-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VmXpMYiGflwALMooPFEudWNQafmWzzcxr6CzRfP/lkpE9V5y1iOBzXySdsh69uoK 4i1moS/NdbI7ghwGiAIBqw== 0001047469-97-004709.txt : 19971117 0001047469-97-004709.hdr.sgml : 19971117 ACCESSION NUMBER: 0001047469-97-004709 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CUBIST PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000912183 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 223192085 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21379 FILM NUMBER: 97718535 BUSINESS ADDRESS: STREET 1: 24 EMILY ST CITY: CAMBRIDGE STATE: MA ZIP: 02139 BUSINESS PHONE: 6075761999 MAIL ADDRESS: STREET 1: 24 EMILY ST CITY: CAMBRIDGE STATE: MA ZIP: 02139 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended September 30, 1997 OR __ Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 Commission file number 0-21379 CUBIST PHARMACEUTICALS, INC. (Exact name of registrant as specified in its charter) Delaware 22-3192085 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 24 Emily Street Cambridge, Massachusetts 02139 (Address of principal executive offices) (617) 576-1999 (Registrant's telephone number, including area code) None (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of October 31, 1997, there were 10,580,689 shares outstanding of the Company's common stock, $0.001 per value per share. CUBIST PHARMACEUTICALS, INC. INDEX
ITEM PAGE NUMBER NUMBER - ------ ------ PART I. FINANCIAL INFORMATION Item 1. Condensed Unaudited Financial Statements Condensed Balance Sheets as of September 30, 1997 and December 31, 1996 3 Condensed Statements of Operations for the three months ended September 30, 1997 and 1996 and for the nine months ended September 30, 1997 and 1996 4 Condensed Statements of Cash Flows for the nine months ended September 30, 1997 and 1996 5 Notes to the Unaudited Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds 12 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 6. Exhibits and Reports on Form 8-K 13 Signature 14
2 PART I--FINANCIAL INFORMATION ITEM 1. CONDENSED FINANCIAL STATEMENTS CUBIST PHARMACEUTICALS, INC. CONDENSED BALANCE SHEETS (unaudited)
SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------- ASSETS Current Assets: Cash and cash equivalents........................................................ $ 8,357,100 $ 19,329,353 Short-term investments........................................................... 6,578,808 -- Accounts receivable.............................................................. 111,000 505,267 Prepaid expenses and other current assets........................................ 419,338 286,642 ------------- ------------- Total current assets............................................................. 15,466,246 20,121,262 Property and equipment............................................................. 5,834,144 4,898,538 Less: Accumulated depreciation and amortization.................................. (2,454,054) (1,741,152) ------------- ------------- Property and equipment, net...................................................... 3,380,090 3,157,386 Long-term investments.............................................................. 5,515,413 -- Other assets....................................................................... 180,294 173,799 ------------- ------------- Total assets................................................................... $ 24,542,043 $ 23,452,447 ------------- ------------- ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable................................................................. $ 332,185 $ 741,409 Accrued expenses................................................................. 395,715 484,732 Deferred revenue................................................................. 42,300 126,900 Current portion of long-term debt................................................ 205,681 188,062 Current portion of capital lease obligations..................................... 613,586 559,767 ------------- ------------- Total current liabilities...................................................... 1,589,467 2,100,870 Long-term debt, net of current portion............................................. 133,754 291,683 Long-term capital lease obligation, net of current portion......................... 1,111,864 761,284 ------------- ------------- Total liabilities.............................................................. 2,835,085 3,153,837 ------------- ------------- Commitments Stockholders' Equity: Common Stock--$.001 par value; authorized: 25,000,000 shares, 1997 and 1996; issued: 10,577,544 shares, 1997 and 9,544,373 shares, 1996....................... 10,578 9,544 Additional paid-in capital......................................................... 42,042,289 36,019,608 Accumulated deficit................................................................ (20,345,909) (15,730,542) ------------- ------------- Total stockholders' equity..................................................... 21,706,958 20,298,610 ------------- ------------- Total liabilities and stockholders' equity..................................... $ 24,542,043 $ 23,452,447 ------------- ------------- ------------- -------------
The accompanying notes are an integral part of the unaudited condensed financial statements. 3 CUBITS PHARMACEUTICALS, INC. CONDENSED STATEMENTS OF OPERATIONS UNAUDITED
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------ -------------------------- 1997 1996 1997 1996 ------------ ---------- ------------ ------------ Sponsored research revenues................................ $ 402,667 $ 960,879 $ 2,081,267 $ 3,007,532 Operating expenses: Research and development.................................. 2,450,564 1,656,048 6,754,724 4,838,657 General and administrative................................ 783,139 463,121 2,362,476 1,336,707 ------------ ---------- ------------ ------------ Total operating expenses................................. 3,233,703 2,119,169 9,117,200 6,175,364 Interest income............................................ 237,643 68,409 771,400 111,641 Interest expense........................................... (64,187) (65,494) (184,168) (172,397) Other income (Note C)...................................... 1,833,334 -- 1,833,334 -- ------------ ---------- ------------ ------------ Net loss................................................... ($824,246)($1,155,375) ($4,615,367) ($3,228,588) ------------ ---------- ------------ ------------ ------------ ---------- ------------ ------------ Net loss per common share.................................. ($0.08) ($0.85) ($0.47) ($2.37) ------------ ---------- ------------ ------------ ------------ ---------- ------------ ------------ Weighted average number of common shares................... 10,384,786 1,361,200 9,828,971 1,363,235 ------------ ---------- ------------ ------------ ------------ ---------- ------------ ------------
The accompanying notes are an integral part of the unaudited condensed financial statements. 4 CUBIST PHARMACEUTICALS, INC. CONDENSED STATEMENTS OF CASH FLOWS UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, --------------------------------- 1997 1996 ---------------- --------------- Cash Flows from operating activities: Net loss........................................................... $ (4,615,367) $ (3,228,588) Adjustments to reconcile net loss to net cash provided by/ (used in) operating activities: Depreciation and amortization.................................... 759,180 490,814 Changes in assets and liabilities: Accounts receivable............................................ 394,267 988,000 Prepaid expenses and other current assets...................... (132,696) (739,838) Other assets................................................... (6,495) (12,689) Accounts payable and accrued expenses.......................... (498,241) 898,634 Deferred revenue............................................... (84,600) -- ----------- ----------- Total adjustments............................................ 431,415 1,624,921 ----------- ----------- Net cash used in operating activities................................ (4,183,952) (1,603,667) Cash flows from investing activities: Purchase of fixed assets........................................... (841,128) (405,019) Leasehold improvements............................................. (94,478) (266,683) Purchase of short-term investments................................. (6,578,808) -- Redemption of short-term investments............................... -- 1,006,569 Purchase of long-term investments.................................. (5,515,413) -- ----------- ----------- Net cash provided by/(used in) investing activities.................. (13,029,827) 334,867 ----------- ----------- Cash flows from financing activities: Issuance of stock.................................................. 5,977,437 3,955,392 Repayments of debt................................................. (140,310) (124,519) Proceeds from capital lease financing.............................. 890,644 383,525 Principal payments of capital lease obligations.................... (486,245) (330,168) ----------- ----------- Net cash provided by financing activities............................. 6,241,526 3,884,230 ----------- ----------- Net increase (decrease) in cash and cash equivalents.................. (10,972,253) 2,615,430 Cash and cash equivalents, beginning of period.................................................. 19,329,353 2,049,555 ----------- ----------- Cash and cash equivalents, end of period........................................................ $8,357,100 $ 4,664,985 ----------- ----------- ----------- ----------- Supplemental disclosures of cash flow information: Cash paid during the year for interest............................... $184,168 $ 172,397
The accompanying notes are an integral part of the unaudited condensed financial statements. 5 CUBIST PHARMACEUTICALS, INC. NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS NOTE A. NATURE OF BUSINESS Cubist Pharmaceuticals, Inc. ("Cubist" or the "Company") is a biopharmaceutical company founded in May 1992 and is engaged in the research, development and commercialization of novel classes of antiinfective drugs to treat infectious diseases caused by bacteria and fungi, primarily those resistant to existing antiinfective drugs. Cubist has established multiple technology licenses and collaborations and has established a network of advisors and collaborators. The Company is located in Cambridge, Massachusetts. NOTE B. ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying unaudited condensed financial statements reflect all adjustments, consisting of normal recurring adjustments, which are necessary, in the opinion of management, for a fair presentation of the results of the interim periods presented. Interim results are not necessarily indicative of results for a full year. These unaudited condensed financial statements do not include all information and footnote disclosures required by generally accepted accounting principles and therefore should be read in conjunction with the Company's audited financial statements and related footnotes for the year ended December 31, 1996 which are included in the Company's Annual Report on Form 10-K. Such Annual Report on Form 10-K was filed by the Company with the Securities and Exchange Commission (the "Commission") on March 31, 1997. NET LOSS PER COMMON SHARE The net loss per common share is computed based upon the weighted average number of common shares and common equivalent shares (using the treasury stock method) outstanding after certain adjustments described below. Common equivalent shares are not included in the per share calculations where the effect of their inclusion would be anti-dilutive, except that, in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 83, all common and common equivalent shares issued during the twelve-month period prior to the filing with the Commission of the registration statement relating to the Company's initial public offering, even when anti-dilutive, have been included in the calculation as if they were outstanding for all periods, using the treasury stock method and the initial public offering price of $6.00 per share. Effective December 31, 1997, the Company will adopt Statement of Financial Accounting Standards No. 128 (SFAS 128) "Earnings per Share", which will require the disclosure of Basic Earnings per Common Share and Diluted Earnings per Common Share, both as defined in the standard, for all periods presented. Early application of SFAS 128 is not allowed, but pro forma disclosure is allowed. The Company does not expect this to have a material impact on the earnings per share computation. NOTE C. COLLABORATIVE AGREEMENT The Company and Novalon Pharmaceutical Corporation ("Novalon") entered into a collaborative research agreement on May 5, 1997 to accelerate and broaden the development of technologies to screen genomic targets. On September 29, 1997, the Company extended its collaboration with Novalon through February 2001. The extended collaboration will focus on utilizing these targets to identify lead compounds active against the Company's antibacterial and antifungal targets. In addition, the Company agreed to terminate its option to acquire Novalon and sold its existing equity position back to Novalon for $2.0 million resulting in a gain of $1.8 million included in other income. In connection with such transaction, the Company was granted an option to purchase up to twenty percent of the outstanding shares of Novalon from existing shareholders. 6 On September 25, 1997, the Company expanded its research collaboration with Merck & Co., Inc. ("Merck"), adding additional aminoacyl-tRNA synthetase targets that are proprietary to the Company and Merck's natural products compound library to the drug discovery program. NOTE D. FINANCING On July 18, 1997, the Company completed a private equity financing in which the Company raised $6.0 million by issuing 979,594 common shares at $6.125 per share. NOTE E. SUBSEQUENT EVENT LICENSE AGREEMENT On November 7, 1997, the Company entered into a license agreement with Eli Lilly and Company ("Eli Lilly") pursuant to which the Company acquired exclusive worldwide rights to develop, manufacture and market daptomycin. Daptomycin is a novel, natural product being developed for the treatment of Staphylococcus aureus and enterococcal infections. The Company anticipates that it will begin clinical trials of daptomycin in late 1998. In exchange for such license, the Company has agreed to pay an upfront license fee in cash and, if certain drug development milestones are achieved, to pay milestone payments by issuing shares of Common Stock to Eli Lilly. In addition, the Company will be required to pay royalties to Eli Lilly on worldwide sales of daptomycin. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for the historical information contained herein, this quarterly Report on Form 10-Q may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, but not limited to, (i) statements about the adequacy of the Company's cash, cash equivalents, other capital resources, interest income, other income and future revenues due under the Company's collaborative agreements to fund its operating expenses and capital requirements as currently planned through mid-1998, (ii) statements about the amount of capital expenditures that the Company expects to incur in 1997, (iii) statements about the Company's plans to begin clinical trials of daptomycin in late 1998, and (iv) certain statements identified or qualified by words such as "likely", "will", "suggests", "may", "would", "could", "should", "expects", "anticipates", "estimates", "plans", "projects", "believes", or similar expressions (and variants of such words or expressions). Investors are cautioned that forward-looking statements are inherently uncertain. Actual performance and results of operations may differ materially from those projected or suggested in the forward-looking statements due to certain risks and uncertainties, including, but not limited to, the risks and uncertainties described or discussed in the section "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. The forward-looking statements contained herein represent the Company's judgment as of the date of this quarterly report on Form 10-Q, and the Company cautions readers not to place undue reliance on such statements. OVERVIEW Since its incorporation on May 1, 1992 and commencement of operations in February 1993, Cubist has been engaged in the research, development and commercialization of novel antiinfective drugs to treat infectious diseases caused by bacteria and fungi, primarily those resistant to existing antiinfective drugs. The Company has a limited history of operations and has experienced significant operating losses since inception. The Company expects to incur significant additional operating losses over the next several years and expects cumulative losses to increase substantially due to expanded research and development efforts, pre-clinical and clinical trials and development of manufacturing, marketing and sales capabilities. A key element of the Company's strategy is to enhance certain of its drug discovery and development programs and to fund its capital requirements, in part, by entering into collaborative agreements with major pharmaceutical companies. The Company is party to collaborative agreements based specifically on its aminoacyl-tRNA synthetase program with Bristol-Myers Squibb Company ("Bristol-Myers Squibb") and Merck & Co., Inc. ("Merck"). Under these collaborative agreements, the Company is entitled to receive research support payments and, if certain drug development milestones are achieved, milestone payments. In addition, the Company will be entitled to receive royalties on worldwide sales of any drug developed and commercialized from these collaborations. On November 7, 1997, the Company entered into a license agreement with Eli Lilly and Company ("Eli Lilly") pursuant to which the Company acquired exclusive worldwide rights to develop, manufacture and market daptomycin. Daptomycin is a novel, natural product being developed for the treatment of Staphylococcus aureus and enterococcal infections. The Company anticipates that it will begin clinical trials of daptomycin in late 1998. In exchange for such license, the Company has agreed to pay an upfront license fee in cash and, if certain drug development milestones are achieved, to pay milestone payments by issuing shares of Common Stock to Eli Lilly. In addition, the Company will be required to pay royalties to Eli Lilly on worldwide sales of daptomycin. The Company and Novalon Pharmaceutical Corporation ("Novalon") entered into a collaborative research agreement on May 5, 1997 to accelerate and broaden the development of technologies to screen genomic targets. On 8 September 29, 1997, the Company extended its collaboration with Novalon through February 2001. The extended collaboration will focus on utilizing these targets to identify lead compounds active against the Company's antibacterial and antifungal targets. In addition, the Company agreed to terminate its option to acquire Novalon and sold its existing equity position back to Novalon for $2.0 million resulting in a gain of $1.8 million included in other income. In connection with such transaction, the Company was granted an option to purchase up to twenty percent of the outstanding shares of Novalon from existing shareholders. On September 25, 1997, the Company expanded its research collaboration with Merck, adding additional aminoacyl-tRNA synthetase targets that are proprietary to the Company and Merck's natural products compound library to the drug discovery program. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 REVENUES. Total revenues in the three months ended September 30, 1997 were $403,000 compared to $961,000 in the three months ended September 30, 1996, a decrease of $558,000 or 58.1%. The revenue earned in the three months ended September 30, 1997 consisted of research support funding from the Bristol-Myers Squibb and Merck collaborations, and SBIR funding. In the three months ended September 30, 1996, revenues consisted of research support funding from the Bristol-Myers Squibb and Pfizer collaborations, and SBIR funding. The decrease in revenues was primarily due to the absence of Pfizer research support funding for the three months ended September 30, 1997 as compared to the three months ended September 30, 1996. RESEARCH AND DEVELOPMENT EXPENSES. Total research and development expenses in the three months ended September 30, 1997 were $2,451,000 compared to $1,656,000 in the three months ended September 30, 1996, an increase of $795,000 or 47.9%. The increase was largely due to (i) amortization of the Company's purchase option in Novalon over the term of the Company's option to acquire Novalon, and (ii) purchases of laboratory research supplies. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses in the three months ended September 30, 1997 were $783,000 compared to $463,000 in the three months ended September 30, 1996, an increase of $320,000 or 69.1%. The increase was largely due to (i) increased costs related to additional personnel and recruiting, (ii) the cost of premiums for directors' and officers' insurance, (iii) investor and public relation expenses which did not exist prior to the Company's initial public offering, and (iv) increased legal expenses . INTEREST INCOME AND EXPENSE. Interest income in the three months ended September 30, 1997 was $238,000 compared to $68,000 in three months ended September 30, 1996, an increase of $170,000 or 250.0%. The increase in interest income was due primarily to a higher average cash, cash equivalent and investment balance during the three months ended September 30, 1997 as compared to the three months ended September 30, 1996. Interest expense in the three months ended September 30, 1997 was $64,000 as compared to $65,000 during the three months ended September 30, 1996. OTHER INCOME. Other income in the three months ended September 30, 1997 was $1,833,000 and consisted entirely of gain on the sale of the Company's equity position in Novalon. NET LOSS. The net loss during the three months ended September 30, 1997 was $824,000 compared to $1,155,000 during the three months ended September 30, 1996, a decrease of $331,000 or 28.6%. The decrease was primarily due to the gain on the sale of the Company's equity position in Novalon. 9 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 REVENUES. Total revenues in the nine months ended September 30, 1997 were $2,081,000 compared to $3,008,000 in the nine months ended September 30, 1996, a decrease of $927,000 or 30.8%. The revenue recognized in the nine months ended September 30, 1997 consisted of research support payments from Bristol-Myers Squibb, Merck and Pfizer; milestone payments from Bristol-Myers Squibb; and SBIR grant funding. In the nine months ended September 30, 1996, revenues consisted of research support payments from Bristol-Myers Squibb, Merck and Pfizer; technology license fee revenues from Merck and SBIR grant funding. RESEARCH AND DEVELOPMENT EXPENSES. Total research and development expenses in the nine months ended September 30, 1997 were $6,755,000 compared to $4,839,000 in the nine months ended September 30, 1996, an increase of $1,916,000 or 39.6%. The increase was largely due to (i) amortization of the Company's purchase option in Novalon over the term of the Company's option to acquire Novalon, (ii) increased costs related to ten additional employees hired by the Company in connection with its research and development programs and (iii) purchases of laboratory research supplies that were required by such additional personnel. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses in the nine months ended September 30, 1997 were $2,362,000 compared to $1,337,000 in the nine months ended September 30, 1996, an increase of $1,025,000 or 76.6%. The increase was primarily due to (i) increased costs related to additional personnel and recruiting, (ii) the cost of premiums for directors' and officers' insurance, (iii) costs associated with the Company's investor and public relations program, which did not exist prior to the Company's initial public offering and (iv) increased legal expenses. INTEREST INCOME AND EXPENSE. Interest income in the nine months ended September 30, 1997 was $771,000 compared to $112,000 in the nine months ended September 30, 1996, an increase of $659,000 or 588.4%. The increase in interest income was due primarily to a higher average cash, cash equivalent and investment balance during the nine months ended September 30, 1997 as compared to the nine months ended September 30, 1996. Interest expense in the nine months ended September 30, 1997 was $184,000 as compared to $172,000 during the nine months ended September 30, 1996. OTHER INCOME. Other income in the nine months ended September 30, 1997 was $1,833,000 and consisted entirely of gain on the sale of the Company's equity position in Novalon. NET LOSS. The net loss during the nine months ended September 30, 1997 was $4,615,000 compared to $3,229,000 during the nine months ended September 30, 1996, an increase of $1,386,000 or 42.9%. The increase was primarily due to (i) a decrease in revenues during the nine months ended September 30, 1997, (ii) an increase in expenses incurred by the Company to support the advancement of the Company's internal research programs, and (iii) costs associated with the Company's investor and public relations program. This increase in net loss was partially offset by the non-recurring gain on the sale of the Company's equity position in Novalon. 10 LIQUIDITY AND CAPITAL RESOURCES Since inception, the Company has financed its operations through the sale of equity securities, equipment financing, sponsored research revenues, license revenues and interest earned on invested capital. The Company's total cash, cash equivalent and investments balance at September 30, 1997 was $20,451,000 compared to $19,329,000 at December 31, 1996. For the three months ended September 30, 1997, the Company received $608,000 in sponsored research payments. On July 18, 1997, the Company completed a private equity financing in which the Company raised $6.0 million by issuing 979,594 common shares at $6.125 per share. On September 29, 1997, the Company received a cash payment of $2.0 million from Novalon in connection with the purchase of the Company's equity position in Novalon. Through September 30, 1997, the Company's collaborative partners have provided the Company with $7.6 million of research support payments and technology licensing fees, and $4.0 million in an equity investment. There can be no assurance that the Company will receive any additional funding from any of the Company's collaborative partners. As of September 30, 1997, the Company had invested an aggregate of $5,834,000 (of which $57,000 was invested during the three months then ended) in property and equipment, primarily in facility renovations and laboratory equipment under capital leases. The obligations under capital leases at September 30, 1997 were $1,725,000. Minimum annual principal payments due under capital leases total $837,000 in 1997. Principal payments decline each year thereafter until expiration in 2001. The Company made principal payments under its capital lease obligations of $486,000 in the nine months ended on September 30, 1997. The Company expects its capital expenditures in 1997 to be approximately $1,000,000 consisting of laboratory and other equipment purchases. The Company believes that its existing capital resources, interest income and future revenues due under the Bristol-Myers Squibb and Merck collaborative agreements will be sufficient to fund its operating expenses and capital requirements as currently planned through mid-1998. The Company's actual cash requirements may vary materially from those now planned and will depend on numerous factors. There can be no assurance that the Company's existing cash, cash equivalents, other capital resources, interest income and future revenues due under the Bristol-Myers Squibb and Merck collaborative agreements will be sufficient to fund its operating expenses and capital requirements during such period. Thereafter, the Company will need to raise substantial additional capital to fund its operations. The Company intends to seek such additional funding through public or private financing or collaborative or other arrangements with corporate partners. EARNINGS PER SHARE Effective December 31, 1997, the Company will adopt Statement of Financial Accounting Standards 128 (SFAS 128) "Earnings per share", which will require the disclosure of Basic Earnings per Common Share and Diluted Earnings per Common Share, both as defined in the standard, for all periods presented. Early application of SFAS 128 is not allowed, but pro forma disclosure is allowed. The Company does not expect to have a material impact on the earnings per share computation. 11 PART II--OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (a) Not applicable. (b) Not applicable. (c) On July 18, 1997, the Company completed a private equity financing in which the Company raised $6.0 million by issuing 979,594 common shares at $6.125 per share. The issuance and sale of such common shares by the Company was made in reliance upon Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"). (d) The Company's Registration Statement on Form S-1 (Reg. No. 333-6795) in connection with the Company's initial public offering of Common Stock was declared effective by the Securities and Exchange Commission (the "SEC") on October 25, 1996. On October 25, 1996, the Company also filed another Registration Statement on Form S-1 (Reg. No. 333-5880) with the SEC, which became effective immediately upon its filing with the SEC pursuant to Rule 462(b) promulgated under the Securities Act. Such Registration Statements (together, the "IPO Registration Statement") provided for the registration under the Securities Act of 2,875,000 shares of the Company's Common Stock. On October 25, 1996, the Company entered into an Underwriting Agreement with UBS Securities LLC, Hambrecht & Quist LLC and Pacific Growth Equities, Inc., as representatives of the several underwriters named on Schedule A thereto (the "Underwriters"), pursuant to which (x) the Underwriters agreed to purchase from the Company 2,500,000 shares of its Common Stock at the public offering price of $6.00 per share, less underwriting discounts and commissions of $0.42 per share, and (y) the Company granted to the Underwriters an option to purchase an additional 375,000 shares of Common Stock, solely to cover over-allotments, at the public offering price of $6.00 per share, less underwriting discounts and commissions of $0.42 per share. On October 30, 1996, the Underwriters consummated the purchase of such 2,500,000 shares of Common Stock, and on November 6, 1996, the Underwriters consummated the purchase of such additional 375,000 shares of Common Stock upon exercise of the Underwriters' over-allotment option. The aggregate initial public offering price for all 2,875,000 shares of Common Stock registered under the Securities Act pursuant to the IPO Registration Statement was $17,250,000, the aggregate amount paid by the Company to the Underwriters in respect of underwriting discounts and commissions relating to the issuance and distribution of all of such 2,875,000 shares of Common Stock was $1,207,500, and the aggregate amount of other expenses paid by the Company in connection with such issuance and distribution was $890,000. The aggregate amount of all expenses (including underwriting discounts and commissions) paid by the Company in connection with such issuance and distribution was $2,097,500. All of such expenses consisted of direct payments to persons, none of which was a director or officer of the Company, holder of 10 percent or more of any class of equity securities of the Company or other affiliate of the Company. The net proceeds to the Company from such issuance and distribution, after deducting the aggregate amount of expenses (including underwriting discounts and commissions) paid by the Company in connection therewith, were $15,152,500. Of such net proceeds, an aggregate of $6,878,000 has been spent through September 30, 1997 for the following uses and in the following amounts per use: $245,000 in construction of plant, building and facilities; $777,000 for repayment of indebtedness; $5,856,000 for working capital. All amounts spent by the Company for such uses consisted of direct payments to persons or entities, none of which was a director or officer of the Company, holder of 10 percent or more of any class of equity securities of the Company or other affiliate of the Company. The remaining balance of such net proceeds, consisting of $8,274,500, are held in cash or cash equivalents. 12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Stockholders was held on May 19, 1997. Of the 9,557,057 shares issued and outstanding and eligible to vote as of the record date of April 11, 1997, a quorum of 6,945,215 shares or 72.7% of the eligible shares were present in person or represented by proxy. The following matters were voted on at such meeting: (a) Re-election of the following Class I Directors:
NUMBER OF SHARES ---------------- WITHHELD FOR AUTHORITY ---------- ----------------- Terrance G. McGuire.................................... 5,268,607 18,009 Ellen M. Feeney........................................ 5,268,607 18,009
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits +10.1-- Research Collaboration and License Agreement with Novalon Pharmaceutical Corporation +10.2-- Addendum to the Research and License Agreement with Novalon Pharmaceutical Corporation +10.3-- Licensing Agreement with Eli Lilly and Company 11-- Statement of Computation of Earnings Per Share 27-- Financial Data Schedule
_____________ +Confidential treatment requested as to certain portions (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the quarter ended September 30, 1997. 13 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CUBIST PHARMACEUTICALS, INC. November 14, 1997 BY: /s/ Thomas A. Shea -------------------------------- Thomas A. Shea, Director of Finance & Administration and Treasurer (Authorized Officer and Principal Finance and Accounting Officer) 14 EX-10.1 2 EXHIBIT 10.1 Exhibit 10.1 Research Collaboration and License Agreement Cubist Pharmaceuticals, Inc. Novalon Pharmaceuticals Corporation Dated as of May 5, 1997 Research Collaboration and License Agreement RESEARCH COLLABORATION AND LICENSE AGREEMENT, dated as of May 5, 1997 (the Effective Date), by and between Cubist Pharmaceuticals, Inc., a Delaware corporation (Cubist) and Novalon Pharmaceutical Corporation, a Delaware corporation (Novalon). WHEREAS, Cubist and Novalon have entered into a Series B Convertible Preferred Stock Purchase Agreement, dated as of May 5, 1997 (the Stock Purchase Agreement), pursuant to which Cubist purchased shares of the Series B Convertible Preferred Stock of Novalon and agreed to engage in a collaborative "BioKeys" research project and the "ElectroScreen" research project with Novalon. WHEREAS, pursuant to Section 7.6 of the Stock Purchase Agreement, Cubist and Novalon agreed to negotiate and enter into this Agreement to set forth in greater detail the rights and obligations of the parties with respect to the research projects. WHEREAS, Novalon has the right to grant licenses with respect to certain Novalon Patent Rights and Novalon Technology (as each is defined herein) and desires to grant a license thereto; and WHEREAS, Cubist desires to obtain a license to use and practice the Novalon Patent Rights and Novalon Technology to develop products; NOW, THEREFORE, in consideration of the mutual promises and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Cubist and Novalon hereby agree as follows: Section 1. Definitions. Capitalized terms used in this Agreement shall have the meanings set forth in Schedule I annexed hereto. Section 2. Research Collaboration. 2.1 Collaboration. (a) Cubist and Novalon hereby agree (i) to engage in the Collaborative "BioKeys" Research Project and the "ElectroScreen" Research Project, all as described in Exhibit A, (ii) to engage in the research activities described in Section 2.1(b) and (c) below and (iii) to engage in such other research activities as the parties may agree upon from time to time. The terms and Conditions of the Collaboration and of all research activities of the parties pursuant to the Collaboration shall be governed by, to the extent applicable, the provisions of this Agreement and such other provisions as the parties may agree upon in writing from and after the date hereof. The term of the Collaboration shall commence on the date hereof and end on [ ]*, provided that Cubist shall be entitled to terminate the Collaboration at any time from and after the end of the Minimum Research Period by giving Novalon at least thirty (30) days prior written notice of termination. (b) During the Minimum Research Period, Cubist and Novalon shall engage in the research activities described in Exhibit A. The respective tasks, activities and obligations of the parties during the Minimum Research Period are set forth in Exhibit A. (c) In the event that Cubist elects not to exercise the Acquisition Option, Cubist shall, within [ ]* after the Acquisition Option Expiration Date, deliver to Novalon a schedule listing all of the research programs then being conducted by Cubist (the Specified Research Programs, Exhibit B describes the current research programs at Cubist). During the Remaining Research Period, Novalon and Cubist shall (i) continue the research activities described in Exhibit A, (ii) engage in such research, screening, target discovery and validation, and drug discovery and development activities as Cubist shall request, provided that such research, screening, target discovery and validation, and drug discovery and development activities are related to, or involve, biological targets that are within the scope of the Specified Research Programs and (iii) engage in such other research activities as the parties may agree upon from time to time. The respective tasks, activities and obligations of the parties in connection with any of the matters on which the parties are collaborating during the Remaining Research Period shall be mutually agreed upon by the parties. 2.2 Funding. (a) On the first day of each month during the Minimum Research Period and on the first day or the first month immediately after the Minimum Research Period, Cubist shall reimburse Novalon for any payments made by Novalon during the immediately preceding month in respect of (i) salary and fringe benefits payable by Novalon to no more than [ ]* employed by Novalon and ________________________ * Confidential Treatment requested: material has been omitted and filed separately with the Commission. 2 engaged solely in activities relating to the Collaboration, and (ii) laboratory supplies for use solely in activities relating to the Collaboration; provided, however, that the amount of any monthly payment that Cubist shall be required to make to Novalon pursuant to the foregone provisions of this Section 2.2(a) shall in no event exceed [ ]* (it being understood that any expenses incurred or payments, made by Novalon in connection with (the Collaboration in any month during the Minimum Research Period in excess of [ ]* shall be Novalon's sole responsibility and Cubist shall have no obligation to reimburse Novalon with respect to any such excess). [ ]* (b) On the first day of each month during the Remaining Research Period and on the first day of the first month immediately after the Remaining Research Period, Cubist shall reimburse Novalon for the direct costs incurred by Novalon in connection with activities relating to the Collaboration, provided that such costs shall not exceed [ ]* (it being understood that any costs incurred by Novalon in connection with the Collaboration activities that are in excess of [ ]* shall be Novalon's sole responsibility and Cubist shall have no obligation to reimburse Novalon with respect to any such excess). 2.3 Obligations Following Termination of Collaboration. Except for Cubist's obligation, pursuant to Section 2.2(a) above, to make a payment to Novalon on the first day of the first month immediately after the Remaining Research Period and except for any other payment obligations of Cubist in connection with the Collaboration which are agreed upon by the parties in writing after the date hereof and which by their own terms survive the Collaboration Termination Date, Cubist shall have no obligations or liabilities to Novalon pursuant to this Section 2 (including, without limitation, the obligation to make payments to Novalon in connection with the Collaboration) from and after the Collaboration Termination Date. 2.4 Exclusivity. (a) Until [ ]* Novalon shall not engage in any research collaboration, any drug discovery or drug development collaboration, partnership or alliance, any licensing transactions or any other kind of transaction, involving all or any portion of Novalon's intellectual property or know-how or the intellectual property or know-how of any Person; provided, however, that the foregoing provisions of this Section 2.4(a) shall not preclude Novalon from _____________________ * Confidential Treatment requested: material has been omitted and filed separately with the Commission. 3 engaging in the Collaboration. The restrictions set forth in this Section 2.4(a) may be waived, in any instant, by written consent of Cubist. (b) During the period commencing upon the expiration of the restrictions set forth in Section 2.4(a) above and ending on the Collaboration Termination Date, Novalon shall not engage in any research or screening activities or programs, any research collaborations, any drug discovery or drug development collaborations, partnerships or alliances, any licensing transactions, or any other kind of transactions, in the anti-bacterial and anti-fungal therapeutic area; provided, however, that the foregoing provisions of this Section 2.4(b) shall not preclude Novalon from engaging in (i) the Collaboration, or (ii) any research or screening activity or program so long as it (A) covers, a finite number of specific biological targets for drug discovery and development, none of which have been subject to research and development activities pursuant to the Collaboration, (B) provides for Novalon to engage in active research, discovery and development activities with respect to all of such biological targets, (C) provides for the payment to Novalon of commercially reasonable consideration and (D) does not preclude Novalon from entering into similar arrangements with other parties (including Cubist) relating to other targets in the same or any different field of pathogen. The restrictions set forth in this Section 2.4(b) may be waived. in any instance, by written consent of Cubist. (c) Until [ ]* Novalon, subject to any applicable nondisclosure agreements between Novalon and third parties, shall discuss and coordinate in advance with Cubist any contacts, meetings, discussions or negotiations that Novalon proposes to make or in which Novalon proposes to participate, to the extent that such proposed contacts, meetings, discussions or negotiations relate to any research or screening activities or programs, any research collaboration, any drug discovery or drug development collaboration, partnership or alliance, any licensing transaction, or any other kind of transaction, involving all or any portion of Novalon's intellectual property or know-how or the intellectual property or know-how of any Person; provided, however, that the foregoing provisions of this Section 2.4(c) shall not apply to the Collaboration. ___________________ * Confidential Treatment requested: material has been omitted and filed separately with the Commission. 4 Section 3. License. Subject to all of the terms of this Agreement, Novalon hereby grants to Cubist a worldwide right and license to use the Novalon Patent Rights and the Novalon Technology, for purposes of (i) researching, screening for, discovering or developing anti-bacterial or anti-fungal drug candidates or antibacterial or anti-fungal drug discovery targets or (ii) selling, licensing, marketing or otherwise commercializing anti-bacterial or anti-fungal drugs discovered or developed using any portion of the Novalon Patent Rights and the Novalon Technology. The license shall be perpetual and irrevocable. The license shall be exclusive with respect to any Novalon Patent Rights and Novalon Technology that were developed in the course of the research and development activities provided for in Section 2 hereof. Cubist shall have the right to sublicense the license granted to Cubist pursuant to this Section 3. Except for any payments made or required to be made by Cubist to Novalon pursuant to Section 2.2 or Section 4.1 in connection with the Collaboration, Cubist shall not have to pay or otherwise owe to Novalon any consideration of any kind in connection with the license. Section 4. Royalties & Payments. Section 4.1 Royalties. In consideration for the license granted under this Agreement, Cubist shall pay royalties (collectively, the Royalties) to Novalon, within [ ]* after the end of each calendar quarter, in the amount of [ ]* of all revenue actually received by Cubist from third parties to the extent that such revenue is directly attributable to (a) Net Sales of Products for such quarter, (b) drug development milestone payments actually received by Cubist during such quarter on account of any antibacterial or antifungal drug candidate that was discovered or developed as a result of the use of the Novalon Patent Rights or the Novalon Technology, and (c) any licensing fees actually received by Cubist during such quarter with respect to any Sublicense. Section 4.2 Payments. All payments due under this Agreement shall be paid (a) in full without deduction of exchange, collection, taxes or other fees that may be imposed by any government and (b) in United States dollars at Novalon's office in Chapel Hill, North Carolina or at such other place as Novalon may designate consistent with applicable law. Currency conversions shall be made by reference to the prevailing exchange rate for bank transfers from the foreign currency to U.S. Dollars, as quoted at BankBoston on the last business day of the calendar quarter immediately preceding the payment due date. If by law, regulation or fiscal policy of any country, conversion from that country's currency into U.S. dollars is restricted or forbidden, written notice thereof shall be given to Novalon and payment of amounts from that country shall be made through such lawful means as Novalon shall designate, including, without limitation, deposit of local currency in such recognized banking institution as ________________________ * Confidential Treatment requested: material has been omitted and filed separately with the Commission. 5 Novalon shall designate. When in any country the law or regulation prohibits both the transmittal and the deposit of royalties as sales in that country, royalty payments from that country will be suspended for as long as the prohibition is in effect and, as soon as the prohibition ceases, all royalties that Cubist or its Sublicensees would have been obligated to pay, but for the prohibition, will promptly be deposited or transmitted, as (be case may be, to the extent then allowed. Section 5. Intellectual Property. Section 5.1 Ownership Rights. Novalon shall own all Technology and inventions made, developed or discovered solely by its employees or agents or by the employees or agents of any of its Affiliates, and shall own all Patent Rights relating to such Technology and inventions. Cubist shall own all Technology and inventions made, developed or discovered solely by its employees or agents or by the employees or agents of any of its Affiliates, and shall own all Patent Rights relating to such Technology and inventions. Cubist and Novalon shall own all Technology and inventions developed jointly by the employees or agents of Novalon and Cubist or their respective Affiliates, and shall own all Patent Rights relating to such Technology and inventions. Subject to the provisions of Section 5.2 below, Novalon retains all rights to file and prosecute any and all patent applications included within the Novalon Patent Rights, and Cubist retains all rights to file and prosecute any and all patent applications included within the Cubist Patent Rights. Section 5.2 Patent Filings. Novalon shall, at its expense and using patent attorneys selected by it, apply for, seek issuance of and maintain the Novalon Patent Rights and other patents based on the Novalon Technology in the United States and in such other countries as are identified in the Patent List hereto or as Cubist may request in writing; provided that Cubist shall cooperate with Novalon in such prosecutions filing and maintenance. Cubist shall be given at least ten (10) days to advise and comment upon such filings and actions as are undertaken by Novalon. Novalon may, in its discretion, decline to apply for, prosecute or maintain any Novalon Patent Rights in any country, but shall give timely notice to Cubist of any such determination, whereupon Cubist may undertake such action, in the name and on behalf of Novalon, at its own expense. Novalon agrees to cooperate with Cubist as reasonably necessary to permit Cubist to be able to prosecute or maintain any Novalon Patent Rights in those countries that Novalon declines to undertake action. Novalon also agrees to cooperate with Cubist as reasonably necessary to permit Cubist to be able to prosecute or maintain any Cubist Patent Rights arising from the Collaboration in those countries selected by Cubist. 6 Section 6. Indemnification. Section 6.1 Indemnification. Cubist shall at all times defend and hold Novalon, and its officers, directors, employees, agents and Affiliates (together, Novalon Indemnitees) harmless from and against all claims, suits, demands, liability and expenses, including legal expenses and reasonable attorneys' fees, arising out of (a) the death of or injury to any person or persons, (b) damage to property, or (c) any other claim, proceeding, demand, expense and liability of any kind whatsoever resulting from (i) the production, manufacture, shipping, handling, use (in commerce or otherwise), sale, lease, consumption, promotion or advertisement of the Products by Cubist or any Sublicensee or (ii) any obligation or activity of Cubist under this Agreement or of any Sublicensee under any Sublicense; provided that Cubist shall have no obligation to indemnify Novalon to the extent of liability attributable to the Novalon's gross negligence or willful misconduct. Section 6.2 Indemnification. Novalon shall at all times defend and hold Cubist, its officers, directors, employees, agents and Affiliates (together, Cubist Indemnitees) harmless from and against all claims, suits, demands, liability and expenses, including legal expenses and reasonable attorneys' fees, arising out of any claim, proceeding, demand, expense and liability of any kind whatsoever resulting from (i) the Novalon Patent Rights and the Novalon Technology or (ii) any obligation or activity of Novalon under this Agreement; provided that Novalon shall have no obligation to indemnify Cubist to the extent of liability attributable to the Cubist's gross negligence or willful misconduct. Section 7. Infringement. Section 7.1 Notice. Cubist shall notify Novalon promptly in writing of any alleged Infringement of the Novalon Patent Rights by a third party and shall provide any available evidence thereof. Section 7.2 Prosecution By Novalon. Novalon shall have the right, at its sole discretion, to prosecute, at its own expense, any alleged infringements of the Novalon Patent Rights. Cubist agrees to allow Novalon to include Cubist, at Novalon's expense, as a party plaintiff in any suit brought with respect to infringement alleged to have occurred during the Collaboration within the antibacterial and anti-fungal therapeutic area. In the event that Novalon takes the lead counsel role with respect to the commencement or defense of any action, the total cost shall be borne by and any recovery or damages shall be paid solely to Novalon. Cubist shall have the right to participate in any action, at Cubist's expense, and Novalon agrees to consult with counsel for Cubist on any significant matters related to the litigation. 7 Section 7.3 Prosecution By Cubist. (a) Procedure. If Novalon, within six (6) months after having been notified of an alleged infringement, shall have been unsuccessful in negotiating with the alleged infringer to cease and desist such infringement and shall not have brought an infringement action, or if Novalon shall notify Cubist at any time prior thereto or its intention not to bring suit against any alleged infringer, then Cubist shall have the right, but shall not be obligated, to prosecute at its own expense any such infringement of the Novalon Patent Rights. Cubist shall be entitled to offset the costs of any such litigation against any amounts due by Cubist to Novalon under this Agreement. In such circumstances, Cubist may use the name of Novalon as the plaintiff if necessary for the prosecution of the infringement suit. Notwithstanding anything in the foregoing to the contrary, no settlement, consent judgment or other voluntarily final disposition of any such suit may be entered into without the consent of Novalon, which consent shall not be unreasonably withheld. (b) Damages. In the event that Cubist undertakes litigation pursuant to Section 7.3(a) for the enforcement of Novalon Patent Rights, any recovery of damages by Cubist for each suit shall be applied as follows: (a) first, to Cubist to reimburse Cubist for the expenses of the litigation or suit, including reasonable attorneys' fees, (b) then, second, to Novalon to reimburse Novalon for its expenses of the litigation or case, including reasonable attorneys' fees and any Running Royalty Amounts and licensing Fees withheld by Cubist pursuant to Section 8.3(a), (c) then, third, an amount equal to the aggregate dollar amount of sales revenue made by the infringing person would be allocated [ ]* to Cubist and [ ]* to Novalon and (d) then, the balance would be allocated [ ]* between Cubist and Novalon. Section 7.4 Actions Against Cubist or Novalon. (a) In the event that an action alleging invalidity or noninfringement of any of the Novalon Patent Rights shall be brought against Cubist or against Novalon (whether as an independent action or as a counterclaim of a suit filed by Cubist pursuant to Section 7.3(a)), Novalon, at its sole option, shall have the right, within thirty (30) days after the commencement of such action, to take or regain control of the action at its own expense. If Novalon shall determine not to exercise this right, Cubist may take over or remain as lead counsel for the action at Cubist's sole expense, with any settlement or recovery subject to the approval provisions of Section 7.3(a) and allocation provisions of Section 7.3(b). _____________________ * Confidential Treatment requested: material has been omitted and filed separately with the Commission. 8 (b) In the event that an action alleging any of the Novalon Patent Rights or Novalon Technology infringes, or resulted from the misappropriation of, any third party shall be brought against Cubist or against Novalon (whether as an independent action or as a counterclaim of a suit filed by Novalon pursuant to Section 7.2), Cubist, at its sole option, shall have the right, within thirty (30) days after the commencement of such action, to take or regain control of the action at its own expense. If Cubist shall determine not to exercise this right, Novalon may take over or remain as lead counsel for the action at Novalon's sole expense. Section 7.5 Cooperation. In any infringement suit, either party shall be entitled to request the cooperation and assistance of the other party, at the requesting party's expense, as may be reasonably necessary for the suit. Each party agrees to make available relevant records, papers, information, samples and specimens, as well as to have its employees testify upon request. Section 7.6 Third Party Licenses. If Cubist and Novalon mutually determine that sales of Products or use of the Novalon Patent Rights or Novalon Technology would be impractical or impossible without obtaining a royalty-bearing license from a third party, Cubist may enter into a license with such third party, and Cubist shall be permitted to offset royalties or any other amounts paid thereunder as a deduction within the calculation of Royalties, unless the third party is an Affiliate of Cubist; provided, however, that Cubist shall be entitled to offset no more than [ ]* of the Royalties otherwise payable to Novalon. Section 8. Dispute Resolution. Section 8.1 Scope and Enforcement. Any controversy or claim arising between the parties in connection with this Agreement shall be resolved by binding arbitration in accordance with the terms and conditions of this Section 9; provided, that actions by either party seeking equitable or declaratory relief may be brought in court pursuant to Section 9. This agreement to arbitrate shall continue in full force and effect despite the expiration, rescission or termination of this Agreement. All arbitration shall be undertaken in accordance with the federal policy favoring arbitration, as set forth in the Federal Arbitration Act, and the decision of the arbitrator(s) shall be enforceable in any court of competent jurisdiction. The parties knowingly and voluntarily waive their rights to have their dispute tried and adjudicated by a judge and jury except as expressly provided herein. The arbitrator(s) shall apply the law of the Commonwealth of Massachusetts and the arbitration shall be held in Boston, Massachusetts or in such other city as the parties may mutually agree. _______________________ * Confidential Treatment requested: material has been omitted and filed separately with the Commission. 9 Section 8.2 Procedure. Any party may demand arbitration by sending written notice to the other party. The arbitration and the selection of the arbitrator(s) shall he conducted in accordance with such rules as may be agreed upon by the parties, or, failing agreement within thirty (30) days after arbitration is demanded, under the Commercial Arbitration Rules of the American Arbitration Association (AAA), as such rules may be modified by this Agreement. If the parties are unable to agree upon a single arbitrator within sixty (60) days, three (3) arbitrators shall be used, one selected by each party within ten (10) days after the conclusion of the sixty (60) day period and a third selected by the first two within ten (10) days thereafter. The arbitrator or arbitrators shall be accredited by the AAA and shall be individuals with relevant business experience in structuring and negotiating biotechnology research collaborations; provided, however, that the parties may mutually agree in writing to waive either UT both of the foregoing requirements. Unless the parties agree otherwise, they shall be limited in their discovery to directly relevant documents- Responses or objections to a document request shall be served twenty (20) days after receipt of the request. The arbitrator(s) shall resolve any discovery disputes. Section 8.3 Awards. The arbitrator(s) shall have the authority to award actual money damages (with interest on unpaid amounts from the date due), specific performance, and temporary injunctive relief, but the arbitrator(s) shall not have the authority to award exemplary or punitive damages, and the parties expressly waive any claimed right to such damages. The arbitration shall be of each party's individual claims only, and no claim of any other party shall be subject to arbitration in such proceeding. The parties are unable to agree on the appointment of a single arbitrator, each party shall bear the cost of the arbitrator appointed by such party and the cost of the third arbitrator shall be shared equally by both parties. Each party shall be responsible for all costs incurred by it in preparing for and participating in the arbitration. Except as otherwise required by law, the parties and the arbitrator(s) agree to maintain as confidential all information or documents obtained during the arbitration process, including the resolution of the dispute. Section 9. General Provisions. Section 9.1 Remedies. The parties acknowledge and agree that, in the event of a breach or a threatened breach by either party of' Section 9.4 hereof, the other party may suffer irreparable damage for which it will have no adequate remedy at law and, accordingly, shall be entitled to injunctive and other equitable remedies to prevent or restrain such breach or threatened breach, without the necessity of posting any bond or surety, in addition to any other remedy it might have at law or at equity. 10 Section 9.2 Governing Law. This Agreement shall be governed and construed in accordance with the internal laws of' the State of Delaware, without regard to its rules concerning conflicts of laws. Section 9.3 Exclusive Venue; Consent to Jurisdiction. Any action, suit or other proceeding pursuant to, arising under, or touching or concerning this Agreement or the transactions contemplated hereby (other than those for which arbitration pursuant to Section 8 is the sale forum) shall be brought exclusively in any court of competent jurisdiction in the State of' Delaware. The parties agree to take any and all necessary or appropriate action to submit to the exclusive jurisdiction of any such court. In any such action, suit or proceeding, the successful or prevailing party shall be entitled to recover its reasonable attorneys' fees and other costs incurred in connection with that action, suit or proceeding, in addition to any other relief to which such party may be entitled. Section 9.4 Confidentiality. It is contemplated that in the course of the performance of this Agreement each party may, from time to time, disclose Confidential Information to the other. Each party agrees to take all reasonable steps to prevent disclosure of Confidential Information; provided that no provision of this Agreement shall be construed to preclude such disclosure of Confidential Information as may be necessary or appropriate to obtain from any governmental agency any necessary approval or license or to obtain patents that are to be included in Novalon Patent Rights. Section 9.5 Amendment and Waiver. No provision of or right under this Agreement shall be deemed to have been waived by any act or acquiescence on the part of either party, its agents or employees, but only by an instrument in writing signed by an authority officer of each party. No waiver by either party of any breach of this Agreement by the other party shall be effective as to any other breach, whether of the same or any other term or condition and whether occurring before or after the date of such waiver. Section 9.6 Independent Contractors. Each party represents that it is acting on its own behalf as an independent contractor and is not acting as an agent for or on behalf of any third party. This Agreement and the relations hereby established by and between Cubist and Novalon do not constitute a partnership, joint venture, agency or contract of employment between them. Section 9.7 Assignment. Neither party may assign its rights or obligations hereunder without the prior written consent of the other party, which consent shall not be unreasonably withheld in the case of any assignment pursuant to a merger, consolidation or sale of substantially all of the assets or stock of a party, provided that (a) nothing contained in this Section 9.7 shall prohibit sublicensing, and (b) the proposed assignee under this Section 9.7 agrees in writing to assume all of the obligations of such party under this Agreement. 11 Section 9.8 Successors and Assigns. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Section 9.9 Use of Names. Neither party shall use the name of the other party or any officer, employee or consultant of the other party or any adaptation thereof in any advertising, promotional or sales literature, publicity or In any document employed to obtain funds or financing without the prior written approval of the party or individual whose name is to be used; provided that Cubist may state that it is licensed by Novalon under the Novalon Patent Rights and the Novalon Technology and may make such disclosure as is required by the Securities Act of 1933, the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder. Section 9.10 Notices. All communications hereunder shall be in writing and shall he deemed to have been duly given upon receipt by the addressee at the addresses set forth below or such other address as either party may specify by notice sent in accordance with this Section: If to Cubist: Cubist Pharmaceuticals, Inc. 24 Emily Street Cambridge, MA 02139 Boston, MA 02118 Attention: Scott M. Rocklage, Ph.D. Telecopier: (617) 576-0232 With a copy to, Bingham Dana LLP 150 Federal Street Boston, MA 02110 Attention: Julio E. Vega, Esquire Telecopier: (617) 951-8736 (i) If to Novalon: Novalon Pharmaceutical Corporation 214 West Cameron Avenue, Suite B Chapel Hill, N.C. 27516 Attention: Dana M. Fowlkes, NM, Ph.D. Telecopier: (919) 968-9255 12 with a copy to: Jenner & Block 12th Floor 601 Thirteenth Street, N. W. Washington, D.C. 20005 Attention: D. Joe Smith, Esquire Telecopier: (203) 639-6066 Section 9.11 Severability. In the event any provision of this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other term or provision hereof. The parties agree that they will negotiate in good faith or will permit a court or arbitrator to replace any provision hereof so held invalid, illegal or unenforceable with a valid provision which is as similar as possible in substance to the invalid, illegal or unenforceable provision. Section 9.12 Conflict or Inconsistency. In the event of any conflict or inconsistency between the terms and conditions hereof and any terms or conditions set forth in any purchase order or other document relating to the transactions contemplated by this Agreement, the terms and conditions set forth in this Agreement shall prevail. Section 9.13 Captions. Captions or the sections and subsections of this Agreement are for reference purposes only and do not constitute terms or conditions of this Agreement and shall not limit or affect the terms and conditions hereof. Section 9.14 Word Meanings. Words such as herein, hereinafter, hereof and hereunder refer to this Agreement as a whole and not merely to a section or paragraph in which such words appear, unless the context otherwise requires. The singular shall include the plural, and each masculine, feminine and neuter reference shall include and refer also to the others, unless the context otherwise requires. Section 9.15 Entire Agreement. This Agreement contains the entire understanding of the parties hereto with respect to the transactions and matters contemplated hereby, supersedes all prior agreements and understandings relating to the subject matter hereof (including, without limitation, Section 7 of' the Stock Purchase Agreement), and no representations, inducements, promises or agreements, whether oral or otherwise, between such parties not contained herein or incorporated herein by reference shall be of any force or effect. Section 9.16 Acquisition. This Agreement shall immediately terminate upon consummation of the Acquisition. 13 Section 9.17 Rules of Construction. The parties agree that they have participated equally in the formation of this Agreement and that the language and terms of this Agreement shall not be presumptively construed against either of them. Section 9.18 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. In making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers, and have duly delivered and executed this Agreement under seal as of the date first set forth above. CUBIST PHARMACEUTICALS, INC. NOVALON PHARMACEUTICAL CORPORATION /s/ Mark Carthy for Scott M. Rocklage /s/ Dana M. Fowlkes - ------------------------------------- ------------------------------ By: Scott M. Rocklage By: Dana M. Fowlkes Title: President and Chief Title: President and Chief Executive Officer Executive Officer 14 Schedule I Definitions When used as capitalized terms in the Research Collaboration and License Agreement to which this Schedule I is attached, the following terms shall have the respective meanings set forth below: AAA has the meaning specified in Section 10. Acquisition means the acquisition by Cubist of all of the outstanding shares of Novalon's capital stock. Acquisition Option means Cubists option to acquire all of the outstanding shares of Novalon's capital stock pursuant to that certain Acquisition Option Agreement, dated May 5, 1997. Acquisition Option Expiration Date means the earlier of (i) [ ]* or (ii) such date as the Acquisition Option terminates pursuant to that certain Acquisition Option Agreement, dated May 5, 1997. Affiliate means with respect to any person or Entity, any other person or Entity that controls, is controlled by or is under common control with the specified person or Entity. As used in this definition, the term control means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an Entity, whether through ownership of voting securities, by contract or otherwise. Agreement means the research collaboration and license agreement to which this Schedule I is attached, together with all Schedules and Exhibits annexed thereto, as the same shall be modified and in effect from time to time. Collaboration means the collaboration and other research activities engaged in by Cubist and Novalon pursuant to Section 2 of this Agreement. Collaboration Termination Date means the earlier of (i) [ ]* or (ii) the effective date of termination of the Collaboration pursuant to the provision, of Section 2.1(a) of this Agreement. Confidential Information means all information and data provided by the parties to each other hereunder in written or other tangible medium and _____________________ * Confidential Treatment requested: material has been omitted and filed separately with the Commission. 1 marked as confidential, or if disclosed orally, confirmed in writing within thirty (30) days after disclosure, except any portion thereof which: (a) is known to the receiving party, as evidenced by the receiving party's written record, before receipt thereof under this Agreement; (b) is disclosed to the receiving party by a third person who has a right to make such disclosure; or (c) is or becomes generally known in the trade through no fault of the receiving party. Cubist Indemnitee has the meaning specified in Section 6.2. Cubist Patent Rights means Patent Rights which are owned by Cubist or any of its Affiliates or which Cubist or any of its Affiliates has the right to license or sublicense to persons or Entities. Cubist Technology means Technology which is owned by Cubist or any of its Affiliates or which Cubist Or any of its Affiliates has the right to license or sublicense to persons or Entities. Effective Date has the meaning set forth in the preamble to this Agreement. Entity means any corporation, association, partnership (general or limited), joint venture, trust, estate, limited liability company, limited liability partnership or other legal entity or organization. Exhibit A means Exhibit A to this Agreement, as said Exhibit A may be amended and in effect from time to time. Minimum Research Period means the period commencing on the Effective Date and ending on the later of [ ]* or [ ]* after the Acquisition Option Expiration Date. Net Sales means all gross amounts billed to any person or Entity (other than an Affiliate of such person or Entity) at the earliest of invoice, shipment or payment in respect of Products, less the sum of the following amounts: (a) sales and use taxes, tariffs, duties and the like imposed directly and with reference to particular sales or leases; plus (b) outbound shipping prepaid or actually allowed; plus _____________________ * Confidential Treatment requested: material has been omitted and filed separately with the Commission. 2 (c) amounts allowed on credits or returns; plus (d) discounts allowed in amounts customary in the trade. Novalon Indemnitee has the meaning specified in Section 6.1. Novalon Patent Rights means Patent Rights as they relate to Cubist's Specified Research Program as described in 2.1 c. which are owned by Novalon or any of its Affiliates or which Novalon or any of its Affiliates has the right to license or sublicense to persons or Entities. Without limiting the generality of the foregoing, the term Novalon Patent Rights shall include all Patent Rights of Novalon as they relate to Cubist's Specified Research Program as described in 2.1 c. with respect to the patents and patent applications listed in the Patent List. Novalon Technology means Technology as it relates to Cubist's Specified Research Program as described in 2.1 c which is owned by Novalon or any of its Affiliates or which Novalon or any of its Affiliates has the right to license or sublicense to persons or Entities. Patent List means Exhibit C annexed hereto as they may be amended and in effect from time to time. Patent Rights means all rights related to any of the following: (a) all United States and foreign patent applications and provisional applications; (b) all patents issued with respect to all United States and Foreign patent applications and provisional applications and with respect to divisionals and continuations of these applications; (c) claims of United States and foreign continuation-in-part applications, and of resulting patents, that are directed to subject matter described in the patent applications described in clause (a) above; (d) claims of all foreign patent applications and of the resulting patents that are directed to the subject matter described in the United States patents and patent applications described in clauses (a), (b) or (c) hereof, and (e) any reissues of United States patents described in (a), (b) or (c) hereof 3 Products means any anti-bacterial or anti-fungal drug that was discovered or developed as a result of the use of the Novalon Patent Rights or the Novalon Technology. Remaining Research Period means the period commencing at the end of the Minimum Research Period and ending on the Collaboration Termination Date. Royalties has the meaning set forth in Section 4.1. Sublicense means any license or right granted by Cubist to any person or Entity (and any such license or right granted by such person or Entity to any other person or Entity) to use the Novalon Patent Rights or the Novalon Technology to the same extent as Cubist is entitled pursuant to this Agreement, together with all agreements between the parties related thereto. Sublicensor means any person or Entity (including without limitation, Cubist) who grants a Sublicense. Sublicensee Any person or Entity to whom a Sublicense is granted. Technology means all proprietary developments, ideas, designs, concepts, techniques, processes, inventions, cell lines, discoveries, improvements, research results, toxicology data, assays, preclinical data, mask Works, manufacturing processes, clinical results, regulatory submissions, approvals and licenses, product licenses, papers, photographs, computer programs and databases, manuals, prototypes, models, plans, drawings, formulations, specifications, methods, shop-practices, formulas, supplier lists, engineering and manufacturing information costing information, accounting and financial data, and strategic plans (without regard to whether they are Confidential Information, patentable or copyrightable) of a person but that are not included within Patent Rights, including without limitation, (a) inventions that are the subject of patent applications for which patents do not issue or are invalidated (from and after the date a final determination is made from which no further appeal may be taken); (b) inventions that directly relate to the Patent Rights but do not infringe a valid, unexpired or pending claim contained in the Patent Rights; (c) from and after the abandonment of a claim of a patent contained in the Patent Rights or after the removal of a patent from the list of Patent Rights, inventions formerly covered thereby; and 4 (d) in countries where the parties hereto have agreed that obtaining patent protection is not economically viable or advisable, all inventions that directly relate to the Patent Rights. 5 EX-10.2 3 EXHIBIT 10.2 Exhibit 10.2 CONFIDENTIAL Addendum to the Research Collaboration and License Agreement ADDENDUM to the RESEARCH COLLABORATION AND LICENSE AGREEMENT, dated as of May 5, 1997 (the Effective Date), by and between Cubist Pharmaceuticals, Inc., a Delaware corporation (Cubist) and Novalon Pharmaceutical Corporation, a Delaware corporation (Novalon). WHEREAS, Cubist and Novalon have entered into a Series B Convertible Preferred Stock Purchase Agreement, dated as of May 5, 1997 (the Stock Purchase Agreement), pursuant to which Cubist purchased shares of the Series B Convertible Preferred Stock of Novalon and agreed to engage in a collaborative "BioKeys" research project and the "ElectroScreen" project with Novalon. WHEREAS, pursuant to Section 7.6 of the Stock Purchase Agreement, Cubist and Novalon negotiated and entered into a Research Collaboration and License Agreement, dated May 5, 1997, to set forth the rights and obligations of the parties with respect to the research projects. WHEREAS, Cubist and Novalon wish to amend said Research Collaboration and License Agreement with this Addendum; and WHEREAS, Cubist and Novalon wish to maintain in full force and effect all provisions of the Research Collaboration and License Agreement except for those provisions that are amended herein. NOW, THEREFORE, in consideration with the mutual promises and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Cubist and Novalon hereby agree as follows: Section 1. Definitions. Capitalized terms used in this Agreement shall have the meanings set forth in the Research Collaboration and License Agreement, dated May 5, 1997, except for the following terms which will have the meaning as set forth below: Collaboration Targets List means a schedule, as amended from time to time, listing Targets subject to the provisions of this Section 2 and Section 3 that Cubist has an intention to screen and for which Novalon will make its best efforts to develop assays. Cubist Patent Rights means Patent Rights which are owned by Cubist or any of its Affiliates at any time and from time to time or which Cubist or any of its Affiliates has the right at any time and from time to time to license or sublicense to persons or Entities. The term Cubist Patent Rights shall not include any Patent Rights that are included within Joint Patent Rights. Cubist Technology means Technology which is owned by Cubist or any of its Affiliates at any time and from time to time or which Cubist or any of its Affiliates has the right at any time and from time to time to license or sublicense to persons or Entities. The term Cubist Technology shall not include any Technology that is included within the Joint Technology. Joint Patent Rights means Patent Rights that are jointly owned by Cubist and Novalon and that relate to Joint Technology. Joint Technology means Technology that is developed jointly by the employee, or agents of Novalon and Cubist or their respective Affiliates during the term of the Collaboration. Novalon Patent Rights means Patent Rights which are owned by Novalon or any of its Affiliates at any time and from time to time or which Novalon or any of its Affiliates has the right at any time and from time to time to license or sublicense to persons or Entities. Without limiting the generality of the foregoing, the term Novalon Patent Rights shall include all Patent Rights of Novalon with respect to the patents and patent applications listed in the Patent List. The term Novalon Patent Rights shall not include any Patent Rights that are included within the Joint Patent Rights. Novalon Technology means Technology which is owned by Novalon or any of its Affiliates at any time and from time to time or which Novalon or any of its Affiliates has the right at any time and from time to time to license or sublicense to persons or Entities. The term Novalon Technology shall not include any Technology that is included within the Joint Technology. RCLA means the Research Collaboration and License Agreement. -2- Research Collaboration and License Agreement means that certain Research Collaboration and License Agreement, dated May 5, 1997, by and between Cubist Pharmaceuticals, Inc. and Novalon Pharmaceutical Corporation, as amended from time to time. Sublicense means any license or right granted by Cubist to any person or Entity (and any such license or right granted by such person or Entity to any other person or Entity) to use the Novalon Patent Rights, the Novalon Technology, the Joint Patent Rights, and the Joint Technology to the same extent as Cubist is entitled pursuant to this Agreement, together with all agreements between the parties related thereto. Target means a macromolecule, including but not limited to the amino acid sequence (if known) or nucleic acid sequence (if known) of said macromolecule. Target Activation Date means the date Cubist lists a Target on the Collaboration Targets List, as described in Section 2 herein. Target Exclusivity Fee means a fee of [ ]* per Target per year as described in Section 3 herein to maintain Cubist's exclusive license and/or collaborative relationship for the use of Novalon's technology to research a Target. Section 2 Research Collaboration The following Section 2-1 (c) supersedes and replaces Section 2.1 (c) of the RCLA. Section 2.1 Collaboration (c) In the event that Cubist elects not to exercise the Acquisition Option, Cubist shall, within [ ]* after the Acquisition Option Expiration Date, deliver to Novalon a schedule listing not more than ten (10) Targets that comprise the Collaboration Targets List. The aforementioned Targets will be the focus of the Minimum Research Period. Within - ------------------- * Confidential Treatment requested: material has been omitted and filed separately with the Commission. -3- [ ]* after the end of the Minimum Research Period and in the event that the Collaboration continues to be in effect pursuant to the RCLA, Cubist and Novalon will mutually agree upon the number of Targets that shall be added to the Collaboration Targets List to be worked on in the Collaboration during the Remaining Research Period in addition to those Targets that comprised the Collaboration Targets List during the Minimum Research Period, provided that said Targets shall not have been previously listed on the Collaboration Targets List and are not the subject of a research agreement with any third party that would preclude Novalon or Cubist from collaborating to research said Targets with each other. The parties may modify the Collaboration Targets List at any time upon mutual agreement. Novalon shall have the right to remove any Target from the Collaboration Targets List at any time after the last day of the eighteenth month following the Target's respective Target Activation Date by giving Cubist thirty (30) days written notice, provided, however, that the foregoing shall not give Novalon the right to remove a Target if Cubist has paid the Target Exclusivity Fee for such Target for the current period pursuant to Section 3 hereof During the Remaining Research Period, Novalon and Cubist shall (i) continue the research activities described in Exhibit A, (ii) engage in such research, screening, target discovery and validation, and drug discovery and development activities as Cubist shall request, provided that such research, screening, target discovery and validation, and drug discovery and development activities arc related to, or involve, Targets that arc listed on the Collaboration Targets List and (iii) engage in such other research activities as the parties may agree upon from time to time. The respective tasks, activities and obligations of the parties in connection with any of' the matters on which the parties are collaborating during the Remaining Research Period shall be mutually agreed upon by the parties. The following Section 2.4 (b) supersedes and replaces Section 2.4 (b) of the RCLA. - ------------------- * Confidential Treatment requested: material has been omitted and filed separately with the Commission. -4- Section 2.4 Exclusivity. (b) During the period commencing upon the [ ]*, Novalon shall not engage in any research or screening activities or programs, any research collaborations, any drug discovery or drug development collaborations, partnerships or alliances, any licensing transactions, or any other kind of transactions in the antibacterial and anti-fungal therapeutic area; provided, however, that the foregoing provisions of this Section 2.4 (b) shall not preclude Novalon from engaging in (i) the Collaboration, or (ii) any research or screening activity or program so tong as it (A) covers a finite number of specific biological Targets for drug discovery and development, (B) provides for Novalon to engage in active research, discovery and development activities with respect to all of such biological Targets, (C) provides for the payment to Novalon commercially reasonable consideration, (D) does not involve Targets that are listed on the Collaboration Targets List at the time the research or screening activity or program is entered into, and (E) does not preclude Novalon from entering into similar arrangements with other parties (including Cubist) relating to other Targets in the same or any different field or pathogen. The restrictions set forth in this Section 2.4 (b) may be waived, in any instance, by written consent of Cubist. Section 3. License. The following Section 3 supersedes and replaces Section 3 of the RCLA. Section 3. License. Subject to all of the terms and conditions of this Agreement, Novalon hereby grants to Cubist an exclusive, worldwide right and license to use the Novalon Patent Rights, the Novalon Technology, the Joint Patent Rights, and the Joint Technology, for purposes of (i) researching, screening for, discovering or developing anti-bacterial or anti-fungal drug candidates or anti-bacterial or anti-fungal drug discovery targets derived from research on Targets listed on the Collaboration Targets List or (ii) selling, licensing, marketing or otherwise commercializing antibacterial or anti-fungal drugs discovered Or developed using any portion of the Novalon - ------------------- * Confidential Treatment requested: material has been omitted and filed separately with the Commission. -5- Patent Rights, the Novalon Technology, the Joint Patent Rights, and Joint Technology in research on Targets listed on the- Collaboration Targets List, The license granted hereunder with respect to each Target listed on the Collaboration Targets List shall be for a term of eighteen (18) months' following the Target Activation Date for such Target, provided that Cubist may extend the term of the license by one year for each such Target by the payment to Novalon of' a Target Exclusivity Fee of [ ]* on or before the first day of the nineteenth month following the Target Activation Date for such Target. Cubist may extend the license for such Target for successive one-year terms by the payment to Novalon of an additional Target Exclusivity Fee of [ ]* on each anniversary date of the due date of the first payment of the Target Exclusivity Fee for such Target. In the event that Cubist fails to make any such Target Exclusivity Fee payment, Novalon may, upon giving Cubist thirty (30) days written notice and upon Cubist's failing to make such Target Exclusivity Fee payment, remove such Target from the Collaboration Targets List and revoke the license granted hereunder with respect to such Target. Upon the revocation of a license with respect to any such Target, Cubist shall not thereafter have the right to reinstate such license unless Novalon shall consent thereto in writing. Except for the foregoing, Cubist's license shall be perpetual and irrevocable. Cubist shall have the right to sublicense the license granted to Cubist pursuant to this Section 3. Except for any payments made or required to be made by Cubist to Novalon pursuant to Section 2.2, Section 3 or Section 4.1 of the RCLA and in connection with the Collaboration, Cubist shall not have to pay or otherwise owe to Novalon any consideration of any kind in connection with the license. Section 4. Confidentiality and Use of Names. The following Section 9.4 supersedes and replaces Section 9.4 of the RCLA. Section 9.4 Confidentiality. It is contemplated that in the course of the performance of this Agreement each party may, from time to time, disclose Confidential Information to the other. Each party agrees to take all reasonable steps to prevent disclosure of Confidential Information; - ------------------- * Confidential Treatment requested: material has been omitted and filed separately with the Commission. -6- provided that no provision of this Agreement shall be construed to preclude such disclosure of Confidential Information as may be necessary or appropriate to obtain from any governmental agency any necessary approval or license or to obtain patents that are to be included in Novalon Patent Rights and Joint Patent Rights. The following Section 9.9 supersedes and replaces Section 9.9 of the RCLA. Section 9.9 Use of Names. Neither party shall use the name of the other party or any officer, employee or consultant of the other party or any adaptation thereof in any advertising, promotional or sales literature, publicity or in any document employed to obtain funds or financing without the prior written approval of the party or individual whose name is to be used; provided that Cubist my state that it is licensed by Novalon under the Novalon Patent Rights, the Novalon Technology, the Joint Patent Rights, and the Joint Technology and may make such disclosure as is required by the Securities Act of 1933, the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder. Section 5. Joint Rights. The following Section 10 is hereby added to the RCLA. Section 10. Joint Rights. Section 10.1 Ownership Rights. Cubist and Novalon shall jointly and equally own all Technology and inventions developed jointly by the employees or agents of Novalon and Cubist or their respective Affiliates, and shall jointly and equally own all Patent Rights relating to such Technology and inventions. Subject to the provisions of Section 5.2 of the RCLA, Novalon retains all rights to file and prosecute any and all patent applications included within the Novalon Patent Rights, and Cubist retains all rights to file and prosecute any and all patent applications included within the Cubist Patent Rights. Section 10.2 Patent Filings. Novalon shall, using patent attorneys selected by Novalon, apply for, seek issuance of and maintain the Joint Patent Rights and other patents based on the Joint Technology in the United States and in such other countries as Novalon identifies or as Cubist may request in writing, provided that Cubist shall cooperate with Novalon in such prosecution, filing and maintenance. Cubist shall be given at least twenty-five (25) days to advise and comment upon such -7- filings and actions as are undertaken by Novalon. Costs relating to patent filings shall be shared equally between Novalon and Cubist. Cubist may, in its discretion, decline to participate in the prosecution and maintenance of any Joint Patent Rights in any country, provided, however, that in doing so, Cubist shall convey all of its ownership interests in such Joint Patent Rights to Novalon and Novalon shall bear all subsequent patent costs for such Joint Patent Rights. Novalon may, in its discretion, decline to apply for, prosecute or maintain any Joint Patent Rights in any country, but shall give timely notice to Cubist of any such determination, provided, however, that in doing so, Novalon shall convey all of its ownership interests in such Joint Patent Rights to Cubist and Cubist shall bear all subsequent patent costs for such Joint Patent Rights. Novalon agrees to cooperate with Cubist as reasonably necessary to permit Cubist to be able to prosecute or maintain any Joint Patent Rights in those countries where Novalon declines to undertake action. Section 6. Infringement of Joint Rights. The following Section 11 is hereby added to the RCLA. Section 11. Infringement of Joint Rights. Section 11.1 Notice. Cubist shall notify Novalon promptly in writing upon becoming aware of any alleged infringement of the Joint Patent Rights by a third party and shall provide any available evidence thereof, Novalon shall notify Cubist promptly in writing upon becoming aware of any alleged infringement of the Joint Patent Rights by a third party and shall provide any available evidence thereof. Section 11.2 Prosecution By Novalon Related to Joint Rights. Novalon shall have the right, at its sole discretion, to prosecute any alleged infringements of the Joint Patent Rights. Cubist agrees to allow Novalon to include Cubist, at Novalon's own expense, as a party plaintiff in any suit brought with respect to infringement. In the event that Novalon takes the lead role with respect to the commencement or defense of any action, the total costs shall be borne by Novalon, and any recovery or damages shall be applied as follows: (a) first, to Novalon to reimburse Novalon for the expenses of the litigation or suit, including reasonable attorneys' fees and (b) then, the balance would be allocated equally between Cubist and Novalon. Cubist shall have the right to participate in any action, and Novalon agrees to consult with counsel for Cubist on any significant matters related to the litigation. -8- Section 11.3 Prosecution By Cubist Related to Joint Rights. (a) Procedure. If Novalon, within six (6) months after having been notified of an alleged infringement, shall have been unsuccessful in negotiating with the alleged infringer to cease and desist such infringement and shall not have brought an infringement action, or if Novalon shall notify Cubist at any time prior thereto of its intention not to bring suit against any alleged infringer, then Cubist shall have the right, but shall not be obligated, to prosecute at its own expense any such infringement of the Joint Patent Rights. Cubist shall be entitled to offset the costs of any such litigation against any amounts due by Cubist to Novalon under this Agreement. In such circumstances, Cubist may use the name of Novalon as the plaintiff if necessary for the prosecution of the infringement suit. Notwithstanding anything in the foregoing to the contrary, no settlement, consent judgment or other voluntarily final disposition of any such suit may be entered into without the consent of Novalon, which consent shall not be unreasonably withheld. (b) Damages. In the event that Cubist undertakes litigation pursuant to Section 11.3 (a) for the enforcement of Joint Patent Rights, any recovery of damages by Cubist or Novalon, as the case may be, for each suit shall be applied as follows: (a) first, to Cubist to reimburse Cubist for the expenses of the litigation or suit, including reasonable attorneys' fees, (b) then, second, to Novalon to reimburse Novalon for its expenses of the litigation or case, including reasonable attorneys' fees [ ]* and (c) then the balance would be allocated [ ]* between Cubist and Novalon. Section 11.4 Actions Against Cubist or Novalon Related to Joint Rights. (a) In the event that an action alleging invalidity or noninfringement of any of the Joint Patent Rights shall be brought against Cubist or against Novalon (whether as an independent action or as a counterclaim of a suit filed by either Novalon pursuant to Section 11.2 or Cubist pursuant to Section 11.3(a)), Novalon, at its sole option, shall have the right, within thirty (30) days after the commencement of such action, to take or regain control of the action at its own expense. If Novalon shall determine not to exercise this right, Cubist may take over or remain as - ------------------- * Confidential Treatment requested: material has been omitted and filed separately with the Commission. -9- lead counsel for the action at Cubist's sole expense, with any settlement or recovery subject to the approval provisions of Section 11.3(a) and allocation provisions or Section 11.3(b). (b) In the event that an action alleging any of the Joint Patent Rights or Joint Technology infringes, or resulted from the misappropriation of, any third party shall be brought against Cubist or against Novalon (whether as an independent action or as a counterclaim of a suit filed by either Novalon pursuant to Section 11.2 or Cubist. pursuant to Section 11.3 (a)), Novalon, at its sole option, shall have the right, within thirty (30) days after the commencement of such action, to take or regain control of the action at its own expense. If Novalon shall determine not to exercise this right, Cubist may take over or remain as lead counsel for the action at Cubist's sole expense. -10- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers, and have duly delivered and executed this Agreement under seal as of the date first set forth above. Novalon Pharmaceutical Corporation Cubist Pharmaceuticals, Inc. /s/ Dana M. Fowlkes /s/ Scott M. Rocklage - ----------------------------------- ----------------------------- By: Dana M. Fowlkes, M.D., Ph.D. By: Scott M. Rocklage, Ph.D. Title: Chairman, President, and CEO Title: President and CEO -11- EX-10.3 4 EXHIBIT 10.3 Exhibit 10.3 License Agreement This Agreement is made this 7th day of November, 1997 (the "Effective Date"), by and between ELI LILLY & COMPANY having its principal place of business at Lilly Corporate Center, Indianapolis, Indiana 46285 and its Affiliates (collectively, "ELI LILLY") and Cubist Pharmaceuticals Incorporated, a Delaware corporation having its principal place of business at 24 Emily Street, Cambridge, MA, 02139 and its Affiliates (collectively "CUBIST") as follows: Article 1 Definitions As used throughout this Agreement, the following terms shall have the meanings indicated in this Article. "Affiliate" means any corporation or other entity which directly or indirectly controls, is controlled by or is under common control with a party to this Agreement. A corporation or other entity shall be regarded as in control of another corporation or entity if it owns or directly or indirectly controls more than [ ]* of the outstanding voting stock or other ownership interest of the other corporation or entity, or if it possesses, directly or indirectly, the power to manage, direct or cause the direction of the management and policies of the corporation or other entity or the power to elect or appoint [ ]* or more of the members of the governing body of the corporation or other entity. Any such other relationship as in fact results in actual control over the management, business and affairs of a corporation or other entity shall also be deemed to constitute control. "Average Market Price" shall mean the average closing price for CUBIST common stock for twenty consecutive trading days, the last day of which is immediately prior to five days prior to the event that triggered such payment of CUBIST common stock to ELI LILLY. "Compound" means [ ]* or a pharmaceutically acceptable salt thereof or a pharmaceutically acceptable formulation thereof which is in Lilly's possession on the Effective Date. - --------------- * Confidential Treatment requested: material has been omitted and filed separately with the Commission. "Confidential Information" means any information and data received by a party from the other party, as well as the terms of this Agreement. Notwithstanding the foregoing, Confidential Information shall not include any part of such Confidential Information that: (1) is or becomes part of the public domain other than by unauthorized acts of the party obligated not to disclose such Confidential Information; (ii) can be shown by written documents to have been disclosed to the receiving party by a third party, provided such Confidential Information was not obtained by such third party directly or indirectly from the disclosing party with an obligation for such third party to maintain the confidentiality of such information; (iii) prior to disclosure under this Agreement, was already in the possession of the receiving party and such possession can be evidenced by written documents, provided such Confidential Information was not obtained directly or indirectly from the disclosing party with an obligation to maintain the confidentiality of such information, (iv) can be shown by written documents to have been independently developed by the receiving party without breach of any of the provisions of this Agreement and such independent development can be evidenced by written documents', or (v) is disclosed by the receiving party pursuant to interrogatories, requests for information or documents, subpoena, civil investigative demand issued by a court or governmental agency or as otherwise required by law, provided, however, that the receiving party notifies the disclosing party immediately upon receipt thereof, giving such disclosing party sufficient advance notice to permit it to seek a protective order or other similar order with respect to such Confidential Information and provided, further, that the receiving party furnishes only that portion of the Confidential Information which it is advised by counsel is legally required whether or not a protective order or other similar order is obtained by the disclosing party. "ELI LILLY Program" shall mean a research, development and/or marketing project that ELI LILLY, its Affiliates, and/or a third party, pursuant to an Agreement with ELI LILLY, have been committing non-trivial financial and/or human resources to advance. "Field" shall mean the treatment of infectious diseases except, [ ]* "Know-How" means all information and data reasonably useful for the development, process development, regulatory approval, manufacture, - --------------- * Confidential Treatment requested: material has been omitted and filed separately with the Commission. -2- use, formulation or sale of Compound in the Field which (i) is in the possession of ELI LILLY as of the Effective Date or is created by ELI LILY after the Effective Date, (ii) ELI LILLY can provide using reasonble efforts and (iii) ELI LILLY is free to provide without obligation to any third party. Such Know-How may include information that is secret, whether or not patentable, relating to materials, methods, processes, procedures, protocols, techniques, formulae and data reasonably useful for the development, regulatory approval, manufacture or use of Compound in the Field. "Major Market Country" shall mean the United States, Canada, Japan, the United Kingdom, Germany, France, Italy, Spain, Switzerland, Netherlands and Belgium. "Net Sales" means the amounts received by CUBIST and/or its sublicensees on sales or other transfers for commercial use of Compound, and products incorporating Compound, to independent third parties in bona fide arms length transactions, less the following deductions actually allowed and taken by such independent third parties and not otherwise recovered by or reimbursed by CUBIST or its sublicensees: (a) [ ]*; (b) [ ]*; (c) [ ]*; and (d) [ ]*. If CUBIST or its sublicensees sell or transfer Compound, or any products incorporating Compound for commercial use, other than (i) reasonable quantities of promotional samples or (ii) to an independent third party in a bona fide arm's length transaction, Net Sales shall be determined based upon the resale or other retransfer to an independent third party in an arm's length transaction by the entity to whom such Compound, or product, was sold or transferred by Cubist or its sublicensee. If there is no such resale or retransfer, Net Sales shall be determined based on the average Net Sales price as determined in the immediately preceding royalty accounting period as set forth in Section 4.02. - --------------- * Confidential Treatment requested: material has been omitted and filed separately with the Commission. -3- In the event Compound is sold as a component of a combination of functional elements, Net Sales for purposes of determining royalty payments on such combination shall be calculated by multiplying the Net Sales price of such combination by the fraction [ ]* In the event no separate sale of either such above-designated Compound or such above-designated non-Compound portion of the combination is made during the accounting period in which the sale of the combination was made, Net Sales shall be calculated by multiplying the Net Sales price of the combination by the fraction [ ] *. "Patent(s)" means any of ELI LILLY's patents, pending patent applications, and future. patent applications, including, but not limited to, those set forth on Exhibit 3 attached hereto, which claim Compound, formulations of Compound, processes for preparing Compound or use of Compound in the Field, any United States or foreign counterpart patents and applications, and any continuing, divisional, reissue, re-examination and substitute patents and applications based, in whole or in part, on any of the foregoing patents and patent applications, together with all continuations, continuations-in-part, divisions, patents of addition, reissues, renewals, extensions, supplementary protection certificates and complementary protection certificates of any of the foregoing which are owned by ELI LILLY and under which ELI LILLY has rights to grant a sublicenses. "Phase II Clinical Trial" shall mean clinical studies conducted in accordance with Good Clinical Practices ("GCPs") in a small number of healthy volunteers to establish efficacy and obtain a preliminary indication of the dosage of Compound. "Phase III Clinical Trial" shall mean large scale clinical studies in patients conducted in accordance with GCPs primarily to establish safety and efficacy of Compound. "Valid Claim" shall mean a claim of an issued and unexpired Patent which has not been withdrawn, canceled, revoked, disclaimed, or held invalid, unenforceable or unpatentable by a final and unappealed (within the time allowed for appeals) or unappealable judgment or decision of a court or other governmental agency of competent jurisdiction. - --------------- * Confidential Treatment requested: material has been omitted and filed separately with the Commission. -4- Article 2 License Grant 2.00 ELI LILLY grants to CUBIST the following worldwide, exclusive licenses subject to the conditions set forth herein below in Section 2.01: (a) Under the Patents, to develop, manufacture, formulate, have manufactured, import, use, distribute for sale, market and sell Compound in the Field; and (b) To use the Know-How for the development, manufacture, formulation, use, distribution for sale, marketing, and sale of Compound consistent with the terms of this Agreement. 2.01 (i) Subject to Section 2.01(ii) below, CUBIST shall have the right to grant sub-licenses under the Patents and Know-How, for use in the Field, provided that the terms and conditions of such sub-licenses are consistent with and no less restrictive than the terms and conditions of this Agreement, and any such disclosure or transfer of Compound shall be limited to use solely in the Field. (ii) In the event that, during the term of this Agreement, CUBIST actively seeks to grant a sub-license to a third party for the development of the Compound in the Field which sublicense includes, but is not necessarily limited to, the right to develop and/or commercialize an oral or intravenous formulation of the Compound, CUBIST agrees to inform ELI LILLY of such determination by written notice, which notice shall include (a) a description in reasonable detail of the subject matter of the proposed sub-license and (b) the terms on which CUBIST would be willing to grant ELI LILLY such rights (the "Sublicense Notice"). ELI LILLY shall thereupon have a period of [ ]* (the "Notice Period") to either accept CUBIST's terms in writing or to make a written counter-proposal. If ELI LILLY accepts CUBIST's proposal or makes a counter-proposal, the parties will, for a period of up to [ ]* from receipt by ELI LILLY of the Sublicense Notice (the "Negotiation Period"), seek in good faith to enter into a definitive agreement for such rights. If ELI LILLY does not by the expiration of the Notice Period either accept CUBIST's proposal or make a counter-proposal, or the parties negotiate in - --------------- * Confidential Treatment requested: material has been omitted and filed separately with the Commission. -5- good faith and fail to reach agreement by the expiration of the Negotiation Period, CUBIST shall be free to enter into a sub-license for such rights with a third party,[ ]*. 2.02 CUBIST shall notify ELI LILLY within [ ]* of the identity of each sublicensee together with a summary of the principal terms of any sub-license, and shall take all reasonable steps in the event of a breach of any sub-license by the sub-licensee to enforce the same. 2.03 CUBIST acknowledges that ELI LILLY has disclosed certain Know-How to CUBIST prior to the execution of this Agreement and CUBIST shall treat such Know-How in accordance with the terms of this Agreement. During the term of this Agreement, ELI LILLY shall disclose to CUBIST such other Know-How as is directly related to CUBIST's activities under the license granted in Article 2.00 and which ELI LILLY can provide to CUBIST using reasonable efforts. 2.04 Promptly after the Effective Date, ELI LILLY may provide CUBIST with reasonable access to consult with pertinent ELI LILLY employees that have had prior experience working with Compound in the Field at ELI LILLY to enhance the preclinical or clinical development and manufacturing of the Compound, provided that such consultation shall occur at a mutually agreeable time and place and that ELI LILLY will only provide such access to current employees which are reasonably able to provide CUBIST with ELI LILLY Know-How relating to the scale-up, manufacture, or formulation of Compound for use in the Field. CUBIST shall be responsible for all reasonable expenses its own personnel and ELI LILLY personnel incur in association with any such consultations. Upon CUBIST's request, ELI LILLY shall provide CUBIST and its sublicensees with all Know-How, information and data owned by ELI LILLY which ELI LILLY can provide using reasonable efforts to the extent such Know-How, information and data is reasonably required to further CUBIST's or its sub-licensees' ability to develop, scale-up, obtain regulatory approval for, manufacture, distribute, use, formulate or sell Compound for use in the Field. CUBIST agrees to treat all Know-How disclosed to it as Confidential Information of ELI LILLY. - --------------- * Confidential Treatment requested: material has been omitted and filed separately with the Commission. -6- 2.05 ELI LILLY shall deliver to CUBIST, ELI LILLY's available inventory of Compound. ELI LILLY shall not be required to perform any manufacturing of Compound for CUBIST. Article 3 Diligence and Regulatory 3.00 CUBIST shall use commercially reasonable efforts to develop and test the Compound in the Field, to perform all pre-clinical, clinical and other studies of such Compound necessary to obtain regulatory approval for the manufacture, use and sale of Compound, and to market and sell Compound in the Field in all countries in which it is commercially reasonable to market such Compound. CUBIST shall fully fund these efforts, as well as any other work that is required for CUBIST to develop and market Compound in the Field. CUBIST has prepared and provided to ELI LILLY a preliminary development plan attached hereto as Exhibit 2, which contains CUBIST's estimate, based upon data currently available to CUBIST concerning the subject matter of this Agreement, of the probable course of Compound development hereunder. As Compound development progresses, CUBIST will revise the plan from time to time to reflect the development and evolution of its plans regarding development, regulatory approvals, manufacturing and formulation, and clinical trials, and will provide ELI LILLY with a copy of any such materially revised plan as soon as reasonably possible after such revision occurs. [ ]*. The terms under which ELI LILLY shall acquire back all such rights shall be the subject of a separate agreement to be negotiated in good faith by the parties. 3.01 CUBIST represents that it intends to conduct clinical testing of Compounds to the extent that such testing is supported by safety and efficacy data required by the applicable regulatory agency. 3.02 Within thirty (30) days of the Effective Date, ELI LILLY shall deliver to CUBIST a copy of the Investigational New Drug Application filed with the United States Food and Drug Administration and foreign equivalents, if any relating to the Compound, and as soon thereafter as is commercially practicable, ELI LILLY shall transfer all other reasonably - --------------- * Confidential Treatment requested: material has been omitted and filed separately with the Commission. -7- transferable information used in regulatory filings, laboratory data, clinical data, toxicology data, and scale-up, manufacturing and formulation information relating to Compound to CUBIST in a commercially reasonable time frame. 3.03 Both ELI LILLY and CUBIST shall submit information and file reports to various governmental agencies to the extent they are lawfully required on compounds under clinical investigation, compounds proposed for marketing, or marketed drugs. Information must be submitted at the time of initial filing for investigational use in humans and at the time of a request for market approval of a new drug. In addition, supplemental information must be provided on compounds at periodic intervals and adverse drug experiences must be reported at more frequent intervals depending on the severity of the experience. Consequently, ELI LILLY and CUBIST agree, to the extent required by applicable law or regulations, to: 1) provide to one another for initial and/or periodic submission to governmental agencies significant information on Compound from pre-clinical laboratory, animal toxicology and pharmacology studies, as well as serious or unexpected adverse experience reports from clinical trials and marketed commercial experiences with Compound. 2) report to one another in such a manner and time so as to enable each party to comply with all governmental laws and regulations in territories for which registration is or will be sought. Serious adverse experience means any experience that suggests a significant hazard, contraindication, side effect or precaution, or any experience that is fatal or life threatening, is permanently disabling, requires or prolongs inpatient hospitalization, or is a congenital anomaly, cancer or overdose. Unexpected adverse experience is one not identified in nature, specificity, severity or frequency in a current investigator brochure for Compound, or in CUBIST's labeling for Product. 3.04 CUBIST also agrees that if it contracts with a third party for research to be performed by such third party on Compound or if it sublicenses its rights herein to a third party, it will require such third party to comply with the reporting obligations (both to ELI LILLY and to regulatory agencies) set forth in this Section. -8- 3.05 CUBIST shall comply with all applicable laws and regulations regarding the care and use of experimental animals, in a country where the development is carried out. All animals used to evaluate Compound shall be provided humane care and treatment in accordance with the most acceptable veterinary practices. Article 4 Payments 4.00 Cubist will pay [ ]* to ELI LILLY as a license fee upon the Effective Date of this Agreement. 4.01 CUBIST will also pay to ELI LILLY the following payments: (a) [ ]* as a license fee, to be paid upon the earlier of (i) completion of CUBIST or CUBIST's sub-licensee's first Phase II Clinical Trial in a Major Market Country or (ii) upon the initiation of CUBIST or CUBIST's sub-licensees of patient dosing in the first Phase III Clinical Trial in a Major Market Country; said license fee to be paid in CUBIST common stock based on the Average Market Price for such CUBIST common stock; (b) [ ]* as a license fee, to be paid upon the date of CUBIST's or CUBIST's sub-licensee's first regulatory submission in a Major Market Country for a license to market Compound, said license fee to be paid in CUBIST common stock, based on the Average Market Price for such CUBIST Common Stock; and (c) [ ]* as a license fee, to be paid upon the date of CUBIST's or CUBIST's sub-licensee's first regulatory approval in a Major Market Country for their application to market Compound, said license fee to be paid in CUBIST common stock, based on the Average Market Price for such CUBIST Common Stock. 4.02 During the first [ ]* after the first commercial sale of Compound in a Major Market Country, CUBIST will pay ELI LILLY royalties of [ ]* on the first [ ]* of aggregate annual Net Sales of Compounds and [ ]* on aggregate Net Sales between [ ]* and [ ]* and [ ]* on aggregate annual Net Sales in excess of - --------------- * Confidential Treatment requested: material has been omitted and filed separately with the Commission. -9- $150,000,000 in all countries ("Protected Countries") for so long as (a) the manufacture, use or sale of Compound is covered by a Valid Claim, or (b) there is no significant generic competition which causes a reduction of Net Sales of Compound by [thirty (30) percent]* or more in any [twelve month]* period. After the expiration of the first [ ]* after first commercial sale in a Major Market Country, CUBIST will pay ELI LILLY royalties of [ ]* on the first [ ]* of aggregate annual Net Sales of Compound and [ ]* on aggregate annual Net Sales between [ ]* and [ ]* and [ ]* on aggregate annual Net Sales in excess of [ ]* in all countries ("Protected Countries") for so long as (a) the manufacture, use or sale of a Compound is covered by a Valid Claim, or (b) there is no significant generic competition which causes a reduction of Net Sales of Compound by [ ]* or more in any [twelve month]* period. 4.03 For a period of [ ]* following first commercial sale in a Major Market Country, CUBIST will pay ELI LILLY royalties of [ ]* of aggregate annual Net Sales in all countries that are not Protected Countries, but where the manufacture, use, sale or transfer of Compound utilizes Know-How provided to CUBIST by ELI LILLY. [ ]* of Net Sales in countries that are not Protected Countries shall be included in aggregate annual Net Sales of Compound calculated pursuant to Section 4.02 for purposes of determining the appropriate royalty percentage in Section 4.02. 4.04 In the event that CUBIST can demonstrate that external factors beyond its control (such as government-imposed price controls) have materially reduced CUBIST's profitability on sales of Compound in any Country, ELI LILLY agrees to consider in good faith an equitable reduction in the royalty rate applicable to such country under Section 4.02 or 4.03, as applicable. 4.05 The first payment under Articles 4.04 and 4.05 shall be due within [ ]* after December 31 or June 30, whichever such date occurs first after the first commercial sale or transfer of Compound. Thereafter, payments under Articles 4.04 and 4.05 shall be made within [ ]* of each of December 31 and June 30 of each year. Payments shall be - --------------- * Confidential Treatment requested: material has been omitted and filed separately with the Commission. -10- accompanied by a report showing all facts necessary to the calculation of amounts due. 4.06 All royalty payments to ELI LILLY shall be in United States dollars. Royalty payments based on Net Sales in currencies other than United States dollars shall be converted to US dollars according to the average official rate of exchange for that currency as published in the Wall Street Journal on the first and last days of the six-month period in which that royalty accrued (or, if not published on that day, the first and last publication days for the Wall Street Journal during that six month period). If such exchange rate is not published in the Wall Street Journal, then the rate shall be determined using average conversion rates that are accepted in the industry on the first and last days of the six month period in which the royalty accrued. All payments that are not to be made in CUBIST common stock, as specified herein. shall be paid in United States dollars. 4.07 If by law, regulation, or fiscal policy of a particular country, conversion into United States dollars or transfer of funds of a convertible currency to the United States is restricted or forbidden, CUBIST shall give ELI LILLY prompt written notice and shall pay the royalty due under this Article 4 through such means or methods as are lawful in such country as ELI LILLY may reasonably designate. Failing the designation by ELI LILLY of such lawful means or methods within thirty (30) days after such written notice is given to ELI LILLY, CUBIST shall deposit such royalty payment in local currency to the credit of ELI LILLY in a recognized banking institution designated by ELI LILLY, or if none is designated by ELI LILLY within the thirty (30) day period described above, in a recognized banking institution selected by CUBIST In and identified in a written notice to ELI LILLY by CUBIST, and such deposit shall fulfill all obligations of CUBIST with respect to such royalties. 4.08 CUBIST and its sub-licensees, if any, shall maintain complete and accurate books and records with respect to sale and use of Compound and all other information necessary to permit calculation and verification of amounts due under this Article 4 and Article 5 and Article 6, set forth below. Upon reasonable prior written notice to CUBIST, ELI LILLY may cause an independent agent to audit the books and records of CUBIST and its sub-licensees, if any, pertaining to the payment to ELI LILLY hereunder, for the sole purpose of confirming the amounts due, and the accuracy of the payments and reports; provided that no such audit shall -11- be permitted for periods exceeding [ ]* prior to the date CUBIST receives such written notice. Any such audit shall be performed at ELI LILLY's expense during normal business hours and shall, if so required by CUBIST, be performed by a firm of independent public accountants reasonably acceptable to CUBIST. The independent agent shall report only such information as would properly be included in such a report. In the event of an underpayment, CUBIST shall promptly remit to ELI LILLY all amounts due. CUBIST shall require any sublicensee to agree to comply with all of the terms of this paragraph, including but not limited to making such report, maintaining such records, and permitting such audit. [ ]* 4.09 Any late payments due to ELI LILLY shall be subject to interest charges which rate shall be established at [ ]* above the prime interest rate in effect on the date that such payment was first due to ELI LILLY. Article 5 Minimum Royalties 5.00 [ ]* after December 31 or June 30, whichever date occurs first, following the first twelve (12) month period after the first commercial sale of Compound in a Major Market Country, CUBIST will pay ELI LILLY [ ]* as a minimum royalty. 5.01 [ ]* after December 31 or June 30, whichever date occurs first, following the second twelve (12) month period after the first commercial sale of Compound in a Major Market Country, CUBIST will pay to ELI LILLY [ ]* as a minimum royalty. 5.02 [ ]* after December 31 or June 30, whichever date occurs first, following the third twelve (12) month period after the first commercial sale of Compound in a Major Market Country, CUBIST will pay ELI LILLY [ ]* as a minimum royalty. - --------------- * Confidential Treatment requested: material has been omitted and filed separately with the Commission. -12- 5.03 CUBIST shall deduct any withholding taxes from the payments agreed upon under this Agreement and pay them to the proper tax authorities as required by applicable law. CUBIST shall maintain official receipts of any withholding taxes and forward these receipts to ELI LILLY. The parties will exercise their best efforts to ensure that any withholding taxes imposed are reduced as far as legally possible under the provisions of any treaties applicable to any payment made hereunder. Article 6 Indemnification, Insurance and Limitation of Damages 6.00 CUBIST shall indemnify ELI LILLY and its directors, officers, employees and agents, as set forth in Article 6.02, with respect to (a) any third party claim or action against ELI LILLY based on CUBIST's or CUBIST's sublicensee's developing, making, distributing, selling, marketing, using or otherwise transferring Compound and (b) breach of any representation or warranty contained in Article 7 by CUBIST, provided, however that CUBIST shall have no duty to indemnify ELI LILLY to the extent that any such claim or action is subject to ELI LILLY's duty of indemnification set forth in Article 6.01. 6.01 ELI LILLY shall indemnify CUBIST, as set forth in Article 6.02, with respect to (a) any third party claim or action against CUBIST based on (i) activities of ELI LILLY, Its employees, or its agents with respect to Compound prior to the Effective Date, (ii) the negligence or willful misconduct of ELI LILLY, its employees and agents, and (b) breach of any representation or warranty contained in Article 7 by ELI LILLY, provided, however, that ELI LILLY shall have no duty to indemnify CUBIST to the extent that any such claim or action Is subject to CUBIST's duty of indemnification set forth in Article 6.00. 6.02 With respect to the claims and actions referenced in Articles 6.00 and 6.01 above, the indemnifying party shall defend any such claim or action against the indemnified party and shall pay all damages, judgments, costs, expenses (including attorneys' fees, but only to the extent that the indemnifying party fails to promptly assume the defense of such claims and actions) and liability awarded against the indemnified party, or settlements entered into, with respect to such claim or action, provided that the indemnified party (a) provides prompt written notice to the indemnifying party of any such claim or action, (b) allows the indemnifying party to assume the defense and settlement thereof, with counsel of its choice, and (c) provides reasonable assistance to the indemnifying party in connection with the defense and settlement thereof. -13- 6.03 Prior to administration of Compound to any human, CUBIST shall provide to ELI LILLY an endorsement verifying customary levels of insurance for damages, judgments, costs, expenses (including attorneys' fees) and liability with respect to any third party claim or action based on CUBIST's or CUBIST's sublicensee's manufacture, distribution, use, marketing or sale of Compound, naming ELI LILLY, its directors, officers and employees as additional insureds on the policy, and shall have copies of such insurance policies delivered to ELI LILLY as soon as reasonably practical. In addition, evidence of insurance in the form of such endorsement shall be furnished to ELI LILLY at the inception of each subsequent phase of human clinical trials, as well as upon granting of NDA and PLA, but in no event less than annually upon the insurance policy renewal date. Such insurance shall remain in effect at customary levels throughout the term of this Agreement. ELI LILLY shall be informed thirty (30) days prior to any cancellation of or material decrease in the amount of coverage of such insurance by CUBIST or any other action that CUBIST reasonably should believe will result in decrease or cancellation of such insurance, or immediately upon receipt by CUBIST of a notice of cancellation of such insurance, on the effective date of which cancellation or decrease, clinical use of Compound must immediately cease, subject to CUBIST obtaining adequate replacement insurance. The foregoing shall not be interpreted to limit the scope or amount of CUBIST's indemnification obligation under Article 6.00. Notwithstanding the foregoing, CUBIST shall be entitled to adopt an insurance program containing self insurance elements, to the extent that CUBIST is able to demonstrate to the reasonable satisfaction of ELI LILLY that such a program is not unusual in the industry for companies similarly situated (including financial condition to support such a program) or with respect to products with a risk profile similar to products licensed hereunder. 6.04 Other than as set forth elsewhere in this Agreement, in no event shall either party be liable for any special, consequential, indirect, or incidental damages, however caused and on any theory of liability, arising out of this Agreement. These limitations shall apply notwithstanding any failure of essential purpose of any limited remedy. -14- Article 7 Representations, Warranties And Disclaimer 7.00 Each party represents and warrants to the other party that (a) it has the right to enter into this Agreement; (b) this Agreement has been duly authorized by all necessary action of such party and (c) the execution of this Agreement by the party will not conflict with or breach any other agreement to which it is a party or by which it is bound. 7.01 ELI LILLY represents that (a) it is party to an agreement with Ophidian which Agreement includes a covenant not to compete (b) if CUBIST notifies ELI LILLY that it desires to develop Compound for the treatment of clostridium difficile-induced colitis, ELI LILLY shall notify CUBIST if such covenant has expired or is terminated, (c) there is no other agreement known to ELI LILLY to which it is a party and by which it is bound that would conflict with or be breached by ELI LILLY granting the license in Article 2, (d) except as previously disclosed in writing to CUBIST, no other person or entity has claimed, or to ELI LILLY's knowledge has, any rights to or interest in the Patents and the Know- How in the Field to be licensed hereunder, and that to its knowledge, the manufacture, use, distribution, marketing or sale of the Compound(s) can be performed without infringing the patent rights of any third party, and (e) as of the Effective Date ELI LILLY is conducting no development program relating to analogs or derivatives of the Compound, provided that ELI LILLY shall be free to commence and conduct any such program at any time hereafter. 7.02 ELI LILLY makes no representation or warranty that Compound made, used, or sold under the licenses granted herein is or will be free of claims of infringement of the patent rights of any third party (although it represents and warrants that it has no knowledge of (i) such infringement not heretofore disclosed to Cubist and (ii) any payment obligations that CUBIST will have to third parties in connection with CUBIST's development, manufacturing, marketing or sale of Compound) and makes no warranty or representation that any of the Patents to be licensed hereunder are valid or enforceable. 7.03 EXCEPT AS SET FORTH IN ARTICLES 7.00 AND 7.01 ABOVE, ELI LILLY EXPRESSLY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT. -15- 7.04 CUBIST acknowledges that the Compound(s) are highly experimental in nature [ ]*. 7.05 CUBIST warrants that all CUBIST common stock to be paid to ELI LILLY pursuant to this Agreement shall be properly issued and all legal requirements associated with such issuance to ELI LILLY shall be fulfilled. The number of shares of CUBIST common stock payable to ELI LILLY shall be determined by dividing the payment amount by the Average Market Price to determine the number of shares. For illustration purposes only, upon completion of CUBIST's first Phase II Clinical Trial, CUBIST shall pay ELI LILLY [ ]* in CUBIST common stock. The number of shares to be transferred to ELI LILLY shall be determined by dividing [ ]* by the Average Market Price. Article 8 Patents And Know-How 8.00 In the event either of the parties shall learn of the infringement, or a challenge to the validity, enforceability, or title of any Patent (including any action for a declaratory Judgment) right licensed hereunder, or an action for unauthorized use or misappropriation of Know-How licensed hereunder, such party shall promptly notify the other party thereof in writing and shall provide the other party with any evidence in its possession of such infringement, challenge or action. 8.01 Actions Affecting Other ELI LILLY Programs. (i) During the term of this Agreement, ELI LILLY shall have the sole right, but no obligation, to bring or defend any suit or action relative to the patenting or patent enforcement directly relating to Compound, manufacture, use, distribution, marketing or sale of Compound in the Field which suit or action also materially affects intellectual property rights of ELI LILLY that relate to an active ELI LILLY Program, including the fight to recover for past infringement, or the unauthorized use or misappropriation of Know-How in the Field. If ELI LILLY finds it necessary or desirable to join CUBIST in such suit or action, CUBIST - --------------- * Confidential Treatment requested: material has been omitted and filed separately with the Commission. -16- shall execute all papers and perform such other acts as may reasonably be required, at ELI LILLY's expense, to join CUBIST in such suit or action. CUBIST may, at its option, join as a party to such suit and be, at its expense, represented by counsel of its choice, provided that ELI LILLY shall continue to control the prosecution or defense of such suit. Unless CUBIST and ELI LILLY otherwise agree, any amount recovered in any such action, whether by judgment or settlement, after deducting ELI LILLY's reasonable expenses (including attorneys' fees), and payment to CUBIST of damages in respect of CUBIST's lost profits for which ELI LILLY recovers payment and CUBIST's reasonable expenses (including attorneys' fees) incurred in connection with an action or suit in which ELI LILLY requested that CUBIST be Joined or in which CUBIST voluntarily joined, shall be paid to or retained by ELI LILLY. (ii) In the event ELI LILLY faIls to take action with respect to such infringement, or challenge to validity, enforceability or title, or action for unauthorized use or misappropriation of Know-How in the Field which materially affect intellectual property rights of ELI LILLY that relate to an active ELI LILLY program, within a reasonable period, no less than three (3) months, following receipt by ELI LILLY of reliable evidence of infringement, CUBIST shall have the right, but no obligation, to bring, or defend any such suit or action. ELI LILLY may, at its option, join as a party to such suit and be, at its expense, represented by counsel of its choice, provided that CUBIST shall continue to control the prosecution or defense of such suit. If CUBIST finds it necessary to join ELI LILLY in such suit or action, ELI LILLY shall execute all papers and perform such other acts as may be reasonably required at CUBIST's expense. Unless CUBIST and ELI LILLY otherwise agree, any amount recovered in any such action or suit, whether by judgment or settlement, after deducting CUBIST's reasonable expenses (including attorneys' fees) and payment to ELI LILLY of damages in respect of ELI LILLY's lost royalties for which CUBIST recovers payment and after payment to ELI LILLY of its reasonable expenses (including attorneys' fees) incurred in connection with an action or suit in which CUBIST requested that ELI LILLY be joined or which ELI LILLY voluntarily owned, shall be paid to or retained entirely by CUBIST. -17- 8.02 Actions Not Affecting Other Lilly Programs. (i) During the term of this Agreement, CUBIST shall have the sole right, but no obligation, to bring or defend any suit or action relative to the patenting or patent enforcement directly relating to Compound, manufacture, use, distribution, marketing or sale of Compound in the Field which suit or action does not materially affect intellectual property rights of ELI LILLY that relate to an active ELI LILLY Program, including the right to recover for past infringement, or the unauthorized use or misappropriation of Know-How in the Field. If CUBIST finds it necessary or desirable to join ELI LILLY in such suit or action, CUBIST shall execute all papers and perform such other acts as may reasonably be required, at CUBIST's expense, to join ELI LILLY in such suit or action. ELI LILLY may, at its option, join as a party to such suit and be, at its expense, represented by counsel of its choice, provided that CUBIST shall continue to control the prosecution or defense of such suit. Unless CUBIST and ELI LILLY otherwise agree, any amount recovered in any such action or suit, whether by Judgment or settlement, after deducting CUBIST's reasonable expenses (including attorneys' fees) and payment to ELI LILLY of damages in respect of ELI LILLY's lost royalties for which CUBIST recovers payment and after payment to ELI LILLY of its reasonable expenses (including attorneys' fees) in connection with an action or suit in which CUBIST requested that ELI LILLY be joined or which ELI LILLY voluntarily joined, shall be paid to or retained entirely by CUBIST. (ii) In the event CUBIST faIls to take action with respect to such infringement, or challenge to validity, enforceability or title, or action for unauthorized use or misappropriation of Know-How in the Field which does not materially affect intellectual property rights of ELI LIILLY that relate to an active ELI LILLY program, within a reasonable period, no less than three (3) months, following receipt by CUBIST of reliable evidence of infringement, ELI LILLY shall have the right, but no obligation, to bring, or defend any such suit or action. If ELI LILLY finds it necessary to join CUBIST in such suit or action, CUBIST shall execute all papers and perform such other acts as may be reasonably required at ELI LILLY's expense. CUBIST may, at its option, join as a party to such suit and be, at its expense, represented by counsel of its choice, provided that ELI LILLY shall continue to control the prosecution or defense of such suit. Unless CUBIST and ELI LILLY otherwise agree, any amount recovered in any such action, whether by judgment or settlement, after deducting ELI LILLY's reasonable expenses (including attorneys' fees), and payment to CUBIST of damages in respect of CUBIST's lost profits -18- for which ELI LILLY recovers payment and CUBIST's reasonable expenses (including attorneys' fees) incurred in connection with an action or suit in which ELI LILLY requested that CUBIST be joined or in which CUBIST voluntarily joined, shall be paid to or retained by ELI LILLY. 8.03 If CUBIST determines in good faith in consultation with ELI LILLY that the manufacture, use or sale of Compound in the Field would infringe the intellectual property rights of a third party unaffiliated with either CUBIST or ELI LILLY, and it therefore becomes necessary to pay a royalty, license fee or other compensation to that party to avoid a claim of infringement, then CUBIST and ELI LILLY shall each bear [ ]* provided that ELI LILLY's share of such obligation shall be deducted from CUBIST's royalty payments due to ELI LILLY, and further provided that CUBIST's payment, pursuant to this Agreement, to ELI LILLY in any one (1) year would never be reduced by more than [ ]*. If, as a result of the preceding sentence, CUBIST bears more than [ ]* of the royalty, license fee or other compensation due to a third party under this Section 8.04, the amount of the excess may be carried forward and used by CUBIST as a credit against royalties due ELI LILLY in subsequent royalty periods, provided that in no event shall CUBIST's royalty payments to ELI LILLY be reduced by more than [ ]*. 8.04 Each party agrees to cooperate with the other in legal action taken to enforce, defend or maintain a Patent licensed hereunder or concerning Know-How licensed hereunder, including litigation proceedings. 8.05 ELI LILLY shall take all steps necessary to maintain the Patents in the Field, including without limitation the preparation, filing and prosecution of new patent applications, through an attorney of their choice. CUBIST shall reimburse ELI LILLY for one half (1/2) of its reasonable out-of-pocket expenses incurred after the Effective Date paid to third parties for patent preparation, reasonable attorney fees, patent filing fees, applications for patent term extensions and SPC's, translation fees for patent purposes, and patent maintenance fees for Patents licensed hereunder within thirty (30) days of receipt of an itemized expense report from ELI LILLY for such patent related expenses. (a) If CUBIST reasonably believes that ELI LILLY is failing to maintain one or more of its Patents in the Field, CUBIST shall provide - --------------- * Confidential Treatment requested: material has been omitted and filed separately with the Commission. -19- ELI LILLY sixty (60) days written notice of its intent to assume maintenance of such Patents itself If ELI LILLY fails to resume maintenance of the Patents in the Field that CUBIST reasonably believes that ELI LILLY is failing to maintain or to provide reasonable evidence demonstrating that ELI LILLY is maintaining these Patents in the Field at the expiration of such sixty (60) day period, CUBIST may, through an attorney of their choice, take all necessary actions to maintain the Patents, and shall be entitled to deduct [ ]* of the costs and expenses incurred from any of CUBIST's payments pursuant to Article 4.04. In such event, ELI LILLY shall complete all acts and execute and deliver all instruments and other documents and render CUBIST assistance as is necessary or desirable for CUBIST to assume the filing, prosecution and maintenance of such Patents in the Field that ELI LILLY has not resumed maintenance of or demonstrated that it is maintaining. (b) ELI LILLY shall keep CUBIST currently advised as to the status of all patents and patent applications which relate to Patents and to supply CUBIST promptly with copies of all patents, patent applications, substantive patent office actions, substantive responses received or filed in connection with such applications. CUBIST may itself or through its attorney offer comments and suggestions with respect to the matters that are the subject of this Article 8.06, and ELI LILLY agrees to consider carefully such comments and suggestions; however, nothing herein shall obligate ELI LILLY to follow such comments or suggestions. (c) ELI LILLY shall notify CUBIST of their intention to abandon a patent or patent application which relates to Patents (either a total series of Patents or patent applications or on a country by country basis). At CUBIST's option, CUBIST may maintain such patent or patent application relating to Patent that ELI LILLY plans to abandon either a total series of Patents or patent applications or on a country by country basis) at CUBIST's sole expense, and CUBIST shall receive title to such patent or patent application and such patent shall no longer then be considered a Patent for purposes of this Agreement. 8.06 CUBIST shall take all steps necessary to maintain its patents and patents relating to Compound in the Field, including without limitation the preparation, filing and prosecution of new patent applications through - --------------- * Confidential Treatment requested: material has been omitted and filed separately with the Commission. -20- an attorney of its choice, provided that a copy of any new patent applications relating to Compound in the Field, to be filed by CUBIST or a sub-licensee of CUBIST, will be supplied to ELI LILLY at least thirty (30) days prior to the filing date of such patent application. CUBIST shall keep ELI LILLY currently advised as to the status of all patents and patent applications which relate to patents filed by CUBIST in the Field and to supply ELI LILLY promptly with copies of all patents, patent applications, patent office actions, responses and other papers received or filed in connection with such applications. ELI LIILLY may itself or through its attorney offer the other comments and suggestions with respect to the matters that are the subject of this Article 8.06, and CUBIST agrees to consider carefully such comments and suggestions, however, nothing herein shall obligate CUBIST to follow such comments or suggestions. Article 9 Assignment 9.00 Neither party may assign or delegate any of its rights or duties under this Agreement without the prior written consent of the other, except that either party may assign this Agreement to a person or party that has purchased or succeeded to all or substantially all of the business and assets of the assignor to which the Agreement relates, and that has assumed in writing or by operation of law such party's obligations under this Agreement, provided that CUBIST shall be permitted to sub-license its rights hereunder as provided under Section 2.01 above. This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors and assigns insofar as this Agreement is assignable. The assignor of this Agreement shall guarantee the performance of the obligation of this Agreement by such successor or assigns. Nothing herein is intended to confer on any person other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement. -21- Article 10 Term And Termination 10.00 The term of this Agreement shall be for the period commencing as of the Effective Date and ending on the later of [ ]* unless and until earlier terminated as provided in this Article. Upon the expiration of this Agreement, CUBIST shall retain a fully paid-up, royalty free license under the Know-How for purposes consistent with this Agreement and limited to use in the Field. 10.01 If either party defaults in the performance of its material obligations hereunder, including but not limited to CUBIST's failure to use commercially reasonable efforts to develop Compound (provided, however, that this shall not be construed as a guarantee that any Compound will be successfully developed), and if any such default is not corrected within [ ]* after it shall have been called to the attention of the defaulting party, in writing, by the other party, then the other party, at its option, may, in addition to any other remedies it may have, thereupon terminate this Agreement by giving written notice of termination to the defaulting party. 10.02 This Agreement may be terminated by either party, on notice, (i) upon the institution by the other party of insolvency, receivership or bankruptcy proceedings, (ii) upon the institution of such proceedings against the other party, which are not dismissed or otherwise resolved in such party's favor within sixty (60) days thereafter, and (iii) upon the other party's dissolution or ceasing to do business in the normal course. 10.03 CUBIST may terminate this Agreement at any time, upon thirty (30) days prior written notice to ELI LILLY and upon a reasonable determination by CUBIST that continued development of the Compound hereunder is not commercially reasonable. [ ]*. 10.04 Termination of this Agreement for any reason shall not result in any obligation by ELI LILLY to repay any payments made to it by CUBIST prior to such termination. - --------------- * Confidential Treatment requested: material has been omitted and filed separately with the Commission. -22- 10.05 Upon termination of this Agreement for any reason, the sub-licenses shall be automatically assigned to ELI LILLY, and ELI LILLY shall be bound by the terms of such sub-licenses provided that the sub-licensees continue to perform in accordance with their respective sublicense agreements. Notwithstanding the foregoing, ELI LILLY's obligations to any such sublicensee shall not be interpreted to extend beyond any obligations to CUBIST hereunder with respect to the subject matter of the sub-license. 10.06 Upon termination of this Agreement for any reason, except for termination caused by material breach by ELI LILLY, all licenses granted to CUBIST pursuant to Article 2 shall terminate, Cubist furthermore shall transfer to ELI LILLY all regulatory filings and regulatory correspondence, patent filings and patent office correspondence, any and all other clinical and non-clinical data, records and tabulations related to the Compound; and shall execute any and all documents of such patent offices and/or patent receiving offices, and/or regulatory agencies, including the US FDA, so as to allow ELI LILLY to make immediate use of such data, records, patent applications and/or patents and regulatory filings. ELI LILLY shall not be obligated to treat such information received pursuant to this Section 10.06 as Confidential Information and may use such information, data and know-how for any purpose at ELI LILLY's discretion. If CUBIST terminates this Agreement due to ELI LILLY's material breach, CUBIST's licenses pursuant to Article 2 shall continue for so long as CUBIST continues to fulfill their payment obligations pursuant to Articles 4 and 5. 10.07 Termination of this Agreement for any reason shall not terminate the provisions set forth in Article 6 with respect to actions arising with respect to periods prior to termination, as well as Articles 7, 10, 13, 15, and 17 hereof The obligations of those Articles shall continue in full force and effect following any such termination. 10.08 Upon termination of this Agreement for any reason, neither party shall be relieved of obligations with respect to periods prior thereto, including any obligation to make payments, including but not limited to obligations pursuant to Articles 4, 5, 6 or 10, or reports regarding sale prior to such termination. -23- 10.09 If CUBIST determines that it will not develop or market Compound in one or more countries, either by itself or through the efforts of a sublicensee, or if ELI LILLY makes written request to CUBIST to develop or sell Compound in one or more countries and in which countries CUBIST either by itself or through the efforts of a sublicensee, has taken no action, all rights including rights to develop, market and sell Compound in that country(ies) shall revert to ELI LILLY [ ]* after CUBIST receives written notice of ELI LILLY's intent to pursue those rights is received by CUBIST if CUBIST either by itself or through the efforts of a sublicensee, has taken no action toward such development or marketing prior to the end of that year. Article II Force Majeure 11.00 If the performance of this Agreement or any obligations hereunder, except the making of payments, is prevented, restricted or interfered with by reason of fire or other casualty or accident, earthquake, supplier delay, strikes or labor disputes, war or other violence, any law, order, proclamation, regulations, ordinance, demand or requirement of any government agency, or any other act or condition beyond the reasonable control of the parties hereto ("Event of Force Majeure"), the party so affected upon giving prompt notice to the other party shall be excused from such performance to the extent of such prevention, restriction, or interference; provided that the party so affected shall use its reasonable best efforts to avoid or remove such causes of nonperformance and shall continue performance hereunder with the utmost dispatch and that such party exercises due diligence to overcome such circumstances. 11.01 The party suffering an Event of Force Majeure shall notify the other party within fifteen (15) days of the occurrence of such Events of Force Majeure and within thirty (30) days shall furnish the other party with a recovery plan of action. Without limiting the foregoing, a party suffering an Event of Force Majeure shall use its reasonable best efforts to limit the impact of the Event of Force Majeure on such party's performance of this Agreement. - --------------- * Confidential Treatment requested: material has been omitted and filed separately with the Commission. -24- Article 12 Notices 12.00 Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been sufficiently given for all purposes five (5) days after having been mailed by first class certified or registered mail, postage prepaid or by fax which is confirmed by certified mail. Unless otherwise specified in writing, the mailing addresses of the parties shall be as described below. For ELI LILLY ELI LILLY & COMPANY Attn: Legal Division Lilly Corporate Center Indianapolis, Indiana 46285 For CUBIST: Mark Carthy Chief Business Officer Cubist Pharmaceuticals Incorporated 24 Emily Street Cambridge, MA 02139 with a copy to: CUBIST's Legal Counsel: Michael Lytton Palmer & Dodge One Beacon Street Boston, MA 02108 Article 13 Governing Law 13.00 This Agreement shall be governed by and interpreted in accordance with the laws of the State of Indiana, United States of America, without reference to conflict of laws principles. In the event of any action, controversy or claim arising out of or relating to any provision of this Agreement or the breach, termination or enforceability thereof, ELI LILLY and CUBIST shall make all efforts to settle those conflicts amicably between themselves. Should they fail to -25- agree, the parties may assert any remedy available at law or in equity to enforce its rights under this Agreement. Article 14 Partial Validity 14.00 If any provision of this Agreement shall be found or be held to be invalid or unenforceable by a court of competent jurisdiction in which this Agreement is being performed, then the meaning of said provision shall be construed, to the extent feasible, so as to render the provision enforceable, and if no feasible interpretation would save such provision, it shall be severed from the remainder of this Agreement, which shall remain in full force and effect. In such event, the parties shall negotiate, in good faith, a substitute, valid and enforceable provision which most nearly effects the parties' intent in entering into this Agreement. Article 15 Confidentiality 15.00 Except as otherwise provided in this Article 15, during the term of this Agreement and for a period of [ ]* the parties shall maintain the Confidential Information in confidence and use it only for purposes specifically authorized under this Agreement. To the extent it is reasonably necessary or appropriate to fulfill its obligations or exercise its rights under this Agreement: (i) a party may disclose Confidential Information it is otherwise obligated under this Article 15 not to disclose to third parties, on a need-to- know basis and on condition that such entities or persons agree to keep the Confidential Information confidential for the same time periods and to the same extent as such party is required to keep the Confidential Information confidential hereunder; and (ii) a party may disclose such Confidential Information to government or other regulatory authorities as required by law or statute. The parties hereto understand and agree that remedies at law may be inadequate to protect against any breach of any of the provisions of this Article 15 by either party or their employees, agents, officers or directors or any other person acting in concert with it or on its behalf Accordingly, each party shall be entitled to, but not limited to, the granting of injunctive relief by a court of competent Jurisdiction against any action that constitutes any such breach of this Article 15. - --------------- * Confidential Treatment requested: material has been omitted and filed separately with the Commission. -26- 15.01 Notwithstanding the provisions of Section 15.00 above, CUBIST shall be free to make disclosures to third parties of Confidential Information of ELI LILLY consisting of data regarding the Compound in the Field under circumstances where, in CUBIST's reasonable business judgment, such disclosures will (i) further the development and commercialization of the Compound and (ii) not adversely affect any patent rights of ELI LILLY of which it is aware, provided, however, that in the case of (a) technical papers disclosing such Confidential Information, or (b) other disclosures where LILLY's name is used or would reasonably be implied from the context, CUBIST will provide a copy of the proposed paper or disclosure to ELI LILLY at least [ ]* in advance of publication and will not proceed with such publication or disclosure without the consent of ELI LILLY, which consent will not be unreasonably withheld; and further, provided, that in the case of all other written disclosures of Confidential Information, CUBIST will provide to ELI LILLY a copy of the material incorporating such disclosure as promptly as is practicable, and in no event later than one (1) week after the disclosure takes place. 15.02 ELI LILLY will make no public pronouncements referencing this Agreement or CUBIST without CUBIST's express written approval. No license or rights are granted to either party to use the name of the other without express written approval. CUBIST's first public announcement of this Agreement, attached hereto as Exhibit 4, may be released by CUBIST upon full execution of this Agreement. Except as provided by Exhibit 4, CUBIST shall not release any information regarding the existence or terms of this Agreement that is not required by law. Article 16 Entire Agreement 16.00 The terms and conditions herein contained, including the Exhibits hereto, constitute the entire agreement and understanding of the parties relating to the subject matter of this Agreement and supersedes all previous communications, proposals, representations, and agreements, whether oral or written, relating to the subject matter of this Agreement. - --------------- * Confidential Treatment requested: material has been omitted and filed separately with the Commission. -27- No agreement or understanding varying or extending the same shall be binding upon either party hereto unless in a written document which expressly refers to this Agreement and which is signed by both parties to be bound thereby. Article 17 Miscellaneous 17.00 It is understood and agreed that each party shall have the status of an independent contractor under this Agreement and that nothing in this Agreement shall be construed as authorization for either ELI LILLY or CUBIST to act as agent for the other. Nothing contained herein or done in pursuance of this Agreement shall constitute either party the agent of the other party for any purpose or in any sense whatsoever, or constitute the parties as partners or joint venturers. 17.01 The failure of either party to enforce at any time any of the provisions of this Agreement, or the failure to require at any time performance by the other party of any of the provisions of this Agreement, shall in no way be construed to be a present or future waiver of such provisions, nor in any way affect the validity of either party to enforce each and every such provision thereafter. 17.02 The headings set forth at the beginning of the various Articles of this Agreement are for reference and convenience and shall not affect the meanings of the provisions of this Agreement. 17.03 During the term of this Agreement, ELI LILLY shall not, directly or indirectly through or in connection with any third party, conduct research, develop, make or market Compound for use in the Field. 17.04 This Agreement may not be amended, supplemented, or otherwise modified except by an instrument in writing signed by both parties. -28- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed in duplicate by duly authorized officers or representatives as of the date first above written. ELI LILLY & COMPANY CUBIST PHARMACEUTICALS INCORPORATED By:/s/ William R. Ringo By:/s/ Mark Carthy -------------------------- --------------------------- William R. Ringo President, Infectious Diseases Print name: Mark Carthy -------------------- Business Unit Title: Vice President and Chief --------------------------- Business Officer --------------------------- -29- EX-11. 5 EXHIBIT 11 EXHIBIT 11 CALCULATION OF NET LOSS PER SHARE
THREE MONTHS ENDED SEPTEMBER 30, ------------------------ 1997 1996 ------------ ---------- Beginning Balance June 30.............................................................. 9,567,211 1,006,154 Issuance/Repurchase of Common Stock.................................................... 817,575 (1,121) Issuance of Cheap Stock................................................................ -- 356,167 ------------ ---------- Weighted Average Shares at September 30................................................ 10,384,786 1,361,200 Net Loss Third Quarter................................................................. ($824,246) ($1,155,375) Net Loss per Share..................................................................... ($0.08) ($0.85) ------------ ----------
NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 1997 1996 ---------- ---------- Beginning Balance January 1............................................................. 9,544,373 1,016,662 Issuance/Repurchase of Common Stock..................................................... 284,598 (9,594) Issuance of Cheap Stock................................................................. -- 356,167 ---------- ---------- Weighted Average Shares at September 30................................................. 9,828,971 1,363,235 Net Loss................................................................................ ($4,615,367) ($3,228,588) Net Loss per Share...................................................................... ($0.47) ($2.37) ---------- ----------
EX-27 6 EXH. 27 FDS SCHEDULE
5 0000912183 CUBIST PHARMACEUTICALS 9-MOS DEC-31-1997 JUL-01-1997 SEP-30-1997 8,357,100 12,094,221 111,000 0 0 15,466,246 5,834,144 (2,454,054) 24,542,043 1,589,467 0 0 0 10,578 21,696,380 24,542,043 0 2,081,267 0 0 9,117,200 0 (2,420,566) (4,615,367) 0 (4,615,367) 0 0 0 (4,615,367) (.47) (.47)
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