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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Fiscal Year Ended December 31, 1996
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-19171
ICOS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 91-1463450
(State of incorporation) (I.R.S. Employer
Identification No.)
22021 - 20th Avenue S.E.
Bothell, Washington, 98021
(206) 485-1900
(Address, including zip code, and telephone number, including area code,
of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
State the aggregate market value of voting stock held by non-affiliates of
the registrant as of March 10, 1997.
$350,392,322
Indicate the number of shares outstanding of each of the
registrant's classes of Common Stock as of March 10, 1997:
Title of Class Number of Shares
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Common Stock, $.01 par value 39,480,825
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DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Registrant's definitive Proxy Statement for the annual
meeting of stockholders to be held on May 7, 1997 relating to "Election of
Directors," "Continuing Directors (until 1998)," "Continuing Directors
(until 1999)," "Other Executive Officers," "Compliance with Section 16(a)
of the Securities Exchange Act of 1934," "Compensation of Directors,"
"Executive Compensation," "1996 Option Grants," "1996 Options Exercised,"
"Report of the Compensation Committee on Executive Compensation," "Stock
Price Performance Graph," "Employment Contracts, Termination of Employment
and Change of Control Arrangements," "Security Ownership of Certain
Beneficial Owners and Management," and "Certain Relationships and Related
Transactions" are incorporated by reference in Part III of this Form 10-K.
2. Portions of Item 8 from the Registrant's Registration Statement
(Registration No. 333-08485) effective July 19, 1996 are incorporated
by reference in Part IV of this Form 10-K.
3. Portions of Item 16 filed with the Registrant's Registration Statement
(Registration No. 333-3312) effective May 7, 1996 are incorporated by
reference in Part IV of this Form 10-K.
4. Portions of Item 14 from the Registrant's Form 10-K Annual Report
filed on March 29, 1996 are incorporated by reference in Part IV of
this Form 10-K.
5. Portions of Item 6 from the Registrant's Form 10-Q Quarterly Report
filed on May 12, 1995 are incorporated by reference in Part IV of this
Form 10-K.
6. Portions of Item 6 from the Registrant's Form 10-Q Quarterly Report
filed on November 2, 1993 are incorporated by reference in Part IV of
this Form 10-K.
7. Portions of Item 14 from the Registrant's Form 10-K Annual Report
filed on March 29, 1993 are incorporated by reference in Part IV of
this Form 10-K.
8. Portions of Item 16 from the Registrant's Registration Statement
(Registration No. 33-43540) filed pursuant to the Securities Act of
1933, as amended, and effective December 4, 1991, are incorporated by
reference in Part IV of this Form 10-K.
9. Portions of Item 16 from the Registrant's Registration Statement
(Registration No. 33-40022) filed pursuant to the Securities Act of
1933, as amended, and effective June 6, 1991, are incorporated by
reference in Part IV of this Form 10-K.
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ICOS CORPORATION
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
Part I
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Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Part II
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Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Part III
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Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Part IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
</TABLE>
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PART I
ITEM 1. BUSINESS
OVERVIEW
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ICOS' mission is to improve the quality of life and health for people world-wide
by leading in the discovery, development and commercialization of novel
therapeutics by focusing on molecular targets in inflammatory and other serious
diseases.
The Company's strategy is to identify therapeutic targets through an
understanding of inflammation at the molecular level. ICOS scientists are
developing pharmaceutical products which address important cellular and
molecular mechanisms in three separate, yet interrelated areas of the
inflammatory process: directed cell movement, the inhibition of pro-inflammatory
mediators and intracellular signal transduction. Each of these mechanisms may
provide broad opportunities in the treatment of chronic diseases that have
inflammatory components, such as multiple sclerosis ("MS"), and in the treatment
of acute inflammatory conditions, such as those associated with acute
respiratory distress syndrome ("ARDS"), hemorrhagic shock, myocardial infarction
("MI") and ischemic stroke. In addition, ICOS' programs have yielded additional
approaches that may be useful in treating certain cardiovascular diseases and
cancer. ICOS believes that its approach will allow it to develop novel
therapeutics that are more selective in their activities than existing drugs.
When used in this discussion, the words "believes," "intends," "anticipates,"
"plans to," "expects" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
projected. See "Important Factors Regarding Forward-Looking Statements." Readers
are cautioned not to place undue reliance on such forward-looking statements,
which speak only as of the date hereof. The Company undertakes no obligation to
publicly release the results of any revisions to such forward-looking statements
that may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
DESCRIPTION OF PROGRAMS
DEVELOPMENT PIPELINE - OVERVIEW
The clinical targets that are the subject of ICOS' discoveries include
inflammatory and other diseases whose pathology is a result of the dysfunction
of the normal inflammatory mechanisms. The Company has discovered important
molecules and mechanisms underlying directed cell movement, the inhibition of
pro-inflammatory mediators and intracellular signal transduction. The chart
below summarizes the programs with compounds currently in clinical development.
<TABLE>
<CAPTION>
ICOS Clinical Development Projects
(Table 1)
- -------------------------- -------------------------- --------------------------------- --------------------------
Program Product Candidate Indication Status (1)
- -------------------------- -------------------------- --------------------------------- --------------------------
<S> <C> <C> <C>
Cell Adhesion Hu23F2G Multiple sclerosis, acute Phase 2 clinical trial
exacerbation
Hemorrhagic shock Phase 2 clinical trial
Myocardial infarction Phase 2 clinical trial
ICM3 Severe Psoriasis Phase 1 clinical trial
- -------------------------- -------------------------- --------------------------------- --------------------------
Antagonists of
Proinflammatory Mediators rPAF-AH ARDS Phase 1 clinical trial
(2)
- -------------------------- -------------------------- --------------------------------- --------------------------
Signal Transduction IC351 Male erectile dysfunction Phase 1 clinical trial
(2)
- -------------------------- -------------------------- --------------------------------- --------------------------
</TABLE>
(1) Status as of March 31, 1997
Phase 1 clinical trial: safety and pharmacology, dose determining drug
regimen
Phase 2 clinical trial: determination of dose levels and potential efficacy
of drug
(2) In healthy volunteers
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CELL ADHESION PROGRAMS
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Cell adhesion molecules play a critical role in a variety of immune functions,
including cell migration or trafficking. For inflammation to occur, leukocytes
must move (or transmigrate) from the bloodstream into the tissue. During this
process they interact with other cells that promote the activation of additional
leukocytes, causing them to move through the blood vessel wall and into the
tissue. The interaction between certain cell adhesion molecules on the surface
of both the leukocyte and the endothelium facilitates these contacts. To date, a
number of cell adhesion molecule families, such as integrins, have been
identified.
Integrins are a large family of cell adhesion molecules that, as a class, are
expressed throughout the body. Leukointegrins comprise an integrin family that
is expressed only on leukocytes. The interactions between the leukointegrins and
their primary ligands on the endothelium and other leukocytes, called ICAMs,
mediate a variety of immune functions, not only by promoting leukocyte
trafficking, but also by promoting antigen presentation and effecting functions
such as cytotoxicity.
Hu23F2G
BACKGROUND
The migration of circulating leukocytes into extravascular tissues in the course
of inflammation involves a complex series of events. A critical step involves
the firm attachment of circulating leukocytes to the endothelial wall. The
CD11/CD18 cell adhesion molecules found on leukocytes mediate this adhesive
interaction. It is believed that by intervening in the adhesion process, much of
the inflammation-associated damage can be prevented. Monoclonal antibodies
directed to CD11/CD18 adhesion molecules have been shown to protect against
leukocyte-mediated tissue injury by blocking adherence in a variety of disease
models.
Hu23F2G is a recombinant humanized monoclonal antibody developed by ICOS to
block CD11/CD18-mediated cell adhesion in humans. Hu23F2G has been shown in
Phase 1 clinical trials to bind to CD11/CD18 cell adhesion molecules on the
surface of leukocytes and to block subsequent movement into the surrounding
tissue. To date, Hu23F2G has been administered to over 75 patients with MS,
hemorrhagic shock and MI to gather safety, efficacy and pharmacological data.
The inhibitory activity of Hu23F2G on human neutrophil (a type of leukocyte)
transmigration, in vitro and in vivo, supports further development of the
program. ICOS is currently conducting clinical development of Hu23F2G in the
indications described below.
CLINICAL APPLICATION -- MULTIPLE SCLEROSIS
MS is a chronic disease characterized by recurrent episodes of neurologic
dysfunction due to lesions that form in the white matter of the central nervous
system. Although the root cause of MS is unknown, data from the published
literature suggest that immunologic or infectious factors lead to a state of
chronic central nervous system inflammation. The manifestations of the disease
vary among MS patients -- in some the disease is chronic and the deterioration
is progressive, while in others disease episodes may resolve with little or no
neurologic disability. Most MS patients undergo repeated acute exacerbations
every 12 to 18 months in which inflammation "flares" and the clinical symptoms
worsen for a few days or weeks before subsiding.
Physiologically, MS is characterized by destruction of the myelin sheath
(demyelination) surrounding the nerve tracts in the central nervous system. This
destruction leads to a variety of diverse neurologic deficits. It is believed
that the demyelination process is associated with an inappropriate inflammatory
response and subsequent migration of blood-borne leukocytes into the central
nervous system where few leukocytes are normally found. Once in the central
nervous system, these leukocytes are believed to damage the myelin sheath
surrounding nerve cells.
MS affects approximately 250,000 individuals in the United States. Based on the
frequency of exacerbation, ICOS expects 120,000 exacerbations per year are
potentially treatable with Hu23F2G. Current treatment for acute exacerbation of
MS consists of systemic administration of corticosteroids, usually initiated as
intravenous therapy for the first few days of the exacerbation, followed by a
course of oral steroid therapy. This therapy is effective in shortening the
exacerbation in some patients, but does not appear to alter the subsequent
course of the disease. In July 1993, the U.S. Food and Drug Administration (the
"FDA") approved the use of a interferon-beta in relapsing remitting MS to reduce
the frequency of acute
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attacks. In 1996 the FDA also approved the use of a second form of interferon
(interferon-beta-1a) for the treatment of relapsing forms of MS. Despite the
advance represented by the approval of betainterferon, ICOS believes there
remains a significant need for therapy to treat acute exacerbations of MS.
ICOS believes that Hu23F2G may reduce the severity and length of acute
exacerbation of MS by interfering with the ability of leukocytes to bind to the
vascular endothelium in the brain and spinal cord, and thus limit their mobility
into these tissues and allow the inflammation to resolve sooner and the
neurologic damage to be reduced. Due to improved efficacy and an anticipated
reduction in frequency of administration, the Company believes that treatment of
the acute exacerbation with Hu23F2G may provide superior treatment outcomes to
those provided by corticosteroid treatment and other treatment methods.
ICOS began a Phase 2 clinical trial of Hu23F2G in MS patients in January 1997.
The results of the Phase 2 clinical trials of Hu23F2G will provide essential
pharmacological efficacy, functional and safety data to support the continued
development of Hu23F2G.
Clinical Application -- Hemorrhagic Shock
Each year, approximately 200,000 Americans suffer major trauma, leading to
shock. Approximately 125,000 of these victims are at risk for the development of
hemorrhagic shock. A major cause of morbidity and mortality in those who survive
the initial injury is multiple organ failure ("MOF"), for which currently there
is no specific treatment. The intensive care necessary for the support of MOF
patients is extremely expensive.
Based on in vitro and in vivo data, it has been hypothesized that MOF is the
result of neutrophil-mediated tissue injury. Resuscitation of the trauma patient
by administering intravenous fluids and blood products leads to the
re-establishment of circulation in the affected tissues. Prior to reflow the
blood vessels become highly adhesive. Restoring oxygen and leukocytes, in
particular neutrophils, to the now hyperadhesive vasculature environment results
in activation and adhesion of neutrophils to the endothelium. Once attached to
the endothelium, activated neutrophils release toxins, such as free radicals and
proteases, that can damage the endothelium and the surrounding tissue, leading
to edema, hemorrhage and thrombosis that can often result in organ dysfunction
and failure.
Since the adhesion of neutrophils to endothelium is inhibited by Hu23F2G, ICOS
believes that treatment of trauma-induced hemorrhagic shock patients with
Hu23F2G may prevent the development of MOF and improve overall mortality rates.
If Hu23F2G is demonstrated to be effective in this setting, it might be adopted
as a standard therapy for hemorrhagic shock, given the poor outcome and high
cost associated with current therapy.
In April 1996, ICOS initiated a Phase 2 clinical trial of Hu23F2G in patients
with trauma-induced hemorrhagic shock to evaluate the compound's safety and
pharmacology. This Phase 2 clinical trial is currently underway at multiple
sites. As in all clinical trials for hemorrhagic shock, the rate of enrollment
in the Phase 2 clinical trial has been affected by the complexities of obtaining
informed consent on behalf of hemorrhagic shock patients. New regulations
regarding informed consent are expected to increase the rate of enrollment;
however, there can be no assurance that such an increase in the rate of
enrollment will occur.
CLINICAL APPLICATION -- MYOCARDIAL INFARCTION
Each year, approximately 1.5 million MIs occur in the United States, about 30%
of which are fatal. During a MI, a coronary artery becomes occluded and blood
flow to a region of the heart is blocked. This blockage results in injury and
death of heart tissue in the affected region. A significant portion of the
tissue injury and death is thought to be caused by neutrophil-mediated
inflammatory damage. Current treatment of MI is unable to protect at-risk tissue
from this neutrophil-mediated damage or death.
A common and serious complication of MI is the failure of the heart to pump
blood adequately. Generally, the larger the amount of tissue damage, the less
able the heart is to pump blood, resulting in congestive heart failure, which is
the major cause of in-hospital mortality and disability following MI.
Preclinical studies have provided evidence that Hu23F2G inhibits neutrophil
functions shown to be important for neutrophil damage in models of MI. ICOS
believes that treatment of patients with Hu23F2G during an MI may limit the
degree of
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inflammatory tissue damage and protect significant amounts of heart tissue. In
turn, this tissue preservation should help maintain the pumping capacity of the
heart, thereby reducing mortality and disability.
Based on preclinical data in MI models and the results of the Phase 1 clinical
trials of Hu23F2G in MS patients, ICOS initiated a Phase 2 clinical trial of
Hu23F2G for the treatment of MI in February 1997 at multiple clinical sites.
OTHER POTENTIAL CLINICAL APPLICATIONS FOR Hu23F2G
While the focus of the clinical testing of Hu23F2G to date has been the
indications described above. ICOS believes that Hu23F2G may have utility in the
treatment of other indications, which involve the migration of circulating
leukocytes as part of the inflammatory mechanism including ischemic stroke, head
trauma, acute peripheral arterial occlusion and solid organ transplant
preservation. Depending on the results of current research and preclinical
development testing, Hu23F2G may progress to initiating clinical trials for
treatment of these medical indications in the future.
ICM3
BACKGROUND
T cell stimulation by antigen presenting cells ("APCs") has been shown to be an
important early step in the development of antigen-specific inflammatory
responses. Once stimulated by APCs, T cells orchestrate the cellular events that
lead to inflammation. ICAMs are cell surface proteins known to mediate
interaction between T cells and APCs. Known ICAMs include ICAM-1, ICAM-2 and
ICAM-3. In comparison to the other ICAMs, the expression pattern of ICAM-3 has
been shown by ICOS scientists to be unique. Whereas ICAM-1 and ICAM-2 are
primarily found on the surfaces of endothelial cells and activated leukocytes,
ICAM-3 expression is normally restricted to leukocytes themselves. Because
ICAM-3 is expressed at high levels independent of the state of cell activation,
ICAM-3 is believed to be involved in the earliest stages of T cell activation
and is therefore an attractive target for early intervention to improve the
outcome in T cell-mediated inflammatory conditions.
A proprietary series of anti-ICAM-3 antibodies developed by ICOS has been shown
to inhibit T cell interaction with APCs and T cell activation. One antibody,
known as ICM3, is a recombinant humanized monoclonal antibody that has been
shown by ICOS scientists to block the function of ICAM-3. ICM3 has been shown by
ICOS to be a potent inhibitor of T cell activation in both in vitro and clinical
models. The first two disease conditions for which ICM3 has been identified as a
potential product candidate are psoriasis and solid organ transplant rejection,
both of which are T cell-mediated inflammatory responses. ICM3 also may have
utility in a number of other T cell-mediated inflammatory diseases.
CLINICAL APPLICATION -- PSORIASIS
Psoriasis is a common inflammatory disorder affecting approximately five million
Americans. Psoriasis is characterized by abnormal proliferation of the epidermal
cells of the skin in association with inflammation. Activated T cells have been
shown to mediate these abnormalities. Direct interaction between T cells and
APC's (dendritic cells) is a key event that leads to T cell activation which
mediate psoriasis. ICAM3 is expressed at high levels on both T cells and
dendritic cells and has been shown to be important in their interaction.
Although most psoriasis patients are adequately treated with topical therapy,
about 20% have a moderate or severe form of the disease that does not respond,
thereby requiring systemic therapy. Existing forms of systemic therapy include
phototherapy, retinoids and cyclosporin, all of which have significant side
effects. There is, therefore, a need for effective and safe new systemic
treatments.
ICOS believes that ICM3 treatment may effectively diminish the T cell
inflammatory component of psoriasis and lead to clinical remission of the
disease. It is anticipated that treatment with ICM3 would cause fewer toxic side
effects than current therapies, and thus would be an advance over current
treatments. In early 1997 ICOS initiated Phase 1 clinical trials for the
treatment of psoriasis.
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OTHER POTENTIAL CLINICAL APPLICATIONS FOR ICM3
Approximately 20,000 solid organ transplantations are performed each year in the
United States. The most common procedures involve transplantation and grafting
of the donor kidney, liver, heart or lung into the patient. Patients undergoing
these transplants require life-long immunosuppressive drugs to prevent graft
rejection. Despite such treatment, graft rejection remains a major problem and
is the limiting factor in the successful outcome of transplantation.
Furthermore, all immunosuppressive agents currently in use cause significant
undesirable side effects.
Rejection of solid organs is mediated by T cells that mount an immune response
against the "foreign" graft. This response has been shown by ICOS scientists in
preclinical models to be inhibited by ICM3. ICOS intends to initiate a Phase 1
clinical trial of ICM3 for use in connection with solid organ transplantation
during 1997. ICOS is also studying the potential of ICM3 for use in treating
inflammatory bowel disease.
ANTAGONISTS OF PROINFLAMMATORY MEDIATORS PROGRAMS
- -------------------------------------------------
RECOMBINANT PLATELET-ACTIVATING FACTOR ACETYLHYDROLASE (rPAF-AH)
BACKGROUND
Platelet-activating factor ("PAF") is a potent proinflammatory mediator with
diverse biological effects and is implicated in a number of debilitating
inflammatory conditions, including acute pancreatitis, ARDS, necrotizing
enterocolitis ("NEC") and asthma. It is produced naturally by a variety of human
cells, including endothelial cells, leukocytes, platelets and mast cells. PAF
affects a variety of cells that are involved in the inflammatory process,
including leukocytes, platelets and vascular endothelial cells, and acts by
binding to specific receptors, thereby increasing the inflammatory response.
In acute inflammation, potentially important effects of PAF include: (i)
activation of neutrophils, resulting in chemotaxis, aggregation, production of
free radicals and degranulation; (ii) increased adherence to and transmigration
of neutrophils across endothelial cells; and (iii) alteration of endothelial
barrier function, which results in increased vascular permeability. In certain
disease conditions, PAF activity is increased which may result in inflammation
that contributes to local or systemic tissue injury.
Platelet-activating factor acetylhydrolase ("PAF-AH") is a naturally occurring
enzyme that hydrolyzes PAF to a biologically inactive form, thereby limiting its
pro-inflammatory effects. The inhibitory activity of rPAF-AH on PAF-induced
inflammation has been demonstrated in both in vitro and in vivo preclinical
studies. ICOS is developing rPAF-AH, the recombinant form of PAF-AH, as an agent
for the treatment of diseases characterized by disregulatory PAF activity.
In February 1997, the Company formed a joint venture with Suntory Limited of
Japan ("Suntory"). The corporation formed by ICOS and Suntory, called Suncos,
will develop and commercialize rPAF-AH for use worldwide for all medical
indications. See "Collaborations".
CLINICAL APPLICATION -- ACUTE RESPIRATORY DISTRESS SYNDROME
There are approximately 650,000 persons at risk for developing ARDS each year in
the United States as a complication of several common diseases and conditions,
including sepsis, trauma, massive blood transfusion, acute pancreatitis and
aspiration of gastric contents. Approximately 150,000 develop ARDS, for which
the mortality rate is approximately 40% to 50%. Current therapy for ARDS is only
supportive.
Although the cause of ARDS is not known, it is characterized by
acute lung inflammation. PAF has been shown to have pronounced effects on the
lung. In preclinical studies, PAF administration has been shown to cause lung
damage that resembles ARDS. Increased levels of PAF have also been found in the
lung fluid of humans who have been diagnosed with ARDS, suggesting that PAF may
contribute to lung inflammation.
The inhibitory activity of rPAF-AH on PAF-induced lung inflammation has been
demonstrated by ICOS in in vivo preclinical studies. The data obtained from
these studies indicate that rPAF-AH may be effective in patients at risk for
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ARDS or in improving the outcome in patients who have already been diagnosed
with ARDS by inhibiting the ability of PAF to contribute to lung inflammation.
ICOS has conducted a Phase 1 clinical trial of rPAF-AH necessary to initiate
Phase 2 clinical trials of rPAF-AH for the treatment of several indications.
ICOS, as part of its efforts under the joint venture agreement, intends to
initiate a Phase 2 clinical trial in 1997 for the treatment of patients at risk
for ARDS.
OTHER POTENTIAL CLINICAL APPLICATIONS FOR rPAF-AH
Approximately 15 million people in the United States suffer from asthma.
Although there are a number of effective drugs for asthma, the disease still
causes considerable morbidity and mortality. Each year, approximately 300,000
people are hospitalized with acute asthma. Asthma is characterized by a
reversible narrowing of the airways and chronic airway inflammation. In
preclinical studies, PAF has been shown to cause bronchioconstriction of the
airways similar to that observed in asthma patients. ICOS believes that rPAF-AH
may be useful in the treatment of acute asthma attacks by rapidly inhibiting the
detrimental effects of PAF, thereby reducing inflammation that contributes to
persistent airway narrowing. Additional Phase 2 clinical trials may also be
initiated during 1997 to evaluate the potential of rPAF-AH for the treatment of
asthma.
Each year, approximately 42,500 people in the United States suffer from
acute pancreatitis. Currently, there is no specific therapy available to treat
this disease. PAF has been implicated as a mediator of acute pancreatitis. In
animal models of pancreatitis, the amount of PAF present in the pancreas has
been shown to be at increased levels compared to healthy tissue. ICOS believes
that rPAF-AH may be useful in resolving acute pancreatitis and preventing the
subsequent complications by inactivating the ability of PAF to cause
inflammatory damage to the pancreas, as well as to other organs. In preclinical
models, rPAF-AH has been demonstrated to reduce the severity of pancreatitis.
Additional Phase 2 clinical trials may also be initiated during 1997 to evaluate
the potential of rPAF-AH for the treatment of acute pancreatitis.
The primary focus of preclinical studies and clinical testing of rPAF-AH by ICOS
to date has been the indications described above. ICOS believes that rPAF-AH may
have utility in the treatment of other indications that might involve the
effects of PAF, including NEC, IBD, ischemic stroke, head trauma, solid organ
transplantation rejection and type 1 diabetes.
SIGNAL TRANSDUCTION PROGRAMS
- ----------------------------
Research over the past 15 years has led to a better understanding of how cells
interact to coordinate the growth and maintenance of tissues in the human body.
The key to this interaction is intracellular signal transduction -- the
transmission of a signal from the exterior to the interior of a cell -- which
results in the activation or suppression of specific genes or metabolic
pathways. An integral part of this process is the interaction of ligands,
receptors and intracellular signal transduction molecules also known as second
messengers.
Ligands are molecules that specifically react to form complexes with their
receptors. In some cases, the ligands are released by one cell to communicate
with a target cell by binding to specific receptors on that target cell. The
binding of a ligand and a receptor at the cell surface triggers a cascade of
events that results in an intracellular signal or production of a second
messenger molecule such as cGMP. Regulation of the concentration of second
messenger molecules is a critical step of the signal transduction process as
receptors transmit, amplify and receive extracellular signals and thereby
control cellular processes.
IC351, PDE4 INHIBITORS AND OTHER PDE ISOFORMS
Physiologically, the concentrations of two second messenger molecules, cAMP and
cGMP in cells, influence a wide range of cellular functions, including cardiac
and smooth muscle contractility, the aggregation of platelets, the breakdown of
energy sources such as glycogen and lipids, the activation or inhibition of
cells in the immune and nervous systems and the release of histamine and other
substances associated with inflammation. The intracellular concentration of cAMP
and cGMP in the cell is generally controlled by the relative activity of two
types of enzymes; cyclases, which produce these second messengers, and
phosphodiesterases or PDEs, which degrade these second messengers by converting
active second messengers into their respective inactive forms. ICOS scientists
believe that the selective modulation of PDE activity by pharmaceutical
intervention may produce significant therapeutic effects.
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There are at least 15 human genes which encode more than 20 different PDEs that
can be categorized into seven distinct PDE types. The Company has cloned and
expressed a majority of these PDEs, each of which has been shown to target
particular signal transduction pathways. These diverse proteins are not,
however, uniformly expressed and distributed throughout the body, but rather are
found in differing concentrations in different tissues. This tissue-selective
expression may provide opportunities for specific intervention and development
of selective therapeutics that inhibit a single type of PDE enzymes.
In 1991 the Company entered into a collaboration with Glaxo Wellcome to identify
and develop pharmaceutical products that may have a therapeutic effect by
modulating PDE activity. Such agents may be useful in a variety of inflammatory
diseases and cardiovascular disorders. From 1991 to early 1997, the
collaboration successfully identified and developed compounds that inhibit PDE5.
The first of these compounds, now called IC351, is in Phase 1 clinical trials to
evaluate its safety and pharmacological profile. During the collaboration, PDE4
inhibitors were also identified and tested in preclinical studies. Such
compounds may have utility treating inflammatory diseases. In early 1997 ICOS
and Glaxo Wellcome changed the terms of their agreement, allowing both ICOS and
Glaxo Wellcome the right to continue research and development of compounds that
inhibit PDE's. Under the revised terms, ICOS retains all commercial rights in
the compounds arising from the collaboration as PDE inhibitors, including
potential treatments for cardiovascular diseases and male erectile dysfunction,
in exchange for future royalties payable to Glaxo Wellcome on sales of such
compounds.
The Company is planning to continue clinical trials IC351, for the treatment of
male erectile dysfunction. Further, the Company is evaluating the use of IC351
for the treatment of angina and congestive heart failure. Compounds targeting
PDE4 inhibitors are being evaluated in preclinical models of inflammatory
diseases. The Company is also continuing research on other PDE isoforms for
potential use in treating various metabolic diseases.
RESEARCH PROGRAMS
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The Company has established a proprietary position and has several ongoing
research programs in the areas of: (i) novel cell adhesion molecules such as
ICAM-5 and Alpha d; (ii) additional members of the PDE enzyme family; (iii)
novel chemokines; (iv) novel cell-cycle checkpoint mediators; and (v) anchoring
proteins that regulate important signal transduction enzymes in a cell-type
specific manner. The Company has established a capacity to identify and produce
antibody- and enzyme-based therapeutics based on these programs. Also, in order
to exploit its discoveries more fully, the Company has initiated activities
supporting the discovery and development of small molecule-based therapeutic
agents.
SMALL MOLECULE DISCOVERY PROGRAM
- --------------------------------
In addition to protein-based therapeutics such as antibodies and enzymes, the
Company is also working to identify and develop synthetic or small
molecule-based therapeutics based on the Company's knowledge of the mechanisms
of inflammation and its proprietary identification of molecules and receptors
involved in the inflammation process. To this end, the Company has developed a
proprietary in-house, high-throughput small molecule screening program. Through
its collaborations and independent compound acquisitions, ICOS has assembled an
extensive library of chemicals, consisting of synthetic organic molecules. To
date, this library has been used successfully to identify potential drug
candidates for a number of molecular targets within the Company's research and
development programs.
CLINICAL PRODUCTION FACILITY
- ----------------------------
During 1996 ICOS completed construction of a 21,000 square foot production
facility to produce protein-based products. To date, the Company has
successfully manufactured clinical materials to support its previous and current
clinical trials. This facility is capable of utilizing both microbial and
mammalian-based production processes and was designed to meet FDA requirements
for the production of marketable products. The facility is suited for the
production of purified recombinant protein bulk product. As such, the Company
anticipates that vialing and other finishing steps will be completed under
contract with other companies. See "Important Factors Regarding Forward-Looking
Statements."
COLLABORATIONS
- --------------
The Company has entered into arrangements with other parties to access
technology and facilitate and fund the development and marketing of certain of
its products.
10
<PAGE>
In 1991, the Company entered into a collaboration agreement with Glaxo Wellcome
(formerly Glaxo Group Ltd. and Glaxo, Inc.) to identify and develop
pharmaceutical products that may have a therapeutic impact on PDE activity and
be useful in a variety of inflammatory diseases and cardiovascular disorders.
From 1991 to early 1997, the collaboration successfully identified and developed
compounds that selectively inhibit PDE5. The first of these compounds, now
called IC351, is in Phase 1 clinical trials to evaluate its safety and
pharmacological profile. During the collaboration, compounds of potential
applications toward PDE4 inhibition for use in inflammatory diseases were also
identified and tested in preclinical studies. In early 1997 ICOS and Glaxo
Wellcome changed the terms of their agreement, allowing both ICOS and Glaxo
Wellcome the right to continue research and development of compounds that
inhibit PDE's. Under the revised terms, ICOS retains all commercial rights in
the compounds arising from the collaboration as PDE inhibitors, including
potential treatments for cardiovascular diseases and male erectile dysfunction
in exchange for future royalties payable to Glaxo Wellcome on sales of such
compounds. Glaxo Wellcome is free to pursue research and development of PDE
inhibitors independent of ICOS. ICOS plans to continue the clinical development
of IC351 for male erectile dysfunction independently and to commence clinical
trials for IC351 for the treatment of male erectile dysfunction.
In April 1995, the Company formed a collaboration with Abbott Laboratories that
seeks to discover small molecule drugs that modulate the intracellular signaling
connections of certain ICAMs and integrins. Included in this collaboration are
small molecule drugs that might interact with the intracellular portion of the
following leukointegrins: CD11a/CD18, CD11b/CD18, CD11c/CD18 and alpha
chain-containing integrins. Also included are small molecule compounds that bind
to the intracellular portions of ICAM-1, ICAM-2 and ICAM-3. Drugs that interact
with ICAM-5 and Alpha d/CD18 are specifically excluded from the collaboration as
are small molecule drugs that target the extracellular domains of any of the
aforementioned ICAMs or integrins. Also excluded are other antibody- or
protein-based therapeutics for use against these targets. Under the
collaboration, the Company will have exclusive U.S. rights for all products for
the treatment of cancer, while Abbott Laboratories will have exclusive rights
outside the United States for all products for the treatment of cancer and
exclusive worldwide rights for all other products. The Company will receive
research funding and milestone and royalty payments for products, other than
cancer treatment products, developed by Abbott Laboratories as a result of the
collaboration. Each party will be responsible for the development, registration
and commercialization of its products in its respective territory. In addition,
the collaboration provided the Company with a library of chemical compounds for
use in its own discovery programs.
In February 1997, the Company formed a joint venture with Suntory. The
corporation formed by ICOS and Suntory for the joint venture, called Suncos,
will develop and commercialize rPAF-AH for use worldwide for all medical
indications. Under the terms of the arrangement, the joint venture was
established with a $30 million cash contribution by Suntory to Suncos and ICOS
licensed, on a worldwide basis, all rights for rPAF-AH to Suncos. In exchange,
both ICOS and Suntory received 50 percent ownership in Suncos. Suntory has
rights and obligations to participate in the development and commercialization
of rPAF-AH in Japan and ICOS has similar rights and obligations with respect to
the United States. Suncos will be managed jointly by Suntory and ICOS. Suntory
and ICOS will each pay royalties to Suncos on sales of rPAF-AH products in its
respective territory.
From time to time, the Company enters into research collaborations with various
institutions and scientists to expand ICOS' access to new scientific
developments and discoveries in certain areas. ICOS has contracted with several
academic and institutional collaborators to conduct certain research and
development activities relating to the products discussed herein. The Company
has also entered into certain license agreements with respect to different
technologies in addition to the agreements noted above. ICOS' agreements with
these organizations generally provide that the Company will fund either the
research or development of the technology, or both, and will obtain an exclusive
license or option to the technology developed, subject to certain royalty and
other obligations.
RESEARCH, PRODUCT DEVELOPMENT AND COMMERCIALIZATION STRATEGIES
- --------------------------------------------------------------
ICOS' research and product development efforts comprise three basic stages prior
to commercialization. The initial stage, Research, includes early-stage
discoveries through the identification of preclinical targets. During Research,
the Company tests candidate molecules in relevant preclinical models of disease.
The Preclinical stage begins when the proof of principle has been validated and
a specific preclinical target is selected and studies begin focusing on in vitro
studies for toxicity and efficacy necessary for an Investigational New Drug
("IND") application filing. During the Preclinical Stage, the research and
development project personnel work to establish a production process that is
feasible not only for early clinical trials, but also is capable of scale-up to
commercial levels. After review of the IND application by the FDA, Phase 1
clinical trials are commenced to determine a candidate product's safety and
pharmacological profile. Phase 1 safety and pharmacology
11
<PAGE>
clinical trials lead to Phase 2 clinical trials designed to establish dose and
potential efficacy. A drug candidate that shows efficacy in a Phase 2 clinical
trial will enter Phase 3 clinical trials, where its efficacy will be verified
through rigorous testing on a large number of human patients. Once Phase 3
clinical trials are successfully completed, clinical data is compiled and a
Product License Application ("PLA") or New Drug Application ("NDA") is submitted
to the FDA. Product launch and commercialization are dependent on approval of
the PLA or NDA by the FDA. See "Government Regulation."
ICOS's product development strategy emphasizes the early acquisition of Phase 2
clinical data to determine a particular product candidate's utility in a
specific disease indication. Phase 1 clinical trials are designed to support the
initiation of multiple Phase 2 clinical trials for distinct indications. If
satisfactory Phase 1 results are achieved with a particular product candidate,
the Company may initiate several Phase 2 clinical trials to increase the
likelihood of identifying clinically successful programs as early as possible.
Such a strategy may permit clinical trials to be conducted in a parallel fashion
and, more significantly, allows for the early identification of indications
whose pathology is affected by the study drug.
The Company intends to select specific indications for potential products that
merit study in Phase 3 clinical trials with a view to full commercialization
based on data generated from relevant preceding clinical work and ICOS' analysis
of the best utilization of its resources. The Company does not expect to conduct
Phase 3 clinical trials on all the potential indications for its products.
The Company plans to develop the capabilities necessary to bring the promising
products of its research and development activities into the marketplace. At
this time, the Company is currently proceeding independently in its efforts
toward the development of all its candidate products except rPAF-AH, which will
be developed by the Company's joint venture with Suntory, and certain compounds
discovered or developed under the Company's collaborative agreement with Abbott
Laboratories. If the Company determines that it is strategically advantageous to
enter into a collaboration with another firm, the Company's preference is to
enter into collaborations with companies where ICOS has the opportunity to share
equally in research and product development and co-promote and share profits
from any products arising from the collaboration. The Company may, however,
choose to license its technology when it feels it is in the Company's best
interests. There can be no assurance that additional joint venture or
collaborative arrangements will be available on terms acceptable to the Company,
if at all. The Company also intends to pursue product opportunities
independently that address niche pharmaceutical markets in which a small
organization can compete effectively. See "Collaborations."
COMPETITION
- -----------
Competition in the pharmaceutical industry is intense and characterized by rapid
technological development. The Company and Suncos, the Company's joint venture
with Suntory, will compete with pharmaceutical companies and biotechnology firms
in the United States, Japan, Europe and elsewhere. Many biotechnology companies
have focused their development efforts in the human therapeutics area, including
inflammatory and other diseases targeted by the Company, and many major
pharmaceutical companies have developed or acquired internal biotechnology
capabilities or have made commercial arrangements with other biotechnology
companies or research institutions.
A number of biotechnology and pharmaceutical companies have developed or are
developing new anti-inflammatory and cardiovascular products that may compete
directly with ICOS's products. Certain of such competitors' products are
commercially available or have entered clinical trials. There can be no
assurance that research and discoveries by others will not render the Company's
programs or products uneconomical or result in therapies superior to any therapy
developed by the Company or that any of its products will be preferred to any
existing or newly developed technologies.
The Company expects to encounter significant competition for the products it
plans to develop. Companies that complete clinical trials, obtain required
regulatory approvals and commence commercial sales of their products before
their competitors may achieve a significant competitive advantage. A number of
biotechnology and pharmaceutical companies are developing anti-inflammatory
products aimed at the same indications as those ICOS has targeted. Some of these
have entered clinical trials or are commercially available. Several have been in
business longer than ICOS, have greater financial resources and have more
experience in obtaining and negotiating with corporate partners.
Significant levels of biotechnology research occur in universities and other
nonprofit research institutions. These entities have become increasingly active
in seeking patent protection and licensing revenues for their research results.
They also compete with ICOS in recruiting skilled scientific talent.
12
<PAGE>
The Company believes that its competitive success will be based on the ability
to create and maintain scientifically advanced technology, develop
cost-effective proprietary products, attract and retain talented and skilled
personnel, obtain patent or other protection for its products, obtain required
regulatory approvals and manufacture and successfully market its products,
either alone or through outside parties. Many of the Company's competitors have
substantially greater financial, marketing and human resources and experience
than ICOS. See "Important Factors Regarding Forward-Looking Statements."
GOVERNMENTAL REGULATION
- -----------------------
Regulation by governmental authorities in the United States, Europe, Japan, and
other foreign countries is a significant factor in the manufacture and marketing
of the Company's potential products and in its ongoing research and product
development activities. Virtually all the Company's products and those of
Suncos, its joint venture with Suntory, will require regulatory approval by
governmental agencies prior to commercialization. In particular, human
therapeutic products are subject to rigorous preclinical and clinical testing
and other approval requirements by the FDA and comparable agencies in foreign
countries. The time required for completing such testing and obtaining such
approvals is uncertain. Any delay in testing may delay product development. In
addition, delays or rejections may be encountered based on changes in FDA or
foreign regulatory policy during the period of product development and testing.
Various federal statutes and regulations also regulate the manufacturing,
safety, labeling, storage, record-keeping and marketing of such products. The
lengthy process of obtaining regulatory approvals and ensuring compliance with
appropriate federal statutes and regulations requires the expenditure of
substantial resources. Any delay or failure by ICOS to obtain regulatory
approval could adversely affect the commercialization of products being
developed by the Company, its ability to receive product or royalty revenue and
its liquidity and capital resources.
Preclinical studies are generally conducted in the laboratory to evaluate the
potential efficacy and the safety of a therapeutic product. The results of these
studies are submitted to the FDA as part of an IND application, which must be
reviewed by FDA personnel before clinical testing can begin. Once the FDA is
satisfied with the submission, the clinical trial process can commence.
Typically, clinical evaluation involves three sequential phases, which may
overlap. During Phase 1, clinical trials are conducted with a relatively small
number of subjects to determine the early safety profile of a drug, as well as
the pattern of drug distribution and drug metabolism by the subject. In Phase 2,
trials are conducted with groups of patients afflicted by a specific target
disease to determine preliminary efficacy, dosage tolerance and optimal dosages,
and to gather additional safety data. In Phase 3, large-scale, multicenter
comparative trials are conducted with patients afflicted with a specific target
disease to provide data for the statistical proof of efficacy and safety as
required by the FDA and others. The FDA, the clinical trial sponsor or the
investigator may suspend clinical trials at any time if it believes that
clinical subjects are being exposed to an unacceptable health risk.
The results of preclinical and clinical testing are presently required to be
submitted to the FDA in the form of an NDA for small molecule products or a PLA
accompanied by an Establishment License Application ("ELA") for biological
products. In responding to an NDA, PLA or ELA, the FDA may grant marketing
approval, request additional information, or deny the application if the FDA
determines that the application does not satisfy its regulatory approval
criteria. There can be no assurance that approvals will be granted on a timely
basis, if at all. The failure to obtain timely permission for clinical testing
or timely approval for product marketing would materially affect the Company.
Product approvals may subsequently be withdrawn if compliance with regulatory
standards is not maintained or if problems occur after the product reaches the
market. The FDA may require testing and surveillance programs to monitor the
effect of a new product and may prevent or limit future marketing of the product
based on the results of these postmarketing programs.
Some of the Company's potential products may qualify as orphan drugs under the
Orphan Drug Act of 1983. This act generally provides incentives to manufacturers
to undertake development and marketing of products to treat relatively rare
diseases or diseases where fewer than 200,000 persons annually in the United
States would be likely to receive the treatment. A drug that receives orphan
drug designation by the FDA and is the first product to receive FDA marketing
approval for its product claim is entitled to a seven-year exclusive marketing
period in the United States for that product claim. A drug that is considered by
the FDA to be different than a particular orphan drug is not barred from sale in
the United States during such seven-year exclusive marketing period. Legislation
has previously been introduced in Congress to limit the marketing exclusivity
provided for certain orphan drugs. Although Congress has not passed such
legislation to date, there remains a possibility that future legislation will
limit the incentives currently afforded to the developers of orphan drugs.
The Company's policy is to conduct its research activities in compliance with
the National Institute of Health Guidelines for Research Involving Recombinant
DNA Molecules. The Company is also subject to various federal, state and local
laws,
13
<PAGE>
regulations and recommendations relating to safe working conditions, laboratory
and manufacturing practices, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances, including radioactive
compounds and infectious disease agents, used in connection with Company's work.
The extent and character of governmental regulation that might result from
future legislation or administrative action cannot be accurately predicted. See
"Important Factors Regarding Forward-Looking Statements."
PATENTS AND TRADE SECRETS
- -------------------------
Because of the length of time and expense associated with bringing new products
through development and the governmental approval process to the marketplace,
the pharmaceutical industry has traditionally placed considerable importance on
obtaining and maintaining patent and trade secret protection for significant new
technologies, products and processes. This is equally true for emerging
biotechnology companies and, as such, the Company has applied, and is applying,
for patents for its products and certain aspects of its technologies. To date,
the Company has filed over 100 U.S. patent applications on its own behalf or on
behalf of its exclusive licensors. The United States Patent and Trademark Office
(the "USPTO") has issued either a patent or a notice of allowance as to 34 of
these applications.
The enforceability of patents issued to biotechnology and pharmaceutical firms
is highly uncertain. Federal court decisions indicating legal considerations
surrounding the validity of patents in the field are in transition, and there
can be no assurance that the historical legal standards surrounding questions of
validity will continue to be applied or that current defenses as to issued
patents in the field will, in fact, be considered substantial in the future. In
addition, there can be no assurance as to the degree and range of protection any
patents will afford, whether patents will issue or the extent in which the
Company will be successful in not infringing patents granted to others. If
certain patents issued to others are upheld or if certain patent applications
filed by others issue and are upheld, the Company may be required to obtain
certain licenses from others in order to develop and commercialize certain
potential products incorporating the Company's technology. ICOS has entered into
nonexclusive license agreements, and anticipates entering into additional
license agreements in the future, with third parties for technologies which may
be useful or necessary for the manufacture of the Partnership's Products. [The
Company believes that such additional licenses will be available on commercially
reasonable terms. The Company has initiated discussions with commercial entities
which hold United States patents which may be needed for some of the Company's
activities.] There can be no assurance that such licenses, if required, will be
available on acceptable terms, if at all.
While ICOS pursues patent protection for products and processes where
appropriate, it also relies on trade secrets, know-how and continuing
technological advancement to develop and maintain its competitive position. The
Company's policy is to have each employee enter into an agreement that contains
provisions prohibiting the disclosure of confidential information to anyone
outside the Company. Research and development contracts and relationships
between the Company and its scientific consultants provide access to aspects of
the Company's know-how that is protected generally under confidentiality
agreements with the parties involved. There can be no assurance, however, that
these confidentiality agreements will be honored or that the Company can
effectively protect its rights to its unpatented trade secrets. Moreover, there
can be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets. See "Important Factors Regarding Forward-Looking
Statements."
HUMAN RESOURCES
- ---------------
As of December 31, 1996, ICOS employed 212 individuals. Approximately 196 ICOS
employees are engaged in research or development activities and 16 in general
and administrative positions.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
- ------------------------------------------------------
The following important factors, among others, could cause actual results to
differ materially from those contained in forward-looking statements made in
this report and presented elsewhere by management from time to time.
14
<PAGE>
Early Stage of Development; Lack of Commercial Products; No Assurance of
- ------------------------------------------------------------------------
Successful Product Development. The Company has not yet completed the
- ------------------------------
development of any products and does not expect to have any products
commercially available for several years, if at all. The Company's potential
products will require significant additional development, preclinical and
clinical testing, regulatory approval and additional investment prior to
commercialization. There can be no assurance that further research and
development will be successful or will result in therapeutic products that will
qualify for approval by regulatory authorities in order for commercial sales to
begin.
Uncertainty Associated with Clinical Testing. Results of initial preclinical and
- --------------------------------------------
clinical testing of products under development by the Company are not
necessarily predictive of results that will be obtained from subsequent or more
extensive preclinical and clinical testing. There can be no assurance that
clinical studies of Company products under development will be completed or will
demonstrate the products' safety and efficacy. The failure to adequately
demonstrate safety and efficacy could significantly delay or prevent regulatory
approval of a product. There can be no assurance that unacceptable toxicities or
side effects will not occur at any time in the course of human clinical trials
or commercial use of the Company's products. The appearance of any such
unacceptable toxicities or side effects could cause the Company to interrupt,
limit, delay or abort the development of any of its products or, if previously
approved, necessitate their withdrawal from the market. Furthermore, there can
be no assurance that disease resistance or other physiological factors will not
limit the efficacy of the Company's products. Delays in patient enrollment in
the Company's current clinical trials or future clinical trials may result in
increased costs, program delays or both, which could have a material adverse
effect on the Company.
Continuing Operating Losses. The Company has not generated revenues from the
- ---------------------------
commercialization of any products. The Company anticipates that its operating
expenses and capital expenditures will increase significantly in 1997 and
subsequent years and expects to incur increasing operating losses at least until
sales of its potential products commence. The development of the Company's
products will require the commitment of substantial resources to conduct the
time-consuming research, preclinical development and clinical trials necessary
to bring such products to market and to establish production and marketing
capabilities. There can be no assurance that the Company will generate
significant revenues or achieve profitability.
Additional Financing Requirements and Access to Capital. Substantial additional
- -------------------------------------------------------
funding will be required for the Company's operations. The Company may seek
additional funding through public or private financings, including equity
financings, and through other arrangements, including collaborative
arrangements. Adequate funds may not be available when needed or on terms
acceptable to the Company. If adequate funds are not available, the Company may
be required to delay, scale back or eliminate expenditures for certain of its
programs or to license third parties to commercialize products or technologies
that the Company would otherwise seek to develop or commercialize itself.
Dependence on Others. Under the Company's collaborative agreements with Abbott
- --------------------
Laboratories, certain development efforts, regulatory compliance, manufacturing
and marketing activities may be performed primarily by Abbott Laboratories.
Similarly under the Company's joint venture with Suntory, certain development
and manufacturing activities and regulatory and marketing activities related to
product sales in Japan may be performed by Suntory. The Company may enter into
similar agreements with other collaborators in the future. Continued
collaborator participation will depend not only on the achievement of research
objectives by the Company and its collaborators, which cannot be assured, but
also on each collaborator's own financial, competitive, marketing and strategic
considerations, which are outside the Company's control. Such strategic
considerations may include the relative advantages of alternative products being
marketed or developed by others, including relevant patent and proprietary
positions. There can be no assurance that the interest and motivations of the
Company's collaborators are, or will remain, consistent with those of the
Company or that such collaborators will successfully perform their development,
regulatory compliance, manufacturing or marketing functions and that such
current or future collaborations will continue. Furthermore, there can be no
assurance that the Company will be able to negotiate additional acceptable
collaborative arrangements in the future or that any such arrangements would be
successful.
Uncertain Availability of Third-Party Reimbursement and Product Pricing. The
- -----------------------------------------------------------------------
Company's ability to commercialize products successfully will depend
substantially on reimbursement of the costs of such products and related
treatments at acceptable levels from government authorities, private health
insurers and other organizations, such as health maintenance organizations
("HMOs"). There can be no assurance that reimbursement in the United States or
foreign countries will be available for any products the Company may develop or,
if available, will not be decreased in the future, or that reimbursement amounts
will not reduce the demand for, or the price of, the Company's products, thereby
adversely affecting its business.
15
<PAGE>
Third-party payors are increasingly challenging the prices charged for medical
products and services. Also, the trend toward managed healthcare in the United
States and the concurrent growth of organizations, such as HMOs, which can
control or significantly influence the purchase of healthcare services and
products, as well as legislative proposals to reform healthcare or reduce
government insurance programs, may result in lower prices for therapeutic
products. The cost-containment measures that healthcare providers are
instituting, including practice protocols and guidelines and clinical pathways,
and the effect of any healthcare reform, could materially adversely affect the
Company's ability to sell products if successfully developed and approved.
Moreover, the Company is unable to predict what additional legislation or
regulation, if any, relating to the healthcare industry or third-party coverage
and reimbursement may be enacted in the future or what effect such legislation
or regulation would have on the Company's business.
Limited Manufacturing Capabilities; No Marketing or Sales Capability. ICOS
- --------------------------------------------------------------------
currently anticipates the need to hire additional personnel skilled in the
manufacturing, clinical testing and regulatory compliance processes. There can
be no assurance that ICOS will be able to acquire such resources or establish
relationships with others to supplement its resources. ICOS may not have
sufficient manufacturing capacity to manufacture its potential products in
commercial quantities. Moreover, ICOS' manufacturing capacity may be inadequate
to complete all clinical trials contemplated by the Company. Although ICOS
expects to develop such capacity by expanding its current facilities, building
new facilities or contracting with others for manufacturing services, there can
be no assurance that such capacity will be developed or be available on a timely
basis. The Company does not have facilities for the manufacture of small
molecule products. Should the Company decide to market certain of its potential
products through a direct sales force in certain markets, if and when regulatory
approval is obtained, the Company would be required to either hire a sales force
with expertise or contract with a third party to provide a sales force. There
can be no assurance that the Company will be able to establish such a sales
force or be successful in establishing other channels for distributing its
potential products.
Uncertainty Relating to Patents and Proprietary Rights. The Company's ability to
- ------------------------------------------------------
compete effectively with others is materially dependent on the proprietary
nature of the Company's patents and technologies. The Company has applied and
will continue to apply for patents for its products and certain aspects of its
technology, products and processes. The enforceability of certain patents issued
to biotechnology firms is highly uncertain. Federal court decisions indicating
legal considerations surrounding the validity of biotechnology patents are in
transition, and there can be no assurance that the historical legal standards
surrounding questions of patent validity will continue to be applied or that
current defenses as to issued patents will, in fact, be considered substantial
in the future. In addition, there can be no assurance as to the degree and range
of the protection any patents will afford, whether patents will issue, or the
extent to which the Company will be successful in not infringing on any patents
granted to others. ICOS has entered into nonexclusive license agreements, and
anticipates entering into additional license agreements in the future, with
third parties for technologies which may be useful or necessary for the
manufacture of the Partnership's Products. [The Company believes that such
additional licenses will be available on commercially reasonable terms. The
Company has initiated discussions with commercial entities which hold United
States patents which may be needed for some of the Company's activities.] There
can be no assurance that any licenses required under any patents or proprietary
rights will be made available on terms acceptable to the Company, if at all. If
the Company does not obtain required licenses, it could encounter delays in
product development while it attempts to design around the patents, or it could
find that the development, manufacture or sale of products requiring such
licenses could be foreclosed. In addition, the Company could incur substantial
costs in defending any patent litigation brought against it or in asserting its
patent rights, including those licensed to it by third parties, in a suit
against another party. Additionally, there can be no assurance that the
Company's confidentiality agreements will adequately protect its trade secrets,
know-how or other proprietary information.
Technological Change and Competition. The Company is involved in an intensely
- ------------------------------------
competitive field. There are many companies and institutions, both public and
private, including pharmaceutical companies, chemical companies, specialized
biotechnology companies and research and academic institutions, that are engaged
in developing synthetic pharmaceuticals and biotechnological products for human
therapeutic applications, including the applications targeted by the Company. A
number of competitors are conducting research and development in the areas of
cell-trafficking, mediators of inflammation and intracellular signal
transduction, and research by others specifically addresses areas of technology
targeted by the Company. Many of these companies have substantially more
capital, research and development, regulatory, manufacturing, marketing, human
and other resources and experience than the Company and may succeed in
developing products that are more effective or less costly than any that may be
developed by the Company and may also be more successful than the Company in
production or marketing. In addition, other recently developed technologies are,
or may in the future be, the basis for competitive products. There can be no
assurance that competitors will not succeed in developing technologies and
products that are more effective than any being developed by the Company or that
would render the Company's technology and products obsolete or noncompetitive.
16
<PAGE>
Volatility of Stock Price. Market prices for securities of biotechnology
- -------------------------
companies have been highly volatile. The Company believes that several factors
could have a significant effect on the future price of the Company's Common
Stock, including, without limitation, future announcements by the Company or
others regarding progress in product development, results and progress of
preclinical studies and clinical trials, progress of existing and future
collaborations, evidence of the safety or efficacy of products, anticipated and
actual financing events, scientific discoveries, technological innovations,
commercial products, patents or propriety rights or regulatory actions,
litigation, fluctuations in the Company's results of operations and changes in
general market conditions for biotechnology stocks.
Government Regulation. The FDA and comparable agencies in foreign countries
- ---------------------
impose substantial requirements on biotechnology and pharmaceutical companies
during development of potential products. These requirements include lengthy and
detailed laboratory and clinical testing procedures, sampling activities and
other costly and time-consuming procedures surrounding the development and
testing of proposed products. Governmental regulation also affects the
manufacture and marketing of pharmaceutical products. Any future FDA or other
governmental approval of products developed by the Company may entail
limitations on the indicated uses for which such products may be marketed. The
effect of governmental regulation may be to delay marketing new products for a
considerable period of time, to impose costly requirements on the Company's
activities or to provide a competitive advantage to other companies that compete
with the Company. There can be no assurance that FDA or other regulatory review
or approval for any product or proposed product will be granted on a timely
basis, if at all. A delay in obtaining or failure to obtain such approvals could
adversely affect the Company's liquidity and capital resources.
Potential Product Liability. The Company faces an inherent business risk of
- ---------------------------
exposure to product liability claims in the event that the use of its technology
or products is alleged to have resulted in adverse effects. Such risk exists in
human clinical trials. There can be no assurance that the Company can avoid
significant product liability exposure. A product liability claim could
materially adversely affect the business, financial condition or future
prospects of the Company. Although the Company has in place product liability
insurance relevant to its current level of clinical trials, there can be no
assurance that the Company will be able to maintain such coverage in the future
on acceptable terms or that such insurance will provide adequate coverage
against potential liabilities. There can be no assurance that adequate insurance
coverage will be available at acceptable costs, if at all.
Hazardous Materials; Environmental Matters. The Company's research and
- ------------------------------------------
development activities involve the controlled use of hazardous materials,
chemicals, viruses and radioactive compounds. The Company is subject to federal,
state and local laws and regulations governing the use, manufacture, storage,
handling and disposal of such materials and certain waste products. Although the
Company believes that it complies with standards prescribed by such laws, the
risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of such an accident, the Company could be
held liable for any damages that result. The Company's operations, business or
assets may be materially adversely affected by current or future environmental
laws or regulations.
Key Personnel. The Company is highly dependent on its staff and management team.
- -------------
The loss of any of these individuals could adversely affect the Company. The
Company is also highly dependent on its ability to attract and retain qualified
scientific, technical and key management personnel. There is intense competition
for qualified personnel in the areas of the Company's activities and there can
be no assurance that the Company will be able to continue to attract and retain
qualified personnel necessary for the development of its business.
17
<PAGE>
ITEM 2. PROPERTIES
ICOS leases 118,000 square feet of space in three buildings located in Bothell,
Washington, a suburb of Seattle. The Company's leases expire in July and
September 1997, February 1999, and February 2002, with options to renew for
additional five-year periods and an option to purchase one building. The
Company's principal administrative offices, research laboratories, and clinical
production facility occupy approximately 105,000 square feet. In December 1992,
the Company purchased approximately seven acres of undeveloped land adjacent to
its leased facilities. This purchase gives the Company the flexibility to expand
in its current geographic location. Over the next several years, the Company
plans to lease or acquire additional facilities to accommodate the activities
and personnel as necessary to further development and ultimately bring its
products to market.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of ICOS' stockholders during the fourth
quarter of its fiscal year ended December 31, 1996.
18
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
ICOS Common Stock trades on the Nasdaq Stock Market under the symbol ICOS. As of
December 31, 1996, there were 2,389 holders of record of Common Stock. The
Company has never paid any cash dividends and does not anticipate paying any
cash dividends in the foreseeable future. The Company intends to retain future
earnings and capital for use in its business. The following table sets forth,
for the periods indicated, the high and low sale prices for the Common Stock as
reported by the Nasdaq Stock Market.
<TABLE>
<CAPTION>
1995 High Low
---- ---- ---
<S> <C> <C>
First Quarter $ 5 $ 3 3/8
Second Quarter 6 1/2 3 7/8
Third Quarter 8 1/8 5 5/8
Fourth Quarter 7 5/8 5 1/4
1996
----
First Quarter 10 3/8 6 1/2
Second Quarter 9 3/4 7 5/8
Third Quarter 9 1/4 6 1/2
Fourth Quarter 9 7
1997
----
First Quarter
(through March 10, 1997) 9 1/4 7 1/2
</TABLE>
19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The information set forth below should be read in conjunction with Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, and the Consolidated Financial Statements and Notes thereto included
in this Form 10-K.
<TABLE>
<CAPTION>
Period from
September 21,
1989
(incorporation)
through
December 31, Year Ended December 31,
---------------------------------------------------------------------------------
1996 1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Collaborative research and
development $ 522,053 $ 2,000,000 $ 1,500,000 $ -- $ -- $ 2,000,000
Research grant 1,451,409 -- -- -- -- 90,076
------------- ------------- ------------- ------------- ------------- -------------
Total revenue 2,000,000 1,500,000 90,076 2,522,053
------------- ------------- ------------- ------------- ------------- -------------
Operating expenses:
Research and development 115,703,021 30,011,417 24,039,185 21,272,072 18,116,077 11,913,090
General and administrative 17,952,861 2,554,872 2,482,306 2,834,984 2,872,820 2,945,712
------------- ------------- ------------- ------------- ------------- -------------
Total operating expenses 133,655,882 32,566,289 26,521,491 24,107,056 20,988,897 14,858,802
------------- ------------- ------------- ------------- ------------- -------------
Operating loss (126,704,473) (30,566,289) (25,021,491) (24,107,056) (20,898,821) (12,336,749)
------------- ------------- ------------- ------------- ------------- -------------
Other income (expense):
Investment income 17,288,477 2,070,397 1,768,725 1,497,542 3,133,990 4,217,827
Interest expense (887,899) (364) (52,061) (124,667) (164,627) (186,364)
Other, net (106,345) 692 (63,763) (14,019) (8,472) (6,842)
------------- ------------- ------------- ------------- ------------- -------------
16,294,233 2,070,725 1,652,901 1,358,856 2,960,891 4,024,621
------------- ------------- ------------- ------------- ------------- -------------
Net loss $(110,410,240) $ (28,495,564) $ (23,368,590) $ (22,748,200) $ (17,937,930) $ (8,312,128)
============= ============= ============= ============= ============= =============
Net loss per common share $ (.77) $ (.73) $ (.88) $ (.71) $ (.34)
============= ============= ============= ============= =============
Weighted average common shares
outstanding 36,804,986 32,194,018 25,945,660 25,401,426 24,198,483
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------
BALANCE SHEET DATA: 1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents, investment securities
and interest receivable $41,820,232 $21,376,428 $44,484,696 $44,401,520 $63,917,918
Other current assets 692,721 732,530 711,338 709,471 698,421
Restricted investment securities 1,800,000 2,400,000 2,900,000
Net property and equipment 15,626,906 15,385,728 11,309,297 11,352,746 9,965,089
Other non-current assets 65,318 240,844 229,232 6,557 13,711
----------- ----------- ----------- ----------- -----------
Total assets $58,205,177 $37,735,530 $58,534,563 $58,870,294 $77,495,139
=========== =========== =========== =========== ===========
Current liabilities
$ 2,937,896 $ 4,443,172 $ 3,440,725 $ 2,290,702 $ 2,784,137
Obligations under capital lease, excluding current
installments -- 73,894 984,495 1,682,135 --
Stockholders' equity 55,267,281 33,292,358 55,019,944 55,595,097 73,028,867
----------- ----------- ----------- ----------- -----------
Total liabilities and stockholders' equity $58,205,177 $37,735,530 $58,534,563 $58,870,294 $77,495,139
=========== =========== =========== =========== ===========
</TABLE>
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
OVERVIEW
The Company has discovered important mechanisms underlying directed cell
movement, inhibition of proinflammatory mediators, and intracellular signal
transduction that may provide broad opportunities in the treatment of
inflammatory diseases and other serious conditions.
During 1990 and 1991, the Company concentrated its efforts on corporate
organization, recruiting key scientific and administrative staff, establishing
its research and development activities, and developing the fundamental science
surrounding inflammatory disease, as well as identifying potential product
areas. The Company raised $30,762,901 through private sales of Common Stock and
$32,769,144 from its initial public offering of Common Stock during this period.
In addition, the Company initiated a collaborative agreement with Glaxo
Wellcome.
During 1992 and 1993, the Company identified a number of novel molecules and
completed preclinical testing and evaluation on Hu23F2G, a potential product
candidate for treating acute exacerbations of MS. The Company also established
clinical, regulatory, and process development functions during this period and,
in December 1993, filed an Investigational New Drug ("IND") application with the
FDA for approval to commence clinical trials of Hu23F2G. In addition, the
Company expanded its efforts in preclinical studies on a new class of cellular
adhesion molecules in an effort to fully characterize these molecules as
potential therapeutic candidates. In April 1992, the Company completed a
secondary public offering of Common Stock that provided total net proceeds of
$25,219,564.
During 1994, the Company initiated a Phase 1 clinical trial of Hu23F2G in
patients with chronic progressive MS. In addition, PDE5, a compound targeting
cardiovascular diseases that was developed as part of the collaboration with
Glaxo Wellcome, entered exploratory development in early 1994. A number of other
compounds based on molecules discovered by Company scientists were in
preclinical development as potential product candidates during 1994. The Company
also filed several new patent applications based on results of its research
efforts. In November 1994, the Company completed a Rights Offering of 6,425,000
shares of Common Stock to existing stockholders that provided total net proceeds
of $22,733,986.
During 1995, the Company conducted a Phase 1 clinical trial of Hu23F2G in
patients with chronic progressive MS. A Phase 1 clinical study of PDE5 inhibitor
was initiated as part of its collaboration with Glaxo Wellcome. In addition, the
Company established a research and development collaboration with Abbott
Laboratories in an area of cell adhesion/signal transduction.
During 1996, the Company continued its Phase 1 evaluation of Hu23F2G for the
treatment of MS, which resulted in the commencement of a Phase 2 clinical trial
of Hu23F2G for acute exacerbations of MS in 1997. In 1996, the Company also
began Phase 2 clinical trials of Hu23F2G for the treatment of hemorrhagic shock,
as well as the commencement of Phase 1 clinical trials of rPAF-AH in healthy
volunteers in anticipation of commencing Phase 2 clinical trials of rPAF-AH for
the treatment of ARDS during 1997. Additionally, the Company completed
preclinical development of ICM3 to allow for the commencement of Phase 1
clinical trials of ICM3 in 1997. In 1996, the Company raised a total of
$49,106,015 from a public offering of 6,900,000 shares of Common Stock.
21
<PAGE>
The Company had an accumulated deficit of $110,410,240 during the development
stage as of December 31, 1996. The Company's results of operations may vary
significantly from quarter to quarter and will depend, among other factors, on
the timing of certain expenses, payments received on certain research
collaborations, and the progress of the Company's research and development
efforts. The Company expects increased expenditures over the next several
quarters as it expands the clinical studies being conducted on the product
candidates Hu23F2G and rPAF-AH. Some of these costs relating to clinical trials
of rPAF-AH will be reimbursed by Suncos Corporation, the joint venture
established by the Company and Suntory Limited of Japan to fund the development
of rPAF-AH. In addition, the Company will take over development of all compounds
resulting from the Company's collaboration with Glaxo Wellcome and anticipates
initiating clinical trials of the compounds for potential use in treating a
number of medical indications, including MED. In addition, the Company will
continue clinical trials of ICM3, its product candidate for the potential
treatment of psoriasis and other medical indications. The Company anticipates
expanding preclinical research and development activities for additional
potential products and commencing clinical studies on those deemed most
promising.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Revenue resulted entirely from the Company's research and development agreement
with Abbott Laboratories, which was initiated in April 1995, and totaled
$2,000,000 in 1996 compared with $1,500,000 in 1995.
Total operating expenses in 1996 increased 23% to $32,566,289 from $26,521,491
in 1995. Research and development expense increased 25% to $30,011,417 in 1996
from $24,039,185 in 1995, primarily due to costs related to proceeding with
clinical trials and other product development efforts. Research and development
costs represented 92% of total operating costs in 1996. General and
administrative expenses increased 3% to $2,554,872 in 1996 from $2,482,306 in
1995.
Investment income in 1996 was $2,070,397 versus $1,768,725 in 1995. The increase
was primarily due to higher average cash balances as a result of the Company's
equity offering in May 1996.
The Company's net loss increased 22% to $28,495,564 in 1996 compared to a net
loss of $23,368,590 for 1995.
Year Ended December 31, 1995 Compared With Year Ended December 31, 1994
Revenue in 1995 was $1,500,000 and resulted entirely from the Company's research
and development agreement with Abbott Laboratories. There was no revenue in
1994.
Total operating expenses increased 10% to $26,521,491 in 1995 from $24,107,056
in 1994. Research and development expenses increased 13% to $24,039,185 in 1995
from $21,272,072 in 1994, primarily due to costs related to clinical trials for
Hu23F2G, progression of other potential products toward clinical trials and
other product development efforts. Research and development costs represented
91% of total operating costs in 1995. General and administrative expenses
decreased 12% to $2,482,306 in 1995 from $2,834,984 in 1994 as a result of cost
reduction efforts and certain personnel changes.
Investment income in 1995 increased 18% to $1,768,725 from $1,497,542 in 1994.
The increase is attributable to higher returns on the Company's invested cash
and cash equivalents in 1995 and the recognition of a loss on the sale of an
investment security in 1994.
The Company's net loss increased 3% to $23,368,590 in 1995 compared to a net
loss of $22,748,200 for 1994.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company has financed its operations since inception through private and
public sales of Common Stock, investment income, revenue from research
collaborations and grants, and a capital lease. Through December 31, 1996, the
Company had raised $30,762,901 in net proceeds from private sales of Common
Stock, a total of $107,094,723 in net proceeds from three public offerings of
Common Stock, $22,733,986 in net proceeds from a Rights Offering of Common Stock
to existing stockholders, and $4,875,059 from the exercise of stock options and
warrants. It had earned $17,288,477 in investment income and $6,951,409 in
research-related revenue.
22
<PAGE>
At December 31, 1996, the Company had $41,820,232 in cash and cash equivalents,
investment securities and interest receivable. Through December 31, 1996, the
Company had invested a total of $27,314,438 in production facilities, laboratory
and computer equipment, furniture and leasehold improvements. In addition, the
Company has invested $2,309,979 in land for future facilities expansion. The
Company anticipates that its operating expenses will increase in 1997 and
subsequent years as it adds the personnel and facilities associated with
advancing several potential products through development and clinical trials.
Foreseeable incremental costs may include, but are not limited to, those
associated with the Company's own product development, preclinical and clinical
studies, patent filings and administrative activities. In addition, the Company
may incur costs under its joint venture agreement with Suntory Limited of Japan
related to its obligations to develop rPAF-AH. Under provisions of the
development agreement, the Company will be reimbursed for certain of these
costs. However, there can be no assurance that all such costs will be reimbursed
by Suncos Corporation.
The Company expects to continue to negotiate collaborations with other parties
where the work complements that at the Company. These relationships may involve
commitments by the Company to fund some or all of certain research programs over
a defined period. Although corporate collaborations have provided revenue to the
Company in the past, there can be no assurance that similar sources of funds
will be available to the Company in the future. The Company plans to hire the
additional personnel necessary to continue its discovery research, as well as
continue development of its current portfolio of product candidates, and to
continue to modify its existing facilities in the future to complete a
production facility and add additional laboratory and office space. Further
expenditures will be required for additional laboratory, developmental, and
office facilities to accommodate the activities and personnel associated with
discovering new and novel disease mechanisms and developing current and
potential products with a view toward expanding the number of clinical trials in
the future. All these activities will require substantial financial resources.
There can be no assurance that the Company will have sufficient resources to
fund the cost of such activities or that it will be able to obtain additional
resources on acceptable terms or in time to fund any necessary or desirable
expenditures.
The Company anticipates that its existing capital resources should be sufficient
to fund its cash requirements for the next twelve months. However, the amounts
and timing of expenditures will depend on the progress of ongoing research and
development, the rate at which operating losses are incurred, the execution of
development and licensing agreements with potential corporate partners, the
Company's development of products, the FDA regulatory process, and other
factors, many of which are beyond the Company's control. The Company's existing
capital resources will not be sufficient to fund the Company's operation through
commercialization of its first product. The Company will need to raise
substantial additional funds for its programs. It is currently evaluating
several financing alternatives, some of which may involve the sale of additional
stock, commencement of additional corporate partnerships and other methods of
raising operating capital from public, private and corporate sources. The
Company anticipates completion of one or more of these financing events during
1997.
When used in this discussion, the words "believes," "intends," "anticipates,"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected. See "Important Factors
Regarding Forward-Looking Statements." Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the result of
any revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
23
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Financial Statements Page in Form 10-K
-------------------- -----------------
<S> <C>
Independent Auditors' Report..................................................................25
Balance Sheets at December 31, 1996 and 1995..................................................26
Statements of Operations for the years ended
December 31, 1996, 1995, and 1994 and the period from
September 21, 1989 (incorporation) through December 31, 1996..................................27
Statements of Stockholders' Equity for the years ended December 31,
1996, 1995, 1994, 1993, 1992, 1991, 1990
and 1989 (incorporation)...................................................................28-29
Statements of Cash Flows for the Years Ended December 31, 1996, 1995,
and 1994 and the period from
September 21, 1989 (incorporation) through December 31, 1996..................................30
Notes to Financial Statements..............................................................31-37
</TABLE>
All financial statement schedules have been omitted since the information is not
required or because the information required is included in the financial
statements or the notes thereto.
24
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
ICOS Corporation:
We have audited the accompanying balance sheets of ICOS Corporation (a
development stage company) as of December 31, 1996, and 1995 and the related
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1996, and the period from
September 21, 1989 (incorporation) through December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ICOS Corporation as of December
31, 1996 and 1995, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 1996, and the period
from September 21, 1989 (incorporation) through December 31, 1996 in conformity
with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Seattle, Washington
January 24, 1997, except for Note 8 which is as of February 6, 1997
25
<PAGE>
ICOS CORPORATION
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------------
1996 1995
----------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,159,008 $ 4,256,366
Investment securities available for sale, at market value [Note 3] 39,511,820 17,013,514
Interest receivable 149,404 106,548
Nontrade receivables 92,969 98,396
Prepaid expenses 599,752 634,134
----------- -----------
Total current assets 42,512,953 22,108,958
----------- -----------
Property and equipment, at cost:
Land 2,309,979 2,309,979
Leasehold improvements 13,659,272 7,082,065
Furniture and equipment 13,631,566 9,534,792
Assets acquired under capital lease obligations [Note 4] -- 570,530
----------- -----------
29,600,817 19,497,366
Less accumulated depreciation and amortization 13,997,511 10,478,040
----------- -----------
15,603,306 9,019,326
Construction in progress 23,600 6,366,402
----------- -----------
Net property and equipment 15,626,906 15,385,728
----------- -----------
Other assets 65,318 240,844
----------- -----------
$58,205,177 $37,735,530
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,183,623 $ 1,598,973
Accrued payroll and benefits 649,562 664,094
Other accrued expenses 1,104,711 1,635,472
Deferred research and development revenue [Note 8] -- 500,000
Current installments of obligations under capital lease [Note 4] -- 44,633
----------- -----------
Total current liabilities 2,937,896 4,443,172
----------- -----------
Stockholders' equity: [Notes 6 and 7]
Preferred Stock, $.01 par value. Authorized 2,000,000 shares; none issued -- --
Common Stock, $.01 par value. Authorized 100,000,000 shares; issued and
outstanding 39,417,753 at December 31, 1996 and 32,233,608 at December
31, 1995 394,177 322,336
Additional paid-in capital 165,273,054 115,163,010
Restricted stock -- (208,125)
Net unrealized gain (loss) on investment securities available for sale 10,290 (70,187)
Deficit accumulated during the development stage (110,410,240) (81,914,676)
----------- -----------
Total stockholders' equity 55,267,281 33,292,358
Commitments [Notes 4, 7, and 8]
----------- -----------
$58,205,177 $37,735,530
=========== ===========
</TABLE>
See accompanying notes to financial statements.
26
<PAGE>
ICOS CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
September 21,
1989
(incorporation)
through
December 31, Year Ended December 31,
-----------------------------------------------
1996 1996 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Collaborative research and development [Note 8] $ 5,500,000 $ 2,000,000 $ 1,500,000 $ --
Research grants 1,451,409 -- -- --
------------- ------------- ------------- -------------
Total revenue 6,951,409 2,000,000 1,500,000 --
------------- ------------- ------------- -------------
Operating expenses [Note 4]:
Research and development [Note 8] 115,703,021 30,011,417 24,039,185 21,272,072
General and administrative 17,952,861 2,554,872 2,482,306 2,834,984
------------- ------------- ------------- -------------
Total operating expenses 133,655,882 32,566,289 26,521,491 24,107,056
------------- ------------- ------------- -------------
Operating loss (126,704,473) (30,566,289) (25,021,491) (24,107,056)
------------- ------------- ------------- -------------
Other income (expense):
Investment income [Note 3] 17,288,477 2,070,397 1,768,725 1,497,542
Interest expense (887,899) (364) (52,061) (124,667)
Other, net (106,345) 692 (63,763) (14,019)
------------- ------------- ------------- -------------
16,294,233 2,070,725 1,652,901 1,358,856
------------- ------------- ------------- -------------
Net loss $(110,410,240) $ (28,495,564) $ (23,368,590) $ (22,748,200)
============= ============= ============= =============
Net loss per common share $ (.77) $ (.73) $ (.88)
============= ============= =============
Weighted average common shares outstanding 36,804,986 32,194,018 25,945,660
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
ICOS CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Additional Restricted
Stock paid-in Stock
Shares Amount capital Shares Amount
<S> <C> <C> <C> <C> <C>
Issuance of Common Stock at $.02 per share 5,515,000 $ 55,150 $ 55,150 $ -- $ --
Net loss for the period from inception through
December 31, 1989 -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balances at December 31, 1989 5,515,000 55,150 55,150 -- --
Issuance of Common Stock at $.02 per share 455,000 4,550 4,550 -- --
Issuance of Common Stock at $3.00 per share, net
of issuance costs of $2,513,166 10,752,222 107,522 29,635,979 -- --
Issuance of Common Stock in payment of note to
stockholders at $3.00 per share 300,000 3,000 897,000 -- --
Repurchase of Common Stock at $.02 per share (60,000) (600) (600) -- --
Net loss for the year ended December 31, 1990 -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balances at December 31, 1990 16,962,222 169,622 30,592,079 -- --
Issuance of Common Stock at $8.00 per share, net
of issuance costs of $3,230,856 4,500,000 45,000 32,724,144 -- --
Repurchase of Common Stock at $.02 per share (74,000) (740) (740) -- --
Common Stock issued to Cold Spring Harbor Laboratories
pursuant to a collaboration agreement, at fair
market value of $18.50 per share 135,000 1,350 2,496,150 (75,000) (1,387,500)
Vesting of restricted Common Stock -- -- 3,750 -- 69,375
Issuance of Common Stock from exercise of options at
$3.00 per share 18,885 189 56,466 -- --
Issuance of Common Stock from exercise of warrants at
$3.00 per share 86,772 868 259,448 -- --
Compensation related to options granted -- 12,599 -- --
--
Net loss for the year ended December 31, 1991
-- -- -- --
------------ ------------ ------------ ------------ ------------
Balances at December 31, 1991 21,628,879 216,289 66,140,146 (71,250) (1,318,125)
Issuance of Common Stock at $9.00 per share, net of
issuance costs of $1,780,436 3,000,000 30,000 25,189,564 -- --
Retirement of Common Stock at $8.00 per share (299,561) (2,996) (2,394,226) -- --
Vesting of restricted Common Stock -- -- -- 15,000 277,500
Issuance of Common Stock from exercise of options at
$3.00 per share 800,012 8,000 2,392,035 -- --
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Issuance of Common Stock from exercise of warrants at
$3.00 per share 106,800 1,068 319,333 -- --
Compensation related to options granted -- -- 30,235 -- --
Net loss for the year ended December 31, 1992
-- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balances at December 31, 1992 25,236,130 252,361 91,677,087 (56,250) (1,040,625)
</TABLE>
<TABLE>
<CAPTION>
Net
unrealized Deficit
gain (loss) accumulated
on securities during the Total
available development stockholders'
for sale stage equity
<S> <C> <C> <C>
Issuance of Common Stock at $.02 per share $ -- -- $ 110,300
Net loss for the period from inception through
December 31, 1989 -- (359,952) (359,952)
------------ ------------ ------------
Balances at December 31, 1989 -- (359,952) (249,652)
Issuance of Common Stock at $.02 per share -- -- 9,100
Issuance of Common Stock at $3.00 per share, net
of issuance costs of $2,513,166 -- -- 29,743,501
Issuance of Common Stock in payment of note to
stockholders at $3.00 per share -- -- 900,000
Repurchase of Common Stock at $.02 per share -- -- (1,200)
Net loss for the year ended December 31, 1990 -- (2,775,090) (2,775,090)
------------ ------------ ------------
Balances at December 31, 1990 -- (3,135,042) 27,626,659
Issuance of Common Stock at $8.00 per share, net
of issuance costs of $3,230,856 -- -- 32,769,144
Repurchase of Common Stock at $.02 per share -- -- (1,480)
Common Stock issued to Cold Spring Harbor Laboratories
pursuant to a collaboration agreement, at fair
market value of $18.50 per share -- -- 1,110,000
Vesting of restricted Common Stock -- -- 69,375
Issuance of Common Stock from exercise of options at
$3.00 per share -- -- 56,655
Issuance of Common Stock from exercise of warrants at
$3.00 per share -- -- 260,316
Compensation related to options granted -- -- 12,599
Net loss for the year ended December 31, 1991 -- (6,412,786) (6,412,786)
------------ ------------ ------------
Balances at December 31, 1991 -- (9,547,828) 55,490,482
Issuance of Common Stock at $9.00 per share, net of
issuance costs of $1,780,436 -- -- 25,219,564
Retirement of Common Stock at $8.00 per share -- -- (2,397,222)
Vesting of restricted Common Stock -- -- 277,500
Issuance of Common Stock from exercise of options at
$3.00 per share -- -- 2,400,035
Issuance of Common Stock from exercise of warrants at
$3.00 per share -- -- 320,401
Compensation related to options granted -- -- 30,235
Net loss for the year ended December 31, 1992
-- (8,312,128) (8,312,128)
------------ ------------ ------------
Balances at December 31, 1992 -- (17,859,956) 73,028,867
</TABLE>
28
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Repurchase of Common Stock at $.02 per share (12,500) (125) (215) --
Vesting of restricted Common Stock -- -- -- 15,000
Issuance of Common Stock from exercise of options
at prices ranging from $3.00 to $8.00 per share 4,998 50 17,765 --
Issuance of Common Stock from exercise of
warrants at $3.00 per share 59,650 596 178,354 --
Issuance of Common Stock from exercise of
warrants in exchange for Common Stock at prices
ranging from share $5.25 to $6.10 per 326,838 3,269 (3,269) --
Compensation related to options granted -- -- 30,235 --
Net loss for the year ended December 31, 1993 -- -- -- --
------------- ------------- ------------- -------------
Balances at December 31, 1993 25,615,116 256,151 91,899,957 (41,250)
Issuance of Common Stock at $3.625 per share, net
of issuance costs of $500,072 6,425,000 64,250 22,726,303 --
Vesting of restricted Common Stock -- -- -- 15,000
Issuance of Common Stock from exercise of options
at prices ranging from $3.00 to $8.00 per share 12,998 130 43,549 --
Compensation related to options granted -- -- 30,235 --
Net unrealized loss on investment securities
available for sale -- -- -- --
Net loss for the year ended December 31, 1994
-- -- -- --
------------- ------------- ------------- -------------
Balances at December 31, 1994 32,053,114 320,531 114,700,044 (26,250)
Issuance costs related to sale of common stock in 1994 -- -- (56,567) --
Vesting of restricted Common Stock -- -- -- 15,000
Issuance of Common Stock from exercise of options
at prices ranging from $4.00 to $7.625 per share 166,019 1,660 504,145 --
Issuance of Common Stock from exercise of
warrants at $3.00 per share 5,250 53 15,480 --
Issuance of Common Stock from exercise of warrants in
exchange for Common Stock at prices ranging from
$4.95 to $5.13 per share 9,225 92 (92) --
Net unrealized gain on investment securities
available for sale -- -- -- --
Net loss for the year ended December 31, 1995 -- -- -- --
------------- ------------- ------------- -------------
Balances at December 31, 1995 32,233,608 322,336 115,163,010 (11,250)
Issuance of Common Stock at $7.625 per share, net
of issuance costs of $3,506,485 6,900,000 69,000 49,037,015 --
Vesting of restricted Common Stock -- -- -- 11,250
Issuance of Common Stock from exercise of options
at prices ranging from $3.00 to $8.00 per share 284,145 2,841 1,073,029 --
Net unrealized gain on investment securities
available for sale -- -- -- --
Net loss for the year ended December 31, 1996 -- -- -- --
------------- ------------- ------------- -------------
Balances at December 31, 1996 $ 39,417,753 $ 394,177 $ 165,273,054 --
============= ============= ============= =============
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Repurchase of Common Stock at $.02 per share -- -- -- (340)
Vesting of restricted Common Stock 277,500 -- -- 277,500
Issuance of Common Stock from exercise of options
at prices ranging from $3.00 to $8.00 per share -- -- -- 17,815
Issuance of Common Stock from exercise of
warrants at $3.00 per share -- -- -- 178,950
Issuance of Common Stock from exercise of
warrants in exchange for Common Stock at prices
ranging from share $5.25 to $6.10 per -- -- -- --
Compensation related to options granted -- -- -- 30,235
Net loss for the year ended December 31, 1993 -- -- (17,937,930) (17,937,930)
------------- ------------- ------------- -------------
Balances at December 31, 1993 (763,125) -- (35,797,886) 55,595,097
Issuance of Common Stock at $3.625 per share, net
of issuance costs of $500,072 -- -- -- 22,790,553
Vesting of restricted Common Stock 277,500 -- -- 277,500
Issuance of Common Stock from exercise of options
at prices ranging from $3.00 to $8.00 per share -- -- -- 43,679
Compensation related to options granted -- -- -- 30,235
Net unrealized loss on investment securities
available for sale -- (968,920) -- (968,920)
Net loss for the year ended December 31, 1994
-- -- (22,748,200) (22,748,200)
----------- ------------- ------------- -------------
Balances at December 31, 1994 (485,625) (968,920) (58,546,086) 55,019,944
Issuance costs related to sale of common stock in 1994 -- -- -- (56,567)
Vesting of restricted Common Stock 277,500 -- -- 277,500
Issuance of Common Stock from exercise of options
at prices ranging from $4.00 to $7.625 per share -- -- -- 505,805
Issuance of Common Stock from exercise of
warrants at $3.00 per share -- -- -- 15,533
Issuance of Common Stock from exercise of warrants in
exchange for Common Stock at prices ranging from
$4.95 to $5.13 per share -- -- -- --
Net unrealized gain on investment securities
available for sale -- 898,733 -- 898,733
Net loss for the year ended December 31, 1995 -- -- (23,368,590) (23,368,590)
----------- ------------- ------------- -------------
Balances at December 31, 1995 (208,125) (70,187) (81,914,676) 33,292,358
Issuance of Common Stock at $7.625 per share, net
of issuance costs of $3,506,485 -- -- -- 49,106,015
Vesting of restricted Common Stock 208,125 -- -- 208,125
Issuance of Common Stock from exercise of options
at prices ranging from $3.00 to $8.00 per share -- -- -- 1,075,870
Net unrealized gain on investment securities
available for sale -- 80,477 -- 80,477
Net loss for the year ended December 31, 1996 -- (28,495,564) (28,495,564)
----------- ------------- ------------- -------------
Balances at December 31, 1996 -- $ 10,290 $(110,410,240) $ 55,267,281
=========== ============= ============= =============
</TABLE>
See accompanying notes to financial statements.
29
<PAGE>
ICOS CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
September 21,
1989
(incorporation)
through
December 31, Years Ended December 31,
-----------------------------------------------
1996 1996 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(110,410,240) $ (28,495,564) $ (23,368,590) $ (22,748,200)
------------- ------------- ------------- -------------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 13,997,511 3,519,471 3,120,248 2,774,634
Amortization of deferred rent (475,000) -- -- --
Amortization of investment premiums/discounts 682,696 (381,171) 130,705 --
(Gain) loss on sale of investment securities (1,372,906) 19,417 14,108 205,866
Amortization of restricted stock 1,387,500 208,125 277,500 277,500
Compensation related to stock options granted 103,304 -- -- 30,235
Common Stock issued in payment of research and
development costs 1,110,000 -- -- --
Changes in operating assets and liabilities:
Deferred research and development revenue -- (500,000) 500,000 --
Interest receivable (149,404) (42,856) 56,455 327,548
Nontrade receivables (92,969) 5,427 (7,686) 47,649
Prepaid expenses (599,752) 34,382 (13,506) (49,516)
Other assets -- -- -- 6,557
Accounts payable 1,183,623 354,650 228,216 325,359
Accrued payroll, benefits and other accrued 1,754,273 (545,293) 378,010 617,233
expenses
------------- ------------- ------------- -------------
Net cash used in operating activities (92,881,364) (25,823,412) (18,684,540) (18,185,135)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Purchases of investment securities (410,669,590) (50,883,841) (15,532,891) (25,868,830)
Maturities of investment securities 92,907,775 --
14,000,000 7,788,862
Sales of investment securities 278,950,496 14,827,766 12,862,663 47,208,665
Acquisitions of property and equipment (26,035,216) (4,530,649) (6,426,679) (2,731,185)
(Increase) decrease in other assets (65,318) 175,526 (11,612)
------------- ------------- ------------- -------------
Net cash (used in) provided by investing
activities (64,911,853) (26,411,198) (1,319,657) 18,379,418
------------- ------------- ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of Common Stock 159,691,609 49,106,015 (56,567) 22,790,552
Proceeds from exercise of options and warrants 2,477,927 1,075,870 521,338 43,679
Principal payments on obligations under capital lease (3,589,201) (44,633) (947,673) (703,170)
Proceeds from note payable to stockholders 900,000 -- -- --
Deferred rent payment received 475,000 -- -- --
Common Stock retired (3,110) -- -- --
------------- ------------- ------------- -------------
Net cash provided by (used in) financing
activities 159,952,225 50,137,252 (482,902) 22,131,061
------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents 2,159,008 (2,097,358) (20,487,099) 22,325,344
Cash and cash equivalents at beginning of period -- 4,256,366 24,743,465 2,418,121
------------- ------------- ------------- -------------
Cash and cash equivalents at end of period
$ 2,159,008 $ 2,159,008 $ 4,256,366 $ 24,743,465
============= ============= ============= =============
Supplemental disclosure of cash flow information:
Cash paid for interest
$ 959,466 $ 364 $ 52,061 $ 124,667
Supplemental disclosure of noncash financing and investing
activities:
Assets acquired under capital lease obligations 3,589,201 -- -- --
Acquisition of property and equipment financed
through accounts payable -- -- 770,000 --
Exercise of stock options funded by retirement of
previously issued Common Stock 2,397,132 -- -- --
Common Stock issued in payment of note payable
to stockholders 900,000 -- -- --
============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements.
30
<PAGE>
ICOS CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996 and 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
On September 21, 1989, ICOS Corporation (the "Company") was
incorporated to develop new medications and therapeutics for the
treatment of diseases. The Company began research and
development activities in September 1990.
(b) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(c) CASH AND CASH EQUIVALENTS
All highly liquid short-term investments purchased with a
maturity of three months or less are considered to be cash
equivalents.
(d) INVESTMENT SECURITIES
The Company's investment securities are classified as
available-for-sale and carried at market value, with unrealized
gains and losses excluded from the statement of operations and
reported in a separate component of stockholders' equity. Gross
realized gains and losses on the sales of investment securities
are determined on the specific identification method and
included in investment income.
(e) PROPERTY AND EQUIPMENT
Depreciation of furniture and equipment is provided on the
straight-line method over the assets' useful lives (three to
seven years).
Assets acquired under capital lease obligations are stated at
the lower of the present value of minimum lease payments
discounted at the interest rate implicit in the lease at the
beginning of the lease term or the fair market value at the
inception of the lease. Assets acquired under capital lease
obligations are depreciated over the assets' useful lives or the
lease term, if shorter (generally three to five years).
(f) RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as
incurred.
(g) INCOME TAXES
Income taxes are accounted for using the asset and liability
method whereby deferred tax assets and liabilities are
recognized for the future tax consequences attributed to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that
includes the enactment date.
31
<PAGE>
(h) NET LOSS PER COMMON SHARE
Net loss per common share is based on the weighted average
number of common shares outstanding during the period. Net loss
per common share does not include the effect of common share
equivalents as their impact is antidilutive.
(i) STOCK BASED COMPENSATION
Prior to January 1, 1996, the Company accounted for its stock
option plans in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. As such,
compensation expense is recorded on the date of grant only if
the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation, which permits entities
to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively,
SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee
stock option grants made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
(2) FINANCING
The Company anticipates that its existing capital resources should
be sufficient to fund its cash requirements for the next twelve
months. The Company's existing capital resources will not be
sufficient to fund the Company's operation through commercialization
of its first product. The Company will need to raise substantial
additional funds for its programs. The Company is currently
evaluating several financing alternatives, some of which may involve
the sale of additional stock, commencement of additional corporate
partnerships, and other methods of raising capital from public,
private and corporate sources. The Company anticipates completion of
one or more of these financing events in 1997.
(3) INVESTMENT SECURITIES
The following table summarizes the Company's investment securities
at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Gross Gross
unrealized unrealized
Market value gains losses Amortized cost
------------ ----- ------ --------------
<S> <C> <C> <C> <C>
December 31, 1996:
U.S. Treasury Notes $ 8,456,440 $ 3,714 $ 12,351 $ 8,465,077
Corporate debt
securities 24,227,275 7,806 -- 24,219,469
U.S. government
agency mortgage-backed
securities 6,828,105 11,121 -- 6,816,984
----------- ----------- ----------- -----------
Total $39,511,820 $ 22,641 $ 12,351 $39,501,530
=========== =========== =========== ===========
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
December 31, 1995:
<S> <C> <C> <C> <C>
Corporate debt
securities $17,013,514 $ 1,945 $72,132 $17,083,701
----------- ------- ------- -----------
Total $17,013,514 $ 1,945 $72,132 $17,083,701
=========== ======= ======= ===========
</TABLE>
Amortized cost and estimated market value of debt securities at
December 31, 1996, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
Maturing within Market value Amortized cost
- --------------- ------------ --------------
<S> <C> <C>
1 year $30,021,728 $30,018,981
5 years 5,653,150 5,649,436
10 years - -
more than 10 years 3,836,942 3,833,113
</TABLE>
Actual maturities may be different than the contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Investment income includes interest of $2,089,814, $1,782,833,
and $1,703,408 earned on investments for 1996, 1995, and 1994,
respectively; and capital losses of $19,417, $14,108, and
$205,866 for 1996, 1995, and 1994, respectively.
(4) Leases
At December 31, 1996, the Company had no assets acquired under
capital lease. At December 31, 1995, the cost of the assets acquired
under capital lease was $570,530, and related accumulated
amortization was $468,505.
The Company leases office and laboratory space under noncancellable
operating leases which expire in 1997 and 1999. These leases include
options to either extend the terms for two additional five-year
periods, or to purchase the properties at the end of the lease
terms.
Total rent expense was $1,311,062, $1,349,184, and $1,219,249 for
1996, 1995 and 1994, respectively, and $6,560,758 for the period
from September 21, 1989 (incorporation) through December 31, 1996.
Future minimum lease payments under noncancellable operating leases,
excluding provision for annual increases tied to the consumer price
index are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 948,673
1998 276,000
1999 27,978
-------
Total minimum lease payments $1,252,651
==========
</TABLE>
In January 1997, the Company entered into a lease agreement to lease
15,985 additional square feet. Annual lease payments are
approximately $200,000. The lease expires in 2002 and includes the
option to extend the terms for an additional four-year period.
33
<PAGE>
(5) Federal Income Taxes
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Depreciation $ 2,032,000 $ 1,489,000
Research agreement expensed for book 306,000 554,000
Other 700,000 425,000
Net operating loss carryforwards 36,114,000 26,579,000
Research and experimentation tax credits 3,213,000 2,598,000
------------- -----------
Deferred tax asset 42,365,000 31,645,000
Deferred tax valuation allowance (42,365,000) (31,645,000)
------------ -----------
Total $ 0 $ 0
============ ===========
</TABLE>
The increases in the valuation allowance for deferred tax assets of
$10,720,000, $7,915,000, and $8,958,000 in 1996, 1995, and 1994,
respectively, are primarily attributable to increases in net
operating loss carryforwards that could not be utilized. At December
31, 1996, the Company has net operating tax loss carryforwards
available to offset future taxable income as follows:
Year of expiration
------------------
2005 $ 1,027,000
2006 5,671,000
2007 12,367,000
2008 17,003,000
2009 21,507,000
2010 21,039,000
2011 27,603,000
------------
$106,217,000
============
At December 31, 1996, the Company also had available approximately
$3,213,000 in research and experimentation tax credits to offset
future tax liabilities. These credits expire from 2006 to 2011.
Under provisions of the Internal Revenue Code, utilization of the
Company's net operating loss carryforwards may be subject to
limitation if it should be determined that a greater than 50%
ownership change were to occur in the future.
(6) PREFERRED STOCK
The Company has the authority to issue up to 2,000,000 shares of
Preferred Stock in one or more series. The Company's Board of
Directors has the authority to fix the powers, designations,
preferences, and relative participating, optional, or other rights
thereof, including dividend rights, conversion rights, voting
rights, redemption terms, liquidation preferences, and the number of
shares constituting any series, without any further vote or action
by the Company's stockholders. The issuance of Preferred Stock in
certain circumstances may have the effect of delaying or preventing
a change in control of the Company. Such issuance with voting and
conversion rights may adversely affect the voting power of the
Common Stock holders. The Company has no shares of Preferred Stock
outstanding. In the future, the Company may issue Preferred Stock as
part of its overall financing strategy.
34
<PAGE>
(7) COMMON STOCK TRANSACTIONS
(a) INCREASE IN AUTHORIZED SHARES OF COMMON STOCK
On May 8, 1996, the stockholders of the Company approved an
amendment to Article 4 of the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of
Common Stock from 50,000,000 shares to 100,000,000 shares.
(b) PUBLIC OFFERING
In May 1996, the Company completed a public offering of
6,900,000 shares of Common Stock at $7.625 per share, with the
Company receiving net proceeds of $49,106,015. The net proceeds
from this offering are being used for continued research and
product development, funding of preclinical testing and clinical
trials, expansion of the Company's facilities and general
corporate purposes.
(c) STOCK WARRANTS
In connection with private sales of Common Stock in June 1990,
the Company granted stock warrants to the sales agent to
purchase 985,000 shares of Common Stock at $3.00 per share for a
five-year term. All of these warrants had been exercised as of
December 31, 1995.
(d) STOCK OPTION PLANS
At December 31, 1996, the Company has two stock option plans,
which are discussed below. The Company applies APB Opinion No.
25 in accounting for its plans and, no compensation cost has
been recognized related to its stock options. Had the Company
determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the
Company's net loss would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
---------------- --------------
<S> <C> <C>
Net loss As reported $ 28,495,564 $ 23,368,590
Pro forma 30,481,080 24,592,444
Net loss per share As reported $ 0.77 $ 0.73
Pro forma 0.83 0.76
</TABLE>
Pro forma net loss and net loss per share reflect only options
granted in 1996 and 1995. Therefore, the full impact of
calculating compensation cost for stock options under SFAS No.
123 is not reflected in the pro forma net loss and net loss per
share amounts presented above because compensation cost is
reflected over the options' vesting period and compensation cost
for options granted prior to January 1, 1995 is not considered.
The per share weighted-average fair value of stock options
granted during 1996 and 1995 was $4.06 and $2.83 on the date of
grant using the Black Scholes option-pricing model with the
following weighted-average assumptions: 1996 - expected dividend
yield 0.0%, risk-free interest rate of 6.3%, expected volatility
of 40%, and an expected life of 7.4 years; 1995 - expected
dividend yield 0.0%, risk-free interest rate of 7.5%, expected
volatility of 55%, and an expected life of 7.1 years.
EMPLOYEE STOCK OPTION PLAN
The Company has an incentive and nonqualified stock option plan
(the "Employee Plan"), under which 8,500,000 shares of Common
Stock have been reserved for grants to various executive,
scientific, and administrative personnel of the Company. All
incentive stock options are granted with an exercise price not
less than 100% of the fair market value of the Common Stock on
35
<PAGE>
the grant date. Nonqualified stock options are generally granted
with an exercise price equal to 100% of the fair market value of
the Common Stock on the grant date; however, in no case are they
granted with an exercise price of less than 85% of the fair
market value of the Common Stock on the grant date. The options
generally vest over a four-year period commencing on the date of
grant and have a term of ten years from the date of grant.
A summary of stock options under the Employee Plan follows:
<TABLE>
<CAPTION>
Incentive stock options Nonqualified stock options
outstanding outstanding
-----------------------------------------------------------------------------
Weighted-average Weighted-average
Number exercise price Number exercise price
of shares per share of shares per share
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 1,539,631 $7.68 655,314 $6.18
Options granted in 1994 916,000 5.71 132,750 6.00
Cancellations in 1994 (136,861) 8.17 (86,663) 7.15
Options exercised in 1994 (12,998) 3.36 - -
-------- ---------
Balance at December 31, 1994 2,305,772 6.90 701,401 6.02
Options granted in 1995 768,115 4.29 102,389 4.00
Cancellations in 1995 (157,007) 8.51 (135,248) 8.35
Options exercised in 1995 (166,019) 3.05 - -
---------- ---------
Balance at December 31, 1995 2,750,861 6.30 668,542 6.26
Options granted in 1996 773,683 7.72 120,705 7.46
Cancellations in 1996 (48,594) 6.75 - -
Options exercised in 1996 (117,477) 4.88 (166,668) 3.00
----------- ---------
Balance at December 31, 1996 3,358,473 6.68 622,579 6.31
========= =======
</TABLE>
At December 31, 1996, 3,231,891 shares remained reserved and
available for grant under the Employee Plan.
DIRECTOR STOCK OPTION PLAN
The Company has a Stock Option Plan for Nonemployee Directors
(the "Director Plan") under which 950,000 shares of Common Stock
have been reserved for issuance to directors who are not
employees of the Company. The Director Plan provides for an
initial grant and automatic annual grants thereafter to each
nonemployee director of a number of nonqualified stock options
determined by dividing $100,000 (increased by $10,000 each year
starting in 1993) by the market price of the Common Stock on the
grant date. The exercise price of the options will be the
closing market price of the Common Stock on the grant date.
Initial options granted under the Director Plan become
exercisable 50% after the director has served for one year from
the date of initial election to the Board and 100% after two
years. Automatic annual grants are fully vested on the date of
grant. The options have a term of ten years but cannot be
exercised later than two years after termination of service as a
director.
During 1996, 1995, and 1994, respectively, options to purchase
142,224, 217,980, and 144,000 shares at weighted average
exercise prices of $7.875, $4.77, and $5.00 per share,
respectively, were granted under the Director Plan. At December
31, 1996, options to purchase 708,984 shares were outstanding.
No options have been exercised or canceled under this plan.
36
<PAGE>
The following table summarizes information about stock options
outstanding under the Employee Plan and Director Plan at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------ --------------------------------
Weighted-average
remaining Weighted-average Weighted-average
Range of exercise Number contractual life exercise price Number exercise price
prices outstanding exercisable
------------------- ----------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
$3.000-$4.625 1,050,499 7.65 $ 4.1186 618,375 $ 4.1983
4.750-6.000 1,429,539 6.97 5.7018 1,061,303 5.6798
6.125-7.500 957,192 7.49 7.1604 612,735 7.1702
7.625-12.500 954,999 8.23 8.1250 486,786 8.2558
12.750-19.750 297,807 5.08 13.7789 297,807 13.7789
- ------------------- ----------------- ----------------- ----------------- ---------------- ---------------
3.000-19.750 4,690,036 7.37 6.6250 3,077,006 6.8276
</TABLE>
(e) OTHER STOCK OPTIONs
Outside of the Employee Plan and Director Plan, the Company also
has stock options outstanding, which were granted to one
investor in June 1990, to purchase 50,000 shares of Common Stock
at $3.00 per share. The options have terms and conditions
substantially identical to those granted under the Employee
Plan.
(8) SCIENTIFIC COLLABORATION AGREEMENTS
In October 1991, the Company entered into a collaboration agreement
with Glaxo Wellcome (formerly Glaxo Group Ltd. and Glaxo, Inc.), an
international pharmaceutical group based in the United Kingdom. The
agreement provided for three phases of collaboration, including
research, development, and commercialization of potential products.
Pursuant to the agreement, Glaxo Wellcome paid the Company $2
million to reimburse the Company for certain research costs during
1992. In early 1997, the terms of this collaboration agreement were
changed. Under the new terms, the Company and Glaxo Wellcome both
have the right to continue research and development of compounds
that inhibit PDE's. Under the new terms, the Company retains all
commercial rights in the compounds arising from the collaboration as
PDE inhibitors in exchange for future royalties payble to Glaxo
Wellcome on sales of such compounds. Under the modified terms, Glaxo
Wellcome is free to pursue research and development of PDE
inhibitors independently of the Company.
In April 1995, the Company entered into a collaborative agreement
with Abbott Laboratories, a worldwide manufacturer of health care
products. The collaboration focuses on the development of small
molecules that modulate, by an intracellular interaction, the
activity of certain cell adhesion molecules. Under the agreement,
the Company will have exclusive rights in the United States for all
products for the treatment of cancer, while Abbott Laboratories will
have exclusive rights outside the United States for all products for
the treatment of cancer and exclusive worldwide rights for all other
products. The Company will receive research funding, and milestone
and royalty payments for products, other than cancer treatment
products, developed by Abbott Laboratories as a result of the
collaboration. Each party will be responsible for the development,
registration, and commercialization of its products in its
respective territory. In addition, the agreement provides the
Company with a library of chemical compounds for use in its own
discovery programs. The Company received advance payment in 1995 for
research to be conducted in 1996 under the agreement.
In February 1997, the Company and Suntory Limited of Japan
("Suntory") formed a new joint venture company, Suncos Corporation
("Suncos"). The joint venture will develop and commercialize
rPAF-AH. In forming Suncos, the Company granted a license for the
rPAF-AH technology to Suncos, and Suntory made an initial capital
contribution of $30 million. Both parties have committed to jointly
fund all development activities and expenses of Suncos once the
initial capital contribution of $30 million from Suntory has been
used. Suncos will be managed jointly by Suntory and the Company. The
Company has rights to market rPAF-AH in the United States and
Suntory has market rights in Japan. Each company will pay royalties
to Suncos for its territorial marketing rights. Suncos will retain
all rights to market the product in territories outside the United
States and Japan.
37
<PAGE>
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
38
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information requested by this item is incorporated by reference from the
sections labeled "Election of Directors" and "Compliance with Section 16(a) of
the Securities Exchange Act of 1934" in the Company's Proxy Statement for the
Annual Meeting of Stockholders to be held on May 7, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The information requested by this item is incorporated by reference from the
sections labeled "Compensation of Directors," "Executive Compensation," "Stock
Options," "Exercise of Options," "Report of the Compensation Committee on
Executive Compensation," "Stock Price Performance Graph," and "Employment
Contracts, Termination of Employment and Change of Control Arrangements" in the
Company's Proxy Statement for the Annual Meeting of Stockholders to be held on
May 7, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information requested by this item is incorporated by reference from the
section labeled "Security Ownership of Certain Beneficial Owners and Management"
in the Company's Proxy Statement for the Annual Meeting of Stockholders to be
held on May 7, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information requested by this item is incorporated by reference from the
section labeled "Certain Relationships and Related Transactions" in the
Company's Proxy Statement for the Annual Meeting of Stockholders to be held on
May 7, 1997.
39
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a) 1. Financial Statements
--------------------
See Index to Financial Statements under Item 8 of
this Form 10-K.
2. Financial Statement Schedules
-----------------------------
See Index to Financial Statements accompanying those
statements under Item 8 of this Form 10-K.
3. Exhibits
--------
See Index to Exhibits filed herewith.
b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the fourth
quarter of the fiscal year ended December 31, 1996.
40
<PAGE>
<TABLE>
<CAPTION>
Index to Exhibits
-----------------
Page
----
<S> <C>
3.1 Restated Certificate of Incorporation of ICOS Corporation *
3.2 Restated Bylaws of ICOS Corporation *
4.1 Restated Certificate of Incorporation of ICOS Corporation (included in Exhibit 3.1)
10.5 Collaboration Agreement dated October 3, 1991 by and among Glaxo Group
Limited, Glaxo Inc. and ICOS Corporation U
10.6 Joint Research Agreement dated as of October 16, 1991 by and between Cold Spring Harbor
Laboratory and ICOS Corporation U
10.7 ICOS Corporation 1989 Stock Option Plan (Amended and Restated as of January 8, 1997) #####
10.8 ICOS Corporation 1991 Stock Option Plan for Non-employee Directors (Amended and Restated as
of January 8, 1997) #####
10.9 Master Lease of Personal Property dated as of August 15, 1990 between Security Pacific
Leasing Inc. and ICOS Corporation ***
10.10 Industrial Real Estate Lease dated September 15, 1992 between WRC Properties, Inc.
and ICOS Corporation #
10.11 Industrial Real Estate Lease dated August 1, 1992 between Trinity at Canyon
Park and ICOS Corporation #
10.12 Real Estate Purchase and Sale Agreement dated October 30, 1992 between Canyon
Park Business Center Limited Partnership and ICOS Corporation #
10.13 Industrial Real Estate Lease dated August 6, 1993 between John H. Harland Company and ICOS
Corporation ##
10.14 Employment Agreement dated as of September 16, 1993 between Gary Wilcox and ICOS Corporation
10.15 R&D Collaboration/License Agreement dated April 1, 1995 between Abbott Laboratories and ICOS
Corporation ****
10.16 Collaboration Agreement dated December 11, 1995 between Gryphon Sciences and ICOS Corporation
10.17 Amendment, entered into as of January 24, 1997, to Collaboration Agreement between Glaxo
Group Limited, Glaxo Wellcome Inc. (f/k/a/ Glaxo Inc.) and ICOS Corporation. ####
10.18 Shareholders Agreement, entered into December 18, 1996, among ICOS Corporation, Suntory
Limited and Suncos Corporation. ####
10.19 PAF-AH License Agreement, dated February 6, 1997, between ICOS Corporation and Suncos
Corporation ####
10.20 Development and Supply Agreement, dated February 6, 1997, among ICOS Corporation, Suntory
Limited and Suncos Corporation ####
10.21 ICOS Services Agreement, dated February 6, 1997, between ICOS Corporation and Suncos
Corporation ####
10.22 ICOS License Agreement, dated February 6, 1997, between Suncos Corporation and ICOS
Corporation ####
23.1 Consent of KPMG Peat Marwick LLP 45
27.1 Financial Data Schedule #####
</TABLE>
SEE NEXT PAGE FOR EXPLANATORY NOTES
41
<PAGE>
<TABLE>
- -----------------
<S> <C>
* Filed as an exhibit to the Company's Registration Statement (Registration No. 333-3312) effective May 7, 1996 and
incorporated herein by reference.
U Filed as an exhibit to the Company's Registration Rtatement (Registration No. 33-43540) effective December 4, 1991 and
incorporated herein by reference.
** Filed as an exhibit to the Company's Registration Statement (Registration No. 333-08485) effective July 19, 1996 and
incorporated herein by reference.
*** Filed as an exhibit to the Company's Registration Statement (Registration No. 33-40022) effective June 6, 1991 and
incorporated herein by reference.
# Filed as an exhibit to the Company's Form 10-K Annual Report on March 29, 1993 and incorporated herein by reference.
## Filed as an exhibit to the Company's Form 10-Q Quarterly Report on November 2, 1993 and incorporated herein by reference.
**** Filed as an exhibit to the Company's Form 10-Q Quarterly Report on May 12, 1995 and incorporated herein by reference.
### Filed as an exhibit to the Company's Form 10-K Annual Report on March 29, 1996 and incorporated herein by reference.
#### Filed with this document. Confidential portions of this exhibit were filed separately with the Securities and Exchange
Commission pursuant to an Application for Confidential Treatment.
##### Filed with this document.
</TABLE>
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Bothell,
State of Washington, on the 28th day of March, 1997.
ICOS CORPORATION
(Registrant)
By: /S/ GEORGE B. RATHMANN
--------------------------
George B. Rathmann
Chairman of the Board of Directors,
Chief Executive Officer and President
43
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Chairman of the Board of Directors,
/S/ GEORGE B. RATHMANN Chief Executive Officer and President March 28, 1997
- ----------------------------------------------------------- --------------
George B. Rathmann
/S/ GARY L. WILCOX Director and Executive Vice President, March 28, 1997
- ----------------------------------------------------------- Operations --------------
Gary L. Wilcox
/S/ HOWARD S. MENDELSOHN Chief Accounting Officer March 28, 1997
- ----------------------------------------------------------- --------------
Howard S. Mendelsohn
/S/ FRANK T. CARY Director March 28, 1997
- ----------------------------------------------------------- --------------
Frank T. Cary
/S/ JAMES L. FERGUSON Director March 28, 1997
- ----------------------------------------------------------- --------------
James L. Ferguson
/S/ WILLIAM H. GATES, III Director March 28, 1997
- ----------------------------------------------------------- --------------
William H. Gates, III
/S/ JANICE M. LECOCQ Director March 28, 1997
- ----------------------------------------------------------- --------------
Janice M. LeCocq
/S/ DAVID V. MILLIGAN Director March 28, 1997
- ----------------------------------------------------------- --------------
David V. Milligan
/S/ ROBERT W. PANGIA Director March 28, 1997
- ----------------------------------------------------------- --------------
Robert W. Pangia
/S/ ALEXANDER B. TROWBRIDGE Director March 28, 1997
- ----------------------------------------------------------- --------------
Alexander B. Trowbridge
/S/ WALTER B. WRISTON Director March 28, 1997
- ----------------------------------------------------------- --------------
Walter B. Wriston
</TABLE>
44
<PAGE>
EXHIBIT 10.7
ICOS CORPORATION
1989 STOCK OPTION PLAN
AMENDED AND RESTATED AS OF JANUARY 8, 1997
SECTION 1. PURPOSE
The purpose of the ICOS Corporation 1989 Stock Option Plan (this "Plan") is
to provide a means whereby selected employees, officers, directors, agents,
consultants and independent contractors of ICOS Corporation (the "Company") or
of any parent or subsidiary (as defined in subsection 5.7 and referred to
hereinafter as "related corporations") thereof, may be granted incentive stock
options and/or nonqualified stock options to purchase the Common Stock (as
defined in Section 3) of the Company, in order to attract and retain the
services or advice of such employees, officers, agents, consultants and
independent contractors and to provide added incentive to them by encouraging
stock ownership in the Company.
SECTION 2. ADMINISTRATION
This Plan shall be administered by the Board of Directors of the Company
(the "Board") or a committee or committees (which term includes subcommittees)
appointed by, and consisting of two or more members of, the Board. The
administrator of this Plan shall hereinafter be referred to as the "Plan
Administrator." If and so long as the Common Stock is registered under Section
12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Board shall consider, in selecting the Plan Administrator and the
membership of any committee acting as Plan Administrator of the Plan with
respect to any persons subject or likely to become subject to Section 16 under
the Exchange Act, the provisions regarding (a) "outside directors," as
contemplated by Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), and (b) "nonemployee directors," as contemplated by Rule 16b-3
under the Exchange Act. The Board may delegate the responsibility for
administering this Plan with respect to designated classes of eligible
participants to different committees, subject to such limitations as the Board
deems appropriate. Committee members shall serve for such term as the Board may
determine, subject to removal by the Board at any time.
2.1 PROCEDURES
The Board shall designate one of the members of the Plan Administrator as
chairman. The Plan Administrator may hold meetings at such times and places as
it shall determine. The acts of a majority of the members of the Plan
Administrator
1
<PAGE>
present at meetings at which a quorum exists, or acts reduced to
or approved in writing by all Plan Administrator members, shall be valid acts of
the Plan Administrator.
2.2 RESPONSIBILITIES
Except for the terms and conditions explicitly set forth in this Plan, the
Plan Administrator shall have the authority, in its discretion, to determine all
matters relating to the options to be granted under this Plan, including
selection of the individuals to be granted options, the number of shares to be
subject to each option, the exercise price, and all other terms and conditions
of the options. Grants under this Plan need not be identical in any respect,
even when made simultaneously. The interpretation and construction by the Plan
Administrator of any terms or provisions of this Plan or any option issued
hereunder, or of any rule or regulation promulgated in connection herewith,
shall be conclusive and binding on all interested parties, so long as such
interpretation and construction with respect to incentive stock options
corresponds to the requirements of Section 422 of the Code, the regulations
thereunder, and any amendments thereto.
2.3 SECTION 16(b) COMPLIANCE AND BIFURCATION OF PLAN
Notwithstanding anything in this Plan to the contrary, the Board, in its
absolute discretion, may bifurcate this Plan so as to restrict, limit or
condition the use of any provision of this Plan to participants who are officers
and directors subject to Section 16(b) of the Exchange Act without so
restricting, limiting or conditioning this Plan with respect to other
participants.
SECTION 3. STOCK SUBJECT TO THIS PLAN
The stock subject to this Plan shall be the Company's Common Stock (the
"Common Stock") presently authorized but unissued or subsequently acquired by
the Company. Subject to adjustment as provided in Section 7 hereof, the
aggregate amount of Common Stock to be delivered upon the exercise of all
options granted under this Plan shall not exceed 8,500,000 shares as such Common
Stock was constituted on the effective date of this Plan. If any option granted
under this Plan shall expire, be surrendered, exchanged for another option,
canceled or terminated for any reason without having been exercised in full, the
unpurchased shares subject thereto shall thereupon again be available for
purposes of this Plan, including for replacement options which may be granted in
exchange for such surrendered, canceled or terminated options.
2
<PAGE>
SECTION 4. ELIGIBILITY
An incentive stock option may be granted only to any individual who, at the
time the option is granted, is an employee of the Company or any related
corporation. A nonqualified stock option may be granted to any employee,
officer, director, agent, consultant or independent contractor of the Company or
any related corporation, whether an individual or an entity. Any party to whom
an option is granted under this Plan shall be referred to hereinafter as an
"Optionee."
SECTION 5. TERMS AND CONDITIONS OF OPTIONS
Options granted under this Plan shall be evidenced by written agreements
which shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and which are not inconsistent with this
Plan. Notwithstanding the foregoing, options shall include or incorporate by
reference the following terms and conditions:
5.1 NUMBER OF SHARES AND PRICE
The maximum number of shares that may be purchased pursuant to the exercise
of each option and the price per share at which such option is exercisable (the
"exercise price") shall be as established by the Plan Administrator.
Notwithstanding the foregoing, and subject to adjustment from time to time as
provided in Section 7 of this Plan, not more than an aggregate of 400,000 shares
of Common Stock may be subject to options granted under this Plan to any
Optionee in any one fiscal year of the Company; provided that an aggregate of
not more than 800,000 shares of Common Stock may be subject to options granted
under this Plan to any newly hired Optionee in any one fiscal year of the
Company, such limitations to be applied in a manner consistent with the
requirements of, and only to the extent required for compliance with, the
exclusion from the limitation on deductibility of compensation under Code
Section 162(m).
The Plan Administrator shall act in good faith to establish the exercise
price which shall be not less than the fair market value per share of the Common
Stock at the time the option is granted with respect to incentive stock options
and not less than 85% of the fair market value per share of the Common Stock at
the time the option is granted with respect to nonqualified stock options;
provided that, with respect to incentive stock options granted to greater than
10% stockholders, the exercise price shall be as required by Section 6.
3
<PAGE>
5.2 TERM AND MATURITY
Subject to the restrictions contained in Section 6 with respect to granting
incentive stock options to greater than 10% stockholders, the term of each
incentive stock option shall be as established by the Plan Administrator and, if
not so established, shall be 10 years from the date it is granted but in no
event shall the term of any incentive stock option exceed 10 years. The term of
each nonqualified stock option shall be as established by the Plan Administrator
and, if not so established, shall be 10 years from the date it is granted. To
ensure that the Company or a related corporation will achieve the purpose and
receive the benefits contemplated in this Plan, any option granted to any
Optionee hereunder shall, unless the condition of this sentence is waived or
modified in the agreement evidencing the option or by resolution adopted by the
Plan Administrator, be exercisable according to the following schedule:
<TABLE>
<CAPTION>
PERIOD OF OPTIONEE'S
CONTINUOUS RELATIONSHIP
WITH THE COMPANY OR RELATED
CORPORATION FROM THE DATE PORTION OF TOTAL OPTION
THE OPTION IS GRANTED WHICH IS EXERCISABLE
-------------------------------- ------------------------
<S> <C>
after 1 month 1/48th
each month thereafter an additional 1/48th
after 4 years 100%
</TABLE>
Unless the Plan Administrator (or the Company's Chief Executive Officer in the
case of optionees who are not subject to Section 16 of the Exchange Act)
determines otherwise, the vesting schedule of an option shall be adjusted
proportionately to the extent an Optionee's hours of employment or service are
reduced after the date of grant.
5.3 EXERCISE
Subject to the vesting schedule described in subsection 5.2 above, each
option may be exercised in whole or in part; provided, however, that no fewer
than 100 shares (or the remaining shares then purchasable under the option, if
less than 100 shares) may be purchased upon any exercise of option rights
hereunder and that only whole shares will be issued pursuant to the exercise of
any option. During an Optionee's lifetime, any incentive stock options granted
under this Plan are personal to him or her and are exercisable solely by such
Optionee. Options shall be exercised by delivery to the Company of notice of
the number of shares with respect to which the option is exercised, together
with payment of the exercise price.
4
<PAGE>
5.4 PAYMENT OF EXERCISE PRICE
Payment of the option exercise price shall be made in full at the time the
notice of exercise of the option is delivered to the Company and shall be in
cash, bank certified or cashier's check or personal check (unless at the time of
exercise the Plan Administrator in a particular case determines not to accept a
personal check) for the Common Stock being purchased.
The Plan Administrator can determine at the time the option is granted for
incentive stock options, or at any time before exercise for nonqualified stock
options, that additional forms of payment will be permitted. To the extent
permitted by applicable laws and regulations (including, but not limited to,
federal tax and securities laws and regulations and state corporate law), and
unless the Plan Administrator determines otherwise, an option may also be
exercised, either singly or in combination with one or more of the alternative
forms of payment authorized by this Section 5.4, by:
(a) tendering (either actually or by attestation) shares of stock of the
Company held by an Optionee having a fair market value equal to the exercise
price, such fair market value to be determined in good faith by the Plan
Administrator; provided, however, that payment in stock held by an Optionee
shall not be made unless the stock shall have been owned by the Optionee for a
period of at least six months (or any shorter period necessary to avoid a charge
to the Company's earnings for financial accounting purposes); or
(b) delivery of a properly executed exercise notice, together with
irrevocable instructions to a broker, all in accordance with the regulations of
the Federal Reserve Board, to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price and any federal, state or local
withholding tax obligations that may arise in connection with the exercise.
5.5 WITHHOLDING TAX REQUIREMENT
At its discretion, the Company may require an optionee receiving shares of
Common Stock to reimburse the Company for any taxes required by any government
to be withheld by the Company or otherwise deducted and paid with respect to an
option, and may withhold any distribution in whole or in part until the Company
is so reimbursed. In lieu thereof, the Company shall have the right to withhold
from any cash or other amounts due or to become due from the Company to the
Optionee an amount equal to such taxes or retain and withhold a number of shares
having a market value not less than the amount of such taxes required to be
withheld by the Company
5
<PAGE>
to reimburse the Company for any such taxes and cancel (in whole or in part) any
such shares so withheld.
5.6 TRANSFERABILITY OF OPTIONS
Options granted under this Plan shall not be transferable, pledgable or
assignable other than (a) by will or the laws of descent and distribution or (b)
to the extent permitted by the Plan Administrator, in its sole discretion, and
by Section 422 of the Code, by gift or other transfer to either (i) any trust or
partnership in which the original option recipient or such person's spouse or
other immediate family member has a substantial beneficial interest or (ii) a
spouse or other immediate family member; provided that any option so assigned or
transferred shall be subject to all the same terms and conditions contained in
the instrument evidencing the award. During an Optionee's lifetime, any options
granted under this Plan are personal to the Optionee and are exercisable solely
by the Optionee or a permitted assignee or transferee. Notwithstanding the
foregoing, to the extent permitted by Section 422 of the Code, the Plan
Administrator may permit an Optionee, during the Optionee's lifetime, to
designate a person who may exercise an option after the Optionee's death by
giving written notice of such designation to the Company (such designation may
be changed from time to time by the Optionee by giving written notice to the
Company revoking any earlier designation and making a new designation). Any
attempt to transfer, assign, pledge, hypothecate or otherwise dispose of any
option under this Plan or of any right or privilege conferred thereby, contrary
to the provisions of this Plan, or the sale or levy or any attachment or similar
process upon the rights and privileges conferred hereby, shall be null and void.
5.7 TERMINATION OF RELATIONSHIP
If the Optionee's relationship with the Company or any related corporation
ceases for any reason, then the portion of the Optionee's option that is not
exercisable at the time of such cessation shall terminate immediately upon such
cessation, unless the Plan Administrator determines otherwise. If the
Optionee's relationship with the Company or any related corporation ceases for
any reason other than termination for cause, death or total disability, and
unless by its terms the option sooner terminates or expires, then the Optionee
may exercise, for a three-month period, that portion of the Optionee's option
which is exercisable at the time of such cessation, but the Optionee's option
shall terminate at the end of the three-month period following such cessation as
to all shares for which it has not theretofore been exercised, unless, in the
case of a nonqualified stock option, such provision is waived in the agreement
evidencing the option or by resolution adopted by the Plan Administrator within
90 days of such cessation. If, in the case of an incentive stock option, an
Optionee's
6
<PAGE>
relationship with the Company or related corporation changes (i.e.,
from employee to nonemployee, such as a consultant), such change shall
constitute a termination of an Optionee's employment with the Company or related
corporation and the Optionee's incentive stock option shall terminate in
accordance with this subsection 5.7.
If an Optionee is terminated for cause, any option granted hereunder shall
automatically terminate as of the first discovery by the Company of any reason
for termination for cause, and such Optionee shall thereupon have no right to
purchase any shares pursuant to such option. "Termination for cause" shall mean
dismissal for dishonesty, conviction or confession of a crime punishable by law
(except minor violations), fraud, misconduct or disclosure of confidential
information. If an Optionee's relationship with the Company or any related
corporation is suspended pending an investigation of whether or not the Optionee
shall be terminated for cause, all Optionee's rights under any option granted
hereunder likewise shall be suspended during the period of investigation.
If an Optionee's relationship with the Company or any related corporation
ceases because of a total disability, the portion of Optionee's option that is
exercisable at the time of such cessation shall not terminate or, in the case of
an incentive stock option, cease to be treated as an incentive stock option
until the end of the 12 month period following such cessation (unless by its
terms it sooner terminates and expires). As used in this Plan, the term "total
disability" refers to a mental or physical impairment of the Optionee which is
expected to result in death or which has lasted or is expected to last for a
continuous period of 12 months or more and which causes the Optionee to be
unable, in the opinion of the Company and two independent physicians, to perform
his or her duties for the Company and to be engaged in any substantial gainful
activity. Total disability shall be deemed to have occurred on the first day
after the Company and the two independent physicians have furnished their
opinion of total disability to the Plan Administrator.
For purposes of this subsection 5.7, a transfer of relationship between or
among the Company and/or any related corporation shall not be deemed to
constitute a cessation of relationship with the Company or any of its related
corporations. For purposes of this subsection 5.7, with respect to incentive
stock options, employment shall be deemed to continue while the Optionee is on
military leave, sick leave or other bona fide leave of absence (as determined by
the Plan Administrator). The foregoing notwithstanding, employment shall not be
deemed to continue beyond the first 90 days of such leave, unless the Optionee's
re-employment rights are guaranteed by statute or by contract.
As used herein, the term "related corporation," when referring to a
subsidiary corporation, shall mean any corporation (other than the Company) in,
at the time of
7
<PAGE>
the granting of the option, an unbroken chain of corporations
ending with the Company, if stock possessing 50% or more of the total combined
voting power of all classes of stock of each of the corporations other than the
Company is owned by one of the other corporations in such chain. When referring
to a parent corporation, the term "related corporation" shall mean any
corporation in an unbroken chain of corporations ending with the Company if, at
the time of the granting of the option, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
5.8 DEATH OF OPTIONEE
If an Optionee dies while he or she has a relationship with the Company or
any related corporation or within the three month period (or 12 month period in
the case of totally disabled Optionees) following cessation of such
relationship, any option held by such Optionee to the extent that the Optionee
would have been entitled to exercise such option, may be exercised within one
year after his or her death by the personal representative of his or her estate
or by the person or persons to whom the Optionee's rights under the option shall
pass by will or by the applicable laws of descent and distribution.
5.9 STATUS OF STOCKHOLDER
Neither the Optionee nor any party to which the Optionee's rights and
privileges under the option may pass shall be, or have any of the rights or
privileges of, a stockholder of the Company with respect to any of the shares
issuable upon the exercise of any option granted under this Plan unless and
until such option has been exercised.
5.10 CONTINUATION OF EMPLOYMENT
Nothing in this Plan or in any option granted pursuant to this Plan shall
confer upon any Optionee any right to continue in the employ of the Company or
of a related corporation, or to interfere in any way with the right of the
Company or of any such related corporation to terminate his or her employment or
other relationship with the Company at any time.
5.11 MODIFICATION AND AMENDMENT OF OPTION
Subject to the requirements of Code Section 422 with respect to incentive
stock options and to the terms and conditions and within the limitations of this
Plan, the Plan Administrator may modify or amend outstanding options granted
under this Plan.
8
<PAGE>
The modification or amendment of an outstanding option shall not, without the
consent of the Optionee, impair or diminish any of his or her rights or any of
the obligations of the Company under such option. Except as otherwise provided
in this Plan, no outstanding option shall be terminated without the consent of
the Optionee. Unless the Optionee agrees otherwise, any changes or adjustments
made to outstanding incentive stock options granted under this Plan shall be
made in such a manner so as not to constitute a "modification" as defined in
Code Section 425(h) and so as not to cause any incentive stock option issued
hereunder to fail to continue to qualify as an incentive stock option as defined
in Code Section 422(b).
5.12 LIMITATION ON VALUE FOR INCENTIVE STOCK OPTIONS
As to all incentive stock options granted under the terms of this Plan, to
the extent that the aggregate fair market value (determined at the time the
incentive stock option is granted) of the stock with respect to which incentive
stock options are exercisable for the first time by the Optionee during any
calendar year (under this Plan and all other incentive stock option plans of the
Company, a related corporation or a predecessor corporation) exceeds $100,000,
such options shall be treated as nonqualified stock options to the extent
required by Section 422 of the Code.
5.13 HOLDING PERIODS
If an individual subject to Section 16 of the Exchange Act sells shares of
Common Stock obtained upon the exercise of any option granted under this Plan
within six (6) months after the date the option was granted, such sale may
result in short-swing profit recovery under Section 16(b) of the Exchange Act.
SECTION 6. GREATER THAN 10% STOCKHOLDERS
6.1 EXERCISE PRICE AND TERM OF INCENTIVE STOCK OPTIONS
If incentive stock options are granted under this Plan to employees who own
more than 10% of the total combined voting power of all classes of stock of the
Company or any related corporation, the term of such incentive stock options
shall not exceed five years and the exercise price shall be not less than 110%
of the fair market value of the Common Stock at the time the incentive stock
option is granted. This provision shall control notwithstanding any contrary
terms contained in an option agreement or any other document.
9
<PAGE>
6.2 ATTRIBUTION RULE
For purposes of subsection 6.1, in determining stock ownership, an employee
shall be deemed to own the stock owned, directly or indirectly, by or for his or
her brothers, sisters, spouse, ancestors and lineal descendants. Stock owned,
directly or indirectly, by or for a corporation, partnership, estate or trust
shall be deemed to be owned proportionately by or for its stockholders, partners
or beneficiaries. If an employee or a person related to the employee owns an
unexercised option or warrant to purchase stock of the Company, the stock
subject to that portion of the option or warrant which is unexercised shall not
be counted in determining stock ownership. For purposes of this Section 6,
stock owned by an employee shall include all stock actually issued and
outstanding immediately before the grant of the incentive stock option to the
employee.
SECTION 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
The aggregate number and class of shares for which options may be granted
under this Plan, the number and class of shares covered by each outstanding
option and the exercise price per share thereof (but not the total price), and
the limitations set forth in Section 5.1, shall all be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock of
the Company resulting from a split-up or consolidation of shares or any like
capital adjustment, or the payment of any stock dividend.
7.1 EFFECT OF LIQUIDATION, REORGANIZATION OR CHANGE IN CONTROL
7.1.1 CASH, STOCK OR OTHER PROPERTY FOR STOCK
Except as provided in subsection 7.1.2, upon a merger (other than a merger
of the Company in which the holders of Common Stock immediately prior to the
merger have the same proportionate ownership of Common Stock in the surviving
corporation immediately after the merger), consolidation, acquisition of
property or stock, separation, reorganization (other than a mere reincorporation
or the creation of a holding company) or liquidation of the Company, as a result
of which the stockholders of the Company receive cash, stock or other property
in exchange for or in connection with their shares of Common Stock, any option
granted hereunder shall terminate, but the Optionee shall have the right
immediately prior to any such merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation to exercise such Optionee's
option in whole or in part whether or not the vesting requirements set forth in
the option agreement have been satisfied.
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7.1.2 CONVERSION OF OPTIONS ON STOCK FOR STOCK EXCHANGE
If the stockholders of the Company receive capital stock of another
corporation ("Exchange Stock") in exchange for their shares of Common Stock in
any transaction involving a merger (other than a merger of the Company in which
the holders of Common Stock immediately prior to the merger have the same
proportionate ownership of common stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation
or reorganization (other than a mere reincorporation or the creation of a
holding company) (each a "Corporate Transaction"), all options granted hereunder
shall be converted into options to purchase shares of Exchange Stock unless the
Company and the corporation issuing the Exchange Stock, in their sole discretion
determine that any or all such options granted hereunder shall not be converted
into options to purchase shares of Exchange Stock but instead shall terminate in
accordance with the provisions of subsection 7.1.1. The amount and price of
converted options shall be determined by adjusting the amount and price of the
options granted hereunder in the same proportion as used for determining the
number of shares of Exchange Stock the holders of the Common Stock receive in
such merger, consolidation, acquisition of property or stock, separation or
reorganization. Each converted option shall, immediately following the
consummation of the Corporate Transaction, become fully vested and exercisable
in whole or in part whether or not the vesting requirements set forth in the
option agreement have been satisfied, except that such acceleration will not
occur if, in the opinion of the Company's outside accountants, such acceleration
would render unavailable "pooling of interests" accounting treatment for any
Corporate Transaction for which pooling of interests accounting treatment is
sought by the Company.
Such options shall not so accelerate, however, if and to the extent that:
(i) such option is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation or parent thereof or to be replaced with a
comparable option for the purchase of shares of the capital stock of the
successor corporation or its parent corporation or (ii) such option is to be
replaced with a cash incentive program of the successor corporation that
preserves the spread existing at the time of the Corporate Transaction and
provides for subsequent payout in accordance with the same vesting schedule
applicable to such option. The determination of option comparability under
clause (i) above shall be made by the Plan Administrator, and its determination
shall be conclusive and binding. All such options shall terminate and cease to
remain outstanding immediately following the consummation of the Corporate
Transaction, except to the extent assumed by the successor corporation or its
parent corporation. Any such options that are assumed or replaced in the
Corporate Transaction and do not otherwise accelerate at that time shall be
accelerated in the event the Optionee's
11
<PAGE>
employment or services should subsequently terminate within two years following
such Corporate Transaction, unless such employment or services are terminated by
the successor corporation for cause (as defined in Section 5.7) or by the
Optionee voluntarily without good reason.
Notwithstanding the foregoing, no incentive stock option shall become
exercisable pursuant to this Section 7.1 without the Optionee's consent, if the
result would be to cause such option not to be treated as an incentive stock
option (whether by reason of the annual limitation described in Section 5.12 of
this Plan or otherwise).
Upon a merger of the Company in which the holders of Common Stock
immediately prior to the merger have the same proportionate ownership of common
stock in the surviving corporation immediately after the merger, a mere
reincorporation or the creation of a holding company, each option outstanding
under this Plan shall be assumed or an equivalent option shall be substituted by
the successor corporation or a parent or subsidiary of such corporation, and the
vesting schedule set forth in the instrument evidencing the option shall
continue to apply to such assumed or equivalent option.
"Good reason" means the occurrence of any of the following events or
conditions:
(a) the assignment to the Optionee of any duties materially
inconsistent with the Optionee's position, authority, duties or responsibilities
as in effect immediately prior thereto or any other action by the successor
corporation which results in a material diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated and
inadvertent action not taken in bad faith and which is remedied by the successor
corporation promptly after receipt of notice thereof given by the Optionee;
(b) a reduction in the Optionee's annual base salary;
(c) the successor corporation's requiring the Optionee (without the
Optionee's consent) to be based at any place outside a 35-mile radius of his or
her place of employment prior to a Corporate Transaction, except for reasonably
required travel on the successor corporation's business that is not materially
greater than such travel requirements prior to the Corporate Transaction;
(d) the successor corporation's failure to provide the Optionee with
compensation and benefits at least equal in the aggregate (in terms of benefit
levels and/or reward opportunities) to those provided for under any employee
benefit plan, program or practice as in effect immediately prior to the
Corporate Transaction,
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<PAGE>
except for changes in general welfare and benefit plans in a manner consistent
with similar plans applicable to the employees of the successor corporation and
its affiliates in general, which changes on the whole (after consideration of
any additional benefits provided after the consummation of the Corporate
Transaction) are not material decreases; or
(e) any material breach by the successor corporation of its obligation
to Optionee under this Plan.
7.2 FRACTIONAL SHARES
In the event of any adjustment in the number of shares covered by any
option, any fractional shares resulting from such adjustment shall be
disregarded and each such option shall cover only the number of full shares
resulting from such adjustment.
7.3 DETERMINATION OF BOARD TO BE FINAL
All Section 7 adjustments shall be made by the Board, and its determination
as to what adjustments shall be made, and the extent thereof, shall be final,
binding and conclusive. Unless an Optionee agrees otherwise, any change or
adjustment to an incentive stock option shall be made in such a manner so as not
to constitute a "modification" as defined in Code Section 425(h) and so as not
to cause his or her incentive stock option issued hereunder to fail to continue
to qualify as an incentive stock option as defined in Code Section 422(b).
SECTION 8. SECURITIES REGULATION
Shares shall not be issued with respect to an option granted under this
Plan unless the exercise of such option and the issuance and delivery of such
shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, any applicable state securities laws, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance, including the
availability of an exemption from registration for the issuance and sale of any
shares hereunder. Inability of the Company to obtain from any regulatory body
having jurisdiction, the authority deemed by the Company's counsel to be
necessary for the lawful issuance and sale of any shares hereunder or the
unavailability of an exemption from registration for the issuance and sale of
any shares hereunder shall relieve the Company of any liability in respect of
the nonissuance or sale of such shares as to which such requisite authority
shall not have been obtained.
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<PAGE>
As a condition to the exercise of an option, the Company may require the
Optionee to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present intention
to sell or distribute such shares if, in the opinion of counsel for the Company,
such a representation is required by any relevant provision of the
aforementioned laws. At the option of the Company, a stop-transfer order
against any shares of stock may be placed on the official stock books and
records of the Company, and a legend indicating that the stock may not be
pledged, sold or otherwise transferred unless an opinion of counsel is provided
(concurred in by counsel for the Company) stating that such transfer is not in
violation of any applicable law or regulation, may be stamped on stock
certificates in order to assure exemption from registration. The Plan
Administrator may also require such other action or agreement by the Optionees
as may from time to time be necessary to comply with the federal and state
securities laws. THIS PROVISION SHALL NOT OBLIGATE THE COMPANY TO UNDERTAKE
REGISTRATION OF THE OPTIONS OR STOCK HEREUNDER.
Should any of the Company's capital stock of the same class as the stock
subject to options granted hereunder be listed on a national securities
exchange, all stock issued hereunder if not previously listed on such exchange
shall be authorized by that exchange for listing thereon prior to the issuance
thereof.
SECTION 9. AMENDMENT AND TERMINATION
9.1 BOARD ACTION
The Board may at any time suspend, amend or terminate this Plan, provided
that except as set forth in Section 7 and to the extent required by any
applicable law or regulation, the approval of the holders of a majority of the
stock held by stockholders present in person or by proxy and entitled to vote on
the matter at a duly held stockholders' meeting is necessary within 12 months
after the adoption by the Board of any amendment which will:
(a) increase the total number of shares which are to be reserved for the
issuance of options under this Plan;
(b) modify the class of persons eligible to receive stock options under
this Plan; or
(c) require stockholder approval under applicable law or regulation.
14
<PAGE>
9.2 AUTOMATIC TERMINATION
Unless sooner terminated by the Board, this Plan shall terminate ten years
from the earlier of (a) the date on which this Plan is adopted by the Board or
(b) the date on which this Plan is approved by the stockholders of the Company.
No option may be granted after such termination or during any suspension of this
Plan. The amendment or termination of this Plan shall not, without the consent
of the option holder, impair or diminish any rights or obligations under any
option theretofore granted under this Plan.
SECTION 10. EFFECTIVENESS OF THIS PLAN
This Plan shall become effective upon adoption by the Board so long as it
is approved by the holders of a majority of the Company's outstanding shares of
voting capital stock at any time within 12 months before or after the adoption
of this Plan.
Adopted by the Board of Directors on December 11, 1989 and approved by the
stockholders on December 11, 1989. Amended and restated by the Compensation
Committee and the Board of Directors on December 6, 1995 and approved by the
stockholders on May 8, 1996 with respect to amendments to Sections 3 and 5.1.
Amended and restated by the Board of Directors on January 8, 1997.
15
<PAGE>
EXHIBIT 10.8
ICOS CORPORATION
1991 STOCK OPTION PLAN FOR NONEMPLOYEE
DIRECTORS
AMENDED AND RESTATED AS OF JANUARY 8, 1997
ARTICLE I
PURPOSE
The purposes of the ICOS Corporation 1991 Stock Option Plan for Nonemployee
Directors (the "Plan") are to attract and retain the services of experienced and
knowledgeable nonemployee directors of ICOS Corporation (the "Corporation") and
to provide an incentive for such directors to increase their proprietary
interest in the Corporation's long-term success and progress.
ARTICLE II
SHARES SUBJECT TO THE PLAN
The total number of shares of common stock (the "Shares") of the
Corporation for which options may be granted under the Plan is 950,000, subject
to adjustment in accordance with Article VI hereof. The Shares shall be shares
presently authorized but unissued or subsequently acquired by the Corporation
and shall include shares representing the unexercised portion of any option
granted under the Plan which expires or terminates without being exercised in
full.
ARTICLE III
ADMINISTRATION OF THE PLAN
The administrator of the Plan (the "Plan Administrator") shall consist of a
committee appointed by the Board of Directors of the Corporation (the "Board").
Subject to the terms of the Plan, the Plan Administrator shall have the power to
construe the provisions of the Plan, to determine all questions arising
thereunder and to adopt and amend such rules and regulations for the
administration of the Plan as it may deem desirable. No member of the Plan
Administrator shall participate in any vote by the Plan Administrator on any
matter materially affecting the rights of any such member under the Plan.
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<PAGE>
ARTICLE IV
PARTICIPATION IN THE PLAN
Each Director of the Corporation elected or appointed who is not otherwise
an employee of the Corporation or any subsidiary ("Eligible Director") shall
receive the following option grants under the Plan:
1. INITIAL GRANTS
An initial grant (an "Initial Grant") of an option to purchase that number
of shares calculated by dividing $100,000 (such dollar amount to be increased by
$10,000 each year for grants made in each year beginning after fiscal year 1992)
by the Exercise Price, as hereinafter defined, shall automatically be granted to
(a) each Eligible Director immediately following the Board's approval of
the Plan and
(b) each Eligible Director upon the earlier of the Director's initial
election or appointment as a Director of the Corporation.
The Initial Grants shall vest annually over two years from the earlier of
the Director's initial election or appointment as a Director of the Corporation
in accordance with the schedule set forth in Article V.
2. ADDITIONAL GRANTS
Commencing with the 1992 annual meeting of stockholders of the Corporation
as specified in the Corporation's By-laws (the "Annual Meeting"), each Eligible
Director shall automatically receive an additional grant (an "Additional Grant")
of an option to purchase that number of shares calculated by dividing $100,000
(such dollar amount to be increased by $10,000 each year for grants made in each
year beginning after fiscal year 1992) by the Exercise Price, as hereinafter
defined, immediately following each year's Annual Meeting; provided that a
Director who has received an Initial Grant within five months prior to an Annual
Meeting shall not receive an Additional Grant until the next year's Annual
Meeting.
Additional Grants shall vest annually over two years from the earlier of
the Director's initial election or appointment as a Director of the Corporation
in accordance with the schedule set forth in Article V.
ARTICLE V
OPTION TERMS
Each option granted to an Eligible Director under the Plan and the issuance
of Shares thereunder shall be subject to the following terms:
2
<PAGE>
1. OPTION AGREEMENT
Each option granted under the Plan shall be evidenced by an option
agreement ("Agreement") duly executed on behalf of the Corporation and by the
Eligible Director to whom such option is granted. Each Agreement shall comply
with and be subject to the terms and conditions of the Plan. Any Agreement may
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Plan Administrator.
2. OPTION EXERCISE PRICE
The option exercise price (the "Exercise Price") for an option granted
under the Plan shall be the fair market value of the Shares covered by the
option at the time the option is granted. For purposes of the Plan, "fair
market value" shall mean the closing price or, if there is no closing price, the
mean between the high and low sale prices for the Shares quoted on the day of
grant on the National Association of Securities Dealers, Inc. Automated
Quotation System or, if the Shares are traded on an exchange, the closing price
on the day of grant on the principal exchange on which such Shares are then
traded.
3. TIME AND MANNER OF EXERCISE OF OPTION
Subject to stockholder approval of the Plan, Initial Grants and Additional
Grants shall become exercisable in accordance with the following schedule and
vested portions may be exercised in full at one time or in part from time to
time:
<TABLE>
<CAPTION>
Period of Optionee's Continuous Service
as a Director With the Corporation
From the Date of Initial Election or Portion of Grant That Is Exercisable
Appointment
- --------------------------------------- ------------------------------------
<S> <C>
After one year 50%
After two years 100%
</TABLE>
Grants to Directors who have held office for two years or more shall be
fully vested and immediately exercisable, subject to stockholder approval of the
Plan. If the stockholders of the Corporation fail to approve the Plan at the
next annual meeting of stockholders, all options granted hereunder shall be
deemed null and void.
Any option may be exercised by giving written notice, signed by the person
exercising the option, to the Corporation stating the number of Shares with
respect to which the option is being exercised, accompanied by payment in full
for such Shares, which payment may be in whole or in part (i) in cash or by
check, (ii) in shares of the common stock of the Corporation already owned for
at least six (6) months by the person exercising the option, valued at fair
market value at the time of such exercise, or (iii) by delivery of a properly
executed exercise notice, together with irrevocable instructions to a broker,
all in accordance with the
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<PAGE>
regulations of the Federal Reserve Board, to properly deliver to the Corporation
the amount of sale or loan proceeds to pay the exercise price.
4. TERM OF OPTIONS
Each option shall expire ten (10) years from the date of the granting
thereof, but shall be subject to earlier termination as follows:
(a) In the event of the death of an optionee, the unvested portion of
the options granted to such optionee shall terminate immediately and the vested
portion of the option granted to such optionee may be exercised only within two
(2) years after the date of death of such optionee or prior to the date on which
the option expires by its terms, whichever is earlier, by the estate of such
optionee, or by any person or persons whom the optionee shall have designated in
writing on forms prescribed by and filed with the Corporation or, if no such
designation has been made by the person or persons to whom the optionee's rights
have passed, by will or the laws of descent and distribution.
(b) In the event that an optionee ceases to be a Director of the
Corporation, the unvested portion of the options granted to such optionee shall
terminate immediately and the vested portion of the option granted to such
optionee may be exercised by him or her only within two (2) years after the date
such optionee ceases to be a Director of the Corporation or prior to the date on
which the option expires by its terms, whichever is earlier.
5. TRANSFERABILITY
Options granted under the Plan shall not be transferable, pledgable or
assignable other than (a) by will or the laws of descent and distribution or (b)
by gift or other transfer to either (i) a spouse or other immediate family
member or (ii) any trust or partnership in which the original optionee or such
person's spouse or other immediate family member has a substantial beneficial
interest; provided, however, that any option so assigned or transferred shall be
subject to all the same terms and conditions contained in the instrument
evidencing the award. During an Optionee's lifetime, any options granted under
this Plan are personal to the Optionee and are exercisable solely by such
Optionee or a permitted assignee or transferee. An optionee may also, during
the optionee's lifetime, designate a person who may exercise the option after
the optionee's death by giving written notice of such designation to the
Corporation (such designation may be changed from time to time by the optionee
by giving written notice to the Corporation revoking any earlier designation and
making a new designation). Any attempt to transfer, assign, pledge, hypothecate
or otherwise dispose of any option under the Plan or of any right or privilege
conferred thereby, contrary to the provisions of the Plan, or the sale or levy
or any attachment or similar process upon the rights and privileges conferred
hereby, shall be null and void.
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<PAGE>
6. HOLDING PERIOD
If an individual subject to Section 16 of the Exchange Act sells shares of
Common Stock obtained upon the exercise of any option granted under this Plan
within six (6) months after the date the option was granted, such sale may
result in short-swing profit recovery under Section 16(b) of the Exchange Act.
7. PARTICIPANT'S OR SUCCESSOR'S RIGHTS AS STOCKHOLDER
Neither the recipient of an option under the Plan nor his or her
successor(s) in interest shall have any rights as a stockholder of the
Corporation with respect to any Shares subject to an option granted to such
person until such person becomes a holder of record of such Shares.
8. REGULATORY APPROVAL AND COMPLIANCE
The Corporation shall not be required to issue any certificate or
certificates for Shares upon the exercise of an option granted under the Plan,
or record as a holder of record of Shares the name of the individual exercising
an option under the Plan, without obtaining to the complete satisfaction of the
Plan Administrator the approval of all regulatory bodies deemed necessary by the
Plan Administrator, and without complying, to the Plan Administrator's complete
satisfaction, with all rules and regulations under federal, state or local law
deemed applicable by the Plan Administrator.
ARTICLE VI
CAPITAL ADJUSTMENTS
The aggregate number and class of Shares for which options may be granted
under this Plan, the number and class of Shares covered by each outstanding
option and the exercise price per share thereof (but not the total price), shall
all be proportionately adjusted for any increase or decrease in the number of
issued shares of the Corporation's common stock resulting from a split-up or
consolidation of the Corporation's common stock or any like capital adjustment,
or the payment of any stock dividend.
Upon a merger (other than a merger of the Corporation in which the holders
of the Corporation's common stock immediately prior to the merger have the same
proportionate ownership of common stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation,
reorganization (other than a mere reincorporation or the creation of a holding
company) or liquidation of the Corporation (each a "corporate transaction"), as
a result of which the stockholders of the Corporation receive cash, stock or
other property in exchange for or in connection with their shares of the
Corporation's common stock, the optionee shall have the right immediately prior
to any such corporate transaction to exercise such optionee's option in whole or
in part whether or not the vesting requirements set forth in the option
agreement have been satisfied. To the extent such option is not exercised, it
shall terminate, except that in the event of a corporate transaction in which
stockholders of the Corporation receive capital stock of another corporation in
5
<PAGE>
exchange for their shares of the Corporation's common stock, such unexercised
option shall be assumed or an equivalent option shall be substituted by the
successor corporation or a parent or subsidiary of such successor corporation.
Any such assumed or equivalent option shall be fully vested and exercisable with
respect to the total number of shares purchasable under such option.
Upon a merger of the Corporation in which the holders of the Corporation's
common stock immediately prior to the merger have the same proportionate
ownership of common stock in the surviving corporation immediately after the
merger, a mere reincorporation or the creation of a holding company, each option
outstanding under the Plan shall be assumed or an equivalent option shall be
substituted by the successor corporation or a parent or subsidiary of such
corporation, and the vesting schedule set forth herein shall continue to apply
to such assumed or equivalent option.
In the event of any adjustment in the number of Shares covered by any
option, any fractional Shares resulting from such adjustment shall be
disregarded and each such option shall cover only the number of full Shares
resulting from such adjustment.
ARTICLE VII
EXPENSES OF THE PLAN
All costs and expenses of the adoption and administration of the Plan shall
be borne by the Corporation, and none of such expenses shall be charged to any
optionee.
ARTICLE VIII
APPROVAL OF STOCKHOLDERS
The Plan shall be effective upon adoption by the Board so long as it
receives approval by the holders of a majority of the Corporation's outstanding
shares of voting capital stock at the next Annual Meeting.
ARTICLE IX
COMPLIANCE WITH RULE 16B-3
It is the intention of the Corporation that the Plan comply in all respects
with the requirements for a "formula plan" within the meaning attributed to that
term for purposes of Rule 16b-3 promulgated under Section 16(b) of the Exchange
Act. Therefore, if any Plan provision is later found not to be in compliance
with such requirements, that provision shall be deemed null and void, and in all
events the Plan shall be construed in favor of its meeting such requirements.
6
<PAGE>
ARTICLE X
TERMINATION AND AMENDMENT OF THE PLAN
The Board may amend, terminate or suspend the Plan at any time, in its sole
and absolute discretion; provided, however, that if required to qualify the Plan
as a formula plan for purposes of Rule 16b-3 promulgated under Section 16 of the
Exchange Act, no amendment may be made more than once every six months that
would change the amount, price, timing or vesting of the Initial Grants and
Additional Grants, other than to comport with changes in the Internal Revenue
Code of 1986, as amended, or the rules and regulations promulgated thereunder;
and provided, further, that to the extent required by any applicable law or
regulation, no amendment that would
(a) materially increase the number of Shares that may be issued under
the Plan, or
(b) otherwise require shareholder approval under any applicable law or
regulation
shall be made without the approval of a majority of the shares of the
Corporation's common stock represented in person or by proxy and entitled to
vote on the matter at a duly held stockholders' meeting.
*****
Adopted by the Board of Directors on November 18, 1991 and approved by the
stockholders on May 18, 1992.
Amendment No. 1 (increasing the number of shares available under the plan
to 600,000) adopted by the Board of Directors on March 9, 1994 and approved by
the stockholders on May 11, 1994.
Amended and restated by the Board of Directors on December 6, 1995 and
approved by the stockholders on May 8, 1996 with respect to the amendment to
Article II.
Amended and restated by the Board of Directors on January 8, 1997.
7
<PAGE>
EXHIBIT 10.17
TO
ICOS CORPORATION'S
FORM 10-K
FOR THE YEAR ENDED
DECEMBER 31, 1996
"[ * ]" = omitted, confidential material, which material has been
separately filed with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
<PAGE>
AMENDMENT
TO
COLLABORATION AGREEMENT
BETWEEN GLAXO GROUP LIMITED
GLAXO WELLCOME INC. (f/k/a GLAXO INC)
AND
ICOS CORPORATION
DATED OCTOBER 3, 1991
This Amendment to the October 3, 1991 Collaboration Agreement is entered
into as of this 24th day of January 1997 by and among:
Glaxo Group Limited, a company incorporated under the laws of England and
wholly owned (directly and indirectly) subsidiary of Glaxo Wellcome p.l.c.,
having offices at Glaxo Wellcome House, Berkeley Avenue, Greenford, Middlesex
UB6 0NN, England (hereinafter "Glaxo"),
Glaxo Wellcome Inc., a North Carolina corporation, successor in interest to
Glaxo Inc. and wholly owned subsidiary of Glaxo Wellcome p.l.c., having offices
at Five Moore Drive, Research Triangle Park, North Carolina 27709 (hereinafter
"Glaxo-US"), and
ICOS Corporation, a Delaware corporation, having its principal office at
22021 20th Avenue S.E., Bothell, Washington 98201 (hereinafter "ICOS").
Whereas, Glaxo and Glaxo-US desire to amend the Collaboration Agreement;
Whereas, ICOS is willing to amend the Collaboration Agreement as set forth
herein;
Now, Therefore, in consideration of the mutual promises set forth below,
and other good and valuable consideration the receipt and sufficiency of which
Glaxo, Glaxo-US and ICOS (the "Parties") hereby acknowledge, the Parties,
intending to be legally bound, agree as follows in accordance with Article 17.7
of the Collaboration Agreement:
1. Unless otherwise defined in this Amendment, the capitalised terms used
in this Amendment shall have the same meanings as given to them in the
Collaboration Agreement.
<PAGE>
2. Except as expressly provided in this Amendment, Glaxo, Glaxo-US and
their Affiliates hereby transfer and assign to ICOS any and all right,
title and interest in and to:
(a) The compounds known as [ * ] and any and all Information
and Inventions relating thereto arising from the Collaboration
Agreement prior to the date of this Amendment [ * ];
(b) The compounds specified on Appendix B hereto, and any and all
Information and Inventions relating to the said compounds arising
from the Collaboration Agreement prior to the date of this
Amendment [ * ]; and
(c) The patents and patent applications relating to, but not
restricted to, the compounds in (a) and (b) above and specified
in Appendix A hereto and any continuations, continuations-in-
part, divisions, registrations, confirmations, reissues or
extensions of any of the same (the "Assigned Patent Rights").
3. Glaxo hereby grants to ICOS:
(a) An exclusive, irrevocable, world-wide license, with the right to
sub-license, to make, use, and sell under the [ * ];
(b) An exclusive, world-wide license, with the right to sub-license,
to make, use and sell under the [ * ] the compounds listed on
Appendix B or claimed in the [ * ]; and
(c) A world-wide, irrevocable, non-exclusive license with the right
to sub-license to make, use, and sell under the [ * ] any
compounds in the Field other than those compounds identified in
Paragraphs 3(a) and (b) above.
As used in this Amendment, the term [ * ] means the International
Patent Application Publication Number [ * ] all divisions,
continuations and continuations in part, all patents issuing on any of
the foregoing and reissues, extensions and the like, and all foreign
counterparts of any of the foregoing.
* Confidential Treatment Requested
-2-
<PAGE>
4. To the extent that Glaxo, Glaxo-US or their Affiliates have not
provided Information in respect of those compounds listed in Appendix
C hereto ("Appendix C Information") at the date of this Amendment,
Glaxo, Glaxo-US and their Affiliates shall use their reasonable
efforts to provide to ICOS the Appendix C Information within [ * ]
of the date of this Amendment or such other date as the Parties
shall agree in writing.
5. Glaxo, Glaxo-US and ICOS shall utilize their reasonable efforts to
effect the complete transfer, assignment, delivery and receipt of the
Assigned Patent Rights, the [ * ] (including without limitation
Information pertaining to biometabolism, toxicology, pharmacy, process
development including analytical chemistry, and clinical pharmacology)
from Glaxo, Glaxo-US and their Affiliates, including without
limitation [ * ], to ICOS within [ * ] of the date of this
Amendment (or where such time is not practicable such further time as
is reasonably required) or such time as the Parties shall agree in
writing. Glaxo shall transfer and deliver to ICOS copies of all
patent application files and prosecution history files with respect to
the Assigned Patent Rights within [ * ] of the date of this
Amendment (or where such time is not practicable, such further time as
is reasonably required) or such time as the Parties shall agree in
writing. Upon [ * ] after Glaxo completes the transfer and
delivery of the foregoing patent application files and prosecution
history files, ICOS shall assume full control of and responsibility
for the prosecution and maintenance of the Assigned Patent Rights at
its cost and expense. The [ * ], the [ * ] and the foregoing
patent application files and prosecution history files shall be
delivered to ICOS headquarters in Bothell, Washington, or to such
other location reasonably acceptable to Glaxo that ICOS shall
designate.
6. (a) Pursuant to the transfer and assignment of the [ * ],
Glaxo, Glaxo-US and their Affiliates shall transfer and deliver
to ICOS their inventory of the compounds identified in Paragraph
2(a) [ * ] and all physical materials generated with respect
to the [ * ] under the Collaboration Agreement, including,
but not limited to, intermediates in the [ * ]. Glaxo,
Glaxo-US and their Affiliates will use their reasonable efforts
to deliver to ICOS
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the [ * ] and the physical materials aforesaid within [ * ] of
the date of this Amendment.
(b) Pursuant to the transfer of the [ * ], Glaxo, Glaxo-US and
their Affiliates shall also transfer and deliver to ICOS (i)
[ * ] physical samples [ * ] of the compounds listed on
Appendix B that ICOS shall request upon executing this Amendment,
and (ii) subject to samples of such compounds being in the
possession of Glaxo, Glaxo-U.S. or their Affiliates in sufficient
quantity at the time of the request, an additional [ * ] of
each of the compounds listed on Appendix B [ * ]. Glaxo,
Glaxo-US and their Affiliates will use their reasonable efforts
to deliver the samples to ICOS within [ * ] of the request by
ICOS.
(c) ICOS hereby agrees to save, defend and hold Glaxo, Glaxo-US and
their Affiliates and their agents and employees harmless from and
against any and all suits, claims, actions, demands, liabilities,
expenses and/or loss, including reasonable legal expenses and
attorneys' fees (collectively "Losses"), resulting directly or
indirectly from the manufacture, use, handling, storage, sale or
other disposition by ICOS, its Affiliates or sub-Licensees or
other parties acting on behalf of ICOS, after the date of this
Amendment, of samples of compounds actually delivered to ICOS
under Paragraphs 6(a) and (b) above except to the extent where
such Losses result from the negligence of Glaxo, Glaxo-US or
their Affiliates.
7. Notwithstanding any other provision of this Amendment, [ * ].
8. Glaxo, Glaxo-US and their Affiliates shall hold in confidence and not
disclose to any Third Party, except to the extent required by law, by
any regulatory, legal or government body in connection with Paragraph
8 hereunder, or use for any purpose whatsoever, except as expressly
provided in this Amendment, any and all Information, including without
limitation the [ * ], assigned to ICOS in accordance with this
Amendment except that which is public knowledge or later becomes
public knowledge through no act, other than an act carried out prior
to the date of this Amendment in accordance with the terms of the
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Collaboration Agreement, on the part of Glaxo, Glaxo-US or their
Affiliates. Notwithstanding any other provision of this Amendment,
Glaxo, Glaxo-US and their Affiliates may retain copies of the
Information and may use the Information in connection with any claim
by Third Parties, employees or volunteers against Glaxo, Glaxo-US or
their Affiliates concerning exposure to any compound included in the
[ * ] or any compound listed on Appendix B hereto. To the extent
that Glaxo, Glaxo-US or their Affiliates are not in possession of such
Information, ICOS hereby undertakes to make such Information
reasonably available upon written request of Glaxo, Glaxo-US or their
Affiliates for the purpose of responding to any claims described in
this Paragraph 8.
9. Other than Information [ * ].
10. ICOS shall hold in confidence and not disclose to any Third Party or
use for any purpose whatsoever, except as expressly provided in this
Amendment, the identity, structure and samples of any and all
compounds (other than compounds assigned or transferred to ICOS under
this Amendment) disclosed or provided by Glaxo, Glaxo-US or their
Affiliates under the Collaboration Agreement except that which is
public knowledge or later becomes public knowledge through no act on
the part of ICOS or its Affiliates.
11. Glaxo, Glaxo-US and their Affiliates will submit to ICOS manuscripts,
including abstracts, of any of their work applicable to the Field
during the Research Term at least [ * ] prior to submission. ICOS
will not unreasonably withhold its consent to the publication by
Glaxo, Glaxo-US and their Affiliates of such manuscripts.
ICOS and its Affiliates will submit to Glaxo manuscripts, including
abstracts, incorporating a reference to compounds (other than
compounds assigned or transferred to ICOS under this Amendment)
disclosed or provided to ICOS by Glaxo, Glaxo-US or their Affiliates
under the Collaboration Agreement at least [ * ] prior to
submission. Glaxo will not unreasonably withhold its consent to the
publication by ICOS and its Affiliates of such manuscripts.
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The Parties shall endeavor to include authors from each Party
contributing to the work disclosed in any manuscripts and shall in any
event expressly acknowledge the contribution of the other Party in any
manuscript and submit manuscripts, including abstracts, that discloses
the other Party's work applicable to the Field during the Research
Term at least [ * ] prior to submission for the purposes of
allowing the other to comment on the manuscript.
12. ICOS shall pay a royalty to Glaxo or its nominee of [ * ].
13. Except with the prior written consent of the other Party, no
announcement or disclosure to any Third Party shall be made concerning
the [ * ] in connection therewith, including without limitation
disclosure to any Third Party. It is expressly understood and agreed
that the restrictions on disclosure under this Paragraph 13 will not
apply to any announcement or disclosure required by law, regulation or
corporate by-law, including without limitation any announcement or
disclosure so required to be made to any shareholder of any of the
Parties. It is, however, the Parties' intention that they will co-
ordinate to such extent as may be reasonably possible with respect to
the wording of any such announcements. Notwithstanding the forgoing,
it is further expressly understood that each Party may disclose in
confidence as reasonably necessary to any Third Party [ * ]
without obtaining the prior written consent of the other Party.
14. ICOS hereby grants to Glaxo:
[ * ]
for use in the prevention or treatment of any indication in which
the primary medicinal effect of such compound is not due to
[ * ]. The Parties agree that the option granted under this
Paragraph 14(b) does not apply to and excludes the [ * ]. Glaxo
has no right to, and ICOS no obligation to grant, the [ * ].
The option granted hereunder will become exercisable on a
compound-by-compound basis for a period of [ * ] beginning
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when Glaxo or an Affiliate (including without limitation
Glaxo-US) notifies ICOS in writing that it has commenced
exploratory development (as defined below) in respect of that
compound; provided that (i) ICOS shall be free to decline to
grant such a license in respect of that compound if at the date
the option is exercised ICOS or a Third Party licensed by ICOS
has [ * ] (ii) ICOS may request that Glaxo provide
documentary evidence that reasonably demonstrates that the
anticipated primary medicinal effect of the compound in the
indication(s) which Glaxo intends to pursue is not due to
[ * ]. If Glaxo cannot reasonably demonstrate such fact,
then ICOS may decline to grant the license.
Upon granting of a license to Glaxo for a compound pursuant to
this Paragraph 14(b), ICOS shall have no right to [ * ].
For purposes of this Paragraph 14(b), the term [ * ] means the
work required to [ * ].
15. Glaxo, Glaxo-US and their Affiliates shall:
(a) provide, via identified individuals and to the extent that
Glaxo, Glaxo-US and their Affiliates are reasonably able to do
so and for a period of 12 months from the date of this
Amendment, such further advice as ICOS may reasonably request
to enable ICOS to make effective use of [ * ]; and
(b) when requested, sign, execute and deliver all deeds and
documents, take all rightful oaths and do all formal acts which
may be necessary (i) for securing, maintaining and defending
the Assigned Patent Rights, (ii) for securing patent rights to
Inventions assigned under this Amendment and maintaining and
defending such secured patent rights, and (iii) for confirming
or vesting title of any of the same in ICOS. Glaxo, Glaxo-US
and their Affiliates shall exercise their best efforts to
secure for ICOS similar co-operation under the same terms from
the individual inventors of the Assigned Patent Rights and
Inventions assigned under this Amendment. Glaxo, Glaxo-US and
their Affiliates
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shall also give to ICOS all reasonable assistance to file and
prosecute patent applications included within the Assigned
Patent Rights and the assigned Inventions under Paragraph 2
where Glaxo, Glaxo-US or their Affiliates are the only parties
which have the knowledge, documentation and other evidence to
assist ICOS. All reasonable costs and expenses of Glaxo, Glaxo-
U.S. and their Affiliates in carrying out their obligations
under this Paragraph 15(b) shall be met by ICOS.
16. ICOS shall have the right within its sole discretion to prepare, file,
prosecute and maintain patents including without limitation the
Assigned Patent Rights relating to [ * ] provided that (i) ICOS
shall allow Glaxo to make representations to ICOS concerning the
filing of a patent application in respect any compound for which Glaxo
has exercised its option under Paragraph 14(b) and for which ICOS has
not at the date of the exercise already filed a patent application and
(ii) ICOS shall not abandon any patents or patent applications in
respect to any compound for which Glaxo has exercised its option under
Paragraph 14(b) without first notifying Glaxo and allowing Glaxo an
opportunity to take assignment of the relevant patent or patent
application sufficiently in advance of any applicable deadline
pertaining to the prosecution or maintenance of that relevant patent
or patent application necessary to enable Glaxo to do all formal acts
with respect thereto.
17. Glaxo shall not abandon any part of the [ * ] without first
notifying ICOS and allowing ICOS an opportunity to take assignment of
the relevant patent or patent application sufficiently in advance of
any applicable deadline pertaining to the prosecution or maintenance
of that relevant patent or patent application necessary to enable ICOS
to do all formal acts with respect thereto. Glaxo shall not make any
submission to a patent office that could materially affect the scope
or validity of any claim in the [ * ] to the extent that it
relates to [ * ] without ICOS's permission, which ICOS shall not
unreasonably withhold. Glaxo shall consult with ICOS before making
any submission to a patent office which could materially affect the
scope or validity of the patent coverage of the [ * ] to the
extent that it relates to the subject matter of the licenses granted
to ICOS under Paragraph 3.
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18. Glaxo and Glaxo-US warrant that to the best of their knowledge and
belief all patents and patent applications relating to Inventions made
under the Collaboration Agreement at the date of this Amendment and
owned or controlled by Glaxo, Glaxo-US or their Affiliates at the date
of this Amendment are disclosed in Appendix A hereto.
19. [ * ] and the final sentence of [ * ] of the Collaboration
Agreement remain in full force and effect under this Amendment.
[ * ] of the Collaboration Agreement remains in full force and
effect for all acts or omissions occurring on or before the date of
this Amendment.
20. Any notice under this Amendment shall be in writing, in English, and
delivered in person or by telefacsimile with the original to follow on
the same day by prepaid first class air mail with return receipt
addressed to the sending party. Said notice shall be addressed to one
individual as each Party shall designate as authorized to receive
notices under this Amendment.
21. Except as expressly set forth above, [ * ] effective as of the
date of this Amendment. This Amendment may be executed in
counterparts.
In Witness Thereof, the Parties have executed this Amendment, as of the
day and year first above written.
GLAXO WELLCOME INC. GLAXO GROUP LIMITED
By: /s/ Thomas N. Wheeler By: /s/ J.M.T. Cochrane
----------------------- --------------------
Name: Robert M. Bell, Ph.D. Name: J.M.T. Cochrane
----------------------- -----------------
Title: Vice President, Research Title: Director
-------------------------- ----------------
Glaxo Wellcome Inc.
--------------------------
ICOS CORPORATION
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By: /s/ Gary Wilcox
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Name: Gary Wilcox
-----------------------
Title: Executive Vice President,
----------------------------
Operations
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APPENDIX A
[ * ]
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APPENDIX B
[ * ]
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APPENDIX C
[ * ]
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EXHIBIT 10.18
----------------
REDACTED VERSION
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EXHIBIT 10.18
TO
ICOS CORPORATION'S
FORM 10-K
FOR THE YEAR ENDED
DECEMBER 31, 1996
"[ * ]" = omitted, confidential material, which material has
been separately filed with the Securities and Exchange Commission pursuant to
a request for confidential treatment.
<PAGE>
SHAREHOLDERS' AGREEMENT
THIS SHAREHOLDERS' AGREEMENT ("Agreement") is made and entered into at
Bothell, Washington, U.S.A. this 18th day of December, 1996, by and among ICOS
CORPORATION, a Delaware corporation ("ICOS"), SUNTORY LIMITED, a Japanese
corporation ("Suntory"), and SUNCOS CORPORATION, a Delaware corporation
("Company").
RECITALS
A. ICOS has conducted research, has developed and possesses certain
existing proprietary patent rights, technical information, technology and know-
how relating to molecular biology [ * ].
B. Suntory and ICOS believe that the aforementioned patent rights,
information, technology and know-how will have important application to the
development of [ * ].
C. Suntory and ICOS desire to form the Company to engage in the
development, manufacture, production and worldwide commercial sale of platelet-
activating factor acetylhydrolase [ * ].
D. Suntory and ICOS believe that a joint business effort between
them dedicated to such purposes would be of mutual benefit to the accomplishment
thereof and that the compatibility between ICOS and Suntory is such that
substantial economic returns may be gained by each through cooperative effort.
E. ICOS intends to [ * ] in the Field of Activity (as defined
in Paragraph 1.03 below) in consideration of the issuance to ICOS of capital
stock in the Company as more fully set forth herein.
F. Suntory intends to contribute cash to the Company in
consideration of the issuance to Suntory of capital stock in the Company as more
fully set forth herein.
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G. The simultaneous transfers and resultant issuances contemplated in
Recitals E and F above are intended to qualify as a tax-free incorporation of
the Company pursuant to Section 351 of the Internal Revenue Code of 1986, as
amended.
H. It is the desire of Suntory and ICOS to cooperate in other mutually
agreeable areas of business interest.
NOW, THEREFORE, it is hereby agreed as follows:
1. CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
1.01 COMMON STOCK
The term Common Stock shall mean the duly authorized common stock of
the Company having a par value of $.0001 per share.
1.02 PAF-AH
The term PAF-AH shall mean platelet-activating factor acetylhydrolase
[ * ].
1.03 FIELD OF ACTIVITY
The term Field of Activity shall mean [ * ].
1.04 BACKGROUND TECHNOLOGY
The term Background Technology shall mean [ * ].
1.05 PAF-AH TECHNOLOGY
The term PAF-AH Technology shall mean [ * ].
1.06 DEVELOPMENT PROGRAM
The term Development Program, as more fully set forth in the
Development and Supply Agreement attached hereto as Exhibit B ("Development and
Supply Agreement"), shall mean [ * ].
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1.07 PAF-AH ORGANISMS
The term PAF-AH Organisms shall mean [ * ].
1.08 PARTY
The term Party shall mean Suntory, ICOS or the Company, as the context
shall indicate, or, when used in the plural, Suntory, ICOS and the Company, as
the context shall indicate.
2. FORMATION
2.01 FORMATION
On or before the Closing Date (as defined in Paragraph 3 below),
Suntory and ICOS shall establish, or cause to be established, "Suncos
Corporation" which shall be a corporation organized under the laws of the State
of Delaware. Immediately after its formation, Suncos Corporation shall become a
Party to this Agreement.
2.02 NAME
The corporate designation of the Company shall be "Suncos Corporation"
or such other name as may be mutually agreed to by Suntory and ICOS.
2.03 PRINCIPAL OFFICE
The principal office and place of business of the Company shall be
located at 1209 Orange Street, Wilmington, Delaware, U.S.A., or at such other
place as may be mutually agreed to by Suntory and ICOS.
2.04 ARTICLES OF INCORPORATION
The Articles of Incorporation of the Company ("Articles") shall be as
attached hereto as Exhibit C, as may be amended from time to time as may be
mutually agreed to by Suntory and ICOS.
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2.05 BYLAWS
The Bylaws of the Company ("Bylaws") shall be as attached hereto as
Exhibit D, as may be amended from time to time as may be mutually agreed to by
Suntory and ICOS.
2.06 BUSINESS PURPOSE
The business of the Company shall be to engage in the development, manufacture,
production and sale of PAF-AH Products [ * ] in the Field of Activity and
to [ * ] such PAF-AH Technology in the Field of Activity for [ * ]
including, but not limited to, the [ * ] of such PAF-AH Technology by mutual
agreement of Suntory and ICOS, and to do all things necessary, appropriate or
advisable in furtherance thereof.
2.07 FISCAL YEAR
The fiscal year of the Company shall be the calendar year ("Corporate
Year").
2.08 DELAWARE AGENT FOR SERVICE OF PROCESS
The name of the initial agent for service of process on the Company in
Delaware is Corporation Trust Company, 1209 Orange Street, Wilmington, DE 19801.
2.09 ACCOUNTANTS TO THE COMPANY
An independent certified public accounting firm mutually selected by
Suntory and ICOS shall act as independent accountants to the Company pursuant to
an engagement letter substantially in form attached hereto as Exhibit E.
2.10 INITIAL CAPITAL
The initial capital of the Company shall consist of a total of six
thousand (6,000) shares of Common Stock.
2.11 SUBSCRIPTION
Suntory hereby subscribes for three thousand (3,000) shares of Common
Stock of the Company, and ICOS hereby subscribes for three thousand shares
(3,000) shares
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of Common Stock of the Company. The subscription price for all
shares shall be TEN THOUSAND DOLLARS (US$10,000) per share and shall be payable
as follows:
2.11.1 Suntory shall pay its full subscription price by cashier's or
certified check or by wire transfer from Suntory to the Company's account at a
bank to be designated by both Suntory and ICOS ("Corporate Bank Account") on the
Closing Date of the full subscription price of THIRTY MILLION DOLLARS
(US$30,000,000).
2.11.2 ICOS shall pay its full subscription price by execution and delivery
on the Closing Date of the [ * ]. The Parties acknowledge and agree that
the fair market value of such contribution shall be THIRTY MILLION DOLLARS
(US$30,000,000).
2.12 ADDITIONAL CAPITAL
2.12.1 Subject to Paragraph 2.14 below, no additional capital stock may be
issued by the Company other than by the mutual written consent of Suntory and
ICOS. The Parties hereto shall meet no less frequently than annually following
the formation of the Company to determine its capital needs and the business and
Development Program for the next succeeding year.
2.12.2 Upon expenditure of substantially all of the initial capital
contribution to Company pursuant to Paragraph 2.11 above (together with interest
earned by the Company on the cash so contributed), Suntory and ICOS shall each
contribute [ * ] as additional capital to the Company.
2.12.3 In the event that the capital contributions to the Company pursuant
to Paragraphs 2.11 and 2.12.2 above (together with interest earned by the
Company on the cash so contributed) are insufficient to fund the activities of
the Company and the Development Program until such time as [ * ]. Upon
written notification by the Company's Board of Directors to Suntory and ICOS
that the Company [ * ] of the PAF-AH Technology and to accomplish the
business purposes of the Company as contemplated by this Agreement, Suntory and
ICOS shall promptly meet with management of the Company to [ * ] by the
Company under the circumstances. Suntory and ICOS shall thereafter enter into a
mutually acceptable agreement with respect to such additional capital
contributions, if any.
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2.13 WITHDRAWALS
Except as otherwise specifically provided in this Agreement, neither
Suntory nor ICOS shall have the right to withdraw or to demand a return of all
or any part of its capital contribution.
2.14 DEFAULT ON ADDITIONAL CAPITAL CONTRIBUTION OBLIGATION
To the extent that either Suntory or ICOS fails to contribute its proportionate
share of the additional capital called for under Paragraph 2.12 above, then from
and after the date such capital was to have been contributed to the Company, the
shareholding percentages of Suntory or ICOS shall promptly be adjusted by the
Company to reflect the increase in capital contributed by either Suntory or ICOS
such that the shareholding interest of Suntory and ICOS shall accurately reflect
the percentage of each Party's total capital contribution as it bears to the
aggregate capital contributions of both Suntory and ICOS.
2.15 TITLE TO PROPERTY
Legal title to any and all property of the Company shall be taken and
at all times held in the name of the Company.
3. CLOSING
The Closing hereunder shall take place at the offices of ICOS, 22021
20th Avenue S.E., Bothell, Washington, U.S.A., at 10:00 a.m. Pacific Standard
Time on February 6, 1997 ("Closing" and the "Closing Date"), or such other date
and/or place as shall be mutually agreed to by Suntory and ICOS.
4. CLOSING DOCUMENTS
At the Closing, each Party shall deliver such documents, instruments
and materials as are called for by this Agreement or as may be reasonably
required in order to carry out the provisions and purposes hereof, all of which
shall be satisfactory in substance and form to legal counsel for each Party.
Without limitation as to the foregoing and in addition to the various documents,
instruments and agreements contemplated in Paragraphs 7 and 8 below, the Parties
agree that, upon the request of any Party, each of them will from time to time
after the Closing Date execute, acknowledge and deliver or cause to be so done,
at their expense, any and all such further documents and instruments as may be
reasonably required for carrying out the purposes of this Agreement.
Simultaneously with such delivery and the Closing, all steps shall be taken as
may be reasonably required to put the Company in
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actual possession and operating control of the Background Technology in the
Field of Activity.
5. REPRESENTATIONS AND WARRANTIES OF ICOS
To induce Suntory to enter into this Agreement, ICOS represents and
warrants to Suntory as of the date hereof as follows:
5.01 GOOD STANDING
ICOS is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite power and
authority to: (i) own its assets to be conveyed in connection with this
Agreement; (ii) lawfully carry on its business as now being conducted; and (iii)
to make, execute, deliver and perform this Agreement and all contracts and
documents to be executed in connection herewith.
5.02 AUTHORIZATION
This Agreement has been duly authorized and, prior to the Closing
Date, will be approved by all necessary corporate action of ICOS and will be a
valid and legally binding obligation of ICOS in accordance with its terms.
5.03 NO BREACH
Neither execution or delivery of this Agreement, the contracts and
instruments to be executed in connection herewith, nor its performance by ICOS
will conflict with, violate or result in a breach of any term, condition or
provision of, nor constitute a material default under, or result in the
acceleration of any material obligation under, or permit the termination of any
indenture, material contract or other material agreement to which ICOS is a
party or by which ICOS or its properties is subject or bound; nor will such
execution, delivery or performance by ICOS conflict with or violate the
provisions of any judgment, decree, order to which ICOS is subject or ICOS's
restated Articles of Incorporation or Bylaws, or to the best of its knowledge,
any law or regulation.
5.04 TITLE
ICOS has valid legal title or rights in and to all of the assets to be
licensed to the Company on the Closing Date pursuant to the PAF-AH License
Agreement, including, but not limited to, Background Technology, free and clear
of all security interests, liens, charges and encumbrances whatsoever and to the
best of ICOS's knowledge, tax or other inchoate liens. ICOS owns and has the
right to use the
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Background Technology in existence as of the date hereof and to be in existence
as of the Closing Date. To the best of ICOS's knowledge: (i) the Background
Technology in existence as of the date hereof and to be in existence as of the
Closing Date do not conflict with the rights of others; (ii) there are no
infringements by third parties of any letters patent or patent applications
which are part of the Background Technology in existence as of the date hereof
and to be in existence as of the Closing Date; and (iii) ICOS's operations and
business as conducted as of and prior to the Closing Date with respect to patent
applications which are part of the Background Technology in existence as of the
date hereof and to be in existence as of the Closing Date do not infringe upon
the rights of any person and/or entity not a Party hereto. No right, privilege,
permission or license, express or implied, under the Background Technology in
existence as of the date hereof and to be in existence as of the Closing Date,
has been granted or is in force pursuant to which any party, other than the
Company, Suntory or ICOS, may make, have made, use or sell any Background
Technology in existence as of the date hereof and to be in existence as of the
Closing Date. No claims have been asserted by any person relating to the
Background Technology in existence as of the date hereof and to be in existence
as of the Closing Date or challenging or questioning the validity or
effectiveness of any license or agreement related thereto, and there is no valid
basis for any such claim. As of the date hereof, Schedule A attached to the form
of PAF-AH License Agreement attached hereto as Exhibit A contains a true,
accurate and complete listing of all patents and patent applications included in
the Background Technology.
5.05 NO VIOLATIONS
ICOS is not in violation of any applicable ordinance or statute, or,
to the best of its knowledge, any law or regulation, with respect to its
ownership and operation of the Background Technology in existence as of the date
hereof and to be in existence as of the Closing Date, nor has it received any
notices or citations from any public or quasi-public authority in respect
thereto, including, but not limited to, the Food and Drug Administration.
5.06 NO LITIGATION
ICOS is not a party to any pending or threatened suit, action or
legal, administrative, arbitration or other proceeding which might materially
and adversely affect the business of the Company, the Background Technology in
existence as of the date hereof or to be in existence as of the Closing Date, or
the transactions contemplated by this Agreement, nor does ICOS know of any facts
which are likely with the passage of time to give rise to such a suit, action or
proceeding.
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5.07 REPRESENTATIONS AND WARRANTIES
No representation or warranty of ICOS, nor any exhibit, document,
statement, certificate or schedule furnished to Suntory pursuant hereto or in
connection with the transactions contemplated hereby, contains any untrue
statement of a material fact, or omits to state a material fact necessary to
make statements or facts contained therein not misleading. The representations
and warranties of ICOS set forth in this Agreement and in any exhibit, document,
statement, certificate or schedule furnished or to be furnished pursuant hereto
shall be true on and as of the Closing Date as though such representations and
warranties were made on and as of the Closing Date.
6. REPRESENTATIONS AND WARRANTIES OF SUNTORY
To induce ICOS to enter into and perform this Agreement, Suntory
represents and warrants to ICOS as of the date hereof as follows:
6.01 GOOD STANDING
Suntory is a corporation duly organized and validly existing and in
good standing under the laws of the country of Japan and has all requisite power
and authority to lawfully carry on its business as now being conducted and to
make, execute, deliver and perform this Agreement and all instruments and
documents to be executed in connection herewith.
6.02 AUTHORIZATION
This Agreement has been duly authorized and, prior to the Closing
Date, will be approved by all necessary corporate action of Suntory and will be
a valid and legally binding obligation of Suntory in accordance with its terms.
6.03 NO BREACH
Neither execution or delivery of this Agreement, the contracts and
instruments to be executed in connection herewith, nor its performance by
Suntory will conflict with, violate or result in a breach of any term, condition
or provision of, nor constitute a material default under, or result in the
acceleration of any material obligation under, or permit the termination of any
indenture, material contract or other material agreement to which Suntory is a
party or by which Suntory or its properties is subject or bound; nor will such
execution, delivery or performance by Suntory conflict with or violate the
provisions of any judgment, decree, order to which Suntory is subject or
Suntory's Bylaws, or to the best of its knowledge, any law or regulation.
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6.04 NO LITIGATION
Suntory is not a party to any pending or threatened suit, action or
legal, administrative, arbitration or other proceeding which might materially
and adversely affect the transactions contemplated by this Agreement, nor does
Suntory know of any facts which are likely with the passage of time to give rise
to such a suit, action or proceeding.
6.05 REPRESENTATIONS AND WARRANTIES
No representation or warranty of Suntory, nor any exhibit, document,
statement, certificate or schedule furnished or to be furnished to ICOS pursuant
hereto or in connection with the transactions contemplated hereby, contains or
will contain any untrue statement of a material fact, or omits or will omit to
state a material fact necessary to make statements or facts contained therein
not misleading. The representations and warranties of Suntory set forth in this
Agreement and in any exhibit, document, statement, certificate or schedule
furnished or to be furnished pursuant hereto shall be true on and as of the
Closing Date as though such representations and warranties were made on and as
of Closing Date.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SUNTORY
All of the obligations of Suntory under this Agreement are subject to
the fulfillment, at or prior to the Closing Date, of each of the following
conditions:
7.01 NO MISREPRESENTATIONS
Suntory shall not have discovered any material error, misstatement or
omission in the representations and warranties made by ICOS in Paragraph 5
above.
7.02 COMPLIANCE WITH AGREEMENT
ICOS shall have performed and complied with all agreements, covenants
and conditions required by this Agreement prior to the Closing Date.
7.03 DELIVERY
Suntory shall have had delivered to it each of the following:
7.03.1 Confirmation in form and substance reasonably satisfactory to
Suntory evidencing receipt of ICOS's capital contribution specified in Paragraph
2.11 above;
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7.03.2 Duly executed counterpart of the PAF-AH License Agreement
effective to [ * ] together with such other documents and instruments as may be
necessary to effectuate the licensing contemplated by this Agreement;
7.03.3 Duly executed counterparts of the Bylaws and Organizational
Minutes of the Company;
7.03.4 Duly executed, validly authorized and issued, fully paid and
nonassessable Common Stock represented by Certificate No. 1, duly issuing three
thousand (3,000) shares thereof to Suntory;
7.03.5 Duly executed counterpart of the Development and Supply
Agreement;
7.03.6 Duly executed counterparts of the Suntory and ICOS Services
Agreements, which are attached hereto as Exhibits F and G, respectively
("Services Agreements");
7.03.7 Duly executed counterparts of the Suntory and ICOS License
Agreements, which are attached hereto as Exhibits H and I, respectively
("License Agreements");
7.03.8 Opinion of ICOS's counsel (as defined in Paragraph 7.04
below);
7.03.9 Duly executed counterpart of the Right of First Negotiation
Agreement, which is attached hereto as Exhibit J; and
7.03.10 Duly executed certificate from an officer of ICOS that the
representations and warranties of ICOS contained in Paragraph 5 are true and
correct as of the Closing Date.
7.04 OPINION OF COUNSEL
ICOS shall have delivered to Suntory an opinion of Perkins Coie, legal
counsel for ICOS, in a form satisfactory to counsel for Suntory, dated as of the
Closing Date, to the effect that (i) ICOS is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and ICOS has the corporate power to conduct its business where such business is
now conducted and to execute and
* Confidential Treatment Requested
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deliver this Agreement; (ii) the execution, delivery and performance of this
Agreement, together with all instruments and documents executed in connection
therewith, and the transactions contemplated hereby have been duly authorized
and approved by the Board of Directors of ICOS; (iii) this Agreement, together
with all instruments and documents executed in connection herewith, constitutes
valid and binding obligations of ICOS, enforceable in accordance with their
terms, except as limited by bankruptcy, insolvency or other laws of general
application relating to or affecting the enforcement of creditors' rights; and
(iv) the execution, delivery and performance by ICOS, together with all
instruments and documents executed in connection therewith, and the consummation
of the transactions contemplated hereby will not result in any conflict with, or
material breach or violation by ICOS of, or default by ICOS under, its Articles
of Incorporation, Bylaws, or any judgment, decree, order, or indenture, material
obligation or agreement, or other material instrument or document of, or
applicable to, them known to such legal counsel.
In rendering the foregoing opinion, Perkins Coie may rely on opinions
of other counsel, reasonably acceptable to Suntory, and, as to matters of fact,
on searches of public records and certificates of officers and directors of
ICOS.
7.05 NO LITIGATION
No suit, action or proceeding against ICOS shall be pending or
threatened before any court or governmental agency in which it is sought to
restrain or prohibit or to obtain damages or other relief in connection with
this Agreement or the transactions contemplated hereby.
7.06 ADDITIONAL DOCUMENTS
ICOS shall have delivered to Suntory such other instruments and
documents as may be, in the opinion of counsel for Suntory, reasonably necessary
to effectuate the transactions contemplated by this Agreement, and all legal
matters in connection with this Agreement and the transactions contemplated
hereby shall have been approved by counsel for Suntory.
7.07 HART-SCOTT-RODINO CLEARANCE
The waiting period described in Section 7A of the Clayton Act, 15
U.S.C. (S) 18a has expired without adverse action by the Federal Trade
Commission ("FTC") or Department of Justice ("DJ") of the United States, or an
affirmative response has been received from the FTC or DJ which has the effect
of shortening the waiting period.
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8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ICOS
All of the obligations of ICOS under this Agreement are subject to the
fulfillment, at or prior to the Closing Date, of each of the following
conditions:
8.01 NO MISREPRESENTATIONS
ICOS shall not have discovered any material error, misstatement or
omission in the representations and warranties made by Suntory in Paragraph 6
above.
8.02 COMPLIANCE WITH AGREEMENT
Suntory shall have performed and complied with all agreements,
covenants and conditions required by this Agreement prior to the Closing Date.
8.03 DELIVERY
ICOS shall have had delivered to it each of the following:
8.03.1 Confirmation in form and substance reasonably satisfactory to ICOS
evidencing receipt of Suntory's monetary capital contribution in the amount
specified in Paragraph 2.11 above;
8.03.2 Duly executed counterparts of the Bylaws and Organizational Minutes
of the Company;
8.03.3 Duly executed, validly authorized and issued, fully paid and
nonassessable Common Stock represented by Certificate No. 2, duly issuing three
thousand (3,000) shares thereof to ICOS;
8.03.4 Duly executed counterpart of the Development and Supply Agreement;
8.03.5 Duly executed counterparts of the Services Agreements;
8.03.6 Duly executed counterparts of the License Agreements;
8.03.7 Opinion of Counsel to Suntory (as defined in Paragraph 8.04 below);
and
8.03.8 Duly executed certificate from an officer of Suntory that the
representations and warranties of Suntory contained in Paragraph 6 are true and
correct as of the Closing Date.
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8.04 OPINION OF COUNSEL
Suntory shall have delivered to ICOS an opinion of Cleary, Gottlieb,
Steen & Hamilton, legal counsel for Suntory, in a form satisfactory to counsel
for ICOS, dated as of the Closing Date, to the effect that (i) Suntory is a
corporation duly organized, validly existing and in good standing under the laws
of Japan and Suntory has the corporate power to conduct its business where such
business is now conducted and to execute and deliver this Agreement; (ii) the
execution, delivery and performance of this Agreement, together with all
instruments and documents executed in connection herewith, and the transactions
contemplated hereby have been duly authorized and approved by the Board of
Directors of Suntory; (iii) this Agreement, together with all instruments and
documents executed in connection therewith, constitutes valid and binding
obligations of Suntory, enforceable in accordance with their terms, except as
limited by bankruptcy, insolvency or other laws of general application relating
to or affecting the enforcement of creditors' rights; and (iv) the execution,
delivery and performance by Suntory, together with all instruments and documents
executed in connection therewith, and the consummation of the transactions
contemplated hereby will not result in any conflict with, or material breach or
violation by Suntory of, or default by Suntory under, its Articles of
Incorporation, Bylaws, or any judgment, decree, order, or indenture, material
obligation or agreement, or other material instrument or document of, or
applicable to, them known to such legal counsel.
In rendering the foregoing opinion, Cleary, Gottlieb, Steen & Hamilton
may rely on opinions of other counsel, reasonably acceptable to ICOS, and, as to
matters of fact, on searches of public records and certificates of officers and
directors of Suntory.
8.05 NO LITIGATION
No suit, action or proceeding against Suntory shall be pending or
threatened before any court or governmental agency in which it is sought to
restrain or prohibit, or to obtain damages or other relief in connection with,
this Agreement or the transactions contemplated hereby.
8.06 ADDITIONAL DOCUMENTS
Suntory shall have delivered to ICOS such other instruments and
documents as may be, in the opinion of counsel for ICOS, reasonably necessary to
effectuate the transactions contemplated by this Agreement, and all legal
matters in connection with this Agreement and the transactions contemplated
hereby shall have been approved by counsel for ICOS.
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9. SURVIVAL AND INDEMNIFICATION
9.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The respective representations and warranties of Suntory and of ICOS
shall survive the Closing and continue in full force and effect for a period
thereafter equal to [ * ] following the Closing Date.
9.02 INDEMNIFICATION
ICOS shall indemnify and hold Suntory, the Company and their
respective directors, officers, employees and agents harmless from and against
any and all claims, liabilities, losses, costs, damages and expenses, including
costs of investigation, court costs and reasonable attorneys' fees, to which any
of them may become subject arising from or in any manner connected with,
directly or indirectly, any material misstatement, error or omission in any
representation or warranty of ICOS contained in this Agreement (without effect
upon ICOS's liability under the various instruments and documents to be executed
in connection herewith). Suntory agrees to indemnify ICOS, the Company and
their respective directors, officers, employees and agents, to the same extent
that Suntory is being indemnified pursuant to the immediately preceding
sentence.
9.03 MECHANISM
The Party seeking indemnification hereunder ("Indemnified Party")
shall give written notice to the indemnifying Party or Parties ("Indemnifying
Party") of its indemnification claims hereunder, specifying the amount and
nature of the claim, and giving the Indemnifying Party the right to contest any
such claim represented by counsel of its choice; if any such claim is made
hereunder by the Indemnified Party and such claim arises from the claims of a
third party against the Indemnified Party and the Indemnifying Party does not
elect to undertake the defense thereof by written notice within fifteen (15)
days after receipt of the original notice from the Indemnified Party, the
Indemnified Party shall be entitled to indemnity pursuant to the terms of this
Agreement to the extent of its payment in respect of such claim. To the extent
that the Indemnifying Party undertakes the defense of such claim in good faith
by proceeding diligently at its expense, and without materially impairing the
financial conditions or operations of the Indemnified Party, the Indemnified
Party shall be entitled to indemnity hereunder only if, and to the extent that,
such defense is
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unsuccessful as determined by a final judgment of a court of competent
jurisdiction or is settled with the consent of the Indemnifying Party. The Party
defending a third-party claim shall have the right to choose its own counsel.
10. BROKERS
Each of the Parties represents and warrants that it has dealt with no
broker or finder in connection with any of the transactions contemplated by this
Agreement, and, insofar as it knows, no broker or other person is entitled to
any commission or finder's fee in connection with any of these transactions.
The Parties hereto each agree to indemnify and hold harmless one another against
any loss, liability, damage, cost, claim or expense, including reasonable
attorneys' fees, incurred by reason of any brokerage, commission or finder's fee
alleged to be payable because of any act, omission or statement of the
Indemnifying Party.
11. MANAGEMENT
11.01 BOARD OF DIRECTORS
The Company shall be managed by a Board of Directors consisting
initially of six (6) members. Suntory and ICOS shall each have the right to
nominate three (3) members of the Board of Directors. In the event of a default
in the payment of any additional capital contribution, as described in Paragraph
2.14 above, until such default is cured, the authorized number of members of the
Board of Directors shall be increased to seven (7) and four (4) of such members
shall be nominees of the nondefaulting Party. The number of members of the
Board of Directors cannot be decreased or otherwise increased without the mutual
written consent of Suntory and ICOS. All actions by the Board of Directors
shall require the affirmative vote of four (4) or more members of the Board of
Directors at a meeting at which a quorum is present, except for such actions as
to which a higher than majority vote is required pursuant to the provisions of
this Agreement, the Articles, the Bylaws or applicable law.
11.02 OFFICERS
The Company shall have a Chairman of the Board, Chief Executive
Officer/President, Vice President - ICOS, Vice President - Suntory,
Secretary/Assistant Chief Financial Officer, Chief Financial Officer/Assistant
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Secretary and such other officers with such titles and duties as the Board of
Directors may determine. Any two or more offices may be held by the same
person. [ * ].
11.03 ACTIONS REQUIRING CONSENT
In addition to any other items referred to in this Agreement requiring
consent of both of Suntory and ICOS, none of the following actions shall be
permitted to be taken by the Company unless it shall have obtained the consent
of both Suntory and ICOS:
(i) [ * ] the Field of Activity;
(ii) Any [ * ] by the Company;
(iii) The [ * ] of the Company having a fair market value in excess
of [ * ] by the Company (other than in connection with the
sale of products and services in the ordinary course of its
business) or [ * ] (regardless of value) in the [ * ];
(iv) The adoption of a business plan, annual capital, operating and
development plans and budgets, including any material
modification thereof ("Business Documents");
(v) Any capital expenditure in excess of [ * ] by the Company;
and
(vi) Any material act in material contravention of this Agreement.
11.04 ACCOUNTING AND INTERNAL CONTROLS
Suntory and ICOS shall cause the management of the Company to conduct
the business of the Company at all times in accordance with high standards of
business ethics and to maintain the Company's accounts in accordance with
generally accepted accounting principles consistently applied and, specifically,
to:
(i) Maintain full and accurate books, records, and accounts which
shall, in reasonable detail, accurately and fairly reflect all
transactions of the Company; and
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(ii) Devise and maintain a system of internal accounting controls
sufficient to provide reasonable assurances that (a)
transactions are executed in accordance with general or
specific authorizations, and (b) transactions are recorded as
necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles, to
permit preparation of all tax returns and to maintain
accountability for assets.
11.05 FINANCIAL AND BUSINESS INFORMATION AND TAX RETURNS
Suntory and ICOS shall cause the management of the Company to:
(i) Present Business Documents to the Board of Directors and
Suntory and ICOS for approval;
(ii) Make available to all members of the Board of Directors
together with Suntory and ICOS on a regular basis, and as
reasonably requested, all such information and/or documents as
may be required to permit the Board of Directors and/or
Suntory and ICOS, as the case may be, to make informed
judgments with respect to such Business Documents and all
other matters of interest to them;
(iii) Prior to March 15 of each Corporate Year, provide to Suntory
and ICOS regular annual audited financial statements by the
Company's independent certified public accountants, which
shall include a statement of profits and losses, changes in
financial position and a balance sheet for the year then
ended, as well as such other appropriate financial information
reasonably requested by the Parties; and
(iv) Cause to be prepared all federal, state and local tax returns
of the Company ("Returns").
11.06 BANK ACCOUNTS
All funds of the Company shall be deposited in the name of the Company
in such bank account or accounts as shall be determined by mutual agreement of
Suntory and ICOS. All withdrawals therefrom shall be made upon checks signed on
behalf of
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the Company by any one officer, except for (i) amounts in excess of [ * ] and
(ii) any payments to be made to Suntory and/or ICOS or their respective
affiliates, in which case all such checks shall require the signature of one (1)
Suntory officer and one (1) ICOS officer. The Parties hereto shall not make
deposits in or issue any checks against the Company bank account(s) without
full, proper and complete supporting records.
11.07 INDEPENDENT ENTERPRISE
Suntory and ICOS agree to cause the Company at all times to be
conducted as an independent enterprise for profit. Except as otherwise provided
herein, all commercial transactions between the Company and Suntory and/or ICOS
(or their affiliates) shall be conducted on an arm's-length basis with neither
granting to the other terms or conditions more favorable than would be accorded
unrelated third parties, except as Suntory and ICOS may otherwise mutually agree
prior to such transactions.
11.08 COMPENSATION OF OFFICERS AND DIRECTORS
The officers and members of the Board of Directors of the Company will
serve in their respective positions for no compensation or remuneration
whatsoever.
11.09 FIDUCIARY DUTY
Suntory, ICOS, the officers and members of the Board of Directors of
the Company shall all have the fiduciary responsibility for the safekeeping and
use of all funds and assets (including records) of the Company, whether or not
in immediate possession or control, for the exclusive benefit of the Company and
its shareholders.
11.10 OTHER ACTIVITIES
Suntory and ICOS may engage in or possess an interest in other
business ventures of any nature or description, independently or with others,
whether presently existing or hereafter created, other than for the purpose of
development, manufacture, production and sale of PAF-AH Products.
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11.11 NONCOMPETITION
Except as specifically authorized by their respective License
Agreements, Suntory and ICOS shall not, directly or indirectly, nor shall they
permit any of their respective subsidiaries, as applicable, to engage in any
business that makes or sells products that are substantially the same as the
business of the Company in the Field of Activity for a period of [ * ]
from and after the Closing Date anywhere in the world, it being recognized that
the business of the Company is worldwide.
12. BUSINESS MATTERS
12.01 LICENSE AGREEMENTS
As more fully set forth in those certain License Agreements, Suntory
and ICOS agree that:
(i) Suntory will have an [ * ].
(ii) ICOS will have an [ * ].
(iii) The Parties recognize that the Company may [ * ].
12.02 DEVELOPMENT PROGRAM
As more fully set forth in the Development and Supply Agreement,
Suntory and ICOS agree to conduct on behalf of the Company, on an accelerated
and coordinated basis, [ * ] necessary for the Company to engage in the
Field of Activity and manufacture and sell PAF-AH Products in the Company
Territory.
12.03 SERVICES AGREEMENTS
As more fully set forth in those certain Services Agreements, Suntory
and ICOS agree that each will provide certain services to the Company in order
to promote the business of the Company in the Field of Activity.
*Confidential Treatment Requested
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13. RESTRICTIONS ON SHARES
13.01 OVERALL RESTRICTIONS
The Company will be owned on the Closing Date by two (2) entities which have the
compatibility and financial stability which are major elements contributing
toward the prospect of the future success of the Company. Except in accordance
with the terms of this Agreement, neither Suntory nor ICOS shall sell, transfer,
assign, pledge, hypothecate or in any other way dispose of or encumber,
voluntarily or involuntarily, by bankruptcy, operation of law or otherwise (any
such event is referred to as a "Transfer") any of its shares or any right or
interest therein without the prior written consent of the other
("Nontransferring Shareholder"). Unless such prior written consent is given,
the proposed Transfer may not take place, and any attempted Transfer in
derogation hereof shall be deemed null and void. If for any reason any clause
or provision of this Paragraph 13.01 should be held unenforceable, invalid or in
violation of law by any court or tribunal, then the Nontransferring Shareholder
shall have the right, exercisable in writing within ninety (90) days of the date
of final determination of invalidity or unenforceability, to purchase all of the
shares which such transferring shareholder purported to Transfer, pursuant to
the terms of Paragraph 13.03 below.
13.02 ADDITIONAL RESTRICTIONS
Upon the occurrence of any of the following events with respect to
Suntory or ICOS ("Occurrence Shareholder") (wherein there is not a continuity of
proprietary interest of the shareholders of Suntory or ICOS who owned shares of
Suntory or ICOS, as the case may be, prior to the occurrence of such an event):
[ * ]. The Occurrence Shareholder shall notify the other Party in writing
of any occurrence described above in this Paragraph 13.02 at the very earliest
time practicable.
13.03 PURCHASE PRICE AND PAYMENT DATE
For purposes of Paragraphs 13.01 and 13.02 above, the purchase price
to be paid for each share of the transferring shareholder or Occurrence
Shareholder shall be computed as follows:
(i) Within [ * ] after the occurrence of an event described in
Paragraph 13.01 or 13.02 above, Suntory and ICOS either (a)
shall jointly appoint an investment banking firm or (b)
failing
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this joint action, each separately shall designate an
investment banking firm and within [ * ] after their
appointment, the designated investment banking firms shall
designate an additional investment banking firm ("Neutral
Investment Banker") (collectively, the Neutral Investment
Banker and the two investment banking firms designated by the
Parties being referred to as the "Three Investment Bankers").
The failure by either Suntory or ICOS to appoint an investment
banking firm within the time allowed shall be deemed
equivalent to appointing the other Party's investment banking
firm as the jointly appointed investment banking firm. Within
[ * ] after the appointment of the jointly appointed
investment banking firm or the Neutral Investment Banker, as
the case may be, the jointly appointed investment banking firm
or the Three Investment Bankers, by a majority vote, shall
render their appraisal of the fair market value of shares
being purchased, [ * ]. The Company shall bear all
appraisal expenses.
(ii) The payment date of the purchase price pursuant to this
Paragraph 13.03 shall not be later than [ * ] after the
[ * ] period set forth in Paragraph 13.02 above.
13.04 CHANGE OF CONTROL
In the event of a Change in Control (as hereafter defined) of Suntory
or ICOS (the "Acquired Shareholder"), the other Party (the "Other Shareholder")
shall be [ * ].
For purposes of this Paragraph 13.04, a "Change in Control" occurs
when any person becomes, after the date hereof, the beneficial owner, directly
or indirectly, of more than fifty percent (50%) of the outstanding securities
of the Acquired Shareholder (or its holding company) having a right to vote in
the election of directors, except a "Change in Control" will not have occurred
if, after the transaction, fifty percent (50%) or more of the outstanding voting
securities of the corporation acquiring the Acquired Shareholder's voting
securities are owned by the Acquired Shareholder's shareholders in the same
proportion as they own the Acquired Shareholder's voting securities immediately
prior to such transaction. It is recognized and agreed that a holding company
currently holds a substantial portion (more than
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fifty percent (50%)) of Suntory's outstanding securities having a right to vote
in the election of directors, that such holding company is owned and controlled
by family members and that the transfer, after the date hereof, of the voting
securities of the holding company among the family members will not constitute a
"Change in Control" of Suntory.
13.05 DELIVERY OF SHARES; TERMINATION OF AGREEMENTS
Any purchase of shares pursuant to this Agreement shall take place on
the payment date thereof. The certificates representing all of the shares so
purchased shall be duly endorsed and delivered to the purchaser(s) thereof on
the payment date. As of the payment date, this Agreement, the Development and
Supply Agreement and the License Agreement and Services Agreement of the Party
whose shares are purchased shall be terminated.
14. ADDITIONAL SHARES
In the event Suntory and/or ICOS acquire any additional shares of the
Company, then any and all such shares shall be subject to the terms and
provisions of this Agreement.
15. ENDORSEMENT OF CERTIFICATES
Upon the execution of this Agreement, the certificates of stock
subject hereto shall be endorsed to read as follows:
"Any sale, assignment, transfer, pledge, bequest or other disposition of
the shares of stock represented by this Certificate is restricted by and
subject to the terms and provisions of a Shareholders' Agreement dated
____________, 1996 by and among the Company, Suntory and ICOS, a copy of
which Agreement is on file in the principal office of the Company, which
Agreement may from time to time hereafter be amended. The shares of stock
evidenced by this Certificate have not been registered with the Securities
and Exchange Commission, but have been issued pursuant to the private
offering exemption under the Securities Act of 1933, as amended."
All certificates of stock hereafter issued to or transferred to
Suntory and ICOS shall bear the same endorsement.
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16. REDEMPTION OF SHARES
16.01 EVENTS OF WITHDRAWAL
Suntory or ICOS (the "Withdrawing Party") may, upon sixty (60) days' prior
written notice to the Parties, elect to withdraw from the business efforts of
the Company and have all of its shares of the Company redeemed by the Company
upon the occurrence of any of the following events or situations: [ * ];
provided, however, that in the event both Suntory and ICOS give notice under
this Paragraph 16.01 within sixty (60) days of each other, the provisions of
this Paragraph 16 shall not apply and the parties will be deemed to have
mutually agreed to dissolve the Company pursuant to Section 20.01(i).
16.02 REDEMPTION PRICE AND DATE
For purposes of Paragraph 16.01, the redemption price shall be the
lesser of [ * ]. Sixty (60) days after the notice of election to withdraw
(or such earlier date as mutually agreed upon), the following shall occur: (i)
the Company shall pay the redemption price to the Withdrawing Party; (ii) the
Withdrawing Party shall tender to the Company its certificates, duly endorsed,
for all of its shares of the Company; and (iii) this Agreement, the Development
and Supply Agreement and the License Agreement and Services Agreement to which
the Withdrawing Party is a party shall be terminated.
17. COSTS AND EXPENSES
Suntory and ICOS shall each bear and pay for their respective costs
and expenses regarding the negotiation and preparation of this Agreement and all
documents, instruments and agreements related thereto. Costs and expenses
incurred by the Company after the Closing Date shall be paid by the Company.
18. EXPORT CONTROL LAWS
18.01 EXPORT LAW COMPLIANCE
Each Party acknowledges and agrees that it does not intend to, nor will it,
export from the United States or re-export from any foreign country, or permit a
third party to export or re-export, any technology or technical information
acquired or created under this Agreement or any other related agreements to a
country where such export or re-
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export would be in violation of U.S. Export Administration Regulations. Each
Party further agrees that the export and re-export of commodities pursuant to
this Agreement and any related agreements shall be subject to the licensing
requirements of the U.S. Export Administration Regulations.
18.02 SPECIFIC AUTHORIZATION
In the event that a specific authorization of, or a validated license
from, a government other than that of the exporting party is required, Suntory
and ICOS each agree that the Party, including (if applicable) the Company,
within the jurisdiction of such other government shall, upon the request of the
Party proposing to make the export, use its best efforts to obtain, as
expeditiously as applicable, the requisite authorization or license.
19. DISTRIBUTIONS OF CASH
Subject to the terms of Paragraph 20 below, and upon the mutual
consent of Suntory and ICOS, distributions of cash shall be made to Suntory and
ICOS in accordance with their respective aggregate capital contributions.
20. DISSOLUTION/LIQUIDATION
20.01 EVENTS OF DISSOLUTION
(i) The Company shall be dissolved upon the mutual written consent
of Suntory and ICOS.
(ii) The Company shall be dissolved upon the occurrence of any of
the events set forth in Paragraph 13.02 if the Party which is
not the Occurrence Shareholder shall not have exercised the
purchase option provided in Paragraph 13.02 and shall have
requested, within sixty (60) days after such occurrence, that
the Company be dissolved.
(iii) The Company may be dissolved for federal and Delaware income
tax purposes, but preserved in nominal form for Delaware state
law purposes, by either Suntory or ICOS upon the bankruptcy,
receivership or insolvency of the other Party or the Company,
or upon the material breach of this Agreement by the other
Party.
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20.02 FINAL ACCOUNTING AND TAX RETURNS
Upon the dissolution of the Company, a complete and accurate
accounting shall be made by the Company's independent certified public
accountants from the date of the last previous accounting to the date of
dissolution and all required tax returns shall be timely filed in connection
therewith.
20.03 LIQUIDATION
Upon the dissolution of the Company, Suntory and ICOS shall each
appoint three (3) individuals who shall jointly act as liquidator to wind up the
Company (and, if either Suntory or ICOS fails to appoint any individuals within
sixty (60) days after the written request of the other Party, the individuals
that shall have been appointed by such other Party within such sixty (60) day
period shall act as the liquidator) (the individuals so appointed, collectively
"Liquidator"). The Liquidator shall have full power and authority to take full
account of the Company's assets and liabilities and to wind up and liquidate the
affairs of the Company in an orderly and business-like manner as is consistent
with obtaining the fair value thereof upon dissolution. The Company shall
engage in no further business thereafter other than as necessary to operate on
an interim basis, collect its receivables, pay its liabilities and liquidate its
assets. All proceeds from liquidation shall be distributed in the following
order of priority: (i) first, to the payment of all creditors of the Company
and the expenses of liquidation; (ii) second, to the establishing of a reserve
which the Liquidator deems reasonably necessary for any contingent, known or
unforeseen liabilities or obligations of the Company; and (iii) third, the
balance of the Company's net assets shall be divided between Suntory and ICOS in
approximately equal value at the direction of the jointly appointed investment
banking firm or the Three Investment Bankers, as the case may be, which shall
render an appraisal of the fair market value of such net assets within sixty
(60) days of appointment as set forth Paragraph 13.03(i) above.
20.04 CANCELLATION OF CERTIFICATES; TERMINATION
Upon the completion of the distributions in liquidation of the Company
as provided in this Paragraph 20 (i) the Liquidator shall cause the cancellation
of all share certificates and shall take such other actions as may be
appropriate to finally dissolve and liquidate the Company and (ii) this
Agreement shall terminate.
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<PAGE>
21. MISCELLANEOUS
21.01 NOTICES
All notices, requests, demands and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
mailed to the Party to whom notice is to be given, by telex or facsimile, and
confirmed by first class mail, registered or certified, return receipt
requested, postage prepaid, and properly addressed as follows (in which case
such notice shall be deemed to have been duly given on the third (3rd) day
following the date of such sending):
"Suntory" Suntory Limited
The Garden Court 8-F
4-1 Kioi-cho, Chiyoda-ku
Tokyo 102, Japan
Attn: President
Pharmaceutical Division
"ICOS" ICOS Corporation
22021 - 20th Avenue S.E.
Bothell, WA 98021
U.S.A.
Attn: President
With a copy to: Perkins Coie
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
U.S.A.
Attn: James R. Lisbakken, Esq.
"Company" Suncos Corporation
c/o Suntory Limited
The Garden Court 8-F
4-1 Kioi-cho, Chiyoda-ku
Tokyo 102, Japan
Attn: President
Pharmaceutical Division
With a copy to: Suncos Corporation
c/o ICOS Corporation
22021 - 20th Avenue S.E.
Bothell, WA 98021
-27-
<PAGE>
U.S.A.
Attn: President
Any Party by giving notice to the others in the manner provided above may change
such Party's address for purposes of this Paragraph 21.01.
21.02 PUBLICITY AND DISCLOSURE
All notices to third parties and all other publicity concerning the
transactions contemplated by this Agreement shall be jointly planned and
coordinated by and between the Parties hereto.
21.03 ENTIRE AGREEMENT; AMENDMENT
This Agreement (together with all Exhibits attached hereto and all
documents and instruments delivered in connection herewith) constitutes the full
and complete agreement and understanding between the Parties hereto and shall
supersede any and all prior written and oral agreements concerning the subject
matter contained herein. This Agreement may not be modified or amended, nor may
any provision hereof be waived without a written instrument executed by Suntory,
ICOS and the Company.
21.04 WAIVER
No failure or delay by any Party to insist upon the strict performance
of any term, condition, covenant or agreement of this Agreement, or to exercise
any right, power or remedy hereunder or thereunder or consequent upon a breach
hereof or thereof shall constitute a waiver of any such term, condition,
covenant, agreement, right, power or remedy or of any such breach or preclude
such Party from exercising any such right, power or remedy at any later time or
times.
21.05 ENFORCEMENT
The shares of stock of the Company are unique and cannot be readily
purchased or sold in the open market. For this reason, among others, the
Parties hereto will be irreparably damaged in the event that this Agreement is
not deemed to be specifically enforceable, and the Parties hereby agree that
this Agreement shall be specifically enforceable. Such remedy shall be
cumulative and not exclusive and shall be in addition to any other remedy which
the Parties may have.
21.06 REMEDIES
No right, power or remedy herein conferred upon or reserved to any
Party is intended to be exclusive of any other right, power or remedy or
remedies, and each
-28-
<PAGE>
and every right, power and remedy of any Party pursuant to this Agreement or now
or hereafter existing at law or in equity or by statute or otherwise shall to
the extent permitted by law be cumulative and concurrent, and shall be in
addition to every other right, power or remedy pursuant to this Agreement, or
now or hereafter existing at law or in equity or by statute or otherwise and the
exercise or beginning of the exercise by any Party of any one or more of such
rights, powers or remedies shall not preclude the simultaneous or later exercise
by any Party of any or all such other rights, powers or remedies.
21.07 HEADINGS
Headings in this Agreement are included for convenience of reference
only and shall not constitute a part of this Agreement for any purpose.
21.08 EFFECTIVENESS
Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction shall as to such jurisdiction be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
21.09 ATTORNEYS' FEES AND COSTS
In the event of any action at law or in equity among the Parties
hereto to enforce any of the provisions hereof, the unsuccessful Party or
Parties to such litigation shall pay to the successful Party or Parties all
costs and expenses, including actual attorneys' fees, incurred therein by such
successful Party or Parties; and if such successful Party or Parties shall
recover judgment in any such action or proceeding, such costs, expenses and
attorneys' fees may be included in and made a part of such judgment. The
successful Party shall be the Party who is entitled to recover its costs of
suit, whether or not the suit proceeds to final judgment. A Party not entitled
to recover its costs shall not recover attorneys' fees.
21.10 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the internal laws, and not the law of conflicts, of the State of Delaware
applicable to agreements made and to be performed in such state.
21.11 BINDING EFFECT; ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of the
Parties hereto, their successors and permitted assigns. This Agreement may not
be assigned
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<PAGE>
in whole or in part by any Party, except with the prior written consent of the
other Parties.
21.12 EXHIBITS
All Exhibits attached hereto and referred to herein are hereby
incorporated herein as though fully set forth.
21.13 NUMBER AND GENDER
Words in the singular shall include the plural, and words in a
particular gender shall include either or both additional genders, when the
context in which such words are used indicates that such is the intent.
21.14 COUNTERPARTS
This Agreement may be executed in one or more counterparts by the
Parties hereto. All counterparts shall be construed together and shall
constitute one agreement.
21.15 AGREEMENT TO PERFORM NECESSARY ACTS
Each Party agrees to perform any further acts and execute and deliver
any and all further documents and/or instruments which may be reasonably
necessary to carry out the provisions of this Agreement and to carry out the
business purpose of the Company.
21.16 VALIDITY
If for any reason any clause or provision of this Agreement, or the
application of any such clause or provision in a particular context or to a
particular situation, circumstance or person, should be held unenforceable,
invalid or in violation of law by any court or other tribunal, then the
application of such clause or provision in contexts or to situations,
circumstances or persons other than that in or to which it is held
unenforceable, invalid or in violation of law shall not be affected thereby, and
the remaining clauses and provisions hereof shall nevertheless remain in full
force and effect.
21.17 REPRESENTATIONS
Each of the Parties hereto acknowledges and agrees (i) that no
representation or promise not expressly contained in this Agreement has been
made by any other Party hereto or by any of its agents, employees,
representatives or attorneys; (ii) that this
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<PAGE>
Agreement is not being entered into on the basis of, or in reliance on, any
promise or representation, expressed or implied, covering the subject matter
hereof, other than those set forth expressly in this Agreement; and (iii) that
each has had the opportunity to be represented by counsel of its own choice in
this matter, including the negotiations which preceded the execution of this
Agreement.
21.18 FORCE MAJEURE
Any Party shall be excused for failures and delays in performance of
its respective obligations under this Agreement caused by war, riots or
insurrections, laws and regulations (including, without limitation, imposition
of export restrictions or controls), strikes, floods, fires, explosions or other
catastrophes beyond the control and without the fault of such Party ("Force
Majeure"). This provision shall not, however, release such Party from using its
best efforts to avoid or remove such cause and such Party shall continue
performance hereunder with the utmost dispatch whenever such causes are removed.
Upon claiming any such excuse or delay for non-performance, such Party shall
give prompt written notice thereof to the other Party.
21.19 EXPANSION OF BUSINESS
The Parties contemplate that there may be additional opportunities for
mutual development of other products or areas of interest by the Company. At
any time either ICOS or Suntory may suggest that such other opportunities be
further discussed.
21.20 SURVIVAL
In the event this Agreement is terminated earlier than [ * ]
after the Closing Date, Paragraph 9 shall survive termination until the
expiration of the period specified in Paragraph 9.01.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by their duly authorized representatives in the manner legally binding
upon them.
*Confidential Treatment Requested
-31-
<PAGE>
ICOS CORPORATION
By /s/ George B. Rathmann
--------------------------
Its Chairman of the Board, President
--------------------------------
and Chief Executive Officer
--------------------------------
SUNTORY LIMITED
By /s/ Terumi Nakajima
-----------------------
Its Senior Managing Director
------------------------
SUNCOS CORPORATION
By /s/ Terumi Nakajima
-----------------------
Its President and Chief Executive
-----------------------------
Officer
-----------------------------
By /s/ George B. Rathmann
--------------------------
Its Chairman of the Board
---------------------
-32-
<PAGE>
EXHIBIT SCHEDULE
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PARAGRAPH
- ---------- ------------------------------------ ---------
<S> <C> <C>
A PAF-AH License Agreement............ 1.04
B Development and Supply Agreement.... 1.06
C Articles of Incorporation........... 2.04
D Bylaws of the Company............... 2.05
E Accountants Engagement Letter....... 2.09
F Suntory Services Agreement.......... 7.03.6
G ICOS Services Agreement............. 7.03.6
H Suntory License Agreement........... 7.03.7
I ICOS License Agreement.............. 7.03.7
J Right of First Negotiation Agreement 7.03.9
</TABLE>
-33-
<PAGE>
----------------
REDACTED VERSION
----------------
EXHIBIT 10.19
TO
ICOS CORPORATION'S
FORM 10-K
FOR THE YEAR ENDED
DECEMBER 31, 1996
"[ * ]" = omitted, confidential material, which material has
been separately filed with the Securities and Exchange Commission pursuant to
a request for confidential treatment.
<PAGE>
EXHIBIT 10.19
PAF-AH LICENSE AGREEMENT
THIS PAF-AH LICENSE AGREEMENT ("Agreement") is made this 6th day of
February, 1997, by and between ICOS CORPORATION, a Delaware corporation
("ICOS"), in favor and for the benefit of and with SUNCOS CORPORATION, a
Delaware corporation ("Company"), pursuant to terms and conditions of that
certain Shareholders' Agreement, dated December 18, 1996 (the "Shareholders'
Agreement"), by and among ICOS, Suntory Limited, a Japanese corporation
("Suntory"), and the Company.
RECITALS
WHEREAS, ICOS, Suntory and the Company have entered into the
Shareholders' Agreement with respect to the organization and capitalization of
the Company to engage in the development, manufacture, production and sale of
PAF-AH Products (as defined in the Shareholders' Agreement) [ * ] in
the Field of Activity (as defined in the Shareholders' Agreement);
WHEREAS, in connection with the formation of the Company and the
issuance of certain Common Stock of the Company to ICOS under Section 351 of the
Internal Revenue Code of 1986, as amended, and in accordance with the
Shareholders' Agreement, ICOS is willing to [ * ] the Background
Technology (as defined in the Shareholders' Agreement) in the Field of Activity
(as defined in the Shareholders' Agreement) upon the terms set forth herein;
NOW, THEREFORE, in full consideration of the sale and issuance to ICOS
of three thousand (3,000) shares of Common Stock of the Company pursuant to the
Shareholders' Agreement, ICOS and the Company hereby agree as follows:
ARTICLE I
DEFINITIONS
1.01 INCORPORATION BY REFERENCE
Unless otherwise defined herein, capitalized terms used herein shall
have the meanings specified in the Shareholders' Agreement.
* Confidential Treatment Requested
-1-
<PAGE>
ARTICLE II
LICENSE OF BACKGROUND TECHNOLOGY
2.01 LICENSE
ICOS hereby grants [ * ] to use the Background Technology,
which includes those items specifically set forth in Schedule A attached hereto,
solely within the Field of Activity to make, use and sell PAF-AH Products in the
Field of Activity. [ * ]
2.02 RIGHT TO SUBLICENSE
ICOS also hereby grants to the Company [ * ].
2.03 LIMITATIONS
No right or license is granted to the Company hereunder except as
expressly specified in Sections 2.01 and 2.02.
ARTICLE III
DISCLOSURE AND USE OF
BACKGROUND TECHNOLOGY.
3.01 DISCLOSURE BY ICOS
ICOS shall promptly and fully disclose the Background Technology to
the Company and Suntory (on behalf of the Company).
3.02 LIMITATION
Except as expressly authorized by this Agreement or by the written
consent of ICOS, during the term of this Agreement and thereafter, the Company
shall keep confidential and shall not deliver, transmit or provide to any person
other than a sublicensee under a license granted in accordance with Section
2.02, and shall not use, any Background Technology or authorize, cause or aid
anyone else to do so.
* Confidential Treatment Requested
-2-
<PAGE>
3.03 SURVIVAL
The obligation of confidentiality imposed by the foregoing Section
3.02 shall survive termination of this Agreement for any reason whatsoever.
ARTICLE IV
PATENT, COPYRIGHT AND
TRADE SECRET ENFORCEMENT
4.01 ENFORCEMENT
ICOS shall have the right to bring, defend and maintain, and the
Company shall have the right, but not the obligation, to join in, any
appropriate suit or action involving infringement of any patents or copyrights,
misappropriation of any trade secrets or interference with any other
intellectual property right included in the Background Technology licensed to
the Company in the Field of Activity pursuant to this Agreement. Any amount
recovered in such action or suit, whether by judgment or settlement, shall first
be used to reimburse ICOS for its costs and expenses (including attorneys' fees)
and then paid, in accordance with their interests, to the Company and the
Parties in whose Territory (as described in Section 12.01 of the Shareholders'
Agreement) the infringement, misappropriation or interference occurred.
In the event ICOS fails or declines to take action to enforce any such
patent, copyright, trade secret or other intellectual property right within
[ * ] following receipt of notice and evidence of such infringement,
misappropriation or interference, the Company and/or Suntory shall each have the
right, but not the obligation, to bring any such suit or action. If the Company
or Suntory finds it necessary to join ICOS in such suit or action, ICOS shall
execute all papers and perform such other acts as may be reasonably required and
may, at its option, be represented by counsel of its choice. The Company or
Suntory, whichever brings such suit or action, shall pay to ICOS its reasonable
expenses (excluding its attorneys' fees) in connection with such suit or action.
If the Company or Suntory, whichever brings such suit or action, lacks standing
to bring any such suit or action, then the Company or Suntory may cause ICOS to
do so upon first undertaking to indemnify and hold ICOS harmless (to the extent
permissible by law) from all consequent liability and to promptly reimburse all
reasonable expenses (including attorneys' fees) stemming therefrom. Any amount
recovered in any such suit or action, whether by judgment or settlement, shall
be paid to or retained entirely by the Company or Suntory, whichever brought
such suit or action.
* Confidential Treatment Requested
-3-
<PAGE>
4.02 NOTICE OF INFRINGEMENTS
Either Party hereto shall provide the other with reasonable notice of
the evidence and existence of third parties, who come to the attention of such
Party, who may be involved in activities which infringe or potentially infringe,
misappropriate or potentially misappropriate or interfere with patents,
copyrights or trade secrets concerning the Background Technology licensed to the
Company in the Field of Activity pursuant to this Agreement.
ARTICLE V
PATENT APPLICATIONS AND
COPYRIGHT REGISTRATIONS
5.01 APPLICATIONS
ICOS shall have the obligation of prosecuting and maintaining in force
patent applications or patents and copyright registrations or copyrights, if
any, covering the Background Technology. Any costs incurred by ICOS with
respect to the Background Technology identified in Schedule A, [ * ].
If ICOS declines to file, prosecute or maintain any patent application
or patent covering the Background Technology, [ * ].
ARTICLE VI
DISCLAIMER OF INDEMNIFICATION
6.01 DISCLAIMER OF WARRANTIES
ICOS EXPRESSLY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, [ * ] WITH RESPECT TO THE BACKGROUND TECHNOLOGY
LICENSED HEREUNDER TO COMPANY BY ICOS.
* Confidential Treatment Requested
-4-
<PAGE>
ARTICLE VII
TERM AND TERMINATION
7.01 TERM
This Agreement (including the license and rights granted under
Sections 2.01 and 2.02) shall come into effect as of the date hereof and shall
remain in full force and effect until termination pursuant to Section 7.02;
provided, however, that upon liquidation or dissolution of the Company, other
than in connection with a continuation of the business of the Company in some
other legal form, [ * ].
7.02 DEFAULT
In the event that the Company or ICOS (the "Defaulting Party") shall
default in a material obligation hereunder and fail to remedy such default
within sixty (60) days after such default shall have been called to its
attention by a notice in writing from the other Party, the other Party, at its
option, may terminate its obligations to, and the rights of, the Defaulting
Party under the license to the Background Technology granted herein upon ten
(10) days' written notice to the Defaulting Party, which termination shall be
effective as of the occurrence of the event giving rise to the option to
terminate.
7.03 CONTINUING OBLIGATIONS
Notwithstanding the termination of a party's obligations to or the
rights of the Defaulting Party under this Agreement in accordance with the
provisions of Section 7.01 or 7.02, the provisions of Sections 2.01, 2.02, 3.01
and 3.02, this Section 7.03 and Article VIII hereof shall survive such
termination and continue in full force and effect for an indefinite term, except
to the extent the confidential technology or information would not be deemed
confidential pursuant to Section 3.02 of the Development Agreement.
ARTICLE VIII
CONSISTENCY WITH SHAREHOLDERS' AGREEMENT
8.01 SHAREHOLDERS' AGREEMENT
The license of the Background Technology herein is granted pursuant to
the Shareholders' Agreement and shall be governed by the provisions thereof to
the extent
* Confidential Treatment Requested
-5-
<PAGE>
applicable. To the extent that there may be conflicts or inconsistencies between
the provisions of this Agreement and those contained in the Shareholders'
Agreement, the provisions of the Shareholders' Agreement shall prevail and
govern interpretation.
ARTICLE IX
CONSENTS AND APPROVALS
9.01 BEST EFFORTS
The parties hereto shall use their best efforts to obtain as soon as
practicable any and all consents, approvals, orders or authorizations required
to be obtained from any governmental authority with respect to the provisions
hereof.
ARTICLE X
NOTICE
10.01 NOTICES
All notices, requests, demands and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
mailed to the Party to whom notice is to be given, by telex or facsimile, and
confirmed by first class mail, registered or certified, return receipt
requested, postage prepaid, and properly addressed as follows (in which case
such notice shall be deemed to have been duly given on the third (3rd) day
following the date of such sending):
"ICOS" ICOS Corporation
22021 - 20th Avenue S.E.
Bothell, WA 98021
U.S.A.
Attn: President
With a copy to: Perkins Coie
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
U.S.A.
Attn: James R. Lisbakken, Esq.
-6-
<PAGE>
"Company" Suncos Corporation
c/o Suntory Limited
The Garden Court 8-F
4-1 Kioi-cho, Chiyoda-ku
Tokyo 102, Japan
Attn: President
Pharmaceutical Division
With a copy to: Suncos Corporation
c/o ICOS Corporation
22021 - 20th Avenue S.E.
Bothell, WA 98021
U.S.A.
Attn: President
Any Party by giving notice to the others in the manner provided above may change
such Party's address for purposes of this Paragraph 10.01.
ARTICLE XI
MISCELLANEOUS
11.01 ENTIRE AGREEMENT
This Agreement, together with any other written agreements between the
Parties hereto referred to in the Shareholders' Agreement, sets forth the entire
agreement of the Parties with respect to the subject matter hereof and may not
be modified except by a writing signed by authorized representatives of the
Parties hereto.
11.02 HEADINGS
Article and Section headings in this Agreement are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
11.03 EXECUTION IN COUNTERPARTS
This Agreement may be executed in any number of counterparts and by
different Parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts of this Agreement taken together shall constitute one instrument.
-7-
<PAGE>
11.04 FORCE MAJEURE
It is agreed that each of the Parties hereto is excused from
performing such acts as are required hereunder as may be prevented by or whose
purpose is frustrated by Force Majeure. The Party so affected shall give notice
to the other Party in writing promptly and thereupon shall be excused from such
of its obligations hereunder as it is unable to perform on account of the Force
Majeure throughout the duration thereof plus a period of thirty (30) days.
11.05 APPLICABLE LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
11.06 ASSIGNMENT ON WRITTEN CONSENT
This Agreement may not be assigned in whole or in part by ICOS or the
Company, except with the prior written consent of the other party; provided,
however, that after termination of the Shareholders' Agreement for any reason,
this Agreement may be assigned in whole or in part by the Company.
To the extent the foregoing provision in Section 9.06 is unenforceable
in the event of bankruptcy or insolvency of ICOS, no assignment of this
Agreement by ICOS shall be permitted unless the assignee can demonstrate to the
Company the assignee's ability to perform all ICOS's obligations under this
Agreement, including, without limitation, the financial and technical ability to
(a) enforce, defend and maintain patents, copyrights and trade secrets and
provide notices in accordance with Article IV and (b) prosecute and maintain in
force patent applications and copyright registration in accordance with Article
V.
11.07 SEVERABILITY
In the event any one or more of the provisions contained in this
Agreement shall be invalid, illegal or unenforceable in any respect, the
validity, legality or enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. In such event,
such invalid provision or provisions shall be validly reformed to as nearly
approximate the intent of the parties as possible and if unreformable, shall be
severed and deleted from this Agreement.
11.08 NO WAIVER
No failure or delay on the part of either Party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof; nor shall
any single or partial
-8-
<PAGE>
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder
or the remedies provided by law.
11.09 TRADEMARKS AND TRADENAMES
ICOS grants no rights to the Company in any trademarks or tradenames
of ICOS or of any of its respective subsidiaries or affiliated companies.
11.10 INDEMNITY
The Company hereby (a) releases ICOS from any obligation to defend,
indemnify or save the Company and its agents and employees harmless from and (b)
agrees to defend, indemnify and save ICOS harmless from any and all costs,
expenses (including attorneys' fees), liabilities, damages and claims for any
injury or death to persons or damage to or destruction of property, or other
loss, arising out of or in connection with any product made, used or sold by the
Company or furnished pursuant to any provision hereunder.
11.11 OTHER AGREEMENTS
Any other provision of this Agreement notwithstanding, nothing in this
Agreement shall obligate ICOS to disclose to the Company any information or to
make available to the Company any materials in violation of an obligation of
secrecy or a limitation of use imposed by a third party from whom such
information or materials shall have been received.
11.12 ATTORNEYS' FEES AND COSTS
In the event of any action at law or in equity between the Parties
hereto to enforce any of the provisions hereof, the unsuccessful Party or
Parties to such litigation shall pay to the successful Party or Parties all
costs and expenses, including actual attorneys' fees, incurred therein by such
successful Party or Parties; and if such successful Party or Parties shall
recover judgment in any such action or proceeding, such costs, expenses and
attorneys' fees may be included in and as part of such judgment. The successful
Party shall be the Party who is entitled to recover its costs of suit, whether
or not the suit proceeds to final judgment. A Party not entitled to recover its
costs shall not recover attorneys' fees.
11.13 REMEDIES
No right, power or remedy herein conferred upon or reserved to any
Party is intended to be exclusive of any other right, power or remedy or
remedies, and each
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<PAGE>
and every right, power and remedy of any Party pursuant to this Agreement or now
or hereafter existing at law or in equity or by statute or otherwise shall to
the extent permitted by law be cumulative and concurrent, and shall be in
addition to every other right, power or remedy pursuant to this Agreement or now
or hereafter existing at law or in equity or by statute or otherwise, and the
exercise or beginning of the exercise by any Party of any one or more of such
rights, powers or remedies shall not preclude the simultaneous or later exercise
by any Party of any or all such other rights, powers or remedies.
11.14 BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit of the
Parties hereto, their successors and assigns.
11.15 SCHEDULE
Schedule A attached hereto and referred to herein is hereby
incorporated herein as though fully set forth.
11.16 NUMBER AND GENDER
Words in the singular shall include the plural, and words in a
particular gender shall include either or both additional genders, when the
context in which such words are used indicates that such is the intent.
11.17 REPRESENTATIONS
Each of the Parties hereto acknowledges and agrees (i) that no
representation or promise not expressly contained in this Agreement has been
made by any other Party hereto or by any of its agents, employees,
representatives or attorneys; (ii) that this Agreement is not being entered into
on the basis of, or in reliance on, any promise or representation, expressed or
implied, covering the subject matter hereof, other than those which are set
forth expressly in this Agreement; and (iii) that each has had the opportunity
to be represented by counsel of its own choice in this matter, including the
negotiations which preceded the execution of this Agreement.
11.18 AGREEMENT TO PERFORM NECESSARY ACTS
Each Party agrees to perform any further acts and execute and deliver
any and all further documents and/or instruments which may be reasonably
necessary to carry out the provisions of this Agreement and to carry out the
business purposes of the Company.
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<PAGE>
11.19 RIGHTS IN THE EVENT OF BANKRUPTCY
All rights in the Background Technology granted under this Agreement
to the Company by ICOS are, and shall otherwise be deemed to be, for purposes of
Section 365(n) of the U.S. Bankruptcy Code, a license of rights to "intellectual
property" as defined in Section 101 of the U.S. Bankruptcy Code. The Company,
as licensee of such rights under this Agreement, shall retain and may fully
exercise all of its rights and elections under the U.S. Bankruptcy Code. In the
event of the commencement of a bankruptcy proceeding by or against ICOS under
the U.S. Bankruptcy Code, the Company shall be entitled to complete access to
(or a complete duplicate of, as appropriate) any Background Technology.
-11-
<PAGE>
IN WITNESS WHEREOF, ICOS and the Company have caused this Agreement to
be executed by their duly authorized representatives in the manner legally
binding on them as of the date first above written.
ICOS CORPORATION
By /s/ George B. Rathmann
--------------------------
George B. Rathmann,
Chairman of the Board, President and
Chief Executive Officer
SUNCOS CORPORATION
By /s/ George B. Rathmann
--------------------------
George B. Rathmann,
President and Chief Executive Officer
By /s/ Terumi Nakajima
-----------------------
Terumi Nakajima, Chairman of the Board
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<PAGE>
SCHEDULE A
BACKGROUND TECHNOLOGY
1. [ * ].
2. [ * ].
3. [ * ].
4. [ * ].
5. [ * ].
6. [ * ].
7. [ * ].
8. [ * ].
9. [ * ].
10. [ * ].
11. [ * ].
12. [ * ].
13. ICOS PAF-AH [ * ].
* Confidential Treatment Requested
-13-
<PAGE>
----------------
REDACTED VERSION
----------------
EXHIBIT 10.20
TO
ICOS CORPORATION'S
FORM 10-K
FOR THE YEAR ENDED
DECEMBER 31, 1996
"[ * ]" = omitted, confidential material, which material has been
separately filed with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
<PAGE>
EXHIBIT 10.20
DEVELOPMENT AND SUPPLY AGREEMENT
THIS DEVELOPMENT AND SUPPLY AGREEMENT ("Agreement") is made this 6th
day of February, 1997, by and among ICOS CORPORATION, a Delaware corporation
("ICOS"), SUNTORY LIMITED, a Japanese corporation ("Suntory"), and SUNCOS
CORPORATION, a Delaware corporation ("Company").
RECITALS
WHEREAS, ICOS, Suntory and the Company have entered into a
Shareholders' Agreement, dated December 18, 1996 ("Shareholders' Agreement")
with respect to the organization and capitalization of the Company to engage in
the development, manufacture, production and sale of PAF-AH Products (as defined
in the Shareholders' Agreement) [ * ] in the Field of Activity (as
defined in the Shareholders' Agreement);
WHEREAS, the Company desires to have ICOS and Suntory conduct further
development work with respect to [ * ] the PAF-AH Technology (as defined in
the Shareholders' Agreement), and ICOS and Suntory desire to conduct such
development work;
WHEREAS, ICOS's and Suntory's research and development work within and
without the Development Program (as defined in the Shareholders' Agreement) may
provide certain PAF-AH Technology relating to and useful in the Field of
Activity;
WHEREAS, ICOS, Suntory and the Company wish to provide for a means by
which they can jointly utilize the fruits of their activities in the Field of
Activity;
WHEREAS, the work to be conducted hereunder may require materials,
including PAF-AH (as defined in the Shareholders' Agreement), which [ * ].
NOW, THEREFORE, it is hereby agreed as follows:
* Confidential Treatment Requested
<PAGE>
ARTICLE I
DEFINITIONS
1.01 INCORPORATION BY REFERENCE
Unless otherwise defined herein, capitalized terms used herein shall
have the meanings specified in the Shareholders' Agreement.
1.02 TERM OF SUPPORT
The Term of Support shall mean the period beginning on the date of the
Shareholders' Agreement among ICOS, Suntory and the Company and ending on the
earlier [ * ].
ARTICLE II
DEVELOPMENT PROGRAM
2.01 DEVELOPMENT PROGRAM
(a) On an accelerated and coordinated basis, ICOS and Suntory
shall conduct on behalf of the Company [ * ].
(b) Subject to the development plan described in Section 2.02,
[ * ].
2.02 DEVELOPMENT PLAN
Upon commencement of the Development Program (but no later than
[ * ] after the date of this Agreement) and no less frequently than [ * ]
thereafter, the Parties shall meet to formulate a detailed plan for development
projects to be performed by ICOS or Suntory, or both, during the course of the
Development Program. The plan shall [ * ]. Upon ICOS and Suntory agreeing
to the plan, a copy of the plan shall be made a part of this Agreement;
provided, that such plan may be modified or amended at any time by mutual
agreement of the Parties. A preliminary outline for the first plan is attached
hereto as Schedule A. If at any time a Party desires to modify the plan with
respect to an existing project or to establish a new project to be undertaken by
any of the Parties under the plan, it may notify the other Parties of such
desire and the Parties will promptly meet to consider such
* Confidential Treatment Requested
2
<PAGE>
requests in good faith; provided, however, that any such modification shall be
mutually agreed upon. ICOS and Suntory shall diligently conduct the development
projects agreed upon. ICOS and Suntory shall each prepare and supply to the
Company reasonably detailed written progress reports at the end of each [ * ].
2.03 EXPENSES
The Company shall pay to ICOS and Suntory, respectively, [ * ].
In addition, the Company shall reimburse and pay ICOS such costs and expenses
incurred by ICOS in [ * ]. Upon receipt of the statement and after a
reasonable period to allow for review thereof, the Company shall promptly pay
ICOS and Suntory an amount equal to the invoiced amount of the statement. ICOS
and Suntory shall keep correct and complete records containing all information
required for the determination of costs to be paid hereunder for not less than
the most recent three (3) years and shall permit such books and records to be
inspected and audited during reasonable business hours by a certified public
accountant selected by the Company, to the extent necessary to verify the
statements submitted. The Parties hereby acknowledge that any work under the
Development Program to be performed by ICOS and Suntory, respectively, for the
Company shall [ * ].
2.04 DISCLOSURE OF PAF-AH TECHNOLOGY
(a) For purposes of advancing the Development Program, ICOS and
Suntory shall disclose to each other and the Company [ * ]. To further
promote the purposes of the Development Program, each Party shall actively
collaborate with the other Parties by disclosing to the other Parties on a
regular and periodic basis [ * ]. ICOS and Suntory acknowledge that any
such technical and other information disclosed hereunder shall be included in
the definition of PAF-AH Technology and agree that any such technical and other
information so received shall not otherwise be disclosed except as permitted by
this Agreement or the License Agreements.
(b) Upon commencement of the Development Program, [ * ] in each
case solely within the Field of Activity (either by themselves or their
permitted sublicensees having the right to manufacture PAF-AH).
(c) The activities described in this Section 2.04 shall be deemed
activities in furtherance of the business of the Company and the reasonable
costs and expenses therefor shall be paid for by the Company.
* Confidential Treatment Requested
3
<PAGE>
(d) During the term of this Agreement, each Party shall
[ * ].
2.05 TECHNICAL ASSISTANCE
(a) ICOS shall furnish to Suntory at Suntory's request [ * ].
(b) Such service shall [ * ].
(c) At Suntory's request, ICOS shall, [ * ].
(d) Promptly after the date of this Agreement, ICOS and Suntory
shall [ * ].
(e) ICOS and Suntory shall at all times [ * ].
(f) The Company shall [ * ].
(g) All of ICOS's obligations under this Section 2.05 shall
terminate effective with any termination of the rights of Suntory pursuant to
Article VI without affecting any of ICOS's obligations under any other Article.
2.06 SUNTORY TECHNICAL ASSISTANCE
To the extent that ICOS requests and Suntory supplies ICOS with
technical assistance and information, [ * ].
ARTICLE III
RECORDS; CONFIDENTIALITY; RIGHTS
3.01 RECORDS
ICOS and Suntory shall each keep and maintain complete and accurate
records of all work done in connection with the Development Program. All such
records shall be available to the Company at all reasonable times for
examination and copying at the Company's expense.
3.02 CONFIDENTIALITY
Except to the extent expressly authorized by this Agreement and as
contemplated by the Shareholders' Agreement or by other prior written consent of
the
* Confidential Treatment Requested
4
<PAGE>
disclosing Party, for the term of this Agreement and thereafter, each
receiving Party shall keep completely confidential and shall not publicly or
otherwise disclose to others and shall not use any confidential PAF-AH
Technology disclosed or provided to the receiving Party by the disclosing or
providing Party; provided, however, that each of Suntory and ICOS shall have the
right to use such PAF-AH Technology provided by the other in the course of its
participation in the Development Program. For the purposes of this Agreement,
PAF-AH Technology shall not be deemed confidential to the extent, and only to
the extent, that it:
(a) was known to the receiving Party at the time of its disclosure and
not previously subject to any obligation of confidentiality;
(b) was generally available to the public or was otherwise part of the
public domain at the time of its disclosure;
(c) became generally available to the public or became otherwise part
of the public domain after its disclosure and other than through any act or
omission of the receiving Party in breach of this Agreement; or
(d) became known to the receiving Party after its disclosure (i) from
a source other than the disclosing Party (including from independent development
by the receiving Party), (ii) other than from a third party who had an
obligation to the disclosing Party not to disclose such information to others,
and (iii) other than under an obligation of confidentiality.
Each receiving Party may disclose any PAF-AH Technology to the extent
such disclosure is necessary for the receiving Party to comply with laws or
regulations, or to make, use or sell under any license of such PAF-AH Technology
or to sublicense others to do so, provided that the Party intending to make any
such disclosure shall give the other Parties reasonable advance notice of such
proposed disclosure or delivery, shall use its best efforts to secure
confidential treatment of the PAF-AH Technology to be disclosed and shall advise
the other Parties in writing of the manner in which that was done.
3.03 PUBLICATIONS
At least thirty (30) days prior to submission of any proposed
publication or written or oral presentation (collectively, "Publication")
relating to work or results under the Development Program or to the PAF-AH
Technology in the Field of Activity, each Party shall provide the proposed
Publication to the other Parties for comment. Upon notice from one of the other
Parties that it reasonably believes a patent application relating to an
invention should be filed prior to the proposed Publication or that the Party
desires to offer comments or suggested changes to the
5
<PAGE>
proposed Publication, the submission of the proposed Publication may be delayed,
but in no event longer than two (2) months. Authorship of any Publications
relating to work or results under the Development Program shall be determined by
mutual agreement of the Parties. Any Publication by a Party shall not include
confidential PAF-AH Technology owned by another Party and licensed pursuant to
Section 3.05 or the PAF-AH License Agreement without the prior written consent
of the other Party, which consent will not be unreasonably withheld.
3.04 EMPLOYEE ASSIGNMENTS
ICOS and Suntory each represent that with respect to each of its
employees and agents who is or may be engaged in work under the Development
Program, it will [ * ].
3.05 RIGHTS
(a) Each of ICOS and Suntory hereby grants to the Company [ * ]
license in the Field of Activity [ * ] subject to the rights of the Parties
under the License Agreements. PAF-AH Technology includes, and the Company shall
have the [ * ] to the extent applicable to the Field of Activity, whether
arising before or after the date of this Agreement.
(b) The Company shall have the right to grant sublicenses within and
limited to the scope of the right and license granted to the Company in Section
3.05(a). The Company shall notify ICOS and Suntory of the identity of each
sublicensee to whom a sublicense is granted and provide ICOS and Suntory a true
and correct copy of such sublicense.
ARTICLE IV
FILING AND MAINTENANCE OF PATENTS
4.01 FILING AND MAINTENANCE OF PATENTS
The Party whose employees or agents make PAF-AH Technology inventions
(the "Inventing Party") shall, in consultation with the other Parties, file such
patent applications as are reasonably required to [ * ] and thereafter shall
use reasonable diligence, under the circumstances, to prosecute and maintain in
force any resulting patent rights. The Company shall (with any reimbursement
under the License Agreements) pay the reasonable costs and expenses (including
attorneys' fees)
* Confidential Treatment Requested
6
<PAGE>
incurred in connection with such filing, prosecution or maintenance; provided,
that to the extent an application or patent includes subject matter not covering
the manufacture, use or sale of products in the Field of Activity, the Inventing
Party shall pay an equitable pro rata share of such costs and expenses.
If the Inventing Party declines to file, prosecute or maintain any
such patent application or patent, [ * ].
ARTICLE V
PATENT, COPYRIGHT AND TRADE SECRET ENFORCEMENT
5.01 RIGHTS OF THE COMPANY
Except as provided in the License Agreements, the PAF-AH License
Agreement and Section 5.02, the Company shall have the right, but not the
obligation, to bring, defend and maintain any appropriate suit or action for
infringement of any patent or copyright, misappropriation of any trade secret or
interference with any other intellectual property right included in the PAF-AH
Technology in the Field of Activity. If the Company finds it necessary to join
ICOS or Suntory in such suit or action, ICOS or Suntory shall execute all papers
and perform such other acts as may be reasonably required and may, at its
option, be represented by counsel of its choice. The Company shall pay to ICOS
and Suntory their reasonable expenses (excluding attorneys' fees) in connection
with such suit or action. If the Company lacks standing to bring such suit or
action, then the Company may cause the other Party with standing to do so upon
first undertaking to indemnify and hold the other Party harmless (to the extent
permissible by law) from all consequent liability and to promptly reimburse all
reasonable expenses (including attorneys' fees) stemming therefrom. Any amount
recovered in any such action or suit, whether by judgment or settlement, shall
be paid to or retained entirely by the Company.
In the event the Company fails or declines to take action to enforce
any such patent, copyright, trade secret or other intellectual property right
within three (3) months following receipt of notice and evidence of such
infringement, misappropriation or interference, Suntory and/or ICOS shall have
the right to bring, defend and maintain any appropriate suit or action for such
infringement, misappropriation or interference in the Field of Activity. If
Suntory or ICOS, whichever brings such suit or action, finds it necessary to
join either or both of the
* Confidential Treatment Requested
7
<PAGE>
other Parties in such suit or action, such other Parties shall execute all
papers and perform such other acts as may be reasonably required and may, at its
option, be represented by counsel of their choice. Suntory or ICOS, whichever
brings such suit or action, shall pay to the other Parties the reasonable
expenses of the other Parties (excluding its attorneys' fees) in connection with
such suit or action. Any amount recovered in any such suit or action, whether by
judgment or settlement, shall be paid to or retained entirely by Suntory or
ICOS, whichever brought such suit or action.
5.02 RIGHTS OF ICOS AND SUNTORY
In the event of any infringement in the Field of Activity of any
patent within the PAF-AH Technology covering the making, use or sale of products
[ * ], the Parties shall consult with each other as to the best manner in
which to proceed. The Party whose patent is involved shall have the first
right, but not the obligation, to bring, defend and maintain any appropriate
suit or action for such infringement. If the Party finds it necessary or
desirable to join either or both other Parties in such suit or action, such
other Parties shall execute all papers and perform such other acts as may be
reasonably required and may, at their option, be represented by counsel of their
choice. The pursuing Party shall pay such other Parties' reasonable expenses
(excluding attorneys' fees) in connection with such suit or action. Any amount
recovered in such action or suit, whether by judgment or settlement, shall first
be used to reimburse the pursuing Party for its costs and expenses (including
attorneys' fees) and then paid to the Company and the Parties in whose Territory
(as described in Section 12.01 of the Shareholders' Agreement) the infringement
occurred, in accordance with the interests of the Company and such Parties.
ARTICLE VI
TERM AND TERMINATION
6.01 TERM OF DEVELOPMENT PROGRAM
Unless sooner terminated, the Development Program (including all
rights and obligations of Article II hereof) shall continue until expiration of
the Term of Support.
* Confidential Treatment Requested
8
<PAGE>
6.02 TERM OF AGREEMENT
This Agreement shall come into effect as of the date hereof and shall
remain in full force and effect [ * ].
6.03 DEFAULT
In the event that a Party (the "Defaulting Party") shall (a) fail to
make any payment under this Agreement when and as due, after notice to such
Defaulting Party and failure to cure within sixty (60) days of such notice, or
otherwise materially default in a material obligation hereunder and fail to
remedy such default within sixty (60) days after such default has been called to
its attention by notice of another Party, (b) become bankrupt or insolvent, or
file a petition in bankruptcy or make a general assignment for the benefit of
creditors or otherwise acknowledge insolvency, or be adjudged bankrupt, (c) go
or be placed in a process of complete liquidation other than in connection with
a continuation of the business of the Company in some other legal form, or (d)
suffer the appointment of a receiver for any substantial portion of its business
who shall not be discharged within sixty (60) days after his appointment, then,
and in any such event, any other Party, at its option, may terminate its
obligations to, and the rights of the Defaulting Party under, this Agreement
upon ten (10) days' written notice to the Defaulting Party, which termination
shall be effective as of the occurrence of the event giving rise to the option
to terminate.
6.04 SURVIVAL
Notwithstanding the termination of a Party's obligations to or the
rights of the Defaulting Party or other Party under this Agreement in accordance
with the provisions of Section 6.02 or 6.03, the provisions of Sections 3.02 and
3.03 and Article VIII hereof shall survive such termination and continue in full
force and effect for an indefinite term. The Company's rights pursuant to
Section 3.05 shall survive expiration or termination of this Agreement;
provided, however, that the PAF-AH Technology shall be limited to that which
exists at the time of expiration or termination of this Agreement and that upon
liquidation or dissolution of the Company other than in connection with a
continuation of the business of the Company in some other legal form [ * ].
* Confidential Treatment Requested
9
<PAGE>
ARTICLE VII
SUPPLY ARRANGEMENTS
7.01 SUPPLY OF PAF-AH
[ * ] shall supply to [ * ] for the ultimate use by [ * ] and [ * ],
as requested, [ * ] to carry out the goals and purposes of the Development
Program. [ * ] shall pay [ * ] for the PAF-AH in accordance with Section
7.02(d). [ * ].
7.02 DELIVERY SPECIFICATIONS
(a) [ * ] may, by letter, telex or other means, deliver to [ * ]
specifications regarding PAF-AH which [ * ] is interested in obtaining. Each
delivery specification shall specify: (i) quantity; (ii) requested delivery
schedule; (iii) packaging and marking requirements; (iv) method of shipment; (v)
place of delivery and acceptance; and (vi) any other information necessary to
prepare the proposal.
(b) After delivery of each such delivery specification by [ * ]
shall promptly furnish [ * ] with a written proposal providing specific
information regarding items which [ * ] is interested in obtaining. Such
proposal shall include: (i) unit and total price or fee for use for items; (ii)
delivery schedule; (iii) duration of the proposal; (iv) terms and conditions
regarding dissemination and use of the items; and (v) any other information,
requested by [ * ] and deemed essential to the proposal by [ * ].
Orders placed pursuant to a proposal are termed "Proposal Orders." Issuance of
a Proposal Order by [ * ] and receipt by [ * ] of written notification
of acceptance of the Proposal Order by [ * ] shall create a binding
agreement for furnishing the items specified therein.
(c) On Proposal Orders, the charges paid by [ * ] for items shall
be those charges set forth in the proposal under which such order is being
placed; [ * ].
(d) Charges quoted pursuant to this Article VII will be in United
States dollars and invoices shall be payable in United States currency within
[ * ] of delivery.
* Confidential Treatment Requested
10
<PAGE>
7.03 LIMITATIONS ON USE
Any PAF-AH supplied hereunder shall [ * ].
ARTICLE VIII
MISCELLANEOUS
8.01 ASSIGNMENT
This Agreement may not be assigned in whole or in part by any Party,
except with the prior written consent of the other Parties.
8.02 ENTIRE AGREEMENT
This Agreement, together with the other written agreements referred to
in the Shareholders' Agreement, constitutes the entire agreement between the
Parties with respect to the subject matter hereof and supersedes all previous
negotiations, commitments and writings. To the extent there may be conflicts or
inconsistencies between the provisions of this Agreement and the Shareholders'
Agreement, the provisions of the Shareholders' Agreement shall prevail and
govern interpretation.
8.03 AMENDMENT OR MODIFICATION
This Agreement may not be modified or amended except by a writing duly
signed by the authorized representatives of the Parties. Any condition or
provision of or in any document or communication whatsoever, other than a
writing amending or modifying this Agreement in accordance with the first
sentence of this Section 8.03, shall be deemed inapplicable to the obligations
between the Parties hereto.
8.04 SEVERABILITY
In the event any one or more of the provisions contained in this
Agreement shall be invalid, illegal or unenforceable in any respect, the
validity, legality or enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. In such event such
provision or provisions shall be validly reformed to as nearly approximate the
intent of the Parties as possible and if unreformable, shall be severed and
deleted from this Agreement.
* Confidential Treatment Requested
11
<PAGE>
8.05 NO WAIVER
No failure or delay on the part of either Party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy hereunder or provided by law.
8.06 TRADEMARKS AND TRADENAMES
No Party grants any rights under this Agreement to any other Party in
any trademarks or tradenames of such Party, or of any of their respective
Subsidiaries or affiliated companies.
8.07 APPLICABLE LAW
This Agreement shall be governed by and construed in accordance with
the internal laws, and not the law of conflict, of the State of Delaware
applicable to agreements made and to be performed in such state.
8.08 NOTICES
All notices, requests, demands and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
mailed to the Party to whom notice is to be given, by telex or facsimile, and
confirmed by first class mail, registered or certified, return receipt
requested, postage prepaid, and properly addressed as follows (in which case
such notice shall be deemed to have been duly given on the third (3rd) day
following the date of such sending):
"Suntory" Suntory Limited
The Garden Court 8-F
4-1 Kioi-cho, Chiyoda-ku
Tokyo 101, Japan
Attn: President
Pharmaceutical Division
"ICOS" ICOS Corporation
22021 - 20th Avenue S.E.
Bothell, WA 98021
U.S.A.
Attn: President
12
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With a copy to: Perkins Coie
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
U.S.A.
Attn: James R. Lisbakken, Esq.
"Company" Suncos Corporation
c/o Suntory Limited
The Garden Court 8-F
4-1 Kioi-cho, Chiyoda-ku
Tokyo 102, Japan
Attn: President
Pharmaceutical Division
With a copy to: Suncos Corporation
c/o ICOS Corporation
22021 - 20th Avenue S.E.
Bothell, WA 98021
U.S.A.
Attn: President
Any Party by giving notice to the others in the manner provided above may change
such Party's address for purposes of this Section 8.08.
8.09 HEADINGS
Article and Section headings in this Agreement are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
8.10 EXECUTION IN COUNTERPARTS
This Agreement may be executed in any number of counterparts and by
different Parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts of this Agreement taken together shall constitute one instrument.
8.11 NO WARRANTIES
THE PARTIES EXPRESSLY DISCLAIM ALL WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
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8.12 INDEMNITY
The Company hereby (a) releases ICOS and Suntory from any obligation
to defend, indemnify or save the Company and its agents and employees harmless
from and (b) agrees to defend, indemnify and save ICOS and Suntory harmless from
any and all costs, expenses (including attorneys' fees), liabilities, damages
and claims for any injury or death to persons or damage to or destruction of
property, or other loss arising out of or in connection with any product made,
used or sold by the Company or the use by the Company of any PAF-AH Technology
or PAF-AH Organisms furnished pursuant to any provision hereunder, or otherwise
arising out of or related to the performance by the Company of this Agreement.
8.13 FORCE MAJEURE
It is agreed that each of the Parties hereto is excused from
performing such acts as are required hereunder as may be prevented by or whose
purpose is frustrated by Force Majeure. The Party so affected shall give notice
to the other Party in writing promptly and thereupon shall be excused from such
of its obligations hereunder as it is unable to perform on account of the Force
Majeure throughout the duration thereof plus a period of thirty (30) days.
8.14 OTHER AGREEMENTS
Any other provision of this Agreement notwithstanding, nothing in this
Agreement shall obligate Suntory or ICOS to disclose to the Company any
information or to make available to the Company any materials in violation of an
obligation of secrecy or a limitation of use imposed by a third party from whom
such information or materials shall have been received.
8.15 ATTORNEYS' FEES AND COSTS
In the event of any action at law or in equity among the Parties
hereto to enforce any of the provisions hereof, the unsuccessful Party or
Parties to such litigation shall pay to the successful Party or Parties all
costs and expenses, including actual attorneys' fees, incurred therein by such
successful Party or Parties; and if such successful Party or Parties shall
recover judgment in any such action or proceeding such costs, expenses and
attorneys' fees may be included in and as part of such judgment. The successful
Party shall be the Party who is entitled to recover its costs of suit, whether
or not the suit proceeds to final judgment. A Party not entitled to recover its
costs shall not recover attorneys' fees.
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8.16 BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit of the
Parties hereto, their successors and assigns.
8.17 SCHEDULE
Schedule A attached hereto and referred to herein is hereby
incorporated herein as though fully set forth.
8.18 NUMBER AND GENDER
Words in the singular shall include the plural, and words in a
particular gender shall include either or both additional genders, when the
context in which such words are used indicates that such is the intent.
8.19 AGREEMENT TO PERFORM NECESSARY ACTS
Each Party agrees to perform any further acts and execute and deliver
any and all further documents and/or instruments which may be reasonably
necessary to carry out the provisions of this Agreement.
8.20 REMEDIES
No right, power or remedy herein conferred upon or reserved to any
Party is intended to be exclusive of any other right, power or remedy or
remedies, and each and every right, power and remedy of any Party pursuant to
this Agreement or now or hereafter existing at law or in equity or by statute or
otherwise shall to the extent permitted by law be cumulative and concurrent, and
shall be in addition to every other right, power or remedy pursuant to this
Agreement or now or hereafter existing at law or in equity or by statute or
otherwise, and the exercise or beginning of the exercise by any Party of any one
or more of such rights, powers or remedies shall not preclude the simultaneous
or later exercise by any Party of any or all such other rights, powers or
remedies.
8.21 REPRESENTATIONS
Each of the Parties hereto acknowledges and agrees (i) that no
representation or promise not expressly contained in this Agreement has been
made by any other Party hereto or by any of its agents, employees,
representatives or attorneys; (ii) that this Agreement is not being entered into
on the basis of, or in reliance on, any promise or representation, expressed or
implied, covering the subject matter hereof, other than those which are set
forth expressly in this Agreement; and (iii) that each has had the
15
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opportunity to be represented by counsel of its own choice in this matter,
including the negotiations which preceded the execution of this Agreement.
8.22 RIGHTS IN THE EVENT OF BANKRUPTCY
All rights in the PAF-AH Technology granted to the Company under
Section 3.05 of this Agreement by ICOS and Suntory are, and shall otherwise be
deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, a
license of rights to "intellectual property" as defined in Section 101 of the
U.S. Bankruptcy Code. The Company, as licensee of such rights under this
Agreement, shall retain and may fully exercise all of its rights and elections
under the U.S. Bankruptcy Code. In the event of the commencement of a
bankruptcy proceeding by or against ICOS under the U.S. Bankruptcy Code or by or
against Suntory under applicable bankruptcy law, the Company shall be entitled
to complete access to (or a complete duplicate of, as appropriate) such PAF-AH
Technology in the possession of the Party subject to the bankruptcy proceeding.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized representatives in the manner legally binding
upon them as of the date first above written.
ICOS CORPORATION
By /s/ George B. Rathmann
----------------------
George B. Rathmann,
Chairman of the Board, President and
Chief Executive Officer
SUNTORY LIMITED
By /s/ Terumi Nakajima
-------------------
Terumi Nakajima,
Senior Managing Director
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SUNCOS CORPORATION
By /s/ Terumi Nakajima
-------------------
Terumi Nakajima,
Chairman of the Board
By /s/ George B. Rathmann
----------------------
George B. Rathmann,
President and Chief Executive Officer
17
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SCHEDULE A
PRELIMINARY OUTLINE OF DEVELOPMENT PLAN
ICOS WILL CONDUCT THE FOLLOWING ACTIVITIES:
- -------------------------------------------
[ * ]
SUNTORY WILL ALSO CARRY OUT DEVELOPMENT ACTIVITIES. SUCH ACTIVITIES ARE NOT
- ----------------------------------------------------------------------------
DESCRIBED IN THIS SCHEDULE A.
- -----------------------------
NOTE:
[ * ]
* Confidential Treatment Requested
<PAGE>
----------------
REDACTED VERSION
----------------
EXHIBIT 10.21
TO
ICOS CORPORATION'S
FORM 10-K
FOR THE YEAR ENDED
DECEMBER 31, 1996
"[ * ]" = omitted, confidential material, which material has
been separately filed with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
<PAGE>
EXHIBIT 10.21
ICOS
SERVICES AGREEMENT
THIS ICOS SERVICES AGREEMENT ("Agreement") is made as of this 6th day
of February, 1997, by and between ICOS CORPORATION, a Delaware corporation
("ICOS"), and SUNCOS CORPORATION, a Delaware corporation ("Company").
RECITALS
WHEREAS, ICOS, Suntory Limited, a Japanese corporation ("Suntory"),
and the Company have entered into that certain Shareholders' Agreement, dated
December 18, 1996, ("Shareholders' Agreement"), with respect to the organization
and capitalization of the Company to engage in the development, manufacture,
production and sale of PAF-AH Products (as defined in the Shareholders'
Agreement) [ * ] in the Field of Activity (as defined in the
Shareholders' Agreement);
WHEREAS, ICOS is willing to provide or cause to be provided certain
services to the Company as described below and in accordance with the terms set
forth below;
NOW, THEREFORE, it is hereby agreed as follows:
ARTICLE I
DEFINITIONS
1.01 INCORPORATION BY REFERENCE
Unless otherwise defined herein, capitalized terms used herein shall
have the meanings specified in the Shareholders' Agreement.
1.01 ADMINISTRATIVE SERVICES
The term Administrative Services shall mean those services more fully
described in Article III.
* Confidential Treatment Requested
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<PAGE>
1.03 PARTY
The term Party shall mean ICOS or the Company or, when used in the
plural, ICOS and the Company.
1.04 SUBSIDIARY
The term Subsidiary shall mean a corporate entity other than ICOS, of
which at least fifty percent (50%) of the voting stock is owned or controlled,
directly or indirectly, by ICOS.
ARTICLE II
MANAGEMENT SUPPORT SERVICES
2.01 TYPES OF SERVICES
For the term of this Agreement, ICOS shall make available to the
Company the following services in connection with the Field of Activity as the
Company requests:
[ * ].
2.02 PERSONNEL
ICOS shall make available to the Company the services described in
Section 2.01. Upon request of the Company, ICOS shall assign to the Company
various personnel or consultants retained by ICOS to provide such services.
Such personnel or consultants shall report directly to the Chief Executive
Officer of the Company or his designee and carry out their reasonable and lawful
orders in connection with the furnishing of such services as described in
Section 2.01. Such personnel or consultants shall be compensated by ICOS and
shall remain as employees or consultants of ICOS.
ARTICLE III
ADMINISTRATIVE SERVICES
3.01 ADMINISTRATIVE SERVICES
ICOS shall make available to the Company the services of its [ * ]
to advise and assist the Company with respect to matters falling within the
areas of expertise of these various departments, as the Company requests.
* Confidential Treatment Requested
-2-
<PAGE>
3.02 REQUESTS AND TIMING OF SERVICES
The Administrative Services under this Article III shall be made
available to the Company in accordance with written requests made by the Company
and shall be performed by ICOS's internal staff groups which generally perform
such services for ICOS. These Administrative Services shall be provided by ICOS
in a reasonably prompt manner subject to the availability of personnel and the
level of tasks generally demanded of the ICOS staff groups involved.
ARTICLE IV
CHARGES FOR SERVICES
4.01 CHARGES FOR SERVICES
Services supplied to the Company by ICOS under Articles II and III
shall be charged on the following basis:
(a) Employees of ICOS and Subsidiaries. The Company will be
----------------------------------
charged [ * ].
(b) Consultants. The Company will be charged [ * ]
-----------
provided such charges are reasonable.
4.02 REIMBURSEMENT AND RECORD KEEPING
For all services supplied to the Company by ICOS under Articles II and
III hereunder, the Company shall make reimbursement to ICOS monthly within
thirty (30) days after receipt of ICOS' invoice therefor. Copies of ICOS's
invoices shall be provided to Suntory at the same time they are submitted to the
Company. ICOS shall keep reasonable records as evidence of the above costs for
periods of not less than the most recent three (3) years and shall allow the
Company to examine such records at reasonable times.
ARTICLE V
RESPONSIBILITY
5.01 RELATIONSHIP OF THE PARTIES
Nothing in this Agreement shall be construed as: (a) an assumption by ICOS of
any obligation to increase the sales or profits of the Company or otherwise to
guarantee
* Confidential Treatment Requested
-3-
<PAGE>
the success of the Company's operations; (b) an assumption by ICOS of
any financial obligation to or of the Company; (c) the creation of any
relationship of employment between the Company and employees or consultants of
ICOS, its Subsidiaries or associated companies; (d) an assumption by ICOS of any
responsibility for the work performed by outside suppliers employed by the
Company at the suggestion or recommendation of ICOS; or (e) the delegation of
any function or authority of the Company to ICOS; it being understood that ICOS
will make recommendations and offer advice pursuant to this Agreement but that
all decisions with respect thereto and otherwise shall be and remain dependent
upon appropriate action of the Board of Directors or the authorized officers of
the Company.
ARTICLE VI
TERM
6.01 TERM
This Agreement shall come into effect as of the date hereof and shall
remain in full force and effect until [ * ].
6.02 DEFAULT
In the event that a Party (the "Defaulting Party") shall (a) fail to
make any payment hereunder when and as due, or otherwise default in its
obligations hereunder and fail to remedy such default within sixty (60) days
after such default shall have been called to its attention by notice from
another Party, (b) become bankrupt or insolvent, or file a petition in
bankruptcy or make a general assignment for the benefit of creditors or
otherwise acknowledge insolvency, or be adjudged bankruptcy, (c) go or be placed
in a process of complete liquidation other than in connection with a
continuation of the business of the Company in some other legal form, or (d)
suffer the appointment of a receiver for any substantial portion of its business
who shall not be discharged within sixty (60) days after his appointment, then,
and in any such event, the other Party, at its option, may terminate its
obligations to and the rights of the Defaulting Party under this Agreement upon
ten (10) days' written notice to the Defaulting Party, which termination shall
be effective as of the occurrence of the event giving rise to the option to
terminate.
ARTICLE VII
NOTICES
* Confidential Treatment Requested
-4-
<PAGE>
7.01 METHOD AND ADDRESSES
All notices, requests, demands and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
mailed to the Party to whom notice is to be given, by telex or facsimile, and
confirmed by first class mail, registered or certified, return receipt
requested, postage prepaid, and properly addressed as follows (in which case
such notice shall be deemed to have been duly given on the third (3rd) day
following the date of such sending):
"ICOS" ICOS Corporation
22021 - 20th Avenue S.E.
Bothell, WA 98021
U.S.A.
Attn: President
With a copy to: Perkins Coie
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
U.S.A.
Attn: James R. Lisbakken, Esq.
"Company" Suncos Corporation
c/o Suntory Limited
The Garden Court 8-F
4-1 Kioi-cho, Chiyoda-ku
Tokyo 102, Japan
Attn: President
Pharmaceutical Division
Any Party by giving notice to the others in the manner provided above may change
such Party's address for purposes of this Section 7.01.
ARTICLE VIII
MISCELLANEOUS
8.01 ENTIRE AGREEMENT; AMENDMENT
This Agreement (together with all documents and instruments delivered
in connection herewith) constitutes the full and complete agreement and
understanding between the Parties hereto and shall supersede any and all prior
written and oral agreements concerning the subject matter contained herein.
This Agreement may not
-5-
<PAGE>
be modified, amended nor may any provision hereof be waived without a written
instrument executed by Suntory, ICOS and the Company.
8.02 WAIVER
No failure or delay by any Party to insist upon the strict performance
of any term, condition, covenant or agreement of this Agreement, or to exercise
any right, power or remedy hereunder or thereunder or consequent upon a breach
hereof or thereof shall constitute a waiver of any such term, condition,
covenant, agreement, right, power or remedy or of any such breach or preclude
such Party from exercising any such right, power or remedy at any later time or
times.
8.03 REMEDIES
No right, power or remedy herein conferred upon or reserved to any
Party is intended to be exclusive of any other right, power or remedy or
remedies, and each and every right, power and remedy of any Party pursuant to
this Agreement or now or hereafter existing at law or in equity or by statute or
otherwise shall to the extent permitted by law be cumulative and concurrent, and
shall be in addition to every other right, power or remedy pursuant to this
Agreement, or now or hereafter existing at law or in equity or by statute or
otherwise and the exercise or beginning of the exercise by any Party of any one
or more of such rights, powers or remedies shall not preclude the simultaneous
or later exercise by any Party of any or all such other rights, powers or
remedies.
8.04 HEADINGS
Headings in this Agreement are included herein for the convenience of
reference only and shall not constitute a part of this Agreement for any
purpose.
8.05 EFFECTIVENESS
Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction shall as to such jurisdiction be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof or effecting the validity or enforceability of such provision
in any other jurisdiction.
8.06 ATTORNEYS' FEES AND COSTS
In the event of any action at law or in equity between the Parties
hereto to enforce any of the provisions hereof, the unsuccessful Party or
Parties to such litigation shall pay to the successful Party or Parties all
costs and expenses, including actual attorneys' fees, incurred therein by such
successful Party or Parties; and if such
-6-
<PAGE>
successful Party or Parties shall recover judgment in any such action or
proceeding, such costs, expenses and attorneys' fees may be included in and as
part of such judgment. The successful Party shall be the Party who is entitled
to recover its costs of suit, whether or not the suit proceeds to final
judgment. A Party not entitled to recover its costs shall not recover attorneys'
fees.
8.07 GOVERNING LAW
This Agreement shall be construed in accordance with the internal
laws, and not the law of conflicts, of the State of Delaware applicable to
agreements made and to be performed in such state.
8.08 BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit of the
Parties hereto, their successors and assigns.
8.09 NUMBER AND GENDER
Words in the singular shall include the plural, and words in a
particular gender shall include either or both additional genders, when the
context in which such words are used indicates that such is the intent.
8.10 COUNTERPARTS
This Agreement may be executed in one or more counterparts by the
Parties hereto. All counterparts shall be construed together and shall
constitute one Agreement.
8.11 AGREEMENT TO PERFORM NECESSARY ACTS
Each Party agrees to perform any further acts and execute and deliver
any and all further documents and/or instruments which may be reasonably
necessary to carry out the provisions of this Agreement.
8.12 VALIDITY
If for any reason any clause or provision of this Agreement, or the
application of any such clause or provision in a particular context or to a
particular situation, circumstance or person, should be held unenforceable,
invalid or in violation of law by any court or other tribunal, then the
application of such clause or provision in contexts or to situations,
circumstances or persons other than that in or to which it is held
unenforceable, invalid or in violation of law shall not be affected thereby, and
the
-7-
<PAGE>
remaining clauses and provisions hereof shall nevertheless remain in full force
and effect.
8.13 REPRESENTATIONS
Each of the Parties hereto acknowledges and agrees (i) that no
representation or promise not expressly contained in this Agreement has been
made by any other Party hereto or by any of its agents, employees,
representatives or attorneys; (ii) that this Agreement is not being entered into
on the basis of, or in reliance on, any promise or representation, expressed or
implied, covering the subject matter hereof, other than those which are set
forth expressly in this Agreement; and (iii) that each has had the opportunity
to be represented by counsel of its own choice in this matter, including the
negotiations which preceded the execution of this Agreement.
8.14 FORCE MAJEURE
Any Party shall be excused for failures and delays in performance of
its respective obligations under this Agreement caused by war, riots or
insurrections, laws and regulations (including, without limitation, imposition
of export restrictions or controls), strikes, floods, fires, explosions or other
catastrophes beyond the control and without the fault of such Party. This
provision shall not, however, release such Party from using its best efforts to
avoid or remove such cause and such Party shall continue performance hereunder
with the utmost dispatch whenever such causes are removed. Upon claiming any
such excuse or delay for non-performance, such Party shall give prompt written
notice thereof to the other Party.
-8-
<PAGE>
IN WITNESS WHEREOF, ICOS and the Company have caused this Agreement to
be executed by their respective duly authorized representatives in the manner
legally binding upon them as of the date first above written.
ICOS CORPORATION
By /s/ George B. Rathmann
--------------------------
George B. Rathmann,
Chairman of the Board, President and
Chief Executive Officer
SUNCOS CORPORATION
By /s/ Terumi Nakajima
-----------------------
Terumi Nakajima,
Chairman of the Board
By /s/ George B. Rathmann
--------------------------
George B. Rathmann,
President and Chief Executive Officer
-9-
<PAGE>
EXHIBIT 10.22
----------------
REDACTED VERSION
----------------
EXHIBIT 10.22
TO
ICOS CORPORATION'S
FORM 10-K
FOR THE YEAR ENDED
DECEMBER 31, 1996
"[ * ]" = omitted, confidential material, which material has been
separately filed with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
<PAGE>
ICOS
LICENSE AGREEMENT
THIS ICOS LICENSE AGREEMENT ("Agreement") is made this 6th day of
February, 1997, by and between SUNCOS CORPORATION, a Delaware corporation
("Company"), and ICOS Corporation, a Delaware corporation ("ICOS").
RECITALS
WHEREAS, ICOS has granted to the Company [ * ] license to
certain proprietary patent rights, technical information, technology and know-
how relating to and useful in the manufacture, production and worldwide
commercial sale of platelet-activating factor acetylhydrolase [ * ];
WHEREAS, ICOS, Suntory Limited, a Japanese corporation ("Suntory"),
and the Company have entered into a Shareholders' Agreement, dated December 18,
1996 ("Shareholders' Agreement"), with respect to the organization and
capitalization of the Company to engage in the development, manufacture,
production and sale of PAF-AH Products (as defined in the Shareholders'
Agreement) [ * ] in the Field of Activity (as defined in the Shareholders'
Agreement);
WHEREAS, ICOS, Suntory and the Company have entered into a Development
and Supply Agreement of even date herewith (the "Development Agreement")
pursuant to which ICOS and Suntory will conduct development work on behalf of
the Company with respect to the Background Technology (as defined in the
Shareholders' Agreement);
WHEREAS, ICOS desires to obtain from the Company the PAF-AH Technology
(as defined in the Shareholders' Agreement) and [ * ] in the Field of
Activity in ICOS Territory (as defined in the Shareholders' Agreement); and in
view of the Shareholders' Agreement and the parties further development
activities pursuant to the Development Agreement, the Company is willing to
grant such a license to ICOS; and
WHEREAS, the Company has granted a similar license to Suntory of even
date herewith, [ * ] on substantially the same terms and conditions
contained herein and for the same purposes described herein ("Suntory License
Agreement").
* Confidential Treatment Requested
<PAGE>
NOW, THEREFORE, it is hereby agreed as follows:
ARTICLE I
DEFINITIONS
1.01 INCORPORATION BY REFERENCE
Unless otherwise defined herein, capitalized terms used herein shall
have the meanings specified in the Shareholders' Agreement.
1.02 PARTY
The term Party shall mean ICOS or the Company or, when used in the
plural, ICOS and the Company.
1.03 SUBSIDIARY
The term Subsidiary shall mean a corporate entity other than ICOS or
the Company of which at least fifty percent (50%) of the voting stock is owned
or controlled, directly or indirectly, by ICOS or the Company.
1.04 TERM OF SUPPORT
The term Term of Support shall have the meaning set forth in the
Development Agreement.
1.05 NET SALES
The term Net Sales shall mean [ * ], less the following
deductions related to the sale or other disposition:
[ * ].
* Confidential Treatment Requested
2
<PAGE>
ARTICLE II
GRANT OF LICENSE
2.01 GRANT OF LICENSE
Subject to the terms of this Agreement, the Company hereby grants to
ICOS [ * ] license to use the PAF-AH Technology in the Field of Activity
to make, use and sell PAF-AH Products in the ICOS Territory.
2.02 RIGHT TO SUBLICENSE
The Company also hereby grants to ICOS the right to grant sublicenses
within and limited to the scope of the right and license granted by the Company
in Section 2.01 [ * ]; provided, however, that no sublicense shall be
granted under clauses (c) or (d) of this Section 2.02 without the prior written
consent of the Company, which consent shall not be unreasonably withheld. Any
sublicensees of ICOS shall agree in writing to be bound by the provisions of
Section 3.02 to the same extent ICOS is bound. ICOS shall notify the Company of
the identity of each sublicensee a sublicense is granted and provide the Company
a true copy of such sublicense. In the event that the license granted herein to
ICOS is terminated at any time in accordance with Article VII and the Company
shall not be in default under Section 7.03, the Company shall have the option [
* ]. ICOS shall include in all of its sublicenses granted hereunder
provisions for such termination and assignment.
2.03 LIMITATIONS
No right or license is granted to ICOS hereunder except as expressly
specified in Sections 2.01 and 2.02.
2.04 OTHER LICENSES
It is acknowledged that the Company has granted [ * ] license to
Suntory to utilize the PAF-AH technology in the Suntory Territory in accordance
with the
* Confidential Treatment Requested
3
<PAGE>
terms of the Suntory License Agreement and that it may grant licenses to utilize
the PAF-AH Technology in the manner provided in the Shareholders' Agreement.
[ * ].
ARTICLE III
DISCLOSURE
3.01 DISCLOSURE
(a) The Company shall, in accordance with the Shareholders' Agreement
and the Development Agreement during the Term of Support, reasonably disclose
and deliver to ICOS all PAF-AH Technology in sufficient detail to permit ICOS to
employ such information for the purposes provided herein.
(b) ICOS shall, during the Term of Support, have the right to attend
and participate in the Company's technical meetings, conduct plant visits at
reasonable intervals and receive information regarding the PAF-AH Technology.
ICOS shall be provided with reasonable notice of the time and place of such
meetings.
(c) During the term of this Agreement, each Party shall inform the
other Party, promptly and in a manner to be agreed upon, of any [ * ]
related to PAF-AH Products in [ * ].
3.02 CONFIDENTIALITY
(a) Any confidential PAF-AH Technology that is disclosed to ICOS
pursuant to this Agreement or the Shareholders' Agreement shall be designated as
confidential information in the following manner:
(i) If the disclosure is in written form, by prominently marking
or stamping each document containing such information with a notice indicating
the confidential and proprietary nature of the information; and
(ii) If the disclosure is in oral form, by delivering to ICOS
within fifteen (15) days of the oral disclosure written notice confirming the
confidential and proprietary nature of the information.
* Confidential Treatment Requested
4
<PAGE>
(b) Except to the extent expressly authorized by this Agreement, the
Shareholders' Agreement, the Development Agreement or by other prior written
consent of the Company during the term of this Agreement and thereafter, ICOS
shall keep completely confidential and shall not publish or otherwise disclose
to others and shall not use any confidential PAF-AH Technology disclosed or
provided to ICOS by the Company. For the purposes of this Agreement, PAF-AH
Technology shall be deemed not confidential to the extent, and only to the
extent, that it:
(i) was known to ICOS at the time of its disclosure and not
otherwise subject to an obligation of ICOS to keep such information
confidential;
(ii) was generally available to the public or was
otherwise part of the public domain at the time of its disclosure;
(iii) became generally available to the public or became
otherwise part of the public domain after its disclosure and other than through
any act or omission of ICOS in breach of this Agreement; or
(iv) became known to ICOS after its disclosure (A) from a source
other than the Company (including from independent development by ICOS), (B)
other than from a third party who had an obligation to the Company not to
disclose such information to others, and (C) other than under an obligation of
confidentiality.
ICOS may disclose any PAF-AH Technology to the extent such disclosure
is necessary for ICOS to comply with applicable laws or regulations or to make,
use or sell under the license granted herein by the Company or to sublicense
others to do so; provided, that ICOS shall give the Company reasonable advance
notice of such proposed disclosure, shall use its best efforts to secure
confidential treatment of PAF-AH Technology to be disclosed and shall advise the
Company in writing of the manner in which that was done.
(c) The obligation of confidentiality imposed by this Section 3.02
shall survive termination of this Agreement for any reason whatsoever.
[ * ]
* Confidential Treatment Requested
5
<PAGE>
(b) Except as expressly authorized by this Agreement or by the prior
written consent of the Company, during the term of this Agreement and
thereafter,
[ * ].
ARTICLE IV
ROYALTY
4.01 ROYALTY
ICOS shall pay to the Company a royalty, at the applicable rate
hereinafter specified, on Net Sales of PAF-AH Products that are sold or
otherwise disposed of by ICOS or any of its Subsidiaries or sublicensees in the
ICOS Territory, whether or not such Subsidiaries are sublicensed pursuant to
Section 2.02. The royalty rate to be applied to Net Sales shall be:
[ * ].
Royalties shall be payable with respect to the Net Sales of a PAF-AH
Product occurring prior to the later of [ * ].
4.02 SALES TO SUBSIDIARIES AND SUBLICENSEES
[ * ].
4.03 RECORDS
ICOS shall keep full, complete and accurate records with respect to
the sale or other disposition of PAF-AH Products sufficient to enable the
Company to verify the accuracy of the statements required by Section 4.04(a).
The Company shall have the
* Confidential Treatment Requested
6
<PAGE>
right, through its accredited auditing representative, to make an examination
and audit, during normal business hours, not more frequently than annually, of
all such records and such other records and accounts as may under recognized
accounting practices contain information bearing upon the amount of royalty
payable to it under this Agreement. Prompt adjustment shall be made by the
proper Party to compensate for any errors or omissions disclosed by such
examination or audit. Neither such right to examine and audit nor the right to
receive such adjustment shall be affected by any statement to the contrary,
appearing on checks or otherwise, unless such statement appears in a letter,
signed by the Party having such right and delivered to the other Party,
expressly waiving such rights.
4.04 TERMS OF ACCOUNTING
(a) Within [ * ] after the end of each [ * ] period ending
on [ * ], commencing with the first [ * ] period in which Net Sales
occur, ICOS shall furnish to the Company a statement, in form acceptable to the
Company, setting forth the number of units of PAF-AH Products sold or otherwise
disposed of during the period, the Net Sales and the amount of royalty payable
thereon.
(b) Within such [ * ] period ICOS shall, irrespective of its own
business and accounting methods, pay to the Company the royalties payable for
such [ * ] period.
(c) ICOS shall furnish whatever additional information the Company may
reasonably request from time to time to enable the Company to ascertain which
PAF-AH Products sold or otherwise disposed of by ICOS or any of its Subsidiaries
or sublicensees are subject to the payment of royalty to the Company and the
amount of royalty payable thereon.
4.05 LATE PAYMENTS
Royalty payments required under this Agreement shall, when overdue, be
subject to a late payment charge [ * ]; provided, however, that if the
amount of such late payment charge exceeds the maximum permitted by law for such
charge, such charge shall be reduced to such maximum amount.
* Confidential Treatment Requested
7
<PAGE>
4.06 PAYMENTS
Payment to the Company shall be made in United States dollars. If any
royalty for any [ * ] period referred to in Section 4.04 is computed in
[ * ].
4.07 TAXES
ICOS shall bear all taxes, however designated, imposed as a result of
the existence or operation of this Agreement, including, but not limited to, any
tax on or measured by, any payment or receipt of payment hereunder, any
registration tax, and any tax imposed with respect to the granting or transfer
of licenses or other rights or considerations hereunder, except any such tax
imposed upon the Company by any governmental entity within or without the United
States, including any such tax which ICOS is required to withhold or deduct from
payments to the Company.
ARTICLE V
PATENT APPLICATIONS AND COPYRIGHT REGISTRATIONS
5.01 PATENT APPLICATIONS
ICOS shall pay the Company's reasonable costs and expenses (including
attorneys' fees) incurred to file, prosecute and maintain in force any patent
applications or patents covering the PAF-AH Technology that ICOS desires the
Company to file, prosecute or maintain in the ICOS Territory; provided, that, to
the extent an application or patent includes subject matter not covering the
manufacture, use or sale of products in the Field of Activity, ICOS shall pay an
equitable pro rata share of such costs and expenses.
If the Company's licensor and the Company decline to file, prosecute
or maintain any patent application or patent covering the PAF-AH Technology in
the ICOS Territory, [ * ].
* Confidential Treatment Requested
8
<PAGE>
ARTICLE VI
PATENT, COPYRIGHT AND TRADE SECRET ENFORCEMENT
6.01 RIGHTS OF ICOS
Except as provided in the PAF-AH License Agreement and Section 6.02,
ICOS shall have the right, but not the obligation, to bring, defend and maintain
any appropriate suit or action involving infringement of any patent or
copyright, misappropriation of any trade secret or interference with any other
intellectual property right included in the PAF-AH Technology in the ICOS
Territory that ICOS has licensed hereunder. If ICOS finds it necessary to join
the Company in such suit or action, the Company shall execute all papers and
perform such other acts as may be reasonably required and may, at its option, be
represented by counsel of its choice. ICOS shall pay to the Company its
reasonable expenses (excluding its attorneys' fees) in connection with such suit
or action. If ICOS lacks standing to bring any suit or action, then ICOS may
cause the Company to do so upon first undertaking to indemnify and hold the
Company harmless (to the extent permissible by law) from all consequent
liability and to promptly reimburse all reasonable expenses (including
attorneys' fees) stemming therefrom. Any amount recovered in any such suit or
action, whether by judgment or settlement, shall be paid to or retained entirely
by ICOS.
6.02 RIGHTS OF THE COMPANY AND SUNTORY
ICOS shall notify the Company of any infringement in the Field of
Activity in the ICOS Territory of any patent within the PAF-AH Technology
covering the making, use or sale of products or the use of processes both within
and outside the Field of Activity and shall provide the Company with any
available evidence of such infringement. The Company, ICOS and Suntory shall
consult with each other as to the best manner in which to proceed. The Party
whose patent is involved shall have the first right, but not the obligation, to
bring, defend and maintain any appropriate suit or action for such infringement.
If the Party finds it necessary or desirable to join either or both other
Parties in such suit or action, such other Parties shall execute all papers and
perform such other acts as may be reasonably required to do so and may, at its
option be represented by counsel of its choice. The pursuing Party shall pay
such other Parties' reasonable expenses (excluding attorneys' fees) in
connection with such suit or action. Any amount recovered in any such action,
whether by judgment or settlement, shall first be used to reimburse the pursuing
Party for its costs and expenses (including attorneys' fees) and then paid to
the Company and ICOS in accordance with their interests. In the event the Party
whose patent is involved fails or declines to take action to enforce the patent
within three (3) months following
9
<PAGE>
receipt of notice and evidence of such infringement, ICOS shall have the right
to bring, defend and maintain any appropriate suit or action for such
infringement in accordance with Section 6.01.
ARTICLE VII
TERM AND TERMINATION
7.01 TERM
Unless sooner terminated as provided below, this Agreement shall
remain in full force and effect [ * ]. Upon the expiration of this
Agreement as provided in the preceding sentence, the license granted to ICOS
hereunder shall [ * ].
7.02 EFFECTIVE DATE
This Agreement (including the license and rights granted under
Sections 2.01 and 2.02) shall come into effect as of the date hereof and shall
remain in full force and effect until the earlier of [ * ].
7.03 DEFAULT
In the event that a Party (the "Defaulting Party") shall (a) fail to
make any payment hereunder when and as due, or otherwise default in its
obligations hereunder and fail to remedy such default within sixty (60) days
after such default shall have been called to its attention by notice from
another Party, (b) become bankrupt or insolvent, or file a petition in
bankruptcy or make a general assignment for the benefit of creditors or
otherwise acknowledge insolvency, or be adjudged bankruptcy, (c) go or be placed
in a process of complete liquidation other than in connection with a
continuation of the business of the Company in some other legal form, or (d)
suffer the appointment of a receiver for any substantial portion of its business
who shall not be discharged within sixty (60) days after his appointment, then,
and in any such event, any other Party, at its] option, may terminate its
obligations to and the rights of the Defaulting Party under this Agreement upon
ten (10) days' written notice to the Defaulting Party, which termination shall
be effective as of the occurrence of the event giving rise to the option to
terminate.
* Confidential Treatment Requested
10
<PAGE>
7.04 SURVIVAL
Notwithstanding the termination or expiration of a Party's obligations
to or the rights of the Defaulting Party under this Agreement in accordance with
the provisions of Sections 7.01, 7.02 or 7.03, the provisions of Section 3.02,
Section 7.01, this Section 7.04 and Article X shall survive such termination and
continue in full force and effect for an indefinite term. Upon termination of
this Agreement for any reason under Section 7.02 or 7.03, and without limitation
of other remedies, ICOS shall
[ * ].
ARTICLE VIII
INFRINGEMENTS
8.01 INFRINGEMENTS
In the event that ICOS is charged with infringement or unauthorized
use of the alleged patent rights or proprietary rights of others [ * ]
then any damage recovery with respect to such claim and legal costs incurred in
ICOS's defense shall be reasonably shared by ICOS and the Company in accordance
with their interests, but the Company's share shall not exceed the percentage of
the Company's outstanding capital stock held by ICOS and the Company's total
liability shall not exceed the aggregate royalties previously paid hereunder by
ICOS and the royalties that ICOS will pay hereunder thereafter (i.e., ICOS will
receive a credit against its future royalty obligations for the Company's unpaid
share of such damage recovery and legal costs).
ARTICLE IX
CONSENTS AND APPROVALS
9.01 BEST EFFORTS
The Parties hereto shall use their best efforts to obtain as soon as
practicable any and all consents, approvals, orders or authorizations required
to be obtained from any governmental authority with respect to the provisions
hereof.
* Confidential Treatment Requested
11
<PAGE>
ARTICLE X
NOTICE
10.01 NOTICES
All notices, requests, demands and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
mailed to the Party to whom notice is to be given, by telex or facsimile, and
confirmed by first class mail, registered or certified, return receipt
requested, postage prepaid, and properly addressed as follows (in which case
such notice shall be deemed to have been duly given on the third (3rd) day
following the date of such sending):
"ICOS" ICOS Corporation
22021 - 20th Avenue S.E.
Bothell, WA 98021
U.S.A.
Attn: President
With a copy to: Perkins Coie
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
U.S.A.
Attn: James R. Lisbakken, Esq.
"Company" Suncos Corporation
c/o Suntory Limited
The Garden Court 8-F
4-1 Kioi-cho, Chiyoda-ku
Tokyo 102, Japan
Attn: President
Pharmaceutical Division
Any Party by giving notice to the others in the manner provided above may change
such Party's address for purposes of this Section 10.01.
12
<PAGE>
ARTICLE XI
MISCELLANEOUS
11.01 ENTIRE AGREEMENT
This Agreement, together with the other written agreements between the
Parties hereto which are referenced in the Shareholders' Agreement, sets forth
the entire agreement of the Parties with respect to the subject matter hereof
and may not be modified except by a writing signed by authorized representatives
of the Parties hereto. To the extent that there may be conflicts or
inconsistencies between the provisions of this Agreement and those contained in
the Shareholders' Agreement, the provisions of the Shareholders' Agreement shall
prevail and govern interpretation.
11.02 HEADINGS
Article and section headings in this Agreement are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
11.03 EXECUTION IN COUNTERPARTS
This Agreement may be executed in any number of counterparts and by
different Parties hereto in separate counterparts each of which when so executed
and delivered shall be deemed to be an original and all of which counterparts of
this Agreement taken together shall constitute but one and the same instrument.
11.04 FORCE MAJEURE
It is agreed that each of the Parties hereto is excused from
performing such acts as are required hereunder as may be prevented by or whose
purpose is frustrated by Force Majeure. The Party so affected shall give notice
to the other Party in writing promptly and thereupon shall be excused from such
of its obligations hereunder as it is unable to perform on account of the Force
Majeure throughout the duration thereof plus a period of thirty (30) days.
11.05 APPLICABLE LAW
This Agreement shall be governed by and construed in accordance with
the internal laws, and not the law of conflicts, of the State of Delaware
applicable to agreements made and to be performed in such state.
13
<PAGE>
11.06 ASSIGNMENT ON WRITTEN CONSENT
This Agreement shall be binding upon and inure to the benefit of the
Company and ICOS and their respective successors and assigns to the extent it is
assignable. This Agreement may not be assigned in whole or in part by ICOS,
except with the prior written consent of the Company or except as part of
[ * ].
11.07 SEVERABILITY
In the event any one or more of the provisions contained in this
Agreement shall be invalid, illegal or unenforceable in any respect, the
validity, legality or enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. In such event,
such invalid provision or provisions shall be validly reformed to as nearly
approximate the intent of the Parties as possible and if unreformable, shall be
severed and deleted from this Agreement.
11.08 NO WAIVER
No failure or delay on the part of either Party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy hereunder or the remedies provided by law.
11.09 TRADEMARKS AND TRADENAMES
The Company grants no rights to ICOS in any trademarks or tradenames
of the Company or of any of its respective Subsidiaries or affiliated companies.
11.10 INDEMNITY
ICOS hereby (a) releases the Company from any obligation to defend,
indemnify or save ICOS and its agents and employees harmless from and (b) agrees
to defend, indemnify and save the Company harmless from any and all cost,
expenses (including attorneys' fees), liabilities, damages and claims for any
injury or death to persons or damage to or destruction of property, or other
loss, arising out of or in connection with any product made, used or sold by
ICOS or the use by ICOS of the PAF-AH Technology licensed hereunder, or
otherwise arising out of or related to the performance of this Agreement.
* Confidential Treatment Requested
14
<PAGE>
11.11 OTHER AGREEMENTS
Any other provision of this Agreement notwithstanding, nothing in this
Agreement shall obligate the Company to disclose to ICOS any information or to
make available to ICOS any materials in violation of an obligation of secrecy or
a limitation of use imposed by a third party from whom such information or
materials shall have been received.
11.12 REMEDIES
No right, power or remedy herein conferred upon or reserved to any
Party is intended to be exclusive of any other right, power or remedy or
remedies, and each and every right, power and remedy of any Party pursuant to
this Agreement or now or hereafter existing at law or in equity or by statute or
otherwise shall to the extent permitted by law be cumulative and concurrent, and
shall be in addition to every other right, power or remedy pursuant to this
Agreement, or now or hereafter existing at law or in equity or by statute or
otherwise and the exercise or beginning of the exercise by any Party of any one
or more of such rights, powers or remedies shall not preclude the simultaneous
or later exercise by any Party of any or all such other rights, powers or
remedies.
11.13 ATTORNEYS' FEES AND COSTS
In the event of any action at law or in equity between the Parties
hereto to enforce any of the provisions hereof, the unsuccessful party or
parties to such litigation shall pay to the successful party or parties all
costs and expenses, including actual attorneys' fees, incurred therein by such
successful party or parties; and if such successful party or parties shall
recover judgment in any such action or proceeding, such costs, expenses and
attorneys' fees may be included in and as part of such judgment. The successful
party shall be the party who is entitled to recover its costs of suit, whether
or not the suit proceeds to final judgment. A party not entitled to recover its
costs shall not recover attorneys' fees.
11.14 NUMBER AND GENDER
Words in the singular shall include the plural, and words in a
particular gender shall include either or both additional genders, when the
context in which such words are used indicates that such is the intent.
15
<PAGE>
11.15 AGREEMENT TO PERFORM NECESSARY ACTS
Each Party agrees to perform any further acts and execute and deliver
any and all further documents and/or instruments which may be reasonably
necessary to carry out the provisions of this Agreement.
11.16 REPRESENTATIONS
Each of the Parties hereto acknowledges and agrees (i) that no
representation or promise not expressly contained in this Agreement has been
made by any other Party hereto or by any of its agents, employees,
representatives or attorneys; (ii) that this Agreement is not being entered into
on the basis of, or in reliance on, any promise or representation, expressed or
implied, covering the subject matter hereof, other than those which are set
forth expressly in this Agreement; and (iii) that each has had the opportunity
to be represented by counsel of its own choice in this matter, including the
negotiations which preceded the execution of this Agreement.
11.17 RIGHTS IN THE EVENT OF BANKRUPTCY
All rights in the PAF-AH Technology granted under this Agreement to
ICOS by the Company are, and shall otherwise be deemed to be, for purposes of
Section 365(n) of the U.S. Bankruptcy Code, a license of rights to "intellectual
property" as defined in Section 101 of the U.S. Bankruptcy Code. ICOS, as
licensee of such rights under this Agreement, shall retain and may fully
exercise all of its rights and elections under the U.S. Bankruptcy Code. In the
event of the commencement of a bankruptcy proceeding by or against the Company
under the U.S. Bankruptcy Code, ICOS shall be entitled to complete access to (or
a complete duplicate of, as appropriate) such PAF-AH Technology.
16
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized representatives in the manner legally binding
on them as of the date first above written.
SUNCOS CORPORATION
By /s/ Terumi Nakajima
-------------------
Terumi Nakajima
Chairman of the Board
By /s/ George B. Rathmann
----------------------
George B. Rathmann,
President and Chief Executive Officer
ICOS CORPORATION
By /s/ George B. Rathmann
----------------------
George B. Rathmann,
Chairman of the Board,
President and Chief Executive Officer
17
<PAGE>
EXHIBIT 23.1
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
ICOS Corporation:
We consent to incorporation by reference in the registration statements (Nos.
33-48401, 33-80680, 33-64762 and 333-08485) on Form S-8 of ICOS Corporation of
our report dated January 24, 1997, except for Note 8 which is as of February 6,
1997, relating to the balance sheets of ICOS Corporation as of December 31, 1996
and 1995, and the related statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1996, and the period from September 21, 1989 (incorporation) through December
31, 1996, which report appears in the December 31, 1996 annual report on Form
10-K of ICOS Corporation.
/s/ KPMG Peat Marwick LLP
Seattle, Washington
March 27, 1997
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