<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
-OR-
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from...to...
Commission File No. 0-24936
ERGO SCIENCE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-3271667
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
CHARLESTOWN NAVY YARD
100 FIRST AVENUE, FOURTH FLOOR
CHARLESTOWN, MASSACHUSETTS 02129
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 241-6800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
At May 1, 1996 there were 13,180,916 shares of common stock, par value $.01 per
share, of the registrant outstanding.
<PAGE>
ERGO SCIENCE CORPORATION
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Consolidated Balance Sheets as of March 31, 1997
and December 31, 1996................................... 3
Consolidated Statements of Operations for the three
months ended March 31, 1997 and March 31, 1996
and for the period from inception (January 23, 1990)
to March 31, 1997....................................... 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and March 31, 1996 and for
the period from inception (January 23, 1990) to
March 31, 1997.......................................... 5
Notes to Consolidated Financial Statements................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................... 8
PART II. OTHER INFORMATION................................................. 12
SIGNATURES.................................................................. 13
</TABLE>
2
<PAGE>
ERGO SCIENCE CORPORATION
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 21,368,958 $ 18,066,884
Short-term investments............................................................. 12,889,611 20,550,986
Prepaid and other current assets................................................... 581,539 234,558
------------ ------------
Total current assets........................................................... 34,840,108 38,852,428
Equipment and leasehold improvements, net.................................................. 2,680,126 2,491,866
Other assets............................................................................... 60,629 40,986
------------ ------------
Total assets................................................................... $ 37,580,863 $ 41,385,280
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.............................................. $ 1,995,325 $ 1,747,961
Current portion of capital lease obligations....................................... 270,077 186,838
------------ ------------
Total current liabilities...................................................... 2,265,402 1,934,799
Long-term portion of capital lease obligations............................................. 489,117 385,256
Commitments and contingencies.............................................................. -- --
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized;
6,903 shares of Series D preferred stock issued and outstanding
at March 31, 1997 and December 31, 1996 (liquidation
preferences were $7,731,667 and $7,618,522 at March 31, 1997
and December 31, 1996, respectively)................................................. 4,856,997 4,743,852
Common stock, $.01 par value, authorized 50,000,000 at
March 31, 1997 and December 31, 1996; issued and
outstanding 13,174,475 shares at March 31, 1997 and
13,048,036 shares at December 31, 1996............................................... 131,745 130,480
Additional paid-in capital............................................................... 97,709,121 97,158,840
Cumulative dividends on preferred stock.................................................. (2,847,430) (2,734,285)
Deferred compensation.................................................................... (973,236) (1,172,374)
Deficit accumulated during the development stage......................................... (64,050,853) (59,061,288)
------------ ------------
Total stockholders' equity......................................................... 34,826,344 39,065,225
------------ ------------
Total liabilities and stockholders' equity................................... $ 37,580,863 $ 41,385,280
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
3
<PAGE>
ERGO SCIENCE CORPORATION
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From
Inception
Three Months Ended March 31, (January 23, 1990)
----------------------------- through
1997 1996 March 31, 1997
------------- ------------- -------------------
<S> <C> <C> <C>
Revenues:
Licensing and supplier fees............................. -- -- $ 355,671
Interest................................................ $ 481,020 $ 270,402 2,436,027
----------- ----------- ------------
481,020 270,402 2,791,698
Operating expenses:
Research and development................................ 3,345,241 2,926,409 35,062,987
Purchase of in-process research and development......... -- 168,750 7,188,814
General and administrative.............................. 2,125,342 1,073,128 24,404,355
----------- ----------- ------------
5,470,583 4,168,287 66,656,156
----------- ----------- ------------
Net loss.......................................... (4,989,563) (3,897,885) (63,864,458)
Accretion of dividends on preferred stock........................ (113,145) (106,650) (2,561,363)
Dividends on redeemable preferred stock.......................... -- -- (7,123,536)
Dividends on preferred stock..................................... -- -- (2,018,763)
----------- ----------- ------------
Net loss to common stockholders.................................. $(5,102,708) $(4,004,535) $(75,568,120)
=========== =========== ============
Net loss per common share........................................ $(0.39) $(0.39)
=========== ===========
Weighted average common shares outstanding....................... 13,123,034 10,146,899
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
4
<PAGE>
ERGO SCIENCE CORPORATION
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From Inception
Three Months Ended March 31, (January 23, 1990)
----------------------------- through
1997 1996 March 31, 1997
-------------- -------------------- -----------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................................ $ (4,989,563) $(3,897,885) $(63,864,458)
Adjustments to reconcile net loss to cash used
by operating activities:
Depreciation and amortization................................. 331,451 237,058 3,130,670
Noncash compensation.......................................... 646,937 199,081 3,407,085
Noncash purchase of in-process research and
development.................................................. -- 168,750 5,688,814
Loss on sale of equipment..................................... 6,917 -- 35,248
Noncash charge for renegotiated supplier agreement............ -- -- 1,747,931
Other noncash charges......................................... -- -- 86,347
Changes in operating assets and liabilities:
Prepaid and other current assets............................. (346,981) (33,321) (581,539)
Other assets................................................. (19,643) (24,205) (112,771)
Accounts payable and accrued expenses........................ 247,363 (1,662,351) 1,965,324
Deferred revenue............................................. -- -- 5,559,714
------------ ----------- -------------
Net cash used in operating activities............................ (4,123,519) (5,012,873) (42,937,635)
------------ ----------- -------------
Cash flows from investing activities:
Purchase of short-term investments.............................. (12,889,610) (4,015,550) (54,998,754)
Proceeds from maturity of short-term investments................ 20,550,986 1,480,750 42,109,144
Purchase of equipment and leasehold improvements................ (294,554) (179,218) (5,320,801)
Proceeds received on sale of equipment.......................... 6,000 -- 37,724
------------ ----------- -------------
Net cash provided by (used in) investing activities.............. 7,372,822 (2,714,018) (18,172,687)
------------ ----------- -------------
Cash flows from financing activities:
Proceeds from issuance of convertible debt, net................. -- -- 3,409,552
Distribution paid to S Corp stockholder......................... -- -- (186,393)
Principal payments under capital lease obligations.............. (50,975) (10,387) (224,361)
Proceeds from issuance of promissory notes...................... -- -- 7,000,000
Repayment of promissory notes................................... -- -- (3,000,000)
Proceeds from issuance of common stock and Series D
redeemable preferred stock..................................... -- -- 1,392,686
Proceeds received from capital contributions.................... -- -- 102,176
Proceeds from issuance of Series B and C redeemable
convertible preferred stock.................................... -- -- 18,041,528
Proceeds from issuance of common stock, net of
issuance costs................................................. -- -- 55,248,963
Proceeds from stock options exercised........................... 103,746 18,000 145,411
Proceeds from sale-leaseback agreement.......................... -- -- 549,718
------------ ----------- -------------
Net cash provided by financing activities........................ 52,771 7,613 82,479,280
------------ ----------- -------------
Net increase (decrease) in cash and cash equivalents............. 3,302,074 (7,719,278) 21,368,958
Cash and cash equivalents at beginning of period................. 18,066,884 15,896,373 --
------------ ----------- -------------
Cash and cash equivalents at end of period....................... $ 21,368,958 $ 8,177,095 $ 21,368,958
============ =========== =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
5
<PAGE>
ERGO SCIENCE CORPORATION
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying financial statements are unaudited and have been
prepared by the Company in accordance with generally accepted accounting
principles.
Certain information and footnote disclosure normally included in the
Company's annual financial statements have been condensed or omitted. The
interim financial statements, in the opinion of management, reflect all
adjustments (including normal recurring accruals) necessary for a fair statement
of the results for the interim periods ended March 31, 1997 and 1996.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the fiscal year.
These interim financial statements should be read in conjunction with the
audited financial statements for the year ended December 31, 1996, which are
contained on Form 10-K filed with the Securities and Exchange Commission for the
year ended December 31, 1996.
2. CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with maturities of 90 days or less at the date of
purchase to be cash equivalents. Changes in cash and cash equivalents may be
affected by shifts in investment portfolio maturities as well as by actual net
cash receipts or disbursements.
At March 31, 1997 and December 31, 1996, cash equivalents were
composed primarily of investments in money market funds, United States
government obligations and high grade commercial paper that mature within 90
days of purchase.
3. SHORT-TERM INVESTMENTS
The following is a summary of securities with maturities greater than
90 days not classified as cash and cash equivalents. All short-term investments
are classified as held-to-maturity.
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Commercial paper........................ $ 7,187,155 $ 8,844,868
Federal agency notes.................... 5,702,456 11,706,118
----------- -----------
Total short-term investments......... $12,889,611 $20,550,986
=========== ===========
</TABLE>
The held-to-maturity securities are short-term in nature. Changes in
market interest rates would not have a significant effect on the fair value of
these securities. These securities are carried at amortized cost, which
approximates fair value.
6
<PAGE>
4. NET LOSS PER COMMON SHARE
Net loss per common share is computed based upon the weighted average
number of common shares outstanding. Common equivalent shares are not included
in the per share calculations where the effect of their inclusion would be anti-
dilutive. In the computation of net loss per common share, accretion of
preferred stock to the redemption amount is included as an increase to net loss
to common stockholders.
Fully diluted net loss per common share is the same as primary net
loss per common share.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion contains forward-looking statements made by the
Company pursuant to the safe-harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements reflect the
Company's current views with respect to such future events. Actual results may
vary materially and adversely from those anticipated, believed, estimated or
otherwise indicated. Important factors that could cause actual results to differ
materially include, without limitation, (1) that data obtained from clinical
trials are subject to varying interpretations, and there can be no assurance
that the FDA (or an FDA panel of experts) will agree with the Company's
assessment of clinical trial results; (2) there can be no assurance of FDA
approval to market ERGOSET for Type II diabetes or any other indication or that
the FDA will not require additional clinical trials of ERGOSET; (3) uncertainty
related to the scientific development of a new medical therapy; (4) competition
in the anti-diabetic market is intense and other products have been recently
approved by the FDA to treat Type II diabetes; (5) the need for additional
funding; (6) the uncertainty relating to patent protection in the pharmaceutical
and biotechnology industries; and (7) there can be no assurance that the Company
will be able to establish corporate alliances to market ERGOSET and assist with
the development of product candidates. Further information and additional
important factors are set forth in reports and other filings with the Securities
and Exchange Commission, including the 1996 Annual Report on Form 10-K, in the
section entitled "Item 1. Business - Risk Factors". The Company does not
undertake to update any forward-looking statement that may be made from time to
time by or on behalf of the Company. ERGOSET has not been cleared for marketing
by the FDA and is being investigated for use in Type II diabetes pursuant to an
Investigational New Drug exemption.
OVERVIEW
Since inception, the Company has been engaged in the discovery and
development of novel treatments for metabolic disorders, including Type II
diabetes and obesity, and various cancers. The Company's technology, based on
the principals of chronobiology, uses the timed administration of oral drugs to
modulate the body's neuroendocrine activity. The Company has dedicated most of
its financial resources to research and development of ERGOSET, the Company's
lead drug candidate, general and administrative expenses, and the prosecution of
patents and patent applications. To date, the Company has not received any
revenues from the sale of products and does not expect to generate such revenues
for at least a year, if at all. The Company has been unprofitable since its
inception, and the Company's accumulated deficit was $64,050,853 as of March 31,
1997. Although the Company intends to enter into collaborative relationships, it
expects to incur substantial and increasing expenses for at least the next
several years, due primarily to the expansion of its research and development
programs, including preclinical studies and clinical trials. The Company expects
that losses will fluctuate from quarter to quarter and that the fluctuations may
be substantial.
8
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 and 1997
Total revenues increased from $270,402 to $481,020 for the three month
period ended March 31, 1996 and 1997, respectively. Revenues were derived
primarily from interest income earned on cash, cash equivalents and short-term
investments. The increase in interest income is attributable to an increase in
the average amounts of cash, cash equivalents and short-term investments during
the first three months of 1997, compared to the first three months of 1996.
This amount increased as a result of proceeds received from the Company's second
public offering in August 1996.
Research and development expenses increased from $3,095,159 to
$3,345,241 for the three month period ended March 31, 1996 and 1997,
respectively. Excluding the purchase of in-process research and development
which totaled $168,750 in the first quarter of 1996, expenses increased
$418,832. The increase was principally the result of expenditures related to the
preparation of the New Drug Application (NDA) for ERGOSET, expanded research and
development activities and the hiring of additional research and clinical
personnel. The total of these expenses were partially offset by the reduction
in costs associated with the Phase III clinical trials which were completed in
late 1996.
General and administrative expenses increased from $1,073,128 to
$2,125,342 for the three month period ended March 31, 1996 and 1997,
respectively. The three month period ended March 31, 1997 included a charge of
$928,000 which relates to a severance agreement made with the former Chairman of
the Board of Directors, who was also an officer and employee of the Company. Of
the total charge, $450,000 was noncash and the remainder will be paid over a 20
month period. Excluding this nonrecurring charge, general and administrative
expenses were consistent for the three month periods ended March 31, 1996 and
1997.
Net loss to common stockholders increased from $4,004,535 to
$5,102,708 for the three month period ended March 31, 1996 and 1997,
respectively. The increase was primarily due to costs associated with the NDA
for ERGOSET and the severance agreement noted above. Although there was an
increase in net loss to common stockholders, the net loss per common share
remained constant at $0.39 per share for both first quarter periods. This was
due to an increase in weighted average common shares outstanding from 10,146,899
to 13,123,034 for the three month period ended March 31, 1996 and 1997,
respectively. This increase primarily resulted from the Company's second public
stock offering in August 1996.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company's primary source of cash has been
from financing activities, which have consisted of private placements of equity
securities and two public offerings. Private placements of equity securities
provided the Company with aggregate proceeds of $32,999,000. On December 19,
1995, the Company raised $23,030,476 from the sale of stock in an initial public
offering, net of commissions and offering costs. Subsequently, on August 14,
1996, the Company raised an additional $32,218,487, net of commissions and
offering costs, from the sale of stock in a second public offering. Cash and
cash equivalents were $18,066,884 and $21,368,958, while short-term investments
were $20,550,986 and $12,889,611, at December 31, 1996 and March 31, 1997,
respectively. The overall decrease in cash, cash equivalents and short-term
investments at March 31, 1997, was due primarily to the use of cash in the
Company's operating activities.
9
<PAGE>
The Company's primary use of cash to date has been in operating
activities to fund research and development, including preclinical studies and
clinical trials, and general and administrative expenses. During 1996, the
Company announced statistically significant Phase III results from three
separate clinical trials for ERGOSET, the Company's lead drug candidate, as
treatment for Type II diabetes. The first two clinical trials, completed in
July 1996, used ERGOSET as adjunctive therapy with sulfonylurea agents, while
the final clinical trial, completed in December 1996, was conducted with ERGOSET
as monotherapy treatment. With the results from the three Phase III trials, the
Company selected an experienced regulatory affairs consulting firm, Oxford
Research International, to assist in the preparation of its NDA for ERGOSET and
held a pre-NDA meeting with the FDA in March 1997. The Company plans to submit
its NDA for ERGOSET, as adjunctive and monotherapy treatment for Type II
diabetes, to the FDA sometime in mid-1997. In addition, the Company is
pursuing corporate alliances to market ERGOSET and assist with the
development of product candidates.
In the first quarter of 1997, the Company continued to enroll subjects
in a small Phase II clinical trial of ERGOSET in combination with another
neurotransmitter modulating compound for the treatment of metastatic breast
cancer. The Company also continued to conduct preclinical screens for lead
candidates for use in photodynamic therapy to treat various cancers and dopamine
agonists for Type II diabetes and obesity.
In April 1997, the Company announced the initiation of a new clinical
study for ERGOSET and signed a licensing agreement with Massachusetts General
Hospital (MGH). The human clinical study is being performed to evaluate the
safety and efficacy of ERGOSET given in combination with insulin for Type II
diabetes patients who can no longer be controlled with traditional forms of
treatment called oral hypoglycemic agents (OHAs). The study is double-blinded
and placebo controlled and it involves approximately 40 subjects. Its objective
is to reduce excess sugar in the blood (hyperglycemia) and reduce the daily
insulin requirements of Type II diabetes patients who have previously failed or
have been discontinued from existing OHAs. The licensing agreement with MGH
grants the Company an exclusive license to a series of patents covering new
therapeutic approaches for enhancing the body's immune function. Results from
further research in this area may lead to drugs based on the Company's
proprietary timed dosing regimens for treating diseases associated with immune
system dysfunction, such as cancer.
As of March 31, 1997, the Company's net investment in equipment and
leasehold improvements was $2,680,126. The Company expects that additional
equipment and facilities will be needed to the extent it increases its research
and development activities.
The Company believes that its available cash, cash equivalents, short-
term investments and expected interest income, will be adequate to fund its
current and anticipated levels of operations through mid-1998. Prior to that
time, the Company will need to raise additional capital through the sale of
securities in the public or private equity markets or by entering into a
collaborative arrangement with another company. There can be no assurance,
however, that events in the Company's research and development programs or other
events affecting the Company's operations will not result in accelerated or
unexpected expenditures. The Company is pursuing additional research and
development of ERGOSET and other product candidates to treat obesity, breast
cancer and other diseases. The Company will require additional financing to
expand and complete that research and development. To the extent the Company
raises additional capital by issuing equity securities, ownership dilution to
existing stockholders will result and future investors may be granted rights
superior to those of existing
10
<PAGE>
stockholders. There can be no assurance, however, that additional financing will
be available from any source or, if available, will be available on acceptable
terms.
The terms of the Company's Series D Preferred Stock prohibit the
Company from paying dividends on the common stock.
11
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company was named as a defendant in a lawsuit brought in Superior
Court, Suffolk County Massachusetts (No. 97-0041 E) by three individuals, Robert
M. Santaniello, Jay A. Posnik and Savino J. Basile (the "Plaintiffs"). The
other defendants are Manuel Cincotta, Jr., Stephen Cincotta and Product
Development and Marketing Corporation ("PDMC"). Plaintiffs allege that they
were the lawyers who incorporated PDMC, together with Stephen Cincotta, the
majority shareholder and President of PDMC, and that they are minority
shareholders in PDMC. Plaintiffs also allege that in 1990 a predecessor to the
Company entered into a licensing agreement with PDMC covering certain of the
Company's patents in obesity and diabetes. Plaintiffs further allege that
Stephen Cincotta terminated this purported license with the Ergo predecessor in
January 1991. Plaintiffs allege that this termination was improper and seek a
declaration that the purported license is valid, notwithstanding the prior
termination. Plaintiffs also allege breach of fiduciary duty by Stephen
Cincotta, intentional interference with an advantageous business relationship
against Manuel Cincotta and Stephen Cincotta, misrepresentation and deceit
by Manuel Cincotta and Stephen Cincotta, and intentional interference with
contractual relations against Manuel Cincotta and Stephen Cincotta. No claim
for damages has been made against the Company.
Manuel Cincotta was the founder, Chairman of the Board and Chief
Executive Officer of the Company. Mr. Cincotta ceased to be associated with the
Company in March 1997. Stephen Cincotta is currently employed with the Company.
The Company believes that Plaintiffs' claims are without merit and
that such litigation will not have a material effect on its business.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
---------
10.1 - License Agreement effective as of February 1, 1997,
between The General Hospital Corporation, a not-for-
profit corporation doing business as Massachusetts
General Hospital, Ergo Science Corporation, a Delaware
corporation, and Ergo Research Corporation, a Delaware
corporation and wholly-owned subsidiary of Ergo Science
Corporation. [Portions of this exhibit have been
omitted and filed separately with the Securities and
Exchange Commission in accordance with Rule 406 of the
Securities Act and the Company's request for
confidential treatment.]
27 - Financial Data Schedule.
Reports on Form 8-K:
--------------------
None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ERGO SCIENCE CORPORATION
By: /s/ Alan T. Barber
------------------
Alan T. Barber
Vice President, Finance and
Administration and Chief Financial
Officer (Principal Financial
Officer and Principal Accounting
Officer)
Date: May 14,1997
---------------------------
13
<PAGE>
Exhibit 10.1
LICENSE AGREEMENT
THIS LICENSE AGREEMENT, effective as of February 1, 1997 (EFFECTIVE DATE)
between THE GENERAL HOSPITAL CORPORATION, a not-for-profit corporation doing
business as Massachusetts General Hospital, having a place of business at Fruit
Street, Boston, Massachusetts 02114 ("GENERAL"), Ergo Science Corporation, a
Delaware corporation ("ERGO"), AND ERGO RESEARCH CORPORATION ("LICENSEE"), A
DELAWARE CORPORATION AND WHOLLY-OWNED SUBSIDIARY OF ERGO, BOTH HAVING A PLACE OF
BUSINESS AT 33 THIRD AVENUE, CHARLESTOWN, MA 02129.
WITNESSETH
WHEREAS, under research programs funded by the GENERAL, Louisiana State
University ("LSU"), and ERGO, the GENERAL through research conducted by Dr.
Anthony Cincotta, LSU, through research conducted by Drs. Albert Meier and John
Wilson, and Ergo have developed inventions pertaining to the administration of
muscarinic receptor antagonists, certain enzyme inhibitors, a method of
regulating immune function, and methods of treating neoplastic disease;
WHEREAS, on behalf of the inventors, GENERAL , LSU, and ERGO have filed the
U.S. Patent Applications set forth on Schedule I attached hereto (the "LICENSED
PATENTS") covering said inventions and Drs. Meier's and Wilson's rights, title
and interest in said applications have been assigned to LSU or LICENSEE,
certain of Dr. Cincotta's rights, title and interest in said applications have
been assigned to GENERAL, and certain of the rights of Drs. Cincotta and Wilson
have been assigned to LICENSEE;
WHEREAS, GENERAL represents to the best of its knowledge and belief that it
has the right and ability to grant the license hereinafter described by virtue
of Dr. Cincotta's assignment of certain of his rights, title and interest in the
LICENSED PATENTS;
WHEREAS, as a center for research and education, GENERAL is interested in
licensing its interests in the LICENSED PATENTS and thus benefiting the public
and the GENERAL by facilitating the dissemination of the results of its research
in the form of useful products, but is without capacity to commercially develop
and distribute any such product; and
WHEREAS, COMPANY having such capacity, desires to commercially develop one
or more of such products; and
WHEREAS, LSU has granted LICENSEE an exclusive worldwide license in and to
its interests in the licensed patents.
1
<PAGE>
NOW THEREFORE, in consideration of the premises and of the faithful
performance of the covenants herein contained, the parties hereto agree as
follows:
1. DEFINITIONS
----------------
1.1 The term "ACCOUNTING PERIOD" shall mean each six month period ending
June 30 and December 31.
1.2 The term "AFFILIATE" shall mean any corporation or other legal entity
in whatever country organized, controlling, controlled by or under common
control with LICENSEE or ERGO. The term "control" means possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of an entity, whether through the ownership of voting securities, by
contract or otherwise. The term "AFFILIATE" with respect to GENERAL shall mean
any company controlling, controlled by, or under common control, directly or
indirectly, with GENERAL as of the EFFECTIVE DATE hereof, as shown in Schedule
II attached hereto.
1.3 The term "FIRST COMMERCIAL SALE" shall mean in each country the first
commercial sale of any PRODUCT by LICENSEE , its AFFILIATES or SUBLICENSES, (a)
following approval, when such approval is necessary, of the marketing of such
product by the appropriate governmental agency for the country in which the sale
is to be made, or (b) when such government approval is not required in a
country, the first sale of such product in that country.
1.4 The term "LICENSED PATENTS" shall mean the patent applications
listed on Schedule I attached hereto and the non-U.S. equivalents of such
applications, including any utility patent application based on any provisional
application included in LICENSED PATENTS, and any division, continuation or any
Letters Patent or the equivalent thereof issuing thereon or reissue,
reexamination or extension thereof. LICENSED PATENTS shall also include those
claims in any continuation-in-part of the aforementioned patent applications
owned, controlled, or available for license from the GENERAL, which claims an
invention described or claimed in said patent application.
1.5 The term "SUBLICENSEE" shall mean any non-AFFILIATE third party
licensed by LICENSEE or by an AFFILIATE to make, have made, use or sell any
PRODUCT.
1.6 The term "NET SALES PRICE" shall mean the GROSS SALES PRICE as
defined in (b) below, of any PRODUCT less, to the extent appropriately
documented:
(a) (i) credits and allowances for price adjustment, rejection, or return
of PRODUCTS previously sold;
(ii) trade, quantity, or cash discounts or rebates, broker's or
agent's commissions;
2
<PAGE>
(iii) amounts for transportation, insurance, handling or shipping
charges to purchasers;
(iv) taxes, duties and other governmental charges (including rebates
such as Medicaid, Veterans Administration or state rebates) levied on or
measured by the sale of PRODUCTS, whether absorbed by LICENSEE or paid by the
purchaser so long as LICENSEE's price is reduced thereby, but not franchise or
income taxes of any kind whatsoever; and
(v) if applicable, for any sale in which the United States
government's non-exclusive license to any LICENSED PATENT pursuant to 35 USC
Sec. 200 et. seq. requires that the GROSS SALES PRICE of any PRODUCT be reduced
by the amount of such royalty owed GENERAL pursuant to paragraph 3.1, the amount
of such royalty.
(b) For any bona fide sale to a bona fide customer by LICENSEE or any of
its AFFILIATES or SUBLICENSEES ("SELLERS"), the GROSS SALES PRICE shall be the
gross sales price as defined by industry standards.
(c) If LICENSEE or any of its AFFILIATES or SUBLICENSEES sell any PRODUCT
in a bona fide sale as a component of a combination of active functional
elements, the GROSS SALES PRICE of the PRODUCT shall be determined by
multiplying the GROSS SALES PRICE of the combination by the fraction A over A +
B, in which "A" is the GROSS SALES PRICE of the PRODUCT portion of the
combination when sold separately during the ACCOUNTING PERIOD in the country in
which the sale was made, and "B" is the GROSS SALES PRICE of the other active
elements of the combination sold separately during said ACCOUNTING PERIOD in
said country. In the event that no separate sale of either such PRODUCT or
active elements of the combination is made during said ACCOUNTING PERIOD in said
country, the GROSS SALES PRICE of the PRODUCT shall be determined by multiplying
the GROSS SALES PRICE of such combination by the fraction C over C + D, in which
"C" is the standard fully-absorbed cost of the PRODUCT portion of such
combination, and "D" is the sum of the standard fully-absorbed costs of the
other active elements component(s), such costs being arrived at using the
standard accounting procedures of LICENSEE (or if LICENSEE does not manufacture
PRODUCT, the standard accounting practices of the entity or entities which so
manufacture) which will be in accord with GENERALLY ACCEPTED ACCOUNTING
PRACTICES.
(d) If a SELLER commercially uses or otherwise commercially disposes of any
PRODUCT by itself (as opposed to a commercial use or disposition of the PRODUCT
as a component of a combination of active functional elements) other than in a
bona fide sale to a bona fide customer, the GROSS SALES PRICE shall be the price
which would be then payable in an arm's length transaction. If a SELLER
commercially uses or otherwise commercially disposes of any PRODUCT as a
component of a combination of active functional elements other than in a bona
fide sale to a bona fide customer, the GROSS SALES PRICE of the PRODUCT shall be
determined in accordance with paragraph (c) above, using as the GROSS SALES
PRICE of the combination that price which would be then payable in an arm's
length transaction. Reasonable quantities of PRODUCT used for sampling,
promotional allowances, and destruction
3
<PAGE>
of PRODUCT that has expired or otherwise become unsaleable shall not be
considered to be a "commercial sale" or "commercial disposition".
(e) Transfer of a PRODUCT within LICENSEE or between LICENSEE and an
AFFILIATE for sale by the transferee shall not be considered a sale, commercial
use or disposition for the purpose of the foregoing paragraphs; in the case of
such transfer the GROSS SALES PRICE shall be based on sale of the PRODUCT by the
transferee.
1.7 The term "PRODUCT" shall mean any article, device, composition, method
or service, the importation, manufacture, use, offer for sale or sale of which,
absent the licenses granted herein, would infringe an ENFORCEABLE CLAIM of any
LICENSED PATENT
1.8 The term "ENFORCEABLE CLAIM" shall mean any claim of any LICENSED
PATENT that has not been (i) finally rejected or (ii) declared invalid or
unenforceable by a patent office or court of competent jurisdiction in any
unappealed and unappealable decision.
2. LICENSE
------------
2.1 GENERAL hereby grants LICENSEE:
(a) an exclusive, worldwide, royalty-bearing license to all of its
interests in, to, and under LICENSED PATENTS to import, make, have made, use,
have used, offer for sale and sell PRODUCTS;
(b) to the extent an exclusive license is not available to
LICENSEE in a particular country because of government action in that country a
non-exclusive, royalty bearing license to all of GENERAL'S interests in, to, and
under the LICENSED PATENTS to import, make, use, offer for sale and sell
PRODUCTS;
(c) the right to grant sublicenses under the LICENSED PATENTS
exclusively licensed to LICENSEE.
To the extent applicable on account of actual federal funding determined to
be involved in the inventions licensed hereunder pursuant to 35 USC Section 200
et. seq., licenses to such inventions granted pursuant to this paragraph 2.1
are subject to the rights, conditions and limitations imposed by U.S. law with
respect to inventions made in the performance of federally funded research.
To the extent applicable, licenses to such inventions granted pursuant to
this paragraph 2.1 are subject to contractual obligations to other sponsors of
research at GENERAL, and in the event of any such obligations with respect to
any given invention, GENERAL shall grant LICENSEE the most exclusive license
available to said invention. GENERAL represents that, to the best of its
knowledge, it has no obligations to other sponsors of research at GENERAL with
respect to any LICENSED PATENT hereunder.
4
<PAGE>
The above licenses to sell PRODUCTS include the right to grant to the
purchaser of products from LICENSEE, its AFFILIATES, and SUBLICENSEES the right
to use or have used such purchased PRODUCTS in a method coming within the scope
of LICENSED PATENTS.
2.2 The granting of any license hereunder is subject to GENERAL's and
GENERAL's AFFILIATES' right to make and to use the subject matter described and
claimed in LICENSED solely for their own research and educational purposes.
2.3 It is understood that nothing herein shall be construed to grant
LICENSEE a license, express or implied, under any patent owned solely or jointly
by General other than the LICENSED PATENTS expressly licensed hereunder.
3. DUE DILIGENCE OBLIGATIONS
-------------------------------
3.1 *
3.2 *
4. FILING, PROSECUTION AND MAINTENANCE OF LICENSED PATENTS
-------------------------------------------------------------
4.1 LICENSEE shall be responsible for the preparation, filing, prosecution
and maintenance of all patent applications and patents included in LICENSED
PATENTS , and for payment of all reasonable costs ("Costs") incurred for the
preparation, filing, prosecution and maintenance of all LICENSED PATENTS .
4.2 With respect to any LICENSED PATENT, each document or a draft thereof
pertaining to the filing, prosecution, or maintenance of such LICENSED PATENT,
including but not limited to each patent application, office action, response to
office action, request for terminal disclaimer, and request for reissue or
reexamination of any patent issuing from such application shall be provided to
GENERAL as follows. Documents received from any patent office or counsel's
analysis thereof shall be provided promptly after receipt. For a document to be
filed in any patent office, a draft of such document shall be provided
sufficiently prior to its filing, to allow for review and comment by the other
party. If as a result of the review of any such document, LICENSEE shall elect
not to pay or continue to pay the Costs for such LICENSED PATENT, LICENSEE shall
so notify GENERAL within thirty (30) days of LICENSEE's receipt of such document
and LICENSEE shall thereafter be relieved of the obligation to pay any
additional Costs regarding such LICENSED PATENT incurred after the receipt of
such notice by GENERAL. Such U.S. or foreign patent application or patent shall
thereupon cease to be a LICENSED PATENT hereunder and GENERAL shall be free to
license its rights to that particular U.S. or foreign patent application or
patent to any other party on any terms, and GENERAL shall have the right,
subject to any rights of LSU, to assume responsibility for prosecution of any
such U.S. or foreign patent application or patent at its own expense.
* Confidential information omitted and filed separately with the Commission.
5
<PAGE>
5. ROYALTIES
--------------
5.1 *
5.2 *
5.3 *
5.4 *
5.5 *
5.6 *
5.7 *
6. REPORTS AND PAYMENTS
------------------------
6.1 LICENSEE shall keep, and shall cause each of its AFFILIATES and
SUBLICENSEES, if any, to keep full and accurate books of accounts containing all
particulars that may be necessary for the purpose of calculating all royalties
payable to GENERAL. Such books of account shall be kept at their principal place
of business and, with all necessary supporting data shall, during all reasonable
times for the three (3) years next following the end of the calendar year to
which each shall pertain be open for inspection at reasonable times by GENERAL
or a designee of GENERAL reasonably acceptable to LICENSEE, upon five days
written notice, at GENERAL's expense for the purpose of verifying royalty
statements or compliance with this Agreement.
6.2 In each year the amount of royalty due shall be calculated
semiannually as of the end of each ACCOUNTING PERIOD and shall be paid
semiannually within the ninety (90) days next following such date, every such
payment to be supported by the accounting prescribed in paragraph 6.3 and to be
made in United States currency. Whenever conversion from any foreign currency
shall be required, such conversion shall be at the average of the daily rates of
exchange published in the Wall Street Journal within the applicable ACCOUNTING
PERIOD.
6.3 With each semiannual payment, LICENSEE shall deliver to GENERAL a full
and accurate accounting to include at least the following information:
(a) Quantity of each PRODUCT sold or leased (by country) by LICENSEE,
and its AFFILIATES or SUBLICENSEES;
(b) Total billings for each PRODUCT (by country);
(c) Quantities of each PRODUCT used by LICENSEE and its AFFILIATES or
SUBLICENSEES;
* Confidential information omitted and filed separately with the Commission.
6
<PAGE>
(d) Names and addresses of all SUBLICENSEES of LICENSEE; and
(e) Total royalties payable to GENERAL.
7. INFRINGEMENT
-----------------
7.1 GENERAL will protect its interests in LICENSED PATENTS from
infringement and prosecute infringement when, in its judgment, such action may
be reasonably necessary, proper and justified. LICENSEE (or its SUBLICENSEE)
shall also have the right to bring and litigate in its own name (or jointly in
the names of LICENSEE and the GENERAL, if required by law) such suits for
infringement of LICENSED PATENTS as LICENSEE or its SUBLICENSEE sees fit in its
discretion.
7.2 If GENERAL shall have supplied LICENSEE with written evidence
demonstrating to LICENSEE's reasonable satisfaction prima facie infringement of
a claim of a LICENSED PATENT by a third party, GENERAL may by notice request
LICENSEE to take steps to protect the LICENSED PATENT. LICENSEE shall notify
GENERAL within three (3) months of the receipt of such notice whether LICENSEE
intends to prosecute the alleged infringement. If LICENSEE notifies GENERAL
that it intends to so prosecute, LICENSEE shall, within three (3) months of its
notice to GENERAL either (i) cause infringement to terminate or (ii) initiate
legal proceedings against the infringer. In the event LICENSEE notifies
GENERAL that LICENSEE does not intend to prosecute said infringement or fails to
initiate legal proceedings within said three month period, GENERAL may, upon
notice to LICENSEE, initiate legal proceedings against the infringer at
GENERAL's expense and in LICENSEE's name if so required by law. No settlement,
consent judgment or other voluntary final disposition of the suit which
invalidates or restricts the claims of such PATENT RIGHTS may be entered into
without the consent of GENERAL, which consent shall not be unreasonably
withheld. COMPANY shall indemnify GENERAL against any order for payment that may
be made against GENERAL in such proceedings, so long as such order does not
result from any malfeasance by GENERAL.
7.3 *
7.4 For the purpose of the proceedings referred to in this Article 7, the
GENERAL and LICENSEE shall permit the use of their names and shall execute such
documents and carry out such other acts as may be necessary. The party
initiating or carrying on such legal proceedings shall keep the other party
informed of the progress of such proceedings and said other party shall be
entitled to counsel in such proceedings but at its own expense, said reasonable
expenses to be off-set against any damages received by the party bringing suit
in accordance with the foregoing paragraph 7.3.
7.5 *
* Confidential information omitted and filed separately with the Commission.
7
<PAGE>
8. INDEMNIFICATION
--------------------
8.1 (a) LICENSEE and its AFFILIATES shall indemnify, defend and hold
harmless GENERAL and its trustees, officers, medical and professional staff,
employees, and agents and their respective successors, heirs and assigns (the
"Indemnitees"), against any liability, damage, loss or expense (including
reasonable attorney's fees and expenses of litigation) incurred by or imposed
upon the Indemnitees or any one of them in connection with any claims, suits,
actions, demands or judgments arising out of any theory of product liability
(including, but not limited to, actions in the form of tort, warranty, or strict
liability) concerning any product, process or service made, used or sold
pursuant to any right or license granted under this Agreement.
(b) LICENSEE'S indemnification under (a) above shall not apply to any
liability, damage, loss or expense to the extent that it is directly
attributable to the negligent activities, reckless misconduct or intentional
misconduct of the Indemnitees.
(c) LICENSEE agrees, at its own expense to provide attorneys reasonably
acceptable to the GENERAL to defend against any actions brought or filed against
any party indemnified hereunder with respect to the subject of indemnity
contained herein, whether or not such actions are rightfully brought.
(d) This paragraph 8.1 shall survive expiration or termination of this
Agreement.
8.2 (a) At such time as any product, process or service relating to, or
developed pursuant to, this Agreement is being commercially distributed or sold
(other than for the purpose of obtaining regulatory approvals) by LICENSEE or by
a licensee, affiliate or agent of LICENSEE, LICENSEE shall, at its sole cost and
expense, procure and maintain comprehensive general liability insurance in
amounts not less than $2,000,000 per incident and $2,000,000 annual aggregate
and naming the Indemnitees as additional insureds. Such comprehensive general
liability insurance shall provide (i) product liability coverage and (ii) broad
form contractual liability coverage for licensee's indemnification under
paragraph 8.1 of this agreement. If LICENSEE elects to self-insure all or part
of the limits described above (including deductibles or retentions which are in
excess of $250,000 annual aggregate) such self-insurance program must be
acceptable to the general and the Risk Management Foundation. The minimum
amounts of insurance coverage required under this paragraph 8.2 shall not be
construed to create a limit of LICENSEE'S liability with respect to its
indemnification under paragraph 8.1 of this Agreement.
(b) LICENSEE shall provide GENERAL with written evidence of such insurance
upon request of GENERAL. LICENSEE shall provide GENERAL with written notice at
least fifteen (15) days prior to the cancellation, non-renewal or material
change in such insurance; if LICENSEE does not obtain replacement insurance
providing comparable coverage prior to the expiration of such fifteen (15) day
period, GENERAL shall have the right to terminate this agreement effective at
the end of such fifteen (15) day period without notice or any additional waiting
periods.
8
<PAGE>
(c) LICENSEE shall maintain such comprehensive general liability insurance
beyond the expiration or termination of this agreement during (i) the period
that any product, process, or service, relating to, or developed pursuant to,
this agreement is being commercially distributed or sold (other than for the
purpose of obtaining regulatory approvals) by LICENSEE or by a LICENSEE,
affiliate or agent of LICENSEE and (ii) a reasonable period after the period
referred to in (c) (i) above which in no event shall be less than fifteen (15)
years.
(d) this paragraph 8.2 shall survive expiration or termination of this
Agreement.
8.3 OTHER THAN WARRANTIES SET FORTH HEREIN, GENERAL MAKES NO WARRANTY,
EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO ANY PATENT, TRADEMARK, SOFTWARE, TRADE SECRET, TANGIBLE RESEARCH
PROPERTY, INFORMATION OR DATA LICENSED OR OTHERWISE PROVIDED TO LICENSEE
HEREUNDER AND HEREBY DISCLAIMS THE SAME.
9. TERMINATION
----------------
9.1 (a) Unless otherwise terminated as provided for in this Agreement, the
license to LICENSED PATENTS granted hereunder will continue on a country by
country basis:
(i) for one (1) year after the date LICENSEE, its AFFILIATES, or
SUBLICENSEES shall last sell any PRODUCT, provided such sale is not prevented by
force majeure, government regulation or intervention, or institution of a law
suit by any third party, or
(ii) until the last to expire of any LICENSED PATENT, the claims of
which but for this agreement would be infringed by the manufacture, use or sale
of any PRODUCT in the applicable country, whichever shall first occur.
(b) Notwithstanding anything else herein to the contrary, LICENSEE
and ERGO may terminate this agreement at any time on 30 days written notice to
GENERAL.
9.2 If either party shall fail to faithfully perform any of its
obligations under this agreement except the due diligence milestones specified
in Section 3 herein, the nondefaulting party may give written notice of the
default to the defaulting party specifying the nature of the default. unless
such default is corrected within sixty (60) days after such notice, the
notifying party may terminate this Agreement and the license hereunder upon
sixty (60) days prior written notice, provided that only one such sixty (60) day
grace period shall be available in any twelve (12) month period with respect to
a default of a provision hereunder that is material. thereafter notice of
default of said provision that is material shall constitute termination.
9.3 In the event that any license granted to LICENSEE under this Agreement
is terminated, any sublicense under such license granted prior to termination of
said license shall remain in full force and effect, provided that:
9
<PAGE>
(i) the SUBLICENSEE is not then in breach of its sublicense agreement;
(ii) the SUBLICENSEE agrees to be bound to GENERAL as the licensor under
the terms and conditions of this license agreement, as modified by the
provisions of this paragraph 9.3;
(iii) the SUBLICENSEE, at GENERAL'S written request, assumes in a signed
writing the same obligations to GENERAL as those assumed by LICENSEE under
articles 8 and 10 hereof;
(iv) GENERAL shall have the right to receive the greater of (a) any
payments payable to LICENSEE under such sublicense agreement to the extent they
are reasonably and equitably attributable to such SUBLICENSEE'S right under such
sublicense to use and exploit PATENT RIGHTS or (b) the lowest royalty which is
within the "Competitive" range as hereinafter defined, at the time GENERAL'S
license to LICENSEE is terminated. A royalty rate shall be regarded as
"Competitive" if it is within the range of royalty rates that GENERAL would
charge in an arms length transaction with a LICENSEE which was not and had not
been a sponsor of research at GENERAL, taking into account the value of the
licensed technology at the time GENERAL'S license to LICENSEE is terminated;
(v) the SUBLICENSEE agrees to be bound by the due diligence obligations of
LICENSEE pursuant to paragraph 3.1 hereof (whether set by the parties or by
arbitration) in the field and territory of the sublicense;
(vi) GENERAL has the right to terminate such sublicense upon thirty (30)
days prior written notice to LICENSEE and such SUBLICENSEE in the event of any
material breach of the obligation to make the payments described in clause (iv)
of this paragraph 9.3, unless such breach is cured prior to the expiration of
such thirty (30) day period, and shall further have the right to terminate such
sublicense in the event of SUBLICENSEE'S failure to meet its due diligence
obligations pursuant to clause (v) hereof;
(vii) GENERAL shall not assume, and shall not be responsible to such
SUBLICENSEE for, any representations, warranties or obligations of LICENSEE to
such SUBLICENSEE, other than to permit such SUBLICENSEE to exercise any rights
to PATENT RIGHTS that are granted under such sublicense agreement consistent
with the terms of this AGREEMENT.
9.4 Upon termination of any license granted hereunder LICENSEE shall pay
GENERAL all royalties due or accrued on (i) the sale of PRODUCT up to and
including the date of termination and (ii) for twelve (12) months following the
date of termination, the sale of PRODUCT manufactured prior to the termination
date.
10
<PAGE>
10. MISCELLANEOUS
-------------------
10.1 This Agreement constitutes the entire understanding between the
parties with respect to the subject matter hereof.
10.2 In order to facilitate implementation of this agreement, GENERAL and
LICENSEE are designating the following individuals to act on their behalf with
respect to this Agreement for the matter indicated below:
(a) with respect to all royalty payments, any correspondence
pertaining to any LICENSED PATENT, or any notice of the use of GENERAL'S name,
for GENERAL, the Director, Office of Technology Affairs, and for LICENSEE and
ERGO, the President of each such entity.
(b) any amendment of or waiver under this Agreement, any written
notice including progress reports or other communication pertaining to the
Agreement: for GENERAL, the Director, Office of Technology Affairs, and for
LICENSEE and ERGO the President of each such entity.
(c) the above designations may be superseded from time to time by
alternative designations made by: for GENERAL, the President or the Senior Vice
President for Research and Technology Affairs; and for LICENSEE and ERGO, the
President of each such entity.
10.3 This Agreement may be amended and any of its terms or conditions may
be waived only by a written instrument executed by the parties or, in the case
of a waiver, by the party waiving compliance. The failure of either party at
any time or times to require performance of any provision hereof shall in no
manner affect its rights at a later time to enforce the same. No waiver by
either party of any condition shall be deemed as a further or continuing waiver
of such condition or term or of any other condition or term.
10.4 This Agreement shall be binding upon and inure to the benefit of and
be enforceable by the parties hereto and their respective successors and
permitted assigns.
10.5 Any delays in or failures of performance by either party under this
agreement shall not be considered a breach of this agreement if and to the
extent caused by occurrences beyond the reasonable control of the party
affected, including but not limited to: Acts of God; acts, regulations or laws
of any government; strikes or other concerted acts of workers; fires; floods;
explosions; riots; wars; rebellion; and sabotage. Any time for performance
hereunder shall be extended by the actual time of delay caused by such
occurrence.
10.6 Neither party shall use the name of the other party or of any staff
member, officer, employee or student 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. For GENERAL, such
approval shall be obtained from the Director of Public Affairs. Notwithstanding
the
11
<PAGE>
foregoing, GENERAL hereby consents to LICENSEE'S use of the following
statement in connection with any disclosure or filing by LICENSEE pursuant to
the rules and regulations of the Securities and Exchange Commission or in any
press release required by the same:
"ErgoScience Corporation has entered into an exclusive license agreement
with The General Hospital Corporation, doing business as Massachusetts
General Hospital, for certain patents and patent applications pertaining to
the regulation of immune function"
In addition, LICENSEE shall be permitted to disclose the name of GENERAL to the
extent required by federal, state or local law or regulation, including without
limitation federal and state securities laws.
10.7 This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
10.8 This Agreement shall not be assignable by GENERAL without LICENSEE'S
written consent except for the right to receive royalties payable herein.
LICENSEE may at its own discretion and without approval by GENERAL transfer its
interest or any part thereof under this Agreement to a wholly-owned subsidiary
or any assignee or purchaser of the portion of its business associated with the
manufacture and sale of PRODUCT. In the event of any such transfer, the
transferee shall assume and be bound by the provisions of this Agreement.
Otherwise this Agreement shall be assignable by LICENSEE only with the consent
in writing of GENERAL.
10.9 For any and all claims, disputes, or controversies arising under, out
of, or in connection with this Agreement, except issues relating to the
validity, construction or effect of any LICENSED PATENT, which the parties shall
be unable to resolve within sixty (60) days, the party raising such dispute
shall promptly advise the other party of such claim, dispute, or controversy in
a writing which describes in reasonable detail the nature of such dispute. By
not later than five (5) business days after the recipient has received such
notice of dispute, each party shall have selected for itself a representative
who shall have the authority to bind such party and shall additionally have
advised the other party in writing of the name and title of such representative.
By not later than ten (10) business days after the date of such notice of
dispute, such representatives shall agree upon a third party which is in the
business of providing Alternative Dispute Resolution (ADR) services
(hereinafter, "ADR Provider") and shall schedule a date with such ADR Provider
to engage in adr. Thereafter, the representatives of the parties shall engage
in good faith in an adr process under the auspices of the selected ADR Provider.
If within the aforesaid thirty (30) business days after the date of the notice
of dispute the representatives of the parties have not been able to agree upon
an ADR Provider and schedule a date to engage in ADR, or if they have not been
able to resolve the dispute within thirty (30) business days after the
termination of ADR, the parties shall have the right to pursue any other
remedies legally available to resolve such dispute in either the Courts of the
Commonwealth of Massachusetts or in the United States District Court for the
District of Massachusetts, to whose jurisdiction for such purposes GENERAL and
LICENSEE hereby irrevocably consent and
12
<PAGE>
submit. Notwithstanding the foregoing, nothing in this Paragraph 10.9 shall be
construed to waive any rights or timely performance of any obligations existing
under this Agreement.
10.10 If any provision(s) of this Agreement are or become invalid, are
ruled illegal by any court of competent jurisdiction or are deemed unenforceable
under then current applicable law from time to time in effect during the term
hereof, it is the intention of the parties that the remainder of this agreement
shall not be effected thereby. It is further the intention of the parties that
in lieu of each such provision which is invalid, illegal or unenforceable, there
be substituted or added as part of this Agreement a provision which shall be as
similar as possible in economic and business objectives as intended by the
parties to such invalid, illegal or enforceable provision, but shall be valid,
legal and enforceable.
10.11 GENERAL represents that, to the best of the knowledge of its Office
of Technology Affairs, it does not own or control any issued patent not
licensed to COMPANY hereunder, the claims of which would necessarily and
unavoidably be infringed by the practice of COMPANY'S rights under paragraph
2.1.
13
<PAGE>
THE PARTIES have duly executed this Agreement as of the date first shown
above written.
LICENSEE
By: /s/ David R. Burt
---------------------
Name: David R. Burt
--------------------
Title: Vice President
------------------
ERGO SCIENCE CORPORATION
By: /s/ Ronald H. Abrahams
------------------------
Name: Ronald H. Abrahams
----------------------
Title: President and CEO
---------------------
THE GENERAL HOSPITAL CORPORATION
By: /s/ Nikki J. Zapol
-------------------
Name: Nikki J. Zapol
------------------
Title: Managing Director - Office of Technology Affairs
------------------------------------------------
14
<PAGE>
SCHEDULE I AND II
TO
LICENSE AGREEMENT
Confidential information omitted and filed separately with the Commission.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 21,368,958
<SECURITIES> 12,889,611
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 34,840,108
<PP&E> 5,521,208
<DEPRECIATION> 2,841,082
<TOTAL-ASSETS> 37,580,863
<CURRENT-LIABILITIES> 2,265,402
<BONDS> 0
0
4,856,997
<COMMON> 131,745
<OTHER-SE> 29,837,602
<TOTAL-LIABILITY-AND-EQUITY> 37,580,863
<SALES> 0
<TOTAL-REVENUES> 481,020
<CGS> 0
<TOTAL-COSTS> 5,470,583
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,989,563)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,989,563)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,989,563)
<EPS-PRIMARY> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
