<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-19171
ICOS CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 91-1463450
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
22021 - 20th Avenue S.E., Bothell, WA 98021
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(Address of principal executive offices) (Zip code)
(425) 485-1900
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at October 31, 1998
----- -------------------------------
Common Stock, $0.01 par value 40,598,458
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ICOS CORPORATION
TABLE OF CONTENTS
PAGE NO.
--------
PART I. Financial Information
Consolidated Statements of Operations for the three months
and nine months ended September 30, 1998 and 1997 1
Consolidated Statements of Comprehensive Operations for the
three months and nine months ended September 30, 1998 and 1997 2
Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997 3
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997 4
Notes to Consolidated Financial Statements 5
ITEM 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II. Other Information
ITEM 1: Legal Proceedings *
ITEM 2: Changes in Securities *
ITEM 3: Defaults Upon Senior Securities *
ITEM 4: Submission of Matters to a Vote of Security Holders *
ITEM 5: Other Information 15
ITEM 6: Exhibits and Reports on Form 8-K *
SIGNATURE 16
EXHIBITS 17
* No information provided due to inapplicability of item.
<PAGE>
ICOS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------- -------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Collaborative research and development
from related parties $ 6,830 $ 5,962 $ 19,216 $14,022
License of technology to related party - - - 8,500
Other 500 500 1,510 1,500
------------- ------------- ------------- -------------
Total revenues 7,330 6,462 20,726 24,022
Operating expenses:
Research and development 16,306 10,796 46,612 29,767
General and administrative 738 628 2,409 1,926
------------- ------------- ------------- -------------
Total operating expenses 17,044 11,424 49,021 31,693
------------- ------------- ------------- -------------
Operating loss (9,714) (4,962) (28,295) (7,671)
------------- ------------- ------------- -------------
Other income (expense)
Investment income 312 589 1,226 1,588
Other, net (11) - (68) (8)
------------- ------------- ------------- -------------
301 589 1,158 1,580
------------- ------------- ------------- -------------
Net loss $(9,413) $(4,373) $(27,137) $(6,091)
============= ============= ============= =============
Net loss per common share -
basic and diluted $(0.24) $(0.11) $(0.68) $(0.15)
============= ============= ============= =============
Weighted average common shares
used in calculation of net loss
per share - basic and diluted 40,009 39,587 39,945 39,522
============= ============= ============= =============
</TABLE>
Form 10-Q See accompanying notes to consolidated financial statements. Page 1
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ICOS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------- --------------------
1998 1997 1998 1997
------- ------- -------- -------
<S> <C> <C> <C> <C>
Net loss $(9,413) $(4,373) $(27,137) $(6,091)
Other comprehensive income:
Unrealized gains (losses) on securities:
Unrealized holding gains arising
during the period 25 6 17 1
Less reclassification adjustments for gains
included in net loss (8) (12) (25) (14)
------- ------- -------- -------
Total other comprehensive income (loss) 17 (6) (8) (13)
------- ------- -------- -------
Comprehensive loss $(9,396) $(4,379) $(27,145) $(6,104)
======= ======= ======== =======
</TABLE>
Form 10-Q See accompanying notes to consolidated financial statements. Page 2
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ICOS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and par value data)
ASSETS
September 30, December 31,
1998 1997
------------- ------------
(unaudited)
Current assets:
Cash and cash equivalents $ 5,065 $ 1,404
Investment securities available
for sale, at market value 1,796 23,845
Interest receivable 234 524
Receivables under collaborative
arrangements from related parties 1,290 2,270
Other receivables 305 177
Prepaid expenses 704 509
--------- ------------
Total current assets 9,394 28,729
Property and equipment, at cost:
Land 2,310 2,310
Buildings and improvements 9,454 9,454
Leasehold improvements 9,670 8,361
Furniture and equipment 18,011 15,450
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39,445 35,575
Less accumulated depreciation and
amortization 20,171 17,676
--------- ------------
19,274 17,899
--------- ------------
Construction in progress 730 51
--------- ------------
Net property and equipment 20,004 17,950
--------- ------------
Loan receivable from related party 7,341 7,341
Other assets 173 45
--------- ------------
$ 36,912 $ 54,065
========= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,731 $ 2,363
Accrued payroll and benefits 867 873
Other accrued expenses 768 957
Deferred research and development
revenue from related parties 4,547 -
--------- -----------
Total current liabilities 9,913 4,193
Stockholders' equity:
Preferred stock, $.01 par value.
2,000,000 shares authorized; none issued - -
Common stock, $.01 par value.
100,000,000 shares authorized; 40,022,294
issued and outstanding at September 30,
1998 and 39,885,414 issued and
outstanding at December 31, 1997 400 399
Additional paid-in capital 176,150 171,879
Net unrealized gain on investment
securities available for sale 11 19
Accumulated deficit (149,562) (122,425)
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Total stockholders' equity 26,999 49,872
--------- ----------
$ 36,912 $ 54,065
========= ==========
Form 10-Q See accompanying notes to consolidated financial statements. Page 3
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ICOS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(27,137) $ (6,091)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 2,495 2,903
Amortization of investment premiums/discounts 200 497
Gain on sale of investment securities (25) (14)
Change in operating assets and liabilities:
Interest receivable 290 (76)
Receivables under collaborative
arrangements from related parties 980 (6,367)
Other receivables (128) (59)
Prepaid expenses (195) 252
Accounts payable 1,368 473
Accrued payroll, benefits and other expenses (195) 87
Deferred research and development revenue 4,547 -
-------- --------
Net cash used in operating activities (17,800) (8,395)
Cash flows from investing activities:
Purchases of investment securities (12,579) (26,397)
Maturities of investment securities 9,480 25,972
Sales of investment securities 24,965 19,827
Acquisitions of property and equipment (4,549) (4,231)
Loan receivable from related party - (7,341)
Increase in other assets (128) (204)
-------- --------
Net cash provided by investing activities 17,189 7,626
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options 926 837
Proceeds from issuance of warrants 3,346 2,400
-------- --------
Net cash provided by financing activities 4,272 3,237
-------- --------
Net increase in cash and cash equivalents 3,661 2,468
Cash and cash equivalents at beginning of period 1,404 2,159
-------- --------
Cash and cash equivalents at end of period $ 5,065 $ 4,627
======== ========
Supplemental disclosure of noncash financing
and investing activities:
Acquisition of property and equipment
financed through accounts payable $ 150 $ 961
Receivable for issuance of warrants - 850
======== ========
</TABLE>
Form 10-Q See accompanying notes to consolidated financial statements. Page 4
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ICOS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 (UNAUDITED) AND DECEMBER 31, 1997
1. Summary of Significant Accounting Policies
Basis of Presentation
The information contained herein has been prepared in accordance with
instructions for Form 10-Q. In the opinion of management of ICOS Corporation
("ICOS" or the "Company"), the information reflects all adjustments necessary to
make the results of operations for the interim periods a fair statement of such
operations. All such adjustments are of a normal recurring nature. Interim
results are not necessarily indicative of results for a full year. For a
presentation including all disclosures required by generally accepted accounting
principles, these consolidated financial statements should be read in
conjunction with the audited consolidated financial statements for the year
ended December 31, 1997, included in the Company's Annual Report on Form 10-K.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, ICOS Development Corporation. All significant
intercompany transactions and balances have been eliminated.
2. Research and Development Arrangements
Suncos
The Company owns a 50% interest in Suncos Corporation ("Suncos"), a
corporation formed for the development and commercialization of Pafase(TM).
Pursuant to the terms of agreements entered into with Suncos, the Company
conducts certain research and development activities on behalf of Suncos and is
paid for such services based upon costs incurred. Suncos was funded initially
with a $30 million investment from Suntory Limited of Japan ("Suntory"). Once
the initial $30 million has been exhausted, ICOS and Suntory have each agreed to
make a $10 million investment in Suncos to provide funds for continued
development of Pafase(TM).
For the three months and nine months ended September 30, 1998, the Company
recognized research and development cost reimbursement revenue under this
arrangement of $3.0 million and $8.3 million, respectively. For the three
months and nine months ended September 30, 1997, the Company recognized research
and development cost reimbursement revenue under this arrangement of $3.1
million and $7.9 million, respectively.
Form 10-Q Page 5
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ICOS Clinical Partners, L.P.
In 1997, ICOS Clinical Partners, L.P. (the "Partnership"), an affiliate of
the Company, completed the sale to private investors of interests in the
Partnership. Proceeds from the offering are being used by the Partnership to
fund continued development of product candidates by the Company pursuant to the
terms of a Product Development Agreement based on three compounds:
LeukArrest(TM), Pafase(TM) and ICM3.
For the three months and nine months ended September 30, 1998, the Company
recognized cost reimbursement revenue from the Partnership of $3.8 million and
$10.9 million, respectively. For the three months and nine months ended
September 30, 1997, the Company recognized cost reimbursement revenue from the
Partnership of $2.9 million and $6.1 million, respectively. In addition, the
Company received a one-time payment in the second quarter of 1997 for the
license of technology to the Partnership.
3. New Accounting Standard
In 1998, the Company adopted Financial Accounting Standards Board Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income
("Statement 130"). The objective of Statement 130 is to report a measure of all
changes in equity of an enterprise that do not result from transactions with
owners ("comprehensive income"). Comprehensive income is the total of net income
(loss) and all other nonowner changes in equity.
4. Net Loss Per Common Share
For the quarter and nine months ended September 30, 1998, options to
acquire 6.5 million shares of common stock with a weighted average exercise
price of $9.11 per share, warrants to acquire 7.6 million shares of common stock
with a weighted average exercise price of $9.45 per share and contingently
issuable stock warrants to acquire 7.6 million shares of common stock have been
excluded from the computation of diluted net loss per common share as their
impact would be antidilutive.
For the quarter and nine months ended September 30, 1997, options to
acquire 5.5 million shares of common stock with a weighted average exercise
price of $7.02 per share, warrants to acquire 7.6 million shares of common stock
with a weighted average exercise price of $9.45 per share and contingently
issuable stock warrants to acquire 7.6 million shares of common stock have been
excluded from the computation of diluted net loss per common share as their
impact would be antidilutive.
Form 10-Q Page 6
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5. Subsequent Event
In October 1998, the Company and Eli Lilly and Company ("Lilly") formed a
50/50 owned joint venture to jointly develop and globally commercialize
phosphodiesterase type 5 inhibitors (PDE5) as oral therapeutic agents for the
treatment of both male and female sexual dysfunction. Under the terms of the
joint venture agreement, ICOS received a $75 million payment in October and
could receive future success milestone payments based on the progression of
IC351 through development. The joint venture is being capitalized by Lilly
through a cash infusion over a three-year period and the contribution by the
Company of intellectual property associated with IC351 and its research
platform. The joint venture will market products resulting from this
collaborative effort in North America and Europe. For countries outside North
America and Europe, products will be licensed exclusively to Lilly for
commercialization with a royalty paid to the joint venture.
Form 10-Q Page 7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Risks and Uncertainties
This discussion contains forward-looking statements that are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those projected. The Company's future cash requirements and
expense levels will depend on many factors, including continued scientific
progress in its research and development programs; the results of research and
development, preclinical studies and clinical trials; acquisitions of products
or technology, if any; relationships with corporate collaborators; competing
technological and market developments; the time and costs involved in filing,
prosecuting and enforcing patent claims; the time and costs of manufacturing
scale-up and commercialization activities; and other factors. Reference is made
to the Company's Annual Report on Form 10-K for more detailed description of
such factors. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this report. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect events
or circumstances after the date of this report or to reflect the occurrence of
unanticipated events.
Overview
The Company is developing and commercializing proprietary pharmaceutical
products for the treatment of inflammatory diseases and other serious medical
conditions. The Company's strategy is to identify therapeutic targets through
an understanding of inflammation at the molecular level. The Company is
developing pharmaceutical products that address important cellular and molecular
mechanisms in three separate, yet interrelated, areas of the inflammatory
process: directed cell movement, the inhibition of proinflammatory mediators
and intracellular signal transduction. Each of these different mechanisms may
provide broad opportunities in the treatment of clinical conditions, including
chronic diseases that have inflammatory components such as multiple sclerosis,
and in the treatment of acute inflammatory conditions such as those associated
with acute respiratory distress syndrome, hemorrhagic shock and myocardial
infarction. In addition, the Company's programs have yielded additional
approaches that may be useful in treating cardiovascular diseases, erectile
dysfunction and cancer. The Company believes that its discoveries will allow it
to develop novel therapeutics that are more selective in their activities than
existing drugs.
Form 10-Q Page 8
<PAGE>
LeukArrest(TM), a humanized monoclonal antibody, was formerly called
Hu23F2G. Pafase(TM), the recombinant form of a human enzyme, was formerly called
rPAF-AH.
Financial results for the third quarter and first nine months of 1998
reflect planned increases in operating expenses necessary for advancing multiple
therapeutic product candidates through the development process. Development
activities include product development, process development and the
establishment and management of clinical trials. The Company expects increased
clinical, regulatory, process development and product development activities
over the remainder of the year and in future periods.
The Company has an accumulated deficit at September 30, 1998 of $149.6
million. 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 and payments received from certain collaborations, joint
ventures and other business relationships, as well as the progress of the
Company's own research and development efforts, timing of clinical trials and
the regulatory process. The Company expects increased expenditures over the
next several quarters as it continues to expand the size and number of clinical
trials of its product candidates, continues to expand preclinical research and
development activities in support of additional potential products, and
initiates clinical trials of those product candidates deemed most promising.
Revenues
Revenues for the quarter ended September 30, 1998 totaled $7.3 million and
consisted of (i) $3.8 million in cost reimbursement revenue from ICOS Clinical
Partners, L.P. (the "Partnership"), (ii) $3.0 million in cost reimbursement
revenue from Suncos Corporation ("Suncos"), the Company's joint venture with
Suntory Limited of Japan ("Suntory"), and (iii) $0.5 million received under the
Company's research and development agreement with Abbott Laboratories
("Abbott"). Revenue for the quarter ended September 30, 1997 totaled $6.5
million, and consisted of (i) $2.9 million in cost reimbursement revenue from
the Partnership, (ii) $3.1 million in cost reimbursement revenue from Suncos,
and (iii) $0.5 million received under the Company's agreement with Abbott.
Revenues for the nine months ended September 30, 1998 totaled $20.7 million
and consisted of (i) $10.9 million in cost reimbursement revenue from the
Partnership, (ii) $8.3 million in cost reimbursement revenue from Suncos, and
(iii) $1.5 million received under the Company's agreement with Abbott. Revenue
for the nine months ended September 30, 1997 totaled $24.0 million and consisted
of (i) $6.1 million in cost reimbursement revenue from the Partnership, (ii) a
one-time payment of $8.5 million for the license of technology to the
Partnership, (iii) $7.9 million in cost reimbursement revenue from Suncos, and
(iv) $1.5 million received under the Company's agreement with Abbott.
Form 10-Q Page 9
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Operating Expenses
Total operating expenses for the quarter ended September 30, 1998 increased
to $17.0 million from $11.4 million for the quarter ended September 30, 1997.
Total operating expenses for the nine months ended September 30, 1998 increased
to $49.0 million from $31.7 million for the nine months ended September 30,
1997.
Research and development expenses for the third quarter of 1998 increased
to $16.3 million from $10.8 million for the third quarter of 1997. Research and
development expenses for the nine months ended September 30, 1998 increased to
$46.6 million from $29.8 million for the nine months ended September 30, 1997.
The increase in research and development expenses for both the third quarter and
nine months ended September 30, 1998 was due primarily to costs associated with
the progression of clinical trials for LeukArrest(TM), Pafase(TM), ICM3 and
IC351, and the expansion of other product development efforts.
General and administrative expenses for the third quarter of 1998 increased
to $0.7 million from $0.6 million in the third quarter of 1997. General and
administrative expenses for the nine months ended September 30, 1998 increased
to $2.4 million from $1.9 million for the nine months ended September 30, 1997.
General and administrative expense for the nine months ended September 30, 1997
was reduced by $0.2 million due to the recovery of certain organizational costs
related to the formation of the Partnership.
Other Income and Expense
Other income primarily represents investment income earned on the Company's
investment securities and interest income on the Company's loan to the
Partnership. Investment income for the third quarter of 1998 totaled $0.3
million compared to $0.6 million for the third quarter of 1997. Investment
income for the nine months ended September 30, 1998 totaled $1.2 million
compared to $1.6 million for the nine months ended September 30, 1997. The
decrease in investment income for both the third quarter and the nine months
ended September 30, 1998 was due primarily to lower average cash and investment
balances during the third quarter and the nine months ended September 30, 1998
compared to the same periods of 1997. Interest income on the loan to the
Partnership totaled $0.2 million for the third quarter of 1998 and $0.5 million
for the nine months ended September 30, 1998.
Net Loss
For the quarter ended September 30, 1998, the Company recognized a net loss
of $9.4 million or $0.24 per diluted share compared to net income of $4.4
million or $0.11 per diluted share for the quarter ended
Form 10-Q Page 10
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September 30, 1997. For the nine months ended September 30, 1998, the Company
recognized a net loss of $27.1 million or $0.68 per diluted share compared to a
net loss of $6.1 million or $0.15 per diluted share for the nine months ended
September 30, 1997. The increase in net loss for both the third quarter and the
nine months ended September 30, 1998 was due primarily to costs associated with
the progression of clinical trials for LeukArrest(TM), Pafase(TM) and ICM3 and
IC351, the expansion of other product development efforts and the recognition of
$8.5 million as a one-time fee for the license of technology to the Partnership
in the second quarter of 1997. Excluding the one-time payment from the
Partnership, the Company would have recognized a net loss of $14.6 million or
$0.37 per diluted share for the nine months ended September 30, 1997.
Liquidity & Capital Resources
The Company has financed its operations since inception through private and
public sales of common stock, investment income, revenue from research and
development collaborations and an R&D limited Partnership, license payments and
grants and capital leases.
At September 30, 1998, the Company had $7.1 million in cash and cash
equivalents, investment securities, and interest receivable, a decrease of $18.7
million from December 31, 1997. This decrease is primarily attributable to
increased costs associated with conducting clinical trials for LeukArrest(TM),
Pafase(TM), ICM3 and IC351, increased production of materials to support these
and future clinical trials, regulatory submissions and expansion of the
Company's other research and development programs.
For the nine months ended September 30, 1998, the Company spent $4.5
million for the purchase of capital equipment and leasehold improvements to
support research and development activities. To support its ongoing and future
research and product development efforts over the next several years, the
Company will need to purchase additional capital equipment and lease or purchase
additional laboratory and administrative facilities.
In October 1998, the Company and Eli Lilly and Company ("Lilly") formed a
50/50 owned joint venture to jointly develop and globally commercialize
phosphodiesterase type 5 inhibitors (PDE5) as oral therapeutic agents for the
treatment of both male and female sexual dysfunction. Under the terms of the
joint venture agreement, ICOS received a $75 million payment in October and
could receive future success milestone payments based on the progression of
IC351 through development. The joint venture is being capitalized by Lilly
through a cash infusion over a three-year period and the contribution by the
Company of intellectual property associated with IC351 and its research
platform. The joint venture will market any products resulting from this
collaborative effort in North America and Europe. For countries outside North
America and Europe, any products will be licensed exclusively to Lilly for
commercialization with a royalty paid to the joint venture.
Form 10-Q Page 11
<PAGE>
In 1997, the Partnership completed the sale to private investors of
interests in the Partnership. Proceeds from the offering will be used by the
Partnership to fund continued development by the Company of product candidates
based on three compounds: LeukArrest(TM); Pafase(TM); and ICM3, pursuant to the
terms of a product development agreement. The product candidates were licensed
to the Partnership by the Company in connection with the sale of the Partnership
units. The sale will result in net proceeds to the Partnership of approximately
$79.8 million. The Partnership received $25.9 million, before payment of
offering costs, on closing and the balance will be paid in installments over a
three-year period of which the first installment totaling $21.9 million was
received in the second quarter of 1998. In connection with the offering of
Partnership units, the Company issued warrants to purchase an aggregate of 7.6
million shares of the Company's common stock. These warrants were exercisable
beginning October 1, 1998. The Company has agreed to use its commercially
reasonable best efforts to establish and maintain an effective shelf
registration statement for resales of the shares to be issued pursuant to the
exercise of these warrants. In addition, the Company is obligated, subject to
certain conditions, to issue in June 1999 warrants to purchase an aggregate of
7.6 million additional shares of the Company's common stock.
During 1997, the Company loaned the Partnership $7.3 million to fund
certain initial expenditures of the Partnership that consist primarily of
organizational expenses, selling commissions and financial advisory and other
fees. Interest is payable annually on June 1, and the principal balance of the
loan is payable on June 1, 2000.
The Company anticipates that its operating expenses will continue to
increase during 1998 and in subsequent years as it adds personnel, equipment and
facilities associated with advancing its product candidates including
LeukArrest(TM), Pafase(TM), ICM3 and IC351 through development and clinical
trials. The Company also plans to continue preclinical research and development
activities for additional potential product candidates and initiate clinical
trials for those product candidates deemed most promising. Potential incremental
costs may include, but are not limited to, those associated with the Company's
own product development, preclinical studies and clinical trials, patent filings
and administrative activities. In addition, the Company will incur costs and
make capital contributions under its joint venture agreement with Suntory
related to the development of Pafase(TM). Under provisions of the development
agreement with Suncos, the Company will be reimbursed for certain of these
costs, however, there can be no assurance that all such costs will be
reimbursed. The Company will also incur costs associated with the development of
LeukArrest(TM), Pafase(TM) and ICM3, in connection with the Partnership. The
Partnership has agreed to reimburse the Company for certain of these costs.
The Company anticipates that its existing cash, including interest income
from cash investments and payments from Abbott, Suncos, Lilly and the
Partnership, will be adequate to satisfy its cash requirements through at least
1999. The Company will need to raise substantial additional funds over the next
several years to conduct its research and development activities, preclinical
studies and clinical trials necessary to bring its product candidates to market
and to establish sales and marketing capabilities if and when a product
candidate is ready for commercialization.
Form 10-Q Page 12
<PAGE>
The Company has been successful in negotiating collaborations and joint
development agreements with other parties where the work and strategies of the
other parties complement those of the Company. In some instances, these
relationships may involve commitments by the Company to fund some or all of
certain development programs. Although corporate collaborations and joint
ventures have provided cost reimbursement revenue to the Company in the past,
there can be no assurance that funds from such sources will be available to the
Company in the future. Insufficient funding will require the Company to delay,
scale-back or eliminate some or all of its research and development activities,
planned clinical trials and administrative programs.
The amounts and timing of operating expenditures will depend on the
progress of ongoing research and development of the Company's potential
products, as well as the activities of corporate collaborators and joint venture
partners related to collaborative research and development activities, the FDA
regulatory process and other factors, many of which are beyond the Company's
control.
Year 2000
Overview
The Year 2000 problem is the result of computer programs being written
using two, rather than four, digits to define the applicable year. Unless
corrected, those systems with time-sensitive software may recognize a date
ending in "00" as the year 1900 rather than the year 2000, potentially resulting
in system failures or miscalculations.
Readiness
Based on an initial review of its computer systems and a survey of its key
outside vendors, the Company presently believes that Year 2000 issues will not
pose significant operational problems. The Company believes that it can correct
the majority of its internal Year 2000 issues with certain modifications to
existing software and selective conversion to new software and hardware. In
addition, most of the Company's software and computer equipment has been
purchased within the last five years and as such, has been manufactured with
Year 2000 considerations in mind. Finally, all of the Company's critical
software applications have been purchased from third-party vendors, the majority
of which have already provided upgrades to bring their products into Year 2000
compliance. The Company estimates that it has already addressed the majority of
expected internal Year 2000 issues through normal upgrades and new purchases of
software and computer equipment.
While the Company does not believe its Year 2000 issues will be significant
to its operations, it has established a plan to proactively identify and address
remaining Year 2000 issues. Currently, the Company is in the process of
analyzing its software and computer systems and the Year 2000 status of its key
outside vendors. Upon completion of the analysis, the Company will contact
software and hardware vendors and its key outside
Form 10-Q Page 13
<PAGE>
vendors to confirm Year 2000 compliance for each item or vendor identified in
the analysis. Based on the information gathered from each vendor, the Company
will implement a Year 2000 solution if warranted. Finally, the Company will
perform tests of relevant systems and correct any Year 2000 issues that arise.
Costs
At this time, the Company is unable to determine the cost of correcting any
potential Year 2000 issues. An initial review of the Company's computer systems
showed that a majority of the Company's software, hardware, and embedded
controllers have been manufactured with Year 2000 issues in mind. As such, the
Company believes that the cost of identifying and correcting any internal Year
2000 issues will be minimal.
Risks
It is possible that after analyzing its systems for Year 2000 issues,
making necessary upgrades and replacements to its systems and testing its
systems, the Company may still encounter Year 2000 problems. Furthermore, it is
possible that some of the Company's key outside vendors will experience Year
2000 problems. Year 2000 problems with the Company's computer systems or its key
outside vendors, might cause delays in clinical trials and ultimately delay the
launch of products or have other effects on the Company's operations.
The Company anticipates that its highest Year 2000 risks are in the
Clinical and Manufacturing areas, as failures in these area may increase the
time to bring a product to market.
Contingency
The Company is in the process of establishing contingency plans to address
any Year 2000 issues.
Form 10-Q Page 14
<PAGE>
PART II. OTHER INFORMATION
ITEM 5: Other Information
If the Company receives notice of a shareholder proposal after
December 4, 1998, the persons named as proxies in such proxy
statement and proxy will have discretionary authority to vote on
such shareholder proposal.
Form 10-Q Page 15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ICOS CORPORATION
Date: November 13, 1998 By: /S/ GEORGE B. RATHMANN
----------------- -----------------------
George B. Rathmann
Chairman of the Board of Directors,
Chief Executive Officer and President
Date: November 13, 1998 By: /S/ HOWARD S. MENDELSOHN
----------------- ------------------------
Howard S. Mendelsohn
Chief Accounting Officer
Form 10-Q Page 16
<PAGE>
Index to Exhibits
Page
----
10.1 Limited Liability Company Agreement of Lilly ICOS LLC (the "LLC
Agreement") dated September 30, 1998 between ICOS Corporation and
Eli Lilly and Company, including Exhibit E thereto. #
10.2 Lilly License Agreement, dated September 30, 1998, between Lilly
ICOS LLC and Eli Lilly and Company (Exhibit A to the LLC Agreement). #
10.3 The PDE5 License Agreement, dated September 30, 1998, between ICOS
Corporation and Lilly ICOS LLC (Exhibit B to the LLC Agreement). #
10.4 Research and Development Agreement, dated September 30, 1998, among
ICOS Corporation, Lilly ICOS LLC and Eli Lilly and Company (Exhibit C
to the LLC Agreement). #
10.5 Marketing and Sales Service Agreement, dated September 30, 1998,
between ICOS Corporation, Lilly ICOS LLC, and Eli Lilly and Company
(Exhibit F to the LLC Agreement). #
27.1 Financial Data Schedule #
___________________________________
# Filed with this document
Form 10-Q Page 17
<PAGE>
EXHIBIT 10.1
TO
ICOS CORPORATION'S
FORM 10-Q
FOR THE QUARTER ENDED
SEPTEMBER 30, 1998
"[ * ]" = omitted, confidential material, which material has been
separately filed with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
<PAGE>
EXHIBIT 10.1
LIMITED LIABILITY COMPANY AGREEMENT
OF
LILLY ICOS LLC
BETWEEN
ELI LILLY AND COMPANY
AND
ICOS CORPORATION
SEPTEMBER 30, 1998
<PAGE>
CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 DEFINITIONS; INTERPRETATION.......................................... 2
1.1 Definitions......................................................... 2
1.2 Interpretation...................................................... 8
ARTICLE 2 GENERAL PROVISIONS................................................... 8
2.1 Name................................................................ 8
2.2 Principal Place of Business; Registered Office and Agent............ 8
2.3 Certificate of Formation............................................ 9
2.4 Term................................................................ 9
2.5 Purpose............................................................. 9
2.6 Title to Company Property........................................... 9
2.7 Confidentiality..................................................... 9
2.8 Press Releases...................................................... 10
ARTICLE 3 CAPITAL.............................................................. 11
3.1 Initial Capital Contributions [ * ]............................... 11
3.1.1 LILLY's Initial Capital Contribution......................... 11
3.1.2 ICOS' [ * ] Capital Contribution of Background
Technology................................................... 11
(a) Transfer Pursuant to PDE5 License Agreement............. 11
(b) [ * ]................................................. 11
(c) [ * ]................................................. 11
(d) Basis Allocation........................................ 11
3.1.3 Additional Capital Contributions [ * ]..................... 12
3.2 Additional Capital Contributions.................................... 12
3.2.1 Capital Calls................................................ 12
3.2.2 Defaulting Member............................................ 12
3.3 No Withdrawal of Capital; No Interest on Capital.................... 12
ARTICLE 4 TAX PROVISIONS....................................................... 13
4.1 Maintenance of Capital Accounts..................................... 13
4.2 Allocations of Profits.............................................. 14
4.3 Allocation of Losses................................................ 14
4.4 Special Allocations................................................. 14
4.4.1 Minimum Gain Chargeback...................................... 14
4.4.2 Member Minimum Gain Chargeback............................... 15
4.4.3 Qualified Income Offset...................................... 15
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4.4.4 Gross Income Allocation...................................... 15
4.4.5 Nonrecourse Deductions....................................... 16
4.4.6 Member Nonrecourse Deductions................................ 16
4.4.7 Code Section 754 Adjustments................................. 16
4.4.8 Allocations Relating to Taxable Issuance of
Interests.................................................... 16
4.5 [ * ]............................................................. 17
4.6 Code Section 704(c) Allocations..................................... 17
4.7 Other Allocations Rules............................................. 17
4.8 Tax Matters Member.................................................. 18
ARTICLE 5 DISTRIBUTIONS OF CASH................................................ 18
5.1 Distributions....................................................... 18
5.1.1 Limitations.................................................. 18
5.1.2 Amount of Distributions...................................... 19
5.1.3 Timing of Distributions...................................... 19
5.2 Additional Limitations on Distributions............................. 19
5.3 [ * ]............................................................. 19
5.4 Distribution to Pay Taxes........................................... 20
ARTICLE 6 MANAGEMENT AND OPERATION............................................. 20
6.1 Management of the Company........................................... 20
6.1.1 Managers...................................................... 20
6.1.2 Members....................................................... 20
6.2 Appointment of Managers............................................. 20
6.3 Performance of Duties............................................... 21
6.4 Devotion of Time.................................................... 21
6.5 Meetings of the Board............................................... 21
6.6 Action by Managers Without a Meeting................................ 22
6.7 Quorum and Voting at Meetings of Managers........................... 22
6.8 Officers; Teams/Committees.......................................... 23
6.9 Internal Controls................................................... 23
6.10 Financial and Business Information and Tax Returns.................. 23
6.11 Bank Accounts....................................................... 24
6.12 Independent Enterprise.............................................. 24
6.13 Compensation........................................................ 24
6.14 Fiduciary Duty...................................................... 24
6.15 Other Activities.................................................... 25
6.16 Noncompetition...................................................... 25
6.17 Conflicts of Interest............................................... 25
6.18 Patents............................................................. 25
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6.19 Operations Outside the United States................................ 26
6.20 Trademarks.......................................................... 26
6.21 Responsible Party for Regulatory Purposes........................... 26
ARTICLE 7 RIGHTS, OBLIGATIONS AND POWERS OF THE MEMBERS........................ 26
7.1 Compensation of Members............................................. 26
7.2 Services............................................................ 27
7.2.1 Types of Services............................................ 27
7.2.2 Charges for Services......................................... 27
7.3 Admission of Additional Members..................................... 27
ARTICLE 8 LIMITATION UPON LIABILITY; INDEMNIFICATION........................... 28
8.1 Limitation Upon Liability........................................... 28
8.2 Company's Debts..................................................... 28
8.3 Member's Debts...................................................... 28
8.4 Failure to Observe Formalities...................................... 28
8.5 Indemnification..................................................... 28
ARTICLE 9 REPRESENTATIONS AND WARRANTIES....................................... 29
9.1 Representations and Warranties...................................... 29
9.1.1 Organization and Existence................................... 29
9.1.2 Power and Authority.......................................... 29
9.1.3 Authorization and Enforceability............................. 29
9.1.4 No Governmental Consents..................................... 30
9.1.5 No Conflict or Breach........................................ 30
9.1.6 No Proceedings............................................... 30
9.1.7 No PDE5 Agents............................................... 30
9.2 Additional Representations and Warranties of ICOS................... 31
9.3 Warranty of Statements.............................................. 31
9.4 Survival of Representations and Warranties.......................... 32
ARTICLE 10 CONDITIONS PRECEDENT TO CLOSING..................................... 32
10.1 Conditions Precedent to the Obligations of the Members.............. 32
10.1.1 No Misrepresentations........................................ 32
10.1.2 Compliance With Agreement.................................... 32
10.1.3 No Litigation................................................ 32
10.1.4 Additional Documents......................................... 32
10.1.5 Governmental Approval and Consents........................... 33
10.1.6 Agreements................................................... 33
10.2 Delivery to LILLY................................................... 33
10.3 Delivery to ICOS.................................................... 34
10.4 Closing............................................................. 34
ARTICLE 11 INDEMNIFICATION..................................................... 34
11.1 Indemnification..................................................... 34
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11.2 Mechanism for Indemnification....................................... 35
ARTICLE 12 DISPUTE RESOLUTION.................................................. 35
12.1 Dispute............................................................. 35
12.2 Mediation........................................................... 35
ARTICLE 13 TRANSFERS OF MEMBERSHIP INTERESTS................................... 36
13.1 Overall Restrictions................................................ 36
13.2 Additional Restrictions............................................. 36
13.3 Purchase Price and Payment Date..................................... 37
13.4 Change of Control................................................... 37
13.5 Admission of Substituted Members.................................... 38
13.6 Specific Performance................................................ 38
ARTICLE 14 SALE, DISSOLUTION AND LIQUIDATION................................... 38
14.1 Events of Dissolution............................................... 38
14.2 Final Accounting and Tax Returns.................................... 39
14.3 Liquidation......................................................... 39
14.4 Distributions in Liquidation........................................ 39
14.5 Deficit Capital Accounts............................................ 41
14.6 Termination of Company and Agreement................................ 41
ARTICLE 15 ACCOUNTING AND REPORTS.............................................. 41
15.1 Books and Records................................................... 41
15.2 Accounting Method................................................... 43
15.3 Fiscal Year......................................................... 43
15.4 Reports; Tax Returns................................................ 43
15.5 Required Governmental Filings....................................... 44
ARTICLE 16 GENERAL PROVISIONS.................................................. 44
16.1 Notices............................................................. 44
16.2 Waiver.............................................................. 45
16.3 Severability........................................................ 45
16.4 Waiver of Partition................................................. 45
16.5 Further Assurances.................................................. 46
16.6 Governing Law....................................................... 46
16.7 Counterparts........................................................ 46
16.8 Limitation on Rights of Others...................................... 46
16.9 Successors and Assigns.............................................. 46
16.10 Entire Agreement; Amendment......................................... 46
16.11 Expenses............................................................ 47
16.12 Construction........................................................ 47
16.13 Disclaimer of Agency................................................ 47
16.14 Rights and Remedies................................................. 47
16.15 Attorneys' Fees..................................................... 47
</TABLE>
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<TABLE>
<S> <C>
EXHIBIT A LILLY LICENSE AGREEMENT............................................... 1
EXHIBIT B PDE5 LICENSE AGREEMENT................................................ 1
EXHIBIT C RESEARCH AND DEVELOPMENT SERVICE AGREEMENT............................ 1
EXHIBIT D PRESS RELEASE......................................................... 1
EXHIBIT E SCHEDULE OF LILLY CONTRIBUTIONS....................................... 1
EXHIBIT F MARKETING AND SALES SERVICE AGREEMENT................................. 1
</TABLE>
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<PAGE>
LIMITED LIABILITY COMPANY AGREEMENT
OF
LILLY ICOS LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement") of LILLY ICOS
LLC (the "Company") is made as of this 30th day of September 1998 by and between
ELI LILLY AND COMPANY, an Indiana corporation ("LILLY"), and ICOS CORPORATION, a
Delaware corporation ("ICOS").
RECITALS
A. ICOS has conducted research, has developed and possesses certain
existing proprietary patent rights, technical information, technology and know-
how relating to inhibitors of PDE5.
B. LILLY and ICOS believe that the aforementioned patent rights,
information, technology and know-how will have important application to the
development of products.
C. LILLY and ICOS formed the Company jointly for the principal purpose of
developing, manufacturing, producing and selling throughout the Territory on a
commercial basis PDE5 Products.
D. LILLY 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 LILLY is such that
substantial economic returns may be gained by each through cooperative effort.
E. ICOS intends to license to the Company its technology related to PDE5
to use in the Field in consideration for a Membership Interest in the Company as
more fully set forth herein.
F. LILLY intends to contribute cash to the Company in consideration for a
Membership Interest in the Company as more fully set forth herein.
G. The parties believe that it is in their best interest to set forth
their mutual understanding with respect to, among other things, management and
operation of the Company and the ownership and Transfer of the Membership
Interests.
NOW, THEREFORE, in consideration of the mutual covenants of the parties,
each to the other, and of good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
<PAGE>
ARTICLE 1
DEFINITIONS; INTERPRETATION
1.1 DEFINITIONS
Capitalized terms used herein shall have the following meanings:
"Act" means the Delaware Limited Liability Company Act, as provided in
---
Title 6, Chapter 18 of the Delaware Code, (S) 101 et. seq., as amended from time
-- ----
to time.
"Adjusted Capital Account Deficit" means, with respect to any Member, the
--------------------------------
deficit balance, if any, in such Member's Capital Account as of the end of the
relevant Fiscal Year, after giving effect to the following adjustments:
(a) Credit to such Capital Account any amounts that such Member is
obligated to restore pursuant to any provision of this Agreement or is deemed to
be obligated to restore pursuant to the penultimate sentences of Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(b) Debit to such Capital Account the items described in Regulations
Sections 1. 704-l(b)(2)(ii)(d)(4), 1.704-l(b)(2)(ii)(d)(5) and 1.704-
l(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Regulations Section 1.704-l(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
"Affiliate" means, with respect to any Person, another Person that,
---------
directly or indirectly, controls, is controlled by or is under common control
with such Person. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. The direct or indirect ownership of [ * ] or, if smaller,
the maximum allowed by applicable law, of the voting securities of a business
entity or of an interest in the assets, profits or earnings of an Entity shall
be deemed to constitute "control" of the Entity.
"Agreement" means this Limited Liability Company Agreement, including all
---------
exhibits attached hereto, as originally executed and as amended from time to
time.
"Background Technology" shall have the meaning set forth in the PDE5
----------------------
License Agreement. The Background Technology consists of proprietary technical
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<PAGE>
information, technology and know-how, including patents, patent applications and
copyrights, owned or controlled by ICOS as of the Closing Date that relate to
PDE5 and that are required in the development, manufacture, production, use or
sale of PDE5 Products. The Background Technology is being licensed to the
Company effective as of the Closing Date pursuant to the PDE5 License Agreement.
"Board" means the board of Managers established in accordance with Section
-----
6.1.
"Capital Account" means the capital account to be determined and maintained
---------------
for each Member pursuant to Section 4.1 throughout the existence of the Company,
which shall be interpreted and applied in a manner consistent with Regulations
Section 1.704-1(b).
"Capital Contribution" means, with respect to any Member, the amount of
--------------------
money and the initial Gross Asset Value of any property (other than money)
contributed to the Company with respect to the Interest held by such Member
reduced by the amount of any liabilities of such Member assumed by the Company
in connection with such Capital Contribution or that is secured by any property
contributed by such Member as a part of such Capital Contribution.
"Chair" means the chairperson of the Board as appointed in Section 6.2.
-----
"Closing Date" means October 2, 1998, or such other date as shall be
------------
mutually agreed upon by LILLY and ICOS.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Company" means the limited liability company formed pursuant to the
-------
Certificate of Formation and this Agreement.
"Company Minimum Gain" has the meaning of "partnership minimum gain" set
--------------------
forth in Regulations Sections 1.704-2(b)(2) and 1.704-2(d).
"Depreciation" means, for each Fiscal Year, an amount equal to the
------------
depreciation, amortization or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset Value
of an asset differs from its adjusted basis for federal income tax purposes as
of the beginning of such Fiscal Year, Depreciation shall be an amount that bears
the same ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization or other cost recovery deduction for such Fiscal Year
bears to such beginning adjusted tax basis; provided, however, that if the
adjusted basis for federal income tax purposes of an asset at the beginning of
such Fiscal Year is zero, Depreciation shall be
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<PAGE>
determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the Board.
"Entity" means any general partnership, limited partnership, limited
------
liability partnership, limited liability company, corporation, joint venture,
trust, estate, business trust, cooperative or association or any other
organization that is not a natural Person.
"Field" means the [ * ].
-----
"Gross Asset Value" means, with respect to any asset, the asset's adjusted
-----------------
basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a Member
to the Company shall be the gross fair market value of such asset, as determined
by the contributing Member and the Board, provided that the initial Gross Asset
Value of the assets contributed to the Company pursuant to Section 3.1 shall be
as set forth in such Section;
(b) The Gross Asset Values of Company assets shall be adjusted to
equal their respective gross fair market values, as determined by the Board, as
of the following times: (i) the acquisition of an additional Interest by any
new or existing Member in exchange for more than a de minimis Capital
Contribution; (ii) the distribution by the Company to a Member of more than a de
minimis amount of Property as consideration for an Interest; and (iii) the
liquidation of the Company within the meaning of Regulations Section 1.704-
l(b)(2)(ii)(g); provided, however, that the adjustments pursuant to clauses (i)
and (ii) above shall be made only if the Board reasonably determines that such
adjustments are necessary or appropriate to reflect the relative economic
interests of the Members in the Company;
(c) The Gross Asset Value of any Company asset distributed to any
Member shall be adjusted to equal the gross fair market value of such asset on
the date of distribution as determined by the distributee and the Board; and
(d) The Gross Asset Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Regulations Section 1.704-l(b)(2)(iv)(m) and Section 4.1 hereof;
provided, however, that the Gross Asset Values shall not be adjusted pursuant to
this clause (d) to the
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<PAGE>
extent the Board determines that an adjustment pursuant to clause (b) is
necessary or appropriate in connection with a transaction that would otherwise
result in an adjustment pursuant to this clause (d).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
clause (a), (b) or (d) above, such Gross Asset Value shall thereafter be used
for purposes of calculating Depreciation with respect to such asset for purposes
of determining Profits and Losses.
"IC351" means the ICOS compound currently known as IC351 that is a PDE5
-----
Agent.
"IRS" means the Internal Revenue Service of the U.S. Department of the
---
Treasury.
"LILLY License Agreement" means the LILLY License Agreement to be entered
-----------------------
into between the Company and LILLY as of the Closing Date that is attached
hereto as Exhibit A.
"LILLY Territory" means [ * ].
---------------
"Manager" means a person appointed to the Board pursuant to Article 6.
-------
"Marketing and Sales Service Agreement" means the Marketing and Sales
-------------------------------------
Service Agreement to be entered into among the Company, LILLY and ICOS as of the
Closing Date that is attached hereto as Exhibit F.
"Member Nonrecourse Debt" has the meaning of "partner nonrecourse debt" set
-----------------------
forth in Regulations Section 1.704-2(b)(4).
"Member Nonrecourse Debt Minimum Gain" means an amount, with respect to
------------------------------------
each Member Nonrecourse Debt, equal to the Company Minimum Gain that would
result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability
determined in accordance with Regulations Section 1.704-2(i)(3).
"Members" means the parties to this Agreement or their respective
-------
successors and permitted assigns.
"Membership Interest" or "Interest" means the interest in the Company
------------------- --------
representing each Member's percentage ownership in, and share of Profits and
Losses of, and the right to receive distributions under Sections 5.1 and 14.4
from, the
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<PAGE>
Company. The Membership Interest of each Member is fifty percent (50%), unless
adjusted pursuant to Section 3.2.2.
"Nonrecourse Deductions" has the meaning set forth in Regulations Section
----------------------
1.704-2(b)(1).
"Nonrecourse Liability" has the meaning set forth in Regulations Section
---------------------
1.704-2(b)(3).
"PDE5" means the [ * ] phosphodiesterase.
----
"PDE5 Agent" means [ * ].
----------
"PDE5 License Agreement" means the PDE5 License Agreement to be entered
-----------------------
into between the Company and ICOS as of the Closing Date that is attached hereto
as Exhibit B.
"PDE5 Products" means [ * ].
-------------
"PDE5 Technology" shall have the same meaning as "Company Technology" as
---------------
set forth in the Research and Development Service Agreement.
"Person" means any individual or Entity, and the heirs, executors,
------
administrators, legal representatives, successors and assigns of such Person
where the context so permits.
"Profits" and "Losses" mean the net taxable income and net tax loss of the
------- ------
Company computed for each Fiscal Year or other relevant period, as determined in
accordance with Code Section 703(a) (for this purpose, all items of income,
gain, loss, or deduction required to be stated separately pursuant to Code
Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(a) Any income of the Company that is exempt from federal income tax
and not otherwise taken into account in computing Profits and Losses pursuant to
this clause (a) shall be added to such taxable income or loss;
(b) Any expenditures of the Company described in Code Section
705(a)(2)(B) (including expenditures treated as described in Code Section
705(a)(2)(B) under Regulations Section 1.704-l(b)(2)(iv)(i)), and not otherwise
taken into account in computing Profits and Losses pursuant to this definition,
shall be subtracted from such taxable income or loss;
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<PAGE>
(c) In the event the Gross Asset Value of any Company asset is
adjusted pursuant to the terms of this Agreement, the amount of such adjustment
shall be taken into account as gain or loss from the disposition of such asset
for purposes of computing Profits and Losses;
(d) Gain or loss resulting from any disposition of Property with
respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the Property disposed
of, notwithstanding that the adjusted tax basis of such Property differs from
its Gross Asset Value;
(e) In lieu of the depreciation, amortization and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such Fiscal Year, computed in
accordance with the terms hereof;
(f) To the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Section 734(b) or Code Section 743(b) is required
pursuant to Regulations Section 1.704-l(b)(2)(iv)(m)(4) to be taken into account
in determining Capital Accounts as a result of a distribution other than in
liquidation of the Member's interest, the amount of such adjustment shall be
treated as an item of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases the basis of the asset) from the
disposition of the asset and shall be taken into account for purposes of
computing Profits or Losses; and
(g) Notwithstanding any other provisions of this Agreement, any items
that are specially allocated by the Company pursuant to Section 4.4 or Section
4.5 shall not be taken into account in computing Profits or Losses. The amount
of the items of Company income, gain, loss or deduction available to be
specially allocated pursuant to Sections 4.4 and 4.5 shall be determined by
applying rules analogous to those set forth in this definition of Profits and
Losses.
"Property" means any real, personal, tangible or intangible property
--------
contributed to or purchased, developed or otherwise acquired and owned by the
Company, including any improvements thereto.
"Regulations" means the income tax regulations promulgated under the Code,
-----------
as such regulations are amended from time to time (including corresponding
provisions of succeeding regulations).
"Research and Development Service Agreement" means the Research and
-------------------------------------------
Development Service Agreement to be entered into among the Company, LILLY and
ICOS as of the Closing Date that is attached hereto as Exhibit C.
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<PAGE>
"Territory" means [ * ].
---------
"Transfer" means any sale, assignment, gift, exchange, pledge, encumbrance,
--------
change in beneficial interest of any trust or estate, distribution from any
trust or estate, change in ownership of the Members, or any other disposition of
all or any part of a Membership Interest, whether voluntary or involuntary.
1.2 INTERPRETATION
(a) When required by the context, the singular includes the plural and
vice versa, and the masculine includes the feminine and neuter genders, and vice
versa;
(b) Except as otherwise specifically indicated, all references in this
Agreement to "Exhibits," "Schedules," "Articles," "Sections" and other
subdivisions are to the corresponding Exhibits, Schedules, Articles, Sections or
subdivisions of this Agreement as they may be amended from time to time; and
(c) Headings set forth in this Agreement are used for convenience only
and are not to be considered in construing or interpreting this Agreement.
ARTICLE 2
GENERAL PROVISIONS
2.1 NAME
The name of the Company shall be Lilly ICOS LLC. All business of the
Company shall be conducted under such name and under such variations thereof as
the Board deems necessary or appropriate to comply with the requirements of law
in any jurisdiction in which the Company may elect to do business.
2.2 PRINCIPAL PLACE OF BUSINESS; REGISTERED OFFICE AND AGENT
(a) The address and principal place of business of the Company shall be
1209 Orange Street, Wilmington, DE 19801, or at such other place as the Board
may from time to time determine.
(b) The registered office of the Company in the State of Delaware is
located at 1209 Orange Street, Wilmington, DE 19801. The registered agent of
the Company to accept service of process is Corporation Trust Company.
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2.3 CERTIFICATE OF FORMATION
The Members shall form the Company under and pursuant to the Act by filing
a Certificate of Formation for the Company (the "Certificate of Formation") with
the Secretary of State of the State of Delaware.
2.4 TERM
The term of the Company shall commence upon the filing of the Certificate
of Formation with the Secretary of State of the State of Delaware and shall
continue until dissolved in accordance with Article 14.
2.5 PURPOSE
The purpose of the Company is to engage in the business of developing,
manufacturing, producing, promoting and selling throughout the Territory PDE5
Products for the Field, to otherwise exploit the PDE5 Technology in the Field
for commercial purposes by whatever means, including, but not limited to,
licensing LILLY to sell PDE5 Products in the LILLY Territory pursuant to the
LILLY License Agreement, the manufacture of PDE5 Products in finished form or in
bulk form for LILLY to fill, finish and sell in the LILLY Territory pursuant to
the LILLY License Agreement and the coordination of development of PDE5 Products
for the Territory and LILLY Territory, and to do all things necessary,
appropriate or advisable in furtherance thereof. [ * ]. The Company
shall not engage in any other business or activity without the unanimous written
agreement of the Members.
2.6 TITLE TO COMPANY PROPERTY
The Property shall be owned solely by the Company as an entity, and no
Member, individually, shall have any ownership interest in any of the Property.
2.7 CONFIDENTIALITY
(a) Each Member agrees (i) to take all reasonable precautions and to use
its best efforts to maintain the confidentiality of all Confidential Information
that such Member or any of its Affiliates (the "Recipient") obtains in respect
to any other Member, the Company or any of their Affiliates (the "Disclosing
Member") and (ii) not to use or disclose such Confidential Information to any
third parties other than as permitted by Section 2.7(b). For purposes of this
Section 2.7, "Confidential Information" means all proprietary or confidential
information owned or provided by
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a Disclosing Member, including, but not limited to, proprietary or confidential
information provided under the letter agreement dated [ * ] (and countersigned
[ * ]) between LILLY and ICOS regarding confidential information, other than
information that (A) was previously known to the Recipient (other than from a
Disclosing Member), or (B) is available or, without the fault of the Recipient
(other than the Company) becomes available to the general public, or (C) is
lawfully received by the Recipient without an obligation of confidentiality from
a third party that, to the Recipient's knowledge, is not bound by any obligation
of confidentiality. The disclosure of Confidential Information shall not
constitute any grant of any license or any other rights or generate any business
arrangements unless specifically set forth herein or in another agreement.
(b) A Recipient may disclose Confidential Information (i) with the prior
written consent of the Disclosing Member, (ii) to appropriate regulatory
authorities, attorneys and accountants and pursuant to any order of a court,
administrative agency or other governmental authority, or (iii) to take any
lawful action that it deems necessary to protect its interests or the interests
of its Affiliates under, or to enforce compliance with the terms and conditions
of, this Agreement; provided, however, that in the event a Recipient may become
legally compelled to disclose any Confidential Information it will promptly
consult with the Disclosing Member as to the reasons for such disclosure and
will afford the Disclosing Member a reasonable opportunity to obtain a
protective order as to such information and will use reasonable efforts to
obtain reliable assurance that the information disclosed will be treated
confidentially.
(c) This Section 2.7 shall supersede and cancel the letter agreement dated
[ * ] (and countersigned [ * ]) between LILLY and ICOS regarding
confidential information.
(d) This Section 2.7 shall survive this Agreement and shall continue in
full force and effect for a period of five (5) years after the dissolution of
the Company.
2.8 PRESS RELEASES
Attached hereto as Exhibit D is a form of press release that the Members
intend to release upon execution this Agreement or shortly thereafter. All
future press releases by either Member relating to the subject matter of this
Agreement and related agreements shall be approved in advance by each Member
after written notice of such press release is given to the other Member, except
to the extent the press release is required by law in the opinion of legal
counsel to the Member or the substance thereof has been previously reviewed and
released by the Members or is in the public domain
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through no fault of the releasing Member. The content and timing of any notice
of any future press release shall be reasonable under the circumstances.
ARTICLE 3
CAPITAL
3.1 INITIAL CAPITAL CONTRIBUTIONS [ * ]
3.1.1 LILLY'S INITIAL CAPITAL CONTRIBUTION
LILLY shall make an initial Capital Contribution in the aggregate amount of
[ * ] in cash to the Company. This contribution shall be bifurcated into
(a) a [ * ] amount which shall be made in accordance with the contribution
schedule set forth on Exhibit E (the "[ * ]"), and (b) a [ * ] amount
which shall be contributed on the Closing Date (the "[ * ]"). In exchange
for its [ * ] Capital Contribution under this Section 3.1.1, LILLY shall
receive a fifty percent (50%) Membership Interest and shall have an initial
Capital Account balance equal to [ * ]. [ * ].
3.1.2 ICOS' [ * ] CAPITAL CONTRIBUTION OF BACKGROUND TECHNOLOGY
(a) TRANSFER PURSUANT TO PDE5 LICENSE AGREEMENT
ICOS shall transfer to the Company the PDE5 License Agreement pursuant
to which the Company (as licensee) shall receive a license to the Background
Technology. [ * ].
(b) [ * ]
[ * ].
(c) [ * ]
In consideration for its transfer of the Background Technology under
the terms of this Section 3.1.2, ICOS shall receive the following: (i) [ * ];
and (ii) a fifty percent (50%) Membership Interest and shall have an initial
Capital Account balance of [ * ].
(d) BASIS ALLOCATION
[ * ].
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3.1.3 ADDITIONAL CAPITAL CONTRIBUTIONS [ * ]
LILLY shall make additional Capital Contributions of up to [ * ] in the
aggregate in accordance with the terms of Schedule B of Exhibit E attached
hereto (each such payment, an "[ * ]"). Upon LILLY's making each such [ * ],
LILLY's Capital Account Balance shall be increased in the dollar amount of such
payment. [ * ]. [ * ].
3.2 ADDITIONAL CAPITAL CONTRIBUTIONS
3.2.1 CAPITAL CALLS
Upon each party's contribution of its entire initial Capital Contribution
as required in Section 3.1, the Board, in its sole discretion, may from time to
time require each Member to make additional Capital Contributions to the Company
to fund activities in the Field (a "Capital Call"). To make a Capital Call, the
Board shall give written notice to each Member at least ninety (90) business
days prior to the due date for making such additional Capital Contribution.
Such notice shall contain the following information: (a) the total capital to
be contributed; (b) the amount owed by each Member; and (c) the date on which
such amount is due (the "Due Date"). Each Member shall be required to
contribute only an amount of the Capital Call equal to such Member's percentage
ownership interest in the Company, and shall fund its Capital Contributions in
cash.
3.2.2 DEFAULTING MEMBER
If a Member (the "Defaulting Member") does not contribute all of its
respective share of any Capital Call (the difference between its share and the
amount contributed, the "Default Amount") on or before the Due Date, the Company
shall, [ * ];
[ * ]. Notwithstanding the foregoing, the Company and the non-Defaulting Member
shall have all remedies available to them at law or in equity against the
Defaulting Member to make an additional Capital Contribution required of it
under this Section 3.2.
3.3 NO WITHDRAWAL OF CAPITAL; NO INTEREST ON CAPITAL
No Member shall be entitled to withdraw or demand the return of any part of
such Member's Capital Contributions, except as provided in Section 3.2.2(i) or
Article
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14. No Member shall have the right to receive interest on its Capital
Contribution or its Capital Account.
ARTICLE 4
TAX PROVISIONS
4.1 MAINTENANCE OF CAPITAL ACCOUNTS
A Capital Account shall be established and maintained for each Member in
accordance with the following provisions:
(a) Each Member's Capital Account shall be increased by (i) the amount of
such Member's Capital Contribution, [ * ], (ii) such Member's allocable share
of Profits and any items of the nature of income or gain that are specially
allocated pursuant to Section 4.4 or 4.5, (iii) the amount of any Company
liabilities assumed by such Member or that are secured by any Property
distributed to such Member and (iv) the increase in Gross Asset Value of the
Backround Technology and ICOS' Capital Account described in Section 3.1.3.
(b) Each Member's Capital Account shall be decreased by (i) the amount of
cash and the Gross Asset Value of any Property distributed to such Member
pursuant to any provision of this Agreement, (ii) such Member's distributable
share of Losses and any items in the nature of expenses or losses that are
specially allocated pursuant to Section 4.4 or 4.5, and (iii) the amount of any
liabilities of such Member assumed by the Company or that are secured by any
property contributed by such Member to the Company.
(c) Upon the Transfer of all or part of an Interest, the Capital Account of
the transferor that is attributable to the transferred Interest shall carry over
to the transferee Member in accordance with the provisions of Regulations
Section 1.704-l(b)(2)(iv)(1), except as otherwise required to satisfy
Regulations Section 1.704-l(b) in connection with a termination of the Company.
(d) In determining the amount of any liability for purposes of maintaining
Capital Accounts for the Members, there shall be taken into account Code Section
752(c) and any other applicable provisions of the Code and the Regulations.
In the event the Board shall determine that it is prudent to modify the manner
in which the Capital Accounts, or any debits or credits thereto (including,
without limitation, debits or credits relating to liabilities that are secured
by contributed or distributed
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property or that are assumed by the Company or the Members), are computed in
order to comply with the Code and the Regulations, the Board may make such
modification, provided that it is not likely to have any material effect on the
amounts distributable to any Member pursuant to Article 14 upon the dissolution
of the Company. The Board also shall make (i) any adjustments that are necessary
or appropriate to maintain equality between (a) the Capital Accounts of the
Members and (b) the amount of Company capital reflected on the Company's balance
sheet, as computed for book purposes, in accordance with Regulations Section
1.704-1(b)(2)(iv)(g) and (ii) any appropriate modifications in the event
unanticipated events might otherwise cause this Agreement not to comply with
Regulations Section 1.704-1(b).
4.2 ALLOCATIONS OF PROFITS
After giving effect to the special allocations set forth in Sections 4.4
and 4.5, Profits for any Fiscal Year shall be allocated among the Members in
proportion to their respective Membership Interests.
4.3 ALLOCATION OF LOSSES
After giving effect to the special allocations set forth in Sections 4.4
and 4.5, Losses for any Fiscal Year shall be allocated among the Members in
proportion to their respective Membership Interests.
4.4 SPECIAL ALLOCATIONS
The following special allocations shall be made in the following order and
priority:
4.4.1 MINIMUM GAIN CHARGEBACK
Except as otherwise provided in Regulations Section 1.704-2(f),
notwithstanding any other provision of this Article 4, if there is a net
decrease in Company Minimum Gain during any Fiscal Year, each Member shall be
specially allocated items of Company income and gain for such Fiscal Year (and
if necessary subsequent Fiscal Years) in an amount equal to such Member's share
of the net decrease in Company Minimum Gain, determined in accordance with
Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts required to be allocated
to each Member pursuant thereto. The items to be so allocated shall be
determined in accordance with Regulations Sections 1.704-2(f)(6) and 1.704-
2(j)(2). This Section 4.4.1 is intended to comply with the minimum gain
chargeback requirement in Regulations Section 1.704-2(f) and shall be
interpreted consistently therewith.
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4.4.2 MEMBER MINIMUM GAIN CHARGEBACK
Except as otherwise provided in Regulations Section 1.704-2(i)(4),
notwithstanding any other provision of this Article 4, if there is a net
decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member
Nonrecourse Debt during any Fiscal Year, each Member who has a share of the
Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse
Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be
specially allocated items of Company income and gain for such Fiscal Year (and,
if necessary, subsequent Fiscal Years) in an amount equal to such Member's share
of the net decrease in Member Nonrecourse Debt Minimum Gain attributable to such
Member Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in
accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This
Section 4.4.2 is intended to comply with the minimum gain chargeback requirement
in Regulations Section 1.704-2(i)(4) and shall be interpreted consistently
therewith.
4.4.3 QUALIFIED INCOME OFFSET
In the event any Member unexpectedly receives any adjustments, allocations,
or distributions described in Regulations Section 1.704-1(b)(2)(ii)(d)(4),
Section 1.704-1(b)(2)(ii)(d)(5) or Section 1.704-1(b)(2)(ii)(d)(6), items of
Company income and gain shall be specifically allocated to such Member in an
amount and manner sufficient to eliminate, to the extent required by the
Regulations, the Adjusted Capital Account Deficit of such Member as quickly as
possible, provided that an allocation pursuant to this Section 4.4.3 shall be
made only if and to the extent that such Member would have an Adjusted Capital
Account Deficit after all other allocations provided for in this Section 4 have
been tentatively made as if this Section 4.4.3 were not in this Agreement.
4.4.4 GROSS INCOME ALLOCATION
In the event any Member has a deficit Capital Account at the end of any
Fiscal Year that is in excess of the sum of (a) the amount such Member is
obligated to restore pursuant to any provision of this Agreement, and (b) the
amount such Member is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5),
such Member shall be specially allocated items of Company income and gain in the
amount of such excess as quickly as possible, provided that an allocation
pursuant to this Section 4.4.4 shall be made only if and to the extent that such
Member would have a deficit Capital Account in
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excess of such sum after all other allocations provided for in this Section 4
have been made as if Section 4.4.3 and this Section 4.4.4 were not in this
Agreement.
4.4.5 NONRECOURSE DEDUCTIONS
Nonrecourse Deductions for any Fiscal Year shall be specially allocated
among the Members in proportion to their Membership Interests.
4.4.6 MEMBER NONRECOURSE DEDUCTIONS
Any Member Nonrecourse Deductions for any Fiscal Year shall be specially
allocated to the Member who bears the economic risk of loss with respect to the
Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in
accordance with Regulations Section 1.704-2(i)(1).
4.4.7 CODE SECTION 754 ADJUSTMENTS
In the event a Membership Interest is Transferred or Property is
distributed to a Member, the Board shall, upon the written request of any
Member, elect to cause the basis of the Property to be adjusted for federal
income tax purposes under sections 734, 743 and 754 of the Code. To the extent
an adjustment to the adjusted tax basis of any Company asset pursuant to Code
Section 734(b) or Code Section 743(b) is required pursuant to Regulations
Section 1.704-1(b)(2)(iv)(m)(2) or Section 1.704-1(b)(2)(iv)(m)(4) to be taken
into account in determining Capital Accounts as a result of a distribution to a
Member in complete liquidation of its Interest, the amount of such adjustment to
Capital Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases the basis
of the asset) and such gain or loss shall be specially allocated to the Members
in accordance with their interests in the Company in the event Regulations
Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member to whom such
distribution was made in the event Regulations Section 1.704-1(b)(2)(iv)(m)(4)
applies.
4.4.8 ALLOCATIONS RELATING TO TAXABLE ISSUANCE OF INTERESTS
Income, gain, loss or deduction, if any, realized by the Company as a
direct or indirect result of the issuance of an Interest by the Company to a
Member (the "Issuance Items") shall be allocated among the Members so that, to
the extent possible, the Capital Account balance for each Member for any Fiscal
Year is equal to the Capital Account balance that would have been maintained for
such Member for such Fiscal Year had the Company not realized the Issuance
Items.
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4.5 [ * ]
[ * ].
4.6 CODE SECTION 704(C) ALLOCATIONS
In accordance with Code Section 704(c) and the Regulations thereunder,
income, gain, loss and deduction with respect to any property contributed to the
capital of the Company shall be allocated among the Members, solely for federal
income tax purposes, so as to take account of any variation between the adjusted
basis of the property to the Company for federal income tax purposes and its
initial Gross Asset Value (computed in accordance with this Agreement). Such
allocations shall be consistently made in accordance with the [ * ] as provided
in Regulations Section 1.704-3(c); provided that such [ * ] shall be limited
exclusively to ICOS' proportionate share of items of tax depreciation and
amortization deductions attributable to those portions of the Background
Technology which [ * ].
In the event the Gross Asset Value of any Company asset is adjusted
pursuant to the terms of this Agreement other than as a result of [ * ],
subsequent allocations of income, gain, loss and deduction with respect to such
asset shall take into account any variation between the adjusted basis of such
asset for federal income tax purposes and its Gross Asset Value in a manner
determined by the Board consistent with Code Section 704(c) and Regulations
promulgated thereunder.
4.7 OTHER ALLOCATIONS RULES
(a) For purposes of determining the Profits, Losses or any other items
allocable to any period, Profits, Losses and any such other items shall be
determined on a daily, monthly or other basis, as determined by the Board using
any permissible method under Code Section 706 and the Regulations thereunder.
(b) Except as otherwise provided in Section 4.6 with respect to allocations
pursuant to Code Section 704(c), for federal income tax purposes, all items of
Company income, gain, loss or deduction shall be made in a manner that is
consistent with the allocation of Profits and Losses pursuant to this Article 4.
The Members are aware of the income tax consequences of the allocations of this
Article 4 and hereby agree to be bound by the provisions of this Article 4 in
reporting their allocable shares of Company income and loss for income tax
purposes.
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(c) Solely for purposes of determining a Member's proportionate share of
the "excess nonrecourse liabilities" of the Company within the meaning of
Regulations Section 1.752-3(a)(3), the Members' interests in Company profits
shall be equal to their respective Membership Interests.
4.8 TAX MATTERS MEMBER
(a) ICOS shall be the "tax matters partner" (the "Tax Matters Member") for
the Company within the meaning of Code Section 6231(a)(7).
(b) The Tax Matters Member shall notify and provide copies to the other
Members within five (5) business days (or as soon as reasonably practicable
thereafter) of any communication received from any governmental authority
regarding any proposed or existing audit, administrative or judicial proceeding,
request for information, preliminary discussion or any other formal or informal
communication regarding any tax matters pertaining to the Company or any Member.
In addition to and not in limitation of the foregoing, the Tax Matters Member
shall request, pursuant to Code Section 6223, that the other Members receive
notice from the IRS regarding any proceedings or adjustments. The Tax Matters
Member shall consult with the other Members concerning all tax matters and shall
not take any action in connection with any audit or proceeding, or enter into
any agreement with the IRS, that may adversely affect the other Members without
their express prior written consent.
(c) Notwithstanding anything to the contrary contained in this Agreement,
the Tax Matters Member shall assure that for the first tax period of its
operations and all subsequent periods of its operation (unless the Members have
mutually agreed otherwise) the Company shall have in effect an election under
Code Section 754 and all applicable regulations thereunder.
ARTICLE 5
DISTRIBUTIONS OF CASH
5.1 DISTRIBUTIONS
5.1.1 LIMITATIONS
Except as provided in Sections 5.3 and 5.4, no distributions shall be made
until [ * ].
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5.1.2 AMOUNT OF DISTRIBUTIONS
Upon meeting the requirements of Section 5.1.1, the Board shall attempt to
minimize the amount of cash and cash equivalents held by the Company yet
maintain sufficient funds to operate the Company in accordance with the purposes
of the Company as stated in Section 2.5. The Board shall cause the Company to
distribute on each Distribution Date, as defined in Section 5.1.3, all amounts
that the Board determines are not necessary to sustain operations of the Company
through the following December 31. Prior to each Distribution Date, the Board
shall determine the amount of funds necessary to sustain operations of the
Company through the following December 31 (the "Retained Funds") based on
compliance with an annual operating plan to be developed by the Board and in
consideration of other forecasts. The Retained Funds shall be that amount of
capital necessary to run the business through the following December 31
considering: [ * ]. Taking into consideration the Retained Funds necessary to
run the business and the current cash balances, it is expected that the cash and
cash equivalents on hand after each distribution is projected to be in the order
of approximately [ * ]. The Members acknowledge that this Section 5.1.2 is for
purposes of providing the Board with (i) objectives as to distributions and (ii)
guidance as to the amount of funds to be retained by the Company to sustain
operations until the following December 31.
5.1.3 TIMING OF DISTRIBUTIONS
Upon meeting the requirements in Section 5.1.1 and considering the
objectives set forth in Section 5.1.2, on or before June 30 and December 31 of
each year (the "Distribution Dates"), the Board shall cause the Company to
distribute the available cash expected to be on hand on such dates (or such
other amount as determined by the Board) to the Members in proportion to their
respective Membership Interests.
5.2 ADDITIONAL LIMITATIONS ON DISTRIBUTIONS
Except as provided in Section 5.3, no distribution shall be made if it
would render the Company insolvent or compromise its ability to operate.
Further, the Board shall not distribute any Property in kind except upon
liquidation of the Company.
5.3 [ * ]
[ * ].
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5.4 DISTRIBUTION TO PAY TAXES
Notwithstanding Section 5.1 but subject to the limitations on distributions
under Section 5.2, in the event a Member is allocated an amount of taxable
income for a Fiscal Year (other than the Fiscal Year of the Company's
liquidation) in excess of such Member's proportionate share of the Company's
entire taxable income for such year, the Company shall timely distribute to such
Member an amount equal to the effective federal, state and local income taxes
(based on the highest applicable rates in such year) that would be paid by a
corporation recognizing such excess taxable income. Such distribution shall
reduce the Capital Account of the recipient Member, but shall not otherwise
reduce such Member's Interest in any other Company attribute.
ARTICLE 6
MANAGEMENT AND OPERATION
6.1 MANAGEMENT OF THE COMPANY
6.1.1 MANAGERS
The Members hereby agree that the business, property and affairs of the
Company shall be managed exclusively by the Board as the representatives of the
Members. Except for situations in which the direct approval of the Members is
expressly required by this Agreement or the Act, the Board shall have full,
complete and exclusive authority, power and discretion to manage and control the
business, property and affairs of the Company, to make all decisions regarding
those matters and to perform or cause to be performed any and all other acts or
activities customary or incident to the management of the Company's business,
property and affairs.
6.1.2 MEMBERS
The Members shall only have the power to participate in the management of
the Company as expressly authorized by this Agreement or the Act. No Member,
acting solely in such capacity, is an agent of the Company. Unless expressly
and duly authorized in writing to do so by the Board, no Member shall have any
power or authority to bind or act on behalf of the Company in any way, to pledge
its credit, to execute any instrument on its behalf or to render it liable for
any purpose.
6.2 APPOINTMENT OF MANAGERS
The Company shall have eight (8) Managers, four (4) of which shall be
designated by LILLY (the "LILLY Managers") and four (4) of which shall be
designated by ICOS (the "ICOS Managers"). LILLY may remove any LILLY Manager or
fill any vacancy created by the resignation, death or disability of a LILLY
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Manager and determine the effective date of such replacement. ICOS may remove
any ICOS Manager or fill any vacancy created by the resignation, death or
disability of an ICOS Manager and determine the effective date of such
replacement. The number of Managers cannot be decreased or increased without
the unanimous written consent of the Members. The Board shall appoint one
Manager to serve as Chair, who shall serve in such capacity for a term of two
(2) years. The Board shall attempt to alternate between appointing a LILLY
Manager and an ICOS Manager as Chair in each succeeding term; provided, however,
a Manager may serve consecutive terms if so appointed by the Board. Each
Manager shall sign an addendum to this Agreement agreeing to be bound by its
terms.
6.3 PERFORMANCE OF DUTIES
Each Manager shall perform his or her managerial duties in good faith, in a
manner he or she reasonably believes to be in the best interests of the Company
and its Members, and with such care, including reasonable inquiry, as an
ordinarily prudent person in a like position would use under similar
circumstances. In performing his or her duties, the Managers shall be entitled
to rely on information, opinions, reports, or statements, including financial
statements and other financial data, of the following persons or groups, unless
they have knowledge concerning the matter in question that would cause such
reliance to be unwarranted and provided that the Manager acts in good faith and
after reasonable inquiry when the need therefor is indicated by the
circumstances:
(a) one or more officers, employees or other agents of the Company or a
Member whom the Manager reasonably believes to be reliable and competent in the
matters presented; or
(b) any attorney, independent accountant or other person as to matters that
the Manager reasonably believes to be within such person's professional or
expert competence.
6.4 DEVOTION OF TIME
A Manager is not obligated to devote all of his or her time or business
efforts to the affairs of the Company. A Manager shall devote whatever time,
effort and skill as he or she deems appropriate for the operation of the
Company.
6.5 MEETINGS OF THE BOARD
The Board shall meet at least once every quarter. In addition, the Board
shall meet upon the request of any Manager made to the Chair. Managers may
participate in meetings by means of audio or video conferencing equipment
through which all
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Managers participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at a meeting.
Meetings shall be held at such place and time as agreed to by the Board. The
Chair shall provide at least five (5) business days' advance written notice and
an agenda of each meeting of the Board to each Manager, unless a Manager waives
the advance notice requirement with respect to that Manager. Records of
proceedings of the Board shall be prepared by the Chair and shall be subject to
the approval of the Board.
6.6 ACTION BY MANAGERS WITHOUT A MEETING
Any action that could be taken at a meeting of the Board may be taken
without a meeting if [ * ].
6.7 QUORUM AND VOTING AT MEETINGS OF MANAGERS
(a) QUORUM. [ * ] shall constitute a quorum of the Board for the
transaction of business.
(b) VOTING. Except as provided in Sections 6.7(c) and 6.7(d), any
management decision shall require the approval of the Board, which approval
shall exist only upon the affirmative vote of four (4) or more Managers at a
meeting of the Board at which a quorum is present.
(c) ESTABLISHED POLICIES. The following actions shall require Board
approval as provided in Section 6.7(b), unless the Board establishes an ongoing
written policy of conducting any such action which policy may be changed in
writing by the Board from time to time:
(i) Any lending or borrowing of money by the Company;
(ii) The acquisition, mortgage, pledge, sale, assignment, transfer or
other disposition of any property 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 of any interest
(regardless of value) in the legal or beneficial ownership of any other
corporation or enterprise;
(iii) The adoption of a business plan or annual capital, operating
and development plans and budgets, including any material modification thereof
("Business Documents");
(iv) Any capital expenditure in excess of [ * ] by the Company; and
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(d) MEMBERS' CONSENT. The following actions shall require both the
approval of the Board and the unanimous written consent of the Members:
(i) The entry by the Company into any business outside the Field;
(ii) Any act in material contravention of this Agreement.
6.8 OFFICERS; TEAMS/COMMITTEES
The Board may, but is not required to, establish officers of the Company
and prescribe the duties of such officers. The officers of the Company shall be
chosen by, and shall serve at the pleasure of, the Board, and shall hold their
respective offices until their resignation, removal, or other disqualification
from service in a manner determined by the Board, or until their respective
successors shall be elected. The Board may, but is not required to, establish
such teams or committees composed of representatives from the Members or
otherwise and delegate to such teams or committees such authority, duties and
responsibilities as it deems appropriate. To assist the Board in managing the
Company, the Board expects to establish a Joint Venture Operating Team, composed
of individuals who shall serve for one (1) year terms each, subject to
reappointment by the Board. The Joint Venture Operating Team shall perform such
functions as directed by the Board.
6.9 INTERNAL CONTROLS
The Board shall conduct the business of the Company at all times in
accordance with high standards of business ethics and 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 as set forth in Section 15.1.
6.10 FINANCIAL AND BUSINESS INFORMATION AND TAX RETURNS
The Board shall make available to all the Members on a regular basis, and
as reasonably requested, all such information and/or documents (including
Business Documents as defined in Section 6.7(c)(iii)) as may be required to
permit the Board and the Members, as the case may be, to make informed judgments
with respect to all matters concerning the Company of interest to them.
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6.11 BANK ACCOUNTS
All funds of the Company shall be deposited in the name of the Company in
such bank accounts as shall be determined by the Board. No withdrawals for cash
may be made in excess of [ * ] at any one time. Any payment from the accounts
may be made or authorized only by an individual who is so authorized by the
Board; provided, however, that the [ * ] or (b) for the purpose of making any
payments to any Member or its Affiliate. The funds of the Company shall not be
commingled with the funds of any other Person, and the Board shall not employ,
or permit any other Person to employ, such funds in any manner except for the
benefit of the Company. The Members shall not make deposits into or issue any
checks against the Company bank accounts without full, proper and complete
supporting records.
6.12 INDEPENDENT ENTERPRISE
The Members agree to cause the Company at all times to be conducted as an
independent enterprise for profit. Except as otherwise agreed to by the Members
in writing or provided herein, all commercial transactions between the Company
and LILLY 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 the Members
otherwise agree in writing prior to such transactions.
6.13 COMPENSATION
No Manager shall be entitled to compensation from the Company for services
rendered to the Company as Manager, except that the Company shall reimburse each
Manager for reasonable out-of-pocket expenses incurred by the Manager in
connection with the Company's business. The previous sentence, however, shall
not preclude any Manager from serving the Company in any other capacity and
receiving compensation therefor.
6.14 FIDUCIARY DUTY
Each Member, Manager and officer 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 Members.
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6.15 OTHER ACTIVITIES
The Members 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 PDE5 Products in the Territory.
6.16 NONCOMPETITION
(a) GENERAL. Until dissolution of the Company in accordance with Article 14
or purchase of the Member's Interest in accordance with this Agreement, no
Member shall, and each Member shall cause its Affiliates not to, [ * ].
(b) EXCEPTIONS. Section 6.16(a) shall not apply to any current products of
the Member or its Affiliates that [ * ].
6.17 CONFLICTS OF INTEREST
The Managers who represent any Member referred to in Section 6.2 (the
"Interested Member") shall not be entitled to vote on any matter that involves
(a) a claim by the Company against the Interested Member or an Affiliate of the
Interested Member; (b) a claim by the Interested Member or its Affiliate against
the Company; (c) the declaration by the Company of a default under any agreement
between the Company and the Interested Member or its Affiliate; (d) the exercise
by the Company of any right to terminate any agreement between the Company and
the Interested Member or its Affiliate based on a default thereunder; (e) the
negotiation of any new agreements to be entered into by the Company and such
Interested Member or its Affiliate; or (f) any and all disputes between the
Company and the Interested Member or its Affiliate. As to matters where the
representatives of a Member are not entitled to vote, the representatives of the
other Member who are not disqualified may exercise the powers of the Board in
accordance with, and subject to the other provisions of, this Agreement.
Notwithstanding the foregoing, however, no claim shall be asserted by the
Company or by an Interested Member (or its Affiliate) against the other, and no
default shall be declared by the Company or an Interested Member (or its
Affiliate) with respect to the other, unless such claim or dispute cannot be
resolved either by the approval of the Board as provided under Section 6.7 or
under Article 12.
6.18 PATENTS
The Company will undertake to [ * ].
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6.19 OPERATIONS OUTSIDE THE UNITED STATES
It is expected that structures for doing business outside the United States
in the Territory will be created to enable the achievement of the purposes set
forth in Section 2.5. In establishing the structures, the following principles
and objectives will serve as guidelines:
(a) [ * ].
(b) [ * ].
(c) [ * ].
(d) [ * ].
6.20 TRADEMARKS
At or shortly after formation the Members will grant the Company a
nonexclusive, royalty free, worldwide license to use the Member's name and logo
in the name of the Company and with the Company's products, product literature
(including promotional materials) and services, subject to the terms of
reasonable trademark licenses to be negotiated in good faith.
6.21 RESPONSIBLE PARTY FOR REGULATORY PURPOSES
No later than the [ * ], the Board shall identify a responsible party and
his/her foreign equivalents for the Company for the purposes of meeting health
authority requirements. This person will be considered the most responsible
individual within, or on behalf of, the Company for regulatory purposes.
ARTICLE 7
RIGHTS, OBLIGATIONS AND POWERS OF THE MEMBERS
7.1 COMPENSATION OF MEMBERS
Except as may be specifically provided in this Agreement or in any other
written agreement, no Member shall receive any salary, fee or draw for services
rendered to or on behalf of the Company.
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7.2 SERVICES
7.2.1 TYPES OF SERVICES
ICOS and its Affiliates expect to provide the Company with business
management, accounting and financial support services in connection with the
daily operation of the Company's business, including operating and sales
services, in the United States and potentially throughout the rest of the
Territory. Both Members or their Affiliates are expected to provide the Company
with legal advice and related support services in connection with filing of
patent applications, protection of intellectual property and support of
litigation related to intellectual property matters and with such other services
as the Company may require and the Members may agree to provide. The foregoing
services that are expected to be provided to the Company shall be subject to the
terms of reasonable service agreements to be negotiated in good faith.
7.2.2 CHARGES FOR SERVICES
Services supplied to the Company by the Members may be charged on the
following basis:
(a) Each Member may charge the Company for [ * ].
(b) If a Member retains a third party to provide consulting or other
services to the Company, the Member may charge the Company for providing such
services in the amount that the third party charges the Member, provided such
charges are reasonable.
7.3 ADMISSION OF ADDITIONAL MEMBERS
The Board may admit to the Company additional Members, from time to time,
subject to the following:
(a) All the Members agree in writing to the admission of the new Member;
(b) The additional Member shall make a Capital Contribution in such amount
and on such terms as the Board determines to be appropriate; and
(c) No additional Member shall be admitted if the effect of such admission
would be to terminate the Company within the meaning of Code Section 708(b).
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ARTICLE 8
LIMITATION UPON LIABILITY; INDEMNIFICATION
8.1 LIMITATION UPON LIABILITY
No Member, Manager, officer or Affiliate thereof shall be liable,
responsible or accountable in damages or otherwise to the Company for any act or
omission by a Member, Manager or officer performed in good faith and in a manner
reasonably believed by him, her or it to be within his, her or its scope of
authority granted by this Agreement and in the best interest of the Company.
The Member, Manager or Officer shall be liable, however, for an act or omission
that constitutes fraud, intentional misconduct, bad faith, gross negligence or a
knowing violation of law. The liability of the Members, Managers, officers or
Affiliates shall be further limited as set forth in the Act and other applicable
law.
8.2 COMPANY'S DEBTS
The debts, obligations and liabilities of the Company, whether arising in
contract, tort or otherwise (except for the Member's, Manager's or officer's own
torts), shall be solely the debts, obligations and liabilities of the Company;
and the Member, Manager or officer shall not be obligated personally for any
such debts, obligations and liabilities of the Company solely by reason of being
a Member or acting as a Manager or officer of the Company.
8.3 MEMBER'S DEBTS
The personal debts, obligations and liabilities of any Member, Manager,
officer or Affiliate thereof, whether arising in contract, tort or otherwise,
shall be solely the personal debts, obligations and liabilities of such Member,
Manager, officer or Affiliate and the Company shall not be obligated for such
debts, obligations or liabilities.
8.4 FAILURE TO OBSERVE FORMALITIES
A failure to observe any formalities or requirements of this Agreement, the
Certificate of Formation or the Act shall not be grounds for imposing personal
liability on the Members, Managers or officers for liabilities of the Company.
8.5 INDEMNIFICATION
The Company shall indemnify and hold harmless all Members, Managers,
officers, their Affiliates and authorized agents of the Company (an
"indemnitee") against any liability, loss, damage, cost or expense (including
attorneys' fees and
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costs) incurred by an indemnitee on behalf of the Company or in furtherance of
the Company's interests; provided, however, that the Company shall not indemnify
and hold harmless an indemnitee in any of the circumstances identified in
Section 8.1 under which a Member, Manager or officer would be liable to the
Company. No Member, Manager or officer shall have any personal liability with
respect to the satisfaction of any required indemnification of an indemnitee.
Any indemnification required hereunder shall be made promptly as the liability,
loss or expense is incurred or suffered, and the indemnification provided by
this Section 8.5 shall be in addition to any other rights to which those
indemnified may be entitled under any agreement, as a matter of law or equity,
or otherwise, and shall continue as to a Member, Manager or officer who has
ceased to serve in that capacity, and shall inure to the benefit of the heirs,
successors, assigns and administrators of the indemnitees.
ARTICLE 9
REPRESENTATIONS AND WARRANTIES
9.1 REPRESENTATIONS AND WARRANTIES
Each Member hereby represents and warrants to the other Members as of the
date hereof the following:
9.1.1 ORGANIZATION AND EXISTENCE
Such Member is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it was incorporated.
9.1.2 POWER AND AUTHORITY
Such Member has the full power and authority to execute, deliver and
perform this Agreement, and to own and lease its properties and to carry on its
business as now conducted and as contemplated hereby.
9.1.3 AUTHORIZATION AND ENFORCEABILITY
The execution and delivery of this Agreement by such Member and the
carrying out by such Member of the transactions contemplated hereby have been
duly authorized by all requisite corporate actions, and this Agreement has been
duly executed and delivered by such Member and constitutes the legal, valid and
binding obligation of such Member, enforceable against it in accordance with the
terms hereof, subject, as to enforceability of remedies, to limitations imposed
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the enforcement of creditors' rights generally and
general principles of equity.
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9.1.4 NO GOVERNMENTAL CONSENTS
No authorization, consent or approval of, or notice to or filing with, any
governmental authority is required for the execution, delivery and performance
by such Member of this Agreement.
9.1.5 NO CONFLICT OR BREACH
None of the execution, delivery and performance by such Member of this
Agreement, the compliance with the terms and provisions hereof, and the carrying
out of the transactions contemplated hereby conflicts or will conflict with or
will result in a breach or violation of any of the terms, conditions or
provisions of any law, governmental rule or regulation or the charter documents,
as amended, or bylaws, as amended, of such Member or any order, writ,
injunction, judgment or decree of any court of governmental authority against
such Member or by which it or any of its proprieties is bound, or any loan
agreement, indenture, mortgage, note, resolution, bond, or contract or other
agreement or instrument to which such Member is a party or by which it or any of
its properties is bound, or constitutes or will constitute a default thereunder
or will result in the imposition of any lien upon any of its properties.
9.1.6 NO PROCEEDINGS
There are no suits or proceedings pending (other than those disclosed on
Schedule 9.1.6 attached hereto), or to the knowledge of such Member, threatened
in any court or before any regulatory commission, board or other governmental
administrative agency against or affecting such Member that could have a
material adverse effect on the business or operations of such Member, financial
or otherwise, or on its ability to fulfill its obligations hereunder.
9.1.7 NO PDE5 AGENTS
Except for IC351 and the other compounds included in the PDE5 License
Agreement with respect to ICOS and to each Member's knowledge and the knowledge
of its Affiliates, such Member and its Affiliates (a) [ * ], (b) [ * ], and
(c) are not selling any product that contains a PDE5 Agent or conducting a human
clinical trial of a PDE5 Agent. [ * ].
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9.2 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF ICOS
ICOS hereby represents and warrants to LILLY as of the date hereof, subject
to Section 6.02 of the PDE5 License Agreement, that (a) it owns or controls the
Background Technology (except technology that is not the subject of patents),
(b) except for the rights and obligations of ICOS under agreements by which it
licensed or acquired some of the Background Technology, the Background
Technology is free and clear of any liens, claims or encumbrances, (c) [ * ] and
(d) to its knowledge, there is no material and unauthorized use, infringement or
misappropriation of any of its rights in the Background Technology.
In addition, ICOS further represents and warrants to LILLY as of the date
hereof, subject to Section 6.02 of the PDE5 License Agreement that:
(i) It has provided to LILLY a complete and accurate copy of the
Collaboration Agreement by and among Glaxo Group Limited, Glaxo Inc. and ICOS
dated as of October 3, 1991 with attached Appendices A, B and C and the
amendment to such agreement dated as of January 24, 1997;
(ii) It has provided to LILLY complete and accurate copy of the [ * ];
(iii) Set forth on Appendix 1 to the PDE5 License Agreement is a complete
listing of patents, patent applications and invention disclosures [ * ] related
to PDE5 to ICOS' knowledge;
(iv) The assignment from [ * ] regarding rights in certain patents and
patent applications to the [ * ] as referenced in [ * ] has occurred;
(v) To the best of its knowledge and after reasonable examination, it
does not believe that the Company (or sublicensees thereof) would be subject to
any royalty obligation under the [ * ] with respect to the manufacture, use,
sale, offer for sale or import of IC351 or a PDE5 Product containing IC351; and
(vi) It is not aware whether the [ * ] has complied with
reporting/notification obligations under Section 200 et. seq. of the United
States Code Title 35.
9.3 WARRANTY OF STATEMENTS
No representation or warranty of either Member, or any exhibit, document,
statement, certificate or schedule pursuant hereto or in connection with the
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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 the Members 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.
9.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The respective representations and warranties of the Members shall survive
the Closing Date and continue in full force and effect for a period thereafter
equal to five (5) years following the Closing Date.
ARTICLE 10
CONDITIONS PRECEDENT TO CLOSING
10.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE MEMBERS
All the obligations of any Member under this Agreement are subject to the
fulfillment, at or prior to the Closing Date, of each of the following
conditions:
10.1.1 NO MISREPRESENTATIONS
Neither Member shall have discovered any material error, misstatement or
omission in the representations and warranties made by the other party in
Article 9.
10.1.2 COMPLIANCE WITH AGREEMENT
Each Member shall have performed and complied with all terms, covenants and
conditions required by this Agreement prior to the Closing Date.
10.1.3 NO LITIGATION
No suit, action or proceeding against any Member shall be pending or
threatened before any court or governmental agency in which such suit, action or
proceeding seeks to restrain or prohibit or to obtain damages or other relief in
connection with this Agreement or the transactions contemplated hereby.
10.1.4 ADDITIONAL DOCUMENTS
Each Member shall have delivered to the other Member such other instruments
and documents as may be, in the opinion of counsel for the other Member,
reasonably necessary to effectuate the transactions contemplated by this
Agreement, and all legal
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matters in connection with this Agreement and the transactions contemplated
hereby shall have been approved by counsel for the other Member.
10.1.5 GOVERNMENTAL APPROVAL AND CONSENTS
All necessary notifications and filings, if any, required to be made in or
with respect to any relevant country will have been made and all necessary
governmental approvals, if any, shall have been received and the prescribed
waiting periods will have expired or been terminated. No governmental entity
shall have indicated its objection to, or its intent to challenge as violative
of any federal, state or foreign laws, any of the transactions contemplated by
this Agreement or any related documents. In the event a governmental entity
places a condition on its approval of the transaction as contemplated by this
Agreement or any related documents that has a material effect on the proposed
business of the Company, the Members shall attempt to negotiate a mutually
agreeable modification to this Agreement.
10.1.6 AGREEMENTS
The Members have entered into, and duly executed, the Research and
Development Service Agreement and the Marketing and Sales Service Agreement.
The Company and ICOS have entered into, and duly executed, the PDE5 License
Agreement. The Company and LILLY have entered into, and duly executed, the
LILLY License Agreement.
10.2 DELIVERY TO LILLY
LILLY shall have delivered to it each of the following at or prior to the
Closing Date:
(a) Confirmation in form and substance reasonably satisfactory to
LILLY evidencing receipt of its Capital Contribution specified in Section 3.1;
(b) Duly executed counterpart of the PDE5 License Agreement effective
to license the Background Technology to the Company for use in the Field,
together with such other documents and instruments as may be necessary to
effectuate the licensing contemplated by this Agreement; and
(c) Duly executed certificate from an officer of ICOS that the
representations and warranties of ICOS contained in Article 9 are true and
correct as of the Closing Date.
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10.3 DELIVERY TO ICOS
ICOS shall have delivered to it each of the following at or prior to the
Closing Date:
(a) Confirmation in form and substance reasonably satisfactory to ICOS
evidencing receipt of its Capital Contribution specified in Section 3.1; and
(b) Duly executed certificate from an officer of LILLY that the
representations and warranties of LILLY contained in Article 9 are true and
correct as of the Closing Date.
10.4 CLOSING
The closing hereunder shall occur on the Closing Date at such time and
place as may be mutually agreed upon by the parties. 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, including the delivery of the PDE5
License Agreement, Research and Development Service Agreement, Marketing and
Sales Service Agreement, LILLY License Agreement and the certificates
contemplated by Sections 10.2(c) and 10.3(b), all as executed by the parties.
Simultaneously with the delivery and closing, LILLY shall make a capital
contribution pursuant to Section 3.1.1 of [ * ].
ARTICLE 11
INDEMNIFICATION
11.1 INDEMNIFICATION
ICOS shall indemnify and hold LILLY, the Company and their respective
Managers, 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 on ICOS'
liability under the various instruments and documents to be executed in
connection herewith). LILLY shall indemnify ICOS, the Company and their
respective Managers, officers, employees
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and agents to the same extent that LILLY is being indemnified pursuant to the
immediately preceding sentence.
11.2 MECHANISM FOR INDEMNIFICATION
The Member seeking indemnification hereunder ("Indemnified Member") shall
give written notice to the indemnifying Member ("Indemnifying Member") of its
indemnification claims hereunder, specifying the amount and nature of the claim,
and giving the Indemnifying Member the right to contest any such claim
represented by counsel of its choice; if any such claim is made hereunder by the
Indemnified Member and such claim arises from the claims of a third party
against the Indemnified Member and the Indemnifying Member does not elect to
undertake the defense thereof by written notice within fifteen (15) days after
receipt of the original notice from the Indemnified Member, the Indemnified
Member 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 Member 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 Member, the Indemnified
Member shall be entitled to indemnity hereunder only if, and to the extent that,
such defense is unsuccessful as determined by a final judgment of a court of
competent jurisdiction or is settled with the consent of the Indemnifying
Member. The Member defending a third-party claim shall have the right to choose
its own counsel.
ARTICLE 12
DISPUTE RESOLUTION
12.1 DISPUTE
In the event a dispute arises between the Members regarding the application
or interpretation of any provision of this Agreement or if there is a deadlock
among the Managers with respect to any management decision (a "Dispute"), then
upon the written request of either Member that includes a summary of the
Dispute, the [ * ].
12.2 MEDIATION
Any Dispute that the Members are unable to resolve through [ * ] shall be
submitted to nonbinding mediation, which will be held in Indianapolis, Indiana,
if initiated by ICOS and in Seattle, Washington, if initiated by LILLY. The
Members will mutually determine the mediator from a list of mediators obtained
from the American Arbitration Association office located in the city in which
the proceeding
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will take place. If the Members are unable to agree on the mediator, the
mediator will be selected by the American Arbitration Association with a
preference for selecting a retired federal judge or state supreme court judge as
the mediator.
ARTICLE 13
TRANSFERS OF MEMBERSHIP INTERESTS
13.1 OVERALL RESTRICTIONS
The Company will be owned on the Closing Date by two (2) entities that have
the compatibility and financial stability that are major elements contributing
toward the prospect of the future success of the Company. Except in accordance
with the terms of this Agreement, no Member shall Transfer all or any part of
its Membership Interest, or any interest therein, unless the Member (a) obtains
the prior written consent of the other Member ("Nontransferring Member"), which
consent may be withheld in the sole and absolute discretion of the
Nontransferring Member, and (b) provides satisfactory evidence to the Company
that such Transfer shall not violate applicable securities laws. Unless such
prior requirements are met, 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 Section 13.1 should be held
unenforceable, invalid or in violation of law by any court or tribunal, then the
Nontransferring Member shall have the right, exercisable in writing within
ninety (90) days of the date of final determination of invalidity or
unenforceability, to purchase the Membership Interest Members such transferring
Member purported to Transfer, pursuant to the terms of Section 13.3.
13.2 ADDITIONAL RESTRICTIONS
Upon the occurrence of any of the following events with respect to a Member
("Occurrence Member") (wherein there is not a continuity of proprietary interest
of the shareholders of the Member who owned the shares of the Member prior to
the occurrence of such event): (a) any transfer of substantially all of its
assets, (b) a liquidation or dissolution, or (c) any insolvency or bankruptcy
proceeding, the Member that is not involved with such an occurrence shall have
the right, exercisable in writing within sixty (60) days after the later of (i)
receipt of written notice of such occurrence and (ii) the conclusion of the
appraisal contemplated in Section 13.3, to purchase the Occurrence Member's
entire Membership Interest pursuant to the terms of Section 13.3 or to dissolve
the Company pursuant to the terms of Article 14. The Occurrence Member shall
notify the other Member in writing of any occurrence described in clauses (a),
(b) or (c) of this Section 13.2 at the very earliest time practicable.
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13.3 PURCHASE PRICE AND PAYMENT DATE
For purposes of Sections 13.1 and 13.2, the purchase price to be paid for
the Membership Interest of the transferring Member or Occurrence Member shall be
computed as follows:
(a) Within sixty (60) days after the occurrence of an event described in
Section 13.2 or 13.3, the Members shall jointly appoint an investment banking
firm or failing this joint action, each shall designate an investment banking
firm. Within thirty (30) days after their appointment, the designated
investment banking firms shall designate an additional investment banking firm
(the "Neutral Investment Banker") (collectively, the Neutral Investment Banker
and the two investment banking firms designated by the Members being referred to
as the "Three Investment Bankers"). The failure by any Member to appoint an
investment banking firm within the time allowed shall be deemed equivalent to
appointing the other Member's investment banking firm as the jointly appointed
investment banking firm. Within sixty (60) days 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 the Membership Interest being purchased, which appraisal shall
be binding and conclusive. The Company shall bear all appraisal expenses.
(b) The payment date of the purchase price pursuant to this Section 13.3
shall not be later than sixty (60) days after the sixty (60) day period set
forth in Section 13.3(a).
13.4 CHANGE OF CONTROL
In the event of a Change in Control (as defined below) of either Member
(the "Acquired Member"), the other Member (the "Other Member") shall be [ * ],
except (a) all accrued obligations shall survive, (b) the provisions of Sections
2.7, 3.1.3 and 5.3 and Articles 11 and 12 of this Agreement shall survive, (c)
the PDE5 License Agreement shall not terminate and (d) Article 6 of the Research
and Development Service Agreement shall survive but shall not operate as to any
future developments, inventions or discoveries.
For purposes of this Section 13.4, a "Change in Control" occurs when (a)
any Person becomes, after the date hereof, the beneficial owner, directly or
indirectly, of more than [ * ] of the outstanding securities of the Acquired
Member having a right to vote in the election of Directors or (b) the Acquired
Member is involved in a
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reorganization, merger or consolidation, except a "Change in Control" will not
have occurred if, after the transaction, [ * ] or more of the outstanding voting
securities of the corporation acquiring the Acquired Member's voting securities
or resulting or surviving from the reorganization, merger or consolidation are
owned by the Acquired Member's shareholders in the same proportion as they own
the Acquired Member's voting securities immediately prior to such transaction.
13.5 ADMISSION OF SUBSTITUTED MEMBERS
Subject to the other provisions of this Section 13, a transferee of an
Interest may be admitted to the Company as a substituted Member only upon
satisfaction of the following conditions:
(a) The Members unanimously consent to such admission, which consent may be
given or withheld in the sole discretion of each Member;
(b) The transferee becomes a party to this Agreement as a Member and
executes such documents and instruments as the Board may reasonably request as
may be necessary or appropriate to confirm such transferee as a Member and bind
such transferee by the terms and conditions of this Agreement; and
(c) The transferee pays or reimburses the Company for all reasonable legal,
filing and publication costs that the Company incurs in connection with the
admission of the transferee as a Member with respect to the transferred
Interest.
13.6 SPECIFIC PERFORMANCE
Each of the Members acknowledges that the rights and obligations provided
by this Section 13 are of unique value to it and that the payment of monetary
damages could not adequately compensate the other Member for any breach of the
obligations set forth herein. Accordingly, the rights of the Members set forth
in this Section 13 shall be specifically enforceable in accordance with their
terms.
ARTICLE 14
SALE, DISSOLUTION AND LIQUIDATION
14.1 EVENTS OF DISSOLUTION
(a) The Company shall be dissolved upon the mutual written consent of the
Members.
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(b) The Company shall be dissolved upon the occurrence of any of the events
set forth in Section 13.2 if the Member that is not the Occurrence Member shall
not have exercised the purchase option provided in Section 13.2 and shall have
requested, within sixty (60) days after such occurrence, that the Company be
dissolved.
(c) The Company may be dissolved for federal and Delaware income tax
purposes, but preserved in nominal form for Delaware state law purposes, by
either Member upon the bankruptcy, receivership or insolvency of the other
Member or the Company, or upon the material breach of this Agreement by the
other Member.
(d) The Members recognize that the Company may be dissolved by order of a
court of competent jurisdiction pursuant to (S) 18-802 of the Act.
14.2 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.
14.3 LIQUIDATION
Upon the dissolution of the Company, each Member shall appoint an
individual to act as a liquidator to wind up the Company (and, if either Member
fails to appoint such individual within sixty (60) days after the written
request of the other Member, the individual that shall have been appointed by
such other Member within such sixty (60) day period shall act as the liquidator)
(the individuals so appointed shall be referred to collectively as the
"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.
14.4 DISTRIBUTIONS IN LIQUIDATION
(a) Upon dissolution of the Company and the liquidation of the assets of
the Company pursuant to this Article 14, the Liquidator shall wind up the
affairs of the Company and liquidate the assets as promptly as is consistent
with obtaining fair value therefor and cause the remaining assets of the
Company, including proceeds of sales or other dispositions in liquidation of
assets, to be applied in accordance with the following priorities:
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(i) First, to payment of the debts and obligations of the Company to
its creditors (other than a Member), including sales commissions and other
expenses incident to any sale of the assets of the Company;
(ii) Second, to the establishment of such reserves as the Liquidator
may deem reasonably necessary for any unliquidated contingent or unforeseen
liabilities or obligations of the Company;
(iii) Third, to the payment in full of loans (including for this
purpose, accrued interest thereon through the date of payment) to the Company by
the Members, pro rata, according to the relative amount of such unpaid loans
(including for this purpose, accrued interest thereon through the date of
payment) and then to the payment in full of any other debts and obligations of
the Company to its Members (e.g., under service agreements), pro rata, according
to the relative amount of such debts and obligations;
(iv) Fourth, to the Members having positive Capital Accounts pro rata
in accordance with their relative positive Capital Accounts (as determined after
taking into account all Capital Account adjustments for the Company's Fiscal
Year during which such liquidation occurs), until all such positive Capital
Accounts are reduced to zero; and
(v) Fifth, among the Members in proportion to their respective
Membership Interests.
The reserves established pursuant to clause (ii) of this Section 14.4(a) shall
be paid over by the Liquidator to a bank or other financial institution to be
held in escrow for the purpose of paying unliquidated, contingent or unforeseen
liabilities or obligations, and, at the expiration of such period as the
Liquidator deems advisable, such reserves shall be distributed to the Members or
their assigns in the priority set forth in clauses (iii) and (iv) of this
Section 14.4(a). Distributions to the Members pursuant to this Section 14.4(a)
shall be made within the time period prescribed by Regulations Section 1.704-
1(b)(2)(ii)(b).
(b) In the event the Liquidator determines that an immediate sale of part
or all of the Company assets would cause undue loss to the Members, the
Liquidator, in order to avoid such loss, may either (i) defer liquidation of any
assets of the Company for a reasonable time, except those assets necessary to
satisfy Company debts and obligations, or (ii) distribute the assets in kind to
the Members. If any assets of the Company are to be distributed in kind, such
assets shall be valued and shall be deemed sold at their fair market value and
any gain or loss deemed realized shall be allocated to the Capital Accounts of
the Members for purposes of applying this Section 14.4 as if such gain or loss
had actually been fully realized. Any assets that are to be so
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distributed shall be distributed on the basis of the fair market value thereof
and any Member entitled to an interest in such assets shall receive such
interest therein as a tenant-in-common with all other Members so entitled. The
fair market value of such assets shall be determined by an appraiser to be
selected by the Liquidator or by agreement of all the Members. In the event of
such distribution in kind, the distributee Member shall not thereafter sell or
otherwise Transfer or dispose of any interest in any assets so distributed which
it holds as a tenant-in-common without first offering such interest in writing
to the other tenant-in-common upon the same terms and conditions and for the
same price as such proposed sale or Transfer. The other tenant-in-common shall
have thirty (30) days after the receipt of such offer within which to accept the
same and shall have the right to acquire such interest. If the other tenant-in-
common shall fail to accept such offer within such period of time, such
distributee Member shall be free to sell the interest in such assets upon the
terms and conditions described in the offer disclosed to the other tenants-in-
common free of any further rights of first refusal.
14.5 DEFICIT CAPITAL ACCOUNTS
Except as may otherwise be required by law, notwithstanding anything to the
contrary contained in this Agreement, to the extent that any Member has a
Deficit Capital Account balance upon dissolution of the Company, that balance
shall not be an asset of the Company and that Member shall not be obligated to
contribute any amount to the Company to bring the balance of that Member's
Capital Account to zero.
14.6 TERMINATION OF COMPANY AND AGREEMENT
Upon the completion of the distributions in liquidation of the Company as
provided in this Article 14, (a) the Liquidator shall take all actions as may be
appropriate to finally dissolve and liquidate the Company and (b) this Agreement
shall terminate.
ARTICLE 15
ACCOUNTING AND REPORTS
15.1 BOOKS AND RECORDS
(a) Procedures. The Board shall implement standard procedures with respect
----------
to accounting, financial reporting and management information, including,
without limitation, statements reflecting Company distributions, earnings,
Profits and Losses, residual value of Company Property and taxable income.
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(b) Records. At all times during the term of the Company, the Board shall
-------
keep or cause to be kept full and accurate books, records and accounts, which
shall, in reasonable detail, accurately and fairly reflect each transaction of
the Company. Each Member and its representatives shall have access to such
books, records and documents during reasonable business hours and may inspect
and make copies of any of them. The Board may delegate to a third party or
Member the duty to maintain and oversee the preparation of such records and
books of account. The Board shall maintain all such books and records for the
six (6) most recent Fiscal Years or until such year is closed for tax audit
purposes.
(c) Audit of Company's Statements. The Company will engage and pay for an
-----------------------------
external accounting firm to audit its financial statements at least annually.
Since it is anticipated that one Member, as chosen by the Board (the "Accounting
Services Provider"), will provide accounting services to the Company, the Board
is advised that, whenever practicable, it should appoint the primary external
accounting firm which provides services to the Accounting Services Provider.
The Member which is not the Accounting Services Provider shall have the right,
during regular business hours and upon reasonable advance notice, to review the
audited financial statements and the related work papers and findings of the
external accounting firm supporting the financial statements or request another
external accounting firm to perform such examination, the cost of which shall be
borne by the party requesting the examination.
(d) Examination of Member Transactions. Each Member shall keep
----------------------------------
comprehensive books and records relating to (i) such Member's reimbursements
under this Agreement and (ii) any compensation or reimbursements under any
agreement with the Company, on a full accrual basis of accounting in accordance
with generally accepted accounting principles for the three (3) most recent
Fiscal Years. Either Member, upon reasonable advance notice to the other
Member, may examine or engage an external accounting firm to examine the
accuracy of revenues, billings and supporting documentation of the other Member
for services or payments to or from the Company during the prior three (3)
Fiscal Years, including under the Research and Development Service Agreement,
the Marketing and Sales Service Agreement, the LILLY License Agreement and any
other agreements involving the Company and the other Member. The Member
requesting the review shall, for purposes of such review, utilize the other
Member's regular outside certified public accounting firm. The cost of such
examination shall be borne by the Member requesting the examination; however, in
the event such examination reveals information that deviates by [ * ] or
more from the information previously provided to the Member requesting the
examination, the cost of the examination shall be borne by the other Member.
/*/ Confidential Treatment Requested
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15.2 ACCOUNTING METHOD
The books and records of the Company shall be kept in accordance with
generally accepted accounting principles applied on a consistent basis from year
to year.
15.3 FISCAL YEAR
The Company shall use the calendar year as its fiscal year for all
financial reporting and tax purposes (the "Fiscal Year").
15.4 REPORTS; TAX RETURNS
Copies of all accounts, reports and other writings pertaining to the
business of the Company furnished by a Member, the Company or the Company's
accountants to any Member or regulatory agency shall contemporaneously be
delivered to all Members.
On a periodic basis, the Company shall submit the following financial
information:
(1) [ * ];
(2) [ * ];
(3) [ * ].
Calendars and subsequent revisions thereto, if any, referred to above will
be provided to the Company within ten (10) days of their publication and
distributions within LILLY.
Prior to March 15 of each year, the Board shall provide to the Members
regular annual audited financial statements prepared by independent, nationally
recognized certified public accountants as chosen under Section 15.l(c), 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 Board or Members.
The Board shall cause to be prepared and filed, on the Company's behalf and
at the Company's expense, all federal, state and other tax returns required to
be filed, and shall submit the same to the Members for review and approval not
less than thirty (30)
/*/ Confidential Treatment Requested
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days prior to the respective due dates for such returns (including any
extensions thereof), but, with respect to the Company's United States federal
income tax information return, in no event later than May 15 of each year.
Apportionment data for state returns will be provided by June 1 of each year.
15.5 REQUIRED GOVERNMENTAL FILINGS
The Board shall cause the Company to file, on or before the dates the same
may be due, giving effect to extensions obtained, all reports, returns and
applications that may be required by any governmental or quasi-governmental body
having jurisdiction.
ARTICLE 16
GENERAL PROVISIONS
16.1 NOTICES
Any notice, request, instruction or other document to be given hereunder by
a Member to another Member hereto shall be in writing, delivered in person, or
mailed by certified or registered mail, return receipt requested, or transmitted
by facsimile transmission with electronic confirmation of receipt to the
addressee's address or facsimile number set forth below (or such other address
or facsimile number as the party changing its address specifies in a notice to
the other parties):
If to ICOS:
ICOS Corporation
22021 - 20th Avenue S.E.
Bothell, WA 98021
U.S.A.
Attention: President
Phone: (425) 485-1900
Facsimile: (425) 485-1911
with a copy to:
Perkins Coie LLP
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
U.S.A.
Attention: James R. Lisbakken, Esq.
Phone: (206) 583-8888
Facsimile:(206) 583-8500
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<PAGE>
If to LILLY:
Eli Lilly and Company
Lilly Corporate Center
Indianapolis, IN 46285
Attention: President, Neuroscience Product Teams
Phone: (317) 276-2785
Facsimile: (317) 276-2025
with a copy to:
Vice President and General Counsel
Eli Lilly and Company
Indianapolis, IN 46285
Phone: (317) 276-2703
Facsimile: (317) 276-4152
Notices shall be deemed to have been given on the date of service, if served
personally on the party to whom notice is to be given, or on the first day after
transmission by facsimile transmission, if transmitted by facsimile as set forth
above, or on the fifth day after mailing, if mailed as set forth above.
16.2 WAIVER
No waiver of any breach of the terms of this Agreement shall be effective
unless such waiver is in writing and signed by the Member against whom such
waiver is claimed. No waiver of any breach shall be deemed to be a waiver of
any other or subsequent breach.
16.3 SEVERABILITY
If any provision of this Agreement shall be held to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
16.4 WAIVER OF PARTITION
No Member, either directly or indirectly, shall take any action to require
partition of the Company or any of its assets or properties. Notwithstanding
any provisions of applicable law to the contrary, each Member (and its
successors and assigns) hereby irrevocably waives any and all right to maintain
any action for partition or to compel any sale with respect to its Membership
Interest, or with respect
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to any assets or properties of the Company, except as expressly provided in this
Agreement.
16.5 FURTHER ASSURANCES
Each Member shall execute such deeds, assignments, endorsements, evidences
of transfer and other instruments and documents and shall give further
assurances as shall be necessary to perform its obligations hereunder and shall
execute such estoppel and other documents as are reasonably requested by any
other Member regarding the status of the Company.
16.6 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, without regard to the choice of law provisions of
the State of Delaware or any other jurisdiction.
16.7 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which shall constitute one and the same
instrument.
16.8 LIMITATION ON RIGHTS OF OTHERS
This Agreement is entered into between the Members for the exclusive
benefit of the Company, its Members, and their successors and permitted assigns.
This Agreement is not intended for the benefit of any creditor of the Company or
any other Person. Except to the extent provided by applicable statute, and then
only to that extent, no creditor or third party shall have any rights under this
Agreement or under any other agreement between the Company and any Member with
respect to any contribution to the Company or otherwise.
16.9 SUCCESSORS AND ASSIGNS
This Agreement shall be binding on and inure to the benefit of the Members
and their respective successors and permitted assigns.
16.10 ENTIRE AGREEMENT; AMENDMENT
This Agreement constitutes the entire agreement between the Members with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, whether oral or written, between the Members (and their
Affiliates)
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with respect to the subject matter hereof, including the letter agreement dated
[ * ] (and countersigned [ * ]) between LILLY and ICOS regarding confidential
information (which is superseded and replaced by Section 2.7). This Agreement
may be amended only in writing signed by all the Members.
/*/Confidential Treatment Requested
16.11 EXPENSES
Except as otherwise provided herein or agreed to in writing by the Members
or their Affiliates, each Member shall bear its own costs and expenses,
including legal fees, associated with carrying on its business as a Member
hereof.
16.12 CONSTRUCTION
This Agreement has been submitted to the scrutiny of, and has been
negotiated by, all Members hereto and their counsel, and shall be given a fair
and reasonable interpretation in accordance with the terms hereof, without
consideration or weight being given to its having been drafted by any party
hereto or its counsel.
16.13 DISCLAIMER OF AGENCY
This Agreement does not create any entity or relationship beyond the scope
set forth herein, and except as otherwise expressly provided herein, this
Agreement shall not constitute any Member the legal representative or agent of
the other, nor shall any Member or any Affiliate of a Member have the right or
authority to assume, create or incur any liability or obligation, express or
implied, against, in the name of or on behalf of any other Member, its
Affiliates, the Company or its Affiliates.
16.14 RIGHTS AND REMEDIES
The rights and remedies provided by this Agreement are cumulative and the
use of any one right or remedy shall not preclude or waive the right to use any
or all other remedies. These rights and remedies are given in addition to any
other rights, other than the right of partition, the Members may have by law,
statute, ordinance or otherwise.
16.15 ATTORNEYS' FEES
In the event of a dispute between the Manager and Members, or the Members
arising out of this Agreement that is arbitrated or litigated, the nonprevailing
party shall pay the reasonable costs and attorneys' fees of the prevailing
party, including the
/*/ Confidential Treatment Requested
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reasonable costs and attorneys' fees incurred in the appeal of any final or
interlocutory judgment.
[Signatures on next page]
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IN WITNESS WHEREOF, the Members hereto have executed this Agreement as of
the day and year first above written.
ELI LILLY AND COMPANY ICOS CORPORATION
By: /s/ Sidney Taurel By: /s/ George B. Rathman
------------------- --------------------
Sidney Taurel George B. Rathman
President and Chief Executive Officer Chairman of the Board, President and
Chief Executive Officer
<PAGE>
EXHIBIT E
SCHEDULE OF LILLY CONTRIBUTIONS
A. SCHEDULE OF INITIAL CONTRIBUTION
UNDER SECTION 3.1.1(a)
[ * ]
B. SCHEDULE OF CONTRIBUTIONS UNDER SECTION 3.1.3
[ * ]
[Exhibit E is continued on following page]
/*/ Confidential Treatment Requested
<PAGE>
[ * ].
/*/ Confidential Treatment Requested
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SCHEDULE 9.1.6
PROCEEDINGS
Barr Laboratories, Inc. (Barr) and Geneva Pharmaceuticals, Inc. (Geneva)
have each submitted Abbreviated New Drug Applications (ANDAs) seeking FDA
approval to market generic forms of Prozac before the expiration of LILLY's
patents. The ANDAs assert that LILLY's U.S. patents covering Prozac are invalid
and unenforceable. In April 1996, LILLY filed suit against Barr in federal
court in Indianapolis seeking a ruling that Barr's challenge to LILLY's patents
is without merit. In June 1997, LILLY filed a similar suit against Geneva in
the same court. The patent validity aspects of the case are currently set for
trial in January 1999. While LILLY believes that the claims of Barr and Geneva
are without merit, there can be no assurance that LILLY will prevail. An
unfavorable outcome of this litigation could have a material adverse effect on
LILLY's consolidated financial position, liquidity, or results of operations.
<PAGE>
EXHIBIT 10.2
TO
ICOS CORPORATION'S
FORM 10-Q
FOR THE QUARTER ENDED
SEPTEMBER 30, 1998
"[ * ]" = omitted, confidential material, which material has been
separately filed with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
<PAGE>
EXHIBIT 10.2
LILLY
LICENSE AGREEMENT
THIS LILLY LICENSE AGREEMENT ("Agreement") is made this 30th day of
September, 1998, by and between LILLY ICOS LLC, a Delaware Limited Liability
Company ("Company"), and ELI LILLY and COMPANY, an Indiana corporation
("LILLY").
RECITALS
WHEREAS, ICOS Corporation, a Delaware corporation ("ICOS"), has granted to
the Company a 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 PDE5 Product (as defined in Article
1 below) for [ * ] use;
WHEREAS, ICOS and LILLY have entered into a Limited Liability Company
Agreement, dated September 30, 1998 ("LLC Agreement"), with respect to the
organization and capitalization of the Company to engage in the research,
development, manufacture, production and sale of PDE5 Products for [ * ] use
in the Field (as defined in Article 1 below);
WHEREAS, ICOS, LILLY and the Company have entered into a Research and
Development Service Agreement of even date herewith (the "Development
Agreement") pursuant to which ICOS and LILLY will conduct development work on
behalf of the Company with respect to the Background Technology (as defined in
Article 1 below);
WHEREAS, LILLY desires to obtain from the Company the PDE5 Technology (as
defined in the Article I below) and to acquire [ * ] license to the PDE5
Technology in order to develop, manufacture, market and sell PDE5 Products in
the Field in LILLY Territory; and in view of the LLC Agreement and the parties
further development activities pursuant to the Development Agreement, the
Company is willing to grant such a license to LILLY;
NOW, THEREFORE, it is hereby agreed as follows:
* Confidential Treatment Required
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ARTICLE I
DEFINITIONS
1.01 [ * ] OR API
The term [ * ] and/or API shall mean [ * ].
1.02 PDE5
The term PDE5 shall mean [ * ] phosphodiesterase.
1.03 PDE5 AGENT
The term PDE5 Agent shall mean [ * ].
1.04 PDE5 PRODUCT
The term PDE5 Product shall mean [ * ].
1.05 FIELD
The term Field shall mean [ * ].
1.06 BACKGROUND TECHNOLOGY
The term Background Technology shall mean those patents and patent
applications set forth in Appendix A and owned or controlled by ICOS as of the
date of this Agreement including any renewal, division, continuation or
continuation in part of any such applications and any patents issuing thereon,
and any reissues, extensions substitutions, confirmations, registrations,
revalidations, revisions, supplementary protection certificates and additions of
or to any such patents (hereafter Patents) and any currently identified PDE5
Agents and any Technical Information.
1.07 TECHNICAL INFORMATION
The term Technical Information shall mean [ * ].
1.08 PDE5 TECHNOLOGY
The term PDE5 Technology shall mean the Company Technology as defined in
the Development Agreement.
1.09 PROJECT
* Confidential Treatment Required
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The term Project shall mean the same as defined in the Development
Agreement.
1.10 PARTY
The term Party shall mean LILLY or the Company or, when used in the plural,
LILLY and the Company.
1.11 THIRD PARTY
The term Third Party shall mean any entity which is not a Party or
Affiliate of any Party to this Agreement.
1.12 AFFILIATE
The term Affiliate shall mean, with respect to any Person, another Person
that, directly or indirectly, controls, is controlled by or is under common
control with such Person. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. The direct or indirect ownership of [ /*/ ] or, if
smaller, the maximum allowed by applicable law, of the voting securities of a
business entity or of an interest in the assets, profits or earnings of Entity
shall be deemed to constitute "control" of the Entity. For purposes of this
Agreement, LILLY and the Company shall not be deemed to be Affiliates of each
other.
1.13 NET SALES
The term Net Sales shall [ * ].
[ * ].
1.14 LILLY TERRITORY
The term LILLY Territory shall mean the same as defined in the LLC
Agreement.
1.15 TERRITORY
The term Territory shall mean the same as defined in the LLC Agreement.
* Confidential Treatment Required
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1.16 UNDERLYING AGREEMENTS
The term Underlying Agreements shall mean the Collaboration Agreement by
and among Glaxo Group Limited, Glaxo Inc. and ICOS Corporation dated October 3,
1991, as amended January 24, 1997, [ * ].
ARTICLE II
GRANT OF LICENSE
2.01 GRANT OF LICENSE
(a) Subject to the terms of this Agreement, the Company hereby grants to
LILLY [ * ] license to use the PDE5 Technology in the Field to offer to sell,
sell and import PDE5 Products in the LILLY Territory.
(b) LILLY also has the right to purchase, and Company agrees to supply to
LILLY [ * ] at Company's cost for use in PDE5 Products and to then make, or
have made, finished PDE5 Products from such [ * ]. If the Company is utilizing
a third party (not an Affiliate) to supply API, and if the Company is unable or
fails to supply API to LILLY in the quantity ordered or quality required by
LILLY to meet forecasted demand and regulatory specifications in the LILLY
Territory, [ * ]. If there is an insufficient supply of API to meet the needs
of both the Company and Lilly, until such time as Lilly is able to make API or
obtain a supply of API from a Third Party, the available supply of API will be
apportioned by the Company between the Company and Lilly pro rata based on the
level of sales of each for the supply period in question at the time of the
insufficiency of supply.
2.02 RIGHT TO SUBLICENSE
The Company also hereby grants to LILLY the right to grant sublicenses
within and limited to the scope of the right and license granted by the Company
in Section 2.01. Any sublicensees of LILLY shall agree in writing to be bound by
the provisions of Section 3.02 to the same extent LILLY is bound. LILLY shall
notify the Company of the identity of each sublicensee for which a sublicense is
granted and provide the Company a true copy of such sublicense and any and all
modifications, amendments, and revisions. In the event that the license granted
herein to LILLY 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 to terminate, or to have LILLY assign to the Company, retroactive to the
date of termination, any sublicenses granted hereunder by LILLY. LILLY shall
include in all of its sublicenses granted hereunder provisions for such
termination and assignment.
* Confidential Treatment Required
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2.03 LIMITATIONS
No right or license is granted to LILLY hereunder except as expressly
specified in Sections 2.01 and 2.02.
2.04 UNDERLYING AGREEMENTS
The foregoing grant and license under this Article II is subject to the
terms and conditions of the Underlying Agreements and any other of the Company's
agreements under which the Company may in-license PDE5 Technology after the date
of this Agreement. The Company shall comply and perform in accordance with the
Underlying Agreements and such in-license agreements, which the Company shall
promptly disclose to Lilly.
2.05 GRANTBACK
If during the course of conducting post marketing clinical trials (phase IV
trials) in the LILLY Territory an invention is discovered that results in a
patent, LILLY shall grant the Company a non-exclusive license to such patent
with the right of the Company to grant sublicenses.
ARTICLE III
DISCLOSURE
3.01 DISCLOSURE
(a) The Company shall, in accordance with the LLC Agreement and the
Development Agreement, reasonably disclose and deliver to LILLY all PDE5
Technology in sufficient detail to permit LILLY to employ such information for
the purposes provided herein, including for the purpose of obtaining marketing
authorizations within the LILLY Territory.
(b) LILLY shall have the right to attend and participate in the
Company's technical meetings, conduct plant visits at reasonable intervals and
receive information regarding the PDE5 Technology. LILLY 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 abnormal
clinical findings or adverse events related to PDE5 Products in a clinical
setting or in post-market surveillance.
3.02 CONFIDENTIALITY
(a) Except to the extent expressly authorized by this Agreement, the
LLC Agreement, the Development Agreement or by other prior written consent of
the Company, LILLY shall, in accordance with Section 2.7 of the LLC Agreement,
keep completely
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confidential and shall not publish or otherwise disclose to others and shall not
use any confidential PDE5 Technology.
LILLY may disclose any PDE5 Technology to the extent such disclosure is
necessary for LILLY 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, or if required in response to litigation discovery requests, in
which case LILLY will attempt to obtain appropriate protective orders for such
disclosure; provided, that LILLY shall give the Company reasonable advance
notice of such proposed disclosure, shall use its best efforts to secure
confidential treatment of PDE5 Technology to be disclosed and shall advise the
Company in writing of the manner in which that was done.
(b) The obligation of confidentiality imposed by this Section 3.02
shall survive termination of this Agreement for any reason whatsoever for a
period of five (5) years.
ARTICLE IV
ROYALTY
4.01 ROYALTY
LILLY shall pay to the Company a royalty, at the applicable rate
hereinafter specified, on Net Sales of PDE5 Products that are sold or otherwise
disposed of by LILLY or any of its Affiliates or sublicensees in the LILLY
Territory, whether or not such Affiliates are sublicensed pursuant to Section
2.02. The royalty rate to be applied to Net Sales shall be: [ * ].
4.02 SALES TO AFFILIATES AND SUBLICENSEES
No royalties shall be payable with respect to any sale of PDE5 Products
among LILLY and any of its Affiliates or sublicensees, but royalties shall be
paid hereunder with respect to resale or other disposition, excluding samples,
of such PDE5 Products to a third party.
4.03 RECORDS
LILLY shall keep full, complete and accurate records with respect to the
sale or other disposition of PDE5 Products for the [ * ] sufficient to
enable the Company to verify the accuracy of the statements required by Section
4.04(a). The Company shall have the right, through Lilly's independent public
accountants, 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
*Confidential Treatment Required
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bearing upon the amount of royalty payable to it under this Agreement.
Adjustment shall be made within thirty (30) days 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 REPORTING
(a) Within [ * ] after the end of each [ * ], commencing with the
first [ * ] in which Net Sales occur, LILLY shall furnish to the Company a
statement, in form acceptable to the Company, setting forth on a country by
country basis the number of units of PDE5 Products sold or otherwise disposed of
during the period, the Net Sales and the amount of royalty payable thereon and
showing the applicable conversion from local currency to U.S. Dollars.
(b) Within such [ * ] period LILLY shall, irrespective of its own
business and accounting methods, pay to the Company the royalties payable for
such [ * ] period.
(c) LILLY shall furnish whatever additional information the Company
may reasonably request from time to time to enable the Company to ascertain
which PDE5 Products sold or otherwise disposed of by LILLY or any of its
Affiliates 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 calculated at [ * ]; 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.
4.06 PAYMENTS
Payment to the Company shall be made in United States dollars.
4.07 TAXES
LILLY 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. The foregoing shall not include any
such tax imposed upon the Company by any governmental
*Confidential Treatment Required
-7-
<PAGE>
entity within or without the United States, including any such tax which LILLY
is required to withhold or deduct from payments to the Company.
4.08 CURRENCY CONVERSION
Royalties shall be calculated and paid in United States dollars. For the
purpose of computing the Net Sales made in a currency other than United States
dollars, LILLY shall convert such currency from local currency to United States
dollars monthly using LILLY standard conversion system for financial reporting
(internal and external), consistently applied and in accordance with U.S.
generally accepted accounting principles.
ARTICLE V
PATENT APPLICATIONS AND DEFENSE OF INFRINGEMENTS
5.01 Patent Applications
Subject to the rights of any licensor of PDE5 Technology to the Company,
the Company will file, prosecute and maintain in force and defend: [ * ].
The Company and LILLY will cooperate to the extent necessary and provide
reasonable assistance in support of the defense of any suit or action involving
infringement of any [ * ] or interference with any other intellectual property
right included in PDE5 Technology licensed to LILLY in the Field pursuant to
this Agreement.
If the Company declines to file, prosecute, maintain, and defend any patent
application or patent covering the PDE5 Technology or a trademark or copyright
in the LILLY Territory, LILLY shall have the right, but not the obligation, to
file, prosecute, maintain, or defend at its cost and expense, the patent
application, patent, trademark or copyright.
5.02 [ * ] FOR THIRD PARTY INFRINGEMENT DAMAGES AND ROYALTIES
In the event of a judgment or settlement of a Third Party infringement
claim, [ * ].
ARTICLE VI
PATENT, COPYRIGHT, AND TRADE SECRET ENFORCEMENT
6.01 Rights of LILLY and the Company
Except as provided in the PDE5 License Agreement and Section 6.02, LILLY
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
*Confidential Treatment Required
-8-
<PAGE>
secret or interference with any other intellectual property right included in
the PDE5 Technology in the LILLY Territory that LILLY has licensed hereunder. If
LILLY declines to bring, defend or maintain any appropriate action the Company
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 PDE5 Technology in the LILLY Territory that LILLY
has licensed hereunder. Any amount recovered in any such suit or action, whether
by judgment or settlement, shall be [ * ].
6.02 NOTICE OF INFRINGEMENT
LILLY shall notify the Company of any infringement in the Field in the
LILLY Territory of any copyright, trade secret or patent within the PDE5
Technology which would in the absence of this Agreement preclude the making, use
or sale of products or the use of processes both within and outside the Field
and shall provide the Company with any available evidence of such infringement.
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 LILLY hereunder shall [ * ]
in the Field in the LILLY Territory except for any obligation to make a payment
under a license to the Company from a Third Party.
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 (a) the liquidation or dissolution of
the Company other than in connection with a continuation of the business of the
Company in some other legal form, (b) termination pursuant to Section 7.03 or
(c) expiration pursuant to Section 7.01.
7.03 RIGHT OF TERMINATION
Except under circumstances that are described in Section 13.4 of the LLC
Agreement (which shall be handled in accordance with the provisions thereunder),
LILLY shall have the right, but not the obligation, to terminate this Agreement
if either LILLY or ICOS ceases to be a Member of the Company. Similarly, except
under circumstances that are described in
*Confidential Treatment Required
-9-
<PAGE>
Section 13.4 of the LLC Agreement (which shall be handled in accordance with the
provisions thereunder), the Company shall have the right, but not the
obligation, to terminate this Agreement if either ICOS or LILLY ceases to be a
Member of the Company. Termination under this Section 7.03 shall be effective
upon thirty (30) days written notice from the party that desires to exercise
such termination right to the other parties.
7.04 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 one hundred and eighty (180) 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.
7.05 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 Sections 2.05,
3.02, 4.03, 4.05, 7.01, 7.04 and 10.10 and any accrued obligations shall survive
such termination or expiration 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, LILLY shall immediately
return to the Company (to the extent such return is technically feasible) all
PDE5 Technology in the possession of LILLY or its Affiliates or sublicensees,
or, at the sole election of the Company, shall destroy such PDE5 Technology (to
the extent technically feasible).
ARTICLE VIII
CONSENTS AND APPROVALS
8.01 Diligence
The Parties hereto shall use reasonable and diligent efforts to
commercialize the PDE5 Products in those countries in the LILLY Territory that
offer substantial opportunity for sales at a profitable level taking into
consideration the amount of royalties required by this Agreement.
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<PAGE>
ARTICLE IX
NOTICE
9.01 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):
"LILLY" Eli Lilly and Company
Lilly Corporate Center
Indianapolis, IN 46285
Attn: Rebecca O. Goss
Vice President and General Counsel
"Company" LILLY ICOS LLC
c/o ICOS Corporation
22021 - 20th Avenue S.E.
Bothell, WA 98021
U.S.A.
Attn: Judith A. Woods, Esq.
Legal Department
With a copy to: Perkins Coie
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
U.S.A.
Attn: James R. Lisbakken, Esq.
and to: Eli Lilly and Company
Lilly Corporate Center
Indianapolis, IN 46285
Attn: Rebecca O. Goss
Vice President and General Counsel
Any Party by giving notice to the others in the manner provided above may change
such Party's address for purposes of this Section 9.01.
-11-
<PAGE>
ARTICLE X
MISCELLANEOUS
10.01 Entire Agreement
This Agreement, together with the other written agreements between the
Parties hereto which are referenced in the LLC 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 LLC
Agreement, the provisions of the LLC Agreement shall prevail and govern
interpretation.
10.02 HEADINGS
Article and section headings and numbers in this Agreement are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
10.03 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.
10.04 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.
10.05 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.
10.06 ASSIGNMENT ON WRITTEN CONSENT
This Agreement may not be assigned in whole or in part by LILLY, except
with the prior written consent of the Company or except as part of the sale of
LILLY's entire business relating to the Field. This Agreement shall be binding
upon and inure to the benefit of the
-12-
<PAGE>
Company and LILLY and their respective successors and assigns to the extent it
is assignable.
10.07 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.
10.08 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.
10.10 INDEMNITY
LILLY hereby (a) releases the Company from any obligation to defend,
indemnify or hold LILLY and its agents and employees harmless from and (b)
agrees to defend, indemnify and hold the Company, its members, agents and
employees 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 LILLY's activities
hereunder or otherwise arising out of or related to the performance of this
Agreement.
10.11 OTHER AGREEMENTS
Any other provision of this Agreement notwithstanding, nothing in this
Agreement shall obligate the Company to disclose to LILLY any information or to
make available to LILLY 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.
10.12 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
-13-
<PAGE>
or remedies shall not preclude the simultaneous or later exercise by any Party
of any or all such other rights, powers or remedies.
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 RIGHTS IN THE EVENT OF BANKRUPTCY
All rights in the PDE5 Technology granted under this Agreement to LILLY 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. LILLY, 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
-14-
<PAGE>
under the U.S. Bankruptcy Code, LILLY shall be entitled to complete access to
(or a complete duplicate of, as appropriate) such PDE5 Technology.
[NEXT PAGE IS SIGNATURE PAGE]
-15-
<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.
LILLY ICOS LLC
By /s/ George B. Rathmann
--------------------------------------------
On behalf of ICOS Corporation, Member
By /s/ Sidney Taurel
--------------------------------------------
On behalf of Eli Lilly and Company, Member
ELI LILLY AND COMPANY
By /s/ Sidney Taurel
--------------------------------------------
Sidney Taurel
President and Chief Executive Officer
<PAGE>
EXHIBIT 10.3
TO
ICOS CORPORATION'S
FORM 10-Q
FOR THE QUARTER ENDED
SEPTEMBER 30, 1998
"[ * ]" = omitted, confidential material, which material has been
separately filed with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
<PAGE>
EXHIBIT 10.3
PDE5 LICENSE AGREEMENT
THIS PDE5 LICENSE AGREEMENT ("Agreement") is made this 30th day of
September, 1998, by and between ICOS CORPORATION, a Delaware corporation
("ICOS"), in favor and for the benefit of and with LILLY ICOS LLC, a Delaware
limited liability company ("Company"), pursuant to terms and conditions of that
certain Limited Liability Company Agreement, dated September 30, 1998 (the "LLC
Agreement"), by and between ICOS and Eli Lilly and Company, an Indiana
corporation ("Lilly").
RECITALS
WHEREAS, ICOS, Lilly and the Company have entered into the LLC Agreement
with respect to the organization and capitalization of the Company to engage in
the research, development, manufacture, production and sale of PDE5 Products (as
defined in Article 1 below) for [ * ] use in the Field (as defined in
Article 1 below);
WHEREAS, in connection with the formation of the Company and the granting
of an interest in the Company to ICOS in accordance with the LLC Agreement, ICOS
is willing to contribute to the Company a license to use the Background
Technology (as defined in Article 1 below) in the Field upon the terms set forth
herein;
NOW, THEREFORE, in full consideration of the initial capital contribution
to the Company pursuant to the LLC Agreement, ICOS and the Company hereby agree
as follows:
ARTICLE I
DEFINITIONS
1.01 PDE5
The term PDE5 shall mean the [ * ] phosphodiesterase.
1.02 PDE5 AGENT
The term PDE5 Agent shall mean [ * ].
1.03 PDE5 PRODUCT
The term PDE5 Product shall mean [ * ].
* Confidential Treatment Requested
<PAGE>
1.04 FIELD
The term Field shall mean [ * ].
1.05 BACKGROUND TECHNOLOGY
The term Background Technology shall mean those patents and patent
applications set forth in Appendix A and owned or controlled by ICOS as of the
date of this Agreement, including any renewal, division, continuation or
continuation in part of any such applications and any patents issuing thereon,
and any reissues, extensions substitutions, confirmations, registrations,
revalidations, revisions, supplementary protection certificates and additions of
or to any such patents (hereafter Patents) and any currently identified PDE5
Agents and any Technical Information.
1.06 FORCE MAJEURE
The term Force Majeure shall mean conditions beyond either Party's control
including, but not limited to, acts of God, governmental restrictions, wars, or
insurrections, strikes, floods, work stoppages and or lack of materials.
1.07 TECHNICAL INFORMATION
The term Technical Information shall mean [ * ].
ARTICLE II
LICENSE OF BACKGROUND TECHNOLOGY
2.01 LICENSE
(a) Subject to the terms of this Agreement, ICOS hereby grants to the
Company, [ * ] license [ * ] to use the Background Technology excluding
Technical Information, solely within the Field to make, have made, use, offer
for sale, sell and import PDE5 Products in the Field or any invention claimed in
the Patents. The foregoing license is [ * ] except for the obligations, if
any, under the Collaboration Agreement by and among Glaxo Group Limited, Glaxo
Inc. and ICOS Corporation dated October 3, 1991, as amended January 24, 1997,
and the [ * ].
(b) Subject to the terms of this Agreement, ICOS hereby grants the Company
an exclusive right and license throughout the world to utilize Technical
Information which relates to PDE5, PDE5 Agents or PDE5 Products. The foregoing
license is fully paid up and royalty free. This license is subject to the right
of ICOS to use Technical Information, as defined, for any purpose other than as
relates to PDE5, PDE5 Agents or PDE5 Products.
* Confidential Treatment Requested
<PAGE>
2.02 RIGHT TO SUBLICENSE
ICOS also hereby grants to the Company the right to grant sublicenses
within and limited to the scope of the right and license granted to the Company
in Section 2.01. All sublicensees of the Company shall agree in writing to be
bound by the provisions of this Agreement to the same extent that the Company is
bound. The Company shall notify ICOS of the identity of each sublicensee to
whom a sublicense is granted and provide ICOS a true and correct copy of such
sublicense and any and all modifications, amendments, and revisions.
2.03 LIMITATIONS
No right or license is granted to the Company hereunder except as expressly
specified in Sections 2.01 and 2.02.
2.04 UNDERLYING AGREEMENTS
The foregoing grant and license under this Section 2 is subject to the
terms and conditions of the Underlying Agreements. The Company shall comply and
perform in accordance with the Underlying Agreements.
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 Lilly (on behalf of the Company). ICOS shall provide the Company
with reasonable quantities of currently available materials identified in item
(b) of the definition of Technical Information.
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. Provided that nothing in this Agreement shall prevent the Company from
using or disclosing information
(a) which Company can demonstrate by written records was previously known
to Company;
<PAGE>
(b) which is now public knowledge, or becomes public knowledge in the
future, other than through acts or omissions of Company in violation of the
terms of this Agreement; or
(c) which is lawfully obtained by Company from sources independent of
ICOS or Lilly who have a lawful right to disclose such INFORMATION.
Company may disclose any Background Technology to the extent such
disclosure is necessary for Company to comply with applicable laws or
regulations, in litigation to respond to discovery requests in which case
Company will attempt to obtain appropriate protective orders for such
disclosure, or to make, use or sell under the license granted herein by ICOS or
to sublicense others to do so; provided, that Company shall give ICOS reasonable
advance notice of such proposed disclosure, shall use its best efforts to secure
confidential treatment of Background Technology to be disclosed and shall advise
ICOS in writing of the manner in which that was done.
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
The Company shall have the right to bring, defend and maintain, and ICOS
shall have the right, but not the obligation, unless as an indispensable party,
to join in, any 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 pursuant to this Agreement. Any settlement of such
action and/or suit shall only be entered into by Company with the prior written
consent of ICOS. Any amount recovered in such action or suit, whether by
judgment or settlement, shall [ * ].
The Company and ICOS will cooperate to the extent necessary and provide
reasonable assistance in support of the defense of any suit or action involving
infringement of any patents, trademarks or copyrights, misappropriation or theft
of any trade secrets or interference with any other intellectual property right
included in Background Technology licensed to the Company pursuant to this
Agreement.
* Confidential Treatment Requested
<PAGE>
In the event the Company fails or declines to take action to enforce any
such patent, copyright, trade secret or other intellectual property right
[ * ] following receipt of notice and evidence of such infringement,
misappropriation or interference, [ * ].
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 pursuant to this Agreement.
4.03 DEFENSE OF INFRINGEMENT CLAIMS
The Company will undertake the defense of any actions brought by a third
person alleging that the sale of a PDE5 Product or other action of the Company
infringes a patent, trademark, copyright or other intellectual property right of
such third person. [ * ].
ARTICLE V
PATENT APPLICATIONS AND
COPYRIGHT REGISTRATIONS
5.01 APPLICATIONS
Subject to the Underlying Agreements, the Company shall have the right and
obligation, at its expense, to file, prosecute (including interference actions),
maintain, and defend, the patent applications or patents and copyright
registrations or copyrights, if any, covering the Background Technology for PDE5
Products.
If the Company declines to file, prosecute or maintain any patent
application or patent covering the Background Technology, [ * ].
ARTICLE VI
REPRESENTATION; DISCLAIMER
6.01
ICOS hereby expressly warrants and represents that it possesses the legal
rights to license Background Technology (except technology that is not the
subject of Patents) free of any liens or encumbrances except those set forth in
the Underlying Agreements.
* Confidential Treatment Requested
<PAGE>
6.02 DISCLAIMER OF WARRANTIES
Except as provided in Section 6.01, ICOS EXPRESSLY DISCLAIMS ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, PATENTABILITY AND
NONINFRINGEMENT WITH RESPECT TO THE BACKGROUND TECHNOLOGY LICENSED HEREUNDER TO
COMPANY BY ICOS.
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.
7.02 Default
In the event that the Company (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 ICOS, then ICOS, 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 7.02, the provisions of Section 3.02, this Section 7.03 and 9.10
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 the Development
Agreement.
ARTICLE VIII
NOTICE
8.01 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
<PAGE>
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: Judith A. Woods, Esq.
Legal Department
With a copy to: Perkins Coie
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
U.S.A.
Attn: James R. Lisbakken, Esq.
"Company" ICOS Corporation, Member
22021 20th Avenue S.E.
Bothell, WA 98021
Attn: Judith A. Woods, Esq.
Legal Department
With a copy to: Eli Lilly and Company, Member
Lilly Corporate Center
Indianapolis, IN 46285
Attn: Rebecca O. Goss
Senior Vice President and General Counsel
Any Party by giving notice to the others in the manner provided above may change
such Party's address for purposes of this Paragraph 8.01.
ARTICLE IX
MISCELLANEOUS
9.01 ENTIRE AGREEMENT
This Agreement, together with any other written agreements between the
Parties hereto referred to in the LLC 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.
<PAGE>
9.02 HEADINGS
Article and Section headings and numbers in this Agreement are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
9.03 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.
9.04 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.
9.05 APPLICABLE LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware without regard to the choice of law provisions of
the State of Delaware or of any other jurisdiction.
9.06 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 LLC 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.
9.07 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
<PAGE>
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.
9.08 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.
9.09 TRADEMARKS AND TRADENAMES
ICOS, by this Agreement, grants no rights to the Company in any trademarks
or tradenames of ICOS or of any of its respective subsidiaries or affiliated
companies. Any such rights to be granted shall be documented in a separate
written agreement.
9.10 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 ("Losses"), arising out of or in connection with any product made, used,
offered for sale, sold, or imported by the Company or furnished pursuant to any
provision hereunder except that Company shall have no obligation to indemnify or
defend ICOS for or against Losses to the extent arising out of the negligence or
willful misconduct of ICOS.
9.11 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.
9.12 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
<PAGE>
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.
9.13 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 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.
9.14 BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit of the
Parties hereto, their successors and allowable assigns.
9.15 SCHEDULE
Schedule A attached hereto and referred to herein is hereby incorporated
herein as though fully set forth.
9.16 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.
9.17 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.
<PAGE>
9.18 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.
9.19 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.
<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
Chariman of the Board, President and
Chief Executive Officer
LILLY ICOS LLC
By /s/ Sidney Taurel ,
-----------------------------------------
On behalf of Eli Lilly and Company, Member
By /s/ George B. Rathmann
-----------------------------------------
On behalf of ICOS Corporation, Member
<PAGE>
SCHEDULE A
BACKGROUND TECHNOLOGY
[ * ]
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<PAGE>
EXHIBIT 10.4
TO
ICOS CORPORATION'S
FORM 10-Q
FOR THE QUARTER ENDED
SEPTEMBER 30, 1998
"[ * ]" = omitted, confidential material, which material has been
separately filed with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
<PAGE>
EXHIBIT 10.4
RESEARCH AND DEVELOPMENT SERVICE AGREEMENT
BETWEEN
LILLY ICOS LLC
AND
ICOS CORPORATION
AND
ELI LILLY AND COMPANY
EFFECTIVE SEPTEMBER 30, 1998
<PAGE>
RESEARCH AND DEVELOPMENT SERVICE AGREEMENT
THIS RESEARCH AND DEVELOPMENT SERVICE AGREEMENT ("AGREEMENT") is entered
into as of the 30th day of September ("EFFECTIVE DATE") between ELI LILLY AND
COMPANY, a corporation incorporated under the laws of Indiana ("LILLY");
ICOS Corporation, a corporation incorporated under the laws of Delaware
("ICOS");
AND
Lilly ICOS LLC, a limited liability company organized under the laws of
Delaware ("COMPANY").
RECITALS
WHEREAS, the Company desires to have a project conducted on its behalf to
research and develop PDE5 Products for the [ * ] as contemplated under this
Agreement; and
WHEREAS, the Company is interested in having Lilly and ICOS perform the
Project by providing services in connection with the research and development of
PDE5 Products; and
WHEREAS, the Company, ICOS and Lilly believe that each party can bring
significant and complementary strengths to the Project and wish to proceed in
accordance with the terms of the following Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter recited, the parties agree as follows:
ARTICLE 1
DEFINITIONS
When used in this Agreement, each of the following terms shall have the
meanings as set forth below:
1.1 "[ * ]" OR "API" shall mean [ * ].
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<PAGE>
1.2 "AFFILIATE" shall have the meaning as set forth in the LLC Agreement,
except the parties shall not be deemed to be Affiliates of each other.
1.3 "ANNUAL PROJECT OPERATIONAL PLAN" shall have the meaning as set forth
in Section 3.4(b) of this Agreement.
1.4 "BACKGROUND TECHNOLOGY" shall have the meaning as set forth in the
PDE5 License Agreement. For purposes of this Section 1.4 of this Agreement,
"PDE5 License Agreement" means the PDE5 License Agreement to be entered into
between the Company and ICOS as of the date even herewith that is attached as
Exhibit B to the LLC Agreement.
1.5 "CALENDAR QUARTER" shall mean the three (3) month period ending on
March 31, June 30, September 30, or December 31.
1.6 "CALENDAR YEAR" shall mean the twelve month period ending on December
31.
1.7 "COMPANY TECHNOLOGY" SHALL mean: (a) Background Technology and (b)
any technology (including, without limitation, any Patents, Patent Applications,
trade secrets, know-how or other information) owned or controlled by the Company
and its Affiliates, with right to license (or sublicense) including, without
limitation, ICOS Enabling Technology, Lilly Enabling Technology and PDE5 Project
Inventions.
1.8 "DILIGENT EFFORTS" shall mean at least that degree of effort that is
consistent with that effort used by ICOS and Lilly in developing and
commercializing its respective other products in countries of similar commercial
potential and at similar stages of development. For avoidance of any doubt,
Diligent Efforts, as used in this Agreement, shall not be construed to require
either ICOS or Lilly to assign, license or otherwise transfer intellectual
property to the Company.
1.9 "EFFECTIVE DATE" shall mean the date indicated at the beginning of
this Agreement.
1.10 "FIELD" shall mean [ * ].
1.11 "FTE" means a full-time equivalent person Calendar Year (or [ * ]
/Calendar Year or [ * ]/Calendar Quarter or 12 months/Calendar Year) within
each party's respective research and development organizations of Project
Services carried out by the employees of the parties (specifically excluding
Project Services carried out by Third Parties including, without limitation,
Project Services carried out by consultants, outside contractors, and temporary
employees). The FTE rate for Project
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Services carried out under this Agreement during 1998 and 1999 Calendar Years
shall be [ * ]. FTE Rate is calculated using the methodology described in
SCHEDULE 1.11 of this Agreement.
Commencing on the first Calendar Quarter of 1999 and for each Calendar Year
thereafter, the FTE rate will be validated and adjusted (if appropriate) for the
next Calendar Year immediately following the Calendar Quarter in which the
validation occurred. Such FTE rate will be validated by [ * ]. The FTE rate
for the Calendar Year immediately following the Calendar Quarter in which the
validation occurred shall be adjusted to [ * ].
1.12 "IC351" shall mean the PDE5 Agent, commonly referred to by ICOS as
IC351.
1.13 "ICOS ENABLING TECHNOLOGY" shall mean: (a) any Patent or Patent
Application, trade secret, know-how or other information that is necessary or
useful to use, make, have made, sell, offer for sale, and import an API, PDE5
Agent or PDE5 Product that ICOS, in its sole discretion, elects in writing to
include within the scope of the Project and that is owned or controlled by ICOS
or its Affiliates, with right to license (or sublicense); and (b) any Patent,
Patent Application, trade secret, know-how or other information that: (i) is
owned or controlled by ICOS or its Affiliates, with right to license (or
sublicense); (ii) was developed or discovered outside the Project or not
included in PDE5 Project Inventions; (iii) was, in rendering Project Services,
incorporated in the development of an API, PDE5 Agent or PDE5 Product,
including, without limitation, their use or method of manufacture; and (iv)
covers or relates to the composition, use or method of making an API, PDE5
Agents or PDE5 Product. ICOS Enabling Technology does not include Background
Technology.
1.14 "JOINT INVENTIONS" shall mean: inventions that arose from the Project
Services and as to which one or more employees from both ICOS and Lilly (or any
of their Affiliates) would be inventors under the patent laws of the United
States.
1.15 "LILLY ENABLING TECHNOLOGY" shall mean: (a) any Patent, Patent
Application, trade secret, know-how or other information that is necessary or
useful to use, make, have made, sell, offer for sale, and import an API, PDE5
Agent or PDE5 Product that Lilly, in its sole discretion, elects in writing to
include within the scope of the Project and that is owned or controlled by Lilly
or its Affiliates, with right to license (or sublicense); and (b) any Patent,
Patent Application, trade secret, know-how or other information that: (i) is
owned or controlled by Lilly or its Affiliates, with right to license (or
sublicense); (ii) was developed or discovered outside the Project or not
included in PDE5 Project Inventions; (iii) was, in rendering Project Services,
incorporated in the
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development of an API, PDE5 Agent or PDE5 Product, including, without
limitation, their use or method of manufacture and (iv) covers or relates to the
composition, use or method of making an API, PDE5 Agents or PDE5 Product.
1.16 "LLC AGREEMENT" shall mean the Limited Liability Company Agreement of
Lilly ICOS LLC entered into by and between ICOS and Lilly of even date herewith.
1.17 "MANUFACTURING PLAN" shall mean the plan that details the overall
manufacturing plan, which shall address fully, consistent with the terms of this
Agreement, the key elements reasonably necessary for the clinical and commercial
manufacture and control (including, without limitation, analytical methods for
raw materials and component release, in process control, release and stability
testing) of the API and the PDE5 Product and the Project Services related
thereto reasonably necessary to achieve the goals of the Project including,
without limitation, Project Services reasonably necessary to ensure the [ * ].
Except as the Company may otherwise determine, in developing a Manufacturing
Plan the Product Team shall consider, without limitation, establishing
procedures and assigning responsibilities reasonably necessary to address the
items set forth in the [ * ] attached hereto as SCHEDULE 1.17.
1.18 "PATENT" shall mean (a) Letters Patent and utility models, including,
without limitation, any extension, continuations, divisionals, continuation-in-
part, registration, confirmation, reissue, re-examination, Supplementary
Protection Certificate or renewal thereof, and any and all foreign equivalents
thereof and (b) any rights that are granted by a Patent granting authority
thereunder.
1.19 "PATENT APPLICATION" shall mean an application for Patent.
1.20 " PDE5" shall mean the [ * ] phosphodiesterase.
1.21 "PDE5 AGENT" means [ * ].
1.22 "PDE5 PRODUCT" shall mean [ * ].
1.23 "PDE5 PROJECT INVENTIONS" shall have the meaning set forth in Section
7.1.
1.24 "PRODUCT TEAM" shall mean the team consisting of ICOS and Lilly
personnel assigned by ICOS and Lilly to carry out the Project. The Product Team
Leader is a member of the Product Team.
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1.25 "PRODUCT TEAM LEADER" shall mean such person mutually designated by
ICOS and Lilly as the Product Team Leader. The Product Team Leader shall be
responsible for, among other things, coordinating the activities of the Product
Team.
1.26 "PRODUCT TEAM LIFECYCLE PLAN" shall have the meaning set forth in
Section 3.4(a) of this Agreement.
1.27 "PROJECT" shall mean the collaborative research, development and
other efforts to be conducted by ICOS and Lilly, for and on behalf of the
Company, as contemplated under this Agreement.
1.28 "PROJECT GUIDELINES" shall mean, as the case may be, either:
(a) The then-current (i) Product Team Lifecycle Plan (as approved by
the Company), (ii) Annual Project Operational Plan (as approved by the Company);
(iii) the terms set forth under this Agreement; and (iv) other guidelines and
policies as may be established by the Company from time to time; or
--
(b) In connection with the first [ * ] following the Effective Date
and only to the extent a Product Team Lifecycle Plan and Annual Project
Operational Plan has not been approved by the Company the (i) [ * ] Plan; (ii)
the terms set forth under this Agreement; and (iii) other guidelines and
policies as may be established by the Company from time to time.
1.29 "PROJECT SERVICES" the services rendered and to be rendered by ICOS
and Lilly for and on behalf of the Company pursuant to this Agreement that are
reasonably necessary to carry out the Project.
1.30 "QUARTERLY PROJECT REPORT" shall have the meaning set forth in
Section 3.4(d) of this Agreement.
1.31 "REGULATORY APPROVAL" shall mean all authorizations by the
appropriate governmental entity or entities necessary for commercial sale of
PDE5 Product including, without limitation, approval of labeling, price,
reimbursement and manufacturing.
1.32 "REGULATORY PLAN" shall mean that plan that details the overall
regulatory plan of the Company which shall address fully, consistent with the
terms of this Agreement, the key elements of achieving the goals of the Project
as such goals relate to obtaining Regulatory Approval for PDE5 Product and
compliance with relevant regulatory requirements. The Regulatory Plan will
include, without limitation, regulatory agency filing responsibilities and
procedures, ownership of regulatory submissions, regulatory agency
communication, formulary and marketing approval strategy and
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<PAGE>
adverse event reporting. Except as the Company may otherwise determine, the
proposed Regulatory Plan will be prepared by the Product Team for Company
approval and will be consistent with the guidelines set forth in the [ * ]
attached hereto as SCHEDULE 1.32.
1.33 "RESEARCH PLAN" shall mean that plan that details the overall
Research Program, which shall address fully, consistent with the terms of this
Agreement, the key elements reasonably necessary for achieving the goals of the
Research Program. The parties hereby agree that part of the Research Program
may include, without limitation, [ * ].
1.34 "RESEARCH PROGRAM" means the program described in subsection (b) of
Article 2 of this Agreement.
1.35 "THIRD PARTY" shall mean any party that is not a party or Affiliate
of any party to this Agreement.
ARTICLE 2
PROJECT CHARTER AND SCOPE
Consistent with the terms described herein, the Company wishes to engage
ICOS and Lilly to provide Project Services for and on behalf of the Company, and
ICOS and Lilly agree to collaborate in rendering such Project Services to
Company. ICOS and Lilly shall use Diligent Efforts in carrying out Project
Services and shall cooperate with each other on matters related thereto. As
more fully described in this Agreement, ICOS and Lilly shall carry out Project
Services through the Product Team in accordance with the Project Guidelines.
The immediate goals of the Project shall be as follows:
[ * ].
ARTICLE 3
PROJECT SERVICES
3.1 GOVERNING AUTHORITY OF PROJECT. The Project shall be conducted by the
Product Team. The Project Services provided by the Product Team to the Company
will be carried out in accordance with the Project Guidelines. The parties
recognize that the Product Team may engage Third Parties to provide services
with respect to certain aspects of the Project Services provided that such
engagement of Third Parties is in accordance with the Project Guidelines.
Notwithstanding anything to the contrary in this Agreement, the Company
shall be the ultimate authority with respect to all matters and activities under
this Agreement and, therefore, to the extent it deems appropriate it may at any
time accept, reject or modify
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any proposal of the Product Team for providing Project Services as well as,
without limitation, discontinue the Project, disband or redirect the Product
Team or terminate this Agreement.
All Project Services shall be carried out in compliance with any applicable
laws including, without limitation, federal, state, or local laws, regulations,
or guidelines governing the work at the site where such work is being conducted.
In the event any party receives notice of an inspection or notification by a
governmental entity, including the FDA, relating to the Project, the party
receiving such inspection or notification will notify the other parties as soon
as possible but in no event later than twenty-four (24) hours after the receipt
of such notice or notification is received, and provide to such other parties,
within seventy-two (72) hours, copies of all documents and other correspondence
and notifications, as such other parties may request. The parties each agree to
cooperate with each other during any inspection, investigation or other inquiry
by the FDA or any other governmental entity, including providing information
and/or documentation, as requested by the FDA or other governmental entity, or
any of the parties to this Agreement. The parties each also agree to discuss
any response to observations or notifications received and to give the other
parties an opportunity to comment on any proposed response before it is made.
In the event of disagreement concerning the form or content of such response,
however, the Company will be responsible for deciding the appropriate form and
content of any response with respect to the PDE5 Product ("Regulatory
Response"). Each party agrees to conform its respective activities, with
respect to the PDE5 Product, only to any commitments made by such party in a
Regulatory Response.
3.2 PRODUCT TEAM. The Product Team shall consist of such number of Lilly
and ICOS personnel as such parties reasonably deem necessary to carry out the
Project Services in accordance with the Project Guidelines. One member of the
Product Team shall be designated by ICOS and Lilly as the Product Team Leader.
ICOS and Lilly will have reasonable access on an informal basis to the other's
personnel assigned to the Product Team. The parties acknowledge that
maintaining the continuity of certain functional members on the Product Team
(including the Product Team Leader) is of key importance to the success of the
Project and, therefore, ICOS and Lilly agree that each will, to the extent
practicable, make good faith efforts to minimize changes to Product Team
membership under circumstances where such continuity loss would likely have an
adverse impact on the Project.
3.3 MEETINGS AND DECISIONS OF THE PRODUCT TEAM. Except as Company may
otherwise determine, the Product Team shall meet (including meeting by
teleconference) at least on a monthly basis to discuss the status of the Project
and matters related thereto. Decisions of the Product Team shall be made by
consensus regarding matters related to Project Services including, without
limitation, matters such as which party (ICOS, Lilly or a Third Party) should
carry out a particular Project Service as contemplated under this
Research and Development Service Agreement - Confidential - Page 7
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Agreement. If the Product Team fails to agree on a particular matter, such
matter shall be referred to the Company for resolution.
3.4 PLANS & REPORTS. Except with respect to the [ * ] Plan as described
below in this Section 3.4(c), the Product Team shall prepare the following plans
and reports:
(a) PRODUCT TEAM LIFECYCLE PLAN. The Product Team shall prepare
[ * ] an overall Product Team Lifecycle plan (the "PRODUCT TEAM LIFECYCLE
PLAN"). The Product Team Lifecycle Plan will provide the Product Team with
[ * ]. The Product Team Lifecycle Plan (as amended) shall not become effective
until such plan is [ * ]. Except as [ * ] may otherwise determine, the
initial Product Team Lifecycle Plan shall be prepared for [ * ]. Attached
hereto as SCHEDULE 3.4(A) is [ * ].
(b) ANNUAL PROJECT OPERATIONAL PLAN. Except as otherwise provided in
this Section 3.4(b) or [ * ] may otherwise require, the Product Team will
annually prepare and submit for approval [ * ] an annual operational plan
consistent with the then-current Product Team Lifecycle Plan no later than
[ * ] for each subsequent Calendar Year that immediately precedes the Calendar
Year at issue. The Annual Project Operational Plan shall include, without
limitation, [ * ]. The initial Annual Project Operational Plan shall be
prepared for Company approval [ * ]. The first Annual Operational Project Plan
shall cover the period commencing as of the Effective Date and expire on
December 31, 1999, thereafter, each Annual Project Operational Plan shall only
pertain to the Calendar Year at issue.
(c) [ * ] PLAN. The Project Services conducted by the Product
Team hereunder for [ * ] following the Effective Date shall be carried out in
accordance with the plan entitled [ * ] that has been mutually agreed to and
exchanged between ICOS and Lilly concurrent with the execution of this
Agreement.
(d) QUARTERLY REPORTS. The Product Team will provide to the Company a
quarterly status report of Project Services provided to the Company for a
particular Calendar Quarter (the "Quarterly Project Report"). The Quarterly
Project Report shall include, without limitation, the progress to date and any
other matters that the Company may deem appropriate
(e) MONTHLY STATUS REPORTS. The Product Team, on a monthly basis,
will prepare a report for the Company generally summarizing the status of the
Project including, without limitation, important events, personnel changes,
learning points and other matters that the Product Team may deem appropriate
that occurred during the month at issue (the "Monthly Status Report").
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3.5 NO DEBARMENT. Each party represents and warrants to the other that
it will comply at all times with the provisions of the Generic Drug Enforcement
Act of 1992 and will upon request each party will certify in writing to the
other parties that neither such party, its employees, nor any person providing
services on behalf of such party in connection with the Project Services
contemplated by this Agreement has been debarred under the provisions of such
Act.
ARTICLE 4
PROJECT SERVICE FUNDING
4.1 FTE FUNDING, REIMBURSEMENT OF THIRD PARTY EXPENSES.
(a) FTE FUNDING. For Project Services rendered in accordance with
Project Guidelines after the Effective Date, Company agrees to pay ICOS and
Lilly, as applicable, under this Agreement. Except as otherwise provided for in
this Article 4, payment by Company for Project Services hereunder shall be based
on the FTE rate set forth in Section 1.10 of this Agreement.
(b) REIMBURSEMENT OF THIRD PARTY COSTS. In the event that Third
Parties are utilized with respect to the Project, Company shall only reimburse
----
[ * ].
Except as set forth in this Section 4.1(b) or to the extent Third Party
costs are used in determining the FTE rate, ICOS and Lilly shall not be entitled
to any compensation or reimbursement with respect to Third Party cost incurred
in connection with Project Services rendered hereunder. Notwithstanding the
foregoing, the parties hereby acknowledge that to the extent that Third Party
costs are included in determining the FTE rate under this Agreement, such Third
Party cost shall not be reimbursable under this Section 4.1(b) of this
Agreement.
4.2 QUARTERLY REPORT/INVOICE. Within [ * ] following the end of each
Calendar Quarter, ICOS and Lilly each shall prepare a report ("Invoice")
detailing any Third Party costs incurred, together with the [ * ] during such
Calendar Quarter. Within [ * ] following the end of each Calendar Quarter,
ICOS and Lilly each will forward its Invoice to the Company with a copy to the
other party for review and approval by a designated representative of each
party. If an objection by a party with respect to an Invoice is not raised
within [ * ] of receipt thereof, such Invoice will be deemed approved (such
approval shall not be construed as a waiver of any audit or other rights related
thereto). Once approved as described above in this Section 4.2, each invoice
will be submitted to the Company for payment in accordance with the terms set
forth in Section 4.3 of this Agreement. If necessary, adjustments or corrections
to an invoice as agreed to by both ICOS and Lilly will be made to the Invoice
before it is submitted for payment. Otherwise adjustments will be made in the
subsequent Invoice. Company, or its
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representatives, shall have the right to audit both ICOS and Lilly records with
respect to such reports, in accordance with Section 5.2 of this Agreement.
4.3 PROJECT PAYMENTS. Company shall make the payments due under this
Article 4 on a quarterly basis due to ICOS and Lilly, net fifteen (15) days
after approval (including a deemed approval as described above in Section 4.2)
of an Invoice as described in Section 4.2 of the Agreement.
4.4 CAPITAL EXPENDITURES FOR PROJECT PURPOSES. ICOS and Lilly each shall
be [ * ]. Any deviation from this Section 4.4 shall be approved in writing by
the Company.
4.5 SUBCONTRACTING PERMITTED. The Company acknowledges and agrees that
portions of the work involved in the Project may be performed on behalf of
Company by Third Parties hired by ICOS or Lilly, provided that for any
significant subcontract Company shall have previously approved the hiring of a
Third Party to handle such matter and also the cost associated thereto (such
approval may occur in the Annual Project Operational Plan). Moreover, in
connection with Third Party subcontractors, ICOS or Lilly, as applicable, shall
first, prior to engaging a Third Party to perform Project Services, have
obtained written confidentiality agreements with the subcontractors and written
assignments of all patent rights and know-how that such subcontractors may
develop by reason of work performed under this Agreement. Finally, except as the
Company may otherwise determine, in connection with Third Party subcontractors,
such subcontractors, as applicable based on the services to be performed by such
subcontractor, shall be required to conduct services for Project purposes in
accordance with current Good Manufacturing Practices ("cGMP"), current Good
Laboratory Practices ("cGMP") and current Good Clinical Practices ("cGCP"). In
reimbursing ICOS and Lilly, as applicable for the costs associated with such
Third Parties' work, ICOS and Lilly shall provide Company with all reasonable
documentation of such costs as may be required by Company.
ARTICLE 5
RECORD-KEEPING AND AUDITS
5.1 RECORDS KEEPING. Each Party shall record, to the extent practical,
all information relating to the Project in written form. To the extent
practical, such written records shall be kept separately from written records
documenting other research and development of such party. All such written
records of each party shall be maintained in a form sufficient to satisfy
regulatory authorities. Each party shall require its employees and consultants
to disclose any inventions relating to the Project in writing promptly after
conception. Furthermore, the parties, as applicable, shall keep complete and
accurate
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records pertaining to the Project Services rendered by such party in sufficient
detail to permit the other parties to confirm such Project Services.
Except as the Company may otherwise require, records shall be maintained
for the following periods:
(a) ACCURACY OF BILLING. For those records maintained for the sole
purpose of verifying the accuracy of any payment due hereunder, such records
shall be maintained for a [ * ] period following the Calendar Year in which
any such Project Services were rendered hereunder.
(b) R&D RECORDS. For all records pertaining to information regarding
research and development conducted hereunder such records shall be maintained
for the later of either: (i) a [ * ] period following the Calendar Year in
which any such research and development efforts were made hereunder; or (ii)
such other period as is necessary to comply with applicable regulatory
requirements. Neither party will destroy or otherwise dispose of records as
described under this Section 5.1(b) without the written consent of the other
parties, such consent not to be unreasonably withheld.
(c) REGULATORY FILINGS. For those records pertaining to regulatory
filing and other regulatory commitments (e.g. manufacturing tickets,
manufacturing procedures, etc.) such records shall be maintained for the later
of either: (i) such period as is mutually agreed upon between the parties in
writing; or (ii) such other period as is necessary to comply with applicable
regulatory requirements. Neither party will destroy or otherwise dispose of
records as described under this Section 5.1(c) without the written consent of
the other parties, such consent not to be unreasonably withheld.
5.2 GENERAL AUDIT REQUEST. Each of the parties shall have the right to
request an audit of such records (to the extent relevant to the issue at hand),
at its own expense and on an annual basis, to determine, with respect to any of
the [ * ], the correctness of any report or payment made under this Agreement.
If a party desires to audit such records, it shall utilize the independent,
certified public accountant of the audited party, to examine such records. Such
accountant shall be instructed to provide the party desiring the audit a report
on the findings of the agreed upon procedures which verifies any previous report
made or payment submitted by the audited party during such period. The expense
of such audit shall be borne by the auditing party; provided, however, that if
an error in favor of the auditing party of more than [ * ] is discovered, then
such expenses shall be paid by the audited party. Any information received by a
Party pursuant to this Section 5.2 shall be deemed to be confidential
information hereunder.
Upon the expiration of [ * ] following the end of any calendar year, the
audit right hereunder shall expire with respect to such Calendar Year and the
calculation of
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Research and Development Service Agreement - Confidential - Page 11
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amounts payable with respect to such Calendar Year shall be binding and
conclusive upon both parties and each party shall be released from any liability
or accountability with respect to payments for such Calendar Year.
5.3 QUALITY ASSURANCE AUDIT REQUEST. Except as the parties may otherwise
agree in writing, ICOS and Lilly shall each have the right to conduct reasonable
quality assurance audits with respect to all facilities, operations and
laboratories where Project Services are conducted and to verify their
conformance with applicable cGMP, cGLP, cGCP and other regulatory requirements.
Such audits shall only be conducted upon reasonable notice during reasonable
business hours.
5.4 SURVIVAL. This Article 5 shall survive any termination of this
Agreement for a period of [ * ].
ARTICLE 6
LICENSES
6.1 RESEARCH LICENSE FROM COMPANY TO ICOS. Company hereby grants to ICOS
[ * ] license under Company Technology but only to the extent useful or
--------
necessary to fulfill Project Service obligations under this Agreement.
6.2 RESEARCH LICENSE FROM COMPANY TO LILLY. Company hereby grants to
Lilly [ * ] license under Company Technology but only to the extent useful or
--------
necessary to fulfill Project Service obligations under this Agreement. This
license as set forth in this Section 6.2 of this Agreement shall not be
construed to limit the license agreement of even date herewith by and between
Company and Lilly.
6.3 OTHER LICENSE FROM COMPANY TO ICOS. Company hereby grants to ICOS
[ * ] license, with right to sublicense, to use PDE5 Project Inventions to
make, have made, use, sell, offer for sale and import products that are not, or
do not incorporate, an [ * ].
6.4 OTHER LICENSE FROM COMPANY TO LILLY. Company hereby grants to Lilly a
[ * ] license, with right to sublicense, to use PDE5 Project Inventions to
make, have made, use, sell, offer for sale and import products that are not, or
do not incorporate, an [ * ].
6.5 LICENSE FROM ICOS TO COMPANY. ICOS hereby grants Company [ * ]
license, with right to sublicense, under ICOS Enabling Technology to use, make,
have made, sell, offer for sale and import API, PDE5 Agents, and PDE5 Products.
This license as set forth in this Section 6.5 of this Agreement shall not be
construed to limit the license agreement of even date herewith by and between
ICOS and Company.
* Confidential Treatment Requested
Research and Development Service Agreement - Confidential - Page 12
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6.6 LICENSE FROM LILLY TO COMPANY. Lilly hereby grants Company a [ * ]
license, with right to sublicense, under Lilly Enabling Technology to use,
make, have made, sell, offer for sale and import [ * ].
ARTICLE 7
INTELLECTUAL PROPERTY
7.1 OWNERSHIP OF INVENTIONS. All data, inventions and discoveries
(including, without limitation, any Patents, Patent Applications, trade secrets,
know-how or other information) acquired or developed solely or jointly by
employee(s) or agents of ICOS, Lilly or their Affiliates in the course of
rendering Project Services that [ * ] shall be referred to as "PDE5 Project
Inventions") shall be the property of the Company. Each party hereby assigns to
the Company any PDE5 Project Inventions and shall cooperate with each other in
pursuing intellectual property protection, including Patents, relating to PDE5
Project Inventions, and in executing and delivering any additional instruments
required to assign, convey or transfer to the Company its interest in PDE5
Project Inventions.
7.2 PATENT FILINGS INVOLVING PDE5 PROJECT INVENTIONS AND OTHER INVENTIONS
OWNED BY COMPANY. In accordance with the Project Guidelines and direction of
the Company, the Product Team shall establish, in conjunction with appropriate
legal advice, an overall strategy for filing and prosecuting Patent Applications
for Patents and otherwise protecting intellectual property of the Company,
including, without limitation, an appropriate publication strategy as more fully
described in Article 8 of this Agreement, together with addressing other
pertinent matters that will maximize patent protection for the API, PDE5 Agents
and PDE5 Product.
Unless the patent strategy established by the Product Team and approved by
the Company provides otherwise or the Company may otherwise determine, the
Company, through the Product Team, will prepare, file, prosecute, maintain and
defend Patents and Patent Applications covering PDE5 Project Inventions and
other Patents and Patent Applications owned or controlled by Company. The
Product Team will endeavor to ensure that Patent Applications are filed before
any public disclosure by any party in order to maintain the validity of Patent
Applications filed outside of the United States. In the event that either ICOS
or Lilly prepare, file, prosecute and/or maintain a particular Patent
Application for PDE5 Project Inventions(s) or for other inventions owned or
controlled by Company, at least [ * ] prior to the contemplated filing date,
such filing party shall submit to the Product Team a substantially completed
draft of such Patent Application and will, in good faith, take into account,
with appropriate advice of legal counsel, the Product Team's suggestions
regarding such draft. The Product Team will copy ICOS and Lilly with any
official actions and submissions in such Patents and Patent
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Research and Development Service Agreement - Confidential - Page 13
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Applications. The Company shall [ * ] under this Section 7.2 for PDE5 Project
Inventions and other inventions owned or controlled by Company.
Unless the Company determines otherwise, should the Company elect not to
file, prosecute, maintain or issue any Patent Application, or maintain a Patent
issuing from any such Patent Application, for PDE5 Project Inventions or any
other Patent that it may own or control with the right to license (or
sublicense) in any particular country, the Company will so notify ICOS and Lilly
of its intentions (the "Discontinuance Notice"). Under such circumstances ICOS
and Lilly (either individually or jointly, as the case may be) shall upon
providing written notice to the Company of its intention to continue to file,
prosecute, maintain or issue any such Patent or Patent Application within
[ * ] of receipt of the Discontinuance Notice, obtain the right to file,
prosecute, maintain or issue any such Patent or Patent Application at its own
expense and the Company shall grant to ICOS or Lilly (either individually or
jointly, as the case may be) any necessary authority to file, prosecute, issue
and maintain such Patent Application or maintain such Patent in the name of ICOS
or Lilly (either individually or jointly, as the case may be). If ICOS and/or
Lilly (either individually or jointly, as the case may be) elect to file,
prosecute, maintain or issue any such Patent or Patent Application at its own
expense, the Company shall assign such Patent or Patent Application to ICOS
and/or Lilly and such Patent or Patent Application shall [ * ]
notwithstanding any license agreement to the contrary. In the event that either
ICOS or Lilly is assigned various rights as described in this Section 7.2, such
assignee party shall grant the Company [ * ] license, [ * ], to practice any
and all rights so assigned to use, make, have made, sell, offer for sale and
import API, PDE5 Agents and PDE5 Products.
7.3 [ * ].
7.4 NOTICE OF CERTIFICATION. Each party hereto shall immediately give
notice to the other parties of any certification filed under the U.S. "Drug
Price Competition and Patent Term Restoration Act of 1984" claiming that a
Company Patent is invalid or that any infringement will not arise from the
manufacture, use, import, offer for sale or sale of any product by a Third
Party. [ * ]. For this purpose, the Company shall execute such legal papers
necessary for the prosecution of such suit as may be reasonably requested by the
party bringing suit.
ARTICLE 8
PUBLICATIONS
A publication strategy involving Public Disclosures (as defined below) will
be developed by the Product Team. Publications whether written or oral
including, without limitation, abstracts, posters and manuscripts covering or
involving information generated
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Research and Development Service Agreement - Confidential - Page 14
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within the scope of the Project (collectively, the "Public Disclosures") must be
submitted for and obtain the approval of the Product Team, or designee thereof,
prior to external dissemination of any Public Disclosures. The Product Team or
its designee shall review each such proposed publication in order to avoid the
unauthorized disclosure of a party's or Company's confidential information and
to preserve the patentability of inventions and data package exclusivity arising
from the research and development performed in the course of the Agreement, as
well as to ensure compliance with the Company's publications strategy.
ARTICLE 9
TERM AND TERMINATION OF AGREEMENT
9.1 TERM. This Agreement shall become effective on the Effective Date
and shall continue in effect until the Company is dissolved or this Agreement is
terminated earlier as described hereunder or by mutual written agreement of the
parties.
9.2 TERMINATION FOR MATERIAL BREACH. In the event that either ICOS or
Lilly are in material breach of this Agreement, Company shall have the right to
terminate this Agreement after [ * ] written notice to ICOS and Lilly
(collectively or individually, as the case may be, "Breaching Party") unless the
Breaching Party cures the breach before the expiration of such period of time.
Such notice shall set forth in reasonable detail the specifics of the breach.
Similarly, in the event that the Company is in material breach of this
Agreement, the party whom the breach has been committed against (either ICOS or
Lilly) shall have the right to terminate this Agreement after [ * ] written
notice to Company (with a copy to the other party to this Agreement) unless the
Company cures the breach before the expiration of such period of time. Such
notice shall set forth in reasonable detail the specifics of the breach.
9.3 VOLUNTARY TERMINATION BY COMPANY. The Company may terminate this
Agreement for any reason at any time during the term of this Agreement and such
termination shall be effective on [ * ] written notice to each party. During
such [ * ], each party shall appropriately commence wind down efforts
including reasonable termination of its efforts under the Project and Company
shall be responsible for costs incurred under the Project for such period; but
only to the extent that such costs are unavoidable costs and expenditures,
including necessary expenses associated with personnel, non-cancelable
commitments and cash outlays in connection with the Project that cannot be
avoided, including, without limitation, all equipment ordered therefor which is
non-cancelable or non-returnable, even if such costs and expenditures are paid
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Research and Development Service Agreement - Confidential - Page 15
<PAGE>
after such [ * ] period provided such costs and expenses arise out of
commitments incurred prior to termination.
9.4 TERMINATION UPON INSOLVENCY. This Agreement may be terminated by a
party hereto upon notice to the other parties should a party:
(a) become insolvent; or
(b) file a petition under any bankruptcy or insolvency law or have
any such petition filed against it which has not been stayed within [ * ] of
such filing.
9.5 LLC MEMBERSHIP CHANGE. Except under circumstances that are described
in Section 13.4 of the LLC Agreement (which shall be handled in accordance with
the provisions thereunder), Lilly shall have the right, but not the obligation,
to terminate this Agreement if either Lilly or ICOS ceases to be a Member (as
defined in Section 1.1 of the LLC Agreement) of the Company. Similarly, except
under circumstances that are described in Section 13.4 of the LLC Agreement
(which shall be handled in accordance with the provisions thereunder), ICOS
shall have the right, but not the obligation, to terminate this Agreement if
either ICOS or Lilly ceases to be a Member of the Company. Termination under
this Section 9.5 shall be effective upon [ * ] written notice from the party
that desires to exercise such termination right to the other parties.
9.6 SURVIVAL. Termination of the Agreement shall not affect any accrued
rights of either party or obligations of the parties or the provisions. of
Sections 6.3, 6.4, 6.5, 6.6, 11.12 and the last sentence of Section 7.2 and
Articles 5 and 10 of this Agreement.
ARTICLE 10
GOVERNING LAW
The Agreement shall be governed by the laws of the State of Delaware,
without regard to Delaware choice of law provisions.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 NOTICES. All notices required or permitted to be given under this
Agreement shall be in writing and shall be mailed by registered or certified
mail addressed to the signatory to whom such notice is required or permitted to
be given and transmitted by facsimile to the number indicated below. All
notices shall be deemed to have been given when mailed as evidenced by the
postmark at the point of mailing or a confirmed facsimile transmission.
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<PAGE>
All notices to Lilly shall be addressed to Lilly as follows:
Eli Lilly and Company
Lilly Corporate Center
Indianapolis, IN 46285
Attention: General Counsel
Fax: (317) 276-4152
All notices to Company shall be addressed as follows:
Lilly ICOS LLC
c/o Eli Lilly and Company
Lilly Corporate Center
Indianapolis, IN 46285
Attention: General Counsel
Fax: (317) 276-4152
and:
Lilly ICOS LLC
c/o ICOS Corporation
22021 - 20th Avenue S.E.
Bothell, Washington 98021
Attention: Legal Department
Facsimile: (425) 398-8950
with a copy to:
Perkins Coie LLP
1201 Third Avenue, 40th Floor
Seattle, Washington 98101-3099
Attention: James R. Lisbakken, Esq.
Facsimile: (206) 583-8500
All notices to ICOS shall be addressed as follows:
ICOS Corporation
22021 - 20th Avenue S.E.
Bothell, Washington 98021
Attention: Legal Department
Facsimile: (425) 398-8950
Any party may, by written notice to the others, designate a new address or fax
number to which notices to the party giving the notice shall thereafter be
mailed or faxed.
Research and Development Service Agreement - Confidential - Page 17
<PAGE>
11.2 ENTIRETY OF AGREEMENT. This Agreement, and its schedules sets forth
the entire agreement and understanding of the parties relating to the subject
matter contained herein and merges all prior discussions and agreements between
them. No party shall be bound by any representation other than as expressly
stated in this Agreement, or by a written amendment to this Agreement signed by
authorized representatives of both parties.
11.3 NON-WAIVER. The failure of a party in any one or more instances to
insist upon strict performance of any of the terms and conditions of this
Agreement shall not be construed as a waiver or relinquishment, to any extent,
of the right to assert or rely upon any such terms or conditions on any future
occasion.
11.4 DISCLAIMER OF AGENCY. This Agreement shall not constitute any party
the legal representative or agent of another, nor shall any party have the right
or authority to assume, create, or incur any Third Party liability or obligation
of any kind, express or implied, against or in the name of or on behalf of
another except as expressly set forth in this Agreement. Therefore, it is
understood and agreed that ICOS and Lilly shall have the status of an
independent contractor under this Agreement and that nothing in this Agreement
shall be construed as authorization for any party hereunder to act as agent for
the other.
11.5 SEVERABILITY. In the event any term of this Agreement is or becomes
or is declared to be invalid or void by any court of competent jurisdiction,
such term or terms shall be null and void and shall be deemed deleted from this
Agreement, and all the remaining terms of the Agreement shall remain in full
force and effect.
11.6 ASSIGNMENT. Except as otherwise provided herein, neither this
Agreement nor any interest hereunder shall be assignable by any party without
the prior written consent of the other (which consent shall not be unreasonably
withheld); provided, however, that either Party may assign this Agreement to any
wholly-owned subsidiary or to any successor by merger or sale of substantially
all of its business unit to which this Agreement relates in a manner such that
the assignor (if it continues as a separate entity) shall remain liable and
responsible for the performance and observance of all its duties and obligations
hereunder. This Agreement shall be binding upon the successors and permitted
assignees of the parties and the name of a party appearing herein shall be
deemed to include the names of such party's successor's and permitted assigns to
the extent necessary to carry out the intent of this Agreement. Any assignment
not in accordance with this Section shall be void.
11.7 HEADINGS. The headings contained in this Agreement have been added
for convenience only and shall not be construed as limiting.
11.8 LIMITATION OF LIABILITY. No party shall be liable to another for
indirect, incidental, consequential or special damages, including but not
limited to lost profits,
Research and Development Service Agreement - Confidential - Page 18
<PAGE>
arising from or relating to any breach of this Agreement, regardless of any
notice of the possibility of such damages.
11.9 INTERPRETATION This Agreement has been jointly prepared by the
parties and their respective legal counsel and shall not be strictly construed
against either party.
11.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.
11.11 COMPLIANCE WITH LAWS. Each party shall, and shall cause its
respective Affiliates to, comply in all material respects with all federal,
state, local and foreign laws, statutes, rules and regulations applicable to the
parties and their respective activities under this Agreement.
11.12 CONFIDENTIALITY. Each party hereto agrees to abide by the
confidentiality provisions of Section 2.7 of the LLC Agreement with respect to
confidential information generated under or disclosed to each other pursuant to
the Project.
[signatures on following page]
Research and Development Service Agreement - Confidential - Page 19
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first written above.
ELI LILLY AND COMPANY ICOS CORPORATION
By: /s/ Sidney Taurel By: /s/ George B. Rathmann
----------------------------- -----------------------------
Sidney Taurel George B. Rathmann,
President and Chief Chairman of the Board, President
Executive Officer and Chief Executive Officer
LILLY ICOS LLC
By: /s/ Sidney Taurel
-----------------------------
On behalf of Eli Lilly and
Company, Member
By: /s/ George B/ Rathman
-----------------------------
On behalf of ICOS Corporation,
Member
Research and Development Service Agreement - Confidential
<PAGE>
SCHEDULE 1.11
TO
RESEARCH AND DEVELOPMENT SERVICE AGREEMENT BETWEEN
ICOS CORPORATION AND
ELI LILLY AND COMPANY
FTE METHODOLOGY RATE CALCULATION
____________________________________________________________
[ * ].
From time to time, Product Team will review this methodology to determine
the extent such methodology is appropriate for the then-current Project
Services.
*Confidential Treatment Requested
Attachment A to Schedule 1.11 -- Confidential
<PAGE>
ATTACHMENT A
TO SCHEDULE 1.11
[ * ]
*Confidential Treatment Requested
Schedule 1.11 -- Confidential -- Page 2
<PAGE>
SCHEDULE 1.17
TO
RESEARCH AND DEVELOPMENT SERVICE AGREEMENT BETWEEN
ICOS CORPORATION AND
ELI LILLY AND COMPANY
[ * ]
____________________________________________________________
Except as the Company may otherwise determine, in developing a
Manufacturing Plan the Product Team shall, without limitation, consider
establishing procedures and assigning responsibilities to address the following
items:
[ * ]
*Confidential Treatment Requested
Schedule 1.17 -- Confidential
<PAGE>
SCHEDULE 1.27
TO
RESEARCH AND DEVELOPMENT SERVICE AGREEMENT BETWEEN
ICOS CORPORATION AND
ELI LILLY AND COMPANY
[ * ]
____________________________________________________________
Except as [ * ] may otherwise determine, the Regulatory Plan shall be
prepared in a manner consistent with the following guidelines:
[ * ]
*Confidential Treatment Requested
Schedule 1.27 -- Confidential
<PAGE>
SCHEDULE 3.4(a)
TO
RESEARCH AND DEVELOPMENT SERVICE AGREEMENT BETWEEN
ICOS CORPORATION AND
ELI LILLY AND COMPANY
[ * ]
____________________________________________________________
[ * ]
*Confidential Treatment Requested
Schedule 1.27 -- Confidential
<PAGE>
EXHIBIT 10.5
TO
ICOS CORPORATION'S
FORM 10-Q
FOR THE QUARTER ENDED
SEPTEMBER 30, 1998
"[ * ]" = omitted, confidential material, which material has been
separately filed with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
<PAGE>
EXHIBIT 10.5
MARKETING AND SALES SERVICE AGREEMENT
BY AND AMONG
LILLY ICOS LLC
AND
ELI LILLY AND COMPANY
AND
ICOS CORPORATION
DATED AS OF
SEPTEMBER 30, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I....................................................................................................... 1
1.1 Adverse Event.............................................................................................. 1
1.2 Affiliate.................................................................................................. 1
1.3 Annual Detail Level........................................................................................ 1
1.4 cGMPs...................................................................................................... 2
1.5 Contract Year.............................................................................................. 2
1.6 Detail Fee................................................................................................. 2
1.7 FDA........................................................................................................ 2
1.8 FDCA....................................................................................................... 2
1.9 First Commercial Sale...................................................................................... 2
1.10 [ * ] Target Minimum Detail Level.......................................................................... 2
1.11 Launch Date................................................................................................ 2
1.12 Major EU Countries......................................................................................... 2
1.13 NDA........................................................................................................ 2
1.14 Non-Major EU Countries..................................................................................... 3
1.15 Non-Sales Force Promotion Expenses......................................................................... 3
1.16 Package Inserts............................................................................................ 3
1.17 [ * ]...................................................................................................... 3
1.18 PDMA....................................................................................................... 3
1.19 [ * ] Detail............................................................................................... 3
1.20 Product or Products........................................................................................ 3
1.21 Promotional Guidelines..................................................................................... 3
1.22 Promotional Materials...................................................................................... 3
1.23 Promotional Plan........................................................................................... 4
1.24 Regulatory Response........................................................................................ 4
1.25 Sales Force Promotion Expenses............................................................................. 4
1.26 Serious Adverse Event...................................................................................... 4
1.27 Shared Territory........................................................................................... 4
1.28 Targeted Physicians........................................................................................ 4
ARTICLE II...................................................................................................... 4
2.1 Responsibilities of the Company............................................................................ 4
A. Direction................................................................................................... 4
B. Guidelines.................................................................................................. 5
C. Annual Promotional Plan..................................................................................... 5
D. Pricing and Distribution.................................................................................... 5
E. Promotional Support......................................................................................... 5
F. Training Support from the Company........................................................................... 5
G. Trademark, Labeling, Package Inserts and Promotional Materials.............................................. 6
H. Coordination and Measuring of Detailing..................................................................... 6
I. Monitoring Detailing........................................................................................ 6
J. Other Responsibilities...................................................................................... 6
</TABLE>
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ARTICLE III..................................................................................................... 6
3.1 Lilly Responsibilities..................................................................................... 6
A. Lilly Project Director...................................................................................... 6
B. Product Detailing........................................................................................... 7
C. Other Activities............................................................................................ 7
3.2 ICOS Responsibilities...................................................................................... 7
A. ICOS Project Director....................................................................................... 7
B. Product Detailing........................................................................................... 7
C. Other Activities............................................................................................ 7
ARTICLE IV...................................................................................................... 7
4.1 [ * ]...................................................................................................... 7
A. Annual Detail Level......................................................................................... 7
B. Notice of Participation Level............................................................................... 8
C. Discussions on [ * ]........................................................................................ 8
4.2 [ * ]...................................................................................................... 8
A. Annual Detail Level......................................................................................... 8
B. Notice of Participation Level............................................................................... 9
4.3 [ * ]...................................................................................................... 9
A. Annual Detail Level - Participation Option.................................................................. 9
B. Failure to Exercise Participation Option.................................................................... 9
C. Notice of Participation Level............................................................................... 10
ARTICLE V....................................................................................................... 10
5.1 Minimum Detail Levels for the Shared Territory............................................................. 10
5.2 Failure to Meet Annual Detail Level........................................................................ 10
5.3 Verification of Minimum Detailing Requirements............................................................. 10
5.4 Minimum Number of Sales Representatives.................................................................... 10
ARTICLE VI...................................................................................................... 11
6.1 Compliance................................................................................................. 11
ARTICLE VII..................................................................................................... 11
7.1 Expenses................................................................................................... 11
A. Non-Sales Force Promotion Expenses - Annual Budget.......................................................... 11
B. Sales Force Promotion Expenses.............................................................................. 11
7.2 Detail Expense Reimbursement............................................................................... 11
7.3 Quarterly Report/Invoice................................................................................... 13
7.4 Reimbursement Payments..................................................................................... 13
ARTICLE VIII.................................................................................................... 13
8.1 Books and Records.......................................................................................... 13
8.2 Reports.................................................................................................... 13
A. Products Sold............................................................................................... 13
B. Detailing Report............................................................................................ 13
C. Annual Sales Report......................................................................................... 14
D. Audits...................................................................................................... 14
E. Adjustments................................................................................................. 14
</TABLE>
* Confidential Treatment Requested
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F. Report Content.............................................................................................. 14
ARTICLE IX...................................................................................................... 14
9.1 Authorization.............................................................................................. 14
9.2 No Conflicts with Other Instruments........................................................................ 14
ARTICLE X....................................................................................................... 15
10.1 Authorization............................................................................................. 15
10.2 No Conflicts with Other Instruments....................................................................... 15
ARTICLE XI...................................................................................................... 15
11.1 Compliance with Laws...................................................................................... 15
11.2 Adverse Event Reporting................................................................................... 16
11.3 Product Quality Complaints and Medical and Technical Inquiries............................................ 16
11.4 Intellectual Property Rights.............................................................................. 16
11.5 Product Recalls........................................................................................... 16
11.6 Access to Call Reporting Systems and Sales Representatives................................................ 16
11.7 Product Samples........................................................................................... 16
11.8 Manufacture and Support for the Product................................................................... 18
A. Adequate Supply............................................................................................. 18
B. NDAs........................................................................................................ 18
11.9 Quality Assurance Audit Request........................................................................... 18
11.10 Access to Underlying Data................................................................................. 18
ARTICLE XII..................................................................................................... 19
12.1 Term...................................................................................................... 19
12.2 Termination for Material Breach........................................................................... 19
12.3 Voluntary Termination by the Company...................................................................... 19
12.4 Termination Upon Insolvency............................................................................... 19
12.5. LLC Membership Change.................................................................................... 19
12.6 Effect of Termination..................................................................................... 20
ARTICLE XIII.................................................................................................... 20
13.1 Indemnification by the Company............................................................................ 20
13.2 Indemnification by Lilly.................................................................................. 20
13.3 Indemnification by ICOS................................................................................... 20
13.4 Indemnification Procedures................................................................................ 20
ARTICLE XIV..................................................................................................... 21
14.1 Confidentiality........................................................................................... 21
ARTICLE XV...................................................................................................... 21
15.1 Subcontracting Permitted.................................................................................. 21
15.2 Third Party Sales Force................................................................................... 21
15.3 Additional Joint Ventures or Other Structures............................................................. 21
15.4 Force Majeure............................................................................................. 22
15.5 Non-Solicitation.......................................................................................... 22
15.6 Use of Trademarks......................................................................................... 22
15.7 Limitation of Liability................................................................................... 22
15.8 Incorporation by Reference................................................................................ 22
Exhibit A.......................................................................................................A-1
Exhibit B.......................................................................................................B-1
Exhibit C.......................................................................................................C-1
</TABLE>
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Exhibit D.................................................................................................... D-1
</TABLE>
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MARKETING AND SALES SERVICE AGREEMENT
THIS MARKETING AND SALES SERVICE AGREEMENT (the "Agreement") is entered
into and effective as of the 30th day of September, 1998 (the "Effective Date"),
by and between Lilly ICOS LLC, a Delaware Limited Liability Company (the
"Company"), Eli Lilly and Company, an Indiana corporation ("Lilly"), and ICOS
Corporation, a Delaware corporation ("ICOS").
RECITALS
Lilly and ICOS have entered into a Limited Liability Company Agreement
dated as of September 30, 1998 (the "LLC Agreement"). The Company, Lilly and
ICOS desire to enter into an agreement pursuant to which Lilly and ICOS will
jointly promote the Company's product(s) to customers in accordance with the
terms and conditions set forth herein.
AGREEMENT
In consideration of the foregoing, the covenants and promises contained in
this Agreement, the Company, Lilly and ICOS agree as follows:
ARTICLE I
DEFINITIONS
As used herein, the following terms shall have the following meanings:
1.1 "ADVERSE EVENT" means any untoward happening in a patient or clinical
investigation subject after the onset of administration of Product without
regard to a causal relationship between such Product and the event, whether or
not such event is considered drug related.
1.2 "AFFILIATE" has the meaning set forth in Section 1.1 of the LLC
Agreement.
1.3 "ANNUAL DETAIL LEVEL" means the aggregate number of [ * ]
Details for each Product as determined on an annual basis by the Company for
each country in the Shared Territory.
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1.4 "cGMPS" means current Good Manufacturing Practices pursuant to 21
C.F.R. (S) 211 et seq., as amended from time to time.
1.5 "CONTRACT YEAR" means any one (1) of multiple twelve (12) month
periods beginning on the Launch Date of a Product. For purposes of this
Agreement, the term "Calendar Quarter" means a three month period beginning on
the 1st day of January, April, July or October.
1.6 "DETAIL FEE" means the amount to be reimbursed by the Company to each
of Lilly and ICOS for [ * ] Details performed in accordance with Section
7.2, below. The Detail Fee shall be calculated in accordance with EXHIBIT A.
1.7 "FDA" means the United States Food and Drug Administration, and any
successor agency or entity that may be established hereafter. "FDA" shall also
be deemed to include the applicable regulatory authority having jurisdiction
over the Product in any particular country or region (for example, the European
Medicines Evaluation Agency for the European Union).
1.8 "FDCA" means the Federal Food, Drug and Cosmetic Act (21 U.S.C. (S)
301 et seq.), as amended from time to time, together with any rules and
regulations promulgated hereunder. "FDCA" shall also be deemed to include the
applicable statutory, regulatory and/or other body of law applicable to the
Product in any particular country or region.
1.9 "FIRST COMMERCIAL SALE" means the date on which the first marketable
shipment of a Product is made in a particular country in the Shared Territory
after regulatory approval as a result of a purchase order from a party that is
not a party to this Agreement or its Affiliate.
1.10 "[ * ] TARGET MINIMUM DETAIL LEVEL" means [ * ]
allocation of the applicable Annual Detail Level.
1.11 "LAUNCH DATE" means the first day of the next Calendar Quarter
subsequent to that date upon which the First Commercial Sale of Product occurs
in a particular country in the Shared Territory.
1.12 "MAJOR EU COUNTRIES" means [ * ].
1.13 "NDA" means with respect to any particular Product, the New Drug
Application filed with the FDA pursuant to 21 U.S.C. (S) 357 and 21 C.F.R. (S)
314 with respect to that Product, together with all additions, deletions and
supplements thereto. "NDA" shall also be deemed to include any similar
authorization, approval, consent,
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license, permit, franchise, permission, notification, filing or registration
required in a particular country or region to market, sell and distribute
Product in such country or region.
1.14 "NON-MAJOR EU COUNTRIES" means [ * ].
1.15 "NON-SALES FORCE PROMOTION EXPENSES" means all expenses set forth on
EXHIBIT B incurred by Lilly and ICOS in the promoting of Product in a Shared
Territory to the extent such expenses have not otherwise been reimbursed by the
Company. Typical functional areas incurring Non-Sales Force Promotion expenses
would include [ * ].
1.16 "PACKAGE INSERTS" means labeling that is approved by the FDA that
meets the specific requirements as set forth in Sections 201.56 and 201.57 of
the Code of Federal Regulations (as such sections may be amended from time to
time).
1.17 "[ * ]" means [ * ].
1.18 "PDMA" means the Prescription Drug Marketing Act of 1987, as amended
from time to time, together with any rules or regulations promulgated
thereunder. "PDMA" shall also be deemed to include the applicable statutory,
regulatory and/or other body of law applicable to the Product in any particular
country or region.
1.19 "[ * ] DETAIL" means [ * ].
1.20 "PRODUCT" OR "PRODUCTS" means the product or products of the Company.
1.21 "PROMOTIONAL GUIDELINES" has the meaning set forth in Section 2.1(B),
below.
1.22 "PROMOTIONAL MATERIALS" means any tangible advertising and
promotional labeling bearing a Product name (trade name or generic name) used in
the promotion of the Product, including promotional materials produced by the
Company (examples include, but are not limited to, journal ads, brochures,
service items, managed care pull through sheets, formulary presentations, price
lists, monographs, [ * ], and telephone, radio or television advertisements) and
materials produced by outside sources (examples include, but are not limited to,
medical reprints, textbooks and CME materials) to the extent funded by, created
in cooperation with, reviewed by or distributed by the Company, and any other
items defined as labeling or advertising in Section 201(m) of the FDCA or CFR
Section 202.1(l)(1) (as such sections may be amended from time to time).
"Promotional Materials" shall also be deemed to include any advertising and
promotional labeling bearing the Company name but not bearing a Product name
(examples include
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"coming soon" or "reminder" advertisements) that may be used prior to obtaining
regulatory approval to market, sell and distribute the Product to promote only
the indication(s) of the Product.
1.23 "PROMOTIONAL PLAN" has the meaning set forth in Section 2.1(C),
below.
1.24 "REGULATORY RESPONSE" has the meaning set forth in Section 11.1,
below.
1.25 "SALES FORCE PROMOTION EXPENSES" means all expenses set forth on
EXHIBIT C incurred by Lilly and ICOS in the promoting of Product in a Shared
Territory to the extent such expenses have not otherwise been reimbursed by the
Company. Departments within each party incurring these types of expenses could
include [ * ].
1.26 "SERIOUS ADVERSE EVENT" means any Adverse Event with the following
conditions: death, life-threatening, hospitalization or prolonged
hospitalization, permanent disability, congenital abnormality, cancer or other
condition deemed serious.
1.27 "SHARED TERRITORY" means [ * ] and those additional countries
that hereafter become included in the definition of "Territory" set forth in
Section 1.1 of the LLC Agreement.
1.28 "TARGETED PHYSICIANS" means any health care professional with
prescribing authority including, for example, primary care physicians and
specialist physicians.
ARTICLE II
RESPONSIBILITIES OF THE COMPANY
2.1 RESPONSIBILITIES OF THE COMPANY. With respect to the Shared
Territory, the Company shall be responsible for the following functions:
A. DIRECTION. The Company shall have overall responsibility for the
supervision, coordination and direction of the joint promotion activities
contemplated by this Agreement.
B. GUIDELINES. The Company will establish guidelines to govern the
joint promotion of the Product (the "Promotional Guidelines"). The Promotional
Guidelines will include initial provisions describing the authority of each
Project Director (as defined in Sections 3.1(A) and 3.2(A), below) to make
decisions or take actions and what decisions and actions must be presented to
the Company for approval and establish procedures to insure compliance with all
applicable regulatory requirements. The
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Promotional Guidelines shall be completed by the Company no later than twelve
(12) months prior to the anticipated Launch Date.
C. ANNUAL PROMOTIONAL PLAN. The Company shall develop a detailed
annual promotional plan which will outline the strategy for the marketing and
sale of the Product by Lilly and ICOS in each country in the Shared Territory
(the "Promotional Plan"). The Promotional Plan will specify [ * ].
D. PRICING AND DISTRIBUTION. The Company shall make all sales of the
Product and shall have sole control of distribution of the Product (other than
Product samples) and sole control of pricing of the Product. [ * ].
E. PROMOTIONAL SUPPORT. The Company shall provide, at its sole
expense, the appropriate resources required to facilitate marketing, planning,
and professional services support of the Product in the manner contemplated by
this Agreement. In particular, the Company shall determine the amount of funds
to be spent on an annual basis for each country in the Shared Territory on Non-
Sales Force Promotion Expenses and Sales Force Promotion Expenses. The
determination for each of the above shall be based upon [ * ].
F. TRAINING SUPPORT FROM THE COMPANY. For each Product, the Company
will provide to Lilly and ICOS, at the Company's sole expense, [ * ]. The
Company will also provide, at the Company's sole expense, [ * ].
G. TRADEMARK, LABELING, PACKAGE INSERTS AND PROMOTIONAL MATERIALS.
The Company will develop any trademark(s) to be used in the promotion of any
Product. The Company will develop the Product label and related Package Inserts
for each country in the Shared Territory and will provide coordination for same
in countries not in the Shared Territory. In addition, the Company will, at its
sole cost, develop, prepare, produce and make available to Lilly and ICOS
appropriate quantities of all Promotional Materials to be used to jointly
promote the Product in the Shared Territory. All such Promotional Materials
shall comply with all applicable governing laws and/or regulations. The Company
will, where legally permissible, take all reasonable steps to ensure that both
Lilly's and ICOS's name and/or logos appear in equal prominence on the Product
label, Package Inserts, sample packages, and Promotional Material.
H. COORDINATION AND MEASURING OF DETAILING. The Company will be
responsible for coordinating the pattern, timing and degree of emphasis of
Product detailing to the Targeted Physicians. The Company will cause each of
Lilly and ICOS to use, and Lilly shall make available to ICOS, [ * ].
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I. MONITORING DETAILING. The Company shall have the right to monitor
the qualitative impact of the parties' respective detailing activities, using
such means as are reasonable and customary in the industry. If the Company, in
the course of such monitoring, discovers that there is an apparent difference in
the qualitative impact that the parties' respective detailing activities are
having, and the Company determines that the difference is material, then the
Company shall investigate the difference and shall take whatever steps it deems
appropriate to address the difference in light of the result of such
investigation.
J. OTHER RESPONSIBILITIES. The Company will be responsible for
taking such other action as may be reasonably necessary to accomplish the
purpose of this Agreement.
ARTICLE III
PROMOTION OF PRODUCT
3.1 LILLY RESPONSIBILITIES. Lilly shall be responsible for the following:
A. LILLY PROJECT DIRECTOR. Lilly shall name at least one (1)
individual to serve as its Project Director. The Lilly Project Director shall be
the primary Lilly contact person for all purposes of this Agreement, except to
the extent this Agreement provides otherwise or the parties otherwise agree. In
addition, the Lilly Project Director shall be responsible for managing
communications and performing other activities as specified in this Agreement.
B. PRODUCT DETAILING. Lilly shall use its commercially reasonable
efforts to promote the Product to Targeted Physicians in a manner consistent
with all applicable laws, rules and regulations, and any procedures set forth or
provided for by this Agreement.
C. OTHER ACTIVITIES. This Agreement is not intended to apply
[ * ].
3.2 ICOS RESPONSIBILITIES. ICOS shall be responsible for the following:
A. ICOS PROJECT DIRECTOR. ICOS shall name at least one (1)
individual to serve as its Project Director. The ICOS Project Director shall be
the primary ICOS contact person for all purposes of this Agreement, except to
the extent this Agreement provides otherwise or the parties otherwise agree. In
addition, the ICOS Project Director shall be responsible for managing
communications and performing other activities as specified in this Agreement.
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B. PRODUCT DETAILING. ICOS shall use its commercially reasonable
efforts to promote the Product to Targeted Physicians in a manner consistent
with all applicable laws, rules and regulations, and any procedure set forth or
provided by this Agreement.
C. OTHER ACTIVITIES. This Agreement is not intended [ * ].
ARTICLE IV
MINIMUM DETAIL LEVELS
4.1 [ * ]
A. ANNUAL DETAIL LEVEL. [ * ] has the right to provide [ * ] of
the applicable Annual Detail Level for the [ * ]. Notwithstanding the above,
[ * ] shall be required to provide the following minimum percentage of the [ * ]
Details in the [ * ] measured each [ * ]:
[ * ]
[ * ], [ * ] shall be required to provide at a minimum the number of [ * ]
Details equal to [ * ]. After the completion of [ * ] following the Launch Date,
(i) the parties shall provide their respective share of the Annual Detail Level,
and (ii) in no event shall [ * ] minimum detail obligation fall below [ * ] of
any Annual Detail Level.
B. NOTICE OF PARTICIPATION LEVEL. [ * ] shall provide the Company
and [ * ] no less than [ * ] notice prior to the anticipated Launch Date (and
every anniversary date thereof) regarding [ * ] anticipated level of detail
participation for the following Contract Year. [ * ].
C. DISCUSSIONS ON [ * ]. Within [ * ] of the Effective Date, all
of the parties agree to begin to discuss in good faith [ * ].
4.2. [ * ].
A. ANNUAL DETAIL LEVEL. [ * ] has the right to provide [ * ] of
the Annual Detail Level for [ * ]. Notwithstanding the above, at the Launch
Date and for each Contract Year thereafter, [ * ] shall be required to provide
a minimum [ * ] of the Annual Detail Level for [ * ] measured each [ * ]. At
the Launch Date and for each Contract Year thereafter, [ * ] shall be required
to provide at a minimum [ * ].
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B. NOTICE OF PARTICIPATION LEVEL. [ * ] shall provide the
Company and [ * ] no less than [ * ] notice prior to the anticipated Launch Date
(and every anniversary date thereof) for [ * ] regarding [ * ] anticipated level
of detail participation for such country for the following Contract Year. [ * ].
4.3. [ * ].
A. ANNUAL DETAIL LEVEL - PARTICIPATION OPTION. [ * ] has the
option (the "Participation Option") to provide [ * ], but in no event less than
[ * ], of the Annual Detail Level for [ * ]. To exercise the Participation
Option with respect to such a particular country, [ * ] shall provide the
Company and [ * ] no less than [ * ] notice prior to the anticipated Launch Date
for such country of [ * ] intent to participate in the promoting of Product
therein, which notice shall set forth [ * ]. At the Launch Date and for each
Contract Year thereafter, [ * ] shall be required to provide at a minimum the
[ * ].
B. FAILURE TO EXERCISE PARTICIPATION OPTION. If [ * ] does not
exercise its Participation Option pursuant to Section 4.3(A), above, then [ * ].
C. NOTICE OF PARTICIPATION LEVEL. [ * ] shall provide the Company
and [ * ] no less than [ * ] notice on each anniversary of the Launch Date
regarding [ * ] anticipated level of detail participation for the upcoming
Contract Year. [ * ].
ARTICLE V
COMPLIANCE WITH MINIMUM REQUIREMENT
5.1 MINIMUM DETAIL LEVELS FOR THE SHARED TERRITORY. Lilly and ICOS
shall each perform their respective share of the applicable Annual Detail Level
for each of the countries in the Shared Territory in accordance with this
Agreement.
5.2 FAILURE TO MEET ANNUAL DETAIL LEVEL. If either Lilly and/or ICOS
fails to perform at least [ * ] of its share of the applicable Annual Detail
Level in any country in the Shared Territory in any Contract Year, the non-
performing party shall [ * ].
5.3 VERIFICATION OF MINIMUM DETAILING REQUIREMENTS. All detailing
reports used in verifying minimum detailing requirements are [ * ].
5.4 MINIMUM NUMBER OF SALES REPRESENTATIVES. Each party's number of
sales representatives for a specific country shall be no less than [ * ]:
[ * ].
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ARTICLE VI
REGULATORY MATTERS
6.1 COMPLIANCE. All marketing efforts shall be consistent with all
applicable legal and regulatory requirements, including approved labeling.
Neither Lilly nor ICOS shall promote the Product for any use not approved by the
appropriate regulatory authorities, unless otherwise permitted by local law or
regulation, or promote the Product in any manner or with any materials not
approved by the Company. Neither Lilly nor ICOS shall make any false or
misleading representations to customers or others regarding ICOS or Lilly (as
appropriate), the Company or the Product or any representations, warranties or
guarantees with respect to specifications, features or capabilities of the
Product except as contained in the Package Insert or Promotional Material
approved by the Company.
ARTICLE VII
REIMBURSEMENT OF EXPENSES AND DETAIL FEE
7.1 EXPENSES
A. NON-SALES FORCE PROMOTION EXPENSES - ANNUAL BUDGET. The
Company shall determine the Non-Sales Force Promotion Expenses associated with
the Product to be incurred by each of Lilly and ICOS. The Company shall
reimburse Lilly and ICOS for such expenses. [ * ].
B. SALES FORCE PROMOTION EXPENSES. The Company shall determine
the Sales Force Promotion Expenses associated with the Product to be incurred by
each of Lilly and ICOS. Lilly and ICOS's sole reimbursement for their respective
Sales Force Promotion Expenses shall be determined pursuant to the detail
expense reimbursement mechanism set forth in Section 7.2, below.
7.2 DETAIL EXPENSE REIMBURSEMENT. The Company shall reimburse each of
Lilly and ICOS for [ * ] Details performed in accordance herewith [ * ].
7.3 QUARTERLY REPORT/INVOICE. Within [ * ] following the end of each
Calendar Quarter, ICOS and Lilly each shall prepare a report (the "Invoice")
detailing the Non-Sales Force Promotion Expenses and Sales Force Promotion
Expenses incurred in the prior Calendar Quarter. Within [ * ] following the end
of each Calendar Quarter, ICOS and Lilly will each forward its Invoice to the
Company with a copy to the other party for review and approval by a designated
representative of each party. Sufficient detail shall be provided to support the
expenses being charged. If an objection by a party with respect to an Invoice is
not raised within [ * ] of receipt thereof, such Invoice will be deemed approved
(such approval shall not be construed as a waiver of any audit or
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other rights related thereto). Once approved as described above in this Section
7.3, each invoice will be submitted to the Company for payment in accordance
with the terms set forth in Section 7.4, below, of this Agreement. If necessary,
adjustments or corrections to an Invoice as agreed to by both ICOS and Lilly
will be made to the Invoice before it is submitted for payment. Otherwise
adjustments will be made in the subsequent Invoice. The Company, or its
representatives, shall have the right to audit both ICOS and Lilly records with
respect to such reports, in accordance with Section 8.2(D), below, of this
Agreement.
7.4 REIMBURSEMENT PAYMENTS. The Company shall make the payments due under
this Article 7 on a quarterly basis due to ICOS and Lilly, net fifteen (15) days
after approval (including a deemed approval as described in Section 7.3, above)
of an Invoice as described in Section 7.3, above, of this Agreement.
ARTICLE VIII
ACCOUNTING AND REPORTS
8.1 BOOKS AND RECORDS. The parties shall keep comprehensive books and
records relating to their respective obligations under this Agreement on either
a cash or accrual basis of accounting in accordance with generally accepted
accounting principles. With respect to the Company, such books and records shall
document the Product sold, shipped and returned for such Product for the
Contract Year. All such books and records shall be maintained for at least [ * ]
following the relevant Contract Year, or such longer period as is required by
law.
8.2 REPORTS. The parties shall:
A. PRODUCTS SOLD. After the Launch Date, within [ * ] after the end
of each Calendar Quarter, the Company shall deliver to each of Lilly and ICOS a
report indicating the quantity of Product sold and the value of these sales.
B. DETAILING REPORT. After the Launch Date, within forty-five (45)
days after the end of each Calendar Quarter, Lilly and ICOS shall deliver to
each other and the Company a report indicating [ * ][ * ] Detail activities of
their respective sales forces as well as Product samples distributed to Targeted
Physicians or otherwise.
C. ANNUAL SALES REPORT. Within forty-five (45) days of the end of each
calendar year, the Company shall deliver to Lilly and ICOS a sales report.
D. AUDITS. Each party's audit rights shall be provided under, pursuant
to and in accordance with the terms of Section 15.1(d) of the LLC Agreement,
which terms are by this reference incorporated in and made a part of this
Agreement.
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E. ADJUSTMENTS. In the event that any examination or audit of the
records as described above discloses an under-payment or over-payment of amounts
due hereunder, written notice of such fact, specifying the amount and basis of
the under-payment or over-payment, shall promptly be furnished to all parties by
the person who performs the examination or audit. Within thirty (30) days after
receipt of such a notice, the party owing any payment hereunder shall promptly
effect the same to the party entitled thereto.
F. REPORT CONTENT. The Company shall determine the requirements for the
content of the reports described in Sections 8.2(A) - (C), above.
ARTICLE IX
REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to each of Lilly and ICOS as follows:
9.1 AUTHORIZATION. The Company has full power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
herein. This Agreement and the provisions hereof constitute the valid and
legally binding obligations of the Company and do not require the consent,
approval or authorization of any person, public or governmental authority or
other entity.
9.2 NO CONFLICTS WITH OTHER INSTRUMENTS. The execution and delivery of
this Agreement by the Company, and the performance of its obligations hereunder,
are not in violation or breach of, and will not conflict with or constitute a
default under, the LLC Agreement or any material agreement, contract, commitment
or obligation to which the Company is a party or by which it is bound, and will
not conflict with or violate any applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court having jurisdiction over the
Company or its assets or properties.
ARTICLE X
REPRESENTATIONS BY LILLY AND ICOS
Lilly and ICOS each individually, and not jointly, represents and warrants
to the Company as follows:
10.1 AUTHORIZATION. Lilly and ICOS each has full power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated herein. This Agreement and the provisions hereof constitute the
valid and legally binding obligations of each of Lilly and ICOS and do not
require the consent, approval or authorization of any person, public or
governmental authority or other entity.
10.2 NO CONFLICTS WITH OTHER INSTRUMENTS. The execution and delivery of
this Agreement by each of Lilly and ICOS, and the performance of their
respective obligations hereunder, are not in violation or breach of, and will
not conflict with or
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constitute a default under, the Articles of Incorporation or Bylaws of either
Lilly or ICOS, or any material agreement, contract, commitment or obligation to
which either Lilly or ICOS is a party or by which it is bound, and will not
conflict with or violate any applicable law, rule, regulation, judgment, order
or decree of any governmental agency or court having jurisdiction over either
Lilly or ICOS or their respective assets or properties.
ARTICLE XI
OTHER COVENANTS
11.1 COMPLIANCE WITH LAWS. The Company, Lilly and ICOS each agrees to
perform its obligations under this Agreement in compliance with all applicable
laws, rules and regulations. In the event any party receives notice of an
inspection or notification by a governmental entity, including the FDA, relating
to the promotion of the Product, Promotional Materials or compliance with PDMA,
the party receiving such inspection or notification will notify the other
parties as soon as possible but in no event later than [ * ] after receipt of
such notice or notification, and provide to such other parties, within [ * ],
copies of all documents, including the FDA Forms 482, 483, Warning Letters and
other correspondence and notifications, as such other parties may request. The
Company, Lilly and ICOS agree to cooperate with each other during any
inspection, investigation or other inquiry by the FDA or any other governmental
entity, including providing information and/or documentation, as requested by
the FDA or other governmental entity, or any of the parties to this Agreement.
The Company, Lilly and ICOS also agree to discuss any response to observations
or notifications received and to give the other parties an opportunity to
comment on any proposed response before it is made. In the event of disagreement
concerning the form or content of such response, however, the Company will be
responsible for deciding the appropriate form and content of any response with
respect to the Product ("Regulatory Response"). Each party agrees to conform its
respective activities, with respect to the Product, only to any commitments made
by such party in a Regulatory Response.
11.2 ADVERSE EVENT REPORTING. Prior to the Launch Date in any country, the
Company shall have developed written procedures for the assessment and reporting
of Adverse Events and Serious Adverse Events for such country, which procedures
shall be reasonably acceptable in form and substance to Lilly and ICOS. Lilly
and ICOS agree to abide by such procedures. Unless otherwise agreed to by the
parties, the Company intends to enter into an agreement with [ * ].
11.3 PRODUCT QUALITY COMPLAINTS AND MEDICAL AND TECHNICAL INQUIRIES. Prior
to the Launch Date in any country, the Company shall have developed written
procedures for handling and responding to Product quality complaints and the
medical and technical inquiries of customers, physicians, pharmacists and other
healthcare
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professionals with respect to the Product in such country. Lilly and ICOS agree
to abide by such procedures. Unless otherwise agreed to by the parties, the
Company intends to enter into an agreement with [ * ].
11.4 INTELLECTUAL PROPERTY RIGHTS. This Agreement is not intended to
transfer or assign any rights, title or interest in or to the intellectual
property of any other party, including patents, trademarks, copyrights and know-
how. Copyright interests in Promotional Materials related to Product will be
owned by the Company. Lilly and ICOS may use such copyrighted materials anytime
after the Effective Date.
11.5 PRODUCT RECALLS. In the event that any governmental entity issues a
request, directive or order, or the Company determines in its sole discretion
that Product be recalled, Lilly and ICOS shall fully cooperate with the Company,
at the Company's expense, in conducting any such recall and shall take all
appropriate corrective actions.
11.6 ACCESS TO CALL REPORTING SYSTEMS AND SALES REPRESENTATIVES. Lilly and
ICOS each agrees to provide the other party, as well as the Company, access,
upon reasonable notice and during normal business hours, to its internal call
reporting system for auditing purposes. In addition, [ * ] agrees [ * ].
11.7 PRODUCT SAMPLES. The parties anticipate that Product samples, if any,
will be provided [ * ]. Product samples, if any, at the time of shipment to
Lilly and/or ICOS: (A) will comply in all material respects with applicable NDA
specifications and internal Company guidelines for acceptance, (B) will conform
to the information indicated on the certificates of analysis for such Product
samples, (C) will comply in all material respects with the requirements of the
FDCA, (D) will not be products that have been adulterated or misbranded within
the meaning of the FDCA and regulations issued thereunder, or any state or local
law substantially similar to the FDCA, and (E) will not be products that may not
be introduced into interstate commerce pursuant to federal or state law. In
addition, Product samples shall have been manufactured, packaged, stored and
shipped in conformity with all applicable cGMPs. EXCEPT AS EXPRESSLY PROVIDED IN
THIS ARTICLE, THE COMPANY MAKES NO REPRESENTATION OR WARRANTY AS TO THE PRODUCT
SAMPLES, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE
OR OTHERWISE, AND THE COMPANY SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED OR
STATUTORY WARRANTIES, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY, WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE OR WARRANTY OF
NONINFRINGEMENT.
11.8 MANUFACTURE AND SUPPORT FOR THE PRODUCT.
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A. ADEQUATE SUPPLY. The Company shall use commercially reasonable
efforts to ensure that an adequate supply of the Product is manufactured to
[ * ]. The Company will notify Lilly and ICOS immediately upon the Company's
discovery of any events or conditions that the Company expects has the
potential to have an impact on the Company's ability to have an adequate supply
of Product. The parties shall meet within thirty (30) days after such notice to
assess the potential impact of such event or condition on Lilly's and ICOS's
ability to fulfill their respective obligations under this Agreement.
B. NDAS. With respect to each country in the Shared Territory, the
Company shall use commercially reasonable efforts to maintain and support the
NDA for the Product. The Company may supplement the NDA, add or delete package
or dosage formats of the Product or change the Package Insert as it deems
reasonably appropriate consistent with the Company's normal business practice
(so long as any such supplement, addition, deletion or change is in compliance
with all applicable laws, rules and regulations). Lilly and ICOS each
acknowledge and accept that FDA approval may be required for some or all of such
matters, and Lilly and ICOS each agree to cooperate with the Company in this
regard and to not use any affected materials until the Company has notified
Lilly and ICOS each in writing that the Company has received FDA approval or
that it is otherwise permissible to use any such affected materials. The Company
will notify Lilly and ICOS of any proposed amendment to the Package Insert or
other changes that might impact Lilly's and ICOS's obligations under this
Agreement, and will provide Lilly and ICOS with at least fifteen (15) days to
comment, before implementation of such amendment or change unless Lilly and ICOS
each agrees in writing to some lesser amount of time in which to comment. In the
event of disagreement between the parties concerning the form or content of such
amendment, the Company will have the sole right and responsibility to decide
upon the appropriate form and content of such amendment or change.
11.9 QUALITY ASSURANCE AUDIT REQUEST. Each party shall provide the other
(and the Company shall cause any third party under contract with it to provide)
with the right to conduct reasonable quality assurance audits with respect to
all manufacturing facilities, distribution operations and activities, PDMA
activities, and marketing and promotional activities conducted under or in
connection with this Agreement to verify their conformance with applicable cGMPs
and other regulatory requirements. Such audits shall only be conducted upon
reasonable notice during reasonable business hours.
11.10 ACCESS TO UNDERLYING DATA. Lilly shall provide the Company and
ICOS with access, during normal business hours and upon reasonable notice, to
[ * ].
* Confidential Treatment Requested
-14-
<PAGE>
ARTICLE XII
TERM, EXTENSION, AND TERMINATION OF AGREEMENT
12.1 TERM. This Agreement shall become effective on the Effective Date
and shall continue in effect unless the Company is dissolved or it is terminated
earlier as described hereunder or by mutual written agreement of the parties.
12.2 TERMINATION FOR MATERIAL BREACH. In the event that either Lilly or
ICOS is in material breach of this Agreement, the Company shall have the right
to terminate this Agreement after ninety (90) days written notice to Lilly or
ICOS (collectively or individually, as the case may be, the "Breaching Party")
unless the Breaching Party cures the breach before the expiration of such period
of time. Such notice shall set forth in reasonable detail the specifics of the
breach. Similarly, in the event that the Company is in material breach of this
Agreement, the party whom the breach has been committed against (either Lilly
and/or ICOS) shall have the right to terminate this Agreement after ninety (90)
days written notice to the Company (with a copy to the other party to this
Agreement) unless the Company cures the breach before the expiration of such
period of time. Such notice shall set forth in reasonable detail the specifics
of the breach.
12.3 VOLUNTARY TERMINATION BY THE COMPANY. The Company may terminate this
Agreement for any reason at any time during the term of this Agreement and such
termination shall be effective after thirty (30) days written notice to each
party. During such thirty (30) days, each party shall appropriately commence
wind down efforts, including reasonable termination of its efforts under this
Agreement, and the Company shall remain responsible for expenses incurred in
accordance with this Agreement for such period but only to the extent that such
costs are unavoidable expenses and expenditures.
12.4 TERMINATION UPON INSOLVENCY. This Agreement may be terminated by a
party hereto upon notice to the other parties should a party (a) become
insolvent, or (b) file a petition under any bankruptcy or insolvency law or have
any such petition filed against it which has not been stayed within 60 days of
such filing.
12.5 LLC MEMBERSHIP CHANGE. Except under circumstances that are described
in Section 13.4 of the LLC Agreement (which shall be handled in accordance with
the provisions thereunder), Lilly shall have the right, but not the obligation,
to terminate this Agreement if [ * ]. Similarly, except under circumstances
that are described in Section 13.4 of the LLC Agreement (which shall be handled
in accordance with the provisions thereunder), [ * ]. Termination under this
Section 12.5 shall be effective upon thirty (30) days written notice from the
party that desires to exercise such termination right to the other parties.
* Confidential Treatment Requested
-15-
<PAGE>
12.6 EFFECT OF TERMINATION. Termination of this Agreement shall not
operate to release any party from any obligation or liability incurred under the
terms of this Agreement prior to or upon termination hereof. Any provision of
this Agreement which by its context is intended to apply after termination of
this Agreement shall survive its termination, including the provisions of
Article VI (Regulatory Matters), Article VII (Reimbursement of Expenses and
Detail Expense Reimbursement), Article XIII (Indemnification), and Article XIV
(Confidentiality).
ARTICLE XIII
INDEMNIFICATION
13.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify,
defend and hold Lilly and ICOS harmless from and against any losses, including
product liability, which arise from any claim, lawsuit or other action by a
third party arising out of the manufacture of the Product, the breach by the
Company of its warranties or obligations under this Agreement, or the negligence
or willful misconduct of the Company, its employees or its agents, except to the
extent such losses result from (i) the breach by Lilly and/or ICOS of their
respective warranties or obligations hereunder or (ii) the negligence or willful
misconduct of Lilly and/or ICOS, their respective employees or their respective
agents.
13.2 INDEMNIFICATION BY LILLY. Lilly agrees to indemnify, defend and hold
the Company and ICOS harmless from and against any losses which arise from any
claim, lawsuit or other action by a third party arising out of the breach by
Lilly of its warranties or obligations under this Agreement, or the negligence
or willful misconduct of Lilly, its employees or its agents, except to the
extent such losses result from (i) the breach by the Company and/or ICOS of
their respective warranties or obligations hereunder or (ii) the negligence or
willful misconduct of the Company and/or ICOS, their respective employees or
their respective agents.
13.3 INDEMNIFICATION BY ICOS. ICOS agrees to indemnify, defend and hold
the Company and Lilly harmless from and against any losses which arise from any
claim, lawsuit or other action by a third party arising out of the breach by
ICOS of its warranties or obligations under this Agreement, or the negligence or
willful misconduct of ICOS, its employees or its agents, except to the extent
such losses result from (i) the breach by the Company and/or Lilly of their
respective warranties or obligations hereunder or (ii) the negligence or willful
misconduct of the Company and/or Lilly, their respective employees or their
respective agents.
13.4 INDEMNIFICATION PROCEDURES. A party seeking indemnification hereunder
(the "Indemnified Party") shall give written notice to the indemnifying party
(the "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
-16-
<PAGE>
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
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.
ARTICLE XIV
CONFIDENTIALITY
14.1 CONFIDENTIALITY. Except as otherwise expressly provided in this
Agreement, each party shall be subject to the confidentiality provisions
provided under, pursuant to and in accordance with Section 2.7 of the LLC
Agreement, which terms are by this reference incorporated in and made a part of
this Agreement.
ARTICLE XV
MISCELLANEOUS
15.1 SUBCONTRACTING PERMITTED. Each party acknowledges and agrees that
portions of the work to be performed hereunder by the Company may be performed
on its behalf by third parties hired by the Company.
15.2 THIRD PARTY SALES FORCE. Lilly and ICOS shall [ * ].
15.3 ADDITIONAL JOINT VENTURES OR OTHER STRUCTURES. The parties agree to
review the need to create additional joint ventures or other business
structures, in each case [ * ].
15.4 FORCE MAJEURE. No party shall be in breach of or liable to any other
party for loss or damages for any default or delay attributable to any Force
Majeure event if the party affected shall give prompt notice of any such cause
to the other parties. The party giving such notice of Force Majeure shall
thereupon be excused from such of its obligations hereunder as it is thereby
disabled from performing for so long as it is so disabled and for sixty (60)
days thereafter; provided, however, that such affected party commences and
continues to take reasonable and diligent actions to cure such cause. For
* Confidential Treatment Requested
-17-
<PAGE>
purposes of this Agreement, "Force Majeure" shall mean, without limitation, acts
of God, war, fire, flood, earthquake, strike, labor dispute and the like.
15.5 NON-SOLICITATION. From the Effective Date until the termination of
activities contemplated by this Agreement and for a period of six (6) months
thereafter, each party agrees that it will not directly recruit, solicit or
induce any employee, consultant or agent of another party to terminate his or
her relationship with such other party. However, nothing set forth in this
section shall prohibit a party from indirectly recruiting, soliciting or
inducing such individual to leave the other party through use of advertisements
in trade journals and the like or from discussing employment opportunities with
such individuals to the extent such individuals contact such party first.
15.6 USE OF TRADEMARKS. Use of one party's trademark by another party
shall be pursuant to a Trademark License Agreement in form and substance to be
agreed upon by the parties.
15.7 LIMITATION OF LIABILITY. EXCEPT AS MAY ELSEWHERE HEREIN SPECIFICALLY
BE PROVIDED FOR OTHERWISE, IN NO EVENT SHALL ANY PARTY BE LIABLE FOR INDIRECT,
SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, INCLUDING COSTS OF
PROCUREMENT OF SUBSTITUTE PRODUCTS OR SERVICES, OR FOR ANY LOST PROFITS OF ANY
OTHER PARTY, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, ARISING OUT OF THIS
AGREEMENT. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF
ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
15.8 INCORPORATION BY REFERENCE. Each party agrees to the incorporation of
the following provisions, which terms are by this reference incorporated in and
made a part of this Agreement (references are to the Section set forth in the
Joint Venture Agreement): (a) Dispute Resolution -- Article 12, (b) Notices --
Section 16.1, (c) Waiver -- Section 16.2, (d) Severability -- Section 16.3, (e)
Further Assurances -- Section 16.5, (f) Governing Law -- Section 16.6, (g)
Counterparts -- Section 16.7, (h) Limitation on Rights of Others -- Section
16.8, (i) Successors and Assigns -- Section 16.9, (j) Entire Agreement;
Amendment -- Section 16.10, (k) Expenses -- Section 16.11, (l) Construction --
Section 16.12, (m) Disclaimer of Agency -- Section 16.13, (n) Rights and
Remedies -- Section 16.14, and (o) Attorneys' Fees -- Section 16.15.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives in the manner legally binding as of
the date first above written.
LILLY ICOS LLC
By: /s/ Sidney Taurel
----------------------------------------
On behalf of Eli Lilly and Company, Member
By: /s/ George B. Rathmann
----------------------------------------
On behalf of ICOS Corporation, Member
ELI LILLY AND COMPANY
By: /s/ Sidney Taurel
-------------------------------------
Sidney Taurel
President and Chief Executive Officer
ICOS CORPORATION
By: /s/ George B. Rathmann
----------------------
George B. Rathmann
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
Exhibit A
Methodology for Determination of Detail Fee for
[ * ] Details Performed by Lilly and ICOS
-----------------------------------------------
The Detail Fee shall be calculated as follows (an example of the
calculation follows this narrative):
[ * ].
* Confidential Treatment Requested
A-1
<PAGE>
Calculation of Detail Fee
Example
[ * ]
* Confidential Treatment Requested
A-2
<PAGE>
Exhibit B
Non-Sales Force Promotion Expenses
[ * ]
* Confidential Treatment Requested
B-1
<PAGE>
Exhibit C
Sales Force Promotion Expenses
[ * ]
* Confidential Treatment Requested
C-1
<PAGE>
Examples Selling Effort
- -----------------------
[ * ]
* Confidential Treatment Requested
D-1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,065
<SECURITIES> 1,796
<RECEIVABLES> 1,829
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,394
<PP&E> 40,175
<DEPRECIATION> 20,171
<TOTAL-ASSETS> 36,912
<CURRENT-LIABILITIES> 9,913
<BONDS> 0
0
0
<COMMON> 400
<OTHER-SE> 26,599
<TOTAL-LIABILITY-AND-EQUITY> 36,912
<SALES> 0
<TOTAL-REVENUES> 20,726
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 49,089
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (27,137)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27,137)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,137)
<EPS-PRIMARY> (.68)
<EPS-DILUTED> (.68)
</TABLE>
