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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) January 21, 2000
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DEPOMED, INC.
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(Exact name of registrant as specified in its charter)
California 001-13111 94-3229046
- -------------------------------- ----------------------- ---------------------
(State or other jurisdiction of (Commission File No.) (I.R.S. Employer
incorporation) Identification No.)
366 Lakeside Drive
Foster City, California 94404
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (650) 513-0990
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Item 5. Other Events.
On January 21, 2000, DepoMed, Inc. (the "Company") completed definitive
joint venture agreements with Elan International Services, Ltd. ("EIS"), a
wholly owned subsidiary of Elan Corporation, PLC ("Elan"), to use proprietary
gastric retention oral drug delivery technologies initially to develop one
therapeutic product with the expectation that a series of gastric retention
products may be developed. Pursuant to the transaction, the Company and EIS
entered into a Securities Purchase Agreement, a Company Registration Rights
Agreement and a Convertible Promissory Note; Elan, Elan Pharma International
Limited, a subsidiary of Elan ("EPIL"), EIS and the Company entered into a
Funding Agreement; the newly created joint venture ("Newco") and the Company
entered into a Newco Registration Rights Agreement; Elan, EPIL, Newco and the
Company entered into an Elan License Agreement; the Company, Newco and Elan
entered into a Company License Agreement; and Elan, EPIL, EIS, the Company and
Newco entered into a Subscription, Joint Development and Operating Agreement
(collectively, the "Transaction Documents").
Pursuant to the Transaction Documents, EIS purchased $5,000,000 of the
Company's Common Stock at $7.00 per share, the proceeds of which may be used by
the Company without restriction. Separately, the Company purchased 6,000 shares
of Newco's initial outstanding shares of voting common stock and 3,612 shares of
Newco's initial outstanding shares of nonvoting convertible preferred stock,
together representing on a fully diluted basis 80.1% of the aggregate
outstanding shares of Newco, for $12.015 million. In addition, pursuant to the
Transaction Documents EIS acquired 2,388 shares of nonvoting convertible
preferred stock of Newco, representing on a fully diluted basis 19.9% of the
aggregate outstanding shares of Newco. The Company obtained funds to provide
its portion of the Newco funding by issuing and selling 12,015 shares of a newly
created series of convertible, exchangeable preferred stock to EIS, for a
purchase price of $12.015 million, convertible into the Company's Common Stock
at a price of $12 per share. For a period of two years following the signing of
the Transaction Documents, and at the request of the Company, Elan is required
to lend up to $8.010 million to the Company to fund development work at Newco,
which loan, to the extent made, will bear compound interest of 9% per year, be
convertible into the Company's Common Stock at a price of $10 per share, and be
payable together with all interest on January 21, 2006.
Except for certain exclusions necessitated by existing agreements of Elan
and the Company, Newco will have nonexclusive access to specific Elan and
Company gastric retention technologies for the purpose of specific product
development. Newco will use proceeds from its stock sales to purchase from Elan
technology license rights.
The Securities Purchase Agreement is attached hereto as Exhibit 1.1, the
Company Registration Rights Agreement is attached hereto as Exhibit 1.2, the
Newco Registration Rights Agreement is attached hereto as Exhibit 1.3, the
Funding Agreement is attached hereto as Exhibit 1.4, the Subscription, Joint
Development and Operating Agreement is attached hereto as Exhibit 1.5, the
Convertible Promissory Note is attached hereto as Exhibit 1.6, the Company
License Agreement is attached hereto as Exhibit 1.7 and the Elan License
Agreement is attached hereto as Exhibit 1.8. The Certificate of Determination
of Preferences and Rights of Series A Preferred Stock of the Company is attached
hereto as Exhibit 1.9.
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Item 7. Exhibits.
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1.1* Securities Purchase Agreement, dated as of January 21, 2000,
between the Company and EIS.
1.2 Company Registration Rights Agreement, dated as of January 21,
2000, by and between the Company and EIS.
1.3 Newco Registration Rights Agreement, dated as of January 21,
2000, by and among Newco, the Company and EIS.
1.4 Funding Agreement, dated as of January 21, 2000, among Elan,
EPIL, EIS and the Company.
1.5* Subscription, Joint Development and Operating Agreement, dated as
of January 21, 2000, among Elan, EPIL, EIS, the Company and
Newco.
1.6 Convertible Promissory Note, dated as of January 21, 2000, issue
by the Company to EIS.
1.7* Company License Agreement, dated as of January 21, 2000, among
the Company, Newco and Elan.
1.8* Elan License Agreement, dated as of January 21, 2000, among Elan,
EPIL, Newco and the Company.
1.9 Certificate of Determination of Rights and Preferences of Series
A Preferred Stock filed with the State of California on January
14, 2000.
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* Confidential treatment requested
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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SIGNATURE
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, thereto duly authorized.
DEPOMED, INC.
By: /s/ John W. Fara
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John W. Fara
President and Chief Executive Officer
Date: February 18, 2000
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EXHIBIT INDEX
Exhibit Description
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1.1* Securities Purchase Agreement, dated as of January 21, 2000,
between the Company and EIS.
1.2 Company Registration Rights Agreement, dated as of January 21,
2000, by and between the Company and EIS.
1.3 Newco Registration Rights Agreement, dated as of January 21, 2000,
by and among Newco, the Company and EIS.
1.4 Funding Agreement, dated as of January 21, 2000, among Elan, EPIL,
EIS and the Company.
1.5* Subscription, Joint Development and Operating Agreement, dated as
of January 21, 2000, among Elan, EPIL, EIS, the Company and Newco.
1.6 Convertible Promissory Note, dated as of January 21, 2000 issued
by the Company to EIS.
1.7* Company License Agreement, dated as of January 21, 2000, among the
Company, Newco and Elan.
1.8* Elan License Agreement, dated as of January 21, 2000, among Elan,
EPIL, Newco and the Company.
1.9 Certificate of Determination of Rights and Preferences of Series A
Preferred Stock filed with the State of California on January 14,
2000.
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* Confidential treatment requested
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Exhibit 1.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of January
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21, 2000, among Depomed, Inc., a California corporation (the "Company"), and
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Elan International Services, Ltd., a Bermuda exempted limited liability company
("EIS"), and a wholly owned subsidiary of Elan Corporation, plc, an Irish public
---
limited company ("Elan").
----
R E C I T A L S:
A. The Company desires to issue and sell to EIS, and EIS desires to
purchase from the Company, (i) 12,015 shares of a newly-created series of the
Company's Preferred Stock, no par value per share, captioned "Series A
Convertible Exchangeable Preferred Stock" (the "Series A Preferred Stock"), (ii)
------------------------
714,286 shares of the Company's common stock, no par value per share (the
"Common Stock"; together with the Series A Preferred Stock, the "Shares"),
------------ -------
subject to adjustment. In addition, EIS has agreed to lend certain funds to the
Company pursuant to a convertible promissory note in the form attached hereto as
Exhibit A (as amended at any time, the "Note"; together with the Shares, the
- --------- ----
"Securities"), with a maximum aggregate principal amount of U.S.$8,010,000,
----------
amounts in respect of which shall be disbursed in accordance with its terms and
subject to the conditions contained herein and therein. The rights, preferences
and privileges of the Series A Preferred Stock are as set forth in the
Certificate of Determination of Preferences and Rights (the "Certificate of
--------------
Designations"), the form of which is attached hereto as Exhibit B.
- ------------ ---------
B. The Company and EIS have formed DepoMed Development Ltd., an
exempted limited liability company incorporated under the laws of Bermuda
("Newco"), and pursuant to the terms of a Subscription, Joint Development and
-----
Operating Agreement, dated as of the date hereof (as amended at any time, the
"JDOA"), simultaneously with the transactions contemplated by this Agreement,
----
(i) the Company shall acquire 6,000 voting common shares of Newco, par value
U.S.$1.00 per share (the "Newco Common Shares"), representing 100% of the
-------------------
outstanding shares of such class of stock, and 3,612 non-voting convertible
preference shares of Newco, par value of U.S.$1.00 (the "Newco Preferred
---------------
Shares"; together with the Newco Common Shares, the "Newco Shares"),
------------
representing 60.2% of the aggregate outstanding shares of Newco Preferred Shares
and, on a fully diluted basis 30.1% of the aggregate outstanding shares of Newco
Shares, and (ii) EIS shall acquire 2,388 shares of Newco Preferred Shares
representing 39.8% of the aggregate outstanding shares of Newco Preferred Shares
and, on a fully diluted basis 19.9% of the aggregate outstanding shares of the
Newco Shares. Additionally, as of the date hereof, Newco has entered into
license agreements with (i) Elan and its subsidiary Elan Pharma International
Limited (such agreements, as amended at any time, collectively the "Elan License
------------
Agreement"), and (ii) the Company (such agreement, as amended at any time, the
- ---------
"Company License Agreement"; together with the Elan License Agreement, the
-------------------------
"License Agreements").
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THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
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C. The Company and EIS are executing and delivering on the date
hereof a Registration Rights Agreement, in the form attached hereto as Exhibit C
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(as amended at any time, the "Company Registration Rights Agreement"), in
-------------------------------------
respect of the Common Stock issued or issuable upon (i) conversion of the Series
A Preferred Stock and/or the Note and (ii) the Common Stock being issued and
purchased hereunder, and any other Common Stock issued to EIS or any of its
affiliates or permitted transferees upon any stock split, stock dividend,
recapitalization or similar event affecting the Securities. The Company, EIS
and Newco are also executing and delivering on the date hereof a Registration
Rights Agreement in the form attached hereto as Exhibit D (as amended at any
---------
time, the "Newco Registration Rights Agreement"), in respect of the purchase of
-----------------------------------
Newco Common Shares and Newco Preferred Shares by the Company and EIS. The
Company and EIS are executing and delivering on the date hereof an Escrow
Agreement in the form attached hereto as Exhibit E(as amended at any time, the
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"Escrow Agreement"). Additionally, the Company and EIS are executing and
----------------
delivering on the date hereof a Funding Agreement in the form attached hereto as
Exhibit F (the "Funding Agreement;" and, together with this Agreement, the
- --------- ------------------
Certificate of Designations, the JDOA, the Company Registration Rights
Agreement, the Newco Registration Rights Agreement, the License Agreements, the
Escrow Agreement and each other document or instrument executed and delivered in
connection with the transactions contemplated hereby and by the JDOA, the
"Transaction Documents").
---------------------
A G R E E M E N T:
The parties hereto agree as follows:
SECTION 1. Closing.
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(a) Time and Place. The closing of the transactions contemplated
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hereby (the "Closing") shall occur on the date hereof (the "Closing Date"), at
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the offices of Brock Silverstein LLC, 800 Third Avenue, 21/st/ Floor, New York,
New York 10022.
(b) Issuance of Securities. At the Closing, the Company shall issue
----------------------
and sell to EIS, and EIS shall purchase from the Company: (i) 12,015 shares of
Series A Preferred Stock and (ii) 714,286 shares of Common Stock.
(c) Purchase Price. The purchase price (the "Purchase Price") for the
-------------- --------------
Securities shall be the sum of (i) U.S. $12,015,000, the purchase price for the
Series A Preferred Stock and (ii) U.S. $5,000,000, the purchase price for the
Common Stock.
(d) Convertible Note Facility. EIS shall lend up to U.S.$8,010,000 to
-------------------------
the Company pursuant to the terms and conditions of the Note.
(e) Delivery. At the Closing:
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(i) EIS shall pay the Purchase Price by wire transfer to an
account designated by the Company and the parties hereto shall execute and
deliver to each other, as applicable: (A) certificates for the Series A
Preferred Stock and the Common Stock;
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(B) the Note; (C) the Company Registration Rights Agreement; (D) the Newco
Registration Rights Agreement; (E) the JDOA; (F) the Certificate of
Designations, as filed with the Secretary of State of the State of
California; (G) the License Agreements; (H) the Escrow Agreement; (I) the
Funding Agreement; (J) certificates as to the incumbency of the officers of
the Company executing any of the Transaction Documents; and (J) any other
documents or instruments reasonably requested by a party hereto; and
(ii) The Company shall cause to be delivered to EIS an
opinion of counsel in the form attached hereto as Exhibit G.
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(f) Exemption from Registration. The Securities and any underlying
---------------------------
shares of Common Stock will be issued under an exemption or exemptions from
registration under the Securities Act of 1933, as amended (the "Securities
----------
Act"). Accordingly, the certificates evidencing the Series A Preferred Stock and
- ---
the Common Stock, the Note and any shares of Common Stock or other securities
issuable upon the exercise, conversion or exchange of any of the Securities
shall, upon issuance, contain a legend, substantially in the form as follows:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS AND NO INTEREST MAY BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE
STATE SECURITIES LAWS OR THIS CORPORATION RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES
SATISFACTORY TO THIS CORPORATION THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAWS.
THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS ALSO SUBJECT TO THE RESTRICTIONS CONTAINED IN
THAT CERTAIN SECURITIES PURCHASE AGREEMENT, DATED AS OF
JANUARY 21, 2000, BY AND BETWEEN DEPOMED, INC. AND ELAN
INTERNATIONAL SERVICES, LTD.
SECTION 2. Representations and Warranties of the Company. The
---------------------------------------------
Company hereby represents and warrants to EIS, as of the date hereof, as
follows:
(a) Organization. The Company is duly organized, and validly existing
------------
under the laws of the state of California and has all requisite corporate power
and authority to own and lease its properties, to carry on its business as
presently conducted and as proposed to be conducted and to consummate the
transactions contemplated hereby. The Company is duly qualified as a foreign
corporation and in good standing to do business in each jurisdiction in
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which the nature of the business conducted or the property owned by it requires
such qualification, except where the failure to be so qualified would not,
individually or in the aggregate, have a material adverse effect on the
business, assets, liabilities (contingent or otherwise), operations, condition
(financial or otherwise), or prospects of the Company (a "Company Material
----------------
Adverse Effect").
- --------------
(b) Capitalization. As of the Closing Date, the Company has reserved
--------------
a sufficient number of shares of Common Stock (i) for issuance upon conversion
of the Series A Preferred Stock being purchased hereunder by EIS (including
dividends thereon), and (ii) for issuance upon conversion of the Note (including
interest payable thereon). The Shares, when issued against payment therefor in
accordance with this Agreement, will be duly and validly issued, fully paid and
nonassessable, and will not be issued in violation of any preemptive or similar
rights. The shares of Common Stock underlying the Series A Preferred Stock and
the Note (the "Underlying Shares"), when issued upon conversion or exercise in
-----------------
accordance with the terms thereof, will be duly and validly issued, fully paid
and nonassessable, and will not be issued in violation of any preemptive or
similar rights.
(c) Authorization of Transaction Documents. The Company has full
--------------------------------------
corporate power and authority to execute and deliver this Agreement and each of
the other Transaction Documents to which it is a party, and to perform its
obligations hereunder and thereunder. The execution, delivery and performance by
the Company of this Agreement and each of the other Transaction Documents to
which it is a party, including the issuance and sale of the Securities, have
been duly authorized by all requisite corporate action by the Company and, when
executed and delivered by the Company, this Agreement and each of the other
Transaction Documents to which it is a party will be the valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms.
(d) No Violation. The execution, delivery and performance by the
------------
Company of this Agreement and each other Transaction Document to which it is a
party, including the issuance and sale of the Securities, and compliance with
the provisions hereof and thereof by the Company, does not conflict with or
constitute or result in a breach of or default under (or an event which with
notice or passage of time or both would constitute a default) or give rise to
any right of termination, cancellation or acceleration under (i) the Articles of
Incorporation, as amended, or by-laws, of the Company, (ii) applicable law,
statute, rule or regulation, or any ruling, writ, injunction, order, judgment or
decree of any court, arbitrator, administrative agency or other governmental
body applicable to the Company or any of its properties or assets, or (iii) any
material contract or agreement affecting the Company, including any contract
filed or required by applicable law to be filed as an exhibit to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1998 (the "1998
----
Form 10-KSB") or any subsequent interim quarterly report, except where such
- -----------
breach, default, termination, cancellation or acceleration would not,
individually or in the aggregate, have a Company Material Adverse Effect.
(e) Approvals. No material permit, authorization, consent, approval,
---------
or order of or by, or any notification of or filing with, any person or entity
(governmental or otherwise) is required in connection with the execution,
delivery or performance of this Agreement or the Transaction Documents,
including the issuance and sale of the Securities, by the Company other
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than the filing of a Form D by the Company pursuant to Regulation D under the
Securities Act ("Regulation D").
------------
(f) SEC Filings. The Company has filed with the Securities and
-----------
Exchange Commission (the "SEC") all forms, reports, schedules, statements,
---
exhibits and other documents (collectively, the "SEC Filings") required to be
-----------
filed by the Company on or before the date hereof. At the time filed, the SEC
Filings, including without limitation, any financial statements, exhibits and
schedules included therein or documents incorporated therein by reference (i)
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (ii) complied in all material respects with the applicable
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as the case may be.
------------
(g) Financial Statements. The audited balance sheets of the Company
--------------------
at December 31, 1998 and 1997, together with the related statements of
operations, shareholders' equity (deficit) and cash flows for each of the two
years ended December 31, 1998 and 1997, together with the reports and opinions
thereon of Ernst & Young LLP, contained in the 1998 Form 10-KSB, comply as to
form in all material respects with applicable accounting requirements, and
fairly present, in all material respects, the financial position of the Company
and the results of its operations and its cash flows at such dates and for the
years then ended and were prepared in conformity in all material respects with
generally accepted accounting principles applied on a consistent basis.
(h) Litigation. There is no legal, administrative, arbitration or
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other action or proceeding or governmental or investigation pending, or to the
Company's knowledge, threatened against the Company, or any director, officer or
employee of the Company that challenges the validity or performance of this
Agreement or the other Transaction Documents to which the Company is a party.
(i) Absence of Certain Events. Since December 31, 1998, except as
-------------------------
contemplated by the Transaction Documents or as set forth on Schedule 2(i)
-------------
hereto, (A) the Company has not (i) made, paid or declared any dividend or
distribution to any equity holder (in such capacity) or redeemed any of its
capital stock, (ii) varied its business plan or practices, in any material
respect, from past practices, (iii) entered into any financing, joint venture,
license or similar arrangement that would limit or restrict its ability to
perform its obligations hereunder and under each of the other Transaction
Documents to which it is a party, or (iv) suffered or permitted to be incurred
any liability or obligation or any lien or encumbrance against any of its
properties or assets that would limit or restrict its ability to perform its
obligations hereunder and under each of the other Transaction Documents to which
it is a party, and (B) there has not been any change or development which has
had, or in the Company's reasonable judgment is likely to have, a Company
Material Adverse Effect except as disclosed on Schedule 2(i) hereto.
(j) Disclosure. The representations and warranties set forth herein
----------
and in the other Transaction Documents, when viewed collectively, do not contain
any untrue statement of
5
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a material fact or omit to state any material fact necessary to make the
statements contained herein not misleading in light of the circumstances in
which they were made.
(k) Brokers or Finders. There have been no investment bankers,
------------------
brokers or finders used by the Company in connection with the transactions
contemplated by the Transaction Documents and no persons or entities are
entitled to a fee or compensation in respect thereof.
SECTION 3. Representation and Warranties of EIS. EIS hereby
------------------------------------
represents and warrants to the Company, as of the date hereof, as follows:
(a) Organization. EIS is duly organized, validly existing and in good
------------
standing under the laws of Bermuda and has all requisite corporate power and
authority to own and lease its properties, to carry on its business as presently
conducted and as proposed to be conducted and to consummate the transactions
contemplated hereby. EIS is duly qualified as a foreign corporation and in good
standing to do business in each jurisdiction in which the nature of the business
conducted or the property owned by it requires such qualification, except where
the failure to be so qualified would not, individually or in the aggregate, have
a material adverse effect on the business, assets, liabilities (contingent or
otherwise), operations, condition (financial or otherwise), or prospects of EIS
(an "EIS Material Adverse Effect").
---------------------------
(b) Authorization of Transaction Documents. EIS has full corporate
--------------------------------------
power and authority to execute and deliver this Agreement and each of the other
Transaction Documents to which it is a party, and to perform its obligations
hereunder and thereunder. The execution, delivery, and performance by EIS of
this Agreement and each other Transaction Document to which it is a party,
including the purchase and acceptance of the Securities, have been duly
authorized by all requisite corporate action by EIS and, when executed and
delivered by EIS, this Agreement and each of the other Transaction Documents to
which it is a party, will be the valid and binding obligations of EIS,
enforceable against it in accordance with their respective terms.
(c) No Violation. The execution, delivery and performance by EIS of
------------
this Agreement and each other Transaction Document to which it is a party,
including the purchase and acceptance of the Securities, and compliance with
provisions hereof and thereof by EIS, will not conflict with or constitute or
result in a breach of or default under (or an event which with notice or passage
of time or both would constitute a default) or give rise to any right of
termination, cancellation or acceleration under (i) the Memorandum and Articles
of Association of EIS, (ii) applicable law, statute, rule or regulation, or any
ruling, writ, injunction, order, judgment or decree of any court, arbitrator,
administrative agency or other governmental body applicable to EIS or any of its
properties or assets, or (iii) any material contract to which EIS is a party,
except where such breach, default, termination, cancellation or acceleration
would not, individually or in the aggregate, have an EIS Material Adverse
Effect.
(d) Approvals. Except for consent required under the Merger and
---------
Takeover (Control) Act 1978-1996 (Ireland), no material permit, authorization,
consent, approval or order of or by, or any notification of or filing with, any
person or entity (governmental or otherwise) is
6
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required in connection with the execution, delivery or performance of this
Agreement or the Transaction Documents by EIS.
(e) Investment Representations.
--------------------------
(i) EIS is sophisticated in transactions of this type and
capable of evaluating the merits and risks of the transactions described
herein and in the other Transaction Documents to which it is a party, and
has the capacity to protect its own interests. EIS has not been formed
solely for the purpose of entering into the transactions described herein
and therein and is acquiring the Securities (and the Underlying Shares) for
investment for its own account, not as a nominee or agent, and not with the
view to, or for resale, distribution or fractionalization thereof, in whole
or in part, and no other person (other than Elan) has a direct or indirect
interest, beneficial or otherwise in the Securities (or the Underlying
Shares); provided, however, that EIS shall be permitted to convert or
exchange such Securities in accordance with their terms.
(ii) EIS has not and does not intend to enter into any
contract, undertaking, agreement or arrangement with any person or entity
to sell, transfer or pledge the Securities (or the Underlying Shares).
(iii) EIS acknowledges its understanding that the private
placement and sale of the Securities (and the Underlying Shares) is exempt
from registration under the Securities Act by virtue of the provisions of
Regulation D and Section 4(2) of the Securities Act. In furtherance
thereof, EIS represents and warrants that it is an "accredited investor" as
that term is defined in Regulation D, has the financial ability to bear the
economic risk of its investment, has adequate means for providing for its
current needs and personal contingencies and has no need for liquidity with
respect to its investment in the Company.
(iv) EIS agrees that it shall not sell or otherwise
transfer any of the Securities (or the Underlying Shares) without
registration under the Securities Act or pursuant to an opinion of counsel
reasonably satisfactory to the Company that an exemption from registration
is available, and fully understands and agrees that it must bear the total
economic risk of its purchase for an indefinite period of time because,
among other reasons, none of the Securities (or the Underlying Shares) have
been registered under the Securities Act or under the securities laws of
any applicable state or other jurisdiction and, therefore, cannot be
resold, pledged, assigned or otherwise disposed of unless subsequently
registered under the Securities Act and under the applicable securities
laws of such states or jurisdictions or an exemption from such registration
is available. EIS understands that the Company is under no obligation to
register the Securities (or the Underlying Shares) on its behalf with the
exception of certain registration rights with respect to certain of the
Securities (and the Underlying Shares), as provided in the Company
Registration Rights Agreement. EIS understands the lack of liquidity and
restrictions on transfer of the Securities (and the Underlying Shares) and
that this investment is suitable only for a person or entity of adequate
7
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financial means that has no need for liquidity of this investment and that
can afford a total loss of its investment.
(f) Litigation. There is no legal, administrative, arbitration or
----------
other action or proceeding or governmental investigation pending, or to EIS's
knowledge threatened, against EIS that challenges the validity or performance of
this Agreement or the other Transaction Documents to which EIS is a party.
(g) Brokers or Finders. There have been no investment bankers,
------------------
brokers or finders used by EIS in connection with the transactions contemplated
by the Transaction Documents and no persons or entities are entitled to a fee or
compensation in respect thereof.
(h) Disclosure. The representations and warranties set forth herein
----------
and in the other Transaction Documents, when viewed collectively, do not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements contained herein not misleading in light of the
circumstances in which they were made.
SECTION 4. Covenants of the Parties.
------------------------
(a) Certain Covenants. From and after the Closing Date for so long as
-----------------
the Note remains outstanding and until the earlier to occur of the exercise or
expiration of the EIS Exchange Right (as such term is defined in Section 5
hereof), the Company shall not without the prior written consent of EIS: (i)
sell, transfer, encumber, pledge or otherwise affect, in any respect, (A) any
shares of Newco Preferred Shares owned by the Company, including, without
limitation, those shares of Newco Preferred Shares transferable to EIS upon
exercise by EIS of the EIS Exchange Right, or (B) affect, in any respect, the
Company's ability to permit EIS to exercise the EIS Exchange Right in full, as
provided herein or (ii) enter into any material transaction with a director,
officer or more than [**]% beneficial owner of Common Stock on other than an
arm's length basis.
(b) Fully-diluted Stock Ownership. Notwithstanding any other
-----------------------------
provision of this Agreement, in the event that EIS shall have determined that at
any time it (together with its affiliates, if applicable) holds or has the right
to receive Common Stock (or securities or rights, options or warrants
exercisable, exchangeable or convertible for or into Common Stock) representing
in the aggregate in excess of [**]% of the Company's outstanding Common Stock on
a fully diluted basis, EIS shall have the right to convert the Series A
Preferred Stock and the Note into other junior, non-voting securities of the
Company such that EIS and its affiliates will not directly or indirectly own
more than [**]% of the Common Stock for a period of at least two years from the
election of the conversions of the Series A Preferred Stock or the Note. Each of
the Company and EIS shall use commercially reasonable efforts to effect such
transactions and any required subsequent conversions or adjustments to EIS's
securities position, on a quarterly basis, within 15 business days of the end of
each of EIS's fiscal quarters.
(c) Use of Proceeds. The Company shall use the proceeds of (i) the
---------------
issuance and sale of the Series A Preferred Stock solely to fund its initial
capital contributions to and funding of Newco as described in the JDOA, and (ii)
the issuance and funding of the Note solely to fund
8
<PAGE>
development amounts in connection with the business of Newco, as described in
the Funding Agreement; and, in each case, for no other purpose.
(d) Confidentiality; Non-Disclosure.
-------------------------------
(i) Subject to clauses (ii) and (iii) below, from and
after the date hereof, neither the Company nor EIS (nor their respective
affiliates) shall disclose to any person or entity this Agreement or the
other Transaction Documents or the contents thereof or the parties thereto,
except that such parties may make such disclosure (x) to their directors,
officers, employees and advisors, so long as they shall have advised such
persons of the obligation of confidentiality herein and for whose breach or
default the disclosing party shall be responsible, (y) as required by
applicable law, rule, regulation or judicial or administrative process,
provided that the disclosing party uses reasonable efforts to obtain an
order or ruling protecting the confidentiality of confidential information
of the other party contained herein or therein, except as may be required
by law, in the written opinion of such party's outside legal counsel or (z)
to the American Stock Exchange. The parties shall be entitled to seek
injunctive or other equitable relief in respect of any breach or threatened
breach of the foregoing covenant without the requirement of posting a bond
or other collateral.
(ii) Prior to issuing any press release or public
disclosure in respect of this Agreement or the transactions contemplated
hereby, the party proposing such issuance except as maybe required by law,
in the written opinion of such party's outside legal counsel, shall obtain
the consent of the other party to the contents thereof, which consent shall
not be unreasonably withheld or delayed; it being understood that if such
second party shall not have responded to such consent request within two
business days, such consent shall be deemed given.
(iii) This Section 4(d) shall not be construed to prohibit
disclosure by the receiving party of any information which has not been
previously determined to be confidential by the disclosing party, or which
shall have become publicly disclosed (other than by breach of the receiving
party's obligations hereunder).
(e) Further Assurances. From and after the date hereof, each of the
------------------
parties hereto agree to do or cause to be done such further acts and things and
deliver or cause to be delivered to each other such additional assignments,
agreements, powers and instruments, as each may reasonably require or deem
advisable to carry into effect the purposes of this Agreement and the other
Transaction Documents.
SECTION 5. Certain Rights of EIS. (a) Preemptive Right. Until
--------------------- ----------------
the [**] anniversary of the date hereof, EIS shall have the right (but not the
obligation) to participate in any equity, warrant, or convertible or
exchangeable for equity financing consummated by the Company, in order for EIS
to maintain its pro rata interest in the Company, based on the actual number of
shares of Common Stock outstanding on the date such financing is consummated;
provided, that such right shall not apply to any public offering under the
Securities Act, offering under an option plan, or other stock plan, asset or
company acquisition paid for, in whole or in
9
<PAGE>
part, in shares of stock, or issuances of warrants to purchase shares of stock
as part of an equipment financing. Such right shall be exercised by EIS within
15 days of receipt of notice of such financing from the Company. Such
participation by EIS shall be on the same terms and conditions offered to any
other potential investor in such offering.
(b) Company Board of Directors. For so long as (i) EIS and/or its
--------------------------
affiliates or subsidiaries collectively own securities that represent ownership
of at least [**]% of the Common Stock (or securities convertible, exchangeable
or exercisable for or into the Common Stock) on a fully diluted basis (assuming
the exercise, conversion or exchange by EIS and its affiliates), EIS shall be
entitled to nominate one director (the "EIS Director") for election to the
------------
Company's Board who shall be reasonably acceptable to the Company. In
connection with the foregoing, the Company will take all necessary and/or
appropriate steps to effect such appointment, including the inclusion of the
designated EIS Director on the recommended slate of directors presented at any
regular or special meeting of the stockholders of the Company at which directors
of the Company are to be elected. Prior to such election, the designated EIS
Director shall be entitled to be an observer at the meetings of the Company's
board of directors.
(c) Conversion and Exchange Rights. (i) The Certificate of
------------------------------
Designations sets forth certain rights of the holders of shares of Series A
Preferred Stock to convert such shares of preferred stock into newly issued
shares of Common Stock. In addition to such rights, the holders of the
Series A Preferred Stock shall have the right to exchange such shares of
Series A Preferred Stock for certain shares of Newco Stock owned by the
Company (the "EIS Exchange Right"), on the terms and conditions set forth
------------------
below.
(ii) Provided that (a) none of the shares of Series A Preferred
Stock initially issued and sold by the Company to EIS have been converted
(but not including any of the accrued and unpaid dividends thereon), as
provided in Section 4 of the Company's Certificate of Designations, and (b)
the Exchange Termination Date (as defined below) shall not have occurred,
the holders of the Series A Preferred Stock (acting by act of the majority
holders thereof) shall have the right to exchange all of their shares of
Series A Preferred Stock (but not including any of the accrued and unpaid
dividends thereon) of the Company initially for 3,612 shares of non-voting
convertible preferred shares ("the Preferred Shares") (as adjusted for any
----------------
combinations or divisions or similar recapitalizations) of Newco, held by
the Company, so that, in any event, after giving effect to the exercise of
the EIS Exchange Right, EIS and the Company will each hold 50% of the total
outstanding share capital of Newco, on a fully diluted basis, assuming that
neither EIS nor the Company has sold any shares of Newco. Upon exercise of
the EIS Exchange Right, the Preferred Shares held by the Company shall be
transferred legally and beneficially to EIS. Such Preferred Shares may be
converted into common shares of Newco on a one-for-one basis at any time
after the [**] anniversary of the Original Issue Date and shall be
converted immediately upon the exercise of the Exchange Right, provided
that such exercise occurs after the [**] anniversary of the Original Issue
Date.
(iii) The rights of the holders to exercise the EIS Exchange
Right shall terminate and be of no further force and effect on the date
that is six years after the date
10
<PAGE>
of the first issuance of any shares of the Series A Preferred Stock
hereunder (the "Exchange Termination Date").
-------------------------
(iv) Upon exercise of the EIS Exchange Right, the shares of
Series A Preferred Stock originally purchased from the Company, but not
including any of the accrued and unpaid dividends thereon (all of which
shall remain outstanding), shall be canceled and shall no longer be
entitled to any rights in the Company.
(v) If any shares of the Series A Preferred Stock (other than
shares in respect of accrued dividends) are converted pursuant to Section
4(a) of the Certificate of Designations, to shares of Common Stock, the EIS
Exchange Right with respect to the shares of Series A Preferred Stock
originally purchased from the Company, but not including any of the accrued
and unpaid dividends thereon, shall be canceled and shall no longer be
entitled to any rights in the Company.
(vi) In order to exercise the EIS Exchange Right, the holders
shall provide written notice thereof to the Company, setting forth (a) the
fact that such holders intend to exercise the EIS Exchange Right, and (b)
the proposed date for such exercise (the "Exercise Date"), which shall be
-------------
between 10 and 30 days after the date of such notice. On the Exercise
Date, (y) such holders shall tender their shares of Series A Preferred
Stock to the Company for cancellation, and (z) the Company shall cause to
be delivered to EIS, acting on behalf of such holders, such shares of
Newco. The holders and the Company shall take all other necessary or
appropriate actions in connection with or to effect such closing.
(vii) The provisions of this Section5(c) shall be applicable to
subsequent holders of the Series A Preferred Stock.
SECTION 6. Pledge of Newco Stock. In order to secure the Company's
---------------------
obligations pursuant to the EIS Exchange Right, the Company hereby deposits with
Brock Silverstein LLC, as escrow agent (the "Escrow Agent"), pursuant to the
------------
Escrow Agreement, all of the Company's Newco Shares deliverable by the Company
upon exercise of the EIS Exchange Right (including share distributions and
dividends thereon) (if EIS elects the option in Section 5(c)(i)), together with
stock powers attached, for such period of time as the EIS Exchange Right shall
be exercisable. The Company shall cause to be delivered to the Escrow Agent, on
the date hereof, all of the certificates evidencing such shares, together with
duly executed stock powers in favor of EIS. Upon exercise of the EIS Exchange
Right, the Escrow Agent shall deliver to EIS, upon surrender by EIS of all of
the Series A Preferred Stock to be exchanged therefor to the Company as the
owner thereof for cancellation, such share certificates, which shall then be
owned by EIS in accordance with the terms thereof. Until EIS exercises the EIS
Exchange Right, the Company shall retain all rights in and to the pledged Newco
Common Shares (including without limitation all voting, dividend, liquidation
and other rights), subject only to this pledge and the JDOA.
SECTION 7. Survival and Indemnification.
-----------------------------
11
<PAGE>
(a) Survival. The representations and warranties of the Company and
--------
EIS contained herein shall survive for a period of 12 months from and after the
date hereof.
(b) Indemnification. In addition to all rights and remedies
---------------
available to the parties hereto at law or in equity, the parties (each in such
capacity, "Indemnifying Party"; together, "Indemnifying Parties") shall
------------------ --------------------
indemnify each other as corporate entities (EIS and the Company), their
stockholders, officers, directors and assigns, their affiliates, and their
affiliates' stockholders, officers, directors, employees, agents,
representatives, successors and assigns (collectively, the "Indemnified
-----------
Person"), and save and hold each Indemnified Person harmless from and against
- ------
and pay on behalf of or reimburse each such Indemnified Person, as and when
incurred, for any and all loss, liability, demand, claim, action, cause of
action, cost, damage, deficiency, tax, penalty, fine or expense, whether or not
arising out of any claims by or on behalf of such Indemnified Person or any
third party, including interest, penalties, reasonable attorneys' fees and
expenses and all amounts paid in investigation, defense or settlement of any of
the foregoing (collectively, "Losses"), that any such Indemnified Person may
------
suffer, sustain incur or become subject to, as a result of, in connection with,
relating or incidental to or by virtue of:
(i) any misrepresentation or breach of warranty on the part of
the Indemnifying Party in the case of the Company under Section 2 of this
Agreement or in the case of EIS under Section 3 of this Agreement or any of the
other Transaction Documents (as limited thereby)(it being understood that the
Company shall not be responsible for any such misrepresentation or breach of
warranty by Newco); or
(ii) any nonfulfillment, default or breach of any covenant or
agreement on the part of the Indemnifying Party under Section 4 of this
Agreement or any of the other Transaction Documents.
(c) Maximum Recovery. Notwithstanding anything in this Agreement
----------------
to the contrary, in no event shall the Indemnifying Parties be liable in the
case of the Company for indemnification under this Section 7 in an amount in
excess of the aggregate of the purchase price paid for the Shares and the
amounts advanced and not repaid under the Note or in the case of EIS for
indemnification hereunder in an amount in excess of the Company's costs and
expenses incurred in connection with the transactions contemplated hereby. No
Indemnified Person shall assert any such claim unless Losses in respect thereof
incurred by any Indemnified Person, when aggregated with all previous Losses
hereunder, equal or exceed U.S.$50,000, but at such time that an Indemnified
Person is entitled to assert a claim, such claim shall include all Losses
covered by this Section 7.
(d) Exception. Notwithstanding the foregoing, upon judicial
---------
determination that is final and no longer appealable, that the act or omission
giving rise to the indemnification set forth above resulted primarily out of or
was based primarily upon the Indemnified Person's negligence (unless such
Indemnified Person's negligence was based upon the Indemnified Person's reliance
in good faith upon any of the representations, warranties, covenants or promises
made by the Indemnifying Party herein) the Indemnifying Party shall not be
responsible for any Losses sought to be indemnified in connection therewith, and
the Indemnifying Party shall be entitled to recover from the Indemnified Person
all amounts previously paid in full or partial
12
<PAGE>
satisfaction of such indemnity, together with all costs and expenses (including
reasonable attorneys fees) of the Indemnifying Party reasonably incurred in
connection with the Indemnified Persons claim for indemnity, together with
interest at the rate per annum publicly announced by Morgan Guaranty Trust
Company as its prime rate from the time of payment of such amounts to the
Indemnified Person until repayment to the Indemnifying Party.
(e) Investigation. All indemnification rights hereunder shall
-------------
survive the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby to the extent provided in Section 7(g) below,
irrespective of any investigation, inquiry or examination made for or on behalf
of, or any knowledge of the Indemnified Person or the acceptance of any
certificate or opinion.
(f) Contribution. If the indemnity provided for in this Section 7
------------
shall be, in whole or in part, unavailable to any Indemnified Person, due to
Section 7(b) being declared unenforceable by a court of competent jurisdiction
based upon reasons of public policy, so that Section 7(b) shall be insufficient
to hold each such Indemnified Person harmless from Losses which would otherwise
be indemnified hereunder, then the Indemnifying Party and the Indemnified Person
shall each contribute to the amount paid or payable for such Loss in such
proportion as is appropriate to reflect not only the relative benefits received
by the Indemnifying Party on the one hand and the Indemnified Person on the
other, but also the relative fault of the Indemnifying Party and be in addition
to any liability that the Indemnifying Party may otherwise have. The indemnity,
contribution and expense reimbursement obligations that the Indemnifying Party
has under this Section 7 shall survive the expiration of the Transaction
Documents. The parties hereto further agree that the indemnification and
reimbursement commitments set forth in this Agreement shall apply whether or not
the Indemnified Person is a formal party to any such lawsuit, claims or other
proceedings.
(g) Limitation. No claim shall be brought by an Indemnified Person
----------
in respect of any misrepresentation or breach of warranty under this Agreement
after 12 months from the date hereof; and any claim for nonfulfillment, default
or breach of any covenant or any misrepresentation shall be brought within one
year of the date that such Indemnified Person became aware or should have become
aware of the nonfulfillment, default or breach. Except as set forth in the
previous sentence and in Section 7(c) above, this Section 7 is not intended to
limit the rights or remedies otherwise available to any party hereto with
respect to this Agreement or the Transaction Documents.
SECTION 8. Withholding Taxes. The parties agree that the Company may
-----------------
be required under U.S. tax laws to withhold from any payments of interest on the
Notes or dividends on the Shares appropriate withholding taxes to be paid to
jurisdictions of the United States. The parties agree to cooperate to minimize
the amount of such withholding taxes, if any, and to consult with each other for
this purpose from time to time.
13
<PAGE>
SECTION 9. Notices. All notices, demands and requests of any kind to
-------
be delivered to any party in connection with this Agreement shall be in writing
and shall be deemed to have been duly given if personally or hand delivered or
if sent by an internationally-recognized overnight delivery or by registered or
certified mail, return receipt requested and postage prepaid, or by facsimile
transmission addressed as follows:
(i) if to the Company, to:
DepoMed, Inc.
366 Lakeside Drive
Foster City, California 94404-1146
Attention: Chief Executive Officer
Facsimile: (650) 513-0999
with a copy to:
Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, California 94301
Attn: Julian Stern, Esq.
Facsimile: 650-324-0638
(ii) if to EIS, to:
Elan International Services, Ltd.
Flatts, Smiths Parish
Bermuda, FL 04
Attention: Director
Facsimile: 441-292-2224
with a copy to:
Brock Silverstein LLC
800 Third Avenue, 21st Floor
New York, New York 10022
Attention: David Robbins, Esq.
Facsimile: 212-371-5500
or to such other address as the party to whom notice is to be given may have
furnished to the other party hereto in writing in accordance with provisions of
this Section 9. Any such notice or communication shall be deemed to have been
effectively given (i) in the case of personal or hand delivery, on the date of
such delivery, (ii) in the case of an internationally-recognized overnight
delivery service, on the second business day after the date when sent, (iii) in
the case of mailing, on the fifth business day following that day on which the
piece of mail containing such communication is posted, and (iv) in the case of
facsimile transmission, on the date of telephone confirmation of receipt.
14
<PAGE>
SECTION 10. Entire Agreement. This Agreement and the other
----------------
Transaction Documents contain the entire understanding of the parties with
respect to the subject matter hereof and thereof and supersede all prior
agreements and understandings among the parties with respect thereto.
SECTION 11. Amendments. This Agreement may not be modified or
----------
amended, or any of the provisions hereof waived, except by written agreement of
the Company and EIS dated after the date hereof.
SECTION 12. Counterparts and Facsimile. The Transaction Documents
--------------------------
may be executed in any number of counterparts, and each such counterpart hereof
shall be deemed to be an original instrument, but all such counterparts together
shall constitute one agreement. Each of the Transaction Documents may be signed
and delivered to the other party by facsimile transmission; such transmission
shall be deemed a valid signature.
SECTION 13. Headings. The section and paragraph headings contained
--------
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of the Agreement.
SECTION 14. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of New York, without
giving effect to principles of conflicts of laws except for those provisions of
California law specifically applicable to the issuance of stock and the election
and responsibilities of directors of a California corporation.
SECTION 15. Expenses. Each of the parties shall be responsible for
--------
its own costs and expenses incurred in connection with the transactions
contemplated hereby and by the other Transaction Documents.
SECTION 16. Assignments and Transfers. This Agreement and all of the
-------------------------
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. This Agreement,
the shares of Series A Preferred Stock and Common Stock being purchased
hereunder by EIS, the Note, and the shares of Common Stock underlying the Series
A Preferred Stock and the Note may be transferred by EIS to its affiliates and
subsidiaries, as well as any special purpose financing or similar vehicle
established by EIS, provided, however, that EIS shall remain liable for its
obligations hereunder after any such assignment. Other than as set forth above,
no party shall transfer or assign this Agreement, the shares of Series A
Preferred Stock and Common Stock being purchased hereunder by EIS, the Note, and
the shares of Common Stock underlying the Series A Preferred Stock and the Note,
or any interest therein, without the prior written consent of the other party.
SECTION 17. Schedules, etc. All statements contained in any exhibit
--------------
or schedule delivered by the parties hereto, or in connection with the
transaction contemplated hereby, are an integral part of this Agreement and
shall be deemed representations and warranties hereunder.
15
<PAGE>
SECTION 18. Severability. In case any provision of this Agreement
------------
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not be in any way affected or
impaired thereby.
16
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has duly executed this
Agreement as of the date first written above.
DEPOMED, INC.
By: /s/ John W. Fara
--------------------------------
Name: John W. Fara
Title: President & CEO
ELAN INTERNATIONAL SERVICES, LTD.
By: /s/ Kevin Insley
-----------------------------------
Kevin Insley
President & CFO
[Securities Purchase Agreement]
17
<PAGE>
Exhibit 1.2
DEPOMED, INC.
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made as of January
---------
21, 2000 by and between DepoMed, Inc., a California corporation (the "Company"),
-------
and Elan International Services, Ltd., a Bermuda exempted limited liability
company ("EIS").
---
R E C I T A L S:
A. Pursuant to a Securities Purchase Agreement dated as of the date hereof
by and between the Company and EIS (the "Purchase Agreement"), EIS has acquired,
------------------
or may acquire in the future, certain shares of common stock, no par value, of
the Company (the "Common Stock"), Series A Convertible Exchangeable Preferred
------------
Stock of the Company (the "Series A Preferred Stock"), and a convertible
------------------------
promissory note (the "Note"; together with the Series A Preferred Stock, the
----
"Securities"), which Series A Preferred Stock and Note are convertible into
----------
shares of Common Stock.
B. The execution of the Purchase Agreement has occurred on the date hereof
and it is a condition to the closing of the transactions contemplated thereby
that the parties execute and deliver this Agreement.
C. The parties desire to set forth herein their agreement as to the terms
and conditions related to the granting of certain registration rights to the
Holders (as defined below) relating to the Common Stock held by such Holders and
the Common Stock underlying the Securities.
A G R E E M E N T:
The parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Commission" shall mean the U.S. Securities and Exchange Commission.
----------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect from time to time.
"Holders" or "Holders of Registrable Securities" shall mean EIS and any
------- ---------------------------------
Person who shall have acquired Registrable Securities from EIS as permitted
herein, either individually or jointly, as the case may be, in a transaction
pursuant to which registration rights are transferred pursuant to Section 10
hereof.
<PAGE>
"Person" shall mean an individual, a partnership, a company, an
------
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental or quasi-governmental entity, or any department,
agency or political subdivision thereof.
"Registrable Securities" means (i) any shares of Common Stock purchased
----------------------
pursuant to the Purchase Agreement, any shares of Common Stock issued or
issuable upon conversion of the Securities, and (ii) any Common Stock issued or
issuable in respect of the securities referred to in clause (i) above upon any
stock split, stock dividend, recapitalization or similar event; excluding in all
cases, however, any Registrable Securities that have been sold under Rule 144
promulgated under the Securities Act, and Registrable Securities sold by a
Person in a transaction (including a transaction pursuant to a registration
statement under this Agreement and a transaction pursuant to Rule 144 under the
Securities Act) in which registration rights are not transferred pursuant to
Section 10 hereof.
The terms "register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act.
"Registration Expenses" shall mean all expenses, other than Selling
---------------------
Expenses, incurred by the Company in complying with Sections 2 or 3 hereof,
including without limitation, all registration, qualification and filing fees,
exchange listing fees, printing expenses, escrow fees, fees and disbursements of
counsel for the Company, blue sky fees and expenses, and the expense of any
special audits incident to or required by any such registration.
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Selling Expenses" shall mean all underwriting discounts, selling
----------------
commissions and stock transfer taxes applicable to the securities registered by
the Holders and the costs and fees of any accountants, attorneys or other
experts retained by the Holders or Holder.
2. Demand Registration.
-------------------
(a) Requests for Registration. In the event that (i) the Company receives
-------------------------
from the Holder(s) a written request that the Company file a registration
statement on Form S-1 or S-3 (or any successor form to Form S-3), or any other
short-form registration statement, for a public offering of Registrable
Securities (a "Demand Registration"), the reasonably anticipated aggregate price
-------------------
to the public of which, net of underwriting discounts and commissions, would be
at least $5,000,000 within 10 days after receipt of any such request, the
Company will give written notice of such requested registration to all other
Holders of Registrable Securities. A Demand Registration on Form S-3 shall take
priority over any other form of registration statement, if available. The
Company shall include such other Holders' Registrable Securities in such
offering if they have responded affirmatively within 10 days after the receipt
of the Company's notice. The Holders in aggregate will be entitled to request
one Demand Registration hereunder. A registration will not count as a Demand
Registration until it has become effective (unless such Demand Registration has
not become effective due solely to the
2
<PAGE>
fault of the Holders requesting such registration, including a request by such
Holders that such registration be withdrawn).
(b) Priority on Demand Registration. A Demand Registration is an
-------------------------------
underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities requested to
be included in such offering exceeds the number of Registrable Securities that
can be sold in such offering without adversely affecting the marketability of
the offering, the Company will include in such registration (x) such number of
Registrable Securities allocated pro rata among the Holders thereof based upon
the number of Registrable Securities owned by each such Holder and (y) then any
other shares of Common Stock proposed to be sold by the Company or other
Persons. No securities other than Registrable Securities hereunder shall be
included in such Demand Registration without the prior written consent of
Holders who collectively hold Registrable Securities representing at least 50%
of the Registrable Securities then outstanding.
(c) Restrictions on Demand Registration. The Company may postpone the
-----------------------------------
filing or the effectiveness of a registration statement for a Demand
Registration one time for up to 105 days if the Company determines in good faith
that such Demand Registration would reasonably be expected to have a material
adverse effect on any proposal or plan by the Company to engage in any
financing, acquisition or disposition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer or similar
transaction or would require disclosure of any information that the board of
directors of the Company determines in good faith the disclosure of which would
be detrimental to the Company; provided, that in such event, the Holders
initially requesting such Demand Registration will be entitled to withdraw such
request and, if such request is withdrawn, such Demand Registration will not
count as a permitted Demand Registration hereunder and the Company will pay any
Registration Expenses in connection with such registration.
(d) Selection of Underwriters. The Holders will have the right to select
-------------------------
the investment banker(s) and manager(s) to administer an offering pursuant to
the Demand Registration, subject to the Company's prior written approval, which
will not be unreasonably withheld or delayed.
(e) Other Registration Rights. Except as provided in this Agreement, so
-------------------------
long as any Holder owns any Registrable Securities, the Company will not grant
to any Persons the right to request the Company to register any equity
securities of the Company, or any securities convertible or exchangeable into or
exercisable for such securities, which conflicts with the rights granted to the
Holders hereunder, without the prior written consent of the Holders of at least
50% of the Registrable Securities.
3. Piggyback Registrations. (a) Right to Piggyback. At any time
----------------------- ------------------
that the Company shall propose to register Common Stock under the Securities Act
(other than in a registration on Form S-3 relating to sales of securities to
participants in a Company dividend reinvestment plan, S-4 or S-8 or any
successor form or in connection with an acquisition or exchange offer or an
offering of securities solely to the existing shareholders or employees of the
Company), the Company shall give prompt written notice to all Holders of
Registrable Securities
3
<PAGE>
of its intention to effect such a registration and, subject to Section 3(b) and
the other terms of this Agreement, shall include in such registration all
Registrable Securities that are permitted under applicable securities laws to be
included in such registration and with respect to which the Company has received
written requests for inclusion therein by the Holders within 10 days after the
receipt of the Company's notice (each, a "Piggyback Registration"; together
----------------------
with a Demand Registration, a "Registration").
------------
(b) Priority on Piggyback Registrations. If a Piggyback Registration
-----------------------------------
is an underwritten registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number that
can be sold in such offering without adversely affecting the marketability of
the offering, the Company shall include in such registration, only as may be
permitted in the reasonable business judgment of the managing underwriters for
such registration:
(i) first, up to that number of securities the Company proposes
to sell;
(ii) second, up to that number of Registrable Securities
requested to be included in such registration by the Holders and that
number of securities requested to be included in such registration by any
other Person, pro rata among the Holders of such Registrable Securities and
such other Persons, on the basis of the number of shares owned by each of
such Holders subject to the rights of such other Persons under agreements
existing as of the date hereof; and
(iii) third, up to that number of other securities requested to
be included in such registration.
The Holders of any Registrable Securities included in such a registration shall
execute an underwriting agreement and customary accompanying documents in form
and substance satisfactory to the managing underwriters.
(c) Right to Terminate Registration. If, at any time after giving
-------------------------------
written notice of its intention to register any of its securities as set forth
in Section 3(a) and prior to the effective date of the registration statement
filed in connection with such registration, the Company shall determine for any
reason not to register such securities, the Company may, at its election, give
written notice of such determination to each Holder of Registrable Securities
and thereupon be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation to
pay the Registration Expenses in connection therewith as provided herein).
(d) Selection of Underwriters. The Company shall have the right to
-------------------------
select the investment banker(s) and manager(s) to administer an offering
pursuant to a Piggyback Registration subject to the approval of the holders of a
majority of the Registrable Securities, which approval will not be unreasonably
withheld or delayed.
4
<PAGE>
4. Expenses of Registration. Except as otherwise provided herein, all
------------------------
Registration Expenses incurred in connection with registrations pursuant to
Sections 2 and 3 shall be borne by the Company and all Selling Expenses relating
to securities registered on behalf of the Holders of Registrable Securities
shall be borne by such Holders.
5. Holdback Agreements.
-------------------
(a) The Company agrees (i) not to effect any public sale or distribution of
its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, for its own account during the seven days prior
to and during the 90-day period beginning on the effective date of any
underwritten Registration (except (A) as part of such underwritten registration,
(B) pursuant to registration statements on Form S-4 or Form S-8 or any successor
form, (C) pursuant to a registration statement then in effect or (D) as required
under any existing contractual obligation of the Company), unless the
underwriters managing the registered public offering otherwise agree, and (ii)
to use reasonable efforts to cause its officers and directors and each holder of
at least 5% (on a fully-diluted basis) of its outstanding Common Stock, or any
securities convertible into or exchangeable or exercisable for Common Stock, to
agree not to effect any public sale or distribution (including sales pursuant to
Rule 144) of any such securities during such periods (except as part of such
underwritten registration, if otherwise permitted), unless the underwriters
managing the registered public offering otherwise agree.
(b) Each Holder agrees, in the event of a public offering by the Company of
Common Stock under a registration statement on Form S-1, S-3 or S-4, not to
effect any offer, sale, distribution or transfer, including a sale pursuant to
Rule 144 (or any similar provision then in effect) under the Securities Act
(except as part of such registration), beginning on the date of receipt of a
written notice from the Company setting forth its intention to effect such
registration and ending on the earlier of (i) 180 days from the date of receipt
of such written notice or (ii) 90 days from the effective date of such
Registration Statement.
6. Registration Procedures. Whenever the Company is under the obligation
-----------------------
to register Registrable Securities hereunder, the Company will use all
reasonable efforts to effect the Registration and the sale of such Registrable
Securities, and pursuant thereto the Company will as expeditiously as possible:
(a) subject to Section 2(c) and 3(a) hereof, prepare and file with the
Commission a registration statement on any form for which the Company qualifies
with respect to such Registrable Securities and use all reasonable efforts to
cause such registration statement to become effective (provided that before
filing a registration statement or prospectus or any amendments or supplements
thereto, the Company will (i) furnish to the counsel selected by the Holders
copies of all such documents proposed to be filed, which documents will be
subject to the review of such counsel, and (ii) notify each Holder of
Registrable Securities covered by such registration of any stop order issued or
threatened by the Commission);
(b) subject to Section 2(c), 3(b) and 6(e) hereof, prepare and file with
the Commission such amendments and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to keep such
registration statement
5
<PAGE>
effective for, a period equal to the shorter of (i) 120 days and (ii) the time
by which all securities covered by such registration statement have been sold,
and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number of copies
of such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as such seller may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
seller;
(d) use all reasonable efforts to register or qualify such Registrable
Securities under the securities or blue sky laws of such jurisdictions as any
seller reasonably requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided that the Company will not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 6(d), (ii) subject itself to taxation in any
jurisdiction, or (iii) consent to general service of process in any such
jurisdiction);
(e) notify each seller of such Registrable Securities, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the occurrence of any event as a result of which the prospectus included
in such registration statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not misleading, and,
at the request of any such seller, the Company will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to make the
statements therein not misleading; provided, however, that the Company shall not
be required to amend the registration statement or supplement the Prospectus for
a period of up to six months if the board of directors of the Company determines
in good faith that to do so would reasonably be expected to have a material
adverse effect on any proposal or plan by the Company to engage in any
financing, acquisition or disposition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer or similar
transaction or would require the disclosure of any information that the board of
directors of the Company determines in good faith the disclosure of which would
be detrimental to the Company, it being understood that the period for which the
Company is obligated to keep the Registration Statement effective shall be
extended for a number of days equal to the number of days the Company delays
amendments or supplements pursuant to this provision. Upon receipt of any
notice pursuant to this Section 6(e), the Holders shall suspend all offers and
sales of securities of the Company and all use of any prospectus until advised
by the Company that offers and sales may resume, and shall keep confidential the
fact and content of any notice given by the Company pursuant to this Section
6(e);
(f) cause all such Registrable Securities to be listed on each securities
exchange on which similar securities issued by the Company are then listed;
6
<PAGE>
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting agreements
in customary form) and take all such other actions as the Holders of a majority
of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities;
(i) make available for inspection by a representative of the Holders of
Registrable Securities included in the registration statement, any underwriter
participating in any disposition pursuant to such registration statement and any
attorney, accountant or other agent retained by any such seller or underwriter,
all pertinent financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors,
employees and independent accountants to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in
connection with such registration statement;
(j) otherwise use its reasonable efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least 12 months beginning with the first day of the Company's first
full calendar quarter after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;
(k) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Common Stock included in such registration statement for sale in any
jurisdiction, use all reasonable efforts promptly to obtain the withdrawal of
such order; and
(l) if the registration is an underwritten offering, use all reasonable
efforts to obtain a so-called "cold comfort" letter from the Company's
independent public accountants in customary form and covering such matters of
the type customarily covered by cold comfort letters.
7. Obligations of Holders. Whenever the Holders of Registrable Securities
----------------------
sell any Registrable Securities pursuant to a Registration, such Holders shall
be obligated to comply with the applicable provisions of the Securities Act,
including the prospectus delivery requirements thereunder, and any applicable
state securities or blue sky laws.
8. Indemnification. (a) In connection with any registration statement for
---------------
a Registration in which a Holder of Registrable Securities is participating,
the Company agrees to indemnify, to the fullest extent permitted by applicable
law, each such Holder of Registrable Securities, its officers and directors and
each Person who controls such Holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities, expenses or any
7
<PAGE>
amounts paid in settlement of any litigation, investigation or proceeding
commenced or threatened to which each such indemnified party may become subject
under the Securities Act including without limitation attorneys fees and
disbursements (collectively, "Claims") insofar as such Claim arose out of (i)
------
any untrue or alleged untrue statement of material fact contained, on the
effective date thereof, in any such registration statement, prospectus or
preliminary prospectus or any amendment thereof or supplement thereto or (ii)
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as the same are caused by or contained in any information
furnished in writing to the Company by such Holder expressly for use therein, by
such Holder's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after the Company has
furnished such Holder with a sufficient number of copies of the same or by such
Holder's failure to comply with applicable securities laws. In connection with
an underwritten offering, the Company will indemnify the underwriters, their
officers and directors and each Person who controls the underwriters (within the
meaning of the Securities Act) to the same extent as provided above with respect
to the indemnification of the Holders of Registrable Securities.
(b) In connection with any registration statements for a Registration in
which a Holder of Registrable Securities is participating, each such Holder will
furnish to the Company in writing such customary information as the Company
reasonably requests for use in connection with any such registration statement
or prospectus (the "Seller's Information") and, to the fullest extent permitted
--------------------
by applicable law, will indemnify the Company, its directors and officers and
each Person who controls the Company (within the meaning of the Securities Act)
against any and all Claims to which each such indemnified party may become
subject under the Securities Act insofar as such Claim arose out of (i) any
untrue or alleged untrue statement of material fact contained, on the effective
date thereof, in any such registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto, (ii) any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements regarding Seller's Information therein not
misleading or (iii) any failure on the part of the Holder to comply with
applicable securities laws; provided, that with respect to a Claim arising
pursuant to clause (i) or (ii) above, the material misstatement or omission is
contained in such Seller's Information; provided, further, that the obligation
to indemnify will be individual to each Holder and will be limited to the amount
of proceeds received by such Holder from the sale of Registrable Securities
pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder will (i) give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification (but the failure to provide such notice shall not release
the indemnifying party of its obligation under paragraphs (a) and (b), unless
and then only to the extent that, the indemnifying party has been prejudiced by
such failure to provide such notice) and (ii) unless in such indemnified party's
reasonable judgment, based on written advice of counsel, a conflict of interest
between such indemnified and indemnifying parties may exist with respect to such
claim, permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party. An indemnifying party
who is not entitled to, or elects not to, assume the defense of a claim will not
be obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by such indemnifying party with respect to such claim,
8
<PAGE>
unless in the reasonable judgment of any indemnified party, based on written
advice of counsel, a conflict of interest may exist between such indemnified
party and any other of such indemnified parties with respect to such claim.
(d) The indemnifying party shall not be liable to indemnify an indemnified
party for any settlement, or consent to judgment of any such action effected
without the indemnifying party's written consent (but such consent will not be
unreasonably withheld). Furthermore, the indemnifying party shall not, except
with the prior written approval of each indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to each
indemnified party of a release from all liability in respect of such claim or
litigation without any payment or consideration provided by each such
indemnified party.
(e) If the indemnification provided for in this Section 8 is unavailable to
an indemnified party under clauses (a) and (b) above in respect of any losses,
claims, damages or liabilities referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
not only the relative benefits received by the Company (if any), the
underwriters, the sellers of Registrable Securities and any other sellers
participating in the registration statement from the sale of shares pursuant to
the registered offering of securities for which indemnity is sought but also the
relative fault of the Company, the underwriters, the sellers of Registrable
Securities and any other sellers participating in the registration statement in
connection with the statement or omission which resulted in such losses, claims,
damages or liabilities, as well as any other relevant equitable considerations.
The relative benefits received by the Company (if any), the underwriters, the
sellers of Registrable Securities and any other sellers participating in the
registration statement shall be deemed to be based on the relative relationship
of the total net proceeds from the offering (before deducting expenses) to the
Company (if any), the total underwriting commissions and fees from the offering
(before deducting expenses) to the underwriters and the total net proceeds from
the offering (before deducting expenses) to the sellers of Registrable
Securities and any other sellers participating in the registration statement.
The relative fault of the Company, the underwriters, the sellers of Registrable
Securities and any other sellers participating in the registration statement
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or by
the sellers of Registrable Securities and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(f) The indemnification provided for under this Agreement will remain in
full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling person of such
indemnified party and will survive the transfer of the Registrable Securities.
9. Participation in Underwritten Registrations. No Holder may participate
-------------------------------------------
in any registration hereunder which is underwritten unless such Holder (a)
agrees to sell such Holder's securities on the basis provided in any
underwriting arrangements approved by the
9
<PAGE>
Holder or Holders entitled hereunder to approve such arrangements, (b) as
expeditiously as possible notifies the Company of the occurrence of any event as
a result of which any prospectus contains an untrue statement of material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (c) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
10. Transfer of Registration Rights. The rights granted to any Holder
-------------------------------
under this Agreement may be assigned to any permitted transferee of Registrable
Securities, in connection with any transfer or assignment of Registrable
Securities by a Holder; provided, however, that: (a) such transfer is otherwise
effected in accordance with applicable securities laws, (b) if not already a
party hereto, the assignee or transferee agrees in writing prior to such
transfer to be bound by the provisions of this Agreement applicable to the
transferor, and (c) EIS shall act as agent and representative for such Holder
for the giving and receiving of notices hereunder.
11. Information by Holder. Each Holder shall furnish to the Company such
---------------------
written information regarding such Holder and any distribution proposed by such
Holder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Agreement and shall promptly notify the Company
of any changes in such information.
12. Exchange Act Compliance. The Company shall comply with all of the
-----------------------
reporting requirements of the Exchange Act then applicable to it and shall
comply with all other public information reporting requirements of the
Commission which are conditions to the availability of Rule 144 for the sale of
the Registrable Securities. The Company shall cooperate with each Holder in
supplying such information as may be necessary for such Holder to complete and
file any information reporting forms presently or hereafter required by the
Commission as a condition to the availability of Rule 144.
13. Termination of Registration Rights. All registration rights granted
----------------------------------
under this Agreement shall terminate and be of no further force and effect, as
to any particular Holder, at such time as all Registrable Securities held by
such Holder can be sold within a four-month period without compliance with the
registration requirements of the Securities Act pursuant to Rule 144 (including
Rule 144(k)) promulgated thereunder.
14. Miscellaneous.
-------------
(a) No Inconsistent Agreements. The Company will not hereafter enter into
--------------------------
any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the Holders of Registrable Securities in this
Agreement without the prior written consent of a majority in interest of such
Registrable Securities.
(b) Remedies. Any Person having rights under any provision of this
--------
Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted
10
<PAGE>
by law. The parties hereto agree and acknowledge that money damages may not be
an adequate remedy for any breach of the provisions of this Agreement and that
any party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or other security) for specific
performance and for other injunctive relief in order to enforce or prevent
violation of the provisions of this Agreement; provided, however, that in no
event shall any Holder have the right to enjoin, delay or interfere with any
offering of securities by the Company.
(c) Amendments and Waivers. Except as otherwise provided herein, the
----------------------
provisions of this Agreement may be amended or waived only with the prior
written consent of the Company and Holders of at least 50% of the Registrable
Securities; provided, that without the prior written consent of all the Holders,
no such amendment or waiver shall reduce the foregoing percentage required to
amend or waive any provision of this Agreement.
(d) Successors and Assigns. All covenants and agreements in this Agreement
----------------------
by or on behalf of any of the parties hereto will bind and inure to the benefit
of the respective successors and assigns of the parties hereto, and shall inure
to the benefit and be enforceable by each Holder of Registrable Securities from
time to time. In addition, whether or not any express assignment has been made,
the provisions of this Agreement which are for the benefit of Holders of
Registrable Securities are also for the benefit of, and enforceable by, any
permitted transferee of Registrable Securities in accordance with Section 10
hereof.
(e) 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 this
Agreement.
(f) Counterparts. This Agreement may be executed simultaneously in two or
------------
more counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts taken together will constitute one and the
same Agreement.
(g) Descriptive Headings. The descriptive headings of this Agreement are
--------------------
inserted for convenience only and do not constitute a part of this Agreement.
(h) Governing Law. All questions concerning the construction, validity and
-------------
interpretation of this Agreement will be governed by the laws of the State of
New York without regard to principles of conflicts of laws, except that all
issues concerning the relative rights of the Company and its shareholders shall
be governed by California State Law, without giving effect to the principles
thereof relating to conflicts of laws.
(i) Notices. All notices, demands and requests of any kind to be delivered
-------
to any party in connection with this Agreement shall be in writing and shall be
deemed to have been duly given if personally delivered or if sent by nationally-
recognized overnight courier or by registered or certified airmail, return
receipt requested and postage prepaid or by facsimile transmission, addressed as
follows:
11
<PAGE>
(i) if to the Company, to:
DepoMed, Inc.
366 Lakeside Drive
Foster City, California 94404-1146
Attention: Chief Executive Officer
Facsimile:
with a copy to:
Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, California 94301
Attn: Julian Stern, Esq.
Facsimile: (650) 324-0638
(ii) if to EIS, to:
Elan International Services, Ltd.
Flatts, Smiths Parish
Bermuda, FL 04
Facsimile: (441) 292-2224
Attention: President
with a copy to:
Brock Silverstein LLC
800 Third Avenue
New York, New York 10022
Facsimile: (212) 371-5500
Attention: David Robbins, Esq.
(j) Entire Agreement. This Agreement constitutes the full and entire
----------------
understanding and agreement between the parties with regard to the subject
matter hereof and supersedes all prior agreements relating to such subject
matter.
[Signature page follows]
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.
DEPOMED, INC.
By: /s/ John W. Fara
----------------------------------------
Name: John W. Fara
Title: President & CEO
ELAN INTERNATIONAL SERVICES, LTD.
By: /s/ Kevin Insley
----------------------------------------
Kevin Insley
President & CFO
[DepoMed Registration Rights Agreement]
<PAGE>
Exhibit 1.3
DEPOMED DEVELOPMENT LTD.
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made as of January
---------
21, 2000, by and among DepoMed Development Ltd., a Bermuda exempted limited
liability company (the "Company"), DepoMed, Inc., a California corporation
-------
("DMI"), and Elan International Services, Ltd., a Bermuda exempted limited
---
liability company ("EIS").
---
R E C I T A L S:
A. Pursuant to a Subscription, Joint Development and Operating Agreement
dated as of the date hereof by and among the Company, DMI, Elan Corporation,
plc, an Irish public limited company, Elan Pharma International Limited, an
Irish company, and EIS (the "JDOA"), DMI has acquired certain common shares, par
----
value $1.00 per share (the "Common Shares"), and certain non-voting convertible
-------------
preferred shares, par value $1.00 per share (the "Preferred Shares"; together
----------------
with Common Shares, the "Securities"), of the Company and EIS has acquired
----------
certain Preferred Shares, which Preferred Shares are convertible into Common
Shares.
B. The execution of the JDOA has occurred on the date hereof and it is a
condition to the closing of the transactions contemplated thereby that the
parties execute and deliver this Agreement.
C. The parties desire to set forth herein their agreement as to the terms
and conditions related to the granting of certain registration rights to the
Holders (as defined below) relating to the Common Shares held and the Common
Shares underlying the Securities.
A G R E E M E N T:
The parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Commission" shall mean the U.S. Securities and Exchange Commission.
----------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect from time to time.
"Holders" or "Holders of Registrable Securities" shall mean DMI, EIS and
------- ---------------------------------
any Person who shall have acquired Registrable Securities from either DMI or EIS
as permitted herein, either individually or jointly, as the case may be, in a
transaction pursuant to which registration rights are transferred pursuant to
Section 10 hereof.
<PAGE>
"Person" shall mean an individual, a partnership, a company, an
------
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental or quasi-governmental entity, or any department,
agency or political subdivision thereof.
"Registrable Securities" means (i) any Common Shares subscribed for
----------------------
pursuant to the JDOA; (ii) any Common Shares issuable upon conversion the
Preferred Shares; and (iii) any Common Shares issued or issuable in respect of
the securities referred to in clause (i) and (ii) above upon any stock split,
stock dividend, recapitalization or similar event; excluding in all cases,
however, any Registrable Securities that have been sold under Rule 144 under the
Securities Act, and Registrable Securities sold by a Person in a transaction
(including a transaction pursuant to a registration statement under this
Agreement and a transaction pursuant to Rule 144 promulgated under the
Securities Act) in which registration rights are not transferred pursuant to
Section 10 hereof.
The terms "register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act.
"Registration Expenses" shall mean all expenses, other than Selling
---------------------
Expenses, incurred by the Company in complying with Sections 2 or 3 hereof,
including without limitation, all registration, qualification and filing fees,
exchange listing fees, printing expenses, escrow fees, fees and disbursements of
counsel for the Company, blue sky fees and expenses, the expense of any special
audits incident to or required by any such registration.
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Selling Expenses" shall mean all underwriting discounts, selling
----------------
commissions and stock transfer taxes applicable to the securities registered by
the Holders and the costs and fees of any accountants, attorneys or other
experts retained by the Holders or Holder.
2. Demand Registrations.
--------------------
(a) Requests for Registration From and after the occurrence of the initial
-------------------------
public offering of the Company's Common Shares under the Securities Act, any
Holder or Holders who collectively hold Registrable Securities representing at
least 5% of the Company's Common Shares, on a fully-diluted basis, shall have
the right at any time from time to time (subject to the limitations below), to
request registration under the Securities Act of all or part of their
Registrable Securities on Form S-1, S-3 (or any successor form to Form S-1, S-3
or any other short-form registration statement (each, a "Demand Registration").
-------------------
A Demand Registration on Form S-3 shall take priority over any other form of
registration statement, if available. The request for the Demand Registration
shall specify the approximate number of Registrable Securities requested to be
registered, which must have a minimum expected aggregate offering price to the
public of at least $5,000,000. Within 10 days after receipt of any such
request, the Company will give written notice of such requested registration to
all other Holders of Registrable Securities. The Company shall include such
other Holders' Registrable Securities in such offering if they have responded
affirmatively within 10 days after the receipt of the
2
<PAGE>
Company's notice. Each of EIS and DMI shall be permitted to one Demand
Registration; provided, however, that the Holders in aggregate will be entitled
to request one Demand Registration hereunder within any 12-month period. A
registration will not count as a Demand Registration until it has become
effective (unless such Demand Registration has not become effective due solely
to the fault of the Holders requesting such registration, including a request by
such Holders that such registration be withdrawn).
(b) Priority on Demand Registrations. If a Demand Registration is an
--------------------------------
underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering,
exceeds the number of Registrable Securities and other securities, if any, which
can be sold in such offering without adversely affecting the marketability of
the offering, the Company will include in such registration:
(i) first, the Registrable Securities requested to be included
in such registration by the Holders (or, if necessary, such Registrable
Securities pro rata among the Holders thereof based upon the number of
Registrable Securities owned by each such Holder); and
(ii) thereafter, other securities requested to be included in
such registration, as determined by the Company.
(c) Restrictions on Demand Registration. The Company may postpone for
-----------------------------------
up to four months in any 12-month period, the filing or the effectiveness of a
registration statement for a Demand Registration if the Company determines in
good faith that such Demand Registration would reasonably be expected to have a
material adverse effect on any proposal or plan by the Company to engage in any
financing, acquisition or disposition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer or similar
transaction or would require disclosure of any information that the board of
directors of the Company determines in good faith the disclosure of which would
be detrimental to the Company; provided, that in such event, the Holders
initially requesting such Demand Registration will be entitled to withdraw such
request and, if such request is withdrawn, such Demand Registration will not
count as a permitted Demand Registration hereunder and the Company will pay any
Registration Expenses in connection with such registration.
(d) Selection of Underwriters. The Holders will have the right to
-------------------------
select the investment banker(s) and manager(s) to administer an offering
pursuant to the Demand Registration, subject to the Company's prior written
approval, which will not be unreasonably withheld or delayed.
(e) Other Registration Rights. Except as provided in this Agreement,
-------------------------
so long as any Holder owns any Registrable Securities, the Company will not
grant to any Persons the right to request the Company to register any equity
securities of the Company, or any securities convertible or exchangeable into or
exercisable for such securities, which conflicts with the rights granted to the
Holders hereunder, without the prior written consent of the Holders of at least
50% of the Registrable Securities.
3
<PAGE>
3. Piggyback Registrations.
-----------------------
(a) Right to Piggyback. At any time the Company shall propose to
-------------------
register Common Shares under the Securities Act (other than in a registration
statement on Form S-3 relating to sales of securities to participants in a
Company dividend reinvestment plan, or Form S-4 or S-8 or any successor form or
in connection with an acquisition or exchange offer or an offering of securities
solely to the existing shareholders or employees of the Company) (each, a
"Piggyback Registration"; together with a Demand Registration, a
----------------------
"Registration"), the Company will give prompt written notice to all Holders of
------------
Registrable Securities of its intention to effect such a registration and,
subject to Section 3(b) and the other terms of this Agreement, will include in
such registration all Registrable Securities which are permitted under
applicable securities laws to be included in such registration and with respect
to which the Company has received written requests for inclusion therein within
10 days after the receipt of the Company's notice.
(b) Priority on Piggyback Registrations. If a Piggyback Registration
-----------------------------------
is to be an underwritten offering, and the managing underwriters advise the
Company in writing that in their opinion the number of securities requested to
be included in such registration exceeds the number that can be sold in such
offering without adversely affecting the marketability of the offering, the
Company will include in such registration:
(i) first, the securities the Company proposes to sell;
(ii) the Registrable Securities requested to be included in such
registration by the Holders and any securities requested to be included in
such registration by any other Person having equal priority to registration
with the Holders, pro rata among the Holders of such Registrable Securities
and such other Persons, on the basis of the number of shares owned by each
of such Holders; and
(iii) thereafter, other securities requested to be included in
such registration.
The Holders of any Registrable Securities included in such an
underwritten offering must execute an underwriting agreement and customary
accompanying documents and in form and substance satisfactory to the managing
underwriters.
(c) Right to Terminate Registration. If, at any time after giving
-------------------------------
written notice of its intention to register any of its securities as set forth
in Section 3(a) and prior to the effective date of the registration statement
filed in connection with such registration, the Company shall determine for any
reason not to register such securities, the Company may, at its election, give
written notice of such determination to each Holder of Registrable Securities
and thereupon be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation to
pay the Registration Expenses in connection therewith as provided herein).
4
<PAGE>
(d) Selection of Underwriters. The Company will have the right to
-------------------------
select the investment banker(s) and manager(s) to administer an offering
pursuant to a Piggyback Registration, subject to the approval of the holders of
a majority of the Registrable Securities, which approval will not be
unreasonably withheld or delayed.
4. Expenses of Registration. Except as otherwise provided herein or
------------------------
as may otherwise be prohibited by applicable law, all Registration Expenses
incurred in connection with all registrations pursuant to Sections 2 and 3 shall
be borne by the Company; provided that, and notwithstanding anything herein
contained to the contrary, the Company shall not have any obligation pursuant to
the provisions hereof unless and until the Company is able to satisfy (after
taking into account such obligations) the requirements of Section 39A (2A) of
the Bermuda Companies Act of 1981 (or any successor legislation).
5. Holdback Agreements.
-------------------
(a) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 180-day period beginning on the effective date of any
underwritten Registration or any underwritten Piggyback Registration (except as
part of such underwritten registration or pursuant to registration statements on
Form S-4 or Form S-8 or any successor form), unless the underwriters managing
the registered public offering otherwise agree, and (ii) to use reasonable
efforts to cause its officers and directors and each holder of at least 5% (on a
fully-diluted basis) of its outstanding Common Shares, or any securities
convertible into or exchangeable or exercisable for Common Shares, purchased
from the Company at any time after the date of this Agreement (other than in a
registered public offering) to agree not to effect any public sale or
distribution (including sales pursuant to Rule 144) of any such securities
during such periods (except as part of such underwritten registration, if
otherwise permitted), unless the underwriters managing the registered public
offering otherwise agree.
(b) Each Holder agrees, if requested by the managing underwriter or
underwriters in an underwritten offering of securities by the Company, not to
effect any offer, sale, distribution or transfer, including a sale pursuant to
Rule 144 (or any similar provision then effect) under the Securities Act (except
as part of such underwritten registration), during the seven-day period prior
to, and during the 180-day period (or such shorter period as may be agreed to in
writing by the Company and the Holders of at least 50% of the Registrable
Securities) following the effective date of such Registration Statement to the
extent timely notified in writing by the managing underwriter or underwriters.
6. Registration Procedures. Whenever the Holders of Registrable
-----------------------
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company will use all reasonable efforts to effect the
Registration and the sale of such Registrable Securities in accordance with the
intended method of distribution thereof, and pursuant thereto the Company will
as expeditiously as possible:
5
<PAGE>
(a) subject to Section 2(c) hereof, prepare and file with the
Commission a registration statement on any form for which the Company qualifies
with respect to such Registrable Securities and use all reasonable efforts to
cause such registration statement to become effective (provided that before
filing a registration statement or prospectus or any amendments or supplements
thereto, the Company will (i) furnish to the counsel selected by the Holders
copies of all such documents proposed to be filed, which documents will be
subject to the review of such counsel, and (ii) notify each Holder of
Registrable Securities covered by such registration of any stop order issued or
threatened by the Commission);
(b) subject to Section 2(c) hereof, prepare and file with the
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period equal to the shorter of (i) six
months and (ii) the time by which all securities covered by such registration
statement have been sold, and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use all reasonable efforts to register or qualify such
Registrable Securities under the securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company will not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 6(d), (ii) subject itself
to taxation in any jurisdiction, or (iii) consent to general service of process
in any such jurisdiction);
(e) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the occurrence of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading; provided, however, that the Company
shall not be required to amend the registration statement or supplement the
Prospectus for a period of up to six months if the board of directors of the
Company determines in good faith that to do so would reasonably be expected to
have a material adverse effect on any proposal or plan by the Company to engage
in any financing, acquisition or disposition of assets (other than in the
ordinary course of business) or any merger, consolidation,
6
<PAGE>
tender offer or similar transaction or would require the disclosure of any
information that the board of directors of the Company determines in good faith
the disclosure of which would be detrimental to the Company, it being understood
that the period for which the Company is obligated to keep the Registration
Statement effective shall be extended for a number of days equal to the number
of days the Company delays amendments or supplements pursuant to this provision.
Upon receipt of any notice pursuant to this Section 6(e), the Holders shall
suspend all offers and sales of securities of the Company and all use of any
prospectus until advised by the Company that offers and sales may resume, and
shall keep confidential the fact and content of any notice given by the Company
pursuant to this Section 6(e);
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the Holders of
a majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities;
(i) make available for inspection by a representative of the Holders
of Registrable Securities included in the registration statement, any
underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
seller or underwriter, all pertinent financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(j) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least 12 months beginning with the first day of the
Company's first full calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Common Shares included in such registration statement for sale in any
jurisdiction, use all reasonable efforts promptly to obtain the withdrawal of
such order; and
(l) if the registration is an underwritten offering, use all
reasonable efforts to obtain a so-called "cold comfort" letter from the
Company's independent public accountants in
7
<PAGE>
customary form and covering such matters of the type customarily covered by cold
comfort letters.
7. Obligations of Holders. Whenever the Holders of Registrable
----------------------
Securities sell any Registrable Securities pursuant to a Registration, such
Holders shall be obligated to comply with the applicable provisions of the
Securities Act, including the prospectus delivery requirements thereunder, and
any applicable state securities or blue sky laws.
8. Indemnification. (a) The Company agrees to indemnify, to the
---------------
fullest extent permitted by applicable law, each Holder of Registrable
Securities, its officers and directors and each Person who controls such Holder
(within the meaning of the Securities Act) against all losses, claims, damages,
liabilities, expenses or any amounts paid in settlement of any litigation,
investigation or proceeding commenced or threatened to which each such
indemnified party may become subject under the Securities Act, including without
limitation attorneys fees and disbursements (collectively, "Claims") insofar as
------
such Claim arose out of (i) any untrue or alleged untrue statement of material
fact contained, on the effective date thereof, in any registration statement,
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or (ii) any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such Holder expressly for use
therein, by such Holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished such Holder with a sufficient number of copies of the same
or by such Holder's failure to comply with applicable securities laws. In
connection with an underwritten offering, the Company will indemnify the
underwriters, their officers and directors and each Person who controls the
underwriters (within the meaning of the Securities Act) to the same extent as
provided above with respect to the indemnification of the Holders of Registrable
Securities.
(b) In connection with any registration statements in which a Holder
of Registrable Securities is participating, each such Holder will furnish to the
Company in writing such customary information as the Company reasonably requests
for use in connection with any such registration statement or prospectus (the
"Seller's Information") and, to the fullest extent permitted by applicable law,
--------------------
will indemnify the Company, its directors and officers and each Person who
controls the Company (within the meaning of the Securities Act) against any and
all Claims to which each such indemnified party may become subject under the
Securities Act insofar as such Claim arose out of (i) any untrue or alleged
untrue statement of material fact contained, on the effective date thereof, in
any registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto regarding Seller's Information, (ii) any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein regarding Seller's
Information not misleading or (iii) any failure to comply with applicable
securities laws; provided that with respect to a Claim arising pursuant to
clause (i) or (ii) above, the material misstatement or omission is contained in
such Seller's Information; provided, further, that the obligation to indemnify
will be individual to each Holder and will be limited to the amount of proceeds
received by such Holder from the sale of Registrable Securities pursuant to such
registration statement.
8
<PAGE>
(c) Any Person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification (but the failure to provide such notice shall not
release the indemnifying party of its obligation under paragraphs (a) and (b),
unless and then only to the extent that, the indemnifying party has been
prejudiced by such failure to provide such notice) and (ii) unless in such
indemnified party's reasonable judgment, based on written advice of counsel, a
conflict of interest between such indemnified and indemnifying parties may exist
with respect to such claim, permit such indemnifying party to assume the defense
of such claim with counsel reasonably satisfactory to the indemnified party. An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party, based on
written advice of counsel, a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnifying party shall not be liable to indemnify an
indemnified party for any settlement, or consent to judgment of any such action
effected without the indemnifying party's written consent (but such consent will
not be unreasonably withheld). Furthermore, the indemnifying party shall not,
except with the prior written approval of each indemnified party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to each
indemnified party of a release from all liability in respect of such claim or
litigation without any payment or consideration provided by each such
indemnified party.
(e) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under clauses (a) and (b) above in respect
of any losses, claims, damages or liabilities referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect not only the relative benefits received by the Company,
the underwriters, the sellers of Registrable Securities and any other sellers
participating in the registration statement from the sale of shares pursuant to
the registered offering of securities for which indemnity is sought but also the
relative fault of the Company, the underwriters, the sellers of Registrable
Securities and any other sellers participating in the registration statement in
connection with the statement or omission which resulted in such losses, claims,
damages or liabilities, as well as any other relevant equitable considerations.
The relative benefits received by the Company, the underwriters, the sellers of
Registrable Securities and any other sellers participating in the registration
statement shall be deemed to be based on the relative relationship of the total
net proceeds from the offering (before deducting expenses) to the Company, the
total underwriting commissions and fees from the offering (before deducting
expenses) to the underwriters and the total net proceeds from the offering
(before deducting expenses) to the sellers of Registrable Securities and any
other sellers participating in the registration statement. The relative fault of
the Company, the underwriters, the sellers of Registrable Securities and any
other sellers participating in the registration statement shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or
9
<PAGE>
alleged omission to state a material fact relates to information supplied by the
Company or by the sellers of Registrable Securities and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
(f) The indemnification provided for under this Agreement will remain
in full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling person of such
indemnified party and will survive the transfer of the Registrable Securities.
9. Participation in Underwritten Registrations. No Holder may
-------------------------------------------
participate in any registration hereunder which is underwritten unless such
Holder (a) agrees to sell such Holder's securities on the basis provided in any
underwriting arrangements approved by the Holder or Holders entitled hereunder
to approve such arrangements, (b) as expeditiously as possible notifies the
Company of the occurrence of any event as a result of which any prospectus
contains an untrue statement of material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (c) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
10. Transfer of Registration Rights. The rights granted to any Holder
-------------------------------
under this Agreement may be assigned to any permitted transferee of Registrable
Securities, in connection with any transfer or assignment of Registrable
Securities by a Holder; provided, however, that: (a) such transfer is otherwise
effected in accordance with applicable securities laws, (b) if not already a
party hereto, the assignee or transferee agrees in writing prior to such
transfer to be bound by the provisions of this Agreement applicable to the
transferor, (c) such transferee shall own Registrable Securities representing at
least 5% of the outstanding Common Shares on a fully-diluted basis, and (d) DMI
or EIS, as applicable, if a transferor, shall act as agent and representative
for such Holder for the giving and receiving of notices hereunder.
11. Information by Holder. Each Holder shall furnish to the Company
---------------------
such written information regarding such Holder and any distribution proposed by
such Holder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Agreement and shall promptly notify the Company
of any changes in such information.
12. Exchange Act Compliance. The Company shall comply with all of the
-----------------------
reporting requirements of the Exchange Act then applicable to it and shall
comply with all other public information reporting requirements of the
Commission which are conditions to the availability of Rule 144 for the sale of
the Registrable Securities. The Company shall cooperate with each Holder in
supplying such information as may be necessary for such Holder to complete and
file any information reporting forms presently or hereafter required by the
Commission as a condition to the availability of Rule 144.
13. Termination of Registration Rights. All registration rights
----------------------------------
granted under this Agreement shall terminate and be of no further force and
effect, as to any particular Holder, at such time as all Registrable Securities
held by such Holder can be sold within a four-month
10
<PAGE>
period without compliance with the registration requirements of the Securities
Act pursuant to Rule 144 (including Rule 144(k)) promulgated thereunder.
14. Miscellaneous.
-------------
(a) No Inconsistent Agreements. The Company will not hereafter enter
--------------------------
into any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the Holders of Registrable Securities in this
Agreement without the prior written consent of a majority in interest of such
Registrable Securities.
(b) Remedies. Any Person having rights under any provision of this
--------
Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement; provided, however, that in no event shall any Holder have the right
to enjoin, delay or interfere with any offering of securities by the Company.
(c) Amendments and Waivers. Except as otherwise provided herein, the
----------------------
provisions of this Agreement may be amended or waived only with the prior
written consent of the Company and Holders of at least 50% of the Registrable
Securities; provided, that without the prior written consent of all the Holders,
no such amendment or waiver shall reduce the foregoing percentage required to
amend or waive any provision of this Agreement.
(d) Successors and Assigns. All covenants and agreements in this
----------------------
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto, and
shall inure to the benefit and be enforceable by each Holder of Registrable
Securities from time to time. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
Holders of Registrable Securities are also for the benefit of, and enforceable
by, any permitted transferee of Registrable Securities, in accordance with
Section 10 hereof.
(e) 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
this Agreement.
(f) Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together will constitute
one and the same Agreement.
11
<PAGE>
(g) Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience only and do not constitute a part of this
Agreement.
(h) Governing Law. All questions concerning the construction,
-------------
validity and interpretation of this Agreement will be governed by the laws of
the State of New York without regard to principles of conflicts of laws except
that all issues concerning the relative rights of the Company and its
shareholders shall be governed by Bermuda law, without giving effect to the
principles thereof relating to conflicts of laws.
(i) Notices. All notices, demands and requests of any kind to be
-------
delivered to any party in connection with this Agreement shall be in writing and
shall be deemed to have been duly given if personally delivered or if sent by
nationally-recognized overnight courier or by registered or certified airmail,
return receipt requested and postage prepaid or by facsimile transmission,
addressed as follows:
(i) if to the Company, to:
DepoMed Development Ltd.
c/o Conyers Dill & Pearman
Clarendon House
Church Street, P.O. Box HM 666
Hamilton HM CX, Bermuda
Attention: David J. Doyle
Facsimile: (441) 292-4720
with a copy to each of DMI, EIS and their respective counsel at
the addresses indicated below
(ii) if to DMI, to:
DepoMed, Inc.
366 Lakeside Drive
Foster City, California 94404-1146
Attention: Chief Executive Officer
Facsimile:
with a copy to:
Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, California 94301
Attn: Julian Stern, Esq.
Facsimile: (650) 324-0638
(iii) if to EIS, to:
12
<PAGE>
Elan International Services, Ltd.
Flatts, Smiths Parish
Bermuda, FL 04
Facsimile: (441) 292-2224
Attention: President
with a copy to:
Brock Silverstein LLC
800 Third Avenue
New York, New York 10022
Facsimile: (212) 371-5500
Attention: David Robbins, Esq.
(j) Entire Agreement. This Agreement constitutes the full and entire
----------------
understanding and agreement between the parties with regard to the subject
matter hereof and supersedes all prior agreements relating to such subject
matter.
[Signature page follows]
13
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.
DEPOMED DEVELOPMENT LTD.
By: /s/ John W. Fara
--------------------------------
Name: John W. Fara
Title: President & CEO
DEPOMED, INC.
By: /s/ John W. Fara
--------------------------------
Name: John W. Fara
Title: President & CEO
ELAN INTERNATIONAL SERVICES, LTD.
By: /s/ Kevin Insley
--------------------------------
Kevin Insley
President & CFO
[DepoMed Development Ltd. Registration Rights Agreement]
<PAGE>
Exhibit 1.4
FUNDING AGREEMENT made this 21/st/ day of January, 2000.
among:
(1) ELAN CORPORATION, PLC, a public limited company incorporated under the laws
of Ireland, and having its registered office at Lincoln House, Lincoln
Place, Dublin 2, Ireland ("Elan");
----
(2) ELAN PHARMA INTERNATIONAL LIMITED, a company incorporated under the laws of
Ireland, and having its registered office at Wil House, Shannon Business
Park, Shannon,, County Clare, Ireland ("EPIL");
(3) ELAN INTERNATIONAL SERVICES, LTD., an exempted limited liability company
incorporated under the laws of Bermuda, and having its registered office at
Clarendon House, 2 Church St., Hamilton, Bermuda ("EIS"); and
---
(4) DEPOMED, INC. a corporation incorporated under the laws of California and
having its principal place of business at 366 Lakeside Drive, Foster City,
California 94494-1146, United States of America ("DMI").
---
RECITALS:
A. EIS and DMI have formed a Bermuda exempted limited liability company to be
known as DepoMed Development Ltd.("Newco").
-----
B. Elan and EPIL are beneficially entitled to the use of certain patents which
have been granted or are pending in relation to the Elan Intellectual
Property.
C. DMI is beneficially entitled to the use of certain patents that have been
granted or are pending in relation to the Depomed Intellectual Property.
D. As of the date hereof, Elan and EPIL have entered into license agreements
with Newco, and DMI has entered into a license agreement with Newco, in
connection with the license to Newco of the Elan Intellectual Property and
the DMI Intellectual Property, respectively.
E. Elan and DMI have agreed to co-operate in the research, development and
commercialization of the Products based on their respective technologies.
F. As of the date hereof, Elan, EPIL, EIS, DMI and Newco have entered into a
Subscription, Joint Development and Operating Agreement, dated as of the
date hereof (the "JDOA") for the purpose of recording the terms and
----
conditions of the research, development and commercialization of the
Products and governing certain aspects of the affairs of and their
<PAGE>
dealings with Newco. The parties have agreed that capitalized terms when
used in the Recitals hereto and in this Agreement shall bear the same
meanings as ascribed to such terms in the JDOA.
CLAUSE 1
SUBSEQUENT FUNDING
1.1 It is estimated that Newco will require an additional U.S.$10,000,000 to
commence development of the Products based upon the DMI Intellectual
Property, the Elan Intellectual Property and/or the Newco Technology (the
"Subsequent Funding"). Within 24 months of the Closing Date, EIS and DMI
------------------
may provide to Newco, by way of contributed surplus or loan, as may be
agreed to by EIS and DMI, up to an aggregate maximum amount of
U.S.$10,000,000, such funding to be provided by EIS and DMI to Newco on a
pro rata basis based on their respective equity interests, on a fully-
diluted basis.
1.2 The Subsequent Funding shall be provided by EIS and DMI, each in its sole
discretion, at such times as shall be necessary for the development of the
Products as provided in the Business Plan or as otherwise approved by the
Newco Directors, including at least one EIS Director and one DMI Director.
The Subsequent Funding shall be funded on the following terms:
1.2.1 The minimum amount of each disbursement of the Subsequent Funding
shall be U.S.$250,000 (except in the event that an amount less than
U.S.$250,000 remains available for funding, in which case such
lesser amount may be funded) allocated between EIS and DMI as
provided in Section 1.1 above;
1.2.2 There shall be no Event of Default (as defined in the Note) under
the Note on the date of Subsequent Funding (except to the extent
that any Event of Default has been waived by EIS);
1.2.3 Such funding shall be provided in accordance with the Business Plan
or as otherwise approved by the Newco Board of Directors (including
at least one Newco Director designated by EIS and a majority of the
Newco Directors designated by DMI); and
1.2.4 Such funding shall be subject to the receipt by Elan or EIS of any
required approvals under the Merger and Takeover (Control) Act 1978-
1996 (the "Irish Mergers Act").
-----------------
1.3 In the event that Elan or EIS is unable to obtain approval under the Irish
Mergers Act within three months after a determination of the necessity of
such funding by the Newco Directors, the parties hereto shall work together
in good faith, each in its sole discretion, to agree on an alternative
funding mechanism.
1.4 Each request for Subsequent Funding shall be delivered from the Management
Committee to each of the Stockholders upon 15 business days' prior written
notice, which notice shall set forth:
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<PAGE>
(i) the amount of the Subsequent Funding requested;
(ii) the date requested to fund such amount (which with respect to DMI,
shall not be a date earlier than DMI receives a disbursement under
the Note to permit funding of its share of the Subsequent Funding, if
applicable); and
(iii) a reasonably detailed narrative and summary of the uses and
application thereof.
CLAUSE 2
TERMINATION
2.1 This Agreement shall govern the funding methodology of EIS and DMI with
respect to Newco until terminated by written agreement of EIS and DMI.
CLAUSE 3
GENERAL
3.1 Good Faith:
----------
Each of the Parties hereto undertakes with the others to do all things
reasonably within its power that are necessary or desirable to give effect
to the spirit and intent of this Agreement.
3.2 Further Assurance:
-----------------
At the request of any of the Parties, the other Party or Parties shall (and
shall use reasonable efforts to procure that any other necessary parties
shall) execute and perform all such documents, acts and things as may
reasonably be required subsequent to the signing of this Agreement for
assuring to or vesting in the requesting Party the full benefit of the
terms hereof.
3.3 Reliance on Representations and Warranties:
------------------------------------------
Each of the Parties hereto hereby acknowledges that in entering into this
Agreement it has not relied on any representation or warranty except as
expressly set forth herein or in any document referred to herein.
3.4 Force Majeure:
-------------
Neither Party to this Agreement shall be liable for delay in the
performance of any of its obligations hereunder if such delay is caused by
or results from causes beyond its reasonable
-3-
<PAGE>
control, including without limitation, acts of God, fires, strikes, acts of
war (whether war be declared or not), insurrections, riots, civil
commotions, strikes, lockouts or other labor disturbances or intervention
of any relevant government authority, but any such delay or failure shall
be remedied by such Party as soon as practicable.
3.5 Relationship of the Parties:
---------------------------
Nothing contained in this Agreement is intended or is to be construed to
constitute Elan, EPIL or EIS, on one hand, and DMI, on the other hand, as
partners, or Elan, EPIL or EIS as an employee or agent of DMI, or DMI as an
employee or agent of Elan, EPIL or EIS.
No Party hereto shall have any express or implied right or authority to
assume or create any obligations on behalf of or in the name of another
Party or to bind another Party to any contract, agreement or undertaking
with any third Party.
3.6 Counterparts:
------------
This Agreement may be executed in any number of counterparts, each of which
when so executed shall be deemed to be an original and all of which when
taken together shall constitute this Agreement.
3.7 Notices:
-------
Any notice to be given under this Agreement shall be sent in writing by
registered or recorded delivery post or reputable overnight courier such as
Federal Express or telecopied to:
Elan at:
Lincoln House, Lincoln Place, Dublin 2
Ireland
Attention: Vice President & General Counsel
Elan Pharmaceutical Technologies,
a division of Elan Corporation, plc
Telephone: 353-1-709-4000
Fax: 353-1-709-4124
with a copy to:
Brock Silverstein LLC
800 Third Avenue, 21/st/ Floor
New York, NY 10022
Attention: David Robbins, Esq.
Telephone: 212-371-2000
Fax: 212-371-5500
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<PAGE>
EPIL at:
Wil House
Shannon Business Park
Shannon, Co. Clare
Ireland
with a copy to:
Brock Silverstein LLC
800 Third Avenue, 21/st/ Floor
New York, NY 10022
Attention: David Robbins, Esq.
Telephone: 212-371-2000
Fax: 212-371-5500
EIS at:
Elan International Services, Ltd.
102 St. James Court
Flatts, Smiths FL04
Bermuda
Attention: President
Telephone: 441-292-9169
Fax: 441-292-2224
with a copy to:
Brock Silverstein LLC
800 Third Avenue, 21/st/ Floor
New York, NY 10022
Attention: David Robbins, Esq.
Telephone: 212-371-2000
Fax: 212-371-5500
DMI at:
366 Lakeside Drive
Foster City, California 94404-1146
Attention: Chief Executive Officer
Telephone 650-513-0990
Fax 650-513-0999
with a copy to:
Heller Ehrman White & McAuliffe
-5-
<PAGE>
525 University Avenue
Palo Alto, CA 94301
Attention: Julian Stern, Esq.
Telephone: 650-324-7039
Fax: 650-324-0638
or to such other address(es) as may from time to time be notified by any
Party to the others hereunder.
Any notice sent by mail shall be deemed to have been delivered within three
working days after dispatch or delivery to the relevant courier and any
notice sent by telecopy shall be deemed to have been delivered upon
confirmation of receipt by telephone. Notices of change of address shall be
effective upon receipt.
3.8 Governing Law:
-------------
This Agreement shall be governed by and construed in accordance with the
substantive (as opposed to procedural) laws of the State of New York,
without giving effect to principles thereof relating to conflicts of laws.
Any dispute hereunder shall be adjudicated in a forum set forth in the
Securities Purchase Agreement.
3.9 Severability:
------------
If any provision in this Agreement is agreed by the Parties to be, deemed
to be or is or becomes invalid, illegal, void or unenforceable under any
law that is applicable hereto, such provision will be deemed amended to
conform to applicable laws so as to be valid and enforceable or, if it
cannot be so amended without materially altering the intention of the
Parties, it will be deleted, with effect from the date of such agreement or
such earlier date as the Parties may agree, and the validity, legality and
enforceability of the remaining provisions of this Agreement shall not be
impaired or affected in any way.
3.10 Amendments:
----------
No amendment, modification or addition hereto shall be effective or binding
on any Party unless set forth in writing and executed by a duly authorized
representative of all Parties.
3.11 Waiver:
------
No waiver of any right under this Agreement shall be deemed effective
unless contained in a written document signed by the Party charged with
such waiver, and no waiver of any breach or failure to perform shall be
deemed to be a waiver of any future breach or failure to perform or of any
other right arising under this Agreement.
3.12 Assignment:
----------
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<PAGE>
None of the Parties shall be permitted to assign its rights or obligations
hereunder without the prior written consent of the other Parties except as
follows:
3.12.1 Elan, EPIL, EIS and/or DMI shall have the right to assign their
rights and to delegate their obligations hereunder to their
Affiliates; provided, however, that such assignment does not
result in material adverse tax consequences for any other
Parties; provided, that Elan, EPIL, EIS and/or DMI (if
applicable) shall remain obligated after such delegation.
3.12.2 Elan, EPIL and EIS shall have the right to assign their rights
and to delegate their obligations hereunder to a special purpose
financing or similar vehicle established by Elan, EPIL and/or
EIS; provided, that Elan, EPIL, EIS and/or DMI (if applicable)
shall remain obligated after such delegation provided, further,
that such assignment does not cause material adverse tax,
accounting or financial consequences to Elan, EPIL, EIS and/or
DMI.
3.12.3 Elan, EPIL, EIS and/or DMI shall have the right to assign or
otherwise transfer their rights and obligations hereunder in
connection with a sale of all or substantially all of the
business of such Party to which the Transaction Documents relate,
whether by merger, sale of stock, sale of assets or otherwise.
3.13 Whole Agreement/No Effect on Other Agreements:
---------------------------------------------
This Agreement and the other Transaction Documents set forth all of the
agreements and understandings between the Parties with respect to the
subject matter hereof, and supersedes and terminates all prior agreements
and understandings between the Parties with respect to the subject matter
hereof. There are no agreements or understandings with respect to the
subject matter hereof, either oral or written, between the Parties other
than as set forth in this Agreement and the other Transaction Documents.
No provision of this Agreement shall be construed so as to negate, modify
or affect in any way the provisions of any other agreement between any of
the Parties unless specifically referred to, and solely to the extent
provided herein. In the event of a conflict between the provisions of this
Agreement and the provisions of the License Agreements, the terms of this
Agreement shall prevail unless this Agreement specifically provides
otherwise.
3.14 Successors:
----------
This Agreement shall be binding upon and inure to the benefit of the
Parties hereto, their successors and permitted assigns.
[Signature Page Follows]
-7-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Funding
Agreement on the day first set forth above.
SIGNED
BY: /s/ Kevin Insley
-----------------------------
for and on behalf of
ELAN CORPORATION, PLC
in the presence of: /s/ Debbie Buryj
----------------------
SIGNED
BY: /s/ Kevin Insley
-----------------------------
for and on behalf of
ELAN PHARMA INTERNATIONAL LIMITED
in the presence of: /s/ Debbie Buryj
----------------------
SIGNED
BY: /s/ Kevin Insley
-----------------------------
for and on behalf of
ELAN INTERNATIONAL SERVICES, LTD.
in the presence of: /s/ Debbie Buryj
----------------------
SIGNED
BY: /s/ John W. Fara
-----------------------------
for and on behalf of
DEPOMED, INC.
in the presence of: /s/ John Hamilton
----------------------
[Funding Agreement]
<PAGE>
Exhibit 1.5
SUBSCRIPTION, JOINT DEVELOPMENT AND OPERATING AGREEMENT
ELAN CORPORATION, PLC
ELAN PHARMA INTERNATIONAL LIMITED
ELAN INTERNATIONAL SERVICES, LTD.
AND
DEPOMED, INC.
AND
DEPOMED DEVELOPMENT, LTD.
THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
1
<PAGE>
INDEX
-----
CLAUSE 1 DEFINITIONS
CLAUSE 2 BUSINESS
CLAUSE 3 REPRESENTATIONS AND WARRANTIES
CLAUSE 4 AUTHORIZATION AND CLOSING
CLAUSE 5 DIRECTORS; MANAGEMENT AND R&D COMMITTEES
CLAUSE 6 THE BUSINESS PLAN AND REVIEWS
CLAUSE 7 RESEARCH AND DEVELOPMENT WORK
CLAUSE 8 COMMERCIALIZATION
CLAUSE 9 OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS/[**]
CLAUSE 10 INTELLECTUAL PROPERTY RIGHTS
CLAUSE 11 CROSS LICENSING/EXPLOITATION OF NEWCO INTELLECTUAL PROPERTY
OUTSIDE FIELD
CLAUSE 12 REGULATORY
CLAUSE 13 MANUFACTURING
CLAUSE 14 TECHNICAL SERVICES AND ASSISTANCE
CLAUSE 15 AUDITORS, BANKERS, ACCOUNTING REFERENCE DATE; SECRETARY; "TICK
THE BOX"
CLAUSE 16 TRANSFER OF SHARES; RIGHTS OF FIRST OFFER; TAG ALONG RIGHTS
CLAUSE 17 MATTERS REQUIRING STOCKHOLDERS' APPROVAL
CLAUSE 18 DISPUTES
CLAUSE 19 TERMINATION
CLAUSE 20 SHARE RIGHTS
2
<PAGE>
CLAUSE 21 CONFIDENTIALITY
CLAUSE 22 COSTS
CLAUSE 23 GENERAL
3
<PAGE>
THIS SUBSCRIPTION, JOINT DEVELOPMENT AND OPERATING AGREEMENT dated 21 January,
2000
BETWEEN:
(1) ELAN CORPORATION, PLC, a public limited company incorporated under the laws
of Ireland, and having its registered office at Lincoln House, Lincoln
Place, Dublin 2, Ireland;
(2) ELAN PHARMA INTERNATIONAL LIMITED, a private limited company incorporated
under the laws of Ireland, and having its registered office at WIL House,
Shannon Business Park, Shannon, County Clare, Ireland;
(3) ELAN INTERNATIONAL SERVICES, LTD., a Bermuda exempted limited liability
company incorporated under the laws of Bermuda, and having its registered
office at Clarendon House, 2 Church St., Hamilton, Bermuda ("EIS");
(4) DEPOMED, INC. a corporation duly incorporated and validly existing under
the laws of California and having its principal place of business at 366
Lakeside Drive, Foster City, CA 94404-1146, United States of America; and
(5) DEPOMED DEVELOPMENT, LTD. a Bermuda exempted limited liability company
incorporated under the laws of Bermuda, and having its registered office at
Clarendon House, 2 Church St., Hamilton, Bermuda ("Newco").
RECITALS:
A. Newco desires to issue and sell to Depomed and Depomed desires to purchase
from Newco, for aggregate consideration of $[**] 6,000 ordinary shares of
Newco's common stock, par value $1.00 per share (the "Common Stock").
Additionally, Newco desires to issue and sell to the Stockholders (as
defined below), and the Stockholders desire to purchase from Newco, for
aggregate consideration of $[**] apportioned between them as set forth
herein, 6,000 shares of Newco's preferred stock, par value $1.00 per share
(the "Preferred Stock"), allocated 3,612 Shares to Depomed for aggregate
consideration of $[**] and 2,388 Shares to EIS for aggregate consideration
of $[**].
B. As of the Closing Date, Elan Corp and EPIL have entered into a license
agreement with Newco, and Depomed has entered into a license agreement with
Newco, in connection with the license to Newco of the Elan Intellectual
Property and the Depomed Intellectual Property, respectively (each as
defined below).
4
<PAGE>
C. Elan and Depomed have agreed to co-operate in the research, development and
commercialization of the Products (as defined below) based on their
respective technologies.
D. Elan and Depomed have agreed to enter into this Agreement for the purpose
of recording the terms and conditions regulating their relationship with
each other, with respect to the Licensed Technologies and with Newco.
NOW IT IS HEREBY AGREED AS FOLLOWS:
CLAUSE 1
DEFINITIONS
1.1 In this Agreement, the following terms shall, where not inconsistent with
the context, have the following meanings respectively.
"Affiliate" of any Person (in the case of a legal entity) shall mean any
other Person controlling, controlled or under the common control of such
first Person, as the case may be. For the purpose of this definition,
"control" shall mean direct or indirect ownership of fifty percent (50%) or
more of the stock or shares entitled to vote for the election of directors
in the case of a corporation and, in the case of a non-corporate entity,
the power to direct or cause the direction of management and policies.
Newco is not an Affiliate of Elan, EIS, EPIL or Depomed.
"Agreement" shall mean this agreement (which expression shall be deemed to
include the Recitals and the Schedules hereto).
"Board" shall mean the board of directors of Newco.
"Business" shall mean the business specified in the Business Plan.
"Business Plan" shall mean the business plan and program of development to
be agreed by Elan Corporation, Plc. and Depomed Inc. pursuant to Clause 6
that shall contain, among other things, to the extent practicable, the
research and development objectives, desired Product specifications,
clinical indications, preliminary clinical trial designs (Phase I/II),
development timelines, budgeted costs and the relative responsibilities of
Depomed and Elan as it relates to the implementation of the R&D Plan.
"Certificate of Designations" shall mean that certain certificate of
designations, preferences and rights of Series A Preferred Stock of Depomed
issued on the Closing Date.
5
<PAGE>
"Closing Date" shall mean the date upon which the Definitive Documents are
executed and delivered by the Parties and the transactions effected thereby
are closed.
"Compound" shall, subject to Clause 2.3, mean [**].
"Common Stock Equivalents" shall mean any options, warrants, rights or any
other securities convertible, exercisable or exchangeable, in whole or in
part, for or into Common Stock.
"Convertible Note" shall mean that certain convertible promissory note, of
even date herewith, by and between Depomed and EIS.
"Definitive Documents" shall mean this Agreement, the Funding Agreement,
Elan License Agreement, the Depomed License Agreement, the Convertible
Note, the Depomed Securities Purchase Agreement, the Registration Rights
Agreements, the Escrow Agreement, the Certificate of Designations and
associated documentation of even date herewith, by and between Depomed,
EPIL, Elan Corp, EIS and Newco, as applicable.
"Depomed" shall mean Depomed, Inc and its Affiliates.
"Depomed Directors" has the meaning set forth in Clause 5.
"Depomed Intellectual Property" shall mean the Depomed Know-How, the
Depomed Patents and the Depomed Improvements.
"Depomed Know-How" shall, subject to Clause 4.2 of the Depomed License
Agreement, mean any and all rights owned, licensed to or controlled by
Depomed on the Closing Date to any discovery or invention (whether
patentable or not) and owned, licensed to or controlled by Depomed on the
Closing Date to any know-how, substances, data, techniques, processes,
systems, formulations and designs relating to the Depomed Technology.
"Depomed License Agreement" shall mean the license agreement between
Depomed and Newco, of even date herewith, attached hereto in Schedule 2.
"Depomed Patents" shall, subject to Clause 4.2 of the Depomed License
Agreement, mean any and all rights under any and all patents applications
and/or patents, now existing, currently pending or hereafter filed or
obtained by Depomed on inventions conceived or reduced to practice on or
before the Closing Date relating to the Depomed Technology as set forth in
Schedule 1 of the Depomed License Agreement, and any foreign counterparts
thereof and all divisionals, continuations, continuations-in-part, patents
of addition, supplementary protection certificates, any foreign
counterparts thereof and all
6
<PAGE>
patents issuing on, any of the foregoing, together with all registrations,
reissues, re-examinations or extensions thereof.
"Depomed Technology" shall mean the Depomed technology directly related to:
(i) a solid oral dosage form which swells in the gastric cavity, remains
therein for an extended period of time in order to release drug
dispersed therein at a pre-defined rate from the stomach; and
(ii) [**].
"Depomed Improvements" shall mean improvements relating to the Depomed
Patents and/or the Depomed Know-How, developed (i) by Depomed whether or
not pursuant to the Project, (ii) by Newco or Elan or by an independent
third party (under contract with Newco) pursuant to the Project, and/or
(iii) jointly by any combination of Depomed, Elan or Newco pursuant to the
Project, except as limited by agreements with independent third parties.
Subject to independent third party agreements, Depomed Improvements shall
constitute part of Depomed Intellectual Property and shall, upon
development, be included in the license of the Depomed Intellectual
Property pursuant to Clause 2.1 of the Depomed License Agreement solely for
the purposes set forth therein. If the inclusion of a Depomed Improvement
in the license of Depomed Intellectual Property is restricted or limited by
an independent third party agreement, Depomed shall use reasonable
commercial efforts to exclude or minimize any such restriction or
limitation.
"Depomed Securities Purchase Agreement" shall mean that certain securities
purchase agreement, of even date herewith, by and between Depomed and EIS.
"Directors" shall mean, at any time, the directors of Newco.
"EIS Director" has the meaning set forth in Clause 5.
"Elan" shall mean Elan Corp, EPIL and EIS.
"Elan Corp" shall mean Elan Corporation, Plc. and Affiliates of Elan
Corporation, Plc. within the division of Elan Corporation, Plc. carrying on
business as Elan Pharmaceutical Technologies but shall not include
Affiliates (present or future) of Elan Corporation Plc within the division
of Elan Corporation, Plc carrying on business as Elan Pharmaceuticals which
incorporates, inter alia, Targon Corporation, Athena Neurosciences, Inc.,
Elan Pharmaceuticals, Inc., Elan Diagnostics, Carnrick Laboratories, and
Elan Europe Limited.
"Elan Intellectual Property" shall mean:
7
<PAGE>
(i) the Nano Know-How and the Nano Patents;
(ii) the Elan Corp CR Know-How and the Elan Corp CR Patents;
(iii) [**]; and
(iii) the Elan Improvements;
and shall exclude the Elan Excluded Intellectual Property.
"Elan License Agreement" shall mean the license agreement between Elan and
Newco, of even date herewith, attached hereto in Schedule 1.
"Elan Excluded Intellectual Property" shall mean:
(i) Elan's patent rights and know-how relating to protein or peptide
agents or peptodomimetics, derivatives or analogs thereof, designed
to target a pharmaceutically active agent to a certain site or sites
in the body (targeting technology);
(ii) [**]
(iii) for the avoidance of doubt, inventions, patents and know-how owned,
licensed or controlled by Axogen Limited and Neurelab Limited and by
all Affiliates or subsidiaries (present or future) of Elan
Corporation, Plc. within the division of Elan Corporation, Plc
carrying on business as Elan Pharmaceuticals which incorporates,
inter alia, EPIL (only to the extent that it is the owner of patents,
know-how or other intellectual property or technology invented and/or
developed within the division of Elan Corporation, Plc carrying on
business as Elan Pharmaceuticals but, for the avoidance of doubt, not
to the extent that it is the owner of patents, know-how or other
intellectual property or technology expressly licensed or sub-
licensed to Depomed pursuant to the Elan License Agreement), Targon
Corporation, Athena Neurosciences, Inc., Elan Pharmaceuticals, Inc.,
Elan Diagnostics, Carnrick Laboratories, and Elan Europe Limited.
"Elan Improvements" shall mean improvements relating to:
(i) the Nano Know-How and/or the Nano Patents;
(ii) the Elan Corp CR Know-How and/or the Elan Corp CR Patents; and
(iii) the [**];
8
<PAGE>
developed (i) by Elan whether or not pursuant to the Project, (ii) by Newco
or Depomed or by an independent third party (under contract with Newco)
pursuant to the Project, and/or (iii) jointly by any combination of Elan,
Depomed or Newco pursuant to the Project, except as limited by agreements
with independent third parties.
Subject to independent third party agreements, Elan Improvements shall
constitute part of Elan Intellectual Property and shall, upon development,
be included in the licenses of the Elan Intellectual Property pursuant to
Clause 2.1 of the Elan License Agreement solely for the purposes set forth
therein. If the inclusion of a Elan Improvement in the license of Elan
Intellectual Property is restricted or limited by an independent third
party agreement, Elan shall use reasonable commercial efforts to exclude or
minimize any such restriction or limitation.
"Elan Corp CR Know-How" shall, subject to the exclusions set forth in the
definition of "Elan Excluded Intellectual Property" and Clause 4.2 of the
Elan License Agreement, mean any and all rights owned, licensed or
controlled by Elan Corp on the Closing Date to any discovery or invention
(whether patentable or not) and owned, licensed or controlled by Elan Corp
on the Closing Date to any know-how, substances, data, techniques,
processes, systems, formulations, designs, knowledge, expertise and
information relating to oral controlled release formulation technologies.
"Elan Corp CR Patents" shall, subject to the exclusions set forth in the
definition of "Elan Excluded Intellectual Property" and Clause 4.2 of the
Elan License Agreement, mean any and all rights under any and all patents
applications and/or patents, now existing, currently pending or hereafter
filed or obtained by Elan Corp on inventions conceived or reduced to
practice on or before the Closing Date relating to oral controlled release
formulation technologies and any foreign counterparts thereof and all
divisionals, continuations, continuations-in-part, patents of addition,
supplementary protection certificates, any foreign counterparts thereof and
all patents issuing on, any of the foregoing, together with all
registrations, reissues, re-examinations or extensions thereof.
"EGTS Know-How" shall mean any and all discoveries or inventions (whether
patentable or not), know-how, substances, data, techniques, processes,
systems, formulations, designs, knowledge, expertise and information
relating to the EGTS Technology [**].
"EGTS Patents" shall mean the patents relating to the EGTS Technology, as
set forth in Schedule 1 of the Elan License Agreement, which were assigned
by [**] and all divisionals, continuations, continuations-in-part, patents
of addition, supplementary protection certificates, any foreign
counterparts thereof and all patents issuing on, any of the foregoing,
together with all registrations, reissues, re-examinations or extensions
thereof..
9
<PAGE>
"EGTS Technology" shall mean the technology directly relating to the [**].
"Encumbrance" shall mean any liens, charges, encumbrances, equities,
claims, options, proxies, pledges, security interests, or other similar
rights of any nature.
"EPIL" shall mean Elan Pharma International Limited and Affiliates of Elan
Corporation, Plc. within the division of Elan Corporation, Plc. carrying on
business as Elan Pharmaceutical Technologies but shall not include
Affiliates (present or future) of Elan Corporation Plc within the division
of Elan Corporation, Plc carrying on business as Elan Pharmaceuticals which
incorporates, inter alia, Targon Corporation, Athena Neurosciences, Inc.,
Elan Pharmaceuticals, Inc., Elan Diagnostics, Carnrick Laboratories, and
Elan Europe Limited.
"EPIL [**] Know-How" shall, subject to the exclusions set forth in the
definition of "Elan Excluded Intellectual Property" and Clause 4.2 of the
Elan License Agreement, mean [**], including but not limited to:
(i) the EGTS Know-How; and
(ii) the [**] Know-How.
"EPIL [**] Patents" shall, subject to the exclusions set forth in the
definition of "Elan Excluded Intellectual Property" and Clause 4.2 of the
Elan License Agreement, mean any and all rights under any and all patents
applications and/or patents, now existing, currently pending or hereafter
filed or obtained by EPIL on inventions conceived or reduced to practice on
or before the Closing Date relating to [**] Technology, including but not
limited to the EGTS Patents, and any foreign counterparts thereof and all
divisionals, continuations, continuations-in-part, patents of addition,
supplementary protection certificates, any foreign counterparts thereof and
all patents issuing on, any of the foregoing, together with all
registrations, reissues, re-examinations or extensions thereof.
[**]
"Exchange Right" has the meaning assigned to such term in the Certificate
of Designations in effect on the Closing Date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"FDA" shall mean the United States Food and Drug Administration or any
other successor agency in the USA.
"Financial Year" shall mean each year commencing on January 1 (or in the
case of the first Financial Year, the Closing Date) and expiring on
December 31 of
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<PAGE>
each year.
"[**] Field" shall mean [**].
"[**] Product" shall mean [**].
"Fields" shall mean the [**] Field, the [**] Field and the [**] Field.
"Fully Diluted Common Stock" shall mean all of the issued and outstanding
Common Stock, assuming the conversion, exercise or exchange of all
outstanding Common Stock Equivalents.
"Funding Agreement" shall mean the Funding Agreement, dated as of the
Closing Date, between Elan and Depomed.
"[**] Technology" shall mean [**].
"[**] Field" shall mean [**].
"[**] Product" shall mean [**].
"[**] Know-How" shall mean[**].
"[**] Technology" shall mean [**].
"License Agreements" shall mean the Elan License Agreement and the Depomed
License Agreement.
"Licensed Technologies" shall mean, collectively, the Elan Intellectual
Property and the Depomed Intellectual Property.
"Nano Know-How" shall, subject to the exclusions set forth in the
definition of "Elan Excluded Intellectual Property" and Clause 4.2 of the
Elan License Agreement, mean any and all rights owned, licensed to or
controlled by EPIL on the Closing Date to any discovery or invention
(whether patentable or not) and owned, licensed to or controlled by EPIL on
the Closing Date to any know-how, substances, data, techniques, processes,
systems, formulations, designs, knowledge, expertise and information
relating to Nanocrystal(R) Technology.
"Nano Patents" shall, subject to the exclusions set forth in the definition
of "Elan Excluded Intellectual Property" and Clause 4.2 of the Elan License
Agreement, mean any and all rights under any and all patents applications
and/or patents, now existing, currently pending or hereafter filed or
obtained by EPIL on inventions conceived or reduced to practice on or
before the Closing Date relating to Nanocrystal(R) Technology and any
foreign counterparts thereof and all divisionals, continuations,
continuations-in-part, patents of addition,
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supplementary protection certificates, any foreign counterparts thereof and
all patents issuing on, any of the foregoing, together with all
registrations, reissues, re-examinations or extensions thereof.
"Nanocrystal(R) Technology" shall mean the EPIL proprietary technology
directly related to nanoparticulate formulations of compounds used in the
manufacturing and/or formulation process, and methods of making the same.
"Newco Bye-Laws" shall mean the Memorandum of Association and Bye-Laws of
Newco
"Newco Intellectual Property" shall mean all rights to patents, know-how
and other intellectual property arising out of the conduct of the Project
by any person, including any technology acquired by Newco from a third
party, that does not constitute Elan Intellectual Property or Depomed
Intellectual Property.
"Newco Patents" shall mean any and all patents now existing, currently
pending or hereafter filed or obtained relating to the Newco Intellectual
Property, and any foreign counterparts thereof and all divisionals,
continuations, continuations-in-part, patents of addition, supplementary
protection certificates, any foreign counterparts thereof and all patents
issuing on, any of the foregoing, together with all registrations,
reissues, re-examinations or extensions thereof.
"[**]" shall mean [**].
"[**] Agreement" shall mean [**].
"[**] Amendment Agreement" shall mean [**].
"Participant" shall mean Depomed or Elan, as the case may be, and
"Participants" shall mean both of the Participants together;
"Party" shall mean EPIL, EIS, Elan Corp, Depomed, or Newco, as the case may
be, and "Parties" shall mean all five together;
"Person" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, governmental entity or authority
or other entity of whatever nature.
"Permitted Transferee" shall mean any Affiliate or subsidiary of Elan, EPIL
or EIS or Depomed, to whom this Agreement may be assigned, in whole or in
part, pursuant to the terms hereof or in the case of Elan, EPIL or EIS, a
special purpose financing entity created by Elan, EPIL or EIS.
"Product(s)" shall mean [**].
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"Project" shall mean all activity as undertaken by or on behalf of Newco in
order to develop the Products in accordance with the Business Plan.
"Registration Rights Agreements" shall mean the Registration Rights
Agreements of even date herewith relating to Newco and Depomed,
respectively.
"Regulatory Application" shall mean any regulatory application or any other
application for marketing approval for a Product, which Newco will file in
any country of the Territory, including any supplements or amendments
thereto.
"Regulatory Approval" shall mean the final approval to market a Product in
any country of the Territory, and any other approval which is required to
launch the Product in the normal course of business.
"RHA" shall mean any relevant government health authority (or successor
agency thereof) in any country of the Territory whose approval is necessary
to market a Product in the relevant country of the Territory.
"Securities Act" shall mean the US Securities Act of 1933, as amended.
"Shares" shall mean the shares of Common Stock and shares of Preferred
Stock of Newco.
"[**] License Agreement" shall mean [**].
"[**] Field" shall mean [**].
"[**] Product" shall mean [**].
"Stockholder" shall mean any of EIS, Depomed, any Permitted Transferee or
any other Person who subsequently becomes bound by this Agreement as a
holder of the Shares, and "Stockholders" shall mean all of the Stockholders
together.
"Technological Competitor of Elan" shall mean a company, corporation or
person listed in Schedule 3 and successors thereof or any additional broad-
based technological competitor of Elan added to such Schedule from time to
time upon mutual agreement of the Parties.
"Technological Competitor of Depomed" shall mean a company, corporation or
person listed in Schedule 4 and successors thereof or any additional broad-
based technological competitor of Depomed added to such Schedule from time
to time upon mutual agreement of the Parties.
"Term" shall mean the term of this Agreement.
"Territory" shall mean all of the countries of the world.
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"United States Dollar" and "US$" and "$" shall mean the lawful currency of
the United States of America.
1.2 In addition, the following definitions have the meanings in the Clauses
corresponding thereto, as set forth below.
Definition Clause
"AAA" 18.4
"Buyout Option" 19.4
"Closing" 4.3
"Common Stock" Recital
"Confidential Information" 21.1
"Co-sale Notice" 16.4
"Expert" 18.4
"Management Committee" 5.2.1
"Notice of Exercise" 16.3
"Notice of Intention" 16.3
"Offered Shares" 16.3
"Offer Price" 16.3
"Preferred Stock" Recital
"Proposing Participant" 19.4
"Proposing Participant Price: 19.6
"Purchase Price" 19.6
"R&D Committee" 5.2.3
"Recipient Participant" 19.4
"Recipient Participant Price" 19.6
"Remaining Stockholders" 16.4
"Relevant Event" 19.2
"Selling Stockholder" 16.3
"Tag-Along Right" 16.4
"Transaction Proposal" 16.3
"Transfer" 16.1
"Transferee Terms" 16.4
"Transferring Stockholder" 16.4
1.3 Words importing the singular shall include the plural and vice versa.
1.4 Unless the context otherwise requires, reference to a recital, article,
paragraph, provision, clause or schedule is to a recital, article,
paragraph, provision, clause or schedule of or to this Agreement.
1.5 Reference to a statute or statutory provision includes a reference to it as
from time to time amended, extended or re-enacted.
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1.6 The headings in this Agreement are inserted for convenience only and do not
affect its construction.
1.7 Unless the context or subject otherwise requires, references to words in
one gender include references to the other genders.
1.8 Capitalized terms used but not defined herein shall have the meanings
ascribed in the Definitive Documents, if defined therein.
CLAUSE 2
BUSINESS
2.1 This Agreement shall regulate the business of the development, testing,
registration, manufacture, commercialization and licensing of Products in
the Territory and to achieve the other objectives set out in this
Agreement. The focus of the Business will be to develop the Products using
the Elan Intellectual Property, the Depomed Intellectual Property and the
Newco Intellectual Property to agreed-upon specifications and timelines.
2.2 The central management and control of Newco shall be exercised in Bermuda
and shall be vested in the Directors and such Persons as they may delegate
the exercise of their powers in accordance with the Newco Bye-Laws. The
Stockholders agree to conduct the Business in such a manner as to ensure
that Newco is liable to taxation in Bermuda and not in any other
jurisdiction. The Stockholders shall use their best endeavors to ensure the
sole residence of Newco in Bermuda, all meetings of the Directors are held
in Bermuda or other jurisdictions outside the United States and Ireland and
generally to ensure that Newco is treated as resident for taxation purposes
in Bermuda.
2.3 An additional Compound or Compounds may be selected and designated as
Compound(s) by the unanimous vote of the Management Committee. In such
case, the Parties shall negotiate in good faith such amendments as are
required to this Agreement and the License Agreements, such as amending the
provisions of the License Agreements regulating non-competition.
CLAUSE 3
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Newco: Newco hereby represents and
---------------------------------------
warrants to each of the Stockholders as follows, as of the Closing Date:
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3.1.1 Organization: Newco is an exempted company duly organized,
------------
validly existing and in good standing under the laws of
Bermuda, and has all the requisite corporate power and
authority to own and lease its properties, to carry on its
business as presently conducted and as proposed to be
conducted.
3.1.2 Capitalization: As of the Closing Date, the authorized capital
stock of Newco consists of 6,000 shares of Common Stock and
6,000 shares of Preferred Stock. Prior to the Closing Date, no
shares of capital stock of Newco have been issued.
3.1.3 Authorization: The execution, delivery and performance by Newco
-------------
of this Agreement, including the issuance of the Shares, have
been duly authorized by all requisite corporate actions; this
Agreement has been duly executed and delivered by Newco and is
the valid and binding obligation of Newco, enforceable against
it in accordance with its terms except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting the enforcement of
creditors' rights generally, and except as enforcement of
rights to indemnity and contribution hereunder may be limited
by United States federal or state securities laws or principles
of public policy. The Shares, when issued as contemplated
hereby, will be validly issued and outstanding, fully paid and
non-assessable and not subject to preemptive or any other
similar rights of the Stockholders or others.
3.1.4 No Conflicts: The execution, delivery and performance by Newco
------------
of this Agreement, the issuance, sale and delivery of the
Shares, and compliance with the provisions hereof by Newco,
will not:
(i) violate any provision of applicable law, statute, rule or
regulation applicable to Newco or any ruling, writ,
injunction, order, judgment or decree of any court,
arbitrator, administrative agency or other governmental
body applicable to Newco or any of its properties or
assets;
(ii) conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute (with
notice or lapse of time or both) a default (or give rise
to any right of termination, cancellation or
acceleration) under its charter or organizational
documents or any material contract to which Newco is a
party, except where such violation, conflict or breach
would not, individually or in the aggregate, have a
material adverse effect on Newco; or
(iii) result in the creation of, any Encumbrance upon any of
the properties or assets of Newco.
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3.1.5 Approvals: As of the Closing Date, no permit, authorization, consent
---------
or approval of or by, or any notification of or filing with, any
Person is required in connection with the execution, delivery or
performance of this Agreement by Newco. Newco has full authority to
conduct its business as contemplated in the Business Plan and the
Definitive Documents.
3.1.6 Disclosure: This Agreement does not contain any untrue statement
----------
of a material fact or omit to state any material fact necessary to
make the statements contained herein not misleading. Newco is not
aware of any material contingency, event or circumstance relating to
its business or prospects, which could have a material adverse
effect thereon, in order for the disclosure herein relating to Newco
not to be misleading in any material respect.
3.1.7 No Business; No Liabilities: Newco has not conducted any business
---------------------------
or incurred any liabilities or obligations prior to the Closing
Date, except solely in connection with its organization and
formation.
3.2 Representations and Warranties of the Stockholders: Each of the
---------------------------------------------------
Stockholders and Elan (where expressly stated) hereby severally represents
and warrants to Newco as follows as of the Closing Date:
3.2.1 Organization: Such Stockholder and Elan is a corporation duly
------------
organized and validly existing under the laws of its jurisdiction of
organization and has all the requisite corporate power and authority
to own and lease its respective properties, to carry on its
respective business as presently conducted and as proposed to be
conducted and to carry out the transactions contemplated hereby.
3.2.2 Authority: Such Stockholder and Elan has full legal right, power
---------
and authority to enter into this Agreement and to perform its
obligations hereunder, which have been duly authorized by all
requisite corporate action. This Agreement is the valid and binding
obligation of such Stockholder and Elan, enforceable against it in
accordance with its terms except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the enforcement of creditors' rights
generally, and except as enforcement of rights to indemnity and
contribution hereunder may be limited by United States federal or
state securities laws or principles of public policy.
3.2.3 No Conflicts: The execution, delivery and performance by such
------------
Stockholder and Elan of this Agreement, purchase of the Shares by
such Stockholder, and compliance with the provisions hereof by such
Stockholder and Elan will not:
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(i) violate any provision of applicable law, statute, rule or
regulation known by and applicable to such Stockholder or Elan
or any ruling, writ, injunction, order, judgment or decree of
any court, arbitrator, administrative agency or other
governmental body applicable to such Stockholder or Elan or any
of its properties or assets;
(ii) conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute (with notice or lapse
of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under the charter or
organizational documents of such Stockholder or Elan or any
material contract to which such Stockholder or Elan is a party,
except where such violation, conflict or breach would not,
individually or in the aggregate, have a material adverse effect
on such Stockholder or Elan; or
(iii) result in the creation of, any Encumbrance upon any of the
properties or assets of such Stockholder or Elan.
3.2.4 Approvals: As of the Closing Date, no permit, authorization, consent
----------
or approval of or by, or any notification of or filing with, any
Person is required in connection with the execution, delivery or
performance of this Agreement by such Stockholder or Elan.
3.2.5 Investment Representations: Such Stockholder is sophisticated in
--------------------------
transactions of this type and capable of evaluating the merits and
risks of its investment in Newco. Such Stockholder has not been
formed solely for the purpose of making this investment and such
Stockholder is acquiring the Common Stock and Preferred Stock for
investment for its own account, not as a nominee or agent, and not
with the view to, or for resale in connection with, any distribution
of any part thereof. Such Stockholder understands that the Shares
have not been registered under the Securities Act or applicable state
and foreign securities laws by reason of a specific exemption from
the registration provisions of the Securities Act and applicable
state and foreign securities laws, the availability of which depends
upon, among other things, the bona fide nature of the investment
intent and the accuracy of such Stockholders' representations as
expressed herein. Such Stockholder understands that no public market
now exists for any of the Shares and that there is no assurance that
a public market will ever exist for such Shares.
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CLAUSE 4
AUTHORIZATION AND CLOSING
4.1 Newco has authorized the issuance to (i) EIS of 2,388 shares of Preferred
Stock and (ii) Depomed of 6,000 shares of Common Stock and 3,612 shares of
Preferred Stock, issuable as provided in Clause 4.4 hereof.
4.2 Depomed and EIS hereby subscribe for the number of Shares set forth in
Clause 4.1 and shall pay to Newco in consideration therefore, by wire
transfer of immediately available funds (to a bank account established by
Newco in connection with the Closing) the subscription amounts each as
provided in Clause 4.4.1.
4.3 The closing (the "Closing") shall take place at the offices of Brock
Silverstein LLC at 800 Third Avenue, New York, New York 10022 on the
Closing Date or such other places if any, as the Parties may agree and
shall occur contemporaneously with the closing under the Depomed Securities
Purchase Agreement.
4.4 At the Closing, each of the Stockholders shall take or (to the extent
within its powers) cause to be taken the following steps at Directors and
shareholder meetings of Newco, or such other meetings, as appropriate:
4.4.1 Newco shall issue and sell to EIS, and EIS shall purchase from
Newco, upon the terms and subject to the conditions set forth
herein, 2,388 shares of Preferred Stock for an aggregate purchase
price of $[**]. Newco shall issue and sell to Depomed, and Depomed
shall purchase from Newco, upon the terms and conditions set forth
herein, (i) 6,000 shares of Common Stock for an aggregate purchase
price of $[**] and (ii) 3,612 shares of Preferred Stock for an
aggregate purchase price of $[**].
4.4.2 the Parties shall execute and deliver to each other, as applicable,
certificates in respect of the Common Stock and Preferred Stock
described above and any other certificates, resolutions or documents
which the Parties shall reasonably require;
4.4.3. the adoption by Newco of Newco Bye-Laws;
4.4.4. the appointment of Kevin Insley, John Fara, John Hamilton, David
Astwood and Kevin Butler as Directors of Newco;
4.4.5. the resignation of all directors and the secretary of Newco holding
office prior to the execution of this Agreement and delivery of
written confirmation under seal by each Person so resigning that he
has no claim
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or right of action against Newco and that Newco is not in any way
obligated or indebted to him; and
4.4.6. the transfer to Newco of the share register.
4.5 Exemption from Registration:
----------------------------
The Shares will be issued under an exemption or exemptions from
registration under the Securities Act. Accordingly, the certificates
evidencing the Shares shall, upon issuance, contain the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
SECURITIES LAWS OF A STATE OR OTHER JURISDICTION AND MAY NOT
UNDER ANY CIRCUMSTANCES BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF (OTHER THAN TO AN AFFILIATE OF THE ORIGINAL
HOLDER OR AS OTHERWISE PERMITTED IN THE AGREEMENT PURSUANT
TO WHICH THEY WERE ISSUED) EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS, OR
(ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE SECURITIES
ACT (OR ANY SIMILAR RULE UNDER THE SECURITIES ACT RELATING
TO THE DISPOSITION OF SECURITIES) TOGETHER WITH AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR APPLICABLE
STATE SECURITIES LAWS.
4.6. Newco shall use reasonable efforts to file any documents that require
filing with the Registrar of Companies in Bermuda within the prescribed
time limits. EIS and Depomed shall provide all reasonable co-operation to
Newco in relation to the matters set forth in this Clause 4.6.
4.7. In the event that EIS validly exercises the Exchange Right, Newco shall,
immediately upon such exercise, take all necessary steps to ensure that EIS
is duly and validly issued and has full legal right, title and interest in
and to the shares of Preferred Stock covered thereby. The Parties
acknowledge that such Shares have been pledged to EIS pursuant to the
Depomed Securities Purchase Agreement and that the [**] has physical
possession of such Shares pursuant to the [**]; upon such exercise, EIS
shall be entitled to physical possession of such Shares, which shall be
owned by EIS as provided above. In connection with the foregoing,
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Newco and the Participants shall take all necessary or appropriate steps to
ensure such ownership by EIS.
CLAUSE 5
DIRECTORS; MANAGEMENT AND R&D COMMITTEES
5.1. Directors:
---------
5.1.1 Prior to the exercise of the Exchange Right, the Board shall be
composed of five Directors.
Depomed shall have the right to nominate four directors of Newco,
("Depomed Directors") and EIS shall have the right to nominate one
Director of Newco ("EIS Director") which Director, save as further
provided herein, shall only be entitled to 15% of the votes of the
Board.
In the event that the Exchange Right is exercised by EIS within 2
years following the Closing Date, the EIS Director shall only be
entitled to 15% of the votes of the Board until the expiry of 2
years from the Closing Date.
In the event that the Exchange Right is exercised by EIS at any time
after two years following the Closing Date or upon the expiry of 2
years following the Closing Date where the Exchange Right has been
exercised by EIS within 2 years following the Closing Date, each of
Depomed, and EIS shall cause the Board to be reconfigured so that an
equal number of Directors are designated by EIS and Depomed and that
each of the Directors has equal voting power.
5.1.2 If EIS removes the EIS Director, or Depomed removes any of the
Depomed Directors, EIS or Depomed, as the case may be, shall
indemnify the other Stockholder against any claim by such removed
Director arising from such removal.
5.1.3 The Directors shall meet not less than three times in each Financial
Year and all Board meetings shall be held in Bermuda to the extent
required pursuant to the laws of Bermuda or to ensure the sole
residence of Newco in Bermuda.
5.1.4 At any such meeting, the presence of the EIS Director and all of the
Depomed Directors shall be required to constitute a quorum and,
subject to Clause 17 hereof, the affirmative vote of all of the
Directors present at a meeting (in person or by telephone) at which
such a quorum is present shall constitute an action of the
Directors. In the event of any meeting being inquorate, the meeting
shall be adjourned for a period of seven days. A
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notice shall be sent to the EIS Director and the Depomed Directors
specifying the date, time and place where such adjourned meeting is
to be held and reconvened.
5.1.5 On the Closing Date, Depomed may appoint one of the Depomed
Directors to be the chairman of Newco. The chairman of Newco shall
hold office until:
(i) the first meeting of the Board following the exercise by EIS
of the Exchange Right, where the Exchange Right has been
exercised by EIS after two years following the Closing Date;
or
(ii) the first meeting of the Board following the expiry of 2 years
following the Closing Date where the Exchange Right has been
exercised by EIS within 2 years following the Closing Date
(in each case the "Chairman Status Board Meeting")
After the Chairman Status Board Meeting, each of EIS and Depomed,
beginning with EIS at the Chairman Status Board Meeting, shall have
the right, exercisable alternatively, of nominating one Director to
be chairman of Newco for a term of one year.
If the chairman is unable to attend any meeting of the Board held
prior to the Chairman Status Board Meeting, the Depomed Directors
shall be entitled to appoint another Depomed Director to act as
chairman in his place at the meeting.
If the chairman of Newco is unable to attend any meeting of the
Board held after the Chairman Status Board Meeting, the Directors
shall be entitled to appoint another Director to act as chairman of
Newco in his place at the meeting.
5.1.6 In case of an equality of votes at a meeting of the Board, the
chairman of Newco shall not be entitled to a second or casting
vote. In the event of continued deadlock, the Board shall resolve
the deadlock pursuant to the provisions set forth in Clause 18.
5.2 Management and R&D Committees:
------------------------------
5.2.1 The Board shall appoint a management committee (the "Management
Committee") to consist initially of four members, two of whom shall
be nominated by Elan and two of whom shall be nominated by Depomed,
and each of whom shall be entitled to one vote, whether or not
present at any Management Committee meeting. Decisions of the
Management Committee shall require unanimous approval of all the
nominees on the Management Committee.
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5.2.2 Each of Elan and Depomed shall be entitled to remove any of its
nominees to the Management Committee and appoint a replacement in
place of any nominee so removed. The number of members of the
Management Committee may be altered if agreed to by a majority of
the Directors; provided that, each of Elan and Depomed shall be
entitled to appoint an equal number of members to the Management
Committee. The Management Committee shall be responsible for, inter
alia, devising, implementing and reviewing strategy for the Project.
5.2.3 The Management Committee shall appoint a research and development
committee (the "R&D Committee"), which shall initially be comprised
of four members, two of whom shall be nominated by Elan and two of
whom shall be nominated by Depomed, and each of whom shall have one
vote, whether or not present at an R&D Committee meeting. Decisions
of the R&D Committee shall require approval of at least one Elan
nominee on the R&D Committee and one Depomed nominee on the R&D
Committee.
5.2.4 Each of Elan and Depomed shall be entitled to remove any of its
nominees to the R&D Committee and appoint a replacement in place of
any nominee so removed. The number of members of the R&D Committee
may be altered if agreed to by a majority of the directors of Newco
provided that each of Elan and Depomed shall be entitled to appoint
an equal number of members to the R&D Committee.
5.2.5 The R&D Committee shall be responsible for:-
(i) designing that portion of the Business Plan that relates to
the Project for consideration by the Management Committee;
(ii) establishing a joint Project team consisting of an equal
number of team members from Elan and Depomed, including one
Project leader from each of Elan and Depomed; and
(iii) implementing such portion of the Business Plan that relates to
the Project, as approved by the Management Committee.
5.2.5 In the event of any dispute amongst the R&D Committee, the R&D
Committee shall refer such dispute to the Management Committee whose
decision on the dispute shall be binding on the R&D Committee.
If the Management Committee cannot resolve the matter after 15 days
or such other period as may be agreed by the Management Committee,
the dispute will be referred to a designated senior officer of each
of Elan and Depomed and thereafter, in the event of continued
deadlock, pursuant to the deadlock provisions to be set forth in
Clause 18, involving inter alia,
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<PAGE>
the referral of the dispute to an expert, whose decision, however,
will ultimately be non-binding on the Participants. This process
shall also apply to any dispute within the Management Committee.
5.2.6 Elan and Depomed shall permit Newco or its duly authorized
representative on reasonable notice and at any reasonable time
during normal business hours to have access to inspect and audit the
accounts and records of Elan or Depomed and any other book, record,
voucher, receipt or invoice relating to the calculation or the cost
of the R&D Program and to the accuracy of the reports which
accompanied them. Any such inspection of Elan's or Depomed's
records, as the case may be, shall be at the expense of Newco,
except that if such inspection reveals an overpayment in the amount
paid to Elan or Depomed, as the case may be, for the R&D Program
hereunder in any Financial Year of 5% or more of the amount due to
Elan or Depomed, as the case may be, then the expense of such
inspection shall be borne solely by Elan or Depomed, as the case may
be, instead of by Newco. Any surplus over the sum properly payable
by Newco to Elan or Depomed, as the case may be, shall be paid
promptly by Elan or Depomed, as the case may be, to Newco. If such
inspection reveals a deficit in the amount of the sum properly
payable to Elan or Depomed, as the case may be, by Newco, Newco
shall pay the deficit to Elan or Depomed, as the case may be.
CLAUSE 6
THE BUSINESS PLAN AND REVIEWS
6.1 The Directors shall meet together as soon as reasonably practicable after
the Closing Date and shall agree upon and approve the Business Plan for the
current Financial Year within 60 days of the Closing Date.
6.2 The Business Plan shall be reviewed and mutually agreed to by Elan
Corporation, Plc. and Depomed Inc. on a quarterly basis.
6.3 The Business Plan shall be subject to ongoing review by the Directors and
the approval of the EIS Director and a majority of the Depomed Directors on
a quarterly basis.
6.4 Neither Participant shall be obliged to provide funding to Newco in the
absence of quarterly approval of the Business Plan and a determination by
each Participant, in its sole discretion, that Subsequent Funding (as such
term is defined in the Funding Agreement) shall be provided for the
development of the Products.
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CLAUSE 7
RESEARCH AND DEVELOPMENT WORK
7.1 Elan and Depomed, at their respective discretion, may undertake research
and development work related to the development and commercialization of
the Products, at the request of Newco and as articulated in the Business
Plan, in furtherance of the development and commercialisation of the
Products and cultivation of patent rights and know-how related to the Elan
Intellectual Property, Depomed Intellectual Property and Newco Intellectual
Property.
7.2 The cost of such development work shall be Elan's and Depomed's, as the
case may be, fully-burdened actual costs in respect thereof plus [**] of
such costs. Research and development work that is sub-contracted by Elan
or Depomed to third party providers shall be charged by Elan or Depomed to
Newco [**].
CLAUSE 8
COMMERCIALIZATION
8.1 Newco shall diligently pursue the research, development, prosecution and
commercialization of the Products, as provided in the Business Plan.
8.2 At any time during the development of the Products, Newco may, subject to
the Licenses and Clause 8.3. license the marketing rights to the Products
to one or more marketing partners, or otherwise commercialize the Products
under an alternative strategy to be agreed upon by Elan Corporation, Plc.
and Depomed Inc.
8.3 Newco shall be responsible for negotiating with third parties commercially
reasonable terms (e.g. royalties, milestones, fees, profit sharing,
manufacturing rights, supply terms etc.) for the rights to be granted, but
shall do so under the commercial strategy agreed with Elan and Depomed and
shall keep Elan and Depomed informed throughout the negotiation process.
At such time as Newco notifies Elan in writing that Newco in good faith
intends to commercialize a Product, Elan shall have a first option to
negotiate the terms of any agreement for the commercialization of such
Product, which option shall be exercised within 45 days of Elan's receipt
of such written notification from Newco (the "Elan/Newco Option").
If, despite good faith negotiations, Elan and Newco do not reach agreement
within 120 days from Elan's exercise of the Elan/Newco Option, then Newco
shall be free for a period of 6 months thereafter to enter into
negotiations with a third party (other than a Technological Competitor of
Elan or a Technological Competitor of Depomed) to agree to terms upon which
the third party would commercialize the
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relevant Product in the Territory, which terms when taken as a whole, are
not more favourable to the third party than the principal terms of the last
written proposal offered by Newco to Elan or by Elan to Newco, as the case
may be.
If Newco has not entered into an agreement with a third party within the 6
month period described above, the Elan/Newco Option shall be deemed to have
re-commenced upon the same terms as set forth herein.
CLAUSE 9
OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS [**]
9.1. The Parties acknowledge and agree to be bound by the provisions of Clause
3.1 of the Elan License Agreement and Clause 3.1 of the Depomed License
Agreement which set forth the agreement between the parties thereto in
relation to the ownership of the Elan Intellectual Property, the Depomed
Intellectual Property and the Newco Intellectual property respectively.
9.2 The Parties acknowledge and agree to be bound by the provisions of Clause 4
of the Elan License Agreement and the provisions of Clause 4 of the Depomed
License Agreement which set forth the agreement between the parties thereto
in relation to [**], respectively.
CLAUSE 10
INTELLECTUAL PROPERTY RIGHTS
10.1 Patent Preparation, Prosecution and Maintenance:
------------------------------------------------
10.1.1 Elan, at its expense and sole discretion shall have the option:-
(i) to secure the grant of any patent applications within the
Elan Intellectual Property;
(ii) to defend all such applications against third party
oppositions; and
(iii) to maintain in force any issued letters patent within the
Elan Intellectual Property.
10.1.2 Depomed, at its expense and sole discretion shall have the option:-
(i) to secure the grant of any patent applications within the
Depomed Intellectual Property;
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(ii) to defend all such applications against third party
oppositions; and
(iii) to maintain in force any issued letters patent within the
Depomed Intellectual Property.
10.1.3 Newco, at its expense and sole discretion shall have the option:-
(i) to secure the grant of any patent applications within the
Newco Intellectual Property;
(ii) to defend all such applications against third party
oppositions; and
(iii) to maintain in force any issued letters patent within the
Newco Intellectual Property.
10.1.4 In the event that either Elan or Depomed does not intend to seek
patent protection for either Elan Intellectual Property or Depomed
Intellectual Property respectively that relate to the Field in one
or more countries in the Territory or fails to file such an
application within a reasonable period of time, Newco shall have
the right, but not the obligation, at Newco's sole expense to file
and prosecute such patent application(s) in the joint names of
Newco and the relevant Party. Upon written request from Newco, the
party not seeking patent protection for its own intellectual
property shall execute all documents, forms and declarations and do
all things as shall be reasonably necessary to enable Newco to
exercise such option and right.
10.2 Enforcement:
------------
10.2.1 The Parties and Newco shall promptly inform each other in writing
of any unauthorized use or alleged unauthorized use within the Elan
Intellectual Property, Depomed Intellectual Property or the Newco
Intellectual Property by a third party of which it becomes aware
and provide the other Parties with any available evidence of such
infringement or misappropriation.
10.2.2 During the term of the License Agreements, Elan shall have the
first right but not the obligation to bring suit or otherwise take
action against any actual or alleged unauthorized use of the Elan
Intellectual Property. In the event that Elan takes such action,
Elan shall do so at its own cost and expense and all damages and
monetary awards recovered in or with respect to such action shall
be the property of Elan. At Elan's request, Depomed and Newco will
cooperate with any such action at Elan's cost and expense.
10.2.3 During the term of the License Agreements, Depomed shall have the
first right but not the obligation to bring suit or otherwise take
action against
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any actual or alleged unauthorized use of the Depomed Intellectual
Property. In the event that Depomed takes such action, Depomed
shall do so at its own cost and expense and all damages and
monetary awards recovered in or with respect to such action shall
be the property of Depomed. At Depomed's request, Elan and Newco
will cooperate with any such action at Depomed's cost and expense.
10.2.4 During the term of the License Agreements, Newco shall have the
first right but not the obligation to bring suit or otherwise take
action against any actual or alleged unauthorized use of the Neweco
Intellectual Property. In the event that Newco takes such action,
Newco shall do so at its own cost and expense and all damages and
monetary awards recovered in or with respect to such action shall
be the property of Newco. At Newco's request, Elan and Depomed will
cooperate with any such action at Newco's cost and expense.
10.2.5 In the event that the owner of the intellectual property at issue
decides not to pursue such unauthorized users of its intellectual
property, within a reasonable period but in any event within
fifteen (15) days after receiving written notice of such alleged
infringement or misappropriation, then Newco may in its discretion
initiate such proceedings in its own name, at its expense and for
its own benefit. At Newco's request, the owner of the intellectual
property at issue will cooperate with such action at Newco's sole
cost and expense. Alternatively, the Parties may agree to institute
such proceedings in their joint names and shall reach agreement as
to the proportion in which they will share the proceeds of any such
proceedings, and the expense of any costs not recovered, or the
costs or damages payable to the third party.
10.3 Defense:
--------
10.3.1 In the event that a claim is brought against any Party by a third
party alleging that the sale, distribution or use of any of the
Products in the Territory infringes the intellectual property
rights of such third party, that Party shall promptly advise the
other Parties of such threat or suit.
10.3.2 Newco shall indemnify, defend and hold Elan or Depomed, as the case
may be, harmless against all actions, losses, claims, demands,
damages, costs and liabilities (including reasonable attorneys
fees) relating directly or indirectly to all such claims or
proceedings referred to in Clause 10.3.1 provided that Elan or
Depomed, as the case may be, shall not acknowledge to the third
party or to any other person the validity of any claims of such a
third party, and shall not compromise or settle any claim or
proceedings relating thereto without the prior written consent of
Newco, not to be unreasonably withheld or delayed. At its option,
Elan or Depomed, as the case may be, may elect to take over the
conduct of such proceedings from
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Newco; provided that Newco's indemnification obligations shall
continue; the costs of defending such claim shall be borne by Elan
or Depomed, as the case may be; and such Party shall not compromise
or settle any such claim or proceeding without the prior written
consent of Newco, such consent not to be unreasonably withheld or
delayed.
10.4 For the avoidance of doubt, Newco shall not be entitled to enforce or
assert the EGTS Patents against [**].
CLAUSE 11
CROSS LICENSING/EXPLOITATION OF NEWCO INTELLECTUAL
PROPERTY OUTSIDE THE FIELD
11.1 Solely for the purpose of and insofar as is necessary, in each case, for
Elan to conduct research and development work on behalf of Newco, Newco
shall grant to Elan:
11.1.1 a non-exclusive, worldwide, royalty-free, fully paid-up license for
the Term to use the Newco Intellectual Property in the Fields; and
11.1.2 subject to the terms and conditions of the Depomed License, a non-
exclusive, worldwide, royalty-free, fully paid-up sublicense for
the Term to use the Depomed Intellectual Property in the [**] Field
and the [**] Field.
11.2 Solely for the purpose of and insofar as is necessary, in each case, for
Depomed to conduct research and development work on behalf of Newco, Newco
shall grant to Depomed:
11.2.1 a non-exclusive, worldwide, royalty-free, fully paid-up license for
the Term to use the Newco Intellectual Property in the Fields, and
11.2.2 the following sublicenses:
(1) subject to the terms and conditions of the Elan Licenses, a
non-exclusive, worldwide, royalty-free, fully paid-up
sublicense for the Term to use the Elan Corp CR Know How, Elan
Corp CR Patents, Nano Know How, the Nano Patents, the EGTS
Patents and the EGTS Know How in the Fields;
(2) subject to the terms and conditions of the Elan Licenses, a
non-exclusive, worldwide, royalty-free, fully paid-up
sublicense for the Term to use the [**] Know How in the [**]
Field.
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11.3 Elan shall be entitled to exploit the Newco Intellectual Property that
relates predominantly to the Elan Intellectual Property outside the Fields
subject to the Parties negotiating an arms' length license agreement in
good faith (including all material provisions thereof, including as to
whether the license should be exclusive or non-exclusive), pursuant to
which Newco will grant Elan a license under the Newco Intellectual Property
that relates predominantly to the Elan Intellectual Property outside the
Fields on a product by product basis. The financial terms of the said
license agreement shall have regard, inter alia, to:
11.3.1 the amount of monies expended by Newco in acquiring or developing
such Newco Intellectual Property; and
11.3.2 the materiality of the contribution of such Newco Intellectual
Property by comparison to the further research and development work
to be conducted, and of the Elan Intellectual Property and the
Depomed Intellectual Property; and
11.3.3 the financial return likely to be earned by Elan from the proposed
exploitation outside the Fields; and
11.3.4 the impact of the proposed exploitation of such Newco Intellectual
Property outside the Fields on the exploitation of such Newco
Intellectual Property within the Fields.
11.4 Depomed shall be entitled to exploit the Newco Intellectual Property that
relates predominantly to the Depomed Intellectual Property outside the
Fields subject to the Parties negotiating an arms' length license agreement
in good faith (including all material provisions thereof, including as to
whether the license should be exclusive or non-exclusive), pursuant to
which Newco will grant Depomed a license under the Newco Intellectual
Property that relates predominantly to the Depomed Intellectual Property
outside the Fields on a product by product basis. The financial terms of
the said license agreement shall have regard, inter alia, to:
11.4.1 the amount of monies expended by Newco in acquiring or developing
such Newco Intellectual Property; and
11.4.2 the materiality of the contribution of such Newco Intellectual
Property by comparison to the further research and development work
to be conducted, and of the Depomed Intellectual Property and the
Elan Intellectual Property; and
11.4.3 the financial return likely to be earned by Depomed from the
proposed exploitation outside the Fields; and
11.4.4 the impact of the proposed exploitation of such Newco Intellectual
Property outside the Fields on the exploitation of such Newco
Intellectual
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Property within the Fields.
CLAUSE 12
REGULATORY
12.1 Newco shall keep the other Parties promptly and fully advised of Newco's
regulatory activities, progress and procedures. Newco shall inform the
other Parties of any dealings it shall have with an RHA, and shall furnish
the other Parties with copies of all correspondence relating to the
Products. The Parties shall collaborate to obtain any required regulatory
approval of the RHA to market the Products.
12.2 Newco shall, at its own cost, file, prosecute and maintain any and all
Regulatory Applications for the Products in the Territory in accordance
with the Business Plan.
12.3 Subject to Clause 12.5, any and all Regulatory Approvals obtained hereunder
for any Product shall remain the property of Newco, provided that Newco
shall allow Elan and Depomed access thereto to enable Elan and Depomed to
fulfill their respective obligations and exercise their respective rights
under this Agreement.
12.4 It is hereby acknowledged that there are inherent uncertainties involved in
the registration of pharmaceutical products with the RHA's insofar as
obtaining approval is concerned and such uncertainties form part of the
business risk involved in undertaking the form of commercial collaboration
as set forth in this Agreement.
12.5 All regulatory approvals and the DMF (Drug Master File) relating to Elan
Intellectual Property shall be processed by and be the property of Elan and
at all times held in Elan's sole name. Elan will authorise Newco to
reference Elan's DMF, as described herein, with the FDA to the extent
necessary for Newco's regulatory purposes.
12.6 All regulatory approvals and the DMF (Drug Master File) relating to Depomed
Intellectual Property shall be processed by and be the property of Depomed
and at all times held in Depomed's sole name. Depomed will authorise Newco
to reference Depomed's DMF, as described herein, with the FDA to the extent
necessary for Newco's regulatory purposes.
CLAUSE 13
MANUFACTURING
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13.1 Elan shall have the first right to manufacture and supply, and/or
subcontract the manufacture and supply, of the [**] Products and/or any
formulations which comprise the Elan Intellectual Property.
13.2 Subject to Clause 13.1, it is the expectation of the Parties that Newco
shall enter into a supply agreement with Elan or Depomed or a third party,
as the case may be, to allow for the commercial production of the [**]
Products and the [**] Products on behalf of Newco. In determining which of
Elan or Depomed or a third party shall provide such services, the
Management Committee shall, in good faith, consider the respective
infrastructure and experience of Elan, Depomed and the relevant third
parties.
13.3 Any supply agreement between Newco and Elan, Depomed or a third party
hereunder shall be negotiated and agreed not later than the date of
completion of Phase III (as such term is commonly used in connection with
FDA applications) of the R&D Plan. The terms of the said supply agreements
shall be on normal commercial terms, and shall be negotiated in good faith
by the Parties thereto.
13.4 If Elan does not exercise its first right hereunder to manufacture and
supply, and/or subcontract the manufacture and supply of the [**] Products
and/or any formulations which comprise the Elan Intellectual Property, then
Newco shall be free to enter into negotiations with a third party (other
than a Technological Competitor of Elan) to agree to terms upon which the
third party would be licensed by Elan (on licensing terms satisfactory to
Elan) and by Newco to the extent necessary (on licensing terms satisfactory
to Newco) to manufacture the [**] Products and/or any formulations which
comprise the Elan Intellectual Property in the Territory, which terms when
taken as a whole, are not more favorable to the third party than the
principal terms of the last written proposal offered by Newco to Elan or by
Elan to Newco, as the case may be.
CLAUSE 14
TECHNICAL SERVICES AND ASSISTANCE
14.1 Whenever commercially and technically feasible, Newco shall contract with
Depomed or Elan, as the case may be, to perform such other services as
Newco may require, other than those specifically dealt with hereunder or in
the License Agreements. In determining which Party should provide such
services, the Management Committee shall take into account the respective
infrastructure, capabilities and experience of Elan and Depomed. There
shall be no obligation upon either of Depomed or Elan to perform such
services.
14.2 Newco shall, if the Participants so agree, conclude an administrative
support agreement with Elan and/or Depomed on such terms as the Parties
thereto shall in
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good faith negotiate. The administrative services shall include one or
more of the following administrative services as requested by Newco:
14.2.1 accounting, financial and other services;
14.2.2 tax services;
14.2.3 insurance services;
14.2.4 human resources services;
14.2.5 legal and company secretarial services;
14.2.6 patent and related intellectual property services; and
14.2.7 all such other services consistent with and of the same type as
those services to be provided pursuant to this Agreement, as may
be required.
The foregoing list of services shall not be deemed exhaustive and may be
changed from time to time upon written request by Newco.
14.3. The Parties agree that each Party shall effect and maintain comprehensive
general liability insurance in respect of all clinical trials and other
activities performed by them on behalf of Newco. The Participants and
Newco shall ensure that the industry standard insurance policies shall be
in place for all activities to be carried out by Newco.
14.4 If Elan or Depomed so requires, Depomed or Elan, as the case may be,
shall receive, at times and for periods mutually acceptable to the
Parties, employees of the other Party (such employees to be acceptable to
the receiving Party in the matter of qualification and competence) for
instruction in respect of the Elan Intellectual Property or the Depomed
Intellectual Property, as the case may be, as necessary to further the
Project.
14.5 The employees received by Elan or Depomed, as the case may be, shall be
subject to obligations of confidentiality no less stringent than those
set out in Clause 21 and such employees shall observe the rules,
regulations and systems adopted by the Party receiving the said employees
for its own employees or visitors.
CLAUSE 15
AUDITORS, BANKERS, ACCOUNTING REFERENCE DATE; SECRETARY; "TICK THE BOX"
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15.1 Unless otherwise agreed by the Participants and save as may be provided to
the contrary herein:
15.1.1 the auditors of Newco shall be [**] of Hamilton, Bermuda;
15.1.2 the bankers of Newco shall be [**] or such other bank as may be
mutually agreed from time to time;
15.1.3 the accounting reference date of Newco shall be December 31st in
each Financial Year; and
15.1.4 the secretary of Newco shall be [**] or such other Person as may be
appointed by the Directors from time to time.
15.2 [**]
CLAUSE 16
TRANSFERS OF SHARES;
RIGHT OF FIRST OFFER; TAG ALONG RIGHTS
General:
- --------
16.1 Until such time as the Common Stock shall be registered pursuant to the
Exchange Act and be publicly traded in an established securities market, no
Stockholder shall, directly or indirectly, sell or otherwise transfer
(each, a "Transfer") any Shares held by it except in as expressly permitted
by and accordance with the terms of this Agreement. Newco shall not, and
shall not permit any transfer agent or registrar for any Shares to,
transfer upon the books of Newco any Shares from any Stockholder to any
transferee, in any manner, except in accordance with this Agreement, and
any purported transfer not in compliance with this Agreement shall be void.
During the Research and Development Term, no Stockholder shall, directly or
indirectly, sell or otherwise Transfer any of its legal and/or beneficial
interest in the Shares held by it to any other Person. After completion of
the Research and Development Term, a Stockholder may Transfer Shares
provided such Stockholder complies with the provisions of Clauses 16.2 and
16.3.
Notwithstanding anything contained herein to the contrary, at all times,
EIS and/or Depomed shall have the right to Transfer any Shares to their
Affiliates provided, however, that such assignment does not result in
adverse tax consequences for any other Parties. EIS shall have the right to
Transfer any Shares to a Permitted Transferee; provided, that such Transfer
shall be subject to and that such Affiliates or other Permitted Transferee
to which such legal and/or beneficial interest in the Shares have been
transferred shall agree to be expressly
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subject to and bound by all the limitations and provisions which are
embodied in this Agreement.
16.2 No Stockholder shall, except with the prior written consent of the other
Stockholder, create or permit to subsist any Encumbrance over or in, all or
any of the Shares held by it (other than by a Transfer of such Shares in
accordance with the provisions of this Agreement).
16.3 Rights of First Offer:
----------------------
If at any time after the end of the Research and Development Term a
Stockholder shall desire to Transfer any Shares owned by it (a "Selling
Stockholder"), in any transaction or series of related transactions other
than a Transfer to an Affiliate ora Permitted Transferee, then such Selling
Stockholder shall deliver prior written notice of its desire to Transfer (a
"Notice of Intention") (i) to Newco and (ii) to the Stockholders who are
not the Selling Stockholder (and any transferee thereof permitted
hereunder, if any), as applicable, setting forth such Selling Stockholder's
desire to make such Transfer, the number of Shares proposed to be
transferred (the "Offered Shares") and the proposed form of transaction
(the "Transaction Proposal"), together with any available documentation
relating thereto, if any, and the price at which such Selling Stockholder
proposes to Transfer the Offered Shares (the "Offer Price"). The "Right of
First Offer" provided for in this Clause 16 shall be subject to any "Tag
Along Right" benefiting a Stockholder which may be provided for by Clause
16, subject to the exceptions set forth therein.
Upon receipt of the Notice of Intention, the Stockholders who are not the
Selling Stockholder shall have the right to purchase at the Offer Price the
Offered Shares, exercisable by the delivery of notice to the Selling
Stockholder (the "Notice of Exercise"), with a copy to Newco, within 10
business days from the date of receipt of the Notice of Intention. If no
such Notice of Exercise has been delivered by the Stockholders who are not
the Selling Stockholder within such 10-business day period, or such Notice
of Exercise does not relate to all of the Offered Shares covered by the
Notice of Intention, then the Selling Stockholder shall be entitled to
Transfer all of the Offered Shares to the intended transferee. In the
event that all of the Offered Shares are not purchased by the non-selling
Stockholders, the Selling Stockholder shall sell the available Offered
Shares within 30 days after the delivery of such Notice of Intention on
terms no more favorable to a third party than those presented to the non-
selling Stockholders. If such sale does not occur, the Offered Shares
shall again be subject to the Right of First Offer set forth in Clause
16.3.
In the event that any of the Stockholders who are not the Selling
Stockholder exercises their right to purchase all of the Offered Shares (in
accordance with this Clause 16), then the Selling Stockholder shall sell
all of the Offered Shares to such Stockholder(s), in the amounts set forth
in the Notice of Intention, after not
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less than 10 business days and not more than 25 business days from the date
of the delivery of the Notice of Exercise. In the event that more than one
of the Stockholders who are not the Selling Stockholders wish to purchase
the Offered Shares, the Offered Shares shall be allocated to such
Stockholders on the basis of their pro rata equity interests in Newco.
The rights and obligations of each of the Stockholders pursuant to the
Right of First Offer provided herein shall terminate upon the date that the
Common Stock is registered under Section 12(b) or 12(g) of the Exchange
Act.
At the closing of the purchase of all of the Offered Shares by the
Stockholders who are not the Selling Stockholder (scheduled in accordance
with Clause 16), the Selling Stockholder shall deliver certificates
evidencing the Offered Shares being sold, duly endorsed, or accompanied by
written instruments of transfer in form reasonably satisfactory to the
Stockholders who are not the Selling Stockholder, duly executed by the
Selling Stockholder, free and clear of any adverse claims, against payment
of the purchase price therefor in cash, and such other customary documents
as shall be necessary in connection therewith.
16.4 Tag Along Rights:
-----------------
Subject to Clause 16.3, a Stockholder (the "Transferring Stockholder")
shall not Transfer (either directly or indirectly), in any one transaction
or series of related transactions, to any Person or group of Persons, any
Shares, unless the terms and conditions of such Transfer shall include an
offer to the other Stockholders (the "Remaining Stockholders"), to sell
Shares at the same price and on the same terms and conditions as the
Transferring Stockholder has agreed to sell its Shares (the "Tag Along
Right").
In the event a Transferring Stockholder proposes to Transfer any Shares in
a transaction subject to this Clause 16.4, it shall notify, or cause to be
notified, the Remaining Stockholders in writing of each such proposed
Transfer. Such notice shall set forth: (i) the name of the transferee and
the amount of Shares proposed to be transferred, (ii) the proposed amount
and form of consideration and terms and conditions of payment offered by
the transferee (the "Transferee Terms") and (iii) that the transferee has
been informed of the Tag Along Right provided for in this Clause 16, if
such right is applicable, and the total number of Shares the transferee has
agreed to purchase from the Stockholders in accordance with the terms
hereof.
The Tag Along Right may be exercised by each of the Remaining Stockholders
by delivery of a written notice to the Transferring Stockholder (the "Co-
sale Notice") within 10 business days following receipt of the notice
specified in the preceding subsection. The Co-sale Notice shall state the
number of Shares owned by such Remaining Stockholder which the Remaining
Stockholder wishes to include in such Transfer; provided, however, that
without the written consent of
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the Transferring Stockholder, the amount of such securities belonging to
the Remaining Stockholder included in such Transfer may not be greater than
such Remaining Stockholder's percentage beneficial ownership of Fully
Diluted Common Stock multiplied by the total number of shares of 7 Diluted
Common Stock to be sold by both the Transferring Stockholder and all
Remaining Stockholders. Upon receipt of a Co-sale Notice, the Transferring
Stockholder shall be obligated to transfer at least the entire number of
Shares set forth in the Co-sale Notice to the transferee on the Transferee
Terms; provided, however, that the Transferring Stockholder shall not
consummate the purchase and sale of any Shares hereunder if the transferee
does not purchase all such Shares specified in all Co-sale Notices. If no
Co-sale Notice has been delivered to the Transferring Stockholder prior to
the expiration of the 10 business day period referred to above and if the
provisions of this Section have been complied with in all respects, the
Transferring Stockholder shall have the right for a 45 day calendar day
period to Transfer Shares to the transferee on the Transferee Terms without
further notice to any other party, but after such 45-day period, no such
Transfer may be made without again giving notice to the Remaining
Stockholders of the proposed Transfer and complying with the requirements
of this Clause 16.
At the closing of any Transfer of Shares subject to this Clause 16, the
Transferring Stockholder, and the Remaining Stockholder, in the event such
Tag Along Right is exercised, shall deliver certificates evidencing such
securities as have been Transferred by each, duly endorsed, or accompanied
by written instruments of transfer in form reasonably satisfactory to the
transferee, free and clear of any adverse claim, against payment of the
purchase price therefor.
Notwithstanding the foregoing, this Clause 16 shall not apply to any sale
of Common Stock pursuant to an effective registration statement under the
Securities Act in a bona fide public offering.
CLAUSE 17
MATTERS REQUIRING STOCKHOLDERS' APPROVAL
17.1 In consideration of Depomed and Elan agreeing to enter into the License
Agreements, the Parties hereby agree that Newco shall not without the prior
unanimous approval of the EIS Director and the Depomed Directors:
17.1.1. make a material Newco determination outside the ordinary course of
business, including, among other things, acquisitions or
dispositions of intellectual property and licenses or sublicenses,
changes in the Business or the Newco budget as they relate to the
Licensed Technologies; enter into joint ventures and similar
arrangements as they relate to the Licensed Technologies and
changes to the Business Plan as they relate to the Licensed
Technologies;
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17.1.2. issue any unissued Shares or unissued Common Stock Equivalents, or
create or issue any new shares (including a split of the Shares)
or Common Stock Equivalents, except as expressly permitted by the
Newco Bye-Laws;
17.1.3. alter any rights attaching to any class of share in the capital of
Newco or alter the Newco Bye-Laws;
17.1.4. consolidate, sub-divide or convert any of Newco's share capital or
in any way alter the rights attaching thereto;
17.1.5. dispose of all or substantially all of the assets of Newco;
17.1.6. do or permit or suffer to be done any act or thing whereby Newco
may be wound up (whether voluntarily or compulsorily), save as
otherwise expressly provided for in this Agreement;
17.1.7. enter into any contract or transaction except in the ordinary and
proper course of the Business on arm's length terms;
17.1.8. Subject to Clause 23.13, assign, license or sub-license any of the
Elan Intellectual Property, Depomed Intellectual Property, Newco
Intellectual Property;
17.1.9. amend or vary the terms of the Depomed License Agreement or the
Elan License Agreement;
17.1.10. permit a person other than Newco to own a regulatory approval
relating to the Product(s);
17.1.11. amend or vary the Business Plan or the Newco budget as they relate
to the Licensed Technologies;
17.1.12. alter the number of Directors.
17.1.13 change the domicile of Newco from, or discontinue Newco out of,
Bermuda;
17.1.14 register any Shares of Newco for public trading with any
governmental authority for public trading in any securities
market; and
17.1.15 declare or pay any dividend or make any distribution, directly or
indirectly, with respect to its capital stock; or issue, sell,
exchange, deliver, redeem, purchase or otherwise acquire or
dispose of any shares of its capital stock or other securities.
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CLAUSE 18
DISPUTES
18.1 Should any dispute or difference arise between Elan and Depomed, or between
Elan or Depomed and Newco, during the period that this Agreement is in
force, other than a dispute or difference relating to (i) the
interpretation of any provision of this Agreement, (ii) the interpretation
or application of law, or (iii) the ownership of any intellectual property,
then any Party may forthwith give notice to the other Parties that it
wishes such dispute or difference to be referred to a designated senior
officer of each of Elan and Depomed.
18.2 In any event of a notice being served in accordance with Clause 18.1, each
of the Participants shall within 14 days of the service of such notice
prepare and circulate to the designated senior officer of each of Elan and
Depomed a memorandum or other form of statement setting out its position on
the matter in dispute and its reasons for adopting that position. Each
memorandum or statement shall be considered by the designated senior
officer of each of Elan and Depomed who shall endeavor to resolve the
dispute. If the designated senior officer of each of Elan and Depomed
agree upon a resolution or disposition of the matter, they shall each sign
a statement which sets out the terms of their agreement. The Participants
agree that they shall exercise the voting rights and other powers available
to them in relation to Newco to procure that the agreed terms are fully and
promptly carried into effect.
18.3 In the event the designated senior officers of each of Elan and Depomed are
unable to resolve a dispute or difference when it is referred to them under
Clause 18.1, the following procedures shall apply:
18.3.1 If the dispute relates to the interpretation of this Agreement or
any other Transaction Document or the compliance of the Parties
with their legal obligations thereunder, the provisions of Clause
23.8.2 shall govern.
18.3.2 If the dispute does not relate to the interpretation of this
Agreement or any other Transaction Document or the compliance of
the Parties with their legal obligations thereunder, the provisions
of Clause 18.4 shall govern.
18.4 The designated senior officers of each of Elan and Depomed shall, if they
are unable to resolve a dispute or difference when it is referred to them
under Clause 18.1, within sixty (60) days of such referral, refer the
matter to an independent expert in pharmaceutical product development and
marketing (including clinical development and regulatory affairs) jointly
selected by the designated senior officers of each of Elan and Depomed (the
"Expert").
39
<PAGE>
In the event the designated senior officer of each of Elan and Depomed
cannot agree upon the designation of the Expert, the Participants shall
request the American Arbitration Association ("AAA"), sitting in the City
of New York to select the Expert. In each case, the Expert shall be
selected having regard to his suitability to determine the particular
dispute or difference on which the Expert is being requested to determine.
Unless otherwise agreed between the designated senior officer of each of
Elan and Depomed, the following rules shall apply to the appointment of the
Expert. The fees of the AAA and the Expert shall be shared equally by the
Participants. The Expert shall be entitled to inspect and examine all
documentation and any other material which the Expert may consider to be
relevant to the dispute. The Expert shall afford each Party a reasonable
opportunity (in writing or orally) of stating reasons in support of such
contentions as each Party may wish to make relative to the matters under
consideration. The Expert shall give notice in writing of his
determination to the Parties within such time as may be stipulated in his
terms of appointment or in the absence of such stipulation as soon as
practicable but in any event within four weeks from the reference of the
dispute or difference to him.
18.5 Any determination by the Expert of a dispute or difference shall not be
final and binding on the Parties.
CLAUSE 19
TERMINATION
19.1 This Agreement shall govern the operation and existence of Newco until (i)
terminated by written agreement of all Parties hereto or (ii) otherwise
terminated in accordance with this Clause 19.
19.2 For the purpose of this Clause 19, a "Relevant Event" is committed or
suffered by a Participant if:
19.2.1 it commits a breach of its material obligations under this
Agreement or the applicable License and fails to remedy it within
60 days of being specifically required in writing to do so by the
other Participant; provided, however, that if the breaching
Participant has proposed a course of action to rectify the breach
and is acting in good faith to rectify same but has not cured the
breach by the 60th day, such period shall be extended by such
period as is reasonably necessary to permit the breach to be
rectified; or
19.2.2 a distress, execution, sequestration or other process is levied or
enforced upon or sued out against a material part of its property
which is not discharged or challenged within 30 days; or
19.2.3 it is unable to pay its debts in the normal course of business; or
40
<PAGE>
19.2.4 it ceases wholly or substantially to carry on its business,
otherwise than for the purpose of a reconstruction or amalgamation,
without the prior written consent of the other Participant (such
consent not to be unreasonably withheld); or
19.2.5 the appointment of a liquidator, receiver, administrator, examiner,
trustee or similar officer of such Participant or over all or
substantially all of its assets under the law of any applicable
jurisdiction, including without limitation, the United States of
America, Bermuda or Ireland; or
19.2.6 an application or petition for bankruptcy, corporate re-
organization, composition, administration, examination, arrangement
or any other procedure similar to any of the foregoing under the
law of any applicable jurisdiction, including without limitation,
the United States of America, Bermuda or Ireland, is filed, and is
not discharged within 60 days, or a Participant applies for or
consents to the appointment of a receiver, administrator, examiner
or similar officer of it or of all or a material part of its
assets, rights or revenues or the assets and/or the business of a
Participant are for any reason seized, confiscated or condemned.
19.4 If either Participant commits or suffers a Relevant Event, the other
Participant shall be entitled, within three months of the occurrence of the
Relevant Event, to require the defaulting Participant (the "Recipient
Participant") to sell on reasonable terms of payment to the non-defaulting
Participant (the "Proposing Participant") all (but not some only) of the
Shares, held or beneficially owned by the Recipient Participant for an
amount equal to [**] % of the fair market value of the Shares of the
Recipient Participant (the "Buyout Option").
19.5 The Proposing Participant shall notify the Recipient Participant of the
exercise of the Buyout Option, no later than 30 business days prior to the
proposed exercise thereof, by delivering written notice to the Recipient
Participant stating that the Buyout Option is exercised and the price at
which the Proposing Participant is willing to purchase the Shares of the
Recipient Participant.
19.6 In the event that the Participants do not agree upon a purchase price for
the Shares within five Business Days following the receipt by the Recipient
Participant of written notice from the Proposing Participant pursuant to
Clause 19.5 above, the Proposing Participant may contact the AAA, sitting
in New York City and request that an independent US-based arbitrator who is
knowledgeable of the pharmaceutical/biotechnology industry be appointed
within 10 Business Days. The AAA shall endeavor to select an arbitrator
who is technically knowledgeable in the pharmaceutical/biotechnology
industry (and who directly and through his affiliates, has no business
relationship with, or shareholding in, either the Proposing Participant or
the Recipient Participant). Promptly upon being notified of the
arbitrator's appointment, the Proposing Participant and the Recipient
41
<PAGE>
Participant shall submit to the arbitrator details of their assessment of
the fair market value for the Shares of the Recipient Participant
together with such information as they think necessary to validate their
assessment. The arbitrator shall notify the Recipient Participant of [**]
% of the fair market value assessed by the Proposing Participant (the
"Proposing Participant Price") and shall notify the Proposing Participant
of [**] % of the fair market value assessed by the Recipient Participant
(the "Recipient Participant Price"). The Proposing Participant and the
Recipient Participant shall then be entitled to make further submissions
to the arbitrator within five Business Days explaining why the Recipient
Participant Price or the Proposing Participant Price, as the case may be,
is unjustified. The arbitrator shall thereafter meet with the Proposing
Participant and the Recipient Participant and shall thereafter choose
either the Recipient Participant Price or the Proposing Participant Price
(but not any other price) as the purchase price for the Shares (the
"Purchase Price") on the basis of which price the Expert determines to be
closer to [**] % of the fair market value for the Shares of the Recipient
Participant. The arbitrator shall use his best efforts to determine the
Purchase Price within 30 Business Days of his appointment. The Proposing
Participant and the Recipient Participant shall bear the costs of the
arbitrator equally provided that the arbitrator may, in his discretion,
allocate all or a portion of such costs to one Party. Any decision of the
arbitrator shall be final and binding.
19.7 The Proposing Participant shall purchase the Shares of the Recipient
Participant by delivery of the Purchase Price in cash no later than the
15th Business Day following determination of the Purchase Price by the
Expert.
19.8 The Shares of the Recipient Participant so transferred shall be sold by
the transferor as beneficial owner with effect from the date of such
transfer free from any lien, charge or encumbrance with all rights and
restrictions attaching thereto.
19.9 If the Proposing Participant exercises the Buyout Option, both parties
will negotiate in good faith to agree to additional reasonable provisions
and/or amendments to the License Agreements to protect the intellectual
property rights of the Recipient Party.
19.10 If either Participant commits a Relevant Event, the other Stockholder
shall have in addition to all other legal and equitable rights and
remedies hereunder, the right to terminate this Agreement upon 30 days'
written notice.
19.11 In the event of a termination of the Elan License Agreement and/or the
Depomed License Agreement, both parties will negotiate in good faith to
determine whether this Agreement should be terminated and if so, which
provisions should survive termination.
19.12 The provisions of Clauses 1.1, 3, 10, 16, 17, 18, 19 and 21 shall survive
the termination of this Agreement under this Clause 19; all other terms
and provisions
42
<PAGE>
of this Agreement shall cease to have effect and be null and void upon
the termination of this Agreement.
CLAUSE 20
SHARE RIGHTS
The provisions regulating the rights and obligations attaching to the Common
Stock and the Preferred Stock are set out in the Newco Bye-laws.
CLAUSE 21
CONFIDENTIALITY
21.1 The Parties and/or Newco acknowledge and agree that it may be necessary,
from time to time, to disclose to each other confidential and/or
proprietary information, including without limitation, inventions, works of
authorship, trade secrets, specifications, designs, data, know-how and
other information, relating to the Field, the Products, present or future
products, the Newco Intellectual Property, the Elan Intellectual Property
or the Depomed Intellectual Property, as the case may be, methods,
compounds, research projects, work in process, services, sales suppliers,
customers, employees and/or business of the disclosing Party, whether in
oral, written, graphic or electronic form (collectively "Confidential
Information").
21.2 Any Confidential Information revealed by a Party to another Party shall be
maintained as confidential and shall be used by the receiving Party
exclusively for the purposes of fulfilling the receiving Party's rights and
obligations under this Agreement, and for no other purpose. Confidential
Information shall not include:
21.2.1 information that is generally available to the public;
21.2.2 information that is made public by the disclosing Party;
21.2.3 information that is independently developed by the receiving Party,
as evidenced by such Party's records, without the aid, application
or use of the disclosing Party's Confidential Information;
21.2.4 information that is published or otherwise becomes part of the
public domain without any disclosure by the receiving Party, or on
the part of the receiving Party's directors, officers, agents,
representatives or employees;
21.2.5 information that becomes available to the receiving Party on a non-
confidential basis, whether directly or indirectly, from a source
other than
43
<PAGE>
the disclosing Party, which source did not acquire this information
on a confidential basis; or
21.2.6 information which the receiving Party is required to disclose
pursuant to:
(i) a valid order of a court or other governmental body or any
political subdivision thereof or as otherwise required by law,
rule or regulation; or
(ii) other requirement of law;
provided, however, that if the receiving Party becomes legally
required to disclose any Confidential Information, the receiving
Party shall give the disclosing Party prompt notice of such fact so
that the disclosing Party may obtain a protective order or
confidential treatment or other appropriate remedy concerning any
such disclosure. The receiving Party shall fully co-operate with
the disclosing Party in connection with the disclosing Party's
efforts to obtain any such order or other remedy. If any such order
or other remedy does not fully preclude disclosure, the receiving
Party shall make such disclosure only to the extent that such
disclosure is legally required; or
21.2.7 information which was already in the possession of the receiving
Party at the time of receiving such information, as evidenced by
its records, provided such information was not previously provided
to the receiving party from a source which was under an obligation
to keep such information confidential; or
21.2.8 information that is the subject of a written permission to
disclose, without restriction or limitation, by the disclosing
Party.
21.3 Each Party agrees to disclose Confidential Information of another Party
only to those employees, representatives and agents requiring knowledge
thereof in connection with their duties directly related to the fulfilling
of the Party's obligations under this Agreement, so long as such persons
are under an obligation of confidentiality no less stringent than as set
forth herein. Each Party further agrees to inform all such employees,
representatives and agents of the terms and provisions of this Agreement
and their duties hereunder and to obtain their consent hereto as a
condition of receiving Confidential Information. Each Party agrees that it
will exercise the same degree of care and protection to preserve the
proprietary and confidential nature of the Confidential Information
disclosed by a Party, as the receiving Party would exercise to preserve its
own Confidential Information. Each Party agrees that it will, upon request
of another Party, return all documents and any copies thereof containing
Confidential Information belonging to or disclosed by such other Party.
Each Party shall promptly notify
44
<PAGE>
the other Parties upon discovery of any unauthorized use or disclosure of
the other Parties' Confidential Information.
21.4 Any breach of this Clause 21 by any employee, representative or agent of a
Party is considered a breach by the Party itself.
21.5 The provisions relating to confidentiality in this Clause 21 shall remain
in effect during the Term and for a period of seven years following the
termination of this Agreement.
21.6 The Parties agree that the obligations of this Clause 21 are necessary and
reasonable in order to protect the Parties' respective businesses, and each
Party expressly agrees that monetary damages would be inadequate to
compensate a Party for any breach by the other Party of its covenants and
agreements set forth herein. Accordingly, the Parties agree and
acknowledge that any such violation or threatened violation will cause
irreparable injury to a Party and that, in addition to any other remedies
that may be available, in law or in equity or otherwise, any Party shall be
entitled to obtain injunctive relief against the threatened breach of the
provisions of this Clause 21, or a continuation of any such breach by the
other Party, specific performance and other equitable relief to redress
such breach together with its damages and reasonable counsel fees and
expenses to enforce its rights hereunder, without the necessity of proving
actual or express damages.
CLAUSE 22
COSTS
22.1 Each Stockholder shall bear its own legal and other costs incurred in
relation to preparing and concluding this Agreement and the Definitive
Documents.
22.2 All other costs, legal fees, registration fees and other expenses relating
to the transactions contemplated hereby, including the costs and expenses
incurred in relation to the incorporation of Newco, shall be borne by
Newco.
CLAUSE 23
GENERAL
23.1 Good Faith:
-----------
Each of the Parties hereto undertakes with the others to do all things
reasonably within its power that are necessary or desirable to give effect
to the spirit and intent of this Agreement.
23.2 Further Assurance:
------------------
45
<PAGE>
At the request of any of the Parties, the other Party or Parties shall (and
shall use reasonable efforts to procure that any other necessary parties
shall) execute and perform all such documents, acts and things as may
reasonably be required subsequent to the signing of this Agreement for
assuring to or vesting in the requesting Party the full benefit of the
terms hereof.
23.3 No Representation:
------------------
Each of the Parties hereto hereby acknowledges that in entering into this
Agreement it has not relied on any representation or warranty except as
expressly set forth herein or in any document referred to herein.
23.4 Force Majeure:
--------------
Neither Party to this Agreement shall be liable for delay in the
performance of any of its obligations hereunder if such delay is caused by
or results from causes beyond its reasonable control, including without
limitation, acts of God, fires, strikes, acts of war (whether war be
declared or not), insurrections, riots, civil commotions, strikes, lockouts
or other labor disturbances or intervention of any relevant government
authority, provided that the Party whose performance is delayed or
prevented shall continue to use good faith diligent efforts to mitigate,
avoid or end such delay or failure in performance as soon as practicable.
23.5 Relationship of the Parties:
----------------------------
Nothing contained in this Agreement is intended or is to be construed to
constitute Elan/EIS/EPIL and Depomed as partners, or Elan/EIS/EPIL as an
employee or agent of Depomed, or Depomed as an employee or agent of
Elan/EIS/EPIL.
No Party hereto shall have any express or implied right or authority to
assume or create any obligations on behalf of or in the name of another
Party or to bind another Party to any contract, agreement or undertaking
with any third party.
23.6 Counterparts:
-------------
This Agreement may be executed in any number of counterparts, each of which
when so executed shall be deemed to be an original and all of which when
taken together shall constitute this Agreement.
23.7 Notices:
--------
Any notice to be given under this Agreement shall be sent in writing by
registered or recorded delivery post or reputable overnight courier such as
Federal Express or telecopied to:
46
<PAGE>
Elan Corporation, Plc./EPIL at:
Lincoln House, Lincoln Place, Dublin 2, Ireland
Attention: Vice President & General Counsel
Elan Pharmaceutical Technologies,
a division of Elan Corporation, plc
Telephone: 353-1-709-4000
Fax: 353-1-709-4124
And
EIS at:
Elan International Services, Ltd.
102 St. James Court
Flatts, Smiths FL04
Bermuda
Attention: President
Telephone: 441-292-9169
Fax: 441-292-2224
Depomed at:
366 Lakeside Drive
Foster City
California
94404-1146
USA.
Attention: Chief Executive Officer
Telephone: 001 650 513 0990
Fax: 001 650 513 0999
with a copy to:
Julian N. Stern
Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto
CA 94301-1900
Newco at:
102 St. James Court
47
<PAGE>
Flatts, Smiths FL04
Bermuda
Attention: Secretary
Telephone: 441-292-9169
Fax: 441-292-2224
or to such other address(es) as may from time to time be notified by any
Party to the others hereunder.
Any notice sent by mail shall be deemed to have been delivered within three
Business Days after dispatch or delivery to the relevant courier and any
notice sent by telecopy shall be deemed to have been delivered upon
confirmation of receipt. Notices of change of address shall be effective
upon receipt. Notices by telecopy shall also be sent by another method
permitted hereunder.
23.8 Governing Law; Jurisdiction:
----------------------------
23.8.1. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York except that the applicable corporate
laws of Bermuda shall apply to the issuance of the Shares and to the
authority and responsibilities of the Directors.
23.8.2. The Parties will attempt in good faith to resolve any dispute
arising out of or relating to this Agreement promptly by negotiation
between executives of the Parties. In the event that such negotiations do
not result in a mutually acceptable resolution, the Parties agree to
consider other dispute resolution mechanisms including mediation.
23.8.3 In the event that the Parties fail to agree on a mutually
acceptable dispute resolution mechanism under Clause 23.8.2 or in the event
that the dispute is not resolved pursuant to any dispute resolution
mechanism agreed by the Parties under Clause 23.8.2 within 6 months, the
dispute shall be finally settled by the courts of competent jurisdiction.
For the purposes of this Agreement the parties submit to the non-exclusive
jurisdiction of the courts of the State of New York.
23.9 Severability:
-------------
If any provision in this Agreement is agreed by the Parties to be, deemed
to be or becomes invalid, illegal, void or unenforceable under any law that
is applicable hereto, such provision will be deemed amended to conform to
applicable laws so as to be valid and enforceable or, if it cannot be so
amended without materially altering the intention of the Parties, it will
be deleted, with effect from the date of such agreement or such earlier
date as the Parties may agree, and the validity, legality and
enforceability of the remaining provisions of this Agreement shall not be
impaired or affected in any way.
48
<PAGE>
23.10 Amendments:
-----------
No amendment, modification or addition hereto shall be effective or
binding on any Party unless set forth in writing and executed by a duly
authorized representative of all Parties.
23.11 Waiver:
-------
No waiver of any right under this Agreement shall be deemed effective
unless contained in a written document signed by the Party charged with
such waiver, and no waiver of any breach or failure to perform shall be
deemed to be a waiver of any future breach or failure to perform or of
any other right arising under this Agreement.
23.12 Assignment:
-----------
None of the Parties shall be permitted to assign its rights or
obligations hereunder without the prior written consent of the other
Parties except as follows:
23.12.1 Elan, EIS, EPIL and/or Depomed shall have the right to assign
their rights and obligations hereunder to their Affiliates
provided, however, that such assignment does not result in
adverse tax consequences for any other Parties.
23.12.2 Subject to Clause 8.4 of the Elan License Agreement, Elan, EIS,
EPIL and/or Depomed shall have the right to assign their rights
and obligations hereunder to any other Person who acquires
substantially all of the its assets and business.
23.12.3 Elan, EIS and EPIL shall have the right to assign their rights
and obligations hereunder to a special purpose financing or
similar entity established by Elan or EIS.
23.13 Assignment of Newco Intellectual Property:
------------------------------------------
Upon one month's prior notice in writing from Elan to Newco and Depomed,
Newco shall assign the Newco Intellectual Property from Newco to a
wholly-owned subsidiary of Newco to be incorporated in Ireland, which
company shall be newly incorporated to facilitate such assignment.
23.14 Whole Agreement/No Effect on Other Agreements:
----------------------------------------------
This Agreement (including the Schedules attached hereto) and the
Definitive Documents set forth all of the agreements and understandings
between the Parties with respect to the subject matter hereof, and
supersedes and terminates all prior
49
<PAGE>
agreements and understandings between the Parties with respect to the
subject matter hereof. There are no agreements or understandings with
respect to the subject matter hereof, either oral or written, between the
Parties other than as set forth in this Agreement and the Definitive
Documents.
In the event of any ambiguity or conflict arising between the terms of
this Agreement and those of the Newco Bye-Laws, the terms of this
Agreement shall prevail, except with respect to the rights and
obligations attaching to the Common Stock and the Preferred Stock, where
the Newco Bye-Laws shall prevail.
No provision of this Agreement shall be construed so as to negate, modify
or affect in any way the provisions of any other agreement between any of
the Parties unless specifically referred to, and solely to the extent
provided herein. In the event of a conflict between the provisions of
this Agreement and the provisions of the License Agreements, the terms of
this Agreement shall prevail unless this Agreement specifically provide
otherwise.
23.15 Successors:
-----------
This Agreement shall be binding upon and inure to the benefit of the
Parties hereto, their successors and permitted assigns.
50
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the day
first set forth above.
SIGNED
BY: /s/ Kevin Insley
----------------------------
for and on behalf of
ELAN CORPORATION, PLC
in the presence of: /s/ Debbie Buryj
------------------
SIGNED
BY: /s/ Kevin Insley
----------------------------
for and on behalf of
ELAN PHARMA INTERNATIONAL LIMITED
in the presence of: /s/ Debbie Buryj
------------------
SIGNED
BY: /s/ Kevin Insley
----------------------------
for and on behalf of
ELAN INTERNATIONAL SERVICES LTD.
in the presence of: /s/ Debbie Buryj
------------------
SIGNED
BY: /s/ John W. Fara
----------------------------
for and on behalf of
DEPOMED, INC.
in the presence of: /s/ John Hamilton
------------------
SIGNED
BY: /s/ John W. Fara
----------------------------
for and on behalf of
DEPOMED DEVELOPMENT, LTD.
in the presence of: /s/ John Hamilton
------------------
[JDOA]
51
<PAGE>
SCHEDULE 3
TECHNOLOGICAL COMPETITORS OF ELAN
[**]
[Schedule lists Technological Competitors of Elan]
52
<PAGE>
SCHEDULE 4
TECHNOLOGICAL COMPETITORS OF DEPOMED
[**]
[Schedule lists Technological Competitors of Depomed]
53
<PAGE>
Exhibit 1.6
THIS CONVERTIBLE PROMISSORY NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT UNDER ANY CIRCUMSTANCES BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAWS.
THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS ALSO SUBJECT
TO THE RESTRICTIONS CONTAINED IN THAT CERTAIN SECURITIES PURCHASE AGREEMENT,
DATED JANUARY 21, 2000, BY AND BETWEEN DEPOMED, INC. AND ELAN INTERNATIONAL
SERVICES, LTD.
DEPOMED, INC.
CONVERTIBLE PROMISSORY NOTE
U.S. $8,010,000
January 21, 2000
New York, New York
The undersigned, DepoMed, Inc., a California corporation with offices
at 366 Lakeside Drive, Foster City, CA 94404-1146 (the "Company"),
-------
unconditionally promises to pay to Elan International Services, Ltd., a Bermuda
exempted limited liability company ("EIS"), or its permitted assigns,
---
transferees and successors as provided herein (collectively with EIS, the
"Holder"), on January 21, 2006 (the "Maturity Date"), at such place as may be
- ------- -------------
designated by the Holder to the Company, the principal amount outstanding
hereunder excluding accruals of interest (not to exceed U.S.$8,010,000),
together with interest thereon accrued at a rate per annum equal to 9.0%, from
and after the date of the initial disbursement of funds hereunder (the "Original
--------
Issue Date"), compounded on a semi-annual basis, the initial such compounding to
- ----------
commence on the date that is six months from and after the Original Issue Date
and thereafter on each six month anniversary (each such date, a "Compounding
-----------
Date").
- ----
SECTION 1. SECURITIES PURCHASE AGREEMENT AND FUNDING AGREEMENT.
This Note is issued pursuant to a Securities Purchase Agreement dated
as of the date hereof, by and between the Company and EIS (as amended at any
time, the "Securities Purchase Agreement"), and the Holder hereof is intended to
-----------------------------
be afforded the benefits thereof,
<PAGE>
including the representations and warranties set forth therein. The Company
shall use the proceeds of the issuance and sale of this Note solely in
accordance with the provisions set forth therein and as required therein and in
a certain Funding Agreement, dated as of the date hereof (as amended at any
time, the "Funding Agreement"), by and among Elan Corporation, plc, Elan Pharma
-----------------
International Limited, EIS and the Company, and as described in Section 6 below.
Capitalized terms used but not otherwise defined herein shall, unless otherwise
indicated, have the meanings given such terms in the Securities Purchase
Agreement.
SECTION 2. DISBURSEMENTS.
(a) From and after the date hereof and until January 21, 2002,
disbursements shall be made by EIS to the Company hereunder in minimum
increments of U.S.$250,000 (except in the event that an amount less than
U.S.$250,000 shall be remaining and available for funding hereunder, in which
case such lesser amount may be funded hereunder); provided, that the Company
shall have, prior to each such disbursement, delivered a written request
therefor to the Holder in the form attached hereto as Exhibit A (the
---------
"Disbursement Notice"), together with an Officer's Certificate confirming that
- --------------------
as of such date no Event of Default exists hereunder; the Holder shall, subject
to the terms and conditions hereof, fund the applicable amount within 10
business days of the receipt of the Disbursement Notice, subject to the receipt
by the Holder of any required approvals under the Mergers and Takeovers
(Control) Acts 1978-1996. A "business day" is any day that commercial banks are
open for the transaction of business in the City of New York and in the City of
San Francisco.
(b) The Holder shall not be required to disburse more than the maximum
principal amount hereunder, excluding accruals of interest, of U.S.$8,010,000.
(c) Each disbursement shall accrue interest at the rate set forth in
Section 1 from the date of disbursement through the date of payment.
SECTION 3. PAYMENTS AND COVENANTS.
(a) Unless earlier converted in accordance with the terms of Section 4
below, or prepaid in accordance with the terms hereof, the entire outstanding
principal amount of this Note, together with any accrued and unpaid interest
thereon, shall be due and payable on the Maturity Date.
(b) Accrued interest hereon shall not be paid in cash, but shall be
capitalized and added to the principal amount outstanding hereunder on each
Compounding Date.
2
<PAGE>
SECTION 4. CONVERSION.
(a) Conversion Right.
----------------
(i) From and after the Original Issue Date and until this Note is
repaid in full, the Holder shall have the right from time to time, in its sole
discretion, to convert all or any portion of the outstanding principal amount
and accrued and unpaid interest then-outstanding hereunder, (the "Conversion
----------
Right"), into such number of shares of Common Stock that shall be obtained by
- -----
dividing the sum of the outstanding principal amount and all accrued and unpaid
interest by $10.00, subject to adjustment as provided below in this Section (the
"Conversion Price").
----------------
(ii) The Holder shall be entitled to exercise the Conversion Right
from time to time as to the unconverted portion of this Note upon at least five
days' prior written notice to the Company, such notice to be in the form
attached hereto as Exhibit B. Within 10 days of the conversion date specified
---------
in such notice, the Company shall issue appropriate stock certificates to EIS
representing the aggregate number of shares of Common Stock due to EIS as a
result of such conversion.
(b) Reclassification, Etc. In case of (i) any reclassification,
----------------------
reorganization, change or conversion of securities of the class issuable upon
conversion of the outstanding principal amount and accrued and unpaid interest
then-outstanding hereunder (other than a change in par value, or from par value
to no par value), or (ii) any consolidation of the Company with or into another
entity (other than a merger or consolidation with another entity in which the
Company is the surviving entity and that does not result in any reclassification
or change of the class of securities issuable upon the conversion of the
outstanding principal amount and accrued and unpaid interest then-outstanding
hereunder), or (iii) any sale of all or substantially all the assets of the
Company for stock of another company, then the Company, or such successor or
purchasing entity, as the case may be, shall duly execute and deliver to the
Holder a new Note or a supplement hereto (in form and substance reasonably
satisfactory to the Holder of this Note), so that the Holder shall have the
right to receive, in lieu of the shares of Common Stock otherwise issuable upon
the conversion of such outstanding principal amount and accrued and unpaid
interest then-outstanding hereunder, the kind and amount of shares of stock and
other securities, money and property receivable upon such reclassification,
reorganization, change, merger, consolidation or conversion by a holder of the
number of shares of Common Stock then issuable under this Note. Such new Note
shall provide for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 4. The provisions
of this Section 4(b) shall similarly attach to successive reclassifications,
reorganizations, changes, mergers, consolidations, transfers or conversions;
provided, however, that this provision shall not include (i) any stock option
(or shares issued upon their exercise) or other securities issued under
incentive plans granted to employees, officers, directors or consultants in
connection with their employment with the Company or (ii) warrants (or shares
issued upon their exercise) issued in connection with any equipment loan by the
Company or (iii) this Note or one of the Transaction Documents or any shares
issued on conversion thereof or (v) securities issued in a private sale at a
price not less than 85% of the Fair Market Value (as
3
<PAGE>
defined in Section 4(c)) pursuant to which the purchasers are granted
registration rights for the resale of such securities provided, that the rights
of the Holder in Section 4(c) below are not affected.
(c) Below Market Issuance; Stock Dividends; Etc.
-------------------------------------------
(i) If the Corporation shall issue any Additional Stock (as defined
below) without consideration or for a consideration per share less than the
Closing Price on such date, the Conversion Price for such series in effect
immediately prior to each such issuance shall forthwith (except as otherwise
provided in this clause (i)) be adjusted to a price equal to a price determined
by multiplying such Conversion Price by a fraction, the numerator of which shall
be the sum of (w) the number of shares of Common Stock outstanding immediately
prior to such issuance (assuming the conversion of all then outstanding shares
of Series A Convertible Preferred Stock and including shares issued or issuable
pursuant to Section 4(c)(i)) and (x) the number of shares of Common Stock that
the aggregate consideration received by the Corporation for such issuance would
purchase at such Conversion Price; and the denominator of which shall be the sum
of (y) the number of shares of Common Stock outstanding immediately prior to
such issuance (assuming the conversion of all then outstanding shares of Series
A Convertible Preferred Stock and including shares issued or issuable pursuant
to this Section 4 and (z) the number of shares of such Additional Stock. For
purposes of this Note, (1) "Closing Price" shall mean (x) the average of the
-------------
closing prices on the 20 trading days prior to such determination on the
principal national securities exchange on which the Common Stock is traded, if
any, (y) the average of the last quoted prices on the 20 trading days prior to
such determination if the Common Stock is traded on the Nasdaq National Market
or Nasdaq Small Cap Market, or (z) if the Common Stock is not listed on a
national securities exchange or traded on the Nasdaq National Market or the
Nasdaq SmallCap Market, then as determined in good faith by the Company's Board
of Directors and reasonably agreed to by EIS and (2) "Additional Stock" shall
----------------
mean any Common Stock or securities exercisable, exchangeable or convertible for
or into Common Stock at a price (or effective price in the case of such other
securities) below the greater of (A) the Conversion Price therein effect and (B)
the then-current Closing Price per share. Additional Stock shall not include
(i) any stock option (or shares issued upon their exercise) or other securities
issued under incentive plans granted to employees, officers, directors or
consultants in connection with their employment with the Company or (ii)
warrants (or shares issued upon their exercise) issued in connection with any
equipment loan by the Company or (iii) this Note (or shares issued upon its
conversion) or (iv) Series A Convertible Preferred Stock (or shares issued upon
its conversion) or (v) securities issued in a private sale at a price not less
than 85% of the Fair Market Value pursuant to which the purchasers are granted
registration rights for the resale of such securities.
(d) No Impairment. The Company will not, by amendment of its Articles of
-------------
Incorporation or bylaws or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the
4
<PAGE>
provisions of this Section 4 and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of EIS against
impairment. This provision shall not restrict the Company from otherwise
amending and/or restating its Articles of Incorporation in accordance with
California Corporations Code.
(e) Notice of Adjustments. Whenever the consideration issuable upon a
---------------------
conversion hereunder shall be changed pursuant to this Section 4, the Company
shall prepare a certificate setting forth, in reasonable detail, the event
requiring the change and the kind and amount of shares of stock and other
securities, money and property subsequently issuable upon a conversion hereof.
Such certificate shall be signed by its chief financial officer and shall be
delivered to EIS.
(f) Fractional Shares; Rounding. No fractional shares of Common Stock will
---------------------------
be issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall make a cash payment therefor based on the
applicable Conversion Price. All calculations under this Section 4 shall be
made to the nearest cent or to the nearest one-hundredth of a share, as the case
may be.
SECTION 5. EXCHANGE RIGHT.
In the event that EIS shall exercise the EIS Exchange Right (as such term
is defined in the Securities Purchase Agreement), EIS shall, at its option, (i)
cause to be paid to the Company, within 30 days of such exercise, an amount
equal to 30.1% of the aggregate amount (but not including any accrued and unpaid
interest thereon) of the Development Funding (as such term is defined in the
Funding Agreement) through the date of such exercise provided by each of the
parties to Newco, in accordance with the terms of the Funding Agreement, from
and after the date hereof and until the date of such exercise, and/or (ii)
offset against the amount payable under this Note an amount equal to 30.1% of
the total amount (but not including any accrued and unpaid interest in respect
of any debt, including the Note thereon) of Development Funding provided by each
of the parties to Newco, in accordance with the terms of the Funding Agreement,
from and after the date hereof and until the date of the exercise of the
Exchange Right, against the principal amount outstanding hereunder, if any, or
(iii) effect a combination of the provisions described in clauses (i) and (ii)
above, if applicable.
5
<PAGE>
SECTION 6. USE OF PROCEEDS.
The Company shall use the proceeds of this Note solely for
developmental funding of Newco, including the reimbursement of the Company for
any amounts previously advanced for such developmental funding; provided, that
the Board of Directors of Newco shall have determined that such developmental
funding is necessary (which approval shall in all events include the consent of
at least one director designated by the Company and at least one director
designated by EIS). Accordingly, total disbursements hereunder shall not in any
event exceed the amount of Development Funding funded by the Company to Newco
pursuant to the Funding Agreement.
SECTION 7. EVENTS OF DEFAULT.
The occurrence of any of the following events shall constitute an
event of default (an "Event of Default"):
----------------
(a) a default in the payment of the principal amount of this Note, when
and as the same shall become due and payable;
(b) a default in the payment of any accrued and unpaid interest on this
Note, when and as the same shall become due and payable;
(c) a breach by the Company of its obligations under any of the
Transaction Documents, which breach remains uncured 45 days after written notice
thereof by EIS;
(d) a distress, execution, sequestration or other process is levied or
enforced upon the Company against a material part of its property which is not
discharged or challenged within 60 days;
(e) the Company is unable to pay its debts in the normal course of
business;
(f) the Company ceases wholly or substantially to carry on its business,
otherwise than for the purpose of a reconstruction or amalgamation, without the
prior written consent of the EIS (such consent not to be unreasonably withheld);
(g) the appointment of a liquidator, receiver, administrator, examiner,
trustee or similar officer of the Company or over all or substantially all of
its assets under the law; or
(h) any other termination of the JDOA.
SECTION 8. REMEDIES IN THE EVENT OF DEFAULT.
(a) In the case of any Event of Default by the Company, the Holder, may in
its sole discretion, demand that the aggregate amount of funds advanced to the
Company under this Note
6
<PAGE>
and outstanding hereunder and accrued and unpaid interest thereon shall, in
addition to all other rights and remedies of the Holder hereunder and under
applicable law, be and become immediately due and payable upon written notice
delivered by the Holder to the Company. Notwithstanding the preceding sentence,
the rights of the Holder as set forth in Sections 4 and 5 hereunder shall
survive any such acceleration. If the Holder shall accelerate and be paid and
thereafter elect to exercise the Conversion Right, the Holder shall reimburse to
the Company an amount in respect of the shares of Common Stock issued under such
Conversion Right equal to the principal amount of this Note attributable thereto
as calculated in accordance with Section 4 above.
(b) The Company hereby waives demand and presentment for payment, notice
of nonpayment, protest and notice of protest, diligence, filing suit, and all
other notice and promises to pay the Holder its costs of collection of all
amounts due hereunder, including reasonable attorneys' fees.
(c) In the case of any Event of Default under this Note by the Company
this Note shall continue to bear interest after such default at the interest
rate otherwise in effect hereunder plus, until such default is cured, 3% per
annum (but in any event not in excess of the maximum rate of interest permitted
by applicable law).
SECTION 9. MISCELLANEOUS.
(a) EIS may assign this Note to its affiliates and subsidiaries, as well
as any special purpose financing or similar vehicle established by EIS or its
affiliates. This Note and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns; provided, however, that EIS and the Company shall remain
liable for their respective obligations hereunder after any such assignment.
(b) Each of the parties agrees that the Company may be required under U.S.
tax laws to withhold from any payments of interest on the Note appropriate
withholding taxes to be paid to jurisdictions of the United States. Each of
the parties agrees to cooperate to minimize the amount of such withholding
taxes, if any, and to consult with each other for this purpose from time to
time.
(c) All notices, demands and requests of any kind to be delivered to any
party in connection with this Agreement shall be in writing and shall be deemed
to have been duly given if personally delivered or if sent by nationally-
recognized overnight courier or by registered or certified mail, return receipt
requested and postage prepaid, or by facsimile transmission, addressed as
follows:
(i) if to the Company:
DepoMed, Inc.
366 Lakeside Drive
7
<PAGE>
Foster City, CA 94404-1146
Attention: Chief Executive Officer
Facsimile: (650) 513-0999
with a copy to:
Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, CA 94301
Attn: Julian Stern, Esq.
Facsimile: (650) 324-0638
(ii) if to EIS, to:
Elan International Services, Ltd.
102 St. James Court
Flatts, Smiths Parish
Bermuda FL04
Attention: President
Fax: (441) 292-2224
with a copy to:
Brock Silverstein LLC
800 Third Avenue
New York, New York 10022
Attention: David Robbins, Esq.
Fax: (212) 371-5500
Each party, by written notice given to the other in accordance with this Section
9(c) may change the address to which notices, other communication or documents
are to be sent to such party. All notices, other communications or documents
shall be deemed to have been duly given when received. Any such notice or
communication shall be deemed to have been effectively given, (a) in the case of
personal delivery, on the date of such delivery, (b) in the case of nationally-
recognized overnight courier, on the second business day after the date when
sent, (c) in the case of mailing, on the fifth business day following that day
on which the piece of mail containing such communication is posted, and (d) in
the case of facsimile transmission, on the date of transmission.
(d) This Note may not be modified or amended, or any of the provisions
hereof waived, except by written agreement of the Company and EIS.
(e) This Note shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to principles thereof
relating to conflicts of laws.
8
<PAGE>
(f) This Note may be executed in any number of counterparts, and each such
counterpart hereof shall be deemed to be an original instrument, but all such
counterparts together shall constitute one note. The Note may be signed and
delivered to the other party by a facsimile transmission; such transmission
shall be deemed a valid signature.
(g) Each of the parties shall be responsible for its own costs and expenses
incurred in connection with the transactions contemplated hereby.
9
<PAGE>
IN WITNESS WHEREOF, the Company and EIS have executed this Note on the
date first above written.
DEPOMED, INC.
By: /s/ John W. Fara
------------------------------
Name: John W. Fara
Title: President & CEO
ELAN INTERNATIONAL SERVICES, LTD.
By: /s/ Kevin Insley
------------------------------
Kevin Insley
President & CFO
[Convertible Promissory Note]
10
<PAGE>
EXHIBIT A
NOTICE OF REQUEST FOR DISBURSEMENT
----------------------------------
Date:
To: Elan International Services, Ltd.
From: DepoMed, Inc.
Re: Disbursement Request
________________________________________________________________________________
Pursuant to the terms of the Convertible Promissory Note (the "Note")
issued by DepoMed, Inc. (the "Company") to Elan International Services, Ltd.
("EIS"), dated ______, ______, the Company hereby notifies EIS of its request
for a disbursement thereunder in the amount of $_________. Please provide
funding in the requested amount to the Company in accordance with the following
wire instructions:
[
]
Sincerely,
DEPOMED, INC.
By: ___________________________
Name:
Title:
11
<PAGE>
EXHIBIT B
NOTICE OF ELECTION TO EXERCISE A CONVERSION RIGHT
-------------------------------------------------
Date:
To: DepoMed, Inc.
From: Elan International Services, Ltd.
Re: Exercise of a Conversion Right
________________________________________________________________________________
Pursuant to the terms of the Convertible Promissory Note (the "Note")
issued by DepoMed, Inc. (the "Company") to Elan International Services, Ltd.
("EIS"), dated ___________, _____, specifically Section 4 thereof, EIS hereby
notifies the Company of its intention to exercise a right of conversion.
Pursuant to Section 4 of the Note, EIS hereby elects to convert
[$__________]/*/ in aggregate principal amount and all accrued and unpaid
interest thereon for shares of the Company's Common Stock, no par value per
share, effective [__________, ____]
We have instructed our attorneys to contact the Company to discuss the
timing and documentation of the conversion.
Sincerely,
ELAN INTERNATIONAL SERVICES, LTD.
By: ___________________________
Name:
Title:
_____________________
/*/ Amount must represent one or more tranches drawn down by the Company under
the Note.
12
<PAGE>
Exhibit 1.7
LICENSE AGREEMENT
BETWEEN
DEPOMED, INC.
AND
DEPOMED DEVELOPMENT, LTD.
AND
ELAN CORPORATION, PLC.
THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1 DEFINITIONS
2 DEPOMED LICENSE TO NEWCO
3 INTELLECTUAL PROPERTY
4 [**]
5 FINANCIAL PROVISIONS
6 RIGHT OF INSPECTION AND AUDIT
7 REPRESENTATIONS AND WARRANTIES
8 TERM AND TERMINATION
9 CONFIDENTIAL INFORMATION
10 GOVERNING LAW AND JURISDICTION
11 IMPOSSIBILITY OF PERFORMANCE - FORCE MAJEURE
12 ASSIGNMENT
13 NOTICES
14 MISCELLANEOUS
</TABLE>
2
<PAGE>
THIS AGREEMENT made this 21 January, 2000
between:
(1) Depomed, Inc., a corporation duly incorporated and validly existing under
the laws of California and having its principal place of business at 366
Lakeside Drive, Foster City, CA 94404-1146, United States of America.
(2) Depomed Development, Ltd., a private limited company incorporated under the
laws of Bermuda and having its registered office at Clarendon House, 2
Church St., Hamilton, Bermuda ("Newco"); and
(3) Elan Corporation, Plc, a public limited company incorporated under the laws
of Ireland, and having its registered office at Lincoln House, Lincoln
Place, Dublin 2, Ireland.
RECITALS:
- ---------
A. Simultaneously herewith, Elan, Depomed, EIS, and Newco are entering into
the JDOA for the purpose of recording the terms and conditions of the joint
venture and of regulating their relationship with each other and certain
aspects of the affairs of, and their dealings with Newco.
B. Newco desires to enter into this Agreement with Depomed so as to permit
Newco to utilize the Depomed Intellectual Property in making, having made,
importing, using, offering for sale and selling the Products in certain
fields in the Territory.
C. Simultaneously herewith Newco and Elan are entering into the Elan License
Agreement relating to Newco's use of the Elan Intellectual Property.
1 DEFINITIONS
1.1 In this Agreement unless the context otherwise requires:
"Affiliate" of any Person (in the case of a legal entity) shall mean any
other Person controlling, controlled or under the common control of such
first Person, as the case may be. For the purpose of this definition,
"control" shall mean direct or indirect ownership of fifty percent (50%) or
more of the stock or shares entitled to vote for the election of directors
in the case of a corporation and, in the case of a non-corporate entity,
the power to direct or cause the direction of management and policies.
Newco is not an Affiliate of Elan, EIS, EPIL or Depomed.
"Agreement" shall mean this license agreement (which expression shall be
deemed to include the Recitals and Schedules hereto).
3
<PAGE>
"Business Plan" shall have the meaning, as such term is defined in the
JDOA.
"Compound" shall, subject to Clause 2.3 of the JDOA, mean [**].
"Confidential Information" shall have the meaning, as such term is defined
in Clause 9.
"Definitive Documents" shall mean the definitive agreements relating to the
transaction including finance, stock purchase, research and license
agreements.
"Depomed" shall mean Depomed Inc. and its Affiliates.
"Depomed Intellectual Property" shall mean the Depomed Know-How, the
Depomed Patents and the Depomed Improvements.
"Depomed Know-How" shall, subject to Clause 4.2, mean any and all rights
owned, licensed to or controlled by Depomed on the Effective Date to any
discovery or invention (whether patentable or not) and owned, licensed to
or controlled by Depomed on the Effective Date to any know-how, substances,
data, techniques, processes, systems, formulations and designs relating to
the Depomed Technology.
"Depomed License" shall have the meaning set forth in Clause 2.1.
"Depomed Patents" shall, subject to Clause 4.2, mean any and all rights
under any and all patents applications and/or patents, now existing,
currently pending or hereafter filed or obtained by Depomed on inventions
conceived or reduced to practice on or before the Effective Date relating
to the Depomed Technology as set forth in Schedule 1, and any foreign
counterparts thereof and all divisionals, continuations, continuations-in-
part, patents of addition, supplementary protection certificates, any
foreign counterparts thereof and all patents issuing on, any of the
foregoing, together with all registrations, reissues, re-examinations or
extensions thereof.
"Depomed Technology" shall mean the Depomed technology directly related to:
(i) a solid oral dosage form which swells in the gastric cavity, remains
therein for an extended period of time in order to release drug
dispersed therein at a pre-defined rate from the stomach; and
(ii) [**].
"Depomed Improvements" shall mean improvements relating to the Depomed
Patents and/or the Depomed Know-How, developed (i) by Depomed whether or
not pursuant to the Project, (ii) by Newco or Elan or by an independent
third party (under
4
<PAGE>
contract with Newco) pursuant to the Project, and/or (iii) jointly by any
combination of Depomed, Elan or Newco pursuant to the Project, except as
limited by agreements with independent third parties.
Subject to independent third party agreements, Depomed Improvements shall
constitute part of Depomed Intellectual Property and shall, upon
development, be included in the license of the Depomed Intellectual
Property pursuant to Clause 2 of the Depomed License Agreement solely for
the purposes set forth therein. If the inclusion of a Depomed Improvement
in the license of Depomed Intellectual Property is restricted or limited by
an independent third party agreement, Depomed shall use reasonable
commercial efforts to exclude or minimize any such restriction or
limitation.
"Depomed Trademark(s)" shall mean one or more trademarks, trade names, or
service marks that are owned or licensed by or on behalf of Depomed which
Depomed may nominate and approve in writing from time to time for use in
connection with the sale or promotion of the Products by Newco.
"Effective Date" shall mean the date of this Agreement.
"EIS" shall mean Elan International Services, Ltd., Bermuda exempted
limited liability company having its registered office at Clarendon House,
2 Church St., Hamilton, Bermuda.
"Elan" shall mean Elan Corp and EPIL.
"Elan Corp" shall mean Elan Corporation, Plc. and Affiliates of Elan
Corporation, Plc. within the division of Elan Corporation, Plc. carrying on
business as Elan Pharmaceutical Technologies but shall not include
Affiliates (present or future) of Elan Corporation Plc within the division
of Elan Corporation, Plc carrying on business as Elan Pharmaceuticals which
incorporates, inter alia, Targon Corporation, Athena Neurosciences, Inc.,
Elan Pharmaceuticals, Inc., Elan Diagnostics, Carnrick Laboratories, and
Elan Europe Limited.
"Elan Intellectual Property" shall have the meaning as such term is defined
in the Elan License Agreement.
"Elan Know-How" shall have the meaning as such term is defined in the Elan
License Agreement.
"Elan Licenses" shall mean have the meaning as such term is defined in the
Elan License Agreement.
"Elan License Agreement" shall mean that certain license agreement, of even
date herewith, entered into between Elan and Newco.
"Elan Patents" shall have the meaning as such term is defined in the Elan
License
5
<PAGE>
Agreement.
"Elan Improvements" shall have the meaning as such term is defined in the
Elan License Agreement.
"EPIL" shall mean Elan Pharma International Limited and Affiliates of Elan
Corporation, Plc. within the division of Elan Corporation, Plc. carrying on
business as Elan Pharmaceutical Technologies but shall not include
Affiliates (present or future) of Elan Corporation Plc within the division
of Elan Corporation, Plc carrying on business as Elan Pharmaceuticals which
incorporates, inter alia, Targon Corporation, Athena Neurosciences, Inc.,
Elan Pharmaceuticals, Inc., Elan Diagnostics, Carnrick Laboratories, and
Elan Europe Limited.
"[**] Field" shall mean [**].
"[**] Product" shall mean [**].
"Fields" shall mean the [**] Field, the [**] Field and the [**] Field.
"Financial Year" shall mean each year commencing on 1 January (or in the
case of the first Financial Year, the Effective Date) and expiring on 31
December of each year.
"[**] Field" shall mean [**].
"[**] Product" shall mean [**].
"JDOA" shall mean that certain subscription, joint development and
operating agreement, of even date herewith, by and between Depomed, Elan,
EIS and Newco.
"Licensed Technologies" shall mean the Depomed Intellectual Property and
the Elan Intellectual Property.
"Licenses" shall mean the Depomed License and the Elan License.
"Management Committee" shall have the meaning, as such term is defined in
the JDOA.
"Newco Intellectual Property" shall mean all rights to patents, know-how
and other intellectual property arising out of the conduct of the Project
by any person, including any technology acquired by Newco from a third
party, that does not constitute Elan Intellectual Property or Depomed
Intellectual Property.
"Newco Patents" shall mean any and all patents now existing, currently
pending or hereafter filed or obtained relating to the Newco Intellectual
Property, and any foreign
6
<PAGE>
counterparts thereof and all divisionals, continuations, continuations-in-
part, , patents of addition, supplementary protection certificates, any
foreign counterparts thereof and all patents issuing on, any of the
foregoing, together with all registrations, reissues, re-examinations or
extensions thereof.
"Party" shall mean Elan Corporation, Plc., Depomed or Newco, as the case
may be, and "Parties" shall mean all such parties together.
"Person" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, governmental entity or authority
or other entity of whatever nature.
"Product(s)" shall mean [**].
"Project" shall mean all activities as undertaken by Depomed, Elan and
Newco in order to develop the Products.
"[**] Field" shall mean [**].
"[**] Product" shall mean [**].
"Term" shall have the meaning set forth in Clause 8.
"Territory" shall mean all the countries of the world.
"United States Dollar" and "US$" shall mean the lawful currency for the
time being of the United States of America.
1.2 In this Agreement:
1.2.1 The singular includes the plural and vice versa, and the masculine
includes the feminine and vice versa and the neuter includes the
masculine and the feminine.
1.2.2 Any reference to a Clause or Schedule shall, unless otherwise
specifically provided, be to a Clause or Schedule of this Agreement.
1.2.3 The headings of this Agreement are for ease of reference only and
shall not affect its construction or interpretation.
2 DEPOMED LICENSE TO NEWCO
2.1 Depomed hereby grants to Newco for the Term a non-exclusive license (the
"Depomed License") to the Depomed Intellectual Property to make, have made,
import, use, offer for sale and sell the Products in the Territory in the
[**] Field and the [**] Field, subject to any contractual obligations that
Depomed has as of the
7
<PAGE>
Effective Date under any agreement with any unaffiliated third party.
Depomed hereby confirms that no such agreements are in effect on the date
hereof between Depomed and an unaffiliated third party.
2.2 [**] shall be responsible for payments related to the financial provisions
and obligations of any third party agreement with respect to the Depomed
Intellectual Property to which it is a party on the Effective Date
(including amendments thereto) (the "Depomed Effective Date Agreements"),
including without limitation, any royalty or other compensation obligations
triggered thereunder on the Effective Date, or triggered thereunder after
the Effective Date.
For the avoidance of doubt, royalties, milestones or other payments which
arise from the process of the commercialization or exploitation of products
under the Depomed Effective Date Agreements (for example, a milestone
payment payable upon successful completion of Phase II clinical trials, the
filing of an NDA application, obtaining NDA approval, or first commercial
sale) shall be payments for which [**] will be responsible under this
Clause 2.2.
2.3 Elan shall be a third party beneficiary under this Agreement and shall have
the right to cause Newco to enforce Newco's rights under this Agreement
against Depomed.
2.4 Notwithstanding anything contained in this Agreement to the contrary,
Depomed shall have the right outside the [**] Field and the [**] Field and
subject to the [**] to exploit and grant licenses and sublicenses of the
Depomed Intellectual Property.
For the avoidance of doubt, Newco shall have no right to use the Depomed
Intellectual Property outside the [**] Field and the [**] Field.
2.5 Except as provided in Clause 11 of the JDOA, Newco shall not be permitted
to assign, license or sublicense any of its rights under the Depomed
Intellectual Property without the prior consent in writing of Depomed.
2.6 Any agreement between Newco and any permitted third party for the
development or exploitation of the Depomed Intellectual Property shall
require such third party to maintain the confidentiality of all information
concerning the Depomed Intellectual Property.
Insofar as the obligations owed by Newco to Depomed are concerned, Newco
shall remain responsible for all acts and omissions of any permitted sub-
licensee, including Elan, as if they were acts and omissions by Newco.
3 INTELLECTUAL PROPERTY
3.1 Ownership of Intellectual Property:
-----------------------------------
8
<PAGE>
3.1.1 Newco shall own the Newco Intellectual Property.
3.1.2 Depomed shall own the Depomed Intellectual Property.
3.2 Trademarks:
-----------
3.2.1 Depomed hereby grants to Newco for the Term a non-exclusive, royalty
free license to use the Depomed Trademarks solely to research,
develop, make, have made, import, use, offer for sale and sell the
Products in the Field in the Territory and the following provisions
shall apply as regards the license of the Depomed Trademarks by
Newco hereunder:
(1) Newco shall ensure that each reference to and use of a Depomed
Trademark by Newco is in a manner approved by Depomed and
accompanied by an acknowledgement, in a form approved by
Depomed, that the same is a trademark (or registered trademark)
of Depomed.
From time to time, upon the reasonable request of Depomed,
Newco shall submit samples of the Product to Depomed or its
duly appointed agent to ensure compliance with quality
standards and specifications. Depomed, or its duly appointed
agent, shall have the right to inspect the premises of Newco
where the Product is manufactured, held or stored, and Newco
shall permit such inspection, upon advance notice at any
reasonable time, of the methods and procedures used in the
manufacture, storage and sale of the Product. Newco shall not
sell or otherwise dispose of any Product under the Depomed
Trademarks that fails to comply with the quality standards and
specifications referred to in this Clause 3.2, as determined by
Depomed.
(2) Newco shall not use a Depomed Trademark in any way which might
materially prejudice its distinctiveness or validity or the
goodwill of Depomed therein.
(3) The parties recognize that the Depomed Trademarks have
considerable goodwill associated therewith. Newco shall not use
in relation to the Products any trademarks other than the
Depomed Trademarks (except the Elan Trademarks (as defined in
the Elan License Agreement) licensed to Newco under the Elan
License Agreement) without obtaining the prior consent in
writing of Depomed, which consent may not be unreasonably
withheld. However, such use must not conflict with the use and
display of the Depomed Trademark and such use and display must
be approved by Depomed.
(4) Newco shall not use in the Territory any trademarks or trade
names so resembling the Depomed Trademark as to be likely to
cause confusion or deception.
9
<PAGE>
(5) Newco shall promptly notify Depomed in writing of any alleged
infringement or unauthorised use of which it becomes aware by a
third party of the Depomed Trademarks and provide Depomed with
any applicable evidence of infringement or unauthorised use.
(6) Newco shall favourably consider promoting and using the Depomed
Trademarks in each country of the Territory and provide proof
of such use upon request by Depomed.
(7) Newco shall not be permitted to assign or sublicense any of its
rights under the Depomed Trademarks without the prior written
consents of Depomed.
3.2.2 Depomed may, at its sole expense and discretion, file and prosecute
applications to register and maintain registrations of the Depomed
Trademarks in the Territory. Newco shall reasonably co-operate with
Depomed in such efforts.
3.2.3 Depomed will be entitled to conduct all enforcement proceedings
relating to the Depomed Trademarks and shall at its sole discretion
decide what action, if any, to take in respect to any enforcement
proceedings of the Depomed Trademarks or any other claim or counter-
claim brought in respect to the use or registration of the Depomed
Trademarks. Any such proceedings shall be conducted at Depomed's
expense and for its own benefit. Newco and Elan shall reasonably
cooperate with Depomed in such efforts.
3.2.4 Newco shall promptly notify Depomed in writing in the event that any
Depomed Trademark has been challenged by a third party in a judicial
or administrative proceeding in a country in the Territory as
infringing on the rights of a third party and Depomed shall have the
first right to decide whether or not to defend such allegations, or
to adopt an alternative mark. If Depomed decides not defend the
Depomed Trademark, then Newco may request Depomed to defend the
Depomed Trademark, at Newco's expense, unless such requested defense
is believed by Depomed to be unsubstantiated and without merit. In
such a case, Depomed may elect not to initiate defence proceedings.
3.2.5 Newco will have no ownership rights in respect of the Depomed
Trademarks or of the goodwill associated therewith, and Newco hereby
acknowledges that, except as expressly provided in this Agreement,
it shall not acquire any rights in respect thereof and that all such
rights and goodwill are, and will remain, vested in Depomed.
3.2.6 Nothing in this Agreement shall be construed as a warranty on the
part of Depomed regarding the Depomed Trademarks, including without
limitation, that use of the Depomed Trademarks in the Territory will
not infringe the
10
<PAGE>
rights of any third parties. Accordingly, Newco acknowledges and
agrees that Depomed makes no such warranty.
3.2.7 Depomed assumes no liability to Newco or to any third parties with
respect to the quality, performance or characteristics of any of the
goods manufactured or sold by Newco under the Depomed Trademarks
pursuant to this Agreement.
4 [**]
4.1 [**]
4.2 [**]
5 FINANCIAL PROVISIONS
5.1 Royalties:
----------
Prior to the commercialization of the Products, the Management Committee
shall consider and if appropriate, determine reasonable royalties with
respect to the commercialization of the Products by Newco that shall be
payable by Newco to Elan and Depomed, and shared by Elan and Depomed pro
rata with Elan's and Depomed's respective percentage ownership of stock
(whether common stock and/or preferred stock) in Newco.
At such time, the Management Committee will agree an appropriate definition
of "Net Sales" as such term is used in this Agreement.
5.2 Payment of royalties pursuant to Clause 5.1 shall be made quarterly in
arrears during each Financial Year within 30 days after the expiry of the
calendar quarter. The method of payment shall be by wire transfer to an
account specified by Depomed. Each payment made to Depomed shall be
accompanied by a true accounting of all Products sold by Newco's permitted
sublicensees, if any, during such quarter.
Such accounting shall show, on a country-by-country and Product-by-Product
basis, Net Sales (and the calculation thereof) and each calculation of
royalties with respect thereto, including the calculation of all
adjustments and currency conversions.
5.3 Newco shall maintain and keep clear, detailed, complete, accurate and
separate records for a period of 3 years:
5.3.1 to enable any royalties on Net Sales that shall have accrued
hereunder to be determined; and
5.3.2 to enable any deductions made in the Net Sales calculation to be
determined.
11
<PAGE>
5.4 All payments due hereunder shall be made in United States Dollars.
Payments due on Net Sales of any Product for each calendar quarter made in
a currency other than United States Dollars shall first be calculated in
the foreign currency and then converted to United States Dollars on the
basis of the exchange rate in effect on the last working day for such
quarter for the purchase of United States Dollars with such foreign
currency quoted in the Wall Street Journal (or comparable publication if
not quoted in the Wall Street Journal) with respect to the currency of the
country of origin of such payment, determined by averaging the rates so
quoted on each business day of such quarter.
5.5 If, at any time, legal restrictions in the Territory prevent the prompt
payment when due of royalties or any portion thereof, the Parties shall
meet to discuss suitable and reasonable alternative methods of paying
Depomed the amount of such royalties. In the event that Newco is prevented
from making any payment under this Agreement by virtue of the statutes,
laws, codes or government regulations of the country from which the payment
is to be made, then such payments may be paid by depositing them in the
currency in which they accrue to Depomed's account in a bank acceptable to
Depomed in the country the currency of which is involved or as otherwise
agreed by the Parties.
5.6 Depomed and Newco agree to co-operate in all respects necessary to take
advantage of any double taxation agreements or similar agreements as may,
from time to time, be available.
5.7 Any taxes payable by Depomed on any payment made to Depomed pursuant to
this Agreement shall be for the account of Depomed. If so required by
applicable law, any payment made pursuant to this Agreement shall be made
by Newco after deduction of the appropriate withholding tax, in which event
the Parties shall co-operate to obtain the appropriate tax clearance as
soon as is practicable. On receipt of such clearance, Newco shall
forthwith arrange payment to Depomed of the amount so withheld.
6 RIGHT OF INSPECTION AND AUDIT
6.1 Once during each Financial Year, or more often not to exceed quarterly as
reasonably requested by Depomed, Newco shall permit Depomed or its duly
authorised representatives, upon reasonable notice and at any reasonable
time during normal business hours, to have access to inspect and audit the
accounts and records of Newco and any other book, record, voucher, receipt
or invoice relating to the calculation of the royalty payments on Net Sales
submitted to Depomed.
Any such inspection of Newco's records shall be at the expense of Depomed,
except that if any such inspection reveals a deficiency in the amount of
the royalty actually paid to Depomed hereunder in any Financial Year
quarter of [**]% or more of the amount of any royalty actually due to
Depomed hereunder, then the expense of such inspection shall be borne
solely by Newco. Any amount of deficiency shall be paid
12
<PAGE>
promptly to Depomed by Newco.
If such inspection reveals a surplus in the amount of royalties actually
paid to Depomed by Newco, Depomed shall reimburse Newco the surplus within
15 days after determination.
6.2 In the event of any unresolved dispute regarding any alleged deficiency or
overpayment of royalty payments hereunder, the matter will be referred to
an independent firm of chartered accountants chosen by agreement of Elan
and Depomed for a resolution of such dispute. Any decision by the said
firm of chartered accountants shall be binding on the Parties.
7 REPRESENTATIONS AND WARRANTIES
7.1 Depomed represents and warrants to Newco and Elan, as of the Effective
Date, as follows:
7.1.1 Depomed has the right to grant the Depomed License;
7.1.2 there are no agreements between Depomed and any third party that
conflict with the Depomed License.
7.2 In addition to any other indemnities provided for herein, Depomed shall
indemnify and hold harmless Newco and its Affiliates and their respective
employees, agents, officers and directors from and against any claims,
losses, liabilities or damages (including reasonable attorney's fees and
expenses) incurred or sustained by Newco arising out of or in connection
with any:
7.2.1 breach of any representation, covenant, warranty or obligation by
Depomed hereunder; or
7.2.2 negligent act or omission on the part of Depomed or any of its
respective employees, agents, officers and directors in the
performance of this Agreement.
7.3 In addition to any other indemnities provided for herein, Newco shall
indemnify and hold harmless Depomed and its Affiliates and their respective
employees, agents, officers and directors from and against any claims,
losses, liabilities or damages (including reasonable attorney's fees and
expenses) incurred or sustained by Depomed arising out of or in connection
with any:
7.3.1 breach of any representation, covenant, warranty or obligation by
Newco hereunder; or
7.3.2 negligent act or omission on the part of Newco or any of its agents
or employees in the performance of this Agreement.
13
<PAGE>
7.4 The Party seeking an indemnity shall:
7.4.1 fully and promptly notify the other Party of any claim or
proceeding, or threatened claim or proceeding;
7.4.2 permit the indemnifying Party to take full care and control of such
claim or proceeding;
7.4.3 co-operate in the investigation and defence of such claim or
proceeding;
7.4.4 not compromise or otherwise settle any such claim or proceeding
without the prior written consent of the other Party, which consent
shall not be unreasonably withheld conditioned or delayed; and
7.4.5 take all reasonable steps to mitigate any loss or liability in
respect of any such claim or proceeding.
7.5 EXCEPT AS SET FORTH IN THIS CLAUSE 7, DEPOMED IS GRANTING THE LICENSE
HEREUNDER ON AN "AS IS" BASIS WITHOUT REPRESENTATION OR WARRANTY WHETHER
EXPRESS OR IMPLIED INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, OR INFRINGEMENT OF THIRD PARTY RIGHTS, AND ALL SUCH
WARRANTIES ARE EXPRESSLY DISCLAIMED.
7.6 NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, DEPOMED AND
NEWCO SHALL NOT BE LIABLE TO THE OTHER BY REASON OF ANY CONDITION OR TERM
OR DUTY OF COMMON LAW, OR UNDER THE EXPRESS TERMS, REPRESENTATIONS OR
WARRANTIES OF THIS AGREEMENT, FOR ANY CONSEQUENTIAL, SPECIAL OR INCIDENTAL
OR PUNITIVE LOSS OR DAMAGE (WHETHER FOR LOSS OF PROFITS OR OTHERWISE) AND
WHETHER OCCASIONED BY THE NEGLIGENCE OF THE RESPECTIVE PARTIES, THEIR
EMPLOYEES OR AGENTS OR OTHERWISE.
8. TERM AND TERMINATION
8.1 The term of this Agreement shall commence as of the Effective Date and
shall, subject to the rights of termination outlined in this Clause 8,
expire on a Product-by-Product basis and on a country-by-country basis on
the last to occur of:
8.1.1 [**] years starting from the date of the first commercial sale of
the Product in the country concerned; or
14
<PAGE>
8.1.2 the date of expiration of the last to expire of the patents included
in the Depomed Patents and the Depomed Improvements and/or the Elan
Patents and the Elan Improvements
("the Term")
8.2 If either Party commits a Relevant Event, the other Party shall have, in
addition to all other legal and equitable rights and remedies hereunder,
the right to terminate this Agreement upon 30 days' prior written notice to
the defaulting Party.
8.3 For the purpose of this Clause 8, a "Relevant Event" is committed or
suffered by a Party if:
8.3.1 it commits a material breach of its obligations under this Agreement
or the JDOA and fails to remedy it within 60 days of being
specifically required in writing to do so by the other Party;
provided, that if the breaching Party has proposed a course of
action to rectify the breach and is acting in good faith to rectify
same but has not cured the breach by the 60th day, such period shall
be extended by such period as is reasonably necessary to permit the
breach to be rectified;
8.3.2 a distress, execution, sequestration or other process is levied or
enforced upon or sued out against a material part of its property
which is not discharged or challenged within 30 days;
8.3.3 it is unable to pay its debts in the normal course of business;
8.3.4 it ceases wholly or substantially to carry on its business,
otherwise than for the purpose of a reconstruction or amalgamation,
without the prior written consent of the other Party (such consent
not to be unreasonably withheld);
8.3.5 the appointment of a liquidator, receiver, administrator, examiner,
trustee or similar officer of such Party or over all or
substantially all of its assets under the law of any applicable
jurisdiction, including without limitation, the United States of
America, Bermuda or Ireland;
8.3.6 an application or petition for bankruptcy, corporate re-
organisation, composition, administration, examination, arrangement
or any other procedure similar to any of the foregoing under the law
of any applicable jurisdiction, including without limitation, the
United States of America, Bermuda or Ireland, is filed, and is not
discharged within 60 days, or a Party applies for or consents to the
appointment of a receiver, administrator, examiner or similar
officer of it or of all or a material part of its assets, rights or
revenues or the assets and/or the business of a Party are for any
reason seized, confiscated or condemned.
8.4 Depomed shall be entitled to forthwith terminate this Agreement if Elan
elects to
15
<PAGE>
terminate the Elan License Agreement under Clause 8.4 of the Elan License
Agreement.
8.5 Upon expiration or termination of the Agreement:
8.5.1. Any sums that were due from Newco to Depomed on Net Sales in the
Territory or in such particular country or countries in the
Territory (as the case may be) prior to the expiration or
termination of this Agreement as set forth herein shall be paid in
full within 60 days after the expiration or termination of this
Agreement for the Territory or for such particular country or
countries in the Territory (as the case may be).
8.5.2 Any provisions that expressly survive termination or expiration of
this Agreement, including without limitation this Clause 8, shall
remain in full force and effect.
8.5.3 All representations, warranties and indemnities shall insofar as are
appropriate remain in full force and effect.
8.5.4 The rights of inspection and audit set out in Clause 6 shall
continue in force for a period of one year.
8.5.5 All rights and licenses granted to Newco pursuant to this Agreement
and to the Depomed Intellectual Property pursuant to the JDOA
(including the rights of Newco pursuant to Clause 10 of the JDOA)
shall cease for the Territory or for such particular country or
countries in the Territory (as the case may be) and shall revert to
or be transferred to Depomed, and Newco shall not thereafter use in
the Territory or in such particular country or countries in the
Territory (as the case may be) any rights covered by this Agreement.
8.5.6 Subject to Clause 8.5.7 and to such license, if any, granted by
Newco to Depomed pursuant to the provisions of Clause 11 of the
JDOA, all rights to Newco Intellectual Property shall be transferred
to and jointly owned by Elan and Depomed.
Depomed shall have the right to exploit and commercialize, including
the right to grant sub-licenses, the Newco Intellectual Property
which relates predominantly to the Depomed Intellectual Property.
Elan shall have the right to exploit and commercialize, including
the right to grant sub-licenses, the Newco Intellectual Property
which relates predominantly to the Elan Intellectual Property.
In the event of a dispute arising pursuant to this Clause 8.5.6,
Depomed and Elan agree to negotiate in good faith on the course of
action to be taken with
16
<PAGE>
respect to determining their respective entitlements pursuant to
this Clause 8.5.6.
8.5.7 The rights of permitted third party sub-licensees in and to the
Depomed Intellectual Property shall survive the termination of the
license and sublicense agreements granting said intellectual
property rights to Newco; and Newco, Depomed and Elan shall in good
faith agree upon the form most advantageous to Depomed and Elan in
which the rights of Newco under any such licenses and sublicenses
are to be held (which form may include continuation of Newco solely
as the holder of such licenses or assignment of such rights to a
third party or parties, including an assignment to both Depomed and
Elan).
Any sublicense agreement between Newco and such permitted
sublicensee shall permit an assignment of rights by Newco and shall
contain appropriate confidentiality provisions.
9 CONFIDENTIAL INFORMATION
9.1 The Parties agree that it will be necessary, from time to time, to disclose
to each other confidential and proprietary information, including without
limitation, inventions, works of authorship, trade secrets, specifications,
designs, data, know-how and other proprietary information relating to the
Field, the Products, processes, services and business of the disclosing
Party.
The foregoing shall be referred to collectively as "Confidential
Information".
9.2 Any Confidential Information disclosed by one Party to another Party shall
be used by the receiving Party exclusively for the purposes of fulfilling
the receiving Party's obligations under this Agreement and the JDOA and for
no other purpose.
9.3 Each Party shall disclose Confidential Information of the other Party only
to those employees, representatives and agents requiring knowledge thereof
in connection with fulfilling the Party's obligations under this Agreement.
Each Party further agrees to inform all such employees, representatives and
agents of the terms and provisions of this Agreement and their duties
hereunder and to obtain their agreement hereto as a condition of receiving
Confidential Information. Each Party shall exercise the same standard of
care as it would itself exercise in relation to its own confidential
information (but in no event less than a reasonable standard of care) to
protect and preserve the proprietary and confidential nature of the
Confidential Information disclosed to it by the other Party. Each Party
shall, upon request of the other Party, return all documents and any copies
thereof containing Confidential Information belonging to, or disclosed by,
such other Party.
9.4 Any breach of this Clause 9 by any person informed by one of the Parties is
considered a breach by the Party itself.
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9.5 Confidential Information shall not be deemed to include:
9.5.1 information that is in the public domain;
9.5.2 information which is made public through no breach of this
Agreement;
9.5.3 information which is independently developed by a Party as evidenced
by such Party's records;
9.5.4 information that becomes available to a Party on a non-confidential
basis, whether directly or indirectly, from a source other than a
Party, which source did not acquire this information on a
confidential basis; or
9.5.5 information which the receiving Party is required to disclose
pursuant to:
(i) a valid order of a court or other governmental body; or
(ii) any other requirement of law;
provided that if the receiving Party becomes legally required to
disclose any Confidential Information, the receiving Party shall
give the disclosing Party prompt notice of such fact so that the
disclosing Party may obtain a protective order or other appropriate
remedy concerning any such disclosure. The receiving Party shall
fully co-operate with the disclosing Party in connection with the
disclosing Party's efforts to obtain any such order or other remedy.
If any such order or other remedy does not fully preclude
disclosure, the receiving Party shall make such disclosure only to
the extent that such disclosure is legally required.
9.6 The provisions relating to confidentiality in this Clause 9 shall remain in
effect during the term of this Agreement, and for a period of [**] years
following the expiration or earlier termination of this Agreement.
9.7 The Parties agree that the obligations of this Clause 9 are necessary and
reasonable in order to protect the Parties' respective businesses, and each
Party agrees that monetary damages would be inadequate to compensate a
Party for any breach by the other Party of its covenants and agreements set
forth herein.
Accordingly, the Parties agree that any such violation or threatened
violation shall cause irreparable injury to a Party and that, in addition
to any other remedies that may be available, in law and equity or
otherwise, each Party shall be entitled to obtain injunctive relief against
the threatened breach of the provisions of this Clause 9, or a continuation
of any such breach by the other Party, specific performance and other
equitable relief to redress such breach together with its damages and
reasonable counsel fees and expenses to enforce its rights hereunder,
without the necessity of proving actual or express damages.
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10 GOVERNING LAW AND JURISDICTION
10.1 This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
10.2 The Parties will attempt in good faith to resolve any dispute arising out
of or relating to this Agreement promptly by negotiation between
executives of the Parties. In the event that such negotiations do not
result in a mutually acceptable resolution, the Parties agree to consider
other dispute resolution mechanisms including mediation.
In the event that the Parties fail to agree on a mutually acceptable
dispute resolution mechanism, any such dispute shall be finally settled by
the courts of competent jurisdiction. For the purposes of this Agreement
the parties submit to the non-exclusive jurisdiction of the courts of the
State of New York.
11 IMPOSSIBILITY OF PERFORMANCE - FORCE MAJEURE
Neither Depomed nor Newco shall be liable for delay in the performance of
any of its obligations hereunder if such delay results from causes beyond
its reasonable control, including, without limitation, acts of God, fires,
strikes, acts of war, intervention of a government authority, provided
that the Party whose performance is delayed or prevented shall continue to
use good faith diligent efforts to mitigate, avoid or end such delay or
failure in performance as soon as practicable.
12 ASSIGNMENT
This Agreement may not be assigned by either Party without the prior
written consent of the other, save that either Party may assign this
Agreement to its Affiliates or subsidiaries without such prior written
consent; provided that such assignment does not have any adverse tax
consequences on the other Party.
13 NOTICES
13.1 Any notice to be given under this Agreement shall be sent in writing in
English by registered airmail or telefaxed to the following addresses:
If to Newco at:
Clarendon House,
2 Church St.,
Hamilton,
Bermuda
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Attention: Secretary
Telephone: 441 292 9169
Fax: 441 292 2224
If to Depomed at:
366 Lakeside Drive
Foster City
California
94404-1146
USA.
Attn: Chief Executive Officer
Telephone 001 650 513 0990
Fax: 001 650 513 0999
with a copy to:
Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto
California 94025
USA
Attention: Julian Stern
Telephone 001 650 324 7039
Fax: 001 650 324 0638
If to Elan at:
Elan Corporation, plc
102 St. James Court
Flatts, Smiths FL04
Bermuda
Attention: President
Telephone: 441-292-9169
Fax: 441-292-2224
or to such other address(es) and telefax numbers as may from time to time
be notified by either Party to the other hereunder.
13.2 Any notice sent by mail shall be deemed to have been delivered within 7
working days after dispatch and any notice sent by telex or telefax shall
be deemed to have been delivered within 24 hours of the time of the
dispatch. Notice of change of
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address shall be effective upon receipt.
14 MISCELLANEOUS
14.1 Waiver:
-------
No waiver of any right under this Agreement shall be deemed effective
unless contained in a written document signed by the Party charged with
such waiver, and no waiver of any breach or failure to perform shall be
deemed to be a waiver of any other breach or failure to perform or of any
other right arising under this Agreement.
14.2 Severability:
-------------
If any provision in this Agreement is agreed by the Parties to be, or is
deemed to be, or becomes invalid, illegal, void or unenforceable under any
law that is applicable hereto:
14.2.1 such provision will be deemed amended to conform to applicable
laws so as to be valid and enforceable; or
14.2.2 if it cannot be so amended without materially altering the
intention of the Parties, it will be deleted, with effect from the
date of such agreement or such earlier date as the Parties may
agree, and the validity, legality and enforceability of the
remaining provisions of this Agreement shall not be impaired or
affected in any way.
14.3 Further Assurances:
-------------------
At the request of any of the Parties, the other Party or Parties shall
(and shall use reasonable efforts to procure that any other necessary
parties shall) execute and perform all such documents, acts and things as
may reasonably be required subsequent to the signing of this Agreement for
assuring to or vesting in the requesting Party the full benefit of the
terms hereof.
14.4 Successors:
-----------
This Agreement shall be binding upon and enure to the benefit of the
Parties hereto, their successors and permitted assigns.
14.5 No Effect on Other Agreements/Conflict:
---------------------------------------
No provision of this Agreement shall be construed so as to negate, modify
or affect in any way the provisions of any other agreement between the
Parties unless specifically referred to, and solely to the extent provided
herein.
In the event of a conflict between the provisions of this Agreement and
the provisions
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of the JDOA, the terms of the JDOA shall prevail unless this Agreement
specifically provides otherwise.
14.6 Amendments:
-----------
No amendment, modification or addition hereto shall be effective or
binding on any Party unless set forth in writing and executed by a duly
authorised representative of each Party.
14.7 Counterparts:
-------------
This Agreement may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original and all of which
when taken together shall constitute this Agreement.
14.8 Good Faith:
-----------
Each Party undertakes to do all things reasonably within its power which
are necessary or desirable to give effect to the spirit and intent of
this Agreement.
14.9 No Reliance:
------------
Each Party hereby acknowledges that in entering into this Agreement it
has not relied on any representation or warranty save as expressly set
out herein or in any document referred to herein.
14.10 Relationship of the Parties:
----------------------------
Nothing contained in this Agreement is intended or is to be construed to
constitute Depomed and Newco as partners, or Depomed as an employee of
Newco, or Newco as an employee of Depomed.
Neither Party hereto shall have any express or implied right or authority
to assume or create any obligations on behalf of or in the name of the
other Party or to bind the other Party to any contract, agreement or
undertaking with any third party.
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IN WITNESS WHEREOF the Parties hereto have executed this Agreement.
SIGNED BY /s/ John W. Fara
---------------------------
for and on behalf of
DEPOMED, INC.
SIGNED BY /s/ David Astwood
---------------------------
for and on behalf of
DEPOMED DEVELOPMENT, LTD.
AGREED TO AND ACCEPTED BY
ELAN CORPORATION, PLC
/s/ Kevin Insley
- --------------------------------------
Kevin Insley
Authorised Signatory
[DepoMed License]
23
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Schedule 1
----------
Depomed Patents
---------------
[**]
[List of DepoMed Patents]
24
<PAGE>
Exhibit 1.8
LICENSE AGREEMENT
BETWEEN
ELAN CORPORATION, PLC
ELAN PHARMA INTERNATIONAL LIMITED
AND
DEPOMED DEVELOPMENT, LTD.
AND
DEPOMED, INC.
THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1 DEFINITIONS
2 ELAN LICENSES TO NEWCO
3 INTELLECTUAL PROPERTY
4 [**]
5 FINANCIAL PROVISIONS
6 RIGHT OF INSPECTION AND AUDIT
7 REPRESENTATIONS AND WARRANTIES
8 TERM AND TERMINATION
9 CONFIDENTIAL INFORMATION
10 GOVERNING LAW AND JURISDICTION
11 IMPOSSIBILITY OF PERFORMANCE - FORCE MAJEURE
12 ASSIGNMENT
13 NOTICES
14 MISCELLANEOUS
</TABLE>
2
<PAGE>
THIS AGREEMENT made this 21 January 2000
between:
(1) Elan Corporation, Plc, a public limited company incorporated under the laws
of Ireland, and having its registered office at Lincoln House, Lincoln
Place, Dublin 2, Ireland;
(2) Elan Pharma International Limited incorporated under the laws of Ireland,
and having its registered office at WIL House, Shannon Business Park,
Shannon, County Clare, Ireland;
(3) Depomed Development, Ltd., a private limited company incorporated under the
laws of Bermuda and having its registered office at Clarendon House, 2
Church St., Hamilton, Bermuda ("Newco"); and
(4) Depomed, Inc., a corporation duly incorporated and validly existing under
the laws of California and having its principal place of business at 366
Lakeside Drive, Foster City, CA 94404-1146, United States of America.
RECITALS:
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A. Simultaneously herewith, Depomed, Elan Corp, EPIL, EIS, and Newco are
entering into the JDOA for the purpose of recording the terms and
conditions of the joint venture and of regulating their relationship with
each other and certain aspects of the affairs of, and their dealings with
Newco.
B. Newco desires to enter into this Agreement with EPIL and Elan Corp so as to
permit Newco to utilize the Elan Intellectual Property in making, having
made, importing, using, offering for sale and selling the Products in the
Fields in the Territory.
C. Simultaneously herewith Newco and Depomed are entering into the Depomed
License Agreement relating to Newco's use of the Depomed Intellectual
Property.
1 DEFINITIONS
1.1 In this Agreement unless the context otherwise requires:
"Affiliate" of any Person (in the case of a legal entity) shall mean any
other Person controlling, controlled or under the common control of such
first Person, as the case may be. For the purpose of this definition,
"control" shall mean direct or indirect ownership of fifty percent (50%) or
more of the stock or shares entitled to vote for the election of directors
in the case of a corporation and, in the case of a non-corporate entity,
the power to direct or cause the direction of management and policies.
Newco
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is not an Affiliate of Elan, EIS, EPIL or Depomed.
"Agreement" shall mean this license agreement (which expression shall be
deemed to include the Recitals and Schedules hereto).
"Business Plan" shall have the meaning, as such term is defined in the
JDOA.
"Change of Control of Depomed/Newco" shall mean circumstances where:
(i) a Technological Competitor of Elan shall, directly or indirectly,
acquire [**]% or more of the voting stock of Depomed or Newco, or
otherwise control or influence in any material respect the management
or business of Depomed or Newco, as the case may be; or
(ii) any person other than a Technological Competitor of Elan shall,
directly or indirectly, acquire [**]% or more of the then voting stock
of Depomed or Newco, or otherwise control or influence in any material
respect their management or business of Depomed or Newco, as the case
may be
provided that the foregoing shall not apply in relation to any exercise of
any options by Elan granted by the Definitive Documents.
"Compound" shall, subject to Clause 2.3 of the JDOA, mean [**].
"Confidential Information" shall have the meaning, as such term is defined
in Clause 9.
"Definitive Documents" shall mean the definitive agreements relating to the
transaction including finance, stock purchase, research and license
agreements.
"Depomed" shall mean Depomed Inc. and its Affiliates.
"Depomed Intellectual Property" shall mean the Depomed Know-How, the
Depomed Patents and the Depomed Improvements.
"Depomed Know-How" shall have the meaning as such term is defined in the
Depomed License Agreement.
"Depomed License" shall mean have the meaning set forth in Clause 2.1 of
the Depomed License Agreement.
"Depomed License Agreement" shall mean that certain license agreement, of
even date herewith, entered into between Depomed and Newco.
"Depomed Patents" shall have the meaning as such term is defined in the
Depomed License Agreement.
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"Depomed Improvements" shall have the meaning as such term is defined in
the Depomed License Agreement.
"Effective Date" shall mean the date of this Agreement.
"Elan" shall mean Elan Corp and EPIL.
"Elan Corp" shall mean Elan Corporation, Plc. and Affiliates of Elan
Corporation, Plc. within the division of Elan Corporation, Plc. carrying on
business as Elan Pharmaceutical Technologies but shall not include
Affiliates (present or future) of Elan Corporation Plc within the division
of Elan Corporation, Plc carrying on business as Elan Pharmaceuticals which
incorporates, inter alia, Targon Corporation, Athena Neurosciences, Inc.,
Elan Pharmaceuticals, Inc., Elan Diagnostics, Carnrick Laboratories, and
Elan Europe Limited.
"EIS" shall mean Elan International Services, Ltd., a private limited
company incorporated under the laws of Bermuda and having its registered
office at Clarendon House, 2 Church St., Hamilton, Bermuda.
"Elan Intellectual Property" shall mean:
(i) the Nano Know-How and the Nano Patents;
(ii) the Elan Corp CR Know-How and the Elan Corp CR Patents;
(iii) the [**]; and
(iv) the Elan Improvements;
and shall exclude the Elan Excluded Intellectual Property.
"Elan Excluded Intellectual Property" shall mean:
(i) Elan's patent rights and know-how relating to protein or peptide
agents or peptodomimetics, derivatives or analogs thereof, designed
to target a pharmaceutically active agent to a certain site or sites
in the body (targeting technology);
(ii) [**]
(iii) for the avoidance of doubt, inventions, patents and know-how owned,
licensed or controlled by Axogen Limited and Neurelab Limited and by
all Affiliates or subsidiaries (present or future) of Elan
Corporation, Plc. within the division of Elan Corporation, Plc
carrying on business as Elan Pharmaceuticals which incorporates,
inter alia, EPIL (only to the extent that it is the owner of patents,
know-how or other intellectual property or technology invented and/or
developed within the division of Elan Corporation, Plc carrying on
business as
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Elan Pharmaceuticals but, for the avoidance of doubt, not to the
extent that it is the owner of patents, know-how or other
intellectual property or technology expressly licensed or sub-
licensed to Depomed pursuant to the Elan License Agreement), Targon
Corporation, Athena Neurosciences, Inc., Elan Pharmaceuticals, Inc.,
Elan Diagnostics, Carnrick Laboratories, and Elan Europe Limited.
"Elan Improvements" shall mean improvements relating to:
(i) the Nano Know-How and/or the Nano Patents;
(ii) the Elan Corp CR Know-How and/or the Elan Corp CR Patents; and
(iii) the [**];
developed (i) by Elan whether or not pursuant to the Project, (ii) by Newco
or Depomed or by an independent third party (under contract with Newco)
pursuant to the Project, and/or (iii) jointly by any combination of Elan,
Depomed or Newco pursuant to the Project, except as limited by agreements
with independent third parties.
Subject to independent third party agreements, Elan Improvements shall
constitute part of Elan Intellectual Property and shall, upon development,
be included in the licenses of the Elan Intellectual Property pursuant to
Clause 2 solely for the purposes set forth therein. If the inclusion of an
Elan Improvement in the license of Elan Intellectual Property is restricted
or limited by an independent third party agreement, Elan shall use
reasonable commercial efforts to exclude or minimize any such restriction
or limitation.
"Elan Licenses" shall mean the Elan Corp License, the EPIL License and the
EPIL Sub-License, as set forth in Clause 2.
"Elan Corp CR Know-How" shall, subject to the exclusions set forth in the
definition of "Elan Excluded Intellectual Property" and Clause 4.2, mean
any and all rights owned, licensed or controlled by Elan Corp on the
Effective Date to any discovery or invention (whether patentable or not)
and owned, licensed to or controlled by Elan Corp on the Effective Date to
any know-how, substances, data, techniques, processes, systems,
formulations, designs, knowledge, expertise and information relating to
oral controlled release formulation technologies.
"Elan Corp CR Patents" shall, subject to the exclusions set forth in the
definition of "Elan Excluded Intellectual Property" and Clause 4.2, mean
any and all rights under any and all patents applications and/or patents,
now existing, currently pending or hereafter filed or obtained by Elan Corp
on inventions conceived or reduced to practice on or before the Effective
Date relating to oral controlled release formulation technologies and any
foreign counterparts thereof and all divisionals, continuations,
continuations-in-part, patents of addition, supplementary protection
certificates, any
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foreign counterparts thereof and all patents issuing on, any of the
foregoing, together with all registrations, reissues, re-examinations or
extensions thereof.
"EGTS Know-How" shall mean any and all discoveries or inventions (whether
patentable or not), know-how, substances, data, techniques, processes,
systems, formulations, designs, knowledge, expertise and information
relating to the EGTS Technology [**].
"EGTS Patents" shall mean the patents relating to the EGTS Technology, as
set forth in Schedule 1, which were assigned by [**] and all divisionals,
continuations, continuations-in-part, patents of addition, supplementary
protection certificates, any foreign counterparts thereof and all patents
issuing on, any of the foregoing, together with all registrations,
reissues, re-examinations or extensions thereof.
"EGTS Technology" shall mean the technology directly relating to the [**].
"Elan Trademark(s)" shall mean one or more trademarks, trade names, or
service marks that are owned or licensed by or on behalf of Elan which Elan
may nominate and approve in writing from time to time for use in connection
with the sale or promotion of the Products by Newco.
"EPIL" shall mean Elan Pharma International Limited and Affiliates of Elan
Corporation, Plc. within the division of Elan Corporation, Plc. carrying on
business as Elan Pharmaceutical Technologies but shall not include
Affiliates (present or future) of Elan Corporation Plc within the division
of Elan Corporation, Plc carrying on business as Elan Pharmaceuticals which
incorporates, inter alia, Targon Corporation, Athena Neurosciences, Inc.,
Elan Pharmaceuticals, Inc., Elan Diagnostics, Carnrick Laboratories, and
Elan Europe Limited.
"EPIL[**] Know-How" shall, subject to the exclusions set forth in the
definition of "Elan Excluded Intellectual Property" and Clause 4.2, mean
[**], including but not limited to:
(i) the EGTS Know-How; and
(ii) the [**] Know-How.
"EPIL [**] Patents" shall, subject to the exclusions set forth in the
definition of "Elan Excluded Intellectual Property" and Clause 4.2, mean
any and all rights under any and all patents applications and/or patents,
now existing, currently pending or hereafter filed or obtained by EPIL on
inventions conceived or reduced to practice on or before the Effective Date
relating to [**] Technology, including but not limited to the EGTS Patents,
and any foreign counterparts thereof and all divisionals, continuations,
continuations-in-part, patents of addition, supplementary protection
certificates, any foreign counterparts thereof and all patents issuing on,
any of the foregoing, together with all registrations, reissues, re-
examinations or extensions thereof.
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"[**] Field" shall mean [**].
"[**] Product" shall mean [**].
"Fields" shall mean the [**] Field, the [**] Field and the [**] Field.
"Financial Year" shall mean each year commencing on 1 January (or in the
case of the first Financial Year, the Effective Date) and expiring on 31
December of each year.
"[**] Technology" shall mean [**].
"[**] Field" shall mean [**].
"[**] Product" shall mean [**].
"[**] Know-How" shall mean [**].
"[**] Technology" shall mean [**].
"JDOA" shall mean that certain Subscription, Joint Development and
Operating Agreement, of even date herewith, by and between Elan Corp, EPIL,
Depomed, EIS and Newco.
"Licensed Technologies" shall mean the Elan Intellectual Property and the
Depomed Intellectual Property.
"Licenses" shall mean the Elan Licenses and the Depomed License.
"Management Committee" shall have the meaning, as such term is defined in
the JDOA.
"Nano Know-How" shall, subject to the exclusions set forth in the
definition of "Elan Excluded Intellectual Property" and Clause 4.2, mean
any and all rights owned, licensed to or controlled by EPIL on the
Effective Date to any discovery or invention (whether patentable or not)
and owned, licensed to or controlled by EPIL on the Effective Date to any
know-how, substances, data, techniques, processes, systems, formulations,
designs, knowledge, expertise and information relating to Nanocrystal(R)
Technology.
"Nano Patents" shall, subject to the exclusions set forth in the definition
of "Elan Excluded Intellectual Property" and Clause 4.2, mean any and all
rights under any and all patents applications and/or patents, now existing,
currently pending or hereafter filed or obtained by EPIL on inventions
conceived or reduced to practice on or before the Effective Date relating
to Nanocrystal(R) Technology and any foreign counterparts thereof and all
divisionals, continuations, continuations-in-part, patents
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of addition, supplementary protection certificates, any foreign
counterparts thereof and all patents issuing on, any of the foregoing,
together with all registrations, reissues, re-examinations or extensions
thereof.
"Nanocrystal(R) Technology" shall mean the EPIL proprietary technology
directly related to nanoparticulate formulations of compounds used in the
manufacturing and/or formulation process, and methods of making the same.
"Newco" shall mean a new company to be established by Depomed and EIS, in
Bermuda.
"Newco Intellectual Property" shall mean all rights to patents, know-how
and other intellectual property arising out of the conduct of the Project
by any person, including any technology acquired by Newco from a third
party, that does not constitute Elan Intellectual Property or Depomed
Intellectual Property.
"Newco Patents" shall mean any and all patents now existing, currently
pending or hereafter filed or obtained relating to the Newco Intellectual
Property, and any foreign counterparts thereof and all divisionals,
continuations, continuations-in-part, , patents of addition, supplementary
protection certificates, any foreign counterparts thereof and all patents
issuing on, any of the foregoing, together with all registrations,
reissues, re-examinations or extensions thereof.
"[**]" shall mean [**].
"[**] Agreement" shall mean [**].
"[**] Agreement" shall mean [**].
"Party" shall mean Elan Corp, EPIL, Depomed or Newco, as the case may be,
and "Parties" means all such parties together.
"Person" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, governmental entity or authority
or other entity of whatever nature.
"Product(s)" shall mean [**].
"Project" shall mean all activities as undertaken by Elan, Depomed and
Newco in order to develop the Products.
"[**] License Agreement" [**].
"[**] Field" shall mean [**].
"[**] Product" shall mean [**].
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"Technological Competitor of Elan" shall mean a company, corporation or
person listed in Schedule 2 and successors thereof or any additional broad-
based technological competitor of Elan added to such Schedule from time to
time upon mutual agreement of the Parties.
"Term" shall have the meaning set forth in Clause 8.
"Territory" shall mean all the countries of the world.
"United States Dollar" and "US$" shall mean the lawful currency for the
time being of the United States of America.
1.2 In this Agreement:
1.2.1 The singular includes the plural and vice versa, and the masculine
includes the feminine and vice versa and the neuter includes the
masculine and the feminine.
1.2.2 Any reference to a Clause or Schedule shall, unless otherwise
specifically provided, be to a Clause or Schedule of this Agreement.
1.2.3 The headings of this Agreement are for ease of reference only and
shall not affect its construction or interpretation.
2 ELAN LICENSES TO NEWCO
2.1 Elan Corp License for the Fields:
---------------------------------
Elan Corp hereby grants to Newco for the Term a [**] license (the "Elan
Corp License") to the Elan Corp CR Patents and the Elan Corp CR Know-How
solely to make, have made, import, use, offer for sale and sell Products in
the Territory in the Fields.
2.2 EPIL Licenses for the Fields:
-----------------------------
EPIL hereby grants to Newco for the Term a [**] license (the "EPIL
License") to the Nano Patents, the Nano Know-How, the EGTS Patents and the
EGTS Know-How solely to make, have made, import, use, offer for sale and
sell Products in the Territory in the Fields, subject to the Development
License and Supply Agreement dated 26 July 1999 between EPIL and Merck
Corporation.
2.3 EPIL Sub-License for the [**] Field:
------------------------------------
EPIL hereby grants to Newco for the Term a [**] sub-license (the "EPIL Sub-
License") to the [**] Know-How to make, have made, import, use, offer for
sale and sell Products in the Territory in the [**] Field.
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2.4 Subject to Clause 2.5, [**] shall be responsible for payments related to
the financial provisions and obligations of any third party agreement with
respect to the Elan Intellectual Property to which it is a party on the
Effective Date (including amendments thereto) (the "Elan Effective Date
Agreements"), including without limitation, any royalty or other
compensation obligations triggered thereunder on the Effective Date, or
triggered thereunder after the Effective Date.
For the avoidance of doubt, royalties, milestones or other payments which
arise from the process of the commercialization or exploitation of products
under the Elan Effective Date Agreements (for example, a milestone payment
payable upon successful completion of Phase II clinical trials, the filing
of an NDA application, obtaining NDA approval, or first commercial sale)
shall be payments for which [**] will be responsible under this Clause 2.4.
2.5 For the avoidance of doubt, the Parties acknowledge and agree that:
2.5.1 [**] shall be responsible for the payment of all [**] payments to
[**] Agreement;
2.5.2 [**] shall be responsible for the payment of all royalty obligations
of [**] to [**] in relation to the commercialization of the [**]
pursuant to this Agreement.
2.6 Depomed shall be a third party beneficiary under this Agreement and shall
have the right to cause Newco to enforce Newco's rights under this
Agreement against Elan.
2.7 Notwithstanding anything contained in this Agreement to the contrary, Elan
shall have the right outside the fields set forth in Clause 2.1, 2.2 and
2.3, respectively and subject to the [**] to exploit and grant licenses and
sublicenses of the Elan Intellectual Property.
For the avoidance of doubt, Newco shall have no right to use the Elan
Intellectual Property outside the Fields.
2.8 Except as provided in Clause 11 of the JDOA, Newco shall not be permitted
to assign, license or sublicense rights under the Elan Intellectual
Property and/or the Newco Intellectual Property without the prior consent
in writing of Elan.
2.9 Any agreement between Newco and any permitted third party for the
development or exploitation of the Elan Intellectual Property shall require
such third party to maintain the confidentiality of all information
concerning the Elan Intellectual Property.
Insofar as the obligations owed by Newco to Elan are concerned, Newco shall
remain responsible for all acts and omissions of any permitted sub-
licensee, including Depomed, as if they were acts and omissions by Newco.
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2.10 [**]
3 INTELLECTUAL PROPERTY
3.1 Ownership of Intellectual Property:
-----------------------------------
3.1.1 Newco shall own the Newco Intellectual Property.
3.1.2 Elan shall own the Elan Intellectual Property.
3.2 Trademarks:
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3.2.1 Elan hereby grants to Newco for the Term a [**], royalty free
license to use the Elan Trademarks solely to research, develop,
make, have made, import, use, offer for sale and sell the Products
in the Field in the Territory and the following provisions shall
apply as regards the license of the Elan Trademarks by Elan to Newco
hereunder:
(1) Newco shall ensure that each reference to and use of an Elan
Trademark by Newco is in a manner approved by Elan and
accompanied by an acknowledgement, in a form approved by Elan,
that the same is a trademark (or registered trademark) of Elan.
From time to time, upon the reasonable request of Elan, Newco
shall submit samples of the Product to Elan or its duly
appointed agent to ensure compliance with quality standards and
specifications. Elan, or its duly appointed agent, shall have
the right to inspect the premises of Newco where the Product is
manufactured, held or stored, and Newco shall permit such
inspection, upon advance notice at any reasonable time, of the
methods and procedures used in the manufacture, storage and
sale of the Product. Newco shall not sell or otherwise dispose
of any Product under the Elan Trademarks that fails to comply
with the quality standards and specifications referred to in
this Clause 3.2, as determined by Elan.
(2) Newco shall not use an Elan Trademark in any way which might
materially prejudice its distinctiveness or validity or the
goodwill of Elan therein.
(3) The parties recognize that the Elan Trademarks have
considerable goodwill associated therewith. Newco shall not use
in relation to the Products any trademarks other than the Elan
Trademarks (except the
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Depomed Trademarks (as defined in the Depomed License
Agreement) licensed to Newco under the Depomed License
Agreement) without obtaining the prior consent in writing of
Elan, which consent may not be unreasonably withheld. However,
such use must not conflict with the use and display of the Elan
Trademark and such use and display must be approved by Elan.
(4) Newco shall not use in the Territory any trademarks or trade
names so resembling the Elan Trademark as to be likely to cause
confusion or deception.
(5) Newco shall promptly notify Elan in writing of any alleged
infringement or unauthorised use of which it becomes aware by a
third party of the Elan Trademarks and provide Elan with any
applicable evidence of infringement or unauthorised use.
(6) Newco shall favourably consider promoting and using the Elan
Trademarks in each country of the Territory and provide proof
of such use upon request by Elan.
(7) Newco shall not be permitted to assign or sublicense any of its
rights under the Elan Trademarks without the prior written
consents of Elan.
3.2.2 Elan may, at its sole expense and discretion, file and prosecute
applications to register and maintain registrations of the Elan
Trademarks in the Territory. Newco shall reasonably co-operate with
Elan in such efforts.
3.2.3 Elan will be entitled to conduct all enforcement proceedings
relating to the Elan Trademarks and shall at its sole discretion
decide what action, if any, to take in respect to any enforcement
proceedings of the Elan Trademarks or any other claim or counter-
claim brought in respect to the use or registration of the Elan
Trademarks. Any such proceedings shall be conducted at Elan's
expense and for its own benefit. Newco and Depomed shall reasonably
cooperate with Elan in such efforts.
3.2.4 Newco shall promptly notify Elan in writing in the event that any
Elan Trademark has been challenged by a third party in a judicial or
administrative proceeding in a country in the Territory as
infringing on the rights of a third party and Elan shall have the
first right to decide whether or not to defend such allegations, or
to adopt an alternative mark. If Elan decides not defend the Elan
Trademark, then Newco may request Elan to defend the Elan Trademark,
at Newco's expense, unless such requested defense is believed by
Elan to be unsubstantiated and without merit. In such a case, Elan
may elect not to initiate defence proceedings.
3.2.5 Newco will have no ownership rights in respect of the Elan
Trademarks or of the goodwill associated therewith, and Newco hereby
acknowledges that,
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except as expressly provided in this Agreement, it shall not acquire
any rights in respect thereof and that all such rights and goodwill
are, and will remain, vested in Elan.
3.2.6 Nothing in this Agreement shall be construed as a warranty on the
part of Elan regarding the Elan Trademarks, including without
limitation, that use of the Elan Trademarks in the Territory will
not infringe the rights of any third parties. Accordingly, Newco
acknowledges and agrees that Elan makes no such warranty.
3.2.7 Elan assumes no liability to Newco or to any third parties with
respect to the quality, performance or characteristics of any of the
goods manufactured or sold by Newco under the Elan Trademarks
pursuant to this Agreement.
4 [**]
4.1 [**]
4.2 [**]
5 FINANCIAL PROVISIONS
5.1 License Fees:
-------------
The following license fees shall be payable pursuant to this Agreement:
5.1.1 in consideration of the license by Elan Corp to Newco of the Elan
Corp CR Patents under Clause 2.1, Newco shall pay to Elan Corp a
non-refundable license fee of $[**] in cash, the receipt of which is
hereby acknowledged by Elan Corp;
5.1.2 in consideration of the license by EPIL to Newco of the Nano Patents
and the Nano Know-How under Clause 2.2, Newco shall pay to EPIL a
non-refundable license fee of $[**] in cash, the receipt of which is
hereby acknowledged by EPIL;
5.1.3 in consideration of the license by EPIL to Newco of the EGTS Patents
and the EGTS Know-How under Clause 2.2, Newco shall pay to EPIL a
non-refundable license fee of $[**] in cash, the receipt of which is
hereby acknowledged by EPIL;
5.1.4 in consideration of the sub-license by EPIL to Newco of the GR Know-
How under Clause 2.3, Newco shall pay to EPIL a non-refundable
license fee of
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$[**] in cash, the receipt of which is hereby acknowledged by EPIL;
(together the "License Fees").
The License Fees payable to Elan Corp and EPIL respectively described in
this Clause 5.1 shall not be subject to future performance obligations of
Elan Corp and/or EPIL to Newco or Depomed and shall not be applicable
against future services provided by Elan Corp and/or EPIL to Newco or
Depomed.
The terms of this Clause 5.1 relating to the License Fees are independent
and distinct from the other terms of this Agreement.
5.2 Royalties:
----------
Prior to the commercialization of the Products, the Management Committee
shall consider and if appropriate, determine reasonable royalties with
respect to the commercialization of the Products by Newco that shall be
payable by Newco to Elan and Depomed, and shared by Elan and Depomed pro
rata with Elan's and Depomed's respective percentage ownership of stock
(whether common stock and/or preferred stock) in Newco.
At such time, the Management Committee will agree an appropriate definition
of "Net Sales" as such term is used in this Agreement.
5.3 Payment of royalties pursuant to Clause 5.2 shall be made quarterly in
arrears during each Financial Year within 30 days after the expiry of the
calendar quarter. The method of payment shall be by wire transfer to an
account specified by Elan. Each payment made to Elan shall be accompanied
by a true accounting of all Products sold by Newco's permitted
sublicensees, if any, during such quarter.
Such accounting shall show, on a country-by-country and Product-by-Product
basis, Net Sales (and the calculation thereof) and each calculation of
royalties with respect thereto, including the calculation of all
adjustments and currency conversions.
5.4 Newco shall maintain and keep clear, detailed, complete, accurate and
separate records for a period of 3 years:
5.4.1 to enable any royalties on Net Sales that shall have accrued
hereunder to be determined; and
5.4.2 to enable any deductions made in the Net Sales calculation to be
determined.
5.5 All payments due hereunder shall be made in United States Dollars.
Payments due on Net Sales of any Product for each calendar quarter made in
a currency other than United States Dollars shall first be calculated in
the foreign currency and then converted to United States Dollars on the
basis of the exchange rate in effect on the last working day for such
quarter for the purchase of United States Dollars with such
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foreign currency quoted in the Wall Street Journal (or comparable
publication if not quoted in the Wall Street Journal) with respect to the
currency of the country of origin of such payment, determined by averaging
the rates so quoted on each business day of such quarter.
5.6 If, at any time, legal restrictions in the Territory prevent the prompt
payment when due of royalties or any portion thereof, the Parties shall
meet to discuss suitable and reasonable alternative methods of paying Elan
the amount of such royalties. In the event that Newco is prevented from
making any payment under this Agreement by virtue of the statutes, laws,
codes or government regulations of the country from which the payment is to
be made, then such payments may be paid by depositing them in the currency
in which they accrue to Elan's account in a bank acceptable to Elan in the
country the currency of which is involved or as otherwise agreed by the
Parties.
5.7 Elan and Newco agree to co-operate in all respects necessary to take
advantage of any double taxation agreements or similar agreements as may,
from time to time, be available.
5.8 Any taxes payable by Elan on any payment made to Elan pursuant to this
Agreement shall be for the account of Elan. If so required by applicable
law, any payment made pursuant to this Agreement shall be made by Newco
after deduction of the appropriate withholding tax, in which event the
Parties shall co-operate to obtain the appropriate tax clearance as soon as
is practicable. On receipt of such clearance, Newco shall forthwith
arrange payment to Elan of the amount so withheld.
6 RIGHT OF INSPECTION AND AUDIT
6.1 Once during each Financial Year, or more often not to exceed quarterly as
reasonably requested by Elan, Newco shall permit Elan or its duly
authorised representatives, upon reasonable notice and at any reasonable
time during normal business hours, to have access to inspect and audit the
accounts and records of Newco and any other book, record, voucher, receipt
or invoice relating to the calculation of the royalty payments on Net Sales
submitted to Elan.
Any such inspection of Newco's records shall be at the expense of Elan,
except that if any such inspection reveals a deficiency in the amount of
the royalty actually paid to Elan hereunder in any Financial Year quarter
of [**]% or more of the amount of any royalty actually due to Elan
hereunder, then the expense of such inspection shall be borne solely by
Newco. Any amount of deficiency shall be paid promptly to Elan by Newco.
If such inspection reveals a surplus in the amount of royalties actually
paid to Elan by Newco, Elan shall reimburse Newco the surplus within 15
days after determination.
6.2 In the event of any unresolved dispute regarding any alleged deficiency or
16
<PAGE>
overpayment of royalty payments hereunder, the matter will be referred to
an independent firm of chartered accountants chosen by agreement of Depomed
and Elan for a resolution of such dispute. Any decision by the said firm
of chartered accountants shall be binding on the Parties.
7 REPRESENTATIONS AND WARRANTIES
7.1 Elan represents and warrants to Newco and Depomed, as of the Effective
Date, as follows:
7.1 Elan has the right to grant the Elan Licenses;
7.2 there are no agreements between Elan and any third party that conflict
with the Elan Licenses.
7.2 In addition to any other indemnities provided for herein, Elan shall
indemnify and hold harmless Newco and its Affiliates and their respective
employees, agents, officers and directors from and against any claims,
losses, liabilities or damages (including reasonable attorney's fees and
expenses) incurred or sustained by Newco arising out of or in connection
with any:
7.2.1 breach of any representation, covenant, warranty or obligation by
Elan hereunder; or
7.2.2 negligent act or omission on the part of Elan or any of its
respective employees, agents, officers and directors in the
performance of this Agreement.
7.3 In addition to any other indemnities provided for herein, Newco shall
indemnify and hold harmless Elan and its Affiliates and their respective
employees, agents, officers and directors from and against any claims,
losses, liabilities or damages (including reasonable attorney's fees and
expenses) incurred or sustained by Elan arising out of or in connection
with any:
7.3.1 breach of any representation, covenant, warranty or obligation by
Newco hereunder; or
7.3.2 negligent act or omission on the part of Newco or any of its agents
or employees in the performance of this Agreement.
7.4 The Party seeking an indemnity shall:
7.4.1 fully and promptly notify the other Party of any claim or
proceeding, or threatened claim or proceeding;
7.4.2 permit the indemnifying Party to take full care and control of such
claim or
17
<PAGE>
proceeding;
7.4.3 co-operate in the investigation and defence of such claim or
proceeding;
7.4.4 not compromise or otherwise settle any such claim or proceeding
without the prior written consent of the other Party, which consent
shall not be unreasonably withheld conditioned or delayed; and
7.4.5 take all reasonable steps to mitigate any loss or liability in
respect of any such claim or proceeding.
7.5 EXCEPT AS SET FORTH IN THIS CLAUSE 7, ELAN IS GRANTING THE LICENSES
HEREUNDER ON AN "AS IS" BASIS WITHOUT REPRESENTATION OR WARRANTY WHETHER
EXPRESS OR IMPLIED INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, OR INFRINGEMENT OF THIRD PARTY RIGHTS, AND ALL SUCH
WARRANTIES ARE EXPRESSLY DISCLAIMED.
7.6 NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, ELAN AND NEWCO
SHALL NOT BE LIABLE TO THE OTHER BY REASON OF ANY CONDITION OR TERM OR DUTY
OF COMMON LAW, OR UNDER THE EXPRESS TERMS, REPRESENTATIONS OR WARRANTIES OF
THIS AGREEMENT, FOR ANY CONSEQUENTIAL, SPECIAL OR INCIDENTAL OR PUNITIVE
LOSS OR DAMAGE (WHETHER FOR LOSS OF PROFITS OR OTHERWISE) AND WHETHER
OCCASIONED BY THE NEGLIGENCE OF THE RESPECTIVE PARTIES, THEIR EMPLOYEES OR
AGENTS OR OTHERWISE.
8. TERM AND TERMINATION
8.1 The term of this Agreement shall commence as of the Effective Date and
shall, subject to the rights of termination outlined in this Clause 8,
expire on a Product-by-Product basis and on a country-by-country basis on
the last to occur of:
8.1.1 [**] years starting from the date of the first commercial sale of
the Product in the country concerned; or
8.1.2 the date of expiration of the last to expire of the patents included
in the Elan Patents and the Elan Improvements and/or the Depomed
Patents and the Depomed Improvements
("the Term")
8.2 If either Party commits a Relevant Event, the other Party shall have, in
addition to all
18
<PAGE>
other legal and equitable rights and remedies hereunder, the right to
terminate this Agreement upon 30 days' prior written notice to the
defaulting Party.
8.3 For the purpose of this Clause 8, a "Relevant Event" is committed or
suffered by a Party if:
8.3.1 it commits a material breach of its obligations under this Agreement
or the JDOA and fails to remedy it within 60 days of being
specifically required in writing to do so by the other Party;
provided, that if the breaching Party has proposed a course of
action to rectify the breach and is acting in good faith to rectify
same but has not cured the breach by the 60th day, such period shall
be extended by such period as is reasonably necessary to permit the
breach to be rectified;
8.3.2 a distress, execution, sequestration or other process is levied or
enforced upon or sued out against a material part of its property
which is not discharged or challenged within 30 days;
8.3.3 it is unable to pay its debts in the normal course of business;
8.3.4 it ceases wholly or substantially to carry on its business,
otherwise than for the purpose of a reconstruction or amalgamation,
without the prior written consent of the other Party (such consent
not to be unreasonably withheld);
8.3.5 the appointment of a liquidator, receiver, administrator, examiner,
trustee or similar officer of such Party or over all or
substantially all of its assets under the law of any applicable
jurisdiction, including without limitation, the United States of
America, Bermuda or Ireland;
8.3.6 an application or petition for bankruptcy, corporate re-
organisation, composition, administration, examination, arrangement
or any other procedure similar to any of the foregoing under the law
of any applicable jurisdiction, including without limitation, the
United States of America, Bermuda or Ireland, is filed, and is not
discharged within 60 days, or a Party applies for or consents to the
appointment of a receiver, administrator, examiner or similar
officer of it or of all or a material part of its assets, rights or
revenues or the assets and/or the business of a Party are for any
reason seized, confiscated or condemned.
8.4 Elan shall be entitled to terminate this Agreement in the event of a Change
of Control of Depomed/Newco.
8.5 Upon expiration or termination of the Agreement:
8.5.1. Any sums that were due from Newco to Elan on Net Sales in the
Territory or in such particular country or countries in the
Territory (as the case may be) prior to the expiration or
termination of this Agreement as set forth herein
19
<PAGE>
shall be paid in full within 60 days after the expiration or
termination of this Agreement for the Territory or for such
particular country or countries in the Territory (as the case may
be).
8.5.2 Any provisions that expressly survive termination or expiration of
this Agreement, including without limitation this Clause 8, shall
remain in full force and effect.
8.5.3 All representations, warranties and indemnities shall insofar as are
appropriate remain in full force and effect.
8.5.4 The rights of inspection and audit set out in Clause 6 shall
continue in force for a period of one year.
8.5.5 All rights and licenses granted pursuant to this Agreement and to
the Elan Intellectual Property pursuant to the JDOA (including the
rights of Newco pursuant to Clause 10 of the JDOA) shall cease for
the Territory or for such particular country or countries in the
Territory (as the case may be) and shall revert to or be transferred
to Elan, and Newco shall not thereafter use in the Territory or in
such particular country or countries in the Territory (as the case
may be) any rights covered by this Agreement.
8.5.6 Subject to Clause 8.5.7 and to such license, if any, granted by
Newco to Elan pursuant to the provisions of Clause 11 of the JDOA,
all rights to Newco Intellectual Property shall be transferred to
and jointly owned by Depomed and Elan.
Elan shall have the right to exploit and commercialize, including
the right to grant sub-licenses, the Newco Intellectual Property
which relates predominantly to the Elan Intellectual Property.
Depomed shall have the right to exploit and commercialize, including
the right to grant sub-licenses, the Newco Intellectual Property
which relates predominantly to the Depomed Intellectual Property.
In the event of a dispute arising pursuant to this Clause 8.5.6,
Elan and Depomed agree to negotiate in good faith on the course of
action to be taken with respect to determining their respective
entitlements pursuant to this Clause 8.5.6.
8.5.7 The rights of permitted third party sub-licensees in and to the Elan
Intellectual Property shall survive the termination of the license
and sublicense agreements granting said intellectual property rights
to Newco; and Newco, Elan and Depomed shall in good faith agree upon
the form most advantageous to Elan and Depomed in which the rights
of Newco under any such licenses and sublicenses are to be held
(which form may include continuation of Newco solely as the holder
of such licenses or assignment of such rights to a
20
<PAGE>
third party or parties, including an assignment to both Elan and
Depomed).
Any sublicense agreement between Newco and such permitted
sublicensee shall permit an assignment of rights by Newco and shall
contain appropriate confidentiality provisions.
9 CONFIDENTIAL INFORMATION
9.1 The Parties agree that it will be necessary, from time to time, to disclose
to each other confidential and proprietary information, including without
limitation, inventions, works of authorship, trade secrets, specifications,
designs, data, know-how and other proprietary information relating to the
Field, the Products, processes, services and business of the disclosing
Party.
The foregoing shall be referred to collectively as "Confidential
Information".
9.2 Any Confidential Information disclosed by one Party to another Party shall
be used by the receiving Party exclusively for the purposes of fulfilling
the receiving Party's obligations under this Agreement and the JDOA and for
no other purpose.
9.3 Each Party shall disclose Confidential Information of the other Party only
to those employees, representatives and agents requiring knowledge thereof
in connection with fulfilling the Party's obligations under this Agreement.
Each Party further agrees to inform all such employees, representatives and
agents of the terms and provisions of this Agreement and their duties
hereunder and to obtain their agreement hereto as a condition of receiving
Confidential Information. Each Party shall exercise the same standard of
care as it would itself exercise in relation to its own confidential
information (but in no event less than a reasonable standard of care) to
protect and preserve the proprietary and confidential nature of the
Confidential Information disclosed to it by the other Party. Each Party
shall, upon request of the other Party, return all documents and any copies
thereof containing Confidential Information belonging to, or disclosed by,
such other Party.
9.4 Any breach of this Clause 9 by any person informed by one of the Parties is
considered a breach by the Party itself.
9.5 Confidential Information shall not be deemed to include:
9.5.1 information that is in the public domain;
9.5.2 information which is made public through no breach of this
Agreement;
9.5.3 information which is independently developed by a Party as evidenced
by such Party's records;
9.5.4 information that becomes available to a Party on a non-confidential
basis,
21
<PAGE>
whether directly or indirectly, from a source other than a Party,
which source did not acquire this information on a confidential
basis; or
9.5.5 information which the receiving Party is required to disclose
pursuant to:
(i) a valid order of a court or other governmental body; or
(ii) any other requirement of law;
provided that if the receiving Party becomes legally required to
disclose any Confidential Information, the receiving Party shall
give the disclosing Party prompt notice of such fact so that the
disclosing Party may obtain a protective order or other appropriate
remedy concerning any such disclosure. The receiving Party shall
fully co-operate with the disclosing Party in connection with the
disclosing Party's efforts to obtain any such order or other remedy.
If any such order or other remedy does not fully preclude
disclosure, the receiving Party shall make such disclosure only to
the extent that such disclosure is legally required.
9.6 The provisions relating to confidentiality in this Clause 9 shall remain in
effect during the term of this Agreement, and for a period of [**]
following the expiration or earlier termination of this Agreement.
9.7 The Parties agree that the obligations of this Clause 9 are necessary and
reasonable in order to protect the Parties' respective businesses, and each
Party agrees that monetary damages would be inadequate to compensate a
Party for any breach by the other Party of its covenants and agreements set
forth herein.
Accordingly, the Parties agree that any such violation or threatened
violation shall cause irreparable injury to a Party and that, in addition
to any other remedies that may be available, in law and equity or
otherwise, each Party shall be entitled to obtain injunctive relief against
the threatened breach of the provisions of this Clause 9, or a continuation
of any such breach by the other Party, specific performance and other
equitable relief to redress such breach together with its damages and
reasonable counsel fees and expenses to enforce its rights hereunder,
without the necessity of proving actual or express damages.
10 GOVERNING LAW AND JURISDICTION
10.1 This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
10.2 The Parties will attempt in good faith to resolve any dispute arising out
of or relating to this Agreement promptly by negotiation between executives
of the Parties. In the event that such negotiations do not result in a
mutually acceptable resolution, the Parties agree to consider other dispute
resolution mechanisms including mediation.
22
<PAGE>
In the event that the Parties fail to agree on a mutually acceptable
dispute resolution mechanism, any such dispute shall be finally settled by
the courts of competent jurisdiction. For the purposes of this Agreement
the parties submit to the non-exclusive jurisdiction of the courts of the
State of New York.
11 IMPOSSIBILITY OF PERFORMANCE - FORCE MAJEURE
Neither Elan nor Newco shall be liable for delay in the performance of any
of its obligations hereunder if such delay results from causes beyond its
reasonable control, including, without limitation, acts of God, fires,
strikes, acts of war, intervention of a government authority, provided that
the Party whose performance is delayed or prevented shall continue to use
good faith diligent efforts to mitigate, avoid or end such delay or failure
in performance as soon as practicable.
12 ASSIGNMENT
This Agreement may not be assigned by either Party without the prior
written consent of the other, save that either Party may assign this
Agreement to its Affiliates or subsidiaries without such prior written
consent; provided that such assignment does not have any adverse tax
consequences on the other Party.
13 NOTICES
13.1 Any notice to be given under this Agreement shall be sent in writing in
English by registered airmail or telefaxed to the following addresses:
If to Newco at:
Clarendon House,
2 Church St.,
Hamilton,
Bermuda
Attention: Secretary
Telephone: 441 292 9169
Fax: 441 292 2224
with a copy to Elan at:
Elan Corporation, plc
102 St. James Court
23
<PAGE>
Flatts, Smiths FL04
Bermuda
Attention: President
Telephone: 441-292-9169
Fax: 441-292-2224
If to Depomed at:
366 Lakeside Drive
Foster City
California
94404-1146
USA.
Attn: Chief Executive Officer
Telephone 001 650 513 0990
Fax: 001 650 513 0999
with a copy to:
Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto
California 94025
USA
Attention: Julian Stern
Telephone 001 650 324 7039
Fax: 001 650 324 0638
If to Elan at:
Elan Corporation, plc
102 St. James Court
Flatts, Smiths FL04
Bermuda
Attention: President
Telephone: 441-292-9169
Fax: 441-292-2224
or to such other address(es) and telefax numbers as may from time to time
be notified by either Party to the other hereunder.
24
<PAGE>
13.2 Any notice sent by mail shall be deemed to have been delivered within 7
working days after dispatch and any notice sent by telex or telefax shall
be deemed to have been delivered within 24 hours of the time of the
dispatch. Notice of change of address shall be effective upon receipt.
14 MISCELLANEOUS
14.1 Waiver:
-------
No waiver of any right under this Agreement shall be deemed effective
unless contained in a written document signed by the Party charged with
such waiver, and no waiver of any breach or failure to perform shall be
deemed to be a waiver of any other breach or failure to perform or of any
other right arising under this Agreement.
14.2 Severability:
-------------
If any provision in this Agreement is agreed by the Parties to be, or is
deemed to be, or becomes invalid, illegal, void or unenforceable under any
law that is applicable hereto:
14.2.1 such provision will be deemed amended to conform to applicable laws
so as to be valid and enforceable; or
14.2.2 if it cannot be so amended without materially altering the
intention of the Parties, it will be deleted, with effect from the
date of such agreement or such earlier date as the Parties may
agree, and the validity, legality and enforceability of the
remaining provisions of this Agreement shall not be impaired or
affected in any way.
14.3 Further Assurances:
-------------------
At the request of any of the Parties, the other Party or Parties shall (and
shall use reasonable efforts to procure that any other necessary parties
shall) execute and perform all such documents, acts and things as may
reasonably be required subsequent to the signing of this Agreement for
assuring to or vesting in the requesting Party the full benefit of the
terms hereof.
14.4 Successors:
-----------
This Agreement shall be binding upon and enure to the benefit of the
Parties hereto, their successors and permitted assigns.
14.5 No Effect on Other Agreements/Conflict:
---------------------------------------
No provision of this Agreement shall be construed so as to negate, modify
or affect in
25
<PAGE>
any way the provisions of any other agreement between the Parties unless
specifically referred to, and solely to the extent provided herein.
In the event of a conflict between the provisions of this Agreement and
the provisions of the JDOA, the terms of the JDOA shall prevail unless
this Agreement specifically provides otherwise.
14.6 Amendments:
-----------
No amendment, modification or addition hereto shall be effective or
binding on any Party unless set forth in writing and executed by a duly
authorised representative of each Party.
14.7 Counterparts:
-------------
This Agreement may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original and all of which
when taken together shall constitute this Agreement.
14.8 Good Faith:
-----------
Each Party undertakes to do all things reasonably within its power which
are necessary or desirable to give effect to the spirit and intent of
this Agreement.
14.9 No Reliance:
------------
Each Party hereby acknowledges that in entering into this Agreement it
has not relied on any representation or warranty save as expressly set
out herein or in any document referred to herein.
14.10 Relationship of the Parties:
----------------------------
Nothing contained in this Agreement is intended or is to be construed to
constitute Elan and Newco as partners, or Elan as an employee of Newco,
or Newco as an employee of Elan.
Neither Party hereto shall have any express or implied right or authority
to assume or create any obligations on behalf of or in the name of the
other Party or to bind the other Party to any contract, agreement or
undertaking with any third party.
26
<PAGE>
IN WITNESS WHEREOF the Parties hereto have executed this Agreement.
SIGNED BY /s/ Kevin Insley
-------------------------
for and on behalf of
ELAN CORPORATION, PLC
SIGNED BY /s/ Kevin Insley
-------------------------
for and on behalf of
ELAN PHARMA INTERNATIONAL LIMITED
SIGNED BY /s/ David Astwood
-------------------------
For and on behalf of
DEPOMED DEVELOPMENT, LTD.
AGREED TO AND ACCEPTED BY
DEPOMED, INC.
/s/ John W. Fara
- -----------------------------------
Name: John W. Fara
Title: President & CEO
[Elan License]
27
<PAGE>
SCHEDULE 1
EGTS PATENTS
------------
[**]
[List of EGTS Patents]
28
<PAGE>
SCHEDULE 2
TECHNOLOGICAL COMPETITIORS OF ELAN
[**]
[List of Technological Competitors of Elan]
29
<PAGE>
Exhibit 1.9
CERTIFICATE OF DETERMINATION OF PREFERENCES AND
RIGHTS
of
SERIES A PREFERRED STOCK
of
DEPOMED, INC.
(Pursuant to Section 401 of the California Corporations Code)
We, John W. Fara, Ph.D. and John F. Hamilton, the President and Chief
Executive Officer and Vice President, Finance and Chief Financial Officer,
respectively, of DepoMed, Inc., a Company organized and existing under the
California Corporations Code (the "Company"), in accordance with the provisions
of 401 of the California Corporations Code thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors of the
Company by the Articles of Incorporation of the Company, the Board of Directors
of the Company on November 23, 1999 adopted the following resolution, pursuant
to the Company's Articles of Incorporation and Section 401 of the California
Corporations Code, creating one series of shares of Preferred Stock designated
as Series A Preferred Stock consisting of 25,000 shares none of which have been
issued.
"RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Company by the Articles of Incorporation, the Board of Directors of the
Company does hereby provide for the issuance of a series of Preferred Stock, no
par value, of the Company, to be designated "Series A Preferred Stock",
initially consisting of 25,000 shares,none of which have been issued, plus, such
number of additional shares that may be issuable as provided herein, and to the
extent that the designations, powers, preferences and relative and other special
rights and the qualifications, limitations and restrictions of the Series A
Preferred Stock are not stated and expressed in the Articles of Incorporation,
the Board of Directors of the Company does hereby fix and herein state and
express such designations, powers, preferences and relative and other special
rights and the qualifications, limitations and restrictions thereof, as follows
(all terms used herein which are defined in the Articles of Incorporation shall
be deemed to have the meanings provided therein):
I
1. Designation. 25,000 shares of Preferred Stock shall be designated
-----------
and known as the "Series A Preferred Stock". Such number of shares may be
------------------------
increased or decreased by resolution of the Board of Directors of the
Company after obtaining the consent of a majority in interest of the
holder(s) of the then-outstanding shares of Series A Preferred Stock;
provided, that no decrease shall reduce the number of shares of Series A
Preferred Stock to a number less than the number of shares then outstanding
plus the
<PAGE>
number of such shares issuable upon exercise of outstanding rights, options
or warrants or upon conversion of outstanding securities issued by the
Company.
2. Dividend Provisions.
-------------------
(a) From and after the date hereof, when and if the Board of
Directors of the Company shall declare a dividend or distribution payable with
respect to the then-outstanding shares of Common Stock of the Company (the
"Common Stock"), the holders of the Series A Preferred Stock shall be entitled
------------
to the amount of dividends per share in the same form as such Common Stock
dividends that would be payable on the largest number of whole shares of Common
Stock into which a holder's aggregate shares of Series A Preferred Stock could
then be converted pursuant to Section 4 hereof (such number to be determined as
of the record date for the determination of holders of Common Stock entitled to
receive such dividend).
(b) In addition to Section 2(a) above, each share of Series A
Preferred Stock, for a period of six years from the date of first issuance of
the Series A Preferred Stock, shall be entitled to receive a mandatory dividend
equal to 7.0% per year of the Original Issue Price (as defined below) thereof.
Such dividend shall (1) shall compound on a semi-annual basis, the first
compounding to commence six months from the date hereof, and (2) be payable
semi-annually on each succeeding six- and 12-month anniversary of such first
issuance, solely by the issuance of additional shares of Series A Preferred
Stock, at a price per share equal to the Original Issue Price thereof, and not
in cash. Fractional shares of Series A Preferred Stock shall be issuable for
purposes hereunder. As used herein, the "Original Issue Price" per share is
--------------------
$1,000.
3. Seniority; Liquidation Preference.
----------------------------------
(a) The Series A Preferred Stock, as to its liquidation preference, shall
rank senior to or pari passu with (but as to pari passu only, as agreed to by a
majority in interest of the outstanding shares of Series A Preferred Stock) any
future class or series of Preferred Stock issued by the Company and senior to
the Company's Common Stock.
(b) In the event of any liquidation, dissolution or winding-up of the
affairs of the Company, whether voluntary or involuntary, (collectively, a
"Liquidation"), before any payment of cash or distribution of other property
-----------
shall be made to the holders of the Common Stock or any other class or series of
stock subordinate in liquidation preference to the Series A Preferred Stock, the
holders of the Series A Preferred Stock shall be entitled to receive out of the
assets of the Company legally available for distribution to its shareholders,
the Original Issue Price per share (as appropriately adjusted for any
combinations or divisions or similar recapitalizations affecting the Series A
Preferred Stock after issuance) and accrued and unpaid dividends thereon (the
"Series A Liquidation Preference").
-------------------------------
(c) If, upon any Liquidation, the assets of the Company available for
distribution to its shareholders shall be insufficient to pay the holders of the
Series A Preferred Stock the full amounts to which they shall be entitled, the
holders of the Series A Preferred Stock shall share ratably in any distribution
of assets in proportion to the respective amounts which would be payable to them
in respect of the shares held by them if all amounts payable to them in respect
of
2
<PAGE>
such were paid in full pursuant to Section 3(b).
(d) After the distributions described in Section 3(c) above have been
paid, subject to the rights of other series of preferred stock that may from
time to time come into existence, the remaining assets of the Company available
for distribution to shareholders shall be distributed among the holders of
Common Stock pro rata based on the number of shares of Common Stock held by
each.
4. Conversion. The holders of the Series A Preferred Stock shall have
----------
conversion rights, through and including the date that is six years after the
first issuance of any shares of Series A Preferred Stock ("the Conversion
----------
Termination Date"):
- ----------------
(a) Right to Convert.
----------------
(i) Each share of Series A Preferred Stock shall be convertible,
at the option of the holder thereof, at any time that is two years after
the issuance thereof, at the office of the Company or any transfer agent
for such stock, into such number of fully paid and non-assessable shares of
Common Stock as is determined by dividing (x) the sum of the Original Issue
Price of such share of Series A Preferred and all accrued and unpaid
dividends thereon by (y) the Series A Conversion Price (as defined below).
The "Series A Conversion Price" shall initially be $12.00 and shall be
-------------------------
subject to adjustment as set forth below in this Section 4(a).
Notwithstanding the above, the original holder of the Series A Preferred
Stock or its affiliates shall have the right, at the option of the original
holder of the Series A Preferred Stock or such affiliates, at any time
within the two-year period after the issuance thereof, to instruct the
Company to automatically convert the Series A Preferred Stock into shares
of Common Stock at the Series A Conversion Price then in effect, upon the
occurrence of any of the following: (i) a merger, consolidation or similar
transaction involving the Company or (ii) transactions including the
Company in a share-for-share merger or similar transaction.
(ii) Before any holder of Series A Preferred Stock shall be
entitled to convert such shares into shares of Common Stock, such holder
shall surrender the certificate or certificates therefor, duly endorsed, at
the office of the Company or of any transfer agent for the Series A
Preferred Stock, and shall give written notice to the Company at its
principal corporate office, of the election to convert the same and shall
state therein the name or names in which the certificate or certificates
for shares of Common Stock are to be issued. The Company shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series A Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to
which such holder shall be entitled as set forth above. Such conversion
shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series A Preferred
Stock to be converted, and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock
as of such date.
3
<PAGE>
(iii) If the Company shall issue any Common Stock Equivalents (as
defined below) without consideration or for a consideration per share less
than the Fair Market Value (as defined below) per share on such date, the
Series A Conversion Price for such series in effect immediately prior to
each such issuance shall forthwith (except as otherwise provided in this
clause (i)) be adjusted to a price equal to a price determined by
multiplying such Series A Conversion Price by a fraction, the numerator of
which shall be the sum of (w) the number of shares of Common Stock
outstanding immediately prior to such issuance and (x) the number of shares
of Common Stock that the aggregate consideration received by the Company
for such issuance would purchase at such Series A Conversion Price; and the
denominator of which shall be the sum of (y) the number of shares of Common
Stock outstanding immediately prior to such issuance and (z) the number of
shares of such Common Stock Equivalents; and the number of Shares
purchasable hereunder shall be increased by multiplying it by the
reciprocal of such fraction. For purposes of this Certificate of
Designations, "Fair Market Value" shall mean (x) the average of the closing
prices on the 20 trading days prior to such determination on the principal
national securities exchange on which the Common Stock is traded, if any,
(y) the average of the last quoted prices on the 20 trading days prior to
such determination if the Common Stock is traded on the Nasdaq National
Market or Nasdaq SmallCap Market, or (z) if the Common Stock is not listed
on a national securities exchange or traded on the Nasdaq National Market
or the Nasdaq SmallCap Market, then as determined in good faith by the
Board of Directors of the Company and reasonably agreed to by the majority
holders of the Series A Convertible Preferred Stock.
(iv) In the event the Company should at any time fix a record
date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock
------------
Equivalents") without payment of any consideration by such holder for the
-----------
additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion
or exercise thereof) or with payment that is less than the Conversion Price
then in effect, then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Series
A Conversion Price of the Series A Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be increased in proportion to
such increase of the aggregate of (a) shares of Common Stock outstanding
and (b) those issuable with respect to such Common Stock Equivalents, with
the number of shares issuable with respect to Common Stock Equivalents
determined from time to time as provided in Section 4(a)(vi) below. Common
Stock Equivalents shall not include (i) any stock option (or shares issued
upon their exercise) or other securities issued under incentive plans
granted to employees, officers, directors or consultants in connection with
their employment with the Company or (ii) warrants (or shares issued upon
their exercise) issued in connection with any equipment loan by the Company
or (iii) the Convertible Promissory Note issued by the Company to Elan
International Services, a Bermuda exempted limited liability company
4
<PAGE>
("EIS"), (or shares issued upon its exercise) or (iv) securities issued in
---
a private sale at a price not less than 85% of the Fair Market Value
pursuant to which the purchasers are granted registration rights for the
resale of such securities; provided that the rights of the holders of the
Series A Preferred Stock as set forth in Section 4(a)(iii) are not
affected.
(v) If the number of shares of Common Stock outstanding at any
time is decreased by a combination of the outstanding shares of Common
Stock, then, following the record date of such combination, the Series A
Conversion Price for the Series A Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to
such decrease in outstanding shares.
(vi) The following provisions shall apply for purposes of this
Section 4(a):
(A) The aggregate maximum number of shares of Common Stock
deliverable upon conversion or exercise of Common Stock Equivalents
(assuming the satisfaction of any conditions to convertibility or
exercisability, including, without limitation, the passage of time, but
without taking into account potential antidilution adjustments) shall be
deemed to have been issued at the time such Common Stock Equivalents were
issued.
(B) In the event of any change in the number of shares of
Common Stock deliverable or in the consideration payable to the Company
upon conversion or exercise of such Common Stock Equivalents including, but
not limited to, a change resulting from the antidilution provisions
thereof, the Series A Conversion Price of the Series A Preferred Stock, to
the extent in any way affected by or computed using such Common Stock
Equivalents, shall be recomputed to reflect such change, but no further
adjustment shall be made for the actual issuance of Common Stock or any
payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
(C) Upon the termination or expiration of the
convertibility or exercisability of any such Common Stock Equivalents, the
Series A Conversion Price of the Series A Preferred Stock, to the extent in
any way affected by or computed using such Common Stock Equivalents, shall
be recomputed to reflect the issuance of only the number of shares of
Common Stock (and Common Stock Equivalents which remain convertible or
exercisable) actually issued upon the conversion or exercise of such Common
Stock Equivalents.
5. Other Distributions. On or prior to the Conversion Termination Date,
-------------------
in the event the Company shall declare a distribution payable in securities of
other persons, evidences of indebtedness issued by the Company or other persons,
assets (excluding cash dividends) or options or rights not referred to in
Section 4, then, in each such case for the purpose of this Section 5, the
holders of the Series A Preferred Stock shall be entitled to a proportionate
share of any such distribution as though they were the holders of the number of
shares of Common Stock
5
<PAGE>
of the Company into which their shares of Series A Preferred Stock would be
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Company entitled to receive such distribution.
6. Recapitalizations. On or prior to the Conversion Termination Date, if
-----------------
at any time or from time to time there shall be a recapitalization of the Common
Stock (other than a subdivision, combination or merger or sale of assets
provided for in Section 3 or Section 4 hereof) provision shall be made so that
the holders of the Series A Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series A Preferred Stock the number of shares of
stock or other securities or property of the Company or otherwise, to which a
holder of Common Stock deliverable upon conversion would have been entitled on
such recapitalization. In any such case, appropriate adjustment shall be made in
the application of the provisions of Section 4 with respect to the rights of the
holders of the Series A Preferred Stock after the recapitalization to the end
that the provisions of Section 4 (including adjustment of the Series A
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series A Preferred Stock) shall be applicable after that event
as nearly equivalent as may be practicable.
7. No Impairment. The Company will not, by amendment of its Articles of
-------------
Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Company, but
will at all times in good faith assist in the carrying out of all the provisions
hereof and in the taking of all such action as may be necessary or appropriate
in order to protect the Series A Conversion Rights of the holders of the Series
A Preferred Stock against impairment.
8. No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(a) No fractional shares shall be issued upon the conversion of any share
or shares of the Series A Preferred Stock, and the number of shares of Common
Stock to be issued shall be rounded to the nearest whole share. Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the aggregate number of shares of Series A Preferred Stock each holder
is at the time converting into Common Stock and the aggregate number of shares
of Common Stock issuable to each such holder upon such conversion. No fractional
shares shall be issued upon the conversion of any share or shares of the Series
A Preferred Stock, and the number of shares of Common Stock to be issued shall
be rounded to the nearest whole share. Whether or not fractional shares are
issuable upon such conversion shall be determined on the basis of the total
number of shares of Series A Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion.
(b) Upon the occurrence of each adjustment or readjustment of the
Series A Conversion Price pursuant to Section 4, the Company, at its expense,
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of shares of Series A
Preferred Stock a certificate setting forth such adjustment or
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<PAGE>
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon the written request at any time
of any holder of Series A Preferred Stock, furnish or cause to be furnished to
such holder a like certificate setting forth (i) such adjustment and
readjustment, (ii) the Series A Conversion Price at the time in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of a share of
Series A Preferred Stock.
9. Reservation of Stock Issuable Upon Conversion. The Company shall at
---------------------------------------------
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
shares of the Series A Preferred Stock, such number of its shares of Common
Stock that shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock not otherwise reserved
for issuance shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Preferred Stock, in addition to such other
remedies as shall be available to the holders of such Series A Preferred Stock,
the Company will take such corporate action that may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes,
including without limitation, engaging in best efforts to obtain the requisite
shareholder approval of any necessary amendment to its Articles of
Incorporation.
10. Notices. Any notice required by the provisions hereof to be given to
-------
the holders of shares of Series A Preferred Stock shall be deemed given on the
date of service if served personally on the party to whom notice is to be given,
or on the date of transmittal of services by facsimile transmission to the party
to whom notice is to be given, and addressed to each holder of record at his
address appearing on the books of the Company.
11. Voting Rights. Subject to Section 12 below, holders of Series A
-------------
Preferred Stock shall not be entitled to vote, including with respect to the
election of directors of the Company.
12. Protective Provisions. Subject to the rights of any series of
---------------------
preferred stock that may from time to time come into existence, so long as any
shares of Series A Preferred Stock are outstanding, the Company shall not
without first obtaining the approval (by vote or written consent, as provided by
law) of the holders of at least a majority of the then-outstanding shares of
Series A Preferred Stock, voting separately as a series:
(a) amend its Articles of Incorporation so as to affect adversely the
shares of Series A Preferred Stock or any holder thereof (including by creating
any additional classes or series of preferred stock with a liquidation
preference or other rights senior to or pari passu with the Series A Preferred
Stock); and
(b) change the rights of the holders of the holders of the Series A
Preferred Stock in any other respect.
13. Status of Converted Stock. In the event any shares of Series A
-------------------------
Preferred Stock shall be converted pursuant to Section 4, the shares so
converted shall be canceled and shall not
7
<PAGE>
be reissuable by the Company. The Articles of Incorporation of the Company shall
be appropriately amended to effect the corresponding reduction in the Company's
authorized capital stock."
8
<PAGE>
We further declare under penalty of perjury under the laws of the
State of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Dated this 14/th/ day of January, 2000.
By: /s/ John W. Fara
-------------------------------
Name: John W. Fara, Ph.D.
Title: President and Chief
Executive Officer
By: /s/ John F. Hamilton
-------------------------------
Name: John F. Hamilton
Title: Vice President,
Finance and Chief
Financial Officer
9
