<PAGE>
FORM 10-Q/A
AMENDMENT NO. 1
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
AMENDMENT NO. 1 TO QUARTERLY REPORT FOR THE QUARTER ENDED
January 31, 1997
PAGE
----
Explanatory Note 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 4
Item 5. Other Information 7
-----------------
Item 6. Exhibits and Reports on Form 8-K 8
--------------------------------
2
<PAGE>
EXPLANATORY NOTE
This Amendment No. 1 to the Quarterly Report for the quarter ended
January 31, 1997 (the "Quarterly Report") of Emisphere Technologies, Inc. (the
"Company") amends and restates items 2, 5 and 6 contained in the Company's
Quarterly Report as filed by the Company on Form 10-Q on March 17, 1997.
3
<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 for a period of 18 months, which will automatically be
extended to 24 months unless the Company and Lilly agree not to extend the term.
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
4
<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:
5
<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 has recently entered 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. On April 9, 1997, the landlord under the Company's new
lease filed for bankruptcy protection under Chapter 11 of Title 11 of the United
States Code. In connection with such a proceeding, the landlord may continue to
honor the lease during and after the bankruptcy proceeding or may reject the
lease, in which case it will no longer be bound by the terms of the lease. In
connection with its efforts to obtain operating funding, the landlord has asked
that the bankruptcy court permit it to use some of the funds for its portion of
the build-out costs under the new lease. The Company intends promptly to begin
the build-out project and to petition the bankruptcy court to direct the
landlord to determine whether it will accept or reject the lease. Should the
landlord reject the lease, there can be no assurance that the Company will be
able to occupy the new space or that it will recover any of its build-out
expenses not previously funded by the landlord. Although there can be no
assurances, the Company believes that, should the landlord reject the lease and
the Company not occupy the new space, the remaining term of the Company's
current lease and the facilities covered by its current lease are sufficient to
allow the Company adequate time to find and lease suitable alternative new
office and laboratory
space.
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.
6
<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 initial term of the
Program is 18 months, which term will be extended automatically for an
additional six months unless the Company and Lilly agree not to extend the term.
Any extensions beyond 24 months 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.
7
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
3.1** Amended and Restated By-laws.
10.1* Research Collaboration and Option Agreement dated as of February
26, 1997 between Emisphere Technologies, Inc. and Eli Lilly and
Company. Portions of this exhibit have been omitted based on a
request for confidential treatment filed separately with the
Securities and Exchange Commission.
10.2** Form of Lease between Keren Limited Partnership and Emisphere
Technologies, Inc.
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
- ----------
* Replaces previously filed exhibit
** Filed herewith
*** Previously Filed
(b) Reports
No reports on Form 8-K were filed by the Registrant during the quarter
ended January 31, 1997.
8
<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: April 18, 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)
9
<PAGE>
Exhibit 3.1
EMISPHERE TECHNOLOGIES, INC.
----------------------------
BY-LAWS
-------
ARTICLE ONE
STOCKHOLDERS
SECTION 1.1. Annual Meetings. An annual meeting of stockholders to
---------------
elect directors and transact such other business as may properly be presented to
the meeting shall be held each year on such date, at such time and at such
place, within or without the State of Delaware, as the Board of Directors may
from time to time determine.
SECTION 1.2. Special Meetings. A special meeting of stockholders may
----------------
be called at any time by the Board of Directors, the Chairman of the Board or
the President and shall be called by any of them or by the Secretary upon
receipt of a written request to do so specifying the matter or matters,
appropriate for action at such a meeting, proposed to be presented at the
meeting and signed by holders of record of a majority of the shares of stock
that would be entitled to be voted on such matter or matters if the meeting were
held on the day such request is received and the record date for such meeting
were the close of business on the preceding day. Any such meeting shall be held
at such time and at such place, within or without the State of Delaware, as
shall be determined by the body or person calling such meeting and as shall be
stated in the notice of such meeting.
SECTION 1.3. Notice of Meeting. For each meeting of stockholders
-----------------
written notice shall be given stating the place, date and hour and, in the case
of a special meeting, the purpose or purposes for which the meeting is called
and, if the list of stockholders required by Section 1.9 is not to be at such
place at least 10 days prior to the meeting, the place where such list will be.
Except as otherwise provided by Delaware law, the written notice of any meeting
shall be given not less than 10 or more than 60 days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, notice
shall be deemed to be given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address as it appears on the records
of the Corporation.
SECTION 1.4. Quorum. Except as otherwise required by Delaware law or
------
the Certificate of Incorporation, the holders of record of a majority of the
shares of stock entitled to be voted present in person or represented by proxy
at a meeting shall constitute a quorum for the transaction of business at the
meeting, but in the absence of a quorum the holders of record present or
represented by proxy at such meeting may vote to adjourn the meeting from time
to time, without notice other than announcement at the
<PAGE>
meeting, until a quorum is obtained. At any such adjourned session of the
meeting at which there shall be present or represented the holders of record of
the requisite number of shares, any business may be transacted that might have
been transacted at the meeting as originally called.
SECTION 1.5. Chairman and Secretary at Meeting. At each meeting of
---------------------------------
stockholders the Chairman of the Board, or in his absence the President, or in
his absence the person designated in writing by the Chairman of the Board, or if
no person is so designated, then a person designated by the Board of Directors,
shall preside as chairman of the meeting; if no person is so designated, then
the meeting shall choose a chairman by plurality vote. The Secretary, or in his
absence a person designated by the chairman of the meeting, shall act as
secretary of the meeting.
SECTION 1.6. Voting; Proxies. Except as otherwise provided by
---------------
Delaware law or the Certificate of Incorporation, and subject to the provisions
of Section 1.10:
(a) Each stockholder shall at every meeting of the stockholders be entitled
to one vote for each share of capital stock held by him.
(b) Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by proxy, but no such proxy
shall be voted or acted upon after three years from its date, unless the proxy
provides for a longer period.
(c) Directors shall be elected by a plurality vote.
(d) Each matter, other than election of directors, properly presented to
any meeting shall be decided by a majority of the votes cast on the matter.
(e) Election of directors and the vote on any other matter presented to a
meeting shall be by written ballot only if so ordered by the chairman of the
meeting or if so requested by any stockholder present or represented by proxy at
the meeting entitled to vote in such election or on such matter, as the case may
be.
SECTION 1.7. Adjourned Meetings. A meeting of stockholders may be
------------------
adjourned to another time or place by vote as provided in Section 1.4 or 1.6(d).
Unless the Board of Directors fixes a new record date, stockholders of record
for an adjourned meeting shall be as originally determined for the meeting from
which the adjournment was taken. If the adjournment is for more than 30 days,
or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote. At the adjourned meeting
-2-
<PAGE>
any business may be transacted that might have been transacted at the meeting as
originally called.
SECTION 1.8. Consent of Stockholders in Lieu of Meeting. Any action
------------------------------------------
that may be taken at any annual or special meeting of stockholders may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Notice of the taking of such
action shall be given promptly to each stockholder that would have been entitled
to vote thereon at a meeting of stockholders and that did not consent thereto in
writing.
SECTION 1.9. List of Stockholders Entitled to Vote. At least 10 days
-------------------------------------
before every meeting of stockholders a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder, shall be prepared and shall be open to the examination of any
stockholder for any purpose germane to the meeting, during ordinary business
hours, for a period of at least 10 days prior to the meeting, at a place within
the city where the meeting is to be held. Such list shall be produced and kept
at the time and place of the meeting during the whole time thereof and may be
inspected by any stockholder who is present.
SECTION 1.10. Fixing of Record Date. In order that the Corporation
---------------------
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than 60 or less than 10 days
before the date of such meeting, nor more than 60 days prior to any other
action. If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held; the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the day on
which the first written consent is expressed; and the record date for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
-3-
<PAGE>
ARTICLE TWO
DIRECTORS
SECTION 2.1. Number; Term of Office; Qualifications; Vacancies. The
-------------------------------------------------
number of directors that shall constitute the whole Board of Directors shall be
seven, which number may be changed from time to time as determined by action of
the Board of Directors taken by the affirmative vote of a majority of the whole
Board of Directors. Directors shall be elected at the annual meeting of
stockholders to hold office, subject to Sections 2.2 and 2.3, until the next
annual meeting of stockholders and until their respective successors are elected
and qualified. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, although less than a quorum, or by the sole
remaining director, and the directors so chosen shall hold office, subject to
Sections 2.2 and 2.3, until the next annual meeting of stockholders and until
their respective successors are elected and qualified.
SECTION 2.2. Resignation. Any director of the Corporation may resign
-----------
at any time by giving written notice of such resignation to the Board of
Directors, the Chairman of the Board, the President or the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein or, if no time be specified, upon receipt thereof by the Board of
Directors or one of the above-named officers; and unless specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
When one or more directors shall resign from the Board of Directors effective at
a future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in these
By-Laws in the filling of other vacancies.
SECTION 2.3. Removal. Any one or more directors may be removed, with
-------
or without cause, by the vote or written consent of the holders of a majority of
the shares entitled to vote at an election of directors.
SECTION 2.4. Regular and Annual Meetings; Notice. Regular meetings
-----------------------------------
of the Board of Directors shall be held at such time and at such place, within
or without the State of Delaware, as the Board of Directors may from time to
time prescribe. No notice need be given of any regular meeting, and a notice,
if given, need not specify the purposes thereof. A meeting of the Board of
Directors may be held without notice immediately after an annual meeting of
stockholders at the same place as that at which such meeting was held.
-4-
<PAGE>
SECTION 2.5. Special Meetings; Notice. A special meeting of the
------------------------
Board of Directors may be called at any time by the Board of Directors, its
Chairman, the Executive Committee, the President or any person acting in the
place of the President and shall be called by any one of them or by the
Secretary upon receipt of a written request to do so specifying the matter or
matters, appropriate for action at such a meeting, proposed to be presented at
the meeting and signed by at least two directors. Any such meeting shall be
held at such time and at such place, within or without the State of Delaware, as
shall be determined by the body or person calling such meeting. Notice of such
meeting stating the time and place thereof shall be given (a) by deposit of the
notice in the United States mail, first class, postage prepaid, at least two
days before the day fixed for the meeting addressed to each director at his
address as it appears on the Corporation's records or at such other address as
the director may have furnished the Corporation for that purpose, or (b) by
delivery of the notice similarly addressed for dispatch by telegraph, cable or
radio or by delivery of the notice by telephone or in person, in each case at
least 24 hours before the time fixed for the meeting.
SECTION 2.6. Chairman of the Board; Presiding Officer and Secretary
------------------------------------------------------
at Meetings. The Board of Directors may elect one of its members to serve at
- -----------
its pleasure as Chairman of the Board. Each meeting of the Board of Directors
shall be presided over by the Chairman of the Board or in his absence by the
President, if a director, or if neither is present by such member of the Board
of Directors as shal1 be chosen at the meeting. The Secretary, or in his
absence an Assistant Secretary, shall act as secretary of the meeting, or if no
such officer is present, a secretary of the meeting shall be designated by the
person presiding over the meeting.
SECTION 2.7. Quorum. A majority of the whole Board of Directors
------
shall constitute a quorum for the transaction of business, but in the absence of
a quorum a majority of those present (or if only one be present, then that one)
may adjourn the meeting, without notice other than announcement at the meeting,
until such time as a quorum is present. Except as otherwise required by the
Certificate of Incorporation or the By-Laws, the vote of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
SECTION 2.8. Meeting by Telephone. Members of the Board of Directors
--------------------
or of any committee thereof may participate in meetings of the Board of
Directors or of such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at such meeting.
SECTION 2.9. Action Without Meeting. Unless otherwise restricted by
----------------------
the Certificate of Incorporation, any action required or permitted to be taken
at any meeting of the Board of Directors or of
-5-
<PAGE>
any committee thereof may be taken without a meeting if all members of the Board
of Directors or of such committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board of Directors or of such committee.
SECTION 2.10. Executive and Other Committees. The Board of Directors
------------------------------
may, by resolution passed by a majority of the whole Board of Directors,
designate an Executive Committee and one or more other committees, each such
committee to consist of one or more directors as the Board of Directors may from
time to time determine. Any such committee, to the extent provided in such
resolution or resolutions, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, including the power to authorize the seal of the
Corporation to be affixed to all papers that may require it but no such
committee shall have such power of authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the By-Laws; and unless the resolution shall expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. In the absence or disqualification of a member
of a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Each such
committee other than the Executive Committee shall have such name as may be
determined from time to time by the Board of Directors.
SECTION 2.11. Compensation. No director shall receive any stated
------------
salary for his services as a director or as a member of a committee but shall
receive such sum, if any, as may from time to time be fixed by the action of a
majority of the directors.
ARTICLE THREE
OFFICERS
SECTION 3.1. Election; Qualification. The officers of the
-----------------------
Corporation shall be a Chairman of the Board, a President, one or more Vice
Presidents, a Secretary and a Treasurer, each of whom shall be selected by the
Board of Directors. The Board of Directors may elect a Controller, one or more
Assistant Secretaries, one or more Assistant Treasurers, one or more Assistant
Controllers and such other officers as it may from time to time determine. Two
or more offices may be
-6-
<PAGE>
held by the same person. Other than the Chairman of the Board and the President,
no officer need be a director.
SECTION 3.2. Term of Office. Each officer shall hold office from the
--------------
time of his election and qualification to the time at which his successor is
elected and qualified, unless he shall die or resign or shall be removed
pursuant to Section 3.4 at any time sooner.
SECTION 3.3. Resignation. Any officer of the Corporation may resign
-----------
at any time by giving written notice of such resignation to the Board of
Directors, the Chairman of the Board, the President or the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein or, if no time be specified, upon receipt thereof by the Board of
Directors or one of the above-named officers; and, unless specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 3.4. Removal. Any officer may be removed at any time, with
-------
or without cause, by the vote of two directors if there are three directors or
less, or the vote of a majority of the whole Board of Directors if there are
more than three directors.
SECTION 3.5. Vacancies. Any vacancy however caused in any office of
---------
the Corporation may be filled by the Board of Directors.
SECTION 3.6. Compensation. The compensation of each officer shall be
------------
such as the Board of Directors may from time to time determine.
SECTION 3.7 Chairman of the Board. The Chairman of the Board shall
---------------------
be the chief executive officer of the Corporation and shall preside at all
meetings of the stockholders, the Board of Directors and the Executive
Committee, if any. He shall have general direction of the affairs of the
Corporation and shall perform such other duties as may be assigned to him from
time to time by the Board of Directors.
SECTION 3.8. President. The President shall in the absence of the
---------
Chairman of the Board preside at all meetings of the stockholders, the Board of
Directors and the Executive Committee, if any, and shall perform all duties
incident to the office of a president of a corporation, subject however to the
right of the Board of Directors to confer specified powers on officers and
subject generally to the direction of the Board of Directors, the Chairman of
the Board and the Executive Committee, if any.
SECTION 3.9. Vice President. Each Vice President shall have such
--------------
powers and duties as generally pertain to the office of Vice President and as
the Board of Directors, the Chairman of the Board or the President may from time
to time prescribe. During the absence of the President or his inability to act,
the Vice President, or if there
-7-
<PAGE>
shall be more than one Vice President, then that one designated by the Board of
Directors, shall exercise the powers and shall perform the duties of the
President, subject to the direction of the Board of Directors and the Executive
Committee, if any.
SECTION 3.10. Secretary. The Secretary shall keep the minutes of all
---------
meetings of stockholders and of the Board of Directors. He shall be custodian of
the corporate seal and shall affix it or cause it to be affixed to such
instruments as require such seal and attest the same and shall exercise the
powers and shall perform the duties incident to the office of Secretary, subject
to the direction of the Board of Directors and the Executive Committee, if any.
SECTION 3.11. Other Officers. Each other officer of the Corporation
--------------
shall exercise the powers and shall perform the duties incident to his office,
subject to the direction of the Board of Directors and the Executive Committee,
if any.
ARTICLE FOUR
CAPITAL STOCK
SECTION 4.1. Stock Certificates. The interest of each holder of
------------------
stock of the Corporation shall be evidenced by a certificate or certificates in
such form as the Board of Directors may from time to time prescribe. Each
certificate shall be signed by or in the name of the Corporation by the Chairman
of the Board, the President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary. Any or all of
the signatures appearing on such certificate or certificates may be a facsimile.
If any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
SECTION 4.2. Transfer of Stock. Shares of stock shall be
-----------------
transferable on the books of the Corporation pursuant to applicable law and such
rules and regulations as the Board of Directors shall from time to time
prescribe.
SECTION 4.3. Holders of Record. Prior to due presentment for
-----------------
registration of transfer, the Corporation may treat the holder of record of a
share of its stock as the complete owner thereof exclusively entitled to vote,
to receive notifications and otherwise entitled to all the rights and powers of
a complete owner thereof, notwithstanding notice to the contrary.
-8-
<PAGE>
SECTION 4.4. Lost, Stolen, Destroyed or Mutilated Certificates. The
-------------------------------------------------
Corporation shall issue a new certificate of stock to replace a certificate
theretofore issued by it alleged to have been lost, destroyed or wrongfully
taken, if the owner or his legal representative (i) requests replacement, before
the Corporation has notice that the stock certificate has been acquired by a
bona fide purchaser; (ii) files with the Corporation a bond sufficient to
indemnify the Corporation against any claim that may be made against it on
account of the alleged loss or destruction of any such stock certificate or the
issuance of any such new stock certificate; and (iii) satisfies such other terms
and conditions as the Board of Directors may from time to time prescribe.
ARTICLE FIVE
MISCELLANEOUS
SECTION 5.1. Indemnity. (a) The Corporation shall indemnify, subject
---------
to the requirements of subsection (d) of this Section, any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in, or not opposed to, the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify, subject to the requirements of
subsection (d) of this Section, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
-9-
<PAGE>
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the Corporation unless, and only to the extent that, the Court of
Chancery of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery of the State of Delaware or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation, or a person serving in any other enterprise at the request of the
Corporation, has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsection (a) and (b) of this
Section, or in defense of any claim, issue or matter therein, the Corporation
shall indemnify him against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this Section
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
Section. Such determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses incurred by a director, officer, employee or agent in
defending a civil or criminal action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors in the specific case upon
receipt of an undertaking by or on behalf of the director, officer, employee or
agent to repay such amount unless it is ultimately determined that he is
entitled to be indemnified by the Corporation as authorized in this Section.
(f) The indemnification and advancement of expenses provided by or
granted pursuant to the other subsections of this Section shall not limit the
Corporation from providing any other indemnification or advancement of expenses
permitted by law nor shall
-10-
<PAGE>
it be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) The Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or who is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Section.
(h) The indemnification and advancement of expenses provided by, or
granted pursuant to this Section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(i) For the purposes of this Section, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents, so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Section with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(j) This Section 5.1 shall be construed to give the Corporation the
broadest power permissible by the Delaware General Corporation Law, as it now
stands and as it may hereafter be amended.
SECTION 5.2. Waiver of Notice. Whenever notice is required by the
----------------
Certificate of Incorporation, the By-Laws or any provision of the General
Corporation Law of the State of Delaware, a written waiver thereof, signed by
the person entitled to notice, whether before or after the time required for
such notice, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because
-11-
<PAGE>
the meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders or of the Board of Directors or committee thereof need be specified
in any written waiver of notice.
SECTION 5.3. Fiscal Year. The fiscal year of the Corporation shall
-----------
start on August 1 of each year or such other date as the Board of Directors
shall from time to time prescribe.
SECTION 5.4. Corporate Seal. The corporate seal shall be in such
--------------
form as the Board of Directors may from time to time prescribe, and the same may
be used by causing it or a facsimile thereof to be impressed or affixed or in
any other manner reproduced.
ARTICLE SIX
AMENDMENT OF BY-LAWS
SECTION 6.1. Amendment. The By-Laws may be altered, amended or
---------
repealed by the stockholders or by the Board of Directors by a majority vote.
-12-
<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 eighteen months 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 six months (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.
Emisphere shall bear all costs of 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. Lilly and Emisphere shall equally bear the cost of 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. In all cases Lilly shall have the right to review portions
of any SEC filing 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 compounds developed hereunder.
5.4 Standstill. Lilly hereby covenants and agrees that, except as
----------
provided below, from the Effective Date until the earlier of (a) September 26,
2001 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 19.9% 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 20% of
the outstanding shares of Voting Securities, (B) it becomes publicly disclosed
that more than 20% 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
<PAGE>
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
10
<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
12
<PAGE>
"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
13
<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.
15
<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.
16
<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.
17
<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. All package inserts, and
any advertising or promotional materials that substantially reproduce the
material included in the package inserts, shall, to the extent allowed by
applicable law or regulation, include: (i) acknowledgment that the Product
uses Emisphere technology; (ii) Emisphere's trade name (whether or not
registered); and (iii) Emisphere's logo (whether or not registered). Such
incorporation by Lilly shall be made upon discussion between Emisphere and
Lilly with respect to the appropriate protection of Emisphere's trademark,
service mark or trade name rights. Emisphere hereby grants Lilly a non-
exclusive, royalty-free license to use such trademark, service mark and
trade name rights for the purposes set forth herein.
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,
18
<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.
19
<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.
20
<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.
21
<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
22
<PAGE>
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
23
<PAGE>
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
24
<PAGE>
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
25
<PAGE>
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;
26
<PAGE>
(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 nine (9) years from the date of Launch of the Product(s) in the
country concerned; or
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
27
<PAGE>
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 sixtieth
(60th) day 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 sixtieth (60th) day, 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 thirty (30) days written notice, given within
sixty (60) days 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.
28
<PAGE>
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 thirty (30) days written notice,
given within sixty (60) days 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
29
<PAGE>
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.
If Lilly terminates this Agreement without cause (e.g., for reasons other
than safety of the Carriers, clinical results of the Product, or the
Emisphere Technology efficiency), the Parties will issue a joint press
release which states that the termination was not due to the Emisphere
Technology, and that Lilly will continue to evaluate the Emisphere
Technology with respect to other Lilly therapeutic Compounds.
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
30
<PAGE>
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
31
<PAGE>
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.
32
<PAGE>
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.
33
<PAGE>
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) shall be the responsibility and
property of Lilly. Lilly shall allow Emisphere access thereto to enable
Emisphere to fulfill its obligations and exercise its rights under this
Agreement. 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 and for a period of two (2) years thereafter.
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 and for a period
of two (2) years thereafter. 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>
LEASE, dated as of March __, 1997, between KEREN LIMITED PARTNERSHIP,
a Delaware limited partnership having an office at 777 Old Saw Mill River Road,
Tarrytown, New York 10591-6705 (herein called "Landlord") and EMISPHERE
TECHNOLOGIES, INC., a Delaware corporation having an office at 15 Skyline Drive,
Hawthorne, New York 10532 (herein called "Tenant").
W I T N E S S E T H :
- - - - - - - - - -
ARTICLE 1 - DEMISE AND RENT AND DEFINITIONS
1.01. Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, the Premises (as defined in Section 1.02) in the buildings known as
------------
the Linde Building and the Spine Building and identified as such on the plan
attached hereto as Exhibit A (herein collectively called the "Building") on land
---------
(herein called "Land") owned by Landlord located along Old Saw Mill River Road,
partly in the Town of Greenburgh and partly in the Town of Mount Pleasant, in
the County of Westchester and State of New York and called "The Landmark at
Eastview." Landlord intends to and shall have the right at any time to cause
part or parts of the Land to become a separate tax lot or separate tax lots in
connection with future development thereof. If Landlord does so, any separate
tax lots that do not include the Premises shall be excluded from the Land and
"Land" shall mean only the land in the tax lot of which the Premises are a part.
The Land and all of the buildings and other improvements presently and hereafter
located thereon are herein collectively called the "Project." The buildings and
other improvements presently and hereafter located on the Land are herein
collectively called the "Improvements."
1.02. The premises (herein called the "Premises") leased to Tenant
consist of approximately 66,660 square feet of space, and are shown on Exhibit
-------
A. Tenant shall have, as appurtenant to the Premises, the non-exclusive right
- -
to use in common with other tenants and other occupants of the Project, and
their licensees and invitees, subject to the terms and conditions of this Lease,
including the Rules and Regulations (as hereinafter defined): (a) the common
lobbies, corridors, stairways and elevators of the Building, if any, (b) if the
Premises includes less than the rentable floor area of any floor, the common
toilets, corridors and lobby, if any, of such floor, and (c) outdoor common
areas of the Project.
1.03. The term of this Lease (herein called the "Term") shall
commence on the date (herein called the "Commencement Date") on which this Lease
becomes effective pursuant to Article 38 and shall end at 11:59 p.m. on the last
day of the tenth Lease Year (as hereinafter defined), or on such earlier date
upon which the Term shall expire or be cancelled or terminated pursuant to any
of the conditions or covenants of this Lease or pursuant to law. Upon the valid
exercise of any renewal option, the word "Term" shall be deemed to include the
renewal period for which said option or options was or were exercised.
<PAGE>
1.04. (a) The rents shall be and consist of (i) fixed rent (herein
called the "Fixed Rent") at the rate or rates per annum set forth on Exhibit B
---------
which shall be payable in equal monthly install ments in advance on September 1,
1997 (notwithstanding the fact that the "Rent Commencement Date", as hereinafter
defined, might be later than September 1, 1997) and on the first day of each and
every calendar month thereafter during the Term (except that Tenant shall pay,
upon the execution and delivery of this Lease by Tenant, the sum of $55,417, to
be applied against the first installment or installments of Fixed Rent becoming
due under this Lease), and (ii) additional charges (herein called the
"Additional Charges") consisting of all other sums of money as shall become due
from and payable by Tenant to Landlord hereunder.
(b) Notwithstanding the foregoing provisions of this Section 1.04,
------------
provided that Tenant is not in default beyond the applicable notice and grace
period with respect to any of the terms, provisions, covenants and conditions of
this Lease on its part to be performed, the Fixed Rent payable by Tenant shall
be partially abated as follows:
(i) During the first three Lease Years (as hereinafter
defined), the Fixed Rent shall be abated so that, after giving effect
to such abatement, the Fixed Rent payable during each of the first
three Lease Years shall be at the respective annual rates set forth
below, which rates reflect the abatement of Fixed Rent for 31,660
rentable square feet in the Premises in the first Lease Year, 21,660
rentable square feet in the Premises for the second Lease Year and
11,660 rentable square feet in the Premises for the third Lease Year.
Lease Year Fixed Rent (after such abatement)
---------- ---------------------------------
1 $ 665,000
2 855,000
3 1,045,000
The number of rentable square feet in the Premises for which Fixed Rent is so
abated in a given Lease Year is herein called the "Abated Footage".
(ii) During the first five Lease Years, the Fixed Rent shall
be further abated by $19,101.16 per month ($229,213.92 per year), so
that, after giving effect to such abatement, as well as the abatement
under paragraph (b)(i) above, the Fixed Rent payable during each of
----------------
the first five Lease Years shall be at the respective annual rates set
forth below:
2
<PAGE>
Lease Year Fixed Rent (after all abatements)
---------- ---------------------------------
1 $ 435,786.08
2 625,786.08
3 815,786.08
4 1,037,326.08
5 1,037,326.08
(c) Notwithstanding anything to the contrary provided in Section
-------
1.04(b) and 1.04(c), if the First Lease Year is a period of more than 12 months,
- ------- -------
then the abatement in such sections shall only apply to the last 12 full
calendar months in such Lease Year.
(d) All the Fixed Rent and Additional Charges shall be paid in lawful
money of the United States to Landlord at its office c/o Keren Developments
Inc., 777 Old Saw Mill River Road, Tarrytown, New York 10591-6705, Attention:
Accounts Receivable, or such other place, or to Landlord's agent and at such
other place, as Landlord shall designate by notice to Tenant.
1.05. Tenant shall pay the Fixed Rent and Additional Charges promptly
when due without notice or demand therefor and without any abatement, deduction
or setoff for any reason whatsoever, except as may be expressly provided for in
this Lease or by law.
1.06. No payment by Tenant or receipt or acceptance by Landlord of a
lesser amount than the correct Fixed Rent or Additional Charges shall be deemed
to be other than a payment on account, nor shall any endorsement or statement on
any check or any letter accompanying any check or payment be deemed an accord
and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance or pursue any other remedy
in this Lease or provided at law.
1.07. Tenant shall pay the Fixed Rent and Additional Charges as above
and as herein provided, by good and sufficient check (subject to collection)
drawn on a New York City bank which is a member of the New York Clearing House
or a successor thereto.
1.08. If Tenant fails to make any payment of Fixed Rent or Additional
Charges on or before the fifth day after the due date thereof, Tenant shall pay
to Landlord a late charge of 3.5% of the amount of such payment. In addition,
any such amount that remains unpaid for more than 30 days after the due date
thereof shall bear interest at a rate (herein called the "Lease Interest Rate")
equal to the lesser of (a) the rate announced by Citibank, N.A. or its successor
from time to time as its prime or base rate, plus 4%, or (b) the maximum
applicable legal rate, if any, from the date such amount became due and payable
to the date of payment thereof by Tenant. Such late charge and interest shall
be due and payable on demand.
1.09. If any of the Fixed Rent or Additional Charges shall be or
become uncollectible, reduced or required to be refunded because
3
<PAGE>
of any Legal Requirements (as defined in Section 1.10(i)), Tenant shall enter
into such agreement(s) and take such other steps (without additional expense or
obligation to Tenant) as Landlord may request and as may be legally permissible
to permit Landlord to collect the maximum rents which from time to time during
the continuance of such legal rent restriction may be legally permissible (and
not in excess of the amounts reserved therefor under this Lease). Upon the
termination of such legal rent restriction, (a) the rent shall become and
thereafter be payable in accordance with the amounts reserved herein for the
periods following such termination and (b) Tenant shall pay to Landlord, to the
maximum extent legally permissible, an amount equal to (i) the rent which would
have been paid pursuant to this Lease but for such legal rent restriction, less
(ii) the rent actually paid by Tenant during the period such legal rent
restriction was in effect.
1.10. The following terms, whenever used in this Lease, shall have
the meanings indicated:
(a) The term "and/or" when applied to two or more matters or
things shall be construed to apply to any one or more or all thereof as the
circumstances warrant at the time in question.
(b) The term "Business Days" shall mean all days except
Saturdays, Sundays and days observed by the Federal or the state
governments as legal holidays.
(c) The term "Business Hours" shall mean 9:00 a.m. to 6:00 p.m.
(d) The terms "herein" and "hereunder," and words of similar
import, shall be construed to refer to this Lease as a whole, and not to
any particular Article or Section, unless expressly so stated.
(e) The term "Insurance Requirements" shall mean the rules,
regulations, mandatory orders and mandatory requirements of the New York
Board of Underwriters and/or the New York Fire Insurance Rating
Organization and/or any other similar body performing the same or similar
functions and having jurisdiction or cognizance over the Building and/or
the Premises, whether now or hereafter in force, and the mandatory
requirements of any insurance policy maintained by Landlord. Insurance
Requirements shall not include recommendations of an insurance inspector
which are not mandatory in nature or a condition to the insurability of the
Building, if non-compliance therewith does not materially increase
Landlord's insurance premiums.
(f) The term "Landlord" shall mean only the owner at the time in
question of the Building or of a lease of the
4
<PAGE>
Building, so that in the event of any transfer or transfers of title to the
Building or of Landlord's interest in a lease of the Building, the
transferor shall be and hereby is relieved and freed of all obligations of
Landlord under this Lease accruing after such transfer, and it shall be
deemed, without further agreement, for the benefit of Tenant, that such
transferee has assumed and agreed to perform and observe all obligations of
Landlord herein during the period it is the holder of Landlord's interest
under this Lease.
(g) The term "Lease Year" shall mean (i) the period beginning on
the Rent Commencement Date and ending on the last day of the month in which
the anniversary of the Rent Commencement Date falls, and (ii) each
succeeding twelve-month period thereafter during the Term.
(h) The term "Legal Requirements" shall mean laws and ordinances
of any or all of the federal, state, city, town, county, borough and
village governments and rules, regulations, orders and directives of any
and all departments, subdivisions, bureaus, agencies or offices thereof,
and of any other governmental or public authorities having jurisdiction
over the Building and/or the Premises, and the direction of any public
officer pursuant to law, whether now or hereafter in force.
(i) The term "person" shall mean any natural person or persons, a
partnership, a corporation, and any other form of business or legal
association or entity.
(j) The term "Prime Rate" shall mean the rate announced from time
to time by Citibank, N.A., or its successor, at its principal office, as
its prime or base rate; or, if such rate ceases to be announced, a
comparable reference rate reasonably selected by Landlord.
(k) The term "Rent Commencement Date" shall mean the earlier of
(i) November 15, 1997 and (ii) the earliest date, on or after September 1,
1997, on which Tenant takes occupancy of any part of the Premises for the
regular conduct of its business therein. Promptly after the occurrence of
the Rent Commencement Date, the parties shall confirm such Date in writing.
(l) The term "Tenant" shall mean the Tenant herein named or any
assignee or other successor in interest (immediate or remote) of the Tenant
herein named, which at the time in question is the owner of the Tenant's
estate and interest granted by this Lease; but the foregoing provisions of
this subsection shall not be construed to permit any assignment of this
Lease or to relieve the Tenant herein named or any assignee or other
successor in interest (whether immediate or remote) of the Tenant herein
named from the full and prompt payment, performance and observance of the
covenants, obligations and conditions to be paid, performed and observed by
Tenant under this Lease.
5
<PAGE>
ARTICLE 2 - USE
2.01. Tenant shall use and occupy the Premises for general
administrative and executive offices and laboratory space and for no other
purpose. Without limiting the foregoing, subject to Section 2.02 (and the other
------------
provisions of this Lease), Tenant may, in connection with such laboratory use,
have (among other things) vivariums and cages for rodents and dogs; treatment
rooms; a surgical suite; cage washing equipment; organic synthesis, analytical
and formulations laboratories, each generating hazardous waste; pre-clinical
research laboratories (using biomaterials such as tissue samples, cell culture
and biological fluids); a radioisotope laboratory; a photograph suite with a
darkroom; a warehouse area; and locker rooms with shower facilities.
2.02. Tenant, at its expense, shall duly procure and thereafter
maintain any and all governmental licenses, permits and inspection certificates
(including, without limitation, if required by Legal Requirements, Environmental
Protection Agency authorizations for the disposal of hazardous waste, permits
for the disposal of biohazardous waste, a New York State radioisotope license,
New York State and Westchester County emissions permits and New York State and
U.S. Department of Agriculture inspections) required for the proper and lawful
conduct of Tenant's business in the Premises or any part thereof (other than the
present certificate of occupancy for the Premises and the Building) and submit
the same to Landlord for inspection. Tenant shall at all times comply with the
terms and conditions of each such license, permit and certificate. Without
limiting Tenant's right to use the Premises for the permitted uses set forth in
Section 2.01, Tenant's manner of use of the Premises for such permitted uses
- ------------
shall not (a) violate the certificate of occupancy for the Premises or for the
Building or any other permit or license issued pursuant to any Legal
Requirements; (b) cause injury to the Building or any equipment, facilities or
systems therein; (c) constitute a violation of the Legal Requirements or
Insurance Requirements; (d) impair the character, reputation or appearance of
the Building as a first class office building; (e) impair the proper and
economic maintenance, operation and repair of the Building and/or its equipment,
facilities or systems; or (f) annoy (in the reasonable judgment of another
tenant or occupant) or interfere with the permitted uses of other tenants or
occupants of the Project. Tenant shall not at any time use or occupy, or suffer
or permit anyone to use or occupy, the Premises, or any part thereof, for (i) a
disposal site for any toxic chemicals (although Landlord acknowledges that
Tenant may use toxic chemicals in the ordinary course of Tenant's laboratory
use), (ii) a banking, trust company, or safe deposit business, or (iii) a
restaurant and/or bar.
2.03. Landlord represents and warrants to Tenant that the current
certificate of occupancy for the Building and Insurance Requirements applicable
to the insurance maintained by Landlord on the Building permit the uses of the
Premises that are permitted under Section 2.01.
------------
6
<PAGE>
ARTICLE 3 - CONDITION OF PREMISES
3.01. Except as provided in Section 3.03(d), Tenant is leasing the
---------------
Premises "as is" on the date hereof, except for reasonable wear and tear and the
rights of the present occupant(s) of the Premises to remove its or their trade
fixtures and other property from the Premises; and the taking of possession by
Tenant of the Premises shall be conclusive evidence as against Tenant that the
Premises and the Building were in good and satisfactory condition at the time
such possession was taken.
3.02. If Landlord is unable to give possession of the Premises on the
Commencement Date for any reason beyond Landlord's reasonable control
(including, but not limited to, the occurrence of any of the events described in
Section 41.04), then Landlord shall not be subject to any liability for failure
- -------------
to give possession on the Commencement Date and the validity of this Lease shall
not be impaired under such circumstances, nor shall the same be construed in any
way to extend the Term, but the Fixed Rent and Additional Charges payable
hereunder shall be abated (provided Tenant is not responsible for the inability
to obtain possession) until Landlord tenders possession to Tenant. If Landlord
gives Tenant permission to enter into the possession of the Premises prior to
the Commencement Date, such possession or occupancy shall be deemed to be upon
all the terms, covenants, conditions and provisions of this Lease (but the Rent
Commencement Date shall not be affected thereby). Tenant hereby waives the
provisions of Section 223-a of the Real Property Law of the State of New York,
and agrees that the provisions of this Article are intended to constitute "an
express provision to the contrary" within the meaning of said Section 223-a.
3.03. (a) Except as provided in Section 3.03(e), Tenant shall
---------------
provide and (subject to Section 3.03(b)) pay for all of its tenant improvements,
---------------
furniture, furnishings, telephone and other communication systems and equipment,
other business and laboratory equipment, and any other facilities or
installations Tenant requires or desires for the conduct of its business in the
Premises. Any tenant improvements and other alterations and installations by
Tenant (herein called the "Work") shall be made only in compliance with the
applicable provisions of this Lease.
(b) Landlord shall contribute $1,350,000 (herein called the
"Landlord's Contribution") to the cost of the Work as follows: On the date that
Swiss Bank (as defined in Section 6.01) delivers to Landlord its approval under
------------
Section 38.01, Landlord shall pay $675,000 of the Landlord's Contribution to
- -------------
Kaye, Scholer, Fierman, Hays & Handler, LLP, as escrow agent (herein called
"Escrow Agent") under the Escrow Agreement dated the date hereof (herein called
the "Escrow Agreement"), among Landlord, Tenant and Escrow Agent, pursuant to
which Escrow Agent will hold, invest in an interest-bearing account and disburse
the Landlord's Contribution. On or before May 1, 1997, Landlord shall pay the
balance of the Landlord's Contribution to Escrow Agent. Provided Tenant shall
not be in default hereunder
7
<PAGE>
beyond the applicable grace period, Tenant shall be entitled to receive
disbursements of portions of the Landlord's Contribution from time to time upon
delivery to Escrow Agent, with a copy to Landlord and Swiss Bank, of a notice
requesting such disbursement and certifying that (i) the amount requested (A) is
then due and payable, or has been paid, by Tenant to one or more contractors or
materialmen for goods or services provided in connection with the Work and (B)
constitutes not more than 1/3 of the cost of the Work to date (such that Tenant
shall have paid or be concurrently paying with its own funds at least 2/3 of the
cost of the Work to date); (ii) no portion of such amount has previously been
the subject of any such disbursement request; (iii) all previous such
disbursements have been applied in payment of the costs of the Work for which
they were requested; and (iv) Tenant has delivered to Landlord (A) true and
complete copies of the invoices and/or the requisitions of Tenant's general
contractor (herein called the "GC") with respect to the costs for which such
disbursement is being requested and the costs that have been or are being paid
by Tenant from its own funds, (B) lien waivers from the GC and, in the case of
the final disbursement, all other contractors, subcontractors and materialmen
with respect to the cost of all Work theretofore performed and (C) a lien search
indicating that no liens have been filed against the Building in connection with
the Work; provided, however, that the last $100,000 of the Landlord's
Contribution shall not be released to Tenant unless and until (x) all
governmental authorities have (to the extent required) issued final approval of
the Work as built and (y) Tenant has delivered to Landlord "as built" drawings
with respect to the Work (whereupon all of the remaining Landlord's Contribution
shall be released).
(c) If this Lease is terminated for any reason before the disbursement
of the Landlord's Contribution in full, then Landlord shall be entitled to
receive a refund of the remaining balance of the Landlord's Contribution. In
any event, Landlord shall be entitled to receive the interest collected by
Escrow Agent on the funds held by it under the Escrow Agreement, at the time the
final disbursement of such funds is made, and Landlord shall pay all taxes on
such interest.
(d) Landlord represents and warrants that, on the Rent Commencement
Date, the common rest rooms on the floor where the Premises are located, and the
common areas and entrances and exits of the Building, will comply with all Legal
Requirements (including the Americans with Disabilities Act), and such rest
rooms, common areas and the building systems serving the Premises will be in
good working order.
(e) Landlord shall permit Tenant to move to the Premises (at its
expense) and use during the Term, the equipment described in Exhibit K hereto;
---------
which equipment shall remain the
8
<PAGE>
property of Landlord and be surrendered to Landlord at the end of the Term.
Such equipment is being so provided on an "as is", "where is" basis. Landlord
makes no representation or warranty regarding the condition, fitness or
usefulness of it.
ARTICLE 4 - TAX PAYMENTS
4.01. For the purposes of this Article 4 and other provisions of this
---------
Lease:
(a) The term "Taxes" shall mean (i) the real estate taxes,
assessments and special assessments imposed upon the Project by any
federal, state, municipal or other governments or governmental bodies or
authorities, and (ii) any expenses incurred by Landlord or any other tenant
in contesting such taxes or assessments and/or the assessed value of the
Improvements and/or the Land, which expenses shall be allocated to the Tax
Year to which such expenses relate; provided, that such expenses incurred
by another tenant shall only be included in "Taxes" if the contest by such
tenant is on behalf of the entire Building (or the entire Project). If at
any time during the Term the methods of taxation prevailing on the date
hereof shall be altered so that in lieu of, or as an addition to or as a
substitute for, the whole or any part of such real estate taxes,
assessments and special assessments now imposed on real estate there shall
be levied, assessed or imposed (x) a tax, assessment, levy, imposition,
license fee or charge wholly or partially as a capital levy or otherwise on
the rents received therefrom, or (y) any other such additional or
substitute tax, assessment, levy, imposition or charge, then all such
taxes, assessments, levies, impositions, fees or charges or the part
thereof so measured or based shall be deemed to be included within the term
"Taxes" for the purposes hereof. However, "Taxes" shall not include any
amounts attributable to new buildings constructed on the Land after the
date hereof to the extent (if any) that the real estate taxes attributable
to such new buildings are at a rate per rentable square foot that exceeds
the average rate per rentable square foot of real estate taxes attributable
to the other buildings in the Project.
(b) The term "Tax Year" shall mean the period of 12 calendar
months beginning on January 1 of the year in which the Term commences, and
each succeeding 12-month period thereafter.
(c) The term "Tenant's Proportionate Share" for purposes of this
Article 4, Article 5 and any other relevant provisions of this Lease shall
mean an amount equal to 9.03% minus the Applicable Abatement Factor,
subject to change as provided in Section 4.06 and in this subdivision (c).
------------ ---------------
If any building or buildings is or are enlarged, demolished or removed from
the Land or any new building or buildings is or are erected on the Land,
the term "Tenant's Proportionate Share" shall mean (i) the percentage that
represents a fraction the numerator of
9
<PAGE>
which is the number of square feet of gross rentable area in the Premises
and the denominator of which is the aggregate number of square feet of
gross rentable area of all the buildings on the Land (herein called the
"Gross Building Area"), minus (ii) the Applicable Abatement Factor; subject
to change as provided in Section 4.06. Landlord represents to Tenant that
------------
(1) the Gross Building Area is 737,954 on the date hereof and (2) the
aggregate of Tenant's Proportionate Share of Taxes and the percentages of
Taxes payable by other tenants at the Project, other than Carbide, under
provisions in their leases analogous to this Article 4 that require
---------
payments of additional charges based on a proportionate share of Taxes (or
increases in Taxes over a base amount) does not exceed the Non-Carbide
Percentage of Taxes payable with respect to the Project (except, possibly,
to a de minimis extent attributable to rounding of fractional amounts).
----------
(d) The term "Applicable Abatement Factor" for a given Lease Year
shall mean the percentage that represents a fraction the numerator of which
is the Adjusted Abated Footage in such Lease Year and the denominator of
which is the Gross Building Area.
(e) The term "Adjusted Abated Footage" for a given Lease Year
shall mean the lesser of (i) the Abated Footage (if any) in such Lease Year
or (ii) the average number of square feet of gross rentable area in the
Premises that is unoccupied during such Lease Year (with such average being
determined based on the sum of the unoccupied areas for each day in such
Lease Year divided by the total number of such days). For purposes of
calculating periodic installments of Taxes or Operating Expenses prior to
the final determination of the Adjusted Abated Footage in any Lease Year,
the Abated Footage shall be used in calculating the Applicable Abatement
Factor for such Lease Year until the unoccupied area of the Premises
decreases below the Abated Footage; and upon such decrease, and each
further decrease during such Lease Year, such periodic installments
thereafter due shall, upon notice to Tenant, be recalculated to reflect the
projected average under the foregoing clause (ii) based on such
decrease(s). The final determination of the Adjusted Abated Footage shall
be made within thirty (30) days following the end of such Lease Year.
(f) The term "Carbide" means Union Carbide Chemicals and Plastics
Company Inc.
(g) The term "Non-Carbide Percentage" means 100% minus the
percentage of the Gross Building Area that is demised under the lease
between Landlord and Carbide (which expires on December 31, 1997).
4.02. Any Taxes for a real estate fiscal tax year, a part of which is
included within a particular Tax Year and a part of which is not so included,
shall be apportioned on the basis of the number of
10
<PAGE>
days in the real estate fiscal tax year included in the particular Tax Year for
the purpose of making the computations under Section 4.03.
------------
4.03. For each Tax Year, any part of which shall occur during the
period from the Rent Commencement Date through the end of the Term, Tenant shall
pay to Landlord an amount (prorated to the extent provided in Section 4.05, if
------------
applicable) (herein called the "Tax Payment") equal to Tenant's Proportionate
Share of the Taxes for such Tax Year. The Tax Payment for each Tax Year shall
be due and payable in installments in the same manner and at the same time that
the Taxes for such Tax Year are first due and payable to the appropriate taxing
authority. Landlord shall bill Tenant for any Tax Payment installment(s)
payable by Tenant pursuant to this Article, such bill to set forth in reasonable
detail the computation of the Tax Payment and the particular installment(s)
thereof being billed. In the event of any increase in the Taxes for any Tax
Year, whether during or after such Tax Year, or any decrease in the Taxes during
such Tax Year, the Tax Payment for such Tax Year shall be appropriately adjusted
and paid or refunded, as the case may be, in accordance therewith.
4.04. If Landlord shall receive a refund of the Taxes for any Tax
Year (including any interest on such refund), Landlord shall either pay to
Tenant promptly, or permit Tenant to credit against the next installments of
Fixed and Additional Rent due under this Lease, Tenant's Proportionate Share of
the net refund, plus interest received, if any (after deducting from such total
refund the costs and expenses, including, but not limited to, appraisal,
accounting and legal fees of obtaining the same, to the extent that such costs
and expenses were not included in the Taxes for such Tax Year); provided,
however, such payment or credit to Tenant shall in no event exceed Tenant's Tax
Payment paid for such Tax Year, plus interest on such amount. The provisions of
this Section 4.04 shall survive the expiration or sooner termination of the Term
------------
(subject to Landlord's right of offset against any amounts owing by Tenant
hereunder).
4.05. If a Tax Year begins prior to the Rent Commencement Date or
ends after the expiration or termination of the Term, the Tax Payment therefor
shall be prorated to correspond to that portion of such Tax Year occurring from
and after the Rent Commencement Date and within the Term.
4.06. If Landlord causes part or parts of the Land to become a
separate tax lot or separate tax lots, then the term "Tenant's Proportionate
Share" shall be the percentage that represents a fraction, the numerator of
which is the number of square feet of gross rentable area in the Premises and
the denominator of which is the aggregate number of square feet of gross
rentable area of all the buildings in the separate tax lot of which the Premises
are a part.
11
<PAGE>
ARTICLE 5 - OPERATING EXPENSE PAYMENTS
5.01. For the purposes of this Article 5 and other provisions of this
---------
Lease:
(a) The term "Operating Expenses" shall mean the following costs
and expenses actually paid or incurred by Landlord or on Landlord's behalf
in respect of the repair, maintenance and operation of the Project
(including, without limitation, all expenses of the following types paid or
incurred as a result of Landlord complying with its obligations under this
Lease): (i) salaries, wages, medical, surgical, union and general welfare
benefits (including, without limitation, group life insurance and pension
and welfare payments and contributions and all other fringe benefits paid
to, for or with respect to all persons (whether employees of Landlord or
its managing agent) engaged in the repair, operation and maintenance of the
Project (excluding employees above the level of Project Manager); (ii)
payroll taxes, workers' compensation, uniforms, dry cleaning, and related
expenses for such persons; (iii) the cost of all charges for gas, steam,
electricity, heat, ventilation, air-conditioning, water and other utilities
furnished to the buildings within the Project (including, without
limitation, the common areas thereof) together with any taxes on such
utilities (excluding however, the cost of electricity, heat, ventilating
and air-conditioning described in clauses (9) and (10) of this definition);
(iv) the cost of painting the common areas and other non-rentable space of
the Project; (v) the cost (including sales and other taxes thereon) of
building and cleaning supplies, materials and equipment, rentals and
replacements of tools and equipment (subject to the provisions hereinafter
set forth in this Section 5.01(a)) used in the operation, maintenance, and
---------------
repair of the Project, and charges for telephone service for the management
of the Project; (vi) insurance premiums (including, without limitation,
liability insurance, fire and casualty insurance, rent insurance and any
other insurance), attorneys' fees and disbursements (exclusive of any such
fees and disbursements incurred in applying for any reduction of Taxes or
in connection with the leasing of space in the Project or the enforcement
of leases), auditing and other professional fees and expenses (excluding
audit fees resulting from the auditing of Operating Expenses by Tenant or
any other tenant in the Project, if such audit reveals overcharges that
entitle Tenant, or the tenant in question, to reimbursement of its audit
costs), association dues and any other ordinary and customary financial
expenses incurred in connection with the operation of the Project; (vii)
charges of independent contractors for landscaping, exterminating, snow
removal, and equipment inspection and maintenance; (viii) cost of hand
tools and other movable equipment used exclusively in the repair,
maintenance or operation of the Project (subject to the provisions
hereinafter set forth in this Section 5.01(a)); (ix) the cost of all
---------------
charges for window and other cleaning and janitorial and security
12
<PAGE>
services; (x) the cost of repairs and replacements made by Landlord
(subject to the provisions hereinafter set forth in this Section 5.01(a));
---------------
(xi) the cost of alterations and improvements to the Project (in addition
to ordinary repairs and maintenance) made to comply with Legal Requirements
or Insurance Requirements not yet enacted as of the date hereof (and
subject to the provisions hereinafter set forth in this Section 5.01(a));
(xii) payments under service contracts to perform services included in
Operating Expenses; (xiii) management fees or, if no managing agent is
employed by Landlord, a sum in lieu thereof, in either case, not to exceed
the lesser of (A) the then prevailing rates for management fees of similar
properties in Westchester County or (B) 4.5% of the rents and additional
charges from tenants of the Project; and (xiv) all other charges properly
allocable to the repair, operation and maintenance of the Project in the
ordinary course of business and in accordance with generally accepted
accounting principles; excluding, however, (1) depreciation and
amortization, (2) interest on and amortization of debts, (3) ground rent,
(4) leasehold improvements made for existing or future tenants of the
Project, (5) brokerage commissions, (6) refinancing costs, (7) costs and
expenses in connection with the construction of new buildings, including
all planning, legal and related costs, (8) Taxes, (9) the cost of Basic
Electric and HVAC Electric (as such terms are defined in Section 15.01)
furnished to the Premises or to other tenants of the Project, (10) the cost
of producing and furnishing steam and chilled water to provide heat,
ventilating and air-conditioning furnished to the Premises or to other
tenants of the Project, (11) costs paid or reimbursed directly by Tenant or
another tenant in the Project (as distinguished from costs that are passed
along to other tenants by virtue of provisions in their leases, analogous
to this Article 5, which require them to pay a proportionate share of
---------
operating costs or increases therein), and (12) capital improvements that
do not qualify under clause (xi) above and are not either (a) of a type
which will reduce Operating Expenses or (b) reasonably required to maintain
the condition of the Project in substantially the condition that it is as
of the date hereof. The cost of any capital improvement or machinery or
equipment that is included as an Operating Expense under the foregoing
definition shall be included in Operating Expenses for the Operating Year
in which such improvement was made or machinery or equipment was pur
chased, provided that to the extent the cost of such capital improvement or
machinery or equipment is required to be capitalized for federal income tax
purposes, such cost shall be amortized on a straight-line basis over the
useful life thereof utilized for federal income tax purposes, and the
annual amortization of such capital improvement or machinery or equipment,
together with interest on the unamortized balance of such cost at the Prime
Rate in effect when such cost is first incurred, shall be included in
Operating Expenses. If the capital expenditure is of a type which will
reduce Operating Expenses, and does not qualify under the foregoing clause
12(b),
13
<PAGE>
then the amount to be included in Operating Expenses for any year on
account of such expenditure will not exceed the amount of Operating Expense
Savings achieved. Any cost or expense shall be included in Operating
Expenses for any Operating Year no more than once, notwithstanding that
such cost or expense may fall under more than one of the categories listed
above. Landlord may use related or affiliated entities to provide services
or furnish materials for the Project provided that the rates or fees
charged by such entities are competitive with those charged by unrelated or
unaffiliated entities for the same services or materials. If during any
Operating Year the tenant or occupant of any space in the Project undertook
to perform work or services therein in lieu of having Landlord perform the
same and the cost thereof would have been included in Operating Expenses if
done by Landlord, then, in any such event(s), the Operating Expenses for
such Operating Year shall include the amount that would have been incurred
if Landlord had performed such work or services, as the case may be, to the
extent necessary only to allow Landlord to collect in full Landlord's
actual cost for performing such work or service for the remaining tenants
of the Project. Operating Expenses shall be calculated on the accrual
basis of accounting. Landlord represents to Tenant that the aggregate of
Tenant's Proportionate Share of Operating Expenses and the percentages of
Operating Expenses payable by other tenants at the Project (other than
Carbide) under provisions in their leases analogous to this Article 5 (or
included in a base year for such Tenant) does not exceed the Non-Carbide
Percentage of Operating Expenses actually incurred by Landlord with respect
to the Project (except, possibly, to a de minimis extent attributable to
rounding of fractional amounts).
(b) The term "Operating Year" shall mean the calendar year
beginning on January 1 of the year in which the Term commences, and each
succeeding calendar year thereafter.
(c) The term "Operating Statement" shall mean a written statement
prepared by Landlord or its agent, setting forth Landlord's computation of
the sum payable by Tenant under this Article for a specified Operating
Year.
5.02. For each Operating Year, any part of which occurs during the
period from the Rent Commencement Date through the end of the Term, Tenant shall
pay to Landlord an amount (prorated to the extent provided in Section 5.06, if
------------
applicable) (herein called the "Operating Payment") equal to Tenant's
Proportionate Share of the Operating Expenses for such Operating Year. Said
payments shall be made as provided in Section 5.03.
------------
5.03. Landlord shall furnish to Tenant, prior to the commencement of
each Operating Year (or, in the case of the Operating Year in which the Term
commences, prior to the Rent Commencement Date), a written statement setting
forth Landlord's estimate of the Operating Payment for such Operating Year.
Tenant shall pay to
14
<PAGE>
Landlord on the first day of each month during such Operating Year (or the
portion thereof subsequent to the Rent Commencement Date, as the case may be) an
amount equal to one-twelfth of Landlord's estimate of the Operating Payment for
such Operating Year. If, however, Landlord shall furnish any such estimate for
an Operating Year subsequent to the commencement thereof, then (a) until the
first day of the month following the month in which such estimate is furnished
to Tenant, Tenant shall pay to Landlord on the first day of each month an amount
equal to the monthly sum payable by Tenant to Landlord under this Section in
respect of the last month of the preceding Operating Year; (b) after such
estimate is furnished to Tenant or included in or together with such estimate,
Landlord shall give notice to Tenant stating whether the installments of the
Operating Payment previously made for such Operating Year were greater or less
than the installments of the Operating Payment to be made for such Operating
Year in accordance with such estimate, and (i) if there shall be a deficiency,
Tenant shall pay to Landlord the amount thereof within 10 days after demand
therefor, without interest, or (ii) if there shall have been an overpayment,
Landlord shall promptly either refund to Tenant the amount thereof or permit
Tenant to credit the amount thereof against the next subsequent payments under
this Article or Article 4, without interest; and (c) on the first day of the
---------
month following the month in which such estimate is furnished to Tenant, and
monthly thereafter throughout the remainder of such Operating Year, Tenant shall
pay to Landlord an amount equal to one-twelfth of the Operating Payment shown on
such estimate. Landlord may, at any time during each Operating Year, furnish to
Tenant a revised statement of Landlord's estimate of the Operating Payment for
such Operating Year; and in such case, the Operating Payment for such Operating
Year shall be adjusted and paid or refunded, as the case may be, substantially
in the same manner as provided in the preceding sentence.
5.04. Within 120 days after the end of each Operating Year Landlord
shall furnish to Tenant an Operating Statement for such Operating Year. If the
Operating Statement shows that the sums paid by Tenant under Section 5.03
------------
exceeded the Operating Payment to be paid by Tenant for such Operating Year,
Landlord shall promptly either refund to Tenant the amount of such excess or
permit Tenant to credit the amount of such excess against the next subsequent
payments under this Article or Article 4; and if the Operating Statement for
---------
such Operating Year shows that the sums so paid by Tenant were less than the
Operating Payment to be paid by Tenant for such Operating Year, Tenant shall pay
to Landlord the amount of such deficiency within 10 days after demand therefor,
in either case without interest. The provisions of this Section 5.04 shall
------------
survive the expiration or sooner termination of the Term (subject to Landlord's
right of offset against any amounts owing by Tenant hereunder).
5.05. Tenant, upon notice given within 90 days of the receipt of such
Operating Statement, may elect to have Tenant's designated (in such notice)
certified public accountant (who may be an employee of Tenant) examine such of
Landlord's books and records as are directly relevant to the Operating Statement
in question. (If
15
<PAGE>
Tenant shall not give such notice within such 90-day period, then the
Operating Statement as furnished by Landlord shall be conclusive and binding
upon Tenant.) Tenant, pending the resolution of any contest shall continue
to pay all sums as determined to be due in the first instance by Landlord's
Operating Statement and upon the resolution of such contest, suitable
adjustment shall be made in accordance therewith with appropriate refund to be
made by Landlord to Tenant (or credit allowed Tenant against the Fixed Rent and
Additional Charges becoming due). If, within such 90-day period, Tenant shall
disagree with Landlord's Operating Statement, then Tenant may send a written
notice ("Tenant's Statement") to Landlord of such disagreement specifying in
reasonable detail the basis for Tenant's disagreement and the amount of the
Operating Payment Tenant claims is due. Landlord and Tenant shall attempt to
adjust such disagreement. If they are unable to do so and the amount of the
Operating Payment Tenant claims is due is substantially different from the
amount of the Operating Payment Landlord claims is due, Landlord and Tenant
shall designate a certified public accountant (herein called the "Arbiter")
whose determination made in accordance with this Section 5.05 shall be binding
------------
upon the parties; it being understood that if the amount of the Operating
Payment Tenant claims is due is not substantially different from the amount of
the Operating Payment Landlord claims is due, then Tenant shall have no right to
protest such amount and shall pay the amount that Landlord claims is due to the
extent not theretofore paid. The term "substantially" as used in the previous
sentence shall mean a variance of $3,000 or more. If the determination of the
Arbiter shall substantially confirm the determination of Landlord and not
Tenant, then Tenant shall pay the cost of the Arbiter. If the determination of
the Arbiter shall substantially confirm the determination of Tenant and not
Landlord, then Landlord shall pay the cost of the Arbiter and the cost of
Tenant's examination of Landlord's books and records in connection with the
disputed Operating Statement. The term "substantially" as used in the previous
two sentences shall mean a variance of 3% or less. In all other events, the
cost of the Arbiter shall be borne equally by Landlord and Tenant, and Tenant
shall bear such costs of examination. The Arbiter shall be a member of an
independent certified public accounting firm having at least three (3)
accounting professionals who shall not be employed by (except for purposes of
this arbitration) or affiliated with either Landlord or Tenant. In the event
that Landlord and Tenant shall be unable to agree upon the designation of the
Arbiter within thirty (30) days after receipt of notice from the other party
requesting agreement as to the designation of the Arbiter, which notice shall
contain the names and addresses of two or more certified public accountants who
are acceptable to the party sending such notice (any one of whom, if acceptable
to the party receiving such notice as shall be evidenced by notice given by the
receiving party to the other party within such thirty (30) day period, shall be
the agreed upon Arbiter), then either party shall have the right to request the
American Arbitration Association (the "AAA") (or any organization which is the
successor thereto) to designate as the Arbiter a certified public accountant
whose determination made in accordance with this Section 5.05 shall be
------------
conclusive and binding upon
16
<PAGE>
the parties, and the cost of such certified public accountant designated by the
AAA (or any organization which is the successor thereto) shall be borne as
hereinbefore provided in the case of the Arbiter designated by Landlord and
Tenant. Landlord and Tenant hereby agree that any determination made by an
Arbiter designated pursuant to this Section 5.05 shall not exceed the amount(s)
------------
as determined to be due in the first instance by Landlord's Operating Statement,
nor shall such determination be less than the amount(s) claimed to be due by
Tenant in Tenant's Operating Statement, and that any determination which does
not comply with the foregoing shall be null and void and not binding on the
parties. In rendering such determination such Arbiter shall not add to, subtract
from or otherwise modify the provisions of this Lease, including the immediately
preceding sentence.
5.06. If the Rent Commencement Date shall occur other than on the
first day of an Operating Year or an Operating Year ends after the expiration or
termination of this Lease, any Additional Charges in respect thereof payable
under this Article shall be equitably prorated to correspond to that portion of
the Operating Year occurring from and after the Rent Commencement Date and
within the Term.
ARTICLE 6 - SUBORDINATION, NOTICE TO SUPERIOR
LESSORS AND SUPERIOR MORTGAGEES
6.01. The holder of any mortgage which may now or hereafter affect
the Land and/or the Building and/or any Superior Lease (as hereinafter defined)
may elect that this Lease and all rights of Tenant hereunder shall have priority
over such mortgage and, upon notification by such holder to Tenant, this Lease
shall be deemed to have priority over such mortgage, whether this Lease is dated
prior to or subsequent to the date of such mortgage. Subject to Section 6.04,
------------
except for any mortgage where the holder gave the aforesaid notification that
this Lease shall have priority over such mortgage, this Lease, and all rights of
Tenant hereunder, are and shall be subject and subordinate to all ground leases,
overriding leases and underlying leases of the Land and/or the Improvements now
or hereafter existing and to all mortgages which may now or hereafter affect the
Land and/or the Improvements and/or any of such leases, including, without
limitation, that certain Mortgage Consolidation, Modification, Extension and
Spreader Agreement dated as of September 30, 1987, between Landlord, as
Mortgagor, and Swiss Bank Corporation, New York Branch (herein called "Swiss
Bank"), as Mortgagee, and that certain Restated Mortgage dated as of September
30, 1987, between Landlord, as Mortgagor, and Carbide, as Mortgagee, whether or
not such mortgages shall also cover other lands and/or buildings and/or leases,
to each and every advance made or hereafter to be made under such mortgages, and
to all renewals, modifications, replacements and extensions of such leases and
such mortgages and spreaders and consolidations of such mortgages. This Section
shall be self-operative and no further instrument of subordination or priority
(as described in the first sentence of this
17
<PAGE>
Section) shall be required. In confirmation of such subordination or priority
(as described in the first sentence of this Section), subject to Section 6.04,
------------
Tenant shall promptly execute, acknowledge and deliver any instrument that
Landlord, the lessor under any such lease or the holder of any such mortgage or
any of their respective successors in interest may reasonably request to
evidence such subordination or priority; and if Tenant fails to execute,
acknowledge or deliver any such instruments within 10 days after request
therefor, Tenant hereby irrevocably constitutes and appoints Landlord as
Tenant's attorney-in-fact, coupled with an interest, to execute and deliver any
such instruments for and on behalf of Tenant. Any lease to which this Lease is,
at the time referred to, subject and subordinate is herein called a "Superior
Lease," and the lessor of a Superior Lease or its successor in interest, at the
time referred to, is herein called a "Superior Lessor" and any mortgage (a) to
which this Lease is, at the time referred to, subject and subordinate or (b) to
which this Lease shall have priority due to the effect of the first sentence of
this Section is herein called a "Superior Mortgage" and the holder of a Superior
Mortgage is herein called a "Superior Mortgagee."
6.02. If any act or omission of Landlord would give Tenant the right,
immediately or after lapse of a period of time, to cancel or terminate this
Lease, or to claim a partial or total eviction, Tenant shall not exercise such
right (a) until it has given written notice of such act or omission to Landlord
and each Superior Mortgagee and each Superior Lessor whose name and address
shall previously have been furnished to Tenant, and (b) until a reasonable
period for remedying such act or omission shall have elapsed following the
giving of such notice and following the time when such Superior Mortgagee or
Superior Lessor shall have become entitled under such Superior Mortgage or
Superior Lease, as the case may be, to remedy the same (which reasonable period
shall in no event be less than the longer of 30 days or the period to which
Landlord would be entitled under this Lease or otherwise, after similar notice,
to effect such remedy), provided such Superior Mortgagee or Superior Lessor
shall with due diligence give Tenant notice of intention to, and commence and
continue to, remedy such act or omission. The current address of Swiss Bank, a
Superior Mortgagee, is Director, Restructuring, IMBG Restructuring, Swiss Bank
Corporation, 222 Broadway, New York, New York 10038. The current address of
Carbide, a Superior Mortgagee, is 39 Old Ridgebury Road, Danbury, Connecticut
06817-0001, Attention of Director of General Services.
6.03. If any Superior Mortgagee or Superior Lessor shall succeed to
the rights of Landlord under this Lease, whether through possession or
foreclosure action or delivery of a new lease or deed (herein called a
"Successor Landlord"), then Tenant shall attorn to and recognize such Successor
Landlord as Tenant's landlord under this Lease and shall promptly execute and
deliver any instrument that such Successor Landlord may reasonably request to
evidence such attornment. Upon such attornment this Lease shall continue in full
force and effect as a direct lease between the Successor Landlord and Tenant
upon all of the terms, conditions and covenants as are set forth in this Lease,
but, except as may otherwise be expressly provided in the
18
<PAGE>
applicable SNDA (as hereinafter defined), the Successor Landlord shall not (a)
be liable for any previous act or omission of Landlord under this Lease
(although the Successor Landlord shall be obligated to correct any conditions
existing at the date of attornment which violate the Successor Landlord's
obligations as Landlord hereunder); (b) be subject to any offset, not expressly
provided for in this Lease, which theretofore shall have accrued to Tenant
against Landlord; (c) be obligated to complete any work to prepare the Premises
for Tenant's occupancy; (d) be obligated to make any payment to or on behalf of
Tenant which theretofore shall have accrued, except for refunds or credits of
Taxes or Operating Expenses due to Tenant; (e) be required to account for any
security deposit other than any actually delivered to the Successor Landlord; or
(f) be bound by any previous modification of this Lease or by any previous
prepayment of more than one month's Fixed Rent, unless such modification or
prepayment shall have been expressly approved in writing by the lessor of the
Superior Lease or the holder of the Superior Mortgage through or by reason of
which the Successor Landlord shall have succeeded to the rights of Landlord
under this Lease.
6.04. The subordination of this Lease to the Superior Mortgages
held by Swiss Bank and Carbide is conditional upon the delivery to Tenant of the
SNDA's described in Section 38.01. The subordination of this Lease to any
-------------
Superior Lease or any Superior Mortgage other than the Superior Mortgages held
by Swiss Bank and Carbide is conditioned upon the delivery to Tenant by the
Superior Lessor or Superior Mortgagee thereunder of an SNDA in form reasonably
acceptable to Tenant (it being understood that any form of SNDA that is not
materially adversely different from the SNDA delivered by Swiss Bank or Carbide
shall be deemed to be acceptable to Tenant).
6.05. If any prospective or actual Superior Mortgagee or Superior
Lessor requires any modification of this Lease, Tenant shall, upon notice
thereof from Landlord, promptly execute and deliver to Landlord the instrument
accompanying said notice from Landlord to effect such modification if such
instrument does not adversely affect in any material respect any of Tenant's
rights under this Lease and does not increase in any material respect any of
Tenant's obligations under this Lease.
ARTICLE 7 - QUIET ENJOYMENT
7.01. So long as no event has occurred (including the expiration of
applicable notice and grace, if any) which, pursuant to Article 24, would give
----------
Landlord the right to terminate this Lease, Tenant shall peaceably and quietly
have, hold and enjoy the Premises without hindrance, ejection or molestation by
Landlord or any person lawfully claiming through or under Landlord, subject,
nevertheless, to the provisions of this Lease and to any Superior Leases and
Superior Mortgages. This covenant shall be construed as a covenant running with
the Land, and is not, nor shall it be construed as, a personal covenant of
Landlord, except to the extent of Landlord's interest in this Lease and only so
long as such interest shall continue, and
19
<PAGE>
thereafter this covenant shall be binding only upon subsequent successors in
interest of Landlord's interest in this Lease, to the extent of their respective
interests, as and when they shall acquire the same, and so long as they shall
retain such interest.
ARTICLE 8 - ASSIGNMENT, SUBLETTING AND MORTGAGING
8.01. Tenant shall not, whether voluntarily, involuntarily, or by
operation of law or otherwise (a) assign or otherwise transfer this Lease, or
offer or advertise to do so, (b) sublet the Premises or any part thereof, or
offer or advertise to do so, or allow the same to be used, occupied or utilized
by anyone other than Tenant, or (c) mortgage, pledge, encumber or otherwise
hypothecate this Lease or the Premises or any part thereof in any manner
whatsoever, without in each instance obtaining the prior consent of Landlord and
all Superior Mortgagees. For purposes of the foregoing clause (b), incidental
use of desk or laboratory space by persons controlled by, controlling or under
common control with Tenant shall be considered to be use by Tenant.
8.02. If and so long as Tenant is a corporation or a partnership, the
following shall be deemed to be an assignment of this Lease under Section 8.01
------------
prohibited by said Section unless Tenant obtains the prior consent of Landlord
and all Superior Mortgagees: one or more sales or transfers of stock or
partnership interests, voluntarily, involuntarily, by operation of law or
otherwise, or the issuance of new stock or partnership interests, by which an
aggregate of more than 50% of Tenant's stock or partnership interests shall be
vested in a party or parties who are not stockholders or partners as of the date
hereof. This Section shall not apply to transactions with a corporation or
partnership into or with which Tenant is merged or consolidated or to which
substantially all of Tenant's assets are transferred or to any corporation or
partnership which controls or is controlled by Tenant or is under common control
with Tenant if (a) the successor to Tenant has a tangible net worth that is
reasonably sufficient to enable such successor to pay and perform Tenant's
obligations hereunder in accordance herewith, and (b) proof satisfactory to
Landlord of such tangible net worth is delivered to Landlord at least 10 days
prior to the effective date of any such transaction. The provisions of this
Section shall not apply to any corporation the outstanding voting stock of which
is listed on a national securities exchange (as defined in the Securities
Exchange Act of 1934, as amended) or is traded in the over-the-counter market
with quotations reported by the National Association of Securities Dealers
through its automated system for reporting quotations.
8.03. If this Lease is assigned, whether or not in violation of the
provisions of this Lease, Landlord may collect rent from the assignee. If the
Premises or any part thereof are sublet or used or occupied by anybody other
than Tenant, whether or not in violation of this Lease, Landlord may, after
default by Tenant, and expiration of Tenant's time to cure such default, collect
rent from the subtenant or occupant. In either event, Landlord may apply the
20
<PAGE>
net amount collected to the Fixed Rent and Additional Charges herein reserved,
but no such assignment, subletting, occupancy or collection shall be deemed a
waiver of any of the provisions of Section 8.01, or the acceptance of the
------------
assignee, subtenant or occupant as tenant, or a release of Tenant from the
performance by Tenant of Tenant's obligations under this Lease. The consent by
Landlord and any Superior Mortgagee to assignment, mortgaging, subletting or use
or occupancy by others shall not in any way be considered to relieve Tenant from
obtaining the consent of Landlord and all Superior Mortgagees to any other or
further assignment, mortgaging, subletting or use or occupancy by others not
expressly permitted by this Article. References in this Lease to use or
occupancy by others (that is, anyone other than Tenant) shall not be construed
as limited to subtenants and those claiming under or through subtenants but as
including also licensees and others claiming under or through Tenant,
immediately or remotely.
8.04. Any assignment or transfer, whether made with Landlord's and
all Superior Mortgagees' consent pursuant to Section 8.01 or without the
------------
requirement of Landlord's and all Superior Mortgagees' consent pursuant to
Section 8.02, shall be made only if, and shall not be effective until, the
- ------------
assignee shall execute, acknowledge and deliver to Landlord an agreement in form
and substance reasonably satisfactory to Landlord and all Superior Mortgagees
whereby the assignee shall assume the obligations of this Lease on the part of
Tenant to be performed or observed and whereby the assignee shall agree that the
provisions in Section 8.01 shall, notwithstanding such assignment or transfer,
------------
continue to be binding upon it in respect of all future assignments and
transfers. Notwithstanding any assignment or transfer, whether or not in
violation of the provisions of this Lease, and notwithstanding the acceptance of
the Fixed Rent or Additional Charges by Landlord from an assignee, transferee,
or any other party, the original named Tenant shall remain fully liable for the
payment of the Fixed Rent and Additional Charges and for the other obligations
of this Lease on the part of Tenant to be performed or observed.
8.05. The liability of Tenant and any immediate or remote successor
in interest of Tenant and the due performance of the obligations of this Lease
on Tenant's part to be performed or observed shall not be discharged, released
or impaired in any respect by any agreement or stipulation made by Landlord with
the then Tenant extending the time of, or modifying any of the obligations of,
this Lease, or by any waiver or failure of Landlord to enforce any of the
obligations of this Lease.
8.06. Neither the listing of any name other than that of Tenant,
whether on the door of the Premises or on any directory, or otherwise, nor the
acceptance by Landlord of any check not drawn by Tenant in payment of Fixed Rent
or Additional Charges, shall operate to vest any right or interest in this Lease
or in the Premises, nor shall it be deemed to be the consent of Landlord to any
assignment or
21
<PAGE>
transfer of this Lease or to any sublease of the Premises or to the use or
occupancy thereof by others.
8.07. Except as specifically provided to the contrary in this Article
-------
8, if Tenant shall at any time or times during the Term desire to assign this
- -
Lease or sublet all or any part of the Premises, Tenant shall give notice
thereof to Landlord and all Superior Mortgagees, which notice shall be
accompanied by (a) a summary of the material business terms of the proposed
assignment or sublease the effective or commencement date of which shall be at
least 60 days after the giving of such notice, (b) a statement setting forth in
reasonable detail the identity of the proposed assignee or subtenant, the nature
of its business and its proposed use of the Premises, and (c) current financial
information with respect to the proposed assignee or subtenant, including,
without limitation, its most recent financial report. Such notice shall be
deemed an offer from Tenant to Landlord whereby Landlord (or Landlord's
designee) may, at its option, (i) sublease such space from Tenant upon the terms
and conditions hereinafter set forth or (ii) terminate this Lease (if the
proposed transaction is an assignment or a sublease of all or substantially all
of the Premises for all or substantially all of the remaining Term). Said
options may be exercised by Landlord by notice to Tenant at any time within 60
days after such notice has been given by Tenant to Landlord; and during such 60-
day period Tenant shall not assign this Lease or sublet such space to any
person.
8.08. If Landlord exercises its option to terminate this Lease in the
case where Tenant desires either to assign this Lease or sublet all or
substantially all of the Premises for all or substan tially all of the
remaining Term, then this Lease shall end and expire on the date that such
assignment or sublet was to be effective or commence, as the case may be, and
the Fixed Rent and Additional Charges shall be paid and apportioned to such
date.
8.09. If Landlord exercises its option to sublet the Premises which
Tenant desires to sublet, such sublease to Landlord or its designee (as
subtenant) shall be at the lower of (i) the rental rate per rentable square foot
of the Fixed Rent and Additional Charges then payable pursuant to this Lease or
(ii) the rentals set forth in the proposed sublease, and shall be for the same
term as that of the proposed subletting, and:
(a) the sublease shall be expressly subject to all of the
covenants, agreements, terms, provisions and conditions of this Lease
except such as are irrelevant or inapplicable, and except as otherwise
expressly set forth to the contrary in this Section;
(b) such sublease shall be upon the same terms and conditions as
those contained in the proposed sublease, (i) except such as are irrelevant
or inapplicable and except as otherwise expressly set forth to the contrary
in this Section and (ii) except that such sublease shall contain provisions
analogous
22
<PAGE>
to Section 8.16, obligating the sublessee to share net assignment or sub-
------------
subletting profits with Tenant;
(c) such sublease shall give the sublessee the unqualified and
unrestricted right, without Tenant's permission, to assign such sublease or
any interest therein and/or to further sublet the Premises or any part or
parts thereof and to make any and all changes, alterations, and
improvements in the Premises, subject to the further provisions of
paragraph (d);
(d) such sublease shall provide that any assignee or further
subtenant of Landlord or its designee may, at the election of Landlord, be
permitted to make alterations, decorations and installations in such space
or any part thereof and shall also provide in substance that (i) any such
alterations, decorations and installations in such space therein made by
any assignee or subtenant of Landlord or its designee may be removed, in
whole or in part, by such assignee or subtenant, at its option, prior to or
upon the expiration or other termination of such sublease provided that
such assignee or subtenant, at its expense, shall repair any damage and
injury to such space so sublet caused by such removal and (ii) if such
sublease is for a term ending more than one year prior to the end of the
Term, such assignee or subtenant shall, at Tenant's option, restore such
space substantially to the condition thereof prior to such alterations and
installations, to the extent such alterations and installations are not
consented to by Tenant and would not have been permitted without such
consent under the terms of Tenant's proposed sublease;
(e) such sublease shall provide that (i) the parties to such
sublease expressly negate any intention that any estate created under such
sublease be merged with any other estate held by either of said parties,
(ii) any assignment or further subletting by Landlord or its designee (as
the sublessor) may be for any purpose or purposes that Landlord, in
Landlord's uncontrolled discretion, shall deem suitable or appropriate, and
(iii) at the expiration of the term of such sublease, Tenant will accept
the space covered by such sublease in its then existing condition, subject
to the obligations of the subtenant to make such repairs and restorations
thereto as are required by paragraph (d) above and/or as may be necessary
to preserve the premises demised by such sublease in good order and
condition, ordinary wear and tear and damage by fire or other casualty
excepted; and
(f) Tenant shall not be liable hereunder, during the term of such
sublease, for any breach by the subtenant (or any under-tenant) of the
covenants in this Lease relating to the use, occupancy, maintenance, repair
or insurance of the portion of the Premises covered by such sublease; and
such sublease shall provide that the subtenant will indemnify and hold
harmless Tenant against any liability, damages, losses or costs arising
23
<PAGE>
from any such breach; provided, however, that no Superior Mortgagee shall
be bound by the foregoing clause.
8.10. If Landlord does not exercise its options pursuant to Section
-------
8.07 to so sublet the Premises or terminate this Lease and providing that Tenant
- ----
is not in default of any of Tenant's obligations under this Lease, Landlord's
consent (which shall be in form reasonably satisfactory to Landlord) to the
proposed assignment or sublease shall not be unreasonably withheld, provided and
upon condition that:
(a) Tenant shall have complied with the provisions of Section
-------
8.07 and Landlord shall not have exercised any of its options under said
----
Section 8.07 within the time permitted therefor;
------------
(b) in Landlord's judgment the proposed assignee or subtenant is
engaged in a business and the Premises will be used in a manner which (i)
is in keeping with the then standards of the Building, (ii) is limited to
the use expressly permitted under Section 2.01 or any other office,
------------
laboratory or similar use which complies with Legal Requirements and
Insurance Requirements and otherwise with the provisions of this Lease, and
(iii) will not violate any negative covenant as to use contained in any
other lease of space in the Project;
(c) the proposed assignee or subtenant is a reputable person of
good character and with sufficient financial worth considering the
responsibility involved, and Landlord has been furnished with reasonable
proof thereof;
(d) the proposed assignee or sublessee is not a person with whom
Landlord is then negotiating to lease space in the Project;
(e) the form of the proposed sublease (if Tenant proposes to
sublease all of the Premises) shall be in form reasonably satisfactory to
Landlord and shall comply with the applicable provisions of this Article;
and
(f) the consent of any Superior Mortgagee whose Superior Mortgage
requires the consent of the Superior Mortgagee shall have been obtained (or
deemed obtained thereunder). Landlord shall use diligent efforts to obtain
such consent.
8.11. Tenant shall reimburse Landlord on demand for any costs that
may be incurred by Landlord in connection with any proposed assignment or
sublease, whether consented to by Landlord or not, including, without
limitation, the costs of making investigations as to the acceptability of the
proposed assignee or subtenant, and legal costs incurred in connection with the
granting of any requested consent.
24
<PAGE>
8.12. If the proposed subtenant under a proposed sublease is (or
controls, is controlled by or is under common control with) a person that is
then an occupant of the Project, and if Landlord also then has space available
for lease at the Project, then the amount of the aggregate rent per rentable
square foot to be paid under such proposed sublease shall not be less than the
then current market rent per rentable square foot for the Premises as though the
Premises were vacant and unleased. The rental and other terms and conditions of
any actual sublease shall be the same as those contained in the summary
furnished to Landlord pursuant to Section 8.07. Tenant shall not (a) advertise
------------
or publicize in any way the availability of the Premises without prior notice to
Landlord of Tenant's intention to sublet space, or (b) list the Premises for
subletting, whether through a broker, agent, representative or otherwise at a
rental rate less than the Fixed Rent and Additional Charges at which Landlord is
then offering to lease comparable space in the Project.
8.13. Except for any subletting by Tenant to Landlord or its designee
pursuant to the provisions of this Article, each subletting pursuant to this
Article shall be subject to all of the covenants, agreements, terms, provisions
and conditions contained in this Lease. Notwithstanding any such subletting to
Landlord or any such subletting to any other subtenant and/or acceptance of rent
or additional rent by Landlord from any subtenant, Tenant shall and will remain
fully liable for the payment of the Fixed Rent and Additional Charges due and to
become due hereunder and, subject to Section 8.09(f), for the performance of
---------------
all the covenants, agreements, terms, provisions and conditions contained in
this Lease on the part of Tenant to be performed and all acts and omissions of
any licensee or subtenant or anyone claiming under or through any subtenant
which shall be in violation of any of the obligations of this Lease, and any
such violation shall be deemed to be a violation by Tenant. Tenant further
agrees that notwithstanding any such subletting, no other and further subletting
of the Premises by Tenant or any person claiming through or under Tenant (except
as provided in Section 8.09) shall or will be made except upon compliance with
------------
and subject to the provisions of this Article. If Landlord shall decline to
give its consent to any proposed assignment or sublease, or if Landlord shall
exercise any of its options under Section 8.07, Tenant shall indemnify, defend
------------
and hold harmless Landlord against and from any and all loss, liability,
damages, costs and expenses (including reasonable counsel fees) resulting from
any claims that may be made against Landlord by the proposed assignee or
sublessee or by any brokers or other persons claiming a commission or similar
compensation in connection with the proposed assignment or sublease.
8.14. If (a) Landlord fails to exercise all of its options under
Section 8.07 and Landlord consents to a proposed assignment or sublease, and (b)
- ------------
Tenant fails to execute and deliver the assignment or sublease to which Landlord
consented within 90 days after the giving of such consent, then Tenant shall
again comply with all of the provisions and conditions of Section 8.07 before
------------
assigning this Lease or subletting all or any part of the Premises.
25
<PAGE>
8.15. With respect to each and every sublease or subletting
authorized by Landlord under the provisions of this Lease, it is further agreed
that:
(a) No subletting shall be for a term ending later than one day
prior to the expiration date of this Lease.
(b) No sublease shall be valid, and no subtenant shall take
possession of the Premises or any part thereof, until an executed
counterpart of such sublease has been delivered to Landlord.
(c) Each sublease shall provide that it is subject and
subordinate to this Lease and to the matters to which this Lease is or
shall be subordinate, and that in the event of termination, reentry or
dispossess by Landlord under this Lease Landlord may, at its option, take
over all of the right, title and interest of Tenant, as sublessor, under
such sublease, and such subtenant shall, at Landlord's option, attorn to
Landlord pursuant to the then executory provisions of such sublease, except
that Landlord shall not (i) be liable for any previous act or omission of
Tenant under such sublease, (ii) be subject to any offset which theretofore
accrued to such subtenant against Tenant, or (iii) be bound by any previous
modification of such sublease or by any previous prepayment of more than
one month's rent.
(d) If (i) a subtenant of Tenant, under a sublease for which
Landlord's consent is required hereunder and has been obtained, has a
minimum net worth calculated in accordance with generally accepted
accounting principles equal to at least six times the aggregate of the
annual fixed rent, operating payments and tax payments provided for in such
sublease, (ii) such sublease (A) has a term of five (5) years or more, (B)
provides for the demise of at least 50% of the rentable area of the
Premises and (C) provides on a per rentable square foot basis for a fixed
rental and additional rent equal to or greater than the Fixed Rent and
Additional Charges provided for in this Lease (or which provides for the
escalation of such subtenant's rental to such level at such time as it
seeks to invoke the protections of this Section), and (iii) Landlord shall
be reimbursed for its reasonable out-of-pocket costs in connection
therewith (including, without limitation, reasonable legal fees), then
Landlord shall execute and deliver to such subtenant, at the time such
sublease is made, a non-disturbance agreement in form reasonably
satisfactory to Landlord, confirming Landlord's agreement hereunder to
recognize such subtenant as the direct tenant of Landlord upon the
termination of this Lease by reason of a default by Tenant, provided that
at the time of the termination of this Lease (x) no default exists under
the subtenant's sublease which would then permit the landlord thereunder to
terminate the sublease or to exercise any dispossess remedy provided for
therein and (y) the subtenant will
26
<PAGE>
deliver to Landlord an instrument confirming the agreement of the subtenant
to attorn to Landlord and to recognize Landlord as such subtenant's
landlord under the sublease, which instrument shall provide that neither
Landlord nor anyone claiming by, through or under Landlord, shall be:
(1) liable for any act or omission of any prior landlord
(including the then-defaulting landlord),
(2) subject to any offsets or defenses which the subtenant may
have against any prior landlord (including the then-defaulting landlord),
(3) bound by any payment of rent which the subtenant might have
made for more than one (1) month in advance of the due date of any
corresponding rental obligation under this Lease to any prior landlord
(including the then-defaulting landlord),
(4) liable for any security deposited by such subtenant which has
not been transferred as such to Landlord,
(5) bound by any covenant to undertake or complete any
construction of the premises demised by said sublease,
(6) bound by any obligation to make any payment to the subtenant,
except for services, repairs, maintenance and restoration provided for
under the sublease to be performed after the date of such termination of
this Lease to the extent Landlord would be obligated to perform the same
under this Lease, or
(7) bound by any modification of the sublease to which Landlord
shall have not consented in writing.
8.16. If Landlord gives its consent to any assignment of this Lease
or to any sublease, Tenant shall, in consideration therefor, pay to Landlord, as
Additional Charges, one-half of:
(a) in the case of an assignment, an amount equal to (i) all
sums and other considerations paid to Tenant by the assignee for or by
reason of such assignment (including, without limitation, sums paid for the
sale of Tenant's fixtures, leasehold improvements, leasehold equipment,
furniture, furnishings or other personal property, less the then net
unamortized or undepreciated cost thereof determined on the basis of
Tenant's federal income tax returns; but excluding sums, not exceeding the
fair market value, paid for the sale of Tenant's laboratory or other
similar technical or movable equipment); minus (ii) Tenant's reasonable
out-of-pocket costs of effectuating such assignment (including, without
limitation, brokerage fees, attorneys' fees and the cost of alterations
performed for the assignee); and
27
<PAGE>
(b) in the case of a sublease, (i) any rents, additional charges
or other consideration payable under the sublease to Tenant by the
subtenant which is in excess of the Fixed Rent and Additional Charges
accruing during the term of the sublease in respect of the subleased space
(at the rate per square foot payable by Tenant hereunder) pursuant to the
terms hereof (including, without limitation, sums paid for the sale or
rental of Tenant's fixtures, leasehold improvements, equipment, furniture,
furnishings or other personal property, less, in the case of the sale
thereof, the then net unamortized or undepreciated cost thereof determined
on the basis of Tenant's federal income tax returns, which net unamortized
or undepreciated cost shall be deducted from the sums paid in connection
with such sale in equal monthly installments over the balance of the term
of the sublease); minus (ii) Tenant's reasonable out-of-pocket costs of
effectuating such sublease (including, without limitation, brokerage fees,
attorneys' fees and the cost of alterations performed for the subtenant),
which costs shall be amortized and deducted in equal monthly installments
over the balance of the term of the sublease. The sums payable under this
subdivision (b) shall be paid to Landlord as and when paid by the subtenant
---------------
to Tenant.
ARTICLE 9 - COMPLIANCE WITH LEGAL AND INSURANCE REQUIREMENTS
9.01. Tenant shall give prompt notice to Landlord of any notice it
receives of the violation of any Legal Requirements or Insurance Requirements
with respect to the Premises or the use or occupation thereof. Tenant shall, at
Tenant's expense, comply with all Legal Requirements and Insurance Requirements
which shall, in respect of the Premises or the use and occupation thereof, or
the abatement of any nuisance in, on or about the Premises, impose any
violation, order or duty on Landlord or Tenant, arising from (a) Tenant's use of
the Premises (other than as permitted hereunder), (b) the manner of conduct of
Tenant's business or operation of its installations, equipment or other property
therein, (c) any cause or condition created by or at the instance of Tenant
(other than as expressly permitted hereunder), or (d) breach of any of Tenant's
obligations hereunder, and Tenant shall pay all the costs, expenses, fines,
penalties and damages which may be imposed upon Landlord or any Superior Lessor
or Superior Mortgagee by reason of or arising out of Tenant's failure to fully
and promptly comply with and observe the provisions of this Section. However,
Tenant need not comply with any such Legal Requirements and Insurance
Requirements so long as Tenant is contesting the validity thereof, or the
applicability thereof to the Premises, in accordance with Section 9.02. Subject
------------
to the provisions of Section 9.03, Landlord, at its expense, shall comply with
------------
all other Legal Requirements and Insurance Requirements as shall affect the
Premises and the Project, but may similarly defer compliance so long as Landlord
shall be contesting the validity or applicability thereof (but only so long as
Landlord's contest shall not subject Tenant to criminal penalty, invalidate
Tenant's insurance
28
<PAGE>
or otherwise materially interfere with Tenant's conduct of business in the
Premises for the uses permitted under this Lease).
9.02. Tenant, at its expense, after notice to Landlord, may contest,
by appropriate proceedings prosecuted diligently and in good faith, the
validity, or applicability to the Premises, of any Legal Requirements and
Insurance Requirements, provided that (a) neither Landlord nor any Superior
Mortgagee or Superior Lessor shall be subject to criminal penalty or to
prosecution for a crime, nor shall the Premises or any part thereof be subject
to being condemned or vacated, by reason of noncompliance or otherwise by reason
of such contest; (b) before the commencement of such contest, Tenant shall
furnish to Landlord such security as shall be reasonably satisfactory to
Landlord and all Superior Mortgagees, and Tenant shall indemnify Landlord and
any Superior Mortgagees and Superior Lessors against the cost thereof and
against all liability for damages, interest, penalties and expenses (including
reasonable attorneys' fees and expenses), resulting from or incurred in
connection with such contest or noncompliance; (c) such noncompliance or contest
shall not constitute or result in any violation of any Superior Lease or
Superior Mortgage, or if any such Superior Lease or Superior Mortgage shall
permit such noncompliance or contest on condition of the taking of action or
furnishing of security by Landlord, such action shall be taken and such security
shall be furnished at the expense of Tenant; and (d) Tenant shall keep Landlord
advised as to the status of such proceedings. Without limiting the application
of the above, Landlord and/or a Superior Mortgagee and/or Superior Lessor shall
be deemed subject to prosecution for a crime if Landlord or the Superior
Mortgagee or Superior Lessor or any managing agent for the Project, or any
officer, director, partner, shareholder or employee of Landlord or a Superior
Mortgagee or Superior Lessor or any managing agent for the Project, as an
individual, is charged with a crime of any kind or degree whatever, whether by
service of a summons or otherwise, unless such charge is withdrawn before
Landlord or the Superior Mortgagee or Superior Lessor or any managing agent for
the Project, or such officer, director, partner, shareholder or employee of
Landlord or the Superior Mortgagee or Superior Lessor or any managing agent for
the Project (as the case may be) is required to plead or answer thereto.
9.03. If (i) Landlord or any Superior Mortgagee or Superior Lessor is
required under this Lease or pursuant to law to comply with any Legal
Requirements or Insurance Requirements affecting the Pre mises which arise from
laws first enacted or imposed after the date hereof, (ii) the cost of such
compliance throughout the Project is reasonably expected to exceed $25,000,000,
(iii) Landlord does not have the financial resources to pay such cost, (iv)
Tenant's occupancy of the Premises without such compliance will subject
individuals who are officers, directors or owners of Landlord (or of a direct or
indirect owner of Landlord) to civil or criminal penalty, and (v) Landlord also
elects to terminate the other leases of space in the Project under which the
requirement to so comply gives Landlord an option to so terminate, then Landlord
may, at its option, elect to terminate this Lease by (x) giving not less than
120 days' notice
29
<PAGE>
thereof to Tenant, and (y) paying to Tenant, on or before such termination date,
an amount equal to Tenant's reasonable moving expenses plus the amounts expended
by Tenant for installations and improvements to the Premises in excess of the
Landlord's Contribution (allocable proportionately to what would have been the
remaining portion of the original Term). If Tenant gives notice to Landlord,
within 60 days after the giving by Landlord of such notice of termination, that
Tenant shall cause the required repairs or alterations to be made at Tenant's
expense, then (a) such notice of termination shall be ineffective, and (b)
Tenant shall, at Tenant's expense, promptly and diligently cause such repairs or
alterations to be performed and shall indemnify and hold harmless Landlord and
the Superior Mortgagees and Superior Lessors from any and all costs, expenses,
penalties and/or liabilities in connection therewith. The provisions of Article
-------
12 hereof, to the extent applicable, shall apply to the work (and the plans and
- --
specifications therefor) which Tenant shall be required to perform or cause to
be performed under this Section.
ARTICLE 10 - INSURANCE
10.01. Tenant shall not violate, or permit the violation of, any
Insurance Requirements and shall not do, or permit anything to be done, or keep
or permit anything to be kept in the Premises which would subject Landlord or
any Superior Mortgagee or Superior Lessor to any liability or responsibility for
bodily injury or death or property damage, or which would increase any insurance
rate in respect of insurance maintained by or for the benefit of Landlord over
the rate which would otherwise then be in effect or which would result in
insurance companies of good standing refusing to insure all or any part of the
Project or any contents thereof in amounts reasonably satisfactory to Landlord,
or which would result in the cancellation of or the assertion of any defense by
the insurer in whole or in part to claims under any policy of insurance in
respect of the Project. Landlord represents that the permitted uses of the
Premises under Section 2.01 will not violate this Section 10.01.
------------ -------------
10.02. If, by reason of any failure of Tenant to comply with the
provisions of Section 9.01 or Section 10.01, the premiums on insurance
------------ -------------
maintained by or for the benefit of Landlord shall be higher than they otherwise
would be, Tenant shall reimburse Landlord, on demand, for that part of such
premiums attributable to such failure on the part of Tenant. A schedule or
"make up" of rates for insurance maintained by or for the benefit of Landlord
issued by the New York Fire Insurance Rating Organization or other similar body
making rates for such insurance shall be conclusive evidence of the facts
therein stated and of the several items and charges in the insurance rate then
applicable to such insurance.
10.03. Tenant, at its expense, shall maintain at all times during the
Term (a) "all risk" property insurance covering the Tenant's Property
(hereinafter defined) with a limit of not less than 80% of the replacement cost
thereof, and (b) commercial general
30
<PAGE>
liability insurance, including a contractual liability endorsement, in respect
of the Premises and the conduct or operation of business therein, with Landlord
and its managing agent, if any, and any Superior Lessors and Superior
Mortgagees, including, without limitation, Swiss Bank and Carbide, whose names
and addresses shall have been furnished to Tenant, as additional insureds, with
limits of not less than $3,000,000 combined single limit bodily injury and
property damage liability. The limits of such insurance shall not limit the
liability of Tenant hereunder. Tenant shall deliver to Landlord and any
additional insureds certificates and copies of the binders for such insurance in
form reasonably satisfactory to Landlord issued by the insurance company or its
authorized agent no later than 10 days before the Commencement Date and prior to
the commencement of any work by Tenant. Tenant shall procure and pay for
renewals of such insurance from time to time before the expiration thereof, and
Tenant shall deliver to Landlord and any additional insureds certificates and
copies of the binders for such renewal policy issued by the insurance company or
its authorized agent at least 30 days before the expiration of any existing
policy. All such policies shall be issued by companies licensed to do business
in New York State and reasonably satisfactory to Landlord. All such policies
shall be noncancellable in respect of Landlord and any additional insureds
unless 30 days' prior written notice is given to Landlord and all additional
insureds and all such policies shall provide that no act or omission of Tenant
shall affect or limit the obligations of the insurer in respect of Landlord and
the additional insureds.
10.04. Each party agrees to have included in each of its insurance
policies (insuring the Building and Landlord's property therein in the case of
Landlord, and insuring the Tenant's Property in the Premises in the case of
Tenant, against loss, damage or destruction by fire or other casualty) a waiver
of the insurer's right of subrogation against the other party during the Term
or, if such waiver is unobtainable or unenforceable, (a) an express agreement
that such policy shall not be invalidated if the insured waives the right of
recovery against any party responsible for a casualty covered by the policy
before the casualty, or (b) any other form of permission for the release of the
other party. If such waiver, agreement or permission shall not be, or shall
cease to be, obtainable from either party's then current insurance company, the
insured party shall so notify the other party promptly after learning thereof,
and shall use its best efforts to obtain the same from another insurance company
described in Section 10.03. If such waiver, agreement or permission is
-------------
obtainable only by payment of an additional charge, the insured party shall so
notify the other party promptly after learning thereof, and the insured party
shall not be required to obtain said waiver, agreement or permission unless the
other party pays the additional charge therefor. Each party hereby releases the
other, in respect of any claim (including a claim for negligence) which it might
otherwise have against the other for loss, damage or destruction in respect of
its property occurring during the Term to the extent to which it is insured
under a policy or policies containing a waiver of subrogation or permission to
release liability, as provided in the preceding
31
<PAGE>
sentences of this Section. Nothing contained in this Section shall be deemed to
relieve either party of any duty imposed elsewhere in this Lease to repair,
restore or rebuild or to nullify any abatement of rents provided for elsewhere
in this Lease.
10.05. Landlord may from time to time, but not more frequently than
once every five years, require that the amount of commercial general liability
insurance to be maintained by Tenant under Section 10.03 be reasonably
-------------
increased, so that the amount thereof adequately protects Landlord's interest.
10.06. Landlord shall maintain at all times during the Term (i) "all
risk" property insurance covering the Building (excluding Tenant's Property) for
its full insurable value (subject to commercially reasonable deductibles) and
(ii) commercial general liability insurance with a combined single limit of not
less than $50,000,000.
ARTICLE 11 - RULES AND REGULATIONS
11.01. Tenant and its employees and agents shall faithfully observe
and comply with the rules and regulations attached hereto as Exhibit C, and such
---------
reasonable changes therein (whether by modification, elimination or addition) as
Landlord at any time or times hereafter makes and communicates to Tenant, which,
in Landlord's reasonable judgment, shall be necessary for the reputation,
safety, care and appearance of the Project, or the preservation of good order
therein, or the operation or maintenance of the Project or its equipment and
fixtures, and which do not materially adversely affect the conduct of Tenant's
business in the Premises or Tenant's rights hereunder (such rules and
regulations as changed from time to time being herein called the "Rules and
Regulations"); provided, however, that in case of any conflict or inconsistency
between the provisions of this Lease and any of the Rules and Regulations, the
provisions of this Lease shall control.
11.02. Nothing in this Lease shall be construed to impose upon
Landlord any duty or obligation to enforce the Rules and Regulations against any
other tenant or any employees or agents of any other tenant, and Landlord shall
not be liable to Tenant for violation of the Rules and Regulations by any other
tenant or its employees, agents, invitees or licensees. Landlord agrees not to
enforce the Rules and Regulations against Tenant in an arbitrary or
discriminatory manner.
ARTICLE 12 - ALTERATIONS
12.01. Tenant may from time to time, at its expense, make alterations
(herein called the "Alterations") in and to the Premises, excluding structural
changes, provided and upon condition that: (a) the outside appearance of the
Building shall not be affected; (b) the Alterations are nonstructural and the
strength of the Building shall not be affected; (c) the Alterations are to the
interior of the
32
<PAGE>
Premises and no part of the Building outside of the Premises shall be
affected; (d) the proper functioning of the mechanical, electrical,
sanitary and other service systems of the Building shall not be adversely
affected and the usage of such systems by Tenant shall not be increased; (e)
before proceeding with any Alteration which will cost more than $100,000
(excluding decorative items), Tenant shall submit to Landlord for Landlord's
approval (which shall not be unreasonably withheld if the approval of all
Superior Mortgagees whose Superior Mortgages require the approval of the
Superior Mortgagee shall have been obtained or deemed obtained thereunder; and
which Superior Mortgagee approval Landlord shall use diligent efforts to obtain)
two sets of plans and specifications for the work to be done, and Tenant shall
not proceed with such work until it obtains such approval; (f) except in the
case of the Work (as defined in Section 3.03) and the Offered Space Work (as
------------
defined in Section 42.03(b)), Tenant shall pay to Landlord upon demand
----------------
Landlord's actual and reasonable out-of-pocket cost and expense of Landlord in
(i) reviewing said plans and specifications and (ii) inspecting the Alterations
to determine whether the same are being performed in accordance with the
approved plans and specifications and all Legal Requirements and Insurance
Requirements, including, without limitation, the fees or cost of any architect,
engineer or draftsman, including the cost, based upon the actual salaries and
fringe benefits of architects, engineers or draftsmen who are employees of
Landlord, for such purposes, and a 10% administrative charge; (g) before
proceeding with any Alteration which will cost more than $500,000 (exclusive of
the costs of decorating work and items constituting the Tenant's Property), as
estimated, at Tenant's expense, by a reputable contractor reasonably
satisfactory to Landlord and all Superior Mortgagees, Tenant shall obtain and
deliver to Landlord such security as shall be reasonably satisfactory to
Landlord and all Superior Mortgagees (which security may consist of a payment
and performance bond or letter of credit in customary amount from Tenant's
contractor); and (h) Tenant shall fully and promptly comply with and observe the
Rules and Regulations of Landlord then in force with respect to the making of
the Alterations. Tenant agrees that any review or approval by Landlord of any
plans and/or specifications with respect to any Alterations is solely for
Landlord's benefit, and without any representation or warranty whatsoever to
Tenant with respect to the adequacy, correctness or efficiency thereof or
otherwise.
12.02. Tenant, at its expense, shall obtain all necessary
governmental permits and certificates for the commencement and prosecution of
the Alterations and for final approval thereof upon completion, and shall cause
the Alterations to be performed in compliance therewith and with all applicable
Legal Requirements and Insurance Requirements. The Alterations shall be
diligently performed in a good and workmanlike manner, using new materials and
equipment at least equal in quality and class to the original installations. The
Alterations shall be performed by contractors first approved by Landlord under
the supervision of a licensed architect. The Alterations shall be performed in
such a manner as not to violate
33
<PAGE>
union contracts affecting the Project, or create any work stoppage, picketing,
labor disruption or dispute or any interference with the business of Landlord or
any tenant of the Project. In addition, the Alterations shall be performed in
such a manner as not to otherwise unreasonably interfere with or delay and as
not to impose any additional expense upon Landlord in the construction,
maintenance, repair, operation or cleaning of the Project, and if any such
additional expense shall be incurred by Landlord as a result of Tenant's
performance of the Alterations, Tenant shall pay such additional expense to
Landlord on demand. Throughout the performance of the Alterations, Tenant shall
carry, or cause its contractors to carry, workers' compensation insurance in
statutory limits, "Builder's Risk" insurance reasonably satisfactory to
Landlord, and commercial general liability insurance, with completed operation
endorsement, for any occurrence in or about the Project, under which Landlord
and its managing agent and any Superior Lessors and Superior Mortgagees, whose
names and addresses were furnished to Tenant shall be named as additional
insureds, in such limits as Landlord may reasonably require, with insurers
reasonably satisfactory to Landlord. Tenant shall furnish Landlord with
reasonably satisfactory evidence that such insurance is in effect before the
commencement of the Alterations and, on request, at reasonable intervals during
the continuance of the Alterations. If any Alterations involve the removal of
any fixtures, equipment or other property in the Premises which are not Tenant's
Property, such removed fixtures, equipment or other property shall be either (i)
offered by Tenant to Landlord for Landlord to keep and store, or (ii) replaced
prior to the end of the Term at Tenant's expense with fixtures, equipment or
other property of like utility and at least equal value. Upon completion of any
Alterations (other than mere decorations) Tenant shall deliver to Landlord
scaled and dimensioned reproducible mylars of "as-built" plans for such
Alteration.
12.03. Tenant, at its expense, and with diligence and dispatch, shall
procure the cancellation or discharge of all notices of violation arising from
or otherwise connected with the Alterations, or any other work, labor, services
or materials done for or supplied to Tenant, or any person claiming through or
under Tenant, which shall be issued by the County of Westchester or the Town of
Greenburgh or the Town of Mount Pleasant or any other public authority having or
asserting jurisdiction. Tenant shall indemnify and save harmless Landlord and
any Superior Mortgagees and Superior Lessors from and against any and all
mechanics' and other liens and encumbrances filed in connection with the
Alterations, or any other work, labor, services or materials done for or
supplied to Tenant, or any person claiming through or under Tenant, including,
without limitation, security interests in any materials, fixtures or articles so
installed in and constituting part of the Premises and against all costs,
expenses and liabilities incurred in connection with any such lien or
encumbrance or any action or proceeding brought thereon. Tenant, at its
expense, shall procure the satisfaction or discharge of record of all such liens
and encumbrances within 25 days after the filing thereof. However, nothing
herein contained shall prevent Tenant from
34
<PAGE>
contesting, in good faith and at its own expense, any notice of violation,
provided that Tenant shall comply with the provisions of Section 9.02.
------------
ARTICLE 13 - LANDLORD'S AND TENANT'S PROPERTY
13.01. All built-in fixtures, improvements and appurtenances,
including, without limitation, utility lines built into the Premises at the
commencement of or during the Term, whether or not by or at the expense of
Tenant, shall be and remain a part of the Premises, shall be deemed the property
of Landlord and shall not be removed by Tenant, except as provided in Section
-------
13.02. Further, any carpeting or other personal property in the Premises on the
- -----
Commencement Date, unless constituting Tenant's Property pursuant to Section
13.02, shall be and shall remain Landlord's property and shall not be removed by
Tenant.
13.92 All movable partitions, business and trade fixtures, machinery
and equipment, communications equipment and office equipment, whether or not
attached to or built into the Premises, which are installed in the Premises by
or for the account of Tenant without expense to Landlord and can be removed
without structural damage to the Building, and all furniture, furnishings and
other articles of movable personal property owned by Tenant and located in the
Premises (herein collectively called the "Tenant's Property") shall be and shall
remain the property of Tenant and may be removed by Tenant at any time during
the Term; provided that if any of the Tenant's Property is removed, Tenant shall
repair or pay the cost of repairing any damage to the Premises or to the
Building resulting from the installation and/or removal thereof. Any equipment
or other property for which Landlord shall have granted any allowance or credit
to Tenant shall not be deemed to have been installed by or for the account of
Tenant without expense to Landlord, shall not be considered the Tenant's
Property, and shall be deemed the property of Landlord.
13.03. At or before the expiration date of this Lease, or within
15 days after the date of any earlier termination of this Lease, Tenant, at its
expense, shall remove from the Premises all of the Tenant's Property, and Tenant
shall repair any damage to the Premises or the Building resulting from any
installation and/or removal of the Tenant's Property. Any other items of the
Tenant's Property which shall remain in the Premises after the expiration date
of this Lease, or after a period of 15 days following an earlier termination
date, may, at the option of Landlord, be deemed to have been abandoned, and in
such case such items may be retained by Landlord as its property or disposed of
by Landlord, without accountability, in such manner as Landlord shall determine
at Tenant's expense.
35
<PAGE>
ARTICLE 14 - REPAIRS AND MAINTENANCE
14.01. Tenant shall, at its expense, throughout the Term, take good
care of the Premises, the fixtures and appurtenances therein and the Tenant's
Property. Tenant shall be responsible for all repairs and replacements, interior
and exterior, structural and nonstructural, ordinary and extraordinary, in and
to the Premises and the Building and the facilities and systems thereof, the
need for which arises out of (a) the performance or existence of any work by
Tenant or Alterations, (b) the installation, use or operation of the Tenant's
Property in the Premises, (c) the moving of the Tenant's Property in or out of
the Premises or the Building, or (d) the act, omission, misuse or neglect of
Tenant or any of its subtenants or its or their employees, agents, contractors
or invitees. Tenant, at its expense, shall promptly repair or replace all
scratched, damaged or broken doors and glass in and about the Premises and shall
be responsible for all repairs, painting, maintenance and replacement of wall
and floor coverings in the Premises and for the repair and maintenance of all
sanitary and electrical fixtures and equipment therein. Tenant shall promptly
make, at Tenant's expense, all repairs in or to the Premises for which Tenant is
responsible. Any repairs required to be made by Tenant to the mechanical,
electrical, sanitary, heating, ventilating, air-conditioning or other systems of
the Building shall be performed only by contractor(s) approved by Landlord. Any
other repairs in or to the Building and the facilities and systems thereof for
which Tenant is responsible, may be performed by Landlord at Tenant's expense.
14.02. Landlord shall make all repairs and replacements, structural
and otherwise, interior and exterior, as and when needed in or about the
Premises and the Building (and the adjacent Land) in order to maintain the
Building in a first-class condition, and shall maintain the heating, ventilating
and air conditioning, plumbing and electrical systems of the Building; except
for those repairs and replacements for which Tenant is responsible pursuant to
any of the provisions of this Lease.
14.03. Except as otherwise expressly provided in this Lease, Landlord
shall have no liability to Tenant, nor shall Tenant's covenants and obligations
under this Lease be reduced or abated in any manner whatsoever, by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's making any repairs or changes which Landlord is required by this
Lease, or required by law, to make in or to any portion of the Building or the
Premises, or in or to the fixtures, equipment or appurtenances of the Building
or the Premises. However, Landlord shall use reasonable efforts to minimize
interference with the conduct of Tenant's business in the Premises in connection
with the foregoing, including, to the extent appropriate, the use of overtime
labor.
ARTICLE 15 - ELECTRIC ENERGY
36
<PAGE>
15.01. Subject to the provisions of this Article, Landlord shall
furnish the electric energy that Tenant shall reasonably require in the Premises
for the purposes permitted under this Lease. Except for electric energy required
to operate motors on the air handlers providing heat, ventilating and
conditioning to the Premises ("HVAC Electric"), such electric energy shall be
furnished through a meter or meters and related equipment, installed by Landlord
at its expense and maintained by Landlord at Tenant's expense, measuring the
amount of electric energy furnished to the Premises. Tenant shall pay Landlord
for such electric energy as Additional Charges, within ten days after Landlord
bills Tenant therefor, which bills shall be rendered not more often than
monthly. The amount of such Additional Charges (a) for HVAC Electric shall be
Landlord's actual cost and (b) for other electric energy furnished to the
Premises ("Basic Electric") shall be based upon rates equal to the rates that
would be applicable if such electric energy were supplied directly to Tenant
through a meter or meters on a direct meter basis by the public utility company
then supplying electric energy to the area of Westchester County in which the
Premises are located (even if such electric energy is not generated by such
public utility company but is privately generated); provided that such
Additional Charges for Basic Electric shall in no event be based on rates that
are more than the average of the rates at which Landlord purchases electric
energy for the Project directly from such public utility company (taking into
account the benefit of any "business incentive rate" that is payable by
Landlord); including in each case, without limitation, those charges applicable
to or computed on the basis of electric consumption, demand and hours of use,
any sales or other taxes regularly passed on to or collected from similar
consumers by such public utility company, fuel rate adjustments and surcharges,
and weighted in each case to reflect differences in consumption or demand
applicable to each rate level. Tenant and its authorized representatives may
have access to such meter or meters on at least three days' notice to Landlord,
for the purposes of verifying Landlord's meter readings. From time to time
during the Term of this lease, Landlord may, in its sole discretion, increase or
reduce the number of, such meters or vary the portions of the Premises which
they serve or replace any or all of such meters.
15.02. If pursuant to any Legal Requirements, the charges to Tenant
pursuant to Section 15.01 shall be reduced below that to which Landlord is
-------------
entitled under such Section, the deficiency shall be paid by Tenant within 10
days after being billed therefor, as additional rent for the use and maintenance
of the electric distribution system of the Building.
15.03. Landlord shall not be liable in any event to Tenant for any
failure or defect in the supply or character of electric energy furnished to the
Premises by reason of any requirement, act or omission of the public utility
serving the Building with electric energy or for any other reason to the extent
not attributable to Landlord's willful misconduct or gross negligence.
37
<PAGE>
15.04. Landlord shall furnish and install all replacement lighting
tubes, lamps, bulbs and ballasts required in the Premises, and Tenant shall pay
to Landlord or its designated contractor upon demand the then established
reasonable charges therefor of Landlord or its designated contractor, as the
case may be.
15.05. Tenant's use of electric energy in the Premises shall not at
any time exceed the capacity of any of the electrical conductors and equipment
in or otherwise serving the Premises. In order to insure that such capacity is
not exceeded and to avert possible adverse effect upon the Building's
distribution of electricity via the Building's electric system, Tenant shall
not, without Landlord's prior consent in each instance (which shall not be
unreasonably withheld, based upon availability of electric energy in the
Building as allocated by Landlord to various areas of the Building) connect any
fixtures, appliances or equipment (other than normal business machines which do
not materially increase Tenant's electrical consumption) to the Building's
electric system or make any alterations or additions to the electric system of
the Premises existing on the Commencement Date. Should Landlord grant such
consent, all additional risers or other equipment required therefor shall be
provided by Landlord and the cost thereof shall be paid by Tenant to Landlord on
demand. Landlord shall have the right to require Tenant to pay sums on account
of such cost prior to the installation of any such risers or equipment.
Notwithstanding the foregoing, Landlord's consent to any Alterations pursuant to
Article 12 shall be deemed consent to the connection to the Building's electric
system of the fixtures, appliances and equipment specified in plans for such
Alterations.
15.06. If required by any Legal Requirements, Landlord, upon at least
sixty days' notice to Tenant (and after Tenant is able and the Premises are
equipped to receive electric energy directly from the utility company, as
hereinafter provided), may discontinue Landlord's provision of electric energy
(or either HVAC Electric or Basic Electric, as the case may be) hereunder. If
Landlord discontinues provision of electric energy pursuant to this Section,
Tenant shall not be released from any liability under this Lease, except that as
of the date of such discontinuance, Tenant's obligation to pay Landlord
Additional Charges under Section 15.01 for electric energy (or either HVAC
-------------
Electric or Basic Electric, as the case may be) thereafter supplied to the
Premises shall cease. As of such date, Landlord shall permit Tenant to receive
electric energy directly from the public utility company supplying electric
energy to the Project, and Tenant shall pay all costs and expenses of obtaining
such direct electrical service. Such electric energy may be furnished to Tenant
by means of the then existing Building system feeders, risers and wiring to the
extent that the same are available, suitable and safe for such purpose. All
meters and additional panel boards, feeders, risers, wiring and other conductors
and equipment which may be required to obtain electric energy directly from such
public utility company shall be furnished and installed by Landlord at
Landlord's expense.
38
<PAGE>
ARTICLE 16 - HEAT, VENTILATION AND AIR-CONDITIONING
16.01. Landlord shall maintain and operate the heating, ventilating
and air-conditioning systems serving the Premises, and shall furnish heat,
ventilating and air-conditioning (herein called "HVAC") in the Premises as may
be reasonably required (except as otherwise provided in this Lease and except
for any special requirements of Tenant arising from its particular use of the
Premises) for reasonably comfortable occupancy of the Premises during Business
Hours of Business Days and sufficient to maintain the air temperature in the
Premises within the ranges set forth in Exhibit E. If Tenant shall require heat
---------
or air-conditioning service at any other time, Landlord shall furnish such
service for such times ("Overtime Hours") upon not less than 48 hours advance
notice from Tenant. Tenant shall pay Landlord for HVAC as Additional Charges,
within ten days after Landlord bills Tenant therefor, which bills shall be
rendered not more often than monthly. The amount of such Additional Charges for
a given period of time shall be equal to the total actual cost to Landlord of
delivering steam and chilled water for the Premises for the Business Hours and
Overtime Hours of Tenant in such period. Landlord's current charges for HVAC
during Business Hours and Overtime Hours are as set forth in Exhibit E. HVAC
---------
charges shall not include any costs or expenses which are included in Operating
Expenses. Costs and expenses included in HVAC charges shall be subject to the
same conditions and limitations as are applicable to similar types of expenses
included in Operating Expenses (e.g., any capital costs included therein are to
be amortized with interest over useful life for tax purposes).
16.02. The performance by Landlord of its obligations under Section
-------
16.01 is subject to Tenant's compliance with the conditions of occupancy and
- -----
connected load established by Landlord. Use of the Premises, or any part
thereof, in a manner exceeding the HVAC design conditions (including occupancy
and connected electrical load), or rearrangement of partitioning which
interferes with normal operation of the HVAC in the Premises, or the use of
computer or data processing machines or other machines or equipment, may require
changes in the heating, ventilating and/or air-conditioning systems servicing
the Premises, in order to provide comfortable occupancy. Such changes, so
occasioned, shall be made by Tenant, at its expense, as Alterations in
accordance with the provisions of Article 12, but only to the extent permitted
----------
and upon the conditions set forth in that Article.
ARTICLE 17 - OTHER SERVICES; SERVICE INTERRUPTION
17.01. Landlord shall furnish adequate hot and cold water to the
Premises for drinking, lavatory and cleaning purposes. If Tenant uses water for
any other purpose (such as laboratory purpose), Landlord may install and
maintain, at Tenant's expense, meters to measure Tenant's consumption of cold
water and/or hot water for such other purposes. Tenant shall reimburse Landlord
for its actual cost of supplying the quantities of cold water and hot water
shown on such meters on demand.
39
<PAGE>
17.02. Landlord shall cause the Premises, including the exterior
and the interior of the windows thereof but excluding any laboratory space
(other than desks, floors and paper trash baskets), to be cleaned in a manner
standard to the Building, in accordance with the specifications attached hereto
as Exhibit G. Tenant shall pay to Landlord on demand the costs incurred by
---------
Landlord for (a) extra cleaning work in the Premises (i.e., in addition to that
included in such specifications) required because of (i) misuse or neglect on
the part of Tenant or its subtenants or its or their employees or visitors, (ii)
the use of portions of the Premises for special purposes requiring greater or
more difficult cleaning work than office areas, (iii) interior glass partitions
or unusual quantity of interior glass surfaces, (iv) special materials or
finishes on items installed by Tenant or its subtenants or its or their
employees or visitors or at its or their request; and (v) the use of the
Premises by Tenant or its subtenants or its or their employees or visitors other
than during Business Hours on Business Days; and (b) removal from the Premises
and the Building of any refuse or rubbish of Tenant in excess of that ordinarily
accumulated in business office occupancy or at times other than Landlord's
standard cleaning times.
17.03, Landlord, its cleaning contractor and their employees shall
have access to the Premises after 5:30 p.m. and before 8:00 a.m. and shall have
the right to use, without charge therefor, all light, power and water in the
Premises reasonably required to clean the Premises as required under Section
-------
17.02.
- -----
17.04. If Landlord shall furnish either gas or steam to the Premises,
Landlord shall not be liable in any event to Tenant for any failure or defect in
the supply or character of the gas or steam furnished to the Premises by reason
of any requirement, act or omission of the public utility serving the Building
with steam or for any other reason not attributable to Landlord's willful
misconduct or negligence. Tenant's use of gas or steam in the Premises shall
not at any time exceed the capacity of any of the gas lines and equipment or
steam lines and equipment in or otherwise then serving the Premises.
17.05. Landlord reserves the right, without any liability to Tenant
and without affecting Tenant's covenants and obligations hereunder, to stop or
interrupt or reduce service of any of the heating, ventilating, air-
conditioning, electric, sanitary, elevator, gas, steam, water or other Building
systems serving the Premises, or to stop or interrupt or reduce any other
services required of Landlord under this Lease (whether or not specified in
Article 16 or this Article 17), whenever and for so long as may be necessary, by
- ---------- ----------
reason of (a) accidents, emergencies, strikes or the occurrence of any of the
other events described in Section 41.04, (b) the making of repairs or changes
-------------
which Landlord is required by this Lease or by law to make, (c) unavailability
of fuel, gas, steam, water, electricity, labor or supplies, or (d) any other
cause beyond Landlord's reasonable control, whether similar or dissimilar, and
not due to Landlord's negligence, willful misconduct, or inability to make
payments.
40
<PAGE>
ARTICLE 18 - ACCESS AND NAME OF PROJECT
18.01. Except for the space within the inside surfaces of all walls,
hung ceilings, floors, windows and doors bounding the Premises, all of the
Building, including, without limitation, exterior Building walls, core corridor
walls and doors and any core corridor entrances, any terraces or roofs adjacent
to the Premises and any space in or adjacent to the Premises used for shafts,
stacks, pipes, conduits, fan rooms, ducts, electric or other utilities, sinks or
other Building facilities, and the use thereof, as well as reasonable access
thereto through the Premises for the purposes of operation, maintenance,
decoration and repair, are reserved to Landlord.
18.02. Landlord reserves the right, and Tenant shall permit
Landlord, to install, erect, use and maintain pipes, ducts and conduits in and
through the Premises within then existing shafts or conduits, behind or within
existing walls and above then existing hung ceilings only.
18.03. Landlord and its agents shall have the right to enter and/or
pass through the Premises at any time or times, upon reasonable advance notice
(except in the case of emergencies, for which advance notice shall not be
required) (a) to examine the Premises and to show them to actual and prospective
Superior Lessors, Superior Mortgagees, or prospective purchasers, mortgagees or
lessees of the Building, provided that Tenant may require that its
representative accompany Landlord and that access to secure areas be restricted;
and (b) to make such repairs, alterations, additions and improvements in or to
the Premises and/or in or to the Building or its facilities and equipment as
Landlord is required under this Lease to make. Landlord shall be allowed to take
all materials into and on the Premises that may be required in connection
therewith, without any liability to Tenant and without any reduction of Tenant's
covenants and obligations hereunder. Landlord shall not store materials in the
Premises (except during performance of the Work), unless they are confined to
the area in which such alterations, additions and improvements are being
performed. In exercising its rights under this Section 18.03, Landlord shall
-------------
use reasonable efforts to minimize interference with Tenant's conduct of
business in the Premises, including, to the extent appropriate, the use of
overtime labor.
18.04. If at any time any windows of the Premises are temporarily
darkened or obstructed by reason of any repairs, improvements, maintenance
and/or cleaning in or about the Building, or if any part of the Building, other
than the Premises, is temporarily or permanently closed or inoperable, the same
shall be without any reduction or diminution of Tenant's obligations under this
Lease; provided Tenant continues to have a reasonable means of access to the
Premises and the Building continues to be operated as a first-class building.
18.05. During the period of 12 months prior to the expiration date of
this Lease, Landlord and its agents may exhibit the
41
<PAGE>
Premises to prospective tenants, upon reasonable advance notice to Tenant; and
Tenant may require that its representative accompany Landlord and that access to
secure areas be restricted.
18.06. If, during the last month of the Term, Tenant has removed
all or substantially all of the Tenant's Property from the Premises, Landlord
may, without notice to Tenant, immediately enter the Premises and alter,
renovate and decorate the same, without reducing or diminishing Tenant's
obligations under this Lease.
18.07. Landlord reserves the right, at any time, without incurring
any liability to Tenant therefor, and without affecting or reducing or
diminishing any of Tenant's obligations hereunder, to make such changes,
alterations, additions and improvements in or to the Building and the fixtures
and equipment thereof, as well as in or to the entrances, doors, halls,
passages, elevators, escalators and stairways thereof, and other public parts of
the Building, as Landlord shall deem necessary or desirable; provided Tenant
continues to have a reasonable means of access to the Premises, the Building
continues to be operated as a first-class building, and Landlord continues to
supply all of the services to the Premises at the capacities specified by this
Lease and otherwise to fulfill its obligations under this Lease.
18.08. Landlord may adopt any name for the Project; provided that
Landlord agrees that it will not adopt the name of any competitor of Tenant as
the name for the Project. Landlord reserves the right to change the name and/or
address of the Project at any time.
18.09. Landlord and its agents shall have the right to permit
access to the Premises at any time, whether or not Tenant shall be present, (a)
by any receiver, trustee, sheriff, marshal or other public official entitled to
(or reasonably believed by Landlord to be entitled to) such access (i) for the
purpose of taking possession of or removing any property of Tenant or of any
other occupant of the Premises, or (ii) for any other lawful purpose, or (b) by
any representative of the fire, police, building, sanitation or other department
or instrumentality of any town, county, city, state or federal government.
Nothing contained in, nor any action taken by Landlord under this Section, shall
be deemed to constitute recognition by Landlord that any person other than
Tenant has any right or interest in this Lease or the Premises.
18.10. If Tenant is not present when for any reason entry into the
Premises is necessary or permissible, after reasonable notice except in the case
of an emergency, Landlord or Landlord's agents may enter same by a master key,
or may forcibly enter same, without rendering Landlord or such agents liable
therefor (if during such entry Landlord or such agents accord reasonable care to
the Tenant's Property), and such entry shall not be deemed an actual or
constructive eviction and shall have no effect upon Tenant's obligations under
this Lease.
42
<PAGE>
ARTICLE 19 - NOTICE OF OCCURRENCES
19.01. Tenant shall give prompt notice to Landlord of (a) any
occurrence in or about the Premises for which Landlord might be liable, (b) any
fire or other casualty in the Premises, (c) any damage to or defect in the
Premises, including the fixtures, equipment and appurtenances thereof, for the
repair of which Landlord might be responsible, and (d) any damage to or defect
in any part or appurtenance of the Building's sanitary, electrical, heating,
ventilating, air-conditioning, elevator or other systems located in or passing
through the Premises or any part thereof.
ARTICLE 20 - NON-LIABILITY AND INDEMNIFICATION
20.01. Neither Landlord nor any Superior Lessor or Superior Mortgagee
shall be liable to Tenant for any loss, injury or damage to Tenant or to any
other person, or to its or their property, irrespective of the cause of such
injury, damage or loss, except to the extent caused by or resulting from the
negligence or willful misconduct of Landlord or the Superior Lessor or Superior
Mortgagee, in the operation or maintenance of the Premises or the Project.
Neither Landlord nor any Superior Lessor or Superior Mortgagee shall be liable
(a) for any damage caused by other tenants or persons in, on or about the
Project, or (b) even if resulting from negligence or willful misconduct, for
consequential damages of Tenant or any subtenant or licensee of Tenant.
20.02. Notwithstanding any provision to the contrary, Tenant shall
look solely to the estate and property of Landlord in and to the Project
(including any insurance and other proceeds therefrom) in the event of any claim
against Landlord or any partner, director, officer, agent or employee of
Landlord arising out of or in connection with this Lease, the relationship of
Landlord and Tenant or Tenant's use of the Premises, and the liability of
Landlord arising out of or in connection with this Lease, the relationship of
Landlord and Tenant or Tenant's use of the Premises, shall be limited to such
estate and property of Landlord. No other properties or assets of Landlord or
any partner, director, officer, agent or employee of Landlord shall be subject
to levy, execution or other enforcement procedures for the satisfaction of any
judgment (or other judicial process) or for the satisfaction of any other remedy
of Tenant arising out of or in connection with this Lease, the relationship of
Landlord and Tenant or Tenant's use of the Premises, and if Tenant acquires a
lien on or interest in any other properties or assets by judgment or otherwise,
Tenant shall promptly release such lien on or interest in such other properties
and assets by executing, acknowledging and delivering to Landlord an instrument
to that effect prepared by Landlord's attorneys.
20.03. Tenant shall indemnify and hold harmless Landlord and all
Superior Lessors and all Superior Mortgagees, including, without limitation,
Swiss Bank and Carbide, and its and their respective partners, directors,
officers, agents and employees from
43
<PAGE>
and against any and all claims arising from or in connection with (a) the
conduct or management of the Premises or of any business therein, or any work or
thing whatsoever done, or any condition created by Tenant or its subtenant or
licensee, or their respective agents, contractors, employees or invitees, in or
about the Premises during the Term or during the period of time, if any, prior
to the Commencement Date that Tenant may have been given access to the Premises;
(b) any act, omission or negligence of Tenant or any of its subtenants or
licensees or its or their employees or contractors; (c) any accident, injury or
damage whatever (unless caused by Land-lord's negligence or willful misconduct)
occurring in, at or upon the Premises; (d) any breach or default by Tenant in
the full and prompt payment and performance of Tenant's obligations under this
Lease; and (e) the failure of Tenant or any of its subtenants or licensees or
its or their employees or contractors to comply with all Legal Require ments and
Insurance Requirements; together with all costs, expenses and liabilities
incurred in or in connection with each such claim or action or proceeding
brought thereon, including, without limitation, all attorneys' fees and
expenses. In case any action or proceeding is brought against Landlord and/or
any Superior Lessor or Superior Mortgagee and/or its or their partners,
directors, officers, agents and/or employees by reason of any such claim which
is the subject of the foregoing indemnity, Tenant, upon notice from Landlord or
such Superior Lessor or Superior Mortgagee, shall resist and defend such action
or proceeding (by counsel reasonably satisfactory to Landlord). Counsel selected
by Tenant's insurance company shall be deemed satisfactory to Landlord.
20.04. Landlord shall indemnify and hold harmless Tenant and its
officers, directors, agents and employees from and against any and all claims
arising from or in connection with (a) the operation or maintenance of the Land,
the Project and the portions of the Building outside of the Premises, (b)
Landlord's failure to comply with Legal and Insurance Requirements in connection
with the Work or the performance of Landlord's other obligations hereunder, or
(c) the negligence or other wrongful acts of Landlord or its agents, contractors
or employees; together with all costs, expenses and liabilities incurred in or
in connection with each such claim or action or proceeding brought thereon,
including, without limitation, all attorneys' fees and expenses. If any action
or proceeding is brought against Tenant and/or its officers, directors, agents
and/or employees by reason of any such claim, Landlord, upon notice from Tenant,
shall resist and defend such action or proceeding (by counsel reasonably
satisfactory to Tenant).
20.05. The provisions of Sections 20.03 and 20.04 shall survive the
expiration or sooner termination of the Term.
ARTICLE 21 - DAMAGE OR DESTRUCTION
21.01. If the Building or the Premises shall be partially or totally
damaged or destroyed by fire or other casualty (and if this Lease shall not be
terminated as provided in this Article) Landlord
44
<PAGE>
shall repair the damage and restore and rebuild the Building and/or the Premises
(except for the Tenant's Property) with reasonable dispatch after notice to it
of the damage or destruction and the collection of the insurance proceeds
attributable to such damage. Landlord shall use diligent efforts to collect such
proceeds in a timely manner.
21.02. Subject to the provisions of Section 21.05, if all or part
-------------
of the Premises is damaged or destroyed or rendered completely or partially
untenantable on account of fire or other casualty, the Fixed Rent and Additional
Charges under Article 4 and Article 5 shall be reduced in the proportion that
--------- ---------
the untenantable area of the Premises bears to the total area of the Premises,
for the period from the date of the damage or destruction to (a) the date the
damage to the Premises is substantially repaired, or (b) if the Building and not
the Premises is so damaged or destroyed, the date on which the Premises is made
tenantable; provided, however, should Tenant reoccupy a portion of the Premises
during the period the repair work is taking place and prior to the date the
Premises are substantially repaired or made tenantable the Fixed Rent and
Additional Charges under Article 4 and Article 5 allocable to such reoccupied
--------- ---------
portion, based upon the proportion which the area of the reoccupied portion of
the Premises bears to the total area of the Premises, shall be payable by Tenant
from the date of such occupancy.
21.03. If either (a) the Premises shall be materially (i.e., 30% or
more) damaged or destroyed by fire or other casualty, or (b) the Building shall
be so damaged or destroyed by fire or other casualty (whether or not the
Premises are damaged or destroyed) that its repair or restoration requires the
expenditure (as estimated by a reputable contractor or architect designated by
Landlord) of more than 50% of the full insurable value of the Building
immediately prior to the casualty and Landlord simultaneously terminates all of
the other leases of space within the Building, then in either such case Landlord
may terminate this Lease by giving Tenant notice to such effect within 90 days
after the date of the fire or other casualty and the Fixed Rent and Additional
Charges shall be prorated and adjusted as of the date of termination. If the
Premises shall be damaged or destroyed by fire or other casualty not caused by
the negligence or wrongful act of Tenant, such that 30% or more of the Premises
is rendered untenantable or reasonable means of access to the Premises is cut
off and (i) Land lord's contractor or architect estimates that the Premises
will not be substantially repaired or restored within 180 days following such
fire or other casualty, or (ii) the Premises are not substantially repaired and
restored within 180 days after the date of the fire or other casualty, or (iii)
because of Landlord's failure to commence such repair and restoration within 90
days after such casualty, such repair and restoration will not be completed
within such 180-day period, then Tenant shall have the right to terminate this
Lease by giving Landlord notice to such effect within 30 days after the date of
such fire or casualty, if pursuant to clause (i), or the end of such 90- or 180-
day period, as the case may be, if pursuant to clause (ii) or (iii), in
45
<PAGE>
which event the Fixed Rent and Additional Charges shall be prorated and adjusted
as of the date of termination.
21.04. Except as provided in Section 21.03, Tenant shall not be
-------------
entitled to terminate this Lease and no damages, compensation or claim shall be
payable by Landlord for inconvenience, loss of business or annoyance arising
from any repair or restoration of any portion of the Premises or of the Building
pursuant to this Article. Landlord shall use its best efforts to make such
repair or restoration promptly and in such manner as not unreasonably to
interfere with Tenant's use and occupancy of the Premises, but Landlord shall
not be required to do such repair or restoration work except during Business
Hours on Business Days.
21.05 Notwithstanding any of the foregoing provisions of this
Article, if by reason of some willful or negligent act or omission, or a
violation or breach of this Lease, on the part of Tenant or any of its
subtenants or its or their partners, directors, officers, servants, employees or
agents, Landlord or any Superior Lessor or any Superior Mortgagee shall be
unable to collect insurance proceeds (including, without limitation, rent
insurance proceeds) applicable to damage or destruction of the Premises or the
Building by fire or other casualty, then, without prejudice to any other
remedies which may be available against Tenant, the amount of the reduction of
the Fixed Rent and Additional Charges that would otherwise apply as a result of
such casualty shall be diminished by the amount of such uncollectible proceeds.
21.06. Landlord will not carry insurance of any kind on the Tenant's
Property and shall not be obligated to repair any damage to or replace the
Tenant's Property.
21.07. The provisions of this Article shall be deemed an express
agreement governing any case of damage or destruction of the Premises by fire or
other casualty, and Section 227 of the Real Property Law of the State of New
York, providing for such a contin gency in the absence of an express agreement,
and any other law of like import, now or hereafter in force, shall have no
application in such case.
ARTICLE 22 - EMINENT DOMAIN
22.01. Except as otherwise provided in Section 22.05, if the whole of
-------------
the Building or the Premises shall be taken by condem nation or in any other
manner for any public or quasi-public use or purpose, this Lease shall terminate
as of the date of vesting of title on such taking (herein called the "Date of
the Taking"), and the Fixed Rent and Additional Charges shall be prorated and
adjusted as of such date.
22.02. Except as otherwise provided in Section 22.05, if (a) any
-------------
part of the Building or the Land (but not the Premises) shall be so taken, this
Lease shall be unaffected by such taking, except
46
<PAGE>
that if such taking materially adversely affects Landlord's ability to perform
its obligations hereunder, or a material portion of the Building shall be so
taken, then Landlord may, at its option, terminate this Lease by giving Tenant
notice to that effect within 90 days after the Date of the Taking, if Landlord
simultaneously terminates the leases of all other tenants in the Building, and
(b) if 20% or more of the Premises shall be so taken and the remaining area of
the Premises shall not be reasonably sufficient for Tenant to continue feasible
operation of its business, then Tenant may terminate this Lease by giving
Landlord notice to that effect within 90 days after the Date of the Taking. Upon
the giving of such notice, this Lease shall terminate effective as of the date
of the taking, and the Fixed Rent and Additional Charges shall be prorated and
adjusted as of such termination date. Upon such partial taking and this Lease
continuing in force as to any part of the Premises, the Fixed Rent and
Additional Charges shall be adjusted according to the rentable area remaining.
22.03. Except as otherwise provided in Section 22.05, Landlord shall
-------------
be entitled to receive the entire award or payment in connection with any taking
without deduction therefrom for any estate vested in Tenant by this Lease and
Tenant shall receive no part of such award. Tenant hereby expressly assigns to
Landlord all of its right, title and interest in and to every such award or
payment. Nothing herein shall affect Tenant's right to make a separate claim for
its fixtures, improvements and moving expenses, provided such claim does not
affect Landlord's award.
22.04. Except as otherwise provided in Section 22.05, in the event of
-------------
any taking of less than the whole of the Building and/or the Land which does not
result in termination of this Lease, Landlord, at its expense, and whether or
not any award or awards shall be sufficient for the purpose, shall proceed with
reasonable diligence to repair the remaining parts of the Building and the
Premises (other than those parts of the Premises which are the Tenant's
Property) to substantially their former condition to the extent that the same
may be feasible (subject to reasonable changes which Landlord shall deem
desirable) and so as to constitute complete and tenantable the Building and the
Premises.
22.05. If the temporary use or occupancy of all or any part of the
Premises is taken by condemnation or in any other manner for any public or
quasi-public use or purpose, this Lease and the Term shall remain unaffected by
such taking and Tenant shall continue to be responsible for all of its
obligations under this Lease (except to the extent prevented from so doing by
reason of such taking). In such event Tenant shall be entitled to claim, prove
and receive the entire award unless the period of temporary use or occupancy
extends beyond the expiration date of this Lease, in which event Landlord shall
be entitled to claim, prove and receive that portion of the award attributable
to the restoration of the Premises, and the balance of such award shall be
apportioned between Landlord and Tenant as of the expiration date of this Lease.
If such temporary use or occupancy
47
<PAGE>
terminates prior to the expiration date of this Lease, Tenant, at its own
expense, shall restore the Premises as nearly as possible to its condition prior
to the taking.
ARTICLE 23 - SURRENDER AND HOLDING OVER
23.01. On the last day of the Term, or upon any earlier termination
of this Lease, or upon any reentry by Landlord upon the Premises, Tenant shall
quit and surrender the Premises to Landlord "broom-clean" and in good order,
condition and repair, except for ordinary wear and tear and such damage or
destruction as Landlord is required to repair or restore under this Lease, and
Tenant shall remove all of the Tenant's Property therefrom except as otherwise
expressly provided in this Lease. No act or thing done by Landlord or its
agents shall be deemed an acceptance of a surrender of the Premises, and no
agreement to accept such surrender shall be valid unless in writing and signed
by Landlord.
23.02. If Tenant remains in possession of the Premises after the
termination of this Lease without the execution of a new lease, Tenant, at the
option of Landlord, shall be deemed to be occupying the Premises as a tenant
from month to month, subject to all of the other terms and conditions of this
Lease insofar as the same are applicable to a month-to-month tenancy, but at a
monthly rental equal to the greater of (a) 125% of the monthly Fixed Rent last
payable by Tenant hereunder, plus all Additional Charges payable hereunder, and
(b) Landlord's then asking price, on a monthly basis, for comparable space in
the Building (or, if Landlord has no asking price, the monthly rental equal to
the prevailing rate for comparable space in comparable buildings in the vicinity
of the Building). Nothing contained in this Section shall (i) imply any right of
Tenant to remain in the Premises after the termination of this Lease without the
execution of a new lease, (ii) imply any obligation of Landlord to grant a new
lease or (iii) be construed to limit any right or remedy that Landlord has
against Tenant as a holdover tenant or trespasser.
23.03. Tenant expressly waives, for itself and for any person
claiming through or under Tenant, any rights which Tenant or any such person may
have under the provisions of Section 2201 of the New York Civil Practice Law and
Rules and of any similar or successor law of same import then in force, in
connection with any holdover proceedings which Landlord may institute to enforce
the terms and conditions of this Lease.
ARTICLE 24 - DEFAULT
24.01. This Lease and the Term are subject to the limitation that
whenever Tenant makes an assignment for the benefit of creditors, or files a
voluntary petition under any bankruptcy or insolvency law, or an involuntary
petition alleging an act of bankruptcy or insolvency is filed against Tenant
under any bankruptcy or insolvency law, or whenever a petition is filed by or
against Tenant under the reorganization provisions of the United States
48
<PAGE>
Bankruptcy Act or under the provisions of any law of like import, or whenever a
petition is filed by Tenant under the arrangement provisions of the United
States Bankruptcy Act or under the provisions of any law of like import, or
whenever a permanent receiver of Tenant or such Guarantor, or of or for the
property of Tenant or such Guarantor is appointed, then Landlord (a) if such
event occurs without the acquiescence of Tenant, at any time after the event
continues for 90 days, or (b) in any other case at any time after the occurrence
of any such event, may give Tenant a notice of intention to end the Term at the
expiration of five days from the date of service of such notice of intention,
and upon the expiration of said five-day period this Lease, whether or not the
Term shall theretofore have commenced, shall terminate with the same effect as
if that day were the expiration date of this Lease, but Tenant shall remain
liable for damages as provided in Article 26.
----------
24.02. This Lease is subject to the further limitations that:
(a) if Tenant defaults in the payment of any Fixed Rent or
Additional Charges, and such default continues for five days after notice
thereof given by Landlord to Tenant, or
(b) if Tenant, whether by action or inaction, is in default of
any of its obligations under this Lease (other than a default in the
payment of Fixed Rent or Additional Charges) and such default continues and
is not remedied within 30 days after Landlord gives to Tenant a notice
specifying the same, or, in the case of a default which cannot with due
diligence be cured within a period of 30 days and the continuance of which
for the period required for cure will not (i) subject Landlord or any
Superior Lessor or Superior Mortgagee to prosecution for a crime (as more
particularly described in Section 9.02) or (ii) result in the termination
------------
of any Superior Lease or foreclosure of any Superior Mortgage, if Tenant
does not, (1) within said 30-day period advise Landlord of Tenant's
intention to take all steps necessary to remedy such default, (2) duly
commence within said 30-day period, and thereafter diligently prosecute to
completion all steps necessary to remedy the default and (3) complete such
remedy within a reasonable time after the date of said notice of Landlord,
or
(c) if any event occurs or any contingency arises whereby this
Lease or the estate hereby granted or the unexpired balance of the Term
would, by operation of law or otherwise, devolve upon or pass to any
person, firm or corporation other than Tenant, except as expressly
permitted by Article 8;
---------
then in any of said cases Landlord may give to Tenant a notice of intention to
end the Term at the expiration of five days from the date of the service of such
notice of intention, and upon the expiration of said five days this Lease,
whether or not the Term theretofore had commenced, shall terminate with the same
effect as if that day were the
49
<PAGE>
expiration date of this Lease, but Tenant shall remain liable for damages as
provided in Article 26.
----------
ARTICLE 25 - RE-ENTRY BY LANDLORD
25.01. If Tenant defaults in the payment of any Fixed Rent or
Additional Charges, and such default continues for five days after notice
thereof given by Landlord to Tenant, or if this Lease terminates as provided in
Article 24, Landlord or Landlord's agents and employees may immediately or at
- ----------
any time thereafter re-enter the Premises, or any part thereof, either by
summary dispossess proceedings or by any suitable action or proceeding at law,
without being liable to indictment, prosecution or damages therefor, and may
repossess the same, and may remove any person therefrom, to the end that
Landlord may have, hold and enjoy the Premises. The word "re-enter," as used
herein, is not restricted to its technical legal meaning. If this Lease is
terminated under the provisions of Article 24, or if Landlord re-enters the
----------
Premises under the provisions of this Article 25, or in the event of the
----------
termination of this Lease, or of re-entry, by or under any summary dispossess or
other proceeding or action or any provision of law by reason of default
hereunder on the part of Tenant, Tenant shall thereupon pay to Landlord the
Fixed Rent and Additional Charges payable up to the time of such termination of
this Lease, or of such recovery of possession of the Premises by Landlord, as
the case may be, and shall also pay to Landlord damages as provided in Article
-------
26.
- --
25.02. In the event of a breach or threatened breach by Tenant of
any of its obligations under this Lease, Landlord shall also have the right of
injunction. The special remedies to which Landlord may resort hereunder are
cumulative and are not intended to be exclusive of any other remedies to which
Landlord may lawfully be entitled at any time and Landlord may invoke any remedy
allowed at law or in equity as if specific remedies were not provided for
herein.
25.03. If this Lease terminates under the provisions of Article 24, or
----------
if Landlord re-enters the Premises under the provisions of this Article, or in
the event of the termination of this Lease, or of re-entry, by or under any
summary dispossess or other proceeding or action or any provision of law by
reason of default hereunder on the part of Tenant, Landlord shall be entitled to
retain all monies, if any, paid by Tenant to Landlord, whether as advance rent,
security or otherwise, but such monies shall be credited by Landlord against any
Fixed Rent or Additional Charges due from Tenant at the time of such termination
or re-entry or, at Landlord's option, against any damages payable by Tenant
under Article 26 or pursuant to law.
----------
ARTICLE 26 - DAMAGES
26.01 If this Lease is terminated under the provisions of Article 24,
----------
or if Landlord re-enters the Premises under the provisions of Article 25, or in
----------
the event of the termination of this Lease, or of re-entry, by or under any
summary dispossess or other proceeding or
50
<PAGE>
action or any provision of law by reason of default hereunder on the part of
Tenant, Tenant shall pay to Landlord as damages, at the election of Landlord,
either:
(a) a sum which at the time of such termination of this Lease or
at the time of any such re-entry by Landlord, as the case may be,
represents the then present value (discounted at the then Prime Rate) of
the excess, if any, of (i) the aggregate amount of the Fixed Rent and the
Additional Charges under Article 4 and Article 5 which would have been
--------- ---------
payable by Tenant (conclusively presuming the average monthly Additional
Charges under Article 4 and Article 5 to be the same as were payable for
--------- ---------
the year, or if less than 365 days have then elapsed since the Rent
Commencement Date, the partial year, immediately preceding such termination
or re-entry) for the period commencing with such earlier termination of
this Lease or the date of any such re-entry, as the case may be, and ending
with the date contemplated as the expiration date hereof if this Lease had
not so terminated or if Landlord had not so re-entered the Premises, over
(ii) the aggregate rental value of the Premises for the same period, or
(b) sums equal to the Fixed Rent and the Additional Charges which
would have been payable by Tenant had this Lease not so terminated, or had
Landlord not so re-entered the Premises, payable upon the due dates
therefor specified herein following such termination or such re-entry and
until the date contemplated as the expiration date hereof if this Lease had
not so terminated or if Landlord had not so re-entered the Premises,
provided, however, that if Landlord shall relet the Premises during said
period, landlord shall credit Tenant with the net rents received by
Landlord from such reletting, such net rents to be determined by first
deducting from the gross rents as and when received by Landlord from such
reletting the expenses incurred or paid by Landlord in terminating this
Lease or in re-entering the Premises and in securing possession thereof, as
well as the expenses of reletting, including, without limitation, altering
and preparing the Premises for new tenants, brokers' commissions, legal
fees, and all other expenses properly chargeable against the Premises and
the rental therefrom, it being understood that any such reletting may be
for a period shorter or longer than what would have been the remaining
Term, but in no event shall Tenant be entitled to receive any excess of
such net rents over the sums payable by Tenant to Landlord hereunder, nor
shall Tenant be entitled in any suit for the collection of damages pursuant
to this subdivision to a credit in respect of any net rents from a
reletting, except to the extent that such net rents are actually received
by Landlord. If the Premises or any part thereof should be relet in
combination with other space, then proper apportionment on a square foot
basis shall be made of the rent received from such reletting and of the
expenses of reletting.
51
<PAGE>
If the Premises or any part thereof is or are relet by Landlord for what would
have been the unexpired portion of the Term, or any part thereof, before
presentation of proof of such damages to any court, commission or tribunal, the
amount of rent reserved upon such reletting shall, prima facie, be the fair and
----- -----
reasonable rental value for the Premises, or part thereof, so relet during the
term of the reletting. Landlord shall not be liable in any way whatsoever for
its failure to relet the Premises or any part thereof, or if the Premises or any
part thereof are relet, for its failure to collect the rent under such
reletting, and no such failure to relet or failure to collect rent shall release
or affect Tenant's liability for damages or otherwise under this Lease, unless
Landlord shall be found to have acted in bad faith in connection therewith.
26.02. Suit or suits for the recovery of such damages, or any
installments thereof, may be brought by Landlord from time to time at its
election, and nothing contained herein shall be deemed to require Landlord to
postpone suit until the date when the Term would have expired if it had not been
so terminated under the provisions of Article 24, or under any provisions of
----------
law, or had Landlord not re-entered the Premises. Nothing herein contained
shall be construed to limit or preclude recovery by Landlord against Tenant of
any sums or damages to which, in addition to the damages particularly provided
above, Landlord may lawfully be entitled by reason of any default hereunder on
the part of Tenant. Nothing herein contained shall be construed to limit or
prejudice the right of Landlord to prove for and obtain as damages by reason of
the termination of this Lease or re-entry on the Premises for the default of
Tenant under this Lease an amount equal to the maximum allowed by any statute or
rule of law in effect at the time when, and governing the proceedings in which,
such damages are to be proved whether or not such amount be greater than, equal
to, or less than any of the sums referred to in Section 26.01.
-------------
26.03. In addition, if this Lease is terminated under the
provisions of Article 24, or if Landlord re-enters the Premises under the
----------
provisions of Article 25, Tenant agrees that the Premises then shall be in the
----------
same condition as that in which Tenant has agreed to surrender the same to
Landlord at the expiration of the Term.
ARTICLE 27 - AFFIRMATIVE WAIVERS
27.01. Tenant, on behalf of itself and any and all persons claiming
through or under Tenant, does hereby waive and surrender all right and privilege
which it, they or any of them might have under or by reason of any present or
future law, to redeem the Premises or to have a continuance of this Lease after
being dispossessed or ejected therefrom by process of law or under the terms of
this Lease or after the termination of this Lease as provided in this Lease.
27.02. If Tenant is in arrears in payment of Fixed Rent or Additional
Charges, Tenant waives Tenant's right, if any, to designate the items to which
any payments made by Tenant are to be credited, and Landlord may apply any
payments made by Tenant to such items as
52
<PAGE>
Landlord sees fit, irrespective of and notwithstanding any designation or
request by Tenant as to the items to which any such payments shall be credited.
27.03. Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either against the other on any matter
whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises,
including, without limitation, any claim of injury or damage, and any emergency
and other statutory remedy with respect thereto.
27.04. Tenant shall not interpose any counterclaim of any kind in any
summary proceeding commenced by Landlord to recover possession of the Premises
and shall not seek to consolidate such proceeding with any action which may have
been or will be brought by Tenant or any other person.
ARTICLE 28 - NO WAIVERS
28.01. The failure of either party to insist in any one or more
instances upon the strict performance of any one or more of the obligations of
this Lease, or to exercise any election herein contained, shall not be construed
as a waiver or relinquishment for the future of the performance of such one or
more obligations of this Lease or of the right to exercise such election, but
the same shall continue and remain in full force and effect with respect to any
subsequent breach, act or omission. The receipt by Landlord of Fixed Rent or
Additional Charges with knowledge of breach by Tenant of any obligation of this
Lease shall not be deemed a waiver of such breach.
ARTICLE 29 - CURING TENANT'S DEFAULTS
29.01. If Tenant defaults in the performance of any of Tenant's
obligations under this Lease, Landlord, without thereby waiving such default,
may (but shall not be obligated to) perform the same for the account and at the
expense of Tenant, without notice in a case of emergency, and in any other case
only if such default continues after the expiration of 15 days from the date
Landlord gives Tenant notice of the default.
29.02. Bills for any expenses incurred by Landlord in connection with
any such performance by it pursuant to Section 29.01 for the account of Tenant,
and bills for all costs, expenses and disbursements, including reasonable
counsel fees, involved in collecting or endeavoring to collect the Fixed Rent or
Additional Charges or enforcing or endeavoring to enforce any rights against
Tenant or Tenant's obligations hereunder in connection with a default, including
any cost, expense and disbursement involved in instituting and prosecuting
summary proceedings or in recovering possession of the Premises after default by
Tenant or upon the expiration or sooner termination of this Lease, and interest
on all sums advanced by Landlord under this Section and/or Section 29.01 at the
-------------
Lease Interest
53
<PAGE>
Rate may be sent by Landlord to Tenant monthly, and such amounts shall be due
and payable in accordance with the terms of such bills.
ARTICLE 30 - BROKER
30.01. Each party represents that no broker except Cushman &
Wakefield, Inc. and Delphi Commercial Properties, Inc. (herein called the
"Brokers") was instrumental in bringing about or consummating this Lease and
that such party had no conversations or negotiations with any broker except the
Brokers concerning the leasing of the Premises. Each party shall indemnify and
hold harmless the other against and from any claims for any brokerage
commissions and all costs, expenses and liabilities in connection therewith,
including, without limitation, attorneys' fees and expenses, arising out of any
conversations or negotiations had by the indemnifying party with any broker
other than the Brokers. Landlord shall pay any brokerage commissions due the
Brokers as per separate agreements between Landlord and the Brokers.
ARTICLE 31 - NOTICES
31.01. Any notice, consent, approval or other communication
required or permitted to be given, rendered or made by either party to the other
shall be in writing (whether or not so stated elsewhere in this Lease) and shall
be deemed to have been properly given, rendered or made only if either (a) sent
by registered or certified mail, return receipt requested, posted in a United
States post office station or letter box in the continental United States, or
(b) hand delivered, in either event addressed to the other party at the address
hereinabove set forth (except that after the Rent Commencement Date, Tenant's
address, unless Tenant shall give notice to the contrary, shall be the
Premises), and shall be deemed to have been given, rendered or made either (i)
on the first day after the day so mailed, unless mailed outside of the State of
New York, in which case it shall be deemed to have been given, rendered or made
on the third business day after the day so mailed, or (ii) on the day received
if so hand delivered. Either party may, by notice as aforesaid, designate a
different address or addresses for notices, statements, demands, consents,
approvals or other communications intended for it. A duplicate original of any
notice given to Landlord shall be simultaneously and similarly sent by Tenant to
the attention of Executive Vice President, Keren Developments, Inc., 777 Old Saw
Mill River Road, Tarrytown, New York 10591-6705.
ARTICLE 32 - ESTOPPEL CERTIFICATES
32.01. Each party shall, at any time and from time to time, if
requested by the other party with not less than 10 days' prior notice, execute
and deliver to the other a statement certifying that this Lease is unmodified
and in full force and effect (or if there have been modifications, that the same
is in full force and effect as modified and stating the modifications),
certifying the dates to which the Fixed Rent and Additional Charges have been
paid, stating whether
54
<PAGE>
or not, to the best knowledge of the signer, the other party is in default in
performance of any of its obligations under this Lease, and, if so, specifying
each such default of which the signer shall have knowledge, and stating whether
or not, to the best knowledge of the signer, any event has occurred which with
the giving of notice or passage of time, or both, would constitute such a
default, and, if so, specifying each such event, it being intended that any such
statement delivered pursuant hereto shall be deemed a representation and
warranty to be relied upon by the party requesting the certificate and by others
with whom such party may be dealing, regardless of independent investigation.
Tenant also shall include in any such statement such other information
concerning this Lease as Landlord may reasonably request.
ARTICLE 33 - EXECUTION AND DELIVERY OF LEASE
33.01. Submission by Landlord of the within Lease for review and
execution by Tenant shall confer no rights nor impose any obligations on either
party unless and until both Landlord and Tenant shall have executed this Lease
and duplicate originals thereof shall have been delivered to the respective
parties.
ARTICLE 34 - RECORDING OF LEASE
34.01. At the request of Landlord, Tenant shall promptly execute,
acknowledge and deliver to Landlord a memorandum in respect of this Lease and/or
any amendment or modification of this Lease sufficient for recording, setting
forth only the matters required to be set forth pursuant to Section 291-c of the
New York Real Property Law. Such memorandum shall not in any circumstance be
deemed to change or otherwise affect any of the terms of this Lease. Tenant
shall not record this Lease or said memorandum or any other document related
hereto.
ARTICLE 35 - PARKING
35.01. Landlord shall, without charge to Tenant (except as
consequence of the cost thereof being included in Operating Expenses), provide
and maintain, for the non-exclusive use of Tenant's employees and invitees,
parking areas sufficient to accommodate at least 200 standard size automobiles
in the area(s) shown as "parking" on the plan attached hereto as Exhibit D. In
---------
the event Landlord utilizes such parking areas for Landlord's development
purposes, Landlord will provide Tenant with substantially equivalent number and
location of parking facilities.
ARTICLE 36 - ENVIRONMENTAL COMPLIANCE
36.01. Subject to Section 36.02, Tenant assumes sole and full
-------------
responsibility for compliance with all applicable Federal, state and local
environmental statutes, regulations and ordinances (including licensing and
permitting) (herein called the "Environmental Laws") in respect of Tenant's use
of the Premises and agrees to
55
<PAGE>
indemnify, defend, save and hold harmless Landlord and all Superior Lessors and
Superior Mortgagees, and its and their respective partners, directors, officers,
agents and employees from and against any and all claims, demands, losses and
liability (including reasonable attorneys' fees) resulting from any alleged or
actual violation thereof by Tenant or any of its subtenants or licensees or its
or their employees or contractors. Tenant assumes sole and full responsibility
to Landlord for all present and future acts or omissions of Tenant or any of its
subtenants or licensees or its or their employees or contractors while at or on
the Project and covenants and agrees to indemnify, defend, save and hold
harmless Landlord and all Superior Lessors and Superior Mortgagees, and its and
their respective partners, directors, officers, agents and employees, from and
against any and all claims, demands, losses, and liability (including reasonable
attorneys' fees) resulting from any alleged or actual violation thereof,
including, but not limited to, personal injury (and death resulting therefrom),
property damage, damage to natural resources, and strict liability under
Environmental Laws. The provisions of this Section 36.01 shall survive the
-------------
expiration or termination of this Lease.
36.02. Landlord represents and warrants to Tenant that, to Landlord's
actual knowledge, there is no asbestos in the Premises or the public areas of
the Building, except for the possible presence of asbestos on certain pipes,
which is either encapsulated or is not in friable condition. If it is hereafter
determined that asbestos which is present in the Premises on the Commencement
Date is friable and not encapsulated, or if any such asbestos that is
encapsulated will be disturbed by Alterations to be made by Tenant in accordance
with Article 12, then, provided Tenant is not in default hereunder beyond
----------
applicable notice and grace and the need for removal or encapsulation of such
asbestos does not arise as a result of the negligent or wrongful acts or
omissions of Tenant or its agent, subtenant, employee, contractor or invitee,
Landlord shall promptly at its expense, remove or (provided Tenant's permitted
Alterations will not be materially adversely affected thereby) encapsulate such
asbestos in accordance with applicable Legal Requirements. Landlord shall
perform such work in a manner as to have the least practicable interference with
Tenant's use and operations in the Premises, recognizing Tenant's sensitive
laboratory work.
ARTICLE 37 - SIGNS
37.01. Tenant may not place signs anywhere in the Project,
including on the exterior of the Building, without the prior written consent of
Landlord. Landlord hereby consents to the placement by Tenant of appropriate
sign(s), approved by Landlord and Tenant, near the front door of the Premises
and in the elevator lobby of the Building. Landlord shall add Tenant's name to
the Building directory and to the existing tenant directional signs in the
roadway and parking lot appurtenant to the Building.
56
<PAGE>
ARTICLE 38 - APPROVAL CONTINGENCY
38.01. This Lease shall not be effective until and unless Swiss
Bank and Carbide shall have executed and delivered a written consent to this
Lease and each shall have executed and delivered to Tenant a non-disturbance
agreement with respect to this Lease (a "SNDA"), substantially in the form of
Exhibit I hereto or in form otherwise reasonably acceptable to Tenant. If Swiss
- ---------
Bank or Carbide disapproves this Lease, or refuses to execute and deliver such
SNDA, then this Lease shall be deemed null and void and of no effect.
Notwithstanding any provision to the contrary, if Tenant occupies the Premises
or causes any work to be performed thereon prior to receipt of Swiss Bank's or
Carbide's approval or disapproval, then as between Tenant and Landlord the
provisions of this Lease shall be applicable and enforceable. If either Swiss
Bank or Carbide does not give its approval or disapproval, or does not execute
and deliver such SNDA, within 15 days after the date hereof, either party may
give notice of cancellation of this Lease to the other after said 15-day period
but prior to the giving of said approval and the execution and delivery of such
SNDA, and if either party gives such cancellation notice timely, this Lease
shall be deemed null and void and of no effect.
ARTICLE 39 - UNTENANTABILITY
39.01. Subject to Section 6.02, if, as a result of Landlord's
------------
negligence or willful act, Landlord shall fail to provide services, electric
energy, heat, ventilation or air-conditioning to the Premises as required
hereunder (other than in the case of a casualty, which shall be governed by
Article 21), and, as a consequence thereof, the Premises are rendered
- ----------
untenantable, and Tenant does not use or conduct business in the Premises, for a
period of 10 consecutive days after notice of such untenantability is given by
Tenant to Landlord, then Tenant shall be entitled to an abatement of Fixed Rent
equal to 1/365 of the annual Fixed Rent for the Premises at the time in question
multiplied by the number of such consecutive days, which abatement shall be
credited against the installment of Fixed Rent next becoming due thereafter.
Tenant shall notify Landlord (and all Superior Mortgagees and Superior Lessors)
of any such failure promptly after obtaining knowledge thereof.
ARTICLE 40 - PARTNERSHIP OR MULTI-PERSON TENANT
40.01. If Tenant's interest in this Lease is assigned to a general
partnership (or to two or more persons individually), the following provisions
shall apply: (a) the liability of each of the persons at any time comprising
Tenant shall be joint and several, (b) each of the persons at any time
comprising Tenant shall be bound by (i) any written instrument executed by
Tenant or any successor Tenant changing, modifying, extending or discharging
this Lease, in whole or in part, or surrendering all or any part of the Premises
to Landlord, (ii) any Notices given by Tenant or by any of the persons
comprising Tenant, and (iii) any statement executed by Tenant or any of the
persons comprising Tenant, pursuant to Section 32.01, (c) any
-------------
57
<PAGE>
notices given to Tenant or to any of such persons shall be binding on Tenant and
all such persons, (d) if Tenant admits new partners, all of such new partners
shall, by their admission to Tenant, be deemed to have assumed joint and several
liability for the performance of all of Tenant's obligations under this Lease,
(e) Tenant shall give prompt notice to Landlord of the admission of any such new
partners, and on demand of Landlord shall cause each such new partner to execute
and deliver to Landlord an agreement in form satisfactory to Landlord wherein
each such new partner assumes joint and several liability for the performance of
all of Tenant's obligations under this Lease (but neither Landlord's failure to
request any such agreement nor the failure of any such new partner to execute or
deliver any such agreement to Landlord shall vitiate the provisions of clause
------
(d) of this Section), and (f) the death, adjudication of incompetency or
- ---
withdrawal of an individual comprising Tenant or of an individual partner shall
not relieve him or his personal representatives of any liability for the
performance of Tenant's obligations under this Lease.
ARTICLE 41 - MISCELLANEOUS
41.01. Tenant expressly acknowledges and agrees that Landlord has not
made and is not making, and Tenant, in executing and delivering this Lease, is
not relying upon, any warranties, representations, promises or statements,
except to the extent that the same are expressly set forth in this Lease or in
any other written agreement which may be made between the parties concurrently
with the execution and delivery of this Lease and which expressly refer to this
Lease. All understandings and agreements heretofore had between the parties are
merged in this Lease and any other written agreements made concurrently
herewith, which alone fully and completely express the agreement of the parties
and which are entered into after full investigation, neither party relying upon
any statement or representation not embodied in this Lease or any other written
agreements made concurrently herewith.
41.02. No agreement shall be effective to change, modify, waive,
release, discharge, terminate or effect an abandonment of this Lease, in whole
or in part, unless such agreement is in writing, refers expressly to this Lease
and is signed by the party against whom enforcement of the change, modification,
waiver, release, discharge, termination or effectuation of the abandonment is
sought. If Tenant shall at any time request Landlord to relet the Premises for
Tenant's account, Landlord or its agent is authorized to receive keys for such
purpose without releasing Tenant from any of its obligations under this Lease,
and Tenant hereby releases Landlord of any liability for loss or damage to any
of the Tenant's Property in connection with such reletting.
41.03. Except as otherwise expressly provided in this Lease, the
obligations of this Lease shall bind and benefit the successors and assigns of
the parties hereto with the same effect as if mentioned in each instance where a
party is named or referred to;
58
<PAGE>
provided, however, that (a) no violation of the provisions of Article 8 shall
---------
operate to vest any rights in any successor or assignee of Tenant and (b) the
provisions of this Article shall not be construed as modifying the conditions of
limitation contained in Article 24. No provision in this Lease shall be
----------
construed for the benefit of any third party except as expressly provided
herein.
41.04. The obligations of Tenant hereunder shall not be affected,
impaired or excused, nor shall Landlord have any liability to Tenant, because
(a) Landlord is unable to fulfill, or is delayed in fulfilling, any of its
obligations under this Lease by reason of strike, other labor trouble,
governmental preemption of priorities or other controls in connection with a
national or other public emergency, or shortage of fuel, supplies or labor, or
any other cause, whether similar or dissimilar, beyond Landlord's reasonable
control; or (b) of any failure or defect in the supply, quantity or character of
electricity, steam, oil, gas or water furnished to the Premises, by reason of
any requirement, act or omission of the public utility serving the Building with
electric energy, steam, oil, gas or water, or for any other reason whether
similar or dissimilar, beyond Landlord's reasonable control. For purposes
hereof, lack of funds on the part of Landlord or any negligence or wrongful act
of Landlord or any of its employees, agents or contractors shall not be deemed a
cause beyond Landlord's reasonable control.
41.05. All references in this Lease to the consent or approval of
Landlord shall be deemed to mean only the written consent or approval of
Landlord and no consent or approval of Landlord shall be effective for any
purpose unless such consent or approval is set forth in a written instrument
executed by Landlord. If Tenant requests Landlord's consent and Landlord fails
or refuses to give such consent, then, unless Landlord shall be determined to
have acted in bad faith, Tenant shall not be entitled to any damages for any
withholding by Landlord of its consent, it being intended that Tenant's sole
remedy shall be an action for specific performance or injunction, plus court
costs and reasonable legal fees if Tenant is the prevailing party, and that such
remedy shall be available only in those cases where this Lease provides that
Landlord may not unreasonably withhold its consent or where as a matter of law
Landlord may not unreasonably withhold its consent. Wherever this Lease
provides for Landlord's consent not to be unreasonably withheld, such consent
shall also not be unreasonably delayed.
41.06 If an excavation is made upon land adjacent to or under the
Building, or is authorized to be made, Tenant shall afford to the person causing
or authorized to cause such excavation, license to enter the Premises for the
purpose of performing such work as said person shall deem necessary or desirable
to preserve and protect the Building from injury or damage and to support the
same by proper foundations, without any claim for damages or liability against
Landlord and without reducing or otherwise affecting Tenant's obligations under
this Lease.
59
<PAGE>
41.07. Tenant agrees that the exercise of its rights pursuant to the
provisions of Article 12 or of any other provisions of this Lease or the
----------
Exhibits hereto shall not be done in a manner which would violate Landlord's
union contracts affecting the Project, nor create any work stoppage, picketing,
labor disruption or dispute or any interference with the business of Landlord or
any tenant or occupant of the Project.
41.08. Irrespective of the place of execution or performance, this
Lease shall be governed by and construed in accordance with the laws of the
State of New York. If any provision of this Lease or the application thereof to
any person or circumstances shall, for any reason and to any extent, be invalid
or unenforceable, the remainder of this Lease and the application of that
provision to other persons or circumstances shall not be affected but rather
shall be enforced to the extent permitted by law. The table of contents,
captions, headings and titles in this Lease are solely for convenience of
reference and shall not affect its interpretation. This Lease shall be construed
without regard to any presumption or other rule requiring construction against
the party causing this Lease to be drafted. Each covenant, agreement, obligation
or other provision of this Lease on Tenant's part to be performed, shall be
deemed and construed as a separate and independent covenant of Tenant, not
dependent on any other provision of this Lease. All terms and words used in this
Lease, regardless of the number or gender in which they are used, shall be
deemed to include any other number and any other gender as the context may
require.
ARTICLE 42 - OPTIONS
42.01. Tenant shall have the right, at its option (herein called the
"First Extension Option"), to extend the term of this Lease for an additional
term of five years (herein called the "First Extension Term") commencing on the
date (herein called the "First Extension Commencement Date") immediately
following the date that would otherwise have been the Expiration Date (herein
called the "Original Expiration Date") and expiring on the fifth anniversary of
the Original Expiration Date. The First Extension Option may only be exercised
by Tenant's written notice (herein called the "First Exten sion Notice") given
to Landlord before the end of the ninth Lease Year, time being of the essence
with respect to the giving of the First Extension Notice, and only if Tenant is
not in default in the payment of Fixed Rent or any Additional Charges under this
Lease and is not in default beyond the applicable notice or cure period in the
performance of any other material terms, covenants or conditions of this Lease,
both as of the date of the giving of the First Extension Notice and the First
Extension Commencement Date. All of the provisions of this Lease shall apply to
the First Extension Term, except that (i) the Fixed Rent payable by Tenant to
Landlord during the First Extension Term shall be at an annual rate equal to 95%
of the Fair Market Rental for the Premises, determined in accordance with
Section 42.04 and (ii) Section 3.03 shall not be applicable.
- ------------- ------------
60
<PAGE>
42.02. If Tenant effectively exercises the First Extension Option, then
Tenant shall have the right, at its option (herein called the "Second Extension
Option"), to extend the term of this Lease for an additional term of five years
(herein called the "Second Extension Term") commencing on the date (herein
called the "Second Extension Commencement Date") immediately following the last
day of the First Extension Term (herein called the "Extended Expiration Date")
and expiring on the fifth anniversary of the Extended Expiration Date. The
Second Extension Option may only be exercised by Tenant's written notice (herein
called the "Second Extension Notice") given to Landlord on or before the fourth
anniversary of the First Extension Commencement Date, time being of the essence
with respect to the giving of the Second Extension Notice, and only if Tenant is
not in default in the payment of Fixed Rent or any Additional Charges under this
Lease and is not in default beyond the applicable notice or cure period in the
performance of any other material terms, covenants or conditions of this Lease,
both as of the date of the giving of the Second Extension Notice and the Second
Extension Commencement Date. All of the provisions of this Lease shall apply to
the Second Extension Term, except that (i) the Fixed Rent payable by Tenant to
Landlord during the Second Extension Term shall be at an annual rate equal to
95% of the Fair Market Rental for the Premises, determined in accordance with
Section 42.04, (ii) Section 3.03 shall not be applicable, and (iii) Tenant shall
- ------------- ------------
have no option to extend the term of this Lease beyond the fifth anniversary of
the Extended Expiration Date.
42.03. (a) If at any time prior to the expiration or termination of
the original Term of this Lease (i.e., excluding the Extension Terms), Landlord
desires to lease all or a portion (in either case, herein called the "Offered
Space") of the space (herein called the "First Offer Space") described in
Exhibit J hereto, other than as permitted pursuant to clause (ii) of Section
- --------- -------
42.03(d), then Landlord shall first offer to lease the Offered Space to Tenant
- --------
(herein called the "First Offer") by sending a written notice to Tenant (herein
called the "Offered Space Notice") which shall (i) identify the Offered Space
and the date on which such Offered Space is expected to be ready for occupancy
(the "Availability Date"), and (ii) state that Landlord is in active discussions
with a bona fide prospective tenant for such Offered Space and Landlord and such
prospective tenant have tentatively agreed upon a rental rate for such Offered
Space. Tenant must notify the Landlord in writing, within 30 days after the
Offered Space Notice is given, stating whether Tenant accepts or rejects the
First Offer (herein called the "Election Notice"), time being of the essence
with respect to the giving of the Election Notice. If Tenant fails to give an
Election Notice within such 30-day period, then Tenant will be deemed to have
rejected the First Offer. If Tenant rejects or is deemed to reject such First
Offer, then Landlord shall have no further obligation to again offer any of such
Offered Space to Tenant and such Offered Space shall no longer be considered to
be First Offer Space for purposes hereof; unless Landlord shall fail to enter
into a lease for such Offered Space within 180 days after such rejection (or
deemed rejection), in
61
<PAGE>
which event such Offered Space shall again be considered to be First Offer Space
for purposes hereof.
(b) If Tenant accepts, by means of the Election Notice, the First
Offer contained in the Offered Space Notice within the required 30-day period,
then (i) on the Offered Space Commencement Date (as hereinafter defined), (A)
Landlord shall deliver possession of the Offered Space to Tenant, (B) Landlord
shall pay to Tenant (or, at Landlord's option, shall pay into an escrow for
disbursement to Tenant under arrangements similar to the escrow arrangements set
forth in Section 3.03(b)) the Offered Space Work Contribution (as hereinafter
---------------
defined) and (C) Tenant shall accept the Offered Space "as is" on the date of
the giving of the Offered Space Notice, except for reasonable wear and tear,
(ii) Landlord shall use reasonable efforts to cause the Offered Space
Commencement Date to occur not later than the Availability Date, (iii) from and
after the Offered Space Commencement Date, the Offered Space shall be part of
the Premises for all purposes of this Lease, (iv) from and after the Offered
Space Rent Commencement Date (as hereinafter defined), (A) the Fixed Rent shall
be increased by an amount per annum equal to the product of the number of
rentable square feet in the Offered Space and the Offered Space Rent Factor (as
hereinafter defined), and (B) Tenant's Proportionate Share shall be increased
proportionately, based on the percentage by which the area of the Premises shall
have been enlarged by the inclusion of the Offered Space therein. The "Offered
Space Commencement Date" for any Offered Space shall mean the later of the
Availability Date or the date on which possession of the Offered Space is first
delivered to Tenant. The "Offered Space Work Contribution" for any Offered
Space shall be equal to the product of (I) $35.25, (II) the number of rentable
square feet in such Offered Space, and (III) a fraction, the numerator of which
shall be the number of months from the Offered Space Rent Commencement Date to
the tenth anniversary of the Rent Commencement Date and the denominator of which
is 120. The "Offered Space Rent Factor" shall be equal to the annual Fixed Rent
per rentable square foot set forth on Exhibit B. The "Offered Space Rent
---------
Commencement Date" for any Offered Space shall mean the earlier of (x) the 183rd
day after the Offered Space Commencement Date or (y) the date on which Tenant
takes occupancy of any part of such Offered Space for the regular conduct of its
business therein. The work that Tenant performs in the Offered Space to prepare
the Offered Space for its initial occupancy is referred to herein as the
"Offered Space Work".
(c) The addition of the Offered Space shall be reflected by an
amendment to this Lease to include the Offered Space as part of the Premises
(but neither Landlord's failure to submit nor Tenant's or Landlord's failure to
execute and deliver such an amendment shall affect the effectiveness of such
inclusion).
(d) So long as Tenant is not in default hereunder beyond applicable
notice and grace, and Tenant and its affiliates are in actual occupancy of at
least 15,000 square feet of the Premises, Landlord shall not enter into a lease
covering any of the First Offer
62
<PAGE>
Space, prior to the First Extension Term, with anyone other than (i) Tenant or
(ii) a tenant listed on Exhibit F hereto pursuant to an expansion right or
---------
option, or right of first offer, contained in such tenant's lease of space in
the Project.
(e) If the First Offer contained in an Offered Space Notice pertains
to First Offer Space on the same floor as the original Premises as well as to
other First Offer Space, then Tenant shall have the right to accept such First
Offer either for all of the First Offer Space covered therein or only for the
portion of such First Offer Space on the same floor as the original Premises;
and the "Offered Space", for purposes of paragraphs (b) and (c) of this Section
42.03 shall be whichever of such two alternatives Tenant specifies in the
Election Notice (if Tenant elects to accept such First Offer).
42.04. The Fair Market Rental for the Premises shall, for purposes of
Section 42.01 or 42.02, be determined as follows, as of the date (herein called
- ------- ----- -----
the "Determination Date") of the giving of the First Extension Notice (in the
case of Section 42.01) or the Second Extension Notice (in the case of Section
------------- -------
42.02):
- -----
(a) Landlord shall notify Tenant of Landlord's determination of
the relevant Fair Market Rental (herein called "Landlord's Determination")
within 60 days after the Determination Date.
(b) If Tenant disputes Landlord's Determination of Fair Market
Rental, then at any time on or before the date occurring 30 days after
Tenant has been notified by Landlord of Landlord's Determination, Tenant
may initiate the arbitration process provided for herein by giving notice
to that effect to Landlord, and if Tenant so initiates the arbitration
process, such notice shall specify the name and address of the person
designated to act as an arbitrator on its behalf. If Tenant fails to
initiate the arbitration process within such 30-day period, time being of
the essence, then Landlord's Determination shall be conclusive. Within 30
days after Landlord's receipt of notice of the designation of Tenant's
arbitrator, Landlord shall give notice to Tenant specifying the name and
address of the person designated to act as an arbitrator on its behalf. If
Landlord fails to notify Tenant of the appointment of its arbitrator within
the time above specified, then the appointment of the second arbitrator
shall be made in the same manner as hereinafter provided for the
appointment of a third arbitrator in a case where the two arbitrators
appointed hereunder and the parties are unable to agree upon such
appointment. The two arbitrators so chosen shall meet within 10 days after
the second arbitrator is appointed, and if within 30 days after the second
arbitrator is appointed the two arbitrators shall not agree upon a
determination of the Fair Market Rental in dispute, they shall together
appoint a third arbitrator. If the two arbitrators are unable to agree
upon the third arbitrator within 45 days after the appointment of the
second arbitrator, the third arbitrator
63
<PAGE>
shall be selected by the parties themselves if they can agree thereon
within a further period of 15 days. If the parties do not so agree, then
either party, on behalf of both and on notice to the other, may request
such appointment by the American Arbitration Association (or any
organization successor thereto) in accordance with its rules then
prevailing or if the American Arbitration Association (or such successor
organization) shall fail to appoint the third arbitrator within 15 days
after such request is made, then either party may apply, on notice to the
other, to the Supreme Court, Westchester County (or any other Court having
jurisdiction and exercising functions similar to those now exercised by
such Court) for the appointment of the third arbitrator. The third
arbitrator shall determine which of the two respective Fair Market Rentals
determined by the first arbitrator and the second arbitrator is closer to
the actual Fair Market Rental of the Premises or the Offered Space (as the
case may be) and render a written report of his or her determination to
both Landlord and Tenant within 60 days from the appointment of the third
arbitrator, and the Fair Market Rental as determined by the first
arbitrator or the second arbitrator which, in the judgment of the third
arbitrator, is closer to the actual Fair Market Rental, shall be applied to
determine the Fixed Rent for the Premises for the relevant Extension Term
or for the Offered Space, as the case may be.
(c) In determining the Fair Market Rental, the arbitrators shall
take into account all relevant factors including those provisions of this
Lease which will be in effect during the applicable period.
(d) Landlord and Tenant shall pay the fees and expenses of the
arbitrator appointed by or for it, and the fees and expenses of the third
arbitrator, and all other expenses (not including the attorneys' fees,
witness fees and similar expenses of the parties, which shall be borne
separately by each of the parties) of the arbitration shall be borne by
Landlord and Tenant equally.
(e) Each of the arbitrators shall have at least ten years'
current experience in determining fair market rental of office space in
Westchester County office buildings.
(f) If Tenant initiates the aforesaid arbitration process and as
of the first day of the relevant Extension Term or Offered Space
Commencement Date, as the case may be, the amount of the Fair Market Rental
has not been determined, Tenant shall pay the disputed Fixed Rent at a
monthly rate equal to the rate derived from Landlord's Determination, and
when the arbitrator's determination has actually been made, an appropriate
retroactive adjustment shall be made.
42.05. The termination or cancellation of this Lease during (or prior
to) the initial Term hereof shall also terminate and render
64
<PAGE>
void any option or right on Tenant's part to extend the Term of this Lease
pursuant to Section 42.01 or 42.02, or to expand the Premises pursuant to
------------- -----
Section 42.03, whether or not such option or right shall have previously been
- -------------
exercised.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease
as of the day and year first above written.
LANDLORD:
KEREN LIMITED PARTNERSHIP
By: Keren Management Limited
Partnership, General Partner
By: Keren Developments Inc.
By:_____________________
Name: James F. Kay
Title: President
TENANT:
EMISHPERE TECHNOLOGIES, INC.
By:_______________________________
Name:
Title:
Tenant's Federal Identification
Number
_______________________________
65
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF WESTCHESTER )
On the ____ day of __________, 1997, before me personally came James
F. Kay to me known, who, being by me duly sworn, did depose and say that he
resides at _________________________________________; that he is the President
of Keren Developments Inc. which corporation is the general partner of Keren
Management Limited Partnership, which limited partnership is the general partner
of KEREN LIMITED PARTNERSHIP, the partnership described in and which executed
the foregoing instrument; and that he signed his name thereto by order of the
board of directors of said corporation (Keren Developments Inc.) as general
partner of Keren Management Limited Partnership, as general partner of Keren
Limited Partnership.
__________________________
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF )
On the ____ day of __________, 1997, before me personally came
__________________________, to me known, who, being by me duly sworn, did depose
and say that he resides at _____________________,
_____________________________________; that he is the ______________ of
EMISPHERE TECHNOLOGIES, INC., the corporation described in and which executed
the foregoing instrument; and that he signed his name thereto by order of the
board of directors of said corporation.
__________________________
Notary Public
<PAGE>
PLAN OF PREMISES
----------------
EXHIBIT A
---------
<PAGE>
SCHEDULE OF FIXED RENT
----------------------
FIXED RENT PER
RENTABLE SQUARE FIXED RENT
LEASE YEAR FOOT PER ANNUM PER ANNUM
------------ --------------- ----------
1 - 5 $19 $1,266,540
6 - 10 $20 $1,333,200
EXHIBIT B
---------
<PAGE>
RULES AND REGULATIONS
---------------------
1. The rights of each tenant in the entrances, corridors and
elevators servicing the Building are limited to ingress to and egress from such
tenant's premises for the tenant and its employees, licensees and invitees, and
no tenant shall use, or permit the use of, the entrances, corridors or elevators
for any other purpose. No tenant shall invite to the tenant's premises, or
permit the visit of, persons in such numbers or under such conditions as to
interfere with the use and enjoyment of any of the plazas, entrances, corridor,
elevators and other facilities of the Building by any other tenants. Fire exits
and stairways are for emergency use only, and they shall not be used for any
other purpose by the tenants, their employees, licensees or invitees. No tenant
shall encumber or obstruct, or permit the encumbrance or obstruction of any of
the sidewalks, plazas, entrances, corridors, elevators, fire exits or stairways
of the Building. Landlord reserves the right to control and operate the public
portions of the Building and the public facilities, as well as facilities
furnished for the common use of the tenants, in such manner as it in its
reasonable judgment deems best for the benefit of the tenants generally.
2. Landlord may refuse admission to the Building outside of Business
Hours on Business Days (as such terms are defined in the lease to which this
Exhibit is attached) to any person not known to the watchman in charge or not
having a pass issued by Landlord or the tenant whose premises are to be entered
or not otherwise properly identified, and Landlord may require all persons
admitted to or leaving the Building outside of Business Hours on Business Days
to provide appropriate identification. Landlord will supply identification
cards and be reimbursed by Tenant at Landlord's cost. Tenant shall be
responsible for all persons for whom it issues any such pass and shall be liable
to Landlord for all acts or omissions of such persons. Tenant shall promptly
notify Landlord in writing of any lost identification cards and will reimburse
Landlord at cost for replacement of identification cards. Any person whose
presence in the Building at any time shall, in the judgment of Landlord, be
prejudi cial to the safety, of the Building or of its tenants may be denied
access to the Building or may be ejected therefrom. During any invasion, riot,
public excitement or other commotion, Landlord may prevent all access to the
Building by closing the doors or otherwise for the safety of the tenants and
protection of property in the Building.
3. No tenant shall obtain or accept for use in its premises towel,
barbering, bootblacking, floor polishing, cleaning or other similar services
from any persons reasonably prohibited by Landlord in writing from furnishing
such services. Such services shall be furnished only at such hours, and under
such reasonable regulations, as may be fixed by Landlord from time to time.
EXHIBIT C
---------
Page 1
<PAGE>
4. No awnings or other projections shall be attached to the outside
walls of the Building. No curtains, blinds, shades or screens which are
different from the standards adopted by Landlord for the Building shall be
attached to or hung in, or used in connection with, any exterior window or door
of the premises of any tenant, without the prior written consent of Landlord,
not to be unreasonably withheld. Such curtains, blinds, shades or screens must
be of a quality, type, design and color, and attached in the manner approved by
Landlord, not to be unreasonably withheld.
5. No lettering, sign, advertisement, notice or object shall be
displayed in or on the exterior windows or doors, or on the outside of any
tenant's premises, or at any point inside any tenant's premises where the same
might be visible outside of such premises, without the prior written consent of
Landlord, not to be unreasonably withheld. In the event of the violation of the
foregoing by any tenant, Landlord may remove the same without any liability, and
may charge the expense incurred in such removal to the tenant violating this
rule. Interior signs, elevator cab designations and lettering on doors and the
Building directory shall, if and when approved by Landlord, not to be
unreasonably withheld, be inscribed, painted or affixed for each tenant by
Landlord at the expense of such tenant, and shall be of a size, color and style
acceptable to Landlord.
6. The sashes, sash doors, skylights, windows and doors that reflect
or admit light and air into the halls, passageways or other public places in the
Building shall not be covered or obstructed by any tenant, nor shall any
bottles, parcels or other articles be placed on the window sills or on the
peripheral air conditioning enclosures, if any.
7. No showcases or other articles shall be put in front of or affixed
to any part of the exterior of the Building, nor placed in the halls, corridors
or vestibules.
8. No noise, including, but not limited to, music or the playing of
musical instruments, recordings, radio or television, which, in the judgment of
Landlord, might disturb other tenants in the Building, shall be made or
permitted by any tenant.
9. Additional locks or bolts of any kind which shall not be operable
by the Grand Master Key for the Building shall not be placed upon any of the
doors or windows by any tenant, nor shall any changes be made in locks or the
mechanism thereof which shall make such locks inoperable by said Grand Master
Key. Additional keys for a tenant's premises and toilet rooms shall be procured
only from Landlord who may make a reasonable charge therefor. Each tenant
shall, upon the termination of its tenancy, turn over to Landlord all keys of
stores, offices and toilet rooms, either furnished to, or otherwise procured by,
such tenant, and in the event of the loss of any keys furnished by Landlord,
such tenant shall pay to Landlord the cost thereof.
EXHIBIT C
---------
Page 2
<PAGE>
10. All removals, or the carrying in or out of any safes, freight,
furniture, packages, boxes, crates or any other object or matter of any
description must take place during such hours and in such elevators, and in such
manner as Landlord or its agent may determine from time to time. The persons
employed to move safes and other heavy objects shall be reasonably acceptable to
Landlord and, if so required by law, shall hold a Master Rigger's license.
Arrangements will be made by Landlord with any tenant for moving large
quantities of furniture and equipment into or out of the Building. All labor and
engineering costs incurred by Landlord in connection with any moving specified
in this rule, including a reasonable charge for overhead, shall be paid by
Tenant to Landlord, on demand.
11. Landlord reserves the right to inspect all objects and matter to
be brought into the Building and to exclude from the Building all objects and
matter which violate any of these Rules and Regulations or the lease of which
this Exhibit is a part. Landlord may require any person leaving the Building
with any package or other object or matter to submit a pass, listing such
package or object or matter, from the tenant from whose premises the package or
object or matter is being removed, but the establishment and enlargement of such
requirement shall not impose any responsibility on Landlord for the protection
of any tenant against the removal of property from the premises of such tenant.
Landlord shall in no way be liable to any tenant for damages or loss arising
from the admission, exclusion or ejection of any person to or from the premises
or the Building under the provisions of this Rule or of Rule 2 hereof.
12. No tenant shall occupy or permit any portion of its premises to be
occupied as an office for a public stenographer or public typist, or for the
storage, manufacture, or sale of liquor, narcotics, dope, tobacco in any form,
or as a barber, beauty or manicure shop, or as a school. No tenant shall use or
permit its premises or any part thereof to be used for manufacturing or the sale
at retail or auction of merchandise, goods or property of any kind.
13. Landlord shall have the right to prohibit any advertising or
identifying sign by any tenant which, in Landlord's reasonable judgment, tends
to impair the reputation of the Building or its desirability as a building for
others, and upon written notice from Landlord, such tenant shall refrain from
and discontinue such advertising or identifying sign.
14. Landlord shall have the right to prescribe the weight and position
of safes and other objects of excessive weight, and no safe or other object
whose weight exceeds the lawful load for the area upon which it would stand
shall be brought into or kept upon any tenant's premises. If, in the judgment
of Landlord, it is necessary to distribute the concentrated weight of any heavy
object, the work involved in such distribution shall be done at the expense of
the tenant and in such manner as Landlord shall determine.
EXHIBIT C
---------
Page 3
<PAGE>
15. Landlord, its contractors, and their respective employees, shall
have the right to use, without charge therefor, all light, power and water in
the premises of any tenant while cleaning or making repairs or alterations in
the premises of such tenant.
16. No premises of any tenant shall be used for lodging or for any
immoral or illegal purpose.
17. The requirements of tenants will be attended to only upon
application at the office of the Building. Employees of Landlord shall not
perform any work or do anything outside of their regular duties, unless under
special instructions from Landlord.
18. Canvassing, soliciting and peddling in the Building are prohibited
and each tenant shall cooperate to prevent the same.
19. No tenant shall cause or permit any unusual or objectionable odors
to emanate from its premises which would annoy other tenants or create a public
or private nuisance. No cooking (other than coffee, tea or similar pantry items
and pantry-type microwave cooking) shall be done in the premises of any tenant
except as is expressly permitted in such tenant's lease.
20. Nothing shall be done or permitted in any tenant's premises, and
nothing shall be brought into or kept in any tenant's premises, which would
impair or interfere with any of the Building's services or the proper and
economic heating, ventilating, air conditioning, cleaning or other servicing of
the Building or the premises.
21. No acids, vapors or other materials shall be discharged or
permitted to be discharged into the waste lines, vents or flues of the Building
which may damage them. The water and wash closets and other plumbing fixtures
in or serving any tenant's premises shall not be used for any purpose other than
the purposes for which they were designed or constructed, and no sweepings,
rubbish, rags, acids or other foreign substances shall be deposited therein.
All damages resulting from any misuse of the fixtures shall be borne by the
tenant who, or whose servants, employees, agents, visitors or licensees shall
have, caused the same. Any cuspidors or containers or receptacles used as such
in the premises of any tenant or for garbage or similar refuse, shall be
emptied, cared for and cleaned by and at the expense of such tenant.
22. All entrance doors in each tenant's premises shall be left locked
and all windows shall be left closed by the tenant when the tenant's premises
are not in use. Entrance doors shall not be left open at any time.
23. Hand trucks not equipped with rubber tires and side guards shall
not be used within the Building.
EXHIBIT C
---------
Page 4
<PAGE>
24. All windows in each tenant's premises shall be kept closed, and
all blinds therein above the ground floor shall be lowered as reasonably
required because of the position of the sun, during the operation of the
Building air-conditioning system to cool or ventilate the tenant's premises. If
Landlord shall elect to install any energy saving film on the windows of any
premises or to install energy saving windows in place of the present windows,
each tenant shall cooperate with the reasonable requirements of Landlord in
connection with such installation and thereafter the maintenance and replacement
of the film and/or windows and permit Landlord to have access to the tenant's
premises at reasonable times during Business Hours to perform such work.
EXHIBIT C
---------
Page 5
<PAGE>
PARKING AREA
------------
EXHIBIT D
---------
<PAGE>
HVAC SPECIFICATIONS AND CURRENT COST
------------------------------------
EXHIBIT E
---------
<PAGE>
OTHER TENANTS WITH EXPANSION RIGHTS
-----------------------------------
EXHIBIT F
---------
<PAGE>
CLEANING SPECIFICATIONS
-----------------------
EXHIBIT G
---------
<PAGE>
INTENTIONALLY OMITTED
---------------------
EXHIBIT H
---------
<PAGE>
FORM OF SNDA
------------
EXHIBIT I
---------
<PAGE>
FIRST OFFER SPACE
-----------------
EXHIBIT J
---------
<PAGE>
EQUIPMENT TO BE FURNISHED
BY LANDLORD
-------------------------
EXHIBIT K
---------
<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 4,096,090
Shares assumed to be repurchased under
the treasury stock method (1,665,493) (1,845,099)
-------------- -------------- ------------- --------------
8,327,466 8,693,085 9,489,732 11,740,723
============== ============== ============= ==============
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 4,024,264
Shares assumed to be repurchased under
the treasury stock method (1,147,496) (1,814,436)
--------------- -------------- ------------- --------------
8,035,391 8,328,654 9,467,632 11,677,460
=============== ============== ============= ==============
NET LOSS PER SHARE $ (0.10) $ $(0.09) $ (0.36) $ (0.29)
=============== ============== ============= ==============
</TABLE>
