“ Distribute ” or “ Distribution ” means the distribution of, and fulfillment of customer orders for, Licensed Product.

 

“ Effective Date ” means the date first referred to above.

 

“ Esprit Change of Control ” means (i) the acquisition by any person or group (as defined in Section 13(d)(3) or 14(d)(2) of the Securities and Exchange Act of 1934, as amended) of direct or beneficial ownership (as defined in Rule 13d-3 under the Securities and Exchange Act of 1934, as amended) of more than fifty percent of the voting stock of Esprit; (ii) any merger, amalgamation or consolidation of Esprit or an Affiliate of Esprit with another corporation or other entity in which the stockholders of Esprit, immediately prior to such amalgamation, consolidation, or merger, own less than fifty percent of the voting stock of the surviving corporation immediately after such transaction; or (iii) the sale or exclusive license of substantially all of the assets of Esprit.

 

“ FDA ” means the United States Food and Drug Administration or any successor United States governmental agency performing similar functions with respect to pharmaceutical products.

 

“ First Commercial Sale ” means the date of the first commercial sale of Licensed Product in the Territory.

 

“ GR System ” means Depomed’s delivery system designed to be retained in the stomach for an extended period of time while that delivery system delivers the incorporated drug or drugs, as described in the Patent Rights.

 

“ IND ” means an Investigational New Drug Application filed with the FDA.

 

“ Know-How ” means all inventions, discoveries, trade secrets, improvements and information not in the public domain, whether or not patented or patentable (but excluding Patent Rights), together with all experience, data, formulas, procedures and results, and improvements thereon, now or hereafter developed or acquired by and proprietary or licensed with right to sublicense to Depomed on the Effective Date or which are developed or acquired during the term of and in connection with this Agreement, which relate to or are used in conjunction with the development, manufacture or use of the Licensed Product.

 

“ Licensed Product ” means the extended release ciprofloxacin HCl pharmaceutical product known as Proquin ^TM XR comprised of the GR System and the Active Ingredient.

 

“ Market ” means to promote, Distribute, market, advertise, sell or offer to sell.

 

“ NDA ” means a New Drug Application or application for approval to market submitted to the FDA.

 

“ Net Sales ” means the actual gross amount invoiced on sales of the Licensed Product in the Territory by Esprit, its Affiliates, sublicensees and assigns to independent, unrelated Third Parties during a calendar year in bona fide arms length transactions, less the following deductions

 

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allowed and taken by Third Parties and not otherwise recovered by or reimbursed to Esprit, its Affiliates, sublicensees or assigns: (a) freight, insurance and other transportation charges to the extent added to the sales price and set forth separately as such on the total amount invoiced; (b) any sales, use, value-added, excise taxes and/or duties or allowances on the selling price of the Licensed Product which fall due and are paid as a consequence of such sale; (c) chargebacks, trade, quantity and cash discounts and rebates actually allowed and taken to the extent customary in the trade, including, without limitation, governmental rebates; (d) allowances or credits, including but not limited to, allowances or credits to customers on account of rejection, defects or returns of the Licensed Product or because of a retroactive price reduction, and such other deductions (including without limitation shortage deductions) actually taken by customers that are customary in the trade; and (e) bad debt. Net Sales shall not include a sale or transfer to an Affiliate, sublicensee and assign or if done for clinical, regulatory or governmental purposes where no consideration is received but the resale by such Affiliate, sublicensee, or assign shall be considered a sale of such Licensed Product.

 

“ Party ” means Depomed or Esprit, and “ Parties ” means both Depomed and Esprit and their Affiliates.

 

“ Patent Rights ” mean any patent application or issued patent relating to the Licensed Product or improvement thereof or to methods for making or using Licensed Product or improvement thereof, which rights are owned or acquired by or licensed to Depomed as of the Effective Date or which are developed or acquired by Depomed during the term of this Agreement, in the United States, including any addition, continuation, continuation-in-part, or division thereof or any substitute application thereof, any reissue or extension of any such patent, and any confirmation patent, registration patent revalidation patent, or patent of addition based on any such patent.  All United States patents and patent applications currently within this definition and applicable to this Agreement are set forth in Exhibit A , which Exhibit shall be amended as necessary to reflect changes or additions to the Patent Rights.

 

“ Primary Care Market ” means the market for the Product in the Territory, excluding the Urology Market.

 

“ Primary Position Detail Call ” means a Call in which (i) Licensed Product is the first product detailed during the Call, (ii) a majority of the total time of the Call is spent on the presentation of Licensed Product, and (iii) key Licensed Product attributes are presented.

 

“ Proprietary Information ” means any and all scientific, clinical, regulatory, marketing, financial and commercial information or data, whether communicated in writing, orally or by any other means, which is owned and under the protection of one Party and is provided by that Party to the other Party in connection with this Agreement.

 

“ Regulatory Approval ” means the permission or consent granted by the FDA for the Marketing of the Licensed Product in the Territory.

 

“ Regulatory Data ” means data including, but not limited to, medical, toxicological, pharmacological and clinical data to the extent necessary to, required for, or included in any

 

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governmental regulatory filing to obtain or maintain Regulatory Approval to Market the Licensed Product, including post-approval reports, filings and submissions.

 

“ Secondary Position Detail Call ” means a Call in which key Licensed Product attributes are presented after a detail of another product.

 

“ Supply Agreement ” means the Supply Agreement, dated as the date of this Agreement, by and between Depomed and Esprit related to the supply of Licensed Product by Depomed to Esprit.

 

“ Territory ” means the United States, Puerto Rico and the possessions of the United States.

 

“ Third Party(ies) ” means a person or entity who or which is neither a Party nor an Affiliate of a Party.

 

“ Trademark(s) ” means the Proquin® XR trademark, for which Depomed has filed an application for federal registration with the United States Patent and Trademark Office (Ser. No. 78/356,939, which was approved for registration on April 22, 2005), and all related domain names identified on Exhibit A, and other common law trademark rights related thereto.

 

“ Urology Market ” means the market for the Licensed Product comprising all urologists in the Territory.

 

“ Valid Claim ” mean a claim of an unexpired issued patent falling within Patent Rights which shall not have been withdrawn, canceled, or disclaimed nor held invalid by a court, tribunal, arbitrator or governmental agency of competent jurisdiction in a final or unappealed or unappealable decision.

 

2.                                        License Grant and Royalties .

 

2.1                                  License Grant .  Depomed hereby grants to Esprit an exclusive license in the Territory under the Patent Rights, with the right to grant sublicenses, to Market the Licensed Product.

 

2.2                                  Trademarks .  Esprit shall have the right to Market the Licensed Product under the Trademark.  Except as set forth in the preceding sentence, nothing herein shall be deemed to give either Party any rights to the trademarks of the other Party, provided that Esprit may freely refer to the trademark “GR System” with respect to the Licensed Product so long as it is used in a form that protects the proprietary interests of Depomed in such trademark.

 

2.3                                  Royalties .

 

(a)                                   In consideration for the licenses granted herein, Esprit will pay to Depomed an earned royalty of:

 

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(i)                                      fifteen percent (15%) of the first Twenty Million Dollars ($20,000,000) of aggregate Net Sales of Licensed Product in the Territory in each calendar year;

 

(ii)                                   seventeen and one-half (17.5%) of the next Twenty Million Dollars ($20,000,000) of aggregate Net Sales of Licensed Product in the Territory in each calendar year;

 

(iii)                                twenty percent (20%) of the next Forty Million Dollars ($40,000,000) of aggregate Net Sales of Licensed Product in the Territory in each calendar year; and

 

(iv)                               twenty-five percent (25%) of aggregate Net Sales of Licensed Product in the Territory in excess of Eighty Million Dollars ($80,000,000) in each calendar year.

 

(b)                                  Notwithstanding the foregoing provisions of Section 2.3(a), Depomed will be entitled to the minimum royalty payments set forth on Exhibit B (each, a “ Minimum Annual Royalty Amount ”) for each calendar year of the term of this Agreement beginning on or after January 1, 2006); provided, however, that any minimum annual royalty payment payable pursuant to this Section 2.3(b) shall be pro-rated for any portion of any calendar year of the term of this Agreement during which Depomed fails to meet its supply obligations to Esprit pursuant to the Supply Agreement.

 

(c)                                   Esprit shall pay earned royalties in each case for the greater of ten years from the First Commercial Sale of the Licensed Product or until the Licensed Product is no longer covered by a Valid Claim of an issued patent included in Patent Rights.  If the Licensed Product was not or is no longer covered by a Valid Claim but the ten-year period has not expired, then the aggregate annual Net Sales that are subject to payment of earned royalty shall be reduced to one-half of such actual Net Sales (on a pro rated basis for any partial year during which such reduced royalty rate is in effect).  Upon the expiration of such period as provided in this Section 2.3, Esprit shall have a fully paid-up nonexclusive license to Market the Licensed Product in the Territory.

 

2.4                                  Payment of Royalties .  Earned royalty payments under Section 2.3 shall be made, to the extent permitted by law, within thirty days following the end of each calendar quarter, and each payment shall include royalties which shall have accrued during said calendar quarter.  The quarterly payment for the fourth quarter of each calendar year beginning on January 1, 2006 shall be accompanied by a payment equal to the excess of the Minimum Annual Royalty Amount applicable to such calendar year over the aggregate amount of earned royalty payments for such calendar year otherwise payable under Section 2.3.  Such quarterly payments shall be accompanied by a report setting forth separately the Net Sales of Licensed Product sold during said calendar quarter and the calculation of royalties payable for such calendar quarter.

 

2.5                                  No Multiple Royalties .  No multiple royalties shall be payable because the Licensed Product, its manufacture, use or sale is or shall be covered by more than one Patent Right.

 

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2.6                                  Records .  Esprit and its Affiliates, sublicensees and assigns shall keep and maintain records of Net Sales.  Such records shall be open to inspection at any mutually agreeable time during normal business hours within three years after the royalty period to which such records relate by an independent certified public accountant reasonably acceptable to Esprit but selected by Depomed.  Said accountant shall have the right to examine the records kept pursuant to this Agreement and report findings of said examination of records to Depomed only insofar as it is necessary to evidence any error on the part of Esprit.  This right of inspection shall be exercised only once for any calendar year.  The cost of such inspection shall be borne by Depomed unless the result of such examination is the determination that Net Sales have been understated by at least three percent for any calendar year, in which event Esprit shall bear the reasonable cost of such inspection.

 

2.7                                  Licensed Product Derivatives .  Any product that is sold by Esprit or an Affiliate, sublicensee or assign of Esprit which is a derivative, analogue or modification of the Licensed Product or which is included in the Patent Rights shall be considered to be Licensed Product, on the Net Sales of which Esprit shall owe Depomed royalties as set forth in Section 2.3.

 

2.8                                  Judgments .  In the event of a judgment in any suit arising from or related to the Patent Rights or the Trademark requiring Esprit to pay damages or a royalty to, grant a sublicense to, or enter into a cross-licensing arrangement with, a Third Party or in the event of a settlement of such suit consented to by Depomed (which consent shall not be unreasonably withheld) requiring damages or royalty payments to be made, sublicenses to be granted, or cross-licenses to be entered into, the future royalty payments due to Depomed from the applicable Net Sales under this Agreement (and the amount of any Minimum Annual Royalty Payment applicable pursuant to Section 2.3) shall be correspondingly reduced by the amounts due under the requirement of such judgment or under the terms of such settlement but not by more than fifty percent thereof.

 

2.9                                  No Inconsistent License Grant .  Except as expressly permitted, and only to the extent permitted, under Section 5.3(a) of this Agreement, during the term of this Agreement, Depomed shall not grant to any Third Party a license in the Territory under the Patent Rights to Market the Licensed Product.

 

3.                                        License Fees .

 

Esprit shall make the following license fee payments to Depomed:

 

(a)                                   Five Million Dollars ($5,000,000) on the Effective Date;

 

(b)                                  Twenty-Five Million Dollars ($25,000,000) on or before the fifteenth day after the Effective Date;

 

(c)                                   Ten Million Dollars ($10,000,000) on the first anniversary of the Effective Date; and

 

(d)                                  Ten Million Dollars ($10,000,000) on the second anniversary of the Effective Date.

 

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4.                                        Distribution; Supply; Non-competition .

 

4.1                                  Distribution in the Territory .  Esprit shall be responsible for the Distribution of Licensed Product in the Territory.

 

4.2                                  Supply .  Esprit shall purchase from Depomed, on the terms and subject to the conditions set forth in the Supply Agreement, all of Esprit’s requirements of the Licensed Product.

 

4.3                                  Order Entry .  Esprit or its third party contractor shall provide all order entry, customer service, reimbursement management, warehousing, physical distribution, invoicing, credit and collections and other related facilities and services for the Distribution of Licensed Product in the Territory.  Esprit or its third party contractor shall be exclusively responsible for accepting and filling purchase orders for Licensed Product and for processing billing and returns with respect to Product.

 

4.4           Non-competition .  During the Term of this Agreement, neither Esprit nor Depomed shall, whether for its own account or for the account or benefit of any Third Party, offer for sale, sell, distribute or otherwise commercialize in the Territory any product that includes the Active Ingredient, except as contemplated by this Agreement.

 

5.                                        Diligence Obligations and Covenants of Esprit .

 

5.1                                  Diligence Obligations of Esprit .  Throughout the term of the Agreement, Esprit shall use its commercially reasonable efforts to develop an active market for, and to Market, the Licensed Product in the Territory.  In connection with such obligations, and not intended as a limitation on the range of obligations of the foregoing sentence, Esprit shall use its commercially reasonable efforts to:

 

(a)                                   cause the First Commercial Sale to occur no later than November 1, 2005 or, if later, within 15 days after Licensed Product is available in commercial quantities pursuant to the terms of the Supply Agreement;

 

(b)                                  provide a professional field sales force sufficient to cover the Primary Care Market in the Territory from and after the date that is six months after the First Commercial Sale (which sales force shall consist of at least [***] full-time representatives);

 

(c)                                   provide a professional field sales force sufficient to cover urologists responsible for at least ninety percent of ciprofloxacin HCl prescriptions written in the United States (which sales force shall consist of at least [***] full-time representatives from and after November 1, 2005 or, if later, within 15 days after Licensed Product is available in commercial quantities pursuant to the terms of the Supply Agreement);

 

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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(d)                                  build an active and continuous marketing and sales program capable of addressing the market opportunity for the Licensed Product in the Territory;

 

(e)                                   accept, and Distribute in response to, customer orders and requests for Licensed Product in the Territory so as not to result in shortages of Licensed Product in the Territory;

 

(f)                                     carry adequate inventories of Products to service all accounts within the Territory;

 

(g)                                  provide a dedicated product specialist, customer support and technical support for the Licensed Product at a level reasonably calculated to assure sales performance, customer satisfaction (including without limitation (A) establish and maintain a sufficiently detailed tracking system to permit successful tracking of Products in the event of a recall and (B) keep a record of all customer complaints and communicate promptly to Depomed all such complaints);

 

(h)                                  provide reasonable and adequate advertising and promotion capable of addressing the market opportunity for the Licensed Product in the Territory (and, with respect to the period beginning on the Effective Date and ending on December 31, 2006, consistent with the marketing budget attached hereto as Exhibit C ); and

 

(i)                                      provide sufficient samples of Licensed Product for its field sales force.

 

5.2                                  Compliance with Regulations .  Esprit shall perform its obligations in respect of the Distribution of Licensed Product in the Territory and the Marketing of Licensed Product in the Territory (a) only in a manner which is consistent with FDA and all other applicable regulatory approvals or requirements which are then in effect with respect to the Licensed Product and (b) in compliance with all applicable laws, restrictions and regulations of the FDA, the Department of Commerce and any other United States, state, local, or applicable agency or authority.  Esprit shall (a) limit its claims of efficacy and safety for Licensed Product to those that are consistent with approved promotional materials and FDA-approved prescribing information for Licensed Product in the Territory, (b) not add, delete or modify claims of efficacy and safety in the Marketing of Licensed Product under this Agreement from those claims of efficacy and safety that are consistent with the FDA-approved prescribing information and applicable law and (c) Market the Licensed Product in adherence to applicable laws and in compliance with the then current Pharmaceutical Research and Manufacturers of America Code on Interactions with Healthcare Professionals.

 

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5.3                                  Sales Force .

 

(a)                                   Establishment of Primary Care Sales Force .  In the event that Esprit fails to provide a professional field sales force of at least [***] representatives to cover the Primary Care Market in the Territory within six months after the First Commercial Sale as required pursuant to Section 5.1(b), then Esprit shall present to Depomed a plan of action to provide such a sales force of at least [***] representatives within nine months after the First Commercial Sale.  If, as of the nine-month anniversary of the First Commercial Sale, Esprit has not established and maintained a professional field sales force of at least [***] representatives to cover the Primary Care Market in the Territory, then, in Depomed’s sole discretion, Depomed may, but shall have no obligation to, elect to either (i) convert the license granted pursuant to Section 2.1 into a non-exclusive license with respect to the Primary Care Market (in which event the license shall remain exclusive with respect to the Urology Market), or (ii) terminate the license granted pursuant to Section 2.1 with respect to the Primary Care Market.  Either such election shall take effect immediately upon written notice from Depomed to Esprit.  In the event that Depomed makes either such election, the Parties shall negotiate in good faith any necessary or desirable modifications to this Agreement (including without limitation modifications with respect to the Distribution of the Licensed Product and the elimination of Depomed’s non-competition obligations set forth in Section 4.4 above with respect to the Primary Care Market) to ensure that Depomed receives the royalty payment required pursuant to Section 2.3 with respect to Net Sales within the Urology Market and that Esprit is reasonably compensated for any Distribution of Licensed Product in respect of sales of Licensed Product not made by Esprit or its sublicensees.

 

(b)                                  Maintenance of Sales Force .  The parties acknowledge and agree that Depomed shall have the right to terminate this Agreement for “Cause” pursuant to Section 15.2 with respect to a breach by Esprit of its obligation to (i) maintain a sales force of at least [***] representatives (after the nine month anniversary of the First Commercial Sale) to cover the Primary Care Market as required by Section 5.1(b) or (ii) maintain a sales force of at least [***] representatives to cover the Urology Market only after Depomed notifies Esprit of such breach pursuant to Section 15.2 and Esprit fails to cure such breach within sixty days after such notice from Depomed, as contemplated by Section 15.2.

 

5.4                                  Details Following an Esprit Change of Control .  From and after the occurrence of an Esprit Change of Control or any assignment of this Agreement by Esprit pursuant to Article 17, during each calendar year of the term of this agreement, Esprit (or its successor in interest or assignee, as applic