitute a material breach under, and is not precluded by the terms of, any agreement to which Axys is a party or by which Axys is bound; and (v) there are no claims, judgments or settlements against or owed by Axys or pending or threatened claims or litigation relating to the Axys Patents, Axys Know-How or the Software. (c) Warner-Lambert represents and warrants to Axys that as of the date of this Agreement: (i) it has the full right, power and authority to enter into this Agreement and to grant the licenses granted under Article 3 hereof; (ii) the execution, delivery and performance of this Agreement by Warner-Lambert does not constitute a material breach under, and is not precluded by the terms of, any agreement to which Warner-Lambert is a party or by which Warner-Lambert is bound. 9.5 FURTHER ACTIONS. Each Party agrees to execute, acknowledge and deliver such further instruments and to do all such other acts as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement. 9.6 FORCE MAJEURE. The failure of a Party to perform any obligation under this Agreement by reason of acts of God, acts of governments, riots, wars, strikes, accidents or deficiencies in materials or transportation or other causes of any nature (whether similar or dissimilar) beyond its control for the duration thereof and for thirty (30) days thereafter shall not be deemed to be a breach of this Agreement. 9.7 NO TRADEMARK RIGHTS. No right, express or implied, is granted by this Agreement to a Party to use in any manner the name or any other trade name or trademark of a Party in connection with the performance of this Agreement. * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 22. 27 9.8 ENTIRE AGREEMENT OF THE PARTIES; AMENDMENTS. This Agreement constitutes and contains the entire understanding and agreement of the Parties respecting the subject matter hereof and cancels and supersedes any and all prior negotiations, correspondence, understandings and agreements between the Parties, whether oral or written, regarding such subject matter. No waiver, modification or amendment of any provision of this Agreement shall be valid or effective unless made in writing and signed by a duly authorized officer of each Party. 9.9 CAPTIONS. The captions to this Agreement are for convenience only, and are to be of no force or effect in construing or interpreting any of the provisions of this Agreement. 9.10 APPLICABLE LAW. This Agreement shall be governed by and interpreted in accordance with the laws of the State of California, USA, applicable to contracts entered into and to be performed wholly within the State of California, excluding conflict of laws principles. 9.11 DISPUTES. In the event of any controversy or claim arising out of, relating to or in connection with any provision of this Agreement, or the rights or obligations of the Parties hereunder, the Parties shall try to settle their differences amicably between themselves by referring the disputed matter to the Chief Executive Officer of Axys and the President of Warner-Lambert Company's Pharmaceutical Research Division for discussion and resolution. Either Party may initiate such informal dispute resolution by sending written notice of the dispute to the other Party, and within [*] after such notice such representatives of the Parties shall meet for attempted resolution by good faith negotiations. If such personnel are unable to resolve such dispute within [*] of their first meeting of such negotiations, either Party may seek to have such dispute resolved in any federal or state court in the United States having jurisdiction over the dispute and the Parties. 9.12 NOTICES AND DELIVERIES. Any notice, request, delivery, approval or consent required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been sufficiently given if delivered in person, transmitted by telecopier (receipt verified) or by express courier service (signature required) or [*] after it was sent by registered letter, return receipt requested (or its equivalent), to the Party to which it is directed at its address shown below or such other address as such party shall have last given by notice to the other Parties. * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 23. 28 If to Warner-Lambert, addressed to: Warner-Lambert Company 2800 Plymouth Road Ann Arbor, Michigan 48105 Attn: Vice President and Chairman Pharmaceutical Research Division Telecopier: (__) With a copy to: Warner-Lambert Company 201 Tabor Road Morris Plains, New Jersey 07950 Attn: Vice President and General Counsel Telecopier: (__) If to Axys, addressed to: Axys Pharmaceuticals, Inc. 180 Kimball Way South San Francisco, CA USA 94080 Telecopier: (650) 829-1067 Attn: CEO with a copy to: Cooley Godward LLP 5 Palo Alto Square, 4th Floor 3000 El Camino Real Palo Alto, CA 94306-2155 Attention: Barclay James Kamb, Esq. 9.13 NO CONSEQUENTIAL DAMAGES. IN NO EVENT SHALL EITHER PARTY OR ANY OF ITS RESPECTIVE AFFILIATES BE LIABLE TO THE OTHER PARTY OR ANY OF ITS AFFILIATES FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER IN CONTRACT, WARRANTY, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, including, but not limited to, 24. 29 loss of profits or revenue, or claims of customers of any of them or other Third Parties for such or other damages. 9.14 WAIVER. A waiver by either Party of any of the terms and conditions of this Agreement in any instance shall not be deemed or construed to be a waiver of such term or condition for the future, or of any subsequent breach hereof. All rights, remedies, undertakings, obligations and agreements contained in this Agreement shall be cumulative and none of them shall be in limitation of any other remedy, right, undertaking, obligation or agreement of either party. 9.15 COMPLIANCE WITH LAW. Nothing in this Agreement shall be deemed to permit a Party to export, reexport or otherwise transfer any Compound provided under this Agreement without compliance with applicable laws. 9.16 SEVERABILITY. When possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 9.17 COUNTERPARTS. This Agreement may be executed simultaneously in any number of counterparts, any one of which need not contain the signature of more than one Party but all such counterparts taken together shall constitute one and the same agreement. 25. 30 IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective duly authorized officers as of the day and year first above written, each copy of which shall for all purposes be deemed to be an original. WARNER-LAMBERT COMPANY By: PROF. RONALD M. CRESSWELL, PhD -------------------------------------- Title: VP and Chairman Parke-Davis ----------------------------------- AXYS PHARMACEUTICALS, INC. By: JOHN WALKER -------------------------------------- Title: Chairman/CEO ----------------------------------- 26 31 EXHIBIT A [*] * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 32 EXHIBIT B [*] * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." EX-10.89 5 COLLABORATION AGREEMENT 1 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Exhibit 10.89 AXYS PHARMACEUTICALS, INC. AND ROCHE BIOSCIENCE ------------------------------------------------------------- COLLABORATION AGREEMENT ------------------------------------------------------------ JUNE 1, 1998 2 TABLE OF CONTENTS
PAGE ---- 1. DEFINITIONS..........................................................................1 2. MANAGEMENT AND SCOPE OF COLLABORATION................................................8 2.1 Undertaking and Scope.........................................................8 2.2 Limited Use...................................................................8 2.3 Formation of JRPC.............................................................9 2.4 Meetings of JRPC..............................................................9 2.5 JRPC Decision-Making Process..................................................9 2.6 Collaboration Term Extension..................................................9 3. COLLABORATIVE ACTIVITIES............................................................10 3.1 Mutual Responsibilities; Cooperation.........................................10 3.2 Conduct of Research..........................................................10 3.3 Availability of Resources....................................................10 3.4 Transfer of Materials........................................................10 3.5 Disclosure; Reports..........................................................10 3.6 Identification of NemaPharm Targets..........................................11 3.7 Screening of Compounds; Discontinuation of Development.......................11 3.8 Axys Development of Gene Therapy Products and Protein Products...............11 3.9 Facility Visits..............................................................12 4. GRANT OF LICENSES...................................................................12 4.1 Research Licenses............................................................12 4.2 Licenses To Roche Bioscience in the Commercialization Field..................12 4.3 License to Roche Bioscience Outside the Commercialization Field..............14 4.4 Licenses To Axys.............................................................15 4.5 Sublicenses..................................................................16 4.6 Diligence Obligations of Roche Bioscience Related to NemaPharm Targets.......16 4.7 Diligence Obligations of Roche Bioscience With Respect to Development and Promotion of Roche Bioscience Products...................................17 5. PAYMENT OBLIGATIONS.................................................................18 5.1 Upfront Payment..............................................................18 5.2 Research Funding.............................................................18
i 3 TABLE OF CONTENTS (CONTINUED)
PAGE ---- 5.3 Term Extension...............................................................18 5.4 Milestone Payments...........................................................18 5.5 [*]..........................................................................20 5.6 Royalty Payments ............................................................21 5.7 Third Party Royalties........................................................21 6. PAYMENTS; RECORDS; AUDITS...........................................................21 6.1 Payment; Reports.............................................................21 6.2 Exchange Rate; Manner and Place of Payment...................................22 6.3 Late Payments................................................................22 6.4 Records and Audits...........................................................23 6.5 Taxes........................................................................24 6.6 Prohibited Payments..........................................................24 7. PATENT RIGHTS AND INFRINGEMENT......................................................24 7.1 Ownership of Patent Rights...................................................24 7.2 Confidentiality Obligations..................................................24 7.3 Prosecution and Maintenance of Patent Rights.................................24 7.4 Cooperation of the Parties...................................................25 7.5 Infringement by Third Parties................................................26 7.6 Infringement of Third Party Rights...........................................27 8. INDEPENDENT CONTRACTOR..............................................................27 9. CONFIDENTIALITY.....................................................................27 9.1 Nondisclosure................................................................27 9.2 Exceptions...................................................................28 9.3 Publications.................................................................28 10. REPRESENTATIONS, WARRANTIES AND COVENANTS...........................................28 10.1 Corporate Power..............................................................29 10.2 Due Authorization............................................................29 10.3 Binding Agreement............................................................29 10.4 Disclaimer of Warranties.....................................................29 10.5 Mutual Indemnification.......................................................29
* "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." ii. 4 TABLE OF CONTENTS (CONTINUED)
PAGE ---- 11. TERM AND TERMINATION................................................................29 11.1 Term.........................................................................30 11.2 Termination for Cause........................................................30 11.3 Effect of Expiration or Termination..........................................30 12. PUBLICITY...........................................................................31 12.1 Publicity Review.............................................................31 12.2 Standards....................................................................31 13. DISPUTE RESOLUTION..................................................................31 13.1 Disputes.....................................................................31 13.2 Procedure....................................................................31 14. MISCELLANEOUS.......................................................................32 14.1 Assignment...................................................................32 14.2 Force Majeure................................................................33 14.3 Payment in U.S. Dollars......................................................33 14.4 Notices......................................................................33 14.5 Governing Law................................................................34 14.6 Waiver.......................................................................34 14.7 Severability.................................................................34 14.8 Entire Agreement.............................................................34 14.9 Counterparts.................................................................35
iii. 5 COLLABORATION AGREEMENT THIS COLLABORATION AGREEMENT (the "Agreement") is made as of June 1, 1998 (the "Effective Date") by and among AXYS PHARMACEUTICALS, INC., a Delaware corporation with its principal office at 180 Kimball Way, South San Francisco, California 94080 and its subsidiaries, NemaPharm, Inc. and Sequana Therapeutics, Inc., ("Axys"), and ROCHE Bioscience, a division of Syntex (U.S.A.) Inc., a Delaware corporation with its principal office at 3401 Hillview Avenue, Palo Alto, California, 94304 ("Roche Bioscience") and, for purposes only of Sections 4.1.2, 4.4 and 4.7.2 , both of F. Hoffmann-La Roche, Ltd., a Swiss corporation located in Basel, Switzerland ("FHLR") and Hoffmann-La Roche Inc., a New Jersey corporation located in Nutley, New Jersey ("HLR"). RECITALS WHEREAS, the Parties desire to collaborate to perform functional analysis of rat or human ESTs provided by Roche Bioscience using their respective bioinformatics and genomics capabilities; WHEREAS, the goal of the collaboration is to identify therapeutic, prophylactic and diagnostic products through such analysis for applications in Pain, Peripheral Arterial Occlusive Disease and Lower Urinary Tract Disorders as hereinafter defined in Article 1; and WHEREAS, the Parties desire to provide for the allocation of rights to intellectual property, products and services for the prevention, treatment and diagnosis of Pain, Peripheral Arterial Occlusive Disease and Lower Urinary Tract Disorders resulting from the collaboration on the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and agreements contained herein, the Parties hereto, intending to be legally bound, do hereby agree as follows: AGREEMENT 1. DEFINITIONS 1.1 "AFFILIATE" means any person, organization or entity that is, directly or indirectly, controlling, controlled by, or under common control with Roche Bioscience or Axys as the case may be. The term "Control" as used in this section 1.1 (including, with correlative meaning, the terms "controlled by" and "under common control with"), as used with respect to any person or entity, means the possession, directly or indirectly, of the power to direct, or cause the direction of, the management and policies of such person, an organization or entity, whether through the ownership of 6 voting securities, or by contract or court order or otherwise. The ownership of voting securities of a person, organization or entity shall not, in and of itself, constitute "control" for purposes of this definition, unless said ownership is of a majority of the outstanding securities entitled to vote of such a person, organization or entity. For purposes of this Agreement, Genentech, Inc. shall not be considered to be an Affiliate of Roche Bioscience unless an authorized officer of Roche Bioscience notifies Axys in writing that Genentech, Inc. is an Affiliate of Roche Bioscience. Axys Pharmaceuticals, Inc. shall determine which of its subsidiaries shall be responsible for performing individual obligations required, or receiving individual benefits or rights, of Axys pursuant to this Agreement. 1.2 "ANTISENSE PRODUCT" shall mean any product for the prevention, treatment or diagnosis of any disease or disorder, that contains an antisense product which consists of any complete, partial, altered or mutated RNA or DNA sequence complementary to or derived from an RNA or DNA sequence of one or more NemaPharm Target(s) licensed to Roche Bioscience pursuant to Section 4.2.1(a) or any human or other animal homolog of that NemaPharm Target(s). 1.3 "AXYS KNOW-HOW" means the Know-How owned or Controlled by Axys, relating to Axys' activities under the Research Plan necessary or useful to conduct the Collaboration or to develop, manufacture, commercialize, distribute, import, export and sell Roche Bioscience Products. 1.4 "AXYS PATENT RIGHTS" means the Patent Rights owned or Controlled by Axys, relating to Axys' activities under the Research Plan necessary or useful to conduct the Collaboration or to develop, manufacture, commercialize, distribute, import, export and sell Roche Bioscience Products, but excluding Joint Patent Rights. 1.5 "AXYS PRODUCT" means a Gene Therapy Product, a Protein Product or any other product for the prevention, treatment or diagnosis of any disease or disorder, which, in each case, is discovered or developed using a NemaPharm Target; provided, however, that the term "Axys Product" shall not include any Small Molecule Product, Antisense Product or Diagnostic Product. 1.6 "AXYS TECHNOLOGY" means the Axys Patent Rights and the Axys Know-How. 1.7 "CDNA" means a DNA copy of an mRNA, including, without limitation, all cDNA clones and cDNA templates derived from a given gene transcript and its corresponding coding sequence, including the full length sequence. 1.8 "COLLABORATION" means the activities of the Parties carried out in performance of, and the relationship between the Parties established by, this Agreement. 2. 7 1.9 "COLLABORATION TERM" means the period commencing on the Effective Date and ending on the first to occur of (i) termination of this Agreement according to Article 11 or (ii) the date that is fifteen (15) months following the Effective Date, or twenty-four (24) months following the Effective Date if extended pursuant to Section 2.6. 1.10 "COMBINATION PRODUCT" means a Product containing or using both a NemaPharm Target and one or more ingredients that are diagnostically useable or therapeutically active alone or in a combination. 1.11 "COMMERCIALLY REASONABLE EFFORTS" means efforts ordinarily undertaken by the applicable Party on products of similar scientific and commercial potential within the relevant product lines of the Parties. 1.12 "COMMERCIALIZATION FIELD" means the development or commercialization of products or services for the prevention, treatment or diagnosis of Pain, Peripheral Arterial Occlusive Disease or Lower Urinary Tract Disorders. 1.13 "CONFIDENTIAL INFORMATION" means all information and materials received by a Party from another Party pursuant to this Agreement and all information and materials developed in the course of the Collaboration, including, without limitation, Know-How of such other Party. 1.14 "CONTROL" means possession of the ability to grant a license or sublicense as provided for herein without violating the terms of any agreement with or other arrangement with, or the rights of, any Third Party. 1.15 "DIAGNOSTIC PRODUCT" means any product or service or combination thereof used for the diagnosis, prognosis and/or monitoring of progression of a disease or disorder or that [*] that is developed utilizing, or is comprised of, any one or more NemaPharm Target(s) licensed to Roche Bioscience pursuant to Section 4.2.1(b) or which incorporates any complete, partial, altered or mutated RNA or DNA sequence corresponding to or complementary to an RNA or DNA sequence of any such NemaPharm Target(s) or any human or other animal homolog of that NemaPharm Target(s). 1.16 "EST" or "EXPRESSED SEQUENCE TAG" means a partial or whole sequence of an expressed gene that comprises fifty (50) or more nucleotides. 1.17 "FDA" means the United States Food and Drug Administration, or the successor thereto. * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 3. 8 1.18 "Final Axys Report" means a report by Axys detailing all major research findings, including summaries of relevant data, resulting from the Collaboration. 1.19 "FIRST COMMERCIAL SALE" of a Roche Bioscience Product means the first sale for use or consumption of such Roche Bioscience Product in a country after Regulatory Approval and necessary pricing approval has been granted by the governing health regulatory authority of such country. Sale to an Affiliate or sublicensee shall not constitute a First Commercial Sale unless the Affiliate or sublicensee is the end user of the Roche Bioscience Product. 1.20 "FTE" means [*]. 1.21 "GENE PRODUCT" means all partial cDNAs, DNAs, genes, ESTs, full length cDNAs corresponding thereto, proteins encoded therefrom and corresponding gene expression levels. 1.22 "GENE THERAPY PRODUCT" means any product for the prevention, treatment or diagnosis of any disease or disorder through gene therapy that consists of any complete, partial, altered or mutated RNA or DNA sequence corresponding to an RNA or DNA sequence of a NemaPharm Target licensed to Roche Bioscience pursuant to Section 4.2.2 or any human or other animal homolog of that NemaPharm Target. 1.23 "IND" means an Investigational New Drug Application to the FDA to commence human clinical testing of a Roche Bioscience Product, as defined by the FDA, or the equivalent application in any other country or jurisdiction. 1.24 "JOINT PATENT RIGHTS" means the Patent Rights covering any and all inventions conceived of and reduced to practice jointly by employees or agents of Roche Bioscience, on the one hand, and employees or agents of Axys, on the other hand, in the course of the Collaboration. 1.25 "JRPC" means the Joint Research Project Committee established pursuant to Section 2.3 hereof. 1.26 "KNOW-HOW" means inventions, software, techniques, practices, methods, protocols, processes, procedures, knowledge, know-how, trade secrets, skill, experience, data, including pharmacological, toxicological and clinical test data, analytical and quality control data, materials, samples, chemicals, compounds, formulations, DNA, RNA, peptides, proteins, cell lines, genes, transgenic animals and compositions (whether or not patentable). * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 4. 9 1.27 "LOWER URINARY TRACT DISORDERS" means [*]. 1.28 "MAJOR EUROPEAN COUNTRIES" means the United Kingdom, France, Germany, Italy, and/or Spain. 1.29 "NDA" means a New Drug Application or Product License Application (or Biologics License Application), as appropriate, and all supplements filed pursuant to the requirements of the FDA, including all documents, data and other information concerning Roche Bioscience Products that are necessary for or included in FDA approval to market a Roche Bioscience Product, or the equivalent application in any other country or jurisdiction. 1.30 "NEMAPHARM TARGET" means a Gene Product that is discovered by a Party or jointly by the Parties in the course, or as a direct or indirect result, of the Collaboration through the use of a Roche Bioscience Gene within [*] after the Effective Date and that, [*] the Roche Bioscience Gene. 1.31 "NET SALES" and the related term "Adjusted Gross Sales" mean: 1.31.1 "ADJUSTED GROSS SALES" means the amount of gross sales invoiced by Roche Bioscience or Axys or one of their Affiliates, or sublicensees as the case may be, for a Product (including special license sales of the Product), whether in active ingredient form or finished product form, to non-affiliated third party purchasers, less, to the extent such amounts are included in the amount of gross sales, deductions for [*]. 1.31.2 "NET SALES" means the amount calculated by subtracting from the amount of Adjusted Gross Sales [*] of Adjusted Gross Sales, [*]. 1.32. "NOTICE OF ABANDONMENT" shall have the meaning set forth in Section 3.7. * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 5. 10 1.33 "PAIN" means[*]. 1.34 "PARTY" or "Parties" means Roche Bioscience or Axys. 1.35 "PATENT RIGHTS" means (i) the patents and the patent applications owned or Controlled by a Party that are referred to in Schedule 1.35; (ii) any and all patents arising or resulting from said applications, and all patents and patent applications based upon or claiming priority to any of the foregoing; (iii) any and all extensions or other governmental actions with respect to the foregoing that provide exclusive rights to the patent holder beyond the original patent expiration date), (iv) any and all substitutions, confirmations, registrations, revalidations, re-examinations, reissues, additions, continuations, continuations-in-part, or divisions of or to any of the foregoing and (v) all rights under foreign and domestic patents that include one or more Valid Claims, including without limitation any substitution, extension (including supplemental protection certificate), registration, confirmation, reissue, continuation, divisional, continuation in part, re-examination, renewal or the like, and domestic pending applications for patents, including without limitation, any continuation, division or continuation in part thereof, and any provisional applications. 1.36 "PERIPHERAL ARTERIAL OCCLUSIVE DISEASE" (PAOD) means [*]. 1.37 "PHASE I" means that portion of the clinical development program that generally provides for the first introduction into humans of a Roche Bioscience Product with the primary purpose of determining safety, metabolism and pharmacokinetic properties and clinical pharmacology of the Roche Bioscience Product, as more specifically defined by the rules and regulations of the FDA and corresponding rules and regulations in any Major European Country or Japan. 1.38 "PHASE III" means that portion of the clinical development program that provides for the continued trials of a Roche Bioscience Product on sufficiently large numbers of patients to confirm the safety and efficacy of a Roche Bioscience Product for the desired claims and indications, as more specifically defined by the rules and regulations of the FDA and corresponding rules and regulations in Major European Countries or Japan. 1.39 "PRODUCT" means a Roche Bioscience Product or an Axys Product. 1.40 "PROTEIN PRODUCT" means any product for the prevention, treatment or diagnosis of any disease or disorder that incorporates a protein or peptide encoded by the complete, partial, altered or mutated RNA or DNA sequence corresponding to an RNA or DNA sequence of one or more NemaPharm Target(s) licensed to Roche * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 6. 11 Bioscience pursuant to Section 4.2.2 or any human or other animal homolog of that NemaPharm Target(s). 1.41 "REGULATORY APPROVAL" means (i) approval of an NDA by the FDA permitting commercial sale of a Product and (ii) any comparable approval permitting commercial sale of a Product granted by applicable authorities in any other country or jurisdiction including approval of price and reimbursement. 1.42 "RESEARCH FIELD" means research, discovery and characterization of Gene Products associated with Pain, Peripheral Arterial Occlusive Disease and Lower Urinary Tract Disorders through the [*]. 1.43 "RESEARCH PLAN" shall have the meaning set forth in Section 2.1. 1.44 "RESULTS" means any and all inventions, discoveries, methods, ideas, Know-How, data, software, techniques and information, including any gene, genes and sequence information, whether or not patentable, and all Patent Rights and other proprietary rights appurtenant thereto, that are conceived, made, created or reduced to practice by Axys and/or its Affiliates in the course of the Collaboration, as well as any reports relating to the conduct of the Collaboration during the Collaboration Term. 1.45 "ROCHE BIOSCIENCE GENE" means any Gene Product owned or Controlled by Roche Bioscience that is provided by Roche Bioscience to Axys and/or its Affiliates for purposes of the Collaboration as set out in Exhibit 1.45 as may be amended from time to time. 1.46 "ROCHE BIOSCIENCE KNOW-HOW" means the Know-How owned or Controlled by Roche Bioscience or its Affiliates relative to the Roche Bioscience Genes that is necessary or useful to conduct the Collaboration or to develop, manufacture and commercialize Products. 1.47 "ROCHE BIOSCIENCE PATENT RIGHTS" means the process Patent Rights owned or Controlled by Roche Bioscience or an Affiliate, covering a Roche Bioscience Gene, that are required to conduct the Collaboration or to develop, manufacture, commercialize, distribute, import, export and sell Products, but excluding Joint Patent Rights. 1.48 "ROCHE BIOSCIENCE PRODUCT" means a Small Molecule Product, Antisense Product or Diagnostic Product, or an Axys Product that Roche Bioscience has licensed upon exercise of its right of first negotiation pursuant to Section 4.2.2. * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 7. 12 1.49 "ROCHE BIOSCIENCE TECHNOLOGY" means the Roche Bioscience Patent Rights and the Roche Bioscience Know-How. 1.50 "ROYALTY TERM" means, in the case of any Roche Bioscience Product, in any country, the period of time commencing on the First Commercial Sale and ending upon the [*]. 1.51 "SMALL MOLECULE PRODUCT" means any product for the prevention, treatment or diagnosis of any disease or disorder, that contains [*] one or more NemaPharm Target(s) licensed to Roche Bioscience pursuant to Section 4.2.1(a) or any corresponding human or other animal homolog, and such activity is a primary mechanism of action of such product, excluding any Antisense Product, Gene Therapy Product, Diagnostic Product or Protein Product. 1.52 "TERRITORY" means the entire world. 1.53 "THIRD PARTY" means any entity other than Axys or Roche Bioscience or an Affiliate of Axys or Roche Bioscience. 1.54 "VALID CLAIM" means a claim of an issued patent or pending patent application which claim has not expired, lapsed, been canceled or become abandoned and has not been declared invalid by an unreversed and unappealable decision or judgment of a court or other appropriate body of competent jurisdiction, and which has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise. 2. MANAGEMENT AND SCOPE OF COLLABORATION 2.1 UNDERTAKING AND SCOPE. The Parties hereby agree to establish and conduct, during the Collaboration Term, a collaborative research program in accordance with a plan (the "Research Plan") and the terms of this Agreement with the goal of developing and commercializing Products. The initial Research Plan for conducting such research program is attached hereto as Exhibit A. 2.2 LIMITED USE. It is understood and agreed that Axys may use any EST that it, or a Third Party collaborating with Axys, identifies independently of Roche Bioscience Know-How, even in each case if such ESTs are the same as, or substantially similar to, the ESTs provided by Roche Bioscience and/or corresponding full-length * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 8. 13 clone sequences, provided that for a period of [*] from the Effective Date Axys will not perform research, primarily utilizing C. elegans technologies, on the same or substantially similar ESTs as those provided by Roche Bioscience and/or corresponding full-length clone sequences for itself or any Third Party, in the field of Pain. 2.3 FORMATION OF JRPC. The conduct of the Collaboration will be managed by the JRPC, which will be comprised of two (2) representatives appointed by Axys and two (2) representatives appointed by Roche Bioscience. Either Axys or Roche Bioscience may appoint substitute or replacement members of the JRPC to serve as their representatives upon notice to the other Party. The JRPC shall decide on the principal aspects of the Collaboration during the Collaboration Term. The JRPC shall have the responsibility and authority to (a) plan and monitor the conduct of the Collaboration, (b) assign tasks and responsibilities under the Research Plan to Roche Bioscience or Axys , (c) review and modify the Research Plan, as it shall deem appropriate to achieve the Parties' objectives under this Agreement and (d) confirm the achievement of milestones and approve payments therefor. Notwithstanding the foregoing, Axys will not be obligated under the Research Plan to the extent that such plan requires Axys to devote more than [*] to the Collaboration; provided that additional FTEs may be included in the Research Plan if the addition of such FTEs is approved in writing by the JRPC and Roche Bioscience increases the research funding payable to Axys pursuant to Section 5.3. 2.4 MEETINGS OF JRPC. The JRPC will initially meet at least once per quarter at locations and times to be determined by the JRPC, with the intent of meeting at alternating locations in South San Francisco and Palo Alto, California, with each Party to bear all travel and related costs for its representatives. The hosting Party shall pay for any meeting room and related costs. 2.5 JRPC DECISION-MAKING PROCESS. Each Party shall have one vote on the JRPC, and all decisions by the JRPC shall be made by unanimous vote. Any disagreement among members of the JRPC will be resolved within the JRPC based on the efficient achievement of the objectives of this Agreement. Any disagreement which cannot be resolved by a unanimous vote of the JRPC shall be referred to the appropriate officers of Axys and Roche Bioscience for resolution under Article 13. It is the intent of the Parties to resolve issues through the JRPC whenever possible and to refer issues to the officers of Axys and Roche Bioscience only when resolution through the JRPC cannot be achieved. 2.6 COLLABORATION TERM EXTENSION. No later than the date that is [*] following the Effective Date, Roche Bioscience shall provide written notice to Axys as to whether it wishes to extend the Collaboration Term for an additional nine (9) month period. Upon notice from Roche Bioscience to Axys that it desires to extend the Collaboration Term, the Collaboration Term shall be extended until the date that is * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 9. 14 twenty-four (24) months following the Effective Date, unless earlier terminated in accordance with Article 11. If not so extended, the Collaboration Term shall terminate fifteen months after the Effective Date. 3. COLLABORATIVE ACTIVITIES 3.1 MUTUAL RESPONSIBILITIES; COOPERATION. Each Party shall use Commercially Reasonable Efforts to perform its responsibilities under the Research Plan. 3.2 CONDUCT OF RESEARCH. During the Collaboration Term, each Party shall use its Commercially Reasonable Efforts to conduct the Collaboration in accordance with the then current Research Plan and in a good scientific manner and in compliance in all material respects with all applicable requirements of applicable laws and regulations. 3.3 AVAILABILITY OF RESOURCES. Within a reasonable time following the Effective Date, each Party will maintain laboratories, offices and all other facilities reasonably necessary to carry out the activities to be performed by such Party pursuant to the Research Plan. Axys shall devote to the Collaboration [*] research scientists each of whom is experienced in activities described in the Research Plan. Axys will provide Roche Bioscience with a report on a quarterly basis of the number of hours spent by Axys researchers conducting the Collaboration. 3.4 TRANSFER OF MATERIALS. Commencing promptly after the Effective Date and from time to time thereafter, Roche Bioscience shall transfer to Axys materials relating to the Roche Bioscience Genes, i.e., EST sequences and clones and gross tissue expression profiles, and shall disclose to Axys such information regarding such Roche Bioscience Genes, as, in each case, is reasonably necessary to enable Axys to perform its Collaboration activities hereunder in accordance with the Research Plan. 3.5 DISCLOSURE; REPORTS. Each Party will make available and disclose to the other Party promptly after the Effective Date all Axys Technology or Roche Bioscience Technology, as applicable, known by such Party as of the Effective Date, and will also disclose all Axys Technology or Roche Bioscience Technology, as applicable, learned, acquired or discovered by such Party at any time prior to the end of the Collaboration Term, as promptly as is reasonably practicable after such technology is obtained or learned, in each case, to the extent necessary to permit the Parties to perform their respective obligations under this Agreement and otherwise to exercise fully the licenses granted hereunder. Axys will provide at a minimum quarterly written reports (with copies to the JRPC) presenting a meaningful summary of the activities conducted by such Party pursuant to the Research Plan or in furtherance of the Collaboration. In addition, on reasonable request by a Party, the other Party will make presentations of its activities under this Agreement to inform such Party of the details of the work done * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 10. 15 under this Agreement. Know-How and other information regarding the research disclosed by one Party to the other Party pursuant hereto may be used only in accordance with the rights granted under this Agreement. 3.6 IDENTIFICATION OF NEMAPHARM TARGETS. In accordance with the Research Plan, Axys shall use Commercially Reasonable Efforts to identify potential NemaPharm Targets in the Research Field. Axys shall promptly notify Roche Bioscience of the discovery at any time during the first [*] after the Effective Date by Axys of a NemaPharm Target in the Research Field and with sufficient information including but not limited to, [*] for Roche to assess its interest in the NemaPharm Target. 3.7 SCREENING OF COMPOUNDS; DISCONTINUATION OF DEVELOPMENT. Upon obtaining a license with respect to a NemaPharm Target in accordance with Section 4.2, Roche Bioscience [*] against such NemaPharm Target. Promptly after completing the screening of compounds against such NemaPharm Target, or at least on a semi-annual basis, Roche Bioscience shall provide written notice to Axys [*]. Such notice shall include [*]. Roche Bioscience shall, in its sole discretion, select compounds for further development; provided, however, that in the event that, having become obligated to pay at least one (1) milestone under this Agreement (beginning with Section 5.4.2) with respect to a NemaPharm Target, Roche Bioscience subsequently determines for any reason other than insufficient efficacy or safety not to pursue further development of any compounds acting against that NemaPharm Target or that NemaPharm Target, Roche Bioscience shall provide prompt notice of such intention to Axys (a "Notice of Abandonment"), and Axys shall have the rights set forth in Section 4.4.3 with respect to such compound and such NemaPharm Target. 3.8 AXYS DEVELOPMENT OF GENE THERAPY PRODUCTS AND PROTEIN PRODUCTS. In the event that, in accordance with the license granted to Axys pursuant to Section 4.4.1, Axys determines to begin internal research and/or development efforts with respect to one or more Gene Therapy Products and/or Protein Products based on a NemaPharm Target licensed to Roche Bioscience under Section 4.2.1, or to commence efforts to license its rights for Gene Therapy Products or Protein Products to one or more Third Parties, Axys shall provide prompt written notice of such intention to Roche Bioscience, and Roche Bioscience shall thereupon have the rights set forth in Section 4.2.2. * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 11. 16 3.9 FACILITY VISITS. Members of the JRPC shall have reasonable access to the facilities of the other Party where research activities pursuant to the Research Plan under this Agreement are in progress, for the sole purpose of performing their duties as members of the JRPC, but only during normal business hours and with reasonable prior notice. Each party shall bear its own expenses in connection with such visits. 4. GRANT OF LICENSES 4.1 RESEARCH LICENSES. 4.1.1 Subject to the terms and conditions of this Agreement and during the Collaboration Term, Axys grants to Roche Bioscience a worldwide, non-exclusive license, including the right to grant sublicenses to Affiliates only, under the Axys Technology solely to conduct Collaboration activities in accordance with the Research Plan. 4.1.2 Subject to the terms and conditions of this Agreement and during the Collaboration Term, Roche Bioscience, HLR and FHLR grant to Axys a worldwide, non-exclusive license, including the right to grant sublicenses to Affiliates only, under the Roche Bioscience Patent Rights and the Roche Bioscience Know-How solely to conduct Collaboration activities in accordance with the Research Plan. Within thirty (30) days after the end of the Collaboration Term, Axys shall return to Roche Bioscience all copies of documentation regarding Roche Bioscience Know-How and shall make no further use thereof except, in both cases, to the extent required to allow Axys to exercise the licenses granted to it pursuant to this Agreement. If the JRPC, prior to identification of a NemaPharm Target relative to a particular Roche Bioscience Gene, decides to discontinue work on such Roche Bioscience Gene, Axys shall return to Roche Bioscience all copies of documentation regarding Roche Bioscience Know-How for that particular Roche Bioscience Gene and shall make no further use thereof. 4.1.3 For Internal Research Purposes. Axys grants to Roche Bioscience a worldwide, non-exclusive license, including the right to grant sublicenses to Affiliates only, to use the Results for its, and, as applicable, its Affiliates', evaluation of any NemaPharm Target solely for the purpose of licensing such Results pursuant to this Section 4 4.2 LICENSES TO ROCHE BIOSCIENCE IN THE COMMERCIALIZATION FIELD. 4.2.1 With respect to any NemaPharm Target, Axys hereby grants to Roche Bioscience and its Affiliates an exclusive and non-transferable option (exercisable solely during the [*] following written notice of identification of such NemaPharm Target in accordance with Section 3.6) upon written notice provided by Roche Bioscience to Axys, which is to be immediately * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 12. 17 acknowledged in writing by Axys, to obtain the following licenses, subject to the provisions of Article 5: (a) an exclusive (even as to Axys and its Affiliates) worldwide, royalty-bearing license, including the right to grant sublicenses to Affiliates or any Third Party, under the Axys Technology and Axys' interest in the Joint Patent Rights, to use each such NemaPharm Target with respect to which Roche Bioscience has exercised its option under this Section 4.2.1(a) to discover, develop, make, have made, use, sell, offer to sell, have sold and import Small Molecule Products and Antisense Products in the Commercialization Field; provided, however, [*] obligations set forth in Section 4.6 with respect to such NemaPharm Target; (b) a nonexclusive, worldwide, royalty-bearing license, including the right to grant sublicenses to Affiliates only, under the Axys Technology and Axys' respective interests in the Joint Patent Rights, to use each such NemaPharm Target with respect to which Roche Bioscience has exercised its option under this Section 4.2.1(b) to discover, develop, make, have made, use, sell, offer to sell, have sold and import Diagnostic Products in the Commercialization Field. (c) In the event that Roche Bioscience does not provide written notice of its exercise of such option with respect to a NemaPharm Target within the [*] following notice of identification of such NemaPharm Target in accordance with Section 3.6 or provides written notice of its intention not to exercise such option, the license granted by Roche Bioscience to Axys pursuant to Section 4.4.2 shall become effective and all rights with respect to such NemaPharm Target shall be retained by Axys. 4.2.2 With respect to any NemaPharm Target licensed to Roche Bioscience, pursuant to Section 4.2.1, and effective upon the occurrence of the events described in Section 3.8, Axys hereby grants to Roche Bioscience and its Affiliates an exclusive and non-transferable right [*] to obtain a license under the Axys Technology, and Axys' interest in the Joint Patent Rights, including the right to grant sublicenses as allowed pursuant to this Agreement, to use such NemaPharm Target to discover, develop, make, have made, use, sell, offer to sell, have sold and import Gene Therapy Products and Protein Products in the Commercialization Field. Such right [*] shall be exercisable solely during the [*] following Roche Bioscience's receipt of written notice from Axys under Section 3.8. During such [*], Roche Bioscience shall provide written notice to Axys, which is to be immediately acknowledged in writing by Axys, as to whether it would like to exercise its right [*] with respect to such NemaPharm Target pursuant to this Section 4.2.2. If Roche Bioscience does not elect to so exercise its right [*], or if such written notice from Roche Bioscience is not received within such [*], Roche Bioscience shall have no further rights under this Section * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 13. 18 4.2.2 with respect to such NemaPharm Target, and Axys shall be free to proceed with the discovery, development, manufacture, use and sale of Gene Therapy Products and Protein Products based thereon in the Commercialization Field either by itself or with one or more Third Parties. If Roche Bioscience does elect to exercise its right [*] with respect to such NemaPharm Target pursuant to this Section 4.2.2, then for a period of up to [*] following written notice of such election by Roche Bioscience, the Parties shall [*]; provided, however, that if at the end of such [*], the Parties have not reached mutual agreement with regard to such terms as evidenced by a written agreement, Roche Bioscience shall have no further rights with respect to such NemaPharm Target under this Section 4.2.2, and Axys shall be free to proceed with the discovery, development, manufacture, use and sale of Gene Therapy Products and Protein Products based thereon in the Commercialization Field, either by itself or with one or more Third Parties. 4.3 LICENSE TO ROCHE BIOSCIENCE OUTSIDE THE COMMERCIALIZATION FIELD. With respect to any NemaPharm Target licensed to Roche Bioscience pursuant to Section 4.2.1(a), Axys hereby grants to Roche Bioscience an exclusive and non-transferable right of first negotiation to obtain a license under the Axys Technology, and Axys' respective interests in the Joint Patent Rights, to use such NemaPharm Target to discover, develop, make, have made, use, sell, offer to sell, have sold and import Small Molecule Products and Antisense Products for indications outside the Commercialization Field. Such right of first negotiation shall be exercisable solely during the [*] following Roche Bioscience's exercise of its option to license such NemaPharm Target pursuant to Section 4.2.1(a). During such [*], Roche Bioscience shall provide written notice to Axys, which shall be acknowledged immediately in writing by Axys, as to whether it would like to exercise its right of first negotiation with respect to such NemaPharm Target pursuant to this Section 4.3. If Roche Bioscience does not exercise its right of first negotiation, or if such written notice from Roche Bioscience is not received within such [*], Roche Bioscience shall have no further rights under this Section 4.3 with respect to such NemaPharm Target, and Axys shall be free to proceed with the use of such NemaPharm Target for the discovery, development, manufacture, use and sale of Small Molecule Products and Antisense Products for indications outside the Commercialization Field either by itself or with one or more Third Parties. If Roche Bioscience does elect to exercise its right of first negotiation with respect to such NemaPharm Target pursuant to this Section 4.3, then for a period of up to [*] following written notice of such election by Roche Bioscience, the Parties shall negotiate in good faith regarding the terms (including but not limited to royalty rates, scope of exclusivity and milestone payments) upon which such license would be granted to Roche Bioscience. If at the end of such [*] period, the Parties have not reached mutual agreement with regard to such terms as evidenced by a written agreement, Roche Bioscience shall have no further rights with respect to such * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 14. 19 NemaPharm Target under this Section 4.3, and Axys shall be free to proceed with the use of such NemaPharm Target for the discovery, development, manufacture, use and sale of Small Molecule Products and Antisense Products for indications outside the Commercialization Field, either by itself or with one or more Third Parties. 4.4 LICENSES TO AXYS 4.4.1 With respect to any NemaPharm Target licensed to Roche Bioscience pursuant to Section 4.2.1 , Roche Bioscience, HLR and FHLR hereby grants to Axys an exclusive, worldwide, royalty-free license, with the right to sublicense, under the Roche Bioscience Technology and Roche Bioscience's interest in the Joint Patent Rights, to use such NemaPharm Target to discover, develop, make, have made, use, sell, offer to sell, have sold and import Axys Products. 4.4.2 Effective upon the earlier of the expiration of Roche Bioscience's Option pursuant to Section 4.2.1 or the delivery of written notice to Axys of Roche Bioscience's election not to exercise such option, Roche Bioscience, HLR and FHLR hereby grant to Axys an exclusive, worldwide, royalty-free license, with the right to sublicense, under the Roche Bioscience Technology and Roche Bioscience's interest in the Joint Patent Rights, to use such NemaPharm Target to discover, develop, make, have made, use, sell, offer to sell, have sold and import (i) products for the prevention, treatment or diagnosis of any disease or disorder, that contain an antisense product, which consists of any complete, partial, altered or mutated RNA or DNA sequence complementary to or derived from an RNA or DNA sequence of such NemaPharm Target or any human or other animal homolog of that NemaPharm Target, (ii) products for the prevention, treatment or diagnosis of any disease or disorder that contain a small molecule [*] that is biologically active directly or indirectly against such NemaPharm Target or any corresponding human or other animal homolog, (iii) products or services or combinations thereof used for the diagnosis, prognosis and/or monitoring of progression of a disease or disorder or which predict an individual's response to drugs, including but not limited to, adverse events, effects and efficacy which are developed utilizing, or are comprised of, such NemaPharm Target or which incorporate any complete, partial, altered or mutated RNA or DNA sequence corresponding to or complementary to an RNA or DNA sequence of such NemaPharm Target or any human or other animal homolog of that NemaPharm Target and (iv) Axys Products. 4.4.3 With respect to any compound or NemaPharm Target for which Roche Bioscience delivers to Axys a Notice of Abandonment, Roche Bioscience, HLR and FHLR hereby grant to Axys an exclusive and non-transferable right of first negotiation to obtain a license under the Roche Bioscience Technology and Roche Bioscience's interest in the Joint Patent Rights, to discover, develop, make, have made, use, sell, offer to sell, have sold and import products incorporating such compound or * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 15. 20 derivatives thereof or NemaPharm Target. Such right of first negotiation shall be exercisable solely during the [*] following Axys' receipt of a Notice of Abandonment from Roche Bioscience with respect to such compound or NemaPharm Target. During such [*], Axys shall provide written notice to Roche Bioscience as to whether it would like to exercise its right of first negotiation with respect to such compound or NemaPharm Target pursuant to this Section 4.4.3 . If Axys does not exercise its right of first negotiation, or if such written notice from Axys is not received within such [*], Axys shall have no further rights under this Section 4.4.3 with respect to such compound or NemaPharm Target, and Roche Bioscience shall be free to negotiate with Third Parties regarding rights to such compound or NemaPharm Target. If Axys does exercise its right of first negotiation with respect to such compound or NemaPharm Target pursuant to this Section 4.4.3, then for a period of up to [*] following written notice of such election by Axys, the Parties shall negotiate in good faith regarding the terms upon which such license would be granted to Axys; provided, however, that if at the end of such [*], the Parties have not reached mutual agreement with regard to such terms as evidenced by a written agreement, Axys shall have no further rights with respect to such compound or NemaPharm Target under this Section 4.4.3, and Roche Bioscience shall be free to negotiate with Third Parties regarding rights to such compound or NemaPharm Target. 4.4.4 Royalty payments shall be made to the Roche Party designated by Roche Bioscience according to ownership of the Roche Bioscience Patent Rights or other Know-How. 4.5 SUBLICENSES. Each Party shall notify any permitted sublicensee hereunder of all rights and obligations of such Party under this Agreement licensed to such sublicensee. 4.6 DILIGENCE OBLIGATIONS OF ROCHE BIOSCIENCE RELATED TO NEMAPHARM TARGETS. The licenses granted to Roche Bioscience with respect to a NemaPharm Target pursuant to this Article 4 will terminate, on a target-by-target basis, and all rights to such NemaPharm Target will revert to Axys in the event that Roche Bioscience does not satisfy the conditions in Sections 4.6.1 and 4.6.2. 4.6.1 For Small Molecule Products, within [*] of licensing such NemaPharm Target, Roche Bioscience shall have [*] if Roche Bioscience meet the requirement in Section 4.6.2 [*]; and 4.6.2 (a) Within [*] of licensing such NemaPharm Target, Roche Bioscience shall have [*] in a screen incorporating a NemaPharm Target at a * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 16. 21 [*]; or, Antisense Product that disrupts the NemaPharm Target in an appropriate disease model state; or (b) Within [*] of licensing such NemaPharm Target, Roche Bioscience shall have [*] Diagnostic Product. 4.6.3 After achievement of the requirement in Section 4.6.2, the licenses granted to Roche Bioscience with respect to a NemaPharm Target will also terminate on a target by target basis and all rights to such NemaPharm Target shall revert to Axys if Roche Bioscience thereafter fails to use Commercially Reasonable Efforts to [*]. 4.7 DILIGENCE OBLIGATIONS OF ROCHE BIOSCIENCE WITH RESPECT TO DEVELOPMENT AND PROMOTION OF ROCHE BIOSCIENCE PRODUCTS. 4.7.1 REASONABLE EFFORTS. Roche Bioscience shall use Commercially Reasonable Efforts to [*]. 4.7.2 LACK OF DILIGENCE. In the event that Roche Bioscience (i) fails to use or continue to use Commercially Reasonable Efforts to [*] or (ii) notifies Axys in writing that it will not conduct further commercialization with respect to a particular Roche Bioscience Product and in either case [*], Roche Bioscience, HLR and FHLR will grant Axys an exclusive, non-transferable right of first negotiation to obtain an exclusive license under the Roche Bioscience Technology and Roche Bioscience's interest in the Joint Patent Rights for the Roche Bioscience Product for which Commercially Reasonable Efforts have not been expended or notice has been given to Axys as described in (ii) above. 4.7.3 MARKETING PARTNER. Roche Bioscience shall notify its Affiliates that in the event that such Affiliate seeks a marketing partner for a Roche Bioscience Product in a specific country, such Affiliate should provide prompt written notice of * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 17. 22 such intention to Axys and give Axys an exclusive and non-transferable right of first negotiation to become such Affiliate's marketing partner in that country. Such right of first negotiation shall be exercisable solely during the [*] following Axys' receipt of written notice from such Affiliate under this Section 4.7.3. If Axys elects to exercise its right of first negotiation then for a period of [*] thereafter the parties shall negotiate in good faith regarding the terms of such marketing agreement. So long as Roche Bioscience fulfills its duty to notify its Affiliates pursuant to the first sentence in this Section 4.7.3, no breach of this Agreement shall arise from the provisions of this Section. 5. PAYMENT OBLIGATIONS 5.1 UPFRONT PAYMENT. Within ten (10) days after the Effective Date, Roche Bioscience shall pay to Axys a nonrefundable upfront fee of [*] in partial consideration of the licenses granted herein. 5.2 RESEARCH FUNDING. During the Collaboration Term, including any extension thereof, Roche Bioscience agrees to provide Axys with research funding for a total of [*] at an annual rate of [*] to be used by Axys to pursue the activities set forth in the Research Plan; provided, however, that, in the event that the Collaboration Term is extended pursuant to Section 2.5, the annual rate per FTE will be increased for such extension period by a factor which reflects the increase, if any, in the U.S. Consumer Price Index, as reported as of the date that is sixty (60) days prior to the commencement of such extension period when compared to the comparable statistic for the Effective Date. Such research funding payments shall be made in accordance with the following schedule:
AMOUNT OF PAYMENT DATE PAYABLE [*] [*] after the Effective Date [*] [*] following the Effective Date [*] [*] after receipt of Final NemaPharm Report pursuant to Section 3.5 and statement of account.
5.3 TERM EXTENSION. In the event that the Collaboration Term is extended pursuant to Section 2.6, the payment schedule for research funding during such extended period shall be agreed upon in writing by the Parties. Upon a decision of the JRPC, the number of FTEs to be supported by Roche Bioscience may be increased to support Collaboration efforts. 5.4 MILESTONE PAYMENTS. Within [*] after achievement of each of the milestones set forth below, Roche Bioscience shall pay to Axys the nonrefundable milestone payment set forth below, on a target-by-target basis: * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 18. 23 5.4.1 [*] Upon [*] with respect to each NemaPharm Target pursuant to Section 4.2.1 ; 5.4.2 [*] Upon identification by Roche Bioscience of [*]; provided, however, that this milestone shall be [*]; 5.4.3 [*] Upon the [*]; 5.4.4 [*] Upon the [*] for a Small Molecule Product or Antisense Product; provided, however, that this milestone shall be [*]; 5.4.5 With respect to a Diagnostic Product: (a) [*] Upon the occurrence of each of: (i) the [*] of a Diagnostic Product for which [*] for the first Diagnostic Product ; and (ii) the [*] for such Diagnostic Product or the derivative thereof for the first Diagnostic Product ; or (b) [*] Upon the [*] for the first Diagnostic Product [*]; 5.4.6 [*] upon the [*] for a Small Molecule Product or Antisense Product [*]; 5.4.7 [*] Upon [*] for each Small Molecule Product and each Antisense Product; provided, however, that this milestone shall [*] * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 19. 24 [*]; 5.4.8 [*] Upon [*] for each Diagnostic Product; and 5.4.9 [*] Upon [*] for each Small Molecule Product and each Antisense Product; provided, however, that this milestone shall [*]. 5.5 [*] 5.6 ROYALTY PAYMENTS. 5.6.1 SMALL MOLECULE PRODUCTS. Roche Bioscience shall pay to Axys the following royalty on Net Sales of each Small Molecule Product: (a) [*] of Net Sales on the [*]; (b) [*] of Net Sales on the portion of aggregate worldwide Net Sales between [*] and [*]; (c) [*] of Net Sales on the portion of aggregate worldwide Net Sales between [*] and [*]; and (d) [*] of Net Sales on the portion of aggregate worldwide Net Sales exceeding [*]. 5.6.2 Antisense Products. Roche Bioscience shall pay to Axys a royalty of [*] on Net Sales of each Antisense Product. 5.6.3 DIAGNOSTIC PRODUCTS. Roche Bioscience shall pay to Axys a royalty of [*] on Net Sales of each Diagnostic Product. 5.6.4 ROYALTY TERM. Royalties for sales of any Roche Bioscience Product in any given country shall be paid for a period equal to the Royalty Term. In the event that, in a given country, patents included in the Axys Patent Rights, the Roche Bioscience Patent Rights, or the Joint Patent Rights covering a Roche Bioscience Product * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 20. 25 have issued in such country, all such issued patents in that country have expired and the Royalty Term is still in effect, then the royalties payable under this Section 5.6 on sales of such Roche Bioscience Product in that country shall be [*] from and after the date of expiration of the last to expire of such issued patents unless and until a patent included in the Axys Patent Rights, or the Joint Patent Rights covering such Roche Bioscience Product thereafter issues in such country. 5.6.5 COMBINATION PRODUCT. Net Sales on a Combination Product shall be the [*] by Roche Bioscience, its Affiliates or Sublicensees from a sale of a Roche Bioscience Product containing only a compound discovered or developed using the NemaPharm Target (NemaPharm Target Sole Product) as an active ingredient in an arm's length transaction with an unAffiliated third party. If the NemaPharm Target Sole Product is not sold separately, the Parties shall [*] for such NemaPharm Target Sole Product. The Net Sales upon which a royalty is paid shall then be computed by [*]. 5.7 THIRD PARTY ROYALTIES. Roche Bioscience shall be responsible for the payment of royalties under all Third Party licenses that are payable in connection with each Roche Bioscience Product's development and commercialization and that are incurred by Roche Bioscience, the costs of conducting the clinical trials and the costs associated with Regulatory Approval. Notwithstanding the foregoing or the provisions of Section 5.6.2, Roche Bioscience shall be entitled to [*] with respect to sales of such Antisense Product; provided, however, that in no event will the effect of this Section 5.7 cause the royalty payable to Axys with respect to such Antisense Product under Section 5.6.3 to [*] of Net Sales. Axys will discuss with Roche Bioscience Third Party licenses that it proposes to enter into after the Effective Date. At the time that Axys obtains a license under Section 4.4.2 or after Roche Bioscience has elected not to acquire a license, Axys shall become responsible for payment of royalties that thereafter accrue under Third Party licenses described above with respect to the compounds so licensed. 6. PAYMENTS; RECORDS; AUDITS 6.1 PAYMENT; REPORTS. All royalty payments due to Axys under this Agreement shall be paid within [*] of the end of each calendar quarter, unless otherwise specifically provided herein. Each payment of royalties shall be accompanied by a report of Net Sales of Roche Bioscience Products in sufficient detail to permit confirmation of the accuracy of the royalty payment made. * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 21. 26 6.2 EXCHANGE RATE; MANNER AND PLACE OF PAYMENT. All payments shall be in United States dollars. Any required conversion of Adjusted Gross Sales, Net Sales and any milestone or royalty amounts to Untied States dollars shall be done using the monthly average rate of exchange for the calendar month in which such Adjusted Gross Sales, Net Sales and any royalty or milestone amounts were incurred or first determined. 6.2.1 The conversion from a foreign currency to United States dollars shall be made by using the average of the daily official rates of exchange for each day in the calendar month, using the rates of exchange as computed in Roche's central foreign currency exchange data base built from the Reuters System, or another qualified source that is mutually acceptable to the parties. Roche shall disclose to Axys the contents of such central foreign currency exchange data base. 6.2.2 To the extent that free conversion from the local currency to United States dollars is permitted, payments shall be made in United States dollars to a bank account designated by the creditor party. If, due to restrictions or prohibitions imposed by a national or international authority, payments cannot be made as aforesaid, the parties shall consult with a view to finding a prompt and acceptable solution, and a party shall, from time to time, deal with such moneys as the other party(s) may lawfully direct, but at no additional out-of-pocket expense. Notwithstanding the foregoing, if required remittances in any country cannot be converted or remitted to a party for any reason within three (3) months after such remittance is otherwise due, then the remitting party shall be obligated to deposit the local currency equivalent of the required United States dollar remittance in a bank account in such country in the name of the other party(s). If free conversion of such funds to United States dollars is not possible within twelve (12) months of the original remittance due date, the remitting party shall pay to the other party(s) at such time the United States dollar equivalent of such local currency funds (including any interest earned from the deposit of the local currency) and the local currency account shall become the property of the remitting party. The conversion of local currency to United States dollars shall be based on the monthly average rate of exchange for the calendar month immediately preceding the month in which such remittance is made, as such average rate of exchange is computed above. 6.3 LATE PAYMENTS. In the event that any payment, including royalty, milestone and research payments, due hereunder is not made when due without Force Majeure pursuant to Section 14.2, the payment shall accrue interest from the date due at the average one (1) month London Interbank Offered Rates, as reported by Datastream from time to time, plus one hundred (100) basis points, per month; provided, however, that in no event shall such rate exceed the maximum legal annual interest rate. The payment of such interest shall not limit any Party from exercising any other rights it may have as a consequence of the lateness of any payment. 22. 27 6.4 RECORDS AND AUDITS. For a period of [*] after the end of the calendar year of sale of a Roche Bioscience Product, Roche Bioscience shall maintain and cause its Affiliates and sublicensees to maintain books of account and complete and accurate records pertaining to the sale or other disposition of Roche Bioscience Products and of the royalty and other amounts payable under this Agreement in sufficient detail to permit Axys to confirm the correctness of such items. Upon timely request by Axys, Roche Bioscience agrees to instruct its independent accounting firm to perform, during Roche Bioscience's annual audit, such additional auditing and accounting procedures as are reasonably necessary to enable such accounting firm to confirm to Axys the correctness of (i) the amounts stated in any reports provided by Roche Bioscience; and (ii) to the extent specifically and reasonably requested, in a timely manner, by Axys, other relevant details pertaining to the sale or other disposition of Roche Bioscience Products and of the royalty and other amounts payable or receivable under this Agreement, including the relevant details of Adjusted Gross Sales and Net Sales; such additional accounting and auditing procedures need only be performed for countries specifically requested by the authorized representative of Axys. Such audit shall be performed no more than once per year and shall occur no more than once with respect to records covering any specific period of time. All information, data, documents and abstracts herein referred to shall be used only for the purpose of verifying royalty statements or compliance with this Agreement, shall be treated as Roche Bioscience's Confidential Information subject to the obligations of this Agreement. Axys shall pay for any reasonable expense over and above Roche's regular audit fee, if any, incurred for such additional audit work. The failure of Axys to request verification of any royalty calculation during the period when records must be maintained shall be considered acceptance of the accuracy of such reporting. In the event that such audit shall indicate that in any calendar year, the royalties that should have been paid by Roche Bioscience are greater that those that were actually paid by Roche Bioscience, then Roche Bioscience shall promptly pay the underpaid amount to Axys and/or its Affiliates and in the event that the royalties that should have been paid by Roche Bioscience are at least [*] than those that were actually paid by Roche Bioscience, then Roche Bioscience [*], Adjustments in the amounts due because of an audit shall be settled on or before the next quarterly payment date. In the event that such audit shall indicate that in any calendar year the royalties that were actually paid by Roche Bioscience are greater than those that should have been paid, then such overpayment shall be credited to the next royalty payment due to Axys if there is to be one within six (6) months; otherwise Axys shall remit such overpayment to Roche Bioscience within thirty (30) days after receipt of written notice to that effect. Any payments due pursuant to the terms of this Section 6.4 that are not paid on or before the date such payments are due shall bear interest at the rate described in Section 6.3. * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 23. 28 6.5 TAXES. Roche Bioscience shall be entitled to withhold from a royalty or other payment due Axys, the amount, if any, of any withholding tax assessable to the party due the payment, provided evidence of payment of any such tax is promptly provided to the Party for which the tax is withheld. If any taxes (other than value-added taxes) are imposed on payments of royalties to Axys and are required to be withheld therefrom, such taxes shall be for the account of Axys, respectively, and the payments due to the Party for which tax is withheld shall be reduced accordingly. Roche Bioscience shall advise Axys and provide it with copies of the tax receipts for all taxes deducted from the payment of royalties due them. 6.6 PROHIBITED PAYMENTS. Notwithstanding any other provision of this Agreement, if any Party is prevented from paying any such royalty by virtue of the statutes, laws, codes or governmental regulations of the country from which the payment is to be made, then such royalty may be paid by depositing funds in the currency in which accrued to the other Party's account in a bank acceptable to the other Party in the country whose currency is involved. 7. PATENT RIGHTS AND INFRINGEMENT 7.1 OWNERSHIP OF PATENT RIGHTS. Roche Bioscience shall own all right, title, and interest in and to all Roche Bioscience Patent Rights and Roche Bioscience Know-How and all inventions conceived of and reduced to practice during the Collaboration Term solely by its employees and agents, and all patent applications and patents claiming such inventions. Axys shall own all right, title, and interest in and to all Axys Patent Rights and Axys Know-How and all inventions conceived of and reduced to practice during the Collaboration Term solely by its employees and agents, and all patent applications and patents claiming such inventions. All inventions conceived of and reduced to practice jointly by employees or agents of Roche Bioscience and/or its Affiliates, on the one hand, and employees or agents of Axys and/or its Affiliates, on the other hand, and all Joint Patent Rights claiming such inventions, shall be owned jointly by Roche Bioscience and/or its Affiliates and Axys and/or its Affiliates. 7.2 CONFIDENTIALITY OBLIGATIONS. Each Party hereby represents and warrants that all employees and Persons (Persons shall include individuals and any business entity) acting on its behalf in performing its obligations under this Agreement shall be obligated to assign to it, or as it shall direct, all inventions, ideas, trade secrets, copyrights conceived by such employees or other Persons and all such employees and other Persons shall be subject to confidentiality provisions at least as restrictive as those in this Agreement. 7.3 PROSECUTION AND MAINTENANCE OF PATENT RIGHTS. 24. 29 7.3.1 It is the intention of the Parties to secure broad patent protection for discoveries and inventions made in connection with the Collaboration. Roche Bioscience shall be responsible for the filing, prosecution and maintenance of all Roche Bioscience Patent Rights and all patent applications and patents covering Roche Bioscience Know-How and any discoveries and inventions conceived of or reduced to practice by its employees and agents in the course of the Collaboration. Axys shall be responsible for the filing, prosecution and maintenance of all Axys Patent Rights and all patent applications and patents covering the Axys Know-How and any discoveries and inventions conceived of or reduced to practice by the employees and agents of Axys and/or its Affiliates in the course of the Collaboration. Each Party shall consider in good faith the requests and suggestions of the other Party with respect to strategies for filing and prosecuting such patent applications. The inventing Party shall keep the other Party informed of progress with regard to the filing, prosecution, maintenance, enforcement and defense of patents applications and patents subject to this Section 7.3.1. 7.3.2 [*] shall be responsible for the filing, prosecution, and maintenance of all Joint Patent Rights, provided that [*] shall have the sole right to decide to keep an invention as a trade secret instead of filing for patent protection provided that [*] holds a license to such invention or, if such invention is related to a NemaPharm Target, has not yet [*]. [*] shall furnish [*] copies of all relevant documents with respect to preparation, filing, prosecution and maintenance of such Joint Patent Rights on a regular basis reasonably in advance of any deadline or action with the U.S. Patent & Trademark Office or any foreign patent office. [*] shall consult [*] as to the preparation, filing, prosecution, and maintenance of such Joint Patent Rights on a regular basis. Selection of outside counsel relative to Joint Patent Rights shall be with the concurrence of [*] shall not be unreasonably withheld. In the event that [*] desires to abandon any Joint Patent Right, [*] shall provide reasonable prior written notice [*] of such intention to abandon, and [*] shall have the right, at its expense, to prepare, file, prosecute, and maintain any such Joint Patent Right and in such event [*] shall have no further rights in relation to such Joint Patent Right. Nothing herein shall negate [*] license or other rights under the Joint Patent Rights. Except for the abandonment provision above , reasonable expenses associated with the prosecution and maintenance of the Joint Patent Rights shall be shared equally between the Parties. 7.4 COOPERATION OF THE PARTIES. Each Party agrees to cooperate fully in the preparation, filing, and prosecution of any Patent Rights under this Agreement. Such cooperation includes, but is not limited to: 7.4.1 making, executing and delivering any and all papers and instruments, or requiring its employees or agents, to execute such papers and instruments, and performing any and all acts necessary for a Party to prepare, file, * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 25. 30 prosecute and maintain Patent Rights, or, so as to effectuate the ownership of Patent Rights set forth in Section 7.1 and to enable the other Party to apply for and to prosecute and maintain patent applications and patents in any country; and 7.4.2 promptly informing the other Party of any matters coming to such party's attention that may affect the preparation, filing, prosecution or maintenance of any such patent applications and patents. 7.5 INFRINGEMENT BY THIRD PARTIES. Roche Bioscience and Axys shall promptly notify each other in writing of any alleged or threatened infringement of any patent included in the Axys Patent Rights, the Roche Bioscience Patent Rights or the Joint Patent Rights of which it becomes aware. The Parties shall use their best efforts in cooperating with one another to terminate such infringement without litigation. Axys shall have the sole right to bring and control any action or proceeding with respect to infringement of any patent included in the Axys Patent Rights at its own expense and by counsel of its own choice. Roche Bioscience shall have the sole right to bring and control any action or proceeding with respect to infringement of any patent included in the Roche Bioscience Patent Rights at its own expense and by counsel of its own choice. Roche Bioscience shall have the first right to bring and control any action or proceeding with respect to infringement of any patent included in any Joint Patent Rights at its own expense and by counsel of its own choice, and Axys shall have the right to be represented in any action involving such Joint Patent Rights at its own expense and by counsel of its own choice. If Roche Bioscience fails to bring an action or proceeding with respect to any infringement of any Joint Patent Rights within (i) [*] following the notice of alleged infringement or (ii) [*] before the time limit, if any, set forth in the appropriate laws and regulations for the filing of such actions, whichever comes first, Axys shall have the right to bring and control any such action at its own expense and by counsel of its own choice, and Roche Bioscience shall have the right, at its own expense, to be represented in any such action by counsel of its own choice. In the event a Party brings an infringement action, the other Parties shall cooperate fully, including if required to bring such action, the furnishing of a power of attorney. No Party shall have the right to settle any patent infringement litigation under this Section 7.5 in a manner that diminishes the rights or interests of another Party or obligates another Party to make any payment or take any action without the consent of such other Party. Except as otherwise agreed to by the Parties as part of a cost sharing arrangement, any recovery realized as a result of such litigation involving any Joint Patent Rights, after reimbursement of any reasonable litigation expenses of Roche Bioscience, and Axys shall belong to the Party who brought the action. With respect to any recovery net of litigation expenses relative to Joint Patent Rights received by Roche Bioscience, to the extent compensatory for expected but lost sales by Roche Bioscience of a Product, such net recovery shall [*] * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 26. 31 [*] of this Agreement, and, to the extent punitive, Roche Bioscience shall [*] with Axys. 7.6 INFRINGEMENT OF THIRD PARTY RIGHTS. Roche Bioscience and Axys shall promptly notify one another in writing of any allegation by a Third Party that the activity of any of the Parties in connection with this Collaboration infringes or may infringe the intellectual property rights of such Third Party. Roche Bioscience shall have the first right to control any defense of such claim at its own expense and by counsel of its own choice, and Axys shall have the right, at their own expense, to be represented in any such action by counsel of their own choice. If Roche Bioscience fails to proceed in a timely fashion with regard to such defense, Axys shall have the right to control any such defense of such claim at its own expense and by counsel of its own choice, and Roche Bioscience shall have the right, at its own expense, to be represented in any such action by counsel of its own choice. No Party shall have the right to settle any patent infringement litigation under this Section 7.6 in a manner that diminishes the rights or interests of another Party or obligates another Party to make any payment or take any action without the consent of such other Party. 8. INDEPENDENT CONTRACTOR This Agreement shall not constitute, create, or otherwise imply a joint venture, pooling arrangement, partnership or formal business organization of any kind. The parties agree that the obligations and duties of each party arising under this Agreement regardless of whether shared, identical, or otherwise similar, are separate and distinct from the obligations and duties of the other party. Actions or failures to act by one party shall not confer joint and several liability to the other party. No party shall have the authority to act on behalf of any other party, or to commit any other party in any manner or cause whatsoever. No party shall be liable for any act, omission, representation, obligation, or debt of any other party, even if informed of such act, omission, representation, obligation or debt. 9. CONFIDENTIALITY 9.1 NONDISCLOSURE. During the longer of the Collaboration Term and the Royalty Term, and for a period of [*] thereafter, each Party shall maintain all Confidential Information as confidential and shall not disclose any Confidential Information to any Third Party or use any Confidential Information for any purpose except (a) as expressly authorized by this Agreement, (b) as required by law or court order or (c) to its Affiliates. Each Party may use such Confidential Information only to the extent required to accomplish the purposes of this Agreement. Each Party shall use at least the same standard of care as it uses to protect proprietary or confidential information of its own to ensure that its Affiliates, employees, agents, consultants and other representatives do not disclose or make any unauthorized use of the Confidential * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 27. 32 Information. Each Party will promptly notify the others upon discovery of any unauthorized use or disclosure of the Confidential Information. 9.2 EXCEPTIONS. Confidential Information shall not include any information which the receiving Party can prove by competent, written evidence: 9.2.1 is now, or hereafter becomes, through no act or failure to act on the part of the receiving Party, generally publicly known or available; 9.2.2 is known by the receiving Party at the time of receiving such information, as evidenced by its records; 9.2.3 is hereafter furnished to the receiving Party by a Third Party, as a matter of right and without restriction on disclosure; 9.2.4 is independently developed by the receiving Party without the aid, application or use of Confidential Information; or 9.2.5 is the subject of a written permission to disclose provided by the disclosing Party. 9.3 PUBLICATIONS. Each Party to this Agreement recognizes that the publication of papers, abstracts, presentations, or other public disclosures ("Publications") regarding results of Collaboration activities hereunder may be beneficial to both Parties provided such publications are subject to reasonable controls to protect Confidential Information and Patent Rights. In particular, it is the intent of the Parties to maintain the confidentiality of any Confidential Information included in any U.S. or foreign patent application until such U.S. or foreign patent application has been published. Accordingly, each Party shall have the right to review, comment upon and approve any proposed Publication by the other Party that utilizes data generated from the Collaboration activities and/or includes Confidential Information of the other Party. Before any such Publication is submitted, the Party proposing the Publication shall deliver a complete copy to the other Party at least [*] prior to submitting the proposed Publication to a third party. The receiving Party shall review any such proposed Publication and give comments to the submitting Party within [*] of the delivery of such proposed Publication to the receiving Party. The submitting Party shall comply with the other Party's requests to delete references to such other Party's Confidential Information in any such proposed Publication and agrees to withhold Publication of same for an additional [*] days in order to permit the Parties to obtain patent protection, if either of the Parties deem it necessary, in accordance with the terms of this Agreement. 10. REPRESENTATIONS, WARRANTIES AND COVENANTS * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 28. 33 10.1 CORPORATE POWER. Each Party hereby represents and warrants that such Party is duly organized and validly existing under the laws of the state of its incorporation and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof. 10.2 DUE AUTHORIZATION. Each Party hereby represents and warrants that such Party is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder. 10.3 BINDING AGREEMENT. Each Party hereby represents and warrants that this Agreement is a legal and valid obligation binding upon it and is enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by such Party does not conflict with any agreement, instrument or understanding, oral or written, to which it is a Party or by which it may be bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having authority over it. 10.4 DISCLAIMER OF WARRANTIES. No Party to this Agreement guarantees the safety or usefulness of any Product. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NO PARTY MAKES ANY REPRESENTATION OR WARRANTY TO ANY OTHER PARTY OF ANY NATURE, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF NONINFRINGEMENT, VALIDITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 10.5 MUTUAL INDEMNIFICATION. Each Party hereby agrees to save, defend, hold harmless and indemnify the other Party and its officers, directors, employees, consultants and agents harmless from and against any and all suits, claims, actions demands, liabilities, expenses and losses, including reasonable legal expense and attorneys' fees ("Losses") resulting directly or indirectly from the manufacture, development, use, handling, storage, sale or other disposition of chemical agents or Products by such Party, its Affiliates or sublicensees, except to the extent such Losses result from the gross negligence or willful misconduct of the Party claiming a right of indemnification under this Section 10.5, provided that Roche Bioscience's indemnification shall not extend to patent infringement allegations relative to the Joint Patent Rights, Axys Patent Rights, Axys Know-How, and Axys' obligations shall not extend to allegations of infringement involving Joint Patent Rights, Roche Bioscience Patent Rights, or Roche Bioscience Know-How. In the event a Party seeks indemnification under this Section 10.5, it shall inform the other Party in writing of a claim as soon as reasonably practicable after it receives notice of the claim, shall permit the other Party to assume direction and control of the defense of the claim (including the right to settle the claim solely for monetary consideration), and shall cooperate as requested (at the expense of the other Party) in the defense of the claim. 11. TERM AND TERMINATION 29. 34 11.1 TERM. This Agreement shall commence as of the Effective Date and, unless sooner terminated as provided herein, the rights and obligations of the Parties under this Agreement, shall expire on the later of (i) the last day of the Royalty Term, or (ii) if no NemaPharm Target has been identified, then five years after the Effective Date. 11.2 TERMINATION FOR CAUSE. Either Party may terminate this Agreement during the Collaboration Term or during the Royalty Term, as applicable, upon [*] written notice upon the occurrence of any of the following: 11.2.1 Upon or after the bankruptcy, insolvency, dissolution or winding up of the other Party (other than dissolution or winding up for the purposes of reconstruction or amalgamation); or 11.2.2 Upon or after the breach of any material provision of this Agreement by the other Party if the breaching Party has not cured such breach (or if such breach is not reasonably capable of being cured within such [*] period, and the defaulting Party is diligently proceeding to cure such breach) and the breach could not be settled by arbitration within the [*] period following written notice of termination by the other Party. As a general rule, termination shall apply NemaPharm Target by NemaPharm Target, Product by Product and country by country rather than to the Agreement as a whole. 11.3 EFFECT OF EXPIRATION OR TERMINATION. 11.3.1 Expiration or termination of the Collaboration Term or the Royalty Term, as applicable, shall not relieve the Parties of any obligation accruing prior to such expiration or termination. Except as set forth below or elsewhere in this Agreement, the obligations and rights of the Parties under Sections 6.4, 7.1, 10.4, 10.5, and 11.3, Articles 9, 13 and 14 shall survive termination or expiration of both the Collaboration Term and the Royalty Term. 11.3.2 Without limiting any remedies otherwise available to a Party, if such Party terminates this Agreement for cause pursuant to Section either prior to the end of the Collaboration Term or prior to the end of the Royalty Term, (i) all licenses granted by such Party to the other Party hereunder shall terminate and revert to the non-breaching Party, (ii) the breaching Party shall return to the non-breaching Party all of the non-breaching party's Confidential Information (retaining one copy thereof for the breaching party's records), and (iii) in addition to the survival of certain rights and obligations of the Parties pursuant to Section 11.4.1 [*] under this Agreement. * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 30. 35 12. PUBLICITY 12.1 PUBLICITY REVIEW. Roche Bioscience and Axys will jointly discuss and agree, based on the principles of Section 12.2, on any statement to the public regarding the execution and the subject matter of this Agreement or any other aspect of this Agreement, except with respect to disclosures required by law or regulation. Neither Party shall use the name of the other Party, or name(s) of the other Party's officers, directors, employees, or agents, in any public statement, prospectus, annual report, or press release without the prior written approval of the other Party, which may not be unreasonably withheld or delayed; provided, however, that both Parties shall endeavor in good faith to give the other Party a minimum of five (5) business days to review such press release, prospectus, annual report, or other public statement. 12.2 STANDARDS. In the discussion and agreement referred to in Section 12.1, the principles observed by Roche Bioscience and Axys will be accuracy, the requirements for confidentiality under Article 9, the advantage a competitor of Roche Bioscience or Axys may gain from any public or Third Party statements under Section 12.1, the requirements of disclosure under any securities laws or regulations of the United States, including those associated with public offerings, and the standards and customs in the pharmaceutical industry for such disclosures by companies comparable to Roche Bioscience and Axys. 13. DISPUTE RESOLUTION 13.1 DISPUTES. The Parties recognize that disputes as to certain matters may from time to time arise which relate to either party's rights and/or obligations hereunder. It is the objective of the Parties to establish procedures to facilitate the resolution of such disputes in an expedient manner by mutual cooperation and without resort to litigation. To accomplish this objective, the Parties agree to follow the procedures set forth in this Article 13 if and when such a dispute arises between the Parties. 13.2 PROCEDURE. 13.2.1 If the Parties or the JRPC cannot resolve the dispute within twenty (20) days of formal request by either Party to the other, either Party may, by written notice to the other, have such dispute referred to their respective officers designated below or their successors, for attempted resolution by good faith negotiations within thirty (30) days after such notice is received. Said designated officers are as follows: For Roche Bioscience: President For Axys: President 31. 36 13.2.2 Any unresolved disputes arising between the Parties relating to, arising out of or in any way connected with this Agreement or any term or condition hereof, or the performance by either Party of its obligations hereunder, whether before or after termination of this Agreement, shall be finally resolved by final and binding arbitration. Whenever a Party shall decide to institute arbitration proceedings, it shall give written notice to that effect to the other Party. Arbitration shall be held in San Francisco, California, according to the American Arbitration Association ("AAA") rules. The arbitration shall be conducted by a single arbitrator mutually chosen by the Parties. If the Parties cannot agree upon a single arbitrator within fifteen (15) days after the institution of the arbitration proceeding, then the arbitration shall be conducted by a single neutral, impartial and independent arbitrator appointed in accordance with AAA rules. All arbitrator(s) eligible to conduct the arbitration must agree to render their opinion(s) within thirty (30) days of the final arbitration hearing. No arbitrator (nor the panel of arbitrators) shall have the power to award punitive damages under this Agreement and such award is expressly prohibited. Decisions of the arbitrator(s) shall be final and binding on all of the Parties. Judgment on the award so rendered may be entered in any court having jurisdiction thereof. In any arbitration pursuant to this Agreement, the arbitrators shall apply the laws of the State of California. Except as required by law, no Party, nor the arbitrator, may publicly disclose the existence, content, or results of any arbitration hereunder with the prior written consent of all Parties participating in the arbitration. 14. MISCELLANEOUS 14.1 ASSIGNMENT. 14.1.1 Notwithstanding any provision of this Agreement to the contrary, any Party may assign any or all of its rights or obligations under this Agreement in any country to any Affiliates; provided, however, that such assignment shall not relieve the assigning Party of its responsibilities for performance of its obligations under this Agreement. 14.1.2 Any Party may also assign its rights or obligations under this Agreement with the prior written consent of the other Party. This Agreement shall survive (i) any merger or reorganization of a Party with or into another Party, and (ii) any sale of all or substantially all of the assets of a Party to a Third Party. No consent for such transaction shall be required hereunder; provided, however, that in the event of such transaction, intellectual property rights of a Party to such transaction, other than one of the Parties to this Agreement (the "Acquiring Party"), shall not be included in the technology licensed hereunder unless shareholders of a Party hereto beneficially own 50% or more of the total outstanding voting stock or other voting rights of such Acquiring Party and a majority control of the Board of Directors of the Acquiring Party immediately following such transaction. 32. 37 14.1.3 This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Parties. Any assignment not in accordance with this Agreement shall be void. 14.2 FORCE MAJEURE. Neither Party shall lose any rights hereunder or be liable to the other Party for damages or losses on account of failure of performance by the defaulting Party if the failure is occasioned by government action, war, fire, earthquake, explosion, flood, strike, lockout, embargo, act of God, or any other similar cause beyond the control of the defaulting Party; provided, however, that the Party claiming force majeure has exerted all reasonable efforts to avoid or remedy such condition; and provided further, that the other Party may suspend any payment obligations due under this Agreement until the defaulting Party resumes its performance if such condition continues for a period of one hundred eighty (180) days or more. 14.3 PAYMENT IN U.S. DOLLARS. All payments due to a Party under this Agreement shall be paid in U.S. Dollars. 14.4 NOTICES. Any notices or communications provided for in this Agreement to be made by any of the Parties to the other shall be in writing, in English, and shall be deemed to have been duly given upon the date of receipt if delivered by hand, recognized overnight courier, confirmed facsimile transmission, or registered or certified mail, return receipt requested, postage prepaid to the addresses or facsimile numbers below. A Party may by like notice specify an address to which notices and communications shall thereafter be sent. If to Roche Bioscience: Roche Bioscience With a copy to: 3401 Hillview Avenue Roche Bioscience Palo Alto, CA 94304 A division of Syntex (U.S.A.) Inc. Attention: Vice President, Neurobiology 3401 Hillview Avenue Palo Alto, CA 94304 Fax: (650)852-1932 Attn: Vice President, Legal Affairs Fax: (650) 852-1338 If to Axys: With a copy to: Axys Pharmaceuticals, Inc. Axys Pharmaceuticals, Inc. 180 Kimball Way 11099 N. Torrey Pines Road, Suite 160 South San Francisco, CA 94080 La Jolla, CA 92037 Attention: Senior Director, Legal Attention: President and Chief Operating Officer 33. 38 Fax: (619) 452-6653 Fax: (619) 452-4378 If to F. Hoffmann-La Roche Ltd. With a copy for both F. Hoffmann-La Roche Ltd and Hoffmann-La Roche, Inc. to Roche Bioscience Vice President, Legal Affairs at the address above. F. Hoffmann-La Roche Ltd Corporate Law, Building 21 H-4070 Basel Switzerland Fax: 41-61-688-1396 If to Hoffmann-La Roche, Inc. Hoffmann-La Roche, Inc. General Counsel 340 Kingsland St Nutley, New Jersey 07110-1199 Fax: 973-235-3500 14.5 GOVERNING LAW. This Agreement shall be governed by the laws of the State of California, as such laws are applied to contracts entered into and to be performed within such state, without regard to the choice of law provisions of it or any other jurisdiction. 14.6 WAIVER. Except as specifically provided for herein, the waiver from time to time by the Parties of any of their rights or their failure to exercise any remedy shall not operate or be construed as a continuing waiver of same or of any other of such party's rights or remedies provided in this Agreement. 14.7 SEVERABILITY. If any term, covenant or condition of this Agreement or the application thereof to any Party or circumstance shall, to any extent, be held to be invalid or unenforceable, then (a) the remainder of this Agreement, or the application of such term, covenant or condition to Parties or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Agreement shall be valid and be enforced to the fullest extent permitted by law; and (b) the Parties hereto covenant and agree to renegotiate any such term, covenant or application thereof in good faith in order to provide a reasonably acceptable alter-native to the term, covenant or condition of this Agreement or the application thereof that is invalid or unenforceable, it being the intent of the Parties that the basic purposes of this Agreement are to be effectuated. 14.8 ENTIRE AGREEMENT. This Agreement sets forth all of the covenants, promises, agreements, warranties, representations, conditions and understandings among the Parties hereto, and supersedes and terminates all prior agreements and understanding among the Parties with respect to the subject matter hereof. There are 34. 39 no covenants, promises, agreements, warranties, representations conditions or understandings, either oral or written, among the Parties other than as set forth herein and therein. No subsequent alteration, amendment, change or addition to this Agreement shall be binding upon the Parties hereto unless reduced to writing and signed by the respective authorized officers of the Parties. 14.9 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 35. 40 IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed in duplicate by their duly authorized officers as of the Effective Date. ROCHE BIOSCIENCE, A DIVISION OF AXYS PHARMACEUTICALS, INC. SYNTEX (U.S.A.) INC. By: /s/ Roger Whiting By: --------------------------------- -------------------------------------- Name: Roger Whiting Name: ------------------------------- ------------------------------------ Name: /s/ James N. Woody ------------------------------- Name: James N. Woody ------------------------------- NEMAPHARM, INC. SEQUANA THERAPEUTICS, INC. By: /s/ Daniel H. Petree By: /s/ Daniel H. Petree --------------------------------- -------------------------------------- Name: Daniel H. Petree Name: Daniel H. Petree ------------------------------- ------------------------------------ Title: Title: ------------------------------- ------------------------------------ For purposes of Sections 4.1.2, 4.4 and 4.7.2 only: F. HOFFMANN-LA ROCHE LTD. HOFFMANN-LA ROCHE, INC. By: /s/ Claudius Wamlek By: /s/ Stefan Arnold --------------------------------- -------------------------------------- Name: Claudius Wamlek Name: Stefan Arnold ------------------------------- ------------------------------------ 36. 41 Title: Title: ------------------------------- ------------------------------------ 37. 42 EXHIBIT 1.45 ROCHE BIOSCIENCE GENES [*] * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 43 [*] * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 2. 44 [*] * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 3. 45 [*] * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 4. 46 [*] * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 5. 47 [*] * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 6. 48 [*] * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 7. 49 [*] * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 8. 50 EXHIBIT A RESEARCH PLAN [*] * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 9. 51 [*] * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 10. 52 [*] * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 11. 53 [*] * "Certain confidential information contained in the document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended." 12. EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS, STATEMENTS OF OPERATIONS AND STATEMENTS OF CASH FLOWS INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES THERETO. 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 39,075 42,664 0 0 0 86,846 45,530 (24,706) 116,454 24,135 0 0 0 29,999 72,138 116,454 0 17,531 0 0 36,496 0 1,107 (143,193) 0 (143,193) 0 0 0 (143,193) (4.87) (4.87)
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