<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
(Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter period ended January 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
COMMISSION FILE NUMBER 1-10615
EMISPHERE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3306985
-------- (I.R.S. Employer
(State or jurisdiction of Identification Number)
incorporation or organization)
15 SKYLINE DRIVE 10532
HAWTHORNE, NEW YORK -----
------------------- (Zip Code)
(Address of principal executive offices)
(914) 347-2220
--------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be files by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
Registrant was required to file such reports) and (2) has been subject to
such filing requirements for at least the past 90 days. Yes X No
----- ----
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of the Registrant's common stock, $.01 par value,
outstanding as of March 7, 1997 was: 9,520,066
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
TABLE OF CONTENTS
January 31, 1997
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements: PAGE
---------------------- ----
Condensed Balance Sheets 3
Condensed Statements of Operations 4
Condensed Statement of Stockholders' Equity 5
Condensed Statements of Cash Flows 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of
-----------------------------------------
Financial Condition and Results of Operations 9
---------------------------------------------
PART II. OTHER INFORMATION
Item 5. Other Information 12
-----------------
Item 6. Exhibits and Reports on Form 8-K 12
--------------------------------
2
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
July 31. January 31.
Assets: 1996 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 11,904,674 $ 4,915,989
Marketable securities 6,332,817 10,952,096
Receivable due from Elan-Emisphere Venture 880,743
Prepaid expenses and other current assets 289,769 494,349
------------ ------------
Total current assets 18,527,260 17,243,177
Equipment and leasehold improvements, at cost, net of
accumulated depreciation and amortization 1,450,862 1,417,615
Other assets 61,243 61,243
------------ ------------
Total assets $ 20,039,365 $ 18,722,035
============ ============
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable $ 191,038 $ 198,839
Accrued compensation 211,826 226,317
Accrued professional fees 263,000 159,500
Accrued expenses 61,923 80,054
------------ ------------
Total current liabilities 727,787 664,710
Investment deficiency in Elan-Emisphere Venture 1,287,547
Deferred lease liability 44,823 39,682
------------ ------------
Total liabilities 772,610 1,991,939
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized,
none issued and outstanding
Common stock, $.01 par value; 20,000,000 shares authorized;
9,450,760 shares issued (9,407,260 outstanding) at July 31,
1996; 9,550,614 shares issued (9,507,114 outstanding) at
January 31, 1997 94,508 95,506
Additional paid-in capital 62,129,161 62,987,604
Accumulated deficit (42,735,810) (46,170,848)
Net unrealized (loss) gain on marketable securities (28,291) 10,647
------------ ------------
19,459,568 16,922,909
Less, common stock held in treasury, at cost; 43,500 shares (192,813) (192,813)
------------ ------------
Total stockholders' equity 19,266,755 16,730,096
------------ ------------
Total liabilities and stockholders' equity $ 20,039,365 $ 18,722,035
============ ============
</TABLE>
See accompanying notes to financial statements. The July 31, 1996 Condensed
Balance Sheet data was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
3
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
January 31, January 31,
------------------------ --------------------------
1996 1997 1996 1997
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Contract revenues $3,033,333 $ 535,066 $ 3,033,333 $ 2,529,516
---------- ------------ ------------ ------------
Costs and expenses:
Research and development 1,500,466 1,864,530 2,883,875 3,526,077
Loss in Elan-Emisphere Venture 305,611 1,297,545
General and administrative expenses 610,827 1,044,706 1,226,727 1,648,351
---------- ------------ ------------ ------------
Total operating expenses 2,111,293 3,214,847 4,110,602 6,471,973
---------- ------------ ------------ ------------
Operating (loss) income 922,040 (2,679,781) (1,077,269) (3,942,457)
---------- ------------ ------------ ------------
Other income:
Investment income 234,490 251,100 294,608 507,419
---------- ------------ ------------ ------------
Net income (loss) $1,156,530 $(2,428,681) $ (782,661) $(3,435,038)
========== ============ ============ ============
Net income (loss) per share $ 0.14 $ (0.26) $ (0.10) $ (0.36)
========== ============ ============ ============
Weighted average number of
shares outstanding 8,327,466 9,489,732 8,035,391 9,467,632
========== ============ ============ ============
</TABLE>
See accompanying notes to the financial statements
4
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
For the six months ended January 31, 1997
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
--------------------
Shares Amount Capital Deficit
--------- --------- ------------- ---------------
<S> <C> <C> <C> <C>
Balance, July 31, 1996 9,450,760 $ 94,508 $ 62,129,161 $ (42,735,810)
Sale of common stock under
employee stock purchase
plans and exercise of 99,854 998 858,443
options
Change in net unrealized
gain(loss) on marketable
securities
Net loss for the six months
ended January 31, 1997 (3,435,038)
--------- --------- ------------- ---------------
Balance, January 31, 1997 9,550,614 $ 95,506 $ 62,987,604 $ (46,170,848)
========= ========= ============= ===============
<CAPTION>
Net Unrealized
(Loss)Gain on Common Stock
Marketable Held In Treasury
Securities Shares Amount Total
------------ ------- ------------ -------------
<S> <C> <C> <C> <C>
Balance, July 31, 1996 $ (28,291) 43,500 $ (192,813) $ 19,266,755
Sale of common stock under
employee stock purchase
plans and exercise of
options 859,441
Change in net unrealized
gain(loss) on marketable
securities 38,938 38,938
Net loss for the six months
ended January 31, 1997 (3,435,038)
------------ ------- ------------ --------------
Balance, January 31, 1997 $ 10,647 43,500 $ (192,813) $ 16,730,096
============ ======= ============ ==============
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended
January 31,
--------------------------
1996 1997
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (782,661) $ (3,435,038)
------------ -------------
Adjustments to reconcile net loss to net cash (used in)
operating activities:
Loss in Elan-Emisphere Venture 1,297,545
Depreciation and amortization 270,629 204,100
Decrease in deferred lease liability (5,139) (5,141)
Realized gain on sale of marketable securities (10,182) (248)
Change in assets and liabilities:
Receivable due from Elan-Emisphere Venture (880,743)
Prepaid expenses and other current assets (110,638) (204,580)
Accounts payable and accrued expenses (250,921) (63,077)
Investment in Elan-Emisphere Venture (9,998)
------------ -------------
Total adjustments (106,251) 337,858
------------ -------------
Net cash (used in) operating activities (888,912) (3,097,180)
------------ -------------
Cash flows from investing activities:
Capital expenditures (71,699) (170,853)
Purchase of marketable securities (5,134,639) (8,447,406)
Proceeds from sales of marketable securities 2,618,323 3,867,313
------------ -------------
Net cash (used in) investing activities (2,588,015) (4,750,946)
------------ -------------
Cash flows from financing activities:
Net proceeds from issuance of common stock and warrants to Elan
International Services ltd. 7,463,000
Proceeds from exercise of options and employee stock purchases 227,168 859,441
------------ -------------
Net cash provided by financing activities 7,690,168 859,441
------------ -------------
Net increase (decrease) in cash and cash equivalents 4,213,241 (6,988,685)
Cash and cash equivalents, beginning of period 2,226,156 11,904,674
------------ -------------
Cash and cash equivalents, end of period $ 6,439,397 $ 4,915,989
============ =============
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS:
The interim Condensed Statements of Operations for the three months and six
months ended January 31, 1996 and 1997 and Condensed Statements of Cash
Flows for the six months ended January 31, 1996 and 1997, and the
Condensed Balance Sheets as of July 31, 1996 and January 31, 1997, of
Emisphere Technologies, Inc. (the "Company"), have been prepared in
accordance with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all information and disclosures
necessary for a presentation of the Company's financial position, results
of operations and cash flows in conformity with generally accepted
accounting principles. In the opinion of management, these financial
statements reflect all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the Company's financial
position, results of operations and cash flows for such periods. The
results of operations for any interim period are not necessarily indicative
of the results for the full year. These financial statements should be
read in conjunction with the financial statements and notes thereto
contained in the Company`s Annual Report on Form 10-K for the fiscal year
ended July 31, 1996.
2. ELAN-EMISPHERE VENTURE
During October 1996, the equally owned joint venture formed by the Company
and Elan Corporation plc (the "Elan-Emisphere Venture" or the "Venture")
commenced operations. The Company accounts for its investment in the
Venture in accordance with the equity method of accounting. Since the
Venture's inception (September 1996), the Company has contributed capital
to the Venture of approximately $10,000. For the three months ended
January 31, 1997, the Venture incurred a net loss of approximately
$611,000, and for the period from inception (September 1996) to January 31,
1997, $2,595,000. The Company's 50% share of such loss was approximately
$305,500 and $1,297,500, respectively.
Contract revenue from the Venture, with respect to services provided by the
Company to the Venture, is recognized as the related services are rendered.
Such revenue for the three months ended January 31, 1997 totaled
approximately $386,293 and for the period from inception (September 1996)
to January 31, 1997, $2,380,743.
Selected financial data of the Venture as of January 31, 1997 is as
follows:
Balance Sheet Data
Assets:
Cash $ 3,053,000
Other 12,000
-------------
$ 3,065,000
=============
Liabilities and Stockholders Deficit:
Accounts payable (1) 1,140,000
Subordinated debt 4,500,000
Stockholders' deficit (2,575,000)
-------------
$ 3,065,000
=============
(1) Includes $881,000 due the Company.
Statement of Operations Data
For the three Inception
months ended (September 1996)
January 31, 1997 to January 31, 1997
---------------- -------------------
Total Revenue $ 34,000 $ 45,000
Total expenses (2) 645,000 2,640,000
---------- -----------
Net loss $ 611,000 $ 2,595,000
========== ===========
(2) Includes $386,000 and $2,381,000 related to services performed by the
Company on behalf of the Venture for the three and six months ended January
31, 1997 respectively.
7
<PAGE>
3. AGREEMENT WITH ELI LILLY AND COMPANY
During February 1997, the Company and Eli Lilly and Company ("Lilly")
entered into a strategic alliance (the "Lilly Strategic Alliance"). The
terms of the Lilly Strategic Alliance provide for Lilly to fund certain
research conducted by the Company on behalf of Lilly. Lilly has agreed to
fund this research for a period of 18 to 24 months. Lilly has a right to
license the Company's technology and should the Company's research be
successful, the Company would be entitled to receive fees, milestone
payments and royalties.
4. IMPACT OF THE FUTURE ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARD
During February 1997, the Financial Accounting Standards Board issued
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").
SFAS 128 will require the Company to replace the current presentation of
"primary" per share data with " basic" and "diluted" per share data. Since
the impact of outstanding common stock equivalents on per share data is
antidilutive, the future adoption of SFAS 128 will not have a material
impact on the Company's per share data. SFAS 128 will be adopted by the
Company for periods ending after December 15 1997.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under the caption "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" and elsewhere in
this report on Form 10-Q constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance, or achievements expressed or implied by such forward-
looking statements. Such factors include, among others, the following:
uncertainties related to future test results and viability of the Company's
product candidates, which are in the early stages of development; the need to
obtain regulatory approval for the Company's product candidates; the Company's
dependence on partnerships with pharmaceutical and other companies to develop,
manufacture and commercialize products using the Company's drug delivery
technologies; the Company's dependence on the success of its joint venture with
Elan Corporation plc ("Elan") for the development and commercialization of an
oral heparin product and its strategic alliance with Eli Lilly and Company
("Lilly") for the development and commercialization of certain of Lilly's
therapeutic proteins; the risk of technological obsolescence and risks
associated with the Company's highly competitive industry; the Company's
dependence on patents and proprietary rights; the Company's absence of
profitable operations and need for additional capital; the Company's dependence
on others to manufacture the Company's chemical compounds; the risk of product
liability and policy limits of product liability insurance; potential liability
for human clinical trials; the Company's dependence on key personnel and the
quality, judgment and strategic decisions of management and other personnel;
uncertain availability of third-party reimbursement for commercial medical
products; general business and economic conditions; and other factors referenced
in the Company's report on Form 10-K for the fiscal year ended July 31, 1996.
GENERAL
Emisphere is a drug delivery company focused on the discovery and
application of proprietary synthetic chemical compounds that enable the oral
delivery of therapeutic macromolecules and other compounds that are not
currently deliverable by oral means. Since its inception in 1986, the Company
has devoted substantially all of its efforts and resources to research and
development conducted on its own behalf and through collaborations with
corporate partners and academic research institutions. The Company has had no
product sales to date. The major sources of the Company's working capital have
been proceeds from its initial public offering in 1989, a second public offering
in February 1993, private equity financing, the latest of which occurred with an
affiliate of Elan in October 1995, reimbursement of expenses and other payments
from corporate partners, the registered sale of one million shares of Common
Stock to two institutional investors in April 1996, and income earned on the
investment of available funds. The Company's operations are not significantly
affected by inflation or seasonality.
On February 27, 1997, the Company and Lilly announced that they entered
into a strategic alliance (the "Lilly Strategic Alliance") to utilize
Emisphere's technologies for the improved delivery of certain Lilly therapeutic
proteins with a focus on oral delivery. The major therapeutic focus of the
collaboration is in the area of endocrinology, including growth disorders.
Initially, Lilly is committing limited funds to the Company for research on
delivery of two proteins. The Lilly Strategic Alliance contemplates that Lilly
may ultimately exercise options to license the applicable carriers and market
the products utilizing the combined technologies. If the options are exercised,
the Company may receive from Lilly milestone and other payments aggregating,
together with initial funding, up to $60 million, as well as future royalty
payments. The Lilly Strategic Alliance also contemplates that the Company could
receive further payments for other delivery applications if the focus of the
Lilly Strategic Alliance is expanded beyond the two specified therapeutic
proteins or to non-oral applications.
RESULTS OF OPERATIONS
The Company has since its inception generated significant losses from
operations. The Company does not expect to achieve profitability in the
foreseeable future. Profitability will ultimately depend on the Company's
ability, either alone or in conjunction with third parties, to develop and
commercialize products utilizing the Company's technology. There can be no
assurance that the development will be completed or if completed, any regulatory
agency will approve the final product. Even if final products are developed and
approved, there is no assurance that sales will be sufficient to achieve
profitability. If development of such products is not achieved or approval not
granted, the Company's prospects will be materially affected.
The ability of the Company to reduce its operating losses in the near term
will be dependent upon, among other things, its ability to attract new
pharmaceutical and other companies who are willing to provide funding to the
Company for a portion of the Company's research and development with respect to
specific projects. While the Company is constantly engaged in discussions with
pharmaceutical
9
<PAGE>
and other companies, there can be no assurance that the Company will enter into
any additional agreements or that the agreements will provide research and
development revenues to the Company.
THREE MONTHS ENDED JANUARY 31, 1997 VS. THREE MONTHS ENDED JANUARY 31, 1996:
For the three months ended January 31, 1997, the Company recognized $535,000 of
research and development revenue compared to $3,033,000 for the three months
ended January 31, 1996. Research and development revenue for the three months
ending January 31, 1997 consisted of the recognition of revenues from the Elan-
Emisphere Joint Venture of approximately $386,000 and payments from two
pharmaceutical companies for which the Company performed feasibility studies.
For the three months ending January 31, 1996 revenue consisted of the
recognition of payments under the Company's agreements with Elan ($3,000,000)
and Pasteur Merieux ("Pasteur"). The recognition of the revenue from Elan was
for work Emisphere performed on the development of an oral Heparin USP
formulation prior to entering into the Elan-Emisphere Venture. Revenue
recognized from Pasteur was a payment for Emisphere's completion of a defined
milestone as called for in its feasibility agreement with Pasteur.
Total operating expenses for the three months ended January 31, 1997, increased
by $1,104,000, or 52%, as compared to the three months ended January 31, 1996.
The details of this increase are as follows:
Research and development costs increased by approximately $364,000, or 24%, in
the three months ended January 31, 1997, as compared to the three months ended
January 31, 1996. This increase is mainly attributable to increased personnel
and related expenses associated with the Company's development of an oral
heparin formulation. The Company also experienced an increase in funding of
outside consultants and universities engaged to conduct studies to help advance
the Company's scientific research efforts. The Company believes that this level
of research and development spending will continue for the foreseeable future
and may increase if operations are expanded.
The increase of $306,000 in the loss in Elan-Emisphere Venture represents the
Company's pro-rata portion of the Venture's loss for the period. No loss was
experienced in the comparable period as the Venture did not commence operations
until September 1996.
General and administrative expenses increased by approximately $434,000, or 71%,
in the three months ended January 31, 1997, as compared to the three months
ended January 31, 1996. This increase is primarily the result of increased
legal and professional fees incurred in connection with the finalization of the
Elan-Emisphere Venture and the agreement with Lilly. This was partially offset
by a decrease in payments made to an outside consultant who assisted the Company
in discussions and negotiations with pharmaceutical companies.
The Company's other income in the three months ended January 31, 1997 increased
by approximately $17,000, or 7%, as compared to the three months ended January
31, 1996. The increase was primarily due to better returns on the Company's
larger investment portfolio.
Based on the above factors, the Company's net loss for the second quarter of
fiscal 1997 totaled $2,429,000, as compared to $1,157,000 net income for the
1996 fiscal quarter.
SIX MONTHS ENDED JANUARY 31, 1997 VS. SIX MONTHS ENDED JANUARY 31, 1996:
For the six months ended January 31, 1997, the Company recognized $2,530,000 of
research and development revenue compared to $3,033,000 for the six months ended
January 31, 1996. Research and development revenue for the six months ending
January 31, 1997 consisted of $2,381,000 from the Elan-Emisphere Venture in
connection with the development of an oral formulation of heparin and $149,000
from two pharmaceutical companies for which the Company performed feasibility
studies. Research and development revenue for the six months ending January 31,
1996 consisted of recognition of payments under the Company's agreements with
Elan ($3,000,000) and Pasteur. The recognition of the revenue from Elan was for
work Emisphere performed on the development of an oral formulation of heparin
prior to entering into the strategic alliance with Elan. Revenue recognized from
Pasteur was a payment for Emisphere's completion of a defined milestone as
called for in its feasibility agreement with Pasteur.
Total operating expenses for the six month period ended January 31, 1997,
increased by approximately $2,361,000, or 57%, as compared to the six month
period ended January 31, 1996. The details of this increase are as follows:
10
<PAGE>
Research and development costs increased by approximately $642,000, or 22%, for
the six months ended January 31, 1997, as compared to the six months ended
January 31, 1996. This increase is mainly attributable to increased personnel
and related expenses associated with the Company's development of an oral
heparin formulation. The Company also experienced an increase in funding of
outside consultants and universities engaged to conduct studies to help advance
the Company's scientific research efforts. The Company believes that this level
of research and development spending will continue for the foreseeable future
and may increase if operations are expanded.
The increase of $1,298,000 in the loss in Elan-Emisphere Venture represents the
Company's pro-rata portion of the Venture's loss for the period. No loss was
experienced in the comparable period as the Venture did not commence operations
until September 1996.
General and administrative expenses increased by approximately $422,000, or 34%,
for the six months ended January 31, 1997, as compared to the six months ended
January 31, 1996. This increase is attributable to an increase in legal and
professional fees incurred in connection with the finalization of the Elan-
Emisphere Venture and the agreement with Lilly. This was partially offset by a
decrease in payments made to an outside consultant who assisted the Company in
discussions and negotiations with pharmaceutical companies.
The Company's other income in the six months ended January 31, 1997 increased by
approximately $213,000, or 72%, compared to the six months ended January 31,
1996. This was primarily the result of a larger investment portfolio and better
returns. In addition, the Company realized losses of approximately $41,000 on
the sale of investment securities during the six months ended January 31, 1996,
whereas no losses were incurred during the six months ended January 31, 1997.
Based on the above factors, the Company sustained a net loss for the six months
ended January 31, 1997 of $3,435,000, as compared to a net loss of $783,000 for
the six months ended January 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 1997, the Company had working capital of approximately
$16,578,000 as compared with approximately $17,799,000 at July, 31, 1996. Cash
and cash equivalents and marketable securities were approximately $15,868,000 as
of January 31, 1997, as compared to approximately $18,237,000 at July 31, 1996.
The decrease in the Company's cash and cash equivalents and marketable
securities was primarily due to cash used to fund operations in the first half
of fiscal 1997, partially offset by the exercise of options and reimbursement
from the Elan-Emisphere Venture for certain development costs.
The Company expects to enter into a ten-year noncancelable lease for new
office and laboratory space commencing August 1997. The annual minimum rental is
anticipated to be approximately $1,300,000. Build-out cost for this space, net
of amounts to be paid by the landlord, are expected to total approximately
$3,000,000.
The Company expects to continue to incur substantial research and
development expenses associated with the development of the Company's oral drug
delivery system. As a result of the ongoing research and development efforts of
the Company, management believes that the Company will continue to incur
operating losses and that, potentially, such losses could increase. The Company
expects to need substantial resources to continue its research and development
efforts. In addition, the Company is obligated to fund one-half of the Elan-
Emisphere Venture's cash needs upon the Venture's request. Such funding is
expected to commence in the near future and is expected to total approximately
$2,000,000 during the next 12 months. The Company and Elan are sharing the
financial benefits and expense obligations of the Venture on a 50/50 basis. The
Company expects the research funding from Lilly to approximate the costs to be
incurred by the Company in connection with the development of the Lilly
therapeutic proteins. Under present operating assumptions, the Company expects
that cash, cash equivalents and marketable securities will be adequate to meet
its liquidity and capital requirements through the third quarter of fiscal 1998.
Thereafter, the Company would need to seek additional funds, primarily in the
public and private equity markets and, to the extent necessary and available,
through debt financing. The Company has no firm agreements with respect to any
additional financing and there can be no assurance that the Company would be
able to obtain adequate funds on acceptable terms. If adequate funds were not
available, the Company would be required to delay, scale back, or eliminate one
or more of its research or development programs, or obtain funds, if available,
through arrangements with collaborative partners or others that may require the
Company to relinquish rights to certain of its technologies, product candidates,
or products that the Company would not otherwise relinquish. The Company does
not maintain any credit lines with financial institutions.
11
<PAGE>
ITEM 5. OTHER INFORMATION
-----------------
In February 1997, the Company and Lilly entered into a Research
Collaboration and Option Agreement (the "Lilly Agreement") to combine Lilly's
therapeutic protein and formulation capabilities with the Company's carrier
technologies.
The Lilly Agreement provides initially for payments to the Company to fund
a research and development program (the "Program") to study the use of the
Company's technologies to develop oral and non-oral methods of delivering
formulations of two of Lilly's therapeutic proteins (the "Subject Proteins") in
the area of endocrinology, including growth disorders. The Lilly Agreement
represents the vehicle through which Lilly and the Company may together
develop and market orally deliverable products based on the Subject Proteins and
the Company's carrier technologies (the "Lilly Products"). The term of the
Program is 18 to 24 months. Any extensions must be approved by the
Company and Lilly. If Lilly decides to expand the scope of the Program, payments
will be increased.
Pursuant to the Lilly Agreement, the Company has granted to Lilly a series
of options (the "Options"), each to acquire an exclusive, worldwide license to
use the Company's technologies to develop one of the Lilly Products. Options
relating to the two of the Subject Proteins expire from one to two years from
the date of the Lilly Agreement, subject to certain extensions. Lilly's exercise
of the Options as to one of the Subject Proteins is mandatory upon satisfaction
of specified conditions. During the respective option periods, the Company has
agreed not to license its technologies to anyone other than Lilly for the
purpose of delivering the Subject Proteins.
Upon exercise of an Option, the Company and Lilly will enter into a license
agreement (each a "License Agreement") granting Lilly a license to use the
Company's technologies to develop Lilly Products to deliver the Subject Protein
by a particular route of delivery. The Lilly Agreement and the License
Agreements will provide for payments of initial fees and milestone payments of
up to $60 million in the aggregate, as well as royalty payments if a Lilly
Product to which the License Agreement relates is sold commercially. The License
Agreements will further provide that Lilly is obligated to seek to market the
Lilly Products and that the Company is obligated to provide a material portion
of the supply of carrier necessary for the production of any such Lily Products.
The Lilly Agreement further provides Lilly with a right of first refusal to
make an offer to enter into a license to use the Company's technologies for the
delivery of a limited number of other therapeutic proteins and peptides, or,
after the expiration of the option period, for the delivery of the Subject
Proteins (if not already licensed). The right of first refusal allows Lilly to
obtain the license if it exceeds a third-party offer by a specified premium. The
right of first refusal expires on February 26, 1998, subject to certain rights
to extend. The Lilly Agreement also contemplates the possibility of a continuing
relationship for the development of delivery systems for other therapeutic
proteins.
Under the Lilly Agreement, the Company will own all patents, patent
applications, and other proprietary expertise relating to its technologies that
it develops as well as any material Lilly improvements or additions to the
Company's technologies, and Lilly will own all patents, patent applications and
other proprietary expertise relating to the therapeutic uses of its proteins (to
the extent invented during the Program). If Lilly makes recommendations,
suggestions or has discussions with the Company that result in a material
addition to or improvement of the Company's technologies, then Lilly may, in
certain circumstances, obtain limited preferences with respect to licenses for
Emisphere technologies covering Lilly proteins or products not included in the
Lilly Products.
In addition, the Lilly Agreement includes a standstill provision pursuant
to which Lilly has agreed, with certain exceptions, not to acquire shares of the
Company's outstanding voting stock above a specified limit during a period
ending less than five years from the date of the Lilly Agreement.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
10.1 Research Collaboration and Option Agreement dated as of February 26,
1997 between Emisphere Technologies, Inc. and Eli Lilly and Company.
11.1 Statement of Computation of Per Share Data for the three months ended
January 31, 1996 and 1997
11.2 Statement of Computation of Per Share Data for the six months ended
January 31, 1996 and 1997
27.1 Financial Data Schedule
(b) Reports
No reports on Form 8-K were filed by the Registrant during the quarter
ended January 31, 1997.
13
<PAGE>
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Emisphere Technologies, Inc.
Dated: March 13, 1997 /S/Michael M. Goldberg
----------------------
Michael M. Goldberg, M.D.
Chairman, and Chief Executive Officer
/S/Joseph D. Poveromo
---------------------
Joseph D. Poveromo, C.P.A.
Controller (Principal Financial
and Accounting Officer)
14
<PAGE>
EXHIBIT 10.1
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. SUCH PORTIONS ARE DESIGNATED "[***]".
RESEARCH COLLABORATION AND OPTION AGREEMENT
-------------------------------------------
Research Collaboration and Option Agreement (the "Agreement"), dated
as of February 26, 1997 (the "Effective Date") between Emisphere Technologies,
--------------
Inc., a Delaware corporation ("Emisphere"), and Eli Lilly and Company, an
---------
Indiana corporation ("Lilly").
-----
WHEREAS, Emisphere is engaged in the research and development of
proprietary synthetic chemical compounds that enable the delivery of therapeutic
macromolecules and other compounds that are not currently deliverable by oral
means or by certain non-oral means (including all related patents, patent
applications and Know-How presently owned by Emisphere and all patents, patent
applications, and Know-How relating to inventions developed by Emisphere
pursuant to the Program [Program and Know-How both defined below], the
"Emisphere Technology"); and
--------------------
WHEREAS, Lilly produces, or is engaged in research to produce,
therapeutic macromolecules and other compounds that are not currently
deliverable by oral means or by certain non-oral means; and
WHEREAS, Emisphere and Lilly desire to collaborate in research
regarding the applicability of the Emisphere Technology to Lilly's products, and
to provide for certain rights and obligations of Emisphere and Lilly in the
event such research produces commercially viable applications; and
WHEREAS, Emisphere desires to grant certain options to Lilly to
develop and market Lilly's products using the Emisphere Technology; and
WHEREAS, Emisphere desires to grant a right of first refusal to Lilly
to use the Emisphere Technology on certain of Lilly's other products.
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
RESEARCH PROGRAM
1.1 Collaboration. Lilly and Emisphere hereby agree to collaborate
-------------
on a research and development program (the "Program") to research the use of the
-------
Emisphere Technology for oral delivery (the "Oral Route") of [***]
----------
<PAGE>
2
molecule and all active fragments, analogs, [***] -like peptides with primary
function similar to the [***] molecule [***]
(" [***] ") as [***]
[***]
[***]
[***]
[***] (the "Non-Oral Routes") of proteins, all as more
---------------
specifically set forth in Exhibit A attached hereto. Emisphere will make
available to Lilly access to all Emisphere Technology relevant for the Program.
1.2 Program Management. Lilly and Emisphere shall establish a
------------------
steering committee (the "Steering Committee"). The function of the Steering
------------------
Committee shall be to plan, coordinate and manage the Program. The Steering
Committee is not intended to replace any internal management procedures of
either party or continued and close collaboration by the parties with respect to
the Program. Rather, it is intended to be a vehicle to ensure that the Program
proceeds in a timely, coordinated, and well-planned fashion. It shall be made
up of up to [***] members, with an equal number appointed by each of Lilly
and Emisphere and with a central contact person appointed by each party. Each
party hereto shall name one member to be a co-chairperson of the Steering
Committee. On at least a quarterly basis, the Steering Committee shall meet to
review the results of the Program and to approve a work plan, based on the
Program as outlined in Exhibit A, for the ensuing quarter. The work plan for the
first quarter of the Program is set forth in Exhibit A. The Steering Committee
shall keep minutes of its meetings, shall act by a majority vote of its members
and shall be responsible for the development and implementation of the work
plan. Finally, meetings of the Steering Committee will alternate between
Emisphere's designated facility and Lilly's designated facility. Each party will
bear all expenses associated with attendance of its own employees at such
meetings held at the other party's designated facility. Work on the Steering
Committee (including attendance of its meetings) by Emisphere employees shall be
included in the Program work compensated by Lilly pursuant to Section 1.4,
below.
1.3 Term; Termination; Damages.
--------------------------
(a) The Program shall continue for [***] from the date
hereof (the "Term"); provided that the Steering Committee shall have an option
---- --------
(the "Extension Option") to extend the Program for an additional [***] (the
----------------
"Extension Period"). If the Steering Committee decides to terminate the Program
----------------
at the end of the Term, the Program shall be terminated by written notice to
Emisphere and Lilly; in all other cases the Extension Option shall be deemed to
have been exercised.
(b) Lilly and Emisphere must mutually agree if the Program is to
be extended beyond the Extension Period.
<PAGE>
3
(c) Either party may terminate this Agreement upon written notice
to the other party that such party has breached this Agreement if, within 60
days of receipt of such notice such breach has not been cured.
(d) Lilly hereby acknowledges and agrees that any breach by it of
this Agreement would cause irreparable injury to Emisphere, that money damages
alone would not provide an adequate remedy to Emisphere, and that, therefore,
Emisphere shall have the right to receive all payments from Lilly contemplated
hereunder [***] as liquidated damages in the event of
termination due to Lilly's breach. [***]
[***]
[***]
[***]
[***]
(e) Termination or expiration of this Agreement shall not affect
the rights and obligations of the parties accrued hereunder prior to termination
or expiration. To avoid doubt, it is hereby confirmed that termination of this
Agreement by Lilly because of a breach by Emisphere shall not affect Lilly's
options as set forth in Article II or Lilly's Right of First Refusal as set
forth in Article III. To further avoid doubt, if Emisphere terminates this
Agreement because of a breach by Lilly, Lilly's rights under Articles II and III
shall be terminated. However, termination of this Agreement shall not affect any
license entered into pursuant to such options and Right of First Refusal
(whether Lilly or Emisphere is the terminating party).
1.4 Payments.
--------
(a) Lilly shall pay to Emisphere $ [***] (the
"Minimum Payments") for [***] hours of work (a rate of [***] FTE) per
----------------
quarter to be performed for the Program by Emisphere. The first Minimum Payment
shall be paid by wire transfer of immediately available funds within thirty (30)
days of the Effective Date of this Agreement, and subsequent Minimum Payments
shall be paid by wire transfer of immediately available funds on or before each
three-month anniversary of the Effective Date of this Agreement during the Term
and, if applicable, the Extension Period.
(b) "FTE" means a full-time equivalent scientific person year, or
---
a total of [***] or [***] person hours per year of scientific and/or
technical work, on or directly related to the Program, carried out by an
Emisphere employee having at least a Bachelors Degree in science, or experience
equivalent thereto. Scientific work on or directly related to the Program to be
performed by Emisphere can include, but is not limited to, experimental
laboratory work, recording and writing up results, reviewing literature and
references, holding scientific
<PAGE>
4
discussions, managing and leading scientific staff, and carrying out Program
management duties or such other activities as may be appropriate to the conduct
of the Program.
(c) Emisphere shall provide Lilly on a semi-annual basis during
the Term of the Program a report detailing how Emisphere allocated FTE's to the
Program. Such report shall provide Lilly with the names of the Emisphere
employees who make up the FTE's and the amount of each employee's time devoted
to the Program. Emisphere shall, further, maintain records in reasonable detail
and in accordance with generally accepted accounting principles ("GAAP") of all
----
monies paid by Emisphere for research under the Program and shall provide Lilly,
within [***] days of the end of each semi-annual period, with a report
stating the dollar amount of funds supplied by Lilly that were expended on
research activities during the six month period for which the report is made,
using Emisphere's standard project accounting procedures, and such supporting
details as are reasonably required by Lilly. To the extent [***]
of Program work have not been completed by Emisphere's employees, or
have been completed in a negligent manner, Emisphere shall give credit to Lilly
at the rate of $ [***] per hour for each hour of shortfall or negligent work.
Such credit shall either be reimbursed to Lilly by wire transfer to a bank
account designated by Lilly and/or applied to Lilly's next quarterly minimum
payment. Such credit shall be made within [***] days after the above semi-
annual report is due to Lilly. Lilly shall be entitled to any tax credits due on
account of research and development expenses, to the extent permitted by law,
for the Program funds paid by Lilly. Also, Lilly may have the costs of research
and development programs audited in accordance with Section 5.19.
(d) If Lilly desires to expand research beyond the scope of the
Program, if acceptable to Emisphere in its sole discretion, the parties hereto
will mutually agree upon the research programs to be added and the number of
FTE's necessary to achieve the objectives of the expanded research. The
additional cost for each FTE shall be $ [***] (indexed to the
[***] Consumer Price Index as published by the U.S. Dept. of Commerce in
[***] , adjusted annually) to be paid as follows: (i) an initial payment
shall be made on the next date a Minimum Payment is due, pro-rated for the
period between such day the FTE is added and the next quarterly payment due
pursuant to Section 1.4(a), above, and (ii) all subsequent payments shall be
made at the same time as the Minimum Payments.
(e) While the right of first refusal set forth in Article III is
in effect, Lilly shall have the right to have Emisphere conduct feasibility
studies on the Right of First Refusal Compounds and shall reimburse Emisphere
for same at Emisphere's cost, insofar as Emisphere has the capacity to perform
such studies.
<PAGE>
5
1.5 Ownership of Data and Technology.
--------------------------------
(a) "Know-How" means all trade secrets, confidential scientific,
--------
technical and medical information, data and expertise from time to time
developed, produced, created or acquired by Lilly or Emisphere, as appropriate,
either prior to the Effective Date and pertaining to the Program or during the
term and in the course of carrying out the Program, including, but not limited
to, unpatented inventions, discoveries, theories, plans, ideas or designs
(whether or not reduced to practice). To the extent that any of the items
listed above are acquired by either Emisphere or Lilly, they shall only fall
within the definition of Know-How hereunder to the extent to which there are no
obligations or restrictions in respect of such items which would prohibit
disclosure or use by Lilly or Emisphere, as appropriate.
(b) Except as set forth in Sections 1.5(f) and (g) below,
Emisphere shall own all patents, patent applications and Know-How relating to
the Emisphere Technology that it invents and/or develops and any Lilly
Improvements.
(c) It will not be Lilly's responsibility or intent to develop
new synthetic chemical compounds that enable the delivery of therapeutic
macromolecules and other compounds that are not currently deliverable by oral
means or by certain non-oral means (the "Carriers") as part of the Program. Any
new Carriers or inventions which are closely related to the Emisphere Technology
(as it exists as of the Effective Date) that arise, in whole or in part, out of
suggestions, recommendations or discussions held between Emisphere and Lilly
scientists shall be Emisphere Technology.
(d) A "Lilly Improvement" shall be an improvement to Emisphere's
-----------------
then-existing Emisphere Technology made by a Lilly employee as part of the
Program.
(e) If Lilly makes recommendations, suggestions and/or has
discussions with Emisphere scientists that lead to a material addition to
Emisphere Technology pursuant to Section 1.5(c), above, or Lilly obtains a
material Lilly Improvement, Lilly will receive for any given protein (the
"Chosen Protein"), provided that the addition to Emisphere Technology and/or
--------------
Lilly Improvement at issue is applicable to the Chosen Protein(s), the right to
license all Emisphere Technology and the Lilly Improvement for the Chosen
Protein(s) at Lilly's discretion in accordance with any one of the following
milestone/royalty schedules (the "Chosen Protein Right"):
--------------------
1) [***]
[***]
[***]
<PAGE>
6
[***]
[***]
[***]
[***]
[***]
[***]
2) The same terms as the Oral [***] Option set forth in Appendix 3,
hereto. Furthermore, in the event that Lilly, its Affiliates and sub-
licensees together have a greater than [***] % share of the world
market for the Chosen Protein(s), the [***] % royalty rate will
apply to only [***] % of Lilly's, its Affiliates' and its sub-
licensees' cumulated net sales.
3) The same milestones as for the Oral [***] Option (set forth in
Appendix 1), with the following royalty rate schedule: [***] % for
net sales below the royalty step function target, and [***] % for
net sales above the target. The net sales targets for this Section
are:
Year Target Net Sales
---- ----------------
1 $ [***]
2 $ [***]
3 $ [***]
4 and beyond $ [***]
Net Sales Targets will be adjusted annually based on changes in the
Consumer Price Index published by the United States Department of
Commerce, with a baseline of [***] .
4) Any other milestone/royalty schedule negotiated by the parties hereto
in good faith.
The Chosen Protein(s) shall not include [***] or Right of First Refusal
Compounds. The Chosen Protein Right shall apply to a maximum of [***]
proteins and shall expire [***] years from the Effective Date. Lilly shall
not be permitted to choose more than [***]
and shall be limited to a maximum of [***] proteins in any single year.
Furthermore, Lilly shall not be permitted to exercise this Chosen Protein Right
in the first year of this Agreement, even if there are Lilly Improvements.
The parties agree to negotiate in good faith whether or not an addition to
Emisphere Technology or a Lilly Improvement is material, taking into account the
size of the
<PAGE>
7
potential market and the value of the reduced payments to Emisphere. Examples of
the areas where such items may be material are:
i) [***]
ii) [***]
iii) [***]
iv) [***]
v) [***]
vi) [***]
vii) [***]
viii) [***]
[***]
(f) Lilly shall own all patents, patent applications and Know-How
relating to the therapeutic uses (specifically excluding Carrier delivery
systems) of [***] or any of its other proteins, to the extent that Lilly or
Emisphere invents same during the course of the Program.
(g) Lilly shall own any toxicology or chemistry, manufacturing
and control data that it generates for the Program. If for reasons other than a
decision not to commercialize (i.e., for technical or other business reasons,
not for competitive reasons) the corresponding Product (as defined in Article
II), Lilly does not exercise any of the Options (as also defined in Article II)
granted pursuant to Article II, below, then Emisphere shall have the right to
purchase from Lilly all data generated by Lilly utilizing Emisphere Technology
[***] as verified by Lilly's standard accounting practices and
principles. To the extent Emisphere chooses not to purchase Lilly's data at
Lilly's [***] , Lilly agrees to consider negotiating with Emisphere
the sale of such data at a lower price. However, nothing set forth herein shall
require Lilly to sell Emisphere such data at such lower price. If because of its
determination not to commercialize (for competitive, as opposed to technical or
other business reasons) a Product Lilly fails to exercise any of the Options
granted pursuant to Article II, below, then Emisphere shall have the same right
to purchase access to Lilly's data set forth above. However, Emisphere's use of
those data under such circumstances shall be limited to its marketing efforts
with respect to securing another partner for development of the corresponding
Product(s). Emisphere shall own any data that it generates during the Program.
<PAGE>
8
(h) With respect to patents, patent applications and Know-How
invented and/or developed by Emisphere or Lilly during the course of the
Program, and to the extent the ownership of such patents, patent applications
and Know-How is not established in Sections 1.5(b), (c), (f) or (g), above,
ownership of such patents, patent applications and Know-How shall be as follows:
i) if made solely by an employee of Emisphere, Emisphere shall own such
patents, patent applications and Know-How;
ii) if made solely by an employee of Lilly, Lilly shall own such patents,
patent applications and Know-How;
iii) if made jointly by employees of Lilly and Emisphere, Lilly and
Emisphere shall each own an undivided one-half interest in such
patents, patent applications and Know-How.
1.6 Patent Applications - Emisphere. Emisphere hereby covenants and
-------------------------------
agrees to undertake diligent efforts to file patent applications, to the extent
it deems advisable, within [***] of the Effective Date for the
existing Emisphere Technology in any country listed in Exhibit C attached hereto
in which it does not hold a patent, provided the filing of any such patent
applications is not barred by local law. In pursuing patent protection for
Emisphere Technology made pursuant to the Program, Lilly Improvements and/or any
inventions that fall within Section 1.5(h)(i), above, Emisphere will use the
same diligence it would apply to the pursuit of such protection for other
discoveries of similar importance. Prior to the contemplated filing date,
Emisphere shall make a diligent effort to submit to Lilly a substantially
completed draft of any patent application Emisphere intends to file under this
Agreement. Emisphere will make reasonable efforts to adopt Lilly's promptly
made suggestions, when appropriate in Emisphere's opinion, regarding any such
draft. Furthermore, Emisphere will confer with Lilly regarding the prosecution
of pending patent applications and make reasonable efforts to adopt Lilly's
promptly made suggestions, when appropriate in Emisphere's opinion, regarding
the prosecution of such patent applications. Emisphere will send copies to Lilly
of any official actions and submissions with respect to such patent
applications.
[***] preparing, filing, prosecuting and maintaining
any patent applications and patents relating to the Emisphere Technology, Lilly
Improvements and/or any inventions that fall within Section 1.5(h)(i), above.
Should Emisphere not wish to file, prosecute, maintain or issue any patent
application, or maintain a patent issuing from any such patent application, in
any particular country, Emisphere will so notify Lilly of its intentions. At
Emisphere's election, Lilly shall then have the right to file, prosecute, issue
and maintain such patent application or maintain such patent in the name of
Lilly. Such patent application or patent, further, shall be owned by Lilly and
shall not be considered Emisphere Technology or a Lilly
<PAGE>
9
Improvement. Under no circumstances, however, shall Emisphere fail to file,
prosecute, maintain or issue any patent application, or maintain a patent
issuing from such application, in any particular country unless Lilly consents
to such failure on the part of Emisphere (such consent not to be unreasonably
withheld) or the right to file, prosecute, maintain and/or issue any such patent
application or patent has been granted to Lilly.
1.7 Patent Applications - Joint Inventions. With respect to any
--------------------------------------
inventions that fall within Section 1.5(h)(iii), above, Emisphere will prepare
and file patent applications on behalf of both parties and will diligently
prosecute same. Prior to the contemplated filing, Emisphere shall submit a
substantially completed draft of such patent applications to Lilly for approval,
which approval shall not be unreasonably withheld or delayed. In the event of
an imminent statutory bar to patenting, Emisphere shall have the right to file a
patent application, for the invention on which a patent would be barred, without
first receiving approval from Lilly, in order to preserve the patent rights to
such invention. [***] preparing,
filing prosecuting and maintaining any patent applications and patents falling
within this Section 1.7. Should Emisphere not wish to file, prosecute, maintain
or issue any patent application falling within this Section 1.7, or maintain a
patent issuing from any such patent applications, in any particular country,
Emisphere, at its election, will grant Lilly any necessary authority to file,
prosecute, maintain or issue such patent application, or maintain such a patent,
in the name of Lilly. However, in such case, the title and ownership of such
patent application or patent for such country shall be assigned to Lilly.
Likewise, should Lilly not wish to file, prosecute, maintain or issue any patent
application falling with this Section 1.7, or maintain a patent issuing from
such patent applications, in any particular country, Lilly, at its election,
will grant Emisphere any necessary authority to file, prosecute, issue and
maintain such patent application, or maintain such a patent, in the name of
Emisphere. However, in such case, the title and ownership of such patent
application or patent for such country shall be assigned to Emisphere.
1.8 Patent Applications - Cooperation. Each party shall cooperate
---------------------------------
with the other in completing any patent applications on Emisphere Technology,
Lilly Improvements, therapeutic uses of [***] or any of Lilly's other
proteins/peptides or inventions falling within Section 1.5(h)(iii) to the extent
the non-filing party has information reasonably relevant to the preparation or
prosecution of such patent applications. Further, each party shall cooperate in
executing and delivering any instrument required to assign, convey or transfer
to the other party its interest in Emisphere Technology, Lilly Improvements,
therapeutic uses of [***] or any other of Lilly's proteins/peptides or
inventions falling within Section 1.5(h)(iii) should such assignment, conveyance
or transfer be required by the terms of this Agreement.
<PAGE>
10
ARTICLE II
OPTIONS
2.1 The Options. Lilly is hereby granted the following options (the
-----------
"Options"):
-------
(a) An option (the "Oral [***] Option") to an exclusive
-------------------
worldwide (the "Territory") license to make and use the Emisphere Technology to
---------
develop products (the "Oral [***] Products") to deliver [***] by the Oral
---------------------
Route. The terms of the license are set forth in the Form of License Agreement
attached hereto as Exhibit B and the license supplement attached hereto as
Appendix 1.
(b) An option for each Non-Oral Route (each such option, a "Non-
----
Oral [***] Option") to an exclusive license in the Territory to make and use
- -------------------
the Emisphere Technology to develop products (the "Non-Oral [***] Products")
-------------------------
to deliver [***] by such Non-Oral Route (the Non-Oral Route to be specified
for each license). The terms of the license are set forth in the Form of License
Agreement attached hereto as Exhibit B and the license supplement attached
hereto as Appendix 2.
(c) An option (the "Oral [***] Option") to an exclusive
-------------------
license in the Territory to make and use the Emisphere Technology to develop
products (the "Oral [***] Products") to deliver Lilly's [***]
---------------------
and all active fragments, mimetic compounds, [***] -like peptides with
primary function similar to the [***] molecule (not to include secretagogues)
and analogs (" [***] ") by the Oral Route. The terms of the license are set
---------
forth in the Form of License Agreement attached hereto as Exhibit B and the
license supplement attached hereto as Appendix 3.
(d) An option for each Non-Oral Route (each such option, a "Non-
----
Oral [***] Option") to an exclusive license in the Territory to make and
- -------------------
use the Emisphere Technology to develop products (the "Non-Oral [***]
------------------------
Products") to deliver [***] by such Non-Oral Route (the Non-Oral Route to
- --------
be specified for each license). The terms of the license are set forth in the
Form of License Agreement attached hereto as Exhibit B and the license
supplement attached hereto as Appendix 4.
2.2 The Exercise Price. Any payments due to Emisphere upon exercise
------------------
of any of the Options shall be specified in the applicable license agreement
according to the schedule included in the relevant Appendix.
2.3 Option Period. The Oral [***] Option and each Non-Oral [***]
-------------
Option may be exercised at any time prior to the [***] of the date
hereof (the " [***] Option Period"); provided, that if Lilly exercises the
----------------------- --------
Oral [***]
<PAGE>
11
Option, then each Non-Oral [***] Option shall be extended for so long as the
Oral [***] Product is being developed. If Oral [***] is terminated, then
each Non-Oral [***] option shall be extended for one additional year from such
date of termination under the same terms. Furthermore, under such circumstances,
Lilly shall have a right of first refusal for each Non-Oral Route for [***]
for [***] , commencing at the end of the Option Periods extended as
described immediately above. Emisphere hereby covenants and agrees that during
the [***] Option Period it shall not grant a license to make, use or sell the
Emisphere Technology for the purpose of delivering [***] by Oral Route or Non-
Oral Route to any person other than Lilly. The Oral [***] Option and each
Non-Oral [***] Option may be exercised at any time prior to the [***]
[***] of the date hereof (the " [***] Option Period"); provided,
---------------------- --------
that if Lilly exercises the Oral [***] Option, then each Non-Oral [***]
Option shall be extended for so long as the Oral [***] Product is being
developed. If Oral [***] is terminated, then each Non-Oral [***] option shall be
extended for [***] from such date of termination, under the same terms.
Furthermore, under such circumstances, Lilly shall have a right of first refusal
for each Non-Oral Route for [***] for [***] , commencing at the end of the
Option Periods extended as described immediately above. Emisphere hereby
covenants and agrees that during the [***] Option Period it shall not grant a
license to make, use or sell the Emisphere Technology for the purpose of
delivering [***] by Oral Route or Non-Oral Route to any person other than Lilly.
2.4 Exercising an Option. An Option shall be exercised by Lilly by
--------------------
delivery of a written notice to Emisphere during the relevant Option Period and
not less than three (3) business days prior to the date specified in such notice
for the exercise of the Option (the "Exercise Date") stating the drug to be
-------------
licensed and the route of administration; provided, however, that upon achieving
-------- -------
[***] (as defined in Exhibit D attached hereto) as determined in good
faith by the Steering Committee, notice of which determination shall be
immediately sent to Lilly, the Oral [***] Option shall be deemed exercised
automatically. Each of the parties hereto shall execute the license agreement
relating to the Option that has been exercised within [***] days of
exercise thereof.
2.5 Responsibilities of the parties during the [***] Option Period
----------------------------------------------------------------
and subsequent Option Periods. During the [***] Option Period Emisphere shall
- -----------------------------
(i) assist in the development of Carriers that have shown activity to deliver
[***] by the Oral Route, (ii) assist in the product formulation for Carrier
development, (iii) supply Carriers currently in Emisphere's library for
[***] , and (iv) cooperate with Lilly for future regulatory filings.
During the [***] Option Period Lilly shall (i) supply bulk [***] for the
Program, (ii) produce and supply Carriers other than Carriers currently in
Emisphere's inventory for [***] and (iii) fund the related testing
and preclinical development by both of the parties hereto. For each subsequent
Option Period, the parties' responsibilities shall be agreed upon in good faith
negotiations and shall be analogous to those set forth above in this Section
2.5.
<PAGE>
12
ARTICLE III
RIGHT OF FIRST REFUSAL
3.1 Grant and Extension. Emisphere hereby grants to Lilly a right of
-------------------
first refusal to make an offer to enter into a license to use the Emisphere
Technology for Oral Routes and Non-Oral Routes of administration (the "Target
------
Technology") of (a) [***] proteins/peptides (" [***] "), (b) [***]
- ---------- --
[***] proteins/peptides (" [***] "), (c) [***] , and (d) after
---------
the expiration of the [***] Option Period, [***] , and any analogs, frag-
ments, proteins/peptides with primary function similar to [***] , [***] and
[***] (not to include secretagogues) or mimetic compounds of such
proteins/peptides (the "Right of First Refusal Compounds"). The right of
--------------------------------
first refusal shall expire on the [***] of the Effective Date (the
"Expiration Date"); provided that (i) if Lilly exercises both the Oral [***]
Option and the Oral [***] Option, or licenses the use of the Emisphere
Technology for [***] (other than Non-Oral [***] or Non-Oral [***] ),
prior to the Expiration Date, the right of first refusal shall continue for an
[***] period after the Expiration Date, (ii) if the Steering Committee
decides (such decision to be made no later than [***] days prior to the
Expiration Date, or [***] thereof, as the case may be) that the
data generated during the Program are not sufficient to permit Lilly to license
the use of the Emisphere Technology for [***] , the right of first
refusal shall continue for a [***] period after the Expiration Date, and,
upon the same determination at the end of such [***] period, for a further
[***] , and/or (iii) if Lilly pays the corresponding fee for extension of
all or any of the following proteins, the right of first refusal shall continue,
for each protein for which the fee is paid, for a [***] period (unless the
Extension Option is not exercised, in which case the period will be [***] )
after the Expiration Date: [***] ; [***] .
Payment of the corresponding fee for [***] and/or [***] shall
continue the right of first refusal set forth in this Article III for any
analogs, fragments, proteins/peptides with similar primary function (not to
include secretagogues) or mimetic compounds of such proteins/peptides as well.
3.2 Notice of Final Offer. In the event Emisphere receives an offer
---------------------
from a third party (the "Offer") regarding a license to use the Emisphere
Technology for the delivery of any Right of First Refusal Compound, Emisphere
shall advise Lilly of the same within [***] of receiving such Offer.
Emisphere shall not be required to provide any documentation from the third
party to Lilly. In the event Emisphere decides to accept the Offer, Emisphere
shall promptly deliver to Lilly a written notice of its intentions (the "Notice
------
of Intentions") and the basic terms and conditions of the proposed licensee's
- -------------
Offer.
<PAGE>
13
3.3 Exercise of Right by Lilly. Lilly shall then have [***]
from receipt of the Notice of Intentions to match the Offer. Such right shall
be exercisable by written notice delivered to Emisphere prior to the
expiration of the 30-day period. In exercising its right, Lilly shall have the
option to either match the Offer or present an offer with a [***] premium
on all financial terms (e.g., royalty, milestones and signing fees). If Lilly
matches the Offer, Emisphere may continue negotiations with the third party
with respect to an improved offer, provided that Lilly shall continue to have
the right to match (or offer a premium as described below) such improved
offer. If Lilly makes an offer with the [***] premium over the Offer,
such exercise shall allow Lilly immediately to obtain the rights for the
particular Right of First Refusal Compound in discussion, cutting off all
negotiations between Emisphere and the third party. If the right of first
refusal is exercised with respect to the Emisphere Technology for delivery of
the Right of First Refusal Compound in the Offer, as specified in the Notice
of Intentions, then Lilly shall enter into a binding letter of intent with
respect to the terms of the Offer (or the premium terms) not more than
[***] after Emisphere's written acceptance of Lilly's exercise notice and
shall make any required signing payments within [***] thereafter, with a
full contract to follow.
3.4 Preferred Partner. Lilly will be considered Emisphere's
-----------------
preferred partner for development of delivery systems for therapeutic proteins
for which Emisphere, on its own, is developing alternate delivery routes.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Due Incorporation. Each of the parties hereto hereby represents
-----------------
and warrants to the other that it is duly incorporated under the laws of its
state of incorporation and each has full corporate authority to enter into and
to perform its obligations under this Agreement.
4.2 Due Authorization. Each of the parties hereto hereby represents
-----------------
and warrants to the other that this Agreement has been fully authorized,
executed and delivered by it and it has full legal right, power and authority to
enter into and perform this Agreement, which constitutes a valid and binding
agreement between the parties and that it does not conflict with or result in a
breach of the terms of any agreement to which such party is a party.
4.3 Litigation. Each of the parties hereto hereby represents and
----------
warrants to the other that it is not engaged in any litigation or arbitration,
or in any dispute or controversy reasonably likely to lead to litigation,
arbitration or other
<PAGE>
14
proceeding, which would materially affect the validity of this Agreement or such
party's ability to fulfill its respective obligations under this Agreement.
ARTICLE V
MISCELLANEOUS
5.1 Confidentiality. Each party hereto shall keep confidential (to
---------------
itself and its officers, directors, employees, agents and advisors), information
received from the other party (including information belonging to the other
party generated during work on the Program) for a period of 10 years after
expiration or earlier termination of this Agreement Such obligation of
confidentiality shall not apply to any information to the extent that such
information is:
(a) independently developed by the receiving party as documented
by prior written records outside the scope and not in violation of this
Agreement;
(b) in the public domain at the time of its receipt or thereafter
becomes part of the public domain through no fault of the recipient;
(c) received without an obligation of confidentiality from a
third party having the right to disclose such information;
(d) released from the restrictions of this Section 5.1 by the
express written consent of the disclosing party;
(e) required by law, statute, rule or court order to be disclosed
(the disclosing party shall, however, use reasonable efforts to obtain
confidential treatment of any such disclosure, consult with the other party and
permit the other party to participate in seeking an appropriate protective
order); or
(f) (A) (i) required to be disclosed by the provisions of the
Securities Act of 1933, as amended, or (ii) the Securities Exchange Act of 1934,
as amended, and applicable to a public offering of securities by Emisphere or
(B) the managing underwriter of such a public offering reasonably deems it
desirable for the success of such public offering to disclose in the offering
documents any such confidential information.
Notwithstanding the provisions of Section 5.1 hereof, Emisphere and Lilly may,
to the extent necessary, disclose and use confidential information received from
the other party only for the purpose of carrying out their duties under this
Agreement (i) to any Affiliate, sublicensee or subcontractor of either Emisphere
or Lilly hereunder (if such
<PAGE>
15
sublicense or subcontractor is subject to provisions substantially similar to
those set forth in this Section 5.1); (ii) to secure patent protection for an
invention developed as a result of the Program pursuant to the rights granted in
Section 1.5, or (iii) to obtain institutional or government approval to
clinically test or market any product subject to confidential treatment if
possible. For purposes of this Agreement, Affiliate shall mean
any corporation or business entity which Lilly or Emisphere, directly or
indirectly, owns or controls, is under common ownership with, or which owns
one of the parties to this Agreement. Ownership or control shall exist
when an entity owns 50% or more of the capital or business assets of
another entity; has the power to exercise 50% or more of the voting rights
or to appoint 50% or more of the Board of Directors of another entity; or
has the right to control the affairs of another entity, it being understood
that the direct or indirect ownership of a lesser percentage of such shares
shall not necessarily preclude the existence of control.
5.2 Indemnity. Lilly shall indemnify, defend and hold harmless
---------
Emisphere, its affiliates, agents, directors, officers and employees from and
against any loss, damage, action, proceeding, expense or liability (including
attorney's fees and disbursements) ("Loss") arising from or in connection with
----
the manufacture, distribution, sale, possession or use of any product prepared
pursuant to the Program, except for any Loss caused by Emisphere's gross
negligence or intentional misconduct.
5.3 Public Disclosure. The parties hereto agree to disclose publicly
-----------------
through a joint press release, upon signing the Agreement, the nature and scope
of the Agreement. All press releases, scientific papers and all other public
disclosures related to this Agreement shall be approved in advance by both
parties, except for such disclosures permitted pursuant to Section 5.1 above,
such approval not to be unreasonably withheld or delayed. Upon the occurrence
of other significant events in the Program Emisphere and Lilly agree to make
joint press releases. [***]
[***]
[***]
[***]
5.4 Standstill. Lilly hereby covenants and agrees that, except as
----------
provided below, from the Effective Date until the earlier of (a) [***]
or (b) the expiration date of a standstill agreement in any other license
agreement to which Emisphere is a party it shall not acquire more than [***]
of the outstanding shares of common stock of Emisphere or other securities of
Emisphere the holders of which have the power to vote together with the common
stock holders (collectively, "Voting Securities"). Emisphere shall provide to
-----------------
Lilly standstill expiration dates for
<PAGE>
16
all other licenses to which Emisphere is (or during the term of this Agreement
becomes) a party. Lilly and its Affiliates may acquire Voting Securities without
regard to the foregoing limitation if any of the following events shall occur:
(A) a tender or exchange offer is made by any person or "group" (as defined in
the Securities and Exchange Act of 1934) (other than by Lilly or one of its
Affiliates or any person acting in concert with Lilly or one of its Affiliates)
to acquire Voting Securities in an amount which, together with Voting Securities
already owned by such person or group, would represent more than [***] % of
the outstanding shares of Voting Securities, (B) it becomes publicly disclosed
that more than [***] % of the outstanding shares of Voting Securities are held
subsequent to the date hereof by any person and its affiliates (other than Lilly
or one of its Affiliates or any person acting in concert with Lilly or one of
its Affiliates) or (C) the board of directors of Emisphere waives the
limitation.
5.5 Amendment. No amendment, waiver or consent to this Agreement
---------
shall be effective unless signed in writing by both parties hereto.
5.6 Assignment. Neither party may assign its rights or obligations
----------
under this Agreement without the prior written consent of the other party,
except that a party hereto may, without such prior written consent, assign any
of its rights or obligations to an Affiliate.
5.7 Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties with respect to the subject matter hereof and
supersedes any and all prior negotiations, correspondence and understandings
between the parties with respect to the subject matter hereof, whether oral or
in writing.
5.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
CONFLICTS OF LAWS PRINCIPLES THEREOF.
5.9 Notices. All notices and other communications pursuant to this
-------
Agreement shall be in writing, shall be effective when received, and shall be
deemed to have been received on the date of delivery if delivered personally; on
the fourth business day after the business day of deposit with the United States
Postal Service for delivery by first class mail, registered or certified,
postage prepaid; or on the first business day after the business day of deposit
with Federal Express or other similar courier for overnight delivery, freight
prepaid; in each such case, addressed as follows (until any such address is
changed by notice duly given):
to Lilly: Eli Lilly and Company
Lilly Corporate Center
Indianapolis, IN 46285
<PAGE>
17
Attention: General Patent Consel
Telecopy: (317) 276-2763
to Emisphere: Emisphere Technologies, Inc.
15 Skyline Drive
Hawthorne, NY 10532
Attention: Lewis H. Bender
Telecopy: (914) 347-2498
with copy to: Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Attention: Edwin S. Maynard
Telecopy: (212) 757-3990
5.10 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.11 Diligence. Each party will use diligent efforts to conduct the
---------
tasks assigned to it hereunder. Each party, further, agrees to conduct such
tasks at least as diligently as the party conducts research and development for
other projects of similar commercial potential and at similar stages of
development. Neither party will be responsible for delays due to factors beyond
its control.
5.12 No Agency. It is understood and agreed that Emisphere and Lilly
---------
each shall have the status of independent contractors under this Agreement and
that nothing in this Agreement shall be construed as authorization for either
party to act as agent for the other. Members of the Steering Committee who are
employees of Emisphere shall be and shall remain employees of Emisphere and
Lilly shall not incur any liability for any act or failure to act by such
employees. Members of the Steering Committee who are employees of Lilly shall
be and shall remain employees of Lilly and Emisphere shall not incur any
liability for any act or failure to act by such employees.
5.13 Force Majeure. Each party hereto shall be relieved of its
-------------
obligations hereunder to the extent that fulfillment of such obligations shall
be prevented by acts beyond its reasonable control.
5.14 Titles. The titles of the Articles and Sections of this
------
Agreement are for general information and reference only, and this Agreement
shall not be construed by reference to such titles.
<PAGE>
18
5.15 Severability. Each party agrees that, should any provision of
------------
this Agreement be determined by a court of competent jurisdiction to violate or
contravene any applicable law or policy, such provision will be severed or
modified by the court to the extent necessary to comply with the applicable law
or policy, and such modified provision and the remainder of the provisions
hereof will continue in full force and effect.
5.16 Waiver. Failure by either party to enforce any rights under this
------
Agreement shall not be construed as a waiver of such rights nor shall a waiver
by either party in one or more instances be construed as constituting a
continuing waiver or as a waiver in other instances.
5.17 No Strict Construction. This Agreement has been prepared jointly
----------------------
and shall not be strictly construed against either party.
5.18 Dispute Resolution. Any dispute regarding this Agreement or the
------------------
enforcement of a Party's rights or obligations hereunder shall be submitted in
the first instance to the [***] of Emisphere and the [***]
[***] of Lilly. If the dispute cannot be
resolved by the designated individuals within thirty (30) days after such
submission, then the matter may be referred to mediation under the mediation
rules of the American Arbitration Association, or to any other mutually
agreeable dispute resolution as agreed by the Parties. If either Party elects
not to participate in such mediation, the Parties may then resort to litigation.
5.19 Audits. Not more than [***] in each calendar year, Emisphere
------
shall permit Lilly or its duly authorized representative on reasonable notice
and at reasonable times during normal business hours to have access to inspect
and audit the accounts and records of Emisphere with respect to the costs and
hours worked by Emisphere on the Program and to the accuracy of the reports on
same provided by Emisphere. Any such inspection of Emisphere's records shall be
at the expense of Lilly, except that if any such inspection reveals that
Emisphere worked less than
<PAGE>
19
[***] hours on the Program in any quarter during this Agreement, then the
expense of such inspection shall be borne [***] Emisphere.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on
the day and year first above written.
EMISPHERE TECHNOLOGIES, INC.
By: /s/ Lewis H. Bender
---------------------------
Name: Lewis H. Bender
Title: Vice President, Business Development
ELI LILLY & COMPANY
By: /s/ August Watanabe
----------------------------
August Watanabe
Executive Vice President,
Science and Technology
<PAGE>
EXHIBIT A
---------
[***]
<PAGE>
* * *
[***]
<PAGE>
Exhibit B
---------
Form of License Agreement
-------------------------
<PAGE>
EXHIBIT B
This Agreement is made the _____ day of ________, 19__
BY AND BETWEEN
ELI LILLY & COMPANY
An Indiana Corporation with offices at Lilly Corporate Center, Indianapolis,
Indiana 46285
EMISPHERE TECHNOLOGIES, INC.
A Delaware Corporation with offices at 15 Skyline Drive, Hawthorne, New York
10532
LICENSE AGREEMENT
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
1. DEFINITIONS............................................................ 2
2. GRANT OF RIGHTS........................................................ 3
3. IMPROVEMENTS........................................................... 4
4. MANUFACTURING.......................................................... 4
5. RESEARCH AND DEVELOPMENT............................................... 5
6. SUPPLY OF PRODUCT(S)................................................... 6
7. EXPLOITATION OF LICENSED TECHNOLOGY.................................... 7
8. FINANCIAL PROVISIONS................................................... 8
9. RIGHT OF AUDIT AND INSPECTION.......................................... 20
10. PATENTS................................................................ 21
11. CONFIDENTIAL INFORMATION............................................... 25
12. TERM OF AGREEMENT...................................................... 27
13. WARRANTIES/INDEMNITIES................................................. 30
14. REGULATORY APPROVALS................................................... 35
15. INSURANCE.............................................................. 36
16. IMPOSSIBILITY OF PERFORMANCE - FORCE MAJEURE........................... 36
17. SETTLEMENT OF DISPUTES; PROPER LAW..................................... 36
18. ASSIGNMENT............................................................. 37
19. NOTICES................................................................ 37
20. MISCELLANEOUS CLAUSES.................................................. 38
<PAGE>
WHEREAS
- -------
A. Emisphere is beneficially entitled to the use of various patents,
including the Emisphere Patents which have been granted or are pending
under various international conventions in relation to the Emisphere
Technology.
B. Emisphere is knowledgeable in the discovery and use of compounds which can
interact with therapeutic agents in a manner to improve the transport of
such therapeutic agents through biological membranes.
C. Lilly is knowledgeable in the research, development, manufacture and
marketing of pharmaceutical formulations. Lilly owns and possesses
patented therapeutic agents and other technologies.
D. Emisphere and Lilly have previously entered into a Research Collaboration
and Option Agreement regarding the Emisphere Technology.
E. Lilly desires to enter into this Agreement with Emisphere so as to (a)
permit Lilly to utilize the Emisphere Patents and the Emisphere Know-How
in the research, development, manufacture, distribution and sale of the
Products and other products in the Field and (b) to permit Lilly to
utilize the Emisphere Program Technology in combination with the Lilly
Program Technology in connection with (i) research and development work
conducted by the Parties and (ii) Lilly's manufacture and supply of
Products and other related components.
1
<PAGE>
NOW IT IS HEREBY AGREED AS FOLLOWS:
1. DEFINITIONS
1.1 In this present Agreement, including the Recitals and Appendix, the
following definitions shall prevail unless the context otherwise requires:
"ACQUIRED" means a transfer of intellectual property or information
from an Independent Third Party to Emisphere or Lilly,
as the case may be, to the extent to which there are no
obligations or restrictions as to confidentiality in
respect of that information which prohibit disclosure or
use by Lilly or Emisphere, as appropriate;
"ACTIVATION LETTER" is a notification document received by Emisphere from a
senior Lilly officer or representative with appropriate
legal responsibility to render this Agreement binding on
Lilly with respect to a single Compound and a single
Route of Administration, both identified therein;
"AFFILIATE" means any corporation or business entity which Lilly or
Emisphere, directly or indirectly, owns or controls, is
under common ownership with, or which owns one of the
Parties to this Agreement. Ownership or control shall
exist when an entity owns 50% or more of the capital or
business assets of another entity; has the power to
exercise 50% or more of the voting rights or to appoint
50% or more of the Board of Directors of another entity;
or has the right to control the affairs of another
entity. It being understood that the direct or indirect
ownership of a lesser percentage of such shares shall
not necessarily preclude the existence of control;
"AGREEMENT" means this license agreement (which expression shall be
deemed to include the Recitals, Schedule and Appendix
hereto, and any other document(s) incorporated herein by
reference);
"CARRIERS" means various agents that are used to facilitate
transport through membranes via a number of different
Routes of Administration to deliver the Compounds
utilizing the Emisphere Technology and/or the Emisphere
Program Technology. These agents
2
<PAGE>
can include, but are not limited to proteins, peptides
and other chemicals;
"COMPOUND(S)" means the therapeutic agent specified by Lilly in the
Activation Letter;
"COST" means, depending upon the context, one of the following:
In the case of research and development, Cost will be
calculated in accordance with Emisphere's internal
accounting system, will exclude any element of corporate
overhead and will be in accordance with Generally
Accepted Accounting Principles ("GAAP").
In the case of materials purchased from an Independent
Third Party, Cost will comprise the amount actually
paid, including import duties, transport and handling
costs and other directly attributable costs, in
accordance with GAAP;
"EFFECTIVE DATE" means the date Emisphere receives the Option Exercise
Payment;
"EMISPHERE" means Emisphere Technologies, Inc., its Affiliates,
successors and permitted assignees;
"EMISPHERE KNOW-HOW" means all trade secrets, confidential scientific,
technical and medical information and expertise from
time to time developed, produced, created or Acquired by
or on behalf of Emisphere, on or before the Effective
Date (i.e., excluding Emisphere Program Know-How, Joint
Know-How and Improvements), including, but not limited
to, unpatented inventions, discoveries, theories, plans,
ideas or designs (whether or not reduced to practice)
relating to the research and development, registration
for marketing, use or sale of the Carriers or the
Product(s), needed relevant data on the Carriers,
preclinical toxicity and manufacturing data for the
Carriers and prototype Product(s), and toxicological,
pharmacological, analytical and clinical data,
bioavailability studies, formulations, control assays
and specifications, methods of preparation and stability
data with respect to the Carriers and prototype
Product(s);
3
<PAGE>
"EMISPHERE PATENTS" means all and any patents, utility models and any
applications therefor in the Territory (other than the
Emisphere Program Patents or Joint Patents) that are or
subsequently may be owned or Acquired by, or assigned or
licensed to, Emisphere (including any and all divisions,
continuations, continuations-in-part, extensions,
additions, registrations, confirmations, reexaminations,
Supplementary Protection Certificates, renewals or
reissues thereto or thereof) and that would be infringed
by the development, manufacture, use, disposal, sale,
offer of disposal or sale, or importation of the
Product(s) in the Territory and/or relate to the Field;
the Emisphere Patents as of the date hereof are listed
on Schedule I hereto;
"EMISPHERE PROGRAM
KNOW-HOW" means all trade secrets, confidential scientific,
technical and medical information and expertise
developed, produced, created or Acquired by or on behalf
of Emisphere pursuant to the Research and Development
Program (other than Emisphere Know-How and Joint Know-
How), including, but not limited to, unpatented
inventions, discoveries, theories, plans, ideas or
designs (whether or not reduced to practice), and
relating to the research and development, registration
for marketing, use or sale of the Carriers or the
Product(s), needed relevant data on the Carriers,
preclinical toxicity and manufacturing data for the
Carriers and prototype Product(s), and toxicological,
pharmacological, analytical and clinical data,
bioavailability studies, formulations, control assays
and specifications, methods of preparation and stability
data with respect to the Carriers and prototype
Product(s); Emisphere Program Know-How shall not include
any trade secrets, information and expertise developed,
produced, created or Acquired by or on behalf of
Emisphere pursuant to the Research and Development
Program relating to the Compounds or their therapeutic
uses or properties as such trade secrets, information
and expertise shall be Lilly Program Know-How;
"EMISPHERE PROGRAM
PATENTS" means all and any patents, utility models and
applications therefor in the Territory (including any
and all divisions, continuations, continuations-in-part,
4
<PAGE>
extensions, additions, registrations, confirmations,
reexaminations, Supplementary Protection Certificates,
renewals or reissues thereto or thereof) on or for any
inventions or discoveries that (i) have been or
subsequently may be conceived or made by employees or
agents of Emisphere pursuant to the Research and
Development Program (regardless of when or by whom such
inventions and/or discoveries are reduced to practice)
or (ii) relate to the Carriers or the use thereof for
delivery of Compounds (regardless of when or by whom
such inventions and/or discoveries are reduced to
practice or by whom they are conceived);
"EMISPHERE PROGRAM
TECHNOLOGY" means the Emisphere Program Patents, the Emisphere
Program Know-How and/or Emisphere's share of the Joint
Patents and the Joint Know-How;
"EMISPHERE TECHNOLOGY" means the Emisphere Patents and/or the Emisphere Know-
How;
"EX WORKS" shall have the meaning as such term is defined in the
ICC Incoterms, 1990, International Rules for the
Interpretation of Trade Terms, ICC Publication No. 460;
"FDA" means the United States Food and Drug Administration or
any successors or agency the approval of which is
necessary to market a product in the United States of
America or any other relevant regulatory authority the
approval of which is necessary to market a product in
any other country of the Territory;
"FIELD" means the research, development and optimization of the
Compound specified in the Activation Letter utilizing
one or more Carriers for all medical ailments or
indications for the Route of Administration specified in
the Activation Letter as well as the manufacture, use,
promotion, distribution, marketing and sale of the
Product(s);
" [***]
[***] " means, in the case of supply of Carrier(s), [***]
[***]
5
<PAGE>
[***]
"IMPROVEMENTS" means inventions, discoveries, developments and
indications conceived by Emisphere, and relating to the
Emisphere Technology, that can usefully be applied to
the Field, the Lilly Program Technology and/or the
Emisphere Program Technology, and which were first
reduced to practice during the term of this Agreement by
Emisphere whether or not such modification adds any
benefit to the Field, the Lilly Program Technology, the
Emisphere Program Technology, or the Joint Technology;
6
<PAGE>
"INDA" means any Investigational New Drug Application in
relation to a Product(s) filed by Lilly or its approved
designee with the FDA or a similar application filed in
another jurisdiction;
"INDEPENDENT THIRD
PARTY" means any person other than Lilly, Emisphere or
any of their Affiliates;
"JOINT KNOW-HOW" means all trade secrets, confidential scientific,
technical and medical information and expertise,
technical data and marketing information, studies and
data developed, produced, created or Acquired jointly by
the Parties during the term of this Agreement pursuant
to the Research and Development Program, including, but
not limited to, unpatented inventions, discoveries,
theories, plans, ideas or designs; Joint Know-How shall
not include any trade secrets, confidential scientific,
technical and medical information and expertise,
technical data and marketing information, studies and
data developed, produced, created or Acquired jointly by
the Parties pursuant to the Research and Development
Program to the extent any of such items relate to either
(i) Carriers or the use thereof for delivery of
Compounds or (ii) the Compounds or their therapeutic
uses or properties, since such items relating to
Carriers and such use thereof shall be considered
Emisphere Program Know-How and such items relating to
Compounds and the therapeutic uses or properties thereof
shall be considered Lilly Program Know-How;
"JOINT PATENTS" means all and any patents, utility models and any
applications therefor in the Territory (including any
and all divisions, continuations, continuations-in-part,
extensions, additions, registrations, confirmations,
reexaminations, Supplementary Protection Certificates,
renewals or reissues thereto or thereof) on or for any
inventions or discoveries that are jointly conceived by
the Parties during the term of this Agreement pursuant
to the Research and Development Program (regardless of
when or by whom such inventions and/or discoveries are
reduced to practice) that DO NOT RELATE TO (i) the
----------------
Carriers or the use thereof for delivery of Compounds
NOR TO (ii) the Compounds or their therapeutic uses or
------
properties (i.e., other than
7
<PAGE>
Emisphere Patents, Emisphere Program Patents, Lilly
Patents and Lilly Program Patents);
"LAUNCH" means the commercial sale (including promotion) of a
Product; the date thereof shall be determined on a
country-by-country basis.
"LILLY" means Eli Lilly & Company, its Affiliates, successors
and permitted assignees;
"LILLY KNOW-HOW" means all trade secrets, confidential scientific,
technical and medical information and expertise,
technical data and marketing information, studies and
data from time to time developed, produced, created or
Acquired by or on behalf of Lilly, whether before the
Effective Date or during the term of this Agreement
(other than the Lilly Program Know-How or Joint Know-
How), including, but not limited to, unpatented
inventions, discoveries, theories, plans, ideas or
designs (whether or not reduced to practice), relating
to the research and development, manufacture,
registration for marketing, use or sale of the
Product(s), and toxicological, pharmacological,
analytical and clinical data, bioavailability studies,
product forms and formulations, control assays and
specifications, methods of preparation and stability
data with respect to the Product(s);
"LILLY PATENTS" means all and any patents, utility models and any
applications therefor in the Territory (other than the
Lilly Program Patents or Joint Patents) that are or
subsequently may be owned or acquired by or assigned or
licensed to Lilly (including any and all divisions,
continuations, continuations-in-part, extensions,
additions, registrations, confirmations, reexaminations,
Supplementary Protection Certificates, renewals or
reissues thereto or thereof) and that would be infringed
by the development, manufacture, use, disposal, sale,
offer of disposal or sale, or importation of the
Product(s) in the Territory and/or relate to the Field;
"LILLY PROGRAM
KNOW-HOW" means all trade secrets, confidential scientific,
technical and medical information and expertise,
technical data and marketing information, studies and
8
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data developed, produced, created or Acquired by or on
behalf of Lilly, pursuant to the Research and
Development Program (other than the Lilly Know-How and
Joint Know-How), including, but not limited to,
unpatented inventions, discoveries, theories, plans,
ideas or designs (whether or not reduced to practice),
relating to the research and development, manufacture,
registration for marketing, use or sale of the
Product(s), needed relevant data generated by Lilly
(including preclinical toxicity data) on the Product(s)
and toxicological, pharmacological, analytical and
clinical data, bioavailability studies, product forms
and formulations, control assays and specifications,
methods of preparation and stability data with respect
to the Product(s); Lilly Program Know-How shall not
include any trade secrets, information and expertise
developed, produced, created or Acquired by or on behalf
of Lilly pursuant to the Research and Development
Program relating to the Carriers or the use thereof for
delivery of Compounds, as such trade secrets,
information and expertise shall be Emisphere Program
Know-How;
"LILLY PROGRAM
PATENTS" means all and any patents, utility models and
applications therefor in the Territory (including any
and all divisions, continuations, continuations-in-part,
extensions, additions, registrations, confirmations,
reexaminations, Supplementary Protection Certificates,
renewals or reissues thereto or thereof) on or for any
inventions or discoveries that (i) have been or
subsequently may be conceived or made by employees or
agents of Lilly pursuant to the Research and Development
Program (regardless of when or by whom such inventions
and/or discoveries are reduced to practice) or (ii)
relate to the Compounds or their therapeutic uses or
properties (regardless of when or by whom such
inventions and/or discoveries are reduced to practice or
by whom they are conceived);
"LILLY PROGRAM
TECHNOLOGY" means the Lilly Program Patents, the Lilly Program Know-
How and/or Lilly's share of the Joint Patents and the
Joint Know-How;
"LILLY TECHNOLOGY" means the Lilly Patents and/or the Lilly Know-How;
9
<PAGE>
" [***]
[***]"
means a manual, a table of contents of which is attached
hereto as Appendix I, containing certain specifications,
procedures, methods and personnel contacts relating to
[***]
[***] that will be compiled and agreed upon
between the Parties prior to the commencement of
manufacture of the Carrier(s) by Emisphere. Sections of
the [***] may be
modified from time to time through the issuance of a
revised section incorporating the modification and
stating the effective date of the modification. Each
such revised section shall be signed on behalf of the
Parties by a duly authorized representative. The duly
authorized representative shall be of a management level
no lower than the management level of the duly
authorized representative who signed that section of the
original [***] .
"MILESTONE" means milestones as specified in the Appendices to the
Option Agreement, and for compounds for which milestones
are not specified in the Option Agreement, shall be
agreed upon by the Parties after good faith
negotiations;
"NDA" means any New Drug Application in relation to a
Product(s) filed by Lilly or its approved designee with
the FDA or a similar application filed in another
jurisdiction;
"NET SALES" means with respect to the Product(s) the gross amount
invoiced by Lilly, its Affiliates and/or any sub-
licensee of Lilly or its Affiliates to unrelated third
parties for the Product(s) less the following seven
items: (a) trade quantity and cash discounts actually
allowed; (b) commission, discounts, refunds, rebates,
charge backs, retroactive price adjustments, and any
other allowances which effectively reduce the net
selling price; (c) actual product returns and
allowances; (d) that portion of the sales value
associated with non pharmaceutical drug delivery devices
(not to include Emisphere's Carriers); (e) any tax
imposed on the production, sale, delivery or use of the
Product(s); (f) allowance for distribution
(transportation) expenses (limit of [***] % of gross
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<PAGE>
sales); (g) any other similar, reasonable and customary
deductions which are properly recorded as a reduction of
sales under GAAP, consistently applied.
In the event that the Product is sold as part of a
combination product, the Net Sales of Product, for
purposes of determining royalty payments, shall be
determined by multiplying the Net Sales of the
combination product by the fraction, A/(A+B) where A is
the average sales price of the Product when sold
separately in finished form and B is the average sales
prices of the other product(s) sold separately in
finished form; in the event that such average sales
price cannot be determined for both Product and the
other products(s) used in the combination product, Net
Sales for the purposes of determining royalty payments
shall be calculated by multiplying the Net Sales of the
combination product by the fraction C/(C+D) where C is
Lilly's cost of goods for the Product and D is Lilly's
cost of goods of the other products(s) used in the
combination product, determined in accordance with the
method of accounting normally employed by Lilly in
computing cost of goods.
"OPTION" means an option to enter into a license agreement in the
form of this Agreement, as provided for in the Option
Agreement;
"OPTION AGREEMENT" means that certain Research Collaboration and Option
Agreement, dated as of February 26, 1997, between
Emisphere and Lilly, incorporated herein by reference;
"OPTION EXERCISE
PAYMENT" means a Milestone payment specified in an Appendix to
the Option Agreement and the payment of which is
required upon the exercise an Option;
"PARTIES" means Lilly and Emisphere;
"PERSON" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company,
trust, unincorporated association, joint venture, or
other entity of whatever nature;
11
<PAGE>
" [***]
[***]" means a system of (1) developing standard costs at
levels which would be incurred if [***]
[***] or (2) analyzing and
reporting variances caused by [***] of
resources; practical capacity means the volume, usually
expressed in hours or minutes, which a plant, department
or work center can achieve in an operating period under
normal but efficient operating conditions and assuming
sufficient volume is available; it measures the amount
one is prepared to make or sell and includes allowances
for unavoidable down time;
"PRODUCT(S)" means, depending on the context, one or more
formulations of the Compound(s) with one or more of the
Carriers for a specific Route of Administration that
complies with the Specifications;
"RESEARCH AND
DEVELOPMENT PROGRAM" means the joint program of research and development
work, with respect to the Field and the Product, being
conducted or to be conducted by, inter alia, Lilly and
Emisphere for and on behalf of Lilly, for which both
Parties are responsible, and which has been devised by
and approved by the Steering Committee; the Research and
Development Program shall not include work for which
Lilly alone is responsible, such as clinical trials of
Product(s);
"ROUTE(S) OF
ADMINISTRATION" means administration of the Compound(s) by routes
including, but not limited to, oral, nasal, buccal,
intraocular, sublingual, injectable (such as
subcutaneous, depot, intramuscular, intraperitoneal and
intravenous), vaginal and pulmonary dosing;
"SPECIFICATIONS" means the specifications for each of the Carriers or
Product(s) as approved by the FDA, as well as such other
specifications which may be agreed upon by the Parties
in writing or by the Steering Committee;
"STEERING COMMITTEE" means the management committee appointed by Emisphere
and Lilly to oversee the Research and Development
Programs related to the Product(s);
"TERRITORY" means all the countries of the world; and
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"UNITED STATES DOLLARS"
and "US$" means the lawful currency for the time being of the
United States of America.
1.2 In this Agreement:
1.2.1 The singular includes the plural and vice versa.
1.2.2 Any reference to a Clause shall, unless otherwise specifically
provided, be to a Clause of this Agreement.
1.2.3 The headings of this Agreement are for ease of reference only and
shall not affect its construction or interpretation.
2. GRANT OF RIGHTS
In consideration of the receipt of an Activation Letter specifying the Compound
and the Route of Administration to be licensed and simultaneous receipt of the
first Milestone payment by Emisphere (both from Lilly), the receipt and adequacy
of which is acknowledged by Emisphere to Lilly by Emisphere's acceptance of the
Activation Letter and Milestone payment, Emisphere grants to Lilly for the term
of this Agreement:
2.1 an exclusive license to use (a) the Emisphere Patents, the Emisphere
Program Patents and Emisphere's share of the Joint Patents for the Field,
and (b) the Emisphere Know-How, the Emisphere Program Know-How and
Emisphere's share of the Joint Know-How for the Field. All proprietary
rights and rights of ownership with respect to the Emisphere Technology
and Emisphere Program Technology shall at all times remain solely with
Emisphere unless otherwise specified in this Agreement. Lilly shall not
have any rights to use the Emisphere Technology or Emisphere Program
Technology other than insofar as they relate directly to the Field and are
expressly granted herein.
2.2 Subject to Clause 6.3, Lilly shall have the right to sublicense the rights
granted to it by Emisphere pursuant to this Agreement. Insofar as the
obligations owed by Lilly to Emisphere are concerned, Lilly shall remain
responsible for all acts and omissions of any sub-licensee as if they were
by Lilly. Lilly shall forthwith notify Emisphere of any sub-license
granted by Lilly. In all cases, (i) royalties shall be paid at the rate
provided for herein (i.e., in accordance with the relevant Option
Agreement Appendix); and (ii) the applicable royalty rate shall be
determined with reference to market share or net sales figures (as the
case may be) determined by cumulating all sales of the Product by Lilly
and all of its sub-licensees. It shall be Lilly's responsibility in all
cases to determine the cumulated net sales or market share data and assure
that Emisphere is paid (whether by Lilly or the sub-licensee) the
royalties at the increased rate provided for upon reaching the yearly
targets, all as set forth in the relevant
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<PAGE>
Appendix of the Option Agreement. If Emisphere does not receive payment
from a sublicensee within [***] of the end of each quarter, Emisphere
shall immediately notify Lilly's royalty administration personnel (contact
name shall be provided once Product is Launched) that payment has not been
remitted. If unforeseen circumstances result in a sublicensee not
reporting to Lilly, the amount of their Net Sales such that Lilly cannot
determine the cumulative Net Sales or market share data, Lilly shall pay
Emisphere its royalty due on Lilly Net Sales only and within [***] of
the end of such calendar quarter, ensure that Emisphere will receive the
appropriate amount of royalties from either the sublicensee or Lilly.
Notwithstanding the previous sentence however, Net Sales by sublicensees
shall not be counted twice in the calculation of royalty payments due to
Emisphere. In the event of a termination of this Agreement due to a breach
by Lilly, Emisphere shall have the right but not the obligation to assume
any such sub-license under the same terms.
In consideration of the obligations assumed hereunder, Lilly grants to
Emisphere, solely for the purposes of carrying out the latter's obligations
hereunder:
2.3 a non-exclusive license to use the Lilly Technology and the Lilly Program
Technology. All proprietary rights and rights of ownership with respect
to the Lilly Technology and the Lilly Program Technology shall at all
times remain solely with Lilly, unless otherwise specified in this
Agreement. Emisphere shall not have any rights to use the Lilly
Technology or the Lilly Program Technology other than insofar as expressly
granted herein.
2.4 Emisphere shall have no right to sublicense the rights granted to it by
Lilly pursuant to this Agreement except as expressly authorized by Lilly.
Insofar as the obligations owed by Emisphere to Lilly are concerned,
Emisphere shall remain responsible for all acts and omissions of any
approved sub-licensee as if they were by Emisphere.
3. IMPROVEMENTS
3.1 If Emisphere shall develop or have developed by an Independent Third Party
any Improvements during the term of this Agreement (other than pursuant to
the Research and Development Program which constitute Emisphere Program
Technology), Emisphere shall, to the extent that it is not prohibited by
any undertaking given to any Independent Third Party (provided that
Emisphere shall use its commercially reasonable efforts to exclude or
minimize the extent of any such limitations or restrictions which prevent
or limit disclosure to or use by Lilly), communicate to Lilly such
Improvements and shall provide to Lilly such rights, licenses, information
and explanations as Lilly may reasonably require to be able effectively to
utilize the Improvements for the life of this Agreement. Such disclosed
Improvements shall automatically on disclosure
14
<PAGE>
to Lilly become part of the Emisphere Know-How or Emisphere Patents, as
the case may be, and shall be subject to the provisions of this Agreement.
4. MANUFACTURING
4.1 Lilly will manufacture final Product(s). Emisphere will manufacture at
least [***] % of the Carrier needed for Product sales. Lilly will pay
Emisphere the latter's [***] on all
Carrier used for sales of Products less than or equal to the sales
schedule set forth in the relevant Appendix to the Option Agreement.
Above the Product sales level specified in the relevant Appendix of the
Option Agreement, Lilly will pay Emisphere's direct manufacturing costs
(calculated according to the [***] .
Lilly will be permitted to manufacture up to [***] % of the Carrier
needed to manufacture the Products. If Lilly can find a Carrier source
that can offer a supply price that is at least [***] % lower than
Emisphere's supply price (including Lilly, with supply price in such case
being [***]
[***] , all determined in accordance with GAAP
principles), Lilly may use such supplier for up to [***] % of the
Carrier needed to manufacture the Product. So long as Lilly uses it as a
supplier of Carrier, Emisphere will hold at minimum [***]
[***] of Carrier inventory per year to be determined at the
appropriate time. Emisphere's manufacturing operations will meet any
required regulatory agency's specifications for registration, as set forth
in the [***] .
4.2 Lilly shall be permitted to produce Carrier for its use in clinical
trials, but only until Emisphere is able to supply the Carrier pursuant to
the terms of Section 4.1.
4.3 Lilly reserves the right to audit the facility of Emisphere as specified
in the [***] , including its processes,
records, and other facets of the operation as may be necessary to assure
that all applicable FDA or similar government regulations have been met.
Emisphere shall permit duly authorized representatives of Lilly to audit
all research, development and manufacturing areas and operations as they
apply to Emisphere projects or Carriers for Lilly at reasonable times with
a prior appointment. The right to audit will also apply to Carrier used
in trials to support product registration. These audits will be
conducted to assure compliance with all pertinent acts, regulations, and
guidelines promulgated by the FDA and other regulatory authorities. Such
audits will be permitted during normal business hours and will be
performed with a minimum of disruption. Lilly shall furnish to Emisphere
copies of all reports prepared as a result of these audits. Lilly agrees
to notify Emisphere within [***] of any concerns that it may
have regarding Carrier(s). Lilly will also have the right to audit
Emisphere's financial manufacturing records in accordance with Clause 9.2.
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<PAGE>
5. RESEARCH AND DEVELOPMENT
5.1 Subject to any and all specific provisions included in the Option
Agreement or relevant Appendix, and to the extent Emisphere does not have
the requisite capability or resources or Lilly elects to do so itself,
Lilly agrees to use Emisphere, on terms to be negotiated in good faith, to
conduct the Research and Development Program. Upon agreement by the
Parties as to the appropriate amount of compensation to Emisphere
therefor, Emisphere shall conduct its portion of such Research and
Development Program.
5.2 Subject to any and all specific provisions included in the Option
Agreement or relevant Appendix, the research and development work
conducted jointly by the Parties shall be in accordance with the Research
and Development Program devised by the Steering Committee. Both Parties
shall use reasonably diligent efforts, consistent with their efforts on
other projects of similar commercial importance and state of development,
to conduct their respective portions of the Research and Development
Program.
5.3 Subject to any and all specific provisions included in the Option
Agreement or relevant Appendix, the Research and Development Program shall
be directed by the Steering Committee. In conducting the Research and
Development Program, each Party shall co-operate fully with the Steering
Committee. Each Party shall maintain the facilities used by it for the
performance of the Research and Development Program in compliance with the
applicable requirements of the FDA and other regulatory authorities,
including then-current Good Manufacturing Practices and then-current Good
Laboratory Practices standards.
5.4 Subject to any and all specific provisions included in the Option
Agreement or relevant Appendix, Emisphere shall provide Lilly on a
quarterly basis during the term of the Research and Development Program a
report, detailing how Emisphere allocated funds provided by Lilly for such
Program, if Lilly provided any such funds. Such report shall provide
Lilly with the names of the Emisphere employees utilized on the Program
and the amount of each employee's time devoted to the Program. Emisphere
shall, further, maintain records in reasonable detail and in accordance
with GAAP of all monies paid by Emisphere for research under the Program
and shall provide Lilly, within [***] of the end of each
quarterly period, with a report stating the dollar amount of funds
supplied by Lilly that were expended on research activities during the
three month period for which the report is made, using Emisphere's
standard project accounting procedures, and such supporting details as are
reasonably required by Lilly. Lilly shall be entitled to any tax credits
due on account of research and development expenses, to the extent
permitted by law, for the funds paid by Lilly to Emisphere hereunder.
Also, Lilly may have the costs of the Research and Development Program
audited in accordance with Clause 9.2.
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<PAGE>
6. SUPPLY OF PRODUCT(S)
6.1 Except as otherwise herein provided in this Agreement, Lilly shall produce
and supply the final commercial Product(s). Any chemical (not including
the Carriers) or formulation components required to make use of the
Emisphere Technology shall be procured by Lilly at its own Cost. Lilly
shall ensure that supplies of the Product(s) are produced as diligently as
any of its products of similar commercial importance.
6.2 Lilly shall deliver the Product(s) in appropriate packaging as specified
in the [***] so as to permit safe
storage and transport.
6.3 In the event that Lilly appoints a third party to manufacture the
Product(s), Lilly shall be solely responsible and liable for the
performance of the manufacturer. Lilly shall ensure that said
manufacturer's facility is an FDA-approved facility and that such facility
complies with all relevant FDA and other relevant governmental and
regulatory requirements and that all then-current Good Manufacturing
Practices are adhered to. In no case will Lilly appoint a third party to
manufacture the Product(s) if that third party is a competitor with
Emisphere in the oral protein delivery field or if that third party is
involved in pending or threatened litigation with Emisphere.
6.4 Pursuant to the procedures set forth in the Manufacturing Responsibilities
Document, the quality and form of the Product(s) delivered by Lilly
hereunder shall conform in all material aspects to the Specifications and
all prevailing legislative and regulatory requirements of the countries
where the Product(s) are manufactured and to be used.
7. EXPLOITATION OF LICENSED TECHNOLOGY
7.1 Lilly will have the exclusive right to develop and/or exploit the Field.
In order to commercialize the Product(s), Lilly shall use commercially
reasonable efforts (consistent with its efforts on products of similar
commercial importance) to obtain marketing approval for and Launch the
Product(s) in such countries in the Territory as is determined by normal
Lilly business practices. It may be necessary to file an INDA or NDA and
perform clinical testing in more than one country. The conduct of such
clinical trials and the obtaining of regulatory approvals shall be
controlled and completed by Lilly.
7.2 The strategy for the registration and the commercialization of the
Product(s) shall be determined by Lilly. Upon inquiry, Emisphere shall be
advised as to Lilly's general commercialization strategy on a semi-annual
basis. For each country in which the Product is Launched, Lilly shall
inform Emisphere of the Launch at least [***] prior to the expected
date therefor.
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<PAGE>
7.3 Lilly shall exert its reasonable efforts to commercialize the Product(s)
in each country of the Territory where Lilly has Launched Product(s).
Such efforts shall be consistent with Lilly's efforts on products of
similar commercial importance.
7.4 Lilly will be solely responsible for ensuring that the manufacture,
promotion, distribution, marketing and sale of the Product(s) within each
country of the Territory is in strict accordance with all the legal and
regulatory requirements of each country of the Territory.
7.5 All advertising, promotional materials and marketing costs needed to
exploit the Product(s) are to be paid by Lilly. [***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
8. FINANCIAL PROVISIONS
8.1 In consideration of the research and development work conducted by
Emisphere for and on behalf of Lilly pursuant to the Research and
Development Program, Lilly shall pay Emisphere the sums agreed to by the
Parties pursuant to Clause 5.1, above, subject to the proper documentation
of research and development work and expenses.
8.2 In consideration of the granting of a license of the Emisphere Technology
to Lilly, Lilly shall make Milestone payments and pay royalties on Net
Sales of the Product(s) at rates set forth in the Appendices of the Option
Agreement. The applicable Option Agreement Appendix, and hence Milestone
and royalty schedule, shall be determined by reference to the Activation
Letter.
8.3 Lilly's obligation to pay royalties shall expire on a country-by-country
basis upon the conclusion of the term of this Agreement, as set forth in
Clause 12.1. Emisphere shall file for patent protection on Emisphere
Technology and Emisphere Program Technology included in the Product in
those countries listed in Exhibit C to the Option Agreement.
8.4 Payment of royalties shall be made quarterly within [***]
after the expiry of the calendar quarter; provided, that if the
--------
information necessary to make such payments is not available within such
[***] period,
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<PAGE>
Lilly shall have an additional [***] to make such payments.
The method of payment shall be by wire transfer to an account specified by
Emisphere, or by such other manner as is mutually acceptable to the
Parties. Each payment made to Emisphere shall be accompanied by a written
report, prepared and signed by the appropriate royalty administration
personnel of Lilly. The report shall clearly show the Net Sales for the
calendar quarter for which payment is being made on a country-by-country
basis. In the event that no royalty is due to Emisphere for any quarterly
period, Lilly's appropriate royalty administration officer shall so
report.
8.5 Lilly shall maintain and keep clear, detailed, complete, accurate and
separate records so:
8.5.1 as to enable any royalties on Net Sales of the Product(s) which
shall have accrued hereunder to be determined; and
8.5.2 that any deductions made in arriving at the Net Sales can be
determined by Emisphere.
8.6 All payments due hereunder shall be made in United States Dollars.
Lilly's standard exchange rate methodology will be employed for the
translation of foreign currency sales into United States Dollars. This
methodology shall be the one used by Lilly in the translation of its
foreign currency operating results for external reporting, shall be
consistent with general accepted accounting principles, and shall be the
one approved and reviewed by Lilly's independent certified public
accountants.
8.7 Subject to the provisions of Clauses 8.8 and 8.10 of this Agreement, Lilly
shall pay all royalties at full rate.
8.8 If, at any time, legal restrictions in the Territory prevent the prompt
payment of running royalties or any portion thereof, the Parties shall
meet to discuss suitable and reasonable alternative methods of reimbursing
Emisphere the amount of such running royalties. In the event that Lilly is
prevented from making any payment under this Agreement by virtue of the
statutes, laws, codes or government regulations of the country from which
the payment is to be made, then such payments may be paid by depositing
them in the currency in which they accrue to an account set up for
Emisphere in a bank acceptable to Emisphere in the country the currency of
which is involved or as otherwise agreed by the Parties.
8.9 Emisphere and Lilly agree to co-operate in all respects necessary to take
advantage of any double taxation agreements or similar agreements as may,
from time to time, be available.
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<PAGE>
8.10 All taxes levied on payment of royalties accruing to Emisphere under this
Agreement shall be paid by Emisphere. If applicable laws or regulations
require withholding taxes by Lilly, the taxes will be deducted by Lilly
from remittable royalties and will be paid by Lilly on account of
Emisphere to the appropriate government tax authority.
9. RIGHT OF AUDIT AND INSPECTION
9.1 Within the term of this Agreement and within one year after its
termination, Emisphere shall not more than [***] each year have the
right at its expense to have Lilly's independent certified public
accountants inspect and audit Lilly's records for any of the two preceding
years for the purpose of determining the accuracy of royalty payments. The
independent certified accountants shall keep confidential any information
obtained during such inspection and shall report to Emisphere only the
amounts of Net Sales and royalties due and payable. Any such inspection of
Lilly's records shall be at the expense of Emisphere, except that if any
such inspection reveals a deficiency in the amount of the running royalty
actually paid to Emisphere hereunder in any calendar year of [***]
[***] or more of the amount of any running royalty actually due to
Emisphere hereunder, then the expense of such inspection shall be borne
solely by Lilly. Any amount of deficiency shall be paid promptly to
Emisphere. If such inspection reveals a surplus in the amount of running
royalty actually paid to Emisphere by Lilly, Emisphere shall reimburse
Lilly the surplus.
9.2 Within the term of this Agreement and within one year after its
termination, Lilly shall not more than [***] each year have the right at
its expense to have Emisphere's independent certified public accountants
inspect and audit Emisphere's records and accompanying reports (and all
associated documentation) for any of the two preceding years for the
purpose of determining the accuracy of Emisphere's reported, [***]
[***] and Costs with respect to any Research and Development
Program. The independent certified public accountants shall keep
confidential all materials subject to third-party confidentiality
agreements and all materials not directly relevant to the purpose of their
audit. Any such inspection of Emisphere's records shall be at the expense
of Lilly, except that if any such inspection reveals an overpayment in the
amount of such Costs paid to Emisphere hereunder in any calendar year of
[***] or more of the amount of such Costs actually due to
Emisphere hereunder, then the expense of such inspection shall be borne
solely by Emisphere instead of by Lilly. Any surplus over the Costs
properly payable by Lilly to Emisphere shall be refunded promptly to
Lilly. If such inspection reveals a deficit in the amount of the Costs
properly payable to Emisphere by Lilly, Lilly shall pay the deficit to
Emisphere.
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<PAGE>
9.3 In the event of any unresolved dispute regarding any alleged deficiency or
overpayment of royalty payments or Cost payments hereunder, the matter
will be referred to the independent firm of certified public accountants
of [***] for a resolution of such dispute. The decision of said
firm of certified public accountants shall be binding on the Parties.
10. PATENTS
10.1 Emisphere shall be obliged to disclose promptly to Lilly inventions made
by or on behalf of Emisphere in connection with the performance of the
Research and Development Programs, any patentable inventions and
discoveries within the Emisphere Know-How that relate to the Field, the
Emisphere Program Know-How and any patentable Improvements developed by or
on behalf of Emisphere (other than pursuant to the Research and
Development Program).
10.2 The Parties shall discuss in good faith all material issues relating to
filing, prosecution and maintenance of Emisphere Patents (insofar as the
Emisphere Patents are of relevance to the Field), the Emisphere Program
Patents, any patentable inventions and discoveries within the Emisphere
Know-How that relate to the Field, and any patentable Improvements
developed by or on behalf of Emisphere (other than pursuant to the
Research and Development Program). Subject to agreement to the contrary
the following provisions shall apply:
10.2.1 Emisphere at its expense shall make a good faith effort (a) to
secure the grant of any patent applications within the Emisphere
Patents and Emisphere Program Patents; (b) to file and prosecute
patent applications on patentable inventions and discoveries
within the Emisphere Know-How and patentable Improvements
developed by or on behalf of Emisphere (other than pursuant to
the Research and Development Program); (c) to defend all such
applications against third party oppositions; and (d) to maintain
in force any issued letters patent within the Emisphere Patents
and Emisphere Program Patents (including any letters patent that
may issue covering any Improvements). Emisphere shall have the
sole right in its reasonable business discretion to control such
filing, prosecution, defense and maintenance; provided however,
that Lilly shall be provided with copies of all documents
relating to such filing, prosecution, defense, and maintenance in
sufficient time to review such documents and comment thereon, if
desired by Lilly, prior to filing. Should Emisphere decide for
commercial or other reasons to abandon in any country any patent
or patent application pertaining to the Emisphere Patents or the
Emisphere Program Patents, it shall first obtain Lilly's written
consent, which consent shall not be unreasonably withheld.
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<PAGE>
10.2.2 In the event that Emisphere informs Lilly that it does not intend
to file patent applications on patentable inventions and
discoveries within the Emisphere Know-How or Emisphere Program
Know-How that relate to the Field or patentable Improvements
developed by or on behalf of Emisphere (other than pursuant to
the Research and Development Program) in one or more countries in
the Territory or fails to file such an application within a
reasonable period of time, but in no event less than four (4)
months after disclosure to Lilly pursuant to Clause 10.1, at
Emisphere's election, Lilly shall have the right, but not the
obligation, at Lilly's sole expense to file and prosecute such
patent application(s) in the name of Lilly and Emisphere, upon
written request from Lilly, shall execute all documents, forms
and declarations and do all things as shall be reasonably
necessary to enable Lilly to exercise such right. In the event
that Emisphere so elects and Lilly files any such application,
such application shall [***]
[***] .
10.3 Emisphere shall assist Lilly in good faith regarding all material issues
that arise from their joint work on the Research and Development Program
relating to filing, prosecution and maintenance of Lilly Patents (insofar
as the Lilly Patents are of relevance to the Field), the Lilly Program
Patents and any patentable inventions and discoveries within the Lilly
Know-How that relate to the Field. Such assistance will be provided,
however, only upon Lilly's request. Subject to agreement to the contrary,
the following provisions shall apply:
10.3.1 Lilly shall be solely responsible for all facets of filing and
prosecuting patent applications and maintaining and defending
patents within the Lilly Patents and the Lilly Program Patents,
including all expenses pertaining thereto.
10.3.2 Any assistance from Emisphere requested by Lilly with respect to
its obligations as set forth in this Clause 10.3 shall be
provided at Lilly's expense. Emisphere will use its best
reasonable efforts to provide such assistance in the manner
requested by Lilly.
10.4 With respect to any Joint Patents, Emisphere will prepare and file patent
applications on behalf of both Parties and will diligently prosecute same.
Prior to the contemplated filing, Emisphere shall submit a substantially
completed draft of such patent applications to Lilly for approval, which
approval shall not be unreasonably withheld or delayed. In the event of
an imminent statutory bar to patenting, Emisphere shall have the right to
file a patent application, for the invention on which a patent would be
barred, without first receiving approval from Lilly, in order to preserve
the patent rights to such invention. Lilly and Emisphere shall equally
bear the cost of preparing, filing, prosecuting and maintaining any patent
applications and patents falling within this Clause 10.4. Should
Emisphere not wish to file, prosecute, maintain or issue any
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patent application falling within this Clause 10.4, or maintain a patent
issuing from any such patent applications, in any particular country,
Emisphere will grant Lilly any necessary authority to file, prosecute,
maintain or issue such patent application, or maintain such a patent, in
the name of Lilly. However, in such case, such patent application or
patent for such country shall be considered to be a Lilly Program Patent.
Likewise, should Lilly not wish to file, prosecute, maintain or issue any
patent application falling with this Clause 10.4, or maintain a patent
issuing from such patent applications, in any particular country, Lilly
will grant Emisphere any necessary authority to file, prosecute, issue and
maintain such patent application, or maintain such a patent, in the name
of Emisphere. However, in such case, such patent application or patent for
such country shall be considered to be an Emisphere Program Patent.
10.5 Emisphere and Lilly shall promptly inform the other in writing of any
alleged infringement of any patents within the Emisphere Patents, the
Emisphere Program Patents or the Joint Patents or of any alleged
misappropriation of trade secrets within the Emisphere Know-How, the
Emisphere Program Know-How or the Joint Know-How by a third party of which
it becomes aware and provide the other with any available evidence of such
infringement or misappropriation.
10.5.1 (a) Emisphere shall have the primary right, but not the
obligation, to institute, prosecute and control any action or
proceeding with respect to any infringement of any of the
Emisphere Technology or the Emisphere Program Technology by
counsel of its own choice. Lilly shall cooperate with Emisphere
at Emisphere's request in the prosecution of such action or
proceeding. If Emisphere reasonably determines that Lilly is an
indispensable Party to the action, Lilly hereby consents to be
joined. In such event, Lilly shall have the right to be
represented in that action by counsel of its own choice and at
Lilly's expense.
(b) If Emisphere fails to bring an action or proceeding within a
period of [***] after receiving written notice from
Lilly or otherwise having knowledge of infringement of the
Emisphere Technology or the Emisphere Program Technology in the
Field, Lilly shall have the right to bring and control any such
action by counsel of its own choice and expense. If Lilly
reasonably determines that Emisphere is an indispensable Party to
the action, Emisphere hereby consents to be joined. In such
event, Emisphere shall have the right to be represented in that
action by counsel of its own choice and at Emisphere expense.
(c) No settlement, consent judgment or other voluntary final
disposition of a suit under this Clause 10.5.1 may be entered
into
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without the joint consent of Lilly and Emisphere (which consent
shall not be withheld unreasonably or delayed by either Party).
(d) If Emisphere brings an action hereunder, any damages or
other monetary awards recovered by Emisphere attributable to
sales of Product shall be applied first to defray the costs and
expenses incurred in the action. If any balance remains,
Emisphere shall pay Lilly [***] of such balance.
(e) If Emisphere fails to bring an action hereunder and Lilly
brings action, any damages or other monetary awards recovered by
Lilly attributable to sales of Product shall be applied first to
defray the costs and expenses incurred in the action. If any
balance remains, Lilly shall pay Emisphere [***]
[***] of such balance.
(f) In the alternative, the Parties may agree to institute such
proceedings in their joint names and shall reach agreement as to
the proportion in which they will share the proceeds of any such
proceedings, and the expense of any costs not recovered.
(g) If the infringement of the Emisphere Patents or the
Emisphere Program Patents affects the Field as well as other
products being developed or commercialized by Emisphere or its
commercial partners, the Parties shall agree as to the manner in
which the proceedings should be instituted and shall reach
agreement as to the proportion in which they will share the
proceeds of any such proceedings, and the expense of any costs
not recovered.
10.5.2 During the term of this Agreement, Lilly shall have the first
right but not the obligation to bring suit or otherwise take
action against any alleged infringement of the Lilly Program
Patents or alleged misappropriation of the Lilly Program Know-
How. In the event that Lilly takes such action, Lilly shall do so
solely at its own cost and expense and all damages and monetary
award recovered in or with respect to such action shall be the
property of Lilly. At Lilly's reasonable request, Emisphere will
co-operate with any such action at Lilly's sole cost and expense.
10.5.3 During the term of this Agreement, both Parties shall have the
right but not the obligation to bring suit or otherwise take
action against any alleged infringement of the Joint Patents or
alleged misappropriation of the Joint Know-How. Both Parties
shall be obligated to inform the other of any infringement or
misappropriation of which they become aware. The Parties shall
jointly determine in good faith how to manage any action with
respect to any such infringement or misappropriation. In the
alternative, or if one party
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desires to take such an action and the other does not, the Party
that takes such action shall do so solely at its own cost and
expense and all damages and monetary award recovered in or with
respect to such action shall be the property of that Party. At
such Party's reasonable request, the other Party will co-operate
with any such action at the requesting Party's sole cost and
expense.
10.6 Emisphere may defend against any Third Party claim that is related to the
Emisphere Patents, Emisphere Program Patents, Emisphere Know-How or
Emisphere Program Know-How. Lilly shall cooperate with Emisphere as may be
reasonably requested by Emisphere in such defense and shall have the right
to be represented by counsel of its own choice at Lilly's expense provided
that Emisphere shall (i) keep Lilly fully informed with regard to the
defense of such Third Party claim and (ii) obtain Lilly's prior written
approval before entering into any settlement in connection with such Third
Party claims, such approval not to be unreasonably withheld or delayed.
If within [***] of receiving notice of such Third Party claim,
Emisphere fails to defend against such Third Party claim, Lilly may, at
its own cost, defend against such Third Party claim; provided that Lilly
shall (i) keep Emisphere fully informed with regard to the defense of such
Third Party claim, and (ii) obtain Emisphere's prior written approval
before entering into any settlement in connection with such Third Party
claim, such approval not be unreasonably withheld or delayed. Emisphere
shall cooperate with Lilly as may reasonably be requested by Lilly in such
defense and shall have the right to be represented by counsel of its own
choice at Emisphere's expense. If royalties or lump sum payments are due
to the Third Party by reason of a court order or litigation settlement,
such payment shall be solely the responsibility of Lilly, provided that
[***] of such Third Party royalties or lump sum
payments shall be offset against royalties payable to Emisphere under this
Agreement, not to exceed the royalties due Emisphere, as also set forth in
Clause 13.1.
10.7 Except as provided in Clauses 10.6 and 13.1, Emisphere shall have no
liability to Lilly whatsoever or howsoever arising for any losses incurred
by Lilly as a result of having to cease selling Product(s) or having to
defer the Launch of Product(s) as a result of any infringement
proceedings.
11. CONFIDENTIAL INFORMATION
11.1 The Parties acknowledge that it may be necessary, from time to time, to
disclose to each other confidential and proprietary information, including
without limitation, inventions, works of authorship, trade secrets,
specifications, designs, data, know-how and other information, relating to
the Field, the Compounds, the Carriers, the Products, processes, and
services of the disclosing Party or regarding the Emisphere Technology or
Emisphere
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Program Technology or the Lilly Technology or the Lilly Program
Technology. The foregoing shall be referred to collectively as
"CONFIDENTIAL INFORMATION". Any Confidential Information revealed by a
Party to another Party shall be used by the receiving Party exclusively
for the purposes of fulfilling the receiving Party's obligations under
this Agreement.
11.2 Each Party agrees to disclose Confidential Information of another Party
only to those employees, representatives and agents requiring knowledge
thereof in connection with their duties directly related to the fulfilling
of the Party's obligations under this Agreement. Each Party agrees that it
will exercise the same degree of care, but in no event less than a
reasonable degree, and protection to preserve the proprietary and
confidential nature of the Confidential Information disclosed by the other
Party, as the receiving Party would exercise to preserve its own
proprietary and confidential information. Each Party agrees that it will,
upon request of the other Party, return all documents and any copies
thereof containing Confidential Information belonging to or disclosed by,
such Party if such documents are not required to perform its obligations
hereunder, and further provided that the returning party may keep one copy
of all such documents in its legal archive for recording purposes.
11.3 With respect to all Confidential Information furnished by one Party to the
other pursuant to this Agreement, either in writing or orally, the Party
receiving such Confidential Information shall maintain the confidential
and proprietary status of such Confidential Information, keep such
Confidential Information and each part thereof within its possession or
under its control, use all its reasonable efforts to prevent the
disclosure of any Confidential Information to any other person, and use
all its reasonable efforts to ensure that such Confidential Information is
used only for those purposes specifically authorized by this Agreement.
These mutual obligations of confidentiality shall apply until ten (10)
years after termination or expiration of this Agreement. Confidential
Information, further, shall not be deemed to include any information to
the extent that such information is:
(a) independently developed by the recipient as documented by prior
written records outside the scope and not in violation of this Agreement;
(b) in the public domain at the time of its receipt or thereafter becomes
part of the public domain through no fault of the recipient;
(c) received without an obligation of confidentiality from a third party
having the right to disclose such information;
(d) released from the restrictions of this Clause 11 by the express
written consent of the disclosing Party;
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(e) required by law, statute, rule or court order to be disclosed (the
disclosing Party shall, however, use reasonable efforts to obtain
confidential treatment of any such disclosure, consult with the other
Party and permit the other Party to participate in seeking an appropriate
protective order).
Notwithstanding the provisions of this Clause 11, Emisphere and Lilly may,
to the extent necessary, disclose and use Confidential Information only
for the purpose of carrying out their duties and obligations under this
Agreement (i) to any Affiliate, sublicensee or subcontractor of either
Emisphere or Lilly hereunder (if such sublicensee or subcontractor is
subject to provisions substantially similar to those set forth in this
Clause 11); (ii) to secure patent protection, pursuant to Clause 10
hereof, for an invention developed as a result of the collaboration
undertaken pursuant to this Agreement or (iii) to obtain institutional or
government approval to test clinically or market any Product subject to
confidential treatment if possible.
11.4 The Parties agree that the obligations of this Clause 11 are necessary and
reasonable in order to protect the Parties' respective businesses, and
each Party expressly agrees that monetary damages would be inadequate to
compensate a Party for any breach by the other Party of its covenants and
agreements set forth herein. Accordingly, the Parties agree and
acknowledge that any such violation or threatened violation will cause
irreparable injury to a Party and that, in addition to any other remedies
that may be available, in law and equity or otherwise, any Party shall be
entitled to obtain injunctive relief against the threatened breach of the
provisions of this Clause 11, or a continuation of any such breach by the
other Party, specific performance and other equitable relief to redress
such breach together with its damages and reasonable counsel fees and
expenses to enforce its rights hereunder, without the necessity of proving
actual or express damages.
12. TERM OF AGREEMENT
12.1 Subject to the provisions for earlier termination set out in Clauses 12.2,
12.3, and 12.6 and the provisions regarding the payment of royalties in
Clause 8, the term of this Agreement shall be a period commencing as of
the Effective Date and expiring on a country by country basis on the last
to occur of:
12.1.1 [***]
[***]
12.1.2 upon the expiration of the last to expire patent included in the
Emisphere Patents, the Emisphere Program Patents and/or the Joint Patents
to the extent that any such patents cover Products(s).
12.2 In addition to the rights of early or premature termination provided for
elsewhere in this Agreement, in the event that any of the terms or
provisions
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hereof are incurably breached by either Party, the non-breaching Party may
immediately terminate this Agreement by written notice. Subject to the
other provisions of this Agreement, in the event of any other breach, the
non-breaching Party may terminate this Agreement by giving written notice
to the breaching Party that this Agreement will terminate on the [***]
[***] from notice unless cure is sooner effected. If the breaching
Party has proposed a course of action to rectify the breach and is acting
in good faith to rectify same but has not cured the breach by the [***]
[***] , the said period shall be extended by such period as is
reasonably necessary to enable the breach to be cured. If termination of
this Agreement pursuant to this Clause 12.2 is caused by a breach of this
Agreement by Lilly, Lilly shall lose all rights pursuant to Clauses 2 and
3 above. If Emisphere breaches this Agreement then restitution to Lilly
appropriate for the degree of the breach shall be made, and Lilly shall
continue payments pursuant to a mutually acceptable escrow agreement until
the matter is resolved.
12.3 As used in this Clause 12, the term "Event of Bankruptcy" relating to
either Party shall mean:
(a) the appointment of a liquidator, receiver, administrator,
examiner, trustee or similar officer over either Party or over
all or a substantial part of its assets under the law of any
applicable jurisdiction, including without limit, the United
States of America; or
(b) an application or petition for bankruptcy, corporate re-
organization, composition, administration, examination,
arrangement or any other procedure similar to any of the
foregoing under the law of any applicable jurisdiction, including
without limitation, the United States of America, is filed, and
is not discharged within thirty (30) days, or if either Party
applies for or consents to the appointment of a receiver,
administrator, examiner or similar officer over it or over all or
a material part of its assets, rights or revenues or the assets
and/or the business of either Party are for any reason seized,
confiscated or condemned.
12.3.1 If at any time during the term of this Agreement, an "Event of
Bankruptcy" (as defined above) relating to Emisphere occurs,
Lilly shall have, in addition to all other legal and equitable
rights and remedies available hereunder, the option to terminate
this Agreement upon [***] written notice, given
within [***] following the date that Lilly becomes
aware of the Event of Bankruptcy. Upon such termination by Lilly,
Lilly shall be entitled to solely continue the activities
conducted or to be conducted pursuant to this Agreement but for
the Event of Bankruptcy.
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12.3.2 If at any time during the term of this Agreement, an "Event of
Bankruptcy" (as defined above) relating to Lilly occurs, other
than in circumstances where the Event of Bankruptcy arises
directly or indirectly as a result of a dispute with Emisphere
and it is unlikely that the Event of Bankruptcy would have arisen
if Lilly and Emisphere had been in agreement, rather than in
dispute, Emisphere shall have, in addition to all other legal and
equitable rights and remedies available hereunder, the option to
terminate this Agreement upon [***] written notice,
given within [***] following the date that Emisphere
becomes aware of the Event of Bankruptcy.
12.4 Upon exercise of those rights of termination as specified in Clause 12.1
to Clause 12.3 inclusive or elsewhere within the Agreement, this Agreement
shall, subject to the other provisions of the Agreement, automatically
terminate forthwith and be of no further legal force or effect.
12.5 Upon expiration or termination of the Agreement:
12.5.1 any sums that were due from Lilly to Emisphere on Net Sales in
the Territory or in such particular country or countries in the
Territory, as the case may be, prior to the expiration or
termination of this agreement as set forth herein shall be paid
in full within [***] (or [***] if the
information necessary to make such payment is not available
within such [***] period) of the expiration or termination of
this Agreement for the Territory or for such particular country
or countries in the Territory, as the case may be;
12.5.2 all confidentiality provisions set out herein shall remain in
full force and effect;
12.5.3 all responsibilities and warranties shall insofar as are
appropriate remain in full force and effect;
12.5.4 the rights of inspection and audit set out in Clause 9 shall
continue in force for a period of one year;
12.5.5 except as expressly provided for under Clauses 12.2 and 12.5.7
all rights and licenses granted in and pursuant to this Agreement
shall cease for the Territory or for such particular country or
countries in the Territory, as the case may be. Following such
expiration or termination, Lilly may not thereafter, except as
expressly provided for in Clauses 12.2 and 12.5.7, use in the
Territory or in such particular country or countries in the
Territory, as the case may be, (a) any valid and unexpired
Emisphere Patents or Emisphere Program Patents and/or (b) any
Emisphere Know-How or Emisphere Program Know-How that remains
confidential or otherwise proprietary to Emisphere; and
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12.5.6 to the extent this Agreement is terminated (as opposed to
expired) in the Territory or any particular country in the
Territory, Lilly shall promptly make an accounting to Emisphere
of the inventory of the Product(s) which it has in the Territory
or for such particular country or countries in the Territory, as
the case may be, if any, as of the date of such termination and
Lilly shall have the right for a period of [***] after
said termination to sell such inventory of the Product(s) in the
Territory or in such particular country or countries in the
Territory, as the case may be, or, if appropriate and legally
permissible, to transport such inventory of Product(s) for sale
in another country or countries in the Territory within such
[***] period; provided that the Net Sales thereof shall be
subject to the royalty provisions of Clause 8 and so payable to
Emisphere. Thereafter, any remaining inventory of Product(s)
shall be disposed of by mutual agreement of the Parties in
accordance with regulatory requirements.
12.5.7 upon the conclusion of the term of this Agreement in any
particular country, Lilly shall have a fully paid-up, exclusive
license to make or use the Emisphere Know-How and Emisphere
Program Know-How for the Products in the Field in that country.
Upon such conclusion of the term of this Agreement in any
particular country, [***]
[***]
[***]
[***]
12.6 Lilly shall have the option to terminate the Agreement upon [***]
prior written notice to Emisphere. Lilly shall pay for any and all
external (to Lilly) research and development commitments by Emisphere in
place at the time of such notice of termination to the extent that
Emisphere cannot terminate the same without penalty.
[***]
[***]
[***]
[***]
[***]
[***]
13. WARRANTIES/INDEMNITIES
13.1 Emisphere represents and warrants that it has the sole, exclusive and
unencumbered right to grant the licenses and rights herein granted to
Lilly, and that it has not granted any option, license, right or interest
in or to the Emisphere Technology, the Emisphere Program Technology, the
Carriers or the
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Product(s) to any third party which would conflict with the rights granted
by this Agreement.
In the case where the Emisphere Technology or the Emisphere Program
Technology is covered by a patent or patents (or other intellectual
property rights) held by an Independent Third Party, and both Emisphere
and Lilly agree that a license is required under any such patent (or other
intellectual property right) for the Parties to utilize the Emisphere
Technology or the Emisphere Program Technology, Emisphere shall obtain
such license and shall not pass on to Lilly, in any manner, any of the
costs associated with obtaining such a license, including royalties to the
Independent Third Party. In no case, however, shall Emisphere be required
to obtain such a license if the costs of so doing would exceed the royalty
payments by Lilly provided for hereunder. However, Lilly shall be
permitted to obtain such a license and deduct from royalties otherwise due
to Emisphere the costs of obtaining the license, up to a limit of all
royalty payments due to Emisphere hereunder. In any such case, Lilly, in
its negotiations with the Independent Third Party with respect to the
amount of compensation for such a license, shall act in good faith vis a
vis Emisphere.
13.2 Lilly represents and warrants that it has the sole, exclusive and
unencumbered right to grant the licenses and rights herein granted to
Emisphere and that it has not granted any option, license, right or
interest in or to the Lilly Technology or the Lilly Program Technology to
any third party which would conflict with the rights granted by this
Agreement.
In the case where the Lilly Technology or the Lilly Program Technology is
covered by a patent or patents (or other intellectual property rights)
held by an Independent Third Party, and, as a result thereof, either (i)
Lilly is prohibited from continuing the development or sale of a Product
or (ii) Lilly ceases development or sale of a Product because the costs
associated with obtaining the rights to proceed with development or sale
of the Product make such continued development or sale uneconomic in
Lilly's sole judgment, then the licenses granted hereunder by Emisphere
shall no longer be exclusive to Lilly, and Emisphere shall, in its sole
discretion, have the right to enter into a license agreement with such
Independent Third Party for use of the Emisphere Technology or Emisphere
Program Technology in the development or sale of the Product. The
foregoing shall not be interpreted so as to imply any license of the Lilly
Technology or the Lilly Program Technology to Emisphere or to the
Independent Third Party, nor shall this clause be deemed an impediment to
any agreement among Emisphere, Lilly and the Independent Third Party to
develop or sell the Product.
13.3 Emisphere represents and warrants that to the best of its knowledge, the
true inventors of the subject matter claimed are named in the Emisphere
Patents
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and all such inventors have irrevocably assigned all their rights and
interests therein to Emisphere.
13.4 Emisphere represents and warrants that it is not aware of any information
material to the examination of the Emisphere Patents that was not
disclosed to the United States Patent Office.
13.5 Emisphere and Lilly represent and warrant for the benefit of each other
that the execution of this Agreement by them and the full performance and
enjoyment of the rights of them under this Agreement will not breach the
terms and conditions of any license, contract, understanding or agreement,
whether express, implied, written or oral between them and any third
party.
13.6 Emisphere and Lilly represent and warrant for the benefit of each other
that as of the Effective Date of executing this Agreement, to the best of
their knowledge no patents, trade secrets or any other proprietary rights
of any third party would be infringed by the manufacture, use or sale of
the Product(s).
13.7 Lilly represents and warrants that with respect to all regulatory filings
to obtain NDA approvals, to the best of Lilly's knowledge, the data and
information in Lilly's submission(s) are and shall be free from fraud or
material falsity, that the NDA approvals have not been and will not be
obtained either through bribery or the payment of illegal gratuities, that
the data and information in Lilly's submissions are and shall be accurate
and reliable for purposes of supporting approval of the submissions, and
that the NDA approvals are and shall be obtained without illegal or
unethical behavior of any kind.
13.8 Lilly represents and warrants that the Product(s) sold by Lilly under this
Agreement shall conform to the Specifications and be in accordance with
all regulations and requirements of the FDA including the then current
Good Manufacturing Practice regulations which apply to the manufacture and
supply of the Product(s). Lilly represents and warrants that the
Product(s) sold by it shall not be adulterated or mis-branded as defined
by the US Federal Food, Drug and Cosmetic Act, and shall not be a product
which would violate any section of such Act if introduced in interstate
commerce. EXCEPT AS EXPRESSLY STATED IN THIS CLAUSE 13.8, ALL OTHER
WARRANTIES, CONDITIONS AND REPRESENTATIONS, EXPRESS OR IMPLIED, STATUTORY
OR OTHERWISE, INCLUDING A WARRANTY AS TO THE QUALITY OR FITNESS FOR ANY
PARTICULAR PURPOSE OF THE PRODUCT(S) ARE HEREBY EXCLUDED AND LILLY SHALL
NOT BE LIABLE IN CONTRACT, TORT OR OTHERWISE FOR ANY LOSS, DAMAGE, EXPENSE
OR INJURY OF ANY KIND WHATSOEVER, CONSEQUENTIAL OR OTHERWISE, ARISING OUT
OF OR IN CONNECTION WITH THE PRODUCT(S) OR ANY DEFECT IN THE PRODUCT(S) OR
FROM ANY OTHER CAUSE.
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13.9 Lilly is fully cognizant of all applicable statutes, ordinances and
regulations of the Territory with respect to the manufacture of the
Product(s) including, but not limited to, the U.S. Federal Food, Drug and
Cosmetic Act and regulations thereunder, current Good Laboratory Practices
and current Good Manufacturing Practices. Lilly shall manufacture the
Product(s) in conformance with the Specifications and the Drug Master File
(which Lilly shall own), to the extent any such Drug Master File exists,
and in a manner which fully complies with such statutes, ordinances,
regulations and practices.
13.10 Emisphere represents and warrants that the Carrier supplied by Emisphere
under this Agreement shall conform to the Specifications and be in
accordance with all regulations and requirements of the FDA including the
then current Good Manufacturing Practice regulations which apply to the
manufacture and supply of the Carrier. Emisphere represents and warrants
that the Carrier supplied by it shall not be adulterated or mis-branded as
defined by the US Federal Food, Drug and Cosmetic Act, and shall not be a
product which would violate any section of such Act if introduced in
interstate commerce. EXCEPT AS EXPRESSLY STATED IN THIS CLAUSE 13.10, ALL
OTHER WARRANTIES, CONDITIONS AND REPRESENTATIONS, EXPRESS OR IMPLIED,
STATUTORY OR OTHERWISE, INCLUDING A WARRANTY AS TO THE QUALITY OR FITNESS
FOR ANY PARTICULAR PURPOSE OF THE PRODUCT(S) ARE HEREBY EXCLUDED AND
EMISPHERE SHALL NOT BE LIABLE IN CONTRACT, TORT OR OTHERWISE FOR ANY LOSS,
DAMAGE, EXPENSE OR INJURY OF ANY KIND WHATSOEVER, CONSEQUENTIAL OR
OTHERWISE, ARISING OUT OF OR IN CONNECTION WITH THE PRODUCT(S) OR ANY
DEFECT IN THE PRODUCT(S) OR FROM ANY OTHER CAUSE.
13.11 Emisphere is fully cognizant of all applicable statutes, ordinances and
regulations of the Territory with respect to the manufacture of the
Carrier including, but not limited to, the U.S. Federal Food, Drug and
Cosmetic Act and regulations thereunder, current Good Laboratory Practices
and current Good Manufacturing Practices. Emisphere shall manufacture the
Carrier in conformance with the Specifications and the Drug Master File
and in a manner which fully complies with such statutes, ordinances,
regulations and practices. Emisphere shall own the Drug Master File with
respect to the Carriers, and Lilly shall have access and a right of review
thereto with respect to its manufacture of Carriers and its regulatory
filings.
13.12 In addition to any other indemnifications provided for herein, Emisphere
shall indemnify and hold harmless Lilly and its Affiliates and their
respective employees, agents, partners, officers and directors from and
against any claims, losses, liabilities or damages (including reasonable
attorney's fees and expenses) incurred or sustained by Lilly arising out
of or in connection with any (a) breach of any representation, covenant,
warranty or obligation by Emisphere hereunder, or (b) any act or omission
on the part of Emisphere or any of its agents or employees in the
performance of this Agreement.
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13.13 In addition to any other indemnifications provided for herein, Lilly shall
indemnify and hold harmless Emisphere and its Affiliates and their
respective employees, agents, partners, officers and directors from and
against any claims, losses, liabilities or damages (including reasonable
attorney's fees and expenses) incurred or sustained by Emisphere arising
out of or in connection with any (a) breach of any representation,
covenant, warranty or obligation by Lilly hereunder, or (b) any act or
omission on the part of Lilly or any of its agents or employees in the
performance of this Agreement.
13.14 Lilly shall assume the sole and entire responsibility and shall indemnify
and hold harmless Emisphere from any and all claims, liabilities,
expenses, including reasonable attorney's fees, responsibilities and
damages by reason of any claim, proceedings, action, liability or injury
arising out of any faults of the Product(s) resulting from the transport,
packaging, storage, handling, distribution, marketing or sale of the
Product(s) by Lilly, to the extent that it was caused by the negligence or
wrongful acts or omissions on the part of Lilly.
13.15 Emisphere shall assume the sole and entire responsibility and shall
indemnify and hold harmless Lilly from any and all claims, liabilities,
expenses, including reasonable attorney's fees, responsibilities and
damages by reason of any claim, proceeding, action, liability or injury
arising out of any faults of the Carrier(s) resulting from the transport,
packaging, storage, handling, distribution, marketing or sale of the
Carrier(s) by Emisphere, to the extent that it was caused by the
negligence or wrongful acts or omissions on the part of Emisphere.
13.16 As a condition of obtaining an indemnity in the circumstances set out
above, the Party seeking an indemnity shall:
13.16.1 fully and promptly notify the other Party of any claim or
proceeding, or threatened claim or proceeding;
13.16.2 permit the indemnifying Party to take full care and control of
such claim or proceeding;
13.16.3 cooperate in the investigation and defense of such claim or
proceeding;
13.16.4 not compromise or otherwise settle any such claim or proceeding
without the prior written consent of the other Party, which
consent shall not be unreasonably withheld, conditioned or
delayed; and
13.16.5 take all reasonable steps to mitigate any loss or liability in
respect of any such claim or proceeding.
34
<PAGE>
13.17 NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, EMISPHERE AND
LILLY SHALL NOT BE LIABLE TO THE OTHER BY REASON OF ANY REPRESENTATION OR
WARRANTY, CONDITION OR OTHER TERM OR ANY DUTY OF COMMON LAW, OR UNDER THE
EXPRESS TERMS OF THIS AGREEMENT, FOR ANY CONSEQUENTIAL OR INCIDENTAL LOSS
OR DAMAGE (WHETHER FOR LOSS OF PROFIT OR OTHERWISE) AND WHETHER OCCASIONED
BY THE NEGLIGENCE OF THE RESPECTIVE PARTIES, THEIR EMPLOYEES OR AGENTS OR
OTHERWISE WHETHER OR NOT THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
14. REGULATORY APPROVALS
14.1 Any and all INDAs, NDAs and other applications for regulatory approval
filed hereunder for the Product(s) [***]
[***]
[***]
Lilly will be responsible for all regulatory filings in all countries and
shall allow Emisphere access to related correspondence, to the extent such
access is necessary to enable Emisphere to fulfill its obligations and
exercise its rights under this Agreement. In particular, Lilly agrees to
inform Emisphere should any such correspondence reasonably pertain to the
Emisphere Technology or the Emisphere Program Technology. The Parties
shall collaborate in relation to obtaining the approval of the FDA for
final approved labeling.
14.2 Save as otherwise outlined in this Agreement, the costs and expenses of
any filings and proceedings made by Lilly to the FDA, including post
approval studies required by the FDA in respect of the Product(s), and to
maintain the FDA approval hereunder shall be paid by Lilly.
14.3 Lilly shall indemnify and hold harmless Emisphere, its agents and
employees from and against all claims, damages, losses, liabilities and
expenses to which Emisphere, its agents, and employees may become subject
related to or arising out of Lilly's bad faith, gross negligence or
intentional misconduct in connection with the filing or maintenance or
failure to file or maintain or prosecute the NDA.
14.4 Subject to the provisions of Clause 14.4, it is hereby acknowledged that
there are inherent uncertainties involved in the registration of
pharmaceutical products with the FDA insofar as obtaining approval is
concerned and such uncertainties form part of the business risk involved
in undertaking the form of commercial collaboration as set forth in this
Agreement. Therefore, save for using its reasonable efforts, Lilly and
Emisphere shall have no liability to each other solely as a result of any
failure of the Product(s) to achieve the approval of the FDA, or any other
regulatory body in the Territory.
35
<PAGE>
14.5 Should the Parties receive a notice of regulatory inspection from any
governmental agency, or if the Parties receive notice of any potential
regulatory action, relative to the Carrier, the Parties will have an
obligation to notify each other of same.
Emisphere will prepare and provide Lilly with all information deemed
necessary by Lilly for worldwide regulatory submission of the Product
(Lilly will provide Emisphere with a template for such submissions, which
Emisphere shall prepare and provide the relevant information to Lilly).
Emisphere shall also provide Lilly with necessary access to any regulatory
filings worldwide relevant to the Product and Lilly shall be entitled to
use the information contained therein in its own regulatory filings on the
Product. Should Emisphere wish, at any time during the term of this
Agreement, to modify its regulatory filings relating to the Product,
Emisphere shall provide Lilly with written notification of its intentions
prior to making such modification. Any proposed modification not required
by law, government or regulatory agency must be responded to by Lilly
within thirty (30) days. If Lilly's response is not received by Emisphere
within 30 days, approval of such proposal shall be deemed to have been
granted. Finally, to the extent details of the regulatory filing process
are not set forth in this section or elsewhere in the Agreement, the
Steering Committee shall decide any such matters.
15. INSURANCE
15.1 Lilly shall maintain comprehensive general liability insurance, including
product liability insurance on the Product(s) manufactured and/or sold in
such prudent amount as shall be determined by Lilly management for the
duration of this Agreement [***]
15.2 Emisphere shall maintain comprehensive general liability insurance,
including product liability insurance on the Carrier(s) manufactured for
and/or sold to Lilly in such prudent amount as shall be determined by
Emisphere management for the duration of this Agreement [***]
Emisphere shall also provide Lilly with a vendor's certificate for the
Carriers substantially in a form to be agreed between the Parties.
16. IMPOSSIBILITY OF PERFORMANCE - FORCE MAJEURE
16.1 Neither Party to this Agreement shall be liable for delay in the
performance of any of its obligations hereunder if such delay results from
causes beyond its reasonable control, including, without limitation, acts
of God, fires, strikes, acts of war, or intervention of a government
authority, non availability of raw materials, but any such delay or
failure shall be remedied by such Party as soon as practicable.
36
<PAGE>
17. SETTLEMENT OF DISPUTES; PROPER LAW
17.1 The Parties will attempt in good faith to resolve any dispute arising out
of or relating to this Agreement promptly by negotiation between the Chief
Executive Officer of Emisphere and (a) the Vice President of Science,
Technology and Proteins if the dispute is prior to Launch of Products in
any country in the Territory, or (b) if the dispute arises after such
Launch, then the Vice President of Lilly's general business unit
responsible for the Product at issue. In the event that such negotiations
do not result in a mutually acceptable resolution, the Parties agree to
consider other dispute resolution mechanisms including mediation. Subject
to the provisions of Clause 17.2, in the event that the Parties fail to
agree on a mutually acceptable dispute resolution mechanism, any such
dispute shall be finally settled by a court of competent jurisdiction.
The Parties hereby submit to the jurisdiction of the state and Federal
courts located in the state of New York.
17.2 This Agreement shall be governed by and construed in accordance with the
laws of New York without reference to conflicts of laws principles.
18. ASSIGNMENT
18.1 This Agreement may not be assigned by either Party without the prior
written consent of the other, which consent shall not be unreasonably
withheld, conditioned or delayed, save that either Party may assign this
Agreement to its Affiliate or to any successor by merger or sale of
substantially all of the assets of its business unit to which this
Agreement relates without such consent, provided that such assignment does
not have any adverse tax consequences on the other Party. Emisphere and
Lilly will discuss any assignment by either Party to an Affiliate prior to
its implementation in order to avoid or reduce any additional tax
liability to the other Party resulting solely from different tax law
provisions applying after such assignment to an Affiliate. For the
purpose hereof, an additional tax liability shall be deemed to have
occurred if either Party would be subject to a higher net tax on payments
made hereunder after taking into account any applicable tax treaty and
available tax credits than such Party was subject to before the proposed
assignment.
19. NOTICES
19.1 Any notice to be given under this Agreement shall be sent in writing in
English by registered mail or telefaxed to the following addresses:
37
<PAGE>
If to Lilly:
Eli Lilly and Company
Lilly Corporate Center
Indianapolis, IN 46285
Attention: General Patent Counsel
Telephone: (317) 276-3881
Telefax: (317) 276-2763
If to Emisphere:
Emisphere Technologies, Inc.
15 Skyline Drive
Hawthorne, NY 10532
Attention: Vice President Business Development
Telephone: (914) 347-2220
Telefax: (914) 347-2498
or to such other address(es) and telefax number(s) as may from time to
time be notified by either Party to the other hereunder.
19.2 Any notice sent by mail shall be deemed to have been delivered within
[***] working days after dispatch and any notice sent by telefax shall
be deemed to have been delivered within [***] of the time
of the dispatch. Notice of change of address shall be effective upon
receipt.
20. MISCELLANEOUS CLAUSES
20.1 No waiver of any right under this Agreement shall be deemed effective
unless contained in a written document signed by the Party charged with
such waiver, and no waiver of any breach or failure to perform shall be
deemed to be a waiver of any other breach or failure to perform or of any
other right arising under this Agreement.
20.2 If any provision in this Agreement is agreed by the Parties to be, or is
deemed to be, or becomes invalid, illegal, void or unenforceable under any
law that is applicable hereto, (i) such provision will be deemed amended
to conform to applicable laws so as to be valid and enforceable or, if it
cannot be so amended without materially altering the intention of the
Parties, it will be deleted, with effect from the date of such agreement
or such earlier date as the Parties may agree, and (ii) the validity,
legality and enforceability of the remaining provisions of this Agreement
shall not be impaired or affected in any way.
38
<PAGE>
20.3 The Parties shall use their respective reasonable endeavors to ensure that
the Parties and any necessary third party shall do, execute and perform
all such further deeds, documents, assurances, acts and things as any of
the Parties hereto may reasonably require by notice in writing to the
other Party or such third party to carry the provisions of this Agreement.
20.4 This Agreement shall be binding upon and inure to the benefit of the
Parties hereto, their successors and permitted assigns and sub-licensees.
20.5 No provision of this Agreement shall be construed so as to negate, modify
or affect in any way the provisions of any other agreement between the
Parties unless specifically referred to, and solely to the extent
provided, in any such other agreement. In the event of a conflict between
the provisions of this Agreement and the provisions of the Option
Agreement, the terms of the Option Agreement shall prevail unless this
Agreement specifically provides otherwise.
20.6 No amendment, modification or addition hereto shall be effective or
binding on either Party unless set forth in writing and executed by a duly
authorized representative of each Party.
20.7 This Agreement may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original and all of which
when taken together shall constitute this Agreement.
20.8 Each of the Parties undertakes to do all things reasonably within its
power which are necessary or desirable to give effect to the spirit and
intent of this Agreement.
20.9 Each of the Parties hereby acknowledges that in entering into this
Agreement it has not relied on any representation or warranty save as
expressly set out herein or in any document referred to herein.
20.10 Nothing contained in this Agreement is intended or is to be construed to
constitute Emisphere and Lilly as partners, or Emisphere as an employee of
Lilly, or Lilly as an employee of Emisphere. Neither Party hereto shall
have any express or implied right or authority to assume or create any
obligations on behalf of or in the name of the other Party or to bind the
other Party to any contract, agreement or undertaking with any third
party.
20.11 This Agreement has been jointly prepared and shall not be strictly
construed against any Party.
20.12 The parties hereto agree to disclose publicly through a joint press
release, upon signing this Agreement, the nature and scope of the
Agreement. All press releases, scientific papers and all other public
disclosures related to this
39
<PAGE>
Agreement shall be approved in advance by both parties, except for such
disclosures permitted pursuant to Clause 11, above, such approval not to
be unreasonably withheld or delayed. Upon the occurrence of other
significant events in the Research and Development Program or other
activities hereunder, Emisphere and Lilly agree to make joint press
releases. In all cases Lilly shall have the right to review portions of
any SEC filings by Emisphere that relate directly to Lilly; in no case
shall either party release information which would allow a third party to
determine the actual Carriers (including, without limitation, the
Carrier/Compound complex in the Product) developed hereunder.
IN WITNESS THEREOF the Parties hereto have executed this Agreement in
duplicate.
SIGNED BY
For and on behalf of
ELI LILLY AND COMPANY
in the presence of:
SIGNED BY
For and on behalf of
EMISPHERE TECHNOLOGIES, INC.
in the presence of:
40
<PAGE>
APPENDIX I
[***] Content Check List
SUBJECT QUESTION/ISSUE
[***]
<PAGE>
SUBJECT QUESTION/ISSUE
[***]
<PAGE>
SCHEDULE I
List of Emisphere Patents
[to be supplied prior to execution of this Agreement]
1
<PAGE>
Exhibit C
---------
Countries in Which Relevant Emisphere Technology Shall Be Patented
------------------------------------------------------------------
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
<PAGE>
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
<PAGE>
Exhibit D
---------
[***]
------------
[***]
<PAGE>
Appendix 1
----------
LICENSE SUPPLEMENT FOR ORAL [***] OPTION
[***]
<PAGE>
2
[***]
<PAGE>
Appendix 2
----------
LICENSE SUPPLEMENT FOR NON-ORAL [***] OPTIONS
[***]
<PAGE>
2
[***]
<PAGE>
Appendix 3
----------
LICENSE SUPPLEMENT FOR ORAL [***] OPTION
[***]
<PAGE>
2
[***]
<PAGE>
3
[***]
<PAGE>
Appendix 4
----------
LICENSE SUPPLEMENT FOR NON-ORAL [***] OPTIONS
[***]
<PAGE>
2
[***]
<PAGE>
3
[***]
<PAGE>
4
[***]
<PAGE>
EXHIBIT 11.1
EMISPHERE TECHNOLOGIES, INC.
STATEMENT OF COMPUTATION OF PER SHARE DATA
<TABLE>
<CAPTION>
For the three months ended
----------------------------------------------------------------
January 31, 1996 January 31, 1997
----------------------------- --------------------------------
Primary Fully Diluted Primary Fully Diluted
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $ 1,156,530 $ 1,156,530 $ (2,428,681) $ (2,428,681)
============== ============== ============= ==============
Weighted average number of shares 8,327,466 8,327,466 9,489,732 9,489,732
Shares issuable upon exercise of options
and warrants 2,031,112 3,952,438
Shares assumed to be repurchased under
the treasury stock method (1,665,493) (1,783,003)
-------------- -------------- ------------- --------------
8,327,466 8,693,085 9,489,732 11,659,167
============== ============== ============= ==============
NET INCOME (LOSS) PER SHARE $ 0.14 $ 0.13 $ (0.26) $ (0.21)
============== ============== ============= ==============
</TABLE>
<PAGE>
EXHIBIT 11.2
EMISPHERE TECHNOLOGIES, INC.
STATEMENT OF COMPUTATION OF PER SHARE DATA
<TABLE>
<CAPTION>
For the six months ended
-----------------------------------------------------------------
January 31, 1996 January 31, 1997
------------------------------- --------------------------------
Primary Fully Diluted Primary Fully Diluted
<S> <C> <C> <C> <C>
Net loss $ (782,661) $ (782,661) $ (3,435,038) $ (3,435,038)
=============== ============== ============= ==============
Weighted average number of shares 8,035,391 8,035,391 9,467,632 9,467,632
Shares issuable upon exercise of options
and warrants 1,440,759 4,096,090
Shares assumed to be repurchased under
the treasury stock method (1,147,496) (1,845,099)
--------------- -------------- ------------- --------------
8,035,391 8,328,654 9,467,632 11,740,723
=============== ============== ============= ==============
NET LOSS PER SHARE $ (0.10) $ $(0.09) $ (0.36) $ (0.29)
=============== ============== ============= ==============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEETS, CONDENSED STATEMENTS OF OPERATIONS AND CONDENSED
STATEMENT OF STOCKHOLDERS' EQUITY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 4915989
<SECURITIES> 10952096
<RECEIVABLES> 880743
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17243177
<PP&E> 4212086
<DEPRECIATION> 2794471
<TOTAL-ASSETS> 18722035
<CURRENT-LIABILITIES> 664710
<BONDS> 0
0
0
<COMMON> 95506
<OTHER-SE> 16634590
<TOTAL-LIABILITY-AND-EQUITY> 18722035
<SALES> 0
<TOTAL-REVENUES> 2529516
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6471973
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3435038)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3435038)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.29)
</TABLE>
