<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
--------------
Date of Report (Date of earliest event reported): February 23, 1998
ERGO SCIENCE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 0-24936 04-3271667
- ------------------ --------------- ---------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
CHARLESTOWN NAVY YARD
100 FIRST AVENUE, FOURTH FLOOR
CHARLESTOWN, MASSACHUSETTS 02129
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 241-6800
-------------------------------------------------------------
(Former name or former address, if changed since last report)
Page 1 of 4 pages
<PAGE>
Item 5. Other Events.
On February 23, 1998, the Registrant publicly disseminated a press release
announcing that the Registrant has entered into an agreement to form a worldwide
collaboration with the R.W. Johnson Pharmaceutical Research Institute (PRI) and
Ortho-McNeil Pharmaceuticals Inc., both Johnson & Johnson (NYSE:JNJ) units, to
develop and commercialize ERGOSET(TM) (bromocriptine mesylate) tablets, the
Registrant's lead product, and other potential products for the treatment of
Type 2 diabetes and obesity, based on the Registrant's novel Neuroendocrine
Resetting Therapy ("NRT"). In connection with the collaboration agreement, the
Registrant and Johnson & Johnson entered into a Stock Purchase Agreement
whereby the Registrant agreed to sell, and Johnson & Johnson agreed to purchase,
an amount of the Registrant's Common Stock with a value of ten million dollars
based upon closing prices of the Registrant's Common Stock over a certain
trading period. The closing of these transactions is subject to clearance under
the Hart-Scott-Rodino Antitrust Improvement Act of 1976. The information
contained in the press release is incorporated herein by reference and filed as
Exhibit 99.1 hereto.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
10.41 Joint Collaboration and License Agreement dated as of
February 23, 1998 by and between Ergo Research Corporation
(a wholly - owned subsidiary of Ergo Science Corporation), a
Delaware corporation and Ergo Science Corporation, a
Delaware corporation and R.W. Johnson Pharmaceutical
Research Institute, a division of Ortho Pharmaceutical
Corporation, a Delaware corporation and Cilag AG
International, a Swiss Corporation. Johnson and Johnson, a
New Jersey corporation is a party to the agreement as a
guarantor of the performance under the agreement by Ortho
Pharmaceutical Corporation and its affiliates. [Portions of
this exhibit have been omitted and filed separately with the
Securities and Exchange Commission in accordance with Rule
406 of the Securities Act and the Company's request for
confidential treatment.]
10.42 Stock Purchase Agreement made as of February 23, 1998 by and
between Ergo Science Corporation, A Delaware corporation and
Johnson & Johnson Development Corporation, a New Jersey
corporation.
99.1 The Registrant's Press Release dated February 24, 1998
SIGNATURES
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ERGO SCIENCE CORPORATION
------------------------
(Registrant)
Date: March 9, 1998 /s/ Ronald H. Abrahams
----------------------
Ronald H. Abrahams, Ph.D.
President, Chief Executive Officer, Chairman
of the Board and Director (Principal
Executive Officer)
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Sequential
Number Description Page Number
- ------- ----------- -----------
10.41 Joint Collaboration and License Agreement dated
as of February 23, 1998 by and between Ergo
Research Corporation (a wholly - owned
subsidiary of Ergo Science Corporation), a
Delaware corporation and Ergo Science
Corporation, a Delaware corporation and R.W.
Johnson Pharmaceutical Research Institute, a
division of Ortho Pharmaceutical Corporation, a
Delaware corporation and Cilag AG International,
a Swiss Corporation. Johnson and Johnson, a
New Jersey corporation is a party to the
agreement as a guarantor of the performance
under the agreement by Ortho Pharmaceutical
Corporation and its affiliates. [Portions of this
exhibit have been omitted and filed separately
with the Securities and Exchange Commission in
accordance with Rule 406 of the Securities Act
and the Company's request for confidential
treatment.]
10.42 Stock Purchase Agreement made as of February
23, 1998 by and between Ergo Science
Corporation, A Delaware corporation and Johnson
& Johnson Development Corporation, a New
Jersey corporation.
99.1 The Registrant's Press Release dated February 24, 1998
<PAGE>
ERGO SCIENCE CORPORATION HAS OMITTED FROM THIS EXHIBIT [10.41 PORTIONS OF THE
AGREEMENT FOR WHICH ERGO SCIENCE CORPORATION HAS REQUESTED CONFIDENTIAL
TREATMENT FROM THE SECURITIES AND EXCHANGE COMMISSION. THE PORTIONS OF THE
AGREEMENT FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED ARE MARKED WITH AN
ASTERISK AND SUCH CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
JOINT COLLABORATION AND LICENSE AGREEMENT
-----------------------------------------
This JOINT COLLABORATION AND LICENSE AGREEMENT (the "Agreement"), dated as
of February 23, 1998 (the "Effective Date"), by and between ERGO Research
Corporation (a wholly-owned subsidiary of ERGO Science Corporation), a Delaware
corporation having a place of business at 3773 Howard Hughes Parkway, Suite
300N, Las Vegas, Nevada 89109, and ERGO Science Corporation, a Delaware
corporation having a place of business at 33 Third Avenue, Charlestown,
Massachusetts 02129-2051, (hereinafter referred to collectively and individually
as "ERGO") and The R.W. Johnson Pharmaceutical Research Institute, a division of
ORTHO PHARMACEUTICAL CORPORATION, a Delaware corporation having its principal
place of business at U.S. Route 202 South, Raritan, New Jersey 08869 ("PRI"),
ORTHO-McNEIL Pharmaceutical, Inc., a Delaware Corporation (a wholly-owned
subsidiary of Johnson & Johnson), having a place of business at U.S. Route 202,
Raritan, New Jersey ("ORTHO-McNEIL"), and Cilag AG International, a Swiss
corporation having a place of business at Chollerstrasse 38, CH-6300, ZUG,
Switzerland ("CILAG"), hereinafter referred to collectively and individually as
"ORTHO"). Johnson and Johnson, a New Jersey corporation having its place of
business at One Johnson & Johnson Plaza, New Brunswick, New Jersey 08933 ("J&J")
is a party to this Agreement as a guarantor of the performance under this
Agreement by ORTHO and all of the Affiliates of ORTHO. ERGO and ORTHO are
sometimes referred to herein individually as a "Party" and collectively as the
"Parties", and all references to "ERGO" and "ORTHO" shall include their
respective Affiliates, where appropriate under the terms of this Agreement.
CILAG shall be the Party to this Agreement that receives the ex-U.S.
intellectual property rights granted hereunder and ORTHO and PRI shall be the
Parties to this Agreement that receive the U.S. intellectual property rights
granted hereunder. In this regard, any references to ORTHO hereunder as it
relates to the ex-U.S. intellectual property rights and obligations shall be a
reference to CILAG.
WITNESSETH:
-----------
WHEREAS, ORTHO is a wholly owned subsidiary of Johnson & Johnson, a
multinational health care company with research, development and marketing
activities worldwide, which desires to obtain additional potential drug products
to sell for Diabetes, Obesity and possible other indications.
WHEREAS, ERGO is developing compounds, including Bromocriptine, which,
among other things, is a regulator of glucose and lipid metabolism for use in
treating Type II Diabetes, and possibly for use in treating obesity. ERGO has
conducted, and is conducting several clinical trials of Bromocriptine, and is
planning additional clinical trials;
WHEREAS, the Parties intend to establish a collaboration for the
development and commercialization of Bromocriptine and possibly other compounds
for Type II Diabetes Indications (as hereinafter defined), Obesity Indications
(as hereinafter defined), and possibly other indications,
1
<PAGE>
throughout the world. In connection therewith, ERGO desires to grant to ORTHO,
and ORTHO desires to obtain, rights to manufacture, develop and market
Bromocriptine and possibly other compounds and possibly combinations of
compounds for such Type II Diabetes indications, Obesity indications and
possible other indications worldwide, all on the terms and conditions set forth
in this Agreement;
WHEREAS, the Parties intend to record, characterize and report their
activities under this Agreement as separate activities of each of the Parties;
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and agreements contained herein, the parties hereto, intending to be
legally bound, do hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
SECTION 1.01. Definitions. The following terms, when capitalized, shall
-----------
have the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined) as used in this Agreement:
"Additional Indication" shall be determined on a compound by compound basis
-----------------------
for Collaboration Compounds and Collaboration Products. For a particular
Collaboration Compound or Collaboration Product, "Additional Indication" means
an Indication, other than a Development Indication, for which the Collaboration
Compound or Collaboration Product is, at the time of determination, being
jointly Developed and/or Commercialized pursuant to Articles IV, V or VII. An
Indication shall cease to be an "Additional Indication" for a particular
Collaboration Product at such time as such Collaboration Product is no longer
being jointly Developed by the Parties pursuant to Articles IV and V or
Commercialized pursuant to Article VII for such Indication.
"Adjusted Advanced Payment" shall have the meaning described in Section
---------------------------
4.08(c).
"Advanced Payment" shall have the meaning described in Section 4.08(c).
------------------
"Advertising" means the advertising and promotion of Collaboration Products
-------------
in the Profit/Loss Sharing Territory and through any means, including and not
limited to, without limitation, (i) television and radio advertisements; (ii)
advertisements appearing in journals, newspapers, magazines or other media;
(iii) seminars and conventions; (iv) packaging design; (v) professional
education programs; (vi) samples, visual aids and other selling materials; (vii)
hospital formulary committee presentations; and (viii) presentations to state
and other governmental formulary committees.
"Affiliate" means any person, corporation, partnership, firm, joint venture
-----------
or other entity which, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with ERGO
or ORTHO, as the case may be. As used in this definition, "control" means the
possession of the power to direct or cause the direction of the management and
policies of an entity, whether through the ownership of the outstanding voting
securities or by contract or otherwise.
"Allocated Administrative Expenses" means the administrative costs incurred
-----------------------------------
by a Party or for its account specifically attributable to employees,
consultants, and information systems that are engaged in the Development or
Commercialization of Collaboration Compounds and Collaboration Products.
Allocated Administrative Expenses shall be calculated in the manner set forth in
Exhibit A.
2
<PAGE>
"Allowable Expenses" means those expenses incurred in preparation for and
--------------------
after the commercial launch of a Collaboration Product that are generally
consistent with a Commercialization Plan and Commercialization Budget and are
specifically attributable to Collaboration Compounds or Collaboration Products
in the Territory, and shall consist of (i) Cost of Goods Sold, (ii) Allowable
Operating Expenses and (iii) a Cost of Capital Allowance.
"Allowable Operating Expenses" shall include Currency Gains and Losses, a
------------------------------
provision for uncollectible accounts, Pre-Marketing Expenses, Marketing
Expenses, Distribution Expenses, Post-Launch Product R&D Expenses, Allocated
Administrative Expenses and Patent Expenses, Trademark Expenses, and
Legal/Litigation Expenses, including outside counsel expenses.
"Bromocriptine" means that certain compound designated (5')-2-Bromo-12'-
---------------
hydroxy-2'-(1-methylethyl)-5'-(2-methylpropyl) ergotaman-3',6',18-trione,
including salts and optical isomers thereof and in the form of a Product.
"Capped Equalization Amount" shall have the meaning set forth in Section
---------------------------
8.02(b).
"CGMPS" means manufacturing practices in conformity with the FDA's
-------
regulations governing current good manufacturing practices set forth in 21
C.F.R. Part 210 et seq.
------
"Collaboration Compound" means an Eligible compound that has been accepted
------------------------
pursuant to Article V for joint Development and/or Commercialization by the
Parties for at least one Indication. A compound shall cease to be a
Collaboration Compound at such time as it is no longer being jointly Developed
or Commercialized by the Parties pursuant to Article V for any Indication. As of
the Effective Date, Bromocriptine is the one and only Collaboration Compound.
"Collaboration Product" means a human drug product other than an
-----------------------
Independent Product, in a form suitable for sale to an end user and/or for use
in conducting clinical studies, containing as an active ingredient at least one
Collaboration Compound.
"Combination Product" means a Collaboration Product containing at least one
---------------------
Collaboration Compound and one or more additional active ingredients. A
Combination Product may contain Bromocriptine.
"Commercial Equalization Payment" means the payment with respect to each
---------------------------------
Collaboration Product to be made by one Party to the other to share Operating
Profits or Operating Losses between the Parties that are to be shared by the
Parties in accordance with the provisions of Article VIII in the manner shown on
Exhibit B. The Commercial Equalization Payment excludes any accounting for
Development Expenses.
"Commercialization Activities" means activities relating to the
------------------------------
manufacture, marketing and sale of a Collaboration Product, including Pre-
Marketing, which in the Profit/Loss Sharing Territory is undertaken pursuant to
a Commercialization Plan ("Commercialization" means undertaking
Commercialization Activities).
"Commercialize" means undertake Commercialization Activities.
---------------
"Commercialization Budget" shall have the meaning set forth in Section
--------------------------
7.02.
"Commercialization Plan" shall have the meaning set forth in Section 7.02.
------------------------
3
<PAGE>
"Compounded Excess Equalization Payment" shall have the meaning set forth
----------------------------------------
in Section 8.02(b).
"Confidential Information" shall have the meaning set forth in Section
--------------------------
10.01.
"Consolidated Financial Statement" means the financial statements described
----------------------------------
in Section 8.02 and in the form set forth in Exhibit B.
"Control" or "Controlled" means the right to grant a license or sublicense
--------- ------------
to intangible property rights (including patent rights, know-how and/or trade
secret information), and the right to provide access to or cross-reference to
regulatory filings, in each case to the extent not in violation of the terms of
any pre-existing agreement or other arrangement with any Third Party. "Control"
expressly includes the right of ownership, in whole or in part.
"Cost of Capital Allowance" means the amount recoverable by either Party
---------------------------
under this Agreement for the use of its Utilized Capital allocated to the
business of this collaboration related to Collaboration Products in the
Profit/Loss Sharing Territory, and shall be equal in each fiscal quarter to (i)
the average Utilized Capital of such Party during the quarter (calculated on the
basis of Utilized Capital on the first working day of the fiscal quarter plus
Utilized Capital on the last working day of the fiscal quarter, divided by two)
multiplied by (ii)[*]. By way of example[*].
"Cost of Goods Sold" means the cost of Collaboration Product inventory
--------------------
sold, royalties paid to Third Parties on account of such sales, and other
manufacturing costs incurred with respect to Collaboration Products in the
Profit/Loss Sharing Territory. Cost of Goods Sold shall be calculated in the
manner set forth in Exhibit A.
"Currency Gains (Losses)" means gains or losses resulting from a change in
-------------------------
exchange rates (in the case of unhedged transaction) and/or the gains or losses
of related hedging transactions, in either case as associated with Collaboration
Products in the Profit/Loss Sharing Territory, calculated in the manner set
forth in Exhibit A.
"Development Activities" means activities relating to obtaining Regulatory
------------------------
Approval of Collaboration Compounds and Collaboration Products, and activities
relating to developing the ability to manufacture and continue to manufacture
the same including activities of Third Party manufacturers to manufacture
Collaboration Products Development Activities include but are not limited to
preclinical testing, toxicology, formulation, bulk production, manufacturing
process development, quality assurance and quality control technical support,
pharmacokinetics, clinical studies, regulatory affairs and outside counsel
regulatory legal services. Such activities when related to potential new
Indications prior to their designation as Additional Indications pursuant to
Article V, and such activities when related to Eligible Compounds prior to their
designation as Collaboration Compounds pursuant to Article V, shall be deemed
Pre-Selection Activities.
"Development" means undertaking Development Activities.
-------------
"Develop" means undertake Development Activities.
---------
"Development Budget" shall have the meaning set forth in Section 4.05.
--------------------
"Development Expenses" means the expenses incurred by a Party or for its
----------------------
account by a Third Party (including capital expenditures made by a Third Party
and reimbursed by a Party) which are generally consistent with a Development
Plan and Development Budget and are specifically attributable
4
<PAGE>
to the Development of a Collaboration Compound or Collaboration Product
(including royalties paid to a Third Party not otherwise recovered as a Cost of
Goods Sold). Development Expenses shall include, but are not limited to, the
cost of preclinical and clinical studies (whether conducted internally or by a
Third Party, individual investigators or consultants), toxicological,
pharmacokinetic, metabolic, analytical, formulation, and chemical studies, final
product scale-up, and qualification and validation batches as required for Pre-
Approval Inspection by FDA for the purpose of obtaining Regulatory Approval of a
Collaboration Product in the Profit/Loss Sharing Territory, and costs (and
related fees) for preparing, submitting, reviewing or developing data or
information for the purpose of submission to a governmental authority to obtain
and/or maintain Regulatory Approval of a Collaboration Product in the
Profit/Loss Sharing Territory.
"Development Indication" means, for a Collaboration Product, the Diabetes
------------------------
Indication and the Obesity Indication to the extent that the Collaboration
Product is, at the time of determination, being jointly Developed and/or
Commercialized pursuant to Articles IV, V or VII for such indication.
"Development Plan" shall have the meaning set forth in Section 4.05.
------------------
"Diabetes Indication" means the indication for use for the prophylaxis
---------------------
and/or treatment of impaired glucose tolerance, Type I diabetes, or Type II
diabetes in human patients.
"Direct Equivalent Full-Time" or "Direct EFT" means the work done by a
---------------------------- ----------
full-time employee that is directly related to the Development of the given
product. If the work requires less than one full-time employee, the partial
amount is based on a total of 52 weeks or 2,080 hours per year. Direct EFT work
excludes headcount supporting all general and administrative activities (as
defined in Exhibit A).
"Distribution Expenses" means the costs incurred by a Party or for its
-----------------------
account, specifically attributable to the distribution of a Collaboration
Product in the Profit/Loss Sharing Territory, to be calculated in the manner set
forth in Exhibit A.
"Drug Approval Application" means an application for Regulatory Approval
---------------------------
required to be approved before commercial sale or use of a Product as a drug in
a regulatory jurisdiction.
"Effective Date" shall have the meaning set forth in the Recitals to this
----------------
Agreement.
"Eligible Compound" means a compound, Controlled by a Party or an Affiliate
-------------------
of a Party, that has utility in the Field.
"EMEA" means the European Medicine Evaluation Agency.
------
"Equalization Payment" means a Commercial Equalization Payment or a
----------------------
Compounded Excess Equalization Payment.
"Equivalent Full-Time Rate" or "EFT Rate" means the annually determined
--------------------------- --------
rate that will be charged by one Party to the other for each Direct EFT working
on a given Collaboration Product in the Profit/Loss Sharing Territory. As of the
Effective Date, the ORTHO EFT Rate shall be [*] and the ERGO EFT Rate shall
be[*]. Each EFT Rate shall be subject to adjustment annually by the method
described in Section 4.08(a).
"ERGO Know-how" means Information which (i) ERGO discloses to ORTHO under
--------------
this Agreement and (ii) is within the Control of ERGO.
5
<PAGE>
"ERGO Patent" means a Patent which, absent rights thereunder, would be
-------------
infringed by the research, development, manufacture, use, importation, sale or
offer for sale of a Collaboration Compound or a Collaboration Product for a
Development Indication or, if any, an Additional Indication, and an Independent
Product for Independent Indication which Patent is Controlled by ERGO, including
patents Controlled by ERGO based on ERGO's interest in any Joint Patents. A
list of ERGO Patents, as of the Effective Date, relating to the use of
Bromocriptine in the Metabolic Indication is attached hereto as Exhibit D-1.
Such list shall be modified from time-to-time to reflect any changes in status
with respect to ERGO Patents and/or changes in the joint Development and/or
Commercialization of Collaboration Compounds for Development and/or Additional
Indications and Independent Products for Independent Indications. Such Patents
listed in Exhibit D-1, as amended, shall be deemed to be Controlled by ERGO for
purposes of this Agreement.
"ERGO Trademark Rights" means any and all trademark rights that ERGO
-----------------------
Controls, including the trademark for ERGOSET tablets.
"Excepted Development Matters" shall have the meaning set forth in Section
------------------------------
4.02(b).
"FDA" means the United States Food and Drug Administration, or any
-----
successor agency.
"Field" means the diagnosis, treatment and/or prophylaxis of diabetes or
-------
obesity in humans with a medical agent acting principally through an NRT
Mechanism.
"HSR Date" means the date on which, under the Hart-Scott-Rodino Anti-trust
--------
Improvements Act of 1976, as amended ("HSR Act"), the rights and obligations of
the Parties under this Agreement as provided in Section 17.19 become effective.
"Independent Product" means a human drug product containing an Eligible
---------------------
Compound being separately developed by a Party for one or more indications (the
"Independent Indications") in which the active ingredient therein either (i) was
formerly a Collaboration Compound that, at the time of determination, is no
longer being jointly Developed or Commercialized by the Parties for such
Independent Indications as a consequence of the termination of joint Development
under Section 5.02(d) or Section 5.04(b) or (ii) that is being developed for
Independent Indications with respect to which ORTHO did not elect to participate
in joint Development and/or Commercialization for such Independent Indications
notwithstanding ORTHO's options to do so pursuant to Section 5.04(b).
"Indication" means a Metabolic Indication or a Non-metabolic Indication.
------------
"Information" means (i) techniques and data relating to Collaboration
-------------
Compounds, Collaboration Products and Combination Products and Eligible
Compounds to the extent offered for joint Development as set forth in Article V
and including (but not limited to) inventions, practices, methods, knowledge,
know-how, skill, experience, test data including pharmacological, toxicological,
preclinical and clinical test data, analytical and quality control data,
marketing, pricing, distribution, cost, sales and manufacturing data or
descriptions, and (ii) compounds, compositions of matter, assays and biological
materials related thereto.
"Initial Development Plan and Budget" means the initial Development Plan
-------------------------------------
and Budget concerning the Development of an Eligible Compound or a Collaboration
Compound for an Indication that is not, at the time the plan is prepared and
agreed to as provided in Article V, an extant Development
6
<PAGE>
Indication or an extant Additional Indication. "Initial Development Plan and
----------------------------
Budget for Bromocriptine" means the initial Development Plan and Budget as set
- ------------------------
forth in Exhibit E concerning the Development of Bromocriptine for the Type II
Diabetes Indication and the Obesity Phase IIA Clinical Trial, as set forth in
Section 4.05.
"Internal Cost" means the expenses charged by one Party to the other for
---------------
Development of a Collaboration Compound or a Collaboration Product performed by
employees of the Parties. The yearly amount is calculated by multiplying the EFT
Rate by the number of Direct EFTs for the given year.
"Joint Project Team" or "JPT" means the committee established pursuant to
-------------------- -----
Section 2.07 below.
"Joint Patent" shall have the meaning set forth in Section 11.03(a).
--------------
"Label Claim" means a claim for an indication of use as a result of
-------------
Regulatory Approval.
"Launch Budget" shall have the meaning set forth in Section 7.02.
---------------
"Launch Date" means the date of the first offer for Commercial Sale,
-------------
following Regulatory Approval, of a Collaboration Product in the United States.
"Launch Plan" shall have the meaning set forth in Section 7.02.
-------------
"Lead Development Party" or "LDP" means the Party responsible hereunder for
------------------------ -----
the Development of a Collaboration Compound for a particular Indication at the
relevant stage of Development, and shall be the Party carrying out or having
carried out the Development Plan related thereto, as further described in
Section 4.03 hereof.
"Losses" shall have the meaning set forth in Section 15.01(a).
--------
"LSU Patent" means the Patents, listed in Exhibit D2, licensed to and, for
------------
purposes of this Agreement, Controlled by ERGO.
"Major European Market Country" means France or Germany.
-------------------------------
"Manufacturing Party" shall be any Party responsible for the (i)
---------------------
manufacturing and supply of Collaboration Compounds and Collaboration Products
for use during Development or (ii) commercial manufacture and supply of
Collaboration Products, as the case may be.
"Marketing Expenses" means the costs that are generally consistent with a
--------------------
Commercialization Budget and Commercialization Plan and are incurred after the
first commercial launch of a Collaboration Product and are specifically
attributable to the sale, promotion, advertising, and marketing of such
Collaboration Product in the Profit/Loss Sharing Territory. Marketing Expenses
shall be calculated in the manner set forth in Exhibit A.
"Material Breach" shall have the meaning set forth in Section 14.02(f).
-----------------
"Metabolic Indications" means the Diabetes Indication and the Obesity
-----------------------
Indication.
"Milestone Payment" means, collectively, the Type II Diabetes Milestone
-------------------
Payments, the Obesity Milestone Payments, and the Non-Metabolic Indication
Milestone Payment.
7
<PAGE>
"NDA" means a complete New Drug Application and all amendments and
-----
supplements thereto filed with the FDA including all documents, data, and other
information concerning a Collaboration Product, which are necessary for, or
included in, FDA approval to market such Collaboration Product as more fully
defined in 21 C.F.R. 314.5 et seq.
"NDA Approval" means the approval of an NDA by the FDA required before
--------------
commercial sale or use of a Collaboration Product as a drug in the United
States.
"Net Trade Sales" means the amount invoiced by a Party or its Affiliate for
-----------------
sales of Collaboration Products to a Third Party in the Profit/Loss Sharing
Territory, less estimates which will be adjusted to actual on a periodic basis
of: (i) discounts, including cash discounts, discounts to managed care or
similar organizations, rebates paid, credit, accrued or actually taken,
including government rebates such as Medicaid chargebacks, and retroactive price
reductions or allowances actually allowed or granted from the billed amount, and
commercially reasonable and customary fees paid to distributors (other than to a
distributor that is an Affiliate of such Party), (ii) credits or allowances
actually granted upon claims, rejections or returns of such sales of
Collaboration Products, including recalls, regardless of the Party requesting
such recalls, and (iii) taxes, duties or other governmental charges levied on or
measured by the billing amount when included in billing, as adjusted for
rebates, chargebacks, and refunds.
"Non-Manufacturing Party" shall be any Party that is not a Manufacturing
-------------------------
Party.
"Non-Metabolic Indication" means an indication for use for the treatment of
--------------------------
human patients, other than a Metabolic Indication.
"Non-Metabolic Indication Milestone Payment" shall have the meaning set
--------------------------------------------
forth in Section 5.05
"NRT Mechanism" or "Neuroendocrine Resetting Therapy Mechanism" means a
--------------- --------------------------------------------
mechanism of action that produces or induces a therapeutically beneficial
modification, at one or more specified times of day, of the levels or activity
of at least one of prolactin, dopamine, serotonin, dopamine -hydroxylase, or any
receptor or receptor subtype for any of the foregoing, or any other hormone,
neurotransmitter, enzyme or receptor whose modification is the subject of a
claim in one or more of the U.S. patents and pending U.S. patent applications
listed on Exhibit D1 and Exhibit D2.
"Obesity Indication" means the indication for use for the prophylaxis or
--------------------
treatment of obesity or overweight in human patients by reducing weight and/or
body fat and/or modifying body composition (i.e. improving the lean to fat mass
ratio).
"Obesity Milestone Payments" shall have the meaning set forth in Section
----------------------------
3.02(b).
"Obesity Phase IIA Trial" means ERGO's Phase IIA Clinical Trial currently
-------------------------
designated under protocol number 2-97-2.1 and includes all modifications thereto
(including a change in protocol number).
"Off-label Sales" means the sale by an unlicensed Third Party of a human
-----------------
drug product that has the same active ingredients as a Collaboration Product for
an Indication that is different from the approved Indication for such unlicensed
product.
8
<PAGE>
"Operating Profits or Losses" means the profits or losses relating to the
-----------------------------
Commercialization of Collaboration Compounds and Collaboration Products in the
Profit/Loss Sharing Territory and shall be equal to (i) Net Trade Sales less
(ii) Allowable Expenses. A separate determination of Net Trade Sales, Allowable
Expenses and Operating Profits or Losses shall be made for each Collaboration
Product as outlined in Exhibit B. In the event multiple Collaboration Products
are being Commercialized under this Agreement, the individual statements of
Operating Profits or Losses shall then be used to produce a single statement of
Operating Profits or Losses for purposes of overall accounting between the
Parties.
"ORTHO Know-how" means Information that (i) ORTHO discloses to ERGO under
----------------
this Agreement and (ii) is within the Control of ORTHO.
"ORTHO Patent" means a Patent which, absent rights thereunder, would be
--------------
infringed by manufacture, use, importation, sale or offer for sale of a
Collaboration Product, which Patent is Controlled by ORTHO, including patents
Controlled by ORTHO based on ORTHO's interest in any Joint Patents. As of the
Effective Date, there are no ORTHO Patents.
"Out of Pocket Expenses" means all costs and expenses, other than Internal
------------------------
Costs, that are directly related to the Development of a Collaboration Compound
or a Collaboration Product, including (without limitation):
(1) Clinical Studies, including expenses associated with the cost for a
clinical protocol,
(2) Pre-Clinical Studies, including outside contractual agreements for
research studies that will provide data to facilitate the New Drug Application
with the FDA or any other appropriate international authority,
(3) Outside Consultants, including outside contractual agreements with
expert consultants, and
(4) R&D Supplies, including expenses associated with the cost of all
project related materials and supplies utilized for the development of drug
studies and the production of demonstration and experimental batches,
"Patent" means patents, applications for patent, provisional applications
--------
for patent, and reexamination certificates, reissue patents, patent extensions,
patent term restorations, including any divisions, continuations and
continuations-in-part thereof, in any country, region, or jurisdiction.
"Patent Expenses" means the fees, expenses and disbursements of outside
-----------------
counsel, and payments to Third Party agents incurred in connection with the
preparation, filing, prosecution and maintenance of ERGO Patents, ORTHO Patents
and Joint Patents covering Collaboration Compounds and Collaboration Products,
including the costs of patent interference and opposition proceedings.
"Phase I Clinical Trial" means that portion of the clinical development
------------------------
program which provides for the first introduction into humans of a Product with
the purpose of determining human toxicity, metabolism, absorption, elimination
and other pharmacological action as more fully defined in 21 C.F.R. 312.21(a).
"Phase IIA Clinical Trial" means that portion of the clinical development
--------------------------
program which provides for the initial trials of a Collaboration Compound on a
limited number of patients for the purpose of determining whether the
Collaboration Compound affects a surrogate marker or indicator of
pharmacological or clinical activity in the proposed disease state/therapeutic
indication.
9
<PAGE>
"Phase IIB Clinical Trial" means that portion of the post-Phase IIA
--------------------------
clinical development program which provides for the definitive, well controlled
clinical trials of a Collaboration Compound in patients for the purpose of
determining the safe and effective dose range in the proposed therapeutic
indications as more fully described in 21 C.F.R. 312.21 (b).
"Phase III Clinical Trials" means that portion of the clinical development
---------------------------
program which provides for continued trials of a Product on sufficient numbers
of patients to establish the safety and efficacy of a Product and generate
pharmaco-economic data to support regulatory approval in the proposed
therapeutic indication as more fully defined in 21 C.F.R. 312.21(c).
"Phase IIIB Clinical Trials" means product support clinical trials of a
----------------------------
Collaboration Product in the Profit/Loss Sharing Territory (i.e., a clinical
trial which the JPT determines is not required for receipt of initial Regulatory
Approval but which may be useful in providing additional drug profile data or
expansion of the Collaboration Product's Label Claim) commenced after NDA filing
but before NDA approval. These trials shall be considered a part of
Commercialization Activities, except for the clinical trials for Bromocriptine
specifically identified in Exhibit E, which trials shall be considered
Development Activities for the purposes of this Agreement; provided, however,
that the clinical trials for Bromocriptine identified in Exhibit E shall in any
event be designated Phase IIIB Clinical Trials.
"Phase IV Clinical Trials" means product support clinical trials, including
--------------------------
new drug delivery systems, of a Collaboration Product with an approved Label
claim commenced after receipt of Regulatory Approval in the country where such
trial is being conducted. These trials shall be considered a part of
Commercialization.
"Post-Launch Product R&D Expenses" means the costs of Phase IIIB Clinical
----------------------------------
Trials and Phase IV Clinical Trials and ongoing product support (including
manufacturing and quality assurance technical support, and laboratory and
clinical efforts directed toward the further understanding of product safety and
efficacy) and medical affairs (including regulatory support safety and
surveillance necessary for product maintenance) which are specifically
attributable to a Collaboration Product in the Profit/Loss Sharing Territory
where such Collaboration Product has been launched, excluding costs that are
included within Costs of Goods Sold or Development Expenses and any costs
reasonably associated with maintaining Regulatory Approval of Collaboration
Compounds and Products. Post-Launch Product R&D Expenses shall be calculated in
the manner set forth in Exhibit A. Notwithstanding the foregoing, with respect
to Phase IIIB Clinical Trials for Bromocriptine specifically identified in
Exhibit E, the costs of such trials shall not be a Post-Launch Product R&D
Expense, but shall instead be treated as a Development Expense for the purposes
of this Agreement, but ORTHO may elect for its internal purposes to treat such
expenses as commercialization expenses.
"Pre-Approval Inspection" or "PAI" means the FDA inspection of
------------------------- ---
manufacturing process and facilities as part of NDA-approval.
"Pre-Marketing" means undertaking Pre-Marketing Activities.
---------------
"Pre-Marketing Activities" means Commercialization Activities undertaken
--------------------------
prior to and in preparation for the launch of a Collaboration Product in the
Profit/Loss Sharing Territory, consistent with a Commercialization Plan and
Commercialization Budget and prior to the first commercial launch of such
Collaboration Product in the Profit/Loss Sharing Territory. Pre-Marketing
Activities shall include, but are not limited to, Advertising, education, sales
force training, trademark activities (including selection, filing, prosecution
and enforcement) and other activities included within the
10
<PAGE>
Commercialization Plan prior to the first commercial launch of such
Collaboration Product in the Profit/Loss Sharing Territory.
"Pre-Marketing Expenses" means the costs, excluding Development Expenses,
------------------------
specifically attributable to the Pre-Marketing of a Collaboration Product.
"Pre-Selection Activities" means the scientific, technical, pre-clinical,
--------------------------
regulatory, and clinical activities undertaken to discover, develop and/or
evaluate a potential indication that is not already a Development Indication or
an Additional Indication for a Collaboration Compound or an Eligible Compound
pursuant to Article V, including screening, chemistry, pharmacology,
pharmacokinetics, toxicology, formulation, process development, manufacture
(including manufacture of bulk drug substance and drug product) for clinical
trials, and clinical pharmacology data.
"Pre-Selection" means undertaking Pre-Selection Activities.
---------------
"Pre-Selection Expenses" means the expenses incurred by a Party or for its
------------------------
account specifically attributable to Pre-Selection Activities.
"Product Financial Statements" means the financial statements described in
-----------------------------
Section 8.02 and in the form set forth in Exhibit B.
"Products" means Collaboration Products and Independent Products.
----------
"Profit/Loss Sharing Territory" means the United States, its territories
-------------------------------
and possessions.
"Regulatory Agency" means the equivalent of the FDA in any country of the
-------------------
world, the EMEA or other organization of European countries, or organization of
other regions of the world other than the United States of America.
"Regulatory Approval" means any approvals (including, but not limited to,
---------------------
NDA Approval, pricing and reimbursement approvals), product and/or establishment
licenses, registrations or authorizations of any federal, state or local
regulatory agency, department, bureau or other governmental entity, necessary
for the commercial manufacture, use, storage, importation, export, transport or
sale of Collaboration Products in a regulatory jurisdiction.
"Royalty Bearing Product" means a Collaboration Product marketed directly
-------------------------
or indirectly by ORTHO in the Royalty Bearing Territory pursuant to Section 7.03
or Section 8.02.
"Royalty Bearing Sales" means the amount invoiced by a Party or its
-----------------------
Affiliates for sales of Collaboration Products to a Third Party in the Royalty
Bearing Territory and sales of Independent Products, if any, to a Third Party,
less estimates which will be adjusted to actual on a periodic basis of: (i)
discounts, including cash discounts, discounts to managed care or similar
organizations, rebates paid, credit, accrued or actually taken, including
government rebates such as Medicaid chargebacks, and retroactive price
reductions or allowances actually allowed or granted from the billed amount, and
commercially reasonable and customary fees paid to distributors (other than to a
distributor that is an Affiliate of such Party), (ii) credits or allowances
actually granted upon claims, rejections or returns of such sales of
Collaboration Products, including recalls, regardless of the Party requesting
such recalls, and (iii) taxes, duties or other governmental charges levied on or
measured by the billing amount when included in billing, as adjusted for
rebates, chargebacks, and refunds, (iv) freight, postage, shipping and insurance
charges paid for delivery of such Products, to the extent billed, and provisions
for uncollectible
11
<PAGE>
accounts determined in accordance with such Party's normal accounting procedures
consistently applied within and across its pharmaceutical operating units.
In the event that Independent Products are sold in the form of Combination
Products containing one or more active ingredients or active ingredients in
combination with a drug delivery device, that are not other Independent
Products, the Parties will agree on what portion of the Royalty Bearing Sales
will be allocated to the Independent Product.
"Royalty Bearing Territory" means the world, excluding (i) the Profit/Loss
---------------------------
Sharing Territory (unless for a particular Collaboration Product ORTHO elects to
convert such Profit/Loss Sharing Territory to a Royalty Bearing Territory) and
(ii) Japan if ORTHO does not exercise its option as set forth in Section
3.02(c).
"Royalty Percentage" shall have the meaning set forth in Section 8.04.
--------------------
"Safety" means adverse experiences that are significant, serious or life
--------
threatening and that have a toxicological effect(s) on one or more body tissues.
"Selling Expenses" shall have the meaning set forth in Exhibit A.
------------------
"Steering Committee" means the committee described in Section 2.01.
--------------------
"Third Party" means any entity other than ERGO or ORTHO and their
-------------
respective Affiliates.
"Tolerability" means adverse drug experiences that are unpleasant to such
-------------
an extent that they can materially and adversely affect market potential or
market penetration of a Collaboration Product, but which do not necessarily
require discontinuation of drug therapy.
"Trademark Expenses" means the fees, expenses and disbursements of outside
--------------------
counsel, and payments to Third Party agents incurred in connection with the
preparation, filing, prosecution and maintenance of trademarks covering
Collaboration Compounds and Collaboration Products, including the costs of
trademark interference and opposition proceedings.
"Type II Diabetes Indication" means the indication for use for the
-----------------------------
prophylaxis or treatment of impaired glucose tolerance and/or Type II Diabetes
in human patients, which indication may or may not include a claim for weight or
fat reduction in Type II Diabetics.
"Type II Diabetes Milestone Payments" shall have the meaning set forth in
-------------------------------------
Section 3.02(a).
"Utilized Capital" means the amount of a Party's capital specifically
------------------
attributable to the support of a particular Collaboration Product in the
Profit/Loss Sharing Territory, and shall consist solely of the amount of the
Party's consolidated net working capital dedicated to the carrying cost of
accounts receivable, inventory, pre-paid assets and capital expenditures.
ARTICLE II
MANAGEMENT
----------
SECTION 2.01. Steering Committee. ERGO and ORTHO shall create, within
------------------
thirty (30) days after the Effective Date (or such later time as may be mutually
agreed to by the Parties), a Steering
12
<PAGE>
Committee. The Steering Committee shall have an equal number of representatives
from each Party and the size of the Steering Committee shall not exceed a total
of four (4) members. Members of the Steering Committee shall be composed of
senior personnel of the Parties. One member of the Steering Committee selected
by ERGO and one member of the Steering Committee selected by ORTHO shall have
substantial experience in pharmaceutical product research and development. One
member of the Steering Committee selected by ERGO and one member of the Steering
Committee selected by ORTHO shall have appropriate executive experience. Members
of the Steering Committee shall serve on such terms and conditions as shall be
determined by the Party selecting such person for membership on the Steering
Committee. An alternate member designated by a Party may serve temporarily in
the absence of a permanent member designated by such Party.
SECTION 2.02. Meetings of the Steering Committee. The Steering Committee:
----------------------------------
(a) Shall hold meetings at such times and places as shall be determined by
a majority of the entire membership of the Steering Committee, but in no event
shall such meetings be held less frequently than once every six (6) months and
such meetings shall alternate between the offices of the Parties unless
otherwise agreed;
(b) May conduct meetings in person or by telephone conference, provided
that, any decision made during a telephone conference meeting is evidenced in a
conformed writing signed by one of the members of the Steering Committee from
each of the Parties;
(c) Shall keep minutes reflecting actions taken at meetings;
(d) May act without a meeting if prior to such action a written consent to
such action is signed by all members of the Steering Committee; and
(e) May amend or expand upon the foregoing procedures for its internal
operation by unanimous written consent.
SECTION 2.03. Functions and Powers of the Steering Committee. The
----------------------------------------------
activities of the Parties under this Agreement as they relate to the Profit/Loss
Sharing Territory shall be coordinated by the Steering Committee to the extent
set forth herein. The Steering Committee shall perform the following functions:
(a) Coordinate the long-range strategy and planning only for the
Development of Collaboration Products in the Profit/Loss Sharing Territory for
each Development Indication and, if any, each Additional Indication in the
manner contemplated by this Agreement;
(b) Attempt to settle disputes or disagreements that are unresolved by the
JPT relating to Excepted Development Matters which are referred to it by the JPT
pursuant to Section 4.02(b) or other Development matters which are referred to
it by either Party pursuant to Section 16.01;
(c) Subject to Section 4.05(e), review, modify and approve the Development
Plans and Development Budgets for the Profit/Loss Sharing Territory submitted to
it by the JPT pursuant to Article IV, it being understood by the Parties that
the Development Plans and Development Budgets in the Royalty Bearing Territory
do not require Steering Committee approval;
(d) Review and approve the Development Plans and Development Budgets in the
Profit/Loss Sharing Territory submitted to it by the JPT pursuant to Article V
if ORTHO exercises its option(s)
13
<PAGE>
pursuant to Article V to include an indication that is not then an extant
Development Indication or an extant Additional Indication with respect to a
Collaboration Product or a Collaboration Compound or to Develop an Eligible
Compound for a initial Development Indication or an initial Additional
Indication; and
(e) Perform such other functions as appropriate to further the purposes of
this Agreement as mutually determined by the Parties.
SECTION 2.04. Steering Committee Actions. Actions to be taken by the
--------------------------
Steering Committee pursuant to the terms of this Agreement shall be taken only
following the unanimous vote of the members of the Steering Committee. The
Steering Committee shall attempt to have all decisions approved by all members
of the Steering Committee. If the members of the Steering Committee cannot
reach a unanimous decision with respect to Development matters referred to it
for approval within sixty (60) days following such referral, the final decision
on such matters shall be made by ORTHO except for Excepted Development Matters.
If the members of the Steering Committee cannot reach a unanimous decision with
respect to any of the Excepted Development Matters which have been referred to
it pursuant to Section 4.02(b) for resolution or approval, the status quo shall
be maintained with respect to Excepted Development Matters items (i) and (ii) in
Section 4.02(b), except in the case where ORTHO desires to accelerate or
increase spending with respect to an existing Development Plan as specifically
provided in this subsection. As to Excepted Development Matters (i) and (ii)
the status quo shall be maintained (e.g., no updated Development Plan and/or
updated Development Budget shall be established); provided, however, that if
ORTHO desires to accelerate or increase spending in order to increase the size,
increase the number of, or expand the extent of studies with respect to any of
the Collaboration Compound's extant Development Indications and/or extant
Additional Indications contained in the Development Plan, including, but not
limited to, accelerating the Plan to conduct additional clinical trials that
ORTHO reasonably believes might be required by the FDA to obtain FDA approval of
the Collaboration Product for a type II Diabetes Indication, ORTHO may proceed
to do so at its own expense. If the indication for which such accelerated or
increased spending has taken place is approved by the FDA and the Collaboration
Product is thereafter Commercialized for such indication, ERGO agrees to repay
[*] of any increased spending together with interest at an annual rate of[*].
Such repayment shall be accomplished by deductions from the amount due to ERGO
from ERGO's share of Operating Profits attributable to such Collaboration
Product, such deductions by ORTHO to commence upon NDA Approval and launch of
the Collaboration Product for the Indication with respect to which spending by
ORTHO was accelerated or increased. As to Excepted Development Matter item
(iii) in Section 4.02(b), the clinical trial shall be terminated if the Steering
Committee does not reach unanimous decision after prompt consideration. As to
Excepted Development Matter (iv) in Section 4.02(b), the final decision shall be
made by ERGO, excluding all exceptions provided in Section 4.02(b) for which
ORTHO shall make the final decision. As to Excepted Development Matter (v) in
Section 4.02(b), ERGO shall make the final decision. Except as provided for
above in this Section 2.04, if the Steering Committee fails to reach agreement
on a matter before it for decision, the matter shall be referred to executive
officers of the Parties pursuant to Section 16.01. The manner described in this
Section 2.04 to resolve disputes regarding Excepted Development Matters shall be
the sole mechanism for resolving such matters under this Agreement.
SECTION 2.05. Obligations of Parties. ERGO and ORTHO shall provide the
----------------------
Steering Committee and its authorized representatives with reasonable access
during regular business hours to all records and documents of the respective
Parties relating to this Agreement that the committee may reasonably require in
order to perform its obligations hereunder; provided, however, that if such
documents are under a bona fide obligation of confidentiality to a Third Party
then a Party may withhold access thereto to the extent necessary to satisfy such
obligation.
14
<PAGE>
SECTION 2.06. Limitations of Powers of Committees.
-----------------------------------
(a) The Steering Committee shall have only such powers as are specifically
delegated to it hereunder. Except as set forth in Section 2.03, the Steering
Committee shall not be involved with the day-to-day management of the
collaboration under this Agreement.
(b) Notwithstanding the creation of the Steering Committee, the JPT, or any
subcommittees thereof, each Party to this Agreement shall retain the rights,
powers, and discretion granted to it hereunder, and such committees and
subcommittees shall not be delegated or vested with any such rights, powers, or
discretion unless such delegation or vesting is expressly provided for herein or
the Parties expressly so agree in writing. Such committees or subcommittees
shall not have the power to amend or modify this Agreement, which may be amended
or modified only as provided in Section 17.15.
SECTION 2.07. Formation of Joint Project Team (JPT). The Parties shall
-------------------------------------
establish the JPT within thirty (30) days after the Effective Date as more fully
set forth in Article IV hereof.
SECTION 2.08. Accounting.
----------
(a) For the purposes of determining all costs and expenses hereunder, any
cost or expense allocated by either Party to a particular category for a
particular Collaboration Product shall not also be allocated to another category
for such Collaboration Product, and any cost or expense allocated to a
particular Collaboration Product in a particular country shall not be allocated
to another Collaboration Product or the same Collaboration Product in a
different country.
(b) Each Party agrees to determine Net Trade Sales, Royalty Bearing Sales,
Allowable Expenses, Development Expenses, Pre-Selection Expenses and all other
costs and expenses hereunder with respect to Collaboration Products, Royalty
Bearing Products and Independent Products consistent with the definitions
thereof contained herein and using its standard accounting procedures,
consistent with United States generally accepted accounting principles, to the
extent practical as if such Products were solely owned products of such Party,
except as specifically provided in this Agreement. Each Party shall keep
reasonably detailed records of the foregoing from which the material components
of such items can be derived.
ARTICLE III
INITIAL LICENSING FEE AND MILESTONE PAYMENTS
--------------------------------------------
SECTION 3.01. License Fee and Equity.
-----------------------
(a) Initial Licensing Fee. As partial payment for the patent and know-how
---------------------
licenses granted by ERGO pursuant to Article VI hereof, ORTHO shall pay to ERGO
a license fee equal to ten million dollars ($10,000,000) within ten (10)
business days after the HSR Date. This fee shall be nonrefundable and shall be
non-creditable against any future obligations of ORTHO under this Agreement.
(b) Equity Investment. ORTHO, through the Johnson & Johnson Development
------------
Corporation shall make an equity investment of ten million dollars ($10,000,000)
in ERGO pursuant to the terms and conditions of a Stock Purchase Agreement of
even date between Johnson & Johnson Development Corporation and ERGO.
SECTION 3.02. Bromocriptine Milestone Payments.
--------------------------------
15
<PAGE>
(a) Bromocriptine Type II Diabetes Milestone Payments. ORTHO shall make
-------------------------------------------------
the following payments ("Bromocriptine Type II Diabetes Milestone Payments") to
ERGO within fifteen (15) business days after the first achievement of each
milestone that follows (but not before the HSR Date):
TYPE II DIABETES MILESTONES PAYMENT
[*]
(b) Obesity Indication Milestone Payments for the First Collaboration
-----------------------------------------------------------------
Compound Developed for the Obesity Indication. ORTHO shall make the following
- ----------------------------------------------
milestone payments ("Obesity Indication Milestone Payments") to ERGO within
fifteen (15) business days after the first achievement of the milestones that
follow (but not before the HSR Date):
OBESITY INDICATION AND SALES MILESTONE PAYMENTS
[*]
16
<PAGE>
(c) Option to include Japan in the Royalty Bearing Territory
------------------------------------------------------------
As of the Effective Date of this Agreement and until[*], ORTHO shall have
an exclusive option to include Japan in the Royalty Bearing Territory.
ORTHO may exercise such option [*]by paying ERGO within that period the sum
of [*] or;
[*], ORTHO may, at its sole discretion, elect to extend the exclusive
option period [*](the Extended Option Period), by a payment to ERGO of[*]. At
any time during the Extended Option Period, ORTHO may elect to include Japan in
the Royalty Bearing Territory for a payment of [*] to ERGO.
If ORTHO exercises its option as set forth above to include Japan in the
Royalty Bearing Territory, ORTHO shall make the following payments to ERGO
within fifteen (15) business days after the first achievement of each of the
following milestones:
[*]
In the event that ORTHO does not exercise ORTHO's option to include Japan
in the Royalty Bearing Territory, then all rights granted to ORTHO in this
Agreement in Japan shall revert to ERGO, Japan shall no longer be within the
Territory, and ERGO shall be free to develop and/or commercialize Eligible
Compounds for any Indication, independent of this Agreement, in Japan alone or
with a Third Party.
ARTICLE IV
DEVELOPMENT
-----------
SECTION 4.01. Formation of the Joint Project Team. Within thirty (30) days
------------------------------------
after the Effective Date (or such later time as may be mutually agreed to by the
Parties), the Parties shall establish the Joint Project Team (hereinafter
referred to as the JPT). The JPT shall consist of an equal number of
representatives of ERGO and ORTHO to be agreed upon by the Parties from time to
time. Either Party may designate a substitute for a member unable to be present
at a meeting. One of the ORTHO members of the JPT, chosen at the sole
discretion of ORTHO, along with one of the ERGO members of the JPT, chosen at
the sole discretion of ERGO, shall serve as co-chairs of the JPT. Regardless of
the number of representatives from each Party on the JPT, each Party shall have
one vote on any matter on which the JPT makes a decision. Meetings of the JPT
shall be held at least quarterly and may be called by either Party with not less
than ten (10) business days notice to the other unless such notice is waived,
and meetings shall alternate between the offices of the Parties unless otherwise
agreed. The JPT may be convened, polled or consulted from time to time by means
of telecommunication or correspondence. Each Party will disclose to the other
proposed agenda items reasonably in advance of each meeting of the JPT. Each
Party shall bear its own costs for participation in the JPT, and such costs
shall not be included in Development Expenses.
SECTION 4.02. Responsibilities of JPT.
-----------------------
(a) The JPT will plan and coordinate the Development in the Profit/Loss
Sharing Territory (taking into consideration the need to coordinate Development
Activities in the Profit/Loss Sharing Territory with activities in the Royalty
Bearing Territory) of (i) Collaboration Compounds and Collaboration Products for
Development Indications and/or Additional Indications and (ii) to the extent
17
<PAGE>
ORTHO exercises its option(s) under Article IV to include Additional
Indications, if any, in order to obtain Regulatory Approvals in the Profit/Loss
Sharing Territory as set forth in this Article IV. The JPT, in coordination
with the Lead Development Party, will also prepare the Development Plans and
Development Budgets and submit them to the Steering Committee for approval. In
addition, the JPT will oversee and provide such support with respect to Phase
IIIB Clinical Trials and Phase IV Clinical Trials as may be reasonably be
requested by ORTHO.
(b) All decisions by the JPT shall be made unanimously, after an open and
informed discussion of the matters as to which decisions are being made. Except
as provided below, if the JPT is unable to make a unanimous decision as to any
matter involving Development, the decision of ORTHO on such matters will be
final and determinative with respect to all Collaboration Compounds and/or
Collaboration Products so long as such decision does not contradict or modify
the terms of this Agreement. The following exceptions to an ORTHO decision must
be referred to the Steering Committee for decision, pursuant to Section 2.04;
(i) increasing a Development Budget within the Profit/Loss Sharing Territory;
(ii) altering a Development Plan for the Profit/Loss Sharing Territory in any
material respect, including changing the indications for which a Collaboration
Product is being developed; (iii) terminating any Clinical Trial for the
Profit/Loss Sharing Territory prior to completion in accordance with its
protocol; (iv) conducting the Development of Bromocriptine for the Type II
Diabetes Indication up to the approval of a Drug Approval Application for the
Type II Diabetes Indication, within the Profit/Loss Sharing Territory with the
exception of product labeling, the product label, Advertising, Phase IIIB
Clinical Trials (other than those described in Exhibit E), and Phase IV Clinical
Trials and further Development as required by the FDA as described in Section
4.03; or (v) conducting the Development of Bromocriptine for the Obesity
Indication up to the completion of the Obesity Phase IIA Clinical Trial within
the Profit/Loss Sharing Territory (items (i)-(v) collectively being, hereafter,
"Excepted Development Matters").
(c) The JPT will have the power to form subcommittees with equal (unless
otherwise agreed) and appropriate representation from ERGO and ORTHO.
SECTION 4.03. Lead Development Party. The LDP shall be obligated and
----------------------
responsible for carrying out Development pursuant to each Development Plan. ERGO
will be the Lead Development Party in the Profit/Loss Sharing Territory with
respect to (i) obtaining FDA Approval and completion of any and all Phase IIIB
Clinical Trials for Bromocriptine as described in Exhibit E, provided, however,
that if the FDA requires further Development that would in the opinion of ORTHO
delay the NDA approval six (6) months or longer past September, 1998, ERGO shall
remain LDP, but, in this instance, the JPT shall make any and all decisions
regarding strategy and work that must be done to obtain NDA approval and any
such work shall be carried out under the direction of ORTHO; (ii) completion of
the Obesity Phase IIA Clinical Trial; and (iii) Developing all other
Collaboration Compounds and/or Collaboration Products through the completion of
any and all Phase IIA Clinical Trials. ORTHO shall be the LDP in the Profit/Loss
Sharing Territory for any and all: (a) Clinical Trials for the Obesity
Indication for Bromocriptine commencing with the start of Phase IIB Clinical
Trials; (b) Clinical Trials for all other Collaboration Products commencing with
Phase IIB Clinical Trials; and (c) Phase IIIB Clinical Trials not recited in
Exhibit E and Phase IV Clinical Trials for Bromocriptine and other Collaboration
Compounds approved for sale in the Profit/Loss Sharing Territory. In connection
with the preceding, the JPT will plan and coordinate, and ORTHO shall be
responsible for obtaining Regulatory Approval for the Obesity Indication for
Bromocriptine and for all other Non-Metabolic Indications for Bromocriptine (to
the extent that they become Additional Indications) and for all other
Collaboration Products for all their respective Development Indications and/or
Additional Indications. ORTHO shall have the right to act independently of the
JPT in conducting Development Activities and in obtaining Regulatory Approvals
in the Royalty Bearing Territory; provided, however, that ORTHO shall not take
--------
any action in
18
<PAGE>
connection with obtaining Regulatory Approval for a Royalty Bearing Product in
the Royalty Bearing Territory that would materially and adversely affect a
Party's ability to conduct Development Activities pursuant to the Development
Plan.
Notwithstanding any other provision of this Agreement, ERGO shall be the
LDP with respect to the Phase IIIB Clinical Trials for Bromocriptine as
specifically described in Exhibit E; provided, however, that ERGO shall develop
and finalize the protocols for such trials only after review by and concurrence
of ORTHO.
SECTION 4.04. Right to Engage Third Parties. In the course of its business,
-----------------------------
ERGO and ORTHO may use Third Parties to perform certain Development Activities
provided that the use of Third Parties is designated in the Development Plan and
expenses therefor are approved in the Development Budget; provided, however,
--------
that both parties shall enter into such Third Party contracts on an arm's-length
basis at reasonable rates customary in the U.S. pharmaceutical industry after
consultation with the non-contracting Party.
SECTION 4.05. Development Plan and Development Budget.
---------------------------------------
(a) The Development of each Collaboration Compound and/or Collaboration
Product in the Profit/Loss Sharing Territory for each Development Indication
and/or Additional Indication shall be carried-out pursuant to a development plan
("Development Plan") and development budget ("Development Budget") that shall
each cover the period through regulatory approvals to market for the Development
Indication and/or Additional Indications, as applicable to such plan or budget.
Each such Development Plan and Development Budget shall (except as provided in
Article V) be prepared by the JPT. The Development Plan and Development Budget
for the Profit/Loss Sharing Territory shall be agreed to by the JPT and
submitted for approval by the Steering Committee pursuant to Section 2.03. Any
Development Plan and Development Budget as it relates to the Royalty Bearing
Territory shall be submitted to the JPT and Steering Committee for the sole
purpose of permitting Development Activities in the Royalty Bearing Territory to
be coordinated with Development Activities in the Profit/Loss Sharing Territory.
(b) ERGO shall provide ORTHO with access (and copies, which may be
partially or wholly electronic form, to the extent requested) to all of the raw
data and reports related to the Development of Bromocriptine for the Type II
Diabetes Indication and the Obesity Indication (such data and report being
collectively referred to herein as the "Bromocriptine Trial Information"). The
Bromocriptine Trial Information shall be accompanied by ERGO's most up-to-date
Development Plan and Development Budget for the Type II Diabetes Indication and
through the end of the Obesity Phase IIA Clinical Trial and will be referred to
as the "Initial Development Plan and Development Budget for Bromocriptine for
the Type II Diabetes Indication and the Obesity Indication," attached hereto as
Exhibit E
(c) With respect to Development of Eligible Compounds (including Eligible
Compounds that are already Collaboration Compounds) for an indication that is
not already an extant Development Indication or an extant Additional Indication
and that is accepted for joint Development, an Initial Development Plan and
Initial Development Budget for each such Indication shall be agreed between the
Parties pursuant to provisions set forth in Article V. Such Initial Development
Plan and Initial Development Budget shall cover the period through regulatory
approvals to market such new Indications. Each subsequent, updated Development
Plan and each subsequent updated Development Budget shall be prepared and agreed
upon by the JPT in coordination with the Lead Development Party and submitted to
the Steering Committee for review and approval pursuant to Section 2.03.
19
<PAGE>
(d) Each Development Plan shall describe the proposed overall program of
Development for the subject Collaboration Compound and/or Collaboration Product
for each particular Development Indication and/or Additional Indication, as the
case may be, in the Profit/Loss Sharing Territory, including, but not limited
to, preclinical studies, toxicology, formulation, chemical process development,
clinical studies, regulatory plans and other elements of obtaining Regulatory
Approval in the Profit/Loss Sharing Territory. The Development Plan shall
include projected timelines for all Development and Regulatory events, a summary
of the estimated Development Expenses and specify Party-specific execution
responsibilities of the program expected during Development through obtaining
Regulatory Approval in the Profit/Loss Sharing Territory for each Collaboration
Compound and/or Collaboration Product for each such proposed Indication, and
shall further include a detailed Development Budget by quarter for all
Development proposed for the following eighteen (18) months.
(e) An updated Development Plan and an updated Development Budget shall be
prepared annually by the JPT, and submitted by June 30 of each calendar year to
the Steering Committee for review and approval. Each updated Development Budget
for the Profit/Loss Sharing Territory shall be based on the corresponding
updated Development Plan and shall be prepared in accordance with generally
accepted accounting principles. Within thirty (30) days following such original
submission the Steering Committee shall either approve the updated Development
Plan and updated Development Budget or approve a modified Development Plan and
Development Budget prepared by the Steering Committee consistent with the
objectives for the Collaboration Compound and/or Collaboration Products and the
aims of the collaboration. If the Steering Committee fails to approve any
change in the Development Budget or a material change in the Development Plan of
the type described in Section 4.02(b)(ii), the last approved Development Budget
and last approved Development Plan shall remain in effect, such that the
Development Budget shall remain at previously approved levels of projected
spending and the Development Plan shall remain in its previously approved form.
(f) A Development Plan and Budget for the Obesity Indication for
Bromocriptine for Phase IIB and III Clinical Trials shall be agreed to by the
Parties at about the time data from ERGO's Obesity Phase IIA Clinical Trial is
available. Should the Parties fail to agree on such plan and budget, the joint
Development for the Obesity Indication shall be suspended until such time as the
parties mutually agree to a plan and budget therefor.
SECTION 4.06. Development Efforts. ERGO and ORTHO each agree to
-------------------
collaborate in the Development of Collaboration Compounds and/or Collaboration
Products and to use efforts that are reasonable and necessary to carry out each
Development Plan for Collarboration Products in the Profit/Loss Sharing
Territory. Each Party further agrees to execute and substantially perform the
obligations assumed by it under each Development Plan within the approved
Development Budget and to cooperate with the other Party in carrying out the
Development Plan.
SECTION 4.07. Drug Approval Applications.
--------------------------
(a) Profit/Loss Sharing Territory. ERGO has filed an NDA and is seeking
-----------------------------
Regulatory Approval for Bromocriptine for the Type II Diabetes Indication in the
Profit/Loss Sharing Territory. This NDA has been filed in the name of ERGO, and
a copy of such NDA (which may be wholly or partially in electronic form) will be
provided to ORTHO promptly by ERGO upon written request of ORTHO. ERGO shall be
responsible for prosecuting such Drug Approval Application and ORTHO shall have
the right of cross-reference of such Application. [*]ERGO shall promptly furnish
ORTHO with copies of all material correspondence ERGO has had with any
regulatory agency, and contact reports concerning material conversations or
material meetings with any regulatory agency, in each case relating to
Bromocriptine's use or studies. Upon receipt of Regulatory Approval of the NDA
for Bromocriptine for
20
<PAGE>
a Type II Diabetes Indication in the U.S., ERGO shall promptly submit the
appropriate documentation to the FDA designating ORTHO as the owner of the NDA
for Bromocriptine and transfer the ownership thereof and thereafter ORTHO shall
assume primary responsibility for all dealings with the regulatory agency with
respect thereto, including filing all supplements and other documents with such
agency with respect to such existing Drug Approval Application. Following such
submission, ORTHO shall promptly provide notification to the FDA (and to ERGO)
that ERGO has the right of cross-reference under such NDA. In the event that the
FDA threatens or initiates any action to remove a Collaboration Product from the
market in the Profit/Loss Sharing Territory, ORTHO shall promptly notify ERGO of
such communication. In connection with all NDA's for Bromocriptine for other
Indications which ORTHO may file in the Profit/Loss Sharing Territory, ORTHO
agrees to provide ERGO with access to all data, and a copy (which may be wholly
or partly in electronic form) of all filings to the FDA that it makes hereunder.
The Parties shall consult and cooperate in the preparation of each such Drug
Approval Application and in obtaining the initial and any further Regulatory
Approvals within the Profit/Loss Sharing Territory. ORTHO shall provide ERGO
with reasonable advance notice of any scheduled meeting with the FDA relating to
any such Drug Approval Application that ORTHO owns and ERGO shall have the right
to participate in any such meeting. ORTHO shall promptly furnish ERGO with
copies of all material correspondence or material meetings with any regulatory
agency in the Profit/Loss Sharing Territory in each case relating to any such
Drug Approval Application. In the event that, pursuant to the terms of this
Agreement, in particular as provided in Articles V and XIV, and on a product-by-
product basis, ORTHO's right to Develop and Commercialize any Collaboration
Product under this Agreement terminates, ORTHO shall promptly transfer any and
all of its control and/or ownership rights in the relevant Drug Approval
Application and Regulatory Approval for such Collaboration Product to ERGO.
ORTHO shall be responsible for preparing and filing all Drug Approval
Applications and seeking all Regulatory Approvals for all Collaboration Products
other than Bromocriptine for a Type II Diabetes Indication in the U.S. The
Parties shall consult and cooperate in the preparation of each such Drug
Approval Application and in obtaining the initial and any further Regulatory
Approvals within the Profit/Loss Sharing Territory. As the owner of all such
Drug Approval Applications, ORTHO will be responsible for prosecuting all such
Drug Approval Applications, and, at the time of filing of each such Application,
ORTHO shall, at the request of the JPT, include a notification to the Regulatory
Authority and to ERGO that ERGO has the right of cross-reference.
In furtherance of the desire of the Parties that each have access to all
relevant information and as a function of ORTHO having responsibility hereunder
for the maintenance and monitoring of all safety and similar data with respect
to Collaboration Products including Bromocriptine, ORTHO shall send all such
monitoring and surveillance data to the attention of the Vice President of
Medical Affairs or such other employee or agent as ERGO designates in the
future.
(b) Royalty Bearing Territory. ORTHO shall be responsible for preparing
-------------------------
and filing all Drug Approval Applications and seeking all Regulatory Approvals
for all Collaboration Products including Bromocriptine for all extant
Development Indications and all extant Additional Indications for use in all
countries in the Royalty Bearing Territory, including preparing all reports
necessary as part of a Drug Approval Application. ORTHO shall be responsible for
prosecuting all such Drug Approval Applications. In connection with all Drug
Approval Applications being prosecuted by ORTHO hereunder, ORTHO shall provide
ERGO with access to the original data and a copy (which may be wholly or partly
in electronic form, and without the obligation to provide ERGO with a
translation) of all filings to regulatory agencies, as well as access to all
data that it makes hereunder, upon written request of ERGO. ORTHO shall
promptly furnish ERGO with copies of all material correspondence ORTHO has with
any regulatory agency, and contact reports concerning material conversations or
material
21
<PAGE>
meetings with any regulatory agency, in each case relating to any such Drug
Approval Application in each Major European Market Country and Japan, without
the obligation to provide ERGO with a translation unless ORTHO has access to
such translation. Within thirty (30) days following the end of each calendar
quarter ORTHO shall report to ERGO regarding the status of each pending and
proposed Drug Approval Application in the Royalty Bearing Territory. In the
event that any regulatory agency threatens or initiates any action to remove
such Collaboration Product from the market in any country in the Royalty Bearing
Territory, ORTHO shall promptly notify ERGO of such communication.
SECTION 4.08. Costs of Development
---------------------
(a) General. All Development Expenses incurred after January 1, 1998,
-------
pursuant to an approved Development Plan for a Collaboration Product, shall be
shared equally by the Parties in the Profit/Loss Sharing Territory in the manner
as set forth in this Article IV. Expenses shall be categorized as Out-of-
Pocket Costs) and Internal Costs (EFT-based).[*]; provided, however, that the
rate determined for a Party for any calendar year cannot be greater than the
rate for such Party for the immediately preceding calendar year, as adjusted
(upwards or downwards) by the percentage change in price inflation over the
preceding twelve (12) month period, determined from the most recently published
change in the All-Urban Consumer Price Index most geographically applicable to
the location of such Party's R&D departments Calculation of this rate will be
completed and is subject to approval at each annual forecast review. The
approved rate will be in effect for the approved budget's calendar year. In
addition, ORTHO agrees to pay to [*]within ten (10) business days after the HSR
Date for pre-effective date Development Expenses incurred by ERGO in calendar
year 1997. Attached to this Agreement as Exhibit C-1 is a schedule of all pre-
effective date Development Expenses incurred by ERGO in calendar year 1997 to be
reimbursed by ORTHO pursuant to this Agreement.
(b) Royalty Bearing Territory. ORTHO shall bear all Development Expenses
-------------------------
for Collaboration Products that are specifically related to the Development,
manufacture, use and/or sale of a Collaboration Product in the Royalty Bearing
Territory. As provided in Section 13.01, Information developed by ERGO relating
to the Development of Collaboration Products in the Profit/Loss Sharing
Territory can be used by ORTHO for the Development and regulatory filing of such
Collaboration Products in the Royalty Bearing Territory without further charge
(other than reasonable duplicating, postage, and related out of pocket costs).
In addition, as provided in Section 13.01, Information developed by ORTHO
relating to the Development of Collaboration Products in the Royalty Bearing
Territory can be used by ERGO for the purpose of any further Development and
support of regulatory filings of such Collaboration Products in the Profit/Loss
Sharing Territory without further charge (other than reasonable duplicating,
postage, and related out of pocket costs).
(c) Advanced Payments. Beginning on January 1, 1998 and continuing
-----------------
thereafter and based on the current approved Development Budget, the Party
projected to incur less than 50% of the budgeted Development Expenses for a
particular quarter shall make an Advanced Payment or an Adjusted Advanced
Payment to the other Party in an amount such that both Parties, following such
payment, are projected to incur fifty percent (50%) of the budgeted Development
Expense for that quarter. Such payments shall be made on a quarterly basis for
the current quarter on or before the fifteenth (15th) day of January, April,
July, and October of each year, except that the first quarter 1998 Development
Expenses shall not be made until April 15, 1998. Within thirty (30) days after
the end of each calendar quarter and fifty (50) days after the end of the fourth
quarter of each full calendar year, the Parties shall report to each other their
Development Expenses. Within sixty (60) days after the quarter, ORTHO shall
issue a Development Expense Reconciliation Statement, in the form of Exhibit B-
1, showing the Adjusted Advanced Payment for the next quarter. Advanced
Payments will be adjusted (either increased or decreased) to account for the
Development Expenses actually expended by the Parties in the previous
22
<PAGE>
quarters as shown in the form in Exhibit B-1. The current approved Development
Plan and Development Budget for Bromocriptine for the Type II Diabetes and
Obesity Indications is attached hereto as Exhibit E.
If the party owing the Advance Payment or Adjusted Advanced Payment fails
to make timely payment as set forth above in this Section 4.08(c), the other
Party shall give such Party 30 days written notice to make such payment. If
either party fails to make such payment within such 30 day notice period, any
unpaid balance after the 30 days notice period shall bear interest at an annual
rate of [*]. Except for Development Expenses for Bromocriptine for the Obesity
Indication, if ERGO fails to make such Advance Payment or Adjusted Advanced
Payment for two (2) consecutive quarters, the Option available to ORTHO under
Section 8.02(c)(i) and (ii) shall be available to ORTHO as the only remedy for
such failure to pay. For Development Expenses for Bromocriptine for the Obesity
Indication during the period[*], if ERGO fails to make such Advance Payments for
two (2) consecutive quarters, the Option available under Section 8.02(c) shall
be available to ORTHO as the only remedy for such failure to pay. If ERGO's
failure to pay[*], the following option shall be the only option available to
ORTHO:
(i) maintain the Profit/Loss Sharing Territory as a Profit/Loss
Sharing Territory except that the ratio for sharing Operating Profits and Losses
shall be [*] until Bromocriptine is approved for an Obesity Indication in which
case it will be [*] and ORTHO shall, subsequent to such failure to make one or
more payments, assume responsibility for [*] of Development Expense to the
extent that ORTHO continues Development of Bromocriptine for the Obesity
Indication;. If ORTHO fails to make an Advance Payment, then ORTHO shall be
considered in breach of this Agreement and ERGO may take the appropriate action
against ORTHO as is permitted under the terms of this Agreement.
(d) Records. Each Party shall calculate and maintain records of
-------
Development Expenses incurred by it together with reconciling actual Development
Expenses versus Development Expenses advanced under Section 4.08(a).
(e) Overruns. The Lead Development Party for a particular Collaboration
--------
Compound and/or Collaboration Product shall be solely responsible for any
Development Expenses exceeding the most recently approved Development Budget for
that calendar year and such overage shall be charged to its account, unless the
overage is the result of actions of ORTHO (in which case ORTHO shall bear the
expense), or is the result of actions of ERGO (in which case ERGO shall bear the
expense), or is approved unanimously by the Steering Committee (in which cases
ORTHO shall be responsible for fifty percent (50%) of such Development Expenses
and ERGO shall be responsible for fifty percent (50%) of such Development
Expenses).
4.09. Development Efforts: Royalty Bearing Territories. In Developing
------------------------------------------------
Royalty Bearing Products hereunder, ORTHO shall expend a commercially reasonable
level of effort that shall be commensurate with that expended on other ORTHO
projects at a similar stage of development and of similar importance (based on
such criteria as patient population, price per treatment, and competitive
position). Neither Party shall have any obligation to undertake Development
Activities with respect to Independent Products.
ARTICLE V
DEVELOPMENT AND COMMERCIALIZATION OF ELIGIBLE COMPOUNDS AND/OR
---------------------------------------------------------------
COLLABORATION COMPOUNDS
-----------------------
23
<PAGE>
SECTION 5.01. Development and Commercialization of an Eligible Compound for
-------------------------------------------------------------
a Metabolic Indication
- ----------------------
(a) Development and Commercialization of Eligible Compounds for Metabolic
---------------------------------------------------------------------
Indications: ERGO, either alone or with a Third Party, shall not Develop or
- -----------
Commercialize an Eligible Compound for a Metabolic Indication during the term of
this Agreement, except to the extent provided in this Article V. Except for
the express provisions of this Agreement relating to the joint Development
and/or Commercialization of Collaboration Compounds and the express provisions
related to ORTHO's rights to Develop and/or Commercialize Independent Products,
ORTHO shall have the right to Develop and Commercialize Eligible Compounds for
Metabolic Indications only to the extent that a Third Party, who has no rights
under ERGO Patents either express or implied, would be able to similarly conduct
such Development and/or Commercialization without infringing such patents.
(b) Development of an Eligible Compound for a Metabolic Indication by ERGO;
-----------------------------------------------------------------------
Acceptance by ORTHO.
- -------------------
(i) ERGO has no obligation to offer any Eligible Compound to the
Collaboration for joint Development and/or Commercialization. ERGO may in its
sole discretion elect to conduct or elect not to conduct or continue to or not
to continue Development Activities with respect to Eligible Compounds for
Metabolic Indications during the term of this Agreement. Where ERGO elects to
conduct and/or to continue to conduct such Development Activities, such
activities of ERGO shall be subject to the rights of ORTHO to participate
jointly in such Development as provided in this Agreement. Prior to such
participation by ORTHO, the research and development activities of ERGO related
to such Eligible Compound for such Metabolic Indications shall be deemed "Pre-
Selection Activities" hereunder and the costs incurred in performing such Pre-
Selection Activities shall constitute "Pre-Selection Expenses."
(ii) ERGO and ORTHO shall have options during the term of this
Agreement as set forth below:
(A) In the event ERGO elects to conduct Development Activities
with respect to Eligible Compounds for Metabolic Indications, ERGO shall submit
to ORTHO one or more written proposals to the JPT for the Development of an
Eligible Compound for a Metabolic Indication at least at the following times
during the Development of an Eligible Compound:[*]. The written proposal shall
set forth in reasonable detail the Pre-Selection Activities and Pre-Selection
Expenses conducted by ERGO, copies of any agreement ERGO has with a Third Party
relating to the supply or manufacture of the Eligible Compound being offered,
the data resulting from the clinical studies conducted by ERGO, all other data
available to ERGO that is relevant to its use for the Metabolic Indication and
the anticipated future Development Activities of ERGO, and a proposed
Development Plan and a proposed Development Budget (the "Proposed Initial
Development Plan and Development Budget").
(B) ORTHO shall have the right, in its sole discretion, to
accept or decline any proposal made by ERGO under Section 5.01(b)(ii)(A). ORTHO
shall notify ERGO within sixty (60) days of receipt of the proposal whether or
not it accepts or declines such proposal. Such acceptance by ORTHO may be
conditional, if ORTHO does not accept the Proposed Initial Development Plan and
Development Budget, or unconditional, if ORTHO does additionally accept the
proposed Initial Development Plan and Development Budget. Acceptance by ORTHO
shall be made by notice to ERGO. Subsequent to a decision by ORTHO to decline an
ERGO proposal, ERGO, may or may not, within its sole discretion, continue Pre-
Selection Activities with respect to the Eligible Compound; provided, however,
that should ERGO continue such Pre-Selection Activities, it shall be required to
submit further
24
<PAGE>
proposals to ORTHO for acceptance of the Eligible Compound as a Collaboration
Compound for the Metabolic Indication, during each of the various time intervals
recited in this Section 5.01(b)(ii). In the event that ORTHO does not accept
such initial proposal or any of ERGO's subsequent proposals, ERGO may continue
to Develop such Eligible Compound for the Metabolic Indication.
(C) In the event that ORTHO elects to participate jointly in
the Development and Commercialization of such Eligible Compound for a Metabolic
Indication pursuant to a proposal made under this Section 5.01(b)(ii), ORTHO
shall pay ERGO either within thirty (30) business days from the date of
acceptance by ORTHO of ERGO's proposal (if unconditionally accepted), or on or
about the date the Parties reach agreement on a definitive Initial Development
Plan and Initial Development Budget as provided in (b)(ii)(D) below (if ERGO's
proposal is conditionally accepted), fifty percent (50%) of ERGO's Pre-Selection
Expenses for such Eligible Compound relating to such Metabolic Indication
incurred from the inception of the Pre-Selection Activities by ERGO, or the
Effective Date, whichever is later, up to the date of ORTHO's acceptance of the
ERGO proposal. In addition to such payment, ORTHO shall make a further payment
to ERGO, such additional payment to be determined based on the date on which
ORTHO accepts, even conditionally, an ERGO proposal. Such further payment shall
be calculated as follows:
(1) In the event that ORTHO elects to participate jointly
in the Development and Commercialization of such Eligible Compound for the
Metabolic Indication pursuant to an initial proposal made during [*] as
described in Section 5.01(b)(ii)(A)(1), no further payment shall be due to ERGO
relating to such Pre-Selection Activities.
(2) In the event that ORTHO elects to participate jointly
in Development and Commercialization of such Eligible Compound for the Metabolic
Indication during the period between[*], ORTHO shall additionally pay ERGO
interest on ORTHO's fifty percent (50%) share of applicable Pre-Selection
Expenses for such Eligible Compound for the Metabolic Indication calculated at
the rate of[*], compounded annually.
(3) In the event that ORTHO elects to participate jointly
in Development and Commercialization of such Eligible Compound for the Metabolic
Indication during the period[*], ORTHO shall additionally pay to ERGO interest
on ORTHO's fifty percent (50%) share of applicable Pre-Selection Expenses for
such Eligible Compound for the Metabolic Indication calculated at the rate[*].
(4) In the event that ORTHO elects to participate jointly
in Development and Commercialization of such Eligible Compound for the Metabolic
Indication during the period[*], ORTHO shall additionally pay to ERGO interest
on ORTHO's fifty percent share of applicable Pre-Selection Expenses for such
Eligible Compound for the Metabolic Indication calculated at the rate of[*].
(5) In the event that ORTHO elects to participate jointly
in Development and Commercialization of such Eligible Compound for the Metabolic
Indication during the[*], ORTHO shall additionally pay to ERGO interest on
ORTHO's fifty percent share of applicable Pre-Selection Expenses for such
Eligible Compound for the Metabolic Indication calculated at the rate of[*].
(D) If ORTHO conditionally accepts an ERGO proposal as provided
in this Section 5.01(b), the Parties shall through the JPT and Steering
Committee, within the sixty (60) days following such acceptance, agree upon the
definitive Initial Development Plan and Initial Development Budget in respect of
such Eligible Compound for the Metabolic Indication. If the Parties can not
agree on
25
<PAGE>
such an Initial Development Plan and Initial Development Budget within the sixty
(60) days, or a reasonable time thereafter as mutually agreed by the Parties,
joint Development shall not proceed and ORTHO's conditional acceptance shall be
deemed withdrawn. ERGO may or may not thereafter continue Pre-Selection
Activities as it in its sole discretion may determine. Upon final or
unconditional acceptance of a ERGO proposal, the Eligible Compound shall be
designated a Collaboration Compound for the accepted Metabolic Indication unless
and until discontinued or terminated as provided herein. Such Collaboration
Compound will be Developed jointly by the Parties through the JPT pursuant to
the provisions contained in Article IV and Commercialized pursuant to the
provisions contained in Article VII.
(c) Development of an Eligible Compound for a Metabolic Indication by
-----------------------------------------------------------------
ORTHO; Acceptance by ERGO: To the extent permitted under Section 5.01(a), ORTHO
- -------------------------
may commence Development of any Eligible Compound for a Metabolic Indication
without first offering such compound for joint Development pursuant to the
provisions contained in this Agreement, but such compound shall not be jointly
Developed and/or Commercialized as provided in, inter alia, Articles IV and VII
of this Agreement without first offering such compound to ERGO for joint
Development as part of this collaboration and, subsequent to such offer, until
the Parties have agreed in writing to terms and conditions regarding the
Development and Commercialization of such Eligible Compound. Such terms and
conditions for Development and/or Commercialization may differ from the terms
and conditions hereunder. ORTHO has no obligation to offer any Eligible
Compound to the Collaboration for joint Development and/or Commercialization.
(d) Election by a Party to Terminate Joint Development of a Collaboration
---------------------------------------------------------------------
Compound for a Metabolic Indication Accepted Under This Section 5.01. For a
- --------------------------------------------------------------------
Collaboration Compound being jointly Developed for a Metabolic Indication
pursuant to this Section 5.01 and Article IV, either Party may, subsequent to
its unconditional acceptance for Development and prior to its Commercialization,
by notice to the other party, terminate joint Development for such Metabolic
Indication. Termination shall be effective six (6) months after the date of
written notice; provided, however, that in the event that termination is the
result of a concern over Safety, termination shall be effective thirty (30) days
after written notice. In the event that ERGO so elects to terminate joint
Development for a Collaboration Compound for any Metabolic Indication, the joint
Development of such Collaboration Compound for all Indications and, if any,
Additional Indications, shall terminate. Thereafter, ORTHO can convert the
Collaboration Product to an Independent Product for any Indications that,
immediately prior to such date of termination, were Development Indications or
Additional Indications or Indications contemplated in the Development Plan for
which Development had not yet begun (hereinafter the "Independent Indications"
with respect to the Independent Product defined in this subsection) and at its
option can:
(i) pay ERGO a royalty on Royalty-Bearing Sales of such Independent
Product on a worldwide basis as follows: [*]
(ii) account to ERGO for sales of the Independent Product for its
Independent Indications in the Profit/Loss Sharing Territory as though such
Independent Product had remained as a Collaboration Compound for such
Independent Indications; provided, however, should ORTHO so elect then (A) ERGO
shall not be obligated to make any Development Payments or Equalization Payments
when due in connection with such Independent Product, (B) ERGO may nonetheless
make all or part of such payments and such payments shall be credited to its
account, (C) if ERGO elects to defer all or part of such payments, any unpaid
balance will accrue interest at an annual interest rate equal to[*].
Notwithstanding any of the foregoing, the provisions of this subsection and
ORTHO's option as set forth in this subsection shall not apply wherever the
provision of Section 4.08(c) applies. In such circumstances the provisions of
Section 4.08(c) shall apply and shall supersede the provisions of this
subsection.
26
<PAGE>
(iii) If ORTHO elects to terminate joint Development or
Commercialization of a Collaboration Compound being Developed or Commercialized
for a Metabolic Indication, the Collaboration Compound shall revert to an
Eligible Compound, unless, subsequent to the date of such termination, such
compound is continuing to be jointly Developed as a Collaboration Product for at
least one Development Indication; provided, however, that, in the event of
reversion to an Eligible Compound, such Eligible Compound may be Commercialized
by ERGO as an Independent Product for any Non-Metabolic Indication (the
Independent Indications for the Independent Product as described in this
subsection) that is an not an Indication that is being at such time and
thereafter continues to be Developed or Commercialized under this Agreement for
any then remaining Collaboration Compounds or ORTHO Independent Products.
(e) [*]
SECTION 5.02. Development and Commercialization of an Eligible Compound for
-------------------------------------------------------------
a Non-Metabolic Indication
- --------------------------
(a) Development and Commercialization of Eligible Compounds for Non-
---------------------------------------------------------------
Metabolic Indications:
- ---------------------
(i) Neither Party shall Develop or Commercialize any Eligible Compound
for a Non-Metabolic Indication except as provided in this Article V. Except for
the express provisions of this Agreement relating to the joint Development
and/or Commercialization of Collaboration Compounds and the express provisions
related to ORTHO's rights to Develop and/or Commercialize Independent Products,
ORTHO shall have the right to Develop and Commercialize Eligible Compounds for
Non-Metabolic Indications only to the extent that a Third Party, who has no
rights under ERGO Patents either express or implied, would be able to similarly
conduct such Development and/or Commercialization without infringing such
patents.
(ii) Notwithstanding the provisions of paragraph (i) above, ERGO may,
however, in its sole discretion separately Develop or Commercialize, by itself
or with a Third Party, an Eligible Compound that is not a Collaboration Compound
or a product containing more than one active ingredient none of which is a
Collaboration Compound for any Non-Metabolic Indication. ERGO has no obligation
to offer any Eligible Compound that is not a Collaboration Compound to the
Collaboration for joint Development and/or Commercialization for a Non-Metabolic
Indication.
(b) Development of a Collaboration Compound for a Non-Metabolic Indication
----------------------------------------------------------------------
by ERGO: ERGO may Develop but not Commercialize a Collaboration Compound for one
- -------
or more Non-Metabolic Indications during the term of this Agreement, provided,
however, such Collaboration Compound (other than Bromocriptine) is not
Commercialized as of the date on which ERGO begins Development for such
Collaboration Compound for such Non-Metabolic Indication(s). If a Collaboration
Compound (other than Bromocriptine) is Commercialized before Development begins
for a Non-Metabolic Indication, ERGO may not Develop such Collaboration Compound
for a Non-Metabolic Indication. The provisions of Section 5.01(b) relating to
the Development of Eligible Compounds for Metabolic Indications shall apply
mutatis mutandis, to the Development of Collaboration Compounds for such Non-
Metabolic Indications.
(c) Development of a Collaboration Compound for a Non-Metabolic Indication
----------------------------------------------------------------------
by ORTHO: ORTHO may not Develop a Collaboration Compound for a Non-Metabolic
- --------
Indication until the Parties
27
<PAGE>
mutually agree on an Initial Development Plan and Initial Development Budget for
such Non-Metabolic Indication.
(d) Election by a Party to Terminate Joint Development of a Collaboration
---------------------------------------------------------------------
Compound for a Non-Metabolic Indication Accepted Under This Section 5.02(b).
- ---------------------------------------------------------------------------
(i) For a Collaboration Compound being jointly Developed for a Non-
Metabolic Indication pursuant to this Section 5.02 and Article IV, either Party
may, subsequent to its acceptance for Development, by notice to the other party
terminate joint Development for such Non-Metabolic Indication. Termination
shall be effective [*] after the date of notice; provided, however, that in the
event that termination is a result of a concern over Safety or Tolerability,
termination shall be effective [*] after such notice. In the event that ERGO so
elects to terminate joint Development for a Collaboration Compound for a Non-
Metabolic Indication, the joint Development of such Collaboration Compound for
such Indication shall terminate. Thereafter ORTHO shall have the option set
forth in Section 5.01(d), applied mutatis mutandis.
(ii) Notwithstanding the foregoing, if at the time of termination by
ERGO of a Non-Metabolic Indication, the Collaboration Compound is being jointly
Developed and/or Commercialized for another Indication, ORTHO shall only have
the option to either discontinue Development of the Collaboration Compound for
the Non-Metabolic Indication being terminated by ERGO or Develop it as an
Independent Product for the terminated Non-Metabolic Indications (the
"Independent Indications" for the Independent Product defined in this
subsection), but only Commercialize it under a trademark which is different from
the one being used with the jointly Developed Collaboration Product for the
Metabolic Indication(s). In such case, the option set forth in Section 5.01(d)
shall not apply; provided, however, that the royalty rates for such Independent
Product shall be as recited in Section 5.01(d) above.
(iii) If ORTHO elects to terminate joint Development or
Commercialization for a Collaboration Compound for all extant Development
Indications and/or Additional Indications, such compound thereby becomes an
Eligible Compound; provided, however, that, in the event of reversion to an
Eligible Compound, such Eligible Compound may be Commercialized by ERGO as an
Independent Product for any Non-Metabolic Indication (the Independent
Indications for the Independent Product as described in this subsection) that is
an not an Indication that is being at such time and thereafter continues to be
Developed or Commercialized under this Agreement for any then remaining
Collaboration Compounds or ORTHO Independent Products.
(iv) If ERGO is the non-terminating party and commercializes the
Independent Product for the Independent Indication by itself or with a Third
Party, then ERGO shall pay to ORTHO a royalty on Net Trade Sales of such
Independent Product for the Independent Indication in the Profit-Loss Sharing
Territory. The royalty shall be as follows: [*]
SECTION 5.03. Development and Commercialization of Bromocriptine for
------------------------------------------------------
Metabolic Indications.
- ----------------------
(a) Bromocriptine's Status as a Collaboration Compound. As of the
---------------------------------------------------
Effective Date of this Agreement and so long as it is being jointly Developed
and Commercialized pursuant to this Agreement, Bromocriptine for the Diabetes
Indication and/or Obesity Indication shall have the status of a Collaboration
Compound for Metabolic Indications and the provisions of Section 5.01 relating
to the Development and/or Commercialization of an Eligible Compound for a
Metabolic Indication shall apply mutatis mutandis to the Development and
Commercialization of Bromocriptine for a Metabolic Indication, except as
otherwise provided in this Section 5.03.
28
<PAGE>
(b) Election by a Party to Terminate Joint Development or Commercialization
-----------------------------------------------------------------------
of Bromocriptine for a Metabolic Indication.
- -------------------------------------------
(i) If ORTHO terminates joint Development Activities or
Commercialization of Bromocriptine for one or more Metabolic Indications, then
all rights to further Develop and/or Commercialize Bromocriptine for each such
Metabolic Indication shall revert to ERGO and shall not be further subject to
limitation or other provision of this Agreement, unless Bromocriptine or another
Collaboration Compound has been and is continuing to be Developed and/or
Commercialized pursuant to this Agreement for one or more Metabolic Indications.
In such event, no rights with respect to Bromocriptine as set forth in this
subsection shall revert to ERGO.
(ii) If ERGO terminates joint Development Activities or
Commercialization (other than pursuant to Section 4.08(c) or Section 8.02) with
respect to Bromocriptine for a Metabolic Indication, then joint Development
and/or Commercialization of Bromocriptine for all Indications shall terminate.
Thereafter, ORTHO, at its option can:
(A) convert the Profit/Loss Sharing Territory to a Royalty
Bearing Territory for such Collaboration Product and convert such Collaboration
Product to an Independent Product and pay ERGO a royalty of [*] or
(B) account to ERGO for sales of the Independent Product for its
Independent Indications in the Profit/Loss Sharing Territory as though such
Independent Product had remained as a Collaboration Product for such Independent
Indications; provided, however, should ORTHO so elect then (1) ERGO shall not be
obligated to make any Development Payments or Equalization Payments when due in
connection with such Independent Product, (2) ERGO may nonetheless make all or
part of such payments and such payments shall be credited to its account, (3) if
ERGO elects to defer all or part of such payments, any unpaid balance will
accrue interest at[*].
Notwithstanding any of the foregoing, the provisions of this subsection and
ORTHO's option as set forth in this subsection shall not apply whenever the
provisions of Section 4.08(c) or Section 8.02 are applicable. In such
circumstances the provisions of Section 4.08(c) or Section 8.02 shall apply and
shall supersede the provisions of this subsection.
SECTION 5.04. Development and Commercialization of Bromocriptine for a Non-
------------------------------------------------------------
Metabolic Indication.
- ---------------------
(a) The provisions of Section 5.02 relating to the Development and/or
Commercialization of an Eligible Compound for a Non-Metabolic Indication shall
apply mutatis mutandis to the Development and Commercialization of Bromocriptine
for a Non-Metabolic Indication, except as otherwise provided in this Section
5.04. Regardless of whether Bromocriptine has been or is being or has yet to be
Commercialized, ERGO shall have the right to initiate Development of
Bromocriptine for any Indication(s) not then extant Development Indications or
extant Additional Indications of Bromocriptine.
(b) Notwithstanding paragraph (a) above, if ORTHO terminates joint
Development of Bromocriptine for a Non-Metabolic Indication or ORTHO never
elects to participate jointly in such Development as provided in this Agreement,
then ERGO may (subject to Section 8.12) Develop and/or Commercialize
Bromocriptine for the Non-Metabolic Indication as an Independent Product (with
such Non-Metabolic Indication being the "Independent Indication" for the
Independent Product defined under
29
<PAGE>
this subsection) by itself or with a contract sales force (but by no other
means). For such Independent Product, in the Profit/Loss Sharing Territory, ERGO
must adopt its own mark and, [*]. In any country outside of the Profit/Loss
Sharing Territory, ERGO must adopt its own mark which is different from that
being currently used in such country by ORTHO for Bromocriptine and may only
Commercialize in such country an Independent Product that is administered
through a different route of administration from any Bromocriptine Product then
currently being jointly Developed and/or Commercialized for sale in such
country, subject to the following:
(i) if, following such termination or failure to participate by ORTHO,
Bromocriptine is not then a Collaboration Compound, ERGO may further Develop
and/or Commercialize Bromocriptine as an Independent Product with a Third Party
without further restriction or obligation to ORTHO, provided, however, ERGO may
not Develop and/or Commercialize Bromocriptine for any Indication for which a
Collaboration Compound is currently being Developed or Commercialized.
(c) If ERGO terminates joint Development or Commercialization of
Bromocriptine for a Non-Metabolic Indication, ORTHO shall only have the option
to either discontinue Development of Bromocriptine for the Non-Metabolic
Indication being terminated by ERGO or Develop it as an Independent Product for
such Non-Metabolic Indication (the "Independent Indication" for the Independent
Product as defined in this subsection), but only Commercialize it under a
trademark which is distinctively different from any mark being used with the
jointly Developed and/or Commercialized Bromocriptine for the Metabolic
Indication(s). The royalty rates for the Independent Product shall be the rates
as recited in 5.01(d).
SECTION 5.05. Milestone Payments for Non-Metabolic Indications.
------------------------------------------------
(a) If ORTHO shall have exercised an option pursuant to Sections 5.02 or
5.04, then ORTHO shall pay to ERGO a one-time payment of [*]("Non-Metabolic
Indication Milestone Payment") within fifteen (15) business days after the first
exercise of ORTHO's option pursuant to Section 5.02 or 5.04 to commence
participation in Development and/or Commercialization of the first Collaboration
Compound for a Non-Metabolic Indication. The [*] Non-Metabolic Indication
Milestone payment set forth in this paragraph shall be payable only once for the
first Non-Metabolic Indication that ORTHO exercises its option to participate in
Development and Commercialization under Sections 5.02 or 5.04.
ARTICLE VI
LICENSES
--------
SECTION 6.01. Patent License to ORTHO to Conduct Development Activities.
----------------------------------------------------------
Subject to the terms of this Article VI, ERGO grants to ORTHO an exclusive
(except as to ERGO) paid-up, worldwide (except for Japan unless and until the
option set forth in Section 3.02(c) is exercised) license under the ERGO Patents
to conduct Development of Collaboration Products and Royalty-Bearing Products
for their respective Development Indications and/or, if any, their respective
Additional Indications and an exclusive (even as to ERGO) license to conduct
Development of ORTHO's Independent Products for their respective Independent
Indications to the extent authorized under the provisions set forth in Article V
of this Agreement.
SECTION 6.02. Patent License to ERGO to Conduct Development Activities and
--------------------------------- --------------------------
Commercialization Activities. Subject to the terms of this Article VI, ORTHO
- ----------------------------
grants to ERGO an exclusive (except as to ORTHO) paid-up, worldwide (except for
Japan unless and until the option set forth in Section 3.02(c) is exercised)
license under the ORTHO Patents to conduct Development, but not
Commercialization, of Collaboration Products and Royalty-Bearing Products for
their respective
30
<PAGE>
Development Indications and/or, if any, their respective Additional Indications
and an exclusive (even as to ORTHO) worldwide right and license, with the right
to grant sublicenses, under ORTHO Patents to conduct Development and
Commercialization, including the right to make, have made, use, sell, have sold,
offer for sale, import, and distribute, ERGO's Independent Products for their
respective Independent Indications to the extent authorized under the provisions
set forth in Article V of this Agreement.
SECTION 6.03. Patent License to ORTHO Under ERGO Patents to Conduct
-----------------------------------------------------
Commercialization Activities. (a) Subject to the terms and provisions of this
- ----------------------------
Agreement, ERGO hereby grants to ORTHO an exclusive (even as to ERGO), worldwide
(except for Japan unless and until the option set forth in Section 3.02(c) is
exercised) right and license, with the right to grant sublicenses subject to the
terms of Section 6.08 of this Agreement, under ERGO Patents to make, have made,
use, sell, have sold, offer for sale, import, and distribute (a) Collaboration
Products for each Development Indication and/or, if any, for each Additional
Indication and (b) Independent Products for each Independent Indication. The
exclusive license that is the subject of this Section 6.03 specifically excludes
any right or license under the LSU Patents.
SECTION 6.04. Patent License to ORTHO Under LSU Patents.
-----------------------------------------
(a) Subject to the terms and provisions of this Agreement, including
without limitation the express reservation set forth in subsection (b) of this
Section 6.04, ERGO hereby grants to ORTHO an exclusive (except as to ERGO only
for Development, but even as to ERGO for Commercialization) worldwide sublicense
with the right to grant sublicenses under the LSU Patents to make, have made,
use, sell, have sold, import, and distribute (1) Collaboration Products for
their respective Development Indications and/or, if any, their respective
Additional Indications and (2) ORTHO's Independent Products for their respective
Independent Indications. Upon the request of ORTHO, in connection with the LSU
Patents, ERGO shall enter into direct sublicense agreements with ORTHO's
Affiliates or a Third Party as designated by ORTHO on terms and conditions as
set forth in this Agreement.
(b) For the term of this Agreement, ORTHO hereby agrees to be bound by the
terms of that certain Novated License and Royalty Agreement by and between LSU
and ERGO, as amended by Amendment No. 1 to the Novated License and Royalty
Agreement, and as otherwise amended through the Effective Date (collectively
the "LSU Agreement" including, but not limited to the terms provided to LSU
under Article II(J), Article V(F)(1), Article VI, Article VII, Article VIII,
Article XII(A), Article XVI(E), and Article XVII(A) of the LSU Agreement.
SECTION 6.05. Nonexclusive Know-how License to ORTHO. Subject to Article
--------------------------------------
X, ERGO grants ORTHO, a non-exclusive, worldwide license to use ERGO Know-how
for any purpose; provided, however, that Information provided in the form of
reports that contain pre-clinical or clinical data, stability data, product
specifications, and like data suitable for or intended for incorporation into
filings for regulatory approval may be used, in whole or in part, in connection
with filings for regulatory approval only for a Collaboration Product for a
Development Indication and/or an Additional Indication or an Independent Product
for an Independent Indication. .
SECTION 6.06. Nonexclusive Know-how License to ERGO. Subject to Article X,
-------------------------------------
ORTHO grants ERGO, a non-exclusive, worldwide license to use ORTHO Know-how for
any purpose; provided, however, that Information provided in the form of reports
that contain pre-clinical or clinical data, stability data, product
specifications, and like data suitable for or intended for incorporation into
filings for regulatory approval may be used, in whole or in part, in connection
with filings for regulatory
31
<PAGE>
approval only for a Collaboration Product for a Development Indication and/or an
Additional Indication or an Independent Product for an Independent Indication.
SECTION 6.07. Distribution through Third Party Distributors. ERGO grants
---------------------------------------------
ORTHO the right to sell or distribute Collaboration Products for their
respective Development Indications and/or their respective Additional
Indications, if any, and Independent Products for their respective Independent
Indications through its Affiliates or Third Party distributors in any country
(but only through its usual and customary distributors performing their usual
and customary distribution activities for ORTHO) to the extent that ORTHO itself
otherwise has the right to so sell and/or distribute such products in such
countries.
SECTION 6.08. Sublicensing. ORTHO may grant sublicenses under Sections
------------
6.01, Section 6.03 and Section 6.04 only with the express prior written approval
of ERGO (which approval will not be unreasonably withheld or delayed); provided,
--------
however, that (i) ORTHO may only sublicense a Third Party to sell or have sold
Collaboration Product only in the Royalty Bearing Territory, and (ii) ORTHO may
proceed with distribution and sale of a Collaboration Product in the Profit/Loss
Sharing Territory and in the Royalty Bearing Territory through its usual and
customary distributors performing their usual and customary distribution
activities for ORTHO without ERGO's prior written approval of any necessary
sublicenses in connection therewith. With respect to Independent Products, the
Party having a license with respect to such Independent Products shall have a
right to sublicense under such license with respect to such Independent Products
without approval of the other Party.
SECTION 6.09. Third Party Technology.
----------------------
(a) The licenses granted under Sections 6.01, 6.02, and 6.03 include
sublicenses of Third Party technology to the extent that such sublicenses can be
so granted
(b) The licenses granted under Section 6.01, Section 6.02, and Section 6.03
to the extent they include sublicenses of Third Party technology, in any event,
shall be subject to the terms and conditions of the license agreement pursuant
to which the underlying license, and the sublicensing rights thereunder were
granted.
ARTICLE VII
COMMERCIALIZATION
-----------------
SECTION 7.01. ORTHO as Marketing Party.
------------------------
(a) ORTHO will be the marketing Party with respect to all Collaboration
Products in the Profit/Loss Sharing Territory and the Royalty Bearing Territory.
As marketing party ORTHO shall have full and exclusive decision making authority
with respect to all Commercialization Activities for all Collaboration Products
in the Profit/Loss Sharing Territory and the Royalty Bearing Territory, except
as otherwise set forth in this Agreement.
SECTION 7.02. Commercialization Efforts.
-------------------------
(a) ORTHO agrees to use commercially reasonable efforts to Commercialize
Collaboration Products. Such commercially reasonable efforts shall be
consistent with the efforts used by ORTHO (in each case comparable efforts will
be measured against the efforts used by ORTHO's principal pharmaceutical
marketing Affiliateresponsible for marketing in the country where
Commercialization Activities take place for that Collaboration Product) in
preparing commercialized plans and budgets and
32
<PAGE>
commercializing its own pharmaceutical products (that are similar with regard
to, for example, market potential, price per treatment, patient population and
competitive position). For example, with regard to the determination of all
pricing, cost of goods, sampling, and discounting strategies for Collaboration
Products, ORTHO shall use a substantially similar approach than that employed by
ORTHO in determining such strategies for their pharmaceutical products.
(b) ERGO shall designate a Commercialization liaison who will function as
the contact person at ERGO to receive information from ORTHO relating to
Commercialization of Collaboration Products. ORTHO shall provide to such
liaison, on a timely basis, general management reports that are available to the
management board of ORTHO directed to the Commercialization Activities of each
Collaboration Product in the Profit/Loss Sharing Territory and other Information
regarding such Commercialization Activities that ORTHO considers necessary and
appropriate to keep ERGO appraised of such Commercialization Activities. ERGO
shall have the right to change the liaison at ERGO's discretion and shall
promptly inform ORTHO of such change.
(c) Commercialization Plan and Budget. ORTHO shall submit to ERGO a
---------------------------------
commercialization plan ("Commercialization Plan") for each Collaboration Product
for the Profit/Loss Sharing Territory, which shall be comparable to existing
marketing and or business plans for similar products developed at such time by
ORTHO within the Profit/Loss Sharing Territory, and a commercialization budget
("Commercialization Budget") for each Collaboration Product, initially for each
extant Development Indication and each extant Additional Indication for the
Profit/Loss Sharing Territory. Such Commercialization Plan shall include
estimated sales for the upcoming year and a rough estimate of sales for the year
following the date of such plan. In addition, the Commercialization Plan shall
identify co-promotion arrangements, if any, and contract sales force
arrangements, if any. Each Commercialization Budget shall include a budget of
the expenses expected to be incurred in connection with performing the
Commercialization Plan, including Pre-Marketing Expenses and Allowable Operating
Expenses in the Profit/Loss Sharing Territory. On or about December 1 of each
year, or earlier if available, ORTHO will provide the Commercialization Plan and
Commercialization Budget to ERGO for at least the subsequent calendar year and,
so long as ORTHO maintains its current two-year forecasting cycle on which to
base such estimates, at least the subsequent two calendar years. ORTHO shall
make all final decisions with respect to Commercialization Plans and
Commercialization Budgets (except for the costs of the Phase IIIB Clinical
Trials described in Exhibit E). Any significant change in a Commercialization
Plan or Commercialization Budget made by ORTHO during the course of the year
will be communicated promptly to ERGO.
(d) Launch Plan. Each Commercialization Plan shall be updated, in advance
-----------
of the launch of the applicable Collaboration Product in the Profit/Loss Sharing
Territory, to include a launch plan ("Launch Plan") and launch budget ("Launch
Budget") for such launch, covering the period twelve (12) months, if
practicable, before said launch, and the twelve (12) month period, if practical,
following the launch date. Each such Launch Plan and Launch Budget shall be
developed by ORTHO at a point in time prior to launch which is reasonable with
respect to the proposed launch of the particular Collaboration Product and
provided to ERGO promptly thereafter. It is understood that, for Bromocriptine
for the Type II Diabetes Indication, because of the shortness of time between
NDA filing and the presently anticipated launch date, the Launch Plan & Budget
may be in an abbreviated form and submitted to ERGO prior to launch and as soon
as it is prepared by ORTHO. Each Launch Plan shall include (i) updated market
and sales forecasts in units and estimated revenues of Collaboration Product,
(ii) estimated resource requirements and (iii) such other matters deemed
appropriate by ORTHO. With respect to Bromocriptine for the Type II Diabetes
Indication, ORTHO shall prepare and provide to ERGO within sixty (60) days from
the Effective Date, a Commercialization Budget for the six (6) month period
following the Effective Date.
33
<PAGE>
SECTION 7.03. Commercialization in Royalty Bearing Territory.
----------------------------------------------
(a) Commercialization of Royalty Bearing Products and Independent Products
in the Royalty Bearing Territory shall be conducted independently by Affiliates
of ORTHO and decisions regarding, for example, pricing, advertising, and product
recalls shall be the sole responsibility of ORTHO's Affiliate, provided,
however, that such Affiliate's Commercialization Activities with respect to
Royalty Bearing Products shall be consistent with the activities of such
Affiliate in commercializing its own pharmaceutical products that are similar
with regard, for example, to market potential, price per treatment, patient
population, and competitive position. ORTHO shall be responsible for all
Commercialization costs and expenses in the Royalty Bearing Territory. With
respect to Independent Products, neither Party shall have any obligations to
undertake Commercialization Activities. ERGO shall not be responsible for any
costs or expenses of Commercialization in any country in the Royalty Bearing
Territory.
(b) In the event that ORTHO decides not to commence Commercialization in
any country in the Royalty Bearing Territory, ORTHO shall have the right, but
not the obligation, subject to the terms of Section 6.08 of this Agreement to
license such rights to a Third Party. ORTHO shall report all sales made by a
sublicensee as if such sublicensee's sales were ORTHO sales in the Royalty
Bearing Territory and ORTHO shall pay to ERGO royalties on such sales in
accordance with the provisions of Article VIII of this Agreement.
SECTION 7.04. Pricing, Pricing Approvals and Product Distribution. ORTHO
----------------------------------------------------
shall set all prices for all Collaboration Products, shall obtain for
Collaboration Products pricing approvals as may be required, shall be
responsible for distribution of each Collaboration Product in the Profit/Loss
Sharing Territory and in the Royalty Bearing Territory and shall book all sales
for Collaboration Products.
SECTION 7.05. Product Recalls. If ORTHO believes that a recall of a
---------------
Collaboration Product is necessary, ORTHO shall promptly undertake such recall
following notification to ERGO. The decision of ORTHO concerning such recall
shall be final.
SECTION 7.06. Tax Considerations. Either Party may take advantage of
------------------
provisions of law and/or administrative regulation or practice that favorably
affect its tax obligations, but not those of the other Party. In the event that
a Party takes advantage of such a tax consideration in connection with a
Collaboration Product in the Profit/Loss Sharing Territory which benefits it,
but not the other Party, no compensation to the other Party shall be required
except to the extent such tax consideration negatively affects the other Party's
share of Operating Profits or Losses. In such event, sufficient compensation
shall be provided to the other Party to place such other Party in the position
that it would have been in had the advantage for such tax consideration not been
realized.
SECTION 7.07. Advertising and Promotion. With respect to printed
-------------------------
promotional (including advertisements appearing in journals) materials or
printed educational materials for Collaboration Products in the Profit/Loss
Sharing Territory, ERGO's name will appear on such materials and that reference
to ERGO shall be in the form that references ERGO as the licensing party,
provided such is permitted by the applicable laws and regulations. On all other
materials in the Profit/Loss Sharing Territory, including but not limited to
product labeling, the product label, and documentary information, and on all
materials in the Royalty Bearing Territory, including but not limited to
promotional and advertising materials, reference to ERGO shall not appear unless
mutually agreed to by the Parties.
34
<PAGE>
ARTICLE VIII
PROFIT SHARING AND ROYALTIES
----------------------------
SECTION 8.01. Share of Operating Profits or Losses.
------------------------------------
(a) Equal Share of Operating Profits and Losses. ERGO and ORTHO shall share
-------------------------------------------
equally (50% to ORTHO and 50% to ERGO) in Operating Profits and Losses from the
Development and Commercialization of Collaboration Compounds and Collaboration
Products in the Profit/Loss Sharing Territory, except to the extent the
provisions of Section 8.01(d) apply.
(b) Profit and Loss Sharing Mechanism. All sales of Collaboration Products
---------------------------------
in the Profit/Loss Sharing Territory shall be booked by ORTHO. ORTHO shall have
the right to reject any order received by it for a Collaboration Product;
provided, however, that ORTHO shall not reject orders on an arbitrary basis, but
only with reasonable justification and consistent with the general policies
applied by it with respect to orders for other pharmaceutical products sold by
it.
(c) LSU Royalty and Other Pre-Existing Third Party Royalties. The royalty
--------------------------------------------------------
payable to Louisiana State University under LSU Patents for sales of
Collaboration Products in the Profit/Loss Sharing Territory shall be an
Allowable Expense, and ERGO and ORTHO shall each be responsible for 50% of such
royalty. The royalty payable to Louisiana State University under LSU Patents for
sales of Collaboration Products in any former Profit/Loss Sharing Territory
shall be borne equally by the parties, and ORTHO, in addition to any other
royalties payable to ERGO pursuant to the terms of this Agreement in a former
Profit/Loss Sharing Territory ORTHO shall pay to ERGO [*] of the royalty amount
due LSU under the LSU Agreement. ERGO shall be responsible for payment of
royalties to LSU and shall provide written documentation to ORTHO of such
payment of royalties for purposes of calculating Operating Profits and Losses by
ORTHO and for the purposes of verifying the correctness of ORTHO's payments with
respect to the former Profit/Loss Sharing Territory. ORTHO shall not be
responsible in the Profit/Loss Sharing Territory or the Royalty Bearing
Territory for any portion of any royalty owed to any Third Party pursuant to an
agreement between ERGO and such Third Party that existed prior to the Effective
Date, other than as set forth above with respect to royalties in the Profit/Loss
Sharing Territory due to LSU.
(d) Change in Profit and Loss Sharing Percentages. [*].
---------------------------------------
SECTION 8.02. Profit/Loss Sharing Reports and Payments.
----------------------------------------
(a) Reports. The parties shall make Commercial Equalization Payments to one
-------
another as required to effect the sharing of profits and losses as provided in
this Article VIII. Within thirty (30) days after the end of each calendar
quarter and fifty (50) days after the end of the fourth quarter of each full
calendar year, ORTHO shall report to ERGO (as outlined in Exhibit B) its
revenues and individual Allowable Expense items (with appropriate supporting
information) involved in the computation of Operating Profits or Losses
attributable to such quarter with respect to such Collaboration Product. ERGO
shall similarly report in writing to ORTHO within the same thirty (30) day
period, any Allowable Expense (with appropriate supporting information) items
that it has incurred, including but not limited to the LSU Royalty. Within
thirty (30) days after receipt of the last of such reports, ORTHO shall provide
to ERGO a written Product Financial Statement with respect to each Collaboration
Product, and a Consolidated Financial Statement with respect to all
Collaboration Products for the Profit/Loss Sharing Territory. The reports and
Equalization Payments for each of the first three quarters of each fiscal year
may be based on estimated operating profits and losses for such quarters to the
extent such estimates are included in such Party's books and records. The
reports and Equalization Payments for the fourth quarter
35
<PAGE>
of each fiscal year shall include reconciliation and year-end adjustments, if
necessary and to the extent available, with respect to previous quarters. A
Commercial Equalization Payment by ORTHO to ERGO for a particular quarter
required by this Section 8.02 shall be made in any event within forty-five (45)
days of the due date of the Product Financial Statement. The Product Financial
Statements and the Consolidated Financial Statement required hereunder shall be
in the format shown on Exhibit B attached hereto.
(b) Time Periods and Payments by ERGO.
---------------------------------
(i) Except during the Launch Payment Period (as hereinafter
defined), within forty-five (45) days after the due date or receipt by ERGO of a
written Product Financial Statement from ORTHO, whichever is later, indicating
that a Commercial Equalization Payment for a particular quarter is to be made by
ERGO to ORTHO, ERGO shall make such Commercial Equalization Payment to ORTHO;
provided, however, the forty-five (45) day period shall be instead a sixty (60)
day period for the first three calendar quarters of 1998 and any and all
references in this Article VIII to such forty-five (45) day period shall instead
be deemed references to a sixty (60) day period.
(ii) During the Launch Payment Period, within forty-five (45) days
after the due date or receipt by ERGO of a written Product Financial Statement,
whichever is later, indicating that a Commercial Equalization Payment for a
particular quarter is to be made by ERGO to ORTHO pursuant to Section 8.02(a),
ERGO shall make such Commercial Equalization Payment to ORTHO within such forty-
five (45) day period at least to the extent that the Commercial Equalization
Payment is not more than the Capped Equalization Amount for that quarter. As
used herein, "Capped Equalization Amount" means [*] of the Forecasted
Equalization Payment for such particular quarter. For this purpose, the
Forecasted Equalization Payment is the Commercial Equalization Payment
forecasted by ORTHO and provided to ERGO at least [*]months prior to such
quarter, except that, during the [*]months following the Effective Date, the
forecast provided at the Effective Date shall represent the forecast used for
such quarters during such [*]month period. ORTHO shall send to ERGO a forecast
of Net Trade Sales and Allowable Expenses, excluding Development Expenses, that
is materially the same as the forecast that it uses for internal financial
planning purposes.
In the event that during the Launch Payment Period, the full amount of the
Commercial Equalization Payment to be made by ERGO to ORTHO for a particular
quarter is greater than the Capped Equalization Amount for such quarter ERGO
may elect to pay ORTHO within such forty-five (45) day period only an amount
that is less than the full amount of the Commercial Equalization Payment,
provided that such lesser amount is at least equal to the Capped Equalization
Amount. If ERGO so elects to pay such lesser amount, then ERGO shall have a
period of [*]months from the due date or actual date of receipt of the
relevant Product Financial Statement, whichever is later, to pay ORTHO an
Excess Equalization Payment, together with interest on the Excess Equalization
Payment, such interest to be payable at an annual rate of[*], beginning on the
day following the end of said forty-five (45) day period (such Excess
Equalization Payment and interest together being the "Compounded Excess
Equalization Payment"). Where ERGO pays an amount that is less than the full
amount of the Commercial Equalization Payment, but at least the Capped
Equalization Amount specified in this subsection, "Excess Equalization
Payment" shall mean the amount of the excess, if any, by which the Commercial
Equalization Payment owed by ERGO to ORTHO for a particular quarter exceeds
the amount actual paid by ERGO. "Launch Payment Period" shall mean the period
beginning on the later of: (i)[*], or (ii)[*]; and ending on[*].
(iii) In the event that ERGO fails to make a payment that is at least
the lesser of the full amount of the Commercial Equalization Payment or the
Capped Equalization Amount within the forty-
36
<PAGE>
five (45) day period as set forth herein or ERGO fails to make a payment that is
the full amount of the Compounded Excess Equalization Payment within the
[*]month period as set forth herein, ORTHO shall send a past-due notice to ERGO
stating that ERGO has failed to make a payment within the required time period
set forth in subsection 8.02(b). If, pursuant to such notice, ERGO does not pay
any such amount, plus a penalty of [*] of the overdue amount thereon, to ORTHO
within thirty (30) days after receipt of such late notice from ORTHO, ERGO shall
be deemed to have defaulted in its payment obligation to ORTHO pursuant to this
subsection 8.02(b).
(c) In the event that ERGO has defaulted in making a payment that is
either the full amount of the Commercial Equalization Payment Amount (where such
Capped Equalization Amount is greater than or the same as the amount of the
corresponding Commercial Equalization Payment) or at least the Capped
Equalization Amount (where such Capped Equalization Amount is less than the
amount of the corresponding Commercial Equalization Payment) as provided in
subsection 8.02(b)(iii) above, ORTHO at its option, may:
(i) convert the Profit/Loss Sharing Territory to a Royalty Bearing
Territory for the Collaboration Product with respect to which the payment was
not made and pay ERGO a royalty percentage of[*]; or
(ii) maintain the Profit/Loss Sharing Territory as a Profit/Loss
Sharing Territory for the Collaboration Product with respect to which the
payment was not made. The unpaid balance as of the date of default, including
the [*] charge pursuant to Section 8.02(b)(iii), will accrue interest at an
annual interest rate equal to the[*]. Such interest will be added to the past
due balance. The parties shall thereafter continue to share equally in the
Operating Profits and Operating Losses for such Product; provided, however, that
no payments attributable to such Collaboration Product, including royalties,
milestones or Equalization Payments, shall be made to ERGO until the past due
balance plus interest and fees as defined above are fully recovered.
(d) Notwithstanding Section 8.02(c), in the event that ERGO has made a
payment at least in the amount of the Capped Equalization Amount (where such
Capped Equalization Amount is less than the amount of the corresponding
Commercial Equalization Payment) for a particular period, but defaults in making
a Compounded Excess Equalization Payment pursuant to subsection 8.02(b)(iii),
ORTHO at its option, may:
(i) convert the Profit/Loss Sharing Territory to a Royalty Bearing
Territory for the Collaboration Product with respect to which payment was not
made and pay ERGO a royalty percentage of [*] or
(ii) maintain the Profit/Loss Sharing Territory as a Profit/Loss
Sharing Territory for the Collaboration Product with respect to which the
payment was not made. The unpaid balance as of the date of default, which
includes the [*] pursuant Section 8.02(b)(ii) and the [*]charge pursuant to
Section 8.02(b)(iii), will accrue interest at an annual rate equal to the[*].
Such interest will be added to the past due balance. The parties shall
thereafter continue to share equally in the Operating Profits and Operating
Losses for such Product; provided, however, that no payments attributable to
such Collaboration Product, including royalties, milestones or Equalization
Payments, shall be made to ERGO until the past due balance plus interest and
fees as defined above are fully recovered.
(e) In the event that ERGO defaults as described in Section 8.02(b)(iii)
above with respect to a particular Collaboration Product, ORTHO shall make an
election to convert the Profit/Loss Sharing Territory to a Royalty Bearing
Territory with respect to the Collaboration Product for which payment
37
<PAGE>
was not made in Section 8.02(c) or 8.02(d) above (whichever is applicable), if
at all, within the sixty (60) day period following the date on which ERGO is
deemed to have defaulted in making such payment; provided, however, that in the
event ORTHO once elects not to make such a conversion with respect to a
particular Collaboration Product, such election shall not thereafter be
available again to ORTHO with respect to such Collaboration Product based on a
default under Section 8.02(b)(iii).
(f) In the event that ERGO defaults pursuant to Section 8.02(b)(iii), such
default shall not be a material breach of this Agreement pursuant to Section
14.02 and the remedies for such default shall be limited to the remedies
provided in this Section 8.02.
SECTION 8.03. Term. The Parties shall share Operating Profits or Losses
----
hereunder with respect to each Collaboration Product in the Profit/Loss Sharing
Territory until such Collaboration Product is permanently withdrawn from and is
no longer being sold in the Profit/Loss Sharing Territory.
SECTION 8.04. Royalty Bearing Products.
------------------------
(a) ORTHO shall pay to ERGO a royalty equal to the applicable Royalty
Percentage set forth below on Royalty Bearing Sales of Bromocriptine in the
Royalty Bearing Territory as follows:
---------------------------------------------------
[*] [*]
---------------------------------------------------
[*] [*]
---------------------------------------------------
[*] [*]
---------------------------------------------------
[*]
(b) ORTHO shall pay to ERGO a royalty equal to: [*] for each Collaboration
Product other than Bromocriptine, in the Royalty Bearing Territory[*] for each
Collaboration Product other than Bromocriptine in the Royalty Bearing Territory.
For example,[*].
(c) Except where expressly provided otherwise in this Agreement, all
royalties to a Party shall be paid, on a country-by-country basis, from the date
of the first commercial sale of each Royalty Bearing Product in a particular
country until the later of (i) [*] from the first commercial sale in such
country and (ii) the last to expire of any valid and enforceable ERGO Patents or
Joint Patents, as applicable, which would have been infringed by the use or sale
of the Royalty Bearing Product in such country, absent rights thereunder:
(i) If a Royalty Bearing Product is sold in any country for an
Indication for which ERGO does not have valid patent coverage (whether through
invalidation or abandonment or by virtue of the fact that a patent application
has never been filed which contains a claim providing such coverage) that would
prevent the use or sale of a generic form of such Royalty Bearing Product for
such Indication and, further, a generic equivalent of such Royalty Bearing
Product, labeled for such Indication, is being sold, the royalty obligation set
forth in Section 8.04 (a) or Section 8.04(b) above with respect to such
Indication for such Royalty Bearing Product in such country shall be reduced
by[*], until ERGO is granted such valid and enforceable patent coverage of such
Indication for such Royalty Bearing Product in such country;
(ii) If a Royalty Bearing Product is being sold in any country with
respect to which a Third Party (other than LSU under LSU Patents) has a patent,
from which ERGO has not obtained a
38
<PAGE>
license, and is entitled to receive royalties pursuant to a patent license
required in order to make or sell the Royalty Bearing Product, then the royalty
obligation set forth in Section 8.04(a), or Section 8.04(b) above with respect
to Royalty Bearing Sales attributable to the sale of such Royalty Bearing
Products in such country shall be reduced by one-half of the royalty payable to
such Third Party, but not below [*]of the amount of the royalty that would,
absent such payment, be otherwise payable under Section 8.04(e);
(iii) If a Royalty Bearing Product is being sold in a country for an
Indication where the only ERGO Patent that exists that covers the Royalty
Bearing Product is a pending patent application which has been pending for[*],
whichever is later, and a generic equivalent of such Royalty Bearing Product,
labeled for such Indication, has been approved for commercial sale, then ORTHO
shall be entitled thereafter to a [*]reduction in the royalty payable to ERGO in
such country with respect to such indication of such product as set forth in
Section 8.04(a) or Section 8.04(b), until such patent application matures into
an enforceable, valid patent that covers the Royalty Bearing Product, at which
time the full royalty shall then apply for the remainder of the applicable term;
and
(iv) Royalty Reduction for Off-Label Sales. In the event that the
-------------------------------------
Royalty Bearing Sales of any Royalty Bearing Product in a country outside the
United States are determined to have been reduced as a result of Off-Label Sales
of a product containing the same active ingredient as a particular Collaboration
Product by an amount in excess of [*] of the Royalty Bearing Sales that would
have been realized but for the Off-Label Sales, then ORTHO shall be entitled to
take a reduction in the royalties payable with respect to such Royalty Bearing
Product in such country for any calendar quarter in which such Royalty Bearing
Sales are so reduced by at least[*]. The reduction in royalties shall equal [*]
of such reduction in such Royalty Bearing Sales in excess of such[*], but in no
event greater than [*] of the Royalty Bearing Sales in such country for such
quarter (i.e., the Royalty Percentage for any such country shall not be so
reduced by more than[*].[*].
(v) Notwithstanding the provisions of Section 8.04(c), subsections
(i), (ii), (iii) and (iv) above, the royalties to be paid by ORTHO to ERGO on
Royalty Bearing Sales pursuant to Section 8.04(a) and Section 8.04(b) shall
never be reduced in the aggregate by more than [*] from the royalties applicable
in the absence of such reductions.
(f) Upon expiration of the royalty term for a Royalty Bearing Product in a
country as described above, ORTHO shall thereafter have a paid-up, non-exclusive
license to make, have made, use, sell, offer for sale, have sold and import that
Royalty Bearing Product in that country.
(h) ORTHO shall not be responsible for payment of any portion of any
royalty owed to any Third Party based on Royalty Bearing Sales in the Royalty
Bearing Territory, including LSU under the LSU Patents, pursuant to any
agreement between such Third Party and ERGO that existed prior to the Effective
Date.
SECTION 8.05. Sales by Sublicensees. In the event either Party, subject to
---------------------
the provisions of this Agreement, grants licenses or sublicenses to others to
make or sell Royalty Bearing Products or Independent Products, such licenses or
sublicenses shall include an obligation for the licensee or the sublicensee to
account for and report its Royalty Bearing Sales of such Royalty Bearing
Products or Independent Products on the same basis as if such sales were Royalty
Bearing Sales by the Party, and such Party shall pay royalties to the other
Party as if the Royalty Bearing Sales of the sublicensee were Royalty Bearing
Sales of the Party granting the license or sublicense.
SECTION 8.06. Royalty Reports and Payments. A report, summarizing the
----------------------------
Royalty Bearing Sales of any Royalty Bearing Products and/or Independent
Products during the relevant quarter on a
39
<PAGE>
country-by-country basis, together with payment of the royalties payable in
accordance the report shall be delivered to the receiving Party within sixty
(60) days following the end of each calendar quarter and sixty (60) days
following the end of each calendar year for which royalties are due from the
selling Party.
SECTION 8.07. Payments. Any payments due under this Agreement shall be
--------
made by wire transfer to a designated bank account of the receiving Party, as
such may be directed in writing by the recipient.
SECTION 8.08. Taxes. The Party receiving royalties shall pay any and all
-----
taxes levied on account of royalties it receives under this Agreement. If laws
or regulations require that taxes be withheld, the selling Party will (i) deduct
those taxes from the otherwise remittable royalty, (ii) timely pay the taxes to
the proper taxing authority, and (iii) send proof of payment to the other Party
within thirty (30) days of receipt of confirmation of payment from the relevant
taxing authority. The selling Party agrees to take all lawful and reasonable
efforts to minimize such taxes to the other Party.
SECTION 8.09. Foreign Exchange. For the purpose of computing Royalty
----------------
Bearing Sales for Products sold in a currency other than United States Dollars,
such currency shall be converted into United States Dollars in accordance with
the Party's customary and usual translation procedures consistently applied and
in accordance with generally accepted accounting principles.
SECTION 8.10. Payments to or Reports by Affiliates. Any payment required
------------------------------------
under any provision of this Agreement to be made to either Party or any report
required to be made by any Party shall be made to or by an Affiliate of that
Party if designated by that Party as the appropriate recipient or reporting
entity.
SECTION 8.11. No Overlapping Royalties. Notwithstanding any other
------------------------
provision of this Agreement, in no event shall any royalty provided for under
any Section of this Agreement be paid with respect to any sale of a
Collaboration Product, Independent Product or Royalty-Bearing Product to the
extent a royalty has been paid pursuant to any other Section of this Agreement
with respect to such sale provided that the higher royalty is paid.
--------
SECTION 8.12. Spillover Sales and Equalization Payment Based on Spillover
-----------------------------------------------------------
Sales.
- -----
(a) During the term of this Agreement, either ORTHO or ERGO may decide to
terminate Development of Bromocriptine for an Indication pursuant to Section
5.04, such that, in the Profit/Loss Sharing Territory, a Bromocriptine-
containing product ("Product" as used in this subsection) might be marketed,
promoted and sold separately by one Party (the "Approved Indication Selling
Party") for an Indication which is different from any Indication for which the
Product is approved for use and Commercialized by the other Party, including a
sublicensee of such Party (the "Spillover Selling Party"). Each Indication for
use for which the Approved Indication Selling Party has regulatory approval to
market, but the Spillover Selling Party does not, shall be referred to as a
"Spillover Indication" and any sales of a Product made by the Spillover Selling
Party where the Product is thereafter used for such a Spillover Indication shall
represent "Spillover Sales" with respect to such Party's Product.
(b) Based on the determination of the Spillover Sales of the Product, the
Spillover Selling Party shall make an annual payment (the "Spillover
Equalization Payment") to the Approved Indication Selling Party, such payment to
be made within three (3) months from the end of each calendar year. The
Spillover Equalization Payment shall be in an amount such that the Approved
Indication Selling Party shall realize the profits it would have made had the
Approved Indication Selling Party itself made such Spillover Sales. In the
event that the Spillover Selling Party is only Commercializing the Product by
40
<PAGE>
route of administration different from each of the forms of the Product sold by
the Approved Indication Selling Party, no Spillover Equalization Payment shall
be made.
(c) The parties will establish a mechanism to determine Spillover Sales of
Products based on each Spillover Indication at such time, if ever, that ORTHO
fails to accept the ERGO proposal for joint Development made following [*](e.g.,
ERGO may, therefore, become the Spillover Selling Party for its Product with
respect to ORTHO's approved Indications for ORTHO's Product (if ORTHO similarly
fails to accept subsequent ERGO proposals as provided in Article V). At such
time, each Party shall submit to the other a written proposal for establishing
the allocation mechanism set forth in this Section 8.12 with respect to such
prospective Spillover Sales. Such proposals shall be exchanged within thirty
(30) days following the date ORTHO declines ERGO's Section 5.04 proposal
referenced above. In the event that the JPT is unable to agree upon such
mechanism based on the Party's respective proposals therefor within a ninety
(90) day period following the exchange of such proposals, then the matter shall
be referred to the Steering Committee for resolution. If the Steering Committee
does not unanimously arrive at a resolution within ninety (90) days following
such referral, then the matter shall be resolved by an independent arbiter
mutually agreeable to both Parties, with such arbitration in any event being
concluded prior to the approval of the ERGO NDA for its Product.
ARTICLE IX
MANUFACTURE AND SUPPLY
----------------------
SECTION 9.01. Manufacture and Supply During Development. ORTHO will
-----------------------------------------
arrange for the manufacture of Collaboration Products for use during the
Development of Collaboration Products as provided in this Agreement. In this
regard, ORTHO and not ERGO shall be the Party to all manufacture agreements with
Third Parties for the supply of Collaboration Products during Development
Payments to manufacturers for such use and related costs will be a Development
Expense. As used in this Article IX, "manufacture" means manufacture of
Collaboration Products in bulk form and finished dosage form.
SECTION 9.02. Manufacture and Supply During Commercialization.
-----------------------------------------------
(a) ORTHO shall be solely responsible for the commercial manufacture of
Collaboration Products in such a manner as to achieve and maintain a
substantially competitive Cost of Goods Sold and to assure quality assurance as
stringent as such quality assurance standards used by ORTHO and its Affiliates
in the manufacture of its other pharmaceutical products, continuity and security
of supply, compliance with CGMP, and compliance with all applicable regulatory
requirements. In this regard, ORTHO and not ERGO shall be the party to all
manufacture supply and development agreements covering the commercial supply of
Collaboration Products. Such manufacturer(s) may include Third Parties. To
enable the transfer of manufacturing to ERGO in situations under this Agreement
where ORTHO is obligated to do so, all contracts entered into by ORTHO with a
Third Party relating to the manufacturer of Collaboration Products shall include
a provision permitting the assignment of such contract to ERGO on the same terms
where possible for the remainder of such contract term. If such a provision
adversely impacts the price offered, the Parties agree to discuss alternative
arrangements or contractual provisions. Any selection of manufacturers for
Commercialization shall be subject to the rights of any Third Parties existing
at the time such determination is made.
(b) ORTHO acknowledges that pursuant to that certain Amended and Restated
Supply Agreement, (the "Geneva Agreement") dated as of October 31, 1997, by and
between ERGO Research Corporation, ERGO Science Corporation, and Geneva
Pharmaceuticals, Inc. ("Geneva"), attached hereto as Exhibit F, Geneva will
manufacture Bromocriptine tablets in finished dosage form for worldwide
41
<PAGE>
distribution for the period[*]. Pursuant to Section 11.05 of the Geneva
Agreement, ERGO hereby assigns to ORTHO, and ORTHO hereby accepts, all of ERGO's
rights and obligations under the Geneva Agreement. ORTHO agrees to pay [*]of the
payments to Geneva set forth in Sections 6.3 and 6.4 of the Geneva Agreement.
The payments set forth in Section 3.3 and 3.4 of the Geneva Agreement related to
the purchase of Bromocriptine tablets related to the Development and
Commercialization in the Profit/Loss Sharing Territory shall be Allowable
Expenses or Development Expenses, as appropriate (provided, however, that ORTHO
shall in no event be responsible for any expenses incurred prior to the
Effective Date and ERGO shall assume full responsibility for such expenses).
ORTHO and ERGO each agree to execute such other documents and instruments as may
be necessary to effectuate the assignment of rights and obligations under the
Geneva Agreement set forth in this Section 9.02(b).
SECTION 9.03. Quality Assurance, Etc.
----------------------
(a) ORTHO shall have day to day responsibility for commercial manufacturing
and formulation issues related to product safety and regulatory compliance.
ERGO shall provide technical support reasonably required by ORTHO or Third
Parties for the manufacture of Collaboration Products. The costs of providing
on-going post-launch technical support shall be an Allowable Expense under Post-
Launch Product R & D Expense as defined in Exhibit A. Regardless of the parties
selected to manufacture the Collaboration Products for the Profit/Loss Sharing
Territory, each of the Parties shall have rights of inspection and audit as set
forth in the contract with such Third Party to enable it to comply with its
internal quality assurance and reporting obligations, including those imposed by
regulatory authorities. In addition, before a final commitment is made to any
Party or Parties or to any Third Party regarding manufacturing plant decisions
for the supply of Collaboration Products to the Profit/Loss Sharing Territory,
both Parties shall have the right to perform plant quality assurance audits.
(b) All Collaboration Compounds and Products used in clinical and
commercial supplies will be manufactured, tested, and released according to
current CGMP's. It is expected that the manufacturer will be responsible for
maintaining their facilities and procedures, including those of Third Parties,
in compliance with CGMP's. ORTHO has the right to perform periodic assessments
of CGMP compliance by inspection of facilities for the manufacture of
Collaboration Compounds for use in clinical and commercial supplies, for the
manufacture of Collaboration products and active ingredients for use in clinical
and commercial supplies, and review of compliance related documents. If CGMP
deficiencies should be identified by ORTHO, the manufacturer will receive
written notification from ORTHO describing the specific compliance issues
identified. The manufacturer has an obligation to establish a corrective action
plan within 30 days of receiving notice of such deficiencies from ORTHO. The
corrective action plan will establish clear goals and timing for improvement of
specific compliance issues and must be agreed to by ORTHO. Any expenses
incurred in improving compliance will be the full responsibility of the
manufacture. In the event that ORTHO's compliance assessment challenges the
suitability of any particular batch of clinical or commercial materials intended
for clinical or commercial use, ORTHO has the final decision regarding the
release of such materials.
SECTION 9.04 Provisions for the Manufacture of Collaboration Products. If
--------------------------------------------------------
a Party is manufacturing and supplying the Collaboration Products, such Party
shall be entitled to recover as an Allowable Expense such Party's Cost of Goods
Sold for Collaboration Products so supplied, upon the sale of such Collaboration
Products according to its standard accounting procedures consistently applied
within and across its pharmaceutical operating units for matching revenues with
costs of products sold. In the event a Party would obtain a tax benefit from
the manufacture of Collaboration Products in a particular jurisdiction, such tax
benefits shall be treated as described in Section 7.06 herein.
42
<PAGE>
SECTION 9.05 Technology Transfer in Event of Termination by ORTHO. In the
----------------------------------------------------
event that, upon termination by ORTHO of this Agreement (other than a
termination under Section 14.02), ORTHO is manufacturing in whole or in part one
or more Collaboration Products or Royalty Bearing Products hereunder, then ORTHO
shall continue to provide for such manufacture of such Collaboration Products
and Royalty Bearing Products to the extent provided prior to notice of such
termination, from the time notice of such termination is provided until such
time as ERGO is able to secure an equivalent alternative commercial
manufacturing source, in the event that ERGO using its best efforts is unable to
secure such an alternative source during the notice period. To this end, as of
the effective date of such termination all Third Party manufacturing contracts
shall be assigned to ERGO, and the cost charged to ERGO by ORTHO for any of the
internal manufacturing activities to be continued by ORTHO pursuant to this
Section 9.05 for the production of Collaboration Products and Royalty Bearing
Products shall be the same as ORTHO's cost during the time that the Agreement
was in effect, provided, however, ORTHO may begin to receive a profit for its
internal manufacturing activities relating to such Products at a rate of the
cost relating to such internal manufacturing activities plus [*]beginning one
(1) year after the effective date of termination hereunder and an additional
[*]for each additional year following the second anniversary of the effective
date of termination. For example, during the third year following the effective
date of termination, the profit margin would be[*]. Further, upon ERGO's
request, ORTHO shall provide such technical assistance and Know-how licenses on
a royalty free basis as may reasonably be requested to transfer such technology
as needed by ERGO to commence or continue commercial manufacture of
Collaboration Products and Royalty Bearing Products. Such technical assistance
shall be provided at ORTHO's cost, which cost shall be reimbursed by ERGO. In
the event that any technology needed by ERGO to commence or continue commercial
manufacture of Collaboration Products or Royalty Bearing Products is covered by
one or more ORTHO Patents, ERGO shall receive a paid up, exclusive world-wide
right and license to such ORTHO patents as per Section 14.02 and Section 14.03.
SECTION 9.06 Access to Geneva Know-How. ORTHO, as assignee of the Geneva
-------------------------
Agreement, shall have all rights to any manufacturing know-how that related to
manufacturing Bromocriptine, to the extent provided in the Geneva Agreement,
attached hereto as Exhibit F.
ARTICLE X
CONFIDENTIALITY
---------------
SECTION 10.01. Confidentiality Exceptions. Except to the extent expressly
--------------------------
authorized by this Agreement or otherwise agreed in writing, the Parties agree
that, for the term of this Agreement and for [*] thereafter, the receiving
Party shall keep confidential and shall not publish or otherwise disclose or use
for any purpose other than as provided for in this Agreement any Information and
other information and materials furnished to it by the other Party pursuant to
this Agreement or any Information developed during the course of the
collaboration hereunder, or any provisions of this Agreement that are the
subject of an effective order of the Securities Exchange Commission granting
confidential treatment pursuant to the Securities Act of 1934, as amended
(collectively, "Confidential Information"), except to the extent that it can be
---------------------------
established by the receiving Party that such Confidential Information:
(a) was already known to the receiving Party, other than under an
obligation of confidentiality, at the time of disclosure by the other Party;
(b) was generally available to the public or otherwise part of the public
domain at the time of its disclosure to the receiving Party;
(c) became generally available to the public or otherwise part of the
public domain after its disclosure and other than through any act or omission of
the receiving Party in breach of this Agreement;
43
<PAGE>
(d) was disclosed to the receiving Party, other than under an obligation of
confidentiality, by a Third Party who had no obligation to the disclosing Party
not to disclose such information to others; and
(e) was independently developed by the receiving Party without reliance on
Confidential Information of the other Party.
SECTION 10.02. Authorized Disclosure. Each Party may disclose Confidential
---------------------
Information hereunder to the extent such disclosure is reasonably necessary in
filing or prosecuting patent applications, prosecuting or defending litigation,
complying with applicable governmental regulations, or conducting pre-clinical
or clinical trials; provided, however, that if a Party is required by law or
regulation to make any such disclosures of the other Party's Confidential
Information it will, except where impracticable for necessary disclosures, for
example in the event of medical emergency, give reasonable advance notice to the
other Party of such disclosure requirement (e.g., filings with the SEC and stock
markets) and, except to the extent inappropriate in the case of patent
applications, will use its reasonable efforts to secure confidential treatment
of such Confidential Information required to be disclosed, unless in the opinion
of such disclosing Party's legal counsel such Confidential Information is
legally required to be fully disclosed. In addition, and with prior notice to
the other Party of each Third Party with whom a confidential disclosure
agreement is being entered into, each Party shall be entitled to disclose, under
a binder of confidentiality containing provisions as protective as those of this
Article X, Confidential Information to any Third Party for the purpose of
carrying out the purposes of this Agreement. Nothing in this Article X shall
restrict any Party from using for any purpose any Confidential Information
independently developed by it during the course of the collaboration hereunder,
or from using Confidential Information that is specifically derived from pre-
clinical or clinical trials to carry out marketing, sales or professional
services support functions as is customary in the pharmaceutical industry.
SECTION 10.03. Survival. Section 10.01 through 10.04 of this Article X
--------
shall survive the termination or expiration of this Agreement for a period
of[*].
SECTION 10.04. Termination of Prior Agreement. This Agreement supersedes
------------------------------
the Confidentiality Agreements between ERGO and ORTHO dated as of October 28,
1996, and April 29, 1997. All Information exchanged between the Parties under
that Agreement shall be deemed Confidential Information and shall be subject to
the terms of this Article X, and shall be included, respectively, within the
definitions of ERGO Know-how if ERGO is the disclosing Party and ORTHO Know-how
if ORTHO is the disclosing Party.
SECTION 10.05. Publications. Except to the extent set forth in Section
------------
10.02 and 10.06, each Party shall provide to the other the opportunity to review
any proposed publications or scientific presentations which relate to
Collaboration Compounds or Collaboration Products for Development Indications,
or Additional Indications, if any, as early as reasonably practical, but at
least thirty (30) days prior to the intended submission for publication (except
with the written consent of the other party). The reviewing Party will provide
the publishing Party with its response to the publishing Party's request to
publish within thirty (30) days of receipt of such request. No publication
shall be made by any Party without the agreement or approval in writing from the
other Party. However, the failure of the receiving Party to respond to such
request within such thirty (30) day period shall be deemed to be approval of
such request and the publishing Party shall then be free to proceed with said
publication or presentation. Notwithstanding the foregoing, publications
regarding Commercialization Activities or needed to effectively Commercialize
the Collaboration Product may be made by ORTHO even if ERGO does not
44
<PAGE>
approve, provided that ORTHO can demonstrate that such publication is reasonably
necessary to successfully market the Product.
SECTION 10.06. Public Announcements. Subject to the further provisions of
--------------------
this Section 10.06, Parties, neither Party shall originate any written
publicity, news release or public announcement, whether to the public or press,
concerning this Agreement, including the subject matter to which it relates,
performance under it or any of its terms, or any amendment hereto save only such
announcements that are required by law to be made or that are otherwise agreed
by the Parties. Such announcements shall be factual and as brief as possible.
In addition, each Party agrees to submit to the other Party, for review and
written approval any question and answer sheet or similar materials ("Q & A")
prior to using such materials as the basis for oral disclosures, which oral
disclosures must, in any event, be consistent in content with the information
contained in approved written materials. Routine references to this Agreement
and the arrangements hereunder shall be allowed in the usual course of business,
subject to approved Q & A. Once information has been approved for disclosure as
part of an approved Q & A under this Section 10.06, either party may use such
approved information in communications with Third Parties. If a Party
decides to make an announcement required by law, it will give the other Party at
least [*]advance notice, where possible, of the text of the announcement so that
the other Party will have an opportunity to comment upon the announcement. To
the extent that the receiving Party reasonably requests that any information in
the materials proposed to be disclosed be deleted, the disclosing Party shall
request confidential treatment of such information pursuant to Rule 406 of the
Securities Act of 1933 or Rule 25b-2 of the Securities Exchange Act of 1934, as
applicable (or any other applicable regulation relating to the confidential
treatment of information) so that there be omitted from the materials that are
publicly filed any information that the receiving Party reasonably requests to
be deleted, unless in the opinion of the disclosing Party's legal counsel such
Confidential Information is legally required to be fully disclosed.
Notwithstanding the foregoing, publications regarding Commercialization
Activities or needed to effectively Commercialize the Collaboration Product may
be made by ORTHO even if ERGO does not approve, provided ORTHO can demonstrate
such publication is necessary to successfully market the Product.[*]
ARTICLE XI
OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT RIGHTS
----------------------------------------------------
SECTION 11.01. Ownership. Each Party shall solely own, and that Party
---------
alone shall have the right to apply for, Patents within and outside of the
United States for any inventions made solely by that Party's employees or
consultants in the course of performing work under this Agreement. Inventions
made jointly by employees or consultants of ERGO and ORTHO shall be owned
jointly by ERGO and ORTHO. The law of joint ownership of inventions of the
United States shall apply to any joint ownership of Patents outside the United
States claiming joint inventions of the Parties.
SECTION 11.02. Disclosure of Provisional and Non-Provisional Patent
----------------------------------------------------
Applications. In addition to the disclosures required under Article XIII, each
- ------------
Party shall provide to the other, a reasonable time prior to filing, a copy of
each non-provisional patent application filed by such party disclosing an
invention arising in the Field during the course of the collaboration during the
term of this Agreement and each Party shall provide to the other, immediately
after filing, a copy of each provisional patent application filed by such party
disclosing an invention arising in the Field during the course of the
collaboration during the term of this Agreement.
SECTION 11.03. Patent Filings.
--------------
45
<PAGE>
(a) Each Party, at its sole discretion and responsibility, shall prepare,
file, prosecute and maintain Patents to cover discoveries and inventions made
solely by its own employees or consultants relating to any Product and use
reasonable efforts to file initially all such applications in the United States
or the appropriate forum under the circumstances. The JPT will determine which
Party shall file, prosecute and maintain Patents to cover inventions relating to
the discovery, evaluation, manufacture, use or sale of Collaboration Compounds
or Collaboration Products that are made jointly by personnel of ERGO and ORTHO
in the course of the collaboration (herein referred to as "Joint Patents"). The
determination of the countries in the Royalty Bearing Territory in which to file
Joint Patents shall be made by ORTHO. ORTHO shall have the right to direct and
control all material actions relating to the prosecution or maintenance of Joint
Patents in the Royalty Bearing Territory, and ERGO shall have the right to
request filing in countries not selected by ORTHO for filing provided that ERGO
shall pay all expenses associated therewith in such ERGO selected countries.
ORTHO shall provide prior written notice to ERGO of the countries in which it
intends to file in the Royalty Bearing Territory, including conflict
proceedings, reexaminations, reissuance, oppositions and revocation proceedings,
provided, however, that ERGO shall have the right to continue prosecution in
countries in which ORTHO determines it wishes to abandon.
(b) The Party who is responsible for filing a Joint Patent will be termed
the "filing Party." The filing Party shall keep the other Party apprised of the
status of each Joint Patent and shall seek the advice of the other Party with
respect to patent strategy and drafting applications and shall give reasonable
consideration to any suggestions or recommendations of the other Party
concerning the preparation, filing, prosecution, maintenance and defense
thereof. The Parties shall cooperate reasonably in the prosecution of all Joint
Patents and Patents covering Collaboration Products and shall share all material
information relating thereto, including all material communications from patent
offices, promptly after receipt of such information. If the Parties are unable
to agree as to who is the filing Party or as to any aspect of patent prosecution
of a Joint Patent or a Patent covering a Collaboration Product, each Party at
its expense shall be free to take whatever action it deems appropriate to
protect the joint invention or Collaboration Product, including the filing of
patent applications subject to prior notification of the other Party. If,
during the term of this Agreement, the filing Party intends to allow any Patent
covering a Product to which the Party has license rights under this Agreement to
lapse or become abandoned without having first filed a substitute, the filing
Party shall, whenever practicable, notify the other Party of such intention at
least sixty (60) days prior to the date upon which such Patent shall lapse or
become abandoned, and the other Party shall thereupon have the right, but not
the obligation, to assume responsibility for the prosecution, maintenance and
defense thereof and all expenses related thereto. Where such other Party
assumes such responsibility, the affected patent shall not thereafter serve as a
basis for any royalty obligation otherwise payable by such Party to the other
Party.
(c) The Parties agree to use reasonable efforts to ensure that any Patent
filed outside of the United States prior to a filing in the United States will
be in a form sufficient to establish the date of original filing as a priority
date for the purposes of a subsequent filing in the United States.
(d) The Parties shall cooperate in order to avoid loss of any rights that
may otherwise be available to the Parties under the U.S. Drug Price Competition
and Patent Term Restoration Act of 1984, the Supplementary Certificate of
Protection of the Member States of the European Union and other similar measures
in any other country. Without limiting the foregoing, either Party shall notify
the other Party promptly upon receipt of Regulatory Approval to market a
Collaboration Compound, Collaboration Product or Independent Product in the
United States, and timely supply such Party with all information necessary to
file an application for patent term extension for any relevant patent owned or
controlled by the Parties, within the sixty (60) day period following regulatory
Approval. The obligations set forth in this Section 11.04(d) shall apply with
respect to patent term extensions, or the equivalent, in any other
46
<PAGE>
country. Any application for patent term extension in the United States shall be
made by the Party who owns or controls this patent to be term extended.
SECTION 11.04. Third Party Patent Rights. Except as expressly provided in
-------------------------
Section 12.01, neither Party makes any warranty with respect to the validity,
perfection or dominance of any Patent or other proprietary right or with respect
to the absence of rights in Third Parties which may be infringed by the
manufacture or sale of any Product. Each Party agrees to bring to the attention
of the other Party any Patent or Patent application it discovers, or has
discovered, and which relates to the subject matter of this Agreement.
SECTION 11.05. Enforcement Rights.
------------------
(a) Notification of Infringement. If either Party learns of any
----------------------------
infringement or threatened infringement by a Third Party of the ERGO Patents,
LSU Patents, ORTHO Patents, or Joint Patents, such Party shall promptly notify
the other Party and shall provide such other Party with all available evidence
of such infringement.
(b) Enforcement in the Profit/Loss Sharing Territory. The Steering
------------------------------------------------
Committee will be fully apprised of the facts concerning the infringing acts,
and shall have an opportunity to comment and advise the Party that owns or
controls the infringed patent concerning in the appropriate course of action to
pursue with respect to infringement of any ERGO Patents, LSU Patent, ORTHO
Patents or Joint Patents covering the manufacture, use, importation, sale or
offer for sale of Collaboration Products being developed or marketed in the
Profit/Loss Sharing Territory. The Party that owns or controls the infringed
patent shall control any enforcement thereof in the Profit/Loss Sharing
Territory. Costs of patent enforcement and related recoveries with respect to
infringement in the Profit/Loss Sharing Territory shall be charged to the
collaboration as Allowable Operating Expenses. Each Party shall bear its own
expenses, with any recovery allocated pro rata to the extent of the Parties'
costs and any excess one-half to each of the Parties.
(c) Enforcement for Royalty Bearing Products in the Royalty Bearing
---------------------------------------------------------------
Territory. ERGO shall have the right, but not the obligation, to institute,
- ---------
prosecute and control at its own expense any action or proceeding with respect
to infringement of any ERGO Patents, LSU Patents or Joint Patents covering the
manufacture, use, importation, sale or offer for sale of Collaboration Products
being developed or marketed in the Royalty Bearing Territory, by counsel of its
own choice. ORTHO shall have the right, at its own expense, to be represented
in any action by counsel of its own choice. If ERGO fails to bring an action or
proceeding or otherwise take appropriate action in ERGO's discretion to abate
such infringement within a period of [*]of notice by ORTHO to ERGO requesting
action, ORTHO will have the right but not the obligation to bring and control
any such action or proceeding relating to ERGO Patents or LSU Patents by counsel
of its own choice and ERGO will have the right to be represented in any such
action by counsel of its own choice and at its own expense. ERGO will cooperate
with ORTHO in any suit for infringement of an ERGO Patent or LSU Patent brought
by ORTHO against a Third Party, and shall have the right to consult with ORTHO
and to participate in and be represented by independent counsel in such
litigation at its own expense. ORTHO shall incur no liability to ERGO as a
consequence of such litigation or any unfavorable decision resulting therefrom,
including any decision holding the infringed patent invalid or unenforceable. If
one Party brings any such action or proceeding, the other Party agrees to be
joined as a party plaintiff if necessary to prosecute the action or proceeding
and to give the first Party reasonable assistance and authority to file and
prosecute the suit. Any damages or other monetary awards recovered pursuant to
this Section 11.05(c) shall be allocated first to the costs and expenses of the
Party bringing suit, then to the costs and expenses, if any, of the other Party.
Any amounts remaining shall go to the Party bringing suit.
47
<PAGE>
(d) Enforcement with Respect to Independent Products. The Party developing
------------------------------------------------
or marketing an Independent Product shall have the right, but not the
obligation, to institute, prosecute and control at its own expense any action or
proceeding with respect to infringement of any ERGO Patents, LSU Patents, ORTHO
Patents or Joint Patents covering the manufacture, use, importation, sale or
offer for sale of an Independent Product being developed or marketed by such
Party, by counsel of its own choice. The other Party shall have the right, at
its own expense, to be represented in any such action or proceeding within a
period of [*]of notice from the other Party requesting action, the other Party
will have the right to bring and control any such action or proceeding relating
to that Party's Patents (but not the Patents of the Party developing or
marketing such Independent Product) by counsel of its own choice and the Party
marketing the Independent Product will have the right to be represented in any
such action by counsel of its own choice and at its own expense. If one Party
brings any such action or proceeding, the other Party agrees to be joined as a
party plaintiff if necessary to prosecute the action or proceeding and to give
the first Party reasonable assistance and authority to file and prosecute the
suit. The Party bringing such action shall be entitled to retain any damages or
other monetary awards recovered pursuant to this Section 11.05 (d).
(e) Settlement with a Third Party. The Party that controls the prosecution
-----------------------------
of a given action shall also have the right to control settlement of such
action; provided, however, that if one Party controls, no settlement shall be
-------- -------
entered into without the written consent of the other Party if such settlement
would materially and adversely affect the interests of such other Party. If the
other Party shall refuse to grant such consent, then the dispute will be
resolved pursuant to Article XVI.
(f) Exclusivity. Notwithstanding the provisions of Sections 11.05(b), (c)
-----------
and (d), neither Party shall file and prosecute an action for infringement of a
Patent in any country for which the other Party has the primary responsibility
to file and prosecute such action, and pursuant to which that other Party having
primary responsibility has commenced and is prosecuting at least one such action
for infringement of said Patent in the same country, without the agreement of
that other Party, which agreement shall not be unreasonably withheld or delayed.
SECTION 11.06. Defense and Settlement of Third Party Claims.
--------------------------------------------
(a) Defense in the Profit/Loss Sharing Territory. If a Third Party asserts
--------------------------------------------
that a patent, trademark or other intangible right owned by it is infringed by
any Collaboration Product in the Profit/Loss Sharing Territory, the Steering
Committee shall establish a plan for a common defense and select the Party
responsible for managing such plan. The costs of any such action incurred by
one or both of the Parties at the direction of the Steering Committee (including
the costs of any judgment, award, decree or settlement) will be chargeable to
the collaboration as an Allowable Operating Expense.
(b) Defense in the Royalty Bearing Territory. If a Third Party asserts
----------------------------------------
that a patent, trademark or other intangible right owned by it is infringed by
any Royalty Bearing Product in the Royalty Bearing Territory, ORTHO will be
solely responsible for defending against any such assertions at its cost and
expense, but no settlement may be entered into without the written consent of
ERGO if such settlement would materially and adversely affect ERGO's interests.
(d) Settlement with a Third Party. The entity that controls the defense of
-----------------------------
a given claim with respect to a Collaboration Product shall also have the right
to control settlement of such claim; provided, however, that other than as
--------
provided in Section 11.06(b), no settlement shall be entered into without the
written consent of the other Party, which consent shall not be unreasonably
withheld or delayed. If there is no agreement between the Parties as to any
proposed settlement, then the dispute shall be decided by
48
<PAGE>
the Steering Committee, and, if the Steering Committee is unable to decide the
dispute, the matter will be resolved pursuant to Article XIV.
SECTION 11.07. Patent Expenses.
---------------
(a) From the Effective Date of this Agreement prior to the first commercial
sale of a Collaboration Product, all Patent Expenses in the Profit/Loss Sharing
Territory related to such Collaboration Product will be treated as Development
Expenses.
(b) Following the first commercial sale of a collaboration Product, all
Patent Expenses arising in the Profit/Loss Sharing Territory related to such
Collaboration Product shall be treated as Allowable Operating Expenses.
(c) On a country-by-country basis, Patent Expenses arising from ERGO
Patents and LSU Patents in the Royalty Bearing Territory shall be born by ERGO,
and Patent Expenses arising from ORTHO Patents and Joint Patents in the Royalty
Bearing Territory shall be borne by ORTHO.
SECTION 11.08. Assignment of Joint Patents. Neither Party may assign its
---------------------------
rights under any Joint Patent except with the prior written consent of the other
Party; provided, however, that either Party may assign such rights without
--------
consent to an Affiliate or other permitted assignee under this Agreement in
connection with a merger or similar reorganization or the sale of all or
substantially all of its assets, as provided for in Section 17.01(b).
SECTION 11.09. Trademarks and Trademark Expenses. ORTHO and ERGO shall
---------------------------------
equally share the expenses for the selection, registration and maintenance of
all trademarks which are employed in connection with the sale of Collaboration
Products in the Profit/Loss Sharing Territory. ERGO agrees that ORTHO shall not
be required to use the trademark ERGOSET(TM) in association with any
Collaboration Product or Independent Product, and that ERGO shall not use the
trademark ERGOSET(TM) in association with any Collaboration Compound, any
Collaboration Product or Independent Product unless this Agreement is terminated
by ORTHO or the marks adopted by ORTHO for Collaboration Products do not
encompass any mark that is confusingly similar to ERGOSET. ORTHO shall be solely
responsible for the selection, registration, and maintenance of all trademarks
which it employs in connection with the marketing, promotion and sale of
Collaboration Product(s) and shall solely own and control such trademarks. ORTHO
shall keep the JPT informed of proposed trademark development and Trademark
Expenses in connection with the trademarks to be used in the Profit/Loss Sharing
Territory. Each Party recognizes the exclusive ownership by the other Party of
any proprietary names, logotypes or trademarks furnished by it (including its
Affiliates) for use exclusively in connection with Collaboration Products.
Either Party shall not, either while this Agreement is in effect, or at any time
thereafter, register, use or attempt to obtain any right in or to any such name,
logotype or trademark or in and to any name, logotype or trademark confusingly
similar thereto. In the event that this Agreement is terminated by ERGO pursuant
to Section 14, then, at ERGO's option, ORTHO shall license to ERGO, on a royalty
free basis, any trademark specifically developed for the Collaboration
Product(s).
ARTICLE XII
REPRESENTATIONS AND WARRANTIES
------------------------------
SECTION 12.01. Representations and Warranties.
------------------------------
(a) Each of the Parties hereby represents and warrants to the other Party
as follows:
49
<PAGE>
(i) This Agreement is a legal and valid obligation binding upon such
Party and enforceable in accordance with its terms. The execution, delivery and
performance of the Agreement by such Party does not conflict with any agreement,
instrument or understanding, oral or written, to which it is a Party or by which
it is bound, nor violate any law or regulation of any court, governmental body
or administrative or other agency having jurisdiction over it. Each Party
expressly represents and warrants that it has the full power and authority to
enter into this Agreement and to carry out the obligations contemplated hereby.
(ii) Such Party has not, and during the term of the Agreement will
not, grant any right to any Third Party relating to its respective Patents and
Know-how in the Field which would conflict with the rights granted to the other
Party hereunder.
(iii) To the best of its knowledge ERGO is obligated under one
agreement as of the Effective Date to pay Third Parties royalties with respect
to Bromocriptine and any other Collaboration Products for Metabolic Indications;
provided, however that ERGO is obligated for certain time periods to make
payments to certain parties as a result of litigation prior to the Effective
Date (the "Martin and Filler Litigation"), as set forth in ERGO's SEC filings.
ERGO shall be responsible for making any and all payments as a result of the
Martin and Filler Litigation and such payments shall not be considered Allowable
Expenses. ORTHO agrees to make reasonable efforts to provide an accounting to
ERGO for sales of Collaboration Products in the states of Texas and California.
As of the Effective Date the only agreement to pay royalties to a Third Party on
sales of Bromocriptine for Metabolic Indications is the LSU Agreement. There
is currently one other agreement related to the use of Bromocriptine for the
treatment of Non-Metabolic Diseases with the General Hospital Corporation, as
set forth in ERGO's SEC filings.
(b) ERGO hereby represents and warrants to ORTHO as follows:
(i) It has as of the Effective Date given ORTHO access to all clinical
records that describe all adverse event reports related to Collaboration
Products including those that have been filed with the FDA prior to the
Effective Date.
(ii) As of the Effective Date, except as it may have previously
disclosed to ORTHO in writing, it has not received any notices of infringement
or any written communications relating in any way to a possible infringement
with respect to Bromocriptine, and that it is not aware that the manufacture,
use or sale of Bromocriptine or Ergoset tablets as set forth herein infringes
any Third Party patent rights which have not been licensed to ERGO.
(iii) ERGO expressly represents and warrants that it has brought to
ORTHO's attention any Third Party Patents of which it is aware is of the
Effective Date, which are relevant to the manufacture use or sale of
Bromocriptine and/or Ergoset tablets.
(iv) ERGO expressly represents and warrants that it has the full power
and authority to enter into this Agreement and to carry out the obligations
contemplated hereby. ERGO expressly represents and warrants that it owns (in
whole or in part) or Controls all Patents and Know-how that are the subject of
the licenses granted to ORTHO herein.
(c) Each Party acknowledges that the other Party is, or in the future may
be, Developing and/or Commercializing or acquiring a variety of products in a
variety of fields including but not limited to the field of diabetes and
obesity.
50
<PAGE>
SECTION 12.02. Performance by Affiliates.
-------------------------
(a) The Parties recognize that each Party may perform some or all of its
obligations under this Agreement through Affiliates, provided, however, that
--------
each Party shall remain responsible for and be a guarantor of the performance by
its Affiliates and shall cause its Affiliates to comply with the provisions of
this Agreement in connection with such performance.
(b) Johnson & Johnson hereby guarantees the performance of ORTHO and the
Affiliates of ORTHO under this Agreement and the Stock Purchase Agreement and
hereby expressly waives any requirement that ERGO exhaust any right, power or
remedy or proceed against ORTHO or the Affiliates of ORTHO for any obligation or
performance hereunder or thereunder.
ARTICLE XIII
INFORMATION AND REPORTS
-----------------------
SECTION 13.01. Information and Reports During Development and
----------------------------------------------
Commercialization in the Profit/Loss Sharing Territory. ORTHO and ERGO will
- ------------------------------------------------------
disclose and make available to each other upon written request and without
charge (other than reasonable duplicating, postage and related out-of-pocket
costs) all preclinical, clinical, regulatory, commercial, marketing, promotion,
pricing, sales and other Information, including copies of all preclinical and
clinical reports, known by ORTHO or ERGO directly concerning Collaboration
Compounds or Collaboration Products for Development Indications or Additional
Indications, if any, only in the Profit/Loss Sharing Territory at any time
during the term of this Agreement. Each Party will use commercially reasonable
and diligent efforts to disclose to the other Party all significant information
promptly after it is learned or its significance is appreciated. Each Party
shall own and maintain its own database of clinical trial data accumulated from
all clinical trials of Collaboration Products for which it was responsible and
of adverse drug event information for all Collaboration Products. At the option
of the requesting Party, such data shall be provided in a computer readable
format by the providing Party, to the extent available, which shall also assist
in the transfer and validation of such data to the receiving Party. Without
limitation of the foregoing, each Party shall supply to the other the
Information required by the other Party and requested by it (either as a routine
practice or as a specific request) for purposes of compliance with regulatory
requirements.
SECTION 13.02. Complaints. Each Party shall maintain a record of all
----------
complaints it receives with respect to any Collaboration Product. Each Party
shall notify the other Party of any complaint with regulatory implications
received by it in sufficient detail and within five (5) business days after the
event, and in any event in sufficient time to allow the responsible Party to
comply with any and all regulatory requirements imposed upon it in any country;
provided, however, that notice of any complaint involving a field alert report
- --------
shall be transmitted within one (1) business day.
SECTION 13.03. Adverse Drug Experiences. The Parties recognize that the
------------------------
holder of a Drug Approval Application may be required to submit information and
file reports to various governmental agencies on Collaboration Products under
clinical investigation, Collaboration Products proposed for marketing, or
marketed Collaboration Products. Information must be submitted at the time of
initial filing for investigational use in humans and at the time of a request
for market approval of a new Collaboration Product. In addition, supplemental
information must be provided on Collaboration Products at periodic intervals and
adverse drug experiences must be reported at more frequent intervals depending
on the severity of the experience and whether or not the event is unexpected.
Consequently, each Party agrees to:
51
<PAGE>
(a) Provide to the other for their use in making initial and/or periodic
submissions to government agencies significant information on the Collaboration
Product from preclinical laboratory, animal toxicology and pharmacology studies,
as well as adverse drug experience reports from clinical trials and commercial
experiences with the Collaboration Product;
(b) In connection with investigational Collaboration Compounds, report to
the other within three (3) days of the initial receipt of a report of any
serious experience with the drug, if required for either Party to comply with
regulatory requirements; each party will also provide to the other within one
(1) month, copies of any safety submission (e.g. IND expedited reports or annual
reports) submitted to any regulatory agencies and
(c) In connection with marketed Collaboration Products, each party will
send to the other within one (1) month, copies of any single or periodic safety
submissions filed with regulatory agencies, e.g., 15 day expedited reports,
annual updates, etc.
(d) If it contracts with a Third Party for research to be performed by such
Third Party on the drug, the contracting Party agrees to require such Third
Party to report to the contracting Party the information set forth in
subparagraphs (a), (b), and (c) above. The Parties agree that at all times
after the approval of any Drug Approval Application or equivalent thereof, ORTHO
shall be responsible for collecting, collating and reporting to the appropriate
regulatory authority all adverse drug experiences.
SECTION 13.04. Records of Revenues and Expenses.
--------------------------------
(a) Each Party will maintain complete and accurate records which are
relevant to revenues, costs, expenses and payments under this Agreement and such
records shall be open during reasonable business hours for a period of three (3)
years from creation of individual records for examination at the other Party's
expense and not more often than once each year by a certified public accountant
selected by the other Party for the sole purpose of verifying for the inspecting
Party the correctness of calculations and classifications of such revenues,
costs, expenses or payments made under this Agreement. In the absence of
material discrepancies (in excess of [*]of Operating Profits or Losses or the
royalties payable under this Agreement) in any request for reimbursement
resulting from such audit, the accounting expense shall be paid by the Party
requesting the audit. If material discrepancies do result, the audited Party
shall bear the accounting expense. In any case, the audited Party shall pay the
discrepancy. Any records or accounting information received from the other
Party shall be Confidential Information for purposes of Article X. Results of
any such audit shall be provided to both Parties, subject to Article X.
(b) If there is a dispute between the Parties following any audit performed
pursuant to Section 13.04(a), either Party may refer the issue (an "Audit
Disagreement") to an independent certified public accountant for resolution. In
the event an Audit Disagreement is submitted for resolution by either Party, the
Parties shall comply with the following procedures:
(i) The Party submitting the Audit Disagreement for resolution shall
provide written notice to the other Party that it is invoking the procedures of
this Section 13.04(b).
(ii) Within thirty (30) business days of the giving of such notice,
the Parties shall jointly select a recognized international accounting firm to
act as an independent expert to resolve such Audit Disagreement.
52
<PAGE>
(iii) The Audit Disagreement submitted for resolution shall be
described by the Parties to the independent expert, which description may be in
written or oral form, within ten (10) business days of the selection of such
independent expert.
(iv) The independent expert shall render a decision on the matter as
soon as practicable.
(v) The decision of the independent expert shall be final and
binding and shall not be subject to Sections 16.02 and 16.03 hereof, unless such
Audit Disagreement involves alleged fraud, breach of this Agreement or
construction or interpretation of any of the terms and conditions hereof.
(vi) All fees and expenses of the independent expert, including any
Third Party support staff or other costs incurred with respect to carrying out
the procedures specified at the direction of the independent expert in
connection with such Audit Disagreement, shall be borne by the losing Party.
ARTICLE XIV
TERM AND TERMINATION
--------------------
SECTION 14.01. Term. This Agreement shall commence as of the Effective
----
Date and, unless sooner terminated as provided herein, (a) the provisions
relating to Development and Commercialization in the Profit/Loss Sharing
Territory shall continue in effect until the Parties are not Developing or
Commercializing any Collaboration Compounds or Collaboration Products within
such territory; and (b) the provisions relating to Commercialization of Royalty
Bearing Products and Independent Products shall continue in effect until the
date on which neither Party is obligated to pay a royalty to the other Party on
Royalty Bearing Sales of Royalty Bearing Products or Independent Products.
SECTION 14.02. Termination for Material Breach.
-------------------------------
(a) Subject to the provisions of this Section 14.02, if either Party (the
"Breaching Party") shall have committed a Material Breach and such Material
Breach shall remain uncured and shall be continuing for a period of one hundred
twenty (120) days following receipt of notice thereof by the other Party (the
"Non-Breaching Party"), then, in addition to any and all other rights and
remedies that may be available, the Non-Breaching Party shall have the right to
terminate this Agreement effective upon the expiration of such one hundred
twenty (120) day period. Any such notice of alleged Material Breach by one
party (the "Accusing Party") shall include a reasonably detailed description of
all relevant facts and circumstances demonstrating, supporting and/or relating
to each such alleged Material Breach by the other party ("Accused Breaching
Party).
(b) If the Accused Breaching Party, upon written notice delivered to the
Accusing Party prior to the expiration of such one hundred twenty (120) day
period, shall assert in good faith that any such alleged Material Breach
described in the Accusing Party's notice, whether in payment of moneys or
otherwise, was not a Material Breach, or was excused by reason of material
failure of performance by the other Party or Third Parties or by reason of Force
Majeure (as defined in Section 17.05), or shall otherwise in good faith dispute
such alleged Material Breach, then the Parties shall continue to perform under
this Agreement, subject to all of its terms and conditions, and the matter shall
be resolved pursuant to the provisions of Sections 16.02 and 16.03. In such
event, the Accusing Party shall not be entitled to terminate this Agreement
pursuant to this Section 14.02 unless and until (i) it shall be determined
pursuant to Sections 16.02 and 16.03 that the Accused Breaching Party has
committed a Material Breach and (ii) such Material Breach has not been cured
prior to such determination pursuant to Sections 16.02 and 16.03. To the extent
that it is determined pursuant to a final and non-appealable decision under
Sections 16.02 and 16.03 that the Accused Breaching Party did commit a Material
Breach and failed to
53
<PAGE>
cure the same within the period provided for in clause (ii) above, then the
Accusing Party may immediately terminate this Agreement and, in addition to all
damages determined pursuant to the provisions of Sections 16.02 and 16.03 to be
due and owing from the Breaching Party to the Non-Breaching Party under this
Agreement, the Breaching Party shall be liable for the Non-Breaching Party's
reasonable attorneys' fees incurred in connection with resolving such matter
pursuant to Sections 16.02 and 16.03.
(c) If the Non-Breaching Party terminates this Agreement pursuant to the
provisions of this Section 14.02(a) and (b), then the following provisions shall
apply:
(i) The Non-Breaching Party shall receive an exclusive (even as to
the Breaching Party), worldwide right and license, with the right to grant
sublicenses, to all Patents of the Breaching Party as of the date of termination
to the extent that such licenses are necessary to make, have made, import, use,
sell, offer for sale and have sold Collaboration Products and Royalty Bearing
Products and Independent Products for the Indications then being Developed or
Commercialized and shall have the exclusive right (but not the obligation),
subject to the rights of Third Parties existing prior to the Effective Date to
enforce such Patents against competitive product infringement (in the manner
contemplated under the terms of Section 11.05 applicable to Patents of the
Breaching Party in the event that the Breaching Party does not or will not so
enforce the Patents) and the exclusive right (but not the obligation) to enforce
such trademark rights against infringers;
(ii) If ORTHO is the Non-Breaching Party, the Profit/Loss Sharing
Territory shall be converted to a Royalty Bearing Territory with Royalty
Percentages of[*].
(iii) all licenses and rights to the Non-Breaching Party's patents,
trademarks, and know-how granted to the Breaching Party hereunder shall
terminate;
(iv) all Confidential Information supplied by the Non-Breaching Party
to the Breaching Party shall be returned to the Non-Breaching Party except the
Breaching Party may retain one copy of such information solely for legal archive
purposes;
(v) the Breaching Party shall promptly transfer or assign its
ownership of IND's, Drug Approval Applications and Regulatory Approvals related
to Collaboration Compounds, Collaboration Products, and Royalty Bearing Products
to the Non-Breaching Party, and shall take such other actions and execute such
other instruments, assignments and documents as may be necessary to effect the
transfer of rights hereunder to the Non-Breaching Party; and
(vi) the Breaching Party shall assign all of its rights in and to all
Joint Patents and licensed Third Party Patents provided that the Breaching Party
has the right to assign or sublicense such rights (and all registrations and
applications for registration therefor) to the Non-Breaching Party.
(d) In the event of termination of this Agreement pursuant to this Section
14.02 where the Breaching Party is the Manufacturing Party with respect to one
or more Collaboration Products hereunder, the Manufacturing Party shall continue
to provide for manufacture of such Collaboration Products to the extent provided
prior to notice of such termination, from the effective date of such termination
until such time as the Non-Manufacturing Party is able to secure an equivalent
alternative commercial manufacturing source, as requested by the Non-
Manufacturing Party, provided, however, that said period shall cease after [*]
--------
from the effective date of the termination. To this end, as of the effective
date of such termination, all Third Party manufacturing contracts shall, as
requested by the Non-Manufacturing Party, be assigned to the Non-Manufacturing
Party, and the cost charged to the Non-
54
<PAGE>
Manufacturing Party by the Manufacturing Party for any of the internal
manufacturing activities to be continued by the Manufacturing Party pursuant to
this Section 14.02 for the production of Collaboration Products shall be the
same as the Manufacturing Party's cost was while this Agreement was in effect.
Further, upon the request of the Non-Manufacturing Party, the Manufacturing
Party shall provide such technical assistance and know-how licenses on a
royalty-free basis as may reasonably be requested to transfer such technology as
is needed by the Non-Manufacturing Party, to commence or continue commercial
manufacture of Collaboration Products. Such technical assistance shall be
provided at the Manufacturing Party's cost, which cost shall be reimbursed
within thirty (30) days upon receipt of an invoice from the Manufacturing Party
by the Non-Manufacturing Party or its designee. In the event that any technology
as is needed by the Non-Manufacturing Party to commence or continue commercial
manufacture of Collaboration Products is covered by one or more Patents owned or
Controlled by the Manufacturing Party, the Non-Manufacturing Party shall receive
a fully paid-up, royalty-free, non-exclusive worldwide license to practice any
and all such Patents for the purposes contemplated in this Section 14.02, with
the right to grant sublicenses.
(e) Except where expressly provided for otherwise in this Agreement,
termination of this Agreement shall not relieve the Parties hereto of any
liability, including any obligation to make payments hereunder, which accrued
hereunder prior to the effective date of such termination, nor preclude any
Party from pursuing all rights and remedies it may have hereunder or at law or
in equity with respect to any breach of this Agreement nor prejudice any Party's
right to obtain performance of any obligation.
(f) For purposes of this Agreement and except as expressly provided
otherwise in this Agreement, "Material Breach" means the breach of or failure to
perform, in a material respect, a Party's material obligations under this
Agreement. Without limiting the foregoing and by way of example only, the term
"Material Breach" shall be deemed to include the failure of any Party in a
material respect to meet such Party's payment obligations under Articles III,
IV, V, VII and VIII (provided, however, that default by ERGO of its payment
obligations pursuant to Section 4.08 and Section 8.02 shall not be a material
breach of this Agreement); and the election of a Party to proceed with
Development or Commercialization of a Collaboration Compound in violation of its
rights and obligations under Article V. In no event shall an inadvertent
failure to comply with the provisions of Section 10.05 or the failure to gain
Regulatory Approval for a Collaboration Product or to meet timelines or budgets
specified in any Development Plan, Development Budget, Commercialization Plan,
Commercialization Budget, Launch Plan or Launch Budget, in and of itself, be
deemed to constitute a Material Breach, unless such failure is a result of acts
and events or conduct that is otherwise a Material Breach. The Parties
acknowledge and agree that failure to exercise any right or option with respect
to any Product shall not be deemed to constitute a Material Breach hereunder.
(g) The provisions of this Section 14.02 shall survive termination of this
Agreement.
SECTION 14.03. Termination by ORTHO.
--------------------
(a) ORTHO shall have the right to terminate this Agreement upon thirty (30)
days advance written notice to ERGO and without any termination fee in the event
that after the Effective Date: (i) issues regarding the Safety of Bromocriptine
arise during the Development or Commercialization of Bromocriptine for a Type II
Diabetes Indication that indicate a materially and adversely different Safety
profile of Bromocriptine existing as of the Effective Date as evidenced in
ERGO's NDA 20-866; or (ii) new clinical data obtained after the Effective Date
reveal a materially and adversely different Tolerability profile for
Bromocriptine from such profile as it existed as of the Effective Date; or (iii)
if after the Effective Date there is a materially adverse regulatory development
relating to[*].
55
<PAGE>
(b) ORTHO shall have the right to terminate this Agreement for any reason
not set forth in Section 14.03(a) above, upon notice to ERGO of its election to
terminate this Agreement pursuant to this Section 14.03(b) given at the times
after the Effective Date as set forth below; provided, however, that such
--------
termination shall not become effective until the expiration of the notice period
below:
(i) prior to [*], upon [*] written notice, and upon the payment to
ERGO of a termination fee of[*]; provided that no such termination fee shall be
--------
payable to ERGO if the reason for termination is a materially adverse change in
Safety or Tolerability of said Collaboration Product or there is a materially
adverse regulatory development, [*]; or
(ii) after[*], upon [*] prior written notice, without payment of any
termination fee.
SECTION 14.04. Effect of Termination by ORTHO Pursuant to Section 14.03. If
--------------------------------------------------------
ORTHO terminates this Agreement pursuant to Section 14.03, it shall continue to
be obligated during the termination notice period to perform all of its
obligations under this Agreement, including its obligation to pay Development
Expenses; provided, however, that ORTHO shall have no obligation to make any
--------
milestone payments pursuant to Section 3.02 with respect to any milestone
achieved during the termination notice period. In addition, as a result of such
termination:
(a) ERGO shall receive a fully paid up, exclusive (even as to ORTHO but
subject to rights of Third Parties that are not Affiliates of ORTHO that pre-
existed or accrued prior to such termination notice) worldwide right and
license, with the right to grant sublicenses, to all ORTHO Patents and
Trademarks, being used at the time of termination to make, have made, import,
use, sell, offer for sale and have sold Collaboration Products and Independent
Products, subject to the applicable royalty obligations set forth in this
Agreement, and shall have the right (but not the obligation) to enforce the
ORTHO Patents against competitive product infringement (in the manner
contemplated under and pursuant to the terms of Section 11.05 applicable to
ORTHO Patents in the event that ORTHO does not or will not so enforce the
Patents) and the exclusive right (but not the obligation) to enforce the
trademark rights against infringers;
(b) all licenses and rights to ERGO Patents and Trademarks and LSU Patents
and ERGO Know-how granted to ORTHO hereunder shall terminate;
(c) all Confidential Information supplied by ERGO to ORTHO shall be
returned to ERGO except ORTHO may retain one copy of such information solely for
legal archive purposes;
(d) ORTHO shall be obligated to ERGO under Section 9.05 to the extent
provided therein;
(e) ORTHO shall promptly transfer and assign ownership of all INDs, Drug
Approval Applications and Regulatory Approvals related to Collaboration
Compounds, Collaboration Products and Independent Products to ERGO, and shall
take such other actions and execute such other instruments, assignments and
documents as may be necessary to effect the transfer of rights hereunder to
ERGO; and
(f) ORTHO shall assign all of its rights in and to all Joint Patents to
ERGO.
SECTION 14.05. Surviving Rights. The rights and obligations set forth in
----------------
this Agreement shall extend beyond the term or termination of the Agreement only
to the extent expressly provided for herein, or the extent that the survival of
such rights or obligations are necessary to permit their complete
56
<PAGE>
fulfillment or discharge. Without limiting the foregoing, the Parties have
identified various rights and obligations, which are understood to survive, as
follows:
(a) In the event of expiration of this Agreement pursuant to Section 14.01,
the following provisions shall survive: Article I (to the extent applicable to
the interpretation of other surviving clauses), Section 6.05, Section 6.06,
Sections 10.01-10.04 (for the [*] period as provided in Section 10.03), Section
11.01 (to the extent of any post-expiration patent activity based on pre-
expiration inventions made), Section 11.02 (for one year following expiration),
Section 11.03 (to the extent necessary to permit patent filings with respect to
the inventions disclosed under Section 11.02), Section 12.02, Section 13.02,
Section 13.03, and Section 14.05 (to the extent required to determine surviving
rights and obligations, ) Article XV (to the extent of pre-expiration activities
of the Parties), Article XVI and Article XVII.
(b) In the event of termination of this Agreement pursuant to Section
14.02, the following provisions shall survive: Article I (to the extent
applicable to the interpretation of other surviving clauses), Section 6.05,
Section 6.06, Sections 8.04(b) and 8.05-8.09, Sections 10.01-10.04 (for the
[*]period as provided in Section 10.03), Section 11.02 (only as applicable to
the Breaching Party and for one year following the effective date of
termination), Section 11.03 (to the extent necessary to permit patent filings
with respect to the inventions made prior to termination), Section 11.08,
Section 12.02, Sections 13.02-13.04, Section 14.02, Section 14.05 (to the extent
required to determine surviving rights and obligations), and Article XV (to the
extent of pre-expiration activities of the Parties), , Articles XVI, and Article
XVII.
(c) In the event of termination of this Agreement pursuant to Section
14.03, the following provisions shall survive: Article I (to the extent
applicable to the interpretation of other surviving clauses), Section 6.05,
Section 6.06, Section 9.03, Section 9.05, Sections 10.01-10.04 (for the [*]
period as provided in Section 10.03), Section 11.02 (for one year following the
effective date of termination), Section 11.03 (to the extent necessary to permit
patent filings with respect to the inventions made prior to termination),
Section 11.08, Section 12.02, Sections 13.02-13.04, Sections 14.04-14.05 (to the
extent necessary to determine surviving rights and obligations), Article XV (to
the extent of pre-expiration activities of the Parties),, Articles XVI , and
Article XVII.
SECTION 14.06. Change of Control. In the event of an ERGO Change in Control
-----------------
(defined below), ORTHO shall have the following rights and options with respect
to this Agreement:
(a) "ERGO Change of Control" means any transaction or series of related
transactions in which a Third Party (other than an Existing ERGO Stockholder)
acquires or becomes the beneficial owner of (i) more than [*] of the outstanding
voting securities of ERGO or the surviving entity, whether by merger,
consolidation, reorganization, tender offer or similar means, or (ii) all or
substantially all of the assets of ERGO. For purposes of this Agreement,
"Existing ERGO Stockholder" means[*].
(b) In the event that an ERGO Change of Control occurs during the term of
this Agreement, ORTHO shall have the right and option, exercisable upon written
notice to ERGO delivered at any time within [*] after the effective date of such
Change in Control to solely assume full worldwide control of all Development and
all Commercialization of all Collaboration Compounds and Collaboration Products
and the JPT and Steering Committees shall at such time cease to exist.
ARTICLE XV
INDEMNIFICATION
---------------
57
<PAGE>
SECTION 15.01. Indemnification for Royalty Bearing Products. With respect
--------------------------------------------
to Royalty Bearing Products (determined on a country-by-country basis):
(a) ORTHO hereby agrees to save, defend and hold ERGO and its agents and
employees harmless from and against any and all suits, claims, actions, demands,
liabilities, expenses and/or losses, including reasonable legal expenses and
attorneys' fees (collectively, "Losses"), resulting directly from the
---------
manufacture, use, handling, storage, sale or other disposition of Royalty
Bearing Products by ORTHO, its agents or sublicensees, except to the extent such
Losses result from the negligence or willful misconduct of ERGO.
(b) In the event that ERGO is seeking indemnification under Section
15.01(a), it shall inform ORTHO of a claim as soon as reasonably practicable
after it receives notice of the claim, shall permit ORTHO to assume direction
and control of the defense of the claim (including the right to settle the claim
solely for monetary consideration), and shall cooperate as reasonably requested
(at the expense of ORTHO) in the defense of the claim. ERGO shall have the
right to attend all material proceedings and shall have the right to all
information reasonably relating to proceedings that would not result in a waiver
of a privileged communication as reasonably determined by ORTHO.
SECTION 15.02. Indemnification For Collaboration Products in the
-------------------------------------------------
Profit/loss Sharing Territory. With respect to Collaboration Products in the
- -----------------------------
Profit/loss Sharing Territory:
(a) Each Party hereby agrees to save, defend and hold the other Party and
its agents and employees harmless from and against any and all Losses resulting
directly or indirectly from the manufacture, use, handling, storage, sale or
other disposition of Collaboration Products sold or used in the Profit/Loss
Sharing Territory by the Indemnifying Party, its agents or sublicensees, but
only to the extent such Losses result from the negligence or willful misconduct
of the Indemnifying Party or its employees and agents and do not also result
from the negligence or willful misconduct (whether pursuant to actions or
failures to act) of the Party seeking indemnification. Any other Losses from
claims resulting directly or indirectly from the manufacture, use, handling,
storage, sale or other disposition of Collaboration Products in the Profit/Loss
Sharing Territory shall be included as an Allowable Operating Expense of either
Party at the time such claim is finally determined, whether by judgment, award,
decree or settlement.
(b) In the event that either Party receives notice of a claim with respect
to a Collaboration Product in the Profit/Loss Sharing Territory, such Party
shall inform the other Party as soon as reasonably practicable. The Parties
shall confer how to respond to the claim and how to handle the claim in an
efficient manner.
SECTION 15.03. Indemnification For Independent Products. With respect to
----------------------------------------
Independent Products:
(a) Each Party commercializing an Independent Product hereby agrees to
save, defend and hold the other Party and its agents and employees harmless from
and against any and all Losses resulting directly or indirectly from the
manufacture, use, handling, storage, sale or other disposition of Independent
Products by the Indemnifying Party, its agents or sublicensees, but only to the
extent such Losses do not (i) result from the negligence or willful misconduct
of the Party seeking indemnification or (ii) result from a breach of
manufacturing representations or warranties by the Party seeking
indemnification.
58
<PAGE>
(b) In the event that either Party receives notice of a claim with respect
to an Independent Product, such Party shall inform the other Party as soon as
reasonably practicable. The Parties shall confer how to respond to the claim
and how to handle the claim in an efficient manner. In the event that a Party
is seeking indemnification under Section 15.03(a), it shall inform the other
Party of a claim as soon as reasonably practicable after it receives notice of
the claim, shall permit the Indemnifying Party to assume direction and control
of the defense of the claim (including the right to settle the claim solely for
monetary consideration), and shall cooperate as requested (at the expense of the
Indemnifying Party) in the defense of the claim.
ARTICLE XVI
DISPUTE RESOLUTION
------------------
SECTION 16.01. Disputes. The Parties recognize that disputes as to certain
--------
matters may from time to time arise during the term of this Agreement or the
Stock Purchase Agreement that relate to either Party's rights and/or obligations
hereunder or thereunder. It is the objective of the Parties to establish
procedures to facilitate the resolution of disputes arising under this Agreement
or the Stock Purchase Agreement in an expedient manner by mutual cooperation and
without resort to litigation. To accomplish this objective, the Parties agree
to follow the procedures set forth in this Article XVI if and when a dispute
arises under this Agreement or the Stock Purchase Agreement.
Unless otherwise specifically recited in this Agreement, disputes between
the Parties shall be first referred to the Steering Committee by either Party at
any time after such dispute has arisen and such Party believes that there has
been sufficient discussion of the matter at the JPT level, as the case may be.
If the Steering Committee is unable to resolve such a dispute within thirty (30)
days of being requested by a Party to resolve such dispute, any Party may, by
written notice to the other, have such dispute referred to their respective
executive officers designated below or their successors, for attempted
resolution by negotiations within fourteen (14) days after such notice is
received. Said designated officers are as follows:
For ORTHO:
The Executive Committee member of J&J who has responsibility for the business
units responsible for diabetes treatments.
For ERGO:
Chief Executive Officer
In the event the designated executive officers are not able to resolve
such dispute, other than those disputes which may be expressly prohibited from
being resolved by this mechanism such as the Excepted Development Matters
referred to in Section 2.04 hereof, either Party may at any time after the
fourteen (14) day period seek to resolve the dispute through other means as
provided in Sections 16.02 and 16.03.
SECTION 16.02 Alternative Dispute Resolution. Any dispute controversy or
------------------------------
claim arising out of or relating to the validity, construction, enforceability
or performance of this Agreement, including disputes relating to an alleged
breach or to termination of this Agreement, but excluding (i) any dispute,
controversy or claim arising out of or relating to the validity, enforceability,
or infringement of any ERGO Patent or any ORTHO Patent and (ii) other than
disputes which are expressly prohibited herein from being resolved by this
mechanism, shall be settled by binding Alternative Dispute Resolution ("ADR") in
the manner described below:
59
<PAGE>
(a) If a Party intends to begin an ADR to resolve a dispute, such Party
shall provide written notice (the "ADR Request") to counsel for the other Party
--------------
informing such other Party of such intention and the issues to be resolved.
From the date of the ADR Request and until such time as any matter has been
finally settled by ADR, the running of the time periods contained in Section
14.02 as to which a Party must cure a breach of this Agreement shall be
suspended as to the subject matter of the dispute.
(b) Within fifteen (15) business days after receipt of the ADR Request,
the other Party may, by written notice to counsel for the Party initiating ADR,
add additional issues to be resolved.
SECTION 16.03. Arbitration Procedures. An ADR initiated under this
----------------------
Agreement will proceed in accordance with the Commercial Arbitration Rules of
the American Arbitration Association for Large, Complex Cases then in effect,
insofar as such rules are not inconsistent with the provisions expressly set
forth in this Agreement, unless the Parties mutually agree otherwise, and
pursuant to the following procedures:
(a) Arbitrators. The arbitration shall be carried out by a panel of three
(3) each of whom shall be a retired United States judge or justice and shall be
selected by the Parties within thirty (30) days of receipt of the ADR request in
accordance with the procedure described below.
(i) The Parties shall select the arbitrators as described in Section
16.03(a)(ii) below, which arbitrators may but need not be selected from a list
of arbitrators such as the CPR Panel of Distinguished Neutrals of the Center for
Public Resources, subject to: (1) his/her availability and willingness to serve,
(2) his/her availability to commence the arbitration within a reasonable period
of time, (3) his/her agreement to charge fees and expenses that are reasonable
under the circumstances, and (4) his/her commitment to render his/her award
within the time periods provided in this Section 16.03.
(ii) Each Party will exchange a list of ten (10) qualified
arbitrators and in the event that both Parties agree on all three persons then
those persons shall be the arbitrators. In submitting the ten names, each Party
shall prioritize from one to ten the persons on their respective lists. In the
event that there is more than one common name on the Parties' lists, the person
having the lowest combined priority number shall be selected as an arbitrator.
The combined priority number shall be the sum of the order numbers assigned to
that person by the Parties. Thus, if one person was ERGO's number two priority
and ORTHO's number three priority, and another person was ERGO's number two
priority and ORTHO's number four priority, the former would be appointed. If
more than one person has the lowest combined priority number, the person for
whom there is less difference between the order numbers assigned by the Parties
shall be appointed. Thus, if one person was ERGO's number one priority and
ORTHO's number four priority, and another person was ERGO's number two priority
and ORTHO's number three priority, the latter person would be appointed. If this
method does not produce three arbitrators, or if there are no common names, the
Parties shall alternatively strike from the combined list until three names,
which shall be the selected arbitrators. The Party to strike first shall be
determined by the toss of a coin.
(iii) In the event the arbitrators are unable to meet the requirements
set forth in (i) above, then, in the event the first selected arbitrators were
common to both lists and there were more than three common names on the Parties'
lists, the arbitrator having the next lowest combined priority number who is
able and willing to serve pursuant to these requirements shall be selected. If
there is no such individual, then the Parties shall use the alternate strike
method set forth above. In the event an arbitrator selected by the alternate
strike methodology is unable or unwilling to serve consistent with the
60
<PAGE>
requirements set forth above, then the alternate striking procedure shall be
retraced in reverse order until the arbitrators are selected.
The arbitrators shall be neutral, disinterested, impartial, and independent
of the Parties and others having any known interest in the outcome, and shall
abide by the AAA/ABA Code of Ethics for Arbitrators in Commercial Disputes.
There shall be no ex parte communications with the arbitrators either before or
during the arbitration, relating to the dispute or issues involved in the
dispute or the arbitrator's views on any such issue.
(b) Interim Review. Either Party may apply to any court having
jurisdiction hereof and seek preliminary injunctive relief until such time as
the arbitration award is rendered or the controversy is otherwise resolved.
(c) Location. Any arbitration under this Section 16.03 shall be conducted
in New York, NY.
(d) Discovery Proceedings. The Parties shall have the right to undertake
complete discovery, as contemplated by and pursuant to Rules 26-37 of the
Federal Rules of Civil Procedure (with references to "court" in those Rules
being considered references to the "arbitrator") except as they may be modified
by the following:
Within fourteen (14) days after selection of the arbitrators, each Party
may serve on any other Party (i) interrogatories for the purpose of
identification of documents and witnesses, (ii) requests for admissions, and
(iii) requests for the production of documents and things. These discovery
requests will be answered within fourteen (14) days of receipt.
At any time but not more than six (6) months after the selection of the
arbitrators, each Party may take depositions of an opposing Party as a matter of
right. The Parties will attempt to agree to time, location, and duration of the
deposition, and if the Parties do not agree these will be determined by the
arbitrators.
Any Party may conduct depositions of its own witnesses which may be
introduced as evidence at the arbitration hearing if the other Party was given
fair opportunity to attend the deposition and cross-examine.
As they become aware of new documents or information, including experts who
may be called upon to testify, all Parties remain under a continuing obligation
to provide documents upon which they rely, to supplement their responses, and to
honor any informal agreements or understandings between the Parties regarding
documents or information to be exchanged. The arbitrators at the hearing will
not consider documents that have not been previously exchanged, unless agreed by
the Parties.
The Parties will promptly notify the arbitrators when an unresolved dispute
exists regarding discovery issues. The arbitrators will discuss the matter with
the Parties to determine the nature of the dispute and will attempt to resolve
that dispute. If the arbitrators do not resolve the dispute, the arbitrators
will arrange a conference concerning the dispute before the arbitrators by
telephone, or in person, and the arbitrators will decide the dispute.
All discovery shall be completed within six (6) months from selection of
the arbitrators, unless extended by agreement of the Parties or by the
arbitrators for good cause shown.
61
<PAGE>
The arbitrators will determine the specific location within New York, NY
and the date and time of the arbitration hearing(s) and other proceedings after
consultation with the arbitrators and the Parties and will provide reasonable
notice of the hearing(s) date and time. The arbitrators will make every effort
to schedule the arbitration hearing within ninety (90) days of the completion of
all discovery, absent unusual circumstances.
The Parties may mutually agree on or the arbitrators for good cause may
order a rescheduling of the hearing date.
The arbitrators will ordinarily conduct the arbitration hearing in the
manner set forth in this Section 16.3 except that (i) the Federal Rules of
Evidence shall apply and (ii) the arbitrators shall render their decision in
writing in the manner provided by Rule 52 of the Federal Rules of Civil
Procedure, including a full and precise statement of the factual and legal bases
for such decision. If the AAA rules and the rules of this Section 16.03(d)
conflict in any manner, the rules of this Section 16.03(d) shall prevail. The
arbitrators must hold an oral hearing, but may impose reasonable time limits on
each phase of the proceeding and may limit testimony to exclude evidence that
would be immaterial or unduly repetitive, provided that all Parties are afforded
the opportunity to present material and relevant evidence and that each Party is
given at least an approximately equal amount of time for presentation of its
case.
Written briefs may be filed up to five (5) days before the hearing.
The arbitrators will require witnesses to testify under oath if requested
by any Party.
Any Party desiring a stenographic record may secure a court reporter to
attend the proceedings.
The arbitrators will determine the order of proof, which will generally be
similar to that of a court trial, including opening and closing statements.
When the arbitrators determine that all relevant and material evidence and
arguments have been presented, the arbitrators will declare the hearing closed.
The arbitrators may defer the closing of the hearing for up to twenty (20) days
to permit the Parties to submit post-hearing briefs and or to make closing
arguments, as the arbitrators deem appropriate, before rendering an award.
The arbitrators will render the award and its decisions pursuant to Fed. R.
Civ. P. 52 within thirty (30) days after the date of the closing of the hearing
or, if an arbitration hearing has been waived, within thirty (30) days after the
date of the arbitrator's receiving all materials specified by the Parties. The
decision and award of the arbitrators will constitute the Arbitration Award and
will be binding on the Parties.
The arbitrators shall, in rendering their decision and award, apply the
substantive law of the State of New York, without regard to its conflict of laws
provisions, except that the interpretation of and enforcement of this Article
shall be governed by the Federal Arbitration Act. The costs of the winning
Party and the fees of the arbitrators shall be paid by the losing Party as
determined by the arbitrators. If the arbitrators are unable to designate a
losing party, it shall so state and each Party shall bear its own costs and the
fees of the arbitrators shall be split equally between the Parties.
(e) Award. The arbitrators are empowered to award any remedy allowed by
law, including money damages, prejudgment interest and attorneys' fees, and to
grant final, complete, interim, or interlocutory relief, including injunctive
relief. Notwithstanding the foregoing, punitive or multiple damages may not be
awarded.
62
<PAGE>
(f) Legal Fees. Except as set forth in Paragraph 16.03(e) above, each
Party shall bear its own legal fees.
(g) Confidentiality. The ADR proceeding shall be confidential and the
arbitrator shall issue appropriate protective orders to safeguard each Party's
Confidential Information. Except as required by law, no Party shall make (or
instruct the arbitrator to make) any public announcement with respect to the
proceedings or decision of the arbitrator without prior written consent of each
other Party. The existence of any dispute submitted to ADR, and the award,
shall be kept in confidence by the Parties and the arbitrator, except as
required in connection with the enforcement of such award or as otherwise
required by applicable law.
SECTION 16.04. Survivability. Any duty to arbitrate under this Agreement
-------------
shall remain in effect and enforceable after termination of this Agreement for
any reason.
SECTION 16.05. Jurisdiction. For the purposes of this Article XVI, each
------------
Party agrees to abide by the award rendered in any arbitration, and the Parties
agree to accept the jurisdiction of any court having jurisdiction over the
Parties for the purposes of enforcing awards entered pursuant to this Article
and for enforcing the agreements reflected in this Article.
ARTICLE XVII
MISCELLANEOUS
-------------
SECTION 17.01. Assignment.
----------
(a) Either Party may assign any of its rights or obligations under this
Agreement in any country to any Affiliates and may delegate its obligations
under this Agreement in any country to any of its Affiliates; provided, however,
--------
that such assignment or delegation shall not relieve the assigning Party of its
responsibilities for performance of its obligations under this Agreement.
(b)(i) Except as provided in Section 11.08 hereof and in subsection (b)(ii)
below, neither Party may assign its rights or obligations under this Agreement
to a non-Affiliate without the prior written consent of the other Party, except
under the provisions of Section 6.05, 7.03, or 11.08 in connection with a merger
or similar reorganization or the sale of all or substantially all of its assets.
This Agreement shall survive any such merger or reorganization of either Party
with or into, or such sale of assets to, another party and no consent for such
merger, reorganization or sale shall be needed, and no intellectual property
rights of the acquiring corporation shall be included in the technology licensed
hereunder; provided, that in the event of such merger, reorganization or sale,
no intellectual property rights of the acquiring corporation shall be included
in the technology licensed hereunder.
(ii) ERGO may assign its rights to receive payments hereunder to a
Third Party or grant a security interest in its rights to receive payments
hereunder.
(c) This Agreement shall be binding upon and inure to the benefit of the
successors and permitted assigns of the Parties. Any assignment not in
accordance with this Agreement shall be void.
SECTION 17.02. Retained Rights. Nothing in this Agreement shall limit in
---------------
any respect the right of either Party to conduct research and development and to
market products using such Party's technology other than as herein expressly
provided. Furthermore, nothing in this Agreement shall be construed to provide
any license, implied or express, under any Patent Controlled by a Party, except
to
63
<PAGE>
the extent of the express Products for the particular Development Indications
and Additional Indications, if any, that are the subject of continuing joint
Development and Commercialization pursuant to this Agreement.
SECTION 17.03. Research and Development Entities. Either Party may assign
---------------------------------
its rights and obligations under this Agreement to an entity or entities (e.g.,
partnership or corporation) that are specifically formed for financial purposes
and that finance research and development performed by such Party; provided,
--------
however, that such assignment shall not relieve the assigning Party of
responsibility for performance of its obligations under this Agreement.
SECTION 17.04. Consents Not Unreasonably Withheld or Delayed. Whenever
---------------------------------------------
provision is made in this Agreement for either Party to secure the consent or
approval of the other, that consent or approval shall not unreasonably be
withheld or delayed, and whenever in this Agreement provision is made for one
Party to object to or disapprove a matter, such objection or disapproval shall
not unreasonably be exercised, even when not so expressly stated.
SECTION 17.05. Force Majeure. Neither Party shall lose any rights
-------------
hereunder or be liable to the other Party for damages or losses on account of
failure of performance by the defaulting Party if the failure is occasioned by
government action, war, fire, explosion, flood, strike, lockout, embargo, act of
God, or any other similar cause beyond the control of the defaulting Party,
provided that the Party claiming force majeure has exerted all reasonable
- --------
efforts to avoid or remedy such force majeure and has given the other Party
prompt notice describing such event, the effect thereof and the actions being
taken to avoid or remedy such force majeure; provided, however, that in no event
--------
shall a Party be required to settle any labor dispute or disturbance.
SECTION 17.06. Further Actions. Each Party agrees to execute, acknowledge
---------------
and deliver such further instruments, and to do all such other acts, as may be
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.
SECTION 17.07. No Trademark Rights. Except as otherwise provided herein,
-------------------
no right, express or implied, is granted by the Agreement to use in any manner
any name or any trade name or trademark of the other Party or its Affiliates in
connection with the performance of this Agreement.
SECTION 17.08. Notices. All notices hereunder shall be in writing and
-------
shall be deemed given if delivered personally or by facsimile transmission
(receipt verified), telexed, mailed by registered or certified mail (return
receipt requested), postage prepaid, or sent by express courier service, to the
Parties at the following addresses (or at such other address for a Party as
shall be specified by like notice; provided that notices of a change of address
--------
shall be effective only upon receipt thereof).
(a) If to ERGO RESEARCH CORPORATION:
Attention: C/O Ergo Science Corporation
President,
33 Third Avenue
Charlestown, MA 02129
Telephone: 617-241-6800
Telecopy: 617-241-8822
With copies to:
ERGO SCIENCE CORPORATION
Attention: Legal Department
64
<PAGE>
33 Third Avenue
Charlestown, MA 02129
Telephone: 617-241-6800
Telecopy: 617-241-8822
(b) If to ORTHO: ORTHO-McNeil Pharmaceutical Corporation
Attention: President
700 U.S. Route 202 South
Raritan, New Jersey 08869
Telephone: 908-218-6972
Telecopy: 908-218-9456
With copies to:
Chairman
R.W. Johnson Pharmaceutical Research Institute
920 U.S. Route #202
Raritan, New Jersey 08869-0602
Telephone: 908-704-4000
Telecopy: 908-707 1895
and
Office of General Counsel
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, NJ 08933
Telephone: (908) 524-2485
Telecopy: (908) 524-2788
SECTION 17.09. Waiver. Except as specifically provided for herein, the
------
waiver from time to time by either of the Parties of any of their rights or
their failure to exercise any remedy shall not operate or be construed as a
continuing waiver of same or any other of such Party's rights or remedies
provided in this Agreement.
SECTION 17.10. Severability. If any term, covenant or condition of this
------------
Agreement or the application thereof to any Party or circumstances shall, to any
extent or in any country, be held to be invalid or unenforceable, then (i) the
remainder of this Agreement, or the application of such term, covenant or
condition to Parties or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby and each term, covenant
or condition of this Agreement shall be valid and be enforced to the fullest
extent permitted by law; and (ii) the Parties hereto covenant and agree to
renegotiate any such term, covenant or application thereof in good faith in
order to provide a reasonably acceptable alternative to the term, covenant or
condition of this Agreement or the application thereof that is invalid or
unenforceable, it being the intent of the Parties that the basic purposes of
this Agreement are to be effectuated.
SECTION 17.11. Ambiguities. Ambiguities, if any, in this Agreement shall
-----------
not be construed against any Party, irrespective of which Party may be deemed to
have authored the ambiguous provision.
SECTION 17.12. Governing Law. This Agreement shall be governed by and
-------------
interpreted under the laws of the State of New York as applied to contracts
entered into and performed entirely in New York by New York residents.
65
<PAGE>
SECTION 17.13. Headings. The Sections and paragraph headings contained
--------
herein are for the purposes of convenience only and are not intended to define
or limit the contents of said Sections or paragraphs.
SECTION 17.14. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 17.15. Entire Agreement; Amendments. This Agreement and the Stock
----------------------------
Purchase Agreement, including all Exhibits attached hereto and thereto, and all
documents delivered concurrently herewith and therewith, set forth all the
covenants, promises, agreements, warranties, representations, conditions and
understandings between the Parties hereto and supersede and terminate all prior
agreements and understandings between the Parties. There are no covenants,
promises, agreements, warranties, representations, conditions or understandings,
either oral or written, between the Parties other than as set forth herein and
therein. No subsequent alteration, amendment, change or addition to this
Agreement or the Stock Option Agreement shall be binding upon the Parties hereto
unless reduced to writing and signed by the respective authorized officers of
the Parties. This Agreement, including without limitation the exhibits,
schedules and attachments thereto, are intended to define the full extent of the
legally enforceable undertakings of the Parties hereto, and no promise or
representation, written or oral, which is not set forth explicitly is intended
by either party to be legally binding. Both Parties acknowledge that in
deciding to enter into the Agreement and to consummate the transaction
contemplated thereby neither Party has relied upon any statement or
representations, written or oral, other than those explicitly set forth therein.
SECTION 17.16. Independent Contractors. The status of the Parties under
-----------------------
this Agreement shall be that of independent contractors. Neither Party shall
have the right to enter into any agreements on behalf of the other Party, nor
shall it represent to any person that it has any such right or authority.
Nothing in this Agreement shall be construed as establishing a partnership or
joint venture relationship between the Parties.
SECTION 17.17. Insurance. Throughout the Development and
---------
Commercialization of Collaboration Products including Bromocriptine, ERGO agrees
to have in place comprehensive general liability insurance, including but not
limited to product liability insurance (which shall include coverage for
clinical trials) at least [*]combined single limit with an aggregate limit of at
least[*]. ERGO, upon request, agrees to provide ORTHO with a certificate of
insurance evidencing its retention of such insurance coverage and any updates
thereto.
SECTION 17.18. Bankruptcy. All rights and licenses granted under or
----------
pursuant to this Agreement are, and shall otherwise be deemed to be, for
purposes of Section 365(n) of Title 11, U.S. Code (the "Bankruptcy Code"),
licenses and rights to "intellectual property" as defined under Section 101(60)
of the Bankruptcy Code. The parties agree that the other Party, as a licensee
of such rights under this Agreement, shall retain and may fully exercise all of
its rights and elections under the Bankruptcy Code. Each Party agrees during
the term of this Agreement to create and maintain current copies or, if not
amenable to copying, detailed descriptions or other appropriate embodiments, of
all such intellectual property. The parties further agree that, in the event of
the commencement of a bankruptcy proceeding by or against one Party under the
Bankruptcy Code, the other Party shall be entitled to a complete duplicate of
(or complete access to, as appropriate) any such intellectual property and all
embodiments of such intellectual property, and same, if not already in its
possession, shall be promptly delivered to the other Party (i) upon any such
commencement of a bankruptcy proceeding upon written request therefor by the
other Party, unless such Party elects to continue to perform all of its
obligations under this
66
<PAGE>
Agreement, or (ii) if not delivered under (i) above, upon the rejection of this
Agreement by or on behalf of such Party upon written request therefor by the
other Party.
SECTION 17.19. HSR Condition. The effectiveness of this Agreement and the
-------------
Parties rights and obligations under this Agreement are conditioned upon
expiration or termination of the waiting period under the Hart-Scott-Rodino
Anti-trust Improvements Act of 1976. The Parties agree to request early
termination or waiver of any waiting periods under the HSR Act.
SECTION 17.20 Currency. The references in this Agreement to amounts
--------
expressed in dollars ($) shall mean United States dollars.
(Final provision of Agreement.)
67
<PAGE>
IN WITNESS WHEREOF, ERGO and ORTHO have caused this Agreement to be executed
as of the date first written above by their respective officers thereunto duly
authorized.
ORTHO-McNEIL PHARMACEUTICAL, INC.
By:
Title:
Date:
CILAG A.G., INTERNATIONAL
By:
Title:
Date:
JOHNSON & JOHNSON
By:
Title:
Date:
THE R.W. JOHNSON PHARMACEUTICAL
RESEARCH INSTITUTE, A DIVISION OF ORTHO
PHARMACEUTICAL CORPORATION
By:
Title:
Date:
68
<PAGE>
ERGO SCIENCE CORPORATION
By:
Title:
Date:
ERGO RESEARCH CORPORATION
By:
Title:
Date:
69
<PAGE>
EXHIBIT A
DETERMINATION OF CERTAIN ACCOUNTING TERMS
-----------------------------------------
[*]
70
<PAGE>
Exhibit B1
----------
Development Expense Payment Reconciliation
------------------------------------------
Profit/Loss Sharing Territory
-----------------------------
For The Quarter Ending XXX
--------------------------
71
<PAGE>
EXHIBIT C
Exhibit C-1
PRE-EFFECTIVE DATE COSTS IN 1997 TO BE REIMBURSED BY ORTHO TO ERGO
[*]
72
<PAGE>
EXHIBIT E
Initial Development Plan and Budget for Bromocriptine
73
<PAGE>
EXHIBIT F
Amended and Restated Supply Agreement, dated as of October 31, 1997, by and
between ERGO Research Corporation, ERGO Science Corporation, and Geneva
Pharmaceuticals, Inc.
74
<PAGE>
EXHIBIT 10.42
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made as of February 23,
1998, by and between Ergo Science Corporation, a Delaware corporation (the
"Company"), and Johnson & Johnson Development Corporation, a New Jersey
corporation ("JJDC").
RECITAL:
WHEREAS, JJDC desires to purchase from the Company, and the Company desires
to sell to JJDC, shares of the Company's common stock, upon the terms and
subject to the conditions set forth herein and in connection with the execution
of a separate Joint Collaboration and License Agreement (the "License
Agreement") of even date herewith between Ortho-McNeil Pharmaceutical
Corporation ("Ortho") and the Company.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto agree as follows:
1. Purchase and Sale of Shares. (a) Subject to the terms and
---------------------------
conditions of this Agreement, at the Closing (as defined hereinafter), the
Company agrees to sell to JJDC and JJDC agrees to purchase from the Company,
that number of shares (the "Shares") of the Company's Common Stock, par value
$.01 (the "Common Stock"), determined by dividing ten million dollars
($10,000,000) by the Share Price (as defined below), for an aggregate purchase
price (the "Purchase Price") of ten million dollars ($10,000,000). For the
purposes hereof, "Share Price" shall mean the arithmetic average of the closing
prices of the Common Stock, as reported by the NASDAQ National Market System
("Nasdaq") or such other principal securities exchange or market on which the
Common Stock is then traded, for the period commencing ten (10) trading days
prior to and ending as of the date which is ten (10) trading days after the date
hereof; provided, however, that in the event that the Common Stock is not traded
-------- -------
on any trading day during such period, then the closing price of the Common
Stock on such day shall be deemed to be the closing price of the most recent
previous trading day on which the Common Stock was traded on such exchange or
market.
(b) The purchase and sale of the Shares shall take place at the
offices of the Company, at 10:00 a.m. Eastern time on such date (the "Closing
Date") as the parties shall mutually agree (the "Closing"), provided that in no
--------
event shall Closing Date be more than three (3) business days after satisfaction
of the condition set forth in Section 4.8 hereof.
(c) At the Closing, the Company will deliver to JJDC a certificate or
certificates, registered in JJDC's name, representing the Shares, and JJDC shall
deliver an amount equal to the Purchase Price to the Company by certified check
payable to the Company or wire transfer of immediately available funds to an
account specified by the Company.
<PAGE>
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to JJDC that:
2.1 Organization and Corporate Power. The Company is a corporation
--------------------------------
duly organized, validly existing and in good standing as a corporation under the
laws of the State of Delaware and is qualified to do business as a foreign
corporation in each jurisdiction where the failure to qualify would have a
Material Adverse Effect on the Company. For purposes of this Agreement, a
"Material Adverse Effect" or "Material Adverse Change" shall mean, with respect
to the Company, any adverse effect or change in the condition (financial or
other), business, results of operations, prospects, assets, liabilities or
operations of the Company or on the ability of the Company to consummate any of
the transactions contemplated hereby, or any event or condition that would, with
or without the passage of time, constitute a "Material Adverse Effect" or
"Material Adverse Change." The Company has full corporate power and authority to
own its property, to carry on its business as presently conducted and to carry
out the transactions contemplated hereby. The copies of the Certificate of
Incorporation and Bylaws of the Company, as amended to date, which have been
furnished to JJDC by the Company, are correct and complete copies of the
originals.
2.2 Authorization. The Company has full corporate power and
-------------
authority to execute, deliver and perform this Agreement, the License Agreement
and each other agreement entered into by the Company in connection with this
Agreement. Each such agreement has been duly executed and delivered by the
Company and is the legal, valid and, assuming due execution by the other parties
hereto and thereto, binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting creditors'
rights generally, and to general equitable principles. The execution, delivery
and performance of this Agreement, including the sale, issuance and delivery of
the Shares, and the License Agreement, and each other agreement entered into by
the Company in connection with this Agreement, has been duly authorized by all
necessary corporate action of the Company.
2.3 Capitalization. When issued in accordance with the terms of this
--------------
Agreement, the Shares will be duly authorized, validly issued and outstanding,
fully paid and nonassessable, free of any liens, encumbrances, preemptive rights
or rights of first refusal and will be issued in compliance with all applicable
federal and state securities laws. The entire authorized capital stock of the
Company consists of 50,000,000 shares $0.0l par value, of Common Stock, of which
approximately 13,500,000 shares are issued and outstanding, and 10,000,000
shares, $0.0l par value, of preferred stock of which 6,903 shares are issued and
outstanding. The outstanding shares of Common Stock have been duly authorized
and validly issued and are fully paid and nonassessable, and were issued in
compliance with all applicable federal and state securities laws. No shares of
Common Stock or Preferred Stock are held in the Company's treasury. There are no
outstanding securities, warrants, rights of first refusal, options or other
rights to purchase or acquire, or exchangeable for or convertible into, any
shares of Common Stock or Preferred
2
<PAGE>
Stock other than those set forth on Exhibit A hereto or as set forth in the
Public Reports (as defined hereinafter). The Company has reserved 2,000,000
shares of Common Stock under its stock option plans. There are no preemptive
rights with respect to the issuance or sale by the Company of any of its
securities. Upon consummation of the transactions contemplated hereby, JJDC will
acquire good and valid title to the Shares, free and clear of any encumbrances,
liens, claims, charges or assessments of any nature whatever.
2.4 Subsidiaries. The Company has no subsidiaries and no
------------
investments, directly or indirectly, in any other corporation or business
organization other than as set forth on Exhibit B hereto. The Company is not a
participant in any joint venture or partnership.
2.5 Financial Statements. The audited consolidated balance sheets and
--------------------
statements of operations and cash flow for the Company included in the Public
Reports (collectively, the "Financial Statements") are materially complete and
correct in all matters and respects, are in accordance with the books and
records of the Company, have been prepared in accordance with generally accepted
accounting principles, consistently applied, and fairly present the financial
position of the Company as of each such date and the results of operations for
each such period then ended.
2.6 Absence of Undisclosed Liabilities. Except as and to the extent
----------------------------------
reflected or stated in the Financial Statements, the Company has no debts,
liabilities or obligations of any nature, whether accrued or absolute, assigned
or otherwise, or whether due or to become due in excess of $100,000.
2.7 Absence of Certain Developments. Since the date of the Company's
-------------------------------
Quarterly Report on Form 10-Q for the period ended September 30, 1997 (the "10-
Q"), (a) there has not been any Material Adverse Change with respect to the
Company, and (b) the Company has not entered into any transaction except in the
ordinary course of business and consistent with past practice, or entered into
any agreement (contingent or otherwise) to do so.
2.8 Title to Properties. Except as disclosed in the Financial
-------------------
Statements, the Company has good and marketable title to, or has a valid
leasehold interest in, or a valid license for, all of the properties and assets
reflected in the Financial Statements, free and clear of all mortgages, security
interests, liens, restrictions or encumbrances other than (i) the lien of
current taxes not yet due and payable and (ii) possible minor liens and
encumbrances which do not in any case, individually or in the aggregate,
materially detract from the value of the property subject thereto or materially
impair the operations of the Company, would not result in the occurrence of a
Material Adverse Change, and which have not arisen otherwise than in the
ordinary course of business.
2.9 Tax Matters.
-----------
3
<PAGE>
(a) All taxes, including, without limitation, income, excise,
property, sales, transfer, use, franchise, payroll, employees' income
withholding and social security taxes imposed or assessed by the United States
or by any foreign country or by any state, municipality, subdivision or
instrumentality of the United States or of any foreign country, or by any other
taxing authority, which are due or payable by the Company, and all interest,
penalties and additions thereon, whether disputed or not, have been paid in
full; all tax returns or other documents required to be filed in connection
therewith have been accurately prepared and duly and timely filed; and the
Company is not the beneficiary of any extension of time within which to file any
such returns. The Company has not been delinquent in the payment of any foreign
or domestic tax, assessment or governmental charge or deposit and has no tax
deficiency or claim outstanding, assessed or, to the best of its knowledge,
proposed against it, and there is no basis for any such deficiency or claim. No
issues have been raised (or are currently pending) by the Internal Revenue
Service or any other taxing authority in connection with any of the returns and
reports referred to above, and no waivers of statutes of limitations have been
given or requested with respect to the Company in connection therewith. The
provisions for taxes in the Financial Statements are sufficient in all material
respects for the payment of all accrued and unpaid federal, state, county and
local taxes of the Company for the periods then ended.
(b) The Company is not a party to or bound by any tax indemnity, tax
sharing or tax allocation agreement.
(c) The Company is not presently a member nor has it ever been a
member of an affiliated group of corporations within the meaning of Section 1504
of the Internal Revenue Code of which it is or was not the parent company.
2.10 No Defaults. The Company is not in violation of any term or
-----------
provision of (a) its Certificate of Incorporation or Bylaws, as amended to date,
or in any material respect any note, indenture, mortgage, lease, agreement,
contract, purchase order or other material instrument, document or agreement to
which the Company is a party or by which it or any of its properties or assets
is bound or affected or (b) any order, writ, injunction or decree of any court
or any federal, state, municipal or other governmental department, authority,
commission, board, bureau, agency or instrumentality, domestic or foreign. There
exists no condition, event or act which constitutes, or which after notice,
lapse of time or both, would constitute a material default under any of the
foregoing.
2.11 Intellectual Property. The Company owns or possesses the
---------------------
right to use or license all material, patents, trademarks, service marks,
===
trade names, copyrights, trade secrets, proprietary rights, licenses and
inventions necessary for the proper conduct of its business as now conducted,
and as proposed to be conducted, without conflict with or infringement of the
rights of others other than those listed in its Public Reports. There are no
outstanding options, licenses, or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information, proprietary
rights and
4
<PAGE>
processes of any other person or entity, which would be material to the
Company's business as conducted or, to the best of the Company's knowledge, as
proposed to be conducted. The Company has not received any communications
alleging, nor is the Company aware, to the best of its knowledge, of any basis
for such allegation, that the Company has violated, or by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, tradenames, copyrights or trade secrets or other proprietary rights of
any other person or entity. No other firm, corporation, association or person
(i) has notified the Company that it is claiming any ownership of or right to
use any of the Company's patents, trademarks, service marks, tradenames,
copyrights or trade secrets or other proprietary rights, or (ii) to the best of
the Company's knowledge, is infringing upon any such patents, trademarks,
service marks, tradenames, copyrights or trade secrets or other proprietary
rights. The Company is not aware, to the best of its knowledge, that any of its
employees is obligated under any contract (including, licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of such employee's best efforts to promote the interests of the Company
or that would conflict with the Company's business as proposed to be conducted.
Neither the execution nor delivery of this Agreement, nor the carrying on of the
Company's business by the employees of the Company, nor the conduct of the
Company's business as proposed, will, to the best of the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such employees now obligated. Each employee of and consultant to the
Company with access to confidential or proprietary information has executed a
proprietary information agreement obligating such employee or consultant to hold
all such information in confidence. The Company does not believe, to the best of
its knowledge, that it is or will be necessary to utilize any inventions of any
of its employees (or people it currently intends to hire) made prior to their
employment by the Company for which licenses have not already been obtained.
2.12 Effect of Transactions. The execution, delivery and
----------------------
performance of this Agreement and the transactions contemplated hereby, and
compliance with the provisions hereof by the Company, do not and will not, with
or without the passage of time or the giving of notice or both, (a) violate any
provision of law, statute, rule or regulation or any ruling, writ, injunction,
order, judgment or decree of any court, administrative agency or other
governmental body or (b) conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute a default (or give rise to any
right of termination, cancellation or acceleration) under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company, under the Certificate of Incorporation or
Bylaws, as amended to date, of the Company or any material note, indenture,
mortgage, lease, agreement, contract, purchase order or other instrument,
document or agreement to which the Company is a party or by which it or any of
its properties or assets is bound or affected, except in any case where such
occurrence would not have a Material Adverse Effect on the Company.
2.13 No Governmental Consent or Approval Required. Based in part on
--------------------------------------------
the representations made by JJDC in Section 3 of this Agreement, no
authorization, consent,
5
<PAGE>
approval or other order of, declaration to, or registration, qualification,
designation or filing with, any federal, state or local governmental agency or
body is required for or in connection with the valid and lawful authorization,
execution and delivery by the Company of this Agreement, the License Agreement
or any other agreement entered into by the Company in connection with this
Agreement, and the consummation of the transactions contemplated hereby or
thereby, or for or in connection with the valid and lawful authorization,
issuance, sale and delivery of the Shares, other than (i) applicable obligations
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and
regulations thereunder (the "HSR Act"), (ii) the qualification (or taking of
such action as may be necessary to secure an exemption from qualification if
available) of the offer and sale of the Shares under the applicable state and
federal securities laws, which filings and qualifications, if required, will be
accomplished in a timely manner so as to comply with such qualification or
exemption from qualification requirements, and (iii) the approval of the Shares
for listing on Nasdaq.
2.14 Litigation. Except as disclosed in the 10-Q, there is no (a)
----------
claim, arbitration, action, suit, proceeding or investigation at law or in
equity or by or before any governmental instrumentality or other agency pending,
or to the best knowledge of the Company, threatened against the Company, or (b)
judgment, decree, injunction or order of any court, governmental department,
commission, agency, instrumentality or arbitrator against the Company, nor, to
the best knowledge of the Company, does there exist any basis therefor.
2.15 Securities Laws. Assuming that JJDC's representations and
---------------
warranties contained in Section 3 of this Agreement are true and correct, the
offer, issuance and sale of the Shares are and will be exempt from the
registration and prospectus delivery requirements of the Securities Act of 1933,
as amended (the "1933 Act"), and have been registered or qualified (or are
exempt from registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws.
2.16 Business. The Company has complied in all material respects
--------
with all Federal, state, local or foreign laws, ordinances, regulations or
orders applicable to the business of the Company as presently or previously
conducted, or as proposed to be conducted. The Company has all Federal, state,
local and foreign governmental licenses and permits that are required for the
conduct of its business presently or previously conducted by the Company the
lack of which would reasonably be expected to have a Material Adverse Effect,
which licenses and permits are in full force and effect, and no material
violations are outstanding or uncured with respect to any such licenses or
permits and no proceeding is pending or, to the best knowledge of the Company,
threatened to revoke or limit any thereof.
2.17 Brokerage. There are no claims for brokerage commissions or
---------
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement made by or on behalf of the Company and
the Company agrees to indemnify and hold JJDC harmless against any damages
incurred as a result of any such claim,
6
<PAGE>
other than the agreement with Credit Suisse First Boston ("CSFB"), pursuant to
which the Company will pay CSFB certain fees upon execution of the License
Agreement.
2.18 Insurance. The Company maintains in full force such types and
---------
amounts of insurance issued by issuers of recognized responsibility insuring the
Company, with respect to its liability, workers' compensation, business and
properties, in such amounts and against such losses and risks as are adequate
against risks usually insured against by Persons (as hereinafter defined)
operating similar businesses and properties.
2.19 Public Reports. The Company has provided to JJDC true and
--------------
complete copies of all reports, schedules, forms, statements and other documents
(the "Public Reports") filed by the Company with the Securities and Exchange
Commission ("SEC") under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), since December 15, 1995. The Public Reports include all the
reports the Company has been required to file under the Exchange Act since that
date. As of their respective dates, (i) the Public Reports complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations promulgated thereunder, and (ii) none of the Public Reports
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading.
2.20 Investment Company. The Company is not an "investment company"
------------------
within the meaning of the Investment Company Act of 1940, as amended, and will
not, as a result of the transactions contemplated hereby, become an "investment
company."
2.21 Registration Rights. Except with respect to the registration
-------------------
rights described in the Form S-l registration statement filed by the Company
with the SEC in August 1996, the Company is not under any contractual obligation
to register any of its currently outstanding securities or any of its securities
that may hereafter be issued.
2.22 Disclosure. The Company has provided JJDC with all the
----------
information that it has requested for deciding whether to purchase the Shares at
the Closing. Neither the Financial Statements, this Agreement, the License
Agreement, nor any other certificate or other written instrument delivered
hereunder or thereunder or any schedule or exhibit hereto or thereto contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein and therein, in light
of the circumstances which they are made, not misleading.
3. Representations and Warranties and Other Agreements of JJDC.
-----------------------------------------------------------
3.1 Representations and Warranties. JJDC hereby represents and
------------------------------
warrants to the Company that:
7
<PAGE>
a. Authorization. JJDC has full power and authority to execute,
-------------
deliver and perform this Agreement and to purchase the Shares. Assuming due
execution by the Company hereto, this Agreement constitutes the valid and
legally binding obligation of JJDC, enforceable against JJDC in accordance with
its terms, subject to applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting creditors' rights generally, and to
general equitable principles.
b. Purchase Entirely for Own Account. The Shares to be received
---------------------------------
by JJDC will be acquired for investment for JJDC's own account, not as a nominee
or agent and not with a view to the distribution of any part thereof. JJDC has
no present intention of selling, granting any participation in, or otherwise
distributing the same. JJDC does not have any contract, undertaking, agreement
or arrangement with any person to sell, transfer, or grant participation to such
person or to any third person, with respect to any of the Shares.
c. Restrictions on Disposition. JJDC covenants that in no
---------------------------
event will it dispose of any of the Shares (other than pursuant to Rule 144
promulgated under the 1933 Act ("Rule 144") or pursuant to a registration
statement filed with the Securities and Exchange Commission (the "SEC") pursuant
to the 1933 Act) unless and until (i) JJDC shall have notified the Company of
the proposed disposition and shall have furnished the Company with a statement
of the circumstances surrounding the proposed disposition, and (ii) if requested
by the Company, JJDC shall have furnished the Company with an opinion of JJDC's
counsel, reasonably satisfactory in form and substance to the Company and the
Company's counsel, to the effect that (a) such disposition will not require
registration under the 1933 Act or (b) appropriate action necessary for
compliance with the 1933 Act and any applicable state, local or foreign law has
been taken. The restrictions on transfer imposed by this Section 3.1(c) shall
cease and terminate as to the Shares when: (i) such Shares shall have been
effectively registered under the 1933 Act and sold by the holder thereof in
accordance with such registration, or (ii) an opinion of the kind described in
the preceding sentence states that all future transfers of such Shares by the
holder thereof would be exempt from registration under the 1933 Act. Each
certificate evidencing the Shares shall bear an appropriate restrictive legend
as set forth in Section 3.3 below, except that such certificate shall not be
required to bear such legend after a transfer thereof if the transfer was made
in compliance with Rule 144 or pursuant to a registration statement or, if the
opinion of counsel referred to above is issued and provides that such legend is
not required in order to establish compliance with any provisions of the 1933
Act.
d. Receipt of Information. JJDC has been furnished access to
----------------------
the business records of the Company and all such additional information and
documents as JJDC has requested and has been afforded an opportunity to ask
questions of and receive answers from representatives of the Company concerning
the terms and conditions of this Agreement and the purchase of the Shares.
8
<PAGE>
e. Brokerage. There are no claims for brokerage commissions
---------
or finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of JJDC, and JJDC agrees to indemnify and hold the Company harmless
against any damages incurred as a result of any such claims.
3.2 Further Provisions Regarding Disposition.
----------------------------------------
a. Transfer to Affiliates. Notwithstanding the provisions of
----------------------
Section 3.1(c) above, no registration statement or opinion of counsel shall be
necessary for a transfer by JJDC of the Shares to a subsidiary, shareholder or
Affiliate (as such term is defined in the License Agreement) of JJDC, if the
transferee agrees in writing to be subject to the terms hereof to the same
extent as if such transferee were JJDC hereunder.
b. New Certificates. Whenever the restrictions imposed by
----------------
Section 3.1(c) hereof shall terminate as herein provided, the holder of the
Shares as to which such restrictions have terminated shall be entitled to
receive from the Company, without expense, one or more new certificates not
bearing restrictive legends and not containing any reference to the restrictions
imposed by this Agreement.
3.3 Legends. It is understood that, subject to Sections 3.1(c) and
-------
3.2(b), the certificates evidencing the Shares may bear substantially the
following legends:
(a) THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE
144 OF SUCH ACT.
(b) Any legend required by the laws of any other applicable
jurisdiction.
4. Conditions to JJDC's Obligations at Closing. The obligations of
-------------------------------------------
JJDC to purchase Shares at the Closing are subject to the fulfillment on or
prior to the Closing of each of the following conditions, any of which may be
waived by JJDC:
4.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true in all material
respects (provided that to the extent any representation or warranty has a
materiality qualification it shall not be further qualified by the use of the
word material in this Section 4.1) on and as of the Closing Date with the same
9
<PAGE>
effect as though such representations and warranties had been made on and as of
the Closing Date.
4.2 Performance. The Company shall have performed and complied
-----------
in all material respects with all agreements, obligations, and conditions
contained in this Agreement that are required to be performed or complied with
by it on or before the Closing.
4.3 Qualifications. All authorizations, approvals, or permits,
--------------
if any of, any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Shares to JJDC pursuant to this Agreement shall have been duly obtained
and shall be effective on and as of the Closing.
4.4 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to JJDC and JJDC's counsel, and they shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.
4.5 License Agreement. The License Agreement shall have been
-----------------
executed and delivered by the Company and shall be in full force and effect.
4.6 Opinion of Company Counsel. JJDC shall have received from
--------------------------
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo P.C., counsel for the Company, an
opinion addressed to JJDC covering the matters set forth in Sections 2.1, 2.2,
2.3 (as to the due authorization, valid issuance, full payment and non-
assessability of the Shares), 2.12, 2.13, 2.15, and 2.20 hereof.
4.7 Compliance Certificate. The Chief Executive Officer of the
----------------------
Company shall deliver to JJDC at the Closing a certificate certifying that the
conditions specified in Sections 4.1, 4.2 and 4.3 hereof have been fulfilled and
stating that there has been no Material Adverse Change in the Company since the
date of the 10-Q.
4.8 Required Consents. All waiting periods applicable to the
-----------------
Closing under the HSR Act (including any extension thereof by reason of a
request for additional information) shall have expired or been terminated and no
action shall have been instituted, or shall be threatened or pending, by the
United States Justice Department (the "DOJ") or the Federal Trade Commission
(the "FTC") challenging or seeking to enjoin the consummation of the
transactions contemplated at the Closing, which action shall not have been
withdrawn or terminated.
4.9 License Agreement. The License Agreement shall have been
-----------------
executed and delivered by the Company and shall be in full force and effect.
4.10 NASDAQ Listing. The Shares shall have been approved for
--------------
listing on Nasdaq, subject to the notice of issuance.
10
<PAGE>
5. Conditions of the Company's Obligations at Closing. The
--------------------------------------------------
obligations of the Company under Section 1 of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of JJDC contained in Section 3 shall be true in all material respects
(provided that to the extent any representation or warranty has a materiality
qualification it shall not be further qualified by the use of the word material
in this Section 5.1) on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of the
Closing Date.
5.2 Performance. JJDC shall have performed and complied in all
-----------
material respects with all agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by it on or
before the Closing.
5.3 Qualifications. All authorizations, approvals, or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Shares at the Closing to JJDC pursuant to this Agreement shall have been
duly obtained and shall be effective on and as of the date of the Closing.
5.4 Required Consents. All waiting periods applicable to the
-----------------
Closing under the HSR Act (including any extension thereof by reason of a
request for additional information) shall have expired or been terminated and no
action shall have been instituted, or shall be threatened or pending, by the DOJ
or the FTC challenging or seeking to enjoin the consummation of the transactions
contemplated at the Closing, which action shall not have been withdrawn or
terminated.
5.5 License Agreement. The License Agreement shall have been
-----------------
executed and delivered by Ortho and shall be in full force and effect.
5.6 NASDAQ Listing. The Shares shall have been approved for listing
--------------
on Nasdaq, subject to the notice of issuance.
6. Miscellaneous.
-------------
6.1 Survival of Warranties. The warranties, representations,
----------------------
agreements, covenants and undertakings of the Company or JJDC contained in or
made pursuant to this Agreement shall survive the execution and delivery of this
Agreement and the Closing and shall in no way be affected by an investigation of
the subject matter thereof made by or on behalf of JJDC or the Company.
11
<PAGE>
6.2 Incorporation by Reference. All Exhibits and Schedules appended
--------------------------
to this Agreement are herein incorporated by reference and made a part hereof.
6.3 Successor and Assignees. All terms, covenants, agreements,
------------------------
representations, warranties and undertakings in this Agreement made by and on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto (including transferees
of any Shares) whether so expressed or not.
6.4 Amendments and Waivers. (a) Any provision of this Agreement
----------------------
may be amended or waived if, and only if, such amendment or waiver is in writing
and signed, in the case of an amendment, by JJDC and the Company or, in the case
of a waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by either party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
6.5 Governing Law. This Agreement shall be deemed a contract made
-------------
under the laws of the State of New York and, together with the rights or
obligations of the parties hereunder, shall be construed under and governed by
the laws of such State.
6.6 Notices. All notices, requests, consents and demands shall be in
-------
writing and shall be deemed given when (i) personally delivered, (ii) mailed in
a registered or certified envelope, postage prepaid or (iii) sent by Federal
Express or another nationally recognized overnight delivery service (paid by
sender):
to the Company at:
Ergo Science Corporation
Charlestown Navy Yard
Fourth Floor, 100 First Avenue
Charlestown, MA 02129
Fax: (617) 241-8822
Attention: President
with a copy to:
Ergo Science Corporation
Charlestown Navy Yard
Fourth Floor, 100 First Avenue
Charlestown, MA 02129
12
<PAGE>
Fax: (617) 241-8822
Attention: Legal Department
or to JJDC at:
Johnson & Johnson Development Corporation
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
Fax: (908) 247-5309
Attention: President
13
<PAGE>
with a copy to:
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
Fax: (908) 524-2788
Attention: Office of General Counsel
or such other address as may be furnished in writing by a party to the other
party hereto.
6.7 Counterparts. This Agreement may be executed in counterparts,
------------
all of which together shall constitute one and the same instrument.
6.8 Effect of Headings. The section and paragraph headings herein
------------------
are for convenience only and shall not affect the construction hereof.
6.9 Entire Agreement. This Agreement, the License Agreement and the
----------------
Exhibits and Schedules hereto and thereto constitute the entire agreement among
the Company and JJDC with respect to the subject matter hereof. There are no
representations, warranties, covenants or undertakings with respect to the
subject matter hereof other than those expressly set forth herein. This
Agreement supersedes all prior agreements between the parties with respect to
the Shares purchased hereunder and the subject matter hereof.
6.10 Publicity. Neither party shall originate any publicity, news
---------
release or other public announcement, written or oral, whether relating to the
performance under this Agreement or the existence of any arrangement between the
parties, without the prior written consent of the other party, except where such
publicity, news release or other public announcement is required by law;
provided that in such event, JJDC shall be consulted by the Company in
- --------
connection with any such publicity, news release or other public announcement
prior to its release and shall be provided with a copy thereof.
6.11 Severability. The invalidity or unenforceability of any
------------
provision hereof shall in no way affect the validity or enforceability of any
other provision.
14
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written, by the duly authorized representatives of the parties
hereto.
ERGO SCIENCE CORPORATION
By:
---------------------
Name:
Title:
JOHNSON & JOHNSON
DEVELOPMENT CORPORATION
By:
---------------------
Name:
Title:
15
<PAGE>
EXHIBIT 99.1
[LOGO OF ERGO SCIENCE APPEARS HERE]
For Immediate Release
ERGO SCIENCE AND JOHNSON & JOHNSON FORM
WORLDWIDE COLLABORATION AGREEMENT ON ERGO SCIENCE'S PRODUCTS
FOR TYPE 2 DIABETES AND OBESITY
. . . Collaboration Joins Complementary Strengths
Contact: Donna L. LaVoie
Executive Director
Corporate Communications & Investor Relations
(617) 241-6890 (Direct Line) [email protected] (E-Mail)
(617) 241-3205 (Information Line) http://www.ergo.com (Web Site)
(617) 241-8822 (Fax)
BOSTON, February 24, 1998 Ergo Science Corporation (Nasdaq:ERGO) today
reported that it has entered into a worldwide collaboration with The R.W.
Johnson Pharmaceutical Research Institute (PRI) and Ortho-McNeil Pharmaceutical,
Inc., both Johnson & Johnson (NYSE:JNJ) units, to develop and commercialize
ERGOSET(TM)/1/ (bromocriptine mesylate) tablets, Ergo Science's lead product,
and other potential products for the treatment of Type 2 diabetes and obesity,
based on Ergo Science's novel Neuroendocrine Resetting Therapy (NRT). The New
Drug Application (NDA) for use of ERGOSET(TM) tablets for the treatment of Type
2 diabetes was accepted for filing by the U.S. Food and Drug Administration
(FDA) in October 1997.
In the United States, Ergo Science will share equally in the costs of
developing and commercializing its lead product and other collaboration products
and will share equally in any resulting profits. Outside the United States,
Ergo Science will receive a royalty on net trade sales of collaboration
products. Under the agreement, initial payments to Ergo Science include a $10
million license fee and a $10 million equity investment in common stock by
Johnson & Johnson Development Corporation. The license agreement is subject to
clearance under the Hart-Scott-Rodino Antitrust Improvement Act of 1976.
- more -
- --------------
/1/ Additional trademarks are being considered for fast-release, oral
formulation of bromocriptine mesylate, presently known as ERGOSET(TM) tablets
for Type 2 diabetes.
<PAGE>
ADD 1 -- ERGO SCIENCE AND JOHNSON & JOHNSON FORM WORLDWIDE COLLABORATION
AGREEMENT ON ERGO SCIENCE'S PRODUCTS FOR TYPE 2 DIABETES AND OBESITY
In addition to sharing equally in costs and any profits, Ergo Science will
receive $20 million in milestone payments upon receipt of FDA marketing
clearance for use of its lead product for the treatment of Type 2 diabetes.
Significant additional milestones will be paid to Ergo Science upon achievement
of specified regulatory objectives for the use of its lead product for Type 2
diabetes within and outside the United States, upon achievement of specified
development and regulatory objectives related to a collaboration product for the
treatment of obesity, upon achievement of specified commercial objectives for a
product which includes an obesity indication, and the election of Johnson &
Johnson to participate in development of a collaboration product for treating a
non-metabolic disease.
All development work for collaboration products will be coordinated jointly
by Ergo Science and PRI. Ergo Science will remain responsible for U.S.
marketing clearance for its lead product for Type 2 diabetes. PRI will pursue
development and registration activities outside the U.S. for all collaboration
products. Subject to regulatory clearance, Ortho-McNeil will market all
collaboration products in the U.S.; Janssen-Cilag and other Johnson & Johnson
companies will market these products outside the U.S.
"The joint collaboration with Johnson & Johnson brings together
complementary strengths of our respective organizations. We are proud to build
a partnership with a company like Johnson & Johnson in these two important
fields of medical research," said Ronald H. Abrahams, Ph.D., Chairman and Chief
Executive Officer of Ergo Science.
Ergo Science's fast-release, once-a-day, oral formulation of bromocriptine
is a potent dopamine-receptor agonist, which operates through a mechanism of
action that is different from other anti-diabetic drugs. The development of this
product is based on Ergo Science's NRT technology, a novel approach to treating
glucose and lipid metabolism disorders.
NRT is based on over 30 years of research by Ergo Science's founding
scientists into the role of neurotransmitters in regulating metabolism. This
research indicates that distinct, daily activity patterns of certain
neurotransmitters are required to maintain normal glucose and lipid metabolism.
Disorders in glucose and lipid metabolism can develop and progress as a result
of changes in these daily patterns of neurotransmitter activity. With NRT, a
neurotransmitter-modulating agent is administered at a specific time of day to
re-establish normal patterns of neurotransmitter activity and thereby improve
glucose and lipid metabolism.
- more -
<PAGE>
ADD 2 -- ERGO SCIENCE AND JOHNSON & JOHNSON FORM WORLDWIDE COLLABORATION
AGREEMENT ON ERGO SCIENCE'S PRODUCTS FOR TYPE 2 DIABETES AND OBESITY
Ergo Science's NDA is supported by the Company's three Phase III studies
that evaluated the safety and efficacy of Ergo Science's lead product for the
treatment of Type 2 diabetes. Data from these studies indicated that this
product, compared to placebo, significantly decreased glycated hemoglobin A1C
(HbA1c) (the primary measure for assessing long-term glucose control in
diabetes). In addition, fasting and post-prandial glucose, triglyceride and
free fatty acid levels improved. Elevated levels of triglycerides and free
fatty acids are risk factors for cardiovascular disease, the leading cause of
death in Type 2 diabetics.
In July 1997, Ergo Science initiated a 400 person, dose selection Phase II
clinical trial to evaluate the use of Ergo Science's lead product in reducing
weight in obese subjects. This obesity trial will become part of the joint
collaboration with Johnson & Johnson, and Ergo Science will retain the
responsibility for conducting this study.
Dr. Abrahams stated, "We are excited about collaborating with Johnson &
Johnson in the continued clinical development of our technology for the
treatment of obesity."
Ergo Science Background
Ergo Science is a biopharmaceutical company developing novel treatments for
metabolic and immune system disorders such as diabetes, obesity and cancer.
Credit Suisse First Boston acted as financial advisor to Ergo Science in
this transaction.
Johnson & Johnson Background
Johnson & Johnson, with approximately 90,500 employees, is the world's
largest and most comprehensive manufacturer of health care products serving the
consumer, pharmaceutical, diagnostics and professional markets. Johnson &
Johnson has more than 180 operating companies in 51 countries around the world,
selling products in more than 175 countries.
- more -
<PAGE>
ADD 3 -- ERGO SCIENCE AND JOHNSON & JOHNSON FORM WORLDWIDE COLLABORATION
AGREEMENT ON ERGO SCIENCE'S PRODUCTS FOR TYPE 2 DIABETES AND OBESITY
- --------------------------------------------------------------------------------
This news release contains forward-looking statements. Forward-looking
statements reflect Ergo Science's current views with respect to future events.
Actual results may vary materially and adversely from those anticipated,
believed, assumed, estimated or otherwise indicated. Important factors that
could cause actual results to differ materially include, without limitation: (1)
data obtained from clinical trials are subject to varying interpretations, and
there can be no assurance that the FDA (or an FDA panel of experts) will agree
with the Company's assessment of clinical trial results; (2) there can be no
assurance of FDA approval to market the fast-release, oral formulation of
bromocriptine for Type 2 diabetes or any other indication or that the FDA will
not require additional clinical trials of the fast-release, oral formulation of
bromocriptine; (3) uncertainty related to the scientific development of a new
medical therapy; (4) competition in the anti-diabetic and obesity markets is
intense; other products have recently been approved for these indications; and
other companies are developing competing products; (5) the need for additional
funding; (6) there can be no assurance that the fast-release, oral formulation
of bromocriptine, if approved for commercial marketing, will be successful in
the marketplace, or that Ergo Science will receive any profits from its sale;
(7) there can be no assurance that Ergo Science will achieve any of the
objectives required for payment of milestones by Johnson & Johnson; (8) Johnson
& Johnson has certain specified rights to terminate the collaboration agreement;
and (9) the uncertainty relating to patent protection in the pharmaceutical and
biotechnology industries. Further information and additional important factors
are set forth in reports and other filings of the Company with the Securities
and Exchange Commission, including, without limitation, a Form S-1, as amended,
filed on August 9, 1996 and the 1996 Annual Report on Form 10-K, generally under
the caption "Risk Factors." The Company does not undertake to update any
forward-looking statement that may be made from time to time by or on behalf of
the Company.
- --------------------------------------------------------------------------------
###
