License Agreement

This License Agreement (“ Agreement ”) is made and entered into effective as of February 8, 2005 (the “ Effective Date ”), by and between Revaax Pharmaceuticals LLC ,   an Indiana corporation (“ Licensor ”), and Rexahn Corporation ,   a Delaware corporation (“ Licensee ”). Licensor and Licensee each may be referred to herein individually as a “ Party ,” or collectively as the “ Parties .”

A.       Licensor controls certain patents, and Licensee desires to obtain a license to such patents for the purpose of developing and commercializing pharmaceutical products.

B.       Licensor desires to grant Licensee such a license on the terms and conditions set forth therein.

In consideration of the foregoing premises, the mutual promises and covenants set forth in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Licensor and Licensee hereby agree as follows:

When used in this Agreement, capitalized terms will have the meanings as defined below and throughout the Agreement.

1.1          “ Affiliate ” means a legal entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with an entity. For purposes of this definition only, “control” and, with correlative meanings, the terms “controlled by” and “under common control with” means (a) the possession, directly or indirectly, of the power to direct the management or policies of a legal entity, whether through the ownership of voting securities or by contract relating to voting rights or corporate governance, or (b) the ownership, directly or indirectly, of more than 50% of the voting securities or other ownership interest of a legal entity; provided , that if local law restricts foreign ownership, control will be established by direct or indirect ownership of the maximum ownership percentage that may, under such local law, be owned by foreign interests.

1.2          “ Controlled ” means, with respect to any Know-How, Patent, or other intellectual property right, possession of the right, whether directly or indirectly, and whether by ownership, license or otherwise, to assign, or grant a license, sublicense or other right to or under, such Know-How, Patent or right as provided for herein without violating the terms of any agreement or other arrangements with any Third Party.

1.3          “ FDA ” means the United States Food and Drug Administration, or any successor agency.

1.4           “ Field ” means the diagnosis, prognosis, prevention and treatment of human and non-human diseases and conditions.

1.5          “ IND ” means an Investigational New Drug Application filed with the FDA in conformance with applicable laws and regulations, or the equivalent thereof in jurisdictions outside the United States.

1.6         “ Know-How ” means any knowledge, experience, technology, information, and data, including pre-clinical and clinical data generated in connection with the research and development of compounds, formulas and formulations, processes, techniques, unpatented inventions, discoveries, ideas, and developments, test procedures, results, and reports, together with all documents and files embodying the foregoing.

1.7           “ Licensed Know-How ” means any and all Know-How Controlled by Licensor as of the Effective Date or developed by or on behalf of Licensor at any time during the Term.

1.8           “ Licensed Patent ” means any Patent Controlled by Licensor as of the Effective Date or during the Term, including the Patents listed in Exhibit A, and any Patent claiming Licensed Know-How.

1.9            “ Licensed Product ” means any product the manufacture, use or sale of which is covered by a Valid Claim.

1.10        “ Licensed Technology ” means the Licensed Patents and the Licensed Know-How.

1.11        “ Marketing Approval ” means the approvals of any federal, state or local regulatory agency, department, bureau or other government entity in a country, that are necessary to be obtained prior to the commercial sale of a Licensed Product in that country.

1.12        “ Net Expenditures ” means, on a Licensed Product-by-Licensed Product basis, the cost of developing the Licensed Product incurred by Licensee through the date of the first commercial sale of the Licensed Product, including but not limited to: (a) direct material costs, (b) direct labor costs, (c) overhead directly attributable to development of the Licensed Product, all calculated in accordance with GAAP, and (d) all other out-of-pocket costs, including but not limited to expenses for conducting pre-clinical and clinical activities and developing a manufacturing process and any Technology Acquisition Payments to the extent not already deducted from payments due to Licensor under this Agreement; but specifically excluding (i) all license fees paid to Licensor under Section 3.1, and (ii) all milestone payments paid to Licensor under Section 3.2. Direct material costs will include the costs incurred in purchasing or manufacturing clinical trial materials, including sales and excise taxes imposed thereon and customs duty and charges levied by government authorities, and all costs of packaging components for clinical trial materials. Direct labor will include the cost of employees and consultants for the time they are engaged in direct development activities for a Licensed Product. Overhead attributable to the Licensed Product will include a reasonable allocation of indirect labor (not previously included in direct labor), a reasonable allocation of administrative costs, and a reasonable allocation of facilities costs.

1.13          “ Net Sales ” means the total amount received by Licensee or its Affiliates from the sale of a Licensed Product to Third Parties by Licensee or its Affiliates, less: (a) credits, allowances, discounts and rebates to, and chargebacks from the account of, such Third Parties for spoiled, damaged, out-dated and returned product; (b) freight and insurance costs for transporting such product; (c) sales, value-added and other direct taxes on the sale of the product; (d) customs duties, surcharges and other governmental charges incurred in connection with the exportation or importation of such product; (e) trade, cash, and quantity discounts off the invoiced price and similar promotional discounts or rebates (such as management fees required by hospital buying groups or granted to managed care organizations) off the invoiced price; (f) amounts reflecting retroactive price adjustments on sale of products, to the extent not previously deducted from Net Sales; (g) manufacturing and packing costs or the supply price paid to a Third Party manufacturer of the Licensed Product; (h) marketing and promotional costs; (i) sales and detailing costs of Licensee’s or its Affiliates’ sales force; and (j) any Technology Acquisition Payments to the extent not already deducted from payments due to Licensor under this Agreement.

1.14          “ Patents ” means (a) all patents and patent applications in any country or supranational jurisdiction, and (b) any substitutions, divisions, continuations, continuations-in-part, reissues, renewals, registrations, confirmations, re-examinations, extensions, supplementary protection certificates and the like, and any provisional applications, of any such patents or patent applications.

1.15        “ Pivotal Trial ” means, as to a specific pharmaceutical product, a Phase III clinical trial (or foreign equivalent), or any controlled and lawful study in humans of the efficacy and safety of such product, that is prospectively designed to demonstrate with statistical significance that such product is effective and safe for use in a particular indication in a manner sufficient to file for Marketing Approval of such product.

1.16          “ Sublicense Agreement ” means any license agreement under which Licensee grants a Third Party a sublicense under any Licensed Technology for the purpose of allowing such Third Party to develop and commercialize one or more Licensed Products.

1.17        “ Sublicense Revenues ” means any non-creditable upfront license fees or milestone payments received by Licensee from any Sublicensee pursuant to a Sublicense Agreement and in connection with the development and commercialization of a Licensed Product by such Sublicensee, less any Technology Acquisition Payments to the extent not already deducted from payments due to Licensor under this Agreement, but specifically excluding any Sublicense Royalty Revenues.

1.18         “ Sublicense Royalty Revenues ” means all cash payments received by Licensee from any Sublicensee pursuant to a Sublicense Agreement based on the sales value of Licensed Products sold by such Sublicensee, less any Technology Acquisition Payments to the extent not already deducted from payments due to Licensor under this Agreement.

1.19         “ Sublicensee ” means any Third Party that has entered into a Sublicense Agreement.

1.20         “ Technology Acquisition Agreement ” means any agreement entered into before or after the Effective Date between Licensee or its Affiliates and a Third Party under which Licensee or its Affiliate, as applicable, is granted a license to or is assigned (a) any of such Third Party’s Patents that would be infringed, in the absence of such agreement, by the manufacture, use or sale of a Licensed Product by Licensee or its Affiliates, or (b) any of such Third Party’s Know-How that covers or is useful with respect to the composition, use, or manufacture of a Licensed Product.

1.21         “ Technology Acquisition Payments” means license fees, milestone payments, or royalties payable by Licensee or its Affiliates to a Third Party under any Technology Acquisition Agreement in connection with the development or commercialization of a Licensed Product.

1.22         “ Term ” has the meaning assigned to it in Section 7.1.

1.23         “ Third Party ” means any party other than Licensor, Licensee, or their respective Affiliates.

1.24         “ Valid Claim ” means any claim of an issued and unexpired patent within the Licensed Patents which has not been held unenforceable or invalid by a court or other governmental agency of competent jurisdiction in an unappealed or unappealable decision, and which has not been disclaimed or admitted to be invalid or unenforceable through reissue or otherwise.

2.1          Grant. Licensor hereby grants to Licensee an exclusive, worldwide, royalty-bearing license, with the right to sublicense through multiple tiers of sublicenses, under the Licensed Technology to use and practice the Licensed Technology and to research, develop, make, use, sell, offer for sale, and import Licensed Products in the Field.

2.2          Technology Transfer. Within 10 days after the Effective Date, Licensor will provide Licensee with copies of all tangible embodiments of the Licensed Know-How in Licensor’s possession or control.

2.3          Diligence. Licensee will use its commercially reasonable efforts to develop and commercialize one or more Licensed Products in the Field during the Term. As between the Parties, Licensee will be solely responsible for developing Licensed Products and seeking regulatory approval for such Licensed Products (including, without limitation, by preparing and filing any and all regulatory submissions relating to the clinical development or Marketing Approval of a Licensed Product).

3.1          Initial License Fee. Licensee will pay to Licensor an initial license fee of US$375,000, payable in 8 installments of US$46,875 each, with the first installment due on the 14 ^th day after the Effective Date (the “First Payment Date”), and the subsequent installments due on the 90 ^th day, 180 ^th day, 270 ^th day, 360 ^th day, 450 ^th day, 540 ^th , and 630 ^th day of the First Payment Date.

3.2.1       Licensee will pay to Licensor the following one-time milestone payments within 30 days after the first achievement of the following milestone events by Licensee:

(a)       $500,000 with respect to the dosing of the first patient in the first Pivotal Trial for a Licensed Product, and $250,000 with respect to the dosing of the first patient in the second, third, fourth and fifth Pivotal Trial, and $125,000 with respect the dosing of the first patient in any subsequent Pivotal Trial; provided, however, that Licensee will not have any obligation to make any payments under this Section 3.2.1(a) with respect to any Pivotal Trial that is conducted for the same Licensed Product and the same indication for which Licensee has previously made a milestone payment pursuant to this Section 3.2.1(a);

(b)       $5,000,000 with respect to the receipt of the first Marketing Approval for a Licensed Product, and $2,500,000 with respect to the receipt of the second, third, fourth and fifth Marketing Approval for a Licensed Product, and $1,250,000 with respect to any subsequent Marketing Approval; provided, however, that Licensee will not have any obligation to make any payments under this Section 3.2.1(b) with respect to any Marketing Approval that is for the same Licensed Product and the same indication for which Licensee has previously made a milestone payment pursuant to this Section 3.2.1(b).

3.2.2       Notwithstanding anything in this Agreement, Licensee will have no obligation to make any payments under this Section 3.2 with respect to any milestone events for which Licensee receives Sublicense Revenues and thus has an obligation to make payments under Section 3.4.1.

3.2.3       At Licensee’s option, Licensee may elect to pay for up to 50% of any milestone payment due under Section 3.2.1 above in common stock of Licensee with the number of shares determined by dividing the amount of the portion of the milestone payment to be paid in shares by the fair market value of one share of common stock of Licensee, as determined in good faith by Licensee’s board of directors.

3.3.1       Royalty Rate. Subject to the terms and conditions of this Agreement, Licensee will pay to Licensor a royalty on Net Sales of each Licensed Product as follows:

(a)       4% of the portion of aggregate Net Sales of such Licensed Product during a calendar year that is equal to or less than $250,000,000;

(b)     5% of the portion of aggregate Net Sales of such Licensed Product during a calendar year that is greater than $250,000,000 but equal to or less than $500,000,000;

(c)       6% of the portion of aggregate Net Sales of such Licensed Product during a calendar year that is greater than $500,000,000 but equal to or less than $750,000,000; and

(d)       7% of the portion of aggregate Net Sales of such Licensed Product during a calendar year that exceeds $750,000,000.

3.3.2       Royalty Term. Licensee’s royalty payment obligations under this Section 3.3 will expire on a Licensed Product-by-Licensed Product basis and a country-by-country basis upon the expiration of the period (the “ Royalty Term ”) ending upon the later of: (a) expiration of the last-to-expire Valid Claim that, but for the licenses granted in this Agreement, would be infringed by the sale of such Licensed Product in such country, and (b) 10 years after the first commercial sale of such Licensed Product by Licensee, its Affiliates or Sublicensees anywhere in the world.

3.3.3       Reduction of Royalty Rate.  Upon expiration of the last Valid Claim covering a particular Licensed Product in a particular country, each of the royalty rates set forth in Section 3.3.1 will be reduced by 50% for the remainder of the Royalty Term, resulting in royalty rates of 2%, 2.5%, 3%, and 3.5%, as applicable.

3.3.4       No Double Dipping. For the avoidance of doubt, Licensee will not be required to make any payments under Section 3.3 with respect to any unit of Licensed Product for which Licensee has an obligation to make payments under Section 3.4.2.

3.4.1       Subject to the terms and conditions of this Agreement, Licensee will pay to Licensor 25% of Sublicense Revenues received by Licensee pursuant to any Sublicense Agreement.

3.4.2       Subject to the terms and conditions of this Agreement, Licensee will pay to Licensor a share of Sublicense Royalty Revenues received by Licensee, as follows:

(a)       15% of all Sublicense Royalty Revenues, until such time as the Aggregate Discount Amount (as defined in Section 3.4.3 below) reaches an amount equal to three (3) times the Net Expenditures;

(b)       beginning in the first full month after the Aggregate Discount Amount reaches an amount equal to three (3) times the Net Expenditures:

(i)       25% on Sublicense Royalty Revenues corresponding to that portion of aggregate net sales of Licensed Products by a Sublicensee during a calendar year that is less than or equal $500,000,000; and

(ii)       33% on Sublicense Royalty Revenues corresponding to that portion of aggregate net sales of Licensed Products by a Sublicensee during a calendar year that exceeds $500,000,000.

3.4.3       For purposes of this Section 3.4, the “Aggregate Discount Amount” will be equal to the running total of all Annual Discount Amounts for the Term. For each calendar year or portion thereof during the Term, the Annual Discount Amount (labeled as “X” in the equation below) will be calculated as follows:

X = (0.1 * A) + (0.18 * B)

A = Sublicense Royalty Revenues received by Licensee corresponding to that portion of aggregate net sales of Licensed Products by all Sublicensees during such calendar year that is less than or equal $500,000,000

B = Sublicense Royalty Revenues corresponding to that portion of aggregate net sales of Licensed Products by all Sublicensees during such calendar year that exceeds $500,000,000

3.5.1       Payment Timing. Licensee will make royalty or sublicense payments to Licensor within 45 days of the last day of each calendar quarter for which such payments are due under Section 3.3 or 3.4, as the case may be. Each such payment will be accompanied by a written report showing the cumulative Net Sales, Sublicense Revenues, and Sublicense Royalty Revenues received by Licensee and its Affiliates during such calendar quarter and the corresponding payments due under this Agreement. In addition, in connection with any payments pursuant to Section 3.4.2(a), Licensee will provide the amount of Net Expenditures and the Aggregate Discount Amount.

3.5.2       Payment Method.   All amounts due hereunder will be paid in US Dollars by check or wire transfer in immediately available funds to an account designated by Licensor.

3.5.3       Currency Conversion.  For any currency conversion required in connection with any payment hereunder, or in determining the amount of royalties due, such conversion will be made at the prevailing commercial rate of exchange for purchasing the currency into which an amount is to be converted as published in the Eastern Edition of the Wall Street Journal (U.S. Edition) on the day which is the last business day of the applicable quarterly period for any payments made pursuant to Sections 3.3 or 3.4. For purposes of determining the payment due, the amount of Net Sales, Sublicense Revenues, or Sublicense Royalty Revenues, as the case may be, in any foreign currency will be computed by converting such amount into US Dollars as provided in this Section 3.5.3.

3.6.1       Records Retention. Licensee will maintain complete and accurate books, records and accounts in sufficient detail to confirm the accuracy of any payments required hereunder, which books, records and accounts will be retained by Licensee until three years after the end of the period to which such books, records and accounts pertain.

3.6.2       Audit. Licensor will have the right to have an independent certified public accounting firm of internationally recognized standing, reasonably acceptable to Licensee, to have access during normal business hours, and upon reasonable prior written notice, to such of the records of Licensee as may be reasonably necessary to verify the accuracy of information needed to calculate payments required hereunder (“ Payment Information ”) for any calendar quarter ending not more than 36 months prior to the date of such request; provided , however , that Licensor will not have the right to conduct more than one such audit in any 12-month period. The accounting firm will disclose to Licensee and Licensor whether such Payment Information is correct or incorrect and the specific details concerning any discrepancies. Licensor will bear all costs of any such audit.

3.6.3       Payment of Additional Amounts. If, based on the results of any audit, additional payments are owed to Licensor under this Agreement, Licensee will make such additional payments promptly after the accounting firm’s written report is delivered to both Parties and Licensee will, in addition, reimburse Licensor’s expenses for conducting the audit if the amount of the underpayment exceeds 5% of the total payment actually due. If, based on the results of any audit, payments made pursuant to this Agreement exceeded payments indicated by the audit as being due hereunder, such excess will be credited against future amounts owed by Licensee under this Agreement.

3.6.4       Confidentiality. Licensor will treat all information subject to review under this Section 3.6 in accordance with the confidentiality provisions of Section 6 and will cause its accounting firm to enter into a confidentiality agreement with Licensee obligating such firm to maintain all such financial information in confidence pursuant to such confidentiality agreement.

4.1.1        Licensee will be responsible for the filing and prosecution of the Licensed Patents, and for the maintenance of the Licensed Patents, through patent counsel of its choice.

4.1.2       The costs and expenses incurred by Licensee in connection with the filing, prosecution and maintenance of any Licensed Patent will be borne by Licensee.

4.1.3       Notwithstanding anything in this Agreement, if Licensee wishes to discontinue the payment of filing, prosecution or maintenance costs with respect to a particular Licensed Patent, it will inform Licensor thereof in writing with 30 days prior notice, and any Licensed Patents with respect to which Licensee has discontinued the payment of such costs will be excluded from the licenses granted under this Agreement, and will no longer be considered Licensed Patents as that term is used in this Agreement. !

4.2          Right to Defend Infringement Claims . If the manufacture, sale or use of a Licensed Product pursuant to this Agreement results in, or may result in, any claim, suit, or proceeding by a Third Party alleging patent infringement by Licensee (or its Affiliates or Sublicensees), Licensee will promptly notify Licensor thereof in writing. Licensee or its Affiliates or Sublicensees will have the exclusive right to defend and control the defense of any such claim, suit or proceeding at its own expense (subject to Section Section 8.1), using counsel of its own choice; provided, however, that Licensee and its Affiliates and Sublicensees will not enter into any settlement which admits or concedes that any aspect of Licensed Patents are invalid or unenforceable without the prior written consent of Licensor. Licensee will keep Licensor reasonably informed of all material developments in connection with any such claim, suit, or proceeding. Licensee agrees to provide Licensor with copies of all pleadings filed in such action and to allow Licensor reasonable opportunity to participate in the defense of the claims.

4.3.1       Initiation. Licensee and Licensor will each promptly notify the other in writing of any alleged or threatened infringement of any Licensed Patent by a Third Party. Licensor and Licensee will then confer and may agree jointly to prosecute any such infringement. If the Parties do not agree on whether or how to proceed with enforcement activity (i) within 60 days following the detection of the of alleged infringement, or (ii) 10 business days before the time limit, if any, set forth in appropriate laws and regulations for filing of such actions, whichever comes first, then, Licensor may commence litigation with respect to the alleged or threatened infringement at its own expense. In the event that Licensor does not commence litigation within five business days of the above-specified date, Licensee may do so, at Licensee’s expense.

4.3.2      Cooperation. In the event a Party brings an infringement action, the other Party will cooperate fully, including, if required to bring such action, the furnishing of a power of attorney or to join such action as a necessary party. If Licensee commences litigation under this Section 4.3, it will receive a credit for one-half (50%) of its reasonable and documented expenses of commencing and prosecuting said litigation against payments due Licensor under Section 3 hereof. If Licensor commences litigation under this Section 4.3 it will invoice Licensee quarterly for one-half (50%) of its reasonable and documented expenses of commencing and prosecuting said litigation through each calendar quarter, and Licensee will promptly pay said invoices. Neither Party will have the right to settle any patent infringement litigation under this Section 4.3 in a manner that diminishes the rights or interest of the other Party without the express written consent of such other Party. The Party commencing the litigation will provide the other Party with copies of all pleadings/documents filed with the court and will consider reasonable input from the other Party during the course of the proceedings.

4.3.3      Recovery. Except as otherwise agreed by the Parties as a cost sharing arrangement, any recovery realized as a result of such litigation described in Section 4.3.1 (whether by way of settlement or otherwise) will be first allocated to reimbursement of unreimbursed legal fees and expenses incurred by the Party initiating the proceeding, then toward reimbursement of any of unreimbursed legal fees and expenses of the other Party, then, if applicable, toward reimbursement of the other Party for the amount of any credits taken by the Party initiating the proceeding as permitted above, and then the remainder will be divided between the Parties as follows: (i) if the award is based on lost profits, Licensee will receive the amount equal to the damages the court d