LICENSE, SUPPLY AND DISTRIBUTION AGREEMENT

Exhibit 10.2

 

LICENSE, SUPPLY AND DISTRIBUTION AGREEMENT

 

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

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RECITALS

 

WHEREAS, 454 develops, manufactures and markets products related to DNA sequencing.

 

WHEREAS, FHLR is a company with business activities also in the life science research market and the diagnostic market.

 

WHEREAS, 454 and FHLR (the “Parties”) desire to have 454 manufacture and supply to FHLR certain products and to have FHLR manufacture, distribute and sell certain products under the terms and conditions stated herein.

 

WHEREAS, FHLR may at its sole discretion delegate to any of its Affiliates, and specifically, but not limited to, Roche Diagnostics GmbH in Mannheim (“RDG”), any rights and obligations under this Agreement.

 

NOW, THEREFORE, for and in consideration of the promises and the covenants contained herein, the Parties hereto do hereby agree as follows:

 

1. DEFINITIONS

 

In addition to the terms defined elsewhere in this Agreement, the following words and phrases, whenever capitalized in this Agreement, shall have the following meanings:

 

1.1	“Affiliate” shall mean

 

(a)	an organization which directly or indirectly controls a Party to this Agreement;

 

(b)	an organization which is directly or indirectly controlled by a Party to this Agreement;

 

(c)	an organization which is controlled, directly or indirectly, by the ultimate parent company of a Party.

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

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Control as per (a) to (c) is defined as owning fifty percent or more of the voting stock of a company or having otherwise the power to govern the financial and the operating policies or to appoint the management of an organization.

 

With respect to FHLR the term “Affiliate” shall not include Genentech, Inc., 1 DNA Way, South San Francisco, California 94080-4990, U.S.A. (“Genentech”) nor Chugai Pharmaceutical Co., Ltd, 1-9, Kyobashi 2-chome, Chuo-ku, Tokyo, 104-8301, Japan (“Chugai”), respectively, unless the Parties agree in writing to include Genentech and/or Chugai as Affiliates hereunder.

 

1.2 “Application R&D Project” shall mean a project regarding the development of applications on an existing or future system (e.g., Rev 1.0, 1.1, 2.0) for the Technology, including the development of protocols, Instruments Reagents, Reagent Kits, Disposables and Software, as conducted pursuant to the R&D Agreement.

 

1.3 “ASP” shall mean worldwide Average Sales Price. The estimated and preliminary ASP shall be determined pursuant to Section 3.3(b) and (c) and the actual ASP shall be calculated under Section 3.3(c) for each Licensed Product by dividing Net Sales of such Licensed Product by the number of Licensed Products included in such Net Sales.

 

1.4 “Commercial Launch” shall mean the first commercial sale by FHLR or its Affiliates of a Licensed Product to a Third Party in any country of the Territory.

 

1.5 “Confidential Information” shall have the meaning set forth in Section 9.1 hereof.

 

1.6 “Contract Year” shall mean a period of twelve (12) consecutive months during the term of this Agreement. The first Contract Year shall commence on the first of January after the Commercial Launch of the first Licensed Product, provided such Commercial Launch will be in the year of 2005. In the event that the Commercial Launch occurs after the year of 2005, the Contract Year shall commence on the first day of the first calendar quarter after the Commercial Launch.

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

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1.7 “Disposables” shall mean PicoTiterPlates (PTPs) and any other Licensed Products identified as Disposables on Exhibit 2 and 5, as amended from time to time in accordance with the terms of Section 2.7.

 

1.8 “Effective Date” shall mean the date of the last signature of the Parties as set forth on the signature page hereof.

 

1.9 “Excess Quantity” shall mean orders in excess of [***************************] the then current binding forecast of the relevant Licensed Products for the applicable calendar quarter.

 

1.10 “Field” shall be any field of application of the Licensed Products in life science research, pharmaceutical research and other sequencing applications, excluding the IVD Field; provided, however, that any sequencing applications shall be limited to those sequencing applications performing more than [*******************] (or such lesser number as 454 notifies FHLR in writing that it is permitted to commercialize pursuant to its Third Party license agreements) different DNA sequencing reactions in one Process Cycle, including but not limited to the performance of any of the following activities, or any component step or process included within such activities, with respect to any or all organisms and for whatever purpose or purposes: (a) sequencing all, or substantially all, of a genome, genomic region or chromosome based on sequencing, (b) expression profiling based on cDNA/mRNA sequencing, (c) repetitive sequencing of genomic regions (e.g., genes) or specific cDNA’s, and (d) performing SNP analysis of whole genomes or of more than [*******************] SNPs in one Process Cycle.

 

1.11 “Forecast” shall mean a forecast delivered pursuant to Section 3.5.

 

1.12 “Initial Stock” shall mean the total amount of Licensed Products to be ordered in FHLR’s or its Affiliates first purchase order before Commercial Launch of such Licensed Product as determined pursuant to Section 2.7.

 

1.13 “Initial Term” shall have the meaning set forth in Section 11.1 hereof.

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

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1.14 “Instruments” shall mean those Licensed Products that are listed as Instruments on Exhibits 2 and 5, as amended from time to time in accordance with the terms of Section 2.7.

 

1.15 “IVD Field” shall mean the application of the Licensed Products in in vitro human diagnostic uses using [****************************************************] in other countries in the Territory.

 

1.16 “Joint Invention” shall have the meaning set forth in Section 6.1 of the R&D Agreement.

 

1.17 “Joint Steering Committee” shall have the meaning set forth in Section 8.3 hereof.

 

1.18 “Licensed Patents” shall mean those patents and patent applications with regard to nucleic acid handling, library preparation, amplification, pyrosequencing, and sequencing data analysis as listed in Exhibit 1, which is attached hereto and made a part hereof, and any new patent or patent application owned, controlled by or licensed to 454 and covering any aspects of any Licensed Products relevant to the Field during the term of this Agreement, including without limitation 454 Sole Inventions and Joint Inventions arising under this Agreement and the R&D Agreement, and any and all continuations, continuations-in-part, divisions, patents of addition, reissues, re-examinations, renewals or extensions (including any Supplemental Protection Certificates) thereof, or any patents which shall be issued based on such patent applications, and any and all foreign counterparts of the foregoing.

 

1.19 “Licensed Products” shall mean, unless otherwise provided herein, any product the manufacture, use or sale of which falls under a Valid Claim of a Licensed Patent and which is listed on Exhibit 2, as such Exhibit may be amended from time to time in accordance with the terms hereof. Licensed Products shall include Instruments, Reagent Kits, Software and Disposables for DNA sequencing or other applications, in each case having characteristics as defined in the Specifications in Exhibit 3 to this Agreement.

 

1.20 “Net Sales” shall mean, with respect to sales or other dispositions (including any leasing of Instruments) of a Licensed Product, the amount invoiced by FHLR or FHLR’s

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

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Affiliates to end users, distributors or agents after deduction of volume discounts, sales rebates, allowances, returns, sales taxes (such as but not limited to value added taxes) and other taxes directly linked to the sales (provided that such taxes are separately invoiced to such end user, distributors or agents), and [************************************** ************************************************************************ ***************************] for:

 

(a) tariffs, duties and taxes imposed upon the production, sale, delivery or use of Licensed Product(s) (excluding tariffs, duties and taxes that are separately invoiced to end users, distributors or agents), and

 

(b) distribution and other customary expenses, such as freight, transportation and insurance expenses, and for

 

(c) cash discounts, retroactive price reductions or credits to customers on account of settlement of complaint.

 

Leasing of Instruments:

 

With respect to dispositions of Instruments that are financed by leasing or a similar financing model, Net Sales shall be reported according to Section 4.2 and shall include the entire principal amount (selling price) but shall not include any commercially reasonable interest charge that is associated with the financing of such Instrument.

 

“Combination Products”

 

In the event one or more Licensed Product(s) is/are sold together with one or more other product(s) (“Non-Sequencing Products”) or with one or more Licensed Product(s) to which different royalty rates apply (e.g., Disposables and Reagent Kits) at a single price (such combination is hereinafter referred to as “Combination Product”), such single price shall be allocated among the Licensed Product(s) and the other product(s) in the Combination Product based on the market price for such products when sold separately. If any such product is not being sold alone with a market price, 454 and FHLR shall agree upon a fair market price for that product. Solely this agreed upon price shall be used to calculate Net Sales in such instance.

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

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Non-Sequencing Products shall mean products that are not a functional part of a system which comprises a Licensed Product and which perform a function other than sequencing, preparation of samples for sequencing, or data recovery or management and reporting of sequence data.

 

1.21 “Process Cycle” shall mean the performance of sequencing on a sample or samples loaded onto a substrate at an average density greater than [******************************************************************************************

*************************************************]. A substrate is the physical entity holding the samples.

 

1.22 “Project” and “Projects” shall mean a System R&D Project and/or Application R&D Project.

 

1.23 “Proposed Licensed Product” shall mean those products listed on Exhibit 5 which are not Licensed Products as listed on Exhibit 2.

 

1.24 “R&D Agreement” shall mean the Research and Development Agreement executed by the Parties simultaneously with this Agreement.

 

1.25 “Reagent” shall mean a material consumed in operating an Instrument that is not designated as a Disposable and intended to be a part of a Reagent Kit.

 

1.26 “Reagent Kit” shall mean an assembly of Reagents to be used in connection with the Instrument and the Disposables (e.g., Sequencing Kits, Amplification Kits and Library Preparation Kits), and which is contained in Exhibits 2 and 5 as amended from time to time in accordance with the terms of Section 2.7.

 

1.27 “Reagent Supply Agreement” shall have the meaning set forth in Section 2.5(a).

 

1.28 “Safety Stock” shall have the meaning set forth in Section 3.7.

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

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1.29 “Software” shall mean the software required to operate an Instrument and manipulate sequence data generated in such operation, including re-sequencing alignment and de-novo sequence assembly software, as identified in Exhibit 2 and 5, as amended from time to time in accordance with the terms of Section 2.7.

 

1.30 “Specifications” shall mean those product specifications (including performance of the product) for each of the Licensed Products or Proposed Licensed Products, as set forth in Exhibits 3 and 8 attached hereto and made a part hereof, and as such Exhibits are amended from time to time in accordance with the terms hereof.

 

1.31 “Subcontractor” shall have the meaning set forth in Section 5.8.

 

1.32 “System R&D Project” shall mean a project for the development of the technology claimed in the Licensed Patents in general or a project to develop Instruments, system Reagents, Disposables, and/or Software to meet the Specifications for Rev. 1.0, 1.1 and 2.0 or future systems to be defined, as conducted pursuant to the R&D Agreement.

 

1.33 “Technology” shall mean the Licensed Products and the technology claimed in the Licensed Patents for DNA sequencing based on 454 proprietary pyrophosphate-based sequencing technology and the related know-how, protocols, processes, Instruments, machines, materials, compositions, tests procedures, manufacturing procedures, techniques, formulations, methodologies and data, inventions, observations and information.

 

1.34 “Territory” shall mean the entire world.

 

1.35 “Third Party” shall mean a party other than FHLR, 454 or their Affiliates.

 

1.36 “Transfer Price” shall have the meaning set forth in Section 3.3(a).

 

1.37 “Valid Claim” shall mean a claim of an issued Licensed Patent (including patents issued after the date hereof) which has not been disclaimed or held invalid or unenforceable by a ruling of a court or other governmental agency of competent jurisdiction from which no appeal can be or has been taken or a claim in a pending patent application within the Licensed Patents that has not otherwise finally been held un-patentable by the competent administrative agency.

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

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1.38 “Other Capitalized Terms” All capitalized terms herein that are defined in the R&D Agreement shall have the same meaning as in the R&D Agreement unless specifically defined otherwise in this Agreement.

 

2. LICENSE GRANT, PURCHASE, SALE AND OPTION

 

2.1 License Grant . 454 hereby grants to FHLR and its Affiliates an exclusive, royalty bearing, non-assignable (except as forth in Section 12.3) right and/or license under the Licensed Patents, (a) to market, distribute, sell, offer to sell or have sold Licensed Products for use in the Field and the Territory, (b) subject to Section 2.2(a), to use Licensed Products for internal research, development and/or training purposes pursuant to this Agreement and the R&D Agreement, and (c) to manufacture or have manufactured Licensed Products for such sale and distribution in limited circumstances as expressly set forth in Sections 2.5(a), 3.8, 3.9, 5.1(c) and 11.1(c). The Parties acknowledge and agree that, notwithstanding the limitation on the scope of the exclusive licenses granted to FHLR and its Affiliates hereunder to those Licensed Products which will be listed on Exhibit 2 from time to time, during the Initial Term, 454 shall have no right to market, distribute, sell, offer to sell or have sold, nor license a Third Party any such rights with respect to any product in the Field whose manufacture, use or sale falls under a Valid Claim of a Licensed Patent except as expressly permitted by Section 2.2 (b), (c) or (d) or by Section 2.7 hereof.

 

Under the rights granted herein, FHLR and its Affiliates will exclusively sell and distribute Licensed Products in the Field and Territory and in accordance with the labeling requirements set forth in Section 8.2 and the other terms and conditions set forth in this Agreement. Subject to Section 2.2(a), 454 acknowledges and agrees that FHLR or its Affiliates may appoint sub-distributors for the purpose of this Agreement who shall have the right to market, offer to sell and sell the Licensed Products for use in the Field to any Third Party in the Territory.

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

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2.2 License Limitations .

 

(a) The license granted in Section 2.1 shall not include (i) the right to make Licensed Products except as expressly set forth in Sections 2.5(a), 3.8, 3.9, 5.1(c) and 11.1 hereof, (ii) the right of FHLR or FHLR’s Affiliates (with the exception of RDG) to use Licensed Products for internal research and development purposes except as a purchaser thereof at fair market value from FHLR or its Affiliates (which limitation shall not apply to Licensed Products used by any Affiliate for reasonable and customary training purposes), (iii) the right to sublicense except for end-user label licenses and service label licenses as necessary to restrict use of Licensed Products to the Field and/or to allow a customer to use the Licensed Products in a service business with Third Parties as contemplated below, or (iv) the right to reverse engineer Licensed Products for purposes of designing new products or modifying existing products. Notwithstanding any other provision of this Agreement, use of the Licensed Products in a service business by any Third Party to whom FHLR sells Licensed Products will require a one-time payment of [*********************************] by FHLR to 454 (after FHLR has received such Third Party payment) prior to commencement of any such services by such Third Party [*******************************************************************]. For the avoidance of doubt, sale of Licensed Products through a Third Party distributor or wholesaler is hereby deemed not to be the grant of a sublicense of all or any portion of the rights licensed hereunder. The Parties hereby acknowledge and agree that Third Party purchasers of Licensed Products from FHLR or its Affiliates shall be entitled to use the Licensed Products free and clear of any claim for a royalty, or other claim of 454 arising under the Licensed Patents as long as such use is in conformity with the limitation set forth below.

 

FHLR shall include the following restrictive language, or language which is substantially equivalent, on all pack inserts, promotional literature and contracts for Licensed Products:

 

Restriction on Use. As a condition of sale of this product, purchaser agrees (i) not to use the product to perform less than ten thousand (10,000) sequencing reactions on a sample or samples on a single PicoTiterPlate, (ii) to use the product for research and general laboratory use only, and (iii) not to use the product for commercial services without purchase of a commercial services license which is available through the Licensing

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

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Department of Roche Diagnostics GmbH. Failure to comply with these restrictions will result in an infringement of patent rights and other intellectual property rights of seller or third parties and a breach of the terms of the sale of this product.

 

454 may request changes to clause (i) above as necessary to comply with the laws and regulations of the place of sale of any Licensed Product provided that the resulting language is legally effective to prevent infringement by the purchaser of such Licensed Product of 454’s Third Party licensor’s rights outside of the Field. Notwithstanding any other provision hereof, FHLR shall not be liable towards 454 or any Third Party licensor of 454 for any breach by FHLR’s Licensed Product customers of such license restrictions. 454 shall defend, indemnify and hold FHLR harmless against any claims, actions, suits, proceedings, losses, damages, liabilities, costs and expenses (including reasonable attorney’s fees) (“Liability”), related to or resulting from any claims or suits brought by any Third Party licensor of 454 for breach of the above Restrictions on Use and respective patent rights or other intellectual property rights made or brought against FHLR. 454 will pay all cost of damages finally awarded in any such proceedings or any settlement with respect to any such claims.

 

(b) Notwithstanding any other provision hereof, 454 shall retain the right to use the Technology and the Licensed Products for the purpose of operating a service business to provide services to Third Parties in the Field, such right to be non-exclusive to the extent provided with respect to customers of FHLR in Section 2.2(a)(iii). For the avoidance of doubt, 454 shall have no rights to transfer its retained rights hereunder to any Third Party during the Initial Term other than in connection with any assignment made pursuant to Section 12.3 hereof. 454 may not utilize more than [******************] at any time to conduct such service business during the Initial Term, unless otherwise agreed by the Joint Steering Committee.

 

(c) Notwithstanding the exclusive license granted herein, before the Commercial Launch of any new version of a Licensed Product, 454 shall, during the term of this Agreement, have the right to test and sell a defined number of pre-launch versions of such Licensed Product to a defined number of beta sites (both to be agreed upon with RDG)

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

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prior to Commercial Launch, such sales to be for the sole benefit of 454 without compensation to FHLR. 454 shall not sell these pre-launch versions under any FHLR or Roche label and 454 shall be responsible and liable for any and all claims of its beta site customers including also the return of any Licensed Product. FHLR shall in particular not be responsible for any customer service and/or technical support for such products.

 

For the avoidance of doubt, 454 shall have the right for its sole benefit to sell and deliver any Licensed Products to its customers between the Effective Date and the date of first Commercial Launch of a Licensed Product by FHLR. Until [*******************] after such First Commercial Launch, 454 may still deliver Instruments for which it has received a purchase order prior to such Commercial Launch but such right for 454 shall terminate with respect to Instruments [******************] after first Commercial Launch except as otherwise provided in subsection (d) hereof. For all customers 454 sells Licensed Products to prior to the Effective Date and between the Effective Date and FHLR´s First Commercial Launch and thereafter as permitted in this paragraph, the last two sentences of the first paragraph in this Section 2.2 (c) shall apply.

 

(d) Notwithstanding the exclusive license granted herein, after Commercial Launch, 454 shall have the right to sell Licensed Products to strategic partners approved by RDG for use in approved collaborative research agreements (to be approved by the Joint Steering Committee) between such strategic partners and 454 as indicated in Exhibit 4 (which Exhibit shall also list such strategic partner agreements as approved by the Joint Steering Committee). Such Exhibit shall be amended from time to time by the Joint Steering Committee. 454 shall pay FHLR a royalty of [**] of the Net Sales for any such Licensed Products sold by 454 to such strategic partners. The definition of Net Sales and the provisions of Article 4 shall apply to payment of any such royalties by 454, with the role of the Parties reversed.

 

2.3 License/Distribution Option . 454 and its Affiliates shall not enter into any agreement with Third Parties with respect to a license to the Technology (including Licensed Patents) for the IVD Field or a distribution arrangement for the IVD Field during the Initial Term of this Agreement without first giving FHLR and its Affiliates the right of first negotiation as set forth herein.

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

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For the IVD Field, FHLR and its Affiliates shall have an exclusive right of first negotiation to obtain an exclusive or non-exclusive license and/or distribution rights with respect to the sale of Licensed Products in the IVD Field as set forth herein. This right shall be exercisable during the Initial Term of this Agreement so long as FHLR is not in default of any provision hereof as follows:

 

(a) In the event FHLR or its Affiliates wish to expand the Field to include the IVD Field, the Parties agree to negotiate in good faith the terms for such rights to the extent such rights remain available subject to Section 2.3(b) below; or

 

(b) In the event that 454 wishes to grant any Third Party licenses or rights in any country within the Territory with respect to the distribution or sale of Licensed Products or Proposed Licensed Products or any other product falling under a Valid Claim of a Licensed Patent in the IVD Field (regardless of whether 454 desires to initiate or a Third Party has initiated discussions of such rights), 454 shall first propose to grant such rights to FHLR. Such proposal shall be in writing, be made in good faith, and provide terms no less favorable to FHLR than those to be offered to, or offered by, such Third Party. Within [**************] after receipt of any such proposal, FHLR shall notify 454 as to whether FHLR wishes to enter into negotiations for such rights. If FHLR provides timely notice that it wishes to do so, then the Parties shall conduct exclusive negotiations and use good faith efforts to conclude an agreement within [************************] thereafter. If the Parties are unable to agree upon the terms of such agreement despite the use of good faith efforts for such [********************] day period, FHLR shall put its proposal in writing (the “Last Offer”). Thereafter, 454 shall be free to grant a license or other rights to Third Parties to the rights described in such Last Offer on terms more favorable to 454 than the Last Offer made by FHLR. If, on the other hand, (i) FHLR gives 454 notice that FHLR does not wish to enter into any such negotiation, or (ii) FHLR does not respond to 454’s initial proposal within [************] after receipt thereof, then 454 shall be free to grant a license or other rights as outlined in the initial proposal to Third Parties in the IVD Field on any terms.

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

13

2.4 Purchase and Sale . During the Initial Term of this Agreement and subject to the terms and conditions contained herein, FHLR shall have the right, but not the obligation (except as set forth in the binding portion of each Forecast as noted in Section 3.5, hereof) to purchase the Licensed Products from 454 and 454 shall exclusively manufacture and supply to FHLR or its Affiliates at the Transfer Price such quantities of the Licensed Products as 454 is required to supply hereunder. The Licensed Products available to FHLR for purchase from 454 are indicated in Exhibit 2 of this Agreement, which may be amended by written agreement of the Parties from time to time during the term of this Agreement in accordance with the terms of Section 2.7 hereof. FHLR and its Affiliates shall not have the right to purchase Licensed Products from a Third Party except as expressly provided under the terms of this Agreement.

 

2.5 Supply Options .

 

(a) To the extent FHLR or its Affiliates are capable of supplying components for Reagent Kits in the required volume and under specifications to be agreed by the Parties, at 454’s option, FHLR or its Affiliates shall supply to 454, on reasonable terms and conditions to be agreed upon in a separate supply agreement (the “Reagent Supply Agreement”), bulk Reagents for the assembly of Reagent Kits for as long as 454 supplies Reagent Kits to FHLR hereunder.

 

(b) In the event that FHLR or its Affiliates assumes sole responsibility for Reagent Kit manufacturing , as provided in Section 5.1(c) hereof, during the Initial Term, at 454’s option FHLR or its Affiliates will supply 454 with Reagent Kits at [***********] of such Reagent Kit for use in 454’s internal research, 454’s service business, and for transfer to strategic partners, including CuraGen Corporation. For the avoidance of doubt, no royalties to 454 shall be due by FHLR on any sales of Reagent Kits to 454 under this Agreement.

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

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2.6 Diligence . FHLR shall use commercially reasonable efforts to commercialize Licensed Products in the Field during the term of this Agreement. However, FHLR will commercialize the Licensed Product in phases at its reasonable commercial discretion with respect to different geographic regions starting with the United States. Such efforts shall include, without limitation, FHLR’s obligation to:

 

(a) Offer Licensed Products to Third Parties for sale within [***********] after the later of (i) availability of Initial Stock at FHLR or its Affiliates of all Licensed Products necessary for a system launch (e.g., Rev. 1.0, Rev.1.1, Rev 2.0) meeting the Specifications and (ii) fulfillment by 454 of the requirements of Section 5.9 (b) and (c). If FHLR or its Affiliates fails to so launch any such Licensed Product within such [***********] period, [********************************************************************** *******************************************************************************************************], such Instrument and related Software, Disposables and Reagent Kits shall no longer be subject to this Agreement and 454 shall be free to sell and distribute such Licensed Products on its own or with another Third Party;

 

(b) Spend [*************************************] over the Initial Term of this Agreement and at least [**********************************] per calendar year (or the respective share of such sum for incomplete calendar years during the Initial Term starting with the first day of the month following the Effective Date), with at least [***************] of such total amount being spent prior to the [**************************************], on marketing and sales promotional and support activities, such as advertising, congresses, trade shows, and other expenditures not including FHLR’s & FHLR’s Affiliate personnel costs and employment related expenditures, pursuant to a marketing plan developed by the Marketing Steering Committee (as defined in Section 8.3(c));

 

(c) Dedicate in a reasonable time frame after launch enough resources for local/regional marketing support [********************************************************************************************************** ******** ***********************************************************************];

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

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(d) Devote sufficient trained personnel for customer service and technical support, such that troubleshooting and training for Licensed Products is reasonably ensured;

 

(e) Implement sales force incentives [*************************************** **********************]; and

 

(f) Not market or sell any product for sequencing applications in the Field that directly competes with a Licensed Product.

 

2.7 New Licensed Products . Licensed Products, and their initial estimated ASP’s and launch dates are set forth on Exhibit 2 and Specifications of such Licensed Products are described on Exhibit 3. Proposed Licensed Products (e.g., Rev 1.1 and Rev 2.0), and estimated launch dates and proposed initial estimated ASP’s are listed on Exhibit 5. Specifications for Proposed Licensed Products are listed on Exhibit 8. During the term of the R&D Agreement, other than projects with strategic partners under Exhibit 4 hereof, any applications development or product development projects to be conducted by or on behalf of 454 using the Technology in the Field must be proposed to RDG as Projects under Article 2 of the R&D Agreement at the DI milestone according to Exhibit 6 requirements. For the avoidance of doubt, 454 shall have no right to market, distribute, sell, offer to sell or have sold or to license any Third Party any such right with respect to any product falling under a Valid Claim derived from a project with a strategic partner under Exhibit 4 hereof during the Initial Term.

 

If RDG does not agree to approve such Project and to designate the relevant product as a Proposed Licensed Product within a period of [*************] following such proposal, FHLR and its Affiliates will have no rights to such product under this Agreement (except as set forth in Section 3.7 of the R&D Agreement) and 454 will be free to independently develop and distribute such product.

 

At the DI milestone according to Exhibit 6 requirements for Projects under the R&D Agreement, the Joint Steering Committee will amend Exhibits 5 and 8 to include new Proposed Licensed Products, launch dates, initial ASP and Specifications. At the DO milestone according to Exhibit 6 requirements, the Joint Steering Committee will

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

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determine the final Specifications, ordering of Initial Stock, launch dates, and initial estimated ASPs for Proposed Licensed Products which will then be included on Exhibits 2 and 3 and at such time the Proposed Licensed Products will become Licensed Products. 454 is responsible for meeting dates and quantities of Initial Stock. All changes of Specifications, launch dates and initial estimated ASP between the DO and DI Milestones will be recorded in the minutes of the Joint Steering Committee. If at any time (i) 454 and RDG agree to completely discontinue development of a Proposed Licensed Product hereunder or (ii) FHLR or its Affiliates fails to launch any Licensed Product as required pursuant to Section 2.6(a) then such Licensed Product shall be removed from this Agreement and 454 will be free to independently develop and distribute such product.

 

[****************] Licensed Products are currently included in Exhibits 2, 3, 5 and 8, although no formal DI/DO Milestone according to this Section 2.7 has been completed. In the event of any changes to the Specifications or other contents of such Exhibits arising in connection with actual DI/DO Milestone completion, the respective Exhibits will be amended accordingly at the time of the respective DI/DO Milestone completion according to Exhibit 6.

 

3. UPFRONT PAYMENTS, TRANSFER PRICE, ROYALTIES, ORDERS, PRODUCT SUPPLY

 

3.1 Upfront Payments . In consideration of 454’s development of the Technology and FHLR’s exclusive access to the Technology and Licensed Products in the Field as provided herein, RDG has made a payment of [*******************************] to 454 according to the Exclusivity Agreement signed on January 21 ^st , 2005, and

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

17

FHLR will make to 454 the following payments:

 

 

3.2 Milestone Payments . As additional consideration for the launch of Rev. 1.0, 1.1 and 2.0 and for the access to the Technology, FHLR will make to 454 during the Initial Term milestone payments for access to the Technology at thresholds of cumulative aggregated total sales by FHLR and its Affiliates of all Licensed Products as follows:

 

FHLR shall pay to 454 at every [******************************] of cumulative aggregated [************************] an amount of [*********************** ************************]; provided, however, that such [******] shall be calculated at [*******************************] cumulative aggregated [***************** *******] since the last [******************************] was achieved for which a [**************] (which may have occurred in a prior quarter), and shall, [*******************************] of the end of each such calendar quarter. (Example: [********************* *************************************************************************************************** *****].

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

18

Payments as set forth above shall be stopped for the Initial Term of this Agreement after cumulative aggregate Net Sales of Licensed Products in any given calendar year have reached [*******************************************].

 

Until the launch of Rev. 1.1 all payments made under this Section 3.2 are related to Rev. 1.0. After the launch of Rev. 1.1 all payments made under this Section 3.2 are related to Rev. 1.1. After the launch of Rev. 2.0 all payments made under this Section 3.2 are related to Rev. 2.0.

 

3.3 Transfer Price .

 

(a) 454 shall charge FHLR, and FHLR shall purchase from 454 the quantities of Licensed Products ordered pursuant to this Agreement at a transfer price for each of the Licensed Products (the “Transfer Price”) of [****************] based on the initial estimated Average Sales Price (“ASP”) as specified in (b) below.

 

Notwithstanding the foregoing, (i) the payment obligations and the value of the estimated ASP shall be subject to adjustment based on the actual ASP as set forth in paragraph (c) below, (ii) the minimum Transfer Price based on the initial estimated ASP is set forth in paragraph (d) below, and (iii) the Transfer Price for Instruments and Reagent Kits ordered by FHLR for purposes covered by Section 2.1(b), as noted in the relevant purchase order, and which shall be used by FHLR only for such allowed purposes shall be [********** **********] of the applicable estimated ASP. For the avoidance of doubt, no royalties shall be payable from FHLR to 454 for Licensed Products ordered by FHLR for purposes covered by Section 2.1 (b).

 

(b) The initial estimated ASP for Licensed Products for Rev. 1.0 shall be as follows:

 

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

19

The detailed initial estimated ASP for initial Licensed Products on a catalogue number basis will be detailed in Exhibit 2 which will be amended from time to time for additional Licensed Products. The initial estimated ASP for Rev 1.1 and 2.0 Licensed Products and other Licensed Products shall be agreed as set forth in Section 2.7.

 

(c) During the last quarter of each calendar year beginning in 2005, the applicable estimated ASP for the following calendar year and the preliminary actual ASP for the current calendar year shall be determined latest by November 30 ^th based on FHLR’s reporting of Net Sales of Licensed Products during the previous three quarters of such calendar year. Based on the preliminary actual ASP for the current calendar year, FHLR shall invoice 454 for any amount overpaid or pay 454 for underpaid amounts, depending on whether the preliminary actual ASP is lower or higher than the estimated ASP. The due date for any such adjustment payments shall be December 15 ^th of each calendar year beginning in 2005.

 

During the first quarter of each calendar year beginning in 2006, the applicable actual ASP for the preceding calendar year shall be determined based on FHLR’s actual Net Sales. Following the determination of the actual ASP for the preceding calendar year, FHLR shall invoice 454 for any amount overpaid or pay 454 for underpaid amounts, depending on whether the actual ASP is lower or higher than the preliminary actual ASP. The due date for any such adjustment payments shall be March 31 ^st of each calendar year beginning in 2006.

 

(d) Notwithstanding any other provision hereof, irrespective of the actual ASP, the minimum floor price to be paid as a minimum Transfer Price from FHLR to 454 during the Initial Term shall be as follows:

 

Instruments, Software and Disposables: [**] of initial estimated ASP as set forth in Exhibit 2.

 

Reagent Kits: [**] of initial estimated ASP as set forth in Exhibit 2.

 

The minimum Transfer Price for each Product may be re-negotiated in good faith by the Joint Steering Committee upon written request of either Party in the event that the actual

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

20

ASP falls below the threshold of [***************] of the initial estimated ASP for Instruments, Software and Disposables and [****************] of the initial estimated ASP for Reagent Kits, taking into account the changes in production costs and the changes in the end user prices in the market of the particular Licensed Product.

 

For the avoidance of doubt, the Parties agree that no Transfer Price payment under this Section 3.3 shall be made by FHLR or its Affiliates to 454 for any Licensed Product that is manufactured by FHLR or its Affiliates or on behalf of FHLR or its Affiliates by a party other than 454 according to the terms of this Agreement.

 

3.4 Royalties .

 

(a) FHLR will pay to 454 running royalties on Net Sales of Licensed Products in the amount of:

 

(i)

[***********************] for Instruments, Disposables and Software manufactured by 454; and [**************] if manufactured by FHLR.

 

(ii)

[*************************] for Reagent Kits manufactured by 454.

 

(iii)

[********************] for Reagent Kits manufactured by FHLR until annual sales volume for Reagent Kits and Disposables in any calendar year reaches [**********************************].

 

(iv)

On any sales of Reagent Kits manufactured by FHLR where annual sales volume for Reagent Kits and Disposables is [******************************************************************************************* *****************************************************].

 

(v)

On any sales of Reagent Kits manufactured by FHLR where sales volume for Reagent Kits and Disposables is [************************************************************************** **************************************************************************************************].

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

21

(vi)

On any sales of Reagent Kits manufactured by FHLR where annual sales volume for Reagent Kits and Disposables is [********************************************************************************************

********************************]

 

For the avoidance of doubt, the royalties on Disposables shall be as set forth in Section 3.4 (a) (i) of this Agreement, irrespective of whether Disposables are packaged into a Reagent Kit. In such case the Combination Product section of the Net Sales definition shall apply.

 

(b) If the actual ASP for Reagent Kits should drop in any given calendar year when FHLR is manufacturing Reagent Kits as provided in Section 5.1(c), such that FHLR’s fully loaded cost (which shall include all reasonable and customary direct and indirect costs of manufacturing) exceeds [*********************] of the actual ASP, the royalties due to 454 on Reagent Kits shall be reduced by [********************] of such excess. Such reduction shall be limited to a maximum of [******************************* **************] for Reagent Kits in such calendar year. The reimbursement of FHLR for reductions made under this Section 3.4 (b) shall be due with the adjustment payments due on March 31 ^st of each calendar year as set forth in Section 3.3 (c).

 

(c) In any given calendar year during the Initial Term where the total R&D investment of 454 for actual or potential Licensed Products with respect to Projects is below [******************************] (reduced by its share of any reduction in Application R&D Project funding as set out in more detail in Sections 3.3 of the R&D Agreement), or following Commercial Launch of Rev. 2.0, if 454’s total R&D investment is below [****************************] for such calendar year and such [**********************************] is lower than [******************************], the royalty to be paid by FHLR to 454 on Reagent Kits shall be reduced by [****************] (e.g., to [****************] for Reagent Kits where sales of Reagent Kits and Disposables are [***********************] according to Section 3.4 (a) (iii)-(vi)). The R&D Steering Committee (as defined in Section 8.3(c)) shall monitor such R&D investments. 454 shall keep complete and accurate books and records in accordance with established accounting practices in sufficient detail to permit ready computation of the investments required to be

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

22

made under this Agreement and the R&D Agreement. All such books and records, for a period of two (2) years, shall be open for inspection by a chartered accountant during normal business hours and provided that such inspection has been announced to 454 at least three (3) weeks in advance. The reimbursement of FHLR for reductions made under this Section 3.4 (c) shall be due with the adjustment payments due on March 31 ^st of each calendar year as set forth in Section 3.3 (c).

 

(d) During the Initial Term of this Agreement FHLR shall pay minimum royalties on the 30 ^th day of each Contract Year for the first four Contract Years as follows:

 

 

Such minimum royalties shall be fully applied to and deductible from royalties due for Net Sales during the relevant Contract Year provided that such minimum royalties shall be due only if Rev. 1.0 is available for Commercial Launch at FHLR [****], Rev. 1.1 is available for Commercial Launch at FHLR [****] and Rev. 2.0 is available for Commercial Launch at FHLR [****]. Otherwise and in each case the amount of minimum royalties will have to be negotiated between the Parties in good faith.

 

3.5 Forecasts and Orders .

 

(a) Starting on the Effective Date and prior to the 15 ^th day of each new calendar quarter during the Initial Term, FHLR or its Affiliates shall furnish to 454 a rolling Forecast in quarterly increments indicating, by calendar quarter, the quantities of the Licensed Products that FHLR and its Affiliates intend to order during each calendar quarter of the twelve (12) month period starting with the first day of the succeeding calendar quarter. The amounts set forth for the first calendar quarter included in such Forecast shall constitute a binding commitment upon FHLR and its Affiliates to purchase the Licensed Product quantities in the Forecast for such period, pursuant to purchase orders which shall be submitted by

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

23

FHLR or its Affiliates to 454 in accordance with Section 3.5(c). The binding Forecast for any such calendar quarter shall be no less than [******************] and no more than [********************************] of the previous non-binding Forecast for such calendar quarter. During the first Contract Year the binding Forecast for any such calendar quarter shall be no less than [**************] and no more than [******************* ************] of the previous non-binding forecast for such calendar quarter. The remaining nine (9) months of each such Forecast shall merely represent reasonable estimates for planning purposes only and will be good faith Forecasts but, however, shall not obligate FHLR or its Affiliates to purchase the Licensed Product quantities set forth therein.

 

(b) The estimated initial rolling Forecast for Licensed Products added to Exhibit 2 according to Section 2.7 after the Effective Date shall be agreed upon in writing at DO milestone until the above described rolling forecasting process begins and shall be non-binding. Thereafter, Forecasts for such added Licensed Products shall be included in each Forecast to be provided pursuant to Section 3.5(a).

 

(c) FHLR or its Affiliates shall place each purchase order with 454 for the Licensed Products to be delivered hereunder in writing. Each such purchase order shall constitute a binding obligation upon FHLR and its Affiliates and shall be confirmed by 454 within two (2) weeks from receipt of the purchase order, such confirmation to include information on the expected delivery date. Notwithstanding the foregoing, 454 shall not be obligated to confirm purchase orders that exceed the binding forecast for the relevant calendar quarter or that are received after the expiration or termination of the Initial Term.

 

454 shall use best efforts to deliver within four (4) weeks from the receipt of each purchase order such quantity of Licensed Products as is set forth in the binding Forecast for the quarter.

 

For Excess Quantity orders, 454 shall use its commercially reasonable efforts to meet the four (4) weeks delivery date for such purchase orders and shall reasonably adapt its production capacity accordingly. 454 may use the Safety Stock of the Licensed Products to be maintained pursuant to Section 3.7 to meet Excess Quantity orders.

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

24

(d) During the Initial Term, FHLR or its Affiliates may order spare parts from 454 from time to time with prices as specified in Exhibit 7 and as further set out below. Exhibit 7 shall be amended annually by the Joint Steering Committee as proposed by the Operations Steering Committee based on the criteria set forth below. 454 shall deliver such spare parts to FHLR or its Affiliates as soon as reasonably available, but in any event within thirty (30) days of the relevant purchase order. Any such spare parts which are to be used by FHLR or its Affiliates for technical service during the warranty period shall be provided free of charge to FHLR or its Affiliates. For any such spare parts which are to be used in connection with technical service which is to occur after the warranty period, spare part prices shall be based on the Instrument Transfer Price using [***************************************** ************************************], as initially provided for Rev. 1.0 in Exhibit 7. FHLR shall provide 454 with any information reasonably requested by 454 to confirm any amounts due to 454 hereunder based on the use of spare parts and such information shall be subject to audit as provided in Article 4.

 

(e) FHLR’s or its Affiliates’ purchase orders may not modify any terms of this Agreement or add any terms not set forth herein. Any such additional terms or modifications shall have no effect. In the event there is any confusion as to the obligations of the Parties regarding a particular Licensed Product purchase order, the Parties agree that the resolution of such issue shall be controlled solely by the terms of this Agreement.

 

3.6 Delivery and Invoicing .

 

(a) 454 shall ship the Licensed Products which are ordered by FHLR or its Affiliates in accordance with this Agreement pursuant to confirmed purchase orders from 454’s facility on a DDU basis (Incoterms 2000) to RDG’s Germany or Roche’s Indianapolis facility or directly to an FHLR customer (as specified in the respective purchase order) in accordance with the quantities specified in FHLR’s or its Affiliates’ purchase orders and the delivery dates specified in 454’s confirmation thereof. However, FHLR shall bear the cost for freight and insurance, as indicated in the relevant invoice, provided that FHLR shall have the exclusive right to determine the freight forwarder, such determination to be made in a timely manner.

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

25

(b) All deliveries shall comply with FHLR’s shipping and pallet guidelines (if applicable) as set forth in Exhibit 9.

 

(c) 454 shall invoice FHLR or RDG as indicated in the purchase order for the Transfer Prices of the Licensed Products supplied under such purchase orders, regardless of the point of delivery. FHLR shall pay each such invoice within [*************] net after acceptance (i.e., not having informed 454 of any non-conformity according to Section 5.5 (a)) of the Licensed Products at their destination.

 

All payments to 454 shall be made via wire transfer pursuant to the following information:

 

Bank of America

 

ABA# [*******]

 

Wire account# [*********]

 

For further credit to: [*************],

 

Account# [***************]

 

Attn: [**********************]

 

(d) Unless the Parties expressly agree in writing to use a different currency and regardless of the currency on the invoice, all invoices under this Agreement shall be paid in United States Dollars.

 

3.7 Safety Stock . Commencing with the Commercial Launch of the first Licensed Product and throughout the Initial Term of this Agreement, 454 shall maintain a fresh Safety Stock, either at 454 or at its suppliers, of (a) the Disposables which are Licensed Products at such time with a minimum shelf life as defined in the Specifications in Exhibit 3, in an amount equivalent to the forecasted purchases for the current calendar quarter, and (b) unless FHLR or its Affiliates is producing Reagent Kits as provided in Section 5.1(c), (i) Reagents for use in manufacturing Reagent Kits which are Licensed Products at such time with a minimum shelf life of [***************], in an amount equivalent to the forecasted purchases of Reagent Kits for the current calendar quarter, (ii) provided that if the shelf life of Reagent Kits which are Licensed Products at such time exceeds [***************],

 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

 

26

such Reagent Kits shall instead be stocked in amounts equivalent to the forecasted purchases for the current calendar quarter. During the Initial Term, such Safety Stock shall be exclusively available to FHLR and its Affiliates. Deliveries by 454 to FHLR may be taken from 454’s inventory identified as Safety Stock; provided, however, that 454 shall replenish the Safety Stock, if necessary, as soon as reasonably practicable in order to maintain the level of Safety Stock in accordance with the preceding sentence. 454’s Safety Stock shall be rotated with its regular inventory of the Licensed Products. 454 shall keep FHLR reasonably informed of the level of inventory identified as the Safety Stock upon request of FHLR.

 

3.8 Failure to Supply . During the Initial Term, 454 shall inform FHLR promptly of any problems with Third Party suppliers or problems of 454, in each case with respect to the manufacture or supply of Licensed Products.

 

(a) In the event that 454 is unable, or notifies FHLR that it is unable, for any reason (including Force Majeure ) to supply quantities of the Licensed Products pursuant to confirmed purchase orders in accordance with Section 3.5, 454 shall inform FHLR promptly.

 

The Joint Steering Committee (through the Operations Steering Committee if active) will develop a plan to address the supply interruption. This may include discussing with supplier(s) the supply of the components of undelivered Licensed Products, arranging alternative sources of supply and/or providing FHLR rights to manu