CATALYST BIOSCIENCES, INC. - FORM 10-K - EX-10.18 - EXCLUSIVE LICENSE AGREEMENT

Attached files

file	filename
10-K - FORM 10-K - CATALYST BIOSCIENCES, INC.	d10k.htm
EX-23.1 - CONSENT OF ERNST & YOUNG LLP - CATALYST BIOSCIENCES, INC.	dex231.htm
EX-32.1 - CERTIFICATION OF THE CEO PURSUANT TO 18 U.S.C. SECTION 1350 - CATALYST BIOSCIENCES, INC.	dex321.htm
EX-32.2 - CERTIFICATION OF THE CFO PURSUANT TO 18 U.S.C. SECTION 1350 - CATALYST BIOSCIENCES, INC.	dex322.htm
EX-31.2 - CERTIFICATION OF THE CFO PURSUANT TO RULE 13A-14(A) AND 15D-14A - CATALYST BIOSCIENCES, INC.	dex312.htm
EX-31.1 - CERTIFICATION OF THE CEO PURSUANT TO RULE 13A-14(A) AND 15D-14A - CATALYST BIOSCIENCES, INC.	dex311.htm
EX-10.4(A) - TARGACEPT, INC. 2006 STOCK INCENTIVE PLAN - CATALYST BIOSCIENCES, INC.	dex104a.htm
EX-10.19 - DESCRIPTION OF ANNUAL CASH INCENTIVE PROGRAM - CATALYST BIOSCIENCES, INC.	dex1019.htm

Exhibit 10.18

[********] 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 promulgated under the Securities Exchange Act of 1934, as amended.

EXCLUSIVE LICENSE AGREEMENT

BETWEEN

CORNERSTONE THERAPEUTICS INC.

AND

TARGACEPT, INC.

TABLE OF CONTENTS


Section 1. Definitions			1

	1.1	Defined Terms	1

	1.2	Terms Defined Elsewhere in this Agreement	9

Section 2. License Grants by Cornerstone			10

	2.1	Exclusive License and Covenants Not to Sue	11

	2.2	Sublicenses	11

	2.3	Feinstein License and Other Licenses	12

	2.4	Other Restrictions; Limited Right of First Negotiation and Right of First Refusal	14

	2.5	License Limitations	14

Section 3. Transfer of Licensed Know-How and Supply of CTI-[****] and CTI-[****]			15

	3.1	Transfer of Licensed Know-How	15

	3.2	Supply of CTI-[****] and CTI-[****]	15

Section 4. Development and Commercialization			15

	4.1	Commercially Reasonable Efforts	15

	4.2	Responsibilities and Costs	17

	4.3	Progress Reports	17

Section 5. Payments			17

	5.1	Initial Fees	17

	5.2	Milestone Payments	17

	5.3	Royalties to be Paid by Targacept to Cornerstone	19

	5.4	Royalties to be Paid by Cornerstone to Targacept	20

	5.5	Royalty Conditions	21

	5.6	Payment Terms	21

Section 6. Prosecution, Maintenance, Enforcement and Defense of Licensed Patents			24

	6.1	Transfer	24

	6.2	Division of Mixed Patents	24

	6.3	Prosecution and Maintenance of Field Patents and Mixed Patents	25

	6.4	Patent Term Extension	26

	6.5	Enforcement and Defense of Licensed Patents	26

	6.6	Prosecution, Maintenance, Enforcement and Defense of Excluded Field Patents	28

	6.7	Settlements and Recoveries in Patent Actions	28



	6.8	Escrow in Certain Circumstances	29

	6.9	Feinstein License	29

Section 7. Confidential Information; Non-Disclosure of Agreement; Use of Name			30

	7.1	Confidential Information	30

	7.2	Non-Disclosure of Agreement	30

	7.3	Confidential Information During Term of License	30

	7.4	Publications	31

	7.5	Confidential Information After Term of License	31

	7.6	Disclosure to Feinstein	31

	7.7	Use of Name	31

Section 8. Covenants of Cornerstone			31

	8.1	Cornerstone Non-Competition Covenant	31

	8.2	Acquisition Exemption for Non-Competition Covenants	31

	8.3	Prohibition Against Challenging the Licensed Patents	32

	8.4	Prohibition re: Non-Feinstein Licensed Patents	32

	8.5	Notification of Third party Inventions	32

Section 9. Warranties; Limitations of Liability; Indemnification			32

	9.1	Cornerstone Representations and Warranties	32

	9.2	Targacept Representations and Warranties	36

	9.3	Disclaimer	37

	9.4	Acknowledgment of Development Status	37

	9.5	Limitation of Liability	37

	9.6	Indemnification	38

	9.7	Insurance	40

	9.8	Bayh-Dole	40

Section 10. Term, Termination and Survival			40

	10.1	Term	40

	10.2	Termination Based on Certain Events	40

	10.3	Termination for Convenience by Targacept	41

	10.4	Insolvency	41

	10.5	Effects of Certain Terminations	42

	10.6	Return of Confidential Information	43



	10.7	Right to Sell-Off Inventory	43

	10.8	Survival	43

Section 11. General Provisions			44

	11.1	Performance by Contract Service Providers	44

	11.2	Assignment	44

	11.3	Force Majeure	44

	11.4	Severability	45

	11.5	Amendment; Waiver	45

	11.6	Notices	45

	11.7	Dispute Resolution	46

	11.8	Applicable Law	47

	11.9	Further Assurances	47

	11.10	Relationship of the Parties; Third Party Beneficiaries	47

	11.11	Entire Agreement	47

	11.12	Headings	48

	11.13	Waiver of Rule of Construction; Interpretation	48

	11.14	Execution of Agreement; Counterparts	48



Exhibit A		Feinstein Licensed Patents, classified by Field Patents, [****] Patents and Mixed Patents

Exhibit B		Licensed Patents (Other Than Feinstein Licensed Patents)

Exhibit C		Excluded Field Patents

Schedule 9.1		Exceptions to Representations and Warranties

iii

EXCLUSIVE LICENSE AGREEMENT

This Exclusive License Agreement (this “Agreement”), effective as of the date of signature of the last Party to sign below (the “Effective Date”), is between Cornerstone Therapeutics Inc., a Delaware corporation that was formerly known as Critical Therapeutics, Inc. (“Cornerstone”), and Targacept, Inc., a Delaware corporation (“Targacept”). Cornerstone and Targacept are sometimes hereinafter referred to each as a “Party” and collectively as the “Parties.”

WHEREAS, Cornerstone has been engaged in the development of certain Technology (as defined below) and owns and otherwise controls certain patent rights and know-how with respect thereto;

WHEREAS, Targacept desires to acquire exclusive rights under the Licensed Intellectual Property (as defined below) to exploit Licensed Products (as defined below), as well as certain other rights as described herein; and

WHEREAS, the Parties desire to enter into an agreement pursuant to which Cornerstone will grant such rights to Targacept.

NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

Section 1. Definitions.

1.1 Defined Terms. In addition to the terms defined elsewhere in this Agreement and listed in Section 1.2, for purposes of this Agreement, the following words and phrases and their correlatives shall have the meanings set forth below:

“Affiliate” of an entity means any other entity which (directly or indirectly) is controlled by, controls or is under common control with such first entity. For the purposes of this definition, the term “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) as used with respect to an entity means (i) in the case of a corporate entity, ownership (direct or, if sufficient to direct voting in the election of directors, indirect) of voting securities entitled to cast at least fifty percent (50%) of the votes in the election of directors or (ii) in the case of a non-corporate entity, direct or indirect ownership of at least fifty percent (50%) of the equity interests with the power to direct the management and policies of such entity, provided that if local law restricts foreign ownership, control shall be established by direct or indirect ownership of the maximum ownership percentage that may, under such local law, be owned by foreign interests.

“Annual Net Sales” means aggregate worldwide Net Sales of Licensed Products during any Calendar Year.

“[********] Patents” means all “Limited Right Patent Rights” as defined in the Feinstein License.

“Calendar Quarter” means a consecutive 3-month period beginning on January 1, April 1, July 1 or October 1.

“Calendar Year” means a consecutive 12-month period beginning on January 1 and ending on December 31.

“Confidential Information” shall have the meaning assigned such term in the Confidentiality Agreement.

“Confidentiality Agreement” means the Confidential Disclosure Agreement dated May 14, 2007 between Cornerstone and Targacept.

“Controlled,” when used in reference to (i) Patent Rights or other intellectual property rights means the legal authority or right of a Person to grant a license or sublicense or covenant not to sue with respect to such Patent Rights or other intellectual property rights to another Person or (ii) Technology or tangible materials means to disclose or provide such Technology or tangible materials to such other Person, in each case by ownership, license, sublicense, contract or otherwise, without breaching the terms of any agreement with a Third Party.

“Cornerstone Compounds” means, collectively, CTI-[********], CTI-[********] and all Other Cornerstone Compounds.

“Cornerstone Exemplified Compound Library” means the written list of exemplified pharmaceutical agents identified by chemical formula and structure and acknowledged to be the Cornerstone Exemplified Compound Library by the Parties as of the Effective Date.

“CTI-[********]” means the pharmacological agent identified as such in the Cornerstone Exemplified Compound Library, together with any salt form, polymorph, crystalline form, hydrate, solvate or formulation of such pharmacological agent or any salt form of any of the foregoing.

“Excluded Field” means [********] by any means other than by [********] by a pharmacological agent of the activity of a cholinergic receptor (including the neuronal nicotinic alpha-7 (acetylcholine) receptor); provided that [********] via a [********] resulting solely from use of [********] is included in the Excluded Field. Exemplary [********] within the Excluded Field include [********] (such as [********], or as produced by any other [********].

“Excluded Field Patents” means (i) all “Feinstein Patent Rights” as defined in the Feinstein License and (ii) all other Patent Rights licensed as of the Effective Date or during the

term of this Agreement to Cornerstone under the Feinstein License, if any, in each case (clauses (i) and (ii)) with respect to each individual “Feinstein Patent Right” or other Patent Right, but only if and for so long as such “Feinstein Patent Right” or other Patent Right applies solely to the Excluded Field (it being understood that, if and at such time as an Excluded Field Patent ceases to apply solely to the Excluded Field, such Excluded Field Patent shall automatically and without further action by either Party become a Licensed Patent and either a Mixed Patent or a Field Patent, as the case may be).

“Excluded Product” means any product in the Excluded Field; provided that, if and at such time as Cornerstone makes, has made, uses, sells, offers to sell, imports or otherwise exploits, or seeks to grant, or grants to any Third Party a right or license under the Licensed Intellectual Property to make, have made, use, sell, offer to sell, import or otherwise exploit, any product that [********] where both (i) such [********] or [********] is covered by a Valid Claim included in the Licensed Patents and (ii) such [********], then such product shall cease to be an Excluded Product.

“Feinstein” means the Feinstein Institute for Medical Research, formerly known as North Shore—Long Island Jewish Research Institute, a New York not-for-profit corporation.

“Feinstein License” means that certain Sponsored Research and License Agreement, effective as of January 1, 2003, between Cornerstone and Feinstein, as modified or amended by (i) that certain Letter Agreement dated February 3, 2004 (and effective February 10, 2004), (ii) that certain Amendment No. 1 dated September 18, 2006, (iii) that certain Amendment No. 2 dated January 8, 2007, (iv) that certain Amendment No. 3 dated June 29, 2007, (v) that certain Letter Agreement effective September 26, 2007, (vi) that certain Amendment No. 4 dated August 3, 2010, (vii) that certain Amendment No. 5 dated August 3, 2010 and (viii) that certain Amendment No. 6 dated August 3, 2010, and as may further be amended, restated, waived or changed in a manner that does not constitute a breach of this Agreement.

“Feinstein Licensed Know-How” means all “Feinstein Technology” as defined in the Feinstein License.

“Feinstein Licensed Patents” means (i) all “Feinstein Patent Rights” as defined in the Feinstein License and (ii) all other Patent Rights licensed as of the Effective Date or during the term of this Agreement to Cornerstone under the Feinstein License, if any, in each case (clauses (i) and (ii)) excluding Excluded Field Patents.

“Field” means any or all uses, except (i) the Excluded Field and (ii) the [********].

“Field Patents” means all Licensed Patents that are not Mixed Patents or [********] Patents.

“GAAP” means generally accepted accounting principles in the United States.

“Generic Equivalent” means, with respect to each Licensed Product or Targacept Returned Product, a product that contains the same active ingredient (including, for clarity, any ester or salt of the active ingredient) as such Licensed Product or Targacept Returned Product.

“Generic Erosion” means, with respect to each Licensed Product or Targacept Returned Product and each country, the date a Generic Equivalent with respect to such Licensed Product or Targacept Returned Product becomes available for sale in such country; provided that, for purposes of this definition, availability for sale in any country in Europe shall be deemed to be availability for sale in all countries in Europe.

“License” means, collectively, the licenses and covenants not to sue granted to Targacept pursuant to Section 2.1.

“Licensed Intellectual Property” means all (i) Licensed Know-How and (ii) Licensed Patents.

“Licensed Know-How” means (i) the Feinstein Licensed Know-How and (ii) all Technology (other than the Feinstein Licensed Know-How and the Licensed Patents) Controlled by Cornerstone or any of its Affiliates as of the Effective Date or during the term of this Agreement that, solely in the case of this clause (ii), is necessary or reasonably useful to make, use, sell, offer to sell, import or otherwise exploit any product in the Primary Field.

“Licensed Patents” means (i) the Feinstein Licensed Patents and (ii) all Patent Rights (other than the Feinstein Licensed Patents) Controlled by Cornerstone or any of its Affiliates as of the Effective Date or during the term of this Agreement that, solely in the case of this clause (ii), are necessary or reasonably useful to make, use, sell, offer to sell, import or otherwise exploit any product in the Primary Field. For clarity, all Patent Rights that issue from, or claim priority to, any of the Licensed Patents as of the Effective Date shall also be Licensed Patents.

“Licensed Product” means each pharmaceutical or medicinal item, substance or formulation that is comprised of or contains a pharmacological agent or other compound and that, absent the licenses granted hereunder, would infringe one or more Valid Claims of the Licensed Patents in the country in which it is made, used or sold; provided that (i) Excluded Products are not Licensed Products and (ii) with respect to any particular country, a Licensed Product shall continue to be a Licensed Product notwithstanding the expiration of the Royalty Term for such Licensed Product in such country. “Licensed Products” includes combination products/services discussed in the “Net Sales” definition.

“Licensee” means, with respect to each Licensed Product, Targacept and, with respect to each Targacept Returned Product, Cornerstone.

“Licensor” means, with respect to each Licensed Product, Cornerstone and, with respect to each Targacept Returned Product, Targacept.

“Major Country” means each of [********].

“Mixed Patents” means, subject to Section 6.2 and the definition of Excluded Field Patents above, collectively, (i) those issued patents and pending patent applications included in the Licensed Patents that are identified as such on Exhibit A, (ii) provisionals, substitutions, divisionals, continuations, continuations-in-part, reissues, renewals, registrations, confirmations, re-examinations, extensions, supplementary protection certificates, term extensions (under patent or other law), certificates of invention and the like, of such issued patents or pending patent applications, as the case may be, and (iii) counterparts or equivalents of any of the foregoing in any country or jurisdiction in the world.

“Net Sales” means (i) with respect to each Licensed Product, the gross amount received by Targacept or its Affiliates or Sublicensees for bona fide sales of such Licensed Product to a Third Party (including any Third Party distributors for resale), and (ii) with respect to each Targacept Returned Product, the gross amount received by Cornerstone or its Affiliates or Sublicensees (or licensees) for bona fide sales of such Targacept Returned Product to a Third Party (including any Third Party distributors for resale), in each case, less the following amounts actually incurred, allowed, paid, accrued or specifically allocated in connection with such sales of such Licensed Product or Targacept Returned Product (as applicable) in accordance with GAAP (or, if applicable to the seller, International Financial Reporting Standards), applied in a consistent manner:

(a) amounts repaid or credits or allowances granted for spoiled or damaged Licensed Product or Targacept Returned Product (as applicable), returns, recalls or rejections of the Licensed Product or Targacept Returned Product (as applicable), and price adjustments;

(b) customary trade, quantity, and cash discounts (including chargebacks and allowances) and wholesaler allowances (as relates to “bundles” of products, all discounts, wholesaler allowances and the like shall be allocated among products on the basis on which such discounts, wholesaler allowances or the like were actually granted or, if such basis cannot be determined, in proportion to the respective list prices of such products);

(c) freight out, postage, shipping, insurance and other transportation charges to the extent included (but whether or not broken out) in the invoice price to a Third Party;

(d) legally allowed chargebacks, rebates and fees or similar payments actually granted to customers, including pharmacy benefit management companies, health maintenance organizations, managed care organizations, federal, state, local and other governments, their agencies and purchasers and reimbursers;

(e) taxes or duties levied on, absorbed or otherwise imposed on such sale or performance, including excise taxes, value-added taxes, sales taxes, customs duties, customs levies and import fees or other governmental charges otherwise imposed upon the billed amount, to the extent such amounts are not paid directly to the tax authority by the Third Party and Targacept or Cornerstone is not otherwise entitled to a credit or a refund for such taxes, duties or payments made.

(f) launch discounts, stocking fees and other discounts extended to wholesalers, distributors, chain drug stores and other Third Party organizations who distribute the Licensed Product to pharmacies;

(g) to the extent not included in clause (f) above, fees paid to Third Party distributors, brokers or agents (in each case, other than sales personnel, sales representatives and sales agents); and

(h) any amounts actually written off or specifically identified as uncollectible in accordance with GAAP.

Use of Licensed Product or Targacept Returned Product (as applicable) for [********] or [********] or [********] or [********] (but [********] for which [********]) shall not be considered in determining Net Sales. In the case of any sale of Licensed Product or Targacept Returned Product (as applicable) between a Party and its Affiliates or Sublicensees (or licensees) for resale, Net Sales shall be calculated as above only on the first arm’s length sale thereafter to a Third Party.

A Net Sale shall be deemed to have been made upon the date such sale is so recorded in accordance with GAAP.

With respect to each Licensed Product or Targacept Returned Product, country and Calendar Quarter, in the event that such Licensed Product or Targacept Returned Product (as applicable) is sold in such country in such Calendar Quarter in the form of a combination product/service containing or using one or more articles, devices, components or methods that are not Licensed Products or Targacept Returned Products (as applicable) hereunder (each, a “Non-Product Component”), Net Sales of such combination product/service in such country in such Calendar Quarter shall be calculated as follows:

(1) First, Net Sales of such combination product/service in such country in such Calendar Quarter shall be determined as if such combination product/service were not a combination product/service (i.e., as provided above).

(2) Second, the amount calculated in clause (1) shall be multiplied by:

(A) if all such Licensed Products or Targacept Returned Products (as applicable) and Non-Product Components are sold/performed separately in such country in such Calendar Quarter, the fraction A/(A+B), where A is the average price in such country for such Calendar Quarter of the Licensed Product or Targacept Returned Product (as applicable) and B is the invoice price in such country for such Calendar Quarter of all Non-Product Components in such combination product/service;

(B) if any of such Non-Product Components is not sold/performed separately in such country in such Calendar Quarter, the fraction A/C, where A is the average price in such country for such Calendar Quarter of such Licensed Products or

Targacept Returned Products (as applicable) and C is the average price in such country for such Calendar Quarter of such combination product/service;

(C) if any of such Licensed Products or Targacept Returned Products is not sold/performed separately in such country in such Calendar Quarter, the fraction (C-B)/C, where B is the average price in such country for such Calendar Quarter of all such Non-Product Components in such combination product/service and C is the average price in such country for such Calendar Quarter of such combination product/service; or

(D) if the conditions in both clause (B) and clause (C) above apply, a market price for such Licensed Products or Targacept Returned Products (as applicable) and all such Non-Product Components shall be negotiated by the Parties in good faith based upon the costs, overhead and profit as are then incurred for such combination product/service, the apportionment of Net Sales as provided in clauses (A) to (C) above in other countries for such Calendar Quarter if available, and all other products, articles, devices, components or methods then being sold or performed by Targacept and having an ascertainable market price.

“Other Cornerstone Compound” means each pharmacological agent identified as such in the Cornerstone Exemplified Compound Library, together with any salt form, polymorph, crystalline form, hydrate, solvate or formulation of such pharmacological agent or any salt form of any of the foregoing.

“Patent Rights” means (i) issued patents and pending patent applications, (ii) provisionals, substitutions, divisionals, continuations, continuations-in-part, reissues, renewals, registrations, confirmations, re-examinations, extensions, supplementary protection certificates, term extensions (under patent or other law), certificates of invention and the like, of issued patents or pending patent applications, as the case may be, and (iii) counterparts or equivalents of any of the foregoing in any country or jurisdiction in the world.

“Person” means an individual, a partnership, a limited liability company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.

“Phase I Clinical Trial” means a human clinical trial that is the first time a drug is given to humans at any dose, the principal purpose of which is a preliminary determination of safety of a drug in healthy individuals or patients, as contemplated by 21 C.F.R. §312.21(a), whether or not conducted in the United States.

“Phase II Clinical Trial” means a human clinical trial, with subjects with a particular disease or condition, for which a primary objective is a preliminary determination of the efficacy [********] of a drug for such disease or condition, as contemplated by 21 C.F.R. §312.21(b), whether or not conducted in the United States.

“Phase III Clinical Trial” means a human clinical trial, with subjects with a particular disease or condition, the principal purpose of which is to demonstrate clinically and statistically

the efficacy and safety of such drug for such disease or condition in order to obtain marketing approval of such drug for such disease or condition, as contemplated by 21 C.F.R. §312.21(c), whether or not conducted in the United States. For clarity, a Phase IIb clinical trial is not a Phase III Clinical Trial.

“Primary Field” means direct or indirect modulation or other affecting of the activity of any cholinergic receptor (including, for clarity, the neuronal nicotinic alpha-7 (acetylcholine) receptor) by a pharmacological agent for therapeutic, diagnostic or palliative use in humans.

“Proof of Concept” means, with respect to a Subject Compound, the achievement of [********] in a Phase II Clinical Trial of such Subject Compound [********] and that [********]. For clarity, a study designed to demonstrate Proof of Concept is intended only to [********] of a particular Subject Compound and is not intended to [********] or [********] or to otherwise [********].

“Regulatory Approval” means all technical, medical and scientific licenses, registrations, authorizations and approvals (including approval of a New Drug Application, as defined in the U.S. Federal Food, Drug, and Cosmetic Act, as amended, and its supplements and amendments, pre- and post- approvals, and labeling approvals, as well as analogous marketing approval applications outside of the United States) of any Regulatory Authority, that are necessary or reasonably useful for the manufacture, distribution, marketing, promotion, offer for sale, use, storage, import, export or sale of a Licensed Product in a regulatory jurisdiction (including, with respect to the European Union or any country therein, approval of price and reimbursement).

“Regulatory Authority” means the U.S. Food and Drug Administration (or any successor agency) or any comparable regulatory or governmental agency or authority in the rest of the world with authority over the distribution, importation, exportation, manufacture, production, use, storage, transport, clinical testing, pricing or sale of pharmaceutical products.

“Restricted Field” means direct or indirect modulation or other affecting of any neuronal nicotinic (acetylcholine) receptor by a pharmacological agent for therapeutic, diagnostic or palliative use in humans.

“SetPoint” means SetPoint Medical Corporation (formerly known as Innovative Metabolics, Inc.), a Delaware corporation.

“SetPoint License” means that certain Exclusive License Agreement, dated January 29, 2007, between Cornerstone and SetPoint, as amended by (i) that certain First Amendment dated June 29, 2007, and (ii) that certain Second Amendment dated August 3, 2010, and as may further be amended, restated, waived or changed in a manner that does not constitute a breach of this Agreement.

“Subject Compound” means any Cornerstone Compound or Targacept Compound.

“Sublicensees” means any Person that receives, directly or indirectly through multiple tiers, a sublicense from a Party to intellectual property Controlled by such Party and licensed (or sublicensed) from the other Party under this Agreement.

“Targacept Compound” means a pharmacological agent (other than a Cornerstone Compound) that, absent the License granted hereunder, would infringe one or more Valid Claims of the Licensed Patents in the country in which it is made, used or sold.

“Technology” means know-how, trade secrets, materials, formulations, information, documents, studies, results, data (including preclinical, clinical and assay data), manufacturing processes and data, specifications, sourcing information, assays, and quality control and testing procedures, whether or not patented or patentable.

“Third Party” means any Person, other than Targacept or Cornerstone or their respective Affiliates.

“Valid Claim” means a claim of (i) an issued and unexpired patent, which claim has not been cancelled, revoked or held invalid or unenforceable by a court or other government agency of competent jurisdiction from which no appeal can be taken or is taken within the time allowed for appeal and has not been held or admitted to be invalid or unenforceable through re-examination or disclaimer, reissue, opposition procedure, nullity suit or otherwise, or (ii) a pending patent application that was filed in good faith, is being prosecuted with the good faith belief of potential issuance and has not been cancelled, withdrawn or abandoned without the possibility of appeal or re-filing.

1.2 Terms Defined Elsewhere in this Agreement. In addition to the terms defined in Section 1.1, the following terms shall have the respective meanings assigned thereto in the Sections indicated below:


Defined Term		Section
Agreement		Preamble
Claim		9.6(c)(i)
Commercially Reasonable Efforts		4.1(a)
Cornerstone		Preamble
Cornerstone Indemnitees		9.6(a)
Cornerstone Restricted Field		10.5(b)
Earlier Subject Compound Effective Date		5.2(d)(v) Preamble
Effective Extension Notice		4.1(b)(i)
Field Patent Action		6.5(b)(i)


Defined Term		Section
Infringement		6.5(a)
In-License Breach Notice		2.3(e)
Indemnitee		9.6(c)(i)
Indemnitor		9.6(c)(i)
Intellectual Property		10.4(a)
Inventions Inventors Later Subject Compound Losses		9.1(e) 9.1(o) 5.2(d)(v) 9.6(a)
Material Material Acceptance Date Milestone Event		3.2 4.1(b)(i) 5.2(a)
Milestone Payment		5.2(a)
Mixed Patent Action		6.5(c)
Parties		Preamble
Party		Preamble
Patent Action Preclinical Milestone		6.5(d) 4.1(b)(i)
Prime Rate		5.6(g)
Product Royalty Term		5.5(b)(ii)(B)
Requisite Assigned Rights		6.9
Royalty Term		5.5(b)(ii)(B)
Subject Rights Targacept		2.4(b) Preamble
Targacept Indemnitees		9.6(b)
Targacept Returned Product		10.5(b)
Third Party In-Licenses		2.3(c)(i)
WSJ Exchange Rate		5.6(d)

Section 2. License Grants by Cornerstone.

2.1 Exclusive License and Covenants Not to Sue.

(a) Effective as of the Effective Date, Cornerstone, for itself and on behalf of its Affiliates, hereby grants to Targacept and its Affiliates a perpetual and irrevocable (subject to the terms of this Agreement and the Feinstein License), worldwide, royalty-bearing, exclusive (even as to Cornerstone and its Affiliates, unless otherwise expressly provided hereunder) license or sublicense (as the case may be), with the right to further sublicense in accordance with Section 2.2, under the Licensed Intellectual Property to make, have made, use, have used, import, have imported, sell, have sold, offer to sell and otherwise exploit Licensed Products in the Field.

(b) Cornerstone, for itself and on behalf of its Affiliates and licensees, hereby covenants not to sue, or cause or support any other Person to sue, Targacept, any of its Affiliates or Sublicensees, or any of their respective manufacturers, suppliers, distributors or customers for using Licensed Intellectual Property to research, develop, commercialize or otherwise exploit products in the Field, which covenant not to sue shall apply to all acts or omissions that occur while the License remains in force.

(c) For clarity, with respect to the Feinstein Licensed Patents and Feinstein Licensed Know-How, the License shall grant to Targacept all rights granted to Cornerstone under the Feinstein License in the Field, and Targacept expressly acknowledges that Feinstein has retained rights under the Feinstein License for itself and the U.S. government as expressly set forth in Articles 3.3 and 3.2, respectively, of the Feinstein License and that the License is subject to such retention of rights.

2.2 Sublicenses.

(a) The License includes the right to grant sublicenses (through multiple tiers of sublicensees) by Targacept to its Affiliates and Third Parties, provided that (i) any such sublicense agreement shall be subject to and subordinate to this Agreement and (ii) Targacept shall remain responsible for the performance of its direct Sublicensees.

(b) Targacept shall provide to Cornerstone a copy of each agreement pursuant to which Targacept sublicenses its rights hereunder within thirty (30) days following execution of such agreement; provided that (i) Targacept shall have the right to redact financial information, to the extent not publicly announced, and other confidential information from such agreement; and (ii) such agreement shall, to the extent not otherwise made public, be Targacept’s Confidential Information.

(c) Each sublicense granted to any Sublicensee shall terminate immediately upon the termination of the License, provided that any such sublicense shall not terminate, on a Sublicensee-by-Sublicensee basis, if (i) all outstanding amounts owed Licensor by Licensee hereunder with respect to such sublicense as of such purported termination date, if any, are paid in full within [********] days after such date (whether by Licensee, its Affiliates or such Sublicensee) and (ii) within [********] days after such purported termination date the Sublicensee agrees in writing to be bound directly to Licensor under a license agreement

substantially similar to this Agreement with respect to the rights sublicensed to such Sublicensee hereunder, substituting such Sublicensee for Licensee. Licensor and such Sublicensee shall promptly memorialize such direct license.

2.3 Feinstein License and Other Licenses.

(a) Feinstein License. Except and solely to the extent expressly provided in this Agreement, if at all, neither Targacept nor any of its Affiliates or Sublicensees assumes any obligations of Cornerstone under the Feinstein License.

(b) SetPoint License.

(i) Targacept acknowledges that, under the SetPoint License, Cornerstone has previously licensed to SetPoint the Excluded Field Patents, the Mixed Patents and certain Technology included in the Feinstein Licensed Know-How, in each case solely for use in the Excluded Field.

(ii) Neither Targacept nor any of its Affiliates or Sublicensees assumes any obligations of Cornerstone under the SetPoint License.

(i) Cornerstone shall maintain in full force and effect the Feinstein License and all other Third-Party agreements, if any, whereby Targacept gains rights hereunder in or to any of the Licensed Intellectual Property (collectively, “Third Party In-Licenses”). Without limiting the generality of the foregoing, Cornerstone shall be solely responsible for complying, and shall comply, with all of Cornerstone’s financial and non-financial obligations under each Third Party In-License and under the SetPoint License.

(ii) Cornerstone shall provide Targacept with notice within [********] business days after receipt (and in any event substantially before the end of any applicable cure period under the applicable agreement) of any written claim of breach of any Third Party In-License or the SetPoint License. Cornerstone shall provide Targacept with copies of all notices and other documents Cornerstone receives or sends pursuant to each Third Party In-License or the SetPoint License that affects or might reasonably be expected to affect Targacept’s rights hereunder (including any termination notice). To the extent of any conflict between this Section 2.3(c)(ii) and Section 2.3(e), Section 2.3(e) shall control.

(d) Amendment. Without the prior written consent of Targacept, Cornerstone shall not (i) terminate, assign, amend, restate, waive or otherwise change any of the terms and conditions of the Feinstein License, any other Third Party In-License or the SetPoint License or (ii) enter into any other agreement or understanding with Feinstein or any other Third Party that is a party to a Third Party In-License or with SetPoint, in either case (clause (i) or (ii)) that affects or might reasonably be expected to affect Targacept’s rights hereunder.

(e) Step-In Rights. Cornerstone shall notify Targacept in writing within [********] business days following Cornerstone’s receipt of any notice from Feinstein (or any other Third Party to a Third Party In-License) to Cornerstone alleging that Cornerstone has breached any of its obligations under the Feinstein License (or other Third Party In-License) (each, an “In-License Breach Notice”). Cornerstone shall keep Targacept informed on a regular and timely basis of all non-trivial discussions, communications and correspondence between Cornerstone and Feinstein (or such other Third Party) following Cornerstone’s receipt of any In-License Breach Notice through such time as Feinstein or other Third Party to a Third Party In-License acknowledges (and so notifies Targacept in writing) either that there has been no breach or that any breach has been cured or resolved without effect or potential effect on Targacept’s rights hereunder. In addition to the rights granted to Targacept in the Feinstein License or, if any, other Third Party In-Licenses, upon receipt of any In-License Breach Notice, Targacept shall have the right to make a proposal to Cornerstone setting out the terms whereby Targacept would undertake to effect a cure of any breach or default of Cornerstone described in the applicable In-License Breach Notice. Such proposal shall include any proposed amendments to the terms of this Agreement that would be required by Targacept in return for granting any such undertaking and effecting such a cure. If Cornerstone wishes to implement any proposal received under this Section 2.3(e), the Parties shall discuss and agree upon the final terms on which Targacept shall effect a cure of the relevant breach or default by Cornerstone, amend the terms of this Agreement as required to reflect such agreed terms and Targacept and Cornerstone shall undertake any agreed obligations so as to effect such cure. In any event, any amounts paid by Targacept to Feinstein or to any other Third Party pursuant to this Section 2.3(e) shall be creditable by Targacept toward amounts owed by Targacept to Cornerstone pursuant to this Agreement. Nothing in this Section 2.3(e) is intended reduce, limit, modify or otherwise affect Cornerstone’s obligations pursuant to Section 2.3(c)(i).

(f) Bankruptcy. Solely in connection with Cornerstone’s rights that arise at the time that a Third Party to a Third Party In-License seeks relief (or is subject to an involuntary petition seeking relief) under any bankruptcy, reorganization, or insolvency or similar laws, Cornerstone hereby irrevocably appoints Targacept (with full right of substitution), as Cornerstone’s special attorney-in-fact to act, in the name of Cornerstone, to protect and preserve the rights granted to Targacept pursuant to the License (including seeking to preserve Cornerstone’s and Targacept’s rights under any such laws, including under the U.S. Bankruptcy Code, Title 11 of the U.S. Code). Cornerstone acknowledges and agrees that the foregoing special power of attorney is coupled with an interest and therefore (a) will survive any termination of this Agreement in which any rights granted to Targacept hereunder survive and (b) is irrevocable. Without limiting the generality of the foregoing, Cornerstone agrees that if any Third Party to any Third Party In-License seeks relief under any bankruptcy, reorganization, insolvency or similar laws, Cornerstone shall give Targacept prompt written notice thereof and Targacept shall have the right to exercise the foregoing special power of attorney to take all action necessary, at Targacept’s reasonable expense, to preserve the rights granted to Targacept (via Cornerstone) hereunder. Should any Third Party In-License terminate, Cornerstone shall give Targacept prompt written notice and assist Targacept in all reasonable respects, at Targacept’s reasonable expense, in obtaining all rights granted to Targacept hereunder with respect to such terminated agreement, including by having the Third Party licensor thereof treat Targacept as a direct licensee thereunder. For clarity, if Targacept is treated as a direct licensee thereunder, Targacept

agrees that it will remain liable to Cornerstone for the payments under Sections 5.2 and 5.3 as if such Third Party In-License had not terminated, except that Targacept shall be entitled to credit against the amounts otherwise payable by Targacept to Cornerstone under either or both of Sections 5.2 and 5.3 for all upfront, milestones, royalties and other amounts, however characterized, paid by Targacept directly to such Third Party.

(g) Payments. For clarity and notwithstanding anything to the contrary in this Agreement, Cornerstone shall be solely responsible for all amounts owed to any Third Party arising from the Feinstein License, all amounts owed to any Third Party arising from any other Third Party In-License and all amounts owed to any Third Party arising from the SetPoint License.

2.4 Other Restrictions; Limited Right of First Negotiation and Right of First Refusal.

(a) Cornerstone shall not enter into any agreement or otherwise take any actions or omit to take any actions in conflict with, or that would or might reasonably be expected to encumber or diminish, the License and the other rights granted to Targacept hereunder.

(b) In the event that the SetPoint License expires or terminates for any reason as to some or all of the “Licensed Know-How” and “Licensed Patents” (each as defined in the SetPoint License) licensed or sublicensed to SetPoint (together with any or all rights granted to Cornerstone pursuant to Section 9.6 of the SetPoint License, the “Subject Rights”), Cornerstone shall notify Targacept in writing of such expiration or termination, and Cornerstone shall not offer the Subject Rights for license, sublicense or other transfer to any Third Party without first offering such Subject Rights to Targacept in accordance with the terms of this Section 2.4(b). Targacept shall have the right within [********] days following such notification to request in writing a license to some or all of such Subject Rights. Upon such request, Cornerstone and Targacept shall negotiate in good faith a license agreement pursuant to which Cornerstone would license or sublicense the Subject Rights to Targacept. If the parties are unable to reach agreement within [********] days following such request or such longer period as agreed by the Parties in writing, then Cornerstone shall have the right to offer to license, sublicense or otherwise transfer such Subject Rights to a Third Party, provided that if Cornerstone receives a bona fide Third Party offer whereby such Third Party would obtain from Cornerstone a right or license to all or any portion of such Subject Rights on financial terms less favorable to Cornerstone than the most favorable financial terms previously proposed by Targacept to Cornerstone or by Cornerstone to Targacept, Cornerstone shall notify Targacept of all material terms of such offer in writing and Targacept shall thereupon have a right of first refusal to license such Subject Rights on the same terms set forth in the notice. Targacept may exercise its right of first refusal at any time within [********] days after its receipt of the notice by written notice to Cornerstone, and, in such event, the Parties shall work diligently towards the execution of a definitive license agreement reflecting the terms in the notice and, to the extent not inconsistent, the terms hereof.

2.5 License Limitations. No licenses or other rights are granted by Cornerstone hereunder to use any trademark, trade name, trade dress or

service mark Controlled by Cornerstone or any of its Affiliates. All licenses and other rights are granted only as expressly provided in this Agreement, and no other licenses or other rights are or shall be created or granted hereunder by implication, estoppel or otherwise.

Section 3. Transfer of Licensed Know-How and Supply of CTI-[********] and CTI-[********].

3.1 Transfer of Licensed Know-How. Within [********] days after the Effective Date, Cornerstone shall provide to Targacept, at Targacept’s reasonable expense, one (1) copy (in electronic form, if available) of all documents in Cornerstone’s or any of its Affiliates’ possession as of the Effective Date (including laboratory notebooks) to the extent that such documents describe or contain Licensed Know-How. Cornerstone shall promptly provide and transfer to Targacept all additional Licensed Know-How that may from time to time become available to Cornerstone.

3.2 Supply of CTI-[********] and CTI-[********]. Promptly following execution of this Agreement, Cornerstone shall supply to Targacept or its designee a one-time transfer of all quantities of CTI-[********] and CTI-[********] to the extent in Cornerstone’s possession or Control on the Effective Date (collectively, the “Material”). Cornerstone hereby assigns all right, title and interest in and to the Material to Targacept free and clear of all liens and encumbrances as of the Effective Date, but the Material is otherwise conveyed ‘as is, with all defects’ to Targacept. Concurrently with the delivery of the Material, Cornerstone shall deliver to Targacept or its designee: (i) all records in Cornerstone’s possession or control on the Effective Date relating to the manufacture of the Material, including manufacturing records, standard operating procedures, equipment log books, batch records, laboratory notebooks and all raw data relating to the manufacturing of the Material; and (ii) a certificate of analysis setting forth all tests conducted and the results thereof with respect to the Material. In addition, Cornerstone shall provide, or cause to be provided, to Targacept such other records and documentation in its possession or control relating to the Material as Targacept may reasonably request and, if requested by Targacept, Cornerstone shall use commercially reasonable efforts to cause the Third Party that manufactured the Material to perform, at Targacept’s reasonable expense, release testing as required by applicable laws, regulations and ICH guidance documents for the delivery of the Material for use in GLP toxicology studies or human clinical trials.

Section 4. Development and Commercialization.

4.1 Commercially Reasonable Efforts.

(a) General Level of Effort Required. Targacept shall use Commercially Reasonable Efforts to develop at least one (1) Licensed Product in the Field to obtain approval from the applicable Regulatory Authority(ies) to market or sell such Licensed Product [********]; provided that, for clarity, Cornerstone expressly agrees that, with respect to the period beginning

on the Effective Date and ending [********] after the Material Acceptance Date, Targacept’s compliance with Section 4.1(b)(i) shall also constitute compliance with this Section 4.1(a). For purposes of this Agreement, “Commercially Reasonable Efforts” means, with respect to Licensed Product, the carrying out of development activities using the efforts and resources that Targacept would typically devote to a product candidate of similar market potential or profit potential resulting from its own research efforts, based on conditions prevailing from time to time and taking into account issues of safety, tolerability and efficacy, product profile, intellectual property position, projected market exclusivity, the then current competitive environment for such product and target indication and the likely timing of such product’s entry into the market, the regulatory environment and status of such product and target indication, and all other relevant scientific, medical, technical and commercial factors.

(b) Specific Development Commitments; Cornerstone Acknowledgment.

(i) Targacept shall use commercially reasonable efforts (taking into account cost and complexity) to procure or produce CTI-[********] or CTI-[********] in sufficient quantities and of sufficient quality to perform the toxicity studies described in either clause (A) or clause (B) of this Section 4.1(b)(i). Within [********] after the Material Acceptance Date, Targacept shall complete either (at Targacept’s sole discretion) (A) a [********] toxicity study of the pharmacological agent identified as CTI-[********] in the Cornerstone Exemplified Compound Library and, only if such [********] study is successful (at Targacept’s sole discretion), a [********] or [********] (at Targacept’s sole discretion) toxicity study of the pharmacological agent identified as CTI-[********] in the Cornerstone Exemplified Compound Library or (B) a [********] or [********] (at Targacept’s sole discretion) toxicity study of the pharmacological agent identified as CTI-[********] in the Cornerstone Exemplified Compound Library (the completion of either clause (A) or clause (B), the “Preclinical Milestone”). If Targacept realizes that it will be unable to meet the Preclinical Milestone by the required deadline, it may submit a written notice to Cornerstone at any time prior to such deadline and, if effective, thereby secure an automatic extension of [********] to such deadline; provided that, to be effective, such notice (an “Effective Extension Notice”) must include [********] and Targacept’s projected target date for completing the Preclinical Milestone. For purposes of this Section 4.1(b)(i), “Material Acceptance Date” shall mean the date, if any, on which Targacept reasonably determines that it has procured or produced either CTI-[********] or CTI-[********] in quantities and of quality sufficient to perform the applicable toxicity study(ies) as described in this Section 4.1(b)(i).

(ii) Termination of this Agreement pursuant to Section 10.2(a), if applicable, shall constitute Cornerstone’s sole and exclusive remedy for Targacept’s failure to complete the Preclinical Milestone in accordance with Section 4.1(b)(i).

(iii) Cornerstone acknowledges and agrees that the application of commercially reasonable efforts may not require Targacept to procure or produce CTI-[********] or CTI-[********] in sufficient quantities and of sufficient quality to perform the toxicity studies described in either Section 4.1(b)(i)(A) or Section 4.1(b)(i)(B) above.

4.2 Responsibilities and Costs. As between the Parties, following the Effective Date:

(a) except with respect to the Feinstein License and any other Third Party In-Licenses, Cornerstone shall have no responsibility for, or bear any of the costs of, the research, development or commercialization of Licensed Products (including manufacturing of materials required therefor);

(b) Targacept shall own all results of research, development and commercialization activities for each Licensed Product, including all Patent Rights, copyright, trade secret and other intellectual property rights and all Technology made, conceived, reduced to practice, authored or generated in connection with such activities; and

(c) all regulatory filings and Regulatory Approvals, if any, for each Licensed Product shall be obtained by, in the name of, and solely owned by Targacept; for clarity, Targacept shall solely own all data, materials and other information submitted in connection with such regulatory filings and Regulatory Approvals.

4.3 Progress Reports. Targacept will provide Cornerstone with a summary written progress report discussing the development, evaluation, testing and commercialization, as applicable, of Licensed Products at least once per Calendar Year, but, in any case, [********] annual reports [********].

Section 5. Payments.

5.1 Initial Fees.

(a) Initial License Fee. As partial consideration for the License and Cornerstone’s obligations under this Agreement, concurrently with the execution and delivery of this Agreement, Targacept shall pay to Cornerstone a non-refundable, non-creditable upfront fee equal to One Million Five Hundred Thousand U.S. dollars ($1,500,000) by wire transfer of immediately available funds to such bank account as Cornerstone may designate.

(b) Reimbursement of Attorneys’ Fees. Upon execution of this Agreement by both Parties, Cornerstone shall pay to Targacept, in partial reimbursement of Targacept’s attorneys’ fees associated with the preparation and negotiation of this Agreement and other activities associated with the completion of the transactions contemplated hereby, [********] by wire transfer of immediately available funds to such bank account as Targacept may designate.

5.2 Milestone Payments.

(a) As partial consideration for the License and Cornerstone’s obligations under the terms of this Agreement, subject to Section 5.2(d), Targacept shall make the following non-refundable, non-creditable payments (each a “Milestone Payment”) to Cornerstone upon the occurrence, after the Effective Date, of the events (each a “Milestone Event”) below:


		*Licensed Product containing or comprised of:**
	Milestone Event	A. CTI- [********]		B. CTI- [********]		C. Other Cornerstone Compound		D. Targacept Compound

1	Completion of the first [****] with [****] for [****]	$	[****]	$	[****]	$	[****]		—
2	First [****] of the [****] in the [****]	$	[****]	$	[****]	$	[****]	$	[********]
3	First [****] of the [****] in the [****]	$	[****]	$	[****]	$	[****]	$	[********]
4	First [****]	$	[****]	$	[****]	$	[****]	$	[********]
5	First [****] of the [****] in the [****]	$	[****]	$	[****]	$	[****]	$	[********]
6	[****] of [****] in [****] for the [****]	$	[****]	$	[****]	$	[****]	$	[********]
7	[****] of [****] in [****] in [****] for the [****]	$	[****]	$	[****]	$	[****]	$	[********]
8	[****] of [****] in [****] for the [****]	$	[****]	$	[****]	$	[****]	$	[********]
9	First achievement of Aggregate Worldwide Net Sales of [****] in a Calendar Year	$	[****]	$	[****]	$	[****]	$	[********]
10	First achievement of Aggregate Worldwide Net Sales of [****] in a Calendar Year	$	[****]	$	[****]	$	[****]	$	[********]
11	First achievement of Aggregate Worldwide Net Sales of [****] in a Calendar Year	$	[****]	$	[****]	$	[****]	$	[********]

*	Each Subject Compound may only be classified into one column.

(b) Targacept shall provide Cornerstone with prompt written notice upon each occurrence of a Milestone Event, but in no event will such notice be given to Cornerstone later than [********] days after Targacept becomes aware of the occurrence of any Milestone Event.

(c) Each Milestone Payment shall be due and payable within [********] days after the occurrence of the corresponding Milestone Event by wire transfer of immediately available funds to such bank account as Cornerstone may designate.

(d) Notwithstanding anything in this Agreement to the contrary, with respect to each Milestone Event, Targacept shall not be obligated to make a Milestone Payment:

(i) more than one (1) time in the aggregate for CTI-[********] and all Licensed Products that contain or comprise CTI-[********] (for clarity, each of the foregoing references to CTI-[********] includes, collectively, all salt forms, polymorphs, crystalline forms, hydrates, solvates and formulations of the pharmacological agent identified as CTI-[********] in the Cornerstone Exemplified Compound Library);

(ii) more than one (1) time in the aggregate for CTI-[********] and all Licensed Products that contain or comprise CTI-[********] (for clarity, each of the foregoing references to CTI-[********] includes, collectively, all salt forms, polymorphs, crystalline forms, hydrates, solvates and formulations of the pharmacological agent identified as CTI-[********] in the Cornerstone Exemplified Compound Library);

(iii) with respect to each Other Cornerstone Compound, more than one (1) time in the aggregate for such Other Cornerstone Compound and all Licensed Products that contain or comprise such Other Cornerstone Compound (for clarity, each of the foregoing references to an Other Cornerstone Compound includes, collectively, all salt forms, polymorphs, crystalline forms, hydrates, solvates and formulations of the pharmacological agent identified as such Other Cornerstone Compound in the Cornerstone Exemplified Compound Library);

(iv) with respect to each Targacept Compound, more than one (1) time in the aggregate for such Targacept Compound and all Licensed Products that contain or comprise such Targacept Compound (for clarity, each of the foregoing references to a Targacept Compound includes, collectively, all salt forms, polymorphs, crystalline forms, hydrates, solvates and formulations of such Targacept Compound); or

(v) with respect to the occurrence of Milestone Event [********] for any Subject Compound (the “Later Subject Compound”), if (A) a Milestone Payment [********] based on [********] and (B) following such payment, [********], then the Milestone Payment [********] with respect to [********] by such [********] such Milestone Event [********] such Milestone Event [********].

5.3 Royalties to be Paid by Targacept to Cornerstone. Subject to the terms and conditions of this Agreement, during the applicable Product Royalty Term, Targacept shall pay to Cornerstone royalties, at the applicable rate set forth in the table below, based upon Net Sales of each Licensed Product in the United States and Net Sales of each Licensed Product outside of the United States during each Calendar Quarter, if any.

Licensed Product containing or comprised of*:

A. CTI-
[********]

B. CTI-
[********]

C. Other
Cornerstone
Compound

D. Targacept
Compound

Net Sales in the United States

[********]

Net Sales outside of the United States

[********]

*	Each Subject Compound may only be classified into one column.

5.4 Royalties to be Paid by Cornerstone to Targacept. Pursuant to Section 10.5(c) and subject to the terms and conditions of this Agreement, during the applicable Product Royalty Term, Cornerstone shall pay to Targacept royalties, at the applicable rate set forth in the table below, based upon Net Sales of each Targacept Returned Product in the United States and Net Sales of each Targacept Returned Product outside of the United States during each Calendar Quarter, if any.

Targacept Returned Product containing
or comprised of*:

Net Sales

A. CTI-
[********]

B. CTI-
[********]

C. Other
Cornerstone
Compound

In the United States