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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 18, 1996
JONES MEDICAL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-15098 43-1229854
(State or other (Commission (IRS Employer
jurisdiction File Number) Identification No.)
of incorporation)
1945 Craig Road, St. Louis, MO 63146
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 576-6100
-----------------------------------------------------------
(Former name or former address, if changed since last report)
ITEM 2. ACQUISITION OF ASSETS
On March 18, 1996, Jones Medical Industries, Inc. (the "Company")
acquired from Eli Lilly and Company ("Lilly") the exclusive perpetual domestic
right to market and distribute Tapazole (methimazole, USP) ("Tapazole") in the
United States. Tapazole is an anti-thyroid product used for the treatment of
hyperthyroidism, the extreme form of hyperthyroidism is commonly known as
Graves' Disease. Tapazole is prescribed to inhibit the synthesis of thyroid
hormones and to reduce the size of the goiter (an abnormal growth resulting from
overactivity of the thyroid gland). Typically Tapazole is used prior to the
removal of all or part of the thyroid gland. Removal of all or part of the
thyroid gland often results in hypothyroidism, a condition requiring ongoing
thyroid supplementation. Recent studies, based on treatment protocols
developed outside the United States, have reported success in treating Graves'
Disease with the use of pharmaceuticals such as Tapazole for 12 to 18 months,
thereby avoiding surgical intervention.
The Company acquired the rights to Tapazole from Lilly for a purchase
price of $26.0 million, of which one-third was paid in cash at closing and the
remainder of which is payable, without interest, in two equal installments on
June 18, 1996 and September 18, 1996, respectively. In addition to the
purchase price, the Company will pay Lilly a royalty equal to 5% of the
Company's net sales of Tapazole during the first 10 years following the
acquisition. The Company also entered into a 10-year manufacturing agreement
with Lilly pursuant to which Lilly will continue to manufacture Tapazole for
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the Company. Lilly may terminate the manufacturing agreement by giving at least
five years' notice to the Company, but such notice may not be given during the
first five years of the Agreement. Any interruption in the supply of Tapazole
from Lilly due to regulatory or other causes could result in the inability of
the Company to meet demand for Tapazole and could materially and adversely
impact the Company's sales of Tapazole. (See the discussion under the caption
"Item 1. Business - Manufacturing" in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.)
The Company borrowed funds from Mark Twain Bank for the initial $8.7
million cash payment as new short-term bank borrowings bearing interest at the
rate of 0.5% below the prime rate. The Company intends to use approximately
$26.0 million of the net proceeds of its pending public offering of Common Stock
(1933 Act Registration No. 333-1207) to repay the indebtedness incurred to
acquire the rights to Tapazole. If such offering is not consummated, the
Company will have to obtain financing from alternative sources to repay such
indebtedness. The Company also anticipates using approximately $1.1 million of
available working capital to acquire and establish initial inventories of
Tapazole and support receivables arising from initial sales activity.
Tapazole faces competition from the generic pharmaceutical,
propylthiouracil (PTU). PTU is sold by Lederle Labs, a division of American
Cyanamid Company, which has greater financial resources than the Company, and by
a number of other independent generic pharmaceutical companies. The Company is
not aware of any generic forms of Tapazole (methimazole) in the marketplace.
However, other pharmaceutical companies may choose to market and sell generic
forms of Tapazole which could lead to a decrease in the price that customers
may be willing to pay for Tapazole, or could reduce the market for Tapazole.
There can be no assurance that the Company will be able to compete effectively,
that additional competitors will not enter the market or that competition will
not have a material adverse effect on the Company's business, financial
condition and results of operations. (See the discussion under the caption
"Item 1. Business - Competition" in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.)
Tapazole is a new product for the Company and the Company has no
experience in marketing Tapazole. While a substantial percentage of the
prescriptions for Tapazole historically have arisen from office-based
endocrinologists and internal medicine specialists rather than through hospital
pharmacies, the Company plans to expand the marketing of Tapazole to
hospital-based endocrinologists through its hospital-based sales and marketing
staff. There can be no assurance that the Company will be able successfully to
market and distribute Tapazole or that Tapazole will be accepted by the market
at a rate and in the levels previously achieved by Lilly or sufficient to
maintain growth. A successful integration of Tapazole in the Company's sales
and marketing efforts is important to maintaining the growth of Tapazole sales.
Historically, the Company's sales and marketing staff has not sold or marketed
products to office-based endocrinologists and developing this marketing effort
will require the attention of the sales and marketing staff. There can be no
assurance that the Company will be successful in its marketing and sales
efforts, and failure to successfully market and sell Tapazole could have a
material adverse effect on the Company's business, financial condition and
results of operations. (See the discussion under the caption, "Item 1.
Business - Marketing and Sales" in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.)
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There is no material relationship between the Company and Lilly or any of
the Company's or Lilly's affiliates, directors, officers or any associates of
any such directors or officers.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
2.1 Licensing Agreement dated March 18, 1996
between Jones Medical Industries, Inc. and Eli
Lilly and Company.
2.2 Manufacturing Agreement dated March 18, 1996
between Jones Medical Industries, Inc. and Eli
Lilly and Company.
99.1 Company Press Release announcing completion
of Tapazole transaction.
</TABLE>
The Registrant agrees to furnish supplementally a copy of any schedules or
other attachments to the above exhibits to the Commission upon request.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
JONES MEDICAL INDUSTRIES, INC.
By: /s/ Judith A. Jones
-------------------------------
Name: Judith A. Jones
Title: Executive Vice President
Date: March 26, 1996
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EXHIBIT 2.1
LICENSING AGREEMENT
This LICENSING AGREEMENT ("Agreement") dated as of March 18, 1996, by
and between ELI LILLY AND COMPANY, an Indiana corporation with offices located
at Lilly Corporate Center, Indianapolis, Indiana 46285 ("Lilly"), and JONES
MEDICAL INDUSTRIES, INC., a Delaware corporation with offices located at 1945
Craig Road, St. Louis, Missouri 63146 ("JMED").
W I T N E S S E T H:
WHEREAS, Lilly is engaged, among other things, in the business of
manufacturing, marketing and selling hyperthyroid pharmaceutical products; and
WHEREAS, subject to the terms and conditions set forth in this
Agreement, Lilly wishes to license to JMED and JMED wishes to license from
Lilly certain rights and assets which Lilly uses in the conduct of the
above-described business;
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Definitions. For purposes of this Agreement, the following
terms shall have the meanings set forth below:
"Affiliates" shall mean, with respect to any Person, any Persons
directly or indirectly controlling, controlled by, or under common control
with, such other Person. For purposes hereof, the term "controlled" (including
the terms "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the direct or indirect ability or power to
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direct or cause the direction of management policies of such Person or
otherwise direct the affairs of such Person, whether through ownership of
voting securities or otherwise.
"Business" shall mean the business of marketing and selling the
Product in the United States as conducted at the date of this Agreement by
Lilly.
"Copyrights" shall mean all of Lilly's copyright rights in the United
States that are used by Lilly solely in connection with the Business,
including, but not limited to, Lilly's copyright rights in the Marketing
Materials and the Marketing and Pricing Data.
"Damages" shall mean any and all costs, losses, claims, liabilities,
fines, penalties, damages and expenses, court costs, and reasonable fees and
disbursements of counsel, consultants and expert witnesses incurred by a party
hereto (including interest which may be imposed in connection therewith).
"FDA" shall mean the United States Food and Drug Administration.
"Intellectual Property" shall mean, collectively, (i) the Copyrights,
(ii) the Trademark, and (iii) the Marketing Materials.
"Manufacturing Agreement" shall mean the Manufacturing Agreement,
dated as of the date of this Agreement, between Lilly and JMED, which provides
for the manufacture by Lilly of the Product for JMED as specified therein.
"Marketing and Pricing Data" shall mean all customer lists, sales
data, price lists and, subject to confidentiality obligations to third parties,
all other pricing information in the possession or control of Lilly relating
solely to sales of the Product in the United States occurring in the most
recent 36-month period prior to the date of this Agreement for which such
information is available.
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"Marketing Materials" shall mean all labeling, marketing and
promotional materials, promotional literature and inserts that are used by
Lilly solely in connection with the Business.
"Net Sales" shall mean, with respect to the Product, the gross amount
invoiced to unrelated third parties for the Product in the United States, less:
(a) Trade, quantity and cash discounts allowed;
(b) Commissions, discounts, refunds, rebates,
chargebacks, retroactive price adjustments, and any other allowances which
effectively reduce the net selling price;
(c) Product returns, credits and allowances; and
(d) Any tax or other governmental charges levied or
imposed with respect to the sale or delivery of the Product (excluding any
income tax or other similar tax assessed against JMED as a result of such sale
or delivery).
Such amounts shall be determined from books and records maintained in
accordance with generally accepted accounting principles, consistently applied.
"Person" shall mean a natural person, a corporation, a partnership, a
trust, a joint venture, a limited liability company, any governmental authority
or any other entity or organization.
"Product" shall mean: Tapazole(R) (methimazole, USP) in the following
presentations:
(a) 5 mg tablets, 100s;
(b) 10 mg tablets, 100s; and
(c) Any other presentations of the Product approved under
the NDA and any supplements thereto or thereof.
"Technology" shall mean all of Lilly's technology, know-how, methods
of operation, manufacturing systems details, processes, information, production
details, recipes, formulations,
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files, records, specifications, data and other information necessary to, or that
assist in, the manufacture of Product.
"Trademark" shall mean all of Lilly's right, title and interest in and
to the United States trademark Tapazole(R), U.S. Trademark registration number
578,347, registration date August 4, 1953, together with the registration
thereof, all variations thereof and logos used in connection therewith, and all
goodwill associated therewith.
"United States" shall mean the fifty (50) states and the District of
Columbia comprising the United States of America.
SECTION 2. GRANT OF LICENSE, OPTION TO TRANSFER ASSETS AND ASSUMPTION OF
LIABILITIES
2.1 Grant of License. Upon the terms and subject to the
conditions of this Agreement, Lilly hereby grants to JMED an exclusive, even as
to Lilly (except as set forth in Section 2.7 of this Agreement), perpetual
license under the following assets solely for the purpose of marketing and
selling the Product in the United States (such assets are referred to herein
collectively as the "Licensed Assets"):
(a) all of Lilly's rights under the approved New Drug Application
for the Product filed by Lilly with the FDA, and all
subsequent submissions thereto (collectively, the "NDA"),
which NDA is described in SCHEDULE 2.1(a);
(b) the Intellectual Property; and
(c) the Marketing and Pricing Data.
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2.2 Excluded Assets. Anything herein to the contrary
notwithstanding, the Licensed Assets exclude the trademarks "ELI LILLY AND
COMPANY" and "LILLY" and any variation thereof and any other rights in or to
such names.
2.3 Lilly's Option to Transfer the Licensed Assets. (a) Subject
to the provisions of paragraph (b) of this Section 2.3, Lilly shall have the
right and option at any time, upon six (6) months notice to JMED, to assign,
transfer and convey to JMED all, and not less than all, of Lilly's right, title
and interest in and to the Licensed Assets and JMED shall accept such
assignment, transfer and conveyance. In order to effectuate the assignment,
transfer and conveyance of the Licensed Assets, Lilly shall execute and deliver
to JMED at the end of the six (6) month notice period, (i) a Bill of Sale
(substantially in the form of EXHIBIT A), (ii) a Trademark Assignment
(substantially in the form of EXHIBIT B), and (iii) such other documents as
JMED may reasonably request.
(b) Notwithstanding the provisions of paragraph (a)
above, Lilly shall not transfer the Licensed Assets to JMED until after the
later of (i) December 31, 1996, and (ii) such time as Lilly has complied with
all provisions of 21 C.F.R. 201.57(f)(9)--Specific Requirements on Content and
Format of Labeling for Human Prescription Drugs; Revision of "Pediatric Use"
Subsection in the Labeling (the "Regulation") as the same pertains to Product,
it being the understanding of the parties that the Licensed Assets shall not be
transferred until Lilly has complied with the regulatory requirements of said
Regulation as the same pertains to Product.
2.4 Liabilities Assumed by JMED. Except as otherwise provided in
this Agreement, JMED hereby assumes and agrees to bear and be responsible for
and to perform and satisfy all responsibilities, duties (including, without
limitation, compliance with all applicable laws and regulations), obligations,
claims, Damages, liabilities, burdens, and problems of any nature
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whatsoever (collectively, "Obligations") associated directly or indirectly with
the ownership of the Licensed Assets when transferred by Lilly to JMED pursuant
to the provisions of Section 2.3 above, and the manufacturing (but only after
the manufacturing has been transferred to JMED pursuant to the provisions of
the Manufacturing Agreement), marketing and sale by JMED of the Product from
and after the date of this Agreement, including, but not limited to, all
recalls, all warranty claims, and all product liability claims (without regard
to the nature of the causes of action alleged or theories of recovery
asserted), except for (i) those Obligations with respect to which Lilly is
providing indemnification pursuant to the provisions of Section 8.1 of this
Agreement, and (ii) the hereinafter defined Excluded Liabilities, which said
items (i) and (ii) shall remain the responsibility of Lilly. All of the
foregoing are hereinafter collectively referred to as the "Assumed
Liabilities."
2.5 Liabilities Not Assumed by JMED. Anything herein to the
contrary notwithstanding, JMED is not assuming, and shall not be deemed to
assume any of the following, all of which shall remain and be the
responsibility of Lilly (collectively, the "Excluded Liabilities"):
(a) Any Obligations arising out of any claim of any third party in
connection with Lilly's negligence in manufacturing the Product for JMED under
the Manufacturing Agreement; or
(b) Any Obligations arising out of any claim by the FDA or any
other government entity or regulatory body that Lilly has failed to fulfill
Lilly's regulatory obligations in connection with the NDA; or
(c) Any Obligations arising with respect to the manufacture,
marketing or sale of Product prior to the date of this Agreement; or
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(d) Any Obligations that Lilly covenants and agrees to perform
pursuant to the provisions of this Agreement or the Manufacturing Agreement.
2.6 No Sublicenses. This Agreement and the license granted herein
shall not be sublicensed by JMED, except, subject to the consent of Lilly which
will not be unreasonably withheld, to Affiliates of JMED.
2.7 Lilly Retained Rights. Anything herein to the contrary
notwithstanding, Lilly shall retain at all times all rights to manufacture the
Product including, but not limited to, all rights necessary (a) to manufacture
the Product for JMED under the Manufacturing Agreement and otherwise fulfill
its obligations to JMED, (b) to make or have the Product made in the United
States in order to use and sell the Product outside of the United States, and
(c) to make such changes as Lilly may deem reasonably appropriate in connection
with any differing approach to manufacturing it may adopt in the facility in
which the Product is produced.
2.8 Sharing of Technology. Lilly hereby grants to JMED a
non-exclusive perpetual license to utilize the Technology, as the same may be
applicable to, and solely for the purpose of manufacturing, or having
manufactured, the Product for sale within the United States, said use to be
subject to and in accordance with the provisions of the Manufacturing
Agreement.
SECTION 3. PAYMENTS
In consideration of Lilly (i) granting to JMED the license and other
rights herein contained, (ii) supplying Product in accordance with the
provisions of the Manufacturing Agreement, and (iii) performing its obligations
under this Agreement and the Manufacturing Agreement, JMED shall pay to Lilly,
an amount equal to Twenty-Six Million Ten Thousand
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Dollars ($26,010,000) plus royalties as more specifically set forth in Sections
3.1, 3.2 and 3.3 hereof:
3.1 Payment Upon Signing. Simultaneously with execution of this
Agreement by JMED and by Lilly, JMED shall pay to Lilly the sum of Eight
Million Six Hundred Seventy Thousand Dollars ($8,670,000) by wire transfer of
immediately available funds to an account designated by Lilly.
3.2 Quarterly Payments. (a) JMED shall pay the remaining
Seventeen Million Three Hundred Forty Thousand Dollars ($17,340,000) to Lilly,
on or before the indicated due dates, by wire transfer of immediately available
funds to an account designated by Lilly:
<TABLE>
<CAPTION>
Amount Due Date
------ --------
<S> <C>
Eight Million Six Hundred Seventy
Thousand Dollars ($8,670,000) June 18, 1996
Eight Million Six Hundred Seventy
Thousand Dollars ($8,670,000) September 18, 1996
</TABLE>
(b) JMED shall have the right, at any time, to prepay any
or all of the amount payable to Lilly pursuant to the provisions of this
Section 3.2 without penalty or premium of any kind.
3.3 Royalty. JMED shall, for a period of ten (10) years after the
date of this Agreement, pay to Lilly a royalty of five percent (5%) on all Net
Sales of the Product by JMED and its Affiliates (excluding any intercompany
sales or transfers) beginning with Net Sales of the Product occurring on the
date of this Agreement. On or before April 30, July 31, October 31 and January
31 each year (to the Attention of: Royalty Administration, Eli Lilly and
Company, Lilly Corporate Center, Indianapolis, Indiana 46285), JMED shall
report to Lilly (i) all Net Sales
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of the Product during the preceding three (3) months ending March 31, June 30,
September 30 or December 31 as the case may be, and (ii) the amount of royalty
due in connection therewith, and shall pay to Lilly the royalty payment due in
connection therewith by JMED check. In addition, by no later than October 1st
of each year, JMED shall provide Lilly (to the attention of: Royalty
Administration) with a copy of JMED's most recent non-binding forecast of
JMED's estimated requirements for the Product for the next thirty-six (36)
month period.
3.4 Audits. JMED and its Affiliates shall keep full and accurate
books and records relating to the performance required of it under this
Agreement including, but not limited to, records of Net Sales of the Product in
sufficient detail to permit Lilly to confirm the accuracy of the reported Net
Sales. Lilly shall have the right, during regular business hours and upon
reasonable advance notice, to have such books and records audited by an
independent auditor reasonably acceptable to JMED so as to verify the accuracy
of the information previously reported to Lilly. Such audit may cover the
three (3) calendar years preceding the date of the request for such audit, and
shall occur no more frequently than one (1) time per calendar year. The
auditor shall report to Lilly and JMED the results of the audit. The cost of
such audit shall be borne by Lilly; however, in the event such audit reveals
that the information previously reported to Lilly deviates by five percent (5%)
or more from that revealed by the audit, the cost of the audit shall be borne
by JMED.
3.5 Late Payments. Any amounts not paid by JMED when due under
this Agreement or the Manufacturing Agreement shall be subject to interest from
and after the due date at a rate equal to the sum of two percent (2%) (200
basis points) plus the prevailing prime rate of interest in the United States
as reported by The Wall Street Journal or similar reputable data source.
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3.6 No Excuse. JMED shall not be excused from or relieved of its
obligations to pay the amounts described in this Section 3 by any claimed or
actual event of force majeure, commercial or other impracticability or
impossibility, or frustration of essential purpose, except to the extent
otherwise provided in this Agreement or the Manufacturing Agreement.
SECTION 4. TERM OF AGREEMENT
The term of this Agreement shall begin upon the date of this Agreement
and, unless sooner terminated as hereinafter provided, shall be perpetual.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF LILLY
Lilly represents and warrants to JMED that, as of the date hereof:
5.1 Organization, Power and Authority. Lilly is a corporation
duly organized and validly existing under the laws of the State of Indiana.
Lilly has all necessary corporate power and authority to enter into, and be
bound by the terms and conditions of, this Agreement and the Manufacturing
Agreement.
5.2 Due Authority: No Breach. The execution, delivery and
performance by Lilly of this Agreement, the Manufacturing Agreement and each
agreement or instrument contemplated by this Agreement, and the performance of
the transactions contemplated hereby and thereby, have been duly authorized by
all necessary corporate action by Lilly. This Agreement and the Manufacturing
Agreement are, and each agreement or instrument contemplated by this Agreement,
when executed and delivered by Lilly in accordance with the provisions hereof,
will be (assuming the due execution and delivery hereof and thereof by JMED),
the legal, valid and binding obligation of Lilly, in each case enforceable
against Lilly in accordance with its
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respective terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization, or similar laws from time
to time in effect which affect the enforcement of creditors' rights generally
and by legal and equitable limitations on the availability of specific
performance and other equitable remedies against Lilly. All Persons who have
executed this Agreement or the Manufacturing Agreement on behalf of Lilly, or
who will execute on behalf of Lilly, any agreement or instrument contemplated
by this Agreement or the Manufacturing Agreement have been duly authorized to
do so by all necessary corporate action. Neither the execution and delivery of
this Agreement, or the Manufacturing Agreement by Lilly, or any such other
agreement or instrument by Lilly, nor the performance of the obligations
contemplated hereby and thereby, will (i) conflict with or result in any
violation of or constitute a breach of any of the terms or provisions of, or
result in the acceleration of any obligation under, or constitute a default
under any provision of the Articles of Incorporation or By-laws of Lilly or any
contract or any other obligation to which Lilly is a party or to which it is
subject or bound, or (ii) violate any judgment, order, injunction, decree or
award of any court, administrative agency, arbitrator or government body
against, or affecting or binding upon, Lilly or upon the securities, property
or business of Lilly, or (iii) constitute a violation by Lilly of any
applicable law or regulation of any jurisdiction as such law or regulation
relates to Lilly or to the property or business of Lilly, except for such
conflict, acceleration, default, breach or violation that is not reasonably
likely to have a material adverse effect on Lilly's ability to perform its
obligations under this Agreement, the Manufacturing Agreement or under any
agreement or instrument contemplated hereby.
5.3 NDA. Lilly has furnished JMED with access to a complete copy
of the NDA, including all amendments and supplements thereto. Lilly is the
lawful holder of all rights under
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the NDA free and clear of the claims of all Persons. Although the NDA is not
"state-of-the-art" (which JMED hereby acknowledges), to the best of Lilly's
knowledge, Lilly has complied in all material respects with all applicable laws
and regulations in connection with the preparation and submission to the FDA of
the NDA. The NDA has been approved by, and nothing has come to the attention
of Lilly which has, or reasonably should have, led Lilly to believe that the
NDA is not in good standing with, the FDA. Lilly has all requisite right and
authority to license and/or transfer the NDA to JMED as set forth in this
Agreement without the consent or approval of any Person. The NDA is not
subject to any right, license or use in the United States except as provided in
this Agreement or incident to sales outside of the United States.
5.4 Intellectual Property. Set forth on SCHEDULE 5.4 hereto is a
true, complete and accurate list of all of the Intellectual Property. Lilly
does not use any patent, process, technology, trademark or other intellectual
property incident to the manufacture or sale of Product in the United States,
except for the Licensed Assets and the Technology, all of which are being
licensed to JMED on either an exclusive or non-exclusive basis pursuant to this
Agreement. Except as set forth on SCHEDULE 5.4 hereto, (i) Lilly is the lawful
owner of the Intellectual Property and has good, valid and marketable title to
the Intellectual Property, free and clear of all claims, liens, licenses,
charges and other encumbrances; (ii) Lilly can sell and/or license the
Intellectual Property to JMED without the consent of any Person; (iii) there
are no pending or, to the knowledge of Lilly, threatened claims against Lilly
asserting that any of the Intellectual Property infringes or violates the
rights of third parties, and Lilly has no knowledge of any threatened claims
asserting that any of the Intellectual Property or the manufacture or sale of
the Product from and after the date of this Agreement, infringes or violates
the rights of third parties; (iv) nothing has come to the attention of Lilly
which has, or reasonably should have, led
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Lilly to believe that the Intellectual Property, or JMED's use thereof,
infringes or violates the rights of third parties; (v) the rights granted and
licensed to JMED pursuant to this Agreement constitute all of the rights
reasonably necessary for JMED to conduct the Business; (vi) Lilly has not given
any notice to any third parties asserting infringement by such third parties
upon any of the Intellectual Property; and (vii) the Intellectual Property is
not subject to any license, royalty arrangement or other contract with respect
to the sale of Product in the United States.
5.5 Litigation, Actions and Proceedings. There are no pending or,
to the knowledge of Lilly, threatened judicial, administrative or arbitral
actions, claims, suits or proceedings against or by Lilly relating to the
Licensed Assets, the Product, or the Business, which, either individually or
together with any other, may have a material adverse effect on (i) the Licensed
Assets, the Product or the Business, or (ii) the ability of Lilly to perform
its obligations under this Agreement, the Manufacturing Agreement or any
agreement or instrument contemplated hereby, or (iii) the ability of JMED to
market and sell the Product from and after the date of this Agreement. There
are no pending actions or suits relating to the Licensed Assets, the Product or
the Business, brought by Lilly against others. To the best of Lilly's
knowledge, there are no product liability claims against or involving Lilly
with respect to the Product currently outstanding and, except as set forth on
Schedule 5.5 hereto, no such claims have been settled, adjudicated or otherwise
disposed of since January 1, 1990. There are no letters of adverse finding,
Form 483s, or other similar regulatory actions or other similar regulatory
correspondence or communications with the FDA or any other state or federal
government agencies pertaining to the Product and received by Lilly at any time
since January 1, 1990, except as identified on SCHEDULE 5.5 attached hereto.
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5.6 Governmental Approval. No consent, approval, waiver, order
or authorization of, or registration, declaration or filing with, any
governmental authority is required in connection with the execution, delivery
and performance of this Agreement, the Manufacturing Agreement or any agreement
or instrument contemplated by this Agreement, by Lilly or the performance by
Lilly of its obligations contemplated hereby and thereby other than (a) the
filings required of both parties pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act, and (b) in the case of Lilly exercising its right to assign,
transfer and convey the Licensed Assets to JMED pursuant to Section 2.3, the
information submissions to the FDA provided for in Section 7.1 and compliance
with FDA requirements, if any, in connection therewith.
5.7 Brokerage. No broker, finder or similar agent has been
employed by or on behalf of Lilly and no Person with which Lilly has had any
dealings or communications of any kind is entitled to any brokerage commission,
finder's fee or any similar compensation, in connection with this Agreement or
the transactions contemplated hereby.
5.8 No Implied Warranties. EXCEPT AS EXPRESSLY PROVIDED IN THIS
SECTION 5, LILLY MAKES NO REPRESENTATION OR WARRANTY AS TO THE LICENSED ASSETS
OR THE BUSINESS, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, BY
STATUTE OR OTHERWISE AND LILLY SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED OR
STATUTORY WARRANTIES. Without limiting the generality of the foregoing, JMED
acknowledges that it has not relied upon any implied warranty of
merchantability, fitness for a particular purpose, or upon any representation
or warranty whatsoever as to the prospects (financial, regulatory or
otherwise), or the validity or likelihood of success of the Business.
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5.9 Licensed Assets. Except for the Copyrights, the Marketing and
Pricing Data and the Marketing Materials, there are no copyright rights in the
United States, customer lists, sales data, price lists, pricing information,
labeling, marketing and promotional materials, promotional literature or
inserts that are required in the Business. The Licensed Assets, when
transferred to JMED, shall vest in JMED good and valid title thereto, free and
clear of all claims, liens, licenses, security interests and encumbrances of
any kind.
5.10 Sales History. The statement of sales of the Product for
1993, 1994, 1995 and for January, 1996, a copy of which is attached hereto as
SCHEDULE 5.10, is true and accurate in all respects and fairly presents the
sales of the Product in the United States by Lilly for those periods.
5.11 Compliance with Laws. Except as set forth in SCHEDULE 5.11
hereto, to the knowledge of Lilly, Lilly is not in violation, and Lilly has
never received notice of any alleged violation, of any applicable federal,
state or local ordinance, regulation, order, judgment, injunction, award,
decree or other requirement of any governmental or regulatory body, court or
arbitrator, which violation could have a material adverse affect on the
manufacturing, marketing or sale of the Product in the United States. Lilly
holds, and at all times has held, all licenses, permits, registrations and
authorizations necessary for the lawful manufacture and sale of the Product in
the United States pursuant to all applicable laws, statutes, ordinances, rules
and regulations. To the best of Lilly's knowledge, all reports required by law
have been filed with the regulatory agency having jurisdiction and there is no
action pending or, to the knowledge of Lilly, threatened by any regulatory
agency which could materially adversely affect the Business or the
manufacturing and sale of the Product in the United States from and after the
date of this Agreement.
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5.12 Contracts. Attached hereto as SCHEDULE 5.12 is a listing of
all contracts currently in effect, or currently being negotiated, involving the
Licensed Assets or the Product in the United States. Lilly has no contract
involving the manufacture or sale of the Product in the United States, except
as set forth on SCHEDULE 5.12 or SCHEDULE 5.14. For purposes hereof,
"contracts" means any and all oral and written contracts, agreements, notes,
instruments, leases, licenses, royalty agreements, territorial and agency
agreements, sales representative agreements, distribution or distributor
agreements, manufacturer's representative agreements, commitments or other
arrangements of any kind. Lilly is not in default of any such contracts nor to
its knowledge, is any other party to any such contract in default thereunder,
nor, to the knowledge of Lilly, does any condition exist that with notice or
lapse of time or both would constitute a default thereunder.
5.13 Customers. Lilly has not sold the Product in the United
States to any customer in the last two (2) years other than (i) those customers
identified on SCHEDULE 5.13 hereto, and (ii) members of the National
Wholesalers Druggists Association (the NWDA).
5.14 Suppliers. SCHEDULE 5.14 hereto identifies the supplier(s) of
raw material for the Product and also sets forth any contracts or agreements
with respect to the supply of raw material for the Product. Except as set
forth on SCHEDULE 5.14, Lilly knows of no reason why any supplier of raw
material for the Product will not supply raw material for manufacturing after
the date of this Agreement.
5.15 Full Disclosure. All documents and other papers delivered by
or on behalf of Lilly pursuant to this Agreement are true, complete and
authentic. There is no fact of which Lilly has, or reasonably should have,
knowledge that has not been disclosed to JMED in writing
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that materially adversely affects the ability of Lilly to perform its
obligations under this Agreement.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF JMED
JMED represents and warrants to Lilly that, as of the date hereof:
6.1 Organization, Power and Authority. JMED is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. JMED has all necessary corporate power and authority to enter into,
and be bound by the terms and conditions of, this Agreement and the
Manufacturing Agreement.
6.2 Due Authority, No Breach. The execution, delivery and
performance by JMED of this Agreement, the Manufacturing Agreement and each
agreement or instrument contemplated by this Agreement, and the performance of
the transactions contemplated hereby and thereby, have been duly authorized by
all necessary corporate action by JMED. This Agreement and the Manufacturing
Agreement are, and each agreement or instrument contemplated by this Agreement,
when executed and delivered by JMED in accordance with the provisions hereof,
will be (assuming the due execution and delivery hereof and thereof by Lilly)
the legal, valid and binding obligation of JMED, in each case enforceable
against JMED in accordance with its respective terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, moratorium,
reorganization, or similar laws from time to time in effect which affect the
enforcement of creditors' rights generally and by legal and equitable
limitations on the availability of specific performance and other equitable
remedies against JMED. All Persons who have executed this Agreement or the
Manufacturing Agreement on behalf of JMED, or who will execute on behalf of
JMED any agreement or instrument contemplated by this Agreement or
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the Manufacturing Agreement, have been duly authorized to do so by all
necessary corporate action. Neither the execution and delivery of this
Agreement or the Manufacturing Agreement by JMED, or any such other agreement
or instrument by JMED, nor the performance of the obligations contemplated
hereby and thereby, will (i) conflict with or result in any violation of or
constitute a breach of any of the terms or provisions of, or result in the
acceleration of any obligation under, or constitute a default under any
provision of the Certificate of Incorporation or By-laws of JMED or any
contract or any other obligation to which JMED is a party or to which it is
subject or bound, or (ii) violate any judgment, order, injunction, decree or
award of any court, administrative agency, arbitrator or government body
against, or affecting or binding upon, JMED or upon the securities, property or
business of JMED, or (iii) constitute a violation by JMED of any applicable law
or regulation of any jurisdiction as such law or regulation relates to JMED or
to the property or business of JMED, except for such conflict, acceleration,
default, breach or violation that is not reasonably likely to have a material
adverse effect on JMED's ability to perform its obligations under this
Agreement, the Manufacturing Agreement, or any agreement or instrument
contemplated hereby.
6.3 Litigation. There are no pending or, to the knowledge of
JMED, threatened judicial, administrative or arbitral actions, claims, suits or
proceedings against or by JMED which, either individually or together with any
other, may have a material adverse effect on the ability of JMED to perform its
obligations under this Agreement, the Manufacturing Agreement or any agreement
or instrument contemplated hereby.
6.4 Governmental Approval. No consent, approval, waiver, order or
authorization of, or registration, declaration or filing with, any governmental
authority is required in connection with the execution, delivery and
performance of this Agreement, the Manufacturing Agreement
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or any agreement or instrument contemplated by this Agreement, by JMED or the
performance by JMED of its obligations contemplated hereby and thereby other
than (a) the filings required of both parties pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act, and (b) in the case of Lilly exercising its right
to assign, transfer and convey the Licensed Assets to JMED pursuant to Section
2.3, the information submissions to the FDA provided for in Section 7.1 and
compliance with FDA requirements, if any, in connection therewith.
6.5 Brokerage. No broker, finder or similar agent has been
employed by or on behalf of JMED and no Person with which JMED has had any
dealings or communications of any kind is entitled to any brokerage commission,
finder's fee or any similar compensation, in connection with this Agreement or
the transactions contemplated hereby.
SECTION 7. ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES
7.1 Governmental Filings. Lilly and JMED each agree to prepare
and file whatever filings, requests or applications are required to be filed
with any governmental authority in connection with this Agreement and to
cooperate with one another as reasonably necessary in order to accomplish the
foregoing. Without limiting the generality of the foregoing, prior to the
assignment, transfer and conveyance by Lilly to JMED of the Licensed Assets
pursuant to Section 2.3, Lilly shall submit to the FDA the information required
of a former owner pursuant to 21 C.F.R. Section 314.72 with respect to the
NDA, and JMED shall submit to the FDA the information required of a new owner
pursuant to 21 C.F.R. Section 314.72 with respect to the NDA.
7.2 Responsibility for NDA. (a) Lilly shall remain responsible
(until transfer of the NDA by Lilly to JMED pursuant to Section 2.3, at which
time JMED shall become and remain responsible) for fulfilling and shall fulfill
all regulatory requirements with respect to the Product
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that are imposed upon Lilly as the owner of the NDA; provided, however, that
JMED shall reimburse Lilly, within thirty (30) days of written request by Lilly
therefor (which request shall include all support documentation reasonably
required by JMED to verify the requested reimbursement), for the amount of any
and all annual product user fees, any NDA supplement user fees in connection
with any Product-related submission to the FDA, and related or similar fees
paid by Lilly to the FDA in connection with the NDA or sale of the Product in
the United States (except establishment user fees for Lilly facilities and any
other fees in connection with Product to be sold outside of the United States,
all of which shall be paid by Lilly). SCHEDULE 7.2 hereto lists all annual
product user fees, NDA supplement user fees and other related or similar fees
paid by Lilly to the FDA in connection with the NDA from and after January 1,
1993. Lilly shall furnish JMED, upon request after reasonable notice from
JMED, with access to copies of all filings submitted by Lilly to the NDA with
respect to the Product. Nothing set forth herein shall permit JMED to
photocopy the NDA without the consent of Lilly; however, Lilly agrees to
provide JMED with a copy of each annual report filed with respect to the NDA.
JMED shall, on a timely basis after request by Lilly, provide to Lilly all
information that JMED has that Lilly does not have that is reasonably necessary
and relevant to Lilly's obligations hereunder to fulfill such requirements
including, but not limited to, sales distribution information concerning the
Product, and JMED shall otherwise cooperate with Lilly as reasonably necessary
in connection therewith. Without limiting the generality of the foregoing
sentence, in the event that any supplements to the NDA or any other regulatory
requirements are necessitated as a result of transferring manufacturing of the
Product from Lilly to JMED or as a result of any action by JMED (including, but
not limited to, acquisition by a third party of substantially all of the assets
or outstanding shares of JMED, or merger with JMED), JMED shall, on a timely
basis and at
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JMED's expense, develop and provide to Lilly all information that is reasonably
necessary and relevant to Lilly's obligation hereunder to file such supplements
or to fulfill such requirements and shall otherwise cooperate with Lilly as
reasonably necessary in connection therewith. Similarly, upon transfer of the
NDA by Lilly to JMED pursuant to Section 2.3, Lilly shall, on a timely basis
after request by JMED, provide to JMED all information that Lilly has that JMED
does not have that is reasonably necessary and relevant to JMED's obligations
to complete all filings with respect to the NDA, including, but not limited to,
manufacturing information concerning the Product, and Lilly shall otherwise
cooperate with JMED as reasonably necessary in connection therewith. Lilly
shall have the final decision-making authority (until transfer of the NDA by
Lilly to JMED pursuant to Section 2.3, at which time JMED shall have the final
decision-making authority) in every case on whether and how to supplement,
amend or otherwise alter the NDA and on any other issues in connection with the
NDA (including, but not limited to, decisions to recall the Product) and on
whether and how to communicate with the FDA in connection therewith; provided,
however, that no material supplement, amendment or alteration of the NDA shall
occur unless and until Lilly has consulted in good faith with JMED with respect
to such proposed material supplement, amendment or alteration of the NDA prior
to making any final determination with respect thereto, and Lilly has
considered in good faith whether such proposed material supplement, amendment
or alteration of the NDA would have an adverse effect on (A) JMED's ability to
market or sell the Product, (B) the ability of Lilly or JMED to manufacture the
Product or (C) the fees paid by JMED pursuant to the provisions of this Section
7.2, and provided further, however, that in the event that the parties are
unable to agree, Lilly's good faith decision shall be final and binding upon
JMED.
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(b) JMED and Lilly have jointly developed written
procedures for (i) the reporting of adverse drug experiences, as set forth on
EXHIBIT C, (ii) the submission by JMED to Lilly and by Lilly to FDA of labeling
and promotional materials related to the Product as set forth on EXHIBIT D,
(iii) administration of and response to medical inquiries concerning the
Product by consumers, physicians, pharmacists and other health care
professionals as set forth on EXHIBIT E, and (iv) administration and analysis
of and response to complaints concerning the Product as set forth on EXHIBIT F.
JMED and Lilly shall each comply with the provisions thereof.
7.3 Compliance with Law. JMED and Lilly shall each comply with
all applicable federal, state and local laws and regulations. Without limiting
the generality of the foregoing sentence, JMED shall not promote the Product
for any indications not approved in the NDA or in any manner in conflict with
applicable laws or regulations. Lilly and JMED each shall keep all records and
reports required to be kept by applicable laws and regulations, and each shall
make its facilities available at reasonable times during business hours for
inspection by representatives of governmental agencies. Lilly and JMED each
shall notify the other within twenty-four (24) hours of receipt of any notice
of any FDA or other governmental agency inspection, investigation or other
similar inquiry, or other similar notice or communication of any type,
involving the Product. JMED and Lilly shall cooperate with each other during
any such inspection, investigation or other inquiry including, but not limited
to, allowing upon request a representative of the other to be present during
the applicable portions of any such inspection, investigation or other inquiry
and providing copies of all relevant documents. JMED and Lilly shall discuss
any response to observations or notifications received in connection with any
such inspection, investigation or other inquiry and each shall give the other
an opportunity to
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comment upon any proposed response before it is made. In the event of
disagreement concerning the form or content of such response, however, Lilly
shall be responsible for deciding the appropriate form and content of any
response with respect to any of its cited activities and JMED shall be
responsible for deciding the appropriate form and content of any response with
respect to any of its cited activities.
7.4 Recall. Lilly and JMED shall each maintain such traceability
records as may be necessary to permit a recall or field correction of the
Product. Each party shall give immediate telephonic notice (to be confirmed in
writing) to the other upon discovery that the Product should, as reasonably
determined by said party, be recalled or may be required to be recalled. In
the event that a recall is necessary prior to transfer of the NDA by Lilly to
JMED pursuant to Section 2.3, Lilly and JMED shall jointly develop, and Lilly
shall control the recall plan. In the event that a recall is necessary after
transfer of the NDA by Lilly to JMED pursuant to Section 2.3, and Lilly is
manufacturing the Product for JMED, Lilly and JMED shall jointly develop, and
JMED shall control, the recall plan. In any event, each party will cooperate
fully with the other in connection with any such recall efforts.
7.5 Confidentiality. JMED shall treat as confidential the
Licensed Assets and all other information of Lilly of which JMED becomes aware
(whether in writing or orally or by sensory detection) in connection with this
Agreement or the Manufacturing Agreement (collectively, "Lilly Proprietary
Information"). JMED shall neither disclose Lilly Proprietary Information to
any third party nor use Lilly Proprietary Information for any purpose other
than as set forth in this Agreement. Lilly shall treat as confidential all
information of JMED of which Lilly becomes aware (whether in writing or orally
or by sensory detection) in connection with this Agreement or the Manufacturing
Agreement (collectively "JMED Proprietary Information").
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Lilly shall neither disclose JMED Proprietary Information to any third party
nor use JMED Proprietary Information for any purpose other than as set forth in
this Agreement.
Nothing contained herein will in any way restrict or impair either
party's (the "Using Party") right to use, disclose or otherwise deal with any
Proprietary Information which:
(a) at the time of disclosure is known to the public or thereafter
becomes known to the public by publication or otherwise
through no fault of the Using Party;
(b) the Using Party can establish was in its possession prior to
the time of the disclosure and was not obtained directly or
indirectly from the other party;
(c) is independently made available as a matter of right to the
Using Party by a third party who is not thereby in violation
of a confidential relationship with the other party;
(d) is developed by the Using Party independently of the
Proprietary Information received and the Using Party can
establish such development; or
(e) is information required to be disclosed by legal or regulatory
process, provided that the Using Party timely informs the
other party and uses reasonable efforts to limit the
disclosure and maintain confidentiality to the extent possible
and permits the other party to intervene and contest or
attempt to limit the disclosure.
JMED shall obtain no right or license of any kind under the Lilly
Proprietary Information except as set forth in this Agreement.
7.6 Expenses. Lilly and JMED shall each bear their own direct and
indirect expenses incurred in connection with the negotiation and preparation
of this Agreement and each agreement or instrument contemplated by this
Agreement and the performance of their respective obligations contemplated
hereby and thereby.
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7.7 Reasonable Efforts. Lilly and JMED each shall use all
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary or proper to make effective the
transactions contemplated by this Agreement, including such actions as may be
reasonably necessary to obtain approvals and consents of governmental Persons
and other Persons; provided that no party shall be required to (i) pay money
(other than as expressly required pursuant to this Agreement), or (ii) assume
any other material obligation not otherwise required to be assumed by this
Agreement.
7.8 Publicity . The parties agree that no publicity release or
announcement concerning the transactions contemplated hereby or in the
Manufacturing Agreement shall be issued without the advance written consent of
the other, except as such release or announcement may be required by law, in
which case the party making the release or announcement shall, before making
any such release or announcement, afford the other party a reasonable
opportunity to review and comment upon such release or announcement. JMED and
Lilly recognize that disclosure of this Agreement and the Manufacturing
Agreement (including copies of each) to the Securities Exchange Commission, the
IRS and other tax authorities is likely to be required, and each waives the
requirements of this subsection with respect to disclosure (and copies) to such
entities.
7.9 Cooperation. If either party shall become engaged in or
participate in any investigation, claim, litigation or other proceeding with
any Person, including the FDA, relating in any way to the Product or any of the
Licensed Assets, the other party shall cooperate in all reasonable respects
with such party in connection therewith, including, without limitation, using
its reasonable efforts to make available to the other such employees who may be
helpful with respect to such investigation, claim, litigation or other
proceeding, provided that, for purposes of
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this provision, reasonable efforts to make available any employee shall be
deemed to mean providing a party with reasonable access to any such employee at
no cost for a period of time not to exceed 24 hours (e.g., three 8-hour
business days). Thereafter, any such employee shall be made available for such
time and upon such terms and conditions (including, but not limited to,
compensation) as the parties may mutually agree.
7.10 No Sale for Resale. JMED shall not knowingly sell any Product
to anyone in the United States for subsequent distribution or resale outside
the United States and shall take all reasonable precautions to prevent such
distribution or resale outside the United States. Lilly shall not knowingly
sell any Product to anyone outside of the United States for subsequent
distribution or resale inside the United States and shall take all reasonable
precautions to prevent such distribution or resale inside the United States.
7.11 Product Returns. JMED shall be responsible for all returns of
Product sold on or after the date of this Agreement and Lilly shall be
responsible for all returns of Product sold prior to the date of this
Agreement; provided, however, in the event the parties are unable to determine
whether the Product was sold before or after the date of this Agreement, then
with respect to any such Product, JMED shall be responsible for all Product
returned more than sixty (60) days after the date of this Agreement, and Lilly
shall be responsible for all Product returned within sixty (60) days after the
date of this Agreement.
7.12 Notification of Customers. Lilly agrees to cooperate with
JMED as set forth in Appendix B to the Manufacturing Agreement, at JMED's
request, in the notification to customers of the transactions contemplated by
this Agreement, with such notice (the "Joint Notice") being in a form
reasonably satisfactory to both Lilly and JMED.
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7.13 Customer Orders. Lilly shall take such steps as may be
reasonably required to insure that all customer orders for Product received
after the date of this Agreement are forwarded to JMED within 24 hours after
received by Lilly. Lilly agrees that any customer ordering or requesting any
information with respect to the Product will (i) be informed that JMED is now
supplying the Product, and (ii) be forwarded a copy of the Joint Notice if said
customer has not received the initial notification as required above.
7.14 Restrictive Covenants. (a) For and during the ten (10) year
period following the date of this Agreement (the "Restricted Period"), neither
Lilly nor any of its Affiliates shall directly or indirectly, within the United
States, whether as a shareholder, agent, partner, proprietor, joint venturer,
consultant or otherwise, of any business or entity, take part, participate or
become interested in, in any manner whatsoever, a business or organization
which directly or indirectly manufactures, distributes or sells in the United
States, methimazole products in competition with the Product; provided,
however, that nothing set forth herein shall prevent Lilly from (i)
manufacturing Product for sale to JMED, or (ii) manufacturing methimazole
products for sale outside of the United States, or (iii) acquiring a company
which at the time of acquisition, manufactures, markets or sells methimazole
products; and provided further that, the foregoing to the contrary
notwithstanding, JMED acknowledges and agrees that the following activities,
events and conditions shall not be a breach or violation of the Restrictive
Covenants (hereafter defined) and JMED shall not be entitled to injunctive or
any other relief at law or in equity or any other rights or remedies
(including, but not limited to, those set forth in this Section 7.14) in
connection with: Lilly or any of its Affiliates engaging in any merger,
acquisition, joint venture, partnership, alliance, license, research and/or
development collaboration, or combination, arrangement or relationship of any
nature whatsoever (each, a "Relationship") in
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which the other party or parties involved in such Relationships (each, a
"Significant Other") at that time already conducts or engages in, directly or
indirectly, anywhere in the United States, whether as a shareholder, agent,
partner, proprietor, joint venturer, consultant or otherwise, the
manufacturing, marketing, distributing or selling of methimazole products
("Methimazole Business"), provided that the Methimazole Business (i) does not
constitute a material part of the overall business of the Significant Other
prior to the Relationship, and (ii) will not constitute a material part of the
overall business of either such Relationship or Lilly, as the case may be,
following consummation of the Relationship. Further, no provision herein
contained shall prevent or limit in any fashion the right and ability of Lilly
or any of its Affiliates to conduct or engage in the pharmaceutical benefits
management business, integrated disease management business, pharmaceutical
mail order business and any similar or related businesses. Notwithstanding the
foregoing, nothing set forth herein shall (i) impact or affect the exclusivity
of the license granted to JMED in this Agreement, nor (ii) permit Lilly to
manufacture or develop a generic methimazole product for sale in the United
States. Furthermore, and notwithstanding anything herein to the contrary,
Lilly covenants and agrees that for such period of time as Lilly is required to
manufacture Product for JMED pursuant to the provisions of the Manufacturing
Agreement, neither Lilly nor any of its Affiliates shall, directly or
indirectly, manufacture or develop a generic methimazole product for sale in
the United States.
(b) If a party (the " Breaching Party") breaches, or
threatens to commit a breach of, any of the provisions of paragraph (a) above
or of Section 7.5 (the "Restrictive Covenants"), the other party (the
"Non-Breaching Party") shall have the following rights and remedies, each of
which shall be independent of the others and severally enforceable, and each of
which is in addition to, and not in lieu of, any other rights and remedies
available to the Non-
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Breaching Party at law or in equity: (i) the right and remedy to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of the
Restrictive Covenants would cause irreparable injury to the Non-Breaching Party
and that money damages would not provide an adequate remedy to the
Non-Breaching Party; (ii) the right and remedy to require the Breaching Party
to account for and pay over to the Non-Breaching Party, all compensation,
profits, monies, accruals, increments or other benefits derived or received by
the Breaching Party and/or by any other Person as the result of, or in any way
incident to any conduct or transactions constituting a breach of the
Restrictive Covenants; and/or (iii) the right to cease paying royalties or
other amounts due under this Agreement until such time as the breach or
threatened breach no longer exists. It is further agreed that the amount of
any bond that the Non-Breaching Party may be required to post incident to any
equitable relief sought hereunder shall not exceed $5,000 and that said amount
shall be deemed reasonable and proper.
(c) Lilly acknowledges and agrees that the Restrictive
Covenants are reasonable in geographical and temporal scope and in other
respects. If any court determines that any of the Restrictive Covenants, or
any part thereof, is invalid or unenforceable, the remainder of the Restrictive
Covenants shall not thereby be affected and shall be given full effect, without
regard to the invalid portions.
(d) If any court determines that any of the Restrictive
Covenants, or any part thereof, is unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the duration or scope of such provision, as the case may be, and, in its
reduced form, such provision shall then be enforceable.
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(e) The Restrictive Covenants set forth herein shall
survive the termination of this Agreement but only if such termination is
effected pursuant to the provisions of Section 9.1(c) of this Agreement.
SECTION 8. INDEMNIFICATION
8.1 Indemnification. (a) Lilly shall indemnify, defend and hold
JMED (and its directors, officers, employees, Affiliates, successors and
assigns) harmless from and against any and all Damages incurred or suffered by
JMED (and its directors, officers, employees, Affiliates, successors and
assigns) as a consequence of:
(i) any breach of any representation or warranty made by
Lilly in this Agreement, or in the Manufacturing
Agreement, provided that, in the case of a breach of
any representation or warranty made by Lilly in this
Agreement, notice of a claim based upon any such
breach is given to Lilly prior to the expiration of
such representation or warranty pursuant to Section
10.4;
(ii) any failure to perform duly and punctually any
covenant, agreement or undertaking on the part of
Lilly contained in this Agreement or in the
Manufacturing Agreement;
(iii) any misrepresentation in or omission from any
agreement, instrument or document delivered by Lilly
pursuant to the terms of this Agreement or the
Manufacturing Agreement;
(iv) any Excluded Liabilities; or
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(v) Lilly's negligent acts or omissions in manufacturing
the Product for JMED.
(b) JMED shall indemnify, defend and hold Lilly (and its
directors, officers, employees, Affiliates, successors and assigns) harmless
from and against any and all Damages incurred or suffered by Lilly as a
consequence of:
(i) any breach of any representation or warranty made by
JMED in this Agreement, or in the Manufacturing
Agreement, provided that, in the case of a breach of
any representation or warranty made by JMED in this
Agreement, notice of a claim based upon any such
breach is given to JMED prior to the expiration of
such representation or warranty pursuant to Section
10.4;
(ii) any failure to perform duly and punctually any
covenant, agreement or undertaking on the part of
JMED contained in this Agreement or in the
Manufacturing Agreement;
(iii) any misrepresentation in or omission from any
agreement, instrument or document delivered by JMED
pursuant to the terms of this Agreement or the
Manufacturing Agreement; or
(iv) any Assumed Liabilities.
(c) Subject to the limits set forth in Section 8.3, the amount of
such indemnification shall include, without limitation, the amount of money or
other consideration reasonably necessary to make the inadequate representation
or warranty true and correct, or the amount
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reasonably necessary to cure any breach of covenant or agreement under this
Agreement, unless, the breach is for failure to supply Product as a result of
or caused by reason of a force majeure as set forth in Section 10.14 of the
Manufacturing Agreement, in which event the provisions set forth in Section 9.1
of the Manufacturing Agreement shall solely apply.
8.2 Notice and Opportunity To Defend. Promptly after receipt by a
party hereto of notice of any claim which could give rise to a right to
indemnification pursuant to Section 8.1, such party (the "Indemnified Party")
shall give the other party (the "Indemnifying Party") written notice describing
the claim in reasonable detail. The failure of an Indemnified Party to give
notice in the manner provided herein shall not relieve the Indemnifying Party
of its obligations under this Section, except to the extent that such failure
to give notice materially prejudices the Indemnifying Party's ability to defend
such claim. The Indemnifying Party shall have the right, at its option, to
compromise or defend, at its own expense and by its own counsel, any such
matter involving the asserted liability of the party seeking such
indemnification. If the Indemnifying Party undertakes to compromise or defend
any such asserted liability, it shall promptly (and in any event not more than
ten (10) days after receipt of the Indemnified Party's original notice) notify
the Indemnified Party in writing of its intention to do so, and the Indemnified
Party shall cooperate fully with the Indemnifying Party and its counsel in the
compromise of or defense against any such asserted liability. All reasonable
costs and expenses incurred in connection with such cooperation shall be borne
by the Indemnifying Party. If the Indemnifying Party elects not to compromise
or defend the asserted liability, fails to notify the Indemnified Party of its
election to compromise or defend as herein provided, fails to admit its
obligation to indemnify under this Agreement with respect to the claim, or the
claim could result
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in the Indemnified Party becoming subject to injunctive relief or relief other
than the payment of money damages that could materially adversely affect the
ongoing business of the Indemnified Party in any manner, the Indemnified Party
shall have the right, at its option, to pay, compromise or defend, by its own
counsel, such asserted liability. The Indemnifying Party shall have the right
to compromise any claim with respect to which it takes responsibility provided
that prior to any such settlement or compromise the Indemnifying Party gives
the Indemnified Party at least fifteen (15) days prior notice of its intent to
settle or compromise a claim and further affords the Indemnified Party an
opportunity to provide input to the settlement or compromise. The Indemnified
Party may not settle or compromise any claim over the objection of the
Indemnifying Party; provided, however, that consent to settlement or compromise
shall not be unreasonably withheld. In any event, the Indemnified Party and
the Indemnifying Party may participate, at their own expense, in the defense of
such asserted liability. If the Indemnifying Party chooses to defend any
claim, the Indemnified Party shall make available to the Indemnifying Party any
books, records or other documents within its control that are necessary or
appropriate for such defense. Notwithstanding anything to the contrary in this
Section 8.2, (i) the party conducting the defense of a claim shall (A) keep the
other party informed on a reasonable and timely basis as to the status of the
defense of such claim (but only to the extent such other party is not
participating jointly in the defense of such claim), and (B) conduct the
defense of such claim in a prudent manner, and (ii) the Indemnifying Party
shall not cease to defend, settle or otherwise dispose of any claim without the
prior written consent of the Indemnified Party (which consent shall not be
unreasonably withheld).
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<PAGE> 34
8.3 Indemnification Costs and Expenses.
(a) The costs and expenses, including, but not limited to, fees
and disbursements of counsel, incurred by an Indemnified Party in connection
with any claim for which the Indemnifying Party is obligated to indemnify
hereunder shall be reimbursed on a calendar quarterly basis by the Indemnifying
Party without prejudice to the Indemnifying Party's right to, in good faith,
contest the Indemnified Party's right to indemnification and receive a refund
in the event the Indemnifying Party is ultimately held not obligated to provide
indemnity hereunder; provided, however, that the Indemnifying Party shall not
be required to pay the fees and disbursements of counsel for the Indemnified
Party from and after the date on which the Indemnifying Party commences its
defense of the Indemnified Party pursuant to the provisions hereof.
(b) No Indemnifying Party will have any obligations under Sections
8.1(a)(i), (ii), (iii), or 8.1(b)(i), (ii), (iii) until the cumulative
aggregate amount of Damages incurred or suffered by the Indemnified Party which
the Indemnifying Party is otherwise subject to under this Agreement exceeds
$25,000, at which time the entire cumulative aggregate amount of such Damages
shall be covered. The cumulative aggregate amount of (1) Damages for which any
Indemnifying Party shall be liable pursuant to Sections 8.1(a)(i), (ii), (iii),
or 8.1(b)(i), (ii), (iii) or 8.1(c), and (2) incidental or consequential
Damages for which any Indemnifying Party shall be liable pursuant to Sections
8.1(a)(iv), (v) or 8.1(b)(iv), shall not exceed Fifty-Two Million Dollars
($52,000,000), plus (ii) the amount of royalties paid by JMED to Lilly pursuant
to the provisions of Section 3.3 hereof. The provisions of this Section 8.3(b)
shall not limit or otherwise affect the obligations of any Indemnifying Party
under any other Section of this
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<PAGE> 35
Agreement or the Manufacturing Agreement. Notwithstanding anything set forth in
this Agreement or in the Manufacturing Agreement to the contrary, in no event
shall the cumulative aggregate amount of Damages which Lilly shall be liable to
pay to JMED hereunder and any payments required to be made by Lilly to JMED
under Section 8.1(c) hereunder exceed the sum of (A) Fifty-Two Million Dollars
($52,000,000.00) plus (B) the amount of royalties paid by JMED to Lilly
pursuant to the provisions of Section 3.3 hereof.
(c) The amount of any Damages for which indemnification is
provided under this Section 8 shall be reduced to take account of any net tax
benefit and shall be increased to take account of any net tax detriment arising
from the incurrence or payment of any such Damages or from the receipt of any
such indemnification payment and shall be reduced by the insurance proceeds
received and any other amount recovered, if any, by the Indemnified Party with
respect to any Damages. If any Indemnified Party shall have received any
payment pursuant to this Section 8 with respect to any Damages and shall
subsequently have received insurance proceeds or other amounts with respect to
such Damages, then such Indemnified Party shall pay to the Indemnifying Party
an amount equal to the difference (if any) between (i) the sum of the amount of
those insurance proceeds or other amounts received and the amount of the
payment by such Indemnifying Party pursuant to this Section 8 with respect to
such Damages and (ii) the amount necessary to fully and completely indemnify
and hold harmless such Indemnified Party from and against such Damages,
provided, however, in no event will such Indemnified Party have any obligation
pursuant to this sentence to pay to such Indemnifying Party an amount greater
than the amount of the payment by such Indemnifying Party pursuant to this
Section 8 with respect to such Damages; and further provided, that nothing set
forth herein shall in any way limit or bar
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<PAGE> 36
any rights of subrogation that accrue to an insurance company or other Person
who has paid any proceeds to the Indemnified Party with respect to such
Damages.
8.4 Survival. The provisions of Section 8 shall survive any
termination of this Agreement and any termination of the Manufacturing
Agreement. Each Indemnified Party's rights under Section 8 shall not be deemed
to have been waived or otherwise affected by such Indemnified Party's waiver of
the breach of any representation, warranty, agreement or covenant contained in
or made pursuant to this Agreement or the Manufacturing Agreement, unless such
waiver expressly and in writing also waives any or all of the Indemnified
Party's rights under Section 8.
SECTION 9. TERMINATION
9.1 Termination. Anything herein to the contrary notwithstanding,
this Agreement may be terminated as follows:
(a) Termination for Insolvency. If either JMED or Lilly (i) makes
a general assignment for the benefit of creditors or becomes insolvent; (ii)
files an insolvency petition in bankruptcy; (iii) petitions for or acquiesces
in the appointment of any receiver, trustee or similar officer to liquidate or
conserve its business or any substantial part of its assets; (iv) commences
under the laws of any jurisdiction any proceeding involving its insolvency,
bankruptcy, reorganization, adjustment of debt, dissolution, liquidation or any
other similar proceeding for the release of financially distressed debtors; or
(v) becomes a party to any proceeding or action of the type described above in
(iii) or (iv) and such proceeding or action remains undismissed or unstayed for
a period of more than sixty (60) days, then the other party may by written
notice
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<PAGE> 37
terminate this Agreement with immediate effect. In the event of termination of
this Agreement by Lilly under this Section 9.1(a), payment by JMED to Lilly of
all amounts set forth in Section 3.2 shall be immediately accelerated and all
such amounts shall be immediately due and payable by JMED to Lilly on the date
of termination.
(b) Termination for Default. (i) Subject to mediation as provided
in Section 9.1(f) hereof, JMED and Lilly shall each have the right to terminate
this Agreement for default upon the other's failure to comply in any material
respect with the terms and conditions of this Agreement. Prior to any such
termination for default the party seeking to so terminate shall give the other
written notice of its intention to terminate this Agreement in accordance with
the provisions of this Section 9. l(b), which notice shall set forth the
default(s) which form the basis for such termination. If the defaulting party
fails to correct such default(s) within thirty (30) days after receipt of the
notification with respect to monetary defaults, and ninety (90) days after the
receipt of notification with respect to non-monetary defaults, or if the non-
monetary default cannot be corrected or remedied within ninety (90) days then
if the defaulting party has not commenced curing said default(s) within said
ninety (90) days and be diligently pursuing completion of same, then such party
may immediately terminate this Agreement. In addition, any default by a party
under the Manufacturing Agreement shall be deemed to be a default by such party
hereunder. In the event of termination of this Agreement by Lilly under this
Section 9.1 (b), payment by JMED to Lilly of all amounts set forth in Section
3.2 shall be immediately accelerated and all such amounts shall be immediately
due and payable by JMED to Lilly on the date of termination. If, on the date
of such termination, JMED does not immediately pay to Lilly all such amounts,
then all of the rights under the licenses granted by Lilly to JMED pursuant to
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<PAGE> 38
Sections 2.1 (covering the Licensed Assets) and 2.8 (covering the Technology)
hereof shall immediately revert to Lilly with no further notice required on
Lilly's behalf and, notwithstanding anything else contained in this Agreement
or the Manufacturing Agreement to the contrary, (A) Lilly shall have the right,
directly or indirectly, to market and sell the Product in the United States,
and (B) JMED shall have no further rights in the Product whatsoever.
(ii) This Section 9.1(b) shall not be exclusive and shall
not be in lieu of any other remedies available to a party hereto for any
default hereunder on the part of the other party.
(c) Termination Upon Transfer. In the event Lilly elects to
transfer the Licensed Assets to JMED pursuant to Section 2.3, this Agreement
shall, subject to the provisions of paragraph (d) of this Section 9.1,
terminate automatically, and without the need for notice, simultaneously with
the execution and delivery by Lilly to JMED of the Bill of Sale and Trademark
Assignment described in Section 2.3 and such other documents as JMED shall
reasonably request. Notwithstanding the foregoing, termination by Lilly under
this Section 9.1(c) shall not affect the rights and obligations of the parties
pursuant to the Manufacturing Agreement, nor the licensing of the Technology by
Lilly to JMED pursuant to Section 2.8 of this Agreement, all of which shall
continue to survive unless and until otherwise terminated pursuant to the
provisions of this Agreement or of said Manufacturing Agreement.
(d) Continuing Obligations. Termination of this Agreement for any
reason shall not relieve the parties of any obligation accruing prior thereto
and shall be without prejudice to the rights and remedies of either party with
respect to any antecedent breach of the provisions of this Agreement. Without
limiting the generality of the foregoing and except as otherwise provided
herein, no termination of this Agreement shall serve to terminate the
obligations of the parties
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<PAGE> 39
hereto under Sections 2.2, 2.4, 2.5, 2.8 (but only if termination occurs
pursuant to Section 9.1(c)), 3.2, 3.3, 3.4, 3.5, 3.6, Section 5, Section 6,
7.2, 7.3, 7.4, 7.5, 7.8, 7.9, 7.10 (but only if termination occurs pursuant to
Section 9.1(c)), 7.11, 7.14 (as described in 7.14(e)), Section 8, 9.1(d),
9.1(e), 9.1(f), 10.2, 10.3 and 10.4 (but only if termination occurs pursuant to
Section 9.1(c)) hereof, and such obligations shall survive any such
termination, except that in the event that JMED terminates this Agreement
pursuant to the provisions of Sections 9.1(a) or 9.1(b), then JMED shall have
no continuing obligation to make any further payments to Lilly pursuant to any
provisions of this Agreement.
(e) Returned Materials. On the termination of this Agreement
(other than pursuant to Section 9.1(c)), Lilly and JMED each shall return to
the other all information which it possesses or controls that belongs to the
other, except that each may retain a copy for recordkeeping purposes.
(f) Mediation. Notwithstanding anything in this Agreement to the
contrary, in the event that any dispute arises with respect to this Agreement
or any alleged default hereunder, then prior to a declaration of default,
termination of this Agreement, and/or the institution of litigation between the
parties, the parties shall mediate such dispute pursuant to the provisions of
this Section 9.1(f).
(i) A dispute shall be submitted to mediation by written
notice to the other party. In the mediation process,
the parties will try to resolve their differences
voluntarily with the aid of an impartial mediator,
who will attempt to facilitate negotiations. The
mediator will be selected by agreement of the
parties. If the parties cannot agree on a mediator,
a
39
<PAGE> 40
mediator will be designated by the American
Arbitration Association ("AAA") or JAMS/Endispute at
the request of a party. Any mediator so designated
must be acceptable to both parties.
(ii) The mediation will be conducted as specified by the
mediator and agreed upon by the parties. The parties
agree to discuss their differences in good faith and
to attempt, with the assistance of the mediator, to
reach an amicable resolution of the dispute.
(iii) The mediation will be treated as a settlement
discussion and therefore will be confidential. The
mediator may not testify for either party in any
later proceeding relating to the dispute. No
recording or transcript shall be made of the
mediation proceedings.
(iv) Each party will bear its own costs in the mediation.
The fees and expenses of the mediator will be shared
equally by the parties.
(v) The decision of the mediator shall be non-binding and
the parties may pursue other rights and remedies
available at law or at equity.
SECTION 10. MISCELLANEOUS
10.1 Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that neither Lilly nor JMED may
assign any of its rights, duties or obligations hereunder without the prior
written consent of the other, which consent may be withheld in the other's sole
discretion. Nothing set forth in this Section 10.1 shall prevent or restrict
either JMED or Lilly from assigning its rights and obligations under this
Agreement without the consent of the other,
40
<PAGE> 41
(i) to its Affiliates (subject to the consent of the other which said consent
shall not be unreasonably withheld), or (ii) incident to the sale of all or
substantially all of its assets or stock, or (iii) incident to the merger or
reorganization of said party. No assignment of this Agreement or of any rights
hereunder shall relieve the assigning party of any of its obligations or
liability hereunder.
10.2 Notices. All notices or other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given if delivered by hand or mailed first class, postage prepaid, by
registered or certified mail, return receipt requested (notices shall be deemed
to have been given on the date received) as follows:
If to Lilly, as follows:
Eli Lilly and Company
Lilly Corporate Center
Indianapolis, Indiana 46285
Attn: President, North American Pharmaceutical Operations
With a copy to:
Eli Lilly and Company
Lilly Corporate Center
Indianapolis, Indiana 46285
Attn: General Counsel
If to JMED, as follows:
Jones Medical Industries, Inc.
1945 Craig Road
St. Louis, Missouri 63146
Attn: President
41
<PAGE> 42
With a copy to:
Edward A. Chod, Esq.
Greensfelder, Hemker & Gale, P.C.
1800 Equitable Building
10 South Broadway
St. Louis, Missouri 63102
or in any case to such other address or addresses as hereafter shall be
furnished as provided in this Section 10.2 by any party hereto to the other
party.
10.3 Waiver: Remedies. No delay on the part of Lilly or JMED in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of either Lilly or JMED of any right,
power or privilege hereunder operate as a waiver of any other right, power or
privilege hereunder nor shall any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder. The
indemnification provided in Section 8 of this Agreement shall be the sole
remedy available for any Damages arising out of or in connection with this
Agreement, except for any rights or remedies which the parties hereto may
otherwise have in equity, in Section 7.14(b), or in Section 9.1(f) of this
Agreement.
10.4 Survival of Representations. Each of the representations and
warranties made in this Agreement (but not including the Manufacturing
Agreement, which shall be governed by the terms and conditions contained
therein) shall survive for a period of three (3) years following the date on
which all Licensed Assets have been transferred to JMED.
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<PAGE> 43
10.5 Entire Agreement. This Agreement, together with the
Manufacturing Agreement, constitute the entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior agreements
or understandings of the parties relating thereto.
10.6 Amendment. This Agreement may be modified or amended only by
written agreement of the parties hereto.
10.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute a single instrument.
10.8 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Indiana excluding any choice of law
rules which may direct the application of the law of another state.
10.9 Captions. All section titles or captions contained in this
Agreement, in any Schedule referred to herein or in any Exhibit annexed hereto,
and the table of contents, if any, to this Agreement are for convenience only,
shall not be deemed a part of this Agreement and shall not affect the meaning
or interpretation of this Agreement.
10.10 No Third-Party Rights. No provision of this Agreement shall
be deemed or construed in any way to result in the creation of any rights or
obligations in any Person not a party to this Agreement.
10.11 Severability. If any provision of this Agreement is found or
declared to be invalid or unenforceable by any court or other competent
authority having jurisdiction, such finding or declaration shall not invalidate
any other provision hereof, and this Agreement shall thereafter
43
<PAGE> 44
continue in full force and effect except that such invalid or unenforceable
provision, and (if necessary) other provision(s) thereof, shall be reformed by
a court of competent jurisdiction so as to effect insofar as is practicable,
the intention of the parties as set forth in this Agreement, provided that if
such court is unable or unwilling to effect such reformation, the invalid or
unenforceable provision shall be deemed deleted to the same extent as if it had
never existed.
10.12 Attachments. All Schedules, Exhibits and other attachments to
this Agreement are by this reference incorporated herein and made a part of
this Agreement.
10.13 Annual Reports. From and after the date hereof, JMED shall
provide Lilly with a copy of its Annual Reports to the same extent as provided
to JMED's stockholders on an annual basis (Attention: Pharma Credit).
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed effective as of the day and year first above written.
ELI LILLY AND COMPANY JONES MEDICAL INDUSTRIES, INC.
By: /s/ Sidney Taurel By: /s/ Michael T. Bramblett
-------------------------------- ---------------------------
Name: Sidney Taurel Name: Michael T. Bramblett
------------------------------ -------------------------
Title: President and Chief Operating Title: Executive Vice President
Officer ------------------------
-----------------------------
45
<PAGE> 46
SCHEDULES AND EXHIBITS
TO
LICENSING AGREEMENT
<TABLE>
<S> <C> <C>
Schedule 2.1(a) - NDA
Schedule 5.4 - Intellectual Property
Schedule 5.5 - Litigation, Actions and Proceedings
Schedule 5.10 - Sales History
Schedule 5.11 - Compliance with Laws
Schedule 5.12 - Contracts
Schedule 5.13 - Customers
Schedule 5.14 - Suppliers
Schedule 7.2 - User Fees
Exhibit A - Bill of Sale
Exhibit B - Trademark Assignment
Exhibit C - Adverse Drug Experience Reporting
Exhibit D - Submission of Labeling and Promotional Materials
Exhibit E - Medical Inquiries
Exhibit F - Product Complaints
</TABLE>
46
<PAGE> 1
EXHIBIT 2.2
MANUFACTURING AGREEMENT
This MANUFACTURING AGREEMENT is entered into as of March 18, 1996 by and
between JONES MEDICAL INDUSTRIES, INC. ("JMED"), a corporation organized and
existing under the laws of the State of Delaware with offices at 1945 Craig
Road, St. Louis, Missouri 63146, and ELI LILLY AND COMPANY ("Lilly"), a
corporation organized and existing under the laws of the State of Indiana, with
offices at Lilly Corporate Center, Indianapolis, Indiana 46285.
W I T N E S S E T H:
WHEREAS, pursuant to a Licensing Agreement dated the date hereof, JMED is
licensing from Lilly certain rights and assets utilized in the marketing and
selling of certain pharmaceutical products; and
WHEREAS, subject to the terms and conditions set forth in this Agreement, JMED
wishes to have Lilly manufacture for JMED certain pharmaceutical products; and
WHEREAS, subject to the terms and conditions set forth in this Agreement,
Lilly wishes to manufacture such pharmaceutical products for JMED;
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
SECTION 1. Definitions. For purposes of this Agreement, the following terms
shall have the meanings set forth below:
"Affiliates" shall mean, with respect to any Person, any Persons directly or
indirectly controlling, controlled by, or under common control with, such other
Person. For purposes hereof,
<PAGE> 2
the term "controlled" (including the terms "controlled by" and "under common
control with"), as used with respect to any Person, shall mean the direct or
indirect ability or power to direct or cause the direction of management
policies of such Person or otherwise direct the affairs of such Person, whether
through ownership of voting securities or otherwise.
"Applicable Laws" shall mean all applicable federal, state and local laws,
ordinances, rules and regulations, of any kind whatsoever, including without
limitation, the Federal Food, Drug and Cosmetic Act.
"Damages" shall mean any and all costs, losses, claims, liabilities, fines,
penalties, damages and expenses, court costs, and reasonable fees and
disbursements of counsel, consultants and expert witnesses incurred by a party
hereto (including interest which may be imposed in connection therewith).
"Encumbrances" shall mean any and all claims, liens, licenses, charges,
restrictions and other encumbrances, of any kind whatsoever.
"FDA" shall mean the United States Food and Drug Administration.
"Good Manufacturing Practices" or "GMP" shall mean current Good Manufacturing
Practices as defined in 21 CFR Section 210 et seq. as amended.
"Licensing Agreement" shall mean the Licensing Agreement, dated as of the date
of this Agreement, between Lilly and JMED, which provides for the licensing of
certain rights by Lilly to JMED in connection with the Product for the period
specified therein.
2
<PAGE> 3
"NDA" shall mean the New Drug Application Number 7-517 for the Product filed
by Lilly with the FDA and all subsequent submissions thereto.
"Person" shall mean a natural person, a corporation, a partnership, a trust, a
joint venture, a limited liability company, any governmental authority or any
other entity or organization.
"Product" shall mean the product listed in Attachment 1 of the Requirements
Document.
"Purchase Order" shall mean a purchase order from JMED to Lilly for the
Product in accordance with the provisions of the Requirements Document.
"Requirements Document" shall mean the Manufacturing Requirements Document
attached hereto as APPENDIX A, as amended from time to time, setting forth
various manufacturing and operational terms and procedures for implementing
this Agreement.
"Specifications" shall mean the specifications for manufacturing and testing
the Product as set forth in the approved NDA and any supplements and amendments
thereto.
"Technology" shall mean all of Lilly's technology, know-how, methods of
operation, manufacturing systems details, processes, information, production
details, recipes, formulations, files, records, specifications, data and other
information necessary to, or that assist in, the manufacture of Product.
"United States" shall mean the fifty (50) states and the District of Columbia
comprising the United States of America.
3
<PAGE> 4
SECTION 2. Obligations of JMED.
2.1 Purchase of Inventory. JMED shall purchase Lilly's inventory of Product
existing as of the date of this Agreement at the prices set forth in the
Requirements Document. SCHEDULE 2.1 hereto sets forth a listing of all such
inventory of Product and the dating thereof.
2.2 Purchases of Product. Provided that Lilly performs its obligations
hereunder and supplies all Product ordered by JMED, JMED shall purchase from
Lilly all of JMED's requirements for the Product at the prices set forth in the
Requirements Document.
2.3 Medicaid and Other Rebates. JMED's NDC labeler code(s) shall appear on
the Product as soon as reasonably practicable, and JMED shall be responsible
for and shall timely pay all Medicaid and other federal, state or local
governmentally-mandated rebates or discounts, if any, to the extent set forth
in the Transition Plan.
2.4 Transition Plan. JMED shall perform its obligations set forth in the
Transition Plan attached hereto as APPENDIX B.
SECTION 3. Obligations of Lilly.
3.1 Manufacturing; Requirements; Delivery. For and during the term of this
Agreement, Lilly shall manufacture, package, label, test, prepare for shipment
and ship Product to JMED at and from Lilly's facilities, at the times and in
the quantities set forth by JMED in the Purchase Orders and as provided for in
the Requirements Document. All Products shall be manufactured by Lilly in
accordance with the NDA, Good Manufacturing Practices, and all Applicable Laws.
Each shipment of Product shall include a certificate of analysis in a format
substantially similar to APPENDIX C attached hereto, ("Analysis Certificate")
confirming that the Product therein meets the Specifications.
4
<PAGE> 5
3.2 Quality Control and Assurance. (a) Lilly shall manufacture the
Product in compliance with the NDA and in accordance with all Applicable Laws
including, where required, Good Manufacturing Practices and the related
provisions of the Federal Food, Drug and Cosmetic Act. Lilly shall perform
quality control and quality assurance testing on Product to be delivered to
JMED hereunder in accordance with the Specifications and the Requirements
Document.
(b) Personnel from JMED shall, upon reasonable advance notice to
Lilly, have access during normal business hours to Lilly's premises where the
Product is being manufactured, tested, inspected, packaged and/or stored in
order to observe and inspect the manufacturing, quality control and testing
processes for, and the records of all production and quality assurance data
related to, the Product.
3.3 Records and Accounting by Lilly. Lilly shall, with respect to any
particular lot of the Product produced by it hereunder, for a period of three
(3) years after the expiry of the expiration dating of any such lot (or such
longer period as may be required by law), keep accurate records of the
manufacture and testing of the Product produced by it hereunder, including,
without limitation, all such records which are required under Applicable Laws.
Access to such records shall be made available by Lilly to JMED upon JMED's
request.
3.4 Transition Plan. Lilly shall perform its obligations set forth in the
Transition Plan attached hereto as APPENDIX B.
SECTION 4. Purchase Orders.
4.1 JMED shall provide Lilly with Purchase Orders in accordance with the
Requirements Document. Each Purchase Order shall be governed by the terms of
this Agreement and none of the terms or conditions of JMED's Purchase Orders,
Lilly's acknowledgment forms or any other forms
5
<PAGE> 6
shall be applicable, except those specifying quantity ordered, delivery
locations and delivery schedule and invoice information. Each Purchase Order
shall constitute a binding obligation upon JMED to accept and pay for the
quantities of Product ordered therein if, and to the extent that, such Product
meets the Specifications and otherwise complies with the provisions of this
Agreement. Subject to the provisions of Section 10.14 hereof and Section 4.0
of the Requirements Document, Lilly shall supply to JMED all quantities of
Product ordered by JMED pursuant to the Purchase Orders.
SECTION 5. Payment, Labeling and Testing Product.
5.1 Terms of Payment. JMED agrees to pay for all invoices within
thirty (30) days after the later of (i) the date of receipt of the applicable
invoice, and (ii) the date of delivery of the Product, at the prices computed
in accordance with the Requirements Document. All payments to Lilly shall be
made by check or bank draft to the following address and shall indicate to
which invoice(s) payment applies:
Eli Lilly and Company
P.O. Box 951021
Dallas, TX 75395-1021
5.2 Labeling and Packing. The Product shall be labeled, prepared and
packed by Lilly for shipment in full compliance with the approved NDA, all
Applicable Laws, and in accordance with the Requirements Document. To the
extent permitted by the NDA and all Applicable Laws, JMED's name shall be shown
(in a format reasonably acceptable to JMED) on the label as the distributor of
the Product.
6
<PAGE> 7
5.3 Lot Numbering. Lot numbers shall be affixed by Lilly on the
containers for the Product and on each shipping carton in accordance with
Applicable Laws and Lilly's customary practice and in accordance with the
Requirements Document.
5.4 Testing and Rejection of Delivered Product.(a) JMED shall be
entitled, at its cost and expense, to test or inspect any and all Product
delivered to it hereunder in order to determine whether such Product complies
with the Specifications and the Analysis Certificate; however, JMED shall have
no obligation to test or inspect any such Product supplied by Lilly and may
rely on the Analysis Certificate provided with each shipment of Product. In
the event JMED tests or inspects any Product delivered to it and such Product
fails to conform to the Specifications or the Analysis Certificate, then JMED
shall have the right to reject any such Product, or the entire lot of any such
Product, by giving written notice thereof to Lilly. Lilly shall use reasonable
efforts to replace the rejected Product within the shortest possible time with
Product which meets the Specifications and Lilly shall deliver such replacement
Product, at its sole cost and expense, to JMED. If so requested by JMED,
rather than replacing the non-complying Product, Lilly shall credit the account
of JMED for all such rejected Product. In addition, Lilly shall, at its sole
cost and expense, arrange for all such noncomplying Product to be picked up
promptly and destroyed in accordance with all Applicable Laws. JMED shall have
no responsibility to Lilly for the purchase prices of noncomplying Product but
shall pay Lilly the purchase price for the replacement Product within thirty
(30) days of delivery thereof.
(b) Notwithstanding subsection (a) above, if JMED and Lilly disagree
on whether any Product complies with the Specifications or on the methods for
or results of testing of any Product, an independent laboratory which is
acceptable to both parties shall be asked to test the Product in dispute
("Disputed Product"). To the extent such laboratory finds that the Disputed
Product meets the Specifications, JMED shall pay the fees of such laboratory
related to such testing and shall promptly pay for the Disputed Product. To
the extent that such laboratory finds that the
7
<PAGE> 8
Disputed Product fails to meet the Specifications, Lilly shall pay the fees of
such laboratory related to such testing and shall either (i) replace or rework
the Disputed Product in accordance with the preceding subsection (a), or (ii)
credit JMED's account, whichever JMED shall so select.
(c) In the event JMED does not test or inspect Product delivered to it
and said Product (the "Suspect Product") is subsequently the subject of a claim
for Damages, then in order to determine whether the Suspect Product complies
with the Specifications, Lilly shall test Lilly's "House Sample" taken at the
time the Suspect Product was manufactured in order to determine whether said
Suspect Product complies with the Specifications. If Lilly determines that the
"House Sample" does not comply with Specifications, then Lilly shall be
responsible for the claim for Damages with respect to the Suspect Product, and
in the event that Lilly determines that the "House Sample" complies with the
Specifications, then JMED shall be responsible for the claim for Damages. The
accuracy of all lab tests shall be certified by an officer of Lilly and Lilly
shall provide JMED with a copy of all laboratory results and reports. Lilly
shall also furnish JMED with a sample of the House Sample on request.
SECTION 6. Representations, Warranties and Covenants of the Parties.
6.1 Product Specifications and Delivery; Authorization.(a) Lilly hereby
represents, warrants and covenants to JMED that (i) all of the existing
inventory purchased by JMED pursuant to Section 2.1, and all future JMED
purchases of Product shall, at the date shipped to JMED, (A) fully conform to
the Specifications, (B) have been or shall be manufactured in compliance with
the NDA and all Applicable Laws, (C) be not less than the potency specified in
the Analysis Certificate nor adulterated or misbranded within the meaning of
any Applicable Law, and (D) comply with all other Applicable Laws, (ii) the
procedures followed by Lilly pursuant to the Requirements Document comply with
all Applicable Laws, (iii) upon delivery of any Product pursuant hereto,
including Lilly's inventory of Product contemplated in Section 2.1 hereof, good
title
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to such Product shall be conveyed to JMED, free and clear of any and all
interest, lien or Encumbrances, and (iv) unless otherwise mutually agreed upon
by the parties, any and all Product delivered to JMED shall have a shelf life
of at least eighteen (18) months from the date of delivery (except the initial
inventory identified in Section 2.1 hereof which may be less).
(b) EXCEPT AS EXPRESSLY PROVIDED IN SECTION 6.1(a) ABOVE OR AS
OTHERWISE PROVIDED IN THE LICENSING AGREEMENT, LILLY MAKES NO REPRESENTATION OR
WARRANTY AS TO ANY PRODUCT, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION
OF LAW, BY STATUTE OR OTHERWISE, AND LILLY SPECIFICALLY DISCLAIMS ANY AND ALL
IMPLIED OR STATUTORY WARRANTIES, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY, OR WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE.
(c) Lilly hereby covenants that it shall use reasonable efforts to
assure that all of the shipments of Product ordered by JMED pursuant to a
Purchase Order are shipped timely in accordance with the directions contained
in such Purchase Order.
6.2 Indemnification. Indemnification under this Agreement shall be as
provided under and pursuant to and in accordance with the provisions of Section
8 of the Licensing Agreement, which said provisions are by this reference
incorporated in and made a part of this Agreement, and all of which shall
survive any termination or expiration of the Licensing Agreement.
6.3 Not Debarred. JMED and Lilly each hereby represent and warrant to the
other that it is not debarred and has not and will not knowingly use in any
capacity the services of any person debarred under subsections 306(a) or (b) of
the Generic Drug Enforcement Act of 1992. If at any time this representation
and warranty is no longer accurate, JMED or Lilly, as the case may be, shall
immediately notify the other of such fact.
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6.4 Manufacturing Restrictions. Subject to the provisions of Section
8 of this Agreement, Lilly hereby covenants and agrees that it will not
manufacture Products for resale in the United States by any Person other than
JMED.
SECTION 7. Term of Agreement, Renewal, Termination.
7.1 Term of Agreement. Unless sooner terminated in accordance with this
Section 7, this Agreement shall continue in effect for an initial term which
will expire on the date that is ten (10) years from the date of this Agreement.
Thereafter, this Agreement shall automatically renew for additional terms of
ten (10) years each, unless and until terminated as hereinafter set forth.
7.2 Termination by Lilly - Transfer of Manufacturing. (a) Subject to the
provisions of this Section 7.2 and Section 7.5, this Agreement may be
terminated by Lilly at any time after the first five (5) years of the initial
ten (10) year term of this Agreement without cause upon the occurrence of all
of the following: (i) the giving of at least five (5) years written notice to
JMED at any time subsequent to the end of the first five (5) years of the
initial ten (10) year term of this Agreement ("Lilly Notice Period"), (ii)
Lilly using reasonable efforts to manufacture for and sell to JMED that
quantity of the Product reasonably requested by JMED prior to the end of the
Lilly Notice Period to meet anticipated demand therefor in the first year after
the Lilly Notice Period (the "Additional Product"), and (iii) Lilly using
reasonable efforts to assist JMED in obtaining any and all rights, licenses,
approvals and consents as may be necessary, as reasonably determined by JMED,
in order to enable JMED to manufacture, or have manufactured for it, the
Product in the United States. The effective date of the termination of this
Agreement shall be the later of the last day of the Lilly Notice Period or the
day on which Lilly delivers the Additional Product. In the event of such
termination under this Section 7.2, Lilly shall provide such reasonable
assistance to JMED as may be reasonably necessary to (x) effect the transfer of
manufacturing responsibilities from Lilly to
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JMED or a third party manufacturer designated by JMED, and JMED shall reimburse
Lilly for all of Lilly's reasonable costs in connection therewith, and (y)
enable JMED to obtain a reasonable supply of active raw material necessary for
the manufacture of the Product. The termination by Lilly of this Agreement as
set forth in this Section 7.2(a) shall not in any way limit or terminate JMED's
non-exclusive right and license to use the Technology in perpetuity as set
forth in Section 2.8 of the Licensing Agreement.
(b) Incident to the licensing by Lilly of the Technology as set
forth in Section 2.8 of the Licensing Agreement, Lilly covenants and agrees
that the following shall be true and correct at the effective date of the
termination of this Agreement: the Technology licensed to JMED pursuant to
Section 2.8 of the Licensing Agreement, shall be all of the technology, know
how and other information reasonably necessary to manufacture the Product in
compliance with the Specifications, the NDA and all Applicable Laws.
7.3 Termination for Insolvency. If either JMED or Lilly (i) makes a
general assignment for the benefit of creditors or becomes insolvent; (ii)
files an insolvency petition in bankruptcy; (iii) petitions for or acquiesces
in the appointment of any receiver, trustee or similar officer to liquidate or
conserve its business or any substantial part of its assets; (iv) commences
under the laws of any jurisdiction any proceeding involving its insolvency,
bankruptcy, reorganization, adjustment of debt, dissolution, liquidation or any
other similar proceeding for the release of financially distressed debtors; or
(v) becomes a party to any proceeding or action of the type described above in
(iii) or (iv) and such proceeding or action remains undismissed or unstayed for
a period of more than sixty (60) days, then the other party may by written
notice terminate this Agreement with immediate effect.
7.4 Termination for Default. (a) Subject to mediation as provided in
Section 7.7 below, JMED and Lilly shall each have the right to terminate this
Agreement for default upon the other's
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failure to comply in any material respect with the terms and conditions of this
Agreement. Prior to any such termination for default, the party seeking to so
terminate shall give the other written notice of its intention to terminate
this Agreement in accordance with the provisions of this Section 7.4, which
notice shall set forth the default(s) which form the basis for such
termination. If the defaulting party fails to correct such default(s) within
thirty (30) days after receipt of the notification with respect to monetary
defaults, and ninety (90) days after the receipt of notification with respect
to nonmonetary defaults, or if the nonmonetary defaults cannot be corrected or
remedied within ninety (90) days, then if the defaulting party has not
commenced curing said default(s) within said ninety (90) days and be diligently
pursuing completion of same, then such party immediately may terminate this
Agreement. In addition, any default by a party under the Licensing Agreement
shall be deemed to be a default by such party hereunder.
(b) This Section 7.4 shall not be exclusive and shall not be in
lieu of any other remedies available to a party hereto for any default
hereunder on the part of the other party.
7.5 Continuing Obligations. Termination of this Agreement for any
reason shall not relieve the parties of any obligation accruing prior thereto
and shall be without prejudice to the rights and remedies of either party with
respect to any antecedent breach of the provisions of this Agreement. Without
limiting the generality of the foregoing and except as otherwise provided
herein, no termination of this Agreement shall serve to terminate the
obligations of the parties hereto under subsections 2.3, 2.4, 3.3, 3.4, 5.1,
5.4, 6.1, 6.2, 7.5, 7.6 7.7, 8.1 (in accordance with the terms of 8.3(d)), 8.2
(unless terminated by Lilly pursuant to Sections 7.3 or 7.4 hereof), 8.3 (in
accordance with the terms of 8.3(d)), 9, 10.1, 10.2, 10.3 and 10.15 hereof, and
such obligations shall survive any such termination.
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7.6 Returned Materials. On the termination of this Agreement, Lilly
and JMED each shall return to the other all information which it possesses or
controls that belongs to the other, except that each may retain a copy for
record keeping purposes.
7.7 Mediation. (a) Notwithstanding anything in this Agreement to the
contrary, in the event that any dispute or alleged default arises with respect
to this Agreement, then prior to any termination of this Agreement, the
institution of litigation between the parties, or Lilly ceasing to manufacture
and supply Product to JMED, the parties shall mediate such dispute pursuant to
the provisions of paragraph (b) of this Section 7.7. Pending the outcome of
any such mediation, the provisions of this Agreement shall continue in full
force and affect and the parties shall continue to perform their obligations
hereunder.
(b) (i) A dispute shall be submitted to mediation by written notice to
the other party. In the mediation process, the parties
will try to resolve their differences voluntarily with the
aid of an impartial mediator, who will attempt to facilitate
negotiations. The mediator will be selected by agreement of
the parties. If the parties cannot agree on a mediator, a
mediator will be designated by the American Arbitration
Association ("AAA") or JAMS/Endispute at the request of a
party. Any mediator so designated must be acceptable to both
parties.
(ii) The mediation will be conducted as specified by the mediator
and agreed upon by the parties. The parties agree to discuss
their differences in good faith and to attempt, with the
assistance of the mediator, to reach an amicable resolution
of the dispute.
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(iii) The mediation will be treated as a settlement discussion and
therefore will be confidential. The mediator may not testify for
either party in any later proceeding relating to the dispute. No
recording or transcript shall be made of the mediation proceedings.
(iv) Each party will bear its own costs in the mediation. The
fees and expenses of the mediator will be shared equally by the
parties.
(v) The decision of the mediator shall be non-binding and the parties may
pursue other rights and remedies available at law or at equity.
SECTION 8. Restrictive Covenants.
8.1 Non-Compete. For and during the ten (10) year period following the
date of this Agreement (the "Restricted Period"), neither Lilly nor any of its
Affiliates shall directly or indirectly, within the United States, whether as a
shareholder, agent, partner, proprietor, joint venturer, consultant or
otherwise, of any business or entity, take part, participate or become
interested in, in any manner whatsoever, a business or organization which
directly or indirectly manufactures, distributes or sells in the United States,
methimazole products in competition with the Product; provided, however, that
nothing set forth herein shall prevent Lilly from (i) manufacturing Product for
sale to JMED, or (ii) manufacturing methimazole products for sale outside of
the United States, or (iii) acquiring a company which at the time of
acquisition, manufactures, markets or sells methimazole products; and provided
further that, the foregoing to the contrary notwithstanding, JMED acknowledges
and agrees that the following activities, events and conditions shall not be a
breach or violation of the Restrictive Covenants (hereafter defined) and JMED
shall not be entitled to injunctive or any other relief at law or in equity or
any other rights or remedies (including, but not limited to, those set forth in
Section 8.3) in connection with: Lilly or any of its Affiliates engaging
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in any merger, acquisition, joint venture, partnership, alliance, license,
research and/or development collaboration, or combination, arrangement or
relationship of any nature whatsoever (each, a "Relationship") in which the
other party or parties involved in such Relationships (each, a "Significant
Other") at that time already conducts or engages in, directly or indirectly,
anywhere in the United States, whether as a shareholder, agent, partner,
proprietor, joint venturer, consultant or otherwise, the manufacturing,
marketing, distributing or selling of methimazole products ("Methimazole
Business"), provided that the Methimazole Business (i) does not constitute a
material part of the overall business of the Significant Other prior to the
Relationship, and (ii) will not constitute a material part of the overall
business of either such Relationship or Lilly, as the case may be, following
consummation of the Relationship. Further, no provision herein contained
shall prevent or limit in any fashion the right and ability of Lilly or any of
its Affiliates to conduct or engage in the pharmaceutical benefits management
business, integrated disease management business, pharmaceutical mail order
business and any similar or related businesses. Notwithstanding the
foregoing, nothing set forth herein shall (i) impact or effect the exclusivity
of the license granted to JMED in the Licensing Agreement, nor (ii) permit
Lilly to manufacture or develop a generic methimazole product for sale in the
United States. Furthermore, and notwithstanding anything herein to the
contrary, Lilly covenants and agrees that for such period of time as Lilly is
required to manufacture Product for JMED pursuant to the provisions of this
Agreement, neither Lilly nor any of its Affiliates shall, directly or
indirectly, manufacture or develop a generic methimazole product for sale in
the United States.
8.2 Confidentiality. JMED shall treat as confidential the Technology
and all other information of Lilly of which JMED becomes aware (whether in
writing or orally or by sensory detection) in connection with this Agreement
(collectively, "Lilly Proprietary Information"). JMED shall neither disclose
Lilly Proprietary Information to any third party nor use Lilly Proprietary
Information for any purpose other than as set forth in this Agreement. Lilly
shall treat as confidential all information of JMED of which Lilly becomes
aware (whether in writing or orally
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or by sensory detection) in connection with this Agreement (collectively "JMED
Proprietary Information"). Lilly shall neither disclose JMED Proprietary
Information to any third party nor use JMED Proprietary Information for any
purpose other than as set forth in this Agreement.
Nothing contained herein will in any way restrict or impair either party's
(the "Using Party") right to use, disclose or otherwise deal with any
Proprietary Information which:
(a) at the time of disclosure is known to the public or thereafter becomes
known to the public by publication or otherwise through no fault of the
Using Party;
(b) the Using Party can establish was in its possession prior to the time of
the disclosure and was not obtained directly or indirectly from the other
party;
(c) is independently made available as a matter of right to the Using Party by
a third party who is not thereby in violation of a confidential
relationship with the other party;
(d) is developed by the Using Party independently of the Proprietary
Information received and the Using Party can establish such development;
or
(e) is information required to be disclosed by legal or regulatory process,
provided that the Using Party timely informs the other party and uses
reasonable efforts to limit the disclosure and maintain confidentiality to
the extent possible and permits the other party to intervene and contest
or attempt to limit the disclosure.
JMED shall obtain no right or license of any kind under the Lilly Proprietary
Information except as set forth in this Agreement.
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8.3 Equitable Remedies. (a) If a party (the "Breaching Party")
breaches, or threatens to commit a breach of, any of the provisions of Sections
8.1 or 8.2 hereof (the "Restrictive Covenants"), the other party (the
"Non-Breaching Party") shall have the following rights and remedies, each of
which shall be independent of the others and severally enforceable, and each of
which is in addition to, and not in lieu of, any other rights and remedies
available to the Non-Breaching Party at law or in equity: (i) the right and
remedy to have the Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that any breach or threatened breach of
the Restrictive Covenants would cause irreparable injury to the Non-Breaching
Party and that money damages would not provide an adequate remedy to the Non-
Breaching Party; (ii) the right and remedy to require the Breaching Party to
account for and pay over to the Non-Breaching Party, all compensation, profits,
monies, accruals, increments or other benefits derived or received by the
Breaching Party and/or by any other Person as the result of, or in any way
incident to any conduct or transactions constituting a breach of the
Restrictive Covenants; and/or (iii) the right to cease paying royalties or
other amounts due under this Agreement. It is further agreed that the amount
of any bond that the Non-Breaching Party may be required to post incident to
any equitable relief sought hereunder shall not exceed $5,000 and that said
amount shall be deemed reasonable and proper.
(b) Lilly acknowledges and agrees that the Restrictive Covenants are
reasonable in geographical and temporal scope and in other respects. If any
court determines that any of the Restrictive Covenants, or any part thereof, is
invalid or unenforceable, the remainder of the Restrictive Covenants shall not
thereby be affected and shall be given full effect, without regard to the
invalid portions.
(c) If any court determines that any of the Restrictive Covenants, or
any part thereof, is unenforceable because of the duration or geographic scope
of such provision, such court
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shall have the power to reduce the duration or scope of such provision, as the
case may be, and, in its reduced form, such provision shall then be
enforceable.
(d) The Restrictive Covenants set forth herein shall survive the
termination of this Agreement but only if terminated by Lilly pursuant to
Section 7.2 hereof.
SECTION 9. Failure to Supply Product.
9.1 Due to Force Majeure. (a) For purposes of this Section 9.1:
(i) "Prior Level" shall mean the quantity of Product sold by Lilly in
the United States during the 365 days immediately preceding the date of this
Agreement, as measured by the quantity of bulk methimazole (in kilograms)
contained therein.
(ii) "Deal Year" shall mean the following:
Deal Year 1: March 19, 1996 - March 18, 1997
Deal Year 2: March 19, 1997 - March 18, 1998
Deal Year 3: March 19, 1998 - March 18, 1999
Deal Year 4: March 19, 1999 - March 18, 2000
(iii) "Gross Margin" shall mean the then current net selling price
at which the Product is made available to a JMED customer LESS: the then
current purchase price at which JMED purchases the Product from Lilly under this
Agreement.
(iv) "At Risk Amount" shall mean the following:
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In Deal Year 1: $13,000,000 LESS any amounts previously reimbursed to
JMED in any Deal Year pursuant to the Formula (as
hereinafter defined)
In Deal Year 2: $9,750,000 LESS any amounts previously reimbursed to
JMED in any Deal Year pursuant to the Formula
In Deal Year 3: $6,500,000 LESS any amounts previously
reimbursed to JMED in any Deal Year pursuant to the
Formula
In Deal Year 4: $3,250,000 LESS any amounts previously reimbursed to
JMED in any Deal Year pursuant to the Formula
(v) "Interrupted Period" shall mean the period of time during which
Lilly is unable to supply Product due to Force Majeure.
(vi) "Measurement Period" shall mean the six (6) month period
immediately preceding the Interrupted Period during which Product is supplied
by Lilly to JMED pursuant to the provisions of this Agreement (provided,
however, that if the Interrupted Period occurs during Deal Year 1, the
Measurement Period may include certain months prior to the date of this
Agreement during which Lilly sold Product in the United States).
(vii) "Historical Monthly Sales" shall mean the average monthly sales
of Product in the United States by JMED (or by Lilly if the inability to supply
Product occurs during Deal Year 1) during the Measurement Period.
(b) In the event that during any of the first four (4) Deal Years (i)
Lilly is unable, during any such Deal Year, to supply Product to JMED up to
(but not to exceed) the Prior Level as a result
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of an event of Force Majeure (as defined in Section 10.14), and (ii) as
a result of Lilly's inability to supply Product up to (but not to exceed) the
Prior Level for such Deal Year, JMED is unable to supply its customers with
Product, and (iii) JMED is otherwise in compliance with all of the material
terms and conditions of this Agreement and the Licensing Agreement, then the
"risk sharing" formula ("Formula") set forth in paragraph (c) below shall
apply:
(c) (i) If JMED is unable to supply Product to its customers for
thirty (30) days or less (the "Short Period"), then Lilly shall reimburse JMED
an amount equal to 50% of JMED's lost Gross Margin (net of any proceeds of
business interruption insurance received by JMED) as a result of JMED's
inability during such Short Period to supply Product to its customers up to
(but not to exceed) the Prior Level, as measured by bona fide written purchase
orders for the Product submitted to JMED by such customers, such amount
reimbursable by Lilly not to exceed the At Risk Amount for the Deal Year during
which the Short Period occurs.
(ii) If JMED is unable to supply Product to its customers for more
than thirty (30) days, then Lilly shall reimburse JMED an amount equal to 50% of
JMED's lost Gross Margin (net of any proceeds of business interruption
insurance received by JMED) as a result of JMED's inability to supply Product
to its customers during any part of one or more Deal Years as measured (A) in
the first thirty (30) days as set forth above in subparagraph (i), and (B)
thereafter based upon the Historical Monthly Sales of Product multiplied by the
number of months contained in the Interrupted Period, such amount reimbursable
by Lilly not to exceed the At Risk Amount for each such Deal Year during which
the Interrupted Period occurs.
(iii) The reimbursable amounts payable by Lilly pursuant to this
paragraph (c) shall be paid to JMED monthly during the Interrupted Period until
all amounts payable hereunder have been paid.
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(iv) The Formula shall never apply during any Deal Year after Lilly has
supplied to JMED in such Deal Year, Product equal to or greater than the Prior
Level.
(d) The parties hereto acknowledge that the Product is unique and that
JMED is entering into this Agreement and the Licensing Agreement on the
condition that Lilly will furnish Product to Lilly as set forth herein. As
such, in the event that Lilly is unable for the reasons hereinabove described
to supply Product to JMED as required by this Agreement, the parties have
agreed to a reimbursement to JMED as hereinbefore set forth, in addition to all
other rights and remedies available under this Agreement.
9.2 Due to Default. In the event that Lilly refuses or is unable or
unwilling to supply Product to JMED as required under this Agreement due to
reasons not constituting Force Majeure, then JMED shall be entitled to pursue
all of its rights and remedies available under this Agreement, and in addition,
during the period of such failure to supply Product, JMED may defer any
payments due and owing by JMED to Lilly pursuant to this Agreement, or the
Licensing Agreement until such time as Lilly resumes supplying Product to JMED
as required in this Agreement.
SECTION 10. Miscellaneous Provisions.
10.1 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that neither Lilly nor JMED may
assign any of its rights, duties or obligations hereunder without the prior
written consent of the other, which consent may be withheld in the other's sole
discretion. Nothing set forth in this Section 10.1 shall prevent or restrict
either JMED or Lilly from assigning its rights and obligations under this
Agreement without the consent of the other (i) to its Affiliates (subject to
the consent of the other which said consent shall not be unreasonably
withheld), or (ii) incident to the sale of all or substantially all of its
assets or stock, or (iii) incident to the merger or reorganization of said
party. No assignment of this Agreement or of any rights hereunder shall
relieve the assigning party of any of its obligations or liability hereunder.
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10.2 Notices. All notices or other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given if delivered by hand, or mailed first class, postage prepaid,
by registered or certified mail, return receipt requested (notices shall be
deemed to have been given on the date received) as follows:
If to Lilly, as follows:
Eli Lilly and Company
Lilly Corporate Center
Indianapolis, Indiana 46285
Attn: President, North American Pharmaceutical Operations
With a copy to:
Eli Lilly and Company
Lilly Corporate Center
Indianapolis, Indiana 46285
Attn: General Counsel
If to JMED, as follows:
Jones Medical Industries, Inc.
1945 Craig Road
St. Louis, Missouri 63146
Attn: President
With a copy to:
Edward A. Chod, Esq.
Greensfelder, Hemker & Gale, P.C.
1800 Equitable Building
10 South Broadway
St. Louis, Missouri 63102-1774
or in any case to such other address or addresses as hereafter shall be
furnished as provided in this Section 10.2 by any party hereto to the other
party.
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10.3 Waiver; Remedies. No delay on the part of Lilly or JMED in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of either Lilly or JMED of any right,
power or privilege hereunder operate as a waiver of any other right, power or
privilege hereunder nor shall any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder. The
indemnification provided for in Section 6.2 of this Agreement shall be the sole
remedy available for any Damages arising out of or in connection with this
Agreement, except for any rights or remedies which the parties hereto may
otherwise have in equity, in Section 7.7, in Section 8.3, in Section 9.1, in
Section 9.2, or as otherwise specifically provided in this Agreement or the
Licensing Agreement.
10.4 Entire Agreement. This Agreement (together with the Licensing
Agreement) and its appendices constitute the entire agreement between the
parties with respect to the subject matter hereof and supersede all prior
agreements or understandings of the parties relating thereto.
10.5 Amendment. This Agreement may be modified or amended only by
written agreement of the parties hereto.
10.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute a single instrument.
10.7 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Indiana excluding any choice of law
rules which may direct the application of the law of another state.
10.8 Captions. All section titles or captions contained in this
Agreement and in any appendix referred to herein or annexed to this Agreement
are for convenience only, shall not be deemed a part of this Agreement and
shall not affect the meaning or interpretation of this Agreement.
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10.9 No Third-Party Rights. No provision of this Agreement shall be
deemed or construed in any way to result in the creation of any rights or
obligation in any Person not a party to this Agreement.
10.10 Construction. This Agreement shall be deemed to have been
drafted by both Lilly and JMED and shall not be construed against either party
as the drafts person hereof.
10.11 Appendices. Each Appendix and other document attached hereto is
incorporated by reference and made a part of this Agreement.
10.12 No Joint Venture. Nothing contained herein shall be deemed to
create any joint venture or partnership between the parties hereto, and,
except as is expressly set forth herein, neither party shall have any right by
virtue of this Agreement to bind the other party in any manner whatsoever.
10.13 Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective
while this Agreement remains in effect, the legality, validity and
enforceability of the remaining provisions shall not be affected thereby, and
in lieu of each such illegal, invalid or unenforceable provision there shall be
added automatically as a part of the document a provision that is legal, valid,
and enforceable, and as similar in terms to such illegal, invalid or
unenforceable provision as may be possible while giving effect to the benefits
and burdens for which the parties have bargained hereunder.
10.14 Force Majeure. (a) If either party is prevented from
complying, either totally or in part with any of the terms or provisions set
forth herein, by reason of force majeure, including, by way of example and not
of limitation, fire, flood, explosion, storm, strike, lockout or other labor
dispute, riot, war, rebellion, accidents, acts of God, acts of governmental
agencies or instrumentalities, failure of suppliers (including, but not limited
to, shortages in bulk material) or any other external or non-negligent internal
cause or externally induced casualty beyond its
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reasonable control, whether similar to the foregoing contingencies or not, said
party shall provide written notice of same to the other party. Said notice
shall be provided within fifteen (15) working days of the occurrence of such
event and shall identify the requirements of this Agreement or such of its
obligations as may be affected, and to the extent so affected, said obligations
shall be suspended during the period of such disability. If any raw materials,
facility systems or capacity is used for both the Product and any other
products or purposes (collectively, "Competing Products"), any necessary
allocation shall be made as between Lilly's and its Affiliates' needs, JMED's
needs and the needs of any other party to whom Lilly has firm contractual
obligations on a pro rata basis based on the Competing Products' respective
percentage contributions to the total gross amount invoiced by Lilly and its
Affiliates to unrelated third parties for sales of the Competing Products in
the twelve (12) months preceding the date of the event constituting force
majeure. The party prevented from performing hereunder shall use reasonable
efforts to remove such disability, and shall continue performance whenever such
causes are removed. The party so affected shall give to the other party a good
faith estimate of the continuing effect of the force majeure condition and the
duration of the affected party's nonperformance. When such circumstances as
those contemplated herein arise, the parties shall discuss in good faith, what,
if any, modification of the terms set forth herein may be required in order to
arrive at an equitable solution.
(b) If the period of any previous actual nonperformance of Lilly
because of Lilly force majeure conditions plus the anticipated future period of
Lilly nonperformance because of such conditions will exceed an aggregate of one
hundred eighty (180) days within any twenty-four (24) month period, JMED may
terminate this Agreement by notice to Lilly. The termination of this Agreement
by JMED as set forth in this paragraph (b) shall not affect the license by
Lilly to JMED of the Technology pursuant to Section 2.8 of the Licensing
Agreement, which said license shall remain in full force and effect. In
addition, prior to such termination, at JMED's request, Lilly shall use
reasonable efforts to assist JMED in obtaining any all rights, licenses,
approvals and consents as may be necessary, as reasonably determined by JMED,
in order to enable JMED to manufacture, or have manufactured for it, the
Product in the United States. JMED shall reimburse Lilly for all of Lilly's
reasonable costs in connection therewith.
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(c) If the period of any previous actual nonperformance of JMED because
of JMED force majeure conditions plus the anticipated future period of JMED
nonperformance because of such conditions will exceed an aggregate of one
hundred eighty (180) days within any twenty-four (24) month period, Lilly may
terminate this Agreement by notice to JMED.
10.15 Survival of Representations. Each of the representations and
warranties made in this Agreement shall survive the execution hereof pursuant
to the provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
JONES MEDICAL INDUSTRIES, INC. ELI LILLY AND COMPANY
By: /s/ Michael T. Bramblett By: /s/ Sidney Taurel
--------------------------- ---------------------------
Name: Michael T. Bramblett Name: Sidney Taurel
------------------------- -------------------------
Title: Executive Vice President Title: President and Chief
------------------------ Operating Officer
------------------------
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SCHEDULES AND APPENDICES
TO
MANUFACTURING AGREEMENT
Schedules
Schedule 2.1 - Inventory
Appendices
Appendix A - Manufacturing Requirements Document
Appendix B - Transition Plan
Appendix C - Certificate of Analysis
27
<PAGE> 1
EXHIBIT 99.1
[JONES MEDICAL INDUSTRIES, INC. LETTERHEAD]
FOR IMMEDIATE RELEASE MARCH 19, 1996
JONES MEDICAL COMPLETES TAPAZOLE(R)
TRANSACTION WITH LILLY
St. Louis, MO - Jones Medical Industries, Inc. (NASDAQ:JMED) today announced
completion of its acquisition of exclusive U.S. marketing rights to Tapazole(R)
(Methinmazol, USP) from Eli Lilly and Company (NYSE:LLY).
The agreement to acquire the domestic rights to Tapazole(R), an anti-thyroid
product for the treatment of hyperthyroidism (Graves Disease), was announced on
March 7, 1996, and received approval by the Directors of Eli Lilly at a Board
meeting yesterday. The agreement between JMED and Eli Lilly includes a
manufacturing and supply arrangement pursuant to which Eli Lilly will continue
the manufacture and supply of Tapazole(R) for JMED for a 10-year period. As
previously announced, the purchase price for the perpetual exclusive domestic
license for the product was $26 million.
Dennis Jones, Chairman and CEO of JMED, said "We believe that Tapazole(R), with
$6.7 million in 1995 sales, will add significantly to our specialty
pharmaceutical product portfolio. Unit sales of Tapazole(R) have reflected
considerable growth over the past five years even in the absence of marketing
initiatives from Eli Lilly. Although historically used as a treatment in
advance of removal of all or part of the thyroid gland, recent medical studies
report favorably upon the use of Tapazole(R) as a longer-term prescription
alternative to surgical treatment. We are hopeful that our focused marketing
efforts will enable us to build upon the present trends in treatment protocols
and sales growth."
For further information contact Investor Relations at (314)576-6100.
