<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
Commission File Number: 0-28310
SIBIA Neurosciences, Inc.
------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-3616229
------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
505 Coast Boulevard South, Suite 300, La Jolla, CA 92037
------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(858) 452-5892
------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 30, 1999
----- ----------------------------
Common Stock, $.001 par value 9,703,769
<PAGE> 2
SIBIA Neurosciences, Inc.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Financial Statements
Condensed Balance Sheet as of June 30, 1999 (Unaudited) and
December 31, 1998.......................................................................3
Condensed Statement of Operations and Comprehensive Loss
(Unaudited) for the Three Months and Six Months Ended June
30, 1999 and 1998.......................................................................4
Condensed Statement of Cash Flows (Unaudited) for the Six
Months Ended June 30, 1999 and 1998.....................................................5
Notes to Financial Statements (Unaudited)..................................................6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of
Operations................................................................................9
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk.................................12
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.........................................................................13
ITEM 2. Changes in Securities and Use of Proceeds.................................................13
ITEM 3. Defaults Upon Senior Securities...........................................................14
ITEM 4. Submission of Matters to a Vote of Security Holders.......................................15
ITEM 5. Other Information.........................................................................15
ITEM 6. Exhibits and Reports on Form 8-K..........................................................16
SIGNATURE.............................................................................................17
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Financial Statements
SIBIA NEUROSCIENCES, INC.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................... $ 15,809,000 $ 4,595,000
Investment securities ........................................................ 2,779,000 12,592,000
Contracts and accounts receivable ............................................ 2,069,000 501,000
Prepaid expenses and other current assets .................................... 282,000 683,000
------------ ------------
Total current assets ................................................. 20,939,000 18,371,000
Property and equipment, net .................................................... 2,757,000 2,638,000
Other assets ................................................................... 12,000 190,000
------------ ------------
$ 23,708,000 $ 21,199,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................. $ 2,309,000 $ 2,567,000
Accrued liabilities .......................................................... 1,753,000 2,142,000
------------ ------------
Total current liabilities ............................................ 4,062,000 4,709,000
Contract advance ............................................................... 1,375,000
Long-term capital lease obligations ............................................ 1,296,000 1,350,000
Commitments and contingencies (Note 3)
Stockholders' equity:
Preferred Stock, $.001 par value; 5,000,000 shares authorized (Note 6):
Series B Convertible Non-Voting, one share issued and outstanding at
June 30, 1999 (liquidating value $5,000,000) -- --
Common Stock, $.001 par value; 25,000,000 shares authorized; 9,703,469 and
9,515,588 shares issued and outstanding at June 30, 1999 and December 31,
1998, respectively........................................................ 10,000 10,000
Additional paid-in capital ................................................... 65,471,000 60,206,000
Deferred compensation ........................................................ (159,000) (273,000)
Notes receivable from stockholders ........................................... (60,000) (83,000)
Accumulated other comprehensive income ....................................... 145,000 373,000
Accumulated deficit .......................................................... (48,432,000) (45,093,000)
------------ ------------
Total stockholders' equity ........................................... 16,975,000 15,140,000
------------ ------------
$ 23,708,000 $ 21,199,000
============ ============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
SIBIA NEUROSCIENCES, INC.
CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Contract ......................................................... $ 1,458,000 $ 2,276,000 $ 2,468,000 $ 3,810,000
License and royalty .............................................. 2,763,000 85,000 4,268,000 85,000
----------- ----------- ------------ ------------
Total revenue (Note 4) ........................................ 4,221,000 2,361,000 6,736,000 3,895,000
----------- ----------- ------------ ------------
Operating expenses:
Research and development ......................................... 3,951,000 4,514,000 8,453,000 9,310,000
General and administrative ....................................... 1,045,000 1,586,000 2,220,000 3,077,000
----------- ----------- ------------ ------------
Total operating expenses ...................................... 4,996,000 6,100,000 10,673,000 12,387,000
----------- ----------- ------------ ------------
(775,000) (3,739,000) (3,937,000) (8,492,000)
Other income (expense):
Interest income .................................................. 183,000 412,000 404,000 876,000
Interest expense ................................................. (35,000) (24,000) (68,000) (47,000)
Gain on sale of investment ....................................... 105,000 900,000 239,000 1,160,000
Other ............................................................ 23,000 -- 23,000 --
----------- ----------- ------------ ------------
276,000 1,288,000 598,000 1,989,000
----------- ----------- ------------ ------------
Net loss ........................................................... (499,000) (2,451,000) (3,339,000) (6,503,000)
Other comprehensive income - unrealized holding gains
(losses) arising during period ..................................... 3,000 (351,000) 11,000 (568,000)
Less: reclassification adjustment for
gains included in net loss ......................................... (105,000) (900,000) (239,000) (1,160,000)
----------- ----------- ------------ ------------
Comprehensive loss ................................................. $ (601,000) $(3,702,000) $ (3,567,000) $ (8,231,000)
=========== =========== ============ ============
Basic and diluted net loss per
common share (Note 7) ............................................. $ (0.05) $ (0.26) $ (0.35) $ (0.69)
=========== =========== ============ ============
Shares used in computing basic and diluted net loss per common share 9,661,653 9,391,243 9,592,874 9,378,271
=========== =========== ============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
SIBIA NEUROSCIENCES, INC.
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss .............................................. $ (3,339,000) $ (6,503,000)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Depreciation and amortization ....................... 540,000 443,000
Compensation from issuance of common stock
options............................................. 88,000 152,000
Gain on sale of investment .......................... (239,000) (1,160,000)
Net amortization of premium and discount on
investment securities ............................. 46,000 (44,000)
Increase (decrease) in cash resulting from changes in:
Contract and accounts receivable .................... (1,568,000) 325,000
Prepaid expenses and other assets ................... 579,000 (691,000)
Accounts payable and accrued liabilities ............ (697,000) 958,000
Contract advance and deferred revenue ............... 1,375,000 13,000
------------ ------------
Net cash provided (used) by operating activities (3,215,000) (6,507,000)
------------ ------------
Cash flows from investing activities:
Purchase of investment securities available-for-sale . (2,500,000) (6,232,000)
Maturities and sales of investment securities
available-for-sale .................................. 12,239,000 14,160,000
Principal payments received on investment securities
available-for-sale .................................. 39,000 37,000
Acquisition of property and equipment ................. (256,000) (141,000)
------------ ------------
Net cash provided (used) by investing activities 9,522,000 7,824,000
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of stock ....................... 5,291,000 132,000
Proceeds from payment on notes receivable ............. 23,000 --
Principal payments on capital lease obligations ....... (407,000) (383,000)
------------ ------------
Net cash provided (used) by financing activities 4,907,000 (251,000)
Net increase (decrease) in cash and cash equivalents .... 11,214,000 1,066,000
Cash and cash equivalents at beginning of period ........ 4,595,000 4,972,000
------------ ------------
Cash and cash equivalents at end of period .............. $ 15,809,000 $ 6,038,000
============ ============
Supplemental Information:
Equipment acquired under capital leases ............... $ 403,000 $ 809,000
============ ============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
SIBIA Neurosciences, Inc.
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of SIBIA Neurosciences, Inc.
("SIBIA" or the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
rules and regulations of the Securities and Exchange Commission ("SEC").
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three- and six-month periods ended June 30, 1999 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. For further information, refer to the financial
statements and footnotes thereto for the year ended December 31, 1998, included
in the Company's Form 10-K filed with the SEC.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses and
related disclosures as of the date of the financial statements. Actual results
could differ from such estimates.
2. RELATED PARTY TRANSACTIONS
Total revenue for the three- and six-month periods ended June 30, 1999 included
no amounts from collaborative partners that are related parties. For the
corresponding periods in 1998, total revenue included $813,000 and $1,526,000,
respectively, from a collaborative partner that is a related party.
3. COMMITMENTS AND CONTINGENCIES
The Company is involved in certain litigation with Cadus Pharmaceutical
Corporation and Pfizer, Inc. See further discussion of this matter at Item 1 in
Part II of this Form 10-Q.
4. SIGNIFICANT OPTION AND LICENSE AGREEMENTS
During the first six months of 1999, SIBIA entered into licensing agreements
with Bristol-Myers Squibb, SmithKline Beecham, and American Home Products. The
agreements grant the licensees non-exclusive rights to use the Company's
patented transcription-based assay technology. SIBIA expects to receive annual
maintenance payments as well as royalties on the sales of any products
identified using the licensed technology.
6
<PAGE> 7
5. RESEARCH COLLABORATIONS
In May 1999, SIBIA entered into a collaborative agreement with Eli Lilly and
Company to research and develop compounds effective in treating disorders of the
central nervous system. SIBIA and Lilly will work together to identify and
optimize compounds selective for subtypes of nicotinic acetylcholine receptors
(nAChRs). Under the terms of the agreement, Lilly made a $5 million equity
investment, for one share of the Company's Series B Convertible Non-Voting
Preferred Stock, and will make payments of approximately $5.5 million per year
for research support. The agreement has a minimum initial term of two years,
although it may be terminated earlier in connection with a change in control of
the Company. Eli Lilly was granted exclusive worldwide rights, subject to some
limitations, to manufacture and market products it or SIBIA discovers during the
research collaboration. SIBIA is entitled to receive milestone payments at
certain stages of development of product candidates, if any are identified, and
royalties on sales of products that are developed.
6. SERIES B CONVERTIBLE NON-VOTING PREFERRED STOCK
The Series B Convertible Non-Voting Preferred Stock shall be convertible into
such number of shares of Common Stock as is determined as follows:
(a) At the option of the holder, anytime prior to February 21, 2001, by
dividing $2,000,000 by the average of the closing prices per share of the
Common Stock on the Nasdaq National Market (or any other national
securities exchange on which the Common Stock is then traded) for the 30
consecutive trading days ending on the trading day immediately preceding
the date of such conversion (the "Average Closing Price"), or
(b) Unless converted earlier pursuant to (a) above, the outstanding Series B
Convertible Non-Voting Preferred Stock shall automatically convert on the
date (the "Automatic Conversion Date") that is the earlier of (i) February
21, 2001, or (ii) the date of the closing of a "Change of Control", as
defined in the agreement, in the following manner:
(x) in the event that candidate selection approval is achieved for a
collaboration compound under the collaboration agreement between Eli
Lilly and the Company prior to the Automatic Conversion Date - by
dividing $2,000,000 by the Average Closing Price, or
(y) in the event that candidate selection approval is not achieved for a
collaboration compound under the collaboration agreement between Eli
Lilly and the Company prior to the Automatic Conversion Date - by
dividing $5,000,000 by the Average Closing Price.
7
<PAGE> 8
Notwithstanding the foregoing, (1) in no event will the total number of shares
of Common Stock beneficially owned by the holder of the Series B Convertible
Non-Voting Preferred Stock upon conversion of the Series B Convertible
Non-Voting Preferred Stock exceed 15% of the Common Stock then outstanding, and
(2) the Company will not be obligated to issue upon conversion of the Series B
Convertible Non-Voting Preferred Stock a number of shares of Common Stock
representing more than 19.9% of the Common Stock outstanding on the date that
the first share of Series B Convertible Non-Voting Preferred Stock was issued if
such issuance would constitute a violation of the Company's obligations under
the rules or regulations of the Nasdaq National Market (or any other national
securities exchange on which the Company's Common Stock is then traded).
7. NET LOSS PER COMMON SHARE
For all periods presented, both basic and diluted loss per common share are
computed based on the weighted average number of shares of Common Stock
outstanding during the period. Stock options and conversion of the Series B
Convertible Non-Voting Preferred Stock, could potentially dilute basic earnings
per share in the future but were excluded from the computation of diluted loss
per share as their effect is antidilutive for the periods presented. Common
share equivalents that would have been included in the computation of diluted
loss per common share if they were not antidilutive totaled 494,700, and 596,260
for the three months ended June 30, 1999 and June 30, 1998, respectively, and
423,020, and 576,646 for the six months ended June 30, 1999 and June 30 1998,
respectively.
8. SUBSEQUENT EVENTS
In July 1999, SIBIA entered into an agreement with Pharmacia & Upjohn Company.
Under the agreement, the Company licensed to Pharmacia & Upjohn non-exclusive
rights to use its patented transcription-based assay technology. SIBIA will
receive annual maintenance payments as well as royalties on the sales of any
products identified using the licensed technology.
In August 1999, SIBIA entered into a non-exclusive license agreement for its
transcription-based assay patent portfolio with Glaxo Wellcome. The agreement
grants Glaxo Wellcome and its affiliates a fully paid-up, worldwide license to
certain patents in the Company's transcription-based assay patent portfolio.
Glaxo Wellcome also has the option of obtaining a fully paid-up license to two
additional patents at the conclusion of certain proceedings. Under the terms of
the agreement, SIBIA will receive an up-front payment and additional payments
should Glaxo Wellcome exercise its options.
The initial Phase 2 clinical trials of the Company's compound SIB-1508Y for
Parkinson's disease were completed in July 1999. SIB-1508Y did not demonstrate
statistically significant improvement relative to placebo. However SIB-1508Y did
show improvement relative to baseline status in certain motor and cognitive
measures as well as dose tolerability. The Company believes that further studies
are warranted, and the Company expects that any future clinical studies will be
carried out by a collaborative partner.
The Phase 2 clinical trial of SIB-1553A for Alzheimer's disease is expected to
be completed during the third quarter of 1999.
8
<PAGE> 9
On August 2, 1999, the Company and Merck & Co., Inc. announced that they have
entered into a definitive agreement under which Merck will acquire SIBIA for
$8.50 per share in cash. Merck commenced a tender offer for the outstanding
SIBIA shares on or about August 6, 1999.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
Except for the historical information contained herein, the discussion in this
report contains forward-looking statements that involve risks and uncertainties.
The Company's actual results may differ significantly from those discussed in
this report. Factors that might cause or contribute to such differences include,
without limitation, those discussed in this Item 2 (Management's Discussion and
Analysis of Financial Condition and Results of Operations) as well as those
discussed in the Company's Form 10-K for the year ended December 31, 1998 under
the headings "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
SIBIA, incorporated in Delaware in 1981, was established by The Salk Institute
for Biological Studies. Through 1990, SIBIA successfully developed several
proprietary life-sciences technologies in collaboration with corporate partners.
In 1987, SIBIA initiated research in the neuroscience field and in 1991 shifted
its focus completely to the development of novel therapeutics to treat nervous
system disorders.
The Company has no products available for sale and does not expect to have any
products resulting from its research efforts, including its collaborations with
others, commercially available for at least several years, if at all. Except for
1995, the Company has incurred net losses every year since shifting its area of
therapeutic focus to the central nervous system in 1991. The Company is
continuing to incur losses and expects to incur increasing operating losses over
the next several years as the Company's research and development efforts expand.
The Company expects that its revenue and other income for the next several years
will fluctuate significantly from quarter to quarter and will be limited to
payments under its collaborative relationships, license fees, interest income
and other miscellaneous income.
RESULTS OF OPERATIONS
Revenue
The Company had total revenue of $4,221,000 and $6,736,000 for the three- and
six-month periods ended June 30, 1999, compared with $2,361,000 and $3,895,000,
respectively, for the same periods in 1998. The increase in the comparable
three-month periods was due primarily to the signing of non-exclusive license
agreements with SmithKline Beecham and American Home Products to use the
Company's patented transcription-based assay technology ("TBA") and the initial
revenues from the collaborative agreement with Eli Lilly and Company. This
increase was partially offset by decreases in revenue from collaborative
research programs with Novartis AG
9
<PAGE> 10
and Bristol-Meyers Squibb and a decrease in revenue generated from various
studies performed for Meiji Seika Kaisha. The net increase in the comparable
six-month periods was also due to the foregoing and the signing of an additional
TBA license agreement with Bristol-Meyers Squibb.
Expenses
Research and development expenses decreased to $3,951,000 for the second quarter
and $8,453,000 for the six-month period ended June 30, 1999 from $4,514,000 and
$9,310,000, respectively, for the same periods in 1998. The decrease in research
and development expenses for the comparable periods was primarily due to reduced
costs associated with the clinical studies for the Company's two lead drug
candidates SIB-1508Y and SIB-1553A.
General and administrative expenses decreased to $1,045,000 for the second
quarter and $2,220,000 for the six-month period ended June 30, 1999 from
$1,586,000 and $3,077,000, respectively, for the same periods in 1998. The
decrease in general and administrative expenses in the comparable three- and
six-month periods was due primarily to reduced expenditures from legal expenses
related to patent litigation.
Other Income
Other income decreased to $276,000 for the three-month period ended June 30,
1999 and $598,000 for the six-month period ended June 30, 1999 from $1,288,000
and $1,989,000, respectively, for the same periods in 1998. The decrease in
other income in the comparable three- and six-month periods was due primarily to
a decrease of interest income as a result of lower average cash and investment
balances carried in 1999 and a decrease of gains from the sale of investment
securities.
Liquidity and Capital Resources
Cash and cash equivalents and investment securities were approximately
$17,187,000 at December 31, 1998 as compared to $18,588,000 at June 30, 1999.
This increase was primarily attributable to increased license revenues and an
equity investment.
To date, the Company has financed its operations primarily through equity
financings, research contracts (generally conducted on a best efforts basis),
and license and royalty revenues. Since 1991, the Company has received
approximately $46,775,000 in net proceeds from the sale of Convertible Preferred
Stock and Common Stock to investors and collaborative partners and approximately
$61,715,000 in contract, license, and royalty revenue. As of June 30, 1999, the
Company had an accumulated deficit of approximately $48,432,000.
The Company is entitled to receive additional payments under its collaborative
agreements in the form of contract revenue, milestone payments, if milestones
are achieved, and royalties, if products are commercialized. The Company
currently receives ongoing collaborative research funding from Eli Lilly. The
collaboration with Eli Lilly has a minimum initial term of two years, although
it may be terminated earlier upon change in control of the Company. Under its
license agreements, the Company is also entitled to receive annual maintenance
payments as well as
10
<PAGE> 11
royalties on the sales of any products identified using the licensed technology.
In August 1999, the Bristol-Meyers Squibb collaborative research funding was
terminated.
The Company leases laboratory and office facilities under an agreement expiring
on December 31, 2001. The average minimum annual payment under the lease is
approximately $1,518,000, before consideration of sublease income. The Company
believes that its present facility will be adequate to conduct its research
activities through December 2001. Management believes that it should be able to
secure additional space at commercially reasonable rates, if necessary. The
Company has an option to extend its lease for an additional five years. Since
1991, the Company has invested $6,392,000 in property and equipment. Included
within this amount is $5,052,000 of equipment under capital leases.
The Company anticipates that the cash, cash equivalents and investment
securities balance of $18,588,000 as of June 30, 1999 will be used to support
continued research and development of its technologies and fund other general
and administrative expenditures and will be sufficient to maintain operations
through mid-2000. However, the Company expects to incur substantial research and
development expenses including continued increases in personnel costs and costs
related to the continued expansion of its drug discovery platforms and
pre-clinical testing and early stage clinical trials. The Company's future
capital needs will be dependent upon many factors, including progress in its
research and development activities, the magnitude and scope of these
activities, progress with pre-clinical and clinical trials, the cost of
preparing, filing, prosecuting, maintaining, defending and enforcing patent
claims and other intellectual property rights, competing technological and
market developments, changes in or terminations of existing collaborative
arrangements, the establishment of additional licensing and/or collaborative
arrangements, and the cost of manufacturing scale-up and development of
marketing activities, if undertaken by the Company.
The Company believes its drug discovery programs and technologies will lead to
corporate collaboration and licensing opportunities which may generate future
revenues in the form of license fees, milestone payments and/or royalties. The
Company may also seek additional funding through public or private financing.
There can be no assurance that the Company will be successful in its efforts to
collaborate with additional partners or that additional financing from other
sources will be available on favorable terms, if at all. If additional funds are
raised by issuing equity securities, further dilution to then existing
stockholders would result. If adequate funds are not available, the Company may
be required to curtail significantly or eliminate one or more of its research,
discovery or development programs.
Year 2000
As many computer systems and other equipment with embedded chips or processors
use only two digits to represent the year, they may be unable to process
accurately certain data before, during, or after the year 2000. As a result,
internal systems of the Company and its suppliers and vendors are at risk for
possible miscalculations or systems failures causing disruptions in their
business operations. This is commonly known as the Year 2000 ("Y2K") issue.
The Company has formed a Y2K Compliance Committee ("Y2K Committee"), with
representation from each major functional area within the organization that has
been charged with implementing the Company's Y2K Compliance Program ("Y2K
Program"). The Y2K
11
<PAGE> 12
Program has been designed to identify those issues (both internal and external
and involving both information technology ("IT") and non-IT systems) that would
cause material interruption to the Company's "business as usual" and consists of
the following phases: (1) identification of all Y2K issues; (2) assigning
priorities to identified items; (3) assessing the Y2K compliance of items
determined to be material to the Company; (4) repairing or replacing items that
are determined to be material to the Company; (5) testing material items; and
(6) designing contingency and business continuation plans.
The Company has completed the identification, assignment, and assessment phases
for all material Y2K issues. The Company has completed the repair and/or the
replacement, including compliance confirmation by third parties, for
approximately 80% of the identified items. The repair or replacement and testing
of the remaining items is currently underway with various expected completion
dates through the fourth quarter of 1999. The Company currently plans to
complete a contingency plan during the fourth quarter for any systems or third
party vendors not expected to be Y2K compliant by December 31, 1999.
No material costs (including, without limitation, costs related to system
replacement) have been incurred to date in the Company's effort to address its
Y2K issues, and the Company does not expect the amounts to become material in
the future. The total Y2K issue cost to the Company is expected to be less than
$50,000. Y2K costs will be funded with cash from the Company's working capital.
The Company estimates that Y2K issues will use less than 5% of its IT budget. No
other material IT projects have been deferred because of efforts put into Y2K
compliance.
The failure to correct a material Y2K issue could result in an interruption in,
or a failure of, the Company's business as usual. Due to the general uncertainty
inherent in the Y2K issue, resulting in part from the uncertainty of the Y2K
readiness of third-party suppliers and service providers, the Company is unable
to determine at this time whether the consequences of Y2K failures will have a
material impact on the Company's results of operations, liquidity and financial
condition. The Company's Y2K Program is expected to significantly reduce the
Company's level of uncertainty about the Y2K issue and, in particular, about the
Y2K readiness of its suppliers and service providers. The Company believes that
with the completion of the Y2K program as scheduled, the possibility of
significant interruptions of normal operations will be greatly reduced.
The most likely worst case Y2K scenario facing the Company involves third-party
vendors of utility services who fail to adequately address their own Y2K issues.
The Company has begun to identify alternative solutions to deal with problems
associated with utility failures, and we hope to have contingency plans
finalized in the fourth quarter of 1999.
The estimated timing of completion of these efforts is a forward-looking
statement that involves risk and uncertainties, including the risk that such
efforts will not adequately address such Y2K problems and that, as a result, the
Company's business will be adversely affected.
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
Not Applicable.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings:
a. Cadus Pharmaceutical Corporation. On July 9, 1996, the Company filed an
action for patent infringement against Cadus Pharmaceutical Corporation
("Cadus") in the United States District Court for the Southern District of
California. The complaint asserted that Cadus' assay technology infringed the
Company's United States Patent No. 5,401,629 (the `629 Patent"). In the
complaint, the Company sought damages in an unspecified amount and injunctive
relief.
In November 1998, the case proceeded to trial over the Company's claim of
infringement and Cadus' counterclaims of invalidity, unenforceability and
non-infringement of the `629 Patent. On December 18, 1998, the jury returned a
verdict in favor of the Company, finding that the '629 Patent is valid and
enforceable and awarding the Company damages in the amount of $18 million for
Cadus' infringement. On January 29, 1999, the Court granted the Company's
request for a permanent injunction preventing Cadus, and all persons acting in
concert or otherwise participating with Cadus, from practicing the methods
claimed in the '629 Patent. On March 10, 1999, the Court confirmed the jury's
verdict in all respects and entered judgment in favor of the Company. Cadus
filed a notice of appeal from the judgment on March 25, 1999.
The Company has recently been notified that the Patent & Trademark Office has
granted requests for reexamination of the '629 Patent. The Company's management
intends to vigorously defend the '629 Patent in that proceeding.
b. Pfizer, Inc. On May 5, 1999, Pfizer, Inc. ("Pfizer") filed an action for
declaratory relief against the Company in the United States District Court for
the District of Delaware. The complaint purports to seek a judgment regarding
the Company's '629 Patent and United States Patent No. 5,436,128 that Pfizer
does not infringe and the patents are invalid and/or unenforceable. On May 27,
1999, the Company filed a counterclaim against Pfizer alleging that Pfizer
infringes the `629 patent and seeking damages and injunctive relief.
The Company's management does not believe that the Pfizer complaint is
meritorious and intends to prosecute its claim of infringement.
ITEM 2. Changes in Securities and Use of Proceeds:
In May 1999, the Company issued one share of Series B Convertible Non-Voting
Preferred Stock priced at $5,000,000 per share to Eli Lilly and Company. Such
share is convertible into such number of shares of Common Stock as is determined
as follows:
(a) At the option of the holder, anytime prior to February 21, 2001, by
dividing $2,000,000 by the average of the closing prices per share of the
Common Stock on the Nasdaq National Market (or any other national
securities exchange on which the Common Stock is then traded) for the 30
consecutive trading days ending on the trading day immediately preceding
the date of such conversion (the "Average Closing Price"), or
13
<PAGE> 14
(b) Unless converted earlier pursuant to (a) above, the outstanding Series B
Preferred Stock shall automatically convert on the date (the "Automatic
Conversion Date") that is the earlier of (i) February 21, 2001, or (ii) the
date of the closing of a "Change of Control," as defined in the Agreement,
in the following manner:
(x) in the event that candidate selection approval is achieved for a
collaboration compound under the collaboration agreement between Eli
Lilly and the Company prior to the Automatic Conversion Date, by
dividing $2,000,000 by the Average Closing Price, or
(y) in the event that candidate selection approval is not achieved for a
collaboration compound under the collaboration agreement between Eli
Lilly and the Company prior to the Automatic Conversion Date, by
dividing $5,000,000 by the Average Closing Price.
Notwithstanding the foregoing, (1) in no event will the total number of shares
of Common Stock beneficially owned by the holder of the Series B Convertible
Non-Voting Preferred Stock upon conversion of the Series B Convertible
Non-Voting Preferred Stock exceed 15% of the Common Stock then outstanding, and
(2) the Company will not be obligated to issue upon conversion of the Series B
Convertible Non-Voting Preferred Stock a number of shares of Common Stock
representing more than 19.9% of the Common Stock outstanding on the date that
the first share of Series B Convertible Non-Voting Preferred Stock was issued if
such issuance would constitute a violation of the Company's obligations under
the rules or regulations of the Nasdaq National Market (or any other national
securities exchange on which the Company's Common Stock is then traded).
The Company has agreed to file a registration statement covering the re-sale of
the shares of Common Stock underlying the Series B Convertible Non-Voting
Preferred Stock. The Company intends to use the proceeds from the sale of the
Series B Convertible Non-Voting Preferred Stock to fund operations.
The sale and issuance of the Series B Convertible Non-Voting Preferred Stock in
the transaction described in the foregoing paragraph was deemed to be exempt
from registration under the Securities Act of 1933, as amended, by virtue of
Regulation D promulgated under such Act. Eli Lilly represented its intention to
acquire the securities for investment only and not with a view to the
distribution thereof. Appropriate legends are affixed to the stock certificate
issued in the transaction. Eli Lilly represented that it received adequate
information about the Company.
ITEM 3. Defaults Upon Senior Securities:
None.
14
<PAGE> 15
ITEM 4. Submission of Matters to a Vote of Security Holders:
(a) The Company held its Annual Meeting of Stockholders on May 26,
1999.
(b) One director was elected to serve for a term of three years
ending at the 2002 annual meeting:
<TABLE>
<CAPTION>
FOR WITHHELD
--- --------
<S> <C> <C>
Dr. James D. Watson 8,050,836 512,981
</TABLE>
In addition to the above director elected at the 1999 annual
meeting, the following directors will continue in office:
Stanley T. Crooke, M.D., Ph.D.
Jeffrey F. McKelvy, Ph.D.
William R. Miller
William T. Comer, Ph.D.
Gunnar Ekdahl
(c) The following items were approved at the Annual Meeting:
(1) The amendment of the Company's 1996 Equity Incentive
Plan, to increase the aggregate number of shares of
common stock authorized for issuance under the Plan
from 1,513,141 shares to 2,513,141. The total votes
for, against, abstained, and broker non-votes were
5,069,098, 1,167,776, 1,951, and 2,324,992,
respectively.
(2) The selection of PricewaterhouseCoopers LLP as the
Company's independent auditors for the fiscal year
ending December 31, 1999. The total votes for, against,
and abstained were 8,542,334, 21,232, and 251,
respectively. There were no broker non-votes.
ITEM 5. Other Information:
Pursuant to the Company's bylaws, stockholders who wish to bring
matters or propose nominees for director at the Company's 2000
annual meeting of stockholders must provide specified information to
the Company not later than the close of business on December 16,
1999 unless such matters are included in the Company's proxy
statement pursuant to Rule 14a-8 under the Securities Exchange Act
of 1934, as amended.
15
<PAGE> 16
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
4.3 Stock Purchase Agreement dated May 25, 1999
between Registrant and Eli Lilly and Company
("Lilly"). *
10.42 Collaboration Agreement dated May 25, 1999 between
Registrant and Lilly. *
27.1 Financial Data Schedule. (Exhibit 27 is submitted
as an exhibit in the electronic format of this
Quarterly Report on Form 10-Q submitted to the
Securities and Exchange Commission.)
(b) Reports on Form 8-K
None.
* Confidential treatment has been requested with respect
to certain portions of this exhibit. Omitted portions
have been filed separately with the Securities and
Exchange Commission.
16
<PAGE> 17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
SIBIA Neurosciences, Inc.
Date: August 16, 1999 By: /s/ THOMAS A. REED
------------------------ ----------------------------
Thomas A. Reed
Vice President, Finance & Administration,
and Chief Financial Officer
(on behalf of the registrant and as the
registrant's principal financial officer)
17
<PAGE> 1
EXHIBIT 4.3
* Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Purchase Agreement") is made as of
May 25, 1999 (the "Effective Date") by and between SIBIA NEUROSCIENCES, INC.
(the "Company") and ELI LILLY AND COMPANY (the "Investor").
RECITALS
WHEREAS, the Company and the Investor have entered into that certain
Collaboration Agreement of even date herewith (the "Agreement"); and
WHEREAS, in connection with, and as a condition of the Company entering
into, the Agreement, the Investor agrees to purchase from the Company one share
of the Company's Series B Convertible Non-Voting Preferred Stock on the terms
and subject to the conditions set forth in this Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements contained herein, the parties hereto, intending
to be legally bound, do hereby agree as follows:
AGREEMENT
1. PURCHASE AND SALE OF STOCK.
Subject to the terms and conditions hereof, at the Closing (as defined
below), the Investor shall purchase from the Company, and the Company shall
issue and sell to the Investor, one share of Series B Convertible Non-Voting
Preferred Stock of the Company (the "Stock") for the purchase price of Five
Million Dollars ($5,000,000).
2. CLOSING DATE; DELIVERY.
2.1 CLOSING. Subject to the terms of Section 5, the closing of the sale
and purchase of the Stock under this Purchase Agreement (the "Closing") shall be
held on a date that is no later than thirty (30) days after the Effective Date,
at such time and place as the Company and the Investor may mutually agree.
2.2 DELIVERY. At the Closing, subject to the terms and conditions of
Section 6, the Company shall deliver to the Investor a stock certificate,
registered in the name of the Investor, representing the Stock dated as of the
Closing against payment of the purchase price therefor by wire transfer, unless
other means of payment shall have been agreed upon by the Company and the
Investor.
1
<PAGE> 2
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby makes the following representations and warranties to
the Investor as of the Effective Date and the Closing:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business. The Company is duly qualified to transact business and is
in good standing in each jurisdiction in which the failure so to qualify would
have a material adverse effect on its business or operations.
3.2 AUTHORIZATION; DUE EXECUTION. The Company has the requisite
corporate power and authority to enter into this Purchase Agreement and to
perform its obligations under the terms of this Purchase Agreement and, at the
Closing, will have the requisite corporate power to sell the Stock. All
corporate action on the part of the Company, its officers, directors and
stockholders necessary for the authorization, execution and delivery of this
Purchase Agreement have been taken. This Purchase Agreement has been duly
authorized, executed and delivered by the Company, and, upon due execution and
delivery by the Investor, this Purchase Agreement will be a valid and binding
agreement of the Company, enforceable in accordance with its terms, except as
the indemnification obligations set forth in Section 7.7 may be unenforceable
insofar as they relate to violations of state or federal securities laws and
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
or by equitable principles.
3.3 CAPITALIZATION. The authorized capital stock of the Company consists
of 25,000,000 shares of Common Stock, par value $.001, and 5,000,000 shares of
Preferred Stock, par value $.001, of which 150,000 shares have been designated
Series A Junior Participating Preferred Stock ("Series A Preferred") and one
share has been designated Series B Convertible Non-Voting Preferred Stock (the
"Series B Preferred"). As of May 18, 1999, there were 9,689,540 shares of Common
Stock and no shares of Series A Preferred or Series B Preferred issued and
outstanding. The rights, preferences and privileges of the Series B Preferred
will, as of the Closing, be as set forth in the Certificate of Designation of
the Series B Preferred substantially in the form attached hereto as Schedule 3.3
(the "Certificate of Designation").
3.4 VALID ISSUANCE OF STOCK. The Stock, upon the Closing, when issued,
sold and delivered in accordance with the terms hereof for the consideration set
forth herein, will be duly and validly authorized and issued, fully paid and
non-assessable, not subject to any preemptive right, liens, claims or
encumbrances or other restrictions on transfer (other than those arising under
federal and state securities laws or the terms of this Purchase Agreement) and,
based in part upon the representations of the Investor in this Purchase
Agreement, will be issued in compliance with all applicable federal and state
securities laws. Upon the Closing, the shares of Common Stock issuable upon
conversion of the Stock (the "Conversion Shares") will have been duly
authorized, and when issued and delivered upon conversion of the Shares in
accordance with the terms and conditions of the Certificate of Designation, the
Conversion Shares will be validly issued, fully paid and non-assessable, not
subject to any preemptive right, liens, claims or encumbrances or other
restrictions on transfer (other than those arising under federal and state
2
<PAGE> 3
securities laws or the terms of this Purchase Agreement) and, based in part upon
the representations of the Investor in this Purchase Agreement, will be issued
in compliance with all applicable federal and state securities laws. The
certificate representing the Stock is in due and proper form and has been duly
and validly executed by the officers of the Company named thereon.
3.5 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
federal, state, local or provincial governmental authority on the part of the
Company is required in connection with the consummation of the transactions
contemplated by this Purchase Agreement, except for notices required or
permitted to be filed with certain state and federal securities commissions
after the Closing, which notices will be filed on a timely basis.
3.6 SEC FILINGS. The Company has timely filed with the Securities and
Exchange Commission (the "SEC") all reports, registration statements and other
documents required to be filed by it (the "SEC Filings") under the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder
(the "Securities Act"), and the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder (the "Exchange Act"). The SEC
Filings were prepared in accordance and complied in all material respects with
the applicable requirements of the Securities Act or the Exchange Act, as the
case may be. None of such SEC Filings, including, without limitation, any
financial statements, exhibits and schedules included therein and documents
incorporated therein by reference, at the time filed, declared effective or
mailed, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Except to the extent information contained in
any of the SEC Filings has been revised, corrected or superseded by a later
filing of any such form, report or document, none of the SEC Filings currently
contains an untrue statement of a material fact or omits 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.
3.7 NO CONFLICT. The execution, delivery and performance by the Company
of this Purchase Agreement do not violate any provision of the Company's
Restated Certificate of Incorporation or Bylaws, any provision of any order,
writ, judgment, injunction, decree, determination or award to which the Company
is a party or by which it is bound, any contract filed as an exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31, 1998, or,
to the Company's knowledge, any law, rule or regulation currently in effect
having applicability to the Company.
3.8 ABSENCE OF LITIGATION. Except as disclosed in the SEC Filings, there
is no action, suit, proceeding or investigation (including any such matter
related to the Company's intellectual property) pending or currently threatened
against the Company or its properties before any court or governmental agency,
which would have a material adverse effect on the Company's business or
operations.
3
<PAGE> 4
3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the SEC
Filings, since March 31, 1999, (a) neither Company nor any of its subsidiaries
or affiliates has incurred any liabilities or obligations, direct or contingent,
or entered into any transactions, not in the ordinary course of business, that
are material to the Company and its subsidiaries and affiliates, taken as a
whole, (b) there has not been any event, change or occurrence which individually
or in the aggregate would have a material adverse effect on the condition
(financial or other), assets, business, or results of operations of the Company
and its subsidiaries and affiliates, taken as a whole, or the Company's ability
to consummate any of the transactions contemplated hereby or to perform its
obligations hereunder under this Agreement ("Material Adverse Effect"), and (c)
there has not been any change in the capital stock or indebtedness of Company or
its subsidiaries or affiliates that would have a Material Adverse Effect. No
event has occurred since March 31, 1999, with respect to which the Company would
be required to file a Current Report on Form 8-K under the Exchange Act.
3.10 CORPORATE DOCUMENTS. The Restated Certificate of Incorporation
(including the Certificate of Designation) and By-laws of the Company are in the
form previously provided to the Investor.
3.11 FULL DISCLOSURE. The Company believes it has provided the Investor
with all information that the Investor has requested for deciding whether to
purchase the Stock and all information reasonably necessary to enable the
Investor to make such decision. Neither this Agreement nor any other statements
or certificates made or delivered in connection herewith contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements herein or therein not misleading.
3.12 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each employee,
consultant and subcontractor of the Company with access to the Company's
proprietary information has executed an agreement customary in the industry
regarding confidentiality of proprietary information and the assignment of
inventions discovered within the scope of work performed on behalf of the
Company to the Company. To the Company's knowledge, no such employee, consultant
or subcontractor is in violation thereof.
3.13 NO DIVIDENDS OR OTHER DISTRIBUTIONS. There has been no declaration
or payment by the Company of any dividend, nor any distribution by the Company
of any assets of any kind, to any of its stockholders with respect to any of the
Company's securities, except as disclosed in the SEC Filings.
3.14 FDA MATTERS. The Company has not received from the United States
Food and Drug Administration a letter (or a threat to deliver such a letter) of
non-approval with respect to any product manufactured, marketed, licensed or
developed by the Company, or any product which the Company intends to
manufacture, market, license or develop.
3.15 CONFLICTS OF INTEREST. Except as set forth in the SEC Filings, the
Company has no interest (other than as holders of securities of a
publicly-traded company), either directly or indirectly, in any entity,
including, without limitation thereto, any corporation, partnership, joint
venture, proprietorship, firm, person, licensee, business or association
(whether as an employee,
4
<PAGE> 5
officer, director, shareholder, agent, independent contractor, security holder,
creditor, consultant or otherwise) that presently (i) provides any services, or
designs, produces and/or sells any products, or engages in any activity which is
the same, similar to or competitive with any activity or business in which the
Company is now engaged or proposes to become engaged; (ii) is a supplier,
customer, or creditor of the Company, or has an existing contractual
relationship with any of the Company's managing employees; or (iii) has any
direct or indirect interest in any asset or property, real or personal, tangible
or intangible, of the Company or any property, real or personal, tangible or
intangible, that is necessary for or used by the Company in the conduct of the
Company's business.
3.16 COLLABORATION AGREEMENT. The representations and warranties made by
the Company in Article 10 of the Agreement, except to the extent such
representations and warranties relate to matters that will occur in the future,
are true and correct as of the Effective Date and the Closing.
3.17 REGISTRATION RIGHTS. Except as disclosed in the SEC Filings and
pursuant to Section 7 of this Purchase Agreement, the Company is under no
contractual obligation to register any of its presently outstanding securities
or any of its securities that may subsequently be issued under the Securities
Act.
3.18 COMPANY CONTRACTS. Except as disclosed in the SEC Filings and
except for (i) transactions relating to purchases of shares of the Company's
securities or options to purchase such securities and (ii) salary payments and
fringe benefits paid in the ordinary course of the Company's business, none of
the officers, employees, directors or other affiliates of the Company is a party
to any material written agreement or transaction with the Company, and the
Company has not assumed or guaranteed any obligation of such person.
3.19 INVESTMENT COMPANY ACT. The Company is not an "investment company"
or a company controlled by an "investment company" as such terms are defined in
the Investment Company Act of 1980, as amended.
3.20 COMPLIANCE WITH LAW. Except as disclosed in the SEC Filings, the
Company is conducting its business in compliance in all material respects with
applicable material governmental laws, ordinances and regulations (including,
without limitation, those relating to environmental protection and occupational
safety and health practices). All material governmental approvals, permits and
licenses required to conduct the current business of the Company have been
obtained and are in full force and effect and are being complied with by the
Company in all material respects.
3.21 CONFIDENTIALITY. The Company hereby represents, warrants and
covenants that it shall maintain in confidence, and shall not use or disclose
without prior written consent of the Investor, the terms of this Purchase
Agreement and any information identified in writing as confidential that is
furnished to it by the Investor in connection with this Purchase Agreement. This
obligation of confidentiality shall not apply, however, to any information (a)
in the public domain through no unauthorized act or failure to act by the
Company, (b) lawfully disclosed to the Company by a third party who possessed
such information without any obligation of
5
<PAGE> 6
confidentiality, (c) lawfully developed by the Company independent of any
disclosure by the Company as supported by the Investor's written records, or (d)
required, upon the advice of counsel to the Company, to be disclosed under the
rules and regulations of the SEC. The Company further covenants that it shall
return to the Investor all tangible materials containing such information upon
request by the Investor.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor hereby makes the following representations and warranties
to the Company as of the Effective Date and the Closing:
4.1 AUTHORIZATION; DUE EXECUTION. The Investor has the requisite
corporate power and authority to enter into this Purchase Agreement and to
perform its obligations under the terms of this Purchase Agreement and, at the
Closing, will have the requisite corporate power to purchase the Stock. All
corporate action on the part of the Investor, its officers, directors and
stockholders necessary for the authorization, execution and delivery of this
Purchase Agreement have been taken. This Purchase Agreement has been duly
authorized, executed and delivered by the Investor, and, upon due execution and
delivery by the Company, this Purchase Agreement will be a valid and binding
agreement of the Investor, enforceable in accordance with its terms, except as
the indemnification obligations set forth in Section 7.7 may be unenforceable
insofar as they relate to violations of state or federal securities laws and
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
or by equitable principles.
4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Purchase Agreement is made
with the Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of this Purchase Agreement such
Investor confirms, that the Stock to be purchased by such Investor will be
acquired for investment for such Investor's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that such Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this Purchase
Agreement, the Investor further represents that such Investor does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person or to any third person, with
respect to any of the Stock.
4.3 DISCLOSURE OF INFORMATION. The Investor has received all the
information that it has requested and that it considers necessary or appropriate
for deciding whether to enter into this Purchase Agreement and to purchase the
Stock. The Investor further represents that it has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the offering of the Stock.
4.4 INVESTMENT EXPERIENCE. The Investor is an investor in securities of
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Stock. The Investor also represents it
has not been organized solely for the purpose of acquiring the Stock.
6
<PAGE> 7
4.5 ACCREDITED INVESTOR. The Investor is an "accredited investor" as
such term is defined in Rule 501 of the General Rules and Regulations prescribed
by the SEC pursuant to the Securities Act.
4.6 RESTRICTED SECURITIES. The Investor understands that (a) the Stock
has not been registered under the Securities Act by reason of a specific
exemption therefrom, that such securities must be held by it indefinitely and
that the Investor must, therefore, bear the economic risk of such investment
indefinitely, unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from such registration; (b) each certificate
representing the Stock will be endorsed with the following legends, except that
certificates issued following a disposition of such Stock shall not be required
to bear the legend set forth in (a) if (i) the disposition was made in
compliance with Rule 144, as supported by satisfactory written documentation,
(ii) there is in effect a registration statement under the Securities Act
covering the disposition and such disposition was made in accordance with such
registration statement, as supported by satisfactory written documentation, or
(iii) if an opinion of counsel reasonably acceptable to the Company to the
effect that such legend is not required in order to establish compliance with
any provisions of the Securities Act is provided to the Company:
(i) THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT").
THE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED UNLESS
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH SALE
OR OTHER TRANSFER OR SUCH SALE OR OTHER TRANSFER IS MADE IN ACCORDANCE WITH RULE
144 OR RULE 144A OF THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED HAS BEEN PROVIDED.
(ii) Any legend required to be placed thereon by any
applicable state securities laws.
Furthermore, the Company will instruct any transfer agent not to register the
transfer of the Stock (or any portion thereof) unless the conditions specified
in the foregoing legends are satisfied, until such time as a transfer is made,
pursuant to the terms of this Purchase Agreement, and in compliance with Rule
144 or pursuant to a registration statement or, if the opinion of counsel
referred to above is to the effect that such legend is not required in order to
establish compliance with any provisions of the Securities Act or this Purchase
Agreement.
4.7 CONFIDENTIALITY. The Investor hereby represents, warrants and
covenants that it shall maintain in confidence, and shall not use or disclose
without prior written consent of the Company, the terms of this Purchase
Agreement and any information identified in writing as confidential that is
furnished to it by the Company in connection with this Purchase Agreement. This
obligation of confidentiality shall not apply, however, to any information (a)
in the public domain through no unauthorized act or failure to act by the
Investor, (b) lawfully disclosed to such Investor by a third party who possessed
such information without any obligation of confidentiality, (c) lawfully
developed by such Investor independent of any disclosure by the
7
<PAGE> 8
Company as supported by the Investor's written records, or (d) required to be
disclosed pursuant to an order or requirement of a court, administrative agency
or other government body (including the securities laws of any applicable
jurisdiction). The Investor further covenants that it shall return to the
Company all tangible materials containing such information upon request by the
Company.
5. CONDITIONS OF THE INVESTOR'S OBLIGATIONS
The obligations of the Investor under Section 1 of this Purchase
Agreement to purchase the Stock at the Closing are subject to the fulfillment on
or before the Closing of each of the following conditions, any of which may be
waived by the Investor:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in Section 3 shall be true and correct in all material
respects on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of said date.
5.2 PERFORMANCE. The Company shall have performed and complied with all
agreements, obligations and conditions in this Purchase Agreement, if any, that
are required to be performed or complied with by it on or before the Closing.
5.3 COMPLIANCE CERTIFICATE. The President or a Vice President of the
Company shall deliver to the Investor at the Closing a certificate certifying
that the conditions specified in Sections 5.1 and 5.2 have been fulfilled.
5.4 FILING OF CERTIFICATE OF DESIGNATION. The Certificate of Designation
substantially in the form attached hereto as Schedule 3.3 shall have been filed
with the Secretary of State of Delaware.
5.5 LEGAL OPINION. An opinion of counsel to the Company substantially in
the form attached hereto as Schedule 5.5 and dated as of the Closing shall have
been delivered to the Investor at the Closing.
5.6 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Investor, and it shall have received all such counterpart original and certified
or other copies of such documents as it may reasonably request.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS
The obligations of the Company to the Investor under this Purchase
Agreement are subject to the fulfillment on or before the Closing of each of the
following conditions by such Investor, any of which may be waived by the
Company:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Investor contained in Section 4 hereof shall be true and correct in all
material respects on and as
8
<PAGE> 9
of the Closing with the same effect as though such representations and
warranties had been made on and as of said dates.
6.2 PERFORMANCE. The Investor shall have performed and complied with all
agreements, obligations and conditions in this Purchase Agreement, if any, that
are required to be performed or complied with by it on or before the Closing.
6.3 COMPLIANCE CERTIFICATE. A duly authorized officer of the Investor
shall deliver to the Company at the Closing a certificate certifying that the
conditions specified in Sections 6.1 and 6.2 have been fulfilled.
6.4 PAYMENT OF PURCHASE PRICE. The Investor shall have tendered delivery
of the purchase price for the Stock specified in Section 1 at the Closing.
6.5 FILING OF CERTIFICATE OF DESIGNATION. The Certificate of Designation
substantially in the form attached hereto as Schedule 3.3 shall have been filed
with the Secretary of State of Delaware.
6.6 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Company, and it shall have received all such counterpart original and certified
or other copies of such documents as it may reasonably request.
7. REGISTRATION RIGHTS.
7.1 CERTAIN DEFINED TERMS.
"FORM S-3" means such form under the Securities Act as in effect
on the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"HOLDER" means any person owning of record Registrable Securities
that have not been sold to the public or any assignee of record of such
Registrable Securities in accordance with Section 7.8 hereof.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.
"REGISTRABLE SECURITIES" means (a) Conversion Shares and (b) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
the Conversion Shares. Notwithstanding the foregoing, Registrable Securities
shall not include any securities (x) sold by a person to the public pursuant to
a registration statement or Rule 144 so that all the transfer restrictions and
restrictive legends with respect to such Common Stock are removed upon the
consummation of such sale or (y) sold
9
<PAGE> 10
in a private transaction in which the transferor's rights under Section 7 of
this Agreement are not assigned.
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of
shares determined by calculating the total number of shares of the Company's
Common Stock that are Registrable Securities and either (a) are then issued and
outstanding or (b) are issuable pursuant to then exercisable options, warrants
or convertible securities.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the
Company in complying with Section 7.2 hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, 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
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company).
"SELLING EXPENSES" shall mean all underwriting discounts and
selling commissions applicable to the sale of any Registrable Securities.
7.2 FORM S-3 REGISTRATION. Subject to the provisions of this Section 7,
if at any time after the period expiring on the earlier of either (i) the
three-year anniversary date of the Effective Date, or (ii) the termination of
the Project Term (as defined in the Agreement), including any early termination
thereof, in case the Company shall receive from any Holder or Holders of
Registrable Securities (the "Initiating Holders") a written request or requests
that the Company effect a registration on Form S-3 (or any successor to Form
S-3) or any similar short-form registration statement and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within
fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 7.2:
(i) if Form S-3 (or any successor or similar form) is not
available for such offering by the Holders;
(ii) if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than five hundred thousand dollars
($500,000);
10
<PAGE> 11
(iii) if the Company shall furnish to the Holders a
certificate signed by the Chairman of the Board of Directors of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such Form S-3 registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than ninety (90) days after receipt of the
request of the Holder or Holders under this Section 7.2; provided, that such
right to delay a request shall be exercised by the Company not more than once in
any twelve (12) month period;
(iv) if the Company has already effected two (2)
registrations on Form S-3 for the Holders pursuant to this Section 7.2; or
(v) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders.
7.3 EXPENSES OF REGISTRATION. Except as specifically provided herein,
all Registration Expenses incurred in connection with any registration under
Section 7.2 herein shall be borne by the Company. All Selling Expenses incurred
in connection with any registrations hereunder, shall be borne by the holders of
the securities so registered pro rata on the basis of the number of shares so
registered. The Company shall not, however, be required to pay for expenses of
any registration proceeding begun pursuant to Section 7.2, the request of which
has been subsequently withdrawn by the Initiating Holders unless (a) the
withdrawal is based upon material adverse information concerning the Company of
which the Initiating Holders were not aware at the time of such request or (b)
the Holders of a majority of Registrable Securities agree to forfeit their right
to one requested registration pursuant to Section 7.2 (in which event such right
shall be forfeited by all Holders). If the Holders are required to pay the
Registration Expenses, as described under this Section 7.3, such expenses shall
be borne by the holders of securities (including Registrable Securities)
requesting such registration in proportion to the number of shares for which
registration was requested.
7.4 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as possible:
(a) Prepare and file with the SEC a Form S-3 with respect to such
Registrable Securities and use its best efforts to cause such Form S-3 to become
effective, and, upon the request of the Holders of a majority of the Registrable
Securities registered thereunder, keep such registration statement effective
until the Holder or Holders have completed the distribution related thereto.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as
11
<PAGE> 12
may be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement for the period set forth in paragraph (a) above.
(c) Furnish to the participating Holders such number of copies of
a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the public sale or other disposition
of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders and
do any and all other acts which may be necessary under such securities or Blue
Sky laws to enable such Holder to consummate the public sale or other
disposition of the Registrable Securities in such jurisdictions; provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business as a foreign corporation or to file a general
consent to service of process in any such states or jurisdictions.
(e) Before filing the registration statement or prospectus or
amendments or supplements thereto, furnish to counsel selected by the
participating Holders copies of such documents proposed to be filed which shall
be subject to the reasonable approval of such counsel.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing and promptly file such amendments and supplements as may be necessary
to that, as thereafter delivered to such Holders of such Registrable Securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing
and use its best efforts to cause each such amendment and supplement to become
effective.
(g) Use its best efforts to cause all such Registrable Securities
to be listed on the securities exchange, if any, on which the Common Stock is
then listed.
7.5 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted
under this Section 7 shall terminate and be of no further force and effect on
the earlier to occur of (x) such time as the Company has already effected two
(2) registrations on Form S-3 for the Holders pursuant to Section 7.4 or (y)
such time as all Registrable Securities may be sold under Rule 144 during any
ninety (90) day period. In addition, a Holder's registration rights shall expire
if (a) such Holder (together with its affiliates, partners and former partners)
holds less than 1% of the Company's outstanding Common Stock (treating all
shares of convertible Preferred Stock on an as-converted basis) and (b) all
Registrable Securities held by and issuable to such Holder (and its
12
<PAGE> 13
affiliates, partners, former partners, members and former members) may be sold
under Rule 144 during any ninety (90) day period.
7.6 FURNISHING INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 7.2 that the
selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities.
7.7 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Section 7.2:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, officers, employees, agents and
directors of each Holder, any underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages, expenses or liabilities (joint or several) to which
they may become subject under the Securities Act, the Exchange Act or other
federal or state law or otherwise, insofar as such losses, claims, damages,
expenses or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation") by the Company: (i) any untrue statement or
allegedly untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto or any document incident to the
registration or qualification of any Registrable Securities, (ii) the omission
or alleged omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading, or (iii)
any violation or alleged violation by the Company of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law in
connection with the offering covered by such registration statement; and the
Company will pay as incurred to each such Holder, partner, officer, director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, expense, liability or action if it is judicially determined that
there was such a violation; provided however, that the indemnity agreement
contained in this Section 7.7(a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, expense, liability or action if such settlement
is effected without the written consent of the Company, which consent shall not
be unreasonably withheld, nor shall the Company be liable in any such case for
any such loss, claim, damage, liability or action to the extent that it arises
out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers and
each person, if any, who controls the Company within the meaning of the
13
<PAGE> 14
Securities Act, any underwriter and any other Holder selling securities under
such registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder, against any losses, claims,
damages, expenses or liabilities (joint or several) to which the Company or any
such director, officer, controlling person, underwriter or other such Holder, or
partner, director, officer or controlling person of such other Holder may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages, expenses or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder under an instrument duly executed by such Holder and stated to be
specifically for use in connection with such registration; and each such Holder
will pay as incurred any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, underwriter or other
Holder, or partner, officer, director or controlling person of such other Holder
in connection with investigating or defending any such loss, claim, damage,
liability or action if it is judicially determined that there was such a
Violation; provided, however, that the indemnity agreement contained in this
Section 7.7(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, expense, liability or action if such settlement is effected
without the written consent of the Holder, which consent shall not be
unreasonably withheld; provided further, that in no event shall any indemnity
under this Section 7.7(b) exceed the proceeds from the offering received by such
Holder.
(c) Promptly after receipt by an indemnified party under this
Section 7.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 7.7, deliver to
the indemnifying party a written notice of the commencement thereof along with
an explanation of such action in summary form and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. In addition, an indemnifying party shall not have
the right to direct the defense of such an action on behalf of an indemnified
party if such indemnified party has reasonably concluded that there may be
defenses available to it that are different from or additional to those
available to the indemnifying party; provided, however, that in such event, the
indemnifying party shall bear the fees and expenses of only one separate counsel
for all indemnified parties. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if materially prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 7.7, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 7.7.
(d) If the indemnification provided for in this Section 7.7 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses,
14
<PAGE> 15
claims, damages, expenses or liabilities referred to herein, the indemnifying
party, in lieu of indemnifying such indemnified party thereunder, shall to the
extent permitted by applicable law contribute to the amount paid or payable by
such indemnified party as a result of such loss, claim, damage, expense or
liability in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the Violation(s) that resulted in such loss, claim, damage,
expense or liability, as well as any other relevant equitable considerations.
The relative fault of the indemnifying party and of the indemnified party shall
be determined by a court of law by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission;
provided, that in no event shall any contribution by a Holder hereunder exceed
the proceeds from the offering received by such Holder. Notwithstanding the
foregoing, no underwriter, if any, shall be required to contribute any amount in
excess of the amount by which the total price at which the securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which the underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligation of any underwriters to contribute pursuant to
this Section 7.7(d) shall be several in proportion to their respective
underwriting commitments and not joint.
(e) To the extent permitted by law, the indemnification provided
under this Section 7.7 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 (within the meaning of the Securities Act) of
such indemnified party and will survive the transfer of any securities.
(f) The obligations of the Company and Holders under this Section
7.7 shall survive completion of any offering of Registrable Securities in a
registration statement and the termination of this Agreement. No indemnifying
party, in the defense of any such claim or litigation, shall, except with the
consent 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 such indemnified party of a release from
all liability in respect to such claim or litigation.
7.8 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 7 may be assigned by
a Holder to a transferee or assignee of Registrable Securities which is a
subsidiary, parent or affiliate of a Holder; provided, however, (i) the
transferor shall, within ten (10) days after such transfer, furnish to the
Company written notice of the name and address of such transferee or assignee
and the securities with respect to which such registration rights are being
assigned and (ii) such transferee shall agree to be subject to all restrictions
set forth in this Agreement.
7.9 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section 7
may be amended and the observance thereof may be waived (either generally or in
a particular instance
15
<PAGE> 16
and either retroactively or prospectively), only with the written consent of the
Company and the Holders of at least sixty-six and two-thirds percent (66-2/3%)
of the Registrable Securities then outstanding; provided that under no
circumstances shall such amendment or waiver reduce the Investor's rights to
indemnification or increase the Investor's indemnification obligations under
this Section 7 without the Investor's written consent. Subject to the foregoing,
any amendment or waiver effected in accordance with this Section 7.9 shall be
binding upon each Holder and the Company. By acceptance of any benefits under
this Section 7, Holders of Registrable Securities hereby agree to be bound by
the provisions hereunder.
7.10 AGREEMENT TO FURNISH INFORMATION. Each Holder agrees to execute and
deliver such other agreements as may be reasonably requested by the Company or
the underwriter which are consistent with the foregoing or which are necessary
to give further effect thereto. In addition, if requested by the Company or the
representative of the underwriters of Common Stock (or other securities) of the
Company, each Holder shall provide, within ten (10) days of such request, such
information as may be reasonably required by the Company or such representative
in connection with the completion of any public offering of the Company's
securities pursuant to a registration statement filed under the Securities Act.
The obligations described in this Section 7.10 shall not apply to a registration
relating solely to employee benefit plans on Form S-1 or Form S-8 or similar
forms that may be promulgated in the future, or a registration relating solely
to a Commission Rule 145 transaction on Form S-4 or similar forms that may be
promulgated in the future.
7.11 RULE 144 REPORTING. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public;
(b) file with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act; and
(c) so long as a Holder owns any Registrable Securities, furnish
to such Holder forthwith upon request: a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 of the
Securities Act, and of the Exchange Act (at any time after it has become subject
to such reporting requirements); a copy of the most recent annual or quarterly
report of the Company; and such other reports and documents as a Holder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing it to sell any such securities without registration.
8. COVENANTS
8.1 DELIVERY OF FINANCIAL STATEMENTS. So long as the Investor (or any
person who acquires the Stock from the Investor) holds the Stock the Company
shall deliver to the Investor
16
<PAGE> 17
(or any person who acquires the Stock from the Investor) copies of its Forms
10-K and 10-Q as filed with the SEC upon request by the Investor.
8.2 AGREEMENT NOT TO SELL. The Investor hereby agrees that the Investor
shall not, without the prior written consent of the Company, directly or
indirectly, sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of any
securities of the Company held by it at any time during the period commencing on
the Effective Date and expiring on the earlier of either: (i) the three-year
anniversary date of the Effective Date or (ii) the termination of the Project
Term (as defined in the Agreement), including any early termination thereof. In
order to enforce the provisions of this Section 8.3, the Company may impose
stop-transfer instructions with respect to the securities held by the Investor
that are subject to the foregoing restriction until the end of such period.
8.3 MARKET STAND-OFF AGREEMENT. The Investor hereby agrees that during
the period specified by the Company and an underwriter of Common Stock or other
securities of the Company following the effective date of a Registration
Statement of the Company filed under the Securities Act (which period shall not
exceed 180 days), to the extent requested by the Company and such underwriter,
it shall not, nor will it permit any of its affiliates (including parents,
subsidiaries or other related entities) to, directly or indirectly sell,
contract to sell (including, without limitation, any short sale) grant any
option to purchase or otherwise transfer or dispose of any securities of the
Company held by any of them during such periods; provided that all directors and
executive officers, any holders of at least 5% of the Company's voting
securities and any other holders of securities participating in such
registration enter into similar agreements. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
securities held by the Investor and its affiliates that are subject to the
foregoing restriction until the end of such period.
8.4 RETIREMENT OF COMMON STOCK. If the Investor has not previously
converted the Stock into Conversion Shares, then in the event of a Change of
Control (as defined in the Certificate of Designation) that becomes effective
prior to February 1, 2001 and prior to the achievement of a Candidate Selection
Approval for a Project Compound (each as defined in the Agreement), the Investor
hereby agrees that if, subsequent to the Change of Control but prior to February
1, 2001, a Candidate Selection Approval is achieved for a Project Compound, the
Investor shall surrender to the Company or its successor entity, and the Company
or its successor entity shall retire, entity [*] of the securities issued to the
Investor in exchange for the Conversion Shares upon such Change of Control, and
the Investor shall have no further right or interest in such surrendered
securities.
9. MISCELLANEOUS
9.1 SUCCESSORS AND ASSIGNS. The terms and conditions of this Purchase
Agreement shall inure to the benefit of and be binding upon the respective
permitted successors and assigns of the parties. Nothing in this Purchase
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective permitted successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Purchase Agreement, except as expressly provided in this Purchase Agreement.
* CONFIDENTIAL TREATMENT REQUESTED
17
<PAGE> 18
9.2 GOVERNING LAW. This Purchase Agreement shall be governed by and
construed under the laws of the State of New York, as applied to contracts
executed and performed entirely within the State of New York, without regard to
conflicts of laws rules.
9.3 COUNTERPARTS. This Purchase Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.4 TITLES AND SUBTITLES. The titles and subtitles used in this Purchase
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Purchase Agreement.
9.5 ASSIGNMENT. This Purchase Agreement may not be assigned or otherwise
transferred, nor, except as expressly provided hereunder, may any right or
obligations hereunder be assigned or transferred, by either party without the
written consent of the other party; provided, however, that either the Company
or the Investor may, without such consent, assign this Purchase Agreement and
its rights and obligations hereunder (a) in connection with the transfer or sale
of all or substantially all of its business or (b) in the event of its merger or
consolidation with another company at any time during the term of this Purchase
Agreement. Any purported assignment in violation of the preceding sentence shall
be void. Any other permitted assignee shall also assume all obligations of its
assignor under this Purchase Agreement.
9.6 NOTICES. Any notice or report required or permitted to be given or
made under this Purchase Agreement by one of the parties hereto to the other
shall be in writing, delivered personally or by facsimile (and promptly
confirmed by personal delivery or courier) or courier, postage prepaid,
addressed to such other party at its address indicated below, or to such other
address as the addressee shall have last furnished in writing to the addresser
and shall be effective upon receipt by the addressee.
THE COMPANY: SIBIA NEUROSCIENCES, INC.
505 Coast Boulevard South, Suite 300
La Jolla, California 92037
Attention: President
Tel: (619) 452-5892
Fax: (619) 459-1609
THE INVESTOR: ELI LILLY AND COMPANY
Lilly Corporate Center
Indianapolis, IN 46285
Attention: General Counsel
Tel: (317) 276-5669
Fax: (317) 277-3977
9.7 FINDER'S FEE. Each party represents that it neither is nor will be
obligated for any finders' fee or commission in connection with this
transaction. The Investor agrees to indemnify
18
<PAGE> 19
and hold harmless the Company from any liability for any commission or
compensation in the nature of a finders' fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Investor
or any of its officers, partners, employees or representatives is responsible.
The Company agrees to indemnify and hold harmless the Investor from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
9.8 EXPENSES. Irrespective of whether the Closing is effected, each
party shall bear its own costs with respect to the negotiation, execution,
delivery and performance of this Purchase Agreement.
9.9 AMENDMENTS AND WAIVERS. Except as specified in Section 7.9, any term
of this Purchase Agreement may be amended and the observance of any term of this
Purchase Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively) only with the written consent of the
Company and the Investor.
9.10 SEVERABILITY. If one or more provisions of this Purchase Agreement
is held to be unenforceable under applicable law, such provision shall be
excluded from this Purchase Agreement and the balance of this Purchase Agreement
shall be interpreted as if such provision were so excluded and shall be
enforceable in accordance with its terms.
9.11 ENTIRE AGREEMENT. This Purchase Agreement constitutes the entire
agreement between the parties hereto with regard to the subject matter hereof.
IN WITNESS WHEREOF, the parties have executed this Purchase Agreement as
of the date first above written.
SIBIA NEUROSCIENCES, INC.
By: /s/ William T. Comer
-------------------------------
Name: William T. Comer
Title: President and CEO
ELI LILLY AND COMPANY
By: /s/ August M. Watanabe
-------------------------------
Name: August M. Watanabe, M.D.
Title: Executive Vice President
19
<PAGE> 20
SCHEDULE 3.3
CERTIFICATE OF DESIGNATION
OF THE
SERIES B CONVERTIBLE NON-VOTING PREFERRED STOCK
(PAR VALUE $.001 PER SHARE)
OF
SIBIA NEUROSCIENCES, INC.
---------------
PURSUANT TO SECTION 151 OF THE
DELAWARE GENERAL CORPORATION LAW
---------------
SIBIA NEUROSCIENCES, INC., a company organized and existing under the
General Corporation Law of the State of Delaware (the "Company"), in accordance
with the provisions of Section 103 thereof, and pursuant to Section 151 thereof,
DOES HEREBY CERTIFY:
That the Amended and Restated Certificate of Incorporation of the
Company, as amended to date, (the "Certificate of Incorporation") authorizes the
creation of up to 5,000,000 shares of the Company's preferred stock, par value
$.001 per share (such preferred stock, together with all other preferred stock
of the Company the creation of which is in the future authorized by the
Certificate of Incorporation, referred to herein as the "Preferred Stock"); and
That pursuant to the authority conferred upon the Board of Directors
(the "Board") by the Certificate of Incorporation of the Company, the Board on
May 20, 1999, approved the creation, issuance and the voting powers of shares of
Series B Convertible Non-Voting Preferred Stock and adopted the following
resolution creating a series of one (1) share of Series B Convertible Non-Voting
Preferred designated as set forth below:
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of the Company in accordance with the
provisions of its Certificate of Incorporation, the Board of Directors
hereby creates a series of Preferred Stock, par value $.001 per share,
of the Company and hereby states the designation and number of shares,
and fixes the relative designations and the powers, preferences and
rights, and the qualifications, limitations and restrictions thereof (in
addition to the provisions set forth in the Certificate of Incorporation
of the Company, which are applicable to the Preferred Stock of all
classes and series), as follows:
SERIES B CONVERTIBLE NON-VOTING PREFERRED STOCK:
SECTION 1. DESIGNATION AND AMOUNT. One (1) share of Preferred Stock, par
value $.001 per share, is designated "Series B Convertible
Non-Voting Preferred Stock" with the designations and the
powers, preferences and rights, and the qualifications,
limitations and restrictions specified herein (the "Series B
Preferred"). Such number of shares may be increased or decreased
by resolution
1
<PAGE> 21
of the Board of Directors; provided, that no decrease shall
reduce the number of shares of Series B Preferred to a number
less than the number of shares then outstanding plus the number
of shares reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon the conversion of any
outstanding securities issued by the Company convertible into
Series B Preferred. Each share of Series B Preferred shall have
a stated value of $5,000,000 per share (the "Stated Value").
SECTION 2. DIVIDENDS AND DISTRIBUTIONS. So long as any shares of Series
B Preferred shall be outstanding, no dividend, whether in cash
or property, shall be paid or declared, nor shall any other
distribution be made, on any Common Stock (other than any
dividend or distribution payable solely in Common Stock of the
Company), unless a dividend is paid with respect to all
outstanding shares of Series B Preferred in an amount per share
(on an as-converted-to-Common-Stock basis) equal to the amount
paid or set aside for each share of Common Stock.
SECTION 3. NO VOTING RIGHTS. Holders of Series B Preferred shall not be
entitled to vote together with holders of Common Stock,
including with respect to the election of directors of the
Company, or as a separate class, except as otherwise provided by
the General Corporation Law of the State of Delaware ("DGCL")
and in this Section 3. To the extent that, under the DGCL, the
vote of the holders of the Series B Preferred, voting separately
as a class or series as applicable, is required to authorize a
given action of the Company, the affirmative vote or consent of
the holders of at least a majority of the shares of the Series B
Preferred represented at a duly held meeting at which a quorum
is present or by written consent of a majority of the shares of
Series B Preferred (except as otherwise may be required under
the DGCL) shall constitute the approval of such action by the
class. Holders of the Series B Preferred shall be entitled to
notice of all stockholder meetings or written consents (and
copies of proxy materials and other information sent to
stockholders) with respect to which they would be entitled as of
right under the DGCL which notice would be provided pursuant to
the Company's Bylaws and the DGCL.
SECTION 4. LIQUIDATION. Upon any liquidation, dissolution or winding-up
of the Company, whether voluntary or involuntary (a
"Liquidation"), the Holders shall be entitled to receive out of
the assets of the Company, whether such assets are capital or
surplus, for each share of Preferred Stock an amount equal to
the Stated Value plus all accrued but unpaid dividends per
share, whether declared or not, before any distribution or
payment shall be made to the holders of any Common Stock, and if
the assets of the Company shall be insufficient to pay in full
such amounts, then the entire assets to be distributed to the
holders of Preferred Stock shall be distributed among the
holders of Preferred Stock ratably in accordance with the
respective amounts that would be payable on such shares if all
amounts payable thereon were paid in full. A sale, conveyance or
disposition of all or substantially all of the assets of the
Company or the effectuation by the Company of a transaction or
series of related transactions in which more than 50% of the
voting power of the Company is disposed of, or a consolidation
or merger of the
2
<PAGE> 22
Company with or into any other company or companies shall not be
treated as a Liquidation, but instead shall be subject to the
provisions of Section 5. The Company shall mail written notice
of any such Liquidation, not less than 45 days prior to the
payment date stated therein, to each record holder of Preferred
Stock.
SECTION 5. CONVERSION.
(a) ELECTION TO CONVERT. Subject to the other provisions of
this Certificate of Designation, at any time prior to
February 21, 2001, the outstanding Series B Preferred
shall be convertible, without payment of any additional
consideration by the holder thereof and at the option of
such holder, into such number of fully paid and
nonassessable shares of Common Stock as is determined by
dividing two million dollars ($2,000,000) by the average
of the closing prices per share of the Common Stock on
the Nasdaq National Market (or any other national
securities exchange on which the Common Stock is then
traded) for the thirty (30) consecutive trading days
ending on the trading date immediately preceding the
date of such conversion; provided, however, that in no
event will the total number of shares of Common Stock
beneficially owned by the holder of the Series B
Preferred upon conversion of the Series B Preferred
exceed a number of shares of Common Stock equal to 15%
of the Common Stock then outstanding.
(b) MECHANICS OF CONVERSION. Before any holder of Series B
Preferred shall be entitled to convert the same into
shares of Common Stock pursuant to Section 5(a) hereof,
such holder shall surrender the certificate or
certificates thereof, duly endorsed, at the office of
the Company or of any transfer agent for such stock, and
shall give written notice to the Company at such office
that such holder elects to convert the same and shall
state therein the name or names in which such holder
wishes the certificate or certificates for shares of
Common Stock to be issued. The Company shall, as soon as
practicable thereafter, issue and deliver at such office
to such holder of Series B Preferred or its nominee or
nominees, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be
entitled as aforesaid, together with cash in lieu of any
fractional shares. Such conversion shall be deemed to
have been made immediately prior to the close of
business on the date of surrender of the shares of
Series B Preferred to be converted. 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 on such date.
(c) AUTOMATIC CONVERSION. Subject to the other provisions of
this Certificate of Designation, the outstanding Series
B Preferred, unless converted earlier pursuant to
Section 5(a) above, shall automatically convert on the
date (the "Automatic Conversion Date") that is the
earlier of (i) February 21, 2001, or (ii) the date of
the closing of a Change of Control
3
<PAGE> 23
(as defined below), and, in the event of such Change of
Control, such conversion shall be contingent upon the
consummation of such Change of Control and occur
simultaneously with the closing of the Change of Control
(and in any event by such time as may be necessary to
permit the holder of the Series B Preferred to receive
any consideration to be received by other holders of
Common Stock in connection with such Change of Control),
in the following manner:
(1) In the event that a Candidate Selection Approval
is achieved for a Project Compound under the
Collaboration Agreement dated May 25, 1999 (the
"Lilly Agreement") between Eli Lilly and Company
("Lilly") and the Company prior to the Automatic
Conversion Date, the Series B Preferred shall
automatically, and without requirement of
further action by the Company or the holder of
the Series B Preferred, be converted into such
number of fully paid and nonassessable shares of
Common Stock as is determined by dividing two
million dollars ($2,000,000) by the average of
the closing prices per share of the Common Stock
on the Nasdaq National Market (or any other
national securities exchange on which the Common
Stock is then traded) for the thirty (30)
consecutive trading days ending on the trading
date immediately preceding the date of such
conversion; provided, however, that in no event
will the total number of shares of Common Stock
beneficially owned by the holder of the Series B
Preferred upon conversion of the Series B
Preferred exceed a number of shares of Common
Stock equal to 15% of the Common Stock then
outstanding.
(2) In the event that a Candidate Selection Approval
is not achieved for a Project Compound under the
Lilly Agreement prior to the Automatic
Conversion Date, the Series B Preferred shall
automatically, and without requirement of
further action by the Company or the holder of
the Series B Preferred, be converted into such
number of fully paid and nonassessable shares of
Common Stock as is determined by dividing five
million dollars ($5,000,000) by the average of
the closing prices per share of the Common Stock
on the Nasdaq National Market (or any other
national securities exchange on which the Common
Stock is then traded) for the thirty (30)
consecutive trading days ending on the trading
date immediately preceding the date of such
conversion; provided, however, that in no event
will the total number of shares of Common Stock
beneficially owned by the holder of the Series B
Preferred upon conversion of the Series B
Preferred exceed a number of shares of Common
Stock equal to 15% of the Common Stock then
outstanding.
4
<PAGE> 24
For purposes of this Certificate of Designation, "Change of Control"
shall mean (I) a reorganization, merger, consolidation or other transaction or
series of related transactions in which immediately after any such transaction
(by virtue of securities issued or sold in such transaction) the former
stockholders of the Company do not hold at least fifty percent (50%) of the
voting power of the surviving or acquiring entity, (II) an acquisition of all
outstanding capital stock of the Company or (III) a sale or other transfer of
all or substantially all of the Company's assets.
(d) ADJUSTMENTS FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. If
the Company at any time or from time to time after the
date that the first share of Series B Preferred is
issued (the "Original Issue Date") makes, or fixes a
record date for the determination of holders of Common
Stock entitled to receive, a dividend or other
distribution payable in securities of the Company other
than shares of Common Stock, in each such event
provision shall be made so that the holders of the
Series B Preferred shall receive upon conversion
thereof, in addition to the number of shares of Common
Stock receivable thereupon, the amount of other
securities of the Company which they would have received
had their Series B Preferred been converted into Common
Stock on the date of such event and had they thereafter,
during the period from the date of such event to and
including the conversion date, retained such securities
receivable by them as aforesaid during such period,
subject to all other adjustments called for during such
period under this Section 4 with respect to the rights
of the holders of the Series B Preferred or with respect
to such other securities by their terms.
(e) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. If at any time or from time to time after
the Original Issue Date, the Common Stock issuable upon
the conversion of the Series B Preferred is changed into
the same or a different number of shares of any class or
classes of stock, whether by recapitalization,
reclassification or otherwise (other than a subdivision
or combination of shares or stock dividend or a
reorganization, merger, consolidation or sale of assets
provided for elsewhere in this Section 5), in any such
event each holder of Series B Preferred shall have the
right thereafter to convert such stock into the kind and
amount of stock and other securities and property
receivable upon such recapitalization, reclassification
or other change by holders of the maximum number of
shares of Common Stock into which such shares of Series
B Preferred could have been converted immediately prior
to such recapitalization, reclassification or change,
all subject to further adjustment as provided herein or
with respect to such other securities or property by the
terms thereof.
(f) REORGANIZATIONS. If at any time or from time to time
after the Original Issue Date, there is a capital
reorganization of the Common Stock (other than a
subdivision or combination of shares or stock dividend
or a reorganization, merger, consolidation or sale of
assets provided for
5
<PAGE> 25
elsewhere in this Section 5), as a part of such capital
reorganization, provision shall be made so that the
holders of the Series B Preferred shall thereafter be
entitled to receive upon conversion of the Series B
Preferred the number of shares of stock or other
securities or property of the Company to which a holder
of the number of shares of Common Stock deliverable upon
conversion would have been entitled on such capital
reorganization, subject to adjustment in respect of such
stock or securities by the terms thereof. In any such
case, appropriate adjustment shall be made in the
application of the provisions of this Section 5 with
respect to the rights of the holders of Series B
Preferred after the capital reorganization to the end
that the provisions of this Section 5 shall be
applicable after that event and be as nearly equivalent
as practicable.
(g) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of the number of shares
of Common Stock issuable upon conversion of a share of
Series B Preferred pursuant to this Section 5, 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 Series
B Preferred a certificate setting forth such adjustment
or 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 B Preferred, furnish or cause to be
furnished to such holder a like certificate prepared by
the Company setting forth (i) such adjustments and
readjustments and (ii) 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 the
Series B Preferred.
(h) NOTICES OF RECORD DATE. In the event of any taking by
the Company of a record of the holders of any class of
securities for the purpose of determining the holders
thereof who are entitled to receive any dividend (other
than a cash dividend) or other distribution, any
security or right convertible into or entitling the
holder thereof to receive additional shares of Common
Stock, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any
other right, the Company shall mail to each holder of
Series B Preferred at least 10 days prior to the date
specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such
dividend, distribution, security or right, and the
amount and character of such dividend, distribution,
security or right.
(i) ISSUE TAXES. The holders of Series B Preferred shall pay
any and all issue, transfer and other taxes that may be
payable in respect of any issue or delivery of shares of
Common Stock on conversion of shares of Series B
Preferred pursuant hereto.
6
<PAGE> 26
(j) RESERVATION OF COMMON 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 B Preferred, such
number of its shares of Common Stock as shall from time
to time be sufficient to effect the conversion of all
outstanding shares of the Series B Preferred; and if at
any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of the Series
B Preferred, the Company will take such corporate action
as 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 purpose, including, without limitation,
engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to the
Certificate of Incorporation. All shares of Common Stock
which are issuable upon such conversion shall, when
issued, be duly and legally issued, fully paid and
nonassessable and free of all taxes, liens and charges.
(k) FRACTIONAL SHARES. No fractional share shall be issued
upon the conversion of any share or shares of Series B
Preferred. All shares of Common Stock (including
fractions thereof) issuable upon conversion of more than
one share of Series B Preferred by a holder thereof
shall be aggregated for purposes of determining whether
the conversion would result in the issuance of any
fractional share. If, after the aforementioned
aggregation, the conversion would result in the issuance
of a fraction of a share of Common Stock, the Company
shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash
equal to the fair market value of such fraction on the
date of conversion (as determined in good faith by the
Board).
(l) NOTICES. Any notice required by the provisions of this
Section 5 shall be in writing and shall be deemed
effectively given: (i) upon personal delivery to the
party to be notified, (ii) when sent by confirmed telex
or facsimile if sent during normal business hours of the
recipient; if not, then on the next business day, (iii)
five days after having been sent by registered or
certified mail, return receipt requested, postage
prepaid, or (iv) one day after deposit with a nationally
recognized overnight courier, specifying next day
delivery, with written verification of receipt. All
notices shall be addressed to each holder of record at
the address of such holder appearing on the books of the
Company.
SECTION 6. REACQUIRED SHARES. No share or shares of Series B Preferred
acquired by the Company by reason of purchase, conversion or
otherwise shall be reissued. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred
Stock subject to the conditions and restrictions on issuance set
forth herein, in the
7
<PAGE> 27
Certificate of Incorporation, or in any other Certificate of
Designation creating a series of Preferred Stock or any similar
stock or as otherwise required by law.
SECTION 7. RESIDUAL RIGHTS. All rights accruing to the outstanding
shares of the Company not expressly provided for to the contrary
herein shall be vested in the Common Stock.
IN WITNESS WHEREOF, SIBIA Neurosciences, Inc. has caused this
Certificate to be signed by its President and Chief Executive Officer and by its
Secretary on this __ day of May, 1999.
SIBIA NEUROSCIENCES, INC.
By:
----------------------------------------
William T. Comer
President, Chief Executive Officer
and Director
By:
----------------------------------------
Frederick T. Muto
Secretary
8
<PAGE> 28
SCHEDULE 5.5
FORM OF OPINION OF COMPANY COUNSEL
June ____, 1999
Eli Lilly and Company
Lilly Corporate Center
Indianapolis, Indiana 46285
Ladies and Gentlemen:
We have acted as counsel for SIBIA Neurosciences, Inc., a Delaware corporation
(the "Company"), in connection with the issuance and sale of shares of the
Company's capital stock (the "Stock") to Eli Lilly and Company, an Indiana
corporation ("Lilly"), pursuant to the Stock Purchase Agreement, dated as of May
25, 1999, between the Company and Lilly (the "Agreement"). We are rendering this
opinion pursuant to Section 5.5 of the Agreement. Except as otherwise defined
herein, capitalized terms used but not defined herein have the respective
meanings given to them in the Agreement.
In connection with this opinion, we have examined and are familiar with the
Agreement and have relied upon the representations and warranties as to factual
matters contained in and made pursuant to the Agreement and originals or copies
certified to our satisfaction, of such other records, documents, certificates,
opinions, memoranda and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below. Where we render
an opinion "to the best of our knowledge" or concerning an item "known to us" or
our opinion otherwise refers to our knowledge, it is based solely upon (i) an
inquiry of attorneys within this firm who perform legal services for the
Company, (ii) receipt of a certificate executed by an officer of the Company
covering such matters, and (iii) such other investigation, if any, that we
specifically set forth herein.
In rendering this opinion, we have assumed: the genuineness and authenticity of
all signatures on original documents; the authenticity of all documents
submitted to us as originals; the conformity to originals of all documents
submitted to us as copies; the accuracy, completeness and authenticity of
certificates of public officials; and the due authorization, execution and
delivery of all documents (except the due authorization, execution and delivery
by the Company of the Agreement), where authorization, execution and delivery
are prerequisites to the effectiveness of such documents. We have also assumed:
that all individuals executing and delivering documents had the legal capacity
to so execute and deliver; that you have received all documents you were to
receive under the Agreement; that the Agreement is an obligation binding upon
you; that you have filed any required California franchise or income tax returns
and have paid any required California franchise or income taxes; and that there
are no extrinsic agreements or understandings among the parties to the Agreement
that would modify or interpret the terms of the Agreement or the respective
rights or obligations of the parties thereunder.
1.
<PAGE> 29
Our opinion is expressed only with respect to the federal laws of the United
States of America, the laws of the State of California and the General
Corporation Law of the State of Delaware. We note that the parties to the
Agreement have designated the laws of the State of New York as the laws
governing the Agreement. Our opinion in paragraph 3 below as to the validity,
binding effect and enforceability of the Agreement is premised upon the result
that would be obtained if a California court were to apply the internal laws of
the State of California (notwithstanding the designation of the laws of the
State of New York) to the interpretation of the Agreement. We express no opinion
as to whether the laws of any particular jurisdiction apply, and no opinion to
the extent that the laws of any jurisdiction other than those identified above
are applicable to the subject matter hereof. We are not rendering any opinion as
to compliance with any antifraud law, rule or regulation relating to securities,
or to the sale of issuance thereof.
With regard to our opinion in paragraph 4 below, we have examined and relied
upon a certificate executed by the Company's transfer agent as to the number of
shares of Common Stock that are issued and outstanding as reflected in the
transfer agent's records.
On the basis of the foregoing, in reliance thereon and with the foregoing
qualifications, we are of the opinion that:
1. The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of Delaware.
2. The Company has the requisite corporate power to own its property and
assets and to conduct its business as it is currently being conducted, is
qualified as a foreign corporation to do business in California and, to the best
of our knowledge, is not required to qualify as a foreign corporation to do
business in any other jurisdiction in the United States.
3. All corporate action on the part of the Company necessary for the
authorization, execution and delivery of the Agreement has been taken. The
Agreement has been duly and validly authorized, executed and delivered by the
Company and constitutes a valid and binding agreement of the Company enforceable
against the Company in accordance with its terms, except as rights to indemnity
under Section 7.7 of the Agreement may be limited by applicable laws and except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting
creditors' rights generally, and subject to general equity principles and to
limitations on availability of equitable relief, including specific performance.
4. The authorized capital stock of the Company consists of 25,000,000
shares of Common Stock, par value $.001, and 5,000,000 shares of Preferred
Stock, par value $.001, of which 150,000 shares have been designated Series A
Junior Participating Preferred Stock and one share has been designated Series B
Convertible Non-Voting Preferred Stock. As of June ___, 1999, there were
__________ shares of Common Stock and no shares of Series A Preferred or Series
B Preferred issued and outstanding.
5. The Stock has been duly authorized and, upon issuance and delivery
against payment therefor in accordance with the terms of the Agreement, will be
validly issued, outstanding, fully paid and nonassessable and not issued in
violation of any preemptive right set
2.
<PAGE> 30
forth in the Company's Certificate of Incorporation, as amended, or subject to
any lien, claim, encumbrance or other restriction on transfer (other than those
arising under federal and state securities laws or the terms of the Agreement).
The Conversion Shares have been duly authorized and, upon issuance and delivery
upon conversion of the Stock in accordance with the terms thereof, will be
validly issued, outstanding, fully paid and nonassessable and not issued in
violation of any preemptive right set forth in the Company's Certificate of
Incorporation, as amended, or subject to any lien, claim, encumbrance or other
restriction on transfer (other than those arising under federal and state
securities laws or the terms of the Agreement). The certificate representing the
Stock is in due and proper form under the General Corporation Law of the State
of Delaware and, as of the Closing, will have been duly and validly executed by
the officers of the Company named thereon.
6. The execution and delivery of the Agreement by the Company and the
issuance of the Stock and the Conversion Shares pursuant to the Agreement do not
violate any provision of the Company's Certificate of Incorporation, as amended,
or Bylaws or, to our knowledge, (a) result in any material default under the
provisions of any agreement to which the Company is a party or by which it is
bound and which is filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998 or (b) violate any order, writ,
judgment, injunction, decree, determination or award which has been entered
against the Company and of which we are aware or any governmental statute, rule
or regulation applicable to the Company.
7. All consents, approvals, authorizations, or orders of, and filings,
registrations and qualifications with any regulatory authority or governmental
body in the United States required for the sale and issuance by the Company of
the Stock have been made or obtained, except for the filing of a Form D by the
Company pursuant to Securities and Exchange Commission Regulation D.
8. The offer and sale of the Stock is, and (assuming conversion of the
Stock at the Closing by the Investor) the issuance of the Conversion Shares will
be, exempt from the registration requirements of the Securities Act of 1933, as
amended, subject to the timely filing of a Form D pursuant to Securities and
Exchange Commission Regulation D.
This opinion is intended solely for your benefit and is not to be made available
to or be relied upon by any other person, firm, or entity without our prior
written consent.
3.
<PAGE> 1
EXHIBIT 10.42
* TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 240.24b-2
SIBIA NEUROSCIENCES, INC.
AND
ELI LILLY AND COMPANY
COLLABORATION AGREEMENT
MAY 25, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 Definitions.................................................................. 1
1. Definitions.................................................................. 1
1.1 "Adverse Event"....................................................... 1
1.2 "Affiliate"........................................................... 1
1.3 "Analog".............................................................. 2
1.4 "Calendar Quarter".................................................... 2
1.5 "Calendar Year"....................................................... 2
1.6 "Candidate Selection Approval" or "CSA"............................... 2
1.7 "cGCP"................................................................ 2
1.8 "cGLP"................................................................ 2
1.9 "cGMP"................................................................ 2
1.10 "Clinical Trials"..................................................... 2
1.11 "Compound"............................................................ 2
1.12 "Compound 1508Y"...................................................... 3
1.13 "Compound 1508Y/1553A Option"......................................... 3
1.14 "Compound 1553A"...................................................... 3
1.15 "Compulsory License".................................................. 3
1.16 "Control"............................................................. 3
1.17 "FDA"................................................................. 3
1.18 "FTE Rate"............................................................ 3
1.19 "Information"......................................................... 3
1.20 "Initial Project Term"................................................ 4
1.21 "Joint Development Committee" or "JDC"................................ 4
1.22 "Major European Countries"............................................ 4
1.23 "Major Market"........................................................ 4
1.24 "Meiji"............................................................... 4
1.25 "Meiji Backup Option"................................................. 4
1.26 "Meiji Compound 1508Y Rights"......................................... 4
1.27 "Meiji Field"......................................................... 4
1.28 "Meiji/SIBIA Contract"................................................ 4
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1.29 "Meiji Territory"..................................................... 4
1.30 "NDA"................................................................. 4
1.31 "Net Sales"........................................................... 4
1.32 "NonProduct Project Rights"........................................... 6
1.33 "Patent".............................................................. 6
1.34 "Patent Application".................................................. 6
1.35 "Phase II Clinical Trials"............................................ 6
1.36 "Phase III Clinical Trials"........................................... 6
1.37 "Post-Project Compounds".............................................. 6
1.38 "Post-Project Identification Period".................................. 7
1.39 "Post-Project Patents"................................................ 7
1.40 "Post-Project Products"............................................... 7
1.41 "Post-Project Product Royalty Period"................................. 7
1.42 "Pre-Existing Compound"............................................... 7
1.43 "Product(s)".......................................................... 8
1.44 "Product Decision".................................................... 8
1.45 "Product Launch"...................................................... 8
1.46 "Product Project Rights".............................................. 8
1.47 "Product Royalty Period".............................................. 8
1.48 "Project"............................................................. 8
1.49 "Project Compound".................................................... 8
1.50 "Project Know-How".................................................... 9
1.51 "Project Patent Rights"............................................... 9
1.52 "Project Rights"...................................................... 9
1.53 "Project Term"........................................................ 9
1.54 "Regulatory Approval"................................................. 9
1.55 "Serious Adverse Event"............................................... 10
1.56 "SIBIA Change of Control"............................................. 10
1.57 "SIBIA FTE"........................................................... 10
1.58 "SIBIA Know-How"...................................................... 10
</TABLE>
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1.59 "SIBIA [*] No Partnering Period"...................................... 10
1.60 "SIBIA Patent Rights"................................................. 11
1.61 "SIBIA Rights"........................................................ 11
1.62 "SIBIA Screening Machine"............................................. 11
1.63 "Stock Purchase Agreement"............................................ 11
1.64 "Territory"........................................................... 11
1.65 "Third Party"......................................................... 11
1.66 "Toxicology Studies".................................................. 11
1.67 "Valid Claim"......................................................... 11
1.68 "Work Plan"........................................................... 11
ARTICLE 2 PROJECT; FUNDING.......................................................... 12
2.1 Project; Project Management; Work Plan................................ 12
2.2 Project Resources and Costs........................................... 14
2.3 Subcontracting Project Services Permitted............................. 15
2.4 Transfer, Possession and Ownership of Project Rights.................. 16
2.5 Early Termination of Project By Lilly................................. 16
2.6 Dissolution of the JDC................................................ 18
ARTICLE 3 PRODUCT, PROJECT COMPOUND DEVELOPMENT..................................... 18
3.1 Development of Project Compounds and/or Products...................... 18
3.2 Regulatory Filings.................................................... 18
3.3 Development Diligence................................................. 19
3.4 Quality Assurance Audits.............................................. 19
3.5 Adverse Event......................................................... 19
3.6 Clinical Trial Information............................................ 20
ARTICLE 4 LICENSE GRANT............................................................. 20
4.1 License to Lilly in the Course of and During the Project Term......... 20
4.2 License to Lilly Upon the Expiration/Termination of the
Project............................................................... 21
4.3 Sublicensing.......................................................... 22
4.4 Assistance............................................................ 22
4.5 No Prior License...................................................... 23
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
iii.
<PAGE> 5
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
4.6 Right to Intellectual Property........................................ 23
ARTICLE 5 COMMERCIALIZATION RIGHTS.................................................. 23
5.1 Marketing and Commercialization....................................... 23
5.2 Royalties -- Products/Post-Project Products........................... 23
(a) Product - Royalty Tiers........................................ 23
5.3 Up-Front Equity Purchase.............................................. 28
5.4 Milestones............................................................ 28
ARTICLE 6 LILLY OPTION TO COMPOUND 1508Y AND COMPOUND 1553A......................... 33
6.1 Compound Option 1508Y/1553A........................................... 33
ARTICLE 7 MANUFACTURE OF PROJECT COMPOUND AND/OR PRODUCT............................ 36
7.1 Manufacturer of Project Compound and/or Product....................... 36
7.2 Transfer of Possession of SIBIA Know-How and Project Know-How......... 36
ARTICLE 8 RECORD-KEEPING AND AUDITS................................................. 36
8.1 Records Retention..................................................... 36
8.2 Audit Request......................................................... 37
8.3 Survival.............................................................. 37
ARTICLE 9 INVENTIONS/KNOW-HOW....................................................... 37
9.1 Ownership of Project Rights........................................... 37
9.2 Project Patent Filings................................................ 39
9.3 SIBIA's Failure to Maintain SIBIA Patent Rights....................... 40
9.4 Public Disclosure..................................................... 40
9.5 Notice of Certification............................................... 40
9.6 Patent Term Extensions................................................ 40
ARTICLE 10 REPRESENTATIONS AND WARRANTIES............................................ 41
10.1 SIBIA Representations................................................. 41
ARTICLE 11 INFRINGEMENT OF THIRD PARTY RIGHTS........................................ 43
11.1 Notice................................................................ 43
11.2 Litigation Not Involving SIBIA Patent Rights.......................... 43
</TABLE>
iv.
<PAGE> 6
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
11.3 Litigation Involving SIBIA Patent Rights.............................. 44
ARTICLE 12 INFRINGEMENT BY THIRD PARTIES............................................. 44
12.1 Notice................................................................ 44
12.2 Prosecution of Actions Involving Project Compound and/or
Product............................................................... 44
12.3 Infringement of Project Rights not Involving the Project
Compound or Products.................................................. 45
12.4 Infringement of SIBIA Rights not Involving the Project
Compound or Products.................................................. 46
ARTICLE 13 MUTUAL INDEMNIFICATION.................................................... 46
13.1 Responsibility and Control............................................ 46
13.2 Indemnification Claims................................................ 46
13.3 Indemnification Procedures............................................ 46
ARTICLE 14 CONFIDENTIALITY........................................................... 47
14.1 Confidentiality; Exceptions........................................... 47
14.2 Survival.............................................................. 48
ARTICLE 15 PUBLICITY................................................................. 48
15.1 Disclosure of Agreement............................................... 48
15.2 Terminations.......................................................... 49
15.3 Publications/Manuscripts (Information)................................ 49
ARTICLE 16 TERM AND TERMINATION...................................................... 49
16.1 Term.................................................................. 49
16.2 Lilly Voluntary Termination........................................... 49
16.3 Termination for Default............................................... 49
16.4 Surviving Rights/Obligations.......................................... 50
ARTICLE 17 SIBIA EXCLUSIVITY......................................................... 51
17.1 SIBIA Exclusivity Obligation.......................................... 51
17.2 Lilly's First Right of Negotiation for Compounds Discovered
by SIBIA During the SIBIA [*] No Partnering Period.................... 51
ARTICLE 18 MISCELLANEOUS............................................................. 52
18.1 Agency................................................................ 52
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
v.
<PAGE> 7
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
18.2 Assignment............................................................ 52
18.3 Further Actions....................................................... 52
18.4 Force Majeure......................................................... 52
18.5 Notices............................................................... 53
18.6 Amendment............................................................. 53
18.7 Waiver................................................................ 53
18.8 Counterparts.......................................................... 53
18.9 Descriptive Headings.................................................. 53
18.10 Governing Law......................................................... 53
18.11 Severability.......................................................... 53
18.12 Entire Agreement of the Parties....................................... 54
18.13 Jointly Prepared...................................................... 54
18.14 Dispute Resolution.................................................... 54
18.15 Non-Solicitation of Employees......................................... 54
18.16 Limitation of Liability............................................... 54
</TABLE>
vi.
<PAGE> 8
*TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 240.24b-2
COLLABORATION AGREEMENT
This Agreement is made and entered into as of the 25th day of May 1999
(the "Effective Date") by and between SIBIA NEUROSCIENCES, INC., a Delaware
corporation, having its principal place of business at 505 Coast Boulevard
South, La Jolla, California 92037-4641 ("SIBIA"), and ELI LILLY AND COMPANY, an
Indiana corporation, having its principal place of business at Lilly Corporate
Center, Indianapolis, Indiana 46285 ("Lilly"). SIBIA and Lilly are sometimes
referred to herein individually as a "Party" and collectively as the "Parties",
and references to "SIBIA" and "Lilly" shall include their respective Affiliates.
RECITALS
WHEREAS, Lilly is engaged in discovering, developing, manufacturing and
marketing pharmaceutical products.
WHEREAS, SIBIA is engaged in research and development involving
Compound(s), and based on such research and development, SIBIA and its
scientists employed thereunder possess unique skills and expertise with respect
to Compound(s) which Lilly views as critical to the timely research and
development of potential drug candidates derived from Compound(s) under this
Agreement.
WHEREAS, Lilly and SIBIA desire to collaborate in the research and
development of Project Compound(s) and Product(s) derived therefrom and to
provide for the grant by SIBIA to Lilly of certain licenses as described in this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and premises contained in this Agreement, the Parties hereto agree as
follows:
1.
<PAGE> 9
ARTICLE 1
DEFINITIONS
1. DEFINITIONS as used herein; the following terms shall have the
following meanings:
1.1 "ADVERSE EVENT" means any untoward medical occurrence in a
patient or clinical investigation subject administered a pharmaceutical product,
which does not necessarily have to have a causal relationship with this
treatment.
1.2 "AFFILIATE" of a Party hereto means any company or entity
controlled by, controlling, or under common control with a Party hereto and
shall include without limitation any company fifty percent (50%) or more of
whose voting stock (or other comparable ownership interest for an entity other
than a corporation) is owned or controlled, directly or indirectly, by a Party
or demonstrates controlling management presence (i.e., possesses the power to
direct or cause the direction of the management and policies of such entity),
and any company which owns or controls, directly or indirectly, fifty percent
(50%) or more of the voting stock (or other comparable ownership interest for an
entity other than a corporation) of a Party or demonstrates controlling
management presence (i.e., possesses the power to direct or cause the direction
of the management and policies of such entity).
1.3 "ANALOG" means a compound, which is structurally closely
related to a Compound in that such compound has conserved an active
substructure, or any one of the active substructures of a Compound.
1.4 "CALENDAR QUARTER" means a three-month period ending on March
31, June 30, September 30, or December 31.
1.5 "CALENDAR YEAR" means the twelve-month period ending on
December 31.
1.6 "CANDIDATE SELECTION APPROVAL" OR "CSA" means the point in
Lilly's internal development program when a potential drug candidate is approved
for first human dose preparation by Lilly's Candidate Selection Approval Group,
or its successor. Irrespective of the decision of the Candidate Selection
Approval Group, or its successor, CSA will be deemed to have been achieved
should Lilly approve a clinical protocol for first human dose safety studies
with respect to a particular potential drug candidate or initiate first human
dose trials.
1.7 "cGCP" means the then current Good Clinical Practice
Standards promulgated or endorsed by the FDA (or in the case of foreign
jurisdictions, comparable regulatory standards), including those regulations or
guidelines expressed or implied in the regulatory filings made with respect to
the Product (or Post-Project Product, as the case may be) with the FDA or
foreign regulatory agents.
1.8 "cGLP" means the then current Good Laboratory Practices
promulgated or endorsed by the FDA (or in the case of foreign jurisdictions,
comparable regulatory
2.
<PAGE> 10
standards), including those procedures expressed or implied in the regulatory
filings made with respect to the Product (or Post-Project Product, as the case
may be) with the FDA or foreign regulatory agents.
1.9 "cGMP" means current Good Manufacturing Practices as defined
in the U.S. regulations 21 CFR Section 210 et seq., and the EEC Guide to Good
Manufacturing Practices for Medicinal Products (Vol. IV Rules Governing
Medicinal Products in the European Community 1992).
1.10 "CLINICAL TRIALS" means clinical studies conducted in
accordance with cGCPs in humans.
1.11 "COMPOUND" means any compound having activity [*] at one or
more nicotinic acetylcholine receptor subtypes. For avoidance of any doubt, the
term Compound includes, without limitation, Project Compounds, Post-Project
Compounds and Pre-Existing Compounds.
1.12 "COMPOUND 1508Y" means the Compound identified by SIBIA
internally as SIB-1508Y which is known chemically as [*].
1.13 "COMPOUND 1508Y/1553A OPTION" shall have the meaning as set
forth in Section 6.1 of this Agreement.
1.14 "COMPOUND 1553A" means the Compound identified by SIBIA
internally as SIB-1553A, which is known chemically as [*].
1.15 "COMPULSORY LICENSE" means: (i) in the case of Project
Compound and Product derived therefrom, a compulsory license under the SIBIA
Rights, and/or Project Rights obtained by a Third Party through the order,
decree, or grant of a competent governmental authority, authorizing such Third
Party to manufacture, use, sell, offer for sale or import Project Compound
and/or Product derived therefrom in a particular country; and (ii) in the case
of Post-Project Compound and/or Post-Project Product derived therefrom, a
compulsory license under the Post-Project Patents obtained by a Third Party
through the order, decree, or grant of a competent government authority,
authorizing such Third Party to manufacture, use, sell, offer for sale or import
Post-Project Compound and/or Post-Project Product derived therefrom in a
particular country.
1.16 "CONTROL" means the ability to grant a license or sublicense
without violating the terms of any agreement or other arrangement with any Third
Party.
1.17 "FDA" means the United States Food and Drug Administration
or any successor agency having the administrative authority to regulate the
approval for marketing of new human pharmaceutical or biological therapeutic
products in the United States.
1.18 "FTE RATE" means [*] Dollars per SIBIA FTE ($[*]/SIBIA FTE)
for the period ending December 31, 1999. The FTE Rate for any Calendar Year
thereafter shall be adjusted annually by Lilly in accordance with the annual
percentage change in "Salary Budget" in the Biotech Employee Development
Coalition Compensation and Benefits Survey (for the
* CONFIDENTIAL TREATMENT REQUESTED
3.
<PAGE> 11
previous Calendar Year, published each Calendar Year in September), or if no
longer available, the Employment Cost Index for Private Industry, West Region,
annual percentage change in Salary and Benefit Cost.
1.19 "INFORMATION" means (a) techniques and data related to,
involving and/or used in connection with discovery, research, development,
manufacture and/or commercialization of Compound, Project Compound and/or
product derived therefrom including, without limitation, ideas, inventions
(including patentable inventions), practices, methods, knowledge, know-how,
trade secrets, skill, experience, documents, apparatus, clinical and regulatory
strategies, test data, including pharmacological, toxicological and clinical
test data, analytical and quality control data, manufacturing, patent and legal
data or descriptions and (b) devices, chemical formulations, compositions of
matter, product samples, assays, cell lines, vectors, screening techniques,
database structures and data analysis methods related to, involving and/or used
in connection with the discovery, research, development, manufacture and/or
commercialization of Compound, Project Compound and any product derived
therefrom.
1.20 "INITIAL PROJECT TERM" shall have the meaning as set forth
in Section 2.1(a) of this Agreement.
1.21 "JOINT DEVELOPMENT COMMITTEE" OR "JDC" shall have the
meaning as set forth in Section 2.1(c) of this Agreement.
1.22 "MAJOR EUROPEAN COUNTRIES" means France, Germany, Italy,
Spain and United Kingdom.
1.23 "MAJOR MARKET" means each of the following: (1) Major
European Countries; (2) Japan and; (3) the United States. "Major Markets" means
all of the aforementioned.
1.24 "MEIJI" means Meiji Seika Kaisha, Ltd., or successors
thereto.
1.25 "MEIJI BACKUP OPTION" means an option that Meiji has under
limited circumstances described in the Meiji/SIBIA Contract whereby Meiji may
obtain certain rights solely in the Meiji Field for the Meiji Territory for a
particular Compound that SIBIA owns or has rights to sublicense to Meiji.
1.26 "MEIJI COMPOUND 1508Y RIGHTS" shall have the meaning as set
forth in Section 6.1(b) of this Agreement.
1.27 "MEIJI FIELD" means the pharmaceutical use in humans for the
treatment of Parkinson's disease and any other neurodegenerative, neurological
or behavioral disorders in humans.
1.28 "MEIJI/SIBIA CONTRACT" means the certain development and
license agreement entered into by and between SIBIA and Meiji, dated February
28, 1997, specifically excluding any amendments thereto.
4.
<PAGE> 12
1.29 "MEIJI TERRITORY" shall mean Japan, Brunei, Burma, Cambodia,
China, Indonesia, Malaysia, Laos, Korea, Singapore, Taiwan, Thailand, and
Vietnam.
1.30 "NDA" means the single application or set of applications
(and any other required registrations, notifications or forms) for Products (or
Post-Project Products, as the case may be) and/or pre-market approval to make
and sell commercially Product (or Post-Project Products, as the case may be),
filed by Lilly with the FDA.
1.31 "NET SALES" shall mean, with respect to a Product (or
Post-Project Product, as the case may be), the gross amount invoiced by Lilly
(including an Affiliate and/or sublicensee of Lilly) to Third Parties, for the
Product (or Post-Project Product, as the case may be) in the Territory, less:
[*]
Such amounts shall be determined from the books and records of Lilly
maintained in accordance with GAAP consistently applied. Lilly further agrees in
determining such amounts, it will use Lilly's then current standard procedures
and methodology, including Lilly's then current standard exchange rate
methodology for the translation of foreign currency sales into U.S. Dollars.
In the event that the Product (or Post-Project Product, as the case may
be) is sold as part of a Combination Product (where "Combination Product" means
any pharmaceutical product which comprises the Product (or Post-Project Product,
as the case may be) and other active compound(s) and/or ingredients), the Net
Sales of the Product (or Post-Project Product, as the case may be), for the
purposes of determining royalty payments, shall be determined by multiplying the
Net Sales of the Combination Product (as defined in the standard Net Sales
definition) by the fraction, A / (A+B) where A is the weighted average sale
price of the Product
* CONFIDENTIAL TREATMENT REQUESTED
5.
<PAGE> 13
(or Post-Project Product, as the case may be) when sold separately in finished
form, and B is the weighted average sale price of the other product(s) sold
separately in finished form.
In the event that the weighted average sale price of the Product (or
Post-Project Product, as the case may be) can be determined but the weighted
average sale price of the other product(s) cannot be determined, Net Sales for
purposes of determining royalty payments shall be calculated by multiplying the
Net Sales of the Combination Product by the fraction A / C where A is the
weighted average sale price of the Product (or Post-Project Product, as the case
may be) when sold separately in finished form and C is the weighted average
selling price of the Combination Product.
In the event that the weighted average sale price of the other
product(s) can be determined but the weighted average sale price of the Product
(or Post-Project Product, as the case may be) cannot be determined, Net Sales
for purposes of determining royalty payments shall be calculated by multiplying
the Net Sales of the Combination Product by the following formula: one (1) minus
B / C where B is the weighted average sale price of the other product(s) when
sold separately in finished form and C is the weighted average selling price of
the Combination Product.
In the event that the weighted average sale price of both the Product
(or Post-Project Product, as the case may be) and the other product(s) in the
Combination Product cannot be determined, the Net Sales of the Product (or
Post-Project Product, as the case may be) shall be deemed to be equal to [*]
percent ([*]%) of the Net Sales of the Combination Product.
The weighted average sale price for a Product (or Post-Project Product,
as the case may be), other product(s), or Combination Product shall be
calculated once each Calendar Year and such price shall be used during all
applicable royalty reporting periods for the entire following Calendar Year.
When determining the weighted average sale price of a Product (or Post-Project
Product, as the case may be), other product(s), or Combination Product, the
weighted average sale price shall be calculated by dividing the sales dollars
(translated into U.S. dollars) in the Major Markets by the units of active
ingredient sold during the twelve (12) months (or the number of months sold in a
partial calendar year) of the preceding Calendar Year for the respective Product
(or Post-Project Product, as the case may be) in the Major Markets, other
product(s), or Combination Product. In the initial Calendar Year, a forecasted
weighted average sale price will be used for the Product (or Post-Project
Product, as the case may be), other product(s), or Combination Product. Any over
or under payment due to a difference between forecasted and actual weighted
average sale prices will be paid or credited in the first royalty payment of the
following Calendar Year.
1.32 "NONPRODUCT PROJECT RIGHTS" shall have the meaning as set
forth in Section 9.1(b) of this Agreement.
1.33 "PATENT" means Letters Patent and utility models including
any extension, registration, confirmation, reissue, re-examination,
Supplementary Protection Certificate or renewal thereof including, without
limitation any foreign equivalents thereof.
1.34 "PATENT APPLICATION" means an application for a Patent.
* CONFIDENTIAL TREATMENT REQUESTED
6.
<PAGE> 14
1.35 "PHASE II CLINICAL TRIALS" shall mean human clinical trials
conducted in patients anywhere in the world with a Product in accordance with
cGCP to demonstrate efficacy and a level of safety in the particular indication
tested, as well as to obtain some indication of the unit and/or daily dosage
regimen required.
1.36 "PHASE III CLINICAL TRIALS" shall mean large scale human
clinical trials conducted in patients anywhere in the world in accordance with
cGMP and intended to generate data concerning the efficacy and a level of safety
in the particular indication tested sufficient to obtain Regulatory Approval of
Product (or Post-Project Product, as the case may be). Phase III Clinical Trials
include, without limitation, "bridging studies" which allow submission in a
target country of clinical data generated from phase III studies completed in
other countries to be submitted in lieu of repeating phase III studies in target
country.
1.37 "POST-PROJECT COMPOUNDS" means Compounds (and any Analogs,
homologs or enantiomers thereof) identified, discovered or invented by Lilly
(alone or in conjunction with a Third Party) by using SIBIA Rights licensed to
Lilly under Section 4.2(c) of this Agreement during the Post-Project
Identification Period.
1.38 "POST-PROJECT IDENTIFICATION PERIOD" means, the period (a)
commencing upon the expiration/termination of the later of either: (i) the
Project Term, or (ii) SIBIA [*] No Partnering Period, if applicable, and (b)
ending [*] years after the Effective Date.
1.39 "POST-PROJECT PATENTS" means Patents and Patent Applications
that were Controlled by Lilly (or claim priority to a Patent Application that
was Controlled by Lilly) during the Post-Project Identification Period. For
avoidance of any doubt, any Patent Applications filed after the expiration of
the Post-Project Identification (or Patents that issue therefrom) that were
neither: (i) Controlled by Lilly during the Post-Project Identification Period
nor (ii) claim priority to a Patent Application that was Controlled by Lilly
during the Post-Project Identification Period, are specifically excluded from
Post-Project Patents.
1.40 "POST-PROJECT PRODUCTS" means any and all pharmaceutical
preparations ready for administration to the ultimate consumer and any and all
non-pharmaceutical consumption (including, without limitation, use in connection
with plants and animals) prepared from Post-Project Compound(s).
1.41 "POST-PROJECT PRODUCT ROYALTY PERIOD" means the period (a)
commencing on Product Launch of a particular Post-Project Product in the
particular country at issue until the later of either: (i) the expiration date
of the last-to-expire of a Valid Claim of any Post-Project Patents (including,
without limitation, composition of matter or formulation Patents contained
therein) existing in such country at issue which covers the manufacture, use or
sale of the particular Post-Project Product at issue in such a manner that the
manufacture, use or sale of such Post-Project Product by Lilly in such country
would constitute infringement of such Post-Project Patents but for Lilly's
Control thereof or (ii) ten years from Product Launch. Furthermore,
notwithstanding anything to the contrary in this Agreement, for those Net Sales
during the Post-Project Product Royalty Period in the Territory which are not
protected from competition by a Valid Claim of a Post Project Patent (including,
without limitation, composition of matter or formulation Patents contained
therein) covering the manufacture, use or sale of Post-
* CONFIDENTIAL TREATMENT REQUESTED
7.
<PAGE> 15
Project Product, the royalty sums due from Lilly on such Net Sales shall be [*]
percent ([*]%) of the royalty sums otherwise due with respect to Post-Project
Products under Section 5.2 of this Agreement.
1.42 "PRE-EXISTING COMPOUND" means those Compounds identified on
Schedule 1.42 of this Agreement that have not become Project Compounds, in the
course of the Project and during the Project Term as described in this Section
1.42 of this Agreement. In the event that either Lilly and/or SIBIA have
directed any research and/or development efforts in the course of the Project
during the Project Term to a particular Pre-Existing Compound and such
Pre-Existing Compound has (prior or during the Project Term) either shown: (i)
efficacy in an animal model as determined in good faith by the JDC or (ii)
efficacy through other means as determined in good faith by the Parties, then
such Pre-Existing Compound shall become a Project Compound and; therefore, such
Compound shall no longer be a Pre-Existing Compound.
1.43 "PRODUCT(S)" means any and all pharmaceutical preparations
ready for administration to the ultimate consumer and any and all
non-pharmaceutical consumption (including, without limitation, use in connection
with plants and animals) prepared from Project Compound(s).
1.44 "PRODUCT DECISION" means a decision made by Lilly's
portfolio management committee, or equivalent successor thereof, after
completion of Phase II Clinical Trials that the Project Compound (or
Post-Project Compound, as the case may be) tested in such trials continues to be
a viable pharmaceutical candidate for the treatment of the primary indication
and that, therefore, Phase III Clinical Trials on such Project Compound (or
Post-Project Compound, as the case may be) are warranted. Irrespective of the
decision of the portfolio management committee, or successor thereto, a Product
Decision will be deemed to have been achieved should a Project Compound (or
Post-Project Compound, as the case may be) enter Phase III Clinical Trials.
1.45 "PRODUCT LAUNCH" means the first commercial sale of Product
(or Post-Project Product, as the case may be) by Lilly or its sublicensees in
the country at issue following final Regulatory Approval for marketing of the
Product (or Post-Project Product, as the case may be) in such country.
1.46 "PRODUCT PROJECT RIGHTS" shall have the meaning as set forth
in Section 9.1(a) of this Agreement.
1.47 "PRODUCT ROYALTY PERIOD" means the period commencing on
Product Launch of a particular Product in the particular country at issue until
the later of the expiration date of the last-to-expire of either: [*]
* CONFIDENTIAL TREATMENT REQUESTED
8.
<PAGE> 16
[*]
1.48 "PROJECT" shall have the meaning as set forth in Section
2.1(a) of this Agreement.
1.49 "PROJECT COMPOUND" shall means: (i) Compound(s) (and any
Analogs, homologs or enantiomers thereof) that are identified, discovered,
invented, and/or developed by SIBIA or Lilly (separately or jointly, as well as
including any subcontractors and/or agents thereof) using the SIBIA Rights in
the course of the Project and during the Project Term and (ii) Compound(s) (and
any Analogs, homologs or enantiomers thereof) that are identified, discovered
and/or invented and/or developed by Lilly using SIBIA Rights during SIBIA One
Year No Partnering Period, if applicable. For avoidance of any doubt, Project
Compounds include Pre-Existing Compounds (and any Analogs, homologs or
enantiomers thereof) as described in Section 1.42 of this Agreement.
1.50 "PROJECT KNOW-HOW" means all Information that is identified,
discovered, invented, acquired and/or developed after the Effective Date by
Lilly and/or SIBIA (separately or jointly, as well as including any
subcontractors and/or agents thereof) in the course of the Project and during
the Project Term. Project Know-How does not include Project Patent Rights.
Notwithstanding anything to the contrary in this Agreement, the Parties
acknowledge and agree that Project Know-How specifically excludes: (i) any and
all Information and/or any other technology and know-how owned or controlled by
Lilly as of the Effective Date and any improvements made by Lilly thereto except
for (and only to the extent that) improvements made by Lilly that are
identified, discovered, invented, acquired and/or developed after the Effective
Date in the course of the Project and during the Project Term that cover the
manufacture, use or sale of Project Compound or Product derived therefrom which
include, without limitation, composition of matter and formulation know-how that
covers Project Compound or Product derived therefrom and (ii) SIBIA Know-How as
defined herein.
1.51 "PROJECT PATENT RIGHTS" means the rights granted by any
governmental authority under any Patents that issue from the Patent Applications
that claim Information identified, discovered, invented, acquired and/or
developed by Lilly and/or SIBIA (separately or jointly, as well as including any
subcontractors and/or agents thereof) in the course of the Project and during
the Project Term, wherein said Patents and/or Patent Application are acquired,
filed or claim priority to an application filed by Lilly in accordance with
Section 9.2 of this Agreement after the Effective Date and on or before the
expiration/termination of the Project Term. Notwithstanding anything to the
contrary in this Agreement, the Parties acknowledge and agree that Project
Patent Rights specifically excludes: (i) any and all Patents and Patent
Applications that claim Information and/or any other technology and know-how
owned or controlled by Lilly as of the Effective Date and any improvements made
by Lilly thereto except for (and only to the extent that) improvements made by
Lilly that are identified, discovered, invented, acquired and/or developed after
the Effective Date in the course of the Project and during the Project Term that
cover the manufacture, use or sale of Project Compound or Product derived
therefrom which include, without limitation, composition of matter and
formulation
* CONFIDENTIAL TREATMENT REQUESTED
9.
<PAGE> 17
Patents that cover Project Compound or Product derived therefrom and (ii) SIBIA
Patent Rights as defined herein.
1.52 "PROJECT RIGHTS" shall mean Project Patent Rights and
Project Know-How.
1.53 "PROJECT TERM" shall have the meaning as set forth in
Section 2.1(a) of this Agreement.
1.54 "REGULATORY APPROVAL" means: (a) in the United States,
market clearance from the FDA of an NDA, or similar application for marketing
approval, and satisfaction of any related applicable FDA registration and
notification requirements (if any) and (b) in any Major Market country other
than the United States, approval by regulatory authorities having jurisdiction
over such country of a single application or set of applications comparable to
an NDA and satisfaction of any related applicable regulatory and notification
requirements, if any, together with any other approval necessary to make and
sell pharmaceuticals commercially in such country.
1.55 "SERIOUS ADVERSE EVENT" means any Adverse Event with the
following conditions: death, life threatening, hospitalization, permanent
disability, congenital anomaly, or cancer or other important medical events that
may not be immediately life-threatening or result in death or hospitalization,
but may jeopardize the patient or may require intervention to prevent one of the
other serious outcomes listed in this definition.
1.56 SIBIA CHANGE OF CONTROL" means when (a) any Person becomes,
after the Effective Date, the beneficial owner, directly or indirectly, of more
than sixty percent (60%) of the outstanding securities of SIBIA having a right
to vote in the election of its board of directors or (b) SIBIA is involved in a
reorganization, merger or consolidation, except a "Change of Control" will not
have occurred if, after the transaction, forty percent (40%) or more of the
outstanding voting securities of the Person acquiring the voting securities of
SIBIA or resulting or surviving from the reorganization, merger or consolidation
are owned by the same shareholders in the same proportion as they own SIBIA
voting securities immediately prior to such transaction. Moreover, for purposes
of this Section 1.56 of this Agreement, the term "Person" shall mean any
individual or Entity, and the heirs, executors, administrators, legal
representatives, successors and assigns of such Person where the context so
permits. Finally, for purposes of this Section 1.56 of this Agreement, the term
"Entity" shall mean any general partnership, limited partnership, limited
liability partnership, limited liability company, corporation, joint venture,
trust, estate, business trust, cooperative or association or any other
organization that is not a natural Person.
1.57 "SIBIA FTE" means a full-time scientific person year,
equivalent to the time and effort employed by a dedicated scientist or
researcher, consistent with normal business practices. For SIBIA, an FTE is
equivalent to 45 weeks of full-time effort by a dedicated scientist or
researcher. Except as the JDC may otherwise agree in writing, SIBIA employees
assigned to the Project shall all have an educational level of at least a
Bachelor Degree in science or its equivalent and such additional educational
level of M.D., Ph.D., D.V.M., or equivalent level as is prudent to staff the
Project and subject to JDC review as described in Section 2.1 of
10.
<PAGE> 18
this Agreement. Scientific work on or directly related to the Project to be
performed by SIBIA employees can include, but is not limited to, experimental
laboratory work, recording and writing up results, reviewing literature and
references, holding scientific discussions, attending scientific meetings and
conferences related to the Project, managing and leading scientific staff, and
carrying out Project management duties (including service on the Joint
Development Committee).
1.58 "SIBIA KNOW-HOW" means all Information that is Controlled by
SIBIA as of the Effective Date of this Agreement. SIBIA Know-How does not
include SIBIA Patent Rights.
1.59 "SIBIA [*] NO PARTNERING PERIOD" shall have the meaning as
set forth in Article 17 of this Agreement.
1.60 "SIBIA PATENT RIGHTS" means the rights granted by any
governmental authority under (a) the Patents listed in Schedule 1.60(a), (b) any
Patents that issue from the Patent Applications listed in Schedule 1.60(b), and
(c) any other Patent that claims Information which Patent is Controlled by SIBIA
as of the Effective Date. SIBIA Patent Rights shall specifically exclude United
States Patents 5,401,629 and 5,436,128 and their domestic and foreign
counterparts, as well as the SIBIA Screening Machine.
1.61 "SIBIA RIGHTS" means SIBIA Patent Rights and SIBIA Know-How.
1.62 "SIBIA SCREENING MACHINE" means the certain screening
machine Controlled by SIBIA as described in United States patent 5,670,113,
together with its domestic and foreign counterparts.
1.63 "STOCK PURCHASE AGREEMENT" means that certain stock purchase
agreement by and between SIBIA and Lilly entered into as of the Effective Date
herewith and is in substantially the same form as the stock purchase agreement
attached hereto as Schedule 5.3 of this Agreement.
1.64 "TERRITORY" means the entire world excluding the Meiji
Territory solely for the particular Compound and any product derived therefrom
for the Meiji Field under limited circumstances whereby pursuant to Sections
4.1(b), 4.2(b) or Article 6, as applicable, Lilly's exclusive licenses granted
under Sections 4.1(a) and 4.2(a) (or Article 6, in the case of Compound 1508Y)
excludes such Compound and any product derived therefrom solely in the Meiji
Territory for the Meiji Field as described in greater detail herein.
1.65 "THIRD PARTY" means any person or entity other than Lilly,
SIBIA, an Affiliate or sublicensee of either of them.
1.66 "TOXICOLOGY STUDIES" means all toxicology and absorption,
distribution, metabolism and elimination (ADME) studies which are needed to
conduct Clinical Trials and apply for Regulatory Approval with respect to a
Product in the Territory.
1.67 "VALID CLAIM" means any claim issued in an unexpired Patent
which has not been held unenforceable, unpatentable or invalid by a decision of
a court or other
* CONFIDENTIAL TREATMENT REQUESTED
11.
<PAGE> 19
governmental agency of competent jurisdiction following exhaustion of all
possible appeal processes, and which has not been admitted to be invalid or
unenforceable through reissue, reexamination or disclaimer.
1.68 "WORK PLAN" shall have the meaning as set forth in Section
2.1(d) of this Agreement.
ARTICLE 2
PROJECT; FUNDING
2.1 PROJECT; PROJECT MANAGEMENT; WORK PLAN.
(a) THE PROJECT. In accordance with the terms of this
Agreement during the Project Term, Lilly and SIBIA will engage in a joint
research and development program focused on maximizing the discovery and
development of Project Compounds and/or Products derived therefrom (the
"Project"), in accordance with the then-current Work Plan. The Project shall
commence upon the Effective Date and shall expire three years (3) years
thereafter (the "Initial Project Term") unless and until: (i) the Project is
discontinued early by Lilly in accordance with Section 2.5 of this Agreement;
(ii) this Agreement is terminated in accordance with Article 16 of this
Agreement; or (iii) the Project is extended in accordance with Section 2.1(b) of
this Agreement (collectively the "Project Term"). Upon the expiration or
termination of the Project Term, the obligations to fund and conduct research
under the Project shall terminate except to the extent that funding obligations
have accrued prior to such expiration and/or termination.
(b) EXTENSION OF PROJECT. Lilly, at its sole discretion,
may extend the Initial Project Term for one (1) additional year under the same
terms and conditions described herein, provided Lilly notifies SIBIA, in
writing, of its decision to extend the Project at least one hundred and eighty
(180) days prior to the expiration of the Initial Project Term.
(c) JOINT DEVELOPMENT COMMITTEE. To plan and manage work
on the Project, Lilly and SIBIA shall promptly organize a Joint Development
Committee ("JDC"), with an equal number of representatives from each Party,
provided that representatives from each Party shall not exceed three (3)
representative members. One member from each Party will be selected by the
sponsoring Party to be co-chairperson of the JDC. During the Project, each Party
will provide the other with quarterly status reports summarizing their efforts
under the Agreement as described in Section 2.1(e) of this Agreement. The
Parties will hold regular meetings of the JDC (no fewer than four (4) annually),
the location of such meetings to alternate between SIBIA's and Lilly's offices
unless otherwise agreed by the Parties, to review the Project and to plan future
activities under the Agreement. Consultants and non-JDC member employees of the
Parties may attend meetings of the JDC as required to further the Project.
Minutes of all such meetings setting forth decisions of the JDC relative to the
Project will be prepared. Responsibility for the minutes and hosting of such
meeting will alternate between the Parties, the hosting Party being responsible
for the minutes of the first meeting, but minutes will not become official until
agreed upon by the co-chairpersons. Each Party will bear all expenses associated
12.
<PAGE> 20
with attendance of its employees and consultants at such meetings. Each Party
will have reasonable access on an informal basis to the other's personnel
assigned to the Project. The JDC, further, shall have the ability to set up
subcommittees, as appropriate, in order to further manage the Project. Such
subcommittees shall meet either in person or by telephone as often as needed in
order to expedite work on the Project.
(d) WORK PLAN. The JDC will be responsible for the
preparation, modification (if appropriate) and implementation of a detailed work
plan reasonably necessary to carry out the Project as contemplated under this
Agreement ("Work Plan"), including, without limitation, determining the number
and composition of SIBIA FTEs and Lilly personnel required to implement such
Work Plan. The Work Plan shall, among other things, include: (i) a detailed
annual plan including intermediate milestones to be accomplished throughout the
year together with a budget and determination of required SIBIA FTEs and Lilly
personnel (composition thereof) necessary to carry out such annual plan and (ii)
a budget plus a general plan for the years thereafter through the expiration of
the Initial Project Term, and extensions thereof, if applicable.
(i) 1999 Work Plan. For the time period between the
Effective Date and December 31, 1999, Lilly and SIBIA shall work according to
the Work Plan for Calendar Year 1999. A detailed Work Plan for Calendar Year
1999 will be attached within twenty-one calendar days of the Effective Date as
Schedule 2.1(d).
(ii) Subsequent Work Plan. By September 30, 1999, and
by September 30 of each Calendar Year subsequent to 1999 during the Project
Term, the JDC shall prepare the Work Plan for the work to be conducted under the
Project for the Calendar Year immediately following the most recent Calendar
Year. Such Work Plan, once approved by both Parties, shall define the
collaborative work of the Parties under the Project involving and related to the
joint research and development of Project Compound and/or Product derived
therefrom and the budget for accomplishing such work. Such collaborative work
under the Project shall be conducted pursuant to the terms and conditions of
this Agreement.
Modifications to either Party's portion of the Work Plan may be made
during the course of the Calendar Year at issue by agreement of the JDC. Without
limiting the foregoing, the JDC, at its discretion, may review the
qualifications of the personnel assigned to the Project to determine whether
such personnel are reasonably qualified to perform the work assigned thereto.
Either Party may, upon notifying the other, substitute a senior scientist or
other manager for its representatives on the JDC for purposes of this Section
2.1(d) of the Agreement.
(e) QUARTERLY STATUS REPORTS. During the Project Term,
each Party shall also provide the JDC with a quarterly status report that
generally summarizes research and development efforts conducted by such Party
under the Project during such Calendar Quarter at issue, including, without
limitation, a general summary of important events and/or milestones achieved,
personnel changes, learning points and other matters that the JDC may deem
appropriate, together with a general description of Project Rights, if any,
discovered, invented, developed and/or conceived during the particular Calendar
Quarter at issue.
(f) JDC DECISIONS. Decisions by the JDC will be decided by
unanimous vote. Each Party shall have one (1) vote to be cast by the
co-chairperson of each
13.
<PAGE> 21
Party after consultation with the other JDC members of their Party. If the JDC
fails to reach a unanimous decision, such decision shall be made in accordance
with the provisions of Section 2.1(g) of this Agreement.
(g) DISAGREEMENTS REGARDING PROJECT AND/OR WORK PLAN
THEREUNDER. Except for limitations regarding reductions pertaining to SIBIA FTE
staffing by SIBIA employees of the Project as described in Section 2.2(b) of
this Agreement, if the JDC fails to reach a unanimous decision on any issues
related to the Project and/or Work Plan including, without limitation, the
implementation of the research and development efforts thereunder, the JDC shall
refer the decision regarding such matter to the Executive Vice President and
Chief Scientific Officer of SIBIA (or successor position), and the Neuroscience
Vice President of Lilly Research Laboratories (or any successor position having
similar responsibility for Lilly's neuroscience products) who shall, as soon as
practicable, attempt in good faith to resolve the dispute and, thereby, make the
decision on the JDC's behalf. If such dispute is not resolved within thirty (30)
days of the first written request for resolving such disagreement, the matter
shall be referred to the Executive Vice President of Science and Technology of
Eli Lilly and Company (or successor position thereof) who shall make the final
decision regarding such matter.
(h) USE OF SCREENING MACHINE DURING PROJECT. During the
Project Term and in the course of the Project, SIBIA hereby agrees that the
SIBIA Screening Machine shall be made reasonably available for all Project
purposes that the JDC may deem appropriate including, without limitation, using
the SIBIA Screening Machine to identify, screen and/or discover Compounds.
2.2 PROJECT RESOURCES AND COSTS.
(a) FTE Funding and Reimbursement of Third Party Costs. In
accordance with Section 2.2(d) Lilly agrees to reimburse SIBIA for work
performed under the Project by SIBIA FTEs based on the FTE Rate.
In addition, in the event that Third Parties are utilized by SIBIA with
respect to the Project, in accordance with Section 2.3 of this Agreement, Lilly
shall only reimburse SIBIA actual costs incurred in connection with such Third
Parties (i.e., no mark up with respect to Third Party cost incurred by SIBIA),
as opposed to reimbursement through the FTE Rate.
(b) FTE LIMITATIONS. Notwithstanding anything to the
contrary in this Agreement, Lilly may, in its sole discretion, at any time after
twelve (12) months after the Effective Date, reduce SIBIA FTEs as Lilly deems
appropriate, provided that under no circumstance shall SIBIA FTEs be reduced
below [*] SIBIA FTEs during the Project Term.
(c) INVOICE. Within thirty (30) days prior to the end of
each Calendar Quarter, SIBIA shall provide Lilly with an invoice estimating
SIBIA FTEs and detailing Third Party costs that will be incurred by SIBIA with
respect to such Calendar Quarter as described in Section 2.3(a) of this
Agreement (e.g., first invoice due thirty (30) days prior to July 1, 1999). Such
SIBIA FTE estimate will include the names of the employees working on the
Project and the estimated percentage of time that each employee will spend on
the Project with respect to the
* CONFIDENTIAL TREATMENT REQUESTED
14.
<PAGE> 22
Calendar Quarter at issue and identification of those employees that are based
in the United States and the rationale for estimating time spent on the Project
during such Calendar Quarter. Within thirty (30) days of the end of each twelve
(12) month anniversary of the Effective Date, SIBIA shall provide Lilly with an
actual account of SIBIA FTE efforts including the actual time spent by each
employee and their names together with identifying each employee that is based
in the United States (the "Actual Accounting"). In the event the Actual
Accounting reflects that Lilly has overpaid SIBIA for SIBIA FTE efforts employed
during the particular twelve (12) month period at issue, such overpayment shall
be credited to Lilly for the next payment due under Section 2.2(d) or promptly
refunded to Lilly in the event (and to the extent) such overpayment exceeds the
next payment due hereunder.
Lilly, or its representatives, shall have the right to audit SIBIA
records with respect to such reports, in accordance with Section 8.2 of this
Agreement. Lilly shall be entitled to any tax credits due on account of research
and development expenses, to the extent permitted by law, for the funds paid to
SIBIA by Lilly under this Agreement.
(d) PROJECT PAYMENTS. Except to the extent that Lilly has
already prepaid for research and development efforts conducted under the Project
(and any overpayment credited amount as described in Section 2.2(c)) as
described in Section 2.2(e) of this Agreement, Lilly shall make the payments due
under this Section 2.2 on a Calendar Quarter basis due to SIBIA within thirty
(30) days after Lilly's receipt of the invoice as described in Section 2.2(c) of
the Agreement.
(e) PRE-PAYMENTS OF FINAL PROJECT FUNDING. Within thirty
(30) days of the Effective Date, Lilly shall make a payment to SIBIA of an
amount equal to [*] dollars ($[*]) as a prepayment (the "Prepayment Amount") of
certain research and development efforts to be conducted by SIBIA under the
Project for the last portion ("Prepaid Project Portion") of the final Calendar
Quarter(s) of the Project. To the extent that such Prepayment Amount exceeds the
actual payment obligation owed by Lilly to SIBIA under Section 2.2(a) of this
Agreement for such Prepaid Project Portion of the Project, SIBIA shall refund to
Lilly such excess within thirty (30) days after the expiration/termination of
the Project Term.
As part of the Work Plan for the final Calendar Year, the JDC shall
attempt to approximate as close as possible what portion of the final Calendar
Year shall be the Prepaid Project Portion with the intent of matching and
offsetting Lilly funding obligation for such portion of the final Calendar Year
as close as possible so as to minimize and to the extent possible eliminate any
amount of refund that SIBIA might be required to make to Lilly as described
above in this Section 2.2(e) of this Agreement.
(f) [*]
2.3 SUBCONTRACTING PROJECT SERVICES PERMITTED. The Parties
acknowledge and agree that portions of the work involved in the Project may be
performed on behalf of either
* CONFIDENTIAL TREATMENT REQUESTED
15.
<PAGE> 23
Party by Third Parties, provided that prior to any subcontract by either Party
(a) the JDC shall have previously approved such Third Party in accordance with
Section 2.1(f) and (g), as applicable, and (b) Lilly has approved the cost
associated therewith, and (c) SIBIA and/or Lilly have obtained written
confidentiality agreements with the subcontractors and written assignments of
all patent rights and know-how that such subcontractors may develop by reason of
work performed under this Agreement, (which shall be Project Rights and, as
such, shall be assigned to the appropriate Party in accordance with the
ownership provisions of Section 9.1 of this Agreement), and (d) if the work
under the Project which either Party desires to subcontract is required to be
performed according to cGLPs, cGCPs and/or cGMPs, as may be applicable, then
either the subcontracting of the work must be provided for in an already
approved Work Plan or the JDC must have approved such work in accordance with
Section 2.1(f) and (g) of this Agreement. In reimbursing SIBIA for the costs
incurred by SIBIA associated with such Third Parties' work, SIBIA shall provide
Lilly with all reasonable documentation of such costs as may be required by
Lilly. Furthermore, notwithstanding anything to the contrary in this Agreement,
under no circumstance shall SIBIA's compensation/reimbursement under this
Agreement with respect to costs incurred by SIBIA in connection with Third
Parties performing service for Project purposes result in a profit to SIBIA
(i.e., such costs shall be reimbursed at no mark up).
2.4 TRANSFER, POSSESSION AND OWNERSHIP OF PROJECT RIGHTS.
Consistent with the ownership provision of Section 9.1 with respect to Project
Rights, within thirty days (30) after the expiration/termination of the Project
Term, to the extent not already transferred in accordance with this Agreement
under Section 9.1 or otherwise, SIBIA shall disclose and transfer ownership
(joint or sole, as appropriate in accordance with Section 9.1 of this Agreement)
to Lilly of all Information encompassed in Project Rights including, without
limitation, all quantities of Project Compound(s) and/or Product(s) that SIBIA
may have in its possession at such time, together with Information encompassed
in SIBIA Patent Rights and SIBIA Know-How reasonably necessary and/or useful to
practice the license granted to Lilly under Section 4.2 of this Agreement.
2.5 EARLY TERMINATION OF PROJECT BY LILLY. Lilly may, at its sole
election, terminate the Project (as opposed to the Agreement) under the
following circumstances
(a) After 21-Months. At any time after (21) months after
the Effective Date and only during the Initial Project Term, Lilly may, with or
without cause, terminate the Project by providing SIBIA with ninety (90) days
prior written notice of the same, at which time such termination shall be
effective. During such ninety (90) day period, SIBIA shall appropriately
commence wind down efforts including reasonable termination of its efforts under
the Project and Lilly shall be responsible for expenses incurred under the Work
Plan for such period but only to the extent that such expenses are unavoidable
and non-cancelable expenses (excluding personnel costs which shall be handled in
accordance with Section 2.2(a) herein pertaining to SIBIA FTEs for such ninety
(90) day period) necessary to bring the Project efficiently to closure including
necessary expenses associated with non-cancelable commitments and cash outlays
in connection with Third Party reimbursement as described in Section 2.3, even
if such Third Party expenditures are paid after such ninety (90) day period
provided such expenses arise out of commitments incurred prior to Lilly's
termination notice as described in this Section 2.5(a) of this Agreement.
16.
<PAGE> 24
Upon such notice of termination, SIBIA will use commercially reasonable
efforts to mitigate all such wind down expenses including, upon Lilly's request,
SIBIA will, to the extent possible, use its commercially reasonable efforts to
re-deploy personnel on the Project to other SIBIA research efforts thus,
mitigating SIBIA FTE expenditures incurred under Section 2.2(a) hereunder. For
avoidance of any doubt, during such ninety (90) day termination period, to the
extent SIBIA personnel are assigned to the Project and cannot be re-deployed by
SIBIA as described above, it is understood that such employees shall continue to
be committed to the current goals of the Project which at such time may be,
among other things, to wind down the Project as efficiently as possible.
Moreover, notwithstanding anything to the contrary in this Agreement, under no
circumstance, shall Lilly have any obligation to fund any SIBIA FTEs under
Article 2 of this Agreement (or any other provision of this Agreement) beyond
the effective date of the termination of the Project as described in this
Section 2.5(a) of this Agreement.
Finally, in the event, that the Project is terminated under this Section
2.5(a), the licenses as set forth in Section 4.1 and 4.2(c) of this Agreement
shall terminate as of the effective date of such termination under this Section
2.5(a). All other license rights granted to Lilly hereunder shall survive
subject to applicable royalties and milestone obligations as described in this
Agreement.
(b) SIBIA CHANGE OF CONTROL. After written notice by SIBIA
to Lilly that a proposed SIBIA Change of Control may occur, Lilly shall be
entitled to an evaluation period of forty-five (45) days prior to the completion
of such proposed SIBIA Change of Control ("Evaluation Period"). During the
Evaluation Period, Lilly agrees to discuss with SIBIA (or proposed successor)
whether the continuation of the Project is appropriate given the proposed SIBIA
Change of Control, provided, it is understood, that the ultimate decision of
whether to continue or terminate the Project in accordance with Section 2.5(b)
is within Lilly's sole discretion.
Notwithstanding the foregoing, at any time within thirty (30) days after
the occurrence of the SIBIA Change of Control, Lilly may terminate the Project
(as opposed to the Agreement) by providing SIBIA with thirty (30) days prior
written notice of the same, at which time such termination shall be effective.
During such thirty (30) day notice of termination period, SIBIA (or its
successors) shall appropriately commence wind down efforts including reasonable
termination of its efforts under the Project and Lilly shall be responsible for
expenses incurred under the Work Plan for such period but only to the extent
that such expenses are unavoidable and non-cancelable expenses (excluding
personnel costs which shall be handled in accordance with Section 2.2(a) herein
pertaining to SIBIA FTEs for such thirty (30) day period) necessary to bring the
Project efficiently to closure including necessary expenses associated with
non-cancelable commitments and cash outlays in connection with Third Party
reimbursement as described in Section 2.3 but only to the extent that such
expenses are incurred during such thirty (30) day notice of termination period
and specifically excluding any Third Party expenditures that are paid after such
thirty (30) day notice of termination period even if such expenses arise out of
commitments incurred prior to Lilly's termination notice as described in this
Section 2.5(b) of this Agreement.
17.
<PAGE> 25
Upon such notice of termination, SIBIA (or its successor) will use
commercially reasonable efforts to mitigate all such wind down expenses
including, upon Lilly's request, SIBIA (or its successor) will, to the extent
possible, use its commercially reasonable efforts to re-deploy personnel on the
Project to other SIBIA (or its successor) research efforts thus, mitigating
SIBIA FTE expenditures incurred under Section 2.2(a) hereunder. For avoidance of
any doubt, during such thirty (30) day notice of termination period, to the
extent SIBIA personnel are assigned to the Project and cannot be re-deployed by
SIBIA as described above, it is understood that such employees shall continue to
be committed to the current goals of the Project which at such time may be,
among other things, to wind down the Project as efficiently as possible.
Moreover, notwithstanding anything to the contrary in this Agreement, under no
circumstance, shall Lilly have any obligation to fund any SIBIA FTEs under
Article 2 of this Agreement (or any other provision of this Agreement) beyond
the effective date of the termination of the Project under this Section 2.5(b)
of this Agreement.
Finally, in the event, that the Project is terminated under this Section
2.5(b), the licenses as set forth in Section 4.1 and 4.2(c) of this Agreement
shall terminate as of the effective date of such termination under this Section
2.5(b). All other license rights granted to Lilly hereunder shall survive
subject to applicable royalties and milestone obligations as described in this
Agreement.
2.6 DISSOLUTION OF THE JDC. Except as the Parties may otherwise
agree in writing, once the Project Term has expired/terminated, the JDC shall
dissolve.
ARTICLE 3
PRODUCT, PROJECT COMPOUND DEVELOPMENT
3.1 DEVELOPMENT OF PROJECT COMPOUNDS AND/OR PRODUCTS. During the
Project Term, SIBIA and Lilly shall have joint responsibility for general
research and development of Compounds, Project Compounds and Products including,
without limitation, any necessary analytical methods for assaying/approving
same, under the Work Plan. During the Project Term and thereafter, Lilly, by
itself or through a Third Party, shall have the sole right and primary
responsibility to organize, manage, conduct and fund all Toxicology Studies and
Clinical Trials for Project Compounds (and Products derived therefrom) in the
Territory. To assist Lilly in conducting such Toxicology Studies and Clinical
Trials, as information becomes available under the Project during the Project
Term, SIBIA will promptly provide to Lilly any and all Information/documentation
that would reasonably useful in assisting Lilly in conducting such Toxicology
Studies and Clinical Trials including, without limitation, any and all
information that may be required by regulatory authorities or that may be useful
in manufacturing Project Compound and/or Product.
3.2 REGULATORY FILINGS. Lilly, its sublicensees or Affiliates
shall have the sole right and responsibility for the preparation of any
regulatory filings required in order to conduct Clinical Trials on Project
Compounds and Products derived therefrom (IND, CTX, etc.) in the Territory,
together with the preparation of suitable applications for marketing approval of
Products in the Territory and shall be the owner and party of record of all such
regulatory filings.
18.
<PAGE> 26
SIBIA shall cooperate with Lilly as Lilly reasonably requires in preparing such
regulatory filings including, without limitation, any and all data contained
therein. Lilly shall inform SIBIA within (15) fifteen business days of official
regulatory filings and significant communications with regulatory authorities as
described above in this Section 3.2 as reasonably deemed appropriate by Lilly,
taking into account that SIBIA may be competing with Lilly at that time.
Moreover, Lilly, its sublicensees or Affiliates shall further, have the sole
right and responsibility for managing all interactions regarding its regulatory
filings with all regulatory authorities in the Territory. Lilly, its
sublicensees or Affiliates shall have the sole right to determine those
countries of the Territory where marketing is intended.
3.3 DEVELOPMENT DILIGENCE.
(a) DILIGENCE STANDARD. During the Project Term and
subject to the terms of this Agreement, each Party shall work diligently to
identify, research and/or develop Project Compounds and/or Products for purposes
of commercializing such Project Compound and/or Product in Major Markets at
least as diligently as the Party researches and/or develops its other compounds
and/or products of similar probability of technical success, market/commercial
potential and stages of development in Major Markets.
(b) FAILURE DUE TO REASONS BEYOND PARTIES CONTROL. Failure
by Lilly or SIBIA to meet its diligence obligation under 3.3(a) above due to
reasons beyond Lilly's or SIBIA's control, respectively, (including, without
limitation, force majeure and/or lack of technical success of Project Compound
and/or Products, if applicable) will not constitute lack of due diligence for
purposes of this Agreement.
3.4 QUALITY ASSURANCE AUDITS. During the Project Term, Lilly
retains the right at reasonable times and upon reasonable prior written notice
to conduct quality assurance audits on SIBIA's research and development
facilities, as well as the facilities of any subcontractors of SIBIA performing
subcontracts, where work on the Project is conducted, as reasonably deemed
necessary by Lilly in order to ensure that such facilities meet Lilly and
regulatory authority standards. SIBIA hereby agrees to cooperate with Lilly and
take such other acts as may be reasonably necessary or appropriate to carry out
the purpose and intent of this Section 3.4 of this Agreement.
3.5 ADVERSE EVENT. In the event (and only in such event) that
SIBIA or its sublicensees (other than Lilly) has the right to and, in fact
(e.g., Meiji Backup Option is exercised with respect to a particular Compound
which becomes a Project Compound), conducts Clinical Trials with respect to a
particular Project Compound and/or Product derived therefrom, Lilly will report
Adverse Events and Serious Adverse Events which occur during the development
and/or marketing of Product to SIBIA and the relevant regulatory authorities
promptly according to the applicable regulations. In addition, SIBIA, to the
extent, if any, that SIBIA or its sublicensees (other than Lilly) conducts
Clinical Trials with respect to a particular Project Compound and/or Product
derived therefrom, will report to Lilly Serious Adverse Events, and
spontaneously reported Adverse Events of which it becomes aware and has the
right to disclose, as such Events relate to the use of such Project Compound
and/or Product derived therefrom, within one (1) working day of SIBIA's initial
receipt of such information, in order that Lilly can fulfill its obligations to
the appropriate regulatory authorities. Moreover, SIBIA will
19.
<PAGE> 27
supply specially formatted safety information (Lilly will instruct SIBIA on the
appropriate format) to Lilly upon request, with reasonable notice, in order that
Lilly can comply with FDA requirements for annual reports and safety updates.
Finally, in the event (and only in such event) that SIBIA or its sublicensees
(other than Lilly) has the right to and in fact conducts Clinical Trials with
respect to a particular Project Compound and/or Product derived therefrom, Lilly
and SIBIA hereby agree to develop in good faith safety monitoring and adverse
event data exchange procedures to further ensure compliance with this Section
3.5 of this Agreement.
3.6 CLINICAL TRIAL INFORMATION. Notwithstanding anything to the
contrary in this Agreement, under no circumstance shall Lilly have any
obligation to disclose to SIBIA any information derived from Clinical Trials
conducted hereunder including, without limitation, any regulatory filings as
described in Section 3.2 of this Agreement.
ARTICLE 4
LICENSE GRANT
4.1 LICENSE TO LILLY IN THE COURSE OF AND DURING THE PROJECT
TERM.
(a) EXCLUSIVE LICENSE TO SIBIA RIGHTS RELATED TO
COMPOUNDS. During the Project Term and in the course of the Project (and only in
such case), except for limitations pertaining to a Compound (including any
product derived therefrom) that may become subject to the Meiji Backup Option
(as described in Section 4.1(b), below) and Compound 1508Y and Compound 1553A
(as described in Article 6 hereof), SIBIA hereby grants Lilly an exclusive
license in the Territory, with a right to sublicense in accordance with Section
4.3 of this Agreement, under SIBIA Rights to make, use (including, without
limitation, uses of SIBIA Rights to identify, screen, discover, research,
develop and commercialize Compound(s) and Products derived therefrom), sell,
offer to sell and import Compounds and Products derived therefrom.
Notwithstanding the foregoing exclusive license grant to Lilly, SIBIA shall
retain during the Project Term nonexclusive rights to SIBIA Rights described in
this Section 4.1(a) of this Agreement but only to the extent useful or necessary
to fulfill its work obligations under the Project. For avoidance of any doubt,
Compounds that are identified, discovered and/or invented in the course of and
during the Project using SIBIA Rights licensed under this Section 4.1(a), by
definition, under this Agreement become Project Compounds.
(b) MEIJI BACK-UP. In the event that, during the Project
Term, Meiji exercises the Meiji Backup Option with respect to a particular
Compound, the license granted to Lilly under Section 4.1(a) with respect to such
Compound (and only such Compound and product derived therefrom) shall solely for
the Meiji Territories and Meiji Field revert back to SIBIA but only to the
extent that SIBIA is legally obligated to grant a license under SIBIA Rights to
Meiji pursuant to the Meiji/SIBIA Contract.
If at any time during the Project Term, SIBIA's legal obligation, if
any, to grant a license pertaining to a particular Compound to Meiji is
terminated/expired under the Meiji/SIBIA Contract (or otherwise nullified), this
Section 4.1(b) shall no longer have any legal force and effect with respect to
such Compound and; therefore, to the extent that any reversion of rights to
20.
<PAGE> 28
SIBIA has occurred under this Section 4.1(b) such reversion of rights to SIBIA
shall immediately terminate and the license granted in Section 4.1(a) with
respect to the particular Compound at issue shall no longer be subject to the
limitations described in this Section 4.1(b) of this Agreement.
(c) PROJECT TERM EXPIRATION/TERMINATION. Notwithstanding
anything to the contrary in this Agreement, upon the expiration/termination of
the Project Term, the license granted to Lilly under this Section 4.1 of this
Agreement (and only this Section 4.1) shall terminate.
4.2 LICENSE TO LILLY UPON THE EXPIRATION/TERMINATION OF THE
PROJECT.
(a) EXCLUSIVE LICENSE TO SIBIA RIGHTS RELATED TO
PRODUCTS/PROJECT COMPOUNDS. Upon the expiration and/or termination of the
Project Term, except for limitations pertaining to Project Compounds (including
Products derived therefrom) that are or may become subject to the Meiji Backup
Option (as described in Section 4.2(b), below) and Compound 1508Y and Compound
1553A (as described in Article 6 hereof), SIBIA hereby grants Lilly an exclusive
license in the Territory, with a right to sublicense in accordance with Section
4.3 of this Agreement, under SIBIA Rights to make, use (including, without
limitation, uses of SIBIA Rights to identify, screen, discover, research,
develop and commercialize Project Compound(s) and Products derived therefrom),
sell, offer to sell and import Project Compounds and Products derived therefrom.
For avoidance of any doubt, the license granted under this Section 4.2(a)
applies only to Project Compounds and Products and, therefore, excludes
Compounds that are neither Project Compounds nor Products.
The exclusive license granted to Lilly under this Article 4.2(a) shall
be effective automatically and without any further action of any party
immediately upon the expiration and/or termination of the Project Term. Further,
upon expiration of the Product Royalty Period, Lilly shall have a fully paid-up
royalty free exclusive license to SIBIA Rights licensed under this Section
4.2(a) of this Agreement.
(b) MEIJI BACK-UP. In the event that a particular Project
Compound is or becomes subject to the Meiji Backup Option the license granted to
Lilly under Section 4.2(a) with respect to such Project Compound (and only such
Project Compound and Product derived therefrom) shall solely for the Meiji Field
in the Meiji Territories revert back to SIBIA and only to the extent that SIBIA
is legally obligated to grant a license under SIBIA Patent Rights and SIBIA
Know-How to Meiji pursuant to the Meiji/SIBIA Contract.
If at any time SIBIA's legal obligation, if any, to grant a license
pertaining to a particular Project Compound to Meiji is terminated/expired under
the Meiji/SIBIA Contract (or otherwise nullified), this Section 4.2(b) shall no
longer have any legal force and effect with respect to such Project Compound
and; therefore, to the extent that any reversion of rights to SIBIA has occurred
under this Section 4.2(b) such reversion of rights to SIBIA shall immediately
terminate and the license granted in Section 4.2(a) with respect to the
particular Project Compound at issue shall no longer be subject to the
limitations described in this Section 4.2(b) of this Agreement.
21.
<PAGE> 29
(c) NONEXCLUSIVE LICENSE TO SIBIA RIGHTS FOR COMPOUNDS
GENERALLY. In the event that the Project Term is expired/terminated on or after
the expiration of the Initial Project Term, upon such expiration/termination of
the Project Term, except for Pre-Existing Compounds, Compound 1508Y and Compound
1553A or as otherwise provided for in this Section 4.2(c), SIBIA hereby grants
Lilly a non-exclusive license in the Territory under SIBIA Rights, to make, use
(including, without limitation, uses of SIBIA Rights to identify, screen,
discover, research, develop and commercialize Compound(s) and products derived
therefrom), sell, offer to sell and import Compounds and products derived
therefrom. Moreover, in the event that a particular Compound becomes subject to
the Meiji Backup Option, the nonexclusive license granted in this Section 4.2(c)
with respect to such Compound (and only such Compound) shall exclude the Meiji
Field in the Meiji Territory but only to the extent that SIBIA is legally
obligated to grant a license under SIBIA Rights to Meiji pursuant to the
Meiji/SIBIA Contract. The Parties acknowledge, that this license as set forth in
this Section .2(c) shall not be construed to limit any other license granted to
Lilly, under this Agreement, including, without limitation, the license to
Lilly, as set forth in Section 4.2(a) of this Agreement.
Under this Section 4.2(c) of this Agreement, Lilly, in its sole
discretion, shall have the right to appoint (and grant any sublicense related
thereto under SIBIA Rights that has been granted to Lilly under this Section
4.2(c) of this Agreement) one or more Third Party sublicensees to manufacture,
promote, market, co-promote, or co-market any Compound and/or product derived
therefrom in any country in the Territory ("Marketing Partner"). Moreover, Lilly
may, in its sole discretion, in connection with the appointment of a Marketing
Partner, assign (and grant any sublicense related thereto under SIBIA Rights
that has been granted to Lilly under this Section 4.1(c) of this Agreement) to
such partner obligations related to the clinical development of the Compound
(and/or product derived therefrom) with respect to one or more countries. For
avoidance of any doubt, notwithstanding anything to the foregoing, under no
circumstance shall Lilly under this Section 4.2(c) have the right to grant a
sublicense of any SIBIA Rights to any Third Party for purposes of discovering,
identifying or screening Compounds.
The license granted to Lilly under this Article 4.2(c) shall be
effective automatically and without any further action of any Party immediately
upon the expiration and/or termination of the Project Term. Further, upon
expiration of the Post-Project Product Royalty Period, Lilly shall have a fully
paid-up, royalty free nonexclusive license to SIBIA Rights licensed under this
Section 4.2(c) of this Agreement.
4.3 SUBLICENSING. Under this Section 4.3 of this Agreement,
Lilly, in its sole discretion, shall have the right to appoint (and grant any
sublicense related thereto under SIBIA Rights that has been granted to Lilly
under this Agreement) one or more Third Party sublicensees to manufacture,
promote, market, co-promote, or co-market any Compound and/or product derived
therefrom in any country in the Territory ("Marketing Partner"). Moreover, Lilly
may, in its sole discretion, in connection with the appointment of a Marketing
Partner, assign (and grant any sublicense related thereto under SIBIA Rights
that has been granted to Lilly under this this Agreement) to such partner
obligations related to the clinical development of the Compound (and/or product
derived therefrom) with respect to one or more countries. For avoidance of any
doubt, notwithstanding anything to the foregoing, under no circumstance shall
Lilly under this
22.
<PAGE> 30
Section 4.3 have the right to grant a sublicense of any SIBIA Rights to any
Third Party for purposes of discovering, identifying or screening Compounds .
4.4 ASSISTANCE. SIBIA shall promptly provide Lilly with all
Information included in SIBIA Rights, reasonably useful or necessary for Lilly
to exploit the licenses granted in this Article 4. Moreover, SIBIA shall provide
Lilly with reasonable technical assistance in connection with such disclosure of
Information.
4.5 NO PRIOR LICENSE. Except, with respect to Compound 1508Y and
potentially one Compound that may become subject to the Meiji Backup Option,
SIBIA represents and warrants that as of and prior to the Effective Date, it has
not granted a license under SIBIA Rights to make, use (including, without
limitation, uses of SIBIA Rights to identify, screen, discover, research,
develop and commercialize Compound(s) and products derived therefrom), sell,
offer to sell and import Compounds and products derived therefrom, to any other
party (including, without limitation, Affiliates).
4.6 RIGHT TO INTELLECTUAL PROPERTY. The Parties agree that all
rights and licenses granted under or pursuant to Article 4 of this Agreement
are, and shall be deemed to be, for purposes of Section 365(n) of the United
States Bankruptcy Code, as such section may be amended, licenses to rights to
"intellectual property" as defined in the Bankruptcy Code. The Parties agree
that Lilly, as licensee of such rights, shall retain and may exercise all of its
rights and elections under the Bankruptcy Code, including, without limitation,
Section 365(n).
ARTICLE 5
COMMERCIALIZATION RIGHTS
5.1 MARKETING AND COMMERCIALIZATION. Subject to the terms
described in this Agreement, Lilly shall have the sole right to obtain
Regulatory Approval, market, sell, distribute and otherwise commercialize the
Product in each country in the Territory.
Subject to the terms of this Agreement, Lilly shall work diligently to
commercialize Products and Post-Project Products, if any, in Major Markets at
least as diligently as Lilly commercializes products of similar probability of
technical success, market/commercial potential and stages of development in
Major Markets. Failure by Lilly to meet its diligence obligation under this
Section 5.1 of this Agreement due to reasons beyond Lilly's control (including,
without limitation, force majeure and/or lack of technical success of the
Products and/or Post-Project Products) will not constitute lack of due diligence
for purposes of this Agreement.
5.2 ROYALTIES -- PRODUCTS/POST-PROJECT PRODUCTS.
(a) PRODUCT - ROYALTY TIERS. Subject to the provisions of
this Agreement, during the Product Royalty Period (except for Products derived
from Compound 1508Y and Compound 1553A as described in Article 6 hereof) Lilly
and/or its sublicensee, as applicable, shall pay SIBIA a royalty on Net Sales of
each Product (i.e., calculated separately for each Product) in the Territory in
each Calendar Year in accordance with the following royalty
23.
<PAGE> 31
percentages as may be appropriate depending upon the particular royalty tier
that may be applicable:
<TABLE>
<CAPTION>
CALENDAR YEAR NET SALES OF ROYALTY % ON NET SALES OF A
A PARTICULAR PRODUCT IN TERRITORY PARTICULAR PRODUCT WITHIN EACH TIER
--------------------------------- -----------------------------------
<S> <C>
Tier 1 = [*] [*]
Tier 2 = [*] [*]
Tier 3 = [*] [*]
</TABLE>
For avoidance of any doubt, such royalty tiers and royalty percentages
shall be fully applicable to Net Sales of each Product earned during each and
every Calendar Year regardless of whether Net Sales of a particular Product have
exceeded a particular royalty tier in prior Calendar Years (for example, Tier 1
shall always be applicable with respect to the first [*] of Net Sales of each
Product in each and every Calendar Year and Tier 2 shall always be applicable
for Net Sales of each Product during each and every Calendar Year that are
between [*] and [*]).
Commencing January 1, 2000, the Net Sales tiers (as opposed to the
royalty percentages) described above will be adjusted each Calendar Year in
accordance with the Consumer Price Index (U.S. Bureau of Labor Statistics for
all urban consumers, U.S. City Average - not seasonally adjusted - all items
less food and energy (January 1, 1999 equals 175.3)).
Royalties payable under this Section 5 will be payable only once with
respect to a particular sale of Product regardless of there being more than one
Patent applicable to such Product.
(b) POST-PROJECT PRODUCTS - ROYALTY TIERS. Subject to the
provisions of this Agreement, during the Post-Project Royalty Period Lilly
and/or its sublicensee, as applicable, shall pay SIBIA a royalty on Net Sales of
each Post-Project Product (i.e., calculated separately for each Post-Project
Product) in the Territory in each Calendar Year in accordance with the following
royalty percentages as may be appropriate depending upon the particular royalty
tier that may be applicable:
<TABLE>
<CAPTION>
CALENDAR YEAR NET SALES OF ROYALTY % ON NET SALES OF A
A PARTICULAR POST-PROJECT PRODUCT IN PARTICULAR POST-PROJECT PRODUCT
TERRITORY WITHIN EACH TIER
------------------------------------ -------------------------------
<S> <C>
Tier 1 = [*] [*]
Tier 2 = [*] [*]
Tier 3 = [*] [*]
</TABLE>
For avoidance of any doubt, such royalty tiers and royalty percentages
shall be fully applicable to Net Sales of each Post-Project Product earned
during each and every Calendar Year
* CONFIDENTIAL TREATMENT REQUESTED
24.
<PAGE> 32
regardless of whether Net Sales of a particular Post-Project Product have
exceeded a particular royalty tier in prior Calendar Years (for example, Tier 1
shall always be applicable with respect to the first [*] of Net Sales of each
Post-Project Product in each and every Calendar Year and Tier 2 shall always be
applicable for Net Sales of each Post-Project Product during each and every
Calendar Year that are between [*] and [*]).
Commencing January 1, 2000, the Net Sales tiers (as opposed to the
royalty percentages) described above will be adjusted each Calendar Year in
accordance with the Consumer Price Index (U.S. Bureau of Labor Statistics for
all urban consumers, U.S. City Average - not seasonally adjusted - all items
less food and energy (January 1, 1999 equals 175.3)).
Royalties payable under this Article 5 will be payable only once with
respect to a particular sale of a Post-Project Product regardless of there being
more than one Patent applicable to such Post-Project Product.
(c) COMPULSORY LICENSE. If in any country a Third Party
obtains a Compulsory License, then Lilly shall promptly notify SIBIA. If the
royalty rate payable by the grantee of the Compulsory License is less than the
then-current royalty rate paid under this Agreement, then the royalty rate,
payable under this Agreement, shall be reduced to such lower rate in the subject
country for so long as sales are made pursuant to the Compulsory License.
(d) MEIJI BACKUP OPTION -ROYALTY REDUCTION. In the event
that SIBIA is legally obligated under the Meiji/SIBIA Contract to grant a
license to Meiji with respect to a particular Compound and/or product derived
therefrom for the Meiji Field in the Meiji Territory and if such Compound or
Product derived therefrom is a Project Compound and Product derived therefrom
(or Post-Project Compound and Post Project Product derived therefrom, as the
case may be), then the then-current royalty rate by tier with respect to such
Project Compound and Product derived therefrom (or Post-Project Compound and
Post Project Product derived therefrom, as the case may be) after applying
Section 5.2(c) shall be reduced by [*] (e.g., if the then-current royalty rate
under Section 5.2(a), after applying 5.2(c), was [*], the reduced rate under
this Section 5.2(d) would be [*]).
(e) LILLY CURRENT PRODUCTS/COMPOUNDS. Notwithstanding
anything to the contrary in this Agreement, Lilly's royalty, milestone,
diligence and other obligations with respect to Project Compounds, Post-Project
Compounds, Product and/or Post-Project Products as set forth in this Agreement
shall not be applicable (i.e., Lilly shall neither owe any royalty or milestone
payments, diligence or other obligation due hereunder) with respect to any such
compounds and/or products derived therefrom under the following circumstances:
(i) MARKETED COMPOUNDS/PRODUCTS. Any compound or
product derived therefrom that Lilly (solely, jointly or otherwise
collaboratively with a Third Party ) has received Regulatory Approval and/or are
being sold in one or more countries as of the Effective Date; or
(ii) CLINICAL COMPOUNDS/PRODUCTS. Any compound or
product derived therefrom that Lilly (solely, jointly or otherwise
collaboratively with a Third Party ) is currently in clinical development (i.e.,
meaning the compounds that have been selected as
* CONFIDENTIAL TREATMENT REQUESTED
25.
<PAGE> 33
clinical candidates by Lilly, solely, jointly or otherwise collaboratively with
a Third Party) as of the Effective Date; or
(iii) THIRD PARTY RESTRICTIONS. Any compound or
product derived therefrom that are derived from the Lilly Compound Library and
is subject to Third Party restrictions reasonably preventing Lilly from using
such compound in connection with this Agreement, or
(iv) PRE-EXISTING THERAPEUTICALLY USEFUL
COMPOUNDS/PRODUCTS. Except as otherwise provided in this Section 5.2(e)(iv), any
compound or product derived therefrom that are derived from the Lilly Compound
Library and are identified as a Compound by using solely a primary screen
encompassed within SIBIA Rights or Project Rights that, at the time and
independent of such identification, such compound at issue had exhibited a
pre-existing (i.e., prior to establishing such compound as a Compound as
described above) scientifically valid and experimentally established rationale
for expecting such compound/product to be therapeutically useful.
Notwithstanding the foregoing provisions of this Section 5.2(e)(iv), in the
event that either: (1) such pre-existing established rationale as described
above subsequently becomes invalid with respect to the compound/product at issue
or (2) Lilly (solely, jointly or otherwise collaboratively with a Third Party )
subsequently after such identification as described above directs additional
research and development efforts towards such compound/product at issue using
SIBIA Rights or (3) Lilly's approved label used to market the compound/product
at issue indicates that the compound/product is therapeutically useful based on
its activity as a agonist, antagonist or modulator at one or more nicotinic
acetycholine receptor subtypes, then such compound/product at issue would not be
excluded from royalty, diligence and other obligations based solely on this
Section 5.2(e)(iv) of this Agreement.
For purposes of this Section 5.2(e) of this Agreement, "Lilly Compound
Library" shall mean compounds contained in the research records libraries owned
or controlled by Lilly and individual compounds or mixtures of compounds,
synthesized by combinatorial chemistry methods, contained in the combinatorial
chemistry libraries owned or controlled by Lilly.
(f) ACCESS TO THIRD PARTY RIGHTS. If, after the Effective
Date access to a Third Party's intellectual property rights becomes necessary or
reasonably useful to make, use, sell, offer to sell and/or import Compounds and
products derived therefrom in the Territory, Lilly shall have the right to
acquire such access. Upon such acquisition the following circumstances shall be
applicable:
(i) SIBIA PATENT RIGHTS. If the Third Party
intellectual property rights are necessary for Lilly to operate freely under the
SIBIA Patent Rights under the license granted herein without infringing such
Third Party's patent rights the acquisition cost paid by Lilly (i.e., all
consideration paid by Lilly in connection with such acquisition including,
without limitation up-front payments, milestones payments and royalties) shall
be credited against future royalties owed to SIBIA by Lilly under this
Agreement. Prior to Lilly acquiring such rights under this Section 5.2(f)(1),
Lilly shall give SIBIA sixty (60) days (or such other period as the Parties may
mutually agree upon in writing) to either: (i) reasonably demonstrate that it
has a dominant intellectual property position with regard to the technology at
issue or (ii) negotiate an appropriate license, at SIBIA's sole expense, to such
technology that would give
26.
<PAGE> 34
Lilly access to such technology in a manner consistent with the terms of this
Agreement. Upon, the expiration of such sixty (60) day period (or such other
period as the Parties may mutually agree upon in writing), Lilly shall be free
to acquire such rights in accordance with this Section 5.2(f)(1) as it deems
appropriate.
(ii) OTHER PATENT RIGHTS. For all acquisitions of
Third Party intellectual property rights other than acquisitions described in
Section 5.2(f)(1) of this Agreement, [*] of the acquisition cost paid by Lilly
(i.e., all consideration paid by Lilly in connection with such acquisition
including, without limitation up-front payments, milestones payments and
royalties) shall be credited against future royalties owed to SIBIA by Lilly
under this Agreement.
(iii) ROYALTY FLOOR AS A RESULT OF ACQUISITIONS.
Except as the Parties may otherwise agree in writing, notwithstanding the
foregoing, under no circumstance shall Lilly acquisitions of Third Party
intellectual property rights under the provisions of this Section 5.2(e) result
in a reduction of royalties payable to SIBIA under this Agreement by more than
[*] percent ([*]%) of Net Sales.
(g) CURRENT ROYALTY OBLIGATIONS (AS OF EFFECTIVE DATE).
Notwithstanding anything to the contrary in this Agreement (including, without
limitation, Section 5.2(f)), both Parties acknowledge and hereby agree that each
are solely responsible for any and all royalty obligations that have accrued or
may accrue in the future with respect to any agreements and/or arrangement that
such Party may have agreed to prior to the Effective Date.
(h) ROYALTY PAYMENTS. Lilly shall pay royalties owed under
this Section 5.2 as follows:
(i) DURATION OF ROYALTIES PAID FOR PRODUCTS. During
the Product Royalty Period (such period being determined for each Post-Project
Product on an individual product basis and country-by-country basis) royalty
payments hereunder shall be paid by Lilly to SIBIA on Net Sales of each Product
for the particular country and Product at issue.
Upon expiration of the Product Royalty Period, with respect to a
particular Product in a particular country, Lilly shall have a fully paid-up,
exclusive license under the SIBIA Rights in such country at issue to make, use
(including, without limitation, uses of SIBIA Rights to identify, screen,
discover, research, develop and commercialize such Project Compound and Product
derived therefrom), sell, offer to sell and import such Project Compound and
Products derived therefrom.
(ii) Duration of Royalties Paid for Post-Project
Products. During the Post-Project Product Royalty Period (such period being
determined for each Post-Project Product on an individual product basis and
country-by-country basis) royalty payments hereunder shall be paid by Lilly to
SIBIA on Net Sales of each Post-Project Product for the particular country and
Post-Project Product at issue.
Upon expiration of the Post-Project Product Royalty Period, with respect
to a particular Post-Project Product in a particular country, Lilly shall have a
fully paid-up, nonexclusive license under the SIBIA Rights in such country at
issue to make, use (including, without
* CONFIDENTIAL TREATMENT REQUESTED
27.
<PAGE> 35
limitation, uses of SIBIA Rights to identify, screen, discover, research,
develop and commercialize such Post-Project Compound and Post-Project Product
derived therefrom), sell, offer to sell and import such Post-Project Compound
and Post-Project Products derived therefrom.
(iii) PAYMENT TERMS. Royalty payments due SIBIA under
this Section 5.2 will be paid not later than ninety (90) days following the end
of each Calendar Quarter and each such royalty payment shall be accompanied by a
report in writing showing the Calendar Quarter for which such royalty payment
applies on a Product-by-Product (or Post-Project Product, as the case may be)
basis, the amount of Net Sales during such Calendar Quarter for which a royalty
payment is due on a country-by-country basis and the total royalty payment due.
SIBIA or its representatives shall have the right to audit Lilly's records with
respect to such reports in accordance with Section 8.2 of this Agreement.
5.3 UP-FRONT EQUITY PURCHASE. Within thirty (30) days of the
Effective Date and pursuant to a Stock Purchase Agreement of even date herewith
and attached hereto as Schedule 5.3, Lilly shall purchase and SIBIA shall sell
to Lilly one (1) share of SIBIA Series B Convertible Non-Voting Preferred Stock
for the purchase price of five million dollars ($5,000,000).
5.4 MILESTONES.
(a) Milestones for Products. In addition to the royalty
payments provided in Section 5.2(a) and the up-front equity purchase as
described in Section 5.3 of this Agreement, Lilly shall make the following
milestone payments to SIBIA within thirty (30) days following the first
occurrence of each of the following events with respect to each Product:
<TABLE>
MILESTONE EVENTS PAYMENT (US DOLLARS)
---------------- --------------------
<S> <C>
Upon CSA of Product (or its equivalent) [*] if there has been no more
than [*] CSAs associated with
either Product or Post-Project
Product, collectively. In all
other cases, [*] for each
Product thereafter
[*] [*]
[*] [*]
[*] [*]
[*] [*]
</TABLE>
Commencing January 1, 2000, the Milestone Payments described above will
be adjusted each Calendar Year in accordance with the Consumer Price Index (U.S.
Bureau of Labor Statistics for all urban consumers, U.S. City Average - not
seasonally adjusted all items less food and energy (January 1, 1999 equals
175.3)).
* CONFIDENTIAL TREATMENT REQUESTED
28.
<PAGE> 36
(b) MILESTONES FOR POST-PROJECT PRODUCTS. In addition to
the royalty payments provided in Section 5.2(b) and the up-front equity purchase
as described in Section 5.3 of this Agreement, Lilly shall make the following
milestone payments to SIBIA within thirty (30) days following the first
occurrence of each of the following events with respect to each Post-Project
Product:
<TABLE>
<CAPTION>
MILESTONE EVENTS PAYMENT (US DOLLARS)
---------------- --------------------
<S> <C>
Upon CSA of Post-Project Product (or its equivalent) [*] if there has been no
more than [*] CSAs associated
with either Product or
Post-Project, collectively.
In all other cases, [*] for
each Post-Project Product
[*] [*]
[*] [*]
[*] [*]
[*] [*]
</TABLE>
Commencing January 1, 2000, the Milestone Payments described above will
be adjusted each Calendar Year in accordance with the Consumer Price Index (U.S.
Bureau of Labor Statistics for all urban consumers, U.S. City Average - not
seasonally adjusted all items less food and energy (January 1, 1999 equals
175.3)).
(c) NEGOTIATION MILESTONES EVENTS - NON-HUMAN USE. In the
event (and only in such event), that a Product or a Post-Project Product is
solely developed for non-human use and milestones payments have not been made
with respect to such Product or Post-Project Product under Section 5.4(a) or
(b), SIBIA shall be entitled to milestone payments in accordance with Section
5.4(a) or (b), as applicable, however, the Parties will in good faith negotiate
appropriate milestone payment events (as opposed to amounts) for such non-human
use Product or Post-Project Product. For avoidance of any doubt, the good faith
negotiation described under this Section 5.4(c) pertains solely to the milestone
events and not the amounts of such milestones and, therefore, the actual amounts
of milestone payments as described in Section 5.4(a) or (b), as applicable,
shall remain unchanged in connection with Products or Post-Project Products that
are solely developed for non-human use.
(d) MILESTONE LIMITATIONS. The milestone payments set
forth above in this Section 5.4 shall be made by Lilly to SIBIA only once per
Product (or Post-Project Product, as the case may be) no matter how many times
such milestones are reached during the term of this Agreement due to additional
indication/formulations (as well as alternative delivery methods), that may be
developed for such Product (or Post-Project Product, as the case may be) at
issue. Moreover, any obligation to make milestone payments under this Section
5.4 that have been previously paid to SIBIA with respect to a particular Product
(or Post-Project Product, as the case may be) in which development has been
ceased by Lilly prior to Product Launch of such Product (or Post-Project
Product, as the case may be), shall not apply towards a subsequent Product (or
Post-Project Product, as the case may be) that is being pursued for the same
primary indication, provided that such subsequent Products (or Post-Project
Products, as the case may be)
* CONFIDENTIAL TREATMENT REQUESTED
29.
<PAGE> 37
for said indications shall, however, be eligible for milestone payments not
achieved by the discontinued Product (or Post-Project Product, as the case may
be) at issue.
(e) MEIJI -- MILESTONE REDUCTION. In the event that Meiji
exercises the Meiji Backup Option with respect to a particular Compound (and/or
any product derived therefrom) which Lilly is obligated to pay milestones under
either Section 5.4(a), 5.4(b) or 5.4(c) of this Agreement and SIBIA is legally
obligated under the Meiji/SIBIA Contract to grant certain rights to Meiji with
respect to such Compound, Lilly's past and future milestone obligations incurred
by Lilly under Section 5.4(a), 5.4(b) or 5.4(c), as the case may be, with
respect to such Compound (and/or any product derived therefrom) at issue shall
each be reduced by [*] percent ([*]%). In the case of prior milestone
obligations already paid by Lilly such aggregate reduction shall be fully
creditable against future milestones and/or royalties obligations incurred by
Lilly under this Agreement with respect to the particular Compound (or any
product derived therefrom) at issue.
(f) ANNUAL DEVELOPMENT STATUS REPORTS. During the term of
this Agreement, upon the expiration or termination of the Project, Lilly will
provide to SIBIA, on an annual basis, a summary report of the development status
of any Project Compound (or Post-Project Compound, as the case may be) and
products derived therefrom that have at least achieved CSA but have not yet
achieved Product Launch. This summary report shall merely list such Project
Compound(s) (or Post-Project Compound(s), as the case may be) and products
derived therefrom, together with a designation of whether such compound and/or
product is in either post-CSA-preclinical, Phase I Clinical Trials, Phase II
Clinical Trials, or Phase III Clinical Trials).
5.5 CURRENCY OF PAYMENT/EXCHANGE RATES. All payments to be made
under this Agreement shall be made in U.S. Dollars. For those sales involving
Product (or Post-Project Product, as the case may be) which occur outside the
United States, the royalty due on such sales will be calculated on the basis of
the local currency sales figures translated into United States dollars according
to Lilly's standard methodology. The methodology employed by Lilly shall be that
methodology used by Lilly in the translation of its foreign currency operating
results for external reporting and shall be consistent with United States
generally accepted accounting principles.
5.6 TAXES. Any and all taxes levied on account of royalties or
milestones accruing under this Section 5 shall be paid by SIBIA. If laws or
regulations require withholding of said taxes, such taxes will be deducted by
Lilly or its sublicensee from such remittable royalties or milestones and will
be paid by Lilly or its sublicensee to the proper taxing authority, and proof of
payment shall be sent to SIBIA within ninety (90) days following December 31st
of each reporting year. Lilly agrees to reasonably cooperate with SIBIA to
facilitate SIBIA in claiming exemptions from such deductions or withholdings
under any double taxation or similar agreement or treaty from time to time in
effect.
5.7 PRE-EXISTING COMPOUNDS. In consideration for excluding, upon
the termination/expiration of the Project Term, Pre-Existing Compounds that have
not become Project Compounds from the exclusive license and nonexclusive license
granted to Lilly under Section 4.2(a) and 4.2(c) of this Agreement, SIBIA hereby
provides Lilly with the following:
* CONFIDENTIAL TREATMENT REQUESTED
30.
<PAGE> 38
(a) RIGHT OF FIRST NEGOTIATION. SIBIA hereby grants Lilly
a right of first negotiation to enter into an exclusive license arrangement with
SIBIA with respect to each Pre-Existing Compound ("Right of First Negotiation")
whereby SIBIA agrees that it will neither negotiate nor enter into an
arrangement involving a particular Pre-Existing Compound in which SIBIA would
license/sublicense or otherwise commercialize such Pre-Existing Compounds and/or
products derived therefrom with a Third Party (the "Third Party
Commercialization Arrangement") prior to the expiration of the Lilly Negotiation
Period (defined below).
To ensure that Lilly has adequate time to consider whether it should
exercise its Right of First Negotiation with respect to a particular
Pre-Existing Compound, SIBIA hereby agrees that prior to negotiating or entering
into any Third Party Commercialization Arrangement regarding a particular
Pre-Existing Compound, SIBIA shall provide Lilly with written notification of
its intent to enter into such an arrangement including, without limitation a
summary report of all relevant information that would be reasonably useful to a
potential licensee of the Pre-Existing Compound at issue so as to assess the
business opportunity at issue. Upon receipt of such notice, Lilly shall have
forty-five (45) days to provide SIBIA with written notification exercising its
Right of First Negotiation.
Lilly's Right of First Negotiation under this Section 5.7(a) shall
expire and have no legal effect with respect to the particular Pre-Existing
Compound at issue in the event that: (i) Lilly does not provide SIBIA with its
written notice to exercise its Right of First Negotiation within the prescribed
forty-five (45) day period as described above; (ii) SIBIA and Lilly enter into
mutually acceptable written agreement regarding such matter; or (iii) the lapse
of ninety (90) days or such other term as is mutually agreed upon in writing by
the Parties from the date upon which SIBIA receives written notice from Lilly
exercising its Right of First Negotiation (collectively, the "Lilly Negotiation
Period").
For avoidance of any doubt, this Section 5.7(a) merely obligates SIBIA
to abide by the notice provisions set forth herein and not to enter into a Third
Party Commercialization Arrangement until such time that the Lilly Negotiation
Period has expired (it is understood that the ultimate decision regarding the
appropriate party to sublicense rights related to Pre-Existing Compound(s) shall
be completely within SIBIA's sole discretion).
(b) PRE-EXISTING COMPOUND COMPENSATION. In the event that
Lilly does not enter into an exclusive license arrangement with SIBIA, with
respect to a particular Pre-Existing Compound as contemplated under Section
5.7(a) and SIBIA either commercializes such Pre-Existing Compound (and/or
product derived therefrom) by itself or pursuant to a Third Party
Commercialization Arrangement (collectively, the "Commercialization Event"),
SIBIA shall pay Lilly [*] percent ([*]%) of all royalties received by SIBIA from
the applicable Third Party (in the case of a Third Party Commercialization
Arrangement) or [*] percent ([*]%) of Profits (in the case SIBIA commercializes
the product on its own). Payments due to Lilly hereunder will be paid not later
than ninety (90) days following the Calendar Quarter in which Profits and
royalties, as applicable, are earned by SIBIA. SIBIA hereby represents that it
shall not structure such a Third Party Commercialization Arrangement in such a
manner so as to artificially reduce royalties described in this Section 5.7 by,
among other things, inflating milestone payments and other forms of
consideration or involving research and other development activities by SIBIA at
compensation rates at higher levels than are customary within the industry.
* CONFIDENTIAL TREATMENT REQUESTED
31.
<PAGE> 39
For purposes of this Section 5.7(b) the term "Profit" shall mean SIBIA's
gross revenues less cost of goods sold and sales and marketing expenses
associated with the particular Pre-Existing Compound and product derived
therefrom.
5.8 SIBIA RIGHT OF NEGOTIATION FOR SOLELY PROJECT COMPOUNDS
AND/OR PRODUCT. In the event that Lilly decides to sublicense its rights
licensed hereunder to a particular Project Compound and/or Product for the
United States, Lilly hereby grants SIBIA a right of first negotiation to enter
into a sublicense arrangement involving such Project Compound/Product for the
United States ("US Right of First Negotiation") whereby Lilly agrees that it
will neither negotiate nor enter into an arrangement involving the Project
Compound and/or Product at issue in which Lilly would license/sublicense or
otherwise commercialize such Project Compound and/or Product in the United
States with a Third Party (the "US Third Party Commercialization Arrangement")
prior to the expiration of the SIBIA Negotiation Period (defined below).
To ensure that SIBIA has adequate time to consider whether it should
exercise its US Right of First Negotiation with respect to a particular Project
Compound, Lilly hereby agrees that prior to negotiating or entering into any US
Third Party Commercialization Arrangement regarding a particular Project
Compound, Lilly shall provide SIBIA with written notification of its intent to
enter into such an arrangement including, without limitation a summary report of
all relevant information that would be reasonably useful to a potential licensee
of the Project Compound at issue so as to assess the business opportunity at
issue. Upon receipt of such notice, SIBIA shall have forty-five (45) days to
provide Lilly with written notification exercising its US Right of First
Negotiation.
SIBIA's Right of First Negotiation under this Section 5.8 shall expire
and have no legal effect with respect to the particular Project Compound at
issue in the event that: (i) SIBIA does not provide Lilly with its written
notice to exercise its US Right of First Negotiation within the prescribed
forty-five (45) day period as described above; (ii) LILLY and SIBIA enter into
mutually acceptable written agreement regarding such matter; or (iii) the lapse
of ninety (90) days or such other term as is mutually agreed upon in writing by
the Parties from the date upon which Lilly receives written notice from SIBIA
exercising its Right of First Negotiation (collectively, the "SIBIA Negotiation
Period").
For avoidance of any doubt, this Section 5.8 merely obligates Lilly to
abide by the notice provisions set forth herein and not to enter into a Third
Party Commercialization Arrangement until such time that the SIBIA Negotiation
Period has expired (it being understood that the ultimate decision regarding the
appropriate party to sublicense to shall be completely within Lilly's sole
discretion).
ARTICLE 6
LILLY OPTION TO COMPOUND 1508Y AND COMPOUND 1553A
6.1 COMPOUND OPTION 1508Y/1553A. SIBIA hereby grants Lilly an
exclusive option to obtain an exclusive license to Compound 1508Y and/or
Compound 1553A ("Compound 1508Y/1553A Option") as follows:
32.
<PAGE> 40
(a) COMPOUND 1508Y. In the case Lilly exercises its
Compound 1508Y/1553A Option for Compound 1508Y in accordance with Section 6.2
and subject to terms as described in Section 6.2, SIBIA hereby grants, effective
upon such exercise, an exclusive license in the Territory (excluding the Meiji
Field in the Meiji Territory), with a right to sublicense consistent with the
terms of this Agreement, under SIBIA Rights and any other patent rights and
know-how that are Controlled by SIBIA as of the effective date of Lilly
exercising such Compound 1508Y/1553A Option that may be reasonably useful and/or
necessary in connection with such license, to make, use (including, without
limitation, uses of SIBIA Rights and such other rights described in this Section
6.1(a) to identify, screen, discover, research, develop and commercialize
Compound 1508Y and Products derived therefrom), sell, offer for sale and import
Compound 1508Y and/or Product derived therefrom.
In the event that the rights granted to Meiji under the Meiji/SIBIA
Contract with respect to Compound 1508Y for the Meiji Field in the Meiji
Territory (the "Meiji Compound 1508Y Rights") revert or otherwise become vested
in SIBIA for any reason, SIBIA shall notify Lilly of the same in writing within
forty-five (45) days of such occurrence. Furthermore, upon such occurrence,
SIBIA hereby grants Lilly a right of first discussion with respect to obtaining
an exclusive license to such Meiji Compound 1508Y Rights.
Lilly may exercise such right of first discussion by notifying SIBIA of
the same in writing within forty-five (45) days of it receiving notice from
SIBIA of the occurrence of such event. Upon SIBIA's receipt of such notice from
Lilly, SIBIA shall not participate in commercial terms negotiation with another
party involving Meiji Compound 1508Y Rights. Upon Lilly exercising such right of
first discussion, the Parties shall commence good faith discussions regarding
Lilly obtaining an exclusive license to Meiji Compound 1508Y Rights for a period
of ninety (90) days or other period as the Parties may mutually agree upon in
writing (the "Discussion Period"). The negotiation rights under this Section
6.1(a) shall expire and have no legal effect in the event that: (i) Lilly does
not provide SIBIA with its written notice to exercise within the prescribed
forty-five (45) day period as described above; (ii) SIBIA and Lilly enter into
mutually acceptable agreement regarding such matter; or (iii) the lapse of
ninety (90) days or such other term as is mutually agreed upon in writing by the
Parties from the date upon which SIBIA receives written notice from Lilly to
exercise the right of first discussion pertaining to the Meiji Compound 1508Y
Rights as described under this Section 6.1(a) of this Agreement.
(b) COMPOUND 1553A. In the case Lilly exercises its
Compound 1508Y/1553A Option for Compound 1553A in accordance with Section 6.2
and subject to terms as described in Section 6.3, SIBIA hereby grants, effective
upon such exercise, an exclusive license in the Territory, with a right to
sublicense consistent with the terms of this Agreement, under SIBIA Patent
Rights and any other patent rights and know-how that are Controlled by SIBIA as
of the effective date of Lilly exercising such Compound 1508Y/1553A Option that
may be reasonably useful and/or necessary in connection with such license, make,
use (including, without limitation, uses of SIBIA Rights and such other rights
described in this Section 6.1(b) to identify, screen, discover, research,
develop and commercialize Compound 1553A and Products derived therefrom), sell,
offer for sale, have sold and import Compound 1553A and/or Product derived
therefrom.
33.
<PAGE> 41
6.2 EXERCISING COMPOUND 1508Y/1553A OPTION. Within thirty (30)
days after the completion of SIBIA's current phase II clinical trials pertaining
to the particular Compound at issue, (i.e., clinical trials known internally by
SIBIA as SIB-1508Y-201, SIB-1508Y-202 or SIB-1553A-201), SIBIA shall provide
Lilly with a comprehensive summary of the results and data that would be
reasonably useful to the evaluation of the same. The Compound 1508Y/1553A Option
may be exercised by Lilly at any time prior to sixty (60) days after Lilly's
receipt of data from SIBIA regarding completion of the current phase II clinical
trials (as described above) pertaining to the particular Compound at issue,
i.e., Compound 1508Y or Compound 1553A. Upon Lilly exercising its Compound
1508Y/1553A Option with respect to either Compound 1508Y or Compound 1553A, such
Compound, as applicable, shall be deemed a Project Compound (including Product
derived therefrom) and be subject to the terms of this Agreement except as
further described below in this Section 6.2 of this Agreement.
(a) COMPOUND 1508Y. In the case of Compound 1508Y the
following modification to the terms described in this Agreement shall be
applicable:
(i) EXERCISE FEE. Within thirty (30) days of Lilly
exercising such Compound 1508Y/1553A Option for Compound 1508Y, Lilly shall pay
SIBIA [*] Dollars ($[*]).
(ii) MILESTONES. SIBIA shall be entitled to earn
future milestone payments in connection with Compound 1508Y (and/or Product
derived therefrom, as applicable,) as described in Section 5.4 of this Agreement
reduced by [*] percent ([*]%) and only to the extent such milestones occur
subsequent to Lilly exercising its option with respect to Compound 1508Y.
(iii) ROYALTIES. Upon Lilly exercising its option
with respect to Compound 1508Y, SIBIA shall be entitled to earn royalties with
respect to Product derived from Compound 1508Y pursuant and subject to all of
the royalty terms set forth in Section 5.2 (including, without limitations
appropriate CPI adjustments as described in Section 5.2(a)) and other terms as
described in this Agreement except that the royalty percentages and royalty
tiers as set forth in Section 5.2(a) of this Agreement for Product derived from
Compound 1508Y shall change to the following:
<TABLE>
<CAPTION>
CALENDAR YEAR NET SALES OF EACH ROYALTY % ON NET SALES OF EACH
PRODUCT DERIVED FROM COMPOUND PRODUCT DERIVED FROM COMPOUND
1508Y IN TERRITORY 1508Y WITHIN EACH TIER
----------------------------- ------------------------------
<S> <C>
Tier 1 = [*] [*]
Tier 2 = [*] [*]
</TABLE>
(iv) NO OTHER CONSIDERATION. Except for the
consideration as specifically set forth in this Section 6.2(a) of this
Agreement, SIBIA shall not be entitled to any other consideration under this
Agreement with respect to Compound 1508Y (and/or Product derived therefrom).
* CONFIDENTIAL TREATMENT REQUESTED
34.
<PAGE> 42
(b) COMPOUND 1553A. In the case of Compound 1553A the
following modification to the terms described in this Agreement shall be
applicable:
(i) EXERCISE FEE. Within thirty (30) days of Lilly
exercising such Compound 1508Y/1553A Option for Compound 1553A, Lilly shall pay
SIBIA [*] Dollars ($[*]).
(ii) MILESTONES. SIBIA shall be entitled to earn
future milestone payments in connection with Compound 1553A (and/or Product
derived therefrom, as applicable,) as described in Section 5.4 of this Agreement
but only to the extent such milestones occur subsequent to Lilly exercising its
option with respect to Compound 1553A.
(iii) ROYALTIES. Upon Lilly exercising its option
with respect to Compound 1553A, SIBIA shall be entitled to earn royalties with
respect to Product derived from Compound 1553A pursuant and subject to all of
the royalty terms set forth in Section 5.2 (including, without limitations
appropriate CPI adjustments as described in Section 5.2(a)) and other terms as
described in this Agreement except that the royalty percentages and royalty
tiers as set forth in Section 5.2(a) of this Agreement for Product derived from
Compound 1553A shall change to the following:
<TABLE>
<CAPTION>
CALENDAR YEAR NET SALES OF EACH ROYALTY % ON NET SALES OF EACH
PRODUCT DERIVED FROM COMPOUND PRODUCT DERIVED FROM COMPOUND
1553A IN TERRITORY 1553A WITHIN EACH TIER
----------------------------- -----------------------------
<S> <C>
Tier 1 = [*] [*]
Tier 2 = [*] [*]
</TABLE>
(iv) NO OTHER CONSIDERATION. Except for the
consideration as specifically set forth in this Section 6.2(b) of this
Agreement, SIBIA shall not be entitled to any other consideration under this
Agreement with respect to Compound 1553A (and/or Product derived therefrom).
ARTICLE 7
MANUFACTURE OF PROJECT COMPOUND AND/OR PRODUCT
7.1 MANUFACTURER OF PROJECT COMPOUND AND/OR PRODUCT. Except as
the Parties may otherwise agree in writing, Lilly (or an agent of Lilly, as
Lilly may elect) shall have the exclusive right to manufacture Project Compound
and/or Product derived therefrom.
7.2 TRANSFER OF POSSESSION OF SIBIA KNOW-HOW AND PROJECT
KNOW-HOW. To assist Lilly in the manufacture of Project Compound and/or Product
derived therefrom (and consistent with licenses granted to Lilly under this
Agreement and ownership provisions of Article 9 of this Agreement), to the
extent not already transferred to Lilly hereunder, SIBIA shall promptly disclose
(and transfer ownership, if applicable) to Lilly (or such Third Party as Lilly
* CONFIDENTIAL TREATMENT REQUESTED
35.
<PAGE> 43
may elect) any SIBIA Know-How and or Project Know-How required and/or reasonably
useful in order to enable Lilly (or such Third Party) to manufacture Project
Compound and/or Product derived therefrom and shall provide Lilly (or such Third
Party), all reasonable assistance required in order to efficiently accomplish
such transfer
ARTICLE 8
RECORD-KEEPING AND AUDITS
8.1 RECORDS RETENTION. Each Party shall record, to the extent
practical, all Information relating to the Project in written or electronic
form. To the extent practical, such written records shall be kept separately
from written records documenting other research and development of such Party.
All such written records of each Party shall be maintained in a form sufficient
to satisfy regulatory authorities. Each Party shall require its employees and
consultants to disclose any inventions relating to the Project in writing
promptly after conception. Furthermore, the Parties, as applicable, shall keep
complete and accurate records pertaining to the Project to confirm the efforts
hereunder. For those records pertaining to Lilly's commercialization efforts
(including records necessary to confirm the information contained in the reports
provided pursuant to Section 5.2(h)), for the sole purpose of determining the
accuracy of calculations royalty for any payment due hereunder, such records
shall be maintained for a two (2) year period following the year in which any
such efforts or payments were made hereunder. Similarly, for those records
pertaining to SIBIA's Project efforts for the sole purpose of determining the
accuracy of calculations of Project funding as described under Article 2.2 of
this Agreement, such records shall be maintained for a two (2) year period
following the year in which any such efforts or payments were made hereunder.
Finally, notwithstanding the foregoing, for those records pertaining to the
Parties actual research and development efforts hereunder (including, without
limitation, any data, results and/or information derived therefrom), such
records shall be maintained for a fifteen (15) year period following the
Calendar Year in which any such efforts were made hereunder except for those
records pertaining to regulatory filing and other regulatory commitments (e.g.
manufacturing tickets, manufacturing procedures, etc.) such records shall be
held for such period as is mutually agreed upon between the Parties in writing
that is reasonably necessary to comply with regulatory requirements.
8.2 AUDIT REQUEST. Each of the Parties shall have the right to
request an audit of such records as described in Section 8.1 of this Agreement
(to the extent relevant to the issue at hand), at its own expense and on an
annual basis (to the extent practicable in conjunction with the audited Party's
annual audit), to determine, with respect to any of the two (2) preceding
Calendar Years, the correctness of any report or payment made under this
Agreement. If a Party desires to audit such records, it shall utilize the
independent, certified public accountant of the other Party, to examine such
records. Such accountant shall be instructed to provide the Party desiring the
audit a report on the findings of the agreed upon procedures which verifies any
previous report made or payment submitted by the audited Party during such
period. The expense of such audit shall be borne by the Party requesting the
audit; provided, however, that if an error to the detriment of the auditing
Party of more than ten percent (10%) is discovered, then such expenses shall be
paid by the audited Party. Any Information received by a Party pursuant to this
Section 8.2 shall be deemed to be Confidential Information hereunder.
Notwithstanding
36.
<PAGE> 44
anything to the foregoing, in connection with sublicensees' Net Sales and
royalty obligations related thereto, the audit rights described under this
Section 8.2 of the Agreement shall be limited solely to confirmation of said
sublicensees' Net Sales.
In the event such examination reveals that additional payments were owed
to the Party requesting the audit during such period, the additional payments
(and, if applicable, reimbursement of the expenses incurred with respect to such
audit) shall be paid by the audited Party within thirty (30) days of the date
the audited Party receives a written report prepared by the independent
certified public accountants specifying the basis for its determination.
Conversely, in the event that such examination reveals that the audited Party
overpaid the auditing Party an amount payable hereunder, then the Party
requesting the audit shall pay the audited Party within thirty (30) days of
written notification of such examination determination an amount equal to such
overpayment. Upon the expiration of two (2) years following the end of any
Calendar Year, the audit right hereunder shall expire with respect to such
Calendar Year and the calculation of amounts payable with respect to such
Calendar Year shall be binding and conclusive upon both Parties and each Party
shall be released from any liability or accountability with respect to payments
for such Calendar Year.
8.3 SURVIVAL. This Article 8 shall survive any termination of
this Agreement for a period of two (2) years.
ARTICLE 9
INVENTIONS/KNOW-HOW
9.1 OWNERSHIP OF PROJECT RIGHTS.
(a) PRODUCT PROJECT RIGHTS. Except, as otherwise set forth
herein, all Project Rights specific to Project Compounds and Products derived
therefrom, (collectively referred hereinafter as "Product Project Rights"),
shall be owned solely by Lilly. SIBIA hereby disclaims any right, title or
interest in the Product Project Rights.
In order to ensure such sole ownership interest in Product Project
Rights is fully vested in Lilly, SIBIA shall (or shall cause its subcontractor
or other agents conducting Project services hereunder to do the same) promptly
after the conception, discovery, invention and/or development of Product Project
Rights cooperate with Lilly in completing any patent applications relating to
such Product Project Rights, and in executing and delivering any instrument that
may be reasonably required to assign, convey or transfer to Lilly any ownership
interest, if any, that SIBIA may have in such Product Project Rights. Moreover,
promptly after the conception, discovery, invention and/or development of
Product Project Rights, SIBIA shall, to the extent not already in Lilly's
possession, furnish (and shall cause any subcontractor or agent used by SIBIA in
providing Project services hereunder to furnish) to Lilly all Information
encompassed in Product Project Rights.
(b) NONPRODUCT PROJECT RIGHTS. Except as otherwise set
forth herein, all Project Rights other than Product Project Rights (collectively
referred hereinafter as "NonProduct Project Rights"), shall be owned jointly by
the Parties.
37.
<PAGE> 45
In order to ensure such joint ownership interest in NonProduct Project
Rights is jointly vested in the Parties, the Parties each, as applicable, shall
promptly after the conception, discovery, invention and/or development of
NonProduct Project Rights (or shall cause its subcontractor or other agents
conducting Project services hereunder to do the same) cooperate with each other
in completing any patent applications relating to such NonProduct Project
Rights, and in executing and delivering any instrument that may be reasonably
required to assign, convey or transfer a joint ownership interest in such
NonProduct Project Rights to each Party. Moreover, promptly after the
conception, discovery, invention and/or development of NonProduct Project
Rights, each Party shall, as applicable, to the extent not already in the other
Parties possession, shall furnish (and shall cause any subcontractor or agent
used by such Party in providing Project services hereunder to furnish)
Information encompassed in such NonProduct Project Rights.
(c) EXCLUSIVE LICENSE TO CERTAIN NONPRODUCT PROJECT
RIGHTS. To the extent that a particular NonProduct Project Rights has
application to Project Compound and/or Product derived therefrom (and only to
such extent), SIBIA hereby grants Lilly an exclusive license to SIBIA's joint
ownership interest in such NonProduct Project Rights to make, use (including,
without limitation, uses of NonProduct Project Rights to identify, screen,
discover, research, develop and commercialize Project Compound(s) and Products
derived therefrom), sell, offer to sell and import Project Compounds and
Products derived therefrom. For example, in the case that certain NonProduct
Project Rights relate to certain formulation technology that has application
specific to Project Compound (including Product derived therefrom), as well as
broader application for other Compounds, Lilly would have an exclusive license
as described above to such formulation with respect to such Project Compound
(and Product derived therefrom) but such license would not extend to the broader
application of such formulation technology. The Parties agree that all rights
and licenses granted under or pursuant to this Section 9.1(c) are, and shall be
deemed to be, for purposes of Section 365(n) of the United States Bankruptcy
Code, as such section may be amended, licenses to rights to "intellectual
property" as defined in the Bankruptcy Code. The Parties agree that Lilly, as
licensee of such rights, shall retain and may exercise all of its rights and
elections under the Bankruptcy Code, including, without limitation, Section
365(n).
9.2 PROJECT PATENT FILINGS. Lilly will prepare, file, prosecute
and maintain Patent Applications for all Project Patent Rights and shall be
responsible for related interference proceedings, except that SIBIA will
prepare, file, prosecute and maintain Patent Applications for Project Patent
Rights that are assigned to SIBIA pursuant to this Section 9.2, and shall be
responsible for related interference proceedings. The Parties will endeavor to
ensure that such Patent Applications are filed before any public disclosure by
either Party in order to maintain the validity of Patent Applications filed
outside of the United States. At least thirty (30) days prior to the
contemplated filing date, Lilly shall submit to SIBIA a substantially completed
draft of any Patent Application arising under this Agreement and will make a
reasonable effort to adopt SIBIA's suggestions regarding such draft.
Furthermore, Lilly will confer with SIBIA and make a reasonable effort to adopt
SIBIA's suggestions regarding the prosecution of such Patent Applications and
will copy SIBIA with any official actions and submissions in such Patent
Applications. For all Project Patent Rights included in Product Project Rights
that Lilly has the responsibility of preparing, filing, prosecuting and
maintaining, Lilly will bear the cost of such preparation, filing, prosecution
and maintenance. For all Project Patent Rights included in
38.
<PAGE> 46
NonProduct Project Rights that Lilly has the responsibility of preparing,
filing, prosecuting and maintaining, the Parties will equally share the cost of
such preparation, filing, prosecution and maintenance.
Should Lilly (at its discretion) not wish to file, prosecute, maintain
or issue any Patent Application, or maintain a Patent issuing from any such
Patent Application, for Project Patent Rights for which it has the
responsibility of preparing, filing, prosecuting and maintaining such Patents or
Patent Applications in any particular country, Lilly will provide SIBIA with
thirty (30) days advance written notice of its intentions ("Lilly's Patent
Discontinuance Election"). Upon SIBIA's receipt of Lilly's Patent Discontinuance
Election, SIBIA may elect to have the right to file, prosecute, maintain or
issue any such Patent or Patent Application at its own expense by providing
Lilly with written notice of the same within thirty (30) days of its receipt of
the Lilly's Discontinuance Election. Upon such election by SIBIA: (i) Lilly
shall grant SIBIA any necessary authority to file, prosecute, issue and maintain
such Patent Application or maintain such Patent with respect to the Project
Patent Rights at issue; and (ii) Lilly shall assign such Patent or Patent
Application to SIBIA. Until such assignment of the Project Patent Rights at
issue is complete Lilly shall take reasonable efforts to maintain or otherwise
ensure that patent protection will not be lost with respect to such Project
Patent Rights provided SIBIA does not unreasonably delay the assignment thereof.
Finally, upon such assignment of the Project Patent Rights at issue, SIBIA shall
grant Lilly a royalty free nonexclusive right to use the same for any and all
purposes.
Should SIBIA (at its discretion) not wish to share the costs of filing,
prosecuting, maintaining or issuing any Patent Application, or maintaining a
Patent issuing from any such Patent Application, for Project Patent Rights
included in Non-Product Project Rights as described in this Section 9.2 of this
Agreement, SIBIA will provide Lilly with thirty (30) days advance written notice
of its intentions ("SIBIA Patent Cost Discontinuance Election"). Upon Lilly's
receipt of SIBIA's Patent Cost Discontinuance Election, Lilly may elect to pay
such cost. Upon such election by Lilly: (i) SIBIA shall grant, to the extent not
already possessed by Lilly, SIBIA any necessary authority to file, prosecute,
issue and maintain such Patent Application or maintain such Patent with respect
to the Project Patent Rights at issue; and (ii) SIBIA shall assign any and all
of its interest that it may have in such Patent or Patent Application to Lilly;
and; (iii) such Patent or Patent Application shall no longer be deemed a Project
Patent Right.
9.3 SIBIA'S FAILURE TO MAINTAIN SIBIA PATENT RIGHTS. Should SIBIA
not wish to file, prosecute, maintain or issue any Patent Application, or
maintain a Patent issuing from any such Patent Application, for SIBIA Patent
Rights in any particular country, SIBIA will provide Lilly with thirty (30) days
advance written notice of its intentions ("SIBIA's Patent Discontinuance
Election"). Upon Lilly's receipt of SIBIA's Patent Discontinuance Election,
Lilly may elect to have the right to file, prosecute, maintain or issue any such
Patent or Patent Application at its own expense by provided SIBIA with notice of
the same within thirty (30) days of its receipt of the SIBIA's Discontinuance
Election. Upon such election by Lilly: (i) SIBIA shall grant Lilly any necessary
authority to file, prosecute, issue and maintain such Patent Application or
maintain such Patent; (ii) SIBIA shall assign such Patent or Patent Application
to Lilly and; (iii) such Patent or Patent Application shall no longer be deemed
a SIBIA Patent Right. Until such assignment of SIBIA Patent Rights is complete
SIBIA shall take reasonable efforts to maintain or otherwise ensure that patent
protection will not be lost with respect to the
39.
<PAGE> 47
SIBIA Patent Rights at issue provided Lilly does not unreasonably delay the
assignment thereof. Finally, upon such assignment of SIBIA Patent Rights, Lilly
shall grant SIBIA a royalty free nonexclusive right to use the same for any and
all purposes except for those purposes exclusively licensed to Lilly under this
Agreement.
9.4 PUBLIC DISCLOSURE. Each Party agrees to delay any public
disclosure of the subject matter of any Patent Application until after filing of
such Patent Application.
9.5 NOTICE OF CERTIFICATION. SIBIA and Lilly each shall
immediately give notice to the other of any certification filed under the U.S.
"Drug Price Competition and Patent Term Restoration Act of 1984" claiming that a
Patent under SIBIA Patent Rights or Project Patent Rights is invalid or that any
infringement will not arise from the manufacture, use, import, offer for sale or
sale of any product by a Third Party. If Lilly, in the case of Project Patent
Rights, or SIBIA, in the case of SIBIA Patent Rights (as applicable, the
"Initiating Party") decides not to bring infringement proceedings against the
entity making such a certification, the Initiating Party shall give notice to
the other Party of its decision not to bring suit within twenty-one (21) days
after receipt of notice of such certification. The other Party may then, but is
not required to, bring suit against the Third Party that filed the
certification. Any suit by Lilly or SIBIA shall either be in the name of Lilly
or in the name of SIBIA, or jointly by Lilly and SIBIA, as may be required by
law. For this purpose, the Party not bringing suit shall execute such legal
papers necessary for the prosecution of such suit as may be reasonably requested
by the Party bringing suit.
9.6 PATENT TERM EXTENSIONS. The Parties shall cooperate with each
other in gaining patent term extension wherever applicable to SIBIA Patent
Rights, or Project Patent Rights covering Project Compound and/or Product
derived therefrom. The Party first eligible to seek extension of such Patent
shall have the right to do so; provided the first Party shall consult with the
other Party before making the election. All filings related to SIBIA Patent
Rights and Project Patent Rights for such extensions and certificates shall be
made by the Party responsible for such filing prosecution and maintenance in
accordance with Article 9, provided, however, that in the event that the Party
by whom responsible for such filing elects not to file for an extension or
supplementary protection certificate, such Party shall (i) inform the other
Party of its intention not to file and (ii) grant the other Party the right to
file for such extension or certificate in accordance with the discontinuance
provisions of Section 9.2 and 9.3 of this Agreement.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES
10.1 SIBIA REPRESENTATIONS. SIBIA hereby represent and warrant to
Lilly as follows:
(a) PATENTS, PRIOR ART. SIBIA represents and warrants
that, to the best of SIBIA's belief, it has sufficient legal and/or beneficial
title under SIBIA Patent Rights and SIBIA Know-How as is necessary to grant the
licenses contained herein. Moreover, SIBIA
40.
<PAGE> 48
represents and warrants that it is not aware of any communications alleging that
it has violated or, by conducting its business as currently proposed under this
Agreement, would violate any of the Intellectual Property Rights of any Third
Party. Finally, SIBIA represents and warrants, to the best of SIBIA's belief,
there is no material unauthorized use, infringement or misappropriation by SIBIA
of such Intellectual Property Rights as described in the preceding sentence of
this Section 10.1(a) of this Agreement. For purposes of this Section 10.1 of
this Agreement, the term "Intellectual Property Rights" means all patent rights,
copyrights, trademarks, trade secret rights and know-how rights necessary or
useful to make, use, sell, offer for sale, and import Compounds, Project
Compounds and any products derived therefrom.
(b) FULL DISCLOSURES. SIBIA represents and warrants that
it believes that it has provided Lilly with all information that Lilly has
requested for deciding the merits of entering into this Agreement and all
information reasonably useful or necessary to enable Lilly to make an informed
decision regarding entering into this Agreement including, without limitation,
all relevant information pertaining to the Meiji/SIBIA Contract that potentially
could have an impact on this Agreement and/or rights granted hereunder.
(c) MEIJI/SIBIA CONTRACT - LICENSED PATENT. SIBIA
represents and warrants that the term "Licensed Patents" as defined in Section
1.2 of the Meiji/SIBIA Contract means only the SIBIA Patent Application filed in
Japan and designated as application [*] and that to the extent that a Compound
is not covered by the Licensed Patents the Compound that may be selected under
the Meiji Backup Option shall only include Compounds being pursued by SIBIA for
the primary indication of Parkinson's disease and; therefore SIBIA hereby agrees
that it will use its best efforts to act in a manner consistent with such
representation and warranty.
(d) EMPLOYEE OBLIGATIONS. SIBIA hereby represent and
warrant that, all of its employees, officers and consultants who will work on
the Project have legal obligations requiring, in the case of employees and
officers, assignment to SIBIA of all inventions made during the course of and as
a result of their association with SIBIA and obligating the individual to
maintain as confidential the confidential information of SIBIA, as well as the
confidential information of a Third Party which SIBIA may receive.
(e) COMPLIANCE WITH LAWS. SIBIA hereby represents and
warrants that in carrying out its work under the Project such work shall be
carried out in compliance with any applicable laws including, without
limitation, federal, state, or local laws, regulations, or guidelines governing
the work at the site where such work is being conducted. Moreover, SIBIA
represents and warrants that in connection with carrying out its work under the
Project, as applicable based on the specific work to be conducted, it will carry
out such work under the Project in accordance with current cGLP, cGCP, cGMP.
(f) NO DEBARMENT. SIBIA hereby represents and warrants
that it will comply at all times with the provisions of the Generic Drug
Enforcement Act of 1992 and will upon request certify in writing to the other
that none of it, its employees, or any person providing services to SIBIA in
connection with the collaboration contemplated by this Agreement have been
debarred under the provisions of such Act.
* CONFIDENTIAL TREATMENT REQUESTED
41.
<PAGE> 49
(g) ADVERSE EVENT REPORTING. SIBIA hereby represents and
warrants that under the Meiji/SIBIA contract it has the rights to receive
information reasonably necessary for it to comply with its adverse event
reporting requirements as described in Section 3.5 of this Agreement.
(h) YEAR 2000. SIBIA hereby represents and warrants to
Lilly that it shall use commercially reasonable efforts necessary to ensure its
obligations under this Agreement are not materially delayed, interrupted or
otherwise hindered to the detriment of Lilly due to: (i) the business systems
and/or computer systems of SIBIA ceasing to function or otherwise malfunctioning
because of date-based problems related to the Year 2000; or (ii) the business
systems and/or computer systems of any Third Party on which SIBIA is dependent
ceasing to function or otherwise malfunctioning because of date-based problems
related to the Year 2000.
10.2 LILLY REPRESENTATIONS. Lilly hereby represents and warrant
to SIBIA as follows:
(a) EMPLOYEE OBLIGATIONS. Lilly hereby represent and
warrant that, all of its employees, officers and consultants have legal
obligations requiring, in the case of employees and officers, assignment to
Lilly of all inventions made during the course of and as a result of their
association with Lilly and obligating the individual to maintain as confidential
the confidential information of Lilly, as well as the confidential information
of a Third Party which Lilly may receive.
(b) COMPLIANCE WITH LAWS. Lilly hereby represents and
warrants that in carrying out its work under the Project such work shall be
carried out in compliance with any applicable laws including, without
limitation, federal, state, or local laws, regulations, or guidelines governing
the work at the site where such work is being conducted. Moreover, Lilly
represents and warrants that in connection with carrying out its work under the
Project, as applicable based on the specific work to be conducted, it will carry
out such work under the Project in accordance with current cGLP, cGCP, cGMP.
(c) NO DEBARMENT. Lilly hereby represents and warrants
that it will comply at all times with the provisions of the Generic Drug
Enforcement Act of 1992 and will upon request certify in writing to the other
that none of it, its employees, or any person providing services to Lilly in
connection with the collaboration contemplated by this Agreement have been
debarred under the provisions of such Act.
(d) YEAR 2000. Lilly hereby represents and warrants to
SIBIA that it shall use commercially reasonable efforts necessary to ensure its
obligations under this Agreement are not materially delayed, interrupted or
otherwise hindered to the detriment of SIBIA due to: (i) the business systems
and/or computer systems of Lilly ceasing to function or otherwise malfunctioning
because of date-based problems related to the Year 2000; or (ii) the business
systems and/or computer systems of any Third Party on which Lilly is dependent
ceasing to function or otherwise malfunctioning because of date-based problems
related to the Year 2000.
42.
<PAGE> 50
10.3 DISCLAIMER OF WARRANTIES. THE PARTIES UNDERSTAND THAT THE
PROJECT INVOLVES EARLY STAGE TECHNOLOGIES THAT HAVE NOT BEEN APPROVED BY ANY
REGULATORY AUTHORITY AND THAT NEITHER PARTY GUARANTEES THE SAFETY OR USEFULNESS
OF ANY OF THE PROJECT COMPOUNDS, THE PRODUCTS, THE PROJECT RIGHTS, THE SIBIA
RIGHTS OR ANY OTHER TECHNOLOGIES USED IN THE COURSE OF THE PROJECT. EXCEPT AS
EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR
WARRANTY TO THE OTHER PARTY OF ANY NATURE, EXPRESS OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY OF NONINFRINGEMENT, MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE.
ARTICLE 11
INFRINGEMENT OF THIRD PARTY RIGHTS
11.1 NOTICE. If the research, development, manufacture, use or
sale of Project Compound and/or Products derived therefrom results in a claim
for patent infringement, the Party to this Agreement first having notice shall
promptly notify the other Party in writing. The notice shall set forth the facts
of the claim in reasonable detail.
11.2 LITIGATION NOT INVOLVING SIBIA PATENT RIGHTS. Lilly shall
defend against any such Third Party claim of infringement involving the
research, development, manufacture, use or sale of Project Compound and/or
Product derived therefrom that do not involve SIBIA Patent Rights. SIBIA shall
cooperate with Lilly at Lilly's request in such defense and shall have the right
to be represented by counsel of its own choice and at SIBIA's expense. If Lilly
is required by a final court order or a settlement entered into in good faith to
make payments (including royalty payments on future Net Sales of Products by
Lilly) to a Third Party in connection with the disposition of such claim, Lilly
shall make all such payments, which shall be deemed a cost associated with the
acquisition of intellectual property as described in Section 5.2(f)(2) and,
therefore shall be creditable against royalties in accordance with and subject
to the provisions of Section 5.2(f)(2) and (3).
11.3 LITIGATION INVOLVING SIBIA PATENT RIGHTS. Lilly shall defend
against any such Third Party claim of infringement involving the research,
development, manufacture, use or sale of Project Compound and/or Product derived
therefrom that involve SIBIA Patent Rights. SIBIA shall cooperate with Lilly at
Lilly's request in such defense and shall have the right to be represented by
counsel of its own choice at SIBIA's expense. If Lilly is required by a final
court order or a settlement entered into in good faith to make payments
(including royalty payments on future Net Sales of Products by Lilly) to a Third
Party in connection with the disposition of such claim, Lilly shall make all
such payments, which shall be deemed a cost associated with the acquisition of
intellectual property as described in Section 5.2(f)(1) and, therefore shall be
creditable against royalties in accordance with and subject to the provisions of
Section 5.2(f)(1) and (3) (except that the provisions of Section 5.2(f)(1) as it
relates to SIBIA's ability to acquire such rights and/or demonstrate a dominant
intellectual property position shall not be applicable under this Section 11.3
of this Agreement).
43.
<PAGE> 51
ARTICLE 12
INFRINGEMENT BY THIRD PARTIES
12.1 NOTICE. If any of the SIBIA Rights or Project Rights that
involve Project Compound and/or any Product derived therefrom is infringed
and/or misappropriated by a Third Party, the Party first having knowledge of
such infringement/misappropriation shall promptly notify the other in writing.
The notice shall set forth the facts of such infringement and/or
misappropriation in reasonable detail.
12.2 PROSECUTION OF ACTIONS INVOLVING PROJECT COMPOUND AND/OR
PRODUCT.
(a) Lilly shall have the primary right, but not the
obligation, to institute, prosecute and control any action or proceeding with
respect to any infringement/misappropriation of any of the SIBIA Rights or
Project Rights arising from the use thereof and involving Project Compound
and/or Product derived therefrom, by counsel of its own choice. SIBIA shall
cooperate with Lilly at Lilly's request in the prosecution of such action or
proceeding. If Lilly reasonably determines that SIBIA is an indispensable party
to the action, SIBIA hereby consents to be joined. In such event, SIBIA shall
have the right to be represented in that action by counsel of its own choice and
at SIBIA's expense provided that if SIBIA has not yet received any royalties
under this Agreement at the time that such legal counsel expense is incurred
Lilly shall reimburse SIBIA for such expenses incurred (to the extent such
expenditures are reasonable) and such reimbursement amount paid to SIBIA will be
completely creditable by Lilly against future royalties paid to SIBIA (including
damages that would be otherwise paid to SIBIA pursuant to Section 12.2(d)) under
this Agreement.
In the event that Lilly is obligated to reimburse SIBIA for legal
counsel expenditures incurred by SIBIA as described in this Section 12.2(a),
SIBIA hereby agrees that it will use its best efforts (without jeopardizing its
legal rights) to mitigate any such legal counsel expenditures and to that end
further agrees (to the extent that a conflict of interest does not exist) SIBIA
shall consult with Lilly regarding its litigation strategy and estimated costs
related thereto with an intent of mitigating such legal expenditures incurred by
SIBIA.
(b) If Lilly fails to bring an action or proceeding within
a period of ninety (90) days after receiving written notice from SIBIA or
otherwise having knowledge of that infringement/misappropriation of SIBIA Rights
and/or Project Rights involving Project Compound and/or Product derived
therefrom, as described in Section 12.2(a) of this Agreement, SIBIA shall have
the right to bring and control any such action by counsel of its own choice and
expense. If SIBIA reasonably determines that Lilly is an indispensable party to
the action, Lilly hereby consents to be joined. In such event, Lilly shall have
the right to be represented in that action by counsel of its own choice and at
Lilly's expense provided that if Lilly has not yet sold a Project Compound or
Product at the time that such expense is incurred SIBIA shall reimburse Lilly
for such expenses incurred (to the extent such expenses are reasonable) and such
reimbursement amount paid to Lilly will be completely creditable by SIBIA
against damages that would be otherwise paid to Lilly under Section 12.2(e) of
this Agreement and any remaining balance thereof will be paid back to SIBIA
within thirty (30) days after Lilly is obligated to make a royalty payment to
SIBIA under this Agreement.
44.
<PAGE> 52
In the event that SIBIA is obligated to reimburse Lilly for legal
counsel expenditures incurred by Lilly as described in this Section 12.2(b),
Lilly hereby agrees that it will use its best efforts (without unreasonably
jeopardizing its legal rights) to mitigate any such legal counsel expenditures
and to that end further agrees (to the extent that a conflict of interest does
not exist) it shall consult with SIBIA regarding its litigation strategy and
estimated costs related thereto with an intent of mitigating such legal
expenditures incurred by Lilly.
(c) No settlement, consent judgment or other voluntary
final disposition of a suit under this Section 12.2 may be entered into without
the joint consent of Lilly and SIBIA (which consent shall not be unreasonably
withheld).
(d) If Lilly brings action, any damages or other monetary
awards recovered by Lilly attributable to sales of Project Compounds and/or
Products derived therefrom, shall be applied first to defray the costs and
expenses incurred in the action. If any balance remains, Lilly shall pay SIBIA
an amount equal to the royalty that SIBIA would otherwise be entitled to under
this Agreement if such remaining balance was treated as Net Sales.
(e) If Lilly fails to bring action and SIBIA brings
action, any damages or other monetary awards recovered by SIBIA attributable to
sales of Project Compounds and/or Product derived therefrom, shall be applied
first to defray the costs and expenses incurred in the action. If any balance
remains, SIBIA shall pay Lilly [*] percent ([*]%) of such balance.
12.3 INFRINGEMENT OF PROJECT RIGHTS NOT INVOLVING THE PROJECT
COMPOUND OR PRODUCTS. In the event that any of the Project Rights not involving
the Project Compounds and/or Products derived therefrom, is infringed and/or
misappropriated by a Third Party, the Party first having knowledge of such
infringement and/or misappropriation shall notify the other as set forth above
and the Parties shall consult with each other as to how they should proceed, but
each Party shall be free to pursue or protect its own respective interests to
the extent it is legally entitled to do so.
12.4 INFRINGEMENT OF SIBIA RIGHTS NOT INVOLVING THE PROJECT
COMPOUND OR PRODUCTS. In the event that any of the SIBIA Rights not involving
the Project Compounds and/or Products derived therefrom, is infringed and/or
misappropriated by a Third Party, the Party first having knowledge of such
infringement and/or misappropriation shall notify the other as set forth above
and the Parties shall consult with each other as to how they should proceed, but
each Party shall be free to pursue or protect its own respective interests to
the extent it is legally entitled to do so.
SIBIA hereby agrees to use commercially reasonable efforts to diligently
enforce SIBIA Rights not involving the Project Compounds and/or Product derived
therefrom against any Third Party that infringes and/or misappropriates the
same. Any damages or other monetary awards recovered by SIBIA as a result of it
solely bringing an action against a Third Party for the infringement and/or
misappropriation of SIBIA Rights that do not involve the Project Compounds
and/or Products derived therefrom shall vest solely in SIBIA.
* CONFIDENTIAL TREATMENT REQUESTED
45.
<PAGE> 53
ARTICLE 13
MUTUAL INDEMNIFICATION
13.1 RESPONSIBILITY AND CONTROL. Lilly and SIBIA shall each be
solely responsible for the safety of its own employees, agents, licensees or
sublicensees with respect to effort employed under the Project and each shall
hold the other harmless with regard to any liability for damages or personal
injuries resulting from acts of its respective employees, agents or Affiliates.
13.2 INDEMNIFICATION CLAIMS. Except for claims for infringement
as provided in Article ll, each Party, (the "Indemnifying Party") hereby agrees
to indemnify, defend and hold harmless the other Party and its Affiliates, and
their respective officers, directors, agents and employees from and against any
and all suits, claims, actions, demands, liabilities, expenses and/or losses,
including reasonable attorneys' fees and other costs of defense ("Claims")
resulting directly or indirectly from: (1) the efforts employed by the
Indemnifying Party under the Project; (2) breach of any warranty under this
Agreement by the Indemnifying Party; or (3) the manufacture, use, handling,
storage, sale or other disposition of Project Compound and/or Product derived
therefrom by the Indemnifying Party, its Affiliates, agents or sublicensees, but
only to the extent such Claims result from the negligence or intentional
misconduct of the Indemnifying Party or its employees and agents and do not
result from the negligence or intentional misconduct of the party seeking
indemnification.
13.3 INDEMNIFICATION PROCEDURES. Any Party entitled to
indemnification under this Article 13 shall give prompt written notice to the
Indemnifying Party of any Claims with respect to which it seeks indemnification,
and the Indemnifying Party shall have the option to assume the defense of such
Claims with counsel reasonably satisfactory to the Indemnified Party. If such
defense is assumed by the Indemnifying Party with counsel so selected, the
Indemnifying Party will not be obligated to pay the fees and expenses of any
separate counsel retained by the indemnified party with respect to such Claims.
Except with the prior consent of the indemnified party, which consent shall not
be unreasonably withheld, the Indemnifying Party may not enter into, any
settlement of such litigation unless such settlement includes an unqualified
release of the indemnified party.
ARTICLE 14
CONFIDENTIALITY
14.1 CONFIDENTIALITY; EXCEPTIONS. With respect to all: (i)
Information regardless of which Party furnishes such Information (including
without limitation Information encompassed in Project Rights); and (ii) other
information furnished by one Party to the other Party pursuant to this
Agreement, either in writing or orally (collectively, "Confidential
Information"), the Party receiving such Confidential Information shall maintain
the confidential and proprietary status of such Confidential Information, keep
such Confidential Information and each part thereof within its possession or
under its control, use all its reasonable efforts to prevent the disclosure of
any Confidential Information to any other person, and use all its
46.
<PAGE> 54
reasonable efforts to ensure that such Confidential Information is used only for
those purposes specifically authorized by this Agreement. These mutual
obligations of confidentiality shall apply until five (5) years after
termination of this Agreement, but such obligations shall not apply to any
information to the extent that such information is:
(a) independently developed by such Party outside the
scope and not in violation of this Agreement;
(b) in the public domain at the time of its receipt or
thereafter becomes part of the public domain through no fault of the recipient;
(c) received without an obligation of confidentiality from
a Third Party having the right to disclose such information;
(d) released from the restrictions of this Section 14.1 by
the express written consent of the disclosing Party;
(e) disclosed to any Affiliate, sublicensee or
subcontractor (including potential sublicensee or subcontractors) of Lilly
hereunder (provided that such sublicensee or subcontractor or potential
sublicensee or subcontractor is subject to the provisions of this Section 14.1)
or, in the case of SIBIA, disclosed to any Affiliate, sublicensee or
subcontractor (including potential sublicensee or subcontractors) of SIBIA
hereunder (provided that such sublicensee or subcontractor or potential
sublicensee or subcontractor is for purposes of conducting research and/or
development efforts under the Project pursuant to Section 2.3 of this Agreement
and is subject to the provisions of this Section 14.1);
(f) required by law, statute, rule or court order to be
disclosed (the disclosing Party shall, however, use reasonable efforts to obtain
confidential treatment of any such disclosure, consult with the other Party and
permit the other Party to participate in seeking an appropriate protective
order);
(g) disclosed to any Affiliate, sublicensee or
subcontractor (including potential sublicensee or subcontractors) of SIBIA
hereunder (provided that such sublicensee or subcontractor or potential
sublicensee or subcontractor is subject to the provisions of this Section 14.1)
and that such disclosure occurs after the termination/expiration of the Project
Term and only consists of information that is under SIBIA Patent Rights and/or
SIBIA Know-How which has not been exclusively licensed to Lilly under the terms
of this Agreement or Non-Product Project Rights; or
(h) disclosures of information as Lilly may deem
appropriate that occur after the termination/expiration of the Project but only
to the extent that such information involves information that Lilly is either
the sole owner or exclusive licensee thereof.
(i) Notwithstanding the provisions of Section 14.1 hereof,
SIBIA and Lilly, as applicable under the terms of this Agreement, may, to the
extent necessary, disclose and use Confidential Information to secure patent
protection for an invention developed as a result of the collaboration
undertaken pursuant to this Agreement or to obtain institutional or government
47.
<PAGE> 55
approval to clinically test or market any Project Compound and/or Product (or
Post-Project Compound or Post-Project Product, as the case may be).
14.2 SURVIVAL. This Section 14 shall survive the termination or
expiration of this Agreement for a period of five (5) years.
ARTICLE 15
PUBLICITY
15.1 DISCLOSURE OF AGREEMENT. Except for disclosures as described
in Section 14.1(e), (f), (g) and (h) of this Agreement, neither Party to this
Agreement may release any information to any Third Party regarding the terms or
existence of this Agreement without the prior written consent of the other
Party. Without limitation, this prohibition applies to press releases,
educational and scientific conferences, quarterly investor updates, promotional
materials, governmental filings and discussions with public officials, the
media, security analysts and investors. However, this provision does not apply
to any disclosures regarding this Agreement or related information to regulatory
agencies such as the FDA or Federal Trade Commission and/or Department of
Justice disclosures which may be required by law, including requests for a copy
of this Agreement or related information by tax authorities. If any Party to
this Agreement determines a release of information regarding the existence or
terms of this Agreement (or the Stock Purchase Agreement) is required by law
(including releases a may be required to be filed through the Securities
Exchange Commission), that Party will notify the other Party as soon as
practicable and give as much detail as possible in relation to the disclosure
required. The Parties will then cooperate with respect to determining what
information should actually be released. The Parties hereby agree that release
of a press release upon complete execution of this Agreement is appropriate and
such press release shall be in the form as attached hereto as Schedule 15.1.
15.2 TERMINATIONS. Both Parties agree that if this Agreement is
terminated, neither Party will disclose its reasons for not proceeding to any
Third Party without the express written consent of the other Party.
15.3 PUBLICATIONS/MANUSCRIPTS (INFORMATION).
(a) PRIOR CONSENT. In accordance with Article 14 of this
Agreement (and as except as specifically allowed under Article 14) neither Party
may release any Information or other information including, without limitation,
any type of publication to any Third Party of any results and/or information
derived under the Project without the prior written consent of the other Party.
(b) OPPORTUNITY TO REVIEW AND COMMENT. Furthermore, during
the term of this Agreement, subject to and in addition to the consent
requirement set forth above in Section 15.3(a), each Party shall provide the
other with opportunity to review and comment upon any proposed abstracts,
manuscripts or proposed presentation that relate to Project Rights, SIBIA Patent
Rights and/or SIBIA Know-How at least sixty (60) days prior to their intended
submission for publication and agrees, upon request, not to submit such an
abstract or manuscript for
48.
<PAGE> 56
publication until the other party is given a reasonable period of time to secure
patent protection for any material in such publication which it believes to be
patentable. For avoidance of any doubt the provisions of this Section 15.3(b)
shall not be construed as limiting or superseding the consent requirements of
Section 15.3(a) of this Agreement.
ARTICLE 16
TERM AND TERMINATION
16.1 TERM. This Agreement shall commence as of the Effective Date
and, unless sooner terminated in whole or in part as specifically provided in
the Agreement, shall continue in effect until the expiration of the later of the
Product Royalty Period or Post-Project Project Royalty Period, as applicable.
16.2 LILLY VOLUNTARY TERMINATION. At any time after twenty-one
months after the Effective Date, Lilly may, at its option, terminate this
Agreement upon ninety (90) days written notice of the same to SIBIA. Upon a
termination under this Section 16.2 of this Agreement, all license rights
granted hereunder to Lilly shall terminate forthwith.
16.3 TERMINATION FOR DEFAULT. If either Party believes the other
is in default of any of its material obligations under this Agreement, it may
give notice of such default to the other Party, which Party shall have ninety
(90) days in which to remedy such default. Such ninety (90) day period shall be
extended in the case of a default not capable of being remedied in such ninety
(90) day period so long as the defaulting Party uses diligent efforts to remedy
such default and is pursuing a course of action that, if successful, will effect
such a remedy. If such alleged default is not remedied in the time period set
forth above, the Party alleging default shall refer the matter to the Executive
Vice President and Chief Scientific Officer of SIBIA (or successor position) and
the Neuroscience Vice President of Lilly Research Laboratories (or successor
position) who shall meet and confer within fifteen (15) days after notice from
the non-defaulting Party of its desire for such a meeting. If the Parties are
unable to resolve any dispute in such meeting, the nondefaulting Party may give
notice of termination, pursuant to this Section 16.3.
If Lilly terminates this Agreement because of SIBIA's material breach,
the licenses granted under this Agreement shall survive such termination. SIBIA
shall be entitled to receive royalties and other payments due hereunder to the
extent the amount of such royalties are not in dispute until such time as a
decision of a court or other governmental agency of competent jurisdiction
following exhaustion of all possible appeal processes has determined that SIBIA
has materially breached this Agreement (the "SIBIA Breach"). After the effective
date of a non-appealable SIBIA Breach, royalties under Section 5.2 and
milestones under Section 5.4 shall be paid to SIBIA by Lilly at [*] percent
([*]%) of the then-current rate or amount after giving effect to the other
applicable royalty and milestone provisions of this Agreement.
Conversely, if SIBIA terminates this Agreement because of Lilly's
material breach, the licenses granted under this Agreement shall terminate
except that during pendency of any dispute under this Section 16.3 of this
Agreement regarding whether Lilly has committed a material
* CONFIDENTIAL TREATMENT REQUESTED
49.
<PAGE> 57
breach, Lilly's licenses hereunder shall survive until such time as a decision
of a court or other governmental agency of competent jurisdiction following
exhaustion of all possible appeal processes has determined that Lilly has, in
fact, materially breached this Agreement provided that Lilly pays any royalties,
milestones or other amounts due hereunder during such period to the extent the
amount of such royalties, milestones and other amounts are not in dispute.
Notwithstanding anything to the foregoing, in the event of a dispute
regarding royalties owing hereunder, all undisputed amounts shall be paid when
due and the balance, if any, shall be paid promptly after settlement of the
dispute
Without limiting the generality of Section 16.3, it shall be a material
breach of SIBIA of this Agreement if at any time during any six (6) month period
within the Project Term an aggregate of least [*] ([*]%) of the scientists or
researchers who are employed by SIBIA, at the Effective Date, and engaged in the
research and development of Project Compounds and Products cease to be employed
by SIBIA or engaged in the research and development of Project Compounds and
Products.
16.4 SURVIVING RIGHTS/OBLIGATIONS. Termination or expiration of
this Agreement shall not terminate Lilly's obligation to pay all milestone
payments, royalties and other payments, which shall have accrued hereunder prior
to the effective date of such termination or expiration. The obligations of the
Parties under Sections 8 (Record-Keeping and Audits), 9 (Patents), 12
(Infringement by Third Parties), 13 (Mutual Indemnification), 14
(Confidentiality), 15 (Publicity) and 16 (Termination) of this Agreement will
survive the termination or expiration of this Agreement. Also, termination or
expiration of this Agreement shall not relieve either Party from obligations
that are expressly indicated to survive termination or expiration of the
Agreement. Further, to the extent any licenses granted to Lilly hereunder
survive, SIBIA shall promptly provide to Lilly, to the extent it has not already
done so under this Agreement, with all Information reasonably useful or
necessary for Lilly to exploit such licenses including providing Lilly with
reasonable technical assistance in connection with such disclosure of
Information.
Finally, termination or expiration of the Agreement for any reason shall
be without prejudice to any rights, which shall have accrued to the benefit of
either Party prior to such termination or expiration.
ARTICLE 17
SIBIA EXCLUSIVITY
17.1 SIBIA EXCLUSIVITY OBLIGATION. During the Project Term, SIBIA
shall not research, develop and/or commercialize Compounds except pursuant to
this Agreement. Also, for [*] after the Project Term provided that Lilly has
achieved at least [*] for a Project Compound during the Project Term, SIBIA
shall neither enter into any research, development and/or commercialization
arrangement with any Third Party regarding Compound(s) nor enter into any
discussions with Third Party of the same (the "SIBIA [*] No Partnering Period").
* CONFIDENTIAL TREATMENT REQUESTED
50.
<PAGE> 58
17.2 LILLY'S FIRST RIGHT OF NEGOTIATION FOR COMPOUNDS DISCOVERED
BY SIBIA DURING THE SIBIA [*] NO PARTNERING PERIOD. SIBIA hereby grants Lilly a
right of first negotiation to enter into an exclusive license arrangement with
SIBIA with respect to each Compound discovered and/or identified by SIBIA during
the SIBIA [*] No Partnering Period ("Right of First Negotiation") whereby SIBIA
agrees that even after its exclusivity obligation is no longer effective as
described in Section 17.1, above, it will neither negotiate nor enter into an
arrangement involving a particular Compound at issue in which SIBIA would
license/sublicense or otherwise commercialize such Compounds and/or products
derived therefrom with a Third Party (the "Third Party Commercialization
Arrangement") prior to the expiration of the Lilly Negotiation Period.
To ensure that Lilly has adequate time to consider whether it should
exercise its Right of First Negotiation with respect to a particular Compound at
issue SIBIA hereby agrees that prior to negotiating or entering into any Third
Party Commercialization Arrangement regarding a particular Compound, SIBIA shall
provide Lilly with written notification of its intent to enter into such an
arrangement including, without limitation a summary report of all relevant
information that would be reasonably useful to a potential licensee of the
Compound at issue so as to assess the business opportunity at issue. Upon
receipt of such notice, Lilly shall have forty-five (45) days to provide SIBIA
with written notification exercising its Right of First Negotiation.
Lilly's Right of First Negotiation under this Section 17.2 shall expire
and have no legal effect with respect to the particular Compound at issue in the
event that: (i) Lilly does not provide SIBIA with its written notice to exercise
its Right of First Negotiation within the prescribed forty-five (45) day period
as described above; (ii) SIBIA and Lilly enter into mutually acceptable written
agreement regarding such matter; or (iii) the lapse of ninety (90) days or such
other term as is mutually agreed upon in writing by the Parties from the date
upon which SIBIA receives written notice from Lilly exercising its Right of
First Negotiation (collectively, the "Lilly Negotiation Period").
For avoidance of any doubt, this Section 17.2 merely obligates SIBIA to
abide by the notice provisions set forth herein and not to enter into a Third
Party Commercialization Arrangement until such time that the Lilly Negotiation
Period has expired (it is understood that the ultimate decision regarding the
appropriate party to sublicense rights related to the particular Compound(s) at
issue shall be completely within SIBIA's sole discretion).
ARTICLE 18
MISCELLANEOUS
18.1 AGENCY. Neither Party is, nor shall be deemed to be, an
employee, agent, co-venturer or legal representative of the other Party for any
purpose. Neither Party shall be entitled to enter into any contracts in the name
of, or on behalf of the other Party, nor shall either Party be entitled to
pledge the credit of the other Party in any way or hold itself out as having the
authority to do so.
* CONFIDENTIAL TREATMENT REQUESTED
51.
<PAGE> 59
18.2 ASSIGNMENT. The Parties acknowledge that the services to be
performed by SIBIA under this Agreement require special and unique skills and
abilities possessed by SIBIA and that Lilly would not enter into this Agreement
but for the fact that SIBIA possessed these skills and abilities. Accordingly,
except as otherwise provided herein, neither this Agreement nor any interest
hereunder shall be assignable by any Party without the prior written consent of
the other (which consent shall not be unreasonably withheld following the
conclusion of the Project); provided, however, that either Party may assign this
Agreement to (i) any wholly-owned subsidiary in a manner such that the assignor
(if it continues as a separate entity) shall remain liable and responsible for
the performance and observance of all its duties and obligations hereunder or
(ii) to any successor by merger or sale of substantially all of its business
unit to which this Agreement relates. This Agreement shall be binding upon the
successors and permitted assignees of the Parties and the name of a Party
appearing herein shall be deemed to include the names of such Party's
successor's and permitted assigns to the extent necessary to carry out the
intent of this Agreement. Any assignment not in accordance with this Section
shall be void.
18.3 FURTHER ACTIONS. Each Party agrees to execute, acknowledge
and deliver such further instruments, and to do all such other acts, as may be
necessary or appropriate in order to carry out the purposes and intent of the
Agreement.
18.4 FORCE MAJEURE. Neither Party shall be liable to the other
for loss or damages for any default or delay attributable to any force majeure
event, including but not limited to acts of God, acts of government, war, fire,
flood, earthquake, strike, labor dispute and the like, if the Party affected
shall give prompt notice of any such cause to the other Party.
18.5 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or by
facsimile transmission (receipt verified), telexed, mailed by registered or
certified mail (return receipt requested), postage prepaid, or sent by express
courier service, to the Parties at the following addresses (or at such other
address for a Party as shall be specified by like notice; provided, that notices
of a change of address shall be effective only upon receipt thereof):
If to Lilly, addressed to: Eli Lilly and Company
Attn: General Counsel
Lilly Corporate Center
Indianapolis, Indiana 46285
Telephone: (317) 276-5669
Fax: (317) 277-3977
If to SIBIA, addressed to: SIBIA Neurosciences, Inc.
Attn: Stephen F. Keane
VP Corporate Development
505 Coast Boulevard South
La Jolla, California 92037-4641
Telephone: (619) 452-5892
52.
<PAGE> 60
18.6 AMENDMENT. No amendment, modification or supplement of any
provision of the Agreement shall be valid or effective unless made in writing
and signed by a duly authorized officer of each Party.
18.7 WAIVER. No provision of the Agreement shall be waived by any
act, omission or knowledge of a Party or its agents or employees except by an
instrument in writing expressly waiving such provision and signed by a duly
authorized officer of the waiving Party.
18.8 COUNTERPARTS. The Agreement may be executed simultaneously
in two counterparts, either one of which need not contain the signature of more
than one Party but both such counterparts taken together shall constitute one
and the same agreement.
18.9 DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are for convenience only, and shall be of no force or effect in
construing or interpreting any of the provisions of this Agreement.
18.10 GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the substantive laws of the State of New York,
without regard to its choice of law rules.
18.11 SEVERABILITY. Whenever possible, each provision of the
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of the Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of the Agreement. In the event of such invalidity, the Parties shall seek to
agree on an alternative enforceable provision that preserves the original
purpose of this Agreement.
18.12 ENTIRE AGREEMENT OF THE PARTIES. This Agreement, including
the Schedules attached hereto, constitutes and contains the complete, final and
exclusive understanding and agreement of the Parties hereto, and cancels and
supersedes any and all prior negotiations, correspondence, understandings and
agreements, whether oral or written, between the Parties respecting the subject
matter hereof.
18.13 JOINTLY PREPARED. This Agreement has been prepared jointly
and shall not be strictly construed against either Party.
18.14 DISPUTE RESOLUTION. Except for disputes governed under
Section 2.1(g) of this Agreement regarding the Project and/or Work Plans
thereunder, any other dispute regarding the interpretation of this Agreement or
the enforcement of a Party's rights or obligations hereunder shall be in the
first instance be referred to the JDC, if the JDC in good faith cannot resolve
such dispute such matter shall be referred to the Vice President and Chief
Scientific Officer of SIBIA (or successor positions thereto) and the
Neuroscience Vice President of Lilly (or successor positions thereto), unless
this Agreement specifically specifies something to the contrary. If the dispute
cannot be resolved by the designated individuals within sixty (60) days after
such submission, the Parties may assert any remedy available at law or in action
brought hereunder and shall be subject to the jurisdiction of the courts (either
state or federal) of the State of New York.
53.
<PAGE> 61
18.15 NON-SOLICITATION OF EMPLOYEES. During the Project Term and
for a period of six (6) months thereafter, each Party agrees that it will not
directly recruit, solicit or induce any employee of the other Party who is
directly associated with the Project to terminate his or her employment with
such other Party. However, nothing set forth in this Section shall prohibit a
Party from indirectly recruiting, soliciting or inducing such employees to leave
the other Party through the use of advertisements in trade journals and the like
or from discussing employment opportunities with such employees to the extent
such employees contact such Party first.
18.16 LIMITATION OF LIABILITY. No Party shall be liable to
another for indirect, incidental, consequential or special damages, including
but not limited to lost profits, arising from or relating to any breach of this
Agreement, regardless of any notice of the possibility of such damages. Nothing
in this Section is intended to limit or restrict the indemnification rights or
obligations of any Party.
IN WITNESS WHEREOF, the Parties hereto have as of the Effective Date
duly executed this Agreement.
ELI LILLY AND COMPANY SIBIA NEUROSCIENCES, INC.
By: /s/ AUGUST M. WATANABE By: /s/ WILLIAM T. COMER
------------------------------- -------------------------------
Name: August M. Watanabe, M.D. Name: William T. Comer, Ph.D.
Title: Executive Vice President President and C.E.O.
54.
<PAGE> 62
SCHEDULE 1.42
TO
COLLABORATION AGREEMENT
BETWEEN
SIBIA NEUROSCIENCES, INC.
AND
ELI LILLY AND COMPANY
PRE-EXISTING COMPOUNDS
- --------------------------------------------------------------------------------
[*]
[*]
SCHEDULE 1.42
* CONFIDENTIAL TREATMENT REQUESTED
1.
<PAGE> 63
[*]
SCHEDULE 1.42
* CONFIDENTIAL TREATMENT REQUESTED
2.
<PAGE> 64
[*]
SCHEDULE 1.42
* CONFIDENTIAL TREATMENT REQUESTED
3.
<PAGE> 65
[*]
SCHEDULE 1.42
* CONFIDENTIAL TREATMENT REQUESTED
4.
<PAGE> 66
[*]
SCHEDULE 1.42
* CONFIDENTIAL TREATMENT REQUESTED
5.
<PAGE> 67
[*]
SCHEDULE 1.42
* CONFIDENTIAL TREATMENT REQUESTED
6.
<PAGE> 68
[*]
SCHEDULE 1.42
* CONFIDENTIAL TREATMENT REQUESTED
7.
<PAGE> 69
[*]
SCHEDULE 1.42
* CONFIDENTIAL TREATMENT REQUESTED
8.
<PAGE> 70
[*]
SCHEDULE 1.42
* CONFIDENTIAL TREATMENT REQUESTED
9.
<PAGE> 71
SCHEDULE 1.60(a)
TO
COLLABORATION AGREEMENT
BETWEEN
SIBIA NEUROSCIENCES, INC.
AND
ELI LILLY AND COMPANY
U.S. PATENTS - TARGETS
- --------------------------------------------------------------------------------
[*]
SCHEDULE 1.60
* CONFIDENTIAL TREATMENT REQUESTED
1.
<PAGE> 72
[*]
SCHEDULE 1.60
* CONFIDENTIAL TREATMENT REQUESTED
2.
<PAGE> 73
[*]
SCHEDULE 1.60
* CONFIDENTIAL TREATMENT REQUESTED
3.
<PAGE> 74
SCHEDULE 1.60(b)
TO
COLLABORATION AGREEMENT
BETWEEN
SIBIA NEUROSCIENCES, INC.
AND
ELI LILLY AND COMPANY
[*]
SCHEDULE 1.60
* CONFIDENTIAL TREATMENT REQUESTED
1.
<PAGE> 75
[*]
SCHEDULE 1.60
* CONFIDENTIAL TREATMENT REQUESTED
2.
<PAGE> 76
[*]
SCHEDULE 1.60
* CONFIDENTIAL TREATMENT REQUESTED
3.
<PAGE> 77
[*]
* CONFIDENTIAL TREATMENT REQUESTED
4.
<PAGE> 78
SCHEDULE 2.1(d)
TO
COLLABORATION AGREEMENT
BETWEEN
SIBIA NEUROSCIENCES, INC.
AND
ELI LILLY AND COMPANY
WORK PLAN FOR CALENDAR YEAR 1999
- --------------------------------------------------------------------------------
[TO BE ATTACHED SUBSEQUENT TO EFFECTIVE DATE
IN ACCORDANCE WITH SECTION 2.1(d) OF THE AGREEMENT.]
SCHEDULE 2.1(d)
1.
<PAGE> 79
SCHEDULE 5.3
TO
COLLABORATION AGREEMENT
BETWEEN
SIBIA NEUROSCIENCES, INC.
AND
ELI LILLY AND COMPANY
STOCK PURCHASE AGREEMENT
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Purchase Agreement") is made as of
May 25, 1999 (the "Effective Date") by and between SIBIA NEUROSCIENCES, INC.
(the "Company") and ELI LILLY AND COMPANY (the "Investor").
RECITALS
WHEREAS, the Company and the Investor have entered into that certain
Collaboration Agreement of even date herewith (the "Agreement"); and
WHEREAS, in connection with, and as a condition of the Company entering
into, the Agreement, the Investor agrees to purchase from the Company one share
of the Company's Series B Convertible Non-Voting Preferred Stock on the terms
and subject to the conditions set forth in this Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements contained herein, the parties hereto, intending
to be legally bound, do hereby agree as follows:
AGREEMENT
1. Purchase And Sale Of Stock.
Subject to the terms and conditions hereof, at the Closing (as defined
below), the Investor shall purchase from the Company, and the Company shall
issue and sell to the Investor, one share of Series B Convertible Non-Voting
Preferred Stock of the Company (the "Stock") for the purchase price of Five
Million Dollars ($5,000,000).
2. Closing Date; Delivery.
2.1 CLOSING. Subject to the terms of Section 5, the closing of the sale and
purchase of the Stock under this Purchase Agreement (the "Closing") shall be
held on a date that is no later than thirty (30) days after the Effective Date,
at such time and place as the Company and the Investor may mutually agree.
SCHEDULE 5.3
1.
<PAGE> 80
2.2 DELIVERY. At the Closing, subject to the terms and conditions of Section
6, the Company shall deliver to the Investor a stock certificate, registered in
the name of the Investor, representing the Stock dated as of the Closing against
payment of the purchase price therefor by wire transfer, unless other means of
payment shall have been agreed upon by the Company and the Investor.
3. Representations And Warranties Of The Company
The Company hereby makes the following representations and warranties to
the Investor as of the Effective Date and the Closing:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business. The Company is duly qualified to transact business and is
in good standing in each jurisdiction in which the failure so to qualify would
have a material adverse effect on its business or operations.
3.2 AUTHORIZATION; DUE EXECUTION. The Company has the requisite corporate
power and authority to enter into this Purchase Agreement and to perform its
obligations under the terms of this Purchase Agreement and, at the Closing, will
have the requisite corporate power to sell the Stock. All corporate action on
the part of the Company, its officers, directors and stockholders necessary for
the authorization, execution and delivery of this Purchase Agreement have been
taken. This Purchase Agreement has been duly authorized, executed and delivered
by the Company, and, upon due execution and delivery by the Investor, this
Purchase Agreement will be a valid and binding agreement of the Company,
enforceable in accordance with its terms, except as the indemnification
obligations set forth in Section 7.7 may be unenforceable insofar as they relate
to violations of state or federal securities laws and except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally or by equitable principles,
3.3 CAPITALIZATION. The authorized capital stock of the Company consists of
25,000,000 shares of Common Stock, par value S.001, and 5,000,000 shares of
Preferred Stock, par value $.001, of which 150,000 shares have been designated
Series A Junior Participating Preferred Stock ("Series A Preferred") and one
share has been designated Series B Convertible Non-Voting Preferred Stock (the
"Series B Preferred"). As of May 18, 1999, there were 9,689,540 shares of Common
Stock and no shares of Series A Preferred or Series B Preferred issued and
outstanding. The rights, preferences and privileges of the Series B Preferred
will, as of the Closing, be as set forth in the Certificate of Designation of
the Series B Preferred substantially in the form attached hereto as Schedule 3.3
(the "Certificate of Designation").
3.4 VALID ISSUANCE OF STOCK. The Stock, upon the Closing, when issued, sold
and delivered in accordance with the terms hereof for the consideration set
forth herein, will be duly and validly authorized and issued, fully paid and
non-assessable, not subject to any preemptive right, liens, claims or
encumbrances or other restrictions on transfer (other than those arising under
federal and state securities laws or the terms of this Purchase Agreement) and,
based in part upon the representations of the Investor in this Purchase
Agreement, will be issued in compliance with all applicable federal and state
securities laws. Upon the Closing, the shares of
SCHEDULE 5.3
2.
<PAGE> 81
Common Stock issuable upon conversion of the Stock (the "Conversion Shares")
will have been duly authorized, and when issued and delivered upon conversion of
the Shares in accordance with the terms and conditions of the Certificate of
Designation, the Conversion Shares will be validly issued, fully paid and
non-assessable, not subject to any preemptive right, liens, claims or
encumbrances or other restrictions on transfer (other than those arising under
federal and state securities laws or the terms of this Purchase Agreement) and,
based in part upon the representations of the Investor in this Purchase
Agreement, will be issued in compliance with all applicable federal and state
securities laws. The certificate representing the Stock is in due and proper
form and has been duly and validly executed by the officers of the Company named
thereon.
3.5 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing with, any
federal, state, local or provincial governmental authority on the part of the
Company is required in connection with the consummation of the transactions
contemplated by this Purchase Agreement, except for notices required or
permitted to be filed with certain state and federal securities commissions
after the Closing, which notices will be filed on a timely basis.
3.6 SEC FILINGS. The Company has timely filed with the Securities and
Exchange Commission (the "SEC") all reports, registration statements and other
documents required to be filed by it (the "SEC Filings") under the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder
(the "Securities Act"), and the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder (the "Exchange Act"). The SEC
Filings were prepared in accordance and complied in all material respects with
the applicable requirements of the Securities Act or the Exchange Act, as the
case may be. None of such SEC Filings, including, without limitation, any
financial statements, exhibits and schedules included therein and documents
incorporated therein by reference, at the time filed, declared effective or
mailed, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Except to the extent information contained in
any of the SEC Filings has been revised, corrected or superseded by a later
filing of any such form, report or document, none of the SEC Filings currently
contains an untrue statement of a material fact or omits 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.
3.7 NO CONFLICT. The execution, delivery and performance by the Company of
this Purchase Agreement do not violate any provision of the Company's Restated
Certificate of Incorporation or Bylaws, any provision of any order, writ,
judgment, injunction, decree, determination or award to which the Company is a
party or by which it is bound, any contract filed as an exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998, or, to the
Company's knowledge, any law, rule or regulation currently in effect having
applicability to the Company.
3.8 ABSENCE OF LITIGATION. Except as disclosed in the SEC Filings, there is
no action, suit, proceeding or investigation (including any such matter related
to the Company's intellectual property) pending or currently threatened against
the Company or its properties before any court
SCHEDULE 5.3
3.
<PAGE> 82
or governmental agency, which would have a material adverse effect on the
Company's business or operations.
3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the SEC
Filings, since March 31, 1999, (a) neither Company nor any of its subsidiaries
or affiliates has incurred any liabilities or obligations, direct or contingent,
or entered into any transactions, not in the ordinary course of business, that
are material to the Company and its subsidiaries and affiliates, taken as a
whole, (b) there has not been any event, change or occurrence which individually
or in the aggregate would have a material adverse effect on the condition
(financial or other), assets, business, or results of operations of the Company
and its subsidiaries and affiliates, taken as a whole, or the Company's ability
to consummate any of the transactions contemplated hereby or to perform its
obligations hereunder under this Agreement ("Material Adverse Effect"), and (c)
there has not been any change in the capital stock or indebtedness of Company or
its subsidiaries or affiliates that would have a Material Adverse Effect. No
event has occurred since March 31, 1999, with respect to which the Company would
be required to file a Current Report on Forrn 8-K under the Exchange Act.
3.10 CORPORATE DOCUMENTS. The Restated Certificate of Incorporation
(including the Certificate of Designation) and By-laws of the Company are in the
form previously provided to the Investor.
3.11 FULL DISCLOSURE. The Company believes it has provided the Investor with
all information that the Investor has requested for deciding whether to purchase
the Stock and all information reasonably necessary to enable the Investor to
make such decision. Neither this Agreement nor any other statements or
certificates made or delivered in connection herewith contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements herein or therein not misleading.
3.12 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each employee,
consultant and subcontractor of the Company with access to the Company's
proprietary information has executed an agreement customary in the industry
regarding confidentiality of proprietary information and the assignment of
inventions discovered within the scope of work performed on behalf of the
Company to the Company. To the Company's knowledge, no such employee, consultant
or subcontractor is in violation thereof.
3.13 NO DIVIDENDS OR OTHER DISTRIBUTIONS. There has been no declaration or
payment by the Company of any dividend, nor any distribution by the Company of
any assets of any kind, to any of its stockholders with respect to any of the
Company's securities, except as disclosed in the SEC Filings.
3.14 FDA MATTERS. The Company has not received from the United States Food
and Drug Administration a letter (or a threat to deliver such a letter) of
non-approval with respect to any product manufactured, marketed, licensed or
developed by the Company, or any product which the Company intends to
manufacture, market, license or develop.
3.15 CONFLICTS OF INTEREST. Except as set forth in the SEC Filings, the
Company has no interest (other than as holders of securities of a
publicly-traded company), either directly or
SCHEDULE 5.3
4.
<PAGE> 83
indirectly, in any entity, including, without limitation thereto, any
corporation, partnership, joint venture, proprietorship, firm, person, licensee,
business or association (whether as an employee, officer, director, shareholder,
agent, independent contractor, security holder, creditor, consultant or
otherwise) that presently (i) provides any services, or designs, produces and/or
sells any products, or engages in any activity which is the same, similar to or
competitive with any activity or business in which the Company is now engaged or
proposes to become engaged; (ii) is a supplier, customer, or creditor of the
Company, or has an existing contractual relationship with any of the Company's
managing employees; or (iii) has any direct or indirect interest in any asset or
property, real or personal, tangible or intangible, of the Company or any
property, real or personal, tangible or intangible, that is necessary for or
used by the Company in the conduct of the Company's business.
3.16 COLLABORATION AGREEMENT. The representations and warranties made by the
Company in Article 10 of the Agreement, except to the extent such
representations and warranties relate to matters that will occur in the future,
are true and correct as of the Effective Date and the Closing.
3.17 REGISTRATION RIGHTS. Except as disclosed in the SEC Filings and pursuant
to Section 7 of this Purchase Agreement, the Company is under no contractual
obligation to register any of its presently outstanding securities or any of its
securities that may subsequently be issued under the Securities Act.
3.18 COMPANY CONTRACTS. Except as disclosed in the SEC Filings and except for
(i) transactions relating to purchases of shares of the Company's securities or
options to purchase such securities and (ii) salary payments and fringe benefits
paid in the ordinary course of the Company's business, none of the officers,
employees, directors or other affiliates of the Company is a party to any
material written agreement or transaction with the Company, and the Company has
not assumed or guaranteed any obligation of such person.
3.19 INVESTMENT COMPANY ACT. The Company is not an "investment company" or a
company controlled by an "investment company" as such terms are defined in the
Investment Company Act of 1980, as amended.
COMPLIANCE WITH LAW. Except as disclosed in the SEC Filings, the Company
is conducting its business in compliance in all material respects with
applicable material governmental laws, ordinances and regulations (including,
without limitation, those relating to environmental protection and occupational
safety and health practices). All material governmental approvals, permits and
licenses required to conduct the current business of the Company have been
obtained and are in full force and effect and are being complied with by the
Company in all material respects.
3.20 CONFIDENTIALITY. The Company hereby represents, warrants and covenants
that it shall maintain in confidence, and shall not use or disclose without
prior written consent of the Investor, the terms of this Purchase Agreement and
any information identified in writing as confidential that is furnished to it by
the Investor in connection with this Purchase Agreement. This obligation of
confidentiality shall not apply, however, to any information (a) in the public
domain through no unauthorized act or failure to act by the Company, (b)
lawfully disclosed to
SCHEDULE 5.3
5.
<PAGE> 84
the Company by a third party who possessed such information without any
obligation of confidentiality, (c) lawfully developed by the Company independent
of any disclosure by the Company as supported by the Investor's written records,
or (d) required, upon the advice of counsel to the Company, to be disclosed
under the rules and regulations of the SEC. The Company further covenants that
it shall return to the Investor all tangible materials containing such
information upon request by the Investor.
4. Representations And Warranties Of The Investor
The Investor hereby makes the following representations and warranties
to the Company as of the Effective Date and the Closing:
4.1 AUTHORIZATION; DUE EXECUTION. The Investor has the requisite corporate
power and authority to enter into this Purchase Agreement and to perform its
obligations under the terms of this Purchase Agreement and, at the Closing, will
have the requisite corporate power to purchase the Stock. All corporate action
on the part of the Investor, its officers, directors and stockholders necessary
for the authorization, execution and delivery of this Purchase Agreement have
been taken. This Purchase Agreement has been duly authorized, executed and
delivered by the Investor, and, upon due execution and delivery by the Company,
this Purchase Agreement will be a valid and binding agreement of the Investor,
enforceable in accordance with its terms, except as the indemnification
obligations set forth in Section 7.7 may be unenforceable insofar as they relate
to violations of state or federal securities laws and except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally or by equitable principles.
4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Purchase Agreement is made with
the Investor in reliance upon such Investor's representation to the Company,
which by such Investor's execution of this Purchase Agreement such Investor
confirms, that the Stock to be purchased by such Investor will be acquired for
investment for such Investor's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and that such
Investor has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Purchase Agreement, the
Investor further represents that such Investor does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to any of the
Stock.
4.3 DISCLOSURE OF INFORMATION. The Investor has received all the information
that it has requested and that it considers necessary or appropriate for
deciding whether to enter into this Purchase Agreement and to purchase the
Stock. The Investor further represents that it has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the offering of the Stock.
4.4 INVESTMENT EXPERIENCE. The Investor is an investor in securities of
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Stock. The Investor also represents it
has not been organized solely for the purpose of acquiring the Stock.
SCHEDULE 5.3
6.
<PAGE> 85
4.5 ACCREDITED INVESTOR. The Investor is an "accredited investor" as such
term is defined in Rule 501 of the General Rules and Regulations prescribed by
the SEC pursuant to the Securities Act.
4.6 RESTRICTED SECURITIES. The Investor understands that (a) the Stock has
not been registered under the Securities Act by reason of a specific exemption
therefrom, that such securities must be held by it indefinitely and that the
Investor must, therefore, bear the economic risk of such investment
indefinitely, unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from such registration; (b) each certificate
representing the Stock will be endorsed with the following legends, except that
certificates issued following a disposition of such Stock shall not be required
to bear the legend set forth in (a) if (i) the disposition was made in
compliance with Rule 144, as supported by satisfactory written documentation,
(ii) there is in effect a registration statement under the Securities Act
covering the disposition and such disposition was made in accordance with such
registration statement, as supported by satisfactory written documentation, or
(iii) if an opinion of counsel reasonably acceptable to the Company to the
effect that such legend is not required in order to establish compliance with
any provisions of the Securities Act is provided to the Company:
(i) THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED UNLESS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH SALE OR OTHER
TRANSFER OR SUCH SALE OR OTHER TRANSFER IS MADE IN ACCORDANCE WITH RULE 144 OR
RULE 144A OF THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED HAS BEEN PROVIDED.
(ii) Any legend required to be placed thereon by any applicable state
securities laws.
Furthermore, the Company will instruct any transfer agent not to register the
transfer of the Stock (or any portion thereof) unless the conditions specified
in the foregoing legends are satisfied, until such time as a transfer is made,
pursuant to the terms of this Purchase Agreement, and in compliance with Rule
144 or pursuant to a registration statement or, if the opinion of counsel
referred to above is to the effect that such legend is not required in order to
establish compliance with any provisions of the Securities Act or this Purchase
Agreement.
4.7 CONFIDENTIALITY. The Investor hereby represents, warrants and covenants
that it shall maintain in confidence, and shall not use or disclose without
prior written consent of the Company, the terms of this Purchase Agreement and
any information identified in writing as confidential that is furnished to it
by the Company in connection with this Purchase Agreement. This obligation of
confidentiality shall not apply, however, to any information (a) in the public
domain through no unauthorized act or failure to act by the Investor, (b)
lawfully disclosed to such Investor by a third party who possessed such
information without any obligation of confidentiality, (c) lawfully developed by
such Investor independent of any disclosure by the Company as supported by the
Investor's written records, or (d) required to be disclosed pursuant to an order
or requirement of a court, administrative agency or other government body
(including the securities laws of any applicable jurisdiction). The Investor
further covenants that it shall
SCHEDULE 5.3
7.
<PAGE> 86
return to the Company all tangible materials containing such information upon
request by the Company.
5. Conditions Of The Investor's Obligations
The obligations of the Investor under Section 1 of this Purchase
Agreement to purchase the Stock at the Closing are subject to the fulfillment on
or before the Closing of each of the following conditions, any of which may be
waived by the Investor:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company contained in Section 3 shall be true and correct in all material
respects on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of said date.
5.2 PERFORMANCE. The Company shall have performed and complied with all
agreements, obligations and conditions in this Purchase Agreement, if any, that
are required to be performed or complied with by it on or before the Closing.
5.3 COMPLIANCE CERTIFICATE. The President or a Vice President of the Company
shall deliver to the Investor at the Closing a certificate certifying that the
conditions specified in Sections 5.1 and 5.2 have been fulfilled.
5.4 FILING OF CERTIFICATE OF DESIGNATION. The Certificate of Designation
substantially in the form attached hereto as Schedule 3.3 shall have been filed
with the Secretary of State of Delaware.
5.5 LEGAL OPINION. An opinion of counsel to the Company substantially in the
form attached hereto as Schedule 5.5 and dated as of the Closing shall have been
delivered to the Investor at the Closing.
5.6 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Investor, and it shall have received all such counterpart original and certified
or other copies of such documents as it may reasonably request.
6. Conditions Of The Companys Obligations
The obligations of the Company to the Investor under this Purchase
Agreement are subject to the fulfillment on or before the Closing of each of the
following conditions by such Investor, any of which may be waived by the
Company:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Investor contained in Section 4 hereof shall be true and correct in all
material respects on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of said dates.
SCHEDULE 5.3
8.
<PAGE> 87
6.2 PERFORMANCE. The Investor shall have performed and complied with all
agreements, obligations and conditions in this Purchase Agreement, if any, that
are required to be performed or complied with by it on or before the Closing.
6.3 COMPLIANCE CERTIFICATE. A duly authorized officer of the Investor shall
deliver to the Company at the Closing a certificate certifying that the
conditions specified in Sections 6.1 and 6.2 have been fulfilled.
6.4 PAYMENT OF PURCHASE PRICE. The Investor shall have tendered delivery of
the purchase price for the Stock specified in Section 1 at the Closing.
6.5 FILING OF CERTIFICATE OF DESIGNATION. The Certificate of Designation
substantially in the form attached hereto as Schedule 3.3 shall have been filed
with the Secretary of State of Delaware.
6.6 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Company, and it shall have received all such counterpart original and certified
or other copies of such documents as it may reasonably request.
7. Registration Rights.
7.1 CERTAIN DEFINED TERMS.
"FORM S-3" means such form under the Securities Act as in effect
on the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"HOLDER" means any person owning of record Registrable Securities
that have not been sold to the public or any assignee of record of such
Registrable Securities in accordance with Section 7.8 hereof.
"REGISTER, " "REGISTERED, " AND "REGISTRATION " REFER to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.
"REGISTRABLE SECURITIES" means (a) Conversion Shares and (b) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
the Conversion Shares. Notwithstanding the foregoing, Registrable Securities
shall not include any securities (x) sold by a person to the public pursuant to
a registration statement or Rule 144 so that all the transfer restrictions and
restrictive legends with respect to such Common Stock are removed upon the
consummation of such sale or (y) sold in a private transaction in which the
transferor's rights under Section 7 of this Agreement are not assigned.
SCHEDULE 5.3
9.
<PAGE> 88
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of
shares determined by calculating the total number of shares of the Company's
Common Stock that are Registrable Securities and either (a) are then issued and
outstanding or (b) are issuable pursuant to then exercisable options, warrants
or convertible securities.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the
Company in complying with Section 7.2 hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, 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
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company).
"SELLING EXPENSES" shall mean all underwriting discounts and
selling commissions applicable to the sale of any Registrable Securities.
7.2 FORM S-3 REGISTRATION. Subject to the provisions of this Section 7, if
at any time after the period expiring on the earlier of either (i) the
three-year anniversary date of the Effective Date, or (ii) the termination of
the Project Term (as defined in the Agreement) including any early termination
thereof, in case the Company shall receive from any Holder or Holders of
Registrable Securities (the "Initiating Holders") a written request or requests
that the Company effect a registration on Form S-3 (or any successor to Form
S-3) or any similar shortform registration statement and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) as soon as practicable, effect such registration and afl such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within
fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 7.2:
(i) if Form S-3 (or any successor or similar form) is not available for such
offering by the Holders;
(ii) if the Holders, together with the holders of any other securities of the
Company entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public of less than five hundred thousand dollars ($500,000);
(iii) if the Company shall furnish to the Holders a certificate signed by the
Chairman of the Board of Directors of the Company stating that in the good faith
judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such Form S-3 registration
to be effected at such time, in which event the Company shall
SCHEDULE 5.3
10.
<PAGE> 89
have the right to defer the filing of the Form S-3 registration statement for a
period of not more than ninety (90) days after receipt of the request of the
Holder or Holders under this Section 7.2; provided, that such right to delay a
request shall be exercised by the Company not more than once in any twelve (12)
month period;
(iv) if the Company has already effected two (2) registrations on Form S-3
for the Holders pursuant to this Section 7.2; or
(v) in any particular jurisdiction in which the Company would be required to
qualify to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a Form S-3 registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders.
7.3 EXPENSES OF REGISTRATION. Except as specifically provided herein, all
Registration Expenses incurred in connection with any registration under Section
7.2 herein shall be borne by the Company. All Selling Expenses incurred in
connection with any registrations hereunder, shall be borne by the holders of
the securities so registered pro rata on the basis of the number of shares so
registered. The Company shall not, however, be required to pay for expenses of
any registration proceeding begun pursuant to Section 7.2, the request of which
has been subsequently withdrawn by the Initiating Holders unless (a) the
withdrawal is based upon material adverse information concerning the Company of
which the Initiating Holders were not aware at the time of such request or (b)
the Holders of a majority of Registrable Securities agree to forfeit their right
to one requested registration pursuant to Section 7.2 (in which event such right
shall be forfeited by all Holders). If the Holders are required to pay the
Registration Expenses, as described under this Section 7.3, such expenses shall
be borne by the holders of securities (including Registrable Securities)
requesting such registration in proportion to the number of shares for which
registration was requested.
7.4 OBLIGATIONS OF THE COMPANY. Whenever required to effect the registration
of any Registrable Securities, the Company shall, as expeditiously as possible:
(a) Prepare and file with the SEC a Form S-3 with respect to such
Registrable Securities and use its best efforts to cause such Form S-3 to become
effective, and, upon the request of the Holders of a majority of the Registrable
Securities registered thereunder, keep such registration statement effective
until the Holder or Holders have completed the distribution related thereto.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement for the period set forth in paragraph (a) above.
(c) Furnish to the participating Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such
11.
<PAGE> 90
other documents as they may reasonably request in order to facilitate the public
sale or other disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders and do any and all
other acts which may be necessary under such securities or Blue Sky laws to
enable such Holder to consummate the public sale or other disposition of the
Registrable Securities in such jurisdictions; provided that the Company shall
not be required in connection therewith or as a condition thereto to qualify to
do business as a foreign corporation or to file a general consent to service of
process in any such states or jurisdictions.
(e) Before filing the registration statement or prospectus or amendments or
supplements thereto, furnish to counsel selected by the participating Holders
copies of such documents proposed to be filed which shall be subject to the
reasonable approval of such counsel.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing and promptly file such amendments and supplements as may be necessary
to that, as thereafter delivered to such Holders of such Registrable Securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing
and use its best efforts to cause each such amendment and supplement to become
effective.
(g) Use its best efforts to cause all such Registrable Securities to be
listed on the securities exchange, if any, on which the Common Stock is then
listed.
7.5 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted
under this Section 7 shall terminate and be of no further force and effect on
the earlier to occur of (x) such time as the Company has already effected two
(2) registrations on Form S-3 for the Holders pursuant to Section 7.4 or (y)
such time as all Registrable Securities may be sold under Rule 144 during any
ninety (90) day period. In addition, a Holder's registration rights shall expire
if (a) such Holder (together with its affiliates, partners and former partners)
holds less than 1% of the Company's outstanding Common Stock (treating all
shares of convertible Preferred Stock on an as-converted basis) and (b) all
Registrable Securities held by and issuable to such Holder (and its affiliates,
partners, former partners, members and former members) may be sold under Rule
144 during any ninety (90) day period.
7.6 FURNISHING INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 7.2 that the
selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities.
SCHEDULE 5.3
12.
<PAGE> 91
7.7 INDEMNIFICATION. In the event any Registrable Securities are included in
a registration statement under Section 7.2:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, the partners, officers, employees, agents and directors of
each Holder, any underwriter (as defined in the Securities Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages, expenses or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state law
or otherwise, insofar as such losses, claims, damages, expenses or liabilities
(or actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a "Violation") by
the Company: (i) any untrue statement or allegedly untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto or any document incident to the registration or
qualification of any Registrable Securities, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii)any violation
or alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law in connection with the
offering covered by such registration statement and the Company will pay as
incurred to each such Holder, partner, officer, director, underwriter or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
expense, liability or action if it is judicially determined that there was such
a violation; provided however, that the indemnity agreement contained in this
Section 7.7(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, expense, liability or action if such settlement is effected
without the written consent of the Company, which consent shall not be
unreasonably withheld, nor shall the Company be liable in any such case for any
such loss, claim, damage, liability or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by such Holder, partner, officer, director, underwriter or
controlling person of such Holder.
(b) To the extent permitted by law, each Holder will, if Registrable
Securities held by such Holder are included in the securities as to which such
registration qualifications or compliance is being effected, indemnify and hold
harmless the Company, each of its directors, its officers and each person, if
any, who controls the Company within the meaning of the Securities Act, any
underwriter and any other Holder selling securities under such registration
statement or any of such other Holder's partners, directors or officers or any
person who controls such Holder, against any losses, claims, damages, expenses
or liabilities (joint or several) to which the Company or any such director,
officer, controlling person, underwriter or other such Holder, or partner,
director, officer or controlling person of such other Holder may become subject
under the Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages, expenses or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder under an
instrument duly executed by such Holder and stated to be specifically for use in
connection with such registration; and each such Holder will pay as incurred any
legal or other
SCHEDULE 5.3
13.
<PAGE> 92
expenses reasonably incurred by the Company or any such director, officer,
controlling person, underwriter or other Holder, or partner, officer, director
or controlling person of such other Holder in connection with investigating or
defending any such loss, claim, damage, liability or action if it is judicially
determined that there was such a Violation; provided, however, that the
indemnity agreement contained in this Section 7.7(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, expense, liability or action
if such settlement is effected without the written consent of the Holder, which
consent shall not be unreasonably withheld; provided further, that in no event
shall any indemnity under this Section 7.7(b) exceed the proceeds from the
offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 7.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 7.7, deliver to
the indemnifying party a written notice of the commencement thereof along with
an explanation of such action in summary form and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. In addition, an indemnifying party shall not have
the right to direct the defense of such an action on behalf of an indemnified
party if such indemnified party has reasonably concluded that there may be
defenses available to it that are different from or additional to those
available to the indemnifying party; provided, however, that in such event, the
indemnifying party shall bear the fees and expenses of only one separate counsel
for all indemnified parties. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if materially prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 7.7, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 7.7.
(d) If the indemnification provided for in this Section 7.7 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any losses, claims, damages, expenses or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage, expense or liability in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the Violation(s) that resulted
in such loss, claim, damage, expense or liability, as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by a court of law by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; provided, that in no event shall any contribution by
a
14.
<PAGE> 93
Holder hereunder exceed the proceeds from the offering received by such Holder.
Notwithstanding the foregoing, no underwriter, if any, shall be required to
contribute any amount in excess of the amount by which the total price at which
the securities underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages which the underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligation of any underwriters to contribute pursuant to
this Section 7.7(d) shall be several in proportion to their respective
underwriting commitments and not joint.
(e) To the extent permitted by law, the indemnification provided under this
Section 7.7 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 (within the meaning of the Securities Act) of such
indemnified party and will survive the transfer of any securities.
(f) The obligations of the Company and Holders under this Section 7.7 shall
survive completion of any offering of Registrable Securities in a registration
statement and the termination of this Agreement. No indemnifying party, in the
defense of any such claim or litigation, shall, except with the consent 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 such indemnified party of a release from all liability
in respect to such claim or litigation.
7.8 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to
register Registrable Securities pursuant to this Section 7 may be assigned by a
Holder to a transferee or assignee of Registrable Securities which is a
subsidiary, parent or affiliate of a Holder; provided, however, (i) the
transferor shall, within ten (10) days after such transfer, furnish to the
Company written notice of the name and address of such transferee or assignee
and the securities with respect to which such registration rights are being
assigned and (ii) such transferee shall agree to be subject to all restrictions
set forth in this Agreement.
7.9 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section 7 may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of at least sixty-six and
two-thirds percent (66-2/3%) of the Registrable Securities then outstanding;
provided that under no circumstances shall such amendment or waiver reduce the
Investor's rights to indemnification or increase the Investor's indemnification
obligations under this Section 7 without the Investor's written consent. Subject
to the foregoing, any amendment or waiver effected in accordance with this
Section 7.9 shall be binding upon each Holder and the Company. By acceptance of
any benefits under this Section 7, Holders of Registrable Securities hereby
agree to be bound by the provisions hereunder.
7.10 AGREEMENT TO FURNISH INFORMATION. Each Holder agrees to execute and
deliver such other agreements as may be reasonably requested by the Company or
the underwriter which are consistent with the foregoing or which are necessary
to give further effect thereto. In addition, if requested by the Company or the
representative of the underwriters of Common
SCHEDULE 5.3
15.
<PAGE> 94
Stock (or other securities) of the Company, each Holder shall provide, within
ten (10) days of such request, such information as may be reasonably required by
the Company or such representative in connection with the completion of any
public offering of the Company's securities pursuant to a registration statement
filed under the Securities Act. The obligations described in this Section 7. 10
shall not apply to a registration relating solely to employee benefit plans on
Form S-II or Form S-8 or similar forms that may be promulgated in the future, or
a registration relating solely to a Commission Rule 145 transaction on Form S-4
or similar forms that may be promulgated in the future.
7.11 RULE 144 REPORTING. With a view to making available to the Holders the
benefits of certain rules and regulations of the SEC which may permit the sale
of the Registrable Securities to the public without registration, the Company
agrees to use its best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public;
(b) file with the SEC, in a timely manner, all reports and other documents
required of the Company under the Exchange Act; and
(c) so long as a Holder owns any Registrable Securities, furnish to such
Holder forthwith upon request: a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 of the Securities
Act, and of the Exchange Act (at any time after it has become subject to such
reporting requirements); a copy of the most recent annual or quarterly report of
the Company; and such other reports and documents as a Holder may reasonably
request in availing itself of any rule or regulation of the SEC allowing it to
sell any such securities without registration.
8. Covenants
8.1 DELIVERY OF FINANCIAL STATEMENTS. So long as the Investor (or any person
who acquires the Stock from the Investor) holds the Stock the Company shall
deliver to the Investor (or any person who acquires the Stock from the Investor)
copies of its Forms 10-K and 10-Q as filed with the SEC upon request by the
Investor.
8.2 AGREEMENT NOT TO SELL. The Investor hereby agrees that the Investor
shall not, without the prior written consent of the Company, directly or
indirectly, sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of any
securities of the Company held by it at any time during the period commencing on
the Effective Date and expiring on the earlier of either: (i) the three-year
anniversary date of the Effective Date or (ii) the termination of the Project
Term (as defined in the Agreement), including any early termination thereof. In
order to enforce the provisions of this Section 8.2, the Company may impose
stop-transfer instructions with respect to the securities held by the Investor
that are subject to the foregoing restriction until the end of such period.
8.3 MARKET STAND-OFF AGREEMENT. The Investor hereby agrees that during the
period specified by the Company and an underwriter of Common Stock or other
securities of the
16.
<PAGE> 95
Company following the effective date of a Registration Statement of the Company
filed under the Securities Act (which period shall not exceed 180 days), to the
extent requested by the Company and such underwriter, it shall not, nor will it
permit any of its affiliates (including parents, subsidiaries or other related
entities) to, directly or indirectly sell, contract to sell (including, without
limitation, any short sale) grant any option to purchase or otherwise transfer
or dispose of any securities of the Company held by any of them during such
periods; provided that all directors and executive officers, any holders of at
least 5% of the Company's voting securities and any other holders of securities
participating in such registration enter into similar agreements. In order to
enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the securities held by the Investor and its
affiliates that are subject to the foregoing restriction until the end of such
period.
8.4 RETIREMENT OF COMMON STOCK. If the Investor has not previously converted
the Stock into Conversion Shares, then in the event of a Change of Control (as
defined in the Certificate of Designation) that becomes effective prior to
February 21, 2001 and prior to the achievement of a Candidate Selection Approval
for a Project Compound (each as defined in the Agreement), the Investor hereby
agrees that if, subsequent to the Change of Control but prior to February 21,
2001, a Candidate Selection Approval is achieved for a Project Compound, the
Investor shall surrender to the Company or its successor entity, and the Company
or its successor entity shall retire, entity [*] of the securities issued to the
Investor in exchange for the Conversion Shares upon such Change of Control, and
the Investor shall have no further right or interest in such surrendered
securities.
9. Miscellaneous
9.1 SUCCESSORS AND ASSIGNS. The terms and conditions of this Purchase
Agreement shall inure to the benefit of and be binding upon the respective
permitted successors and assigns of the parties. Nothing in this Purchase
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective permitted successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Purchase Agreement, except as expressly provided in this Purchase Agreement.
9.2 GOVERNING LAW. This Purchase Agreement shall be governed by and
construed under the laws of the State of New York, as applied to contracts
executed and performed entirely within the State of New York, without regard to
conflicts of laws rules.
9.3 COUNTERPARTS. This Purchase Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.4 TITLES AND SUBTITLES. The titles and subtitles used in this Purchase
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Purchase Agreement.
9.5 ASSIGNMENT. This Purchase Agreement may not be assigned or otherwise
transferred, nor, except as expressly provided hereunder, may any right or
obligations hereunder be assigned or transferred, by either party without the
written consent of the other party;
SCHEDULE 5.3
* CONFIDENTIAL TREATMENT REQUESTED
17.
<PAGE> 96
provided, however, that either the Company or the Investor may, without such
consent, assign this Purchase Agreement and its rights and obligations hereunder
(a) in connection with the transfer or sale of all or substantially all of its
business or (b) in the event of its merger or consolidation with another company
at any time during the term of this Purchase Agreement. Any purported assignment
in violation of the preceding sentence shall be void. Any other permitted
assignee shall also assume all obligations of its assignor under this Purchase
Agreement.
9.6 NOTICES. Any notice or report required or permitted to be given or made
under this Purchase Agreement by one of the parties hereto to the other shall be
in writing, delivered personally or by facsimile (and promptly confirmed by
personal delivery or courier) or courier, postage prepaid, addressed to such
other party at its address indicated below, or to such other address as the
addressee shall have last furnished in writing to the addresser and shall be
effective upon receipt by the addressee.
THE COMPANY: SIBIA NEUROSCIENCES, INC.
505 Coast Boulevard South, Suite 300
La Jolla, California 92037
Attention: President
Tel: (619) 452-5892
Fax: (619) 459-1609
THE INVESTOR: ELI LILLY AND COMPANY
Lilly Corporate Center
Indianapolis, IN 46285
Attention: General Counsel
Tel: (317) 276-5669
Fax: (317) 277-3977
9.7 FINDER'S FEE. Each party represents that it neither is nor will be
obligated for any finders' fee or commission in connection with this
transaction. The Investor agrees to indemnify and hold harmless the Company from
any liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Investor or any of its officers, partners, employees or
representatives is responsible. The Company agrees to indemnify and hold
harmless the Investor from any liability for any commission or compensation in
the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
9.8 EXPENSES. Irrespective of whether the Closing is effected, each party
shall bear its own costs with respect to the negotiation, execution, delivery
and performance of this Purchase Agreement.
9.9 AMENDMENTS AND WAIVERS. Except as specified in Section 7.9, any term of
this Purchase Agreement may be amended and the observance of any term of this
Purchase Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively) only with the written consent of the
Company and the Investor.
SCHEDULE 5.3
18.
<PAGE> 97
9.10 SEVERABILITY. If one or more provisions of this Purchase Agreement is
held to be unenforceable under applicable law, such provision shall be excluded
from this Purchase Agreement and the balance of this Purchase Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
9.11 ENTIRE AGREEMENT. This Purchase Agreement constitutes the entire
agreement between the parties hereto with regard to the subject matter hereof
IN WITNESS WHEREOF, the parties have executed this Purchase Agreement as
of the date first above written.
SIBIA NEUROSCIENCES, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
ELI LILLY AND COMPANY
By:_____________________________________
Name: August M. Watanabe, M.D.
Title: Executive Vice President
SCHEDULE 5.3
19.
<PAGE> 98
SCHEDULE 5.5
FORM OF OPINION OF COMPANY COUNSEL
June __, 1999
Eli Lilly and Company
Lilly Corporate Center
Indianapolis, Indiana 46285
Ladies and Gentlemen:
We have acted as counsel for SIBIA Neurosciences, Inc., a Delaware corporation
(the "Company"), in connection with the issuance and sale of shares of the
Company's capital stock (the "Stock") to Eli Lilly and Company, an Indiana
corporation ("Lilly"), pursuant to the Stock Purchase Agreement, dated as of May
25, 1999, between the Company and Lilly (the "Agreement"). We are rendering this
opinion pursuant to Section 5.5 of the Agreement. Except as otherwise defined
herein, capitalized terms used but not defined herein have the respective
meanings given to them in the Agreement.
In connection with this opinion, we have examined and are familiar with the
Agreement and have relied upon the representations and warranties as to factual
matters contained in and made pursuant to the Agreement and originals or copies
certified to our satisfaction, of such other records, documents, certificates,
opinions, memoranda and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below. Where we render
an opinion "to the best of our knowledge" or concerning an item "known to us" or
our opinion otherwise refers to our knowledge, it is based solely upon (i) an
inquiry of attorneys within this firm who perform legal services for the
Company, (ii) receipt of a certificate executed by an officer of the Company
covering such matters, and (iii) such other investigation, if any, that we
specifically set forth herein.
In rendering this opinion, we have assumed: the genuineness and authenticity of
all signatures on original documents; the authenticity of all documents
submitted to us as originals; the conformity to originals of all documents
submitted to us as copies; the accuracy, completeness and authenticity of
certificates of public officials; and the due authorization, execution and
delivery of all documents (except the due authorization, execution and delivery
by the Company of the Agreement), where authorization, execution and delivery
are prerequisites to the effectiveness of such documents. We have also assumed:
that all individuals executing and delivering documents had the legal capacity
to so execute and deliver; that you have received all documents you were to
receive under the Agreement; that the Agreement is an obligation binding upon
you; that you have filed any required California franchise or income tax returns
and have paid any required California franchise or income taxes; and that there
are no extrinsic agreements or understandings among the parties to the Agreement
that would modify or interpret the terms of the Agreement or the respective
rights or obligations of the parties thereunder.
SCHEDULE 5.5
1.
<PAGE> 99
Our opinion is expressed only with respect to the federal laws of the United
States of America, the laws of the State of California and the General
Corporation Law of the State of Delaware. We note that the parties to the
Agreement have designated the laws of the State of New York as the laws
governing the Agreement. Our opinion in paragraph 3 below as to the validity,
binding effect and enforceability of the Agreement is premised upon the result
that would be obtained if a California court were to apply the internal laws of
the State of California (notwithstanding the designation of the laws of the
State of New York) to the interpretation of the Agreement. We express no opinion
as to whether the laws of any particular jurisdiction apply, and no opinion to
the extent that the laws of any jurisdiction other than those identified above
are applicable to the subject matter hereof. We are not rendering any opinion as
to compliance with any antifraud law, rule or regulation relating to securities,
or to the sale of issuance thereof.
With regard to our opinion in paragraph 4 below, we have examined and relied
upon a certificate executed by the Company's transfer agent as to the number of
shares of Common Stock that are issued and outstanding as reflected in the
transfer agent's records.
On the basis of the foregoing, in reliance thereon and with the foregoing
qualifications, we are of the opinion that:
1. The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of
Delaware.
2. The Company has the requisite corporate power to own its
property and assets and to conduct its business as it is
currently being conducted, is qualified as a foreign corporation
to do business in California and, to the best of our knowledge,
is not required to qualify as a foreign corporation to do
business in any other jurisdiction in the United States.
3. All corporate action on the part of the Company necessary for
the authorization, execution and delivery of the Agreement has
been taken. The Agreement has been duly and validly authorized,
executed and delivered by the Company and constitutes a valid
and binding agreement of the Company enforceable against the
Company in accordance with its terms, except as rights to
indemnity under Section 7.7 of the Agreement may be limited by
applicable laws and except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, arrangement,
moratorium or other similar laws affecting creditors' rights
generally, and subject to general equity principles and to
limitations on availability of equitable relief, including
specific performance.
4. The authorized capital stock of the Company consists of
25,000,000 shares of Common Stock, par value $.001, and
5,000,000 shares of Preferred Stock, par value S.001, of which
150,000 shares have been designated Series A Junior
Participating Preferred Stock and one share has been designated
Series B Convertible Non-Voting Preferred Stock. As of May __,
1999, there were _____ shares of Common Stock and no shares of
Series A Preferred or Series B Preferred issued and outstanding.
SCHEDULE 5.5
2.
<PAGE> 100
5. The Stock has been duly authorized and, upon issuance and
delivery against payment therefor in accordance with the terms
of the Agreement, will be validly issued, outstanding, fully
paid and nonassessable and not issued in violation of any
preemptive right set forth in the Company's Certificate of
Incorporation, as amended, or subject to any lien, claim,
encumbrance or other restriction on transfer (other than those
arising under federal and state securities laws or the terms of
the Agreement). The Conversion Shares have been duly authorized
and, upon issuance and delivery upon conversion of the Stock in
accordance with the terms thereof, will be validly issued,
outstanding, fully paid and nonassessable and not issued in
violation of any preemptive right set forth in the Company's
Certificate of Incorporation, as amended, or subject to any
lien, claim, encumbrance or other restriction on transfer (other
than those arising under federal and state securities laws or
the terms of the Agreement). The certificate representing the
Stock is in due and proper form under the General Corporation
Law of the State of Delaware and, as of the Closing, will have
been duly and validly executed by the officers of the Company
named thereon.
6. The execution and delivery of the Agreement by the Company and
the issuance of the Stock and the Conversion Shares pursuant to
the Agreement do not violate any provision of the Company's
Certificate of Incorporation, as amended, or Bylaws or, to our
knowledge, any provision of any order, writ, judgment,
injunction, decree, determination, award or material contract to
which the Company is a party or by which it is bound or any
governmental statute, rule or regulation applicable to the
Company.
7. All consents, approvals, authorizations, or orders of, and
filings, registrations and qualifications with any regulatory
authority or governmental body in the United States required for
the sale and issuance by the Company of the Stock have been made
or obtained, except for the filing of a Form D by the Company
pursuant to Securities and Exchange Commission Regulation D.
8. The offer and sale of the Stock is, and (assuming conversion of
the Stock at the Closing by the Investor) the issuance of the
Conversion Shares will be, exempt from the registration
requirements of the Securities Act of 1933, as amended, subject
to the timely filing of a Form D pursuant to Securities and
Exchange Commission Regulation D.
This opinion is intended solely for your benefit and is not to be made
available to or be relied upon by any other person, firm, or entity without our
prior written consent.
SCHEDULE 5.5
3.
<PAGE> 101
SCHEDULE 15.1
TO
COLLABORATION AGREEMENT
BETWEEN
SIBIA NEUROSCIENCES, INC.
AND
ELI LILLY AND COMPANY
PRESS RELEASE
- --------------------------------------------------------------------------------
PRESS RELEASE FOLLOWS ON NEXT PAGES.
SCHEDULE 15.1
<PAGE> 102
NEWS OF
LILLY
- --------------------------------------------------------------------------------
Eli Lilly and Company, Indianapolis, Indiana 46285
DATE: MAY 25,1999
FOR RELEASE: DRAFT A - FOR REVIEW
REFER TO: (317) 276-5795 - JAMES P. KAPPEL (LILLY)
(619) 452-5892 - JEFFREY F. MCKELVY (SIBIA)
SIBIA NEUROSCIENCES AND LILLY ANNOUNCE NICOTINIC RECEPTOR DRUG DISCOVERY
AND DEVELOPMENT COLLABORATION FOCUSING ON CENTRAL NERVOUS SYSTEM DISORDERS
SIBIA Neurosciences, Inc. (NASDAQ: SIBI) and Eli Lilly and Company (NYSE: LLY)
today announced that they have entered into a three-year collaborative agreement
to research and develop compounds effective in treating disorders of the central
nervous system (CNS). SIBIA and Lilly will work together to identify and
optimize compounds selective for subtypes of nicotinic acetylcholine receptors
(nAChRs).
Under the terms of the three-year agreement, SIBIA will research funding that
could total $15 million and an investment in equity by Lilly. In addition, SIBIA
could also receive milestone payments and royalty payments. In exchange, Lilly
will receive exclusive global rights to products that result from the
collaboration. Lilly will conduct and fund all clinical trials for compounds
discovered during the project and will receive an exclusive option to SIBIA's
two clinical candidates, SIB1508Y for Parkinson's disease and SIB-1553A for
Alzheimer's disease, both currently in phase H trials.
SIBIA's research on nAChR subtypes will greatly compliment our internal efforts
to identify promising compounds to treat a number of CNS diseases," said H.
Christian Fibiger Ph.D., vice president neuroscience discovery research and
clinical investigation for Lilly. "Our partnerships with leading scientific
companies are helping to further strengthen a rich pipeline of products that
holds tremendous promise and continues to grow."
"A growing body of evidence suggests that regulation of specific nAChR subtypes
may allow therapeutic intervention in a number of disorders including pain,
schizophrenia, depression, Alzheimer's disease and Parkinson's disease," said
Jeffrey F. McKelvy, Ph.D., executive vice president and chief scientific officer
of SIBIA. "We believe that the nAChRs are a rich area for drug discovery. With
the combination of the resource commitment from Lilly and the expertise that
each company brings to the collaboration we anticipate that this joint effort
could produce a number of drug candidates for neurological and psychiatric
disorders."
William T. Comer, Ph.D., SIBIA's president and chief executive officer stated,
"We look forward to collaborating with Lilly in the development of novel
therapeutics to treat CNS diseases. SIBIA and Lilly together will be committing
a significant number of dedicated scientists to apply our proprietary nicotinic
drug discovery technology to the identification and development of new CNS
subtype-selective compounds. We will also be advancing compounds
SCHEDULE 15.1
<PAGE> 103
already identified at SIBIA that are active on nicotinic acetylcholine receptor
subtypes. Working with Lilly provides us an opportunity to expand our efforts
into this important CNS area."
SIBIA Neurosciences, Inc. is engaged in the discovery and development of novel
small molecule therapeutics for the treatment of neurodegenerative,
neuropsychiatric and neurological disorders, many of which have large patient
populations and represent critical unmet medical needs. SIBIA is a leader in the
development of proprietary drug discovery platforms that combine key tools
necessary for modem drug discovery, including genomics, high throughput
screening, advanced combinatorial chemistry techniques and pharmacology. The
company's proprietary molecular targets and drug candidates, together with its
drug discovery technologies and research expertise, have enabled the company to
establish several corporate research collaborations.
Lilly is a global research-based pharmaceutical corporation headquartered in
Indianapolis, Ind., that is dedicated to creating and delivering innovative
pharmaceutical-based health care solutions which enable people to live longer,
healthier, and more active lives.
THIS PRESS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED
HEREIN. THESE RISKS AND UNCERTAINTIES INCLUDE RISKS AND UNCERTAINTIES REGARDING
SIBIA'S ONGOING LITIGATION WITH CADUS, INCLUDING UNCERTAINTIES REGARDING APPEALS
AND RELATED PROCEEDINGS, THE COMPANIES TECHNOLOGIES, UNCERTAINTIES REGARDING THE
COMPANY'S SIB-1508Y AND SIB-1553A COMPOUNDS, THE RISK THAT FURTHER DEVELOPMENT
OF SUCH COMPOUNDS WILL BE UNSUCCESSFUL OR TERMINATED, THE RISK THAT LILLY WILL
NOT EXERCISE ITS OPTIONS TO ACQUIRE RIGHTS TO SUCH COMPOUNDS, THE RISK THAT
SIBIA MAY NEVER RECEIVE ANY MILESTONE OR ROYALTY REVENUE FROM SUCH COMPOUNDS OR
ANY OTHER COMPOUND, UNCERTAINTIES REGARDING SIBIA'S FUTURE CAPITAL NEEDS AND THE
UNCERTAINTY OF RECEIVING ADDITIONAL FUNDING, AND OTHER RESEARCH, DEVELOPMENT AND
MARKET RISKS. THESE AND OTHER RISKS AND UNCERTAINTIES ARE MORE FULLY SET FORTH
IN BOTH COMPANY'S MOST RECENTLY FILED FORMS 10-Q AND 10-K.
# # #
SCHEDULE 15.1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED BALANCE SHEET AND THE UNAUDITED STATEMENT OF OPERATIONS AND
COMPREHENSIVE LOSS AS OF JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 15,809,000
<SECURITIES> 2,779,000
<RECEIVABLES> 2,069,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,939,000
<PP&E> 2,757,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,708,000
<CURRENT-LIABILITIES> 4,062,000
<BONDS> 0
0
0
<COMMON> 10,000
<OTHER-SE> 16,965,000
<TOTAL-LIABILITY-AND-EQUITY> 23,708,000
<SALES> 0
<TOTAL-REVENUES> 6,736,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,673,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,000
<INCOME-PRETAX> (3,339,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,339,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,339,000)
<EPS-BASIC> (.35)
<EPS-DILUTED> (.35)
</TABLE>
