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.
EXHIBIT 10.1
LIMITED LIABILITY COMPANY AGREEMENT
OF
LILLY ICOS LLC
BETWEEN
ELI LILLY AND COMPANY
AND
ICOS CORPORATION
SEPTEMBER 30, 1998
CONTENTS
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
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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
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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:
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
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Title 6, Chapter 18 of the Delaware Code, (S) 101 et. seq., as amended from time
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to time.
"Adjusted Capital Account Deficit" means, with respect to any Member, the
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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,
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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
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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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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
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6.1.
"Capital Account" means the capital account to be determined and maintained
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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
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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.
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"Closing Date" means October 2, 1998, or such other date as shall be
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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
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Certificate of Formation and this Agreement.
"Company Minimum Gain" has the meaning of "partnership minimum gain" set
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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
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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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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
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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 [ * ].
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"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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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
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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 [ * ].
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"Manager" means a person appointed to the Board pursuant to Article 6.
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"Marketing and Sales Service Agreement" means the Marketing and Sales
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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
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forth in Regulations Section 1.704-2(b)(4).
"Member Nonrecourse Debt Minimum Gain" means an amount, with respect to
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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
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successors and permitted assigns.
"Membership Interest" or "Interest" means the interest in the Company
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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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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
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1.704-2(b)(3).
"PDE5" means the [ * ] phosphodiesterase.
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"PDE5 Agent" means [ * ].
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"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 [ * ].
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"PDE5 Technology" shall have the same meaning as "Company Technology" as
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set forth in the Research and Development Service Agreement.
"Person" means any individual or Entity, and the heirs, executors,
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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
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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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(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
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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,
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as such regulations are amended from time to time (including corresponding
provisions of succeeding regulations).
"Research and Development Service Agreement" means the Research and
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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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"Territory" means [ * ].
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"Transfer" means any sale, assignment, gift, exchange, pledge, encumbrance,
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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
[ * ].
/*/ Confidential Treatment Requested
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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
/*/ Confidential Treatment Requested
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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
/*/ Confidential Treatment Requested
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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.
/*/ Confidential Treatment Requested
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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
/*/ Confidential Treatment Requested
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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.
/*/ Confidential Treatment Requested
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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
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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
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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.
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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)
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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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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.
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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
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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
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]
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[ * ].
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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.