Strategic Alliance Agreement, Dated February 22, 2001, As Amended

EXECUTION COPY


STRATEGIC ALLIANCE AGREEMENT


Dated as of February 22, 2001


by and between


ALTUS BIOLOGICS INC.


and


CYSTIC FIBROSIS FOUNDATION THERAPEUTICS, INC.


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 406 of the Securities Act.


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TABLE OF CONTENTS


Page
---- ARTICLE I. DEFINITIONS................................................... 1
1.1 USE OF DEFINED TERMS.......................................... 7
1.2 ACCOUNTING TERMS.............................................. 7
1.3 SECTIONS, EXHIBITS AND SCHEDULES.............................. 7
1.4 MISCELLANEOUS TERMS........................................... 7 ARTICLE II. ALLIANCE AND THE ALLIANCE GRANT FUNDING...................... 7
2.1 THE ALLIANCE.................................................. 7
2.2 MANAGEMENT OF THE ALLIANCE.................................... 8
2.3 OBLIGATIONS OF THE COMPANY.................................... 10
2.4 OBLIGATIONS OF CFFTI.......................................... 12
2.5 FUNDINGS...................................................... 13
2.6 LICENSE FEE................................................... 14 ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... 14
3.1 ORGANIZATION.................................................. 14
3.2 AUTHORITY..................................................... 15
3.3 CAPITALIZATION................................................ 15
3.4 NO CONFLICT................................................... 16
3.5 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES; INDEBTEDNESS... 16
3.6 LITIGATION.................................................... 17
3.7 INTELLECTUAL PROPERTY......................................... 17 ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF CFFTI...................... 18
4.1 ORGANIZATION; AUTHORIZATION; NO CONFLICT...................... 18
4.2 INVESTMENT REPRESENTATIONS.................................... 19
4.3 CFFTI'S ACKNOWLEDGMENT AS TO INFORMATION...................... 19
4.4 LITIGATION.................................................... 19 ARTICLE V. LICENSES...................................................... 20
5.1 CFFTI LICENSE................................................. 20
5.2 COMPANY SUBLICENSE............................................ 21
5.3 JOINT LICENSE................................................. 21
5.4 RETAINED RIGHTS OF THE COMPANY................................ 21
5.5 PROSECUTION; ENCUMBRANCES; OTHER MATTERS...................... 21
5.6 FURTHER ASSURANCES............................................ 22 ARTICLE VI. EVENTS OF DEFAULT............................................ 22
6.1 COMPANY DEFAULT............................................... 22
6.2 CONSEQUENCES OF A COMPANY DEFAULT............................. 23
6.3 CFFTI DEFAULT................................................. 23
6.4 CONSEQUENCES OF A CFFTI DEFAULT............................... 24 ARTICLE VII. CONFIDENTIALITY; PUBLICATIONS; PUBLICITY.................... 25
7.1 CONFIDENTIALITY............................................... 25
7.2 PUBLIC ANNOUNCEMENTS.......................................... 25
7.3 PUBLICATIONS.................................................. 25 ARTICLE VIII. INDEMNIFICATION AND INSURANCE.............................. 26
8.1 CFFTI INDEMNIFICATION......................................... 26
8.2 COMPANY INDEMNIFICATION....................................... 26
8.3 PROCEDURE..................................................... 26 ARTICLE IX. CONDITIONS PRECEDENT......................................... 27
9.1 CONDITIONS TO OBLIGATIONS OF THE COMPANY AT THE INITIAL GRANT
FUNDING.................................................... 27


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 406 of the Securities Act.


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9.2 CONDITIONS TO OBLIGATIONS OF CFFTI AT THE INITIAL ALLIANCE
GRANT FUNDING.............................................. 28 ARTICLE X. TERMINATION................................................... 29
10.1 CFFTI RIGHT TO TERMINATE...................................... 29
10.2 COMPANY'S RIGHT TO TERMINATE.................................. 30
10.3 OTHER TERMINATIONS OF AGREEMENT............................... 30
10.4 CONSEQUENCES OF TERMINATION................................... 30 ARTICLE XI. MISCELLANEOUS................................................ 31
11.1 NOTICES....................................................... 31
11.2 CAPTIONS...................................................... 32
11.3 EXPENSES...................................................... 32
11.4 NO WAIVER..................................................... 32
11.5 SEVERABILITY; INTEGRATED TRANSACTION.......................... 32
11.6 ENTIRE AGREEMENT.............................................. 32
11.7 AMENDMENT..................................................... 32
11.8 LIMITATION ON ASSIGNMENT...................................... 32
11.9 GOVERNING LAW................................................. 32
11.10 ARBITRATION................................................... 32
11.11 COUNTERPARTS.................................................. 33
11.12 FORCE MAJEURE................................................. 34
11.13 INDEPENDENT CONTRACTORS....................................... 34
11.14 FURTHER ASSURANCES............................................ 34
11.15 SURVIVAL...................................................... 34


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 406 of the Securities Act.


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EXECUTION COPY


STRATEGIC ALLIANCE AGREEMENT


This STRATEGIC ALLIANCE AGREEMENT, is made as of February 22, 2001 ("Agreement"), by and between Altus Biologics Inc, a Massachusetts corporation (the "Company"), and Cystic Fibrosis Foundation Therapeutics, Inc., a Maryland corporation ("CFFTI" and collectively, with the Company, the "Parties," and each a "Party").


WHEREAS, CFFTI has, as one of its principal objectives, the development of therapies that will improve the quality of life for patients suffering from cystic fibrosis and has developed an extensive network of medical providers, researchers, and patients who participate in this effort, and the Company possesses certain skills and technology which can aid in this objective; and


WHEREAS, the Company and CFFTI wish to collaborate with respect to the farther development, testing, and marketing of a new drug developed by the Company to treat pancreatic insufficiency in cystic fibrosis patients in North America, based on technology developed by the Company and using the expertise and contacts of CFFTI including CFFTI's Therapeutic Development Network; and


WHEREAS, the Company and CFFTI desire that CFFTI provide grant funding to an aggregate total of Twenty Five Million Dollars ($25,000,000) to fund the Company's development and marketing of TheraCLEC Total(TM) to treat pancreatic insufficiency in cystic fibrosis patients in North America, on the terms and subject to the conditions set forth in this Agreement; and


WHEREAS, the Company desires to issue to CFFTI, and CFFTI desires that the Company issue it, warrants to acquire up to four hundred thousand (400,000) shares of the Company's common stock, par value $.0l per share (the "Common Stock"), on the terms and subject to the conditions set forth in this Agreement; and


NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and undertakings hereunder and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereto do hereby agree as follows:


ARTICLE I


DEFINITIONS


As used in this Agreement, the following terms have the meanings set forth below.


"AAA" shall have the meaning set forth in Section 11.10 hereof.


"Affiliate" shall mean any Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with any other Person and, for purposes of this Agreement, control shall include the power to elect a majority of the board of directors.


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 406 of the Securities Act.


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"Deadlock Event" shall mean a failure of the ASC to reach agreement on a Material ASC Matter within the period set forth in Section 2.2 (d) hereof.


"Development Activities" shall mean activities related to the development and marketing of the Products in North America, which shall include research, development, animal tests, clinical trials and other testing, seeking applicable approvals of governmental bodies and others, manufacturing, marketing, promotion, sales, and distribution activities and any other act or acts required or reasonably necessary to obtain FDA approval for the marketing and distribution of the Products to treat pancreatic insufficiency in cystic fibrosis patients or to otherwise market and sell the Products in compliance with any applicable Law for such treatment, in each case in North America.


"Encumbrance" shall mean any security agreement, properly filed financing statement, mortgage, lien (statutory or otherwise), or other consignment or bailment given for security purposes, or other title retention agreement, with respect to any material asset of such Person, or, in the case of intellectual property rights, any license materially affecting such rights, whether direct, indirect, accrued or contingent, except for transfer restrictions imposed by the Securities Act, the Securities Exchange Act of 1934, as amended, and/or state securities Laws.


"Entity" shall mean any corporation, partnership, limited liability company, joint venture, trust, association, unincorporated organization, group or other corporate or non-corporate entity.


"Fair Market Value" of any shares of Common Stock issued or issuable upon exercise of the Warrants shall mean the fair market value of such shares on the date of determination, which shall be determined as follows:


(a) if the Common Stock is listed on any domestic securities exchange or quoted in the NASDAQ System or the over-the-counter market, the average of the closing prices of the sales of shares of Common Stock on all securities exchanges on which Common Stock may at the time be listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges, or, if on any day shares of Common Stock are not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York City time, or, if on any day shares of Common Stock are not quoted in the NASDAQ System, the average of the highest bid and lowest asked prices in the domestic over-the-counter market as reported by the National Quotation Bureau Incorporated, or any similar successor organization, as applicable, averaged over the 20 consecutive trading days prior to the date of determination; provided however that notwithstanding the foregoing, the Fair Market Value of the shares of Common Stock issued or issuable upon exercise of the Warrants shall be reduced if and to the extent that a block sale of all of such shares is reasonably likely, in the good faith judgment of a registered broker-dealer who is affiliated with a reputable, nationally recognized brokerage house (and who is independent, that is, has to interest in the contemplated block sale and is not the regular broker-dealer for either CFFTI or the Company), to depress the trading price of shares of Common Stock and the Fair Market Value of the shares of Common Stock issued or issuable upon exercise of the Warrants; 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 406 of the Securities Act.


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(b) if at any time the Common Stock is not listed on any domestic securities exchange or quoted in the NASDAQ System or the domestic over-the-counter market, then the Fair Market Value of the shares of Common Stock issued of issuable upon exercise of the Warrants shall be determined by an Independent Appraiser (taking into account, among such other factors as appraisers commonly consider, the lack of a public market for such shares, the minority nature and size of stake of such shares, general market conditions and market conditions in the private equity markets related to the Company's business, and any pending bona fide written offer to buy the Shares that CFFTI has received from an unrelated third party) who shall determine and report to the Company and CFFTI the fair market value of the Common Stock not later than 30 days after the date such Independent Appraiser is selected. The Independent Appraiser shall be selected jointly by the Company and CFFTI not later than five days after the Appraisal Date; provided however that if the Company and CFFTI cannot agree on the selection of such an Independent Appraiser within such period, then the Independent Appraiser will be selected by the Company's auditors not later than eight days after the Approval Date.


"FDA" means the United States Food and Drug Administration, or any successor thereto.


"Financial Statements" shall have the meaning set forth in Section 3.5 hereof.


"GAAP" shall mean generally accepted accounting principles of the United States of America.


"Grace Period" shall mean with respect to a specified Milestone Achievement Date, the number of days that lapsed between such specified Milestone Achievement Date and the immediately preceding Milestone Achievement Date, multiplied by [**].


"Grant" shall mean $25,000,000 to be funded by CFFTI subject to the conditions and in accordance with the terms of this Agreement.


"Improvements" means all developments to, enhancements in, and new versions or improvements of the intellectual Property, whether or not patentable, which are invented, developed, discovered or otherwise acquired by or for the Company as a result of the Development Activities hereunder,


"Independent Appraiser" shall mean one of the nationally recognized accounting firms that regularly engages or has significant experience in the valuation of companies similar to the Company, which has not been engaged by either the Company or CFFTI at any time during the three year period immediately prior to the date on which the Independent Appraiser is selected pursuant to this Agreement.


"Initial Alliance Grant Funding" shall have the meaning set forth in Section 2.5(a) hereof.


"Initial Alliance Grant Funding Date" shall mean the date on which the Initial Grant Funding Amount is paid by CFFTI to the Company.


"Initial Grant Funding Amount" shall have the meaning set forth in Section 2.5(a) herof.


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 406 of the Securities Act.


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"Intellectual Property" shall mean all, patents, patent applications, rights acquired through patent licenses, Trademarks, trade secrets, software, copyrights, copyright applications, inventions, technologies, know-how, formulae, processes, all other intellectual property and applications for any of the foregoing, owned, leased, licensed, used or held for use, directly or indirectly, by, on behalf of or for the account of the Company and all proprietary rights to such Intellectual Property, which are used or useful for the manufacture, use or sale of the Products owned, leased, licensed used or held for use, directly or indirectly, by, on behalf of or for the account of the Company.


"Joint License Event" shall have the meaning set forth in Section 5.3 hereof.


"Judgment" shall mean any unsatisfied judgment, decree, or order of any governmental body having competent jurisdiction.


"Law" shall mean any statute, ordinance, code, rule, regulation or order enacted, adopted, or promulgated, by any governmental body.


"License Fee" shall have the meaning set forth in Section 2.6 hereof.


"Licensed Products" shall have the meaning set forth in Section 5.1 hereof.


"Material ASC Matter" means a determination by the ASC as to whether a specified Milestone has been met, or as to whether a Technical Failure has occurred, or as to whether the Milestone Grant Funding Plan should be amended pursuant to Section 2.2(b)(i) hereof.


"Milestone" shall mean a milestone set forth in the Milestone Grant Funding Plan and which has a corresponding Milestone Achievement Date and Grant Funding Amount, each of which is set forth in the Milestone Grant Funding Plan opposite such milestone, as amended from time to time by the ASC. For purposes of the Milestone Grant Funding Plan, the achievement of a Milestone shall include the transmittal of data resulting from Development Activities related to the said Milestone.


"Milestone Achievement Date" shall mean [******************] specified in the Milestone Grant Funding Plan on which a related Milestone is to be completed, as amended from time to time by the ASC.


"Milestone Grant Funding Plan" shall mean the Milestone Grant Funding Plan attached hereto as Exhibit 1.1, as the same shall be amended and modified from time to time pursuant to approval of the ASC in accordance with Section 2.2 hereof.


"Net Sales" shall mean [**************************************************] in arm's length sales to unrelated third parties, less the following amounts incurred in the ordinary course of business with respect to such sale to the extent separately included in the invoice for the Product as part of the gross invoiced sales price:


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 406 of the Securities Act.


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(c) trade, cash and quantity discounts or rebates [******************* ****];


(d) credits or allowances given or made for rejection of or return of, and for uncollectible amounts on, previously sold Products or for retroactive price reductions [************************************************************** **];


(e) charges for insurance, freight and other transportation costs [******************************] of Product; and


(f) sales, transfer and other excise taxes levied on the sale or delivery of a Product (including any tax such as a value added or similar tax or government charge) borne by the seller thereof, [******************************* ************************].


"Party" and "Parties" shall have the meaning set forth in the preamble of this Agreement.


"Person" shall mean any individual, Entity or governmental body.


"Phase IIb Milestone Date" shall mean the last day of the quarter specified in the Milestone Grant Funding Plan within which Phase IIb is to be completed and all [**********] associated with the Phase IIb transmitted by the Company to CFFTI in accordance with the Milestone Grant Funding Plan.


"Products" shall mean the pharmaceutical products developed by or on behalf of the Company, currently identified by the Company as "TheraCLEC Total(TM)", and any derivatives thereof, which contain the [***********************] and either or both of the [***************************], and [*****], and which are, in either case, designed to treat pancreatic insufficiency in cystic fibrosis patients.


"Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.


"Registration Rights Agreement" shall have the meaning set forth in Section 2.3(c) hereof.


"Regular Rate" shall mean the rate announced by Fleet Bank from time to time as its prime rate of interest plus [**************].


"Securities Act" shall mean the Securities Act of 1933, as amended.


"Shares" shall mean the shares of Common Stock issued or issuable upon exercise of the Warrants.


"TDN" shall have the meaning set forth in Section 2.4(d) hereof.


"Team Leader" shall have the meaning set forth in Section 2.2(a) 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 406 of the Securities Act.


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"Technical Failure" means that (a) none of the Products [************************************] as determined by the ASC, (b) the Products' toxicity levels exceed FDA standards and cannot be corrected within a scientifically reasonable period of time as determined by the ASC, or (c) the ASC has reasonably determined that, [******************************************* **************] developed or marketed.


"Trademarks" shall mean all trademarks, trademark applications, brand names, and trade names used, owned or licensed by the Company that are used or intended to be used in association with the Products.


"Unresolved Deadlock Event" shall mean a Deadlock Event that is not resolved after completion of the resolution procedures set forth in Section 2.2(d) hereof.


"Warrants" shall have the meaning set forth in Section 2.3(b) hereof.


"Work Plan" shall mean the work plan attached hereto as Exhibit 1.2, as the same shall be amended and modified from time to time in accordance with Section 2.2 hereof.


1.1 Use of Defined Terms. Any defined term used in the plural shall refer to all members of the relevant class, and any defined term used in the singular shall refer to any one or more of the members of the relevant class. The use of either gender shall be applicable to both genders.


1.2 Accounting Terms. All accounting terms not otherwise defined in this Agreement shall be construed in conformity with GAAP.


1.3 Sections, Exhibits and Schedules. References in this Agreement to Sections, Exhibits and Schedules are to Sections, Exhibits and Schedules of and to this Agreement. The Exhibits and Schedules to this Agreement are hereby incorporated herein by this reference as if fully set forth herein.


1.4 Miscellaneous Terms. The term "or" shall not be exclusive. The terms "herein," "hereof," "hereto," "hereunder" and other terms similar to such terms shall refer to this Agreement as a whole and not merely to the specific article, section, paragraph or clause where such terms may appear. The term "including" shall mean including, but not limited to unless such qualification already appears.


ARTICLE II


ALLIANCE AND THE ALLIANCE GRANT FUNDING


2.1 The Alliance.


(1) Formation of the Alliance. The Parties hereto hereby agree to associate themselves for the purpose of collaborating on the development, testing, manufacturing, marketing, and promoting of the Products for use in North America with respect to the treatment of pancreatic insufficiency in cystic fibrosis patients (the "Alliance"). The Alliance shall be conducted,


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 406 of the Securities Act.


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operated and administered in accordance with the terms of this Agreement, and no separate or jointly owned corporate or other entity or entities shall be established for the purpose of conducting or administering the joint efforts and endeavors of the Parties hereunder.


(2) Relationship of the Parties. The Parties hereto understand and agree that the Alliance is limited to the development, testing, and marketing of the Products for use in North America with respect to the treatment of pancreatic insufficiency in cystic fibrosis patients and to the activities, rights and obligations as set forth in this Agreement. Nothing in this Agreement shall be construed to create or imply a general partnership, limited partnership or other legal entity between the Parties, to make either Party the agent of the other for any purpose, to alter, amend, supersede or vitiate any other arrangements between the Parties with respect to any subject matters not covered hereunder, to give either Party the right to bind the other, to create any duties or obligations between the Parties except as expressly set forth in or arising from this Agreement, or to, grant any direct or implied licenses or any other right other than as expressly set forth herein.


(3) Ethical Conduct. In carrying out its responsibilities under this Agreement, each Party agrees that, in all material respects, its activities will be conducted in compliance with all applicable Laws, including the U.S. Food, Drug and Cosmetic Act and the regulations promulgated pursuant thereto or any equivalent applicable Laws pertaining to the subject matter of such Act in other jurisdictions. Neither Party will engage the services of any Person debarred by any relevant governmental body from conducting or participating in any of the activities to be conducted under this Agreement.


2.2 Management of the Alliance.


(a) Membership on the ASC. The Parties shall establish an alliance steering committee (the "ASC") consisting of [**] members, [***] of whom shall be appointed (and may be removed by the Company and whose expenses shall be borne by the Company, and [***] of whom shall be appointed by (and may be removed) by CFFTI and whose expenses shall be borne by CFFTI. Each of the members of the ASC shall be required to enter into a confidentiality agreement reasonably acceptable to the Company and CFFTI in connection with their appointment to the ASC. The Company and CFFTI shall each appoint one of its members on the ASC as its "Team Leader". The goal ...