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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 00-23473
COMBICHEM, INC.
(Exact name of registrant as specified in its charter)
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<CAPTION>
DELAWARE 33-0617379
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<S> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9050 Camino Santa Fe, San Diego, CA 92121
(Address of principal executive offices) (Zip Code)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE IS (858) 530-0484
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No; (2) [X] Yes [ ] No
As of August 13, 1999, there were 13,489,593 shares of $.001 par value common
stock outstanding.
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COMBICHEM, INC.
INDEX
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PAGE NO.
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets at June 30, 1999 (unaudited)
and December 31, 1998 3
Condensed Statements of Operations (unaudited) for the Three and Six Months
Ended June 30, 1999 and 1998 4
Condensed Statements of Cash Flows (unaudited) for the
Six Months Ended June 30, 1999 and 1998 5
Notes To Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings* 15
Item 2. Change in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities* 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information* 16
Item 6. Exhibits and Reports on Form 8-K 16
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* Not Applicable
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COMBICHEM, INC.
CONDENSED BALANCE SHEETS
(In Thousands)
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JUNE 30, DECEMBER 31,
1999 1998
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(UNAUDITED) (NOTE)
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ASSETS
Current assets
Cash and cash equivalents $ 15,878 $ 20,334
Short-term investments 8,049 9,025
Accounts receivable 144 2,892
Prepaid expenses and other current assets 1,328 1,310
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Total current assets 25,399 33,561
Property and equipment, net 7,873 7,902
Restricted cash 279 279
Deposits and other assets 824 238
Notes receivable from employees 71 --
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Total assets $ 34,446 $ 41,980
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 1,307 $ 1,102
Accrued liabilities 943 1,295
Deferred revenue 2,239 3,193
Current portion of obligations under capital leases 2,205 1,825
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Total current liabilities 6,694 7,415
Deferred rent 32 142
Obligations under capital leases, less current portion 3,725 4,246
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares authorized;
no shares issued or outstanding at June 30, 1999 or December 31,
1998 -- --
Common stock, $.001 par value, 40,000,000 shares authorized;
13,443,863 and 13,399,201 shares issued and outstanding at
June 30, 1999 and December 31, 1998, respectively 13 13
Additional paid-in capital 52,071 51,862
Notes receivable from employees (361) (425)
Deferred compensation (920) (1,140)
Accumulated deficit (26,808) (20,133)
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Total stockholders' equity 23,995 30,177
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Total liabilities and stockholders' equity $ 34,446 $ 41,980
========= ========
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes
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COMBICHEM, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
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1999 1998 1999 1998
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(Unaudited) (Unaudited)
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Revenues:
Project initiation fees and
milestone payments $ 300 $ 2,300 $ 375 $ 3,050
Research and development
funding 2,254 2,083 4,497 3,955
Joint venture service revenue 665 -- 1,265 --
-------- -------- -------- --------
Total revenue 3,219 4,383 6,137 7,005
Expenses:
Research and development
Collaborative 2,723 2,327 5,232 4,250
Proprietary 1,697 1,400 3,236 2,715
-------- -------- -------- --------
4,420 3,727 8,468 6,965
General and administrative 1,467 1,117 2,669 2,009
Joint venture service expense 665 -- 1,265 --
-------- -------- -------- --------
Total operating expenses 6,552 4,844 12,402 8,974
-------- -------- -------- --------
Loss from operations (3,333) (461) (6,265) (1,969)
Interest income 305 290 665 525
Interest expense (135) (136) (275) (257)
Foreign tax expense -- -- -- (30)
Equity in net loss of 50%
owned joint ventures (375) -- (800) --
-------- -------- -------- --------
Net loss $ (3,538) $ (307) $ (6,675) $ (1,731)
======== ======== ======== ========
Net loss per share $ (0.27) $ (0.03) $ (0.52) $ (0.16)
======== ======== ======== ========
Shares used in calculating
net loss per share 13,086 11,464 12,916 10,799
======== ======== ======== ========
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See accompanying notes
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COMBICHEM, INC.
CONDENSED STATEMENTS OF CASH FLOW
(In Thousands)
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SIX MONTHS ENDED JUNE 30,
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1999 1998
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(Unaudited) (Unaudited)
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Cash flows from operating activities:
Net loss $ (6,675) $ (1,731)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 1,078 837
Amortization of premium on short-term investments 42 --
Deferred rent (110) 25
Deferred revenue (953) 753
Amortization of deferred compensation 220 221
Change in operating assets and liabilities:
Accounts receivable 2,748 (735)
Prepaid expenses and other current assets 17 (40)
Accounts payable and accrued liabilities (146) (273)
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Net cash used in operating activities (3,779) (943)
Cash flows from investing activities:
Purchases of short-term investments (8,066) (7,677)
Maturities of short-term investments 9,000 7,530
Purchase of accrued interest on short-term investments (32) --
Purchases of property and equipment (1,047) (2,205)
Deposits and other assets (585) --
Notes receivable from employees (71) 5
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Net cash used in investing activities (801) (2,347)
Cash flows from financing activities:
Advances on capital lease obligations 1,068 1,355
Principal repayments on capital lease obligations (1,217) (829)
Receipt of payment on notes from employees 64 29
Deferred public offering costs -- (685)
Issue of common stock, net of repurchased shares 209 17,559
-------- --------
Net cash provided by financing activities 124 17,429
Net (decrease) increase in cash and cash equivalents (4,456) 14,139
Cash and cash equivalents at beginning of period 20,334 5,867
-------- --------
Cash and cash equivalents at end of period $ 15,878 $ 20,006
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See accompanying notes
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COMBICHEM, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Interim results are not necessarily indicative of the results that may be
expected for the year. For further information refer to the financial statements
and footnotes thereto for the year ended December 31, 1998 included in the
Company's annual report on Form 10-K.
2. Equity in Net Loss of 50%-Owned Joint Ventures
The Company owns a 50% interest in ChiroChem Discovery Services, LLC, a
limited liability corporation created to develop and market computationally
designed libraries of single-isomer, chiral compounds. Pursuant to the terms of
the agreement entered into with ChiroChem Discovery Services, LLC, the Company
will design and synthesize information-rich chiral compound libraries. For the
six months ended June 30, 1999, the Company earned $1.3 million related to
reimbursement for expenses incurred on behalf of the joint venture and
recognized a $0.8 million loss for its equity in the loss of the joint venture.
Additionally, the Company owns a 50% interest in Aperion LLC, a limited
liability corporation formed to provide catalytic-based combinatorial discovery
services to the materials and process industries. Pursuant to the terms and
conditions of the agreement entered into with Catalytica Advanced Technologies,
Inc., the Company, through its proprietary and patented technologies, will
provide rapid screening of catalysts and evaluation of processes and products
that are designed to optimize the manufacture of a wide variety of important
industrial products. Aperion LLC, was established in June 1999 and has no
material financial impact for the reporting period ending June 30, 1999.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This quarterly report may contain predictions, estimates and other
forward-looking statements that involve a number of risks and uncertainties,
including our dependence on the execution of new collaborative agreements and
other factors relating to our growth as well as those discussed below under
"Risks and Uncertainties." While this outlook represents our current judgment on
the future direction of our business, such risks and uncertainties could cause
actual results to differ materially from any future performance suggested below.
We undertake no obligation to release publicly the results of any revisions to
these forward-looking statements to reflect events or circumstances arising
after the date hereof.
OVERVIEW
CombiChem is a computational product discovery company that is applying
proprietary design technology and rapid synthesis capabilities to accelerate the
discovery process for new drugs and chemical products. We believe our approach
offers pharmaceutical and chemical companies the opportunity to conduct their
discovery efforts in a more productive and cost-effective manner. Using our
proprietary Discovery Engine(TM) process, we focus on the generation, evolution
and optimization of potential new lead candidates for our collaborative partners
who will then develop, manufacture, market and sell any resulting products. We
believe that our process is widely applicable to a variety of disease targets
and therapeutic indications as well as to other industries such as agrochemical,
industrial chemical and materials science. To date, we have established
collaborative agreements with Athena Neurosciences, Inc., a wholly owned
subsidiary of Elan Corporation, plc, ICOS Corporation, ImClone Systems
Incorporated, Novartis Crop Protection AG, Ono Pharmaceutical Co., Ltd., Roche
Bioscience, a division of Syntex (U.S.A.) Inc., Sumitomo Pharmaceuticals Co.,
Ltd. and Teijin Limited. In addition, we are using our approach on internal
programs to discover new lead candidates that could potentially be outlicensed
to third parties, while retaining a larger economic interest. Additionally, we
further broadened the application of our technology by establishing 2 joint
ventures, ChiroChem Discovery Services, LLC, established in December 1998 and
Aperion LLC, established in June 1999. ChiroChem Discovery Services LLC, our
50%-owned joint venture with Chirotech Technology, Ltd., a member of the
Chiroscience Group of companies, was established to develop and sell
specifically designed chiral compound libraries. Aperion LLC, our 50%-owned
joint venture with Catalytica Advanced Technologies, Inc., a subsidiary of
Catalytica, Inc., was established to provide catalytic-based combinatorial
discovery services to the materials and process industries.
Our revenue to date is primarily attributable to the receipt of project
initiation fees, milestone payments and research funding. Project initiation
fees are received from our collaborators upon, or shortly following, execution
of the collaborative agreement. Milestone payments are received from
collaborators upon achievement of certain pre-determined objectives. In
connection with the performance of research services, we receive research
funding under our collaborative agreements. Research funding typically is
received only during the life of the research program under the particular
collaboration. In addition, we may receive advance payments from our
collaborators or potential collaborators, which require us to complete certain
performance obligations. Such payments are recorded as deferred revenue when
received and are recognized as revenue when our performance obligations have
been met, as evidenced by our collaborator's written approval and acceptance.
The collaborative activities for which we receive revenue typically occur over a
one- to three-year period, if multiple projects are anticipated, or one to two
years for single project collaborations. The agreements provide for earlier
termination in certain circumstances. We expect that a significant portion of
our revenue for the foreseeable future will be comprised of such payments. The
receipt of project initiation fees is dependent on our ability to enter into
additional collaborative agreements that provide for such fees; the timing of
such payments will be difficult to predict. In addition, the timing of certain
revenue in the future will depend upon the completion of certain milestones as
provided for in our collaborative agreements, which are contingent and
uncertain. Milestone fees may be earned for different events or achievements in
different agreements. For certain collaborations, such fees may not be earned
until the collaborator has advanced products into human testing. In any one
fiscal quarter we may earn multiple or no payments from our collaborators.
Operating results may therefore vary substantially from period to period and
will not necessarily be indicative of results in subsequent periods. Completion
of the research phase of a single project collaboration or a single project
within a broad multiple project collaboration is not expected to have a material
adverse effect on our business. However, the termination or conclusion of any
collaborative agreement could have a material adverse effect on our business. In
addition, our failure to enter into additional collaborative agreements on
favorable terms would have a material adverse effect on our business.
We have not been profitable since inception and have incurred a cumulative
net loss of $26.8 million through June 30, 1999. Losses have resulted
principally from costs incurred in research and development activities related
to efforts to develop our technologies and from the associated administrative
costs of supporting these efforts. Our ability to achieve profitability is
dependent
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on our ability to market our technology and capabilities to pharmaceutical,
biotechnology, agrochemical, and materials science companies.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Revenues
Revenues for the three and six months ended June 30, 1999 were $3.2 million
and $6.1 million, respectively, down from $4.4 million and $7.0 million for the
same periods in 1998. For the six month period ended June 30,1999, a $2.7
million decrease in project initiation fees and milestone payments were offset
by a $1.8 million increase in revenue due to an increased number of projects in
the active collaboration phase and reimbursement of costs incurred on behalf of
ChiroChem Discovery Services, LLC.
Operating Expenses
Research and development expenses for the three and six months ended June
30, 1999 were $4.4 million and $8.5 million, respectively, compared to $3.7
million and $7.0 million for the same periods in 1998. For both the three and
six months ended June 30, 1999, research and development costs incurred on
behalf of our collaborators increased by $0.4 million and $1.0 million,
respectively, due to an increase in the number of projects in the active
collaboration phase. During the three and six months ended June 30, 1999, our
research and development costs for the advancement of our proprietary
technologies increased by $0.3 million and $0.5 million, respectively, as we
further expanded the application of our technologies into new fields. We expect
research and development spending to increase over the next several years due to
increased activities related to collaborators, internal programs and technology
development.
General and administrative expenses for the three and six months ended June
30, 1999 were $1.5 million and $2.7 million, respectively, up from $1.1 million
and $2.0 million for the same periods in 1998. Increases in expenses for both
the three and six months ended June 30, 1999, were primarily related to the
expansion of both the size and activities of our business development group and
CombiChem's being a public company for a full six months as of June 30, 1999
versus only two months as of June 30, 1998.
In conjunction with supporting the operations of our 50%-owned joint
venture, ChiroChem Discovery Services, other operating expenses were $0.7
million and $1.3 million for the three and six months ended June 30, 1999.
These operating expenses were entirely reimbursed by the joint venture.
Interest Income/Expense
Interest income totaled $0.3 million and $0.7 million in the three and six
months ended June 30, 1999, as compared to $0.3 million and $0.5 million for the
same period in 1998. The increase for both the three and six months ended June
30, 1999, is a result of higher average balances of cash, cash equivalents and
short-term investments during the first half of 1999. Interest expense relates
to our capital lease obligations.
Net Loss
For the three and six months ended June 30, 1999, our net losses were $3.5
million and $6.7 million, respectively, up from $0.3 million and $1.7 million
for the same periods in 1998. The increased losses are attributable to decreased
revenues and increased research and development and general and administrative
expenses as discussed above. In addition, we reported losses of $0.4 million and
$0.8 million for the three and six months ended June 30, 1999 for our 50% equity
interest in ChiroChem Discovery Services.
LIQUIDITY AND CAPITAL RESOURCES
From inception through June 30, 1999, we financed our operations through
proceeds from our initial public offering and private placements of equity
securities, payments from corporate collaborators and the utilization of capital
equipment lease financing. In May
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1998, we raised approximately $16.2 million in net cash proceeds from our
initial public offering of common stock. At June 30, 1999, we had cash, cash
equivalents and short-term investments of approximately $23.9 million compared
to $29.4 million at December 31, 1998. The decrease in cash, cash equivalents
and short-term investments during the six months ended June 30, 1999 is largely
due to cash used in operating activities. Cash used in operating activities for
the six months ended June 30, 1999 include a $6.7 million operating loss
partially offset by $2.7 million of advance payments collected from
collaborators.
Working capital at June 30, 1999 was $18.7 million. We have maintained capital
lease arrangements since 1994. Under these arrangements, we have funded certain
capital expenditures with lease terms ranging from 36 to 48 months in duration.
As of June 30, 1999, we had utilized $10.9 million of an available $11.4 million
financing facility. We expect that the net proceeds from our initial public
offering and the interest income generated from these proceeds, together with
the existing cash and cash equivalents, short-term investments, operating
revenues and lease financing arrangements, will be sufficient to finance our
working capital and capital requirements for the foreseeable future. Our capital
requirements depend on numerous factors. These factors include: (1) our ability
to enter into additional collaborative arrangements, (2) competing technological
and market developments, (3) changes in our existing collaborative
relationships, (4) the cost of filing, prosecuting, defending and enforcing
patent claims and other intellectual property rights, (5) the purchase of
additional capital equipment, (6) the progress of our discovery programs and (7)
the progress of the commercialization of milestone-and royalty-bearing compounds
by our collaborators. We may be required to raise additional capital over a
period of several years in order to continue to conduct our operations. Such
capital may be raised through additional public or private financing
arrangements, as well as collaborative arrangements, borrowings and other
available sources. In addition, we may from time to time earn milestone fees
under our collaborations. Milestone fees may be earned for different events or
achievements in different agreements. Furthermore, for certain collaborations,
such fees may not be earned until the collaborator has advanced products into
later stage testing. Such milestones may not be earned for several years, if at
all. Our collaborative arrangements may not produce revenue adequate to fund our
operating expenses. Additional funding, if necessary, may not be available on
favorable terms, if at all. If adequate funds are not available, we may be
required to curtail operations significantly or obtain funds through
arrangements with collaborative partners or others that may require us to
relinquish rights to certain of our technologies, product candidates, products
or potential markets that we would not otherwise relinquish. The failure to
receive additional funding would have a material adverse effect on our business
and results of operations.
YEAR 2000 ISSUE
Description of the Issue. The Year 2000 issue refers to the inability of
certain date-sensitive computer chips, software, and systems to recognize a
two-digit date field as belonging to the 21st century. Mistaking "00" for 1900
or any other incorrect year could result in a system failure or miscalculations
causing disruptions to operations, including manufacturing, a temporary
inability to process transactions, or send invoices, or engage in other normal
business activities. This is a significant issue for most, if not all companies,
with far reaching implications, some of which cannot be anticipated or predicted
with any degree of certainty. The Y2K issue may create unforeseen risks from our
internal computer systems as well as from computer systems of third parties with
which we deal. Our failures and/or those of third parties' computer systems
could have a material adverse impact on our ability to conduct our business.
Year 2000 Readiness. We have formed a committee, including the Information
Technology Manager, to evaluate Y2K risks and readiness. The committee has
addressed both information technology and non-information technology systems.
Examples of information technology systems include hardware and software
purchased from external sources and internally developed software. Examples of
non-information technology systems include laboratory equipment and those
systems that operate the facilities infrastructure. The committee has also
considered the systems of those third parties with which we maintain a material
relationship.
We have substantially completed an assessment of our information technology
and non-information technology systems. The assessment phase is, however, an
on-going effort. As part of this effort, we are assessing the potential severity
of the impact of Y2K induced failures, conducting an inventory of information
systems for each business area, prioritizing systems or components to be
converted or replaced, and developing a contingency plan for mission critical
systems.
Renovation procedures have begun on those systems that we have identified
in our assessment as being non-Y2K compliant. This renovation entails
installation of commercially available software and firmware updates and
performance of system tests. The renovation phase of our Year 2000 efforts is
approximately 95% complete.
Although the assessment and renovation phases are not 100% complete, based
on the work performed to date, we do not foresee an inherently complex Y2K
problem. Accordingly, we will concurrently validate and implement converted or
replaced mission-critical systems. Validation will take place in an environment
that is representative of the true operating environment. Implementation will
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address the integration of Y2K compliant systems into our true operating
environment and will take into consideration the interdependencies of the
systems involved. Finally, we will ensure that the Y2K contingency plan is
available for each business area. The validation phase is currently in process
and we expect this phase to be competed in the third quarter of 1999.
For material third parties, we are obtaining written assurances that their
systems and/or products are, or will be, Y2K compliant. However, we are not
independently verifying their representations. In addition, while we are not
dependent on any sole-source suppliers to conduct our laboratory operations,
efforts are ongoing to monitor the progress of the Y2K preparations of our
current major suppliers of laboratory materials.
Year 2000 Costs. The total cost of our Y2K activities is funded through
operating cash flows. We are expensing these costs as they are incurred. As of
June 30, 1999, we have not incurred any incremental costs to resolve our Y2K
issue and we expect that the total cost to become fully compliant will not
exceed $50,000.
Year 2000 Risks and Contingencies. In the event that systems of third-party
providers or vendors of laboratory supplies fail to resolve Y2K issues that
effect services or product deliveries to us, we may have to change providers or
vendors. Such changes are not anticipated to have a material adverse effect on
our business. As previously indicated, we are preparing a Y2K contingency plan
which addresses each of the mission-critical systems of our business areas. This
plan will also identify strategies and available resources necessary to restore
operations. We expect this plan to be completed by September 30, 1999.
RISKS AND UNCERTAINTIES
The following is a summary of some of the many risks we face in our
business. You should carefully review these risks in evaluating our business.
THE TECHNOLOGY WE USE IN OUR BUSINESS IS NEW AND HAS NOT BEEN SHOWN TO BE
SUCCESSFUL IN DISCOVERING NEW COMPOUNDS THAT ARE USEFUL.
Our discovery process is new. We have not yet shown that it can
successfully be used to discover candidates that ultimately become commercial
products. Furthermore, our discovery efforts are focused on some targets with
unknown functions. Development of new drugs and other useful products is highly
uncertain. Our discovery process may not result in candidates that will be safe
or effective or commercially successful as products. If our technology is not
validated through the successful discovery of candidates, our business will be
adversely affected.
Our strategy, which is unproven, is to use our proprietary technology to
rapidly identify, optimize and obtain rights to as many product candidates as
possible. Our near-term profitability depends entirely on whether we can enter
into additional collaborative agreements and maintain our current agreements.
The pricing and nature of our collaborative relationships, however, is such that
our potential customers may include only a limited number of drug,
biotechnology, agrochemical and materials science companies. Our strategy also
involves conducting our own discovery programs by choosing targets of current
scientific interest and working in collaboration with screening companies to
discover drug candidates. Accordingly, we cannot be certain that our strategy
will prove successful.
Our success also depends on whether potential customers view our process as
an effective discovery tool. Historically, drug, biotechnology, agrochemical and
materials science companies have identified and optimized new compounds in their
own research departments. They have done so primarily to protect the proprietary
nature of their activities. To achieve our business objectives, we must convince
these companies that our technology and capabilities justify the outsourcing of
their programs to us. We may not, however, be able to attract any future
customers on acceptable terms for our products and services or develop a
sustainable, profitable business. Any failure to do so would adversely affect
our business.
We generally structure each of our collaborative agreements to provide us
with payments for:
- initiating the collaboration,
- providing research for a specified period (typically over one or two
years),
- attaining specifically negotiated milestones, and
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- earning royalties from the commercial sale of any successfully
developed drug candidate.
To date, we have generated most of our revenues from providing research
services under our collaborative agreements. We receive these revenues, however,
only for a limited period and they are generally offset by corresponding
research costs. After we complete the research phase of each collaborative
agreement, we will receive additional revenues only if our collaborators achieve
the specified milestones or sell products on which we earn royalties from
commercial sales. Any failure to achieve the milestones or to earn royalties
could adversely affect our business.
WE MAY NEVER BE PROFITABLE.
Our near term profitability depends entirely on whether we can enter into
additional collaborative agreements and maintain our current agreements. As a
result, we are unable to predict when, or if, we will become profitable. We have
not yet received, and may never receive, any revenues from royalties for
commercial sales by a customer. In addition, our strategy includes potentially
developing and licensing drug candidates that we have identified through our
internal programs, at our own expense, to others for further development. To
date, we have not entered into any of these licenses. We may never enter into
any of these licenses on acceptable terms or at all.
THE SUCCESSFUL IMPLEMENTATION OF OUR STRATEGY IS DEPENDENT ON THE ACTIVITIES OF
OTHERS, OVER WHICH WE HAVE NO CONTROL.
Our strategy depends on our ability to enter into collaborative
arrangements with others on a regular basis. We may not be able to continue to
establish additional collaborative arrangements. If we are successful in
establishing additional arrangements, they may not be on favorable terms. The
collaborative arrangements also may not ultimately be successful. Any failure to
enter into additional collaborative arrangements on favorable terms would
adversely affect our business. The timing of when we receive revenues from
collaborative arrangements depends on both our efforts and our collaborators'
efforts.
We will depend on others' expertise and commitment to develop and
commercialize products based on candidates we discovered or optimized. The
amount and timing of resources that current and future collaborators devote to
our collaborations are not within our control, and we cannot be certain that
their efforts will be successful.
In addition, when we are eligible to earn milestone payments differs for
each agreement. For instance, for some collaborations, we may not earn milestone
fees until the collaborator has advanced drug products into human testing, which
may be well into the future. Furthermore, our collaborative partners are not
obligated to develop or commercialize product candidates we have discovered.
Rather, each collaborative partner may independently move forward with a
competing product candidate that the partner developed either internally or in
collaboration with others, including our competitors. The potential products a
collaborative partner develops also may be derivatives of the product candidates
we provided to the partner. While our existing collaborative agreements allow us
to retain milestone and royalty payment rights with respect to products
developed from certain derivatives, disputes may arise over how the payment
provisions in our agreements apply to those types of products.
Conflicts also may arise between collaborative partners about who has the
proprietary rights to particular compounds or product candidates. Additionally,
our collaborators generally may terminate their agreements with us upon short
notice and following an uncured material breach. Termination of our existing or
future collaborative agreements would result in a loss of anticipated revenue
and could adversely affect our business.
Furthermore, even though we use independent teams for each collaborative
project, conflicts may arise among our collaborators about which collaborator
has rights to any overlapping compounds or product candidates developed with our
technologies. Any failure to manage our collaborative relationships
successfully, maintain confidentiality among our relationships or prevent these
types of conflicts could lead to costly and time-consuming disputes and a loss
of reputation, capital or current or future collaborators. Any of these events
could adversely affect our business.
SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY RESULTS COULD MATERIALLY IMPACT OUR
STOCK PRICE.
Our operating results may vary substantially from quarter to quarter and
will not necessarily be indicative of results in later periods. Any quarterly
fluctuations in revenue or financial results may materially impact our stock
price. To date, we have received revenues
11
<PAGE> 12
from project initiation fees, research funding and milestone fees paid under our
collaborative agreements. We expect that most of our revenues for the
foreseeable future will continue to consist of these payments. In any one
quarter, we may receive multiple or no payments from our collaborators.
OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO BUILD AND MAINTAIN A STRONG
INTELLECTUAL PROPERTY POSITION; FAILURE TO DO SO WOULD HAVE AN ADVERSE EFFECT ON
OUR BUSINESS.
Our success will depend on our ability and the ability of our licensors to
obtain and defend patents and other proprietary rights for our technologies and
the compounds and other products resulting from our technologies. In addition,
to be successful we must avoid infringing the proprietary rights of others. Our
patent position, like that of many companies, is uncertain and involves complex
legal and factual questions for which important legal principles are unresolved.
We may not develop or obtain rights to products or processes that are
patentable. Even if we do obtain patents, they may not adequately protect the
technology we own or have licensed. In addition, others may challenge, seek to
invalidate, infringe or circumvent any patents we own or license, and rights we
receive under those patents may not provide competitive advantages to us.
Further, our activities may infringe the patent rights of others.
We cannot be certain that any patents will issue as a result of any pending
applications. In addition, any issued patents still may not provide sufficient
protection against competitors with similar technologies. Although we believe
that our current activities do not infringe any patents of others, we
continually assess our position. We cannot be certain that we would be
successful in any litigation over patents or that our future technological
developments will be outside the scope of others' patent rights.
We may also need to initiate litigation, which could be time consuming and
expensive, to enforce our proprietary rights or to determine the scope and
validity of others' rights. If litigation results, a court may find our patents
or those of our licensors invalid or may find that we have infringed on a
competitor's rights. If any of our competitors have filed patent applications in
the United States which claim technology we also have invented, the Patent and
Trademark Office may require us to participate in expensive interference
proceedings to determine who has the right to a patent for the technology.
We currently license rights from other parties. In the future, we may
require additional licenses from other parties to refine our discovery process
further and to allow our collaborators to develop, manufacture and market
commercially viable products effectively. We cannot be certain that:
- we will be able to obtain any licenses on commercially reasonable
terms, or at all,
- any patents underlying such licenses will be valid and enforceable, or
- the proprietary nature of any patented technology underlying such
licenses will remain proprietary.
In addition, if we breach any of our licenses, we may lose important
rights.
We also rely on unpatented trade secrets and know-how to maintain our
competitive position, which we seek to protect, in part, by confidentiality
agreements with employees, consultants and others. These parties may breach or
terminate these agreements, and we may not have adequate remedies for any
breach. In addition, our competitors may independently discover our trade
secrets. We also rely substantially on certain technologies that are not
patentable or proprietary and are therefore available to our competitors.
OUR INDUSTRY IS EXTREMELY COMPETITIVE AND WE MAY ULTIMATELY PROVE UNSUCCESSFUL.
Many organizations are actively attempting to identify, optimize and
generate compounds for potential drug, agrochemical and materials science
development. We compete with the research departments of drug companies,
biotechnology companies, agrochemical companies, combinatorial chemistry
companies and research and academic institutions as well as other product
discovery companies. Many of our competitors have greater financial and human
resources and more experience in research and development than us. We anticipate
that we will face increased competition in the future as new companies enter the
market and advanced technologies become available. Ultimately, our processes may
become obsolete or uneconomical as a result of new technologies or approaches
our competitors develop.
FAILURE TO EXPAND OUR OPERATIONS AND MANAGE OUR EXPANDED OPERATIONS WOULD HAVE
AN ADVERSE EFFECT ON OUR BUSINESS.
12
<PAGE> 13
Our success will depend on whether we can expand our operations to service
additional collaborative arrangements and manage our expanded operations. To be
cost-effective, we must enhance our productivity by further automating our
processes and improving our technology generally. In addition, we must
successfully structure and manage additional collaborative relationships,
including maintaining the confidentiality of the research being provided to our
customers. We may not be able to add the technical personnel needed to meet the
staffing requirements of any additional collaborative relationships. In
addition, our efforts to automate our processes further or to improve our
technology may not be successful. Any failure to achieve these goals could
adversely affect our business.
THE LOSS OF ONE OR MORE OF THE KEY MEMBERS OF OUR SCIENTIFIC AND MANAGEMENT
STAFF COULD ADVERSELY AFFECT OUR BUSINESS
The loss of one or more of the key members of our scientific and management
staff could adversely affect our business. Our future success also depends on
the continued service of our key design, engineering, scientific, software and
management personnel and on our ability to identify, hire and retain any
additional personnel. There is intense competition for these qualified
personnel. We may not be able to continue to attract and retain the personnel
necessary to develop our business. Any failure to attract and retain key
personnel could adversely affect our business.
FAILURE TO COMPLY WITH REGULATORY REQUIREMENTS WOULD HAVE AN ADVERSE EFFECT ON
OUR BUSINESS.
Any failure to comply with regulatory requirements in the United States and
overseas can result in fines, warning letters, recall or seizure of products,
clinical study holds or delays, total or partial suspension of production,
refusal of the government to grant approvals, and civil and criminal penalties.
United States and foreign government regulation will be a significant factor in
the production and marketing of any products that we, our customers or our
collaborators develop. The scope of the regulation will vary depending on the
type of products involved. Virtually all products our customers develop will
require regulatory approval. For example, the FDA and foreign regulatory
authorities require vigorous early state and human testing and other procedures
for human drug products. Numerous regulations also govern the manufacturing,
safety, labeling, storage, record keeping, reporting and marketing of products
developed by our customers.
The process of obtaining and complying with regulatory approvals is time
consuming and expensive. The testing and approval processes require substantial
time and we cannot be certain if or when any approval will be granted for any
products resulting from our technologies.
Even if regulatory clearances are obtained, a marketed product may be
subject to continual review. Later discovery of previously unknown problems or
failure to comply with the applicable regulatory requirements may result in
restrictions on a product's marketing or withdrawal of the product from the
market, as well as possible civil or criminal sanctions. In addition, domestic
manufacturing facilities are subject to inspections and must comply with certain
manufacturing practices regulations. To comply with these regulations, a
manufacturer must spend funds, time and effort on production and quality
control. For marketing outside the United States, we, our collaborators or
customers may be subject to foreign regulatory requirements.
OUR FUTURE CAPITAL NEEDS ARE UNCERTAIN AND MAY HAVE AN ADVERSE EFFECT ON OUR
BUSINESS.
Our capital requirements depend on many factors, including:
- our ability to enter into additional collaborative arrangements,
- competing technological and market developments,
- changes in our existing collaborative arrangements,
- the cost of filing, prosecuting, defending and enforcing patent claims
and other proprietary rights,
- the purchase of additional equipment,
13
<PAGE> 14
- the progress in our discovery programs, and
- our collaborators' ability to commercialize milestone and
royalty-bearing compounds.
We may be required to raise additional capital over a period of several
years to continue our operations. Additional funding, if necessary, may not be
available on favorable terms. If adequate funds are not available, we may be
required to curtail operations significantly or obtain funds through
arrangements with collaborative partners or others that may require us to
relinquish rights to certain of our technologies, product candidates, products
or potential markets that we would not otherwise relinquish. Any failure to
receive additional funding would adversely affect our business.
THE EFFORTS OF THE GOVERNMENT AND OTHERS TO REDUCE THE COST OF HEALTH CARE MAY
HAVE AN ADVERSE EFFECT ON OUR COLLABORATORS AND OUR BUSINESS.
We expect that a substantial portion of our revenue in the foreseeable
future will be derived from products and services provided to the drug,
biotechnology, agrochemical and materials science industries. Accordingly, our
success in the foreseeable future depends on the success of the companies within
those industries and continued demand for our products and services.
The efforts of governments and third party payors to contain or reduce the
cost of health care will continue to affect the business and financial condition
of the drug and biotechnology companies. For example, in certain foreign
markets, pricing or profitability of prescription pharmaceuticals is subject to
governmental control. In the United States, a number of legislative and
regulatory proposals to change the health care system have been proposed in
recent years. In addition, an increasing emphasis on managed care in the United
States has and will continue to increase pressure on drug pricing. We cannot
predict whether legislative or regulatory proposals will be adopted. If
proposals or reforms are adopted and adversely affect the business of our
collaborators or customers, our business may also be adversely affected.
OUR USE OF HAZARDOUS MATERIALS MAY SUBJECT US TO SIGNIFICANT ENVIRONMENTAL
RISKS.
We use hazardous materials in our research and development activities. As a
result, we are subject to federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal of hazardous
materials. The risk of accidental contamination or injury exists. If an accident
occurs, we could be responsible for any damages and the amount of the damages
could exceed our resources. In addition, we may incur significant costs to
comply with environmental laws and regulations in the future. Any of these
events could adversely affect our business.
THE MARKET PRICE OF OUR COMMON STOCK IS VOLATILE AND YOU MAY NOT BE ABLE TO MAKE
A RETURN ON YOUR INVESTMENT.
The market price of our common stock is likely to be volatile and could
fluctuate widely in response to many factors, including:
- announcements of new technologies or products by us or our
competitors,
- developments concerning patents or other proprietary rights,
- publicity regarding the status of compounds we or our collaborators
are developing,
- regulatory developments, both in the United States and foreign
countries,
- public concern about the effectiveness of new technologies,
- changes in expectations of securities analysts concerning our company
or our industry in general;
- quarterly fluctuations in our revenues and financial results, and
- general market conditions.
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<PAGE> 15
As a result, our operating results may be below the expectations of market
analysts and investors, which could reduce the market price of our common stock.
The stock market has experienced extreme price and volume fluctuations that
have particularly affected the market prices of the securities of many companies
in our industry. Often, these fluctuations have been unrelated or
disproportionate to the operating performance of the companies. These market
fluctuations, as well as general economic, political and market conditions, may
reduce the market price of our common stock. In addition, in the past,
securities class action litigation has often been instituted following periods
of volatility in the market prices of securities. If we face such litigation in
the future, it would be costly and time consuming and could adversely affect our
business.
OUR CHARTER, DELAWARE LAW AND CONTRACT PROVISIONS MAY PREVENT OR DELAY A CHANGE
OF CONTROL WHICH MAY NOT BE IN THE BEST INTERESTS OF OUR STOCKHOLDERS.
Provisions of our charter and stock options, as well as provisions of
Delaware law, could delay or impede the removal of incumbent directors and could
make more difficult a merger, tender offer or proxy contest involving us, even
if the events could be beneficial to our stockholders. These provisions could
also limit the price that investors might be willing to pay for our common
stock. Our charter also authorizes our Board of Directors to issue shares of
undesignated preferred stock without stockholder approval on terms that the
Board may determine. The issuance of preferred stock could decrease the amount
of earnings and assets available for distribution to our other stockholders or
otherwise adversely affect the rights and powers, including voting rights, of
our other stockholders. Moreover, the issuance of preferred stock may make it
more difficult for another party to acquire, or may discourage another party
from acquiring, voting control of us.
WE MAY NOT BE SUCCESSFUL IN RESOLVING ALL OUR YEAR 2000 ISSUES THAT COULD HAVE
AN ADVERSE EFFECT ON OUR BUSINESS.
The year 2000 issue refers to the inability of certain date-sensitive
computer chips, software, and systems to recognize a two-digit date field as
belonging to the 21st century. This is a significant issue for most, if not all
companies, with far reaching implications, some of which cannot be anticipated
or predicted with any degree of certainty. The year 2000 issue may create
unforeseen risks to us from our internal computer systems as well as from
computer systems of others with whom we deal. Any failure of our and/or others'
computer systems could adversely affect our business. For a more complete
description of the status of our year 2000 readiness program and contingency
plans we have instituted, please see Part I, Item 2 -- "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Year 2000
Issue."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's investment portfolio consists of short-term, high quality
debt securities. These securities are subject to interest rate risk, and will
decline in value if interest rates increase. An immediate 10% change in interest
rates would not have a material impact on our financial condition or results of
operations
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
(a) None
(b) None
(c) None
15
<PAGE> 16
(d) A Registration Statement on Form S-1 (File No. 333-37981) registering
2,587,500 shares of common stock filed in connection with our initial public
offering for an aggregate offering of $20.7 million was declared effective by
the SEC on May 7, 1998. As of June 30, 1999, none of the net offering proceeds
has been used.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 6, 1999, the Company held its Annual Meeting of Stockholders. As of
March 31, 1999, the record date, 13,450,421 shares were entitled to vote at the
annual meeting. Of these 13,450,421 shares, 6,291,521 were not voted. The
following actions were taken at the annual meeting:
1. The following Directors were elected:
a. Peter L. Myers, Ph.D. 7,124,923 shares voted in favor of the nominee,
77,543 shares voted against the nominee.
b. Michael J. Pazzani, Ph.D. 7,135,423 shares voted in favor of the
nominee, 67,043 shares voted against the nominee.
c. The following directors continue in office for their existing terms:
Vicente Anido, Jr., Ph.D.
Philippe O. Chambon, M.D., Ph.D.
Arthur Reidel
William Scott, Ph.D.
2. A proposal to amend the Company's 1997 Stock Incentive Plan (the "1997
Plan") to increase the number of shares authorized for issuance thereunder
by 1,000,000 shares. 5,082,530 shares were voted in favor of the proposal,
85,748 shares were voted against the proposal, 276,688 shares abstained and
1,757,770 shares were not voted (includes broker non-votes).
3. The selection of Ernst & Young LLP as the Company's independent auditor was
ratified. 7,199,016 shares were voted in favor of the proposal, 1,000
shares were voted against the proposal, 2,450 shares abstained and 0 shares
were not voted (includes broker non-votes).
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
3.1+ Amended and Restated Certificate of Incorporation of the
Company, previously filed as Exhibit 3.2 on Form S-1,
File No. 333-37981, and incorporated herein by
reference.
3.2+ Restated Bylaws of the Company, previously filed as
Exhibit 3.4 on Form S-1, File No. 333-37981, and
incorporated herein by reference.
10.70* Collaborative Agreement by and between ICOS Corporation
and CombiChem, Inc., dated May 7, 1999.
10.71* Services Agreement by and between Catalytica Advanced
Technologies, Inc., CombiChem Inc., and Aperion, LLC
dated June 15, 1999.
10.72* License agreement between Aperion LLC., and CombiChem,
Inc., dated June 15, 1999.
16
<PAGE> 17
10.73* Limited Liability Company Operating Agreement of Aperion
LLC, between Catalytica Advanced Technologies, Inc., and
CombiChem Inc., and Aperion, LLC dated June 15, 1999.
27.1 Financial Data Schedules.
b. None.
+ Incorporated by reference to the same-numbered exhibit (except as otherwise
indicated) to the Company's Registration Statement on Form S-1 (No.
333-37981), as amended.
* Certain confidential portions of this Exhibit were omitted by means of
redacting a portion of the text (the "Mark"). This Exhibit has been filed
separately with the Secretary of the Commission without the Mark pursuant
to the Company's application requesting confidential treatment under Rule
406 under the Securities Act.
17
<PAGE> 18
COMBICHEM, INC.
SIGNATURES
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 thereunto duly authorized.
CombiChem, Inc.
Date: August 16, 1999 By: /s/ VICENTE ANIDO, JR.
--------------- -------------------------------------
Vicente Anido, Jr., Ph.D.
President, Chief Executive Officer
and Acting Chief Financial Officer
(Principal Financial and
Accounting Officer)
18
<PAGE> 1
EXHIBIT 10.70
COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
BETWEEN
COMBICHEM, INC.
AND
ICOS CORPORATION
MAY 7, 1999
<PAGE> 2
COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
THIS COLLABORATIVE RESEARCH AND LICENSE AGREEMENT (the "Agreement") is
entered into and made effective as of May 7, 1999 (the "Effective Date"), by and
between COMBICHEM, INC., a Delaware corporation having its principal offices at
9050 Camino Santa Fe, San Diego, California 92121 ("CombiChem") and ICOS
CORPORATION, a Delaware corporation having its principal offices located at
22021 20th Avenue S.E., Bothell, Washington 98021 ("ICOS").
WHEREAS, CombiChem has developed, licensed and/or owns certain drug
discovery technology and intellectual property rights, including chemical
library design software, multi-parallel synthesis and purification methods,
chemical libraries suitable for high throughput biological screening assays and
medicinal chemistry (collectively, "CombiChem Technology");
WHEREAS, as of the Effective Date, ICOS and its Affiliates have
developed and own certain drug discovery and intellectual property rights,
including certain assays, methods and know how regarding the Initial Target,
among other things (collectively "ICOS Technology");
WHEREAS, ICOS desires to utilize CombiChem Technology for its drug
discovery activities under ICOS know-how concerning the identification and
characterization of novel small molecule inhibitors for development as
therapeutics for treatment of diseases in humans;
WHEREAS, the parties wish to collaborate in a chemical lead and drug
discovery program, commencing on the Effective Date against a Collaboration
Target ("Collaboration"); and
WHEREAS, during the Collaboration, the Parties intend to focus on the
Initial Target.
NOW, THEREFORE, the Parties agree as follows:
1. DEFINITIONS
1.1 "Active Compound(s)" means a compound (or compounds) or its
Derivatives which
(a) (i) is selected by the RMC under the Research Program from
Collaboration Compounds under Section 4.2, or
(ii) is a Derivative of a Collaboration Compound which has
been so selected by the RMC to be an Active Compound;
and
<PAGE> 3
(b) shows In Vitro Activity satisfactory to the requirements of the
Research Plan.
1.2 "Affiliate" of a Party means any corporation or other business
entity controlled by, controlling or under common control with, such Party. For
this purpose "control" shall mean direct or indirect beneficial ownership of
more than fifty percent (50%) of the voting securities or income interest in
such corporation or other business, or if not meeting the preceding
requirements, any company owned or controlled by or owning or controlling such
Party at the maximum control or ownership right permitted in the country where
such company exists.
1.3 "Collaboration" has the meaning set forth in the preamble.
1.4 "Collaboration Compound(s)" means a compound (or compounds)
which (a) is synthesized following the Effective Date for screening against a
Collaboration Target under the Research Program, (b) is a pre-existing or
hereafter acquired CombiChem compound which CombiChem desires to designate as a
Collaboration Compound, or (iii) is a pre-existing or hereafter acquired ICOS
compound which ICOS desires to designate as a Collaboration Compound.
1.5 "Collaboration Patent" means a Patent to which CombiChem has
made an inventive contribution arising out of the Collaboration, as determined
under U.S. Patent law.
1.6 "Collaboration Target" means (a) the Initial Target beginning on
the Effective Date or (b) any other target by mutual written agreement of the
Parties.
1.7 "CombiChem Compound" means a chemical compound that is
proprietary to CombiChem, or whose use or manufacture is proprietary to
CombiChem.
1.8 "CombiChem Technology" has the meaning set forth in the
preamble.
1.9 "Confidential Information" includes, but is not limited to,
(a) all information and materials received by either Party from the
other Party pursuant to this Agreement which is confidential under
Article 11 hereof,
(b) all information and materials by either Party arising out of the
Collaboration during the Research Period including, without
limitation, information directly and specifically deduced from
Confidential Information such as information regarding compounds
that were not active against the Targets in the screening or
secondary selective assays; and
(c) the terms and conditions of this Agreement.
1.10 "CPI" means the Consumer Price Index, All Urban Consumers, as
published by the U.S. Bureau of Labor Statistics.
2
<PAGE> 4
1.11 "Daughter Libraries" shall mean the compound libraries which
are designed and synthesized as a part of the Collaboration either by CombiChem
or under the direction of the RMC.
1.12 "Derivative" shall mean a compound (or compounds) which has
resulted
(a) (i) from chemical synthesis, during the Exclusivity Period, to
generate an Active Compound or Development Compound in support of
the Research Program or (ii) from chemical synthesis on an Active
Compound or Development Compound in support of the Research Program;
and
(b) is covered under claims of any Collaboration Patent.
1.13 "Development Compound(s)" means a Collaboration Compound (or
compounds) which
(a) (i) is an Active Compound or (ii) is a Derivative of an Active
Compound; and
(b) is determined by ICOS to be appropriate for the purpose of IND
filing by ICOS either before preclinical studies or from the results
of preclinical studies to determine without limitation, data on
efficacy, potency, toxicity, bioavailability and other
pharmacokinetics related parameters.
1.14 "Due Diligence" means the use of by a Party of its resources in
the Collaboration in a manner which is consistent with the exercise of
reasonable and prudent scientific and business judgment as applied to other
programs of ICOS or CombiChem, as the case may be, targeting products aimed at
markets or patient groups of similar sizes and of similar scientific and
commercial potential. With respect to any Development Compound, "Due Diligence"
shall also require ICOS or its Affiliates, partners or licensees to use
commercially reasonable efforts to conduct all necessary preclinical studies and
to file an IND for such Development Compound within a commercially reasonable
period from the date upon which ICOS has designated such Development Compound
from any Active Compound or its Derivatives. For purposes of this Agreement,
failure to exercise Due Diligence by any Party may be alleged by written notice
to such Party describing such failure with specificity and describing the
actions necessary to cure such failure with specificity (the "Due Diligence
Notice"). Sixty (60) days after delivery of a Due Diligence Notice, if the Party
receiving such Due Diligence Notice has not completed the actions necessary to
cure such failure as specified in such Due Diligence Notice to the reasonable
satisfaction of the other Party, the Parties shall immediately be subject to the
dispute resolution provisions set forth in Article 15 hereof starting at the
discussions between the Parties' Chief Executive Officers described in Section
15.1 hereof.
3
<PAGE> 5
1.15 "Exclusivity Period" means the Research Period plus *** as may
be extended or reduced pursuant to Article 4 hereof.
1.16 "Field" means all therapeutic indications in humans for any
Target against which a Collaboration Compound, Active Compound, Development
Compound or Products may be directed.
1.17 "First Commercial Sale" of a Product shall mean the first sale
for use or consumption of such Product in a country after required marketing and
pricing approval has been granted by the governing health regulatory authority
of such country. Sale to an Affiliate shall not constitute a First Commercial
Sale unless the Affiliate is the end user of the Product.
1.18 "FTE" shall mean a full-time equivalent employee of CombiChem
having the requisite skills to fulfill CombiChem's obligations under this
Agreement. For purposes of this Agreement, the FTEs shall include synthetic and
analytical chemists, compound control scientists and computational scientists.
1.19 "Inactive Compound(s)" means a Collaboration Compound(s) which
is not an Active Compound or an Active Compound that is reclassified as
described in Section 4.2 hereof.
1.20 "ICOS Compound" means a chemical compound that is proprietary
to ICOS or its Affiliates or whose use or manufacture is proprietary to ICOS or
its Affiliates.
1.21 "ICOS-FTE" means a full-time equivalent employee of ICOS having
the requisite skills to fulfill CombiChem's obligations under this Agreement.
For purposes of this Agreement, the ICOS-FTEs shall include synthetic chemists.
1.22 "ICOS Technology" shall have the meaning set forth in the
preamble of this Agreement.
1.23 "In Vitro Activity" shall mean during the Research Tenn, the
observation of *** in assays as described by ICOS in the Research Plan for each
Collaboration Target.
1.24 "Initial Target" shall have the meaning set forth in Section
3.1 hereof.
1.25 "Net Sales" means the gross sales invoiced by ICOS, its
Affiliates or its sublicensees for Products to non-Affiliated Third Parties (and
to Affiliates who are the end users of such Products) less actual deductions or
returns (including withdrawals and recalls), rebates (price reductions,
including formulary or Medicaid and similar types of rebates, e.g. chargebacks),
cash, trade or volume (quantity) discounts, discounts granted at the time of
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
4
<PAGE> 6
invoicing, the cost of transport, insurance, delivery, sales taxes and use,
tariff, excise or other taxes (other than income taxes) directly linked to and
included in the gross sales amount as computed on a product-by-product basis for
the countries concerned, whereby the amount of such sales in foreign currencies
is converted into United States dollars at the exchange rate of the last
business day for each calendar month as reported in The Wall Street Journal.
1.26 "Patent" means (a) valid and enforceable U.S. or non U.S.
Patent, and any non-U.S. equivalent, including any extension (including
Supplemental Protection Certificates), registration, confirmation, reissue,
continuation, divisionals, continuation-in-part, reexamination or renewal
thereof, or (b) pending applications for any of the foregoing, whether filed or
issued before or after the Effective Date.
1.27 "Party" means CombiChem or ICOS, as the case may be, including
their respective Affiliates, permitted successors and assigns.
1.28 "Product(s)" means any product containing an Active Compound or
Development Compound with such compound as the active ingredient or one of the
active ingredients, which is the subject of one or more claims under a
Collaboration Patent and which is granted regulatory approval by the governing
health regulatory authority of the applicable country for marketing in the
Field.
1.29 " *** " shall have the meaning set forth in *** .
1.30 "Research Management Committee" or "RMC" has the meaning set
forth in Article 6 below.
1.31 "Research Period" means that part of the Collaboration
commencing *** , or sooner by mutual written agreement, *** , unless earlier
terminated, and which can be extended in accordance with Section 7.1 below for
the Initial Target.
1.32 "Research Plan" means the research plan to be agreed in writing
between the Parties, which describes in mutually agreed upon detail the research
activities to be performed for each Collaboration Target.
1.33 "Research Program" means the research and activities to be
conducted for the Collaboration during the Research Period including, without
limitation, the activities described in the Research Plan and set forth in
Sections 2.1 and 2.2 of this Agreement.
1.34 "Returned Compound" shall have the meaning set forth in Section
9.2.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
5
<PAGE> 7
1.35 "Royalty Term" means, in the case of any Product, in any
country in which sales occur, the period of time commencing on the First
Commercial Sale in that country and ending upon the later of (a) *** *** ; or
(b) the expiration of the last-to-expire Patent resulting from the Research
Program filed in the Field during the Exclusivity Period with claims covering
that Product in the relevant country. In the event such *** shall extend beyond
the end of the term or terms of the last to expire Patents resulting from the
Research Program containing a valid claim in such country, the earned royalties
hereunder in such country shall be *** for the remainder of such *** so long as
*** as the Product exists and is sold in competition with the Product.
1.36 "Target" means a biomolecular entity that a Collaboration
Compound is synthesized against wherein the small molecule demonstrates relevant
activity.
1.37 "Target Exclusivity Obligations" shall have that meaning set
forth in subsection 4. 1 (a) hereof.
1.38 "Territory" means *** .
1.39 "Third Party" means an entity other than CombiChem or ICOS or
their respective Affiliates or assigns.
1.40 "UIL" means CombiChem's proprietary Universal Informer
Library(TM).
2. RESEARCH COLLABORATION
2.1 CombiChem Responsibilities. CombiChem shall with Due Diligence
provide the following resources to ICOS and conduct the following activities
under the Research Program and as more fully described in the Research Plan:
(a) Within *** of the Effective Date, CombiChem will deliver to ICOS
its UIL sufficient in quantity for ICOS to screen against the
Initial Target and any Target contained in Appendix B at the time of
such shipment. The Parties hereby agree that the obligations and
responsibilities in this Section 2.1(a) have been fully and finally
completed and performed by the Parties as part of a separate
agreement between the Parties and constitute separate and valuable
consideration between the Parties in respect of this Agreement.
(b) At any time following the Effective Date, CombiChem shall
provide to ICOS data analysis and evaluations for results from the
screening of the UIL against the Initial Target within *** of
CombiChem's receipt of the
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relevant screening data from ICOS. The Parties hereby agree that the
obligations and responsibilities in this Section 2.1(b) have been
fully and finally completed and performed by the Parties as part of
a separate agreement between the Parties and constitute separate and
valuable consideration between the Parties in respect of this
Agreement.
(c) During the Research Period, CombiChem shall (i) review data and
information regarding the Collaboration Target provided by ICOS and
derived from the UIL by CombiChem; (ii) based on such data and
information and using the CombiChem Technology, design Daughter
Libraries; and (iii) supply all lead chemistries and synthesize
compounds as provided in Section 5.4 hereof.
(d) During the Research Period, CombiChem shall keep ICOS informed
of its activities performed in connection with the Collaboration,
including, without limitation, providing ICOS with data and
information (and, upon ICOS's request, reasonable quantities of
samples pursuant to Section 5.4) regarding the status of all
Collaboration Compounds prior to the meetings of the Research
Management Committee.
(e) Subject to Section 2.3, Article 3 and Section 8.3 hereof, and at
all times during the Research Period, CombiChem shall dedicate, in
separate laboratory facilities as to its chemistry efforts, *** , to
conduct all of CombiChem's activities in connection with the
Collaboration at a per annum rate of U.S. *** per FTE to be paid by
ICOS. The ***
***
***
***
***
*** unless the RMC recommends otherwise and ICOS and CombiChem
agree in writing to alter the size of *** .
2.2 ICOS Responsibilities. ICOS shall with Due Diligence provide the
following resources to CombiChem and conduct the following activities under the
Research Program as more fully described in the Research Plan:
(a) ICOS shall make payment to CombiChem for the Collaboration as
set forth in Article 8 hereof, provide screening, biological and
structural data and information (including leads and/or screening
hits and any assay methods relating to Collaboration Compounds) to
CombiChem necessary for CombiChem to perform its duties under this
Agreement, and will assume scientific, financial and
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administrative responsibility for screening and biological support
activities, drug development and regulatory filings during and after
the term of the Collaboration on the terms set forth below.
(b) During the Research Period, ICOS shall provide CombiChem with
data and information regarding Collaboration Compounds and the
Collaboration Target assays developed by ICOS under the Research
Program prior to the meetings of the Research Management Committee.
(c) During the Exclusivity Period, ICOS shall screen Collaboration
Compounds for *** Activity and, where ICOS reasonably deems it to be
appropriate, *** activity against the Collaboration Target.
(d) During the Exclusivity Period, with respect to any Collaboration
Target against which an Active Compound has been designated by the
RMC, ICOS shall (i) screen Active Compounds, (ii) determine
Development Compounds, and (iii) endeavor to develop Products. At
any time during the Collaboration, ICOS may apply chemistry effort,
including synthesis, to any Collaboration Compound as agreed and
directed by the RMC.
(e) Following the first IND filing through First Commercial Sale,
ICOS shall provide CombiChem with an annual report similar to that
which would be provided in the usage of the trade or business, by a
licensee to a licensor summarizing ICOS's activities in developing
Development Compounds that shall include, without limitation, all
material information with respect to the following: (i) status of
both regulatory filings and communications with the United States
Food and Drug Administration or any foreign equivalent ("FDA"); (ii)
status of Patents within and outside of the United States; (iii)
status of current and planned clinical trials; (iv) occurrence of
any milestone events; and (v) any permitted sublicensing under this
Agreement.
(f) During the Research Period and in connection with CombiChem
providing the services in Section 2.1(e) hereof, ***
***
*** to support the activities under this Agreement at CombiChem's
San Diego facilities under the Research Program. By mutual written
agreement, such ICOS-FTEs may perform the work requirements
necessary under this Agreement in ICOS's facilities. Such ICOS-FTEs
on the Project Team shall report to the CombiChem project leader.
ICOS shall have sole responsibility for the general salary and
living expenses associated with its visiting chemists, including,
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without limitation, salary, travel, living and other associated
expenses of such chemists.
2.3 Conduct of Research Program. The Parties hereby agree that the
Research Programs shall be carried out in accordance with the Research Plan and
this Agreement, as each may be amended from time to time. The Research
Management Committee shall review the Research Plan on a regular and ongoing
basis and may make written changes to the Research Plan so long as such changes
are mutually agreed to in writing by CombiChem and ICOS.
2.4 Third Party Licenses. Each Party shall be solely responsible for
any Third Party license fees required to perform its obligations under this
Agreement.
3. TARGETS
3.1 Initial Target. ***
3.2 Substitute Target. After the commencement of a Research Program
with respect to the Collaboration Target, the Parties, by mutual written
agreement, may substitute another target for such Collaboration Target.
4. EXCLUSIVITY
4.1 Collaboration Target Exclusivity.
(a) Following the Effective Date, so long as ICOS or its Affiliates
are proceeding with Due Diligence for that Collaboration Target,
CombiChem shall not work on, or provide services, or advise, either
independently, or with any Third Parties (except where CombiChem is
providing its UIL to Third Parties without knowledge of such Third
Parties' target) (the "Target Exclusivity Obligations"), except (a)
as provided for in Section 12.2 hereof with regard to any Public
Statements, (b) with respect to any Third Parties who are
collaborators or proposed collaborators of CombiChem, CombiChem
shall have the right, consistent with its corporate policy (but
without identifying any Collaboration Target), to notify any such
Third Party of its decision and/or inability to work on such
Collaboration Target with that Third Party or (c) if CombiChem's
Target Exclusivity Obligations have terminated pursuant to
subsection 4.1(b) below.
(b) Upon the commencement of the Research Period and following
synthesis of a Daughter Library by CombiChem for the Collaboration
Target, the Target Exclusivity Obligations with respect to such
Collaboration Target shall continue until (1) ICOS has provided
CombiChem with a notice and release of Target
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Exclusivity Obligations, effective in sixty (60) days, that, because
of business and scientific reasons, ICOS has decided to cease
research and/or development activities for the Initial Target, or
(2) ICOS has provided CombiChem with a notice and release of Target
Exclusivity Obligations, effective *** from the date of such notice
and release, that ICOS has decided to cease research and/or
development activities for a specific Collaboration Target except
the Initial Target, or (3) *** after the date of the written notice
provided by ICOS under Section 3.2(b) herein, or (4) (A) ICOS has
failed to exercise Due Diligence with respect to that Collaboration
Target and (B) has not transferred or assigned its control of the
development of its program for that Collaboration Target to a Third
Party with due diligence requirements no less stringent than those
set forth in this Agreement. In the event of such transfer or
assignment to a Third Party, the Target Exclusivity Obligations with
respect to such Collaboration Target shall continue until the
earlier of (a) receipt by CombiChem of a written release from such
Third Party, or (b) the failure of such Third Party to exercise Due
Diligence with respect to that Target. Any notice under this
subsection 4.1(b) shall be provided by ICOS to CombiChem promptly
following the relevant decision under subsections (1), (2) or (3)
above or failure under subsection (4) above.
4.2 Active Compound Exclusivity. Any Active Compound shall be
exclusively available to ICOS for research or application within or outside the
Collaboration, during the Research Period, and CombiChem shall not work on or
provide information regarding such Active Compound to any Third Party, except to
take any steps necessary to protect ICOS's exclusivity hereunder. Following the
expiration of the Research Period, Active Compounds for which a Patent has not
been filed within *** shall be deemed to be Inactive Compounds for all purposes
hereunder; provided, that any Active Compound which is the subject of claim(s)
under a pending Collaboration Patent shall continue to be treated as Active
Compounds until a Collaboration Patent is issued with respect to one or more of
such claims; or until all of such Patent claims have been denied and all appeals
and refiling procedures have been exhausted, at which time the compounds which
are the subject of those claims shall be Inactive Compounds hereunder.
4.3 Inactive and Returned Compounds. Any Inactive Compounds and
Returned Compounds (subject to Section 9.2 hereof) shall be available to
CombiChem (except for any pre-existing ICOS Compound) and ICOS for any purpose.
4.4 Survival. This Article 4 shall survive termination or expiration
of this Agreement.
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5. COLLABORATION COMPOUNDS
5.1 Pre-Existing Compounds or Other Pre-Existing Rights. Neither
Party shall have any rights then existing in the other Party to any pre-existing
compound of the other Party unless and until such compound is designated as a
Collaboration Compound by such Party. Additionally, CombiChem may decline (after
informing ICOS) to synthesize a particular compound or library of compounds by
written notice to ICOS of existing Patents, Patent Applications and/or
contractual obligations with Third Parties restricting CombiChem's performance
of such activities and such notice shall contain a statement of warranty that
such Patents, Patent Applications and/or contractual obligations exist and that
their existence and the obligations of CombiChem predate an ICOS request of
CombiChem to synthesize such compound or library of compounds.
5.2 Intellectual Property Rights, License to ICOS. Subject to
Section 9.2 hereof, and except as set forth in this Section 5.2, ***
***
relating to Active Compounds, Development Compounds and Products and the subject
matter contained therein and resulting from the Research Program ***
***
***
***
***
***
*** and the subject matter claimed therein which are necessary for the
development and *** or its designee; provided under no circumstances does ***
*** in any Active Compound, Development Compound or Products are *** to the
extent such Active Compound, Development Compound or Products may be ***
***
***
***
***.
5.3 Structural Information. Neither Party shall disclose the
structure of the other Party's compound, any Active Compound, Development
Compound or Product to any Third Party without the other Party's written
permission, ***
***
***
***
***.
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5.4 Supply of Collaboration Compounds. Aliquots of *** *** of any
Collaboration Compound that has been synthesized will be prepared and given to
ICOS. CombiChem shall replenish that amount upon ICOS's reasonable request.
CombiChem shall maintain aliquots of any Collaboration Compound that has been
synthesized by CombiChem. CombiChem shall also provide ICOS with additional
requirements of samples at CombiChem's cost. To the extent that Collaboration
Compounds are not available in a timely and sufficient quantity to allow the
earliest start of necessary large scale preclinical or other studies such
unavailability of Collaboration Compounds shall not be cited as a lack of Due
Diligence provided that the Parties have made commercially reasonable attempts,
and continue such attempts, to provide such unavailable Collaboration Compounds
in required quantities in the most expedient manner.
6. RESEARCH MANAGEMENT COMMITTEE
The design, review and conduct of the Research Program will be
coordinated by the Research Management Committee, which will meet regularly on a
mutually-agreeable schedule. Each Party shall bear its own expenses related to
such meetings. The Research Management Committee may establish and amend or
revise the Research Plan as reasonable and necessary to reflect the scientific
progress and work performed under the Research Program, such amendments to be
mutually agreed to in writing by ICOS and CombiChem. The Research Management
Committee will consist of an equal number of members from ICOS and CombiChem and
will include appropriate representatives from ICOS and CombiChem as mutually
agreed in writing. ***
***
*** and subsequently may change as each Party determines for its
co-chair. Decisions of the Research Management Committee shall be by consensus.
If a decision is not reached by the RMC with respect to management of the
Research Program, the dispute will be referred to the co-chairs of the RMC. If
the co-chairs of the RMC are unable to resolve the dispute, the dispute will be
referred to the Chief Executive Officer of CombiChem and the Chief Executive
Officer of ICOS for resolution. If those officers are unable to resolve the
dispute, after good faith discussions, the dispute shall be resolved first by a
process of mediation and then in the case of a failure to resolve the dispute,
as determined per Section 15.2 hereof. Any decisions, recommendations,
amendments or performance criteria agreed by consensus of the RMC which could,
or may, materially affect any obligations concerning consideration or ownership
of intellectual property shall be consistent with the terms of this Agreement
and shall be ratified in writing by both CombiChem and ICOS prior to it being
binding on either party and any performance or partial performance of an
unratified agreement shall not be construed as a waiver or acquiescence of the
right of ratification.
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7. RESEARCH PERIOD; TERMINATION OF RESEARCH PROGRAM
7.1 Research Period: Option to Extend the Research Period. The
initial term of the Collaboration shall commence on the Effective Date and
conclude at the end of the Research Period, subject to extension upon mutual
written agreement. ***
***
***
*** .
7.2 Termination of Research Program Upon Breach. The Research
Program and/or this Agreement may be terminated by a Party for the material
breach by the other Party as provided by Section 10.2 hereof.
8. CONSIDERATION
8.1 Fees.
(a) As of the Effective Date, ICOS shall be obligated to pay
CombiChem a non-refundable, noncontingent project initiation fee of U.S. *** in
cash, by registered check or wire transfer, to initiate the Research Program for
the Initial Target within fifteen (15) days of the Effective Date.
8.2 Research Program Funding.
(a) Research Support for Project Team. Beginning on the *** and
continuing throughout the Research Period, ICOS shall make payments to CombiChem
for direct research support for its Project Team, which shall initially consist
of *** of CombiChem, as modified by the RMC pursuant to Section 8.2(b) below.
The total amount payable per FTE shall be U.S. *** per FTE per annum, which
amount shall be upwardly adjusted annually based on cumulative changes in the
CPI, using 1999 as the base year. All payments for direct research support shall
be paid by ICOS to CombiChem, quarterly in advance, and adjusted as necessary in
subsequent quarters, of such amounts as are equal to the product of (i) the
number of CombiChem FTEs allocated to the Research Program by the RMC for the
calendar quarter to which each such payment applies, multiplied by (ii) U.S. ***
(i.e., the quarterly amount per CombiChem FTE on the basis of U.S. *** per
annum).
(b) Expansion or Contraction of Project Team. Notwithstanding
Section 2.1(e) herein, either Party may request that CombiChem expand or
contract its Project Team during the Research Period in order to properly
regulate the work-flow on a Collaboration Target. In such event, the RMC shall
promptly confer as to the appropriate number of *** to be added to the Project
Team, at a cost to ICOS of U.S. *** per FTE, as upwardly adjusted
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annually based upon cumulative changes in the CPI, using 1999 as the base year,
to be paid as specified in Section 8.2(a) hereof and make a recommendation to
such expansion or contraction of the Project Team which recommendation may be
adopted by mutual written agreement of ICOS and CombiChem.
8.3 Milestone Payments. Within thirty (30) days of the occurrence of
a development milestone triggered by the activities of ICOS or its Affiliates as
shown on Appendix A attached hereto, ICOS shall pay CombiChem the related
milestone payment in U.S. dollars as set forth on Appendix A attached hereto.
Such payments shall apply to any milestone reached by an Active Compound,
Development Compound or Product, for a Target within the Collaboration.
8.4 Royalties. During the Royalty Term, ICOS will pay CombiChem an
earned royalty of (i) *** of Net Sales of Products sold by ICOS, its Affiliates
or its sublicensees on the first *** of Net Sales made per calendar year *** ,
and (ii) *** on any Net Sales of Products sold by ICOS, its Affiliates or its
sublicensees over *** made per calendar year in *** (iii) *** of Net Sales of
Products sold by ICOS, its Affiliates or its sublicensees on the first *** of
Net Sales made per calendar year *** , and (iv) *** on any Net Sales of Products
sold by ICOS, its Affiliates or its sublicensees over *** made per calendar year
*** *** . Each payment of royalties shall be accompanied by a report of Net
Sales of Products in sufficient detail to permit confirmation of the accuracy of
the royalty payment made.
(a) ICOS may reduce the percentage amount of earned royalties
payable for a Product under this Agreement by *** the amount in excess of ***
that ICOS decides, in its reasonable business judgment, to pay to third parties
who are not Affiliates or sublicensees of ICOS (not including any royalties
payable to CombiChem hereunder) in order to sell the Product to avoid or settle
a patent infringement action relating to *** *** under a Collaboration Patent;
provided however, that the royalties payable by ICOS to CombiChem for the sale
of Product shall not be reduced to less than *** the amount that ICOS would
otherwise be obligated to pay to CombiChem.
(b) For any Product which is sold in combination with any other
active ingredient which other ingredient is not royalty bearing hereunder (a
"Combination Product"), Net Sales, for purposes of calculating royalties, as
defined in this Section 8.4, on a Combination Product, shall be calculated by
multiplying the net sales with respect to the Combination Product determined in
the same manner as Net Sales for a Product by the fraction A/B where A is the
gross selling price of the Product sold separately (i.e., without the other
active ingredients) and B is the gross selling price of the Combination Product.
In the event that no such separate sales are
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made, net sales value shall be calculated by multiplying net sales of the
Combination Product by the fraction C/(C + D), where C and D shall be negotiated
by the Parties in good faith prior to such sales.
(c) Earned royalty *** shall be paid in the manner provided herein
on a country-by-country basis.
8.5 Manner and Place of Payment. *** and reports for Net Sales of
Products shall be calculated in local currencies and reported for each calendar
quarter. All *** owed under this Agreement shall be made by wire transfer to the
bank account to be designated by CombiChem within sixty (60) days following the
end of each such calendar quarter.
8.6 Records and Audit. During the term of this Agreement and for a
period of three (3) years thereafter, ICOS shall keep complete, and accurate
records pertaining to the sale or other disposition of Products in sufficient
detail to permit CombiChem to confirm the accuracy of all payments due
hereunder. CombiChem shall have the right to cause an independent certified
public accounting firm reasonably acceptable to ICOS to audit such records to
confirm ICOS's Net Sales for the preceding year. Any information obtained during
such audit shall be treated as Confidential Information. Such audits may be
exercised after reasonable notice during normal business hours of ICOS no more
than once each year. ***
***
***
***.
8.7 Taxes. All income and other taxes levied on account of the ***
and *** accruing to CombiChem under this Agreement shall be paid by CombiChem,
including taxes levied thereon as income to CombiChem. If provision is made in
law or regulation for withholding, such tax shall be deducted from the royalty
or other payment made by ICOS to the proper taxing authority and a receipt of
payment of the tax secured and promptly delivered to CombiChem. Each Party
agrees to assist the other Party reasonably in claiming exemption from such
deductions or withholdings under any double taxation or similar agreement or
treaty from time to time in force.
9. LICENSE GRANTS; SUBLICENSE
9.1 CombiChem License Grant to ICOS. In addition to ICOS's
non-exclusive right to use CombiChem Technology as necessary to conduct
activities under the Research Program as described in Section 2.2 hereof,
subject to the terms and conditions of this Agreement, CombiChem hereby grants
to ICOS an exclusive, royalty-free, worldwide license, with the right to
sublicense to use such CombiChem Technology as is necessary to make, have
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made, use, have used, sell, have sold, import and export Active Compounds,
Development Compounds and/or Products in the Territory. Such license shall
remain exclusive (including as to CombiChem) in relation to an Active Compound,
Development Compound and/or Product so long as ICOS or its licensee continues to
develop and commercialize such Active Compound, Development Compound and/or
Product against a Collaboration Target with Due Diligence.
9.2 ICOS License Grant to CombiChem. Subject to Article 4 hereof and
following the decision of ICOS or its licensee to not develop and commercialize
with Due Diligence an Active Compound, a Development Compound or Product, as the
case may be (collectively, "Returned Compounds"), ICOS shall grant to CombiChem
a royalty-bearing license, with the right to sublicense, under those
Collaboration Patents and know-how which are resulting from the Research Program
and related exclusively to the Returned Compound, to make, have made, use, have
used, sell, have sold, import and export such Returned Compound in the
Territory. ***
***
***
***.
9.3 ICOS Sublicense. ICOS shall have the right to transfer, assign
or sublicense to a Third Party the Products or Collaboration Patents covering
the Products, subject to CombiChem's right to receive all royalties and
milestone payments as provided in Sections 8.4 and 8.5 hereof. All payments
payable hereunder shall be made to CombiChem by wire transfer to such bank
account designated by CombiChem within five (5) business days after receipt by
ICOS or its Affiliates of such payments from a Third Party. As an express
condition of any such sublicense, any such licensee shall be required to agree
in writing (a) to be bound by due diligence, royalty reporting and recordkeeping
and inspection provisions no less stringent than those contained in this
Agreement and (b) to allow CombiChem to institute or join legal actions against
any ICOS sublicensee who fails to satisfy any obligations provided pursuant to
this Section 9.3. ICOS shall remain responsible to CombiChem for all milestone
and royalty payments actually received by ICOS from its sublicensees. In
addition, CombiChem shall have the right to receive all audit reports relating
to sales of Products of ICOS's sublicensees, and to cause ICOS or its Affiliates
or assigns to have an independent certified public accounting firm (reasonably
acceptable to ICOS) audit such sublicensee's records on the same terms as those
specified in Section 8.6 hereof.
9.4 Rights to Inactive Compounds. Each Party shall be free to screen
Inactive Compounds against any target other than a Collaboration Target. In the
event that either ICOS or CombiChem shall develop, market and/or sell, or enter
into a binding agreement with a Third Party to develop, market and/or sell, any
product containing the Inactive Compound as an active ingredient, then except to
the extent that such Inactive Compound is subject of a valid claim in a
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Patent or Collaboration Patent giving rights to the Party, the other Party
hereto shall not be entitled to any payments, milestones. royalties, fees or
compensation of any kind.
10. TERM AND TERMINATION OF THE AGREEMENT
10.1 Term. The term of this Agreement shall commence upon the
Effective Date and unless earlier terminated as provided in this Agreement,
shall expire at the end of the Research Period.
10.2 Termination by ICOS or CombiChem. If either Party materially
breaches this Agreement and fails to remedy that breach within ninety (90) days
of receiving written notice thereof from the other Party, or enters into any
arrangement of compromise with its creditors or goes into liquidation,
insolvency, bankruptcy, receivership or reorganization proceedings, whether
voluntarily or compulsorily which is not dismissed by a court of competent
jurisdiction within ninety (90) days, then the other Party may at any time, by
notice in writing or by facsimile transmission, terminate this Agreement. Within
ninety (90) days following termination for any Research Program and/or research
related to any Target under this Agreement, the RMC shall prepare a detailed,
final written report to each Party, and provide any remaining supply of
compounds in synthesis to date, for each Target or Research Program being
terminated.
10.3 Termination by ICOS. ICOS may terminate this Agreement
effective at any time after *** from the Effective Date, in its sole discretion,
upon *** *** prior written notice.
10.4 Termination by CombiChem. CombiChem may terminate this
Agreement effective at any *** the Effective Date, in its sole discretion, upon
*** prior written notice. In the event that CombiChem elects to terminate under
this Section 10.4, CombiChem shall not work on or provide services, or advice,
either independently or with any Third Party on any Collaboration Target for a
period of *** from the date that the termination is effective. No termination of
this Agreement pursuant to this Section 10.4 shall extend the Target Exclusivity
Obligations set forth in Section 4.1 hereof.
10.5 After Termination. Any termination of this Agreement or the
Research Program shall be without prejudice to the accrued rights of either
Party prior to the termination. In case of termination of this Agreement or the
Research Program pursuant to Sections 10.2, 10.3 or 10.4 above, all royalty,
milestone, payment and confidentiality obligations set forth in Sections 8.1,
8.4, 8.5, 9.3, 9.4 hereof and Articles 4, 11 and 12 hereof shall survive any
such termination. Moreover, ICOS shall not be entitled to any refund of any
payments made to CombiChem hereunder upon the expiration of the term of this
Agreement or earlier termination pursuant to this Article 10.
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10.6 Effect of Termination on Licensees. In the event of any
termination of this Agreement pursuant to this Article 10 where such termination
shall not have been caused by the action or inaction on the part of any
respective licensee of ICOS or CombiChem, or by any breach by such licensee of
its obligations under its license from ICOS or CombiChem, as appropriate, such
termination of this Agreement shall be without prejudice to the rights of each
non-breaching licensee and such licensee shall be deemed to be a direct licensee
hereunder.
11. CONFIDENTIAL INFORMATION
11.1 Nondisclosure. During the term of this Agreement and for a
period of five (5) years after termination or expiration thereof, each Party
will maintain all Confidential Information in trust and confidence and will not
disclose any Confidential Information to any third party or use any Confidential
Information for any purpose except (i) as expressly authorized by this
Agreement, (ii) as required by law or court order, after as much advance notice
as is practical to the other Party, (iii) to its consultants, subcontractors or
agents who need to know to accomplish the purposes of this Agreement and who are
bound by equivalent written confidentiality obligations. Each Party may use the
other Party's Confidential Information only to the extent required to accomplish
the purposes of this Agreement. Each Party will use at least the same standard
of care as it uses to protect proprietary or confidential information of its own
to ensure that its Affiliates, employees, agents, consultants and other
representatives do not disclose or make any unauthorized use of the Confidential
Information. Each Party will promptly notify the other upon discovery of any
unauthorized use or disclosure of the Confidential Information.
11.2 Exceptions. Confidential Information shall not include any
information which the receiving Party can prove by competent evidence: (a) is
now, or hereafter becomes, through no act or failure to act on the part of the
receiving Party, generally known or available; (b) is known by the receiving
Party at the time of receiving such information, as evidenced by its written
records; (c) is hereafter disclosed to the receiving Party by a Third Party, as
a matter of right and without restriction on disclosure; (d) is independently
developed by the receiving Party without the aid, application or use of
Confidential Information; or (e) is the subject of a written permission to
disclose provided by the disclosing Party.
12. PUBLICATIONS AND PUBLIC STATEMENTS
12.1 Publications. Without affecting obligations under Article 11
above, neither Party shall publish any information with respect to Collaboration
Compounds or Development Compound during the Exclusivity Period without the
prior written permission of the other Party. Such permission shall be approved
or disapproved within thirty (30) days of written request for permission unless
the other Party requests additional time (not to exceed ninety (90) days) for
the purpose of protecting its intellectual property position. Such permission
shall not be unreasonably withheld. The Party proposing to publish such
information shall give the other Party ninety (90) days prior written notice and
an opportunity to review such manuscript in order to determine the patentability
of the information contained therein.
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12.2 Public Statements. Neither Party shall use the name of the
other Party in any public statement, prospectus, annual report or press release
or other public communication (collectively "Public Statements") (except to the
extent that use of the name is required for disclosure by the Securities and
Exchange Commission or other governmental rules or regulations) without the
prior written approval of the other Party, which may not be unreasonably
withheld or delayed; provided, however, that both Parties shall endeavor in good
faith to give the other Party a minimum of two (2) business days to review such
Public Statements; provided, further, that, upon approval of any such Public
Statement, both Parties may disclose to Third Parties the information contained
in such Public Statement without the further approval of the other; and
provided, further, that if a Party does not approve such Public Statement,
either Party may still use the name of the other Party in any Public Statement
without the prior written approval of the other Party, if such Party is advised
by counsel that such disclosure is required to comply with applicable law.
13. INDEMNIFICATION
13.1 EACH PARTY HEREBY AGREES TO SAVE, DEFEND AND HOLD THE OTHER
PARTY AND ITS OFFICERS, DIRECTORS, EMPLOYEES, CONSULTANTS AND AGENTS HARMLESS
FROM AND AGAINST ANY AND ALL SUITS, CLAIMS, ACTIONS, DEMANDS, LIABILITIES,
EXPENSES AND LOSSES, INCLUDING REASONABLE LEGAL EXPENSES AND ATTORNEYS' FEES
("LOSSES") RESULTING DIRECTLY OR INDIRECTLY FROM THE INDEMNIFYING PARTY'S ACTS
OR OMISSIONS IN CONNECTION WITH THE MANUFACTURE, DEVELOPMENT, USE, HANDLING,
STORAGE, SALE OR OTHER DISPOSITION OF CHEMICAL AGENTS, COLLABORATION COMPOUNDS,
ACTIVE COMPOUNDS, DEVELOPMENT COMPOUNDS OR PRODUCTS BY SUCH PARTY, ITS
AFFILIATES OR LICENSEES EXCEPT TO THE EXTENT SUCH LOSSES RESULT FROM THE
NEGLIGENCE (WHETHER ACTIVE, PASSIVE OR IMPUTED), BREACH OF THIS AGREEMENT OR
WILLFUL MISCONDUCT OF THE PARTY CLAIMING A RIGHT OF INDEMNIFICATION UNDER THIS
ARTICLE 13.
13.2 Infringement
(a) Subject to Section 13.2(c) below, ICOS shall hold CombiChem and
its officers, directors, employees, consultants, and agents
harmless from and against any and all losses resulting from the
infringement of any Third Party's Patent issued as of the Effective
Date due to the performance by ICOS or its Affiliates of any
activity contemplated hereunder, including, but not necessarily
limited to, ICOS's responsibilities under Section 2.2 above,
developing Products, and selling Products.
(b) Subject to Section 13.2(c) below, CombiChem shall hold ICOS and
its officers, directors, employees, consultants, and agents
harmless from and against any and all losses resulting from the
infringement of any Third Party's Patent issued as of the Effective
Date due to the performance by CombiChem of any
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activity contemplated hereunder, including, but not necessarily
limited to, CombiChem's responsibilities under Section 2.1 above.
(c) The indemnity provided in Sections 13.2(a) and 13.2(b) above
shall not apply where the loss is due to the breach by the
indemnified Party of a warranty made in Article 19.
13.3 Procedures. If either Party (the "Indemnified Party") seeks
indemnification under this Article 13, it shall inform the other Party (the
"Indemnifying 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
any claim brought against the Indemnified Party upon prior written consent,
which shall not be unreasonably withheld), and shall give reasonable cooperation
(at the expense of the Indemnifying Party) in the defense of such claim.
14. ASSIGNABILITY
This Agreement may not be assigned by either Party without the
prior written consent of the other Party, not to be unreasonably withheld;
provided, however, that either Party may assign this Agreement, in whole or in
part, to an Affiliate or to a successor of a Party in connection with the
merger, consolidation or sale of all or substantially all of such Party's assets
or that portion of its business pertaining to the subject matter of this
Agreement (and upon doing so will promptly notify the other Party in writing);
provided that the assigning Party remains fully liable as obligated hereunder.
15. DISPUTE RESOLUTION PROCEDURES
15.1 Senior Executives Discussions. If a decision on a matter
regarding the management of the Research Program as provided herein is not
reached by the RMC, the dispute will be resolved as set forth in Article 6
above. If a dispute arises between CombiChem and ICOS with respect to matters
other than the management of the Research Program, either during or after the
Research Period, such dispute will be referred to the appropriate senior
management in the area of the dispute. If such senior management are unable to
resolve such dispute, such dispute will be referred to the Chief Executive
Officer of ICOS and the Chief Executive Officer of CombiChem. If such officers
are unable to reach an agreement within thirty (30) days following the
initiation of discussions between them, such dispute shall be submitted to
mediation and if there is no settlement of the dispute within sixty (60) days
following the commencement of such mediation process, such dispute may, at the
Party's mutual written agreement, be settled by arbitration as described in
Section 15.2 below.
15.2 Binding, Arbitration. If the Parties have not been able to
resolve the dispute as provided in Section 15.1 above and the Parties mutually
agree in writing, the dispute shall be finally settled by binding arbitration.
Any arbitration hereunder shall be conducted under rules of the American
Arbitration Association. The arbitration shall be conducted before three
arbitrators chosen according to the following procedure: each of the parties
shall appoint
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<PAGE> 22
one arbitrator and the two so nominated shall choose the third. If the
arbitrators chosen by the parties cannot agree on the choice of the third
arbitrator within a period of thirty (30) days after their appointment, then the
third arbitrator shall be appointed by the Court of Arbitration of the American
Arbitration Association. If CombiChem brings an arbitration action, such
arbitration shall occur in Seattle, Washington. If ICOS brings an arbitration
action, such arbitration shall occur in San Diego, California. The arbitrators
shall have the authority to grant specific performance, and to allocate between
the parties the costs of arbitration in such equitable manner as they determine.
The arbitral award (i) shall be final and binding upon the parties; and (ii) may
be entered in any court of competent jurisdiction.
15.3 Injunctive and Other Relief. Nothing contained in this Article
15 or any other provisions of this Agreement shall be construed to limit or
preclude a Party from bringing any action in any court of competent jurisdiction
for injunctive or other provisional relief to compel the other Party to comply
with its obligations hereunder before or during the pendency of arbitration
proceedings. In the event that the Parties do not mutually agree to enter
binding arbitration as provided in Section 15.2 hereof, the Parties may pursue
all available legal remedies.
16. NOTICES
Any notice required or permitted to be given hereunder shall be
deemed sufficient if sent by facsimile letter or overnight courier, or delivered
by hand to ICOS or CombiChem at the respective addresses and facsimile numbers
as set forth below or at such other address and facsimile number as either Party
hereto may designate. If sent by facsimile letter, notice shall be deemed given
when the transmission is completed if the sender has a confirmed transmission
report. If a confirmed transmission report does not exist, then the notice will
be deemed given when the notice is actually received by the person to whom it is
sent. If delivered by overnight courier, notice shall be deemed given when it
has been signed for. If delivered by hand, notice shall be deemed given when
received.
if to CombiChem, to:
CombiChem, Inc.
9050 Camino Santa Fe
San Diego, California 92121
Attention: President
Fax number: (619) 530-9998
with a copy to:
Brobeck, Phleger & Harrison LLP
550 West C Street, Suite 1200
San Diego, California 92101
Attention: Faye H. Russell, Esq.
Fax number: (619) 234-1966
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if to ICOS to:
ICOS Corporation
22021 20th Avenue, S.E.
Bothell, Washington 98021
Attention: Legal Department
Fax number: (425) 489-0356
17. SURVIVAL
The provisions of Sections 2.4, 5.1, 5.2, 5.3, 10.5, 10.6 and Articles
4, 8, 9, 11, 12, 13, 15, and this Article 17 shall survive termination of this
Agreement in addition to those provisions which by their terms survive.
18. ADDITIONAL TERMS
18.1 Entire Agreement. This Agreement constitutes the entire
understanding between the Parties with respect to the subject matter hereto and
supersedes and replaces all previous negotiations, understandings,
representations, writings and contract provisions and rights relating hereof.
18.2 Amendment; No Waiver. No provision of this Agreement may be
amended, revoked or waived except by a writing signed and delivered by an
authorized officer of each Party. Any waiver on the part of either Party of any
breach or any fight or interest hereunder shall not imply the waiver of any
subsequent breach or waiver of any other right or interest.
18.3 Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
18.4 Headings. The descriptive headings are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning of or interpretation of this Agreement.
18.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
18.6 Further Assurances. At any time and from time to time after
the Effective Date, the Parties shall each do, execute, acknowledge and deliver,
and cause to be done, executed, acknowledged or delivered, all such further
acts, transfers, conveyances, or assignments as may be reasonably required to
carry out the transactions contemplated by this Agreement.
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19. REPRESENTATIONS AND WARRANTIES
19.1 Authorization. All action on the part of each of CombiChem,
ICOS and their respective officers, and directors necessary for the
authorization, execution and delivery of this Agreement and the performance of
all obligations of CombiChem, ICOS and ICOS, respectively, hereunder has been
taken.
19.2 Rights to Intellectual Property. Each Party warrants that it
has the power to grant all of the rights granted and make such required
assignments, and to assume all of the obligations required, under this
Agreement. Under no circumstances does CombiChem warrant to ICOS that its rights
in any Active Compound, Development Compound or Products are exclusive to the
extent such Active Compound, Development Compound or Products may be covered
under the patent claims of Third Parties wherein such claims are not the direct
result of a collaboration between the Third Party and CombiChem.
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IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the Effective Date.
COMBICHEM, INC. ICOS CORPORATION
By: /s/ Vicente Anido, Jr. By: /s/ illegible
----------------------------- --------------------------------------
Its: President & CEO Its: Vice President, Business Development
- -------------------------------- -------------------------------------
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Appendix A
Milestones and Payments(1)
--------------------------
(in U.S. Dollars)
Milestone Milestone Payment(2)
- --------- --------------------
*** ***
*** ***
*** ***
Total ***
(1) Paid in U.S. Dollars
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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<PAGE> 1
EXHIBIT 10.71
SERVICES AGREEMENT
THIS SERVICES AGREEMENT (this "Agreement") is made and entered into as
of June 15, 1999 (the "Effective Date") by and among Catalytica Advanced
Technologies, Inc., a Delaware corporation, of Mountain View, California
("CAT"), CombiChem, Inc., a Delaware corporation, of San Diego, California
("CombiChem"), and Aperion, L.L.C., a Delaware limited liability company, of
Mountain View, California ("LLC").
WHEREAS, CAT and CombiChem have organized LLC pursuant to the Limited
Liability Company Operating Agreement of LLC dated the date hereof (the
"Operating Agreement") for the purposes described in the Operating Agreement,
WHEREAS, CAT and CombiChem currently own all membership interests in
LLC; and
WHEREAS, LLC desires that CAT and CombiChem provide certain services to
LLC and CAT and CombiChem desire to provide such services to LLC, on the terms
set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the Parties agree as follows:
Section 1. Definitions
A. "Claim" "CAT and CombiChem Indemnitees" and "LLC
Indemnitees" shall have the respective meanings set
forth in Section 8 hereof.
B. "Service Costs" shall mean all direct or indirect
costs, fees and out-of-pocket or other expenses
incurred, paid or accrued by CAT, or CombiChem, in
respect of the services provided to LLC by or on
behalf of CAT or CombiChem as the case may be,
pursuant to Section 2 hereof, and determined in
accordance with United States generally accepted
accounting principles and Section 3 hereof.
C. "Service Period" shall mean the period from the
Effective Date until December 31, 2000; thereafter,
the Service Period shall be extended for additional
terms of one (1) year unless either Member gives
notice to the other Member of its desire to terminate
this Agreement at least ninety (90) days prior to the
termination of any such subsequent term.
D. "License Agreements" shall mean (1) the License
Agreement between CAT and LLC dated the date hereof
and (2) the License Agreement between CombiChem and
LLC dated the date hereof.
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E. "Party" shall mean either CAT, CombiChem or LLC,
depending on the context in which the term appears,
and when used in the plural form shall mean CAT and
CombiChem and LLC.
F. Any capitalized terms used in this Agreement without
definition will have the meanings given to them in
the Operating Agreement or the License Agreements, as
the case may be.
Section 2. Services To Be Provided
A. Services. LLC hereby engages CAT and CombiChem to
provide, or arrange to provide, to LLC during the
Service Period certain general, administrative and
technical services requested from time to time by
LLC, including, without limitation, the services
described generally below. CAT and CombiChem agree to
use their commercially reasonable efforts to provide,
upon the request of, and in the sole discretion of,
LLC specific services within the following general
categories, at reasonable times and in the manner
requested by LLC.
[1] Research and development services and technical
service support, including without limitation:
- Technological assistance (access to specialized
expertise and facilities in various technical
disciplines, development programs and projects
agreed upon by the Parties, including budgets
therefor, environmental affairs, facilities
planning and management);
- Computer assisted catalytic activity discovery
and improvement
- Catalyst synthesis and characterization
- Internal analytical services (to include but not
to be limited to engineering technical support)
- Management information services (support of a
corporate network, hardware acquisition, hardware
and software policies, software support)
[2] Administrative services, including without
limitation:
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- Risk management (centralized insurance
purchasing, claims handling, support for product,
worker safety and environmental programs
(although LLC has principal responsibility for
compliance))
- Tax planning and filing (general tax
consultation, state, local and federal returns
and audits, acquisition tax analysis)
- Accounting services (corporate records,
Securities and Exchange Commission ("SEC")
filing, annual and quarterly financial reports,
preparation of monthly financial statements,
internal audit support services)
- Legal services (general counsel, litigation
management, SEC filings, contract negotiation and
preparation, legal/regulatory compliance,
acquisition negotiation and preparation of
documentation, patent and trademark protection)
- Human resources (administration of group and
disability benefits, administration of stock,
pension and retirement plans, advice on employee
relations, executive recruiting, training,
compensation, termination and other similar
matters, access to pool of specialists and other
key personnel)
- Corporate record keeping services (minutes of
meetings of LLC's Board of Managers and Members,
supervision of transfer agents and registrars,
maintenance of stock records, insider trading
records/compliance)
[3] Financial services
- Banking services administration, including
without limitation banking accounts
administration, loan administration, covenant
compliance administration, maintenance of cash
collections and disbursement systems, arranging
letters of credit, foreign exchange, and cash
transfers;
- Financial management and information, including
without limitation cash management, pension fund
management, leasing, customer financing,
information on financial markets and products,
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information on foreign currency, risk assessment
and hedge strategies;
- Arrangement of credit support, including without
limitation insurance performance and bid bonds,
letters of credit, and corporate guarantees where
deemed appropriate by CAT or CombiChem;
- Investment banking services, including without
limitation advice and support for equity and debt
financing, analysis, negotiations, advice and
support for mergers and acquisitions, investor
relations and management of relationships with
equity financial analysts;
- Banking and credit services, including without
limitation cash management, access to external
debt sources, compliance with external financial
covenants and internal financial policies, long
range financial planning;
[4] Leasing and maintenance of facilities.
[5] Marketing and sales services
- Identification of and sales visits to potential
customers for the products of LLC.
- Preparation of marketing information and purchase
orders, and communications with customers
regarding the same.
- Technical support for customers who purchase
services and/or products of LLC including
installation and ongoing troubleshooting.
B. Standard of Care. In providing services hereunder,
CAT and CombiChem shall use, and LLC hereby agrees
to accept in all respects, the same standard of
skill and care and the same deadline priorities that
CAT or CombiChem, as the case may be, use in the
course of undertaking similar services for
themselves. Provided, for services which are
experimental or developmental in nature, CAT and
CombiChem shall carry out the services using
professionally qualified personnel in accordance
with generally accepted professional standards;
however, LLC recognizes and
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accepts that, for such development work, there can
be no guarantee of success or that the services will
be completed in a certain time.
C. No Limitation. Not withstanding anything to the
contrary in this Agreement, nothing in this
Agreement shall limit the rights of LLC at any time
during the Service Period to
[1] obtain any of the services listed in Section
2(A) of this Agreement from any third party
instead of CAT or CombiChem;
[2] develop the capacity to perform any of the
services listed in Section 2(A) of this
Agreement itself; including but not limited to
by hiring its own employees, should LLC choose
to do so; or
[3] reduce the quantity or frequency of any of the
services provided by CAT or CombiChem, whether
or not LLC obtains replacement for the reduced
services from a third party or itself.
LLC will have the right to terminate or reduce the provision
of any category of the services at any time upon at least
ninety (90) days advance notice in writing to the provider of
such services. LLC's sole obligation and liability with
respect to such terminated or reduced services will be to pay
all amounts due for such services up to the effective date of
termination or reduction.
D. Division of Services Between CAT and CombiChem. The
division of services during the Service Period shall
be determined by the Board of Managers of LLC.
E. Personnel. CAT and CombiChem agree that the
commitment to provide services under this Agreement
includes the commitment that a sufficient number of
qualified employees will be released from their
duties at CAT or CombiChem, as the case may be, and
will be assigned to work on LLC's activities for
whatever period of time is necessary to insure that
the services requested by LLC will be performed in a
timely and efficient manner. All employees of CAT
and CombiChem assigned to work on LLC's activities
will receive their salaries and fringe benefits
from, and will be covered by the benefit plans of,
their own employer and not LLC. Each of the assigned
employees who are budgeted to spend more than 50%
(computed as a percentage of their aggregate time
performing services for their respective employer)
of their time performing services for LLC shall
commit to expend time and effort on behalf of LLC in
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<PAGE> 6
preference to any other assigned activities by their
employer, and their performance appraisals shall be
based predominantly on their achievements while
performing services for LLC.
F. Independent Contractor. Each of CAT and CombiChem
will be acting as an independent contractor in their
activities under this Agreement, and not in any other
capacity. Except to the extent provided in the
Operating Agreement, neither CAT or CombiChem nor any
person performing Services on behalf of CAT or
CombiChem authorized to bind LLC to any obligations.
G. Protection of Information. CAT and CombiChem, as the
case may be, will establish and maintain safeguards
against the destruction, loss or alteration of LLC's
data in the possession of CAT or CombiChem which are
no less rigorous than those maintained by CAT or
CombiChem, as the case may be, for safeguarding its
own information of a similar nature. CAT and
CombiChem, as the case may be, will establish and
maintain safeguards against the disclosure to third
parties of LLC's data which are no less rigorous than
those maintained by CAT or CombiChem to insure the
confidentiality of its own information of a similar
nature.
H. Changes in Business Practices. This Agreement will
not limit or restrict the right of either CAT or
CombiChem, as the case may be, to change its business
procedures, systems, processes or locations. CAT or
CombiChem, as the case may be, will provide LLC with
at least ninety (90) days advance written notice of
any change in the ordinary course of its business
that will affect the provision of Services to LLC. If
any changes described in the preceding sentence are
of such nature that LLC would reasonably be expected
to require more than ninety (90) days to respond to
the change, CAT or CombiChem, as the case may be,
will provide LLC with a greater period of advance
written notice that is reasonable under the
circumstances.
I. Access to Records. Each of the Members shall have the
right to request an audit of such records (to the
extent relevant to the issue at hand), at its own
expense and not more than once in or with respect of
any calendar year, to determine the correctness of
any amount of Capital Contribution to LLC made under
this Agreement. If a Member desires to audit such
records, it shall utilize an independent, certified
public accountant of its choice to examine such
records reasonably acceptable to such other Member.
Such accountant shall be instructed to provide the
Member desiring the audit a
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report on the findings of the agreed upon procedures
which verifies any previous report made or payment
submitted by the audited Member during such period.
The expense of such audit shall be borne by the
auditing Member; provided, however, that if an error
in favor of the auditing Member of more than five
percent (5%) is discovered, then such expense shall
be paid by the audited Member.
In the event such examination reveals that additional
Capital Contributions were owed to LLC, the
additional Capital Contribution (and, if applicable,
reimbursement of the expenses incurred with respect
to such audit to be paid to the other Member) shall
be paid by the audited Member within thirty (30) days
of the date the audited Member receives a written
report prepared by the independent certified public
accountants specifying the basis for its
determination. In the event that such examination
reveals that the audited Member overpaid the auditing
Member an amount payable hereunder, then the auditing
Member shall pay audited Member within thirty (30)
days of written notification of such examination
determination an amount equal to such overpayment.
The Members hereby agree that all information subject
to review under this section is confidential
information and that the independent certified public
accountant shall only disclose to the auditing Member
the amount payable hereunder as determined from such
examination and that the independent certified public
accountant shall retain all such information in
confidence. Upon the expiration of three (3) years
following the end of any calendar year, the audit
right hereunder shall expire with respect to such
calendar year and the calculation of amounts payable
with respect to such calendar year shall be binding
and conclusive upon both Members and each Member
shall be released from any liability or
accountability with respect to payments for such
year.
Section 3. Service Costs as Capital Contributions under the
Operating Agreement
A. Crediting of Service Costs. Services performed by
either CAT or CombiChem, as the case may be, shall be
treated as Capital Contributions of that Member under
the Operating Agreement; the amount of such Capital
Contribution credited to each such Member shall be
one hundred percent (100%) of all Service Costs for
CombiChem and/or CAT, as the case may be.
B. Calculation of Service Costs. The method for
calculating the Service Costs of CombiChem and/or CAT
shall be mutually agreed upon by the
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Members prior to approval of each Annual Budget by
the Board of Managers.
Section 4. Ownership Of Technology
Subject to the provisions of the Operating Agreement and
License Agreements, all Technology conceived and developed by
CAT and/or CombiChem in the course of rendering services to
LLC hereunder that is not CombiChem Technology or CAT
Technology shall be owned by LLC. LLC hereby grants to CAT and
CombiChem a royalty-free, worldwide, non-exclusive license to
use the LLC Technology solely outside the Field. This license
right shall include a right on the part of CombiChem and/or
CAT to grant sublicenses.
Section 5. Representations And Warranties
A. Representations and Warranties of CAT. CAT represents
and warrants to LLC as follows:
[1] CAT is a corporation duly organized, validly
existing and in good standing under the laws
of the state of Delaware with all requisite
corporate powers and authority necessary for
executing, delivering and performing its
obligations under this Agreement;
[2] the execution, delivery and performance of
this Agreement has been duly authorized by
all necessary corporate action on the part
of CAT;
[3] this Agreement has been duly executed and
delivered by CAT and is a legal, valid and
binding obligation of CAT and, enforceable
against CAT in accordance with its terms
except (i) as limited by applicable
bankruptcy, insolvency, reorganization,
moratorium and other laws of general
application affecting enforcement of
creditors' rights generally and (ii) as
limited by laws relating to the availability
of specific performance, injunctive relief
or other equitable remedies; and
[4] the execution, delivery and performance of
this Agreement does not and will not
conflict with or contravene any provision of
the charter documents or by laws of CAT or
any material agreement, document,
instrument, indenture or other obligation of
CAT.
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B. Representations and Warranties of CombiChem .
CombiChem represents and warrants to LLC as follows:
[1] CombiChem is a corporation duly organized,
validly existing and in good standing under
the laws of the state of Delaware with all
requisite corporate powers and authority
necessary for executing, delivering and
performing its obligations under this
Agreement;
[2] the execution, delivery and performance of
this Agreement has been duly authorized by
all necessary corporate action on the part
of CombiChem
[3] this Agreement has been duly executed and
delivered by CombiChem and is a legal, valid
and binding obligation of CombiChem,
enforceable against CombiChem in accordance
with its terms except (i) as limited by
applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of
general application affecting enforcement of
creditors' rights generally and (ii) as
limited by laws relating to the availability
of specific performance, injunctive relief
or other equitable remedies; and
[4] the execution, delivery and performance of
this Agreement does not and will not
conflict with or contravene any provision of
the charter documents or by laws of
CombiChem or any material agreement,
document, instrument, indenture or other
obligation of CombiChem.
C. Representations and Warranties of LLC. LLC represents
and warrants to each of CAT and CombiChem as follows:
[1] LLC is a limited liability company duly
organized, validly existing and in good
standing under the laws of the state of
Delaware with all requisite corporate powers
and authority necessary for executing,
delivering and performing its obligations
under this Agreement;
[2] the execution, delivery and performance of
this Agreement has been duly authorized by
all necessary action on the part of LLC;
[3] this Agreement has been duly executed and
delivered by LLC and is a legal, valid and
binding obligation of LLC enforceable
against
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LLC in accordance with its terms except (i)
as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and
other laws of general application affecting
enforcement of creditors' rights generally
and (ii) as limited by laws relating to the
availability of specific performance,
injunctive relief or other equitable
remedies; and
[4] the execution, delivery and performance of
this Agreement does not and will not
conflict with or contravene any provision of
the Operating Agreement or any agreement,
document, instrument, indenture or other
obligation of LLC.
Section 6. Term and Termination
This Agreement shall terminate upon the earliest to occur of
any of the following: (i) the end of the Service Period, or
(ii) the liquidation of LLC as provided in the Operating
Agreement. In addition, this Agreement shall terminate as to
either CAT or CombiChem, but shall continue in effect as to
the other, upon the transfer to a third party of one hundred
percent (100%) of the Member's Interest of CAT or CombiChem,
as the case may be.
Section 7. Subcontractors
CAT or CombiChem may engage their respective Affiliates or any
third party to perform all or any portion of CAT's or
CombiChem's duties hereunder; provided, however, that their
Affiliates or any such third party shall be bound by the terms
of this Agreement and, provided further, that no such consent
shall be required for the engagement by CAT or CombiChem of
their Affiliates or any third party to perform such duties if
CAT or CombiChem, customarily engages such Affiliate or third
party to perform similar duties for CAT or CombiChem, as the
case may be.
Section 8. Indemnification
A. LLC shall: (i) indemnify CAT, its successors and
assigns, and its directors, officers, employees,
agents and counsel thereof (the "CAT Indemnitee(s)"),
and (ii) pay on demand and protect, defend, save and
hold each CAT Indemnitee harmless from and against,
on an after-tax basis, any and all liabilities,
damages, losses, settlements, claims, actions, suits,
penalties, fines, costs or expenses (including,
without limitation, reasonable attorney's fees) (any
of the foregoing, a "Claim") incurred by or asserted
against any CAT Indemnitee of whatever kind or
nature,
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including, without limitation any claim or liability
based upon negligence, warranty, strict liability,
violation of government regulation or infringement of
patent or other proprietary rights, arising from or
occurring as a result of services provided by CAT to
LLC under this Agreement, including, without
limitation, a breach thereof by LLC, or the
performance by CAT of its respective obligations
hereunder, except claims based upon the gross
negligence or willful misconduct of CAT.
B. LLC shall: (i) indemnify CombiChem, its successors
and assigns, and its directors, officers, employees,
agents and counsel thereof (the "CombiChem
Indemnitee(s)"), and (ii) pay on demand and protect,
defend, save and hold each CombiChem Indemnitee
harmless from and against, on an after-tax basis, all
Claims incurred by or asserted against any CombiChem
Indemnitee of whatever kind or nature, including,
without limitation any claim or liability based upon
negligence, warranty, strict liability, violation of
government regulation or infringement of patent or
other proprietary rights, arising from or occurring
as a result of services provided by CombiChem to LLC
under this Agreement, including, without limitation,
a breach thereof by LLC, or the performance by
CombiChem of its respective obligations hereunder,
except claims based upon the gross negligence or
willful misconduct of CombiChem.
C. CAT or CombiChem as the case may be, shall promptly
notify LLC of any Claim, upon becoming aware thereof,
and permit LLC at LLC's cost to defend such claim or
suit and shall cooperate in the defense thereof.
Neither CAT or CombiChem, as the case may be, nor LLC
shall enter into, or permit, any settlement of any
such suit without the express written consent of the
other Party. CAT and CAT may, at their option and
expense, have their own counsel participate in any
proceeding which is under the direction of LLC and
will cooperate with LLC and its insurer in the
disposition of any such matter.
Section 9. General
A. Waiver. No failure on the part of CAT, CombiChem, or
LLC to exercise and no delay in exercising any right,
power, remedy or privilege under this Agreement, or
provided by statute or at law or in equity or
otherwise, including, without limitations the right
or power to terminate this Agreement, shall impair,
prejudice or constitute a waiver of any such right,
power, remedy or privilege or be construed as a
waiver of any breach of this Agreement or as an
acquiescence therein, nor shall any single or
11
<PAGE> 12
partial exercise of any such right, power, remedy or
privilege preclude any other or further exercise
thereof or the exercise of any other right, power,
remedy or privilege.
B. Force Majeure. Each Party shall be excused for any
failure or delay in performing any of its obligations
under this Agreement pursuant to Section 3 hereof, if
such failure or delay is caused by any act of God or
the public enemy, any accident, explosion, fire,
storm, earthquake, flood, drought, peril of the sea,
riot, embargo, war or foreign, federal, state or
municipal order, seizure, requisition or allocation,
any failure or delay of transportation, shortage of
or inability to obtain supplies, equipment, fuel or
labor or any other circumstance or event beyond the
reasonable control of the Party relying upon such
circumstance or event.
C. Notices. All notices and other communications
required or permitted hereunder shall be in writing
and shall be deemed effectively given and received
(a) upon personal delivery; (b) upon receipt if
mailed by registered or certified mail, return
receipt requested, postage prepaid, addressed to the
recipients at their addresses as listed below (or at
such other address for a recipient as a party shall
specify by notice in accordance with this Section);
or (c) upon confirmed delivery by express commercial
courier service (receipt verified) to the recipients
at their addresses as listed below (or at such other
address for a recipient as a party shall specify by
notice in accordance with this Section):
If to LLC, addressed to: Aperion LLC
430 Ferguson Drive
Mountain View, CA 94043
Attention: Board of Managers
With a copy to: Catalytica Advanced Technologies, Inc.
430 Ferguson Drive
Mountain View, CA 94043
Attn: President
And to: CombiChem, Inc. 9050 Camino Santa
Fe San Diego, CA 92121 Attn:
President
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<PAGE> 13
And to: Brobeck Phleger & Harrison LLP
550 West C Street, Suite 1300 San
Diego, CA 92101-3532 Attn: Faye H.
Russell, Esq.
If to CombiChem, addressed to: CombiChem, Inc.
9050 Camino Santa Fe
San Diego, CA 92121
Attn: President
With a copy to: Catalytica Advanced
Technologies. 430 Ferguson Drive
Mountain View, CA 94043
Attn: President
And to: Brobeck Phleger & Harrison LLP
550 West C Street, Suite 1300 San
Diego, CA 92101-3532
Attn: Faye H. Russell, Esq.
If to CAT, addressed to: Catalytica Advanced Technologies.
430 Ferguson Drive
Mountain View, CA 94043
Attn: President
With a copy to: CombiChem, Inc.
9050 Camino Santa Fe
San Diego, CA 92121
Attn: President
And to: Brobeck Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, CA 92101-3532
Attn: Faye H. Russell, Esq.
Any copy of a notice shall be sent at the same time as the original
notice.
D. Further Assurances. Each of CAT and CombiChem agrees to
duly execute and deliver, or cause to be duly executed
and delivered, such further instruments and do and cause
to be done such further acts and things, including,
without limitation, the filing of such additional
assignments,
13
<PAGE> 14
agreements, documents and instruments, that may be
necessary or as the other Party hereto may at any time
and from time to time reasonably request in connection
with this Agreement or to carry out more effectually the
provisions and purposes of, or to better assure and
confirm unto such other Party its rights and remedies
under, this Agreement.
E. Successors and Assigns. The terms and provisions of this
Agreement shall inure to the benefit of, and be binding
upon, CAT and CombiChem, and their respective successors
and assigns; provided, however, that neither CAT nor
CombiChem may assign or otherwise transfer any of its
rights and interests, nor delegate any of its respective
obligations, hereunder, including, without limitation,
pursuant to a merger or consolidation, without the prior
written consent of the other Party hereto; provided
further, however, that (i) CAT or CombiChem may assign
its rights and interests, and delegate its obligations,
hereunder, effective upon written notice thereof, to any
Affiliate, and (ii) both CAT and CombiChem may assign its
rights and interests, and delegate its obligations,
hereunder, effective upon written notice thereof, to any
third party which acquires all or substantially all of
the assets of CAT or CombiChem as the case may be, or
which is the surviving third party in a merger or
consolidation with CAT or CombiChem as the case may be,
if such third party assumes all of the obligations of CAT
or CombiChem, as the case may be hereunder. Subject to
the foregoing, any reference to CAT or CombiChem
hereunder shall be deemed to include the successors
thereto and assigns thereof.
F. Amendments. No amendment, modification, waiver,
termination or discharge of any provision of this
Agreement, nor consent to any departure by CAT or
CombiChem therefrom, shall in any event be effective
unless the same shall be in writing specifically
identifying this Agreement and the provision intended to
be amended, modified, waived, terminated or discharged
and signed by CAT and CombiChem, and each such amendment,
modification, waiver, termination or discharge shall be
effective only in the specific instance and for the
specific purpose for which given. No provision of this
Agreement shall be varied, contradicted or explained by
any oral agreement, course of dealing or performance or
any other matter not set forth in an agreement in writing
and signed by CAT and CombiChem.
G. Governing Law. This Agreement shall in all respects,
including all matters of construction, validity and
performance, be governed by, and construed and enforced
in accordance with, the laws of the state of
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<PAGE> 15
California applicable to contracts entered into in that
state solely between citizens of that state and to be
performed wholly within that state.
H. Severability. If any provision hereof should be held
invalid, illegal or unenforceable in any respect in any
jurisdiction, then, to the fullest extent permitted by
law, (a) all other provisions hereof shall remain in full
force and effect in such jurisdiction and shall be
liberally construed in order to carry out the intentions
of the Parties hereto as nearly as may be possible and
(b) such validity, illegality or unenforceability shall
not affect the validity, legality or enforceability of
such provision in any other jurisdiction. To the extent
permitted by applicable law, CAT and CombiChem hereby
waive any provision of law that would render any
provision hereof prohibited or unenforceable in any
respect.
I. Counterparts. This Agreement may be executed in any
number of counterparts, each of which counterparts, when
so executed and delivered, shall be deemed to be an
original, and all of which counterparts, taken together,
shall constitute one and the same instrument.
J. Entire Agreement. This Agreement, the Operating
Agreement, the CAT License and the CombiChem License
constitute, on and as of the Effective Date, the entire
agreement of CAT and CombiChem with respect to the
subject matter hereof and thereof, and all prior or
contemporaneous understandings or agreements, whether
written or oral, between CAT, CombiChem and LLC with
respect to such subject matter is hereby superseded in
their entireties.
K. Dispute Resolution. Any claim, dispute, or controversy
arising out of or relating to the interpretation,
application, or enforcement of this Agreement, or any
breach of this Agreement will be settled using the
Dispute Resolution mechanism described in the Operating
Agreement.
L. Headings. The headings of the several section are
inserted for convenience of reference only and are not
intended to be a part of, or to affect the meaning or
interpretation of this Agreement.
M. Effective Date. This Agreement will not be binding upon
the Parties until the Initial Contribution Date.
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<PAGE> 16
IN WITNESS THEREOF, the Parties by their duly authorized representatives have
caused this Agreement to be duly executed and delivered as of the Effective
Date.
APERION LLC, a Delaware limited COMBICHEM, INC., a Delaware
liability company corporation
By CATALYTICA ADVANCED
TECHNOLOGIES, INC., a Delaware By: /s/ Vicente Avido, Jr.
corporation, Name: Vicente Avido, Jr.
Member Title: President & CEO
By: /s/ Illegible
Name: Illegible
Title: CFO
And by COMBICHEM, INC., a CATALYTICA ADVANCED
Delaware corporation, TECHNOLOGIES, INC.,
Member a Delaware corporation
By: /s/ Vicente Avido, Jr. By: /s/ Illegible
Name: Vicente Avido, Jr. Name: Illegible
Title: President & CEO Title: CFO
16
<PAGE> 1
EXHIBIT 10.72
LICENSE AGREEMENT
BETWEEN
COMBICHEM, INC.
AND
APERION LLC
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. DEFINITIONS....................................................................3
1.1 Defined Terms................................................3
1.2 "CAT License"................................................4
1.3 "Catalytic Materials"........................................4
1.4 "Catalytica Technology"......................................4
1.5 "Collaborators"..............................................4
1.6 "CombiChem Technology".......................................4
1.7 "Field"......................................................4
1.8 "LLC Technology".............................................5
1.9 "Patent Rights"..............................................5
1.10 "Services Agreement".........................................5
1.11 "Technology".................................................5
1.12 "Term".......................................................5
1.13 "Venture Agreements".........................................5
2. GRANT OF LICENSES..............................................................5
2.1 Grant to LLC.................................................5
2.2 Retained Rights..............................................6
2.3 Access.......................................................6
2.4 Third-Party Obligations......................................6
2.5 Grant to CombiChem...........................................6
2.6 Exclusive Vehicle in the Field...............................6
3. PATENTS; INFRINGEMENT..........................................................7
3.1 Patent Prosecution and Maintenance...........................7
3.2 Notice of Infringement.......................................7
3.3 Avoiding Infringement........................................7
4. TERM AND TERMINATION...........................................................8
4.1 Term.........................................................8
4.2 CombiChem Rights to Terminate................................8
4.3 LLC Rights to Terminate......................................8
4.4 Rights Following a CombiChem Dissolution Event...............8
4.5 Termination of LLC by Mutual Agreement.......................8
4.6 Accrued Rights...............................................9
5. CONFIDENTIALITY................................................................9
5.1 Confidentiality..............................................9
5.2 Exceptions...................................................9
5.3 Return of Confidential Information...........................9
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
<S> <C>
6. REPRESENTATIONS AND WARRANTIES................................................10
6.1 CombiChem Representations and Warranties....................10
6.2 LLC Representations and Warranties..........................10
7. INDEMNIFICATION...............................................................11
7.1 Indemnification.............................................11
7.2 Notice of Claims............................................11
8. EXPORT CONTROLS...............................................................12
8.1 Compliance With Laws........................................12
9. MISCELLANEOUS PROVISIONS......................................................12
9.1 Agency......................................................12
9.2 Assignment..................................................12
9.3 Further Actions.............................................12
9.4 Notices.....................................................13
9.5 Amendment; Approval.........................................14
9.6 Waiver......................................................14
9.7 Counterparts................................................14
9.8 Descriptive Headings........................................14
9.9 Governing Law; Dispute Resolution...........................14
9.10 Severability................................................14
9.11 Entire Agreement of the Parties.............................15
</TABLE>
ii
<PAGE> 4
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (this "Agreement") effective as of the Initial
Contribution Date (as defined in that certain LLC Agreement (as defined below)),
is by and between COMBICHEM, INC. ("CombiChem"), a Delaware corporation, and
APERION LLC ("LLC"), a Delaware limited liability company.
WHEREAS, CombiChem and Catalytica Advanced Technologies, Inc.
("Catalytica"), are the two members of LLC, which was formed pursuant to that
certain Limited Liability Company Operating Agreement of Aperion LLC dated as of
June 15, 1999 (the "LLC Agreement");
WHEREAS, CombiChem has developed, been licensed from a third party
and/or owns certain drug discovery technology and intellectual property rights,
including chemical library design software, multi-parallel synthesis and
purification methods, chemical libraries suitable for high throughput biological
screening assays and medicinal chemistry ;
WHEREAS, CombiChem desires to license the CombiChem Technology to LLC
on the terms set forth in this Agreement;
WHEREAS, LLC desires to obtain a license to the CombiChem Technology
on the terms set forth in this Agreement;
WHEREAS, LLC desires to license certain technology created by LLC
resulting from the CombiChem Technology or the Catalytica Technology to
CombiChem on the terms set forth in this Agreement; and
WHEREAS, CombiChem desires to obtain a license to certain technology
created by LLC from the CombiChem Technology or the Catalytica Technology on the
terms set forth in this Agreement.
NOW, THEREFORE, CombiChem and LLC (the "parties") agree as follows:
1.
DEFINITIONS
1.1 Defined Terms. When used in this Agreement each of the
following terms shall have the meaning set forth in this Article 1. Capitalized
terms not otherwise defined herein shall have the meanings set forth in the LLC
Agreement. Unless the context otherwise requires, words importing the singular
only shall include the plural and vice versa and references to natural persons
shall include bodies corporate.
1.2 "CAT LICENSE" shall mean that certain License Agreement between
Catalytica and LLC, effective as of the Initial Contribution Date.
3
<PAGE> 5
1.3 "CATALYTIC MATERIALS" shall mean *** *** .
1.4 "CATALYTICA TECHNOLOGY" shall mean the technology licensed by
Catalytica to LLC under the CAT License.
1.5 "COLLABORATORS" shall mean the parties with which LLC enters
into agreements for discovery services in the Field, including, without
limitation, Catalytica, CombiChem or their respective Affiliates.
1.6 "COMBICHEM TECHNOLOGY" shall mean the Technology owned and/or
possessed by CombiChem (with rights to sublicense in the Field) during the Term,
including that described in greater detail in Exhibit 1 hereto, and
enhancements, improvements or derivatives of such Technology created by or on
behalf of LLC; provided that in the event of the operation of the buy-sell
provision under the LLC Agreement, CombiChem Technology shall mean the
Technology owned and/or possessed by CombiChem (with rights to sublicense in the
Field) as of and through the effective date of the sale of CombiChem's
membership interest in LLC to the other Members.
1.7 "FIELD" shall mean the use of Catalytica Technology, CombiChem
Technology and LLC Technology to (a) create a business in discovery services for
third parties of Catalytic Materials and processes and products derived from
such Catalytic Materials and (b) ***
***
***
***
*** the development, manufacture and commercialization of
***
***
***
*** and intermediates thereof.
1.8 "LLC TECHNOLOGY" shall mean the technology created by or on
behalf of the LLC during the Term with rights to sublicense; provided that
enhancements, improvements or derivatives of CombiChem Technology shall be
CombiChem Technology as set forth above and that enhancements, improvements or
derivatives of Catalytica Technology shall be part of Catalytica Technology
pursuant to the CAT License.
1.9 "PATENT RIGHTS" shall mean any of the patents and patent
applications applicable to Technology identified in Exhibit 1, and in respect of
such patents and patent applications, all corresponding Patent Co-operation
Treaty applications, European Patent Convention applications or applications
under similar administrative international conventions, and corresponding
national patents and patent applications, together with any divisional,
continuation (but not a
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
4
<PAGE> 6
continuation-in-part), substitution, reissue, extension, supplementary
protection certificate or other application based thereon.
1.10 "SERVICES AGREEMENT" shall mean that certain Services
Agreement dated on or about June 15, 1999 among CombiChem, Catalytica and LLC.
1.11 "TECHNOLOGY" shall mean the technology which relates to or is
useful in the Field, including technology described in Exhibit 1 hereto (as such
Exhibit may be modified or supplemented from time to time by mutual written
agreement of parties), and all ideas, know-how, trade secrets, data, inventions,
discoveries and other proprietary rights in and to such technology, including
Patent Rights applicable to such technology.
1.12 "TERM" shall have the meaning set forth in Section 4.1 of this
Agreement.
1.13 "VENTURE AGREEMENTS" shall mean the LLC Agreement, this
Agreement, the CAT License and the Services Agreement.
2.
GRANT OF LICENSES
2.1 Grant to LLC. Subject to the terms and conditions of the
Venture Agreements and as of the Initial Contribution Date, CombiChem hereby
grants to LLC, and LLC hereby accepts from CombiChem, a royalty-free, worldwide,
exclusive license (exclusive even as to CombiChem and CombiChem's Affiliates) to
use the CombiChem Technology solely in the Field. The license right granted
herein shall include a right on the part of the LLC to grant sublicenses under
its license, provided the sublicense(s) include appropriate provisions
reasonably acceptable to CombiChem for license grant back as set forth in
Section 2.5 below as well as provisions to maintain confidentiality and for
audit and, in each case provided LLC provides a copy of the sublicense to
CombiChem promptly after its execution.
2.2 Retained Rights. CombiChem and its Affiliates retain the
worldwide right to use the CombiChem Technology for any use and any indication
outside the Field.
2.3 Access. Promptly after the Initial Contribution Date, and
thereafter during the term of this Agreement, the FTEs provided to LLC by
CombiChem (or some other party), pursuant to the Services Agreement (or some
other agreement) shall have complete access to the CombiChem Technology.
2.4 Third-Party Obligations. If any components of the CombiChem
Technology are subject to restrictions or obligations imposed on CombiChem by
third-party licensors, CombiChem shall disclose such restrictions or obligations
to LLC in writing, in Exhibit 1 or thereafter in timely fashion, if such
restrictions or obligations restrict the use to which LLC can put such
components of the CombiChem Technology in the Field or if they entail royalty or
payment obligations to a third-party licensor in the Field. LLC shall abide by
any such disclosed
5
<PAGE> 7
field-of-use restrictions or similar restrictions; including any royalty or
payment obligations to third-party licensors, in which case CombiChem, not LLC,
shall be liable for, and shall pay, such obligations to such third parties when
due (subject to the provisions in Section 4.1) and LLC shall reimburse CombiChem
for any such payment in a timely fashion unless otherwise agreed in writing.
2.5 Grant to CombiChem. Subject to the terms and conditions of the
Venture Agreements and as of the Initial Contribution Date, LLC hereby grants to
CombiChem, and CombiChem hereby accepts from LLC, a royalty-free, worldwide,
non-exclusive license to use the LLC Technology for any purpose outside the
Field.
2.6 Exclusive Vehicle in the Field. CombiChem hereby covenants and
agrees that the LLC shall be its sole and exclusive means of commercializing the
CombiChem Technology in the Field.
3.
PATENTS; INFRINGEMENT
3.1 Patent Prosecution and Maintenance. CombiChem shall own and
have exclusive rights in all Patent Rights and intellectual property (whether or
not patentable) embodied in CombiChem Technology and the subject matter
contained therein during the Term and thereafter. CombiChem shall be responsible
for filing, maintaining and prosecuting all patents under the Patent Rights
relating to CombiChem Technology ("Patents") at its sole expense. LLC shall
assign to CombiChem or its designee all intellectual property rights it may have
in the CombiChem Technology and the subject matter claimed therein. LLC shall
use reasonable efforts to supply CombiChem with the information necessary for
the filing, prosecution, defense and enforcement of Patents. If CombiChem fails
to so file, maintain or prosecute such Patent, LLC shall have the right to
request CombiChem to do so. If CombiChem elects not to file, maintain, or
prosecute such Patent, on a country-by-country basis, LLC shall have the right
to take over such filing, maintenance or prosecution of Patent for which it has
previously assigned rights to CombiChem, at its sole expense. CombiChem shall
have the right to control any actions taken to enforce Patents; provided that
LLC shall have the right to control any actions taken to enforce Patents which
it has elected to file, maintain and prosecute including such Patents taken over
from CombiChem on a country-by-country basis under this section. Litigation
costs for Patents shall be borne by the party having a right to control any
action to enforce the Patent. The other party shall use reasonable efforts to
support such actions as necessary. After final judgement of such proceedings,
the party controlling the action shall have the right to first recover its
out-of-pocket costs; any remaining awards shall be distributed to each Member in
proportion to their Allocation Percentage at the time the litigation was
initiated.
3.2 Notice of Infringement. CombiChem and LLC shall promptly notify
the other of any potential infringement of or misappropriation by a third party
of the CombiChem Technology. CombiChem shall have the right, but not the
obligation, at its expense, to bring,
6
<PAGE> 8
defend and maintain any proceeding it deems advisable involving any such
infringement or misappropriation and shall retain all recovery from any
infringer. LLC shall have the right, but not the obligation, at its expense, to
bring, defend and maintain any proceeding it deems advisable involving any such
infringement or misappropriation if CombiChem does not bring, defend or maintain
any such proceeding; LLC shall retain all recovery from any infringer if it
brings any such proceeding.
3.3 Avoiding Infringement. LLC shall use reasonable efforts to
avoid infringement of patent rights and other intellectual property rights of
any third party in the research, development and commercialization of the
CombiChem Technology.
4.
TERM AND TERMINATION
4.1 Term. This Agreement shall be in full force and effect as of
the Initial Contribution Date and shall continue in effect until the dissolution
of the LLC (as set forth in the LLC Agreement) (the "Term").
4.2 CombiChem Rights to Terminate. If LLC should fail to deliver to
CombiChem any statement or report when due, at the time that the same should be
due or if LLC should violate or fail to perform any covenant, condition, or
undertaking of this Agreement on its part to be performed hereunder, then and in
such event, CombiChem may give written notice of such default to LLC. If LLC
should fail to cure such default within ninety (90) days from the receipt by it
of such notice, then CombiChem shall have the right to terminate this Agreement
and license herein by written notice to LLC. Upon delivery of such notice of
termination to LLC, this Agreement shall automatically terminate. Such
termination shall not impair any accrued right of CombiChem.
4.3 LLC Rights to Terminate. LLC shall have the right to terminate
this Agreement or any license granted herein, at any time, by giving notice in
writing to CombiChem. Such termination shall be effective ninety (90) days from
the date such notice is mailed and all the LLC's rights associated therewith
shall cease as of that date.
4.4 Rights Following a CombiChem Dissolution Event. CombiChem
hereby agrees that following the termination of this Agreement which is a result
of a CombiChem Dissolution Event, CombiChem shall grant to Catalytica a license
identical to the license granted hereunder, on the same terms and conditions. In
addition, in such an event, CombiChem shall escrow the source code relevant to
any CombiChem Technology as of the date of the CombiChem Dissolution Event,
pursuant to an escrow to be mutually agreed upon by CombiChem and Catalytica. In
addition, the license granted to CombiChem pursuant to Section 2.5 of this
Agreement shall continue, but only as to LLC Technology as of the date of the
CombiChem Dissolution Event.
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<PAGE> 9
4.5 Termination of LLC by Mutual Agreement. In the event CombiChem
and Catalytica mutually agree to terminate the LLC and Catalytica desires to
continue commercial activities in the Field, CombiChem agrees to grant
Catalytica a non-exclusive, royalty-bearing license in the Field under CombiChem
Technology as of the date of the termination of the LLC to continue such
activities and on terms and conditions to be mutually agreed, including a
reasonable royalty.
4.6 Accrued Rights. Any termination pursuant to section 4.2 or
Section 4.3 above shall not relieve CombiChem or LLC of any obligation or
liability accrued hereunder prior to such termination, or rescind, or give rise
to any right to rescind, anything done by CombiChem or LLC hereunder prior to
the time such termination becomes effective, and such termination shall not
affect, in any manner, rights of CombiChem or LLC arising under this Agreement
prior to such termination.
5.
CONFIDENTIALITY
5.1 Confidentiality. During the term of this Agreement and for a
period of five (5) years thereafter (and longer to the extent license rights
continue under Section 4.1), LLC shall hold, and it shall require Catalytica and
Catalytica's Affiliates to hold, in confidence and not use for any purpose,
except as expressly permitted in writing by CombiChem, or disclose to any third
party (except as necessary to (a) reliable employees, (b) to Catalytica,
CombiChem and their Affiliates and their employees and (c) to Collaborators,
each under similar secrecy obligations) all CombiChem Technology (whether
disclosed in written or oral form) and other confidential or proprietary
information provided by CombiChem to LLC. LLC, Catalytica and Catalytica's
Affiliates shall make no research or commercial use of the CombiChem Technology
except for the purpose of this Agreement and the LLC Agreement; provided,
however, that these obligations shall not apply under the circumstances
described in Section 4.1.
5.2 Exceptions. The obligations of confidentiality set forth in
Section 5.1 shall not apply to the extent that LLC can demonstrate: (a) that the
disclosed information was in the public domain at the time of disclosure, or
thereafter became part of the public domain, other than as a result of actions
of LLC, Catalytica, Catalytica's Affiliates or anyone (other than CombiChem) to
whom they disclosed such information; (b) by its written records, that the
disclosed information was rightfully known by LLC (excluding CombiChem and its
Affiliates), Catalytica or its Affiliates prior to the date of disclosure; (c)
the disclosed information was received by LLC, Catalytica or any of its
Affiliates from a third party not under a duty of confidentiality to CombiChem
or any of its Affiliates; (d) by its written records, that the disclosed
information was independently developed by LLC, Catalytica or any of its
Affiliates without use of the disclosed information; or (e) the disclosure is
required by law, regulation or government or judicial order, provided, however,
that CombiChem is given notice prior to any such disclosure sufficient to enable
it to try to obtain confidential treatment of such information; provided further
that
8
<PAGE> 10
information disclosed under this exception (e) shall continue otherwise to be
subject to Section 5.1 following such disclosure unless exception (a) thereafter
applies.
5.3 Return of Confidential Information. Upon termination of this
Agreement, and subject to Section 5.2 above, at the written request of
CombiChem, LLC will return, destroy or delete all confidential or proprietary
information received from CombiChem and its Affiliates, all documents and
electronic databases to the extent incorporating such confidential or
proprietary information, and all copies thereof, provided that LLC may retain
(in hard copy and on-line) one (1) copy of such confidential or proprietary
information solely for archival purposes and for no other use.
6.
REPRESENTATIONS AND WARRANTIES
6.1 CombiChem Representations and Warranties. CombiChem hereby
represents and warrants as follows:
(a) CombiChem has the legal power, authority and right to enter
into this Agreement and to perform all of its respective obligations set forth
herein.
(b) CombiChem is not a party to any agreement with any third
party which prevents CombiChem from fulfilling any of its material obligations
under the terms of this Agreement.
(c) CombiChem has sufficient right, title or interest in the
CombiChem Technology to grant the rights granted herein. To the present
knowledge of the Chief Executive Officer of CombiChem (as of the Initial
Contribution Date), no third party has claimed to CombiChem that the CombiChem
Technology infringes any third-party patent rights or other intellectual
property rights. The CombiChem Technology may, however, be subject to certain
obligations to third parties to be disclosed by CombiChem in accordance with
Section 2.4.
(d) COMBICHEM HEREBY DISCLAIMS ANY AND ALL OTHER WARRANTIES AND
REPRESENTATIONS, WHETHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE COMBICHEM
TECHNOLOGY, OR ANY REPRESENTATION OR WARRANTY THAT THE COMBICHEM TECHNOLOGY WILL
NOT INFRINGE ANY THIRD PARTY'S PATENT RIGHTS OR OTHER INTELLECTUAL PROPERTY
RIGHTS.
6.2 LLC Representations and Warranties. LLC hereby represents and
warrants as follows:
(a) LLC has the legal power, authority and right to enter into
this Agreement and to perform all of its respective obligations set forth
herein.
9
<PAGE> 11
(b) LLC is not a party to any agreement with any third party
which prevents LLC from fulfilling any of its material obligations under the
terms of this Agreement.
(c) LLC will comply in all material respects with the terms of
the license granted to it under this Agreement and with all federal, state and
local laws, rules and regulations applicable to the development, manufacture,
distribution, import and export and sale of CombiChem Technology licensed
hereunder.
7.
INDEMNIFICATION
7.1 Indemnification. LLC shall defend, indemnify and hold CombiChem
and its directors, officers, employees, and agents (the "Indemnitees") harmless
from and against any and all loss, claims, damages, liabilities joint and
several, expenses, judgments, fines, settlements and other amounts arising from
any and all claims (including reasonable legal expenses and reasonable
attorneys' fees), demands, actions, suits or proceedings (civil, criminal,
administrative or investigative) of any kind, on any theory, in which an
Indemnitee may be involved, as a party or otherwise, based on or arising out of
actions undertaken in the exercise of rights granted under this Agreement,
including, without limitation, LLC activities in the Field; provided that LLC
shall not be obligated to Indemnitees under this Section 7.1 to the extent such
claims, demands, actions, suits or proceedings are based on or arise out of
CombiChem's breach of its representations or warranties in Section 6.1 above.
The indemnification of CombiChem by LLC under this Section shall in no way be
construed to grant any indemnification rights which are otherwise excepted from
indemnification in any of the other Venture Agreements.
Expenses (including attorneys' fees) incurred by an Indemnitee in
defending any proceeding described above shall be paid by LLC in advance of the
final disposition of such proceeding upon receipt of an undertaking by or on
behalf of the Indemnitee to repay such amount if it shall ultimately be
determined that the Indemnitee is not entitled to be indemnified by LLC as
authorized hereunder.
The indemnification and other obligations described above in this
Section 7.1 shall not be deemed to be exclusive of any other rights to which any
Indemnitee may be entitled under any agreement, or as a matter of law, or
otherwise.
7.2 Notice of Claims. The Indemnitee shall notify LLC promptly in
writing of any claims, demands, actions or suits against it of the sort
described above and shall cooperate reasonably with LLC, at LLC's expense, in
the defense of any such claims, demands, actions and suits, which defense shall
be controlled by LLC; provided that the Indemnitee shall at all times have the
right to participate in such defense at its own expense (or at LLC's expense
should LLC fail to perform its obligations under Section 7.1).
10
<PAGE> 12
8.
EXPORT CONTROLS
8.1 Compliance With Laws. LLC shall not sell, transfer, export or
reexport any Technology licensed hereunder, except in compliance with all
applicable laws, including the export laws of any government agency of the
United States and any regulations thereunder, and will not sell, transfer,
export or reexport any of the technology licensed hereunder to any persons with
regard to which there exist grounds to suspect or believe that they are
violating such laws or regulations. LLC shall be solely responsible for
obtaining all licenses, permits and authorizations required from any other
government agency for the export or reexport of such Technology.
9.
MISCELLANEOUS PROVISIONS
9.1 Agency. Neither party is, nor shall be deemed to be, an
employee, agent, co-venturer or legal representative of the other party for any
purpose. Neither party shall be entitled to enter into any contracts in the name
of, or on behalf of the other party, nor shall either party be entitled to
pledge the credit of the other party in any way or hold itself out as having the
authority to do so.
9.2 Assignment. Subject only to Section 4.1 of this Agreement (and
on the terms and conditions set forth therein), LLC may not assign or otherwise
transfer this Agreement or any rights or obligations set forth herein without
the prior written approval of CombiChem, which CombiChem may grant or withhold
in its discretion. CombiChem can assign this Agreement at any time to any
Affiliate or to any successor by merger or sale of substantially all of its
business unit to which this Agreement relates. This Agreement shall be binding
upon the successors and permitted assignees of the parties, and the name of a
party appearing herein shall be deemed to include the names of such party's
successors and permitted assignees to the extent necessary to carry out the
intent of this Agreement. Any assignment not in accordance with this Section
shall be void.
9.3 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.
9.4 Notices. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
and received (a) upon personal delivery; (b) upon receipt if mailed by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the recipients at their addresses as listed below (or at such other
address for a recipient as a party shall specify by notice in accordance with
this Section); or (c) upon confirmed delivery by express commercial courier
service (receipt verified) to the recipients at
11
<PAGE> 13
their addresses as listed below (or at such other address for a recipient as a
party shall specify by notice in accordance with this Section):
If to LLC, addressed to: Aperion LLC
c/o Catalytica Advanced
Technologies, Inc.
430 Ferguson Drive
Mountain View, CA 94043
Attention: Board of Managers
With a copy to: CombiChem, Inc.
9050 Camino Santa Fe
San Diego, CA 92121
Attention: President
And to: Catalytica Advanced Technologies,
Inc.
430 Ferguson Drive
Mountain View, CA 94043
Attn: President
And to: Brobeck Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, CA 92101-3532
Attn: Faye H. Russell, Esq.
If to CombiChem, addressed to: CombiChem, Inc.
9050 Camino Santa Fe
San Diego, CA 92121
Attn: President
With a copy to: Catalytica Advanced Technologies.
430 Ferguson Drive
Mountain View, CA 94043
Attn: President
And to: Brobeck Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, CA 92101-3532
Attn: Faye H. Russell, Esq.
Any copy of a notice shall be sent at the same time as the original
notice.
9.5 Amendment; Approval. No amendment, modification or supplement of
any provision of the Agreement shall be valid or effective unless made in
writing and signed by a duly authorized officer of each party. No approval
provided for in this Agreement shall be valid or effective unless confirmed in
writing.
12
<PAGE> 14
9.6 Waiver. No provision of the Agreement shall be waived by any
act, omission or knowledge of a party or its agents or employees except by an
instrument in writing expressly waiving such provision and signed by a duly
authorized officer of the waiving party.
9.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
9.8 Descriptive Headings. The descriptive headings of this Agreement
are for convenience only, and shall be of no force or effect in construing or
interpreting any of the provisions of this Agreement.
9.9 Governing Law; Dispute Resolution. This Agreement shall be
governed by and interpreted in accordance with the substantive laws of the State
of California. The parties shall attempt to resolve any dispute or controversy
that should arise between them quickly and amicably. Any unresolved dispute or
controversy between them arising out of or relating to this Agreement, or the
breach thereof, shall be settled under Article XVI of the LLC Agreement.
9.10 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of the Agreement. In the event of such invalidity, the parties shall seek to
agree on an alternative enforceable provision that preserves the original
purpose of this Agreement.
9.11 Entire Agreement of the Parties. Without limiting the effect of
the each of the other Venture Agreements, this Agreement, including Exhibit 1
attached hereto, constitutes and contains the complete, final and exclusive
understanding and agreement of the parties hereto with respect to the subject
matter hereof, and cancels and supersedes any and all prior negotiations,
correspondence, understandings and agreements, whether oral or written, between
the parties respecting the subject matter hereof.
[Remainder of This Page Intentionally Left Blank]
13
<PAGE> 15
IN WITNESS WHEREOF, CombiChem and LLC have caused this Agreement to
be duly executed as of the Initial Contribution Date.
APERION LLC, a Delaware limited COMBICHEM, INC.,
liability company a Delaware corporation
By CATALYTICA ADVANCED
TECHNOLOGIES, INC., a Delaware By: /s/ Vicente Anido, Jr.
corporation, ------------------------------
Member Name: Vicente Anido, Jr.
-----------------------------
Title: President & CEO
----------------------------
By: /s/ illegible
------------------------------
Name: illegible
----------------------------
Title: CFO
---------------------------
And by COMBICHEM, INC., a
Delaware corporation,
Member
By: /s/ Vicente Anido, Jr.
-------------------------------
Name: Vicente Anido, Jr.
-----------------------------
Title: President & CEO
----------------------------
[SIGNATURE PAGE TO COMBICHEM LICENSE AGREEMENT]
<PAGE> 16
EXHIBIT 1
COMBICHEM TECHNOLOGY
CombiChem hereby provides the following *** technology to LLC under this
License Agreement.
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 17
*** TECHNOLOGY
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 1
EXHIBIT 10.73
================================================================================
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
APERION LLC,
A DELAWARE LIMITED LIABILITY COMPANY
JUNE 15, 1999
================================================================================
NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
REGULATORY AUTHORITY HAS APPROVED OR DISAPPROVED THIS LIMITED LIABILITY COMPANY
OPERATING AGREEMENT OR THE LIMITED LIABILITY COMPANY MEMBERSHIP INTERESTS
("INTERESTS") PROVIDED FOR HEREIN. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
THE INTERESTS HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED, INCLUDING THE RULES AND REGULATIONS THEREUNDER (THE
"SECURITIES ACT"), AND THE COMPANY IS UNDER NO OBLIGATION TO REGISTER THE
INTERESTS UNDER THE SECURITIES ACT IN THE FUTURE.
AN INTEREST MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
ADDITIONAL RESTRICTIONS ON THE TRANSFER OF INTERESTS ARE CONTAINED IN ARTICLE XI
OF THIS AGREEMENT. BASED UPON THE FOREGOING, EACH ACQUIRER OF AN INTEREST MUST
BE PREPARED TO BEAR THE ECONOMIC RISK OF INVESTMENT THEREIN FOR AN INDEFINITE
PERIOD OF TIME.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE I FORMATION OF LIMITED LIABILITY COMPANY.................................................................1
1.1 Formation......................................................................................1
1.2 Name and Principal Place of Business...........................................................1
1.3 Office for Records and Agent for Service of Process............................................1
1.4 Agreement......................................................................................1
1.5 Purposes.......................................................................................1
1.6 Definitions....................................................................................2
1.7 Term...........................................................................................2
ARTICLE II MEMBERSHIP............................................................................................2
2.1 Members........................................................................................2
2.2 Representations and Warranties.................................................................2
2.3 Participation..................................................................................2
2.4 Substitute Members.............................................................................3
2.5 Additional Members.............................................................................3
2.6 Resignation or Withdrawal of a Member..........................................................3
2.7 Bankruptcy of Dissolution of a Member..........................................................3
2.8 Rights of Dissociated Member...................................................................3
2.9 No Contracts...................................................................................3
2.10 Other Ventures and Activities..................................................................4
2.11 Member Expenses................................................................................4
2.12 Member Compensation............................................................................4
2.13 Tax Matters....................................................................................4
ARTICLE III CONTRIBUTIONS TO CAPITAL.............................................................................5
3.1 Capital Commitments............................................................................5
3.2 Equalizing Contributions.......................................................................6
3.3 Additional Contributions and Loans.............................................................6
3.4 Interest.......................................................................................6
3.5 Failure To Make Capital Contribution...........................................................6
ARTICLE IV ACTION BY MEMBERS.....................................................................................6
4.1 Meetings of Members............................................................................6
4.2 Voting Standard................................................................................7
ARTICLE V OVERSIGHT, RESTRICTIONS; EXPENSES......................................................................7
5.1 Oversight by Board of Managers.................................................................7
5.2 Number; Vacancies..............................................................................7
5.3 Meetings of Managers...........................................................................7
5.4 Voting Procedures..............................................................................8
5.5 Action Without Meeting.........................................................................8
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
5.6 Normal Functions of Board of Managers..........................................................8
5.7 Executive Committee............................................................................9
5.8 Conflict of Interest Matters..................................................................10
5.9 Loss of Vote..................................................................................10
5.10 Manager Compensation and Expenses.............................................................10
ARTICLE VI NOTICES..............................................................................................11
6.1 Notices.......................................................................................11
6.2 Waiver of Notice..............................................................................11
ARTICLE VII OFFICERS............................................................................................11
7.1 Chair.........................................................................................11
7.2 General Manager...............................................................................11
7.3 Other Officers................................................................................12
7.4 Contracts.....................................................................................12
ARTICLE VIII ACCOUNTING AND RECORDS.............................................................................12
8.1 Financial Statements and Records..............................................................12
8.2 Inspection of Books...........................................................................12
8.3 Annual and Monthly Reports....................................................................12
8.4 Tax Returns...................................................................................13
ARTICLE IX ALLOCATIONS..........................................................................................13
9.1 Allocation of Net Income or Net Loss..........................................................13
9.2 Partnership Status............................................................................13
ARTICLE X DISTRIBUTIONS.........................................................................................13
10.1 Allocation of Distributions among Members.....................................................13
10.2 Discretionary Distributions...................................................................13
10.3 No Other Withdrawals..........................................................................13
ARTICLE XI TRANSFERS............................................................................................14
11.1 Transfer of Membership........................................................................14
11.2 Transfer Void.................................................................................14
11.3 Transfer of Control of Member.................................................................14
11.4 Transfer of Control of Members or their Affiliates............................................14
ARTICLE XII BUY-SELL PROVISION..................................................................................15
12.1 Application...................................................................................15
12.2 Procedures....................................................................................16
</TABLE>
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<PAGE> 4
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE XIII INDEMNIFICATION AND LIMITATION OF LIABILITY........................................................16
13.1 Indemnification...............................................................................16
13.2 Limitation of Liability.......................................................................17
ARTICLE XIV TERMINATION.........................................................................................17
14.1 Termination...................................................................................17
14.2 Continuance of the Company....................................................................18
14.3 Authority to Wind Up..........................................................................18
14.4 Winding Up and Certificate of Cancellation....................................................18
14.5 Distribution of Assets........................................................................18
14.6 Effect of Termination.........................................................................19
ARTICLE XV DEFINITIONS..........................................................................................19
15.1 Definitions...................................................................................19
ARTICLE XVI DISPUTE RESOLUTION..................................................................................23
16.1 Board of Managers Deadlock....................................................................23
16.2 Arbitration...................................................................................23
ARTICLE XVII MISCELLANEOUS......................................................................................23
17.1 Amendment.....................................................................................23
17.2 Withholding Taxes.............................................................................23
17.3 Publicity.....................................................................................24
17.4 Further Assurances............................................................................24
17.5 Construction..................................................................................24
17.6 Time..........................................................................................24
17.7 Headings......................................................................................25
17.8 Severability..................................................................................25
17.9 Variation of Terms............................................................................28
17.10 Governing Law.................................................................................25
17.11 Binding Effect................................................................................25
17.12 Entire Agreement..............................................................................25
17.13 Counterparts..................................................................................25
</TABLE>
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<PAGE> 5
APERION LLC
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
THIS LIMITED LIABILITY COMPANY OPERATING AGREEMENT, dated as of June
15, 1999, is by and between the persons listed on the signature page hereto as
members of Aperion LLC, a Delaware limited liability company (the "Company").
ARTICLE I
FORMATION OF LIMITED LIABILITY COMPANY
1.1 Formation. The Members have formed the Company pursuant to the
Delaware Limited Liability Company Act, Title 6, Delaware Code Ann., Section
18-101 et seq. (as amended, the "Act") by causing a certificate of formation
("Certificate") for the Company to be filed with the Delaware Secretary of State
and entering into this Agreement. By this Agreement the Members intend to
establish rules and regulations governing ownership and control of the Company.
1.2 Name and Principal Place of Business. Unless and until changed in
accordance with this Agreement and the Act, the name of the Company will be
"Aperion LLC". The principal place of business of the Company shall be at 430
Ferguson Drive, Mountain View, California 94043 or such other place as the Board
of Managers may hereafter designate.
1.3 Office for Records and Agent for Service of Process. The Company
shall maintain an office at which shall be maintained the records required by
Section 18-305 of the Act and an agent for service of process as required by
Section 18-104 of the Act. The office at which shall be maintained the records
required by Section 18-305 of the Act shall be the principal office of
Catalytica, Inc., 430 Ferguson Drive, Mountain View, California 94043, and the
name and address of the agent for service of process shall be CorpAmerica, Inc.,
30 Old Rudnick Lane, Dover, Delaware 19901, or such other person and place as
the Board of Managers may hereafter designate.
1.4 Agreement. For and in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Members executing this
Agreement hereby agree to the terms and conditions of this Agreement, as it may
from time to time be amended.
1.5 Purposes. The purposes of the Company are:
(a) to pursue all reasonable business opportunities in the Field;
and
(b) to engage in all other lawful activities helpful, necessary or
appropriate to maximize the ability of the Company to accomplish the foregoing
purposes.
1.6 Definitions. Terms not otherwise defined in this Agreement
shall have the meanings set forth in Article XV.
<PAGE> 6
1.7 Term. The Company shall have perpetual existence unless this
Agreement is terminated pursuant to the provisions herein.
ARTICLE II
MEMBERSHIP
2.1 Members. The initial Members of the Company are each of the two
Persons whose names are set forth on the initial signature page of this
Agreement, each of which is admitted as a Member upon execution and delivery of
this Agreement (the "Initial Members"). Additional signature pages may hereafter
be added by the Board of Managers as appropriate to reflect the admission of
Substitute Members or Additional Members in accordance with the provisions of
this Agreement but not otherwise.
2.2 Representations and Warranties. Each Member hereby represents and
warrants to the Company and the other Member as follows:
(a) Authorization. The Member is duly organized, validly existing,
and in good standing under the law of its jurisdiction of organization; it has
full power and authority to execute and enter into this Agreement and to perform
its obligations hereunder; and all actions necessary for the due authorization,
execution, delivery and performance by that Member of this Agreement have been
duly taken. This Agreement has been duly executed and delivered by the Member
and constitutes the legal obligation of the Member enforceable in accordance
with its terms.
(b) Compliance with Other Instruments. The Member's authorization,
execution, delivery, and performance of this Agreement do not conflict with or
violate any law applicable to the Member or any other agreement or arrangement
to which such Member is a party or by which such Member or such Member's assets
is bound.
(c) Purchase Entirely for Own Account. The Member is acquiring such
Member's interest in the Company for the Member's own account, not as a nominee
or agent, for investment purposes only and not with a view to or for the resale,
distribution, subdivision or fractionalization thereof. The Member has no
contract, present intention, understanding, undertaking, agreement or
arrangement of any kind with any Person to sell, transfer or pledge to any
Person such Member's interest or any part thereof, nor does such Member have any
plans to enter into any such agreement.
(d) Investment Experience. The Member has such knowledge and
experience in financial and business matters to be capable of evaluating the
merits and risks of its investment in the Company, is able to bear the economic
risks of an investment in the Company, and is able, without materially impairing
its financial condition, to hold its membership in the Company for an indefinite
period of time and to suffer a complete loss of such investment.
(e) Disclosure of Information. The Member is aware of the Company's
business affairs and financial condition and has acquired all of the information
about the Company it has requested from the Company and considers necessary to
reach an informed and knowledgeable decision to acquire an interest in the
Company.
-2-
<PAGE> 7
(f) Federal and State Securities Laws. The Member acknowledges that
the issuance of the membership in the Company has not been registered under the
Securities Act of 1933, as amended (the "Securities Act") or any state
securities laws, inasmuch as they are being acquired in a transaction not
involving a public offering, and under such laws, may not be resold or
transferred by the Member without appropriate registration or the availability
of an exemption from such requirements. In this connection, the Member
represents that it is familiar with Rule 144 promulgated under the Securities
Act, as presently in effect, and understands the resale limitations imposed
thereby and by the Securities Act. The Member is an "accredited investor" within
the meaning of Regulation D promulgated under the Securities Act of 1933, as
amended.
(g) Brokers and Finders. The Member has not retained any investment
banker, broker or finder in connection with his, her or its investment in the
Company.
2.3 Participation. Each Initial Member's Allocation Percentage shall be
*** . Each Member shall be entitled to one vote and to participation in the
profits, losses, capital and distributions of the Company equal to its
Allocation Percentage.
2.4 Substitute Members. A Substitute Member shall have all the rights
and powers and will be subject to all the restrictions and liabilities of the
Member who Transferred its membership in the Company.
2.5 Additional Members Additional persons may be admitted to the
Company as Members at whatever times and upon such terms and conditions as the
Board of Managers may determine (including as to Additional Member's Capital
Contribution).
2.6 Resignation or Withdrawal of a Member. Except as specifically
provided below, and subject to the provisions on Transfer contained in Article
XI, no Member may resign, retire or withdraw from membership in the Company or
withdraw such Member's interest in the capital of the Company prior to the
dissolution and winding up of the Company.
2.7 Bankruptcy of Dissolution of a Member. The Bankruptcy or
Dissolution of a Member (i) will cause such Member to be dissociated from the
Company (a "Dissociated Member"), (ii) will terminate the continued membership
of such Member in the Company, and (iii) will constitute a Dissolution Event and
cause a dissolution and winding up of the Company pursuant to Article XIV hereof
except as expressly provided therein to the contrary.
2.8 Rights of Dissociated Member. In the event any Member becomes a
"Dissociated Member", the Dissociated Member (or such Member's legal
representative) shall be entitled to participate in the winding up of the
Company to the same extent as any other Member.
2.9 No Contracts. Each Member hereby covenants not to use any actual or
apparent authority or power to bind the Company to any contract or commitment,
or to otherwise incur any liability to which the Company will be subject,
without the express authorization of the Board of Managers. Each Member hereby
agrees to indemnify and hold the Company and the
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
-3-
<PAGE> 8
other Member(s) harmless for any loss, liability, expense, damage or injury
suffered or sustained by the Company and/or the other Members in consequence of
such Member's exercise of such actual or apparent authority or power to bind the
Company in violation of the restrictions set forth herein. Upon any material
breach of a Member's obligations under this Section, the Company shall have a
right of offset against all distributions under this Agreement payable to such
Member (and all amounts thereafter payable to such Member or any Affiliate of
such Member under any other contract binding on the Company) for amounts owed to
the Company pursuant to the indemnification described in the preceding sentence.
2.10 Other Ventures and Activities.
(a) The Members: (i) acknowledge that the Members and their
respective Affiliates are or may be involved in other research and development,
manufacturing, sales or business activities; and (ii) agree that each Member and
its Affiliates may engage for their own accounts and for the accounts of others
in any such ventures and activities. Except as otherwise required by fiduciary
duties, (i) neither the Company nor any Member shall have any right by virtue of
this Agreement or the existence of the Company in and to such ventures or
activities or to the income or profits derived therefrom, and (ii) the Members,
their Affiliates, and other related Persons shall have no duty or obligation to
make any reports to the Members or the Company with respect to any such ventures
or activities.
(b) Each Member acknowledges that the other Member(s) may be
prohibited from taking action for the benefit of the Company: (i) due to
confidential information acquired or obligations incurred in connection with an
outside activity permitted to such Member or its Affiliates under this Section
2.10, or (ii) in connection with activities undertaken prior to the Effective
Date. No Person shall be liable to the Company or any Member for any failure to
act for the benefit of the Company in consequence of a prohibition described in
the preceding sentence.
2.11 Member Expenses. No Member shall be reimbursed for expenses
incurred on behalf of, or otherwise in connection with, the Company except to
the extent so provided in any CAT Ancillary Agreement, CombiChem Ancillary
Agreement or this Section. All third-party direct expenses reasonably incurred
by a Member in connection with the preparation, negotiation, execution and
delivery of this Agreement and the aforesaid Ancillary Agreements and otherwise
in connection with the formation of the Company shall be reimbursed by the
Company upon presentation of evidence of such expenses reasonably satisfactory
to the Board of Managers.
2.12 Member Compensation. Except as provided in a CAT Ancillary
Agreement or a CombiChem Ancillary Agreement, no Member shall be entitled to
compensation for services provided by such Member to, or for the benefit of, the
Company.
2.13 Tax Matters.
(a) CombiChem is hereby designated the "tax matters partner" of
the Company within the meaning of Section 6231(a)(7) of the Code. Except to the
extent specifically provided in the Code or the Treasury Regulations (or the
laws of other relevant
-4-
<PAGE> 9
taxing jurisdictions), the tax matters partner shall have exclusive authority to
act for or on behalf of the Company with regard to tax matters, including the
authority to make (or decline to make) any available tax elections.
(b) Except to the extent otherwise required by applicable law
(disregarding for this purpose any requirement that can be avoided through the
filing of an election or similar administrative procedure), the tax matters
partner shall cause the Company to take the position that the Company is a
"partnership" for federal, state and local income tax purposes and shall cause
to be filed with the appropriate tax authorities any elections or other
documents necessary to give due legal effect to such position. A Member shall
not file (and each Member hereby represents that it has not filed) any income
tax election or other document that is inconsistent with the Company's position
regarding its classification as a "partnership" for applicable federal, state
and local income tax purposes.
(c) No Member shall file a notice with the United States Internal
Revenue Service under Section 6222(b) of the Code in connection with such
Member's intention to treat an item on such Member's federal income tax return
in a manner which is inconsistent with the treatment of such item on the
Company's federal income tax return unless such Member has, not less than 30
days prior to the filing of such notice, provided all Members with a copy of the
notice and thereafter in a timely manner provides such other information related
thereto as any such Member shall reasonably request.
(d) Any Member entering into a settlement agreement with the
United States Department of the Treasury which concerns a Company item shall
notify all Members of such settlement agreement and its terms within 60 days
after the date thereof.
ARTICLE III
CONTRIBUTIONS TO CAPITAL
3.1 Capital Commitments. The Members shall make Capital Contributions
to the Company each year in the amount mutually agreed upon in the Annual Budget
established for such year in accordance with Section 5.6(a) hereof, as the same
may be amended from time to time by the Board of Managers during the year. To
the extent agreed in the Annual Budget, such Capital Contributions may be made
in the form or cash, property or services. If property is to be contributed,
such contributions shall be equal to the fair market value of the property
contributed and shall be made at or before the time set forth in the Annual
Budget. If services are to be contributed, such services shall be valued in
accordance with the Services Agreement and shall be contributed at or before the
time set forth in the Annual Budget and in conformity with the Services
Agreement. Cash Capital Contributions shall be contributed on an as-needed basis
or on a costs-incurred basis at such time or times as the Board of Managers
determines to be necessary or advisable for the proper and effective functioning
of the Company, and all such cash Capital Contributions shall be made by the
Members in proportion to the total amount of cash Capital Contributions required
to be made by the Members for such year in accordance with the Annual Budget. No
interest shall be required to be paid with respect to any Capital Contribution
made when due under this Agreement regardless of when such amount is required to
be contributed.
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3.2 Equalizing Contributions. It is intended by the Members that the
Capital Contributions made by the Members each year shall be in proportion to
their Allocation Percentage. Therefore, at the end of each Fiscal Year, at
Dissolution, or at any other time any Member so requests, if the Capital
Contribution by any Member is less than the total Capital Contribution of the
Members multiplied by that Members Allocation Percentage (the "Shortfall
Amount"), that Member shall make an additional Capital Contribution ("Offsetting
Capital Contribution") to the Company in an amount equal to the Shortfall
Amount. Such Offsetting Capital Contribution shall be immediately distributed to
all other Members in such proportions as may be necessary to cause the Capital
Contributions of all Members during the year to be proportional to their
Allocation Percentages.
3.3 Additional Contributions and Loans. Except for the obligation of
each Member to make an Offsetting Capital Contribution, if required, no Member
shall be permitted or required to make any additional contribution to the
capital of the Company without the consent of the Board of Managers and the
Members. No Member shall lend, or be required to lend, any money to the Company
or guaranty any Company indebtedness unless all Members agree to participate in
such loan or guaranty in proportion to each Member's Allocation Percentage.
3.4 Interest. No Member shall be entitled to any interest with respect
to such Member's contributions to or share of the capital of the Company or its
share of unallocated Net Income.
3.5 Failure To Make Capital Contribution. In the event a Member fails
to make a Capital Contribution when due hereunder to satisfy a Capital
Commitment, the other Members (the "Aggrieved Members") may give the
noncontributing Member notice of such failure. If such failure continues for
thirty (30) days after such notice has been given, the Aggrieved Members'
Allocation Percentages shall increase by an amount equal to two times the amount
each Aggrieved Members' Allocation Percentage would increase if the Allocation
Percentage of each Member was recomputed and determined on the basis of the
Capital Contribution of each Member as of that date, and the noncontributing
Member's Allocation Percentage shall decrease by such amount. In addition, the
Aggrieved Members may seek any and all remedies available at law or equity.
Without limitation on the preceding sentences, the Board of Managers may also
require that a noncontributing Member withdraw from its status as a Member for
failing to satisfy a Capital Commitment.
ARTICLE IV
ACTION BY MEMBERS
4.1 Meetings of Members. Meetings of Members may be held for any
purpose at the request of any Member. Members may participate in a meeting of
the Members by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at the
meeting.
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4.2 Voting Standard. At any duly noticed meeting at which a quorum is
present, the vote of the Member(s) holding an Allocation Percentage of *** or
greater in the aggregate shall decide any question brought before the meeting,
except to the extent that the express provisions of law or this Agreement
require a different vote.
ARTICLE V
OVERSIGHT, RESTRICTIONS; EXPENSES
5.1 Oversight by Board of Managers. Except for situations in which the
approval of the Members is required by statute or this Agreement, in accordance
with Section 18-402 of the Act, the Company shall be managed and controlled by
the Managers acting as a "Board of Managers." The Board of Managers may exercise
all powers of the Company and do all such lawful acts and things that are not by
statute, the Certificate or this Agreement, directed or required to be exercised
or done by the Members themselves. It is intended that the powers and authority
of the Board of Managers shall be substantially the same as the powers and
authority of a board of directors of a corporation formed under the laws of the
State of Delaware. Notwithstanding the foregoing, the Board of Managers may not
do or permit to be done any of the following without the approval of the
Members:
(a) Any act or thing that the Act or this Agreement requires to be
approved, consented to or authorized by the Members;
(b) Voluntarily cause the dissolution of the Company;
(c) Compromise the liability of any Member for improper
distributions; or
(d) Sell all or a substantial part of the Company's assets, other
than in the ordinary course of business.
5.2 Number; Vacancies. The Board of Managers shall be comprised of six
(6) Managers, three of whom shall be appointed by CAT (the "CAT Managers") and
three of whom may be appointed by CombiChem (the "CombiChem Managers"). A CAT
Manager may be removed from office by CAT, and a CombiChem Manager may be
removed from office by CombiChem, at any time for any reason. In the event that
any Manager dies, resigns or is removed as a Manager, a substitute manager may
be appointed by the Member that appointed the former Manager whose vacancy is
being filled. On the Effective Date, the CAT Managers shall be Norman Smith,
Bruce Scott and Larry Briscoe, and the CombiChem Managers shall be Diana Lees,
Lee McCracken and Robert Zambias.
5.3 Meetings of Managers. The Board of Managers may hold meetings, both
regular and special, either within or without the State of Delaware. Regular
meetings of the Board of Managers shall be held at least once a month for the
first six (6) months after the Effective Date and at least once every other
month thereafter; such meetings may be held at times and places determined by
the Board of Managers. Special meetings of the Board of Managers may be
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called by any Manager on 72 hours notice to each Manager by any reasonable
means, including but not limited to telephone or facsimile transmission. Subject
to Sections 5.7 and 5.8, at all meetings of the Board of Managers, a majority of
the Managers consisting of at least two CAT Managers and at least two CombiChem
Managers shall constitute a quorum for the transaction of business. If a quorum
is not present at a meeting of the Board of Managers, the Managers present may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present. Managers may participate in a
meeting of the Board of Managers by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting, except that, for at least one
meeting held each calendar quarter (which shall be designated by the Chair as
such in advance of the meeting), the Managers must attend in person in order to
participate. Meetings will alternate between the offices of the Members unless
otherwise agreed. The Member hosting any meeting shall appoint a secretary to
the meeting to record the minutes of the meeting, which will be circulated to
the Managers promptly following the meeting for review and comment and then kept
in a minute book for the Company available to all Managers and Members.
5.4 Voting Procedures. Subject to Sections 5.7 and 5.8, the CAT
Managers shall have, in the aggregate, one (1) vote, and the CombiChem Managers
shall have, in the aggregate, one (1) vote, on each matter coming before the
Board of Managers at a meeting. Each such vote shall be cast by a majority of
the CAT Managers or the CombiChem Managers, as the case may be, in attendance at
the meeting. Subject to Sections 5.7 and 5.8, any proposed action of the Board
of Managers shall require approval by both votes cast at a duly called meeting
of the Board of Managers at which a quorum is present to be effective.
5.5 Action Without Meeting. Subject to Sections 5.7 and 5.8, any action
required or permitted to be taken at any meeting of the Board of Managers may be
taken without a meeting if all Managers consent thereto in writing, by single or
counterpart writings, and the writing or writings are filed with the minutes of
proceedings of the Board of Managers.
5.6 Normal Functions of Board of Managers. Without limiting the
generality of Section 5.1, and subject to the other provisions of this
Agreement, the Board of Managers shall perform the functions described herein.
(a) Prior to October 1, 1999, the Board of Managers shall consider
and approve an "Annual Budget" for the Fiscal Year ending December 31, 1999, and
prior to the end of each Fiscal Year thereafter, the Board of Managers shall
consider and approve an "Annual Budget" for next three Fiscal Years consisting
of at least ***
***
***
***. The Capital Commitment of each
Member in an Annual Budget shall be equal in proportion to each Member's
Allocation Percentage. Upon the Board of Manager's approval of the Annual Budget
for the Fiscal Year ending December 31, 1999, each Member shall then begin
making its Capital Contribution (the
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"Initial Contribution Date"). Neither Member shall be obligated to make a
Capital Contribution for any future Fiscal Year unless and until an Annual
Budget has been approved by the Board of Managers.
(b) The Board of Managers shall oversee the business activities of
the Company and at all times endeavor to operate the Company in a manner
consistent with the Annual Budget.
(c) The Board of Managers shall oversee, generally or
specifically, the research and development in the Field for third parties and/or
itself.
(d) The Board of Managers shall determine the best interest of the
Company in all dealings and proposed dealings with third parties and shall
approve, generally or specifically, the terms of any contract, agreement, deed,
lease, promissory note, or other instrument or document to be executed and
delivered by the Company.
(e) The Board of Managers shall take such steps as are reasonably
necessary and prudent to protect the proprietary rights of the Company in the
data, trade secrets, technical information, know-how, inventions, discoveries
and other proprietary or confidential information of the Company. Such steps may
include (i) filing for patents, trademarks and copyrights when and as
appropriate and (ii) opposing patent, copyright and trademark applications filed
by third parties which may have an adverse impact upon the Company's proprietary
rights. Any such patents, trademarks or copyrights which are issued during the
term of the Company shall be in the name of the Company and shall be the
property of the Company.
5.7 Executive Committee. The Members may designate two members of the
Board of Managers (one of whom shall be an appointee of CombiChem and one of
whom shall be an appointee of CAT) to constitute an Executive Committee.
CombiChem hereby appoints Lee McCracken to initially serve on the Executive
Committee, and CAT hereby appoints Norman Smith to initially serve on the
Executive Committee. With respect to each member of the Executive Committee, the
Board of Managers may designate an alternate for such member. The alternate of
any member shall be an appointee of the Member who appointed such member. When a
member of the Executive Committee is absent or disqualified, his alternate may
replace him at any meeting of the Executive Committee. The Executive Committee,
to the extent provided in such resolution, shall have and may exercise all of
the authority of the Board of Managers in the management of the Company,
provided the Executive Committee shall not have the authority of the Board of
Managers in reference to increasing the compensation of the General Manager of
the Company; recommending to Members the sale, lease, exchange, mortgage,
pledge, or other disposition of all of substantially all of the property and
assets of the Company or the purchase or acquisition of another entity or assets
if not made in the usual and regular course of its business; recommending to the
Members Dissolution of the Company or a revocation thereof, altering, amending
or repealing this Agreement; electing or removing the General Manager of the
Company or members of the Executive Committee; declaring cash or property
distributions to the Members; or altering, amending or repealing any resolution
of the Board of Managers which by its terms provides that it shall not be
altered, amended or repealed by the Executive Committee. The designation of the
Executive Committee and the delegation thereto of authority shall not operate to
relieve the Board of Managers, or any member of the
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Board of Managers, or any responsibility imposed upon it or him by this
Agreement. The decision and resolution of the Executive Committee must be made
with the unanimous approval of its acting members.
5.8 Conflict of Interest Matters.If a Member or an Affiliate of a
Member is or will be a party to a contract or an arbitration proceeding under
Section 16.2 in which the Company also is, or is proposed to be, a party, those
Managers designated by that Member shall not participate in the consideration of
or vote upon any proposed action by the Company concerning said contract or
arbitration proceeding. Notwithstanding Sections 5.3, 5.4 and 5.5, in such an
event the quorum for a meeting of the Board of Managers to consider such a
proposal shall be any three (3) Managers, and the proposal shall be considered
approved by the Board of Managers upon the single vote approving the proposal
cast by the participating Managers at such a meeting or upon a written consent
to the proposal signed by all Managers who were eligible to participate in
consideration of the proposal. Without limiting the generality of the foregoing,
(a) the CAT Managers shall not consider or vote upon any proposal
by which the Company would rescind, waive, modify, enforce or exercise any
remedy under or with respect to the CAT Ancillary Agreements as they relate to
CAT;
(b) the CAT Managers shall not consider or vote upon any proposal
for the Company to initiate or respond to any arbitration proceeding against CAT
pursuant to Section 16.2 or concerning the conduct of the Company in such a
proceeding;
(c) the CombiChem Managers shall not consider or vote upon any
proposal by which the Company would rescind, waive, modify, enforce or exercise
any remedy under or with respect to the CombiChem Ancillary Agreements as they
relate to CombiChem; and
(d) the CombiChem Managers shall not consider or vote upon any
proposal for the Company to initiate or respond to any arbitration proceeding
against CombiChem pursuant to Section 16.2 or concerning the conduct of the
Company in such a proceeding.
5.9 Loss of Vote. In the event one Member increases its Allocation
Percentage pursuant to Section 3.6(b) on account of the failure of another
Member to make Capital Contributions sufficient to satisfy its Capital
Commitments and, as a result, said Member's Allocation Percentage in not less
than ***, the voting right of the Managers designated by the noncontributing
Member shall be suspended until such time (if ever) as said Member's Allocation
Percentage is greater than ***. Notwithstanding Section 5.3, 5.4 and 5.5, during
any such suspension the quorum for a meeting of the Board of Managers shall be
any three (3) Managers, and the Board of Managers will act upon the single vote
then eligible to be cast or upon a written consent signed by all Managers who
were eligible to participate in the casting of that vote.
5.10 Manager Compensation and Expenses. The Board of Managers shall
receive no compensation from the Company for their services as Managers, but
each Manager shall be
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reimbursed for his or her reasonable out-of-pocket expenses incurred in
attending meetings of the Board of Managers and performing related duties of the
office under reasonable reimbursement procedures.
ARTICLE VI
NOTICES
6.1 Notices. Whenever notice or demand is required to be given to any
Member by the Act, the Certificate or this Agreement, it shall be given in
writing, by mail, addressed to such Member at such Member's address as it
appears on the records of the Company with postage thereon prepaid, and shall be
deemed given three days after it is deposited in the United States mail. Notice
to Members may also be given by facsimile and shall be deemed given upon the
sending thereof with electronic confirmation of receipt.
6.2 Waiver of Notice. A Member may waive notice, provided that the
waiver is in writing signed by the Member whether before or after the notice is
required to be given.
ARTICLE VII
OFFICERS
7.1 Chair. The initial Chair of the Board of Managers shall be Lee
McCracken who shall serve in such capacity until the end of Fiscal Year 2001.
Then CAT shall designate one Manager from among the CAT Managers to serve as
Chair of the Board of Managers for a term of two (2) years concurrent with the
next two Fiscal Years. Thereafter the Chair shall be a CombiChem Manager
designated by CombiChem, then a CAT Manager designated by CAT, and so forth for
successive two year terms. In the event a Chair ceases to be a Manager during
his or her term of office as the Chair, the Member which appointed the former
Chair shall designate another Manager to serve as the Chair for the balance of
the former Chair's term. The Chair shall preside at all meetings of the Board of
Managers.
7.2 General Manager. The Members shall appoint a General Manager of the
Company, who shall receive instructions from and report to the Board of
Managers. The position of General Manager will alternate between a person
nominated by CAT and a person nominated by CombiChem for two-year terms. The
first nomination of a General Manager will be made by CAT and shall be Bruce
Scott who shall serve in such capacity until the end of Fiscal Year 2001. Then
CombiChem shall designate the General Manager to serve for a term of two (2)
years concurrent with the next two Fiscal Years. Thereafter the General Manager
shall be designated by CAT, then designated by CombiChem, and so forth for
successive two year terms. In the event the General Manager ceases service to
the Company during his or her term of office as the General Manager, the Member
which appointed the former General Manager shall designate a replacement to
serve as the General Manager for the balance of the former General Manager's
term. The day to day management duties of the General Manager and any other
management personnel appointed by the Board of Managers shall be as determined
by the Board of Managers. The General Manager shall be the principal executive
officer of the Company, and, subject to the control of the Board of Managers,
shall have general control and supervision of the policies and operations of the
Company and shall see that all orders and resolutions of the Board of Managers
are carried into effect. He or she shall manage and administer the
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Company's business and affairs and perform all duties and exercise powers
usually pertaining to the position of General Manager, and shall perform such
further duties and exercise such further powers as may be assigned to him or her
from time to time by the Board of Managers. Subject to the limitations
established by the Board of Managers, he or she shall have the authority to
sign, subject to further resolution of the Board of Managers, in the name and on
behalf of the Company, checks, orders, contracts, leases, notes, drafts and
other documents and instruments of the Company.
7.3 Other Officers. The Board of Managers may create such other offices
and elect such other officers as it deems appropriate. Any number of offices may
be held by the same person. The duties of such officers shall be established
from time to time by the Board of Managers.
7.4 Contracts. After the Effective Date, the Board of Managers shall
expressly designate the General Manager or one or more Managers or officers to
execute and deliver, on behalf of the Company, any contract, agreement, deed,
lease or other document or instrument approved generally or specifically by it,
and any such document or instrument executed and delivered by such an authorized
Person or Persons shall be deemed to have been duly executed and delivered by
the Company. No Member's signature shall be required in connection with
execution and delivery on such documents and instruments by the Company, and
third parties to such documents and instruments shall be entitled to rely upon
the Board of Manager's general or specific approval and delegation of authority
to the signatory or signatories on behalf of the Company without otherwise
ascertaining whether the requirements of this Agreement have been satisfied.
ARTICLE VIII
ACCOUNTING AND RECORDS
8.1 Financial Statements and Records. The Company shall prepare its
financial statements and tax returns using such methods of accounting as the
Board of Managers deems necessary or appropriate. The Company shall maintain
proper and complete books of account and records of the business of the Company,
under the supervision of the Board of Managers, at the Company's principal
office or at such other place or places as may be designated by the Board of
Managers. The Board of Managers shall give notice to each Member of any change
in the location of the books and records.
8.2 Inspection of Books. The Company's books and records shall be open
to inspection, audit and copying by any Member, or such Member's designated
representative, upon reasonable notice at any time during business hours for any
purpose reasonably related to the Member's interest in the Company. Any
information so obtained shall be kept confidential by the Member except as
required by law.
8.3 Annual and Monthly Reports. Financial statements of the Company
shall be prepared as of the end of each Fiscal Year and audited by a firm of
independent certified public accountants selected by the Board of Managers,
provided, however, that the Board of Managers may waive the audit requirement at
any time and for any reason. A copy of the annual financial statements shall be
transmitted to the Members within 45 days after the end of each Fiscal Year.
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In addition, the Company shall cause unaudited monthly financial statements,
including a comparison of actual results to the projections found in the Annual
Budget applicable for the reporting period, to be prepared and distributed to
the Members within 30 days after the end of each month beginning with December
1999.
8.4 Tax Returns. Within 90 days after the end of each Fiscal Year, the
Board of Managers shall file a federal income tax information return and
transmit to each Member a schedule showing such Member's distributive share of
the Company's income, deductions and credits, and all other information
necessary for such Member to timely file its own federal income tax return for
the Fiscal Year. The Board of Managers similarly shall file, and provide
information to the Members regarding, all appropriate state and local income tax
returns.
ARTICLE IX
ALLOCATIONS
9.1 Allocation of Net Income or Net Loss. For each Accounting Period ,
Net Income or Net Loss of the Company, or items thereof, shall be allocated to
the Members in proportion to each Member's Allocation Percentage.
9.2 Partnership Status. The Members agree that the Company shall be
treated as a partnership for all U.S. federal income tax purposes.
ARTICLE X
DISTRIBUTIONS
10.1 Allocation of Distributions among Members. All distributions by
the Company to the Members shall be made in proportion to each Member's
Allocation Percentage at the time of the distribution.
10.2 Discretionary Distributions. The Board of Managers may cause the
Company to make distributions to the Members in accordance with Section 10.1 in
such amounts and at such times as they shall from time to time determine to be
in the best interests of the Company and its Members; provided, however, that
distribution of an amount equal to any estimated distribution amount set forth
in the Annual Budget for a Fiscal Year shall be presumptively valid if the
Company realized excess cash flow in at least that amount from operations during
that Fiscal Year. If any assets are distributed in kind, then they shall be
distributed on the basis of the fair market value thereof as determined by the
Members, and shall be deemed to have been sold at such fair market value for
purposes of the allocations under Article IX. The Members agree that it is their
intent, if the Board of Managers deem it to not be detrimental to the Company,
to immediately distribute to the Members any milestone payments and royalties
received by the Company from third parties. Any Offsetting Capital Contribution
made by a Member shall be immediately distributed to the other Member.
10.3 No Other Withdrawals. Except as otherwise expressly provided for
in this Agreement, no withdrawals or distributions shall be required or
permitted.
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ARTICLE XI
TRANSFERS
11.1 Transfer of Membership. A Member may Transfer all or a portion of
its membership in the Company to another Member. A Member may also Transfer all
or a portion of its membership to a Substitute Member, and the Substitute Member
will be admitted to the Company as a member, only if: (i) the Substitute Member
shall have agreed in writing to assume all of the obligations of the Member with
respect to the membership being so Transferred (including the obligations
imposed hereunder as a condition to any transfer); (ii) the Board of Managers
shall have concluded (which conclusion may be based upon an opinion of counsel
satisfactory to it) that the Transfer will not result in a termination of the
Company for federal or state income tax purposes, result in (or materially
increase the risk of) the Company being taxable as a corporation for federal
income tax purposes, or result in a violation of any law, rule or regulation by
the Member, the Substitute Member, the Company or the other Member(s); and (iii)
all other Member(s) shall have consented to the Transfer, such consent not to be
unreasonably withheld.
11.2 Transfer Void. Any purported Transfer of a Member's membership in
contravention of this Article XI shall be void and of no effect to, on or
against the Company, any Member, any creditor of the Company or any claimant
against the Company.
11.3 Transfer of Control of Member. Any Transfer of legal or beneficial
ownership or control of a Member, whether by sale or issuance of the Member's
equity securities, voting trust agreement, irrevocable proxy or otherwise, shall
be deemed an attempted Transfer of the membership by that Member for purposes of
this Article XI in contravention of Section 11.1.
11.4 Transfer of Control of Members or their Affiliates.
(a) If there is any Transfer of legal or beneficial ownership or
control of *** , whether by sale or issuance of equity securities, voting trust
agreement, irrevocable proxy or otherwise, *** may, in its sole discretion,
offer to purchase some or all of *** membership in the Company. *** shall
immediately deliver to *** and the Board of Managers on behalf of the Company
written notice of such offer ("Offer Notice"). *** and *** shall have a period
of thirty (30) days following the receipt of the Offer Notice ("Member Option
Period") to negotiate in good faith the terms (including price) on which ***
will purchase *** membership in the Company. If no agreement is reached between
*** and *** within the Member Option Period, *** shall give written notice
("Election Notice") on or before the third business day after the last day of
the Member Option Period that *** elects either (i) to not purchase ***
membership in the Company, or (ii) to purchase *** membership in the Company at
a price to be determined by the process described below. If *** elects to
purchase *** membership interest in the Company, then within sixty (60) days
after the date of the Election Notice *** and *** will each submit to the other
a price (respectively, the "Election Price") for *** membership interest in the
Company, together with the report of an independent appraiser that
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supports the Election Price. If the higher of the Election Prices is not more
than *** higher than the lower of the Election Prices, then *** will purchase
*** membership interest in the Company at a price that is the *** . If the
preceding sentence does not apply, then the two independent appraisers will
select a third independent appraiser, and the third appraiser shall determine
the price for *** membership interest in the Company within thirty (30) days
after this selection; provided, the price determined by the third appraiser must
be *** . The closing of the purchase of *** membership interest in the Company
by *** shall take place within thirty (30)days after the price of *** membership
interest in the Company has been determined by the process described above.
(b) If there is any Transfer of legal or beneficial ownership or
control of *** , whether by sale or issuance of equity securities, voting trust
agreement, irrevocable proxy or otherwise, *** may, in its sole discretion,
offer to purchase some or all of *** membership in the Company. *** shall
immediately deliver to *** and the Board of Managers on behalf of the Company
written notice of such offer ("Offer Notice"). *** and *** shall have a period
of thirty (30) days following the receipt of the Offer Notice ("Member Option
Period") to negotiate in good faith the terms (including price) on which ***
will purchase *** membership in the Company. If no agreement is reached between
*** and *** within the Member Option Period, *** shall give written notice
("Election Notice") on or before the third business day after the last day of
the Member Option Period that *** elects either (i) to not purchase ***
membership in the Company, or (ii) to purchase *** membership in the Company at
a price to be determined by the process described below. If *** elects to
purchase *** membership interest in the Company, then within sixty (60) days
after the date of the Election Notice *** and *** will each submit to the other
a price (respectively, the "Election Price") for *** membership interest in the
Company, together with the report of an independent appraiser that supports the
Election Price. If the higher of the Election Prices is not more than *** higher
than the lower of the Election Prices, then *** will purchase *** membership
interest in the Company at a price *** . If the preceding sentence does not
apply, then the two independent appraisers will select a third independent
appraiser, and the third appraiser shall determine the price for *** membership
interest in the Company within thirty (30) days after this selection; provided,
the price determined by the third appraiser must be *** . The closing of the
purchase of *** membership interest in the Company by *** shall take place
within thirty (30)days after the price of *** membership interest in the Company
has been determined by the process described above.
ARTICLE XII
BUY-SELL PROVISION
12.1 Application. The procedures described in this Article XII are
available only so long as there are only two Members admitted to the Company.
Either Member may initiate the procedures, by giving the other Member notice
pursuant to Section 12.2(a), during the ninety
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(90) days following (i) dissolution of the Company pursuant to Section 14.1 or
(ii) declaration of a Board Deadlock pursuant to Section 16.1. In addition, an
Aggrieved Member under Section 3.6(a) may initiate the procedures, by giving the
other Member notice pursuant to Section 12.2(a), as provided therein.
12.2 Procedures. If at any time a Member ("Offering Member") desires to
offer to sell some or all of its membership in the Company ("Offered Interest")
to the other Member, such Offering Member shall immediately deliver to the other
Member ("Nonselling Member) and the Board of Managers on behalf of the Company
written notice of such offer ("Offer Notice"). The Offering Member and the
Nonselling Member shall negotiate in good faith the terms (including price) on
which the Nonselling Member will purchase the Offered Interest, if the
Nonselling Member desires to purchase the Offered Interest.
ARTICLE XIII
INDEMNIFICATION AND LIMITATION OF LIABILITY
13.1 Indemnification.
(a) To the extent permitted by the Act and by law, the Managers,
the Members as such, and the directors, officers, employees and agents of any of
the foregoing (herein collectively referred to as "Indemnitees") shall, in
accordance with this Section, be indemnified and held harmless by the Company
from and against any and all loss, claims, damages, liabilities joint and
several, expenses, judgments, fines, settlements and other amounts arising from
any and all claims (including reasonable legal expenses and reasonable
attorneys' fees), demands, actions, suits or proceedings (civil, criminal,
administrative or investigative) in which the Indemnitee may be involved, as a
party or otherwise, by reason of management of, or involvement in, the affairs
of the Company, or rendering of advice or consultation with respect thereto, or
which relate to the Company, its properties, business or affairs, if (i) such
Indemnitee acted in good faith and in a manner such Indemnitee reasonably
believed to be in, or not opposed to, the best interests of the Company, and
(ii) with respect to any criminal proceeding, such Indemnitee had no reasonable
cause to believe the conduct of such Indemnitee was unlawful. The termination of
a proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere, or its equivalent, shall not, of itself, create a presumption that
the Indemnitee did not act in good faith and in a manner which the Indemnitee
reasonably believed to be in, or not opposed to, the best interests of the
Company or that the Indemnitee had reasonable cause to believe that the
Indemnitee's conduct was unlawful (unless there has been a final adjudication in
the proceeding that the Indemnitee did not act in good faith and in a manner
which the Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company; or that the Indemnitee did have reasonable cause to
believe that the Indemnitee's conduct was unlawful).
(b) The Company may also indemnify any Person who was or is a
party or is threatened to be made a party to any threatened, pending, or
completed action by or in the right of the Company to procure a judgment in its
favor by reason of the fact that such Person is or was an officer, employee or
agent of the Company, against expenses reasonably incurred by such Person in
connection with the defense or settlement of such action, if such Person acted
in good faith and in a manner such Person reasonably believed to be in, or not
opposed to, the best
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<PAGE> 21
interests of the Company, except that indemnification shall be made in respect
of any claim, issue or matter as to which such Person shall have been adjudged
to be liable for misconduct in the performance of the Person's duty to the
Company only to the extent that the court in which such action or suit was
brought, or another court of appropriate jurisdiction, determines upon
application that, despite the adjudication of liability, but in view of all
circumstances of the case, such Person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper. To the extent
that the Person has been successful on the merits or otherwise in defense of any
proceedings referred to herein, or in defense of any claim, issue or matter
therein, the Person shall be indemnified by the Company against expenses
actually and reasonably incurred by the Person in connection therewith.
Notwithstanding the foregoing, no Person shall be entitled to indemnification
hereunder for any conduct arising from the gross negligence or willful
misconduct or reckless disregard in the performance of the Person's duties under
this Agreement.
(c) Expenses (including attorneys' fees) incurred in defending any
proceeding under Sections 13.1 (a) or (b) shall be paid by the Company in
advance of the final disposition of such proceeding upon receipt of an
undertaking by or on behalf of the Indemnitee or Person to repay such amount if
it shall ultimately be determined that the Indemnitee or Person is not entitled
to be indemnified by the Company as authorized hereunder.
(d) The indemnification provided by this Section 13.1 shall not be
deemed to be exclusive of any other rights to which any Person may be entitled
under any agreement, or as a matter of law, or otherwise, both as to action in a
Person's official capacity and to action in another capacity.
(e) The Board of Managers shall have power to purchase and
maintain insurance on behalf of the Company, the Managers, Members, officers,
employees or agents of the Company and any other Indemnitees at the expense of
the Company, against any liability asserted against or incurred by them in any
such capacity whether or not the Company would have the power to indemnify such
Persons against such liability under the provisions of this Agreement.
13.2 Limitation of Liability. Notwithstanding anything to the contrary
herein contained, the debts, obligations and liabilities of the Company shall be
solely the debts, obligations and liabilities of the Company; and no Manager or
Member shall be obligated personally for any such debt, obligation or liability
of the Company solely by reason of being a Manager or Member of the Company.
ARTICLE XIV
TERMINATION
14.1 Termination. The Company shall be dissolved, its assets disposed
of, and its affairs wound up upon the first to occur of the following:
(a) mutual agreement by all Members;
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<PAGE> 22
(b) the failure of the Board of Managers to agree on an Annual
Budget for any fiscal year;
(c) the affirmative vote of the Member(s) holding at least *** of
the aggregate Allocation Percentages;
(d) the entry of a decree of judicial dissolution under the Act;
or
(e) 90 days following the occurrence of a Dissolution Event.
The following procedure is available only so long as there are only two
Members admitted to the Company. The Company shall also be dissolved, its assets
disposed of, and its affairs wound up if either Member gives notice to the other
Member of its desire to dissolve the Company at least ninety (90) days prior to
any annual anniversary of the Effective Date; such dissolution of the Company
shall become effective as of the respective anniversary of the Effective Date.
14.2 Continuance of the Company. Notwithstanding Section 14.1(d), upon
the occurrence of a Dissolution Event, the remaining Member or Members may avoid
dissolution of the Company by electing, within 90 days after a Dissolution
Event, to continue the business of the Company on the same terms as this
Agreement, except if the Dissolution Event is due to a material breach by any
Member, that Member's Allocation Percentage shall be reduced to zero. Expenses
incurred in the continuance of the Company shall be deemed expenses of the
Company.
14.3 Authority to Wind Up. The Board of Managers shall have all
necessary power and authority required to marshal the assets of the Company, to
pay its creditors and liabilities, to distribute assets and otherwise wind up
the business and affairs of the Company. The Board of Managers shall continue to
conduct the business and affairs of the Company for such period as may be
necessary to allow an exercise of purchase rights under Article XII ( and
consummation of any purchase and sale resulting from the exercise of such
rights) and shall thereafter continue to conduct the business and affairs of the
Company only insofar as such continued operation remains consistent, in the
judgment of the Board of Managers, with an orderly winding up of the Company.
14.4 Winding Up and Certificate of Cancellation.The winding up of the
Company shall be completed when all debts, liabilities and obligations of the
Company have been paid and discharged or reasonably adequate provision therefor
has been made, and all of the remaining property and assets of the Company have
been distributed to the Members. Upon the completion of winding up of the
Company, a Certificate of Cancellation shall be filed with the Office of the
Secretary of State of Delaware.
14.5 Distribution of Assets. Upon dissolution and winding up of the
Company, the affairs of the Company shall be wound up and the Company liquidated
by the Board of
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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<PAGE> 23
Managers. Pursuant to such liquidation, the assets of the Company in the form of
intellectual property owned by the Company (other than rights under the CAT
License and the CombiChem License which are addressed in each such license
agreement) shall be distributed in kind, and the other assets of the Company
shall be sold unless the Members shall consent to a distribution in kind of such
other assets. If the Members do not consent to a distribution in kind but the
Board of Managers determines that an immediate sale would be financially
inadvisable, they may defer sale of the Company assets for a reasonable time. If
any assets are distributed in kind, then they shall be distributed on the basis
of the fair market value thereof as determined by appraisal, and shall be deemed
to have been sold at such fair market value for purposes of the allocations
under Article IX. Unless the Members otherwise agree, if any assets are to be
distributed in kind, they shall be distributed to the Members, as
tenants-in-common, in undivided interests in proportion to distributions to
which the Members are entitled under this Section 14.5. The assets of the
Company, whether cash or in kind, shall be distributed as follows in accordance
with the Act:
(a) to creditors of the Company in the order of priority provided
by law; and
(b) the Members in proportion to each Member's Allocation
Percentage.
14.6 Effect of Termination. The Company shall terminate and cease to
exist when all of its assets have been sold and/or distributed and all of its
affairs have been wound up.
ARTICLE XV
DEFINITIONS
15.1 Definitions. The following terms shall have the meanings set forth
herein for purposes of this Agreement:
(a) "Accounting Period" shall mean, for each Fiscal Year, the
period beginning January 1 and ending December 31, provided however, that the
first Accounting Period shall commence on the date of formation of the Company,
the last Accounting Period shall end on the date of the final winding up of the
affairs of the Company, and a new Accounting Period shall commence on any date
on which the Company terminates for tax purposes.
(b) "Act" shall have the meaning set forth in Section 1.1.
(c) "Allocation Percentage" shall have the meaning set forth in
Section 2.3.
(d) "Additional Members" shall be those Members who make a Capital
Contribution to the Company after the Effective Date and are not Initial
Members.
(e) "Affiliate" shall mean, with respect to a specified Person,
(other than a natural person), a Person that directly, or indirectly through one
or more intermediaries, controls or is controlled by, or is under common control
with, the specified Person.
(f) "Agreement" shall mean this Limited Liability Company
Operating Agreement as the same may be amended from time to time.
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<PAGE> 24
(g) "Annual Budget" shall mean the budget of income and expenses
for the Company for each Fiscal Year, and related financial information,
approved by the Board of Managers pursuant to Section 5.6 (a).
(h) "Certificate" shall have the meaning set forth in Section 1.1.
(i) "Bankruptcy" shall mean, with respect to any Person, that a
petition shall have been filed by or against such Person as a "debtor" and the
adjudication of such Person as a bankrupt under the provisions of the bankruptcy
laws of the United States of America shall have commenced, or that such Person
shall have made an assignment for the benefit of its creditors generally or a
receiver shall have been appointed for substantially all of the property and
assets of such Person.
(j) "Board of Managers" shall have the meaning set forth in
Section 5.1.
(k) "Capital Commitment" shall mean, for each Member, the amount
of money and/or property required to be contributed by that Member to the
capital of the Company pursuant to Article III.
(l) "Capital Contribution" shall mean, for each Member, that
amount of property, services and/or money, or its equivalent, actually
contributed by that Member to the capital of the Company pursuant to Article
III.
(m) "Carrying Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(1) The initial Carrying Value of any asset contributed by a
Member to the Company shall be the agreed-upon fair market value of the asset
upon contribution, as determined by the contributing Member and the Company. The
initial Carrying Value of any asset contributed to the Company as a Capital
Contribution shall be set forth in the Annual Budget calling for that Capital
Contribution.
(2) In the discretion of the Board of Managers, the Carrying
Values of all assets may be adjusted to equal their respective fair market
values, as determined by the Board of Managers, and the resulting unrecognized
gain or loss allocated to each Member as though such assets had been sold for
their respective fair market values as of the following times: (A) the increase
in a Member's Allocation Percentage in exchange for more than a de minimis
Capital Contribution; and (B) the distribution by the Company to a Member of
more than a de minimis amount of assets, unless all Members receive simultaneous
distributions of either undivided interests in the distributed property or
identical assets in proportion to their Allocation Percentages.
(3) The Carrying Values of all assets shall be adjusted to
equal their respective fair market values, as determined by the Board of
Managers, and the resulting unrecognized gain or loss allocated to each Member
as though such assets had been sold for their respective fair market values as
of the following times: (A) the date the Company is liquidated within the
meaning of Treasury Regulation Section 1.704-1 (b)(2)(ii)(g); and (B) the
termination of the Company pursuant to the provisions of this Agreement.
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<PAGE> 25
(4) The Carrying Values of assets shall be increased or
decreased to the extent required under Treasury Regulation Section
1.704-1(b)(2)(iv)(m) in the event that the adjusted tax basis of assets is
adjusted pursuant to Code Sections 732, 734 or 743.
(5) The Carrying Value of an asset that is distributed
(whether in liquidation of the Company or otherwise) to one or more Members
shall be adjusted to equal its fair market value, as determined by the Board of
Managers, and the resulting unrecognized gain or loss allocated to each Member
as though such asset had been sold for such fair market value.
(6) The Carrying Value of an asset shall be adjusted by the
depreciation, amortization or other cost recovery deductions, if any, taken into
account by the Company with respect to such asset in computing Net Profit or Net
Loss.
(n) "CAT Ancillary Agreements" shall mean the Services Agreement,
the CAT License and all other agreements between CAT and/or its Affiliates and
the Company.
(o) "CAT" shall mean Catalytica Advanced Technologies, Inc., a
Delaware corporation.
(p) "CAT License" shall mean that certain License Agreement of
even date herewith between CAT and the Company.
(q) "Catalytic Materials" shall have the meaning set forth in
Section 1.5.
(r) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(s) "CombiChem Ancillary Agreements" shall mean the Services
Agreement, the CombiChem License and all other agreements between CombiChem
and/or its Affiliates and the Company..
(t) "CombiChem" shall mean CombiChem, Inc., a Delaware
corporation.
(u) "CombiChem License" shall mean that certain License Agreement
of even date herewith between CombiChem and the Company.
(v) "Dissociated Member" shall have the meaning set forth in
Section 2.6.
(w) "Dissolution" of a Member that is not a natural person shall
mean that such Member has terminated its existence, whether partnership,
corporate or limited liability company, wound up its affairs and dissolved;
provided, however, that a change in the membership of any Member that is a
general partnership shall not constitute "Dissolution" hereunder, whether or not
the Member is deemed technically dissolved for partnership law purposes, so long
as the business of the Member is continued.
(x) "Dissolution Event" shall mean (i) a material breach by either
Member of such Member's obligations under this Agreement or any of the CAT
Ancillary Agreements or CombiChem Ancillary Agreements that has not been cured
by such Member within ninety (90) days after receiving notice from the other
Member or the Company of such breach or (ii) the
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<PAGE> 26
Bankruptcy or Dissolution of a Member, the occurrence of which terminates the
Member's continued membership in the Company and results in the dissolution and
winding up of the Company under the Act unless the remaining Members (if more
than one) unanimously agree otherwise pursuant to Section 14.2.
(y) "Effective Date" shall mean the later of (i) the date on which
the Certificate is filed in the office of the Secretary of State of Delaware, or
(ii) the date on which this Agreement is executed and delivered by the Initial
Members, the CAT Ancillary Agreements are executed and delivered by the parties
thereto, and the CombiChem Ancillary Agreements are executed and delivered by
the parties thereto.
(z) "Field" shall have the meaning set forth in the CAT License
and the CombiChem License.
(aa) "Fiscal Year" shall mean the period from January 1 to
December 31 of each year, or as otherwise required by law.
(bb) "Initial Contribution Date" shall have the meaning set forth
in Section 5.6.
(cc) "Initial Members" shall have the meaning set forth in Section
2.1.
(dd) "Manager" shall mean a natural person appointed to the Board
of Managers under Article V and who has not resigned or been removed as a
manager pursuant to this Agreement.
(ee) "Members" shall mean the Initial Members of the Company and
all Substitute Members and Additional Members, but does not include Dissociated
Members.
(ff) "Net Income or Net Loss" shall mean the net book income or
loss of the Company for any relevant period. The net book income or loss of the
Company shall be computed in accordance with federal income tax principles (i)
under the method of accounting elected by the Company for federal income tax
purposes, (ii) as applied without regard to any recharacterization of
transactions or relationship that might otherwise be required under such tax
principles and (iii) as otherwise adjusted by:
(1) including as income or deductions, as appropriate, any
tax-exempt income and related expenses that are neither properly included in the
computation of taxable income nor capitalized for federal income tax purposes;
(2) including as a deduction when paid or incurred (depending
on the Company's method of accounting) any amounts utilized to organize the
Company or to promote the sale of (or to sell) an interest in the Company,
except that amounts for which an election is properly made by the Company under
Section 709(b) of the Code shall be accounted for as provided therein; and
(3) calculating the gain or loss on disposition of assets and
the depreciation, amortization or other cost-recovery deductions, if any, with
respect to assets by reference to their Carrying Values rather than their
adjusted tax basis.
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<PAGE> 27
(gg) "Person" shall mean a natural person, partnership (whether
general or limited), limited liability company, trust, estate, association,
corporation, custodian, nominee, or any other individual or entity in its own or
representative capacity, whether domestic or foreign.
(hh) `Services Agreement" shall mean that certain Services
Agreement of even date herewith between CAT, CombiChem and the Company.
(ii) "Substitute Member" shall mean any Person to whom a Member's
membership in the Company is Transferred in whole or in part.
(jj) "Transfer" shall mean any transfer, sale, exchange,
encumbrance, pledge, mortgage, assignment or other disposition, whether
voluntary or involuntary.
(kk) "Treasury Regulation" shall mean any regulation issued by the
United States Department of the Treasury pursuant or relating to the Code.
ARTICLE XVI
DISPUTE RESOLUTION
16.1 Board of Managers Deadlock. In the event of any deadlock in voting
at a meeting of the Board of Managers regarding any material decision relating
to the Company, any Manager may declare the existence of a deadlocked vote, in
which event the proposal or other subject matter of the deadlocked vote shall be
referred by the Company first to the Executive Committee who shall confer in
good faith in an effort to eliminate the deadlock and otherwise consider the
matter for a period of thirty (30) days following referral. If the deadlock is
not so broken by that date, the Executive Committee shall submit the proposal or
other subject matter of the deadlocked vote to the chief executive officer of
CombiChem and the chief executive officer of Catalytica, Inc., the sole
stockholder of CAT, who shall confer in good faith in an effort to eliminate the
deadlock and otherwise consider the matter for a period of thirty (30) days
following referral. If the deadlock is not so broken by that date, either Member
may declare that a Board Deadlock exists, and exercise the rights provided in
Section 12.1, at any time during the next ninety (90) days.
16.2 Arbitration. Except as hereinabove provided, any controversy
between the Members and any claim by one Member against the Company or another
Member arising out of or relating to this Agreement, or the breach thereof,
shall be settled by arbitration in San Francisco, California in accordance with
the then-applicable commercial arbitration rules of the American Arbitration
Association. Judgment upon the award rendered may be entered into any court
having jurisdiction thereof. The losing party shall bear the costs and expenses
of such arbitration.
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<PAGE> 28
ARTICLE XVII
MISCELLANEOUS
17.1 Amendment. Except as provided herein, this Agreement may be
amended only with the written consent of a majority of the Board of Managers and
of Member(s) holding at least *** of the aggregate Allocation Percentages of all
Members.
17.2 Withholding Taxes.
(a) The Company shall at all times be entitled to make payments
with respect to any Member in amounts required to discharge any obligation of
the Company to withhold or make payments to any governmental authority with
respect to any federal, state, local or other jurisdictional tax liability of
such Member arising as a result of such Member's interest in the Company. To the
extent each such payment satisfies an obligation of the Company to withhold with
respect to any distribution to a Member on which the Company did not withhold or
with respect to any Member's allocable share of the income of the Company, each
such payment shall be deemed to be a loan by the Company to such Member (which
loan shall be deemed to be immediately due and payable) and shall not be deemed
a distribution to such Member. The amount of such payments made with respect to
such Member, plus interest on each such amount from the date of each such
payment until such amount is repaid to the Company accruing at an interest rate
per annum equal to the Bank of America prime rate from time to time in effect,
shall be repaid to the Company by (i) deduction from any cash distributions made
to such Member pursuant to this Agreement; (ii) deduction from any non-cash
distributions made to such Member, or (iii) earlier payment by such Member to
the Company, in each case as determined by the Board of Managers in its sole
discretion. The Board of Managers may, in its discretion, defer making
distributions to any Member owing amounts to the Company pursuant to this
Section until such amounts are paid to the Company and shall in addition
exercise any other rights of a creditor with respect to such amounts.
(b) Each Member agrees to indemnify and hold harmless the Company,
the Managers and the Members, from and against any liability for taxes, interest
or penalties that may be asserted by reason of the failure to deduct and
withhold tax on amounts distributable or allocable to said Member. Any amount
payable as indemnity hereunder by a Member shall be paid promptly to the Company
upon request for such payment from the Board of Managers, and if not so paid,
the Board of Managers and the Company shall be entitled to claim against and
deduct all such amounts from the allocated portion of Net Profits of, or from
any distribution due to, the affected Member.
17.3 Publicity. The Members will mutually and reasonably approve the
timing, content and dissemination of any public announcement, except to the
extent that any such party is not reasonably able to consult in a timely manner
with or obtain the approval of the other parties when disclosures are required
by applicable law; and, provided further, that either party may disclose the
transactions contemplated by this Agreement, the CAT Ancillary Agreements or the
CombiChem Ancillary Agreements and the terms hereof and thereof in connection
with
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
-24-
<PAGE> 29
any bona fide corporate finance transaction (including ongoing credit
facilities), the merger or consolidation of a party or any other transaction
effecting a significant change in the ownership or control of a Member or an
Affiliate or all or substantially all of a Member's or an Affiliate's business,
assets or stock, or other similar corporate transaction or purpose not related
to pricing strategies or marketing plans.
17.4 Further Assurances. The parties agree to execute and deliver any
further instruments or documents and perform any additional acts that are or may
become necessary to effectuate and carry on the Company created by this
Agreement.
17.5 Construction. Every covenant, term and provision of this Agreement
shall be construed simply according to its fair meaning and not strictly for or
against any Member.
17.6 Time. In computing any period of time pursuant to this Agreement,
the day of the act, event or default from which the designated period of time
begins to run shall not be included, but the time shall begin to run on the next
succeeding day. The last day of the period so computed shall be included, unless
it is not a business day, in which event the period shall run until the end of
the next business day.
17.7 Headings. Section and other headings contained in this Agreement
are for reference purposes only and are not intended to describe, interpret,
define, or limit the scope, extent, or intent of this Agreement or any provision
hereof.
17.8 Severability. Except as otherwise provided in the succeeding
sentence, every provision of this Agreement is intended to be severable, and, if
any term or provision of this Agreement is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity or
legality of the remainder of this Agreement. The preceding sentence of this
Section shall be of no force or effect if the consequence of enforcing the
remainder of this Agreement without such illegal or invalid term or provision
would be to cause Member to lose the material benefit of its economic bargain.
17.9 Variation of Terms. All terms and any variations thereof shall be
deemed to refer to masculine, feminine, or neuter, singular or plural, as the
identity of the Person or Persons may require.
17.10 Governing Law. The laws of the State of Delaware shall govern the
validity of this Agreement, the construction of its terms, and the
interpretation of the rights and duties arising hereunder.
17.11 Binding Effect. Subject to the restrictions on Transfer set forth
in Article XI, this Agreement shall be binding on and inures to the benefit of
the Members and their respective transferees, successors, assigns and legal
representatives.
17.12 Entire Agreement. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter herein.
17.13 Counterparts.This Agreement may be executed in one or more
counterparts with the same force and effect as if each of the signatories had
executed the same instrument.
[Remainder of This Page Intentionally Left Blank]
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<PAGE> 30
IN WITNESS WHEREOF, all of the Members of Aperion LLC, a Delaware
limited liability company, have executed this Limited Liability Company
Operating Agreement as of the day and year first above written.
MEMBERS:
CATALYTICA ADVANCED TECHNOLOGIES, INC.,
a Delaware Corporation
By: /s/ Lawrence W. Briscoe
-------------------------------------
Name: Lawrence W. Briscoe
-----------------------------------
Title: CFO
----------------------------------
Address: 430 Ferguson Drive
Mountain View, CA 94043
COMBICHEM, INC., a Delaware corporation
By: /s/ Vicente Anido, Jr.
-------------------------------------
Name: Vicente Anido, Jr.
-----------------------------------
Title: President and CEO
----------------------------------
Address: 9050 Camino Santa Fe
San Diego, CA 92121
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR
THE QUARTERLY PERIOD ENDED JUNE 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 23,927
<SECURITIES> 0
<RECEIVABLES> 144
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,399
<PP&E> 11,893
<DEPRECIATION> 4,020
<TOTAL-ASSETS> 34,446
<CURRENT-LIABILITIES> 6,694
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 23,982
<TOTAL-LIABILITY-AND-EQUITY> 34,446
<SALES> 0
<TOTAL-REVENUES> 6,137
<CGS> 0
<TOTAL-COSTS> 12,402
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (275)
<INCOME-PRETAX> (6,675)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,675)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,675)
<EPS-BASIC> (0.52)
<EPS-DILUTED> (0.52)
</TABLE>
