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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10/Amendment No 3
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES ACT OF 1934
DEMEGEN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COLORADO 84-1065575
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
1051 Brinton Road, Pittsburgh, PA 15221
(Address of Principal Executive Office) (Zip Code)
(412) 241-2150
(Issuer's Telephone Number)
Securities to be Registered under Section 12 (b) of the Act:
NONE
Securities to be Registered under Section 12 (g) of the Act:
Common Stock, $0.001 par value
(Title of Class)
This Registration Statement contains forward-looking statements which involve
risks and uncertainties. When used in this Registration Statement, the words
"believe", "anticipate", "expects" and similar expressions are intended to
identify such forward-looking statements. The Company's actual results may
differ significantly from the results discussed in the forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
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ITEM 1 - BUSINESS
THE COMPANY
The Company was formed after the July 27, 1992 acquisition of the assets of The
Demeter Corporation by Excelsior Capital Corporation ("Excelsior"). Excelsior
was incorporated in Colorado on September 16, 1987. Excelsior acquired all of
the assets of The Demeter Corporation in exchange for 6,625,821 shares of
Excelsior's $0.001 par value common stock. The Demeter Corporation's assets
consisted of intangible assets related to various biotechnology applications in
the fields of human and animal health care, agricultural and commercial
chemicals. Subsequent to the acquisition, Excelsior changed its name to Demeter
BioTechnologies, Ltd. On September 18, 1998, shareholders approved the proposal
of the Company's Board of Directors to change the Company's name to Demegen,
Inc. The Company is currently incorporated in the State of Colorado
For accounting purposes, the acquisition was treated as a reverse acquisition
whereby The Demeter Corporation acquired Excelsior Capital Corporation. The
historical financial statements prior to the acquisition are those of The
Demeter Corporation utilizing the capital structure of Excelsior. However, The
Demeter Corporation had no operating activities from the date of inception,
December 6, 1991, through July 27, 1992. Likewise, Excelsior had no operating
activities prior to December 6, 1991.
The Company is a life science company located in Pittsburgh, Pennsylvania. The
Company is developing two types proprietary products. These products include
peptide (small protein) therapeutics for pharmaceutical applications and
peptide-encoded plant genes for agricultural applications.
The Company's business strategy is to focus its resources on the design and
development of its core technology, while licensing to larger partners its many
potential applications for commercialization. The Company has a platform
technology which can be commercialized by using specific compounds as the active
ingredient for many different potential products. The compounds have
demonstrated activity against many different types of infectious diseases and
cancer. The Company is targeting specific peptides or plant genes, disease
targets and commercial partners with whom products will be fully developed and
commercialized.
The Company has discovered key structural design parameters to construct
proprietary synthetic compounds with potent anti-cancer and anti-bacterial
performance characteristics. In the peptide form, the Company's compounds are
stable and soluble and have demonstrated efficacy in treating certain diseases
in animals. The anti-cancer and anti-bacterial performance represent significant
market opportunities - both in terms of the size of the market and also because
there are no cures or effective treatments for the important diseases being
targeted. In the plant gene form, the Company's compounds have been transformed
successfully in crops. In vivo disease resistant results have been obtained in
both potatoes and tobacco, both important demonstration crops. Significant
nutrition enhancement in sweet potatoes has also been obtained including both
qualitative and quantitative increases in overall plant protein content.
The Company has assembled an experienced team that will further develop, enhance
and protect its core technology, as well as aggressively develop product
applications from the technology. In general, the Company's primary sources or
revenue will be license fees, milestone payments, royalties, research grants and
revenues from supplying materials to licensees. The Company's November 1997
license agreement with Mycogen Corporation, a large agricultural biotechnology
company owned by Dow AgroSciences LLC a wholly owned entity of The Dow Chemical
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Company, was the Company's first major success at licensing technology which the
Company has developed.
The Company received an initial payment of $0.95 million for licensing its
disease resistant agricultural technology plus $0.3 million for research
support. Additionally, the Company will receive future milestone payments, as
Mycogen commercializes the agricultural technology, and royalties for licensing
its disease resistant agricultural technology. The Mycogen Agreement includes
the exclusive license of certain technologies for genetic disease prevention and
spray-on treatment. The Mycogen partnership is poised to become a major revenue
stream for the Company as Mycogen pursues the commercial application of the
process. In November 1998 the Company expanded the agreement to include its
agricultural nutrition technology to Mycogen and received an initial payment of
$0.2 million plus a $0.15 million fee for research support. The Company could
receive up to $20 million, exclusive of royalties, over the next four to six
years in the form of license fees, research support and milestone payments as
Mycogen commercializes these agricultural technologies. The Mycogen milestone
payments under the initial agreement (disease resistance) are expected, to begin
in 2002 upon regulatory approval or first sale. Additional milestone payments
will be received in 2002 - 2008 for the first commercial sale of certain crops
and for the first commercial sale of other crops not specified in the agreement.
The term of the initial agreement is the later of the expiration of the last
patent or the cessation of sales of products covered by the license.
The Mycogen milestone payments under the addendum (nutrition enhancement) are
expected, based upon current discussions with Mycogen, to begin in 1999 for the
achievement of technical feasibility benchmarks in monocots and dicots.
Additional milestone payments will be received in 2000 - 2008 for animal feeding
benchmarks, the first commercial sale of certain crops, for the first commercial
sale of other crops not specified in the agreement and the achievement of
cumulative gross margin benchmark sale of certain crops. The term of the
addendum is the later of the expiration of the last nutrition patent or the
cessation of sales of products covered by the license.
Mycogen will be responsible for all development and commercialization costs. By
licensing agricultural applications, the Company will be able to focus upon
pharmaceutical applications and will have a revenue source to help fund the
pharmaceutical research and development.
The Mycogen Agreement conveys to Mycogen all rights with regard to the
development and use of the technology for plant related applications. Mycogen
has a three year period from the date of the Agreement to pursue the
commercialization of the technology covered by the Agreement. After that time
should Mycogen not successfully commercialize a technology the Company has the
right to bring possible interested parties to Mycogen but Mycogen retains the
rights to the technology until such time as Mycogen grants those rights to a
third party or return them to the Company.
In June 1998, the Company received a $2 million equity investment from the CEO
Venture Fund of Pittsburgh, PA. The financial commitment marked the largest
investment in the Company since the Company's inception. Since 1992, the Company
has raised in excess of $12 million of capital since inception.
OPERATIONS
The Company's primary focus is the development of human therapeutics. The
Company accomplishes this by developing and refining its core technology and
intellectual property, and secondly, by using its drug development team to bring
individual applications from the pre-clinical stage to human clinical studies.
The Company plans to out-license its pharmaceutical products, after completing
Phase I or Phase II human clinical trials for that application. The majority of
the Company's agricultural technologies are being developed and will be
commercialized by the Company's agricultural partner. In this role, Mycogen is
spending significant funds to develop enhanced crops using the Company's plant
gene technology. Mycogen is providing all of the development, patent and
regulatory costs and clearances for the individual crops.
During the past few years, the Company has explored the breadth of its
technology in order to determine the best targets for initial commercialization.
In order to attain proof of concept for an application, the Company has
collaborated with many renowned scientists with U.S. medical centers and
research universities, as well as in the laboratories of the NIH and USDA. In
doing so, the Company was able to develop numerous pharmaceutical and
agricultural applications with limited personnel and without large
infrastructure resources.
Since the Company's inception, an estimated $5 million and the use of
sophisticated laboratories have been expended by universities, governmental
agencies and private foundations developing products using the Company's
Peptidyl MIMs, while the Company maintains commercial rights and control.
The Company has not sought to build all of the pre-clinical facilities required
for drug development. However, the Company has established a core laboratory in
Pittsburgh to be able to perform microbiology, tissue screening, quality control
and chemistry necessary of the utility and potential of the Peptidyl MIMs as
well as testing the design theories of
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Dr. Jesse M. Jaynes, inventor of the Peptidyl MIM technology. The Company
expects to continue to out-source toxicology and animal efficacy studies
required in development of therapeutic application. The Company's strength lies
in that it has capable and experienced drug development personnel to accomplish
the required experiments in a timely and cost efficient manner.
PHARMACEUTICAL APPLICATIONS
The Company has selected a lead compound Peptidyl MIM D2A21, for development as
a cancer therapeutic. The majority of the Company's cancer results to date have
been directed towards prostate cancer. However, a number of evaluations by the
National Cancer Institute (NCI) and private laboratories have indicated that
this compound may have broad applicability against many types of cancers. In
addition to its cancer program, the Company has pre-clinical research programs
to prevent and treat bacterial and viral infections.
The Company has begun the process of finding a strategic partner for late stage
development and commercialization of its cancer application. However, the
Company will seek to accomplish Phase I human clinical studies before licensing
this application. The Company's strategy is to advance the Company's
applications as far as possible so that they are much more valuable before
licensing them to a large commercial partner.
During the next twelve months, the Company is planning to begin human clinical
trials, to assess D2A21's safety in patients whose cancer therapy has failed. In
order to meet this schedule, the Company is currently completing all of the
efficacy, toxicology, pharmcokinetic and chemistry and manufacturing tests
necessary for a new drug substance to get investigative new drug ("IND")
approval from the Federal Drug Agency ("FDA").
Prostate cancer, the second leading cause of cancer deaths in men in the United
States, affects 9.7 million Americans. Over 200,000 new cases are diagnosed each
year and more than 40,000 American men die of this disease annually. Carcinoma
of the prostate is the most commonly diagnosed cancer in men and the second most
common cause of cancer death in western civilization. It is predominately a
tumor of older men, which frequently responds to treatment when widespread and
may be cured when localized.
Currently therapeutic options include surgery, radiation therapy, hormonal
therapy and chemotherapy. The approach to treatment is influenced by the stage
of the disease, age and coexisting medical conditions. Surgery (radical
prostatectomy) and radiation are options for early stage cancer that has not
spread outside the prostate. Hormone therapy and chemotherapy are considered for
metastatic or recurring disease. The median age at diagnosis is 72 years. A
significant number of patients, especially when diagnosed at a more advanced
stage, relapse and develop incurable disseminated metastatic disease. None of
the current treatments for advanced disease provide significant benefit to
survival. Effective treatment modalities for patients with residual or
non-localized disease are clearly needed.
D2A21 has also demonstrated significant anti-tumor activity or solid tumors cell
lines, including lung, breast, ovarian, bladder, central nervous system and
melanoma. Additional studies in two laboratories indicates that prostate cancer
cell lines appear to be more susceptible to D2A21 than other solid tumor cell
lines. Therefore, the initial indication for this development plan is the
treatment of prostate cancer.
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D2A21 EFFICACY ANIMAL MODELS
D2A21, the Company's lead synthetic Peptidyl MIM, is undergoing evaluation in
several animal models of cancer, with the objective of optimizing dose and
schedule prior to entering into pre-IND safety studies. To date testing of D2A21
has promise as a potential anti-cancer agent, including the following:
o Significant in vitro anti-cancer activity against prostate, lung,
ovarian, breast, central nervous system and melanoma tumor cell lines
o Low dose (< 1mg/kg) anti-cancer activity in an aggressive model of
prostate cancer in vivo. Data indicates a benefit to survival, growth
retardation and/or regression of primary tumor and reduction in
metastases
o Equivalent activity when given by intratumoral, intraperitoneal,
intravenous or subcutaneous route of administration
At the University of Pittsburgh Cancer Institute, the Company has been achieving
positive results in testing its lead compound Peptidyl MIM D2A21, in a number of
tumor xenograft models. In experiments in the Dunning rat model of prostate
cancer, animals were injected with Mat-Ly-Lu (MLL) prostate adenocarcinoma
cells, a very aggressive prostate cancer cell line that produces large primary
tumors as well as lung metastases. Without successful treatment, mortality
usually occurs within 30 days.
Rats treated with D2A21 achieved a 60% reduction in the growth of primary tumors
and a significant reduction in the number of lung metastases. D2A21 was
administrated intravenously at a low dose of just 0.179 mg per injection that
was effective without causing toxicity to the animals. Importantly, the survival
rate increased from 25% for controls to 75% for D2A21 treated animals.
D2A21 has been effective in reducing tumors when administered by the following
systemic routes, which include: sub-coetaneous, intra-parentinal (IP) and
intravenous (IV). The Company is in the process of selecting the final dosage
schedule for D2A21 to complete the pre-clinical efficacy and toxicology tests.
The Company will also be finalizing product manufacturing and packaging of the
product relative to the clinical tests.
HUMAN CLINICAL TRIALS
It is the Company's plan to begin Phase I human clinical trials within the next
twelve months. The major purpose of a Phase I study is to define a safe dose and
schedule of administration of D2A21. Generally, cancer patients eligible for
Phase I have confirmed malignancy for which no effective therapeutic options are
known. Although the emphasis of the study is safety rather than efficacy, it
would be of use to maximize the opportunity for recognizing therapeutic benefit.
The specific Phase I protocols are being developed with the Prostate and
Urologic Cancer Center at the University of Pittsburgh Cancer Institute. It is
anticipated that the University of Pittsburgh Cancer Institute will conduct the
Phase I clinical trials.
Phase II studies will be designed to assess the anti-tumor efficacy of D2A21.
Using the dose and schedule found to be safe in Phase I studies, D2A21 will be
given to groups of patients with prostate cancer. The selection of cancers to
study in Phase II is usually based upon preclinical efficacy studies and any
promising results in Phase I studies.
Once D2A21 has demonstrated adequate efficacy and safety in Phase II studies, it
will enter Phase III testing where it will be compared to generally accepted
therapies for efficacy and toxicity. Demegen anticipates licensing during or
after Phase II clinical trials.
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SUPPORT FOR THE DEMEGEN CANCER PROGRAM
The Company has received considerable outside support for its cancer program.
Researchers and clinicians at the University of Pittsburgh Cancer Institute,
Duke University Medical Center and the National Cancer Institute have given
time, research and counsel to help the Company develop this cancer therapeutic.
The Company has also received over $1.5 million in research grants from
non-profit cancer foundations and institutes from early 1993 to date. In
addition to direct financial support, numerous university and governmental labs
have conducted research with D2A21, at no charge to the Company, to confirm the
anti-tumor effectiveness of this compound in animal models.
ANTI-BACTERIAL APPLICATIONS
In addition to its cancer program, the Company is conducting pre-clinical
experiments to assess using its Peptidyl MIM's in development of anti-bacterial
therapeutics. Furthest along is the development of an intravaginal gel that
prevents the transmission of Chlamydia, a sexually transmitted disease (STD)
which affect the reproductive health of 4 to 8 million U.S. women each year. The
Company's efforts to develop this application have been extensively supported by
the following institutions, which include: the Sexually Transmitted Diseases
Branch at the National Institutes of Health (NIH), the Division of AIDS at the
NIH and the Contraceptive Research and Development Program (CONRAD) - which is
affiliated with USAID. In addition to the Company's $100,000 Small Business
Innovation Research Program ("SBIR") grant from the NIH for STD Prevention, the
NIH has also been indirectly funding the Company's related research at the
University of Pittsburgh for the last two years. The testing of D2A21 for
prevention of Chlamydia in a primate model is underway. The Company is also
pursuing the effectiveness of its Peptidyl MIM's in treating infected burns and
burn wounds.
The Company is also conducting tests to determine the effectiveness of its
Peptidyl MIM's in treating pulmonary multi-drug resistant bacterial infections,
in appropriate animal models. The Company has received an additional $100,000
SBIR grant from the NIH for its pulmonary infection pre-clinical program.
The Company has demonstrated antimicrobial activity against a broad spectrum of
bacterial pathogen. The Peptidyl MIM's have potent in vitro activity against
pathogens from species of: Staphylococcus, Pseudomonas, Enterococcus,
Streptococcus, E. coli, Gonococcus and Chlamydia The Company's compounds have
shown in vitro efficacy against all of these dangerous pathogens, as well as
methicillin-resistant Staphyococcus aureus (MRSA) and vancomycin-resistant
enterococcus (VRE). The Company has demonstrated that its Peptidyl mimes are
effective in increasing survival when injected sub-eschar into Pseudomonas
infected mouse model. In another animal model, the Company compound successfully
eliminated a protozoal infection (Chagas disease), when administered
intravenously in mice.
A major problem, which strongly encourages the development of new class of
antibiotics agents, is the fact that many common pathogens are becoming
resistant to the therapeutics that have treated patients for the last forty
years. Each year in the United States, about two million cases of infection are
contracted by people while they are in the hospital. Infection remains the
principal cause of death of hospitalized patients in the United State, and one
of the leading causes of all deaths throughout the world. Treatment of infection
is a rapidly increasing concern because of the exponential rate of emergence of
antibiotic-resistant bacteria, compounded by the lack of new antibiotic options
effective against these
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organisms. The Company is optimistic that their Peptidyl MIM's will be an
effective alternative to antibiotics in treating infection. If the Peptidyl
MIM's are effective the evolution of antibiotic-resistant bacteria will also
become a moot issue.
PHARMACEUTICAL DEVELOPMENT SCHEDULE
In addition to its prostate cancer therapeutic, the Company is working to
develop a number of other pharmaceutical products. After completing its first
Phase I prostate cancer trials, the Company presently intends to begin
additional clinical programs for other cancers.
Human clinical trials are typically conducted in three sequential phases which
may overlap. Phase I involves the initial introduction of the drug into human
subjects or patients where the product is tested for safety, dosage, tolerance,
absorption, metabolism, distribution and excretion. Phase II involves studies in
a limited patient population to (i) identify possible adverse effects and safety
risks, (ii) determine the efficiency of the product for specific, targeted
indications, and (iii) determine dosage tolerance and optimal dosage. When Phase
II evaluation demonstrates that the product may be effective and has an
acceptable safety profile, Phase III trials are undertaken to further evaluate
dosage and clinical efficacy and to further test for safety in an expanded
patient population at multiple clinical study sites. A pivotal Phase III trial
is an adequate and well-controlled study which provides the primary basis for
determining whether there is "substantial evidence" to support the claims of
effectiveness for new drugs and forms the basis for an NDA. The regulatory
authority or the sponsor may suspend clinical trials at any point in this
process if either entity concludes that clinical subjects are being exposed to
an unacceptable health risk, that the trials are not being conducted in
compliance with applicable regulatory requirements, or for other reasons.
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AGRICULTURAL PLANT GENES
The development of pharmaceutical applications using Peptidyl MIM's is the
Company's primary focus. However, over the past few years, as the breadth of the
technology was explored, the Company's agricultural genes were also very well
received by the agribusiness community. So much so that business opportunities
developed rapidly and a substantial value has already been achieved. The Company
intends to use the proceeds from the license of its agricultural application to
help fund pharmaceutical product development of its anti-cancer therapeutics.
The application of biotechnology to agricultural crops is directed to the
creations of differentiated, value-added plants and products which improve
production, extend shelf life, prevent pathogenic disease, enhance nutritional
value and reduce the negative environmental impact of potentially hazardous
chemicals. Genetically engineering crops reduces the time to develop new crops
through accelerated cross breeding of crops. In addition to speed, genetic
engineering enables the designer to introduce characteristics, in particular
pest and disease resistance, which would most likely not be feasible with
traditional techniques.
Perhaps the most fundamental driving force for these new crops is the basic
recognition that the world's population is growing by over 50 million people per
year. At the same time, as economies improve in developing countries, the demand
for food increases faster than the population, or their ability to produce it.
The president of a large agricultural biotechnology company has stated that the
output per acre will need to double in the next thirty years, just to maintain
the current levels of hunger and malnutrition.
DISEASE RESISTANT CROPS
In November 1997, the Company concluded a significant exclusive licensing
agreement with Mycogen Corporation to utilize the Company's antimicrobial plant
genes in developing disease resistant agricultural crops. Mycogen is a large
agricultural biotechnology company based in San Diego, California. In October
1998, The Dow Chemical Co. purchased the remaining share of Mycogen that it did
not already own thereby making Mycogen a wholly owned subsidiary of The Dow
Chemical Company. Dow Chemical is a $20 billion conglomerate with significant
business interests in the agricultural business sector.
The Company received over $1.2 million from Mycogen as an initial payment in
Fiscal 1997. Under the agreement, Mycogen will be responsible for all subsequent
development and commercialization costs to fully develop, protect and
commercialize this unique technology. Mycogen will also seek third parties for
commercialization in order to accelerate development and to expand the number of
different crops being commercialized.
In November 1998 the Company amended the aforementioned agreement with Mycogen
adjusting the milestone and related payments and minimum royalties. The
modification provided for an additional exclusive license for the Company's
agricultural nutrition technologies.
The Mycogen Agreement conveys to Mycogen all rights with regard to the
development and use of the technology for plant related applications. Mycogen
has a three year period from the date of the Agreement to pursue the
commercialization of the technology covered by the Agreement. After that time
should Mycogen not successfully commercialize a technology the Company has the
right to bring possible interested parties to Mycogen but Mycogen retains the
rights to the technology until such time as Mycogen grants those rights to a
third party or return them to the Company.
Including disease resistance and nutrition, the revised agreement calls for over
$20 million in payments to the Company, as Mycogen commercializes the
agricultural technology, exclusive of royalties, for license fees, research
support and milestone payments.
The Mycogen milestone payments under the initial agreement (disease resistance)
are expected, to begin in 2002 for regulatory approval or first sale. Additional
milestone payments will be received in 2002 - 2008 for the first commercial sale
of certain crops and for the first commercial sale of other crops not specified
in the agreement. The term of the initial agreement is the later of the
expiration of the last patent or the cessation of sales of products covered by
the license.
The Mycogen milestone payments under the addendum (nutrition enhancement) are
expected, based upon current discussions with Mycogen, to begin in 1999 for the
achievement of technical feasibility benchmarks in monocots and dicots.
Additional milestone payments will be received in 2000 - 2008 for animal feeding
benchmarks, the first commercial sale of certain crops, for the first commercial
sale of other crops not specified in the agreement and the achievement of
cumulative gross margin benchmark sale of certain crops. The term of the
addendum is the later of the expiration of the last nutrition patent or the
cessation of sales of products covered by the license.
The structure of the Mycogen partnership is such that Mycogen assume nearly all
responsibilities and costs for product development, regulatory approval and
marketing. The Company will need relatively few resources to support this
licensee of its technology
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except that the services of Mr. Jesse Jaynes, the Company's Chief Scientist, and
two to four full time equivalent employees will provide technical assistance and
research support.
One example of the effectiveness of the Company's technology was demonstrated by
the U.S. Department of Agriculture ("USDA") against Erwinia carotvora, commonly
known as potato "soft rot". Soft rot affects tubers while in storage or in the
soil prior to harvest and can decay to seed tubers or seed pieces after
planting. Soft rots also cause the decay of numerous other fleshy fruits and
vegetables, such as cucumbers, onions, tomatoes and lettuce and some ornamental
plants, such as iris. Soft rot can cause extensive damage to potatoes in storage
within a few hours.
The experiments conducted to test efficacy of soft rot protection indicated that
those tubers which contain the Company's genes almost totally resisted rotting.
The test results indicate that after a five day incubation period, compared to
the control group, the amount of soft rot reductions achieved ranged from 85% to
96%. This is a highly significant result that has not been achieved before in
potatoes. Losses caused by soft rot diseases are estimated at 10% in the United
States or about $300 million, and often much higher in other countries.
Most transgenic development for crop protection is targeted at replacing
insecticides or increasing herbicide resistance. The Company believes its
success and patent position in controlling bacterial and fungal diseases is
unique. Fungicide expenditures in the United States and the world are $550
million and $4.1 billion, respectively. United States farmers purchase about $4
billion of seeds each year.
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NUTRITIONAL ENHANCED CROPS
In addition to disease resistance traits, the Company has invented "storage
protein" or nutrition genes, DNP, which contain all the essential amino acids
for healthy animal or human growth. The first field proof of this concept has
been obtained in sweet potatoes, in testing conducted under the direction of Dr.
C.S. Prakash, Professor and Director of the Center for Plant Biotechnology at
Tuskegee University. Sweet potatoes grown with the Company's nutrition genes
produce all of the essential amino acids required for daily consumption.
Remarkably, the overall protein levels in the sweet potatoes averaged over 16%
compared to the normal levels of less than 5%.
One of the crops which historically valued additional protein is wheat for food
uses. Standard wheat flour contains about 11% protein. Commercial users of flour
often add wheat gluten to achieve a higher protein content. Wheat with a higher
protein content, in the 14% to 17% range, can command premiums ranging from
$0.20 to $1.25 per bushel. Accordingly, a higher protein wheat offers a market
opportunity of several hundred million annually.
The Company's patented nutrition technology could also be very important for
U.S. and world animal feed producers. In the future, animal feed producers may
be able to obtain the essential amino acids they require, in constructing their
feed rations for poultry and swine, directly from corn, sorghum or even
soybeans. The savings on their feed bill could be substantial, in addition to
avoiding some of the problems that occur occasionally from the use of
animal-based ingredients in feed rations.
Plants are generally deficient in the essential amino acids that all animals
including humans need to grow and sustain health. Of the twenty essential amino
acids humans need, only about twelve are synthesized naturally, the other eight
must be ingested regularly to sustain health. Infants and young children, are
particularly at risk. Millions of young people die or suffer permanent mental
and physical damage yearly as a result of insufficient essential amino acid
intake. In developed countries, such crops could have considerable appeal to
vegetarians.
Worldwide, the market for the Company's nutrition genes could easily be $1
billion per year within ten years. This technology, another example of Dr.
Jaynes' design methodology, is also supported with a United States patent and a
number of additional filings.
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GOVERNMENT REGULATION
Drug Approval Process
Regulation by the governmental authorities in the United States and other
countries is a significant factor in the development, production and marketing
of the Company's proposed products. All of the Company's products will require
regulatory approval by governmental agencies prior to commercialization. In
particular, human therapeutic products are subject to rigorous preclinical and
clinical testing and other approval procedures in the United States by the FDA
and similar health authorities in foreign countries. Various federal statutes
and regulations also govern or influence the testing, manufacturing, quality
control, safety, labeling, storage, record-keeping and marketing of such
products. The process of obtaining these approvals and the subsequent compliance
with appropriate federal and foreign statutes and regulations require the
expenditure of substantial resources. Any failure by the Company or its
collaborators or licensees to obtain, or any delay in obtaining, regulatory
approval could adversely affect the marketing of any of the Company's products
and its ability to receive revenues therefrom. The Company has neither applied
for nor received regulatory approval to market any products.
The steps required before a pharmaceutical agent may be marketed in the United
States include (i) preclinical laboratory, in vivo and formulation studies, (ii)
the submission to the FDA of an IND, which must become effective before human
clinical trials may commence, (iii) adequate and well controlled human clinical
trials to establish safety and efficiency of the proposed drug in its intended
indication, (iv) the submission of a New Drug Application ("NDA") to the FDA,
and (v) the FDA approval of the NDA.
In order to clinically test, produce and market products for diagnostic or
therapeutic use, a company must comply with mandatory procedures and safety
standards established by the FDA and comparable agencies in foreign countries.
Before beginning human clinical testing of a potential new drug, a company must
file a IND and receive clearance from the FDA. The IND is a summary of the
preclinical studies which were carried out to characterize the drug, including
toxicity and safety studies, as well as an in-depth discussion of the human
clinical studies which are being proposed. Approval of a local institution
review board ("RIB") and informed consent of trial subjects is also required.
Human clinical trials are typically conducted in three sequential phases which
may overlap. Phase I involves the initial introduction of the drug into human
subjects or patients where the product is tested for safety, dosage, tolerance,
absorption, metabolism, distribution and excretion. Phase II involves studies in
a limited patient population to (i) identify possible adverse effects and safety
risks, (ii) determine the efficiency of the product for specific, targeted
indications, and (iii) determine dosage tolerance and optimal dosage. When Phase
II evaluation demonstrates that the product may be effective and has an
acceptable safety profile, Phase III trials are undertaken to further evaluate
dosage and clinical efficacy and to further test for safety in an expanded
patient population at multiple clinical study sites. A pivotal Phase III trial
is an adequate and well-controlled study which provides the primary basis for
determining whether there is "substantial evidence" to support the claims of
effectiveness for new drugs and forms the basis for an NDA. The regulatory
authority or the sponsor may suspend clinical trials at any point in this
process if either entity concludes that clinical subjects are being exposed to
an unacceptable health risk, that the trials are not being conducted in
compliance with applicable regulatory requirements, or for other reasons.
The results of product development, preclinical studies and clinical studies are
submitted to the FDA as part of an NDA for approval of the marketing and
commercial shipment of the product. The FDA may deny approval of an NDA if
applicable regulatory criteria are not satisfied, or may require additional
data. Even if such data is submitted, the FDA may ultimately decide that the NDA
does not satisfy its criteria for approval. Once issued, a product approval may
be withdrawn if compliance with regulatory standards is not maintained or if
problems occur after the product reaches the market. In addition, the
10
<PAGE> 12
FDA may require testing and surveillance programs to monitor the effect of
approved products which have been commercialized, and it has the power to
prevent or limit further marketing or a product based upon the results of these
post-marketing programs.
Satisfaction of these FDA requirements, or similar requirements by foreign
regulatory agencies, typically takes several years and the time needed to
satisfy them may vary substantially, based upon the type, complexity and novelty
of the drug product. The effect of government regulation may be to delay or to
prevent marketing of potential products for a considerable period of time and to
impose costly procedures upon the Company's activities. There can be no
assurance that the FDA or any other regulatory agency will grant approval for
any products being developed by the Company on a timely basis, or at all.
Success in preclinical or early stage clinical trials does not assure success in
later stage clinical trials. Data obtained from preclinical and clinical
activities are susceptible to varying interpretations which could delay, limit
or prevent regulatory approval. If regulatory approval of a product is granted,
such approval may impose limitations on the indicated uses for which a product
may be marketed. Further, even if regulatory approval is obtained, later
discovery of previously unknown problems with a product may result in
restrictions on the product, including withdrawal of the product from the
market. Delay in obtaining or failure to obtain regulatory approvals would have
a material adverse affect on the Company's business. Marketing the Company's
products abroad will require similar regulatory approvals and is subject to
similar risks. In addition, the Company is unable to predict the extent of
adverse government regulation that might arise from future United States or
foreign governmental action.
Before the Company's products can be marketed outside of the United States, they
are subject to regulatory approval similar to that required in the United
States, although the requirements governing the conduct of clinical trials,
product licensing, pricing and reimbursement vary widely from country to
country. No action can be taken to market any product in a country until an
appropriate application has been approved by the regulatory authorities in that
country. The current approval process varies from country to country, and the
time spent in gaining approval varies from that required for FDA approval. In
certain countries, the sales price of a product must also be approved. The
pricing review period often begins after market approval is granted. No
assurance can be given that, even if a product is approved by a regulatory
authority, satisfactory prices will be approved for the Company's products.
No assurance can be provided that the Company's INDs or NDAs will be
successfully reviewed by the FDA, or that similar applications will be
successfully reviewed by foreign regulatory authorities. Further, the FDA and
foreign authorities may at any time take legal or regulatory action against a
product or the Company is it concludes that a product has not complied with
applicable laws and regulations or that earlier evaluations of a product's
safety or effectiveness may not have been adequate or appropriate. Such action
may include, but is not limited to, restrictions on manufacture and shipment of
products, seizure of products, injunctions and civil and criminal penalties. The
FDA's policies may change and additional government regulations may be
promulgated which could prevent or delay regulatory approval of the Company's
potential products. Moreover, increased attention to the containment of health
care costs in the United States and in foreign markets could result in new
government regulations which could have a material adverse effect on the
Company's business. The Company is unable to predict the likelihood of adverse
governmental regulation which might arise from future legislative or
administrative action, either in the United States or abroad.
ENVIRONMENTAL REGULATIONS
The Company does not incur significant costs in complying with federal or state
environmental regulations due to the nature of its activities.
11
<PAGE> 13
COMPETITIVE CONDITIONS
There exists intense competition in the pharmaceutical and biotechnology
industries. The Company faced competition from a variety of sources, both direct
in indirect. There are at least seven other biotechnology companies that are
developing peptide compounds for antimicrobial or anti-cancer applications.
These companies include: Applied Microbiology, Cubist Pharmaceuticals,
Intrabiotics, Magainin Pharmaceuticals, Micrologix Biotech, Microcide
Pharmaceutical, Inc. and Xoma Corporation.
While there are a number of applications in clinical trials, the Company is not
aware of any products which have yet been approved for sale.
Based on the potency of its Peptidyl MIMs as reported to the Company by
independent medical collaborators, the Company believes that its Peptidyl MIMs
will be more effective than their competitors', at much lower concentrations.
The Company's competition appears to be focusing primarily on anti-bacterial
applications, and unlike the Company, has not reported similar successes in the
cancer area. Nor do these competitors have any agricultural products in their
pipeline. Given the Company's patent position in the agricultural area, the
Company feels it is in a strong position to dominate this area as compared to
the aforementioned competitors. To the best of the Company's knowledge, there
are few, if any, peptide biotechnology companies in the plant genetic arena.
In addition to peptide competitors, there are, of course, many companies working
to develop new antibiotics and cures for infectious diseases and cancers. This
bodes well for the Company since large pharmaceutical companies are actively
seeking new compounds. As the Company's product development progresses, its
technology becomes more appealing to a wider selection of potential partners.
TECHNOLOGY BASE
The Company's technology was designed by Dr. Jaynes, who has over fifteen years
of peptide design experience and is a biochemist by training. He is a Co-Founder
of the Company and serves as Vice President of Research. The Company believes
having a molecular architect as part of the management team distinguishes the
Company from its peptide biotech competitors which have typically in-licensed
their lead molecules. As a result, the Company has a structure and process in
place for creating a pipeline of new molecular product applications.
Peptides with lytic properties occur in nature and are part of the natural
immune systems of many plants, animals and insects. The Company's core science
is the ability to design molecules which are many times more powerful that those
occurring in nature, with minimal toxicity. The Company's Peptidyl MIMs range in
length from 17 to 40 amino acids and they have no sequence homology to the
peptides found in nature. In its discovery process, the Company has identified
and filed patents on a number of characteristics, which, when incorporated into
the design of the molecule, create compounds with unique properties. These
design "rules" include parameters for charge density, length, amphipathy,
hydrophobicity and spatial orientation. When organized, these characteristics
permit the ability to design molecules with increased specificity and
12
<PAGE> 14
activity, which means some Peptidyl MIMs are more effective against cancer than
bacteria, for example.
Understanding the rules for creating the desired properties an important aspect
of the Company's core technology. The Company has identified several thousand
different molecules which define each class of Peptidyl MIMs. This relatively
small number represents the spectrum of molecules with the most desirable
features and benefits compared to the hundreds of millions of potential
combinations and permutations which could theoretically be created.
The understanding of these core discoveries are currently being significantly
expanded. In a partnership with Mycogen, an extensive evaluation process is now
underway. Should this process yield new breakthroughs or discoveries, the
Company will retain all rights to non-agricultural applications.
MECHANISM OF ACTION
In general, the Peptidyl MIMs are believed to act by disrupting the membrane or
cell wall, thereby allowing fluids to enter the cell and cause the cell to be
destroyed or lysed. Because healthy human cells have a more complex cytoskeletal
structure, which a pathogenic cell does not possess, the healthy cell has the
ability to repair any damage. In the case of bacteria, this method of action
effectively precludes bacteria from mutating to avoid destruction, thereby
giving the Company's compounds a competitive advantage over most other
antibiotics where drug resistance is becoming a major problem. The Peptidyl MIMs
are also effective directly against cancer cells. Cancer cells are, in effect,
unhealthy cells, and therefore have weakened cytoskeletal structures. In the
case of cancer, the Company's in vivo results are better than the in vitro
results. Hence, additional mechanism of actions are being investigated.
For cancer, the general theory for mechanism of action of the Peptidyl MIMs has
been that of initial membrane disruption with subsequent cell lysis and death of
the patient or the cell. However, research results suggest that additional
factors come into play in the in vivo situation. The Company is accumulating
evidence which indicates that D2A21 may have anti-angiogenic properties in
addition to its lytic function. The anti-angiogenic property interferes with
tumor blood supply, and reduces the growth rate for the primary tumor
GENETIC ENGINEERING
The Company has designed plant genes that destroy many agricultural fungal and
bacterial pathogens once inserted transgenically into the genome of crops. The
crops then take on the disease resistant trait and are able to express the
peptide into future generations of the plant. The Company has constructed an
inventory of genes which are being used to incorporate disease resistance into
plants, securing good yields while reducing the use and cost of environmentally
undesirable chemicals.
Genetically engineering crops accelerates the traditional time consuming cross
breeding of crops. In addition to speed, genetic engineering enables the
designer to introduce characteristics, in particular pest and disease
resistance, which would likely not be feasible with traditional techniques.
Although plant genetic engineering still faces regulatory hurdles, there have
been significant recent breakthroughs in acceptability of biologically enhanced
crops. Bt genes (developed by Monsanto, Mycogen and others), which help resist
insects, are examples of the major efforts underway to genetically modify
plants.
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<PAGE> 15
The Company has also designed another type of plant gene, a custom designed
storage protein which has significant potential for improving animal feeds as
well as human nutrition, by improving the amino acid profile of various food and
feed crops. Recent independent results of this gene indicate that the total
protein content, not just the deficient amino acids, could be increased four
fold.
The principal goal in plant protein design has historically been to increase one
or two individual amino acids. The historic approach has generally not been
successful because they were unable to stabilize sufficient quantities of the
target proteins. Dr. Jaynes took a broader approach and built upon the
structural requisites he used to design proteins with anti-bacterial traits.
Dr. Jaynes designed protein molecules which when produced by the plant, would
produce the eight most essential amino acids needed by humans, and offsetting
those in which the crops, on average, were most deficient. A key step was to
create a molecular structure that mimics a natural plant storage protein's
ability to form stable aggregates and accumulate within the plant cell. This
design concept ASP (Artificial Storage Protein) achieved the goal of a
qualitative improvement in protein content. The structural arrangement also
facilitates the bioactivity of the essential amino acids by setting up targets
for the main digestive enzymes of the mammalian gut, and thereby breaking down
the protein into its constituent amino acids.
The design concept developed by Dr. Jaynes also accomplished a quantitative
increase in total protein content. Normally a plant produces a variety of
proteins. Many of these are broken down to accomplish various plant tasks and
the plant produces new proteins. The ASP gene reduces the "turnover" (loss of
protein) of the natural proteins within the plant, thereby allowing for greatly
increased protein content. The reasons given for the turnover reduction are not
yet understood, but the result of inserting an ASP gene yields significant
qualitative and quantitative improvement in protein content without degradation
of other important characteristics.
PEPTIDYL MIM PRODUCTION
Peptides are currently produced using a chemical synthesis process. Using
synthesis, the Company's Peptidyl MIM's typically cost $1,200 to $5,000 per
gram, depending upon the volume and other characteristics. Large scale
production will lower this cost significantly. Nevertheless, for most
pharmaceutical application, because Peptidyl MIMs are active in very low
concentrations, even at this high cost level, the Peptidyl MIMs are expected to
be competitively priced.
The peptide for nonclinical and initial clinical development activities have
been manufactured by a third party vendor, using a manufacturing method based
upon currently available solid phase peptide synthesis technology. The
development of specifications and establishment of analytical methods is being
carried out jointly by MPS and the Company. The manufacturer selected by the
Company will perform quality control and stability testing of the drug
substance. For commercial quantities there are a number of companies with
capabilities to produce peptides on a large scale. The Company anticipates it,
or its licenses, will be able to contract for suitable large scale peptide
production. Implementation of all of the methods is the responsibility of the
manufacturer. The
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<PAGE> 16
Company has established a standard commercial relationship with a manufacturer
to produce the clinical supplies that the Company currently requires.
PATENTS, LICENSES AND PROPRIETARY RIGHTS
The Company has filed a number of United States patent applications, as well as
corresponding applications in the PCT and foreign countries.. The Company's
patent strategy is to strive for broad coverage for a class of molecules for a
wide range of diseases in humans, animals and plants. The Company's lead
molecule, D2A21 is patented as a composition of matter. Additionally, the
Company has in excess of 40 molecules patented a compositions of matter.
For its agricultural applications, the Company has acquired the exclusive rights
to three U.S. and five international patents from Louisiana State University
("LSU"). The license from LSU expires in 2014. These patents include broad
claims for plants with bacterial and fungal resistance or enhanced nutrition.
Dr. Jaynes, the Company's Vice President of Research, was the principal
investigator on these patents when he was a professor and researcher at LSU.
These patents also carry early filing dates, thereby giving the Company a very
strong patent position in the disease resistant and nutrition enhanced plant
area. The Company has also been assigned Dr. Jaynes' exclusive rights to patents
related to has earlier work at LSU.
STATUS OF DEMEGEN PATENTS
<TABLE>
<CAPTION>
Patent # Title
- -------- -----
<S> <C>
5,561,107 Method of Enhancing Wound Healing by Stimulating Fibroblast
and Keratinocyte Growth in Vito, Utilizing Amphipathic Peptides
(expires October 1, 2013)
5,597,945 Plants Generically Enhanced for Disease Resistance (expires
January 28, 2014)
5,597,946 Method for Introduction of Disease and Pest Resistance into Plants
and Novel Genes Incorporated into Plants Which Code Therefore
(expires January 28, 2014)
5,717,064 Methylated Lysine-Rich Lytic Peptides and Method of Making Same by
Reductive Alkylation (expires February 10, 2015)
5,744,445 Method of Treating Pulmonary Diseases with Non-Naturally
Occurring Amphipathic Peptides (expires April 28, 2015)
5,773,413 Method of Combating Mammalian Neoplasias and Lytic Peptides
Therefor (expires February 10, 2015)
5,811,654 Plants genetically enhanced for nutritional quality (expires
July 25, 2006)
Pending Numerous other applications have been submitted
</TABLE>
EMPLOYEES
The Company currently has nine employees but also supports, directly or
indirectly, some twenty researchers at academic and other research institutions.
These academic and other research institutions are the recipients of SBIR grants
requested by the Company, are performing pre-clinical research and/or assisting
the Company with its study of its peptides.
15
<PAGE> 17
COMPANY HISTORY AND GENERAL INFORMATION
The Company was formed after the July 27, 1992 acquisition of the assets of The
Demeter Corporation by Excelsior Capital Corporation ("Excelsior"). Excelsior
was incorporated in Colorado on September 16, 1987. Excelsior acquired all of
the assets of The Demeter Corporation in exchange for 6,625,821 shares of
Excelsior's $0.001 par value common stock. The Demeter Corporation's assets
consisted of intangible assets related to various biotechnology applications in
the fields of human and animal health care, agricultural and commercial
chemicals. Subsequent to the acquisition, Excelsior changed its name to Demeter
BioTechnologies, Ltd. On September 18, 1998, the shareholders approved the
recommendation of the Company's Board of Directors to change the Company's name
to Demegen, Inc.
The Company is a "Development Stage Company" that designs synthetic
peptide/protein compounds and genes for pharmaceutical and agricultural
applications. Current development programs include a new treatment for prostate
cancer and sexually transmitted diseases, and two transgenic agricultural
applications - one to prevent plant diseases, the other to increase the
nutritional value of food and feed crops.
The Company has two licenses in place for its agricultural technology, disease
resistance and nutritional enhancement, to Mycogen which has produced historic
revenue streams and will continue to produce revenue as Mycogen proceeds towards
commercialization of these technologies. The Company is focusing its
pharmaceutical efforts upon the commercialization of its cancer therapeutic
which it expects to license to a major pharmaceutical firm in 2000-2001, when
the therapeutic will be either in Phase II or entering Phase III clinical
trials. While the Company does not have any formal agreements with
pharmaceutical firms at this time, it is hopeful that an agreement will be forth
coming once the cancer therapeutic is in Phase II Clinical testing.
The Company's offices and laboratory are located at 1051 Brinton Road,
Pittsburgh, PA 15221 and its telephone number is 412-241-2150. The Company
occupies 3,000 square feet of leased space. The lease is for a three year term,
expiring September 2001, at a monthly rental of $3,948. Prior to the Company's
move to Pittsburgh in September 1998, the Company was located in Durham, North
Carolina.
ITEM 2 - FINANCIAL INFORMATION
SELECTED FINANCIAL DATA
The following table sets forth certain financial data for, and as of the end of,
the years ended September 30, 1998, 1997, 1996, 1995 and 1994 and for the period
December 6, 1991 (inception) to December 31, 1998 and for the nine month periods
ending June 30, 1999 and 1998 and the quarters ending June 30, 1999 and 1998 and
for the period December 6, 1991 (inception) to June 30, 1999:
<TABLE>
<CAPTION>
December 6
Year Ended September 30, 1991 (Inception)
------------------------------------------------------------------------- to December 31,
1998 1997 1996 1995 1994 1998
---- ---- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Grant and Other Income $ 1,376,918 $ 764,834 $ 271,777 $ 167,592 $ 79,000 $ 3,340,321
Total Expenses 3,370,671 1,708,607 2,841,255 3,041,431 1,847,428 14,661,256
</TABLE>
16
<PAGE> 18
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net Loss (1,993,753) (943,773) (2,569,478) (2,873,839) (1,768,428) (11,320,935)
Net Loss per Share (dilutive) $ (0.13) $ (0.05) $ (0.17) $ (0.35) $ (0.15)
Dividends per Share $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Weighted Average Number
of Common Shares
Outstanding 23,867,091 19,537,047 15,479,889 12,529,314 11,478,206
BALANCE SHEET DATA:
Cash & Cash Equivalents 1,686,658 $ 310,252 $ 19,266 $ 1,004 $ 38,843
Working Capital (deficiency) 1,329,541 (1,498,477) (2,754,591) (3,382,190) (1,576,040)
Total Assets 2,114,750 651,963 156,147 106,746 97,624
Long-term obligations -0- -0- -0- 13,899 16,869
Deficit accumulated during
development stage (12,523,358) (9,443,772) (8,499,999) (5,930,521) (3,056,682)
Redeemable convertible preferred
Stock 1,510,484 -0- -0- -0- -0-
Shareholder's Equity
(Deficit) (122,130) (1,158,216) (2,642,523) (3,293,313) (1,536,103)
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Quarter Ended
June 30, June 30,
------------------------------------- -------------------------------------
1999 1998 1999 1998
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Grant and Other Income $ 918,051 $ 1,326,989 $ 36,654 $ 58,406
Total Expenses 1,778,189 3,074,425 723,064 449,271
Net Income (Loss) (860,138) (1,747,436) (686,410) (390,865)
Net Loss per Share (dilutive) $ (0.04) $ (0.12) (0.03) (0.06)
Dividends per Share $ 0.00 $ 0.00 0.00 0.00
Weighted Average Number of Common
Shares Outstanding 26,219,115 22,964,105 26,355,279 23,410,816
------------ ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
As of
June 30,
1999
------------
<S> <C>
BALANCE SHEET DATA:
Cash and Cash Equivalents $ 781,035
Working Capital 395,953
Total Assets 1,281,385
Long-term obligations -0-
Deficit accumulated during
development stage (13,576,667)
Redeemable convertible preferred
Stock 1,703,655
Shareholder's Equity (Deficit) (1,091,139)
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS
GENERAL
Since commencement of operations in 1992, the Company has been engaged in
research and development activities, including conducting preclinical studies
and clinical trials, and recruiting its scientific and management personnel,
establishing laboratory facilities and raising capital. The Company has not
received any revenue from the direct sale of its products to the general public
but has received grant monies and license payments from other corporations from
the license of the Company's technology.
The Company is a "Development Stage Company" that designs synthetic
peptide/protein compounds and genes for pharmaceutical and agricultural
applications. Current development programs include a new treatment for prostate
cancer and sexually transmitted diseases, and two transgenic agricultural
applications - one to prevent plant diseases, the other to increase the
nutritional value of food and feed crops.
The Company has two licenses in place for its agricultural technology, disease
resistance and nutritional enhancement, to Mycogen which has produced historic
revenue streams and will continue to produce revenue as Mycogen proceeds towards
commercialization of these technologies. The Company is focusing its
pharmaceutical efforts upon the commercialization of its cancer therapeutic
which it expects to license to a large
17
<PAGE> 19
pharmaceutical producer.
RESULTS OF OPERATION:
Nine Month Period Ended June 30, 1999 vs 1998
In the nine month period ended June 30, 1999 (Fiscal 1999) grants, license fees
and other income was $0.9 million compared to $1.3 million in the year earlier
prior nine month period ending June 30, 1998 (Fiscal 1998). The fiscal 1999
revenue was primarily due to a $0.5 million licensing fee and research funding
received from Mycogen Corporation ("Mycogen") as part of the modification of its
license agreement providing Mycogen with an additional license for the Company's
agricultural nutrition technologies. Additionally, a cancer charity made a grant
of $0.25 million during the Fiscal 1999 period as part of an ongoing program to
fund the Company's development of cancer fighting drugs. During the Fiscal 1998
period revenue of $0.9 million was received from Mycogen relative to the initial
license for the Company's agricultural disease resistance technologies.
Additionally a grant of $0.25 million was received from the aforementioned
cancer charity.
Expenses increased somewhat in the current nine month period exclusive of the
$1.7 million non-cash charge in the fiscal 1998 period for the issuance of stock
options to employees and directors. The increase was due to a higher employee
headcount in the current fiscal period and increased expenditures supporting the
Company's research activity.
The Company did not have a federal or state income tax provision in either
Fiscal 1999 or 1998 due to the loss recorded in each period.
The amounts described above resulted in a net loss of $0.9 million in the Fiscal
1999 period as compared to a net loss of $1.7 million for the Fiscal 1998
period.
Quarter Ended June 30, 1999 vs 1998:
In the quarter ended June 30, 1999 grants, license fees and other income was
$0.04 million as some expected grant monies were not received by June 30, 1999.
In the year earlier prior quarter ending June 30, 1998 revenue was $0.06
million.
Expenses increased in the current quarter due to a higher employee headcount
and increased expenditures supporting the Company's research activity.
The Company did not have a federal or state income tax provision in either
Fiscal 1999 or 1998 due to the loss recorded in each period.
The amounts described above resulted in a net loss of $0.7 million in the Fiscal
1999 quarter as compared to a net loss of $0.4 million in the Fiscal 1998
quarter.
SEPTEMBER 30 1998 VS 1997
In the year ended September 30, 1998 (Fiscal 1998) grants and other income
increased significantly to $1.4 million from $0.8 million in the year ended
September 30, 1997 (Fiscal 1997). This increase was due to a $0.9 million
licensing fee received from Mycogen Corporation ("Mycogen") as part of the
license entered into during Fiscal 1998. Additionally, a cancer charity made a
grant of $0.25 million during Fiscal 1998 as part of an ongoing program to fund
the Company's development of cancer fighting drugs. During Fiscal 1997 a grant
of $0.5 million was received from this fund. Additionally, the Company
recognized $0.1 million of revenue related to research expenses funded by
Mycogen and received $0.04 million of interest on its cash balances.
Research and development expenses increased to $0.9 million in Fiscal 1998 from
$0.6 million in Fiscal 1997 due to the Company's increased funding relative to
its cancer and sexually transmitted disease drug research. During Fiscal 1998
the Company focused its research and development on its cancer therapeutic
achieving positive results in the testing of its lead compound in a number of
models.
General and administrative expenses increased to $2.3 million in Fiscal 1998
from $0.9 million in Fiscal 1997. Included in general and administrative
expenses was a non-cash charge of $1.7 million for the issuance of below market
stock options issued to employees and directors during Fiscal 1998 that vested
during the year. Exclusive of the non-cash charge, general and administrative
expenses decreased by $0.25 million to $0.62 million due to decreased legal
costs and overall cost containment.
Interest expense decreased to $0.03 million in Fiscal 1998 from $0.17 million in
Fiscal 1997 due to the $1.6 million decrease in amounts payable to related
parties through the conversion of certain amounts to restricted stock and
forgiveness of certain amounts payable late in Fiscal 1997. The receipt of the
license fee from Mycogen in March 1998 put the Company in a cash positive
position and was used to eliminate the majority of interest bearing payables to
employees and directors. Additionally, the conversion and forgiveness of
employee debt in Fiscal 1997 eliminated a significant amount of liabilities
which were interest bearing.
Depreciation and amortization increased to $0.12 million in Fiscal 1998 from
$0.07 million in Fiscal 1997. The increase was primarily due to increased
amortization of the License Agreement with LSU which required an initial payment
of 700,000 shares (valued at $245,000) of the Company's common stock in May 1997
and the increase in amortization of capitalized patent costs associated with the
Company's product processes.
The Company did not have a federal or state income tax provision in either
Fiscal 1998 or 1997 due to the loss recorded in each year. An allowance was
recognized to offset the tax benefit until such time that the Company generates
taxable income.
The amounts described above resulted in a net loss of $2 million for Fiscal
1998. The net loss would have been $0.3 million if the aforementioned non-cash
charge was excluded
18
<PAGE> 20
SEPTEMBER 30, 1997 VS 1996
In the year ended September 30, 1997 grants and other income increased
significantly to $0.8 million from $0.3 million in the prior year. This was due
to increased grant revenue, primarily from a cancer charity, as the Company
began demonstrating the commercial possibilities of the peptide.
Research and development and general and administrative expenses decreased by
$0.16 million and $0.76 million, respectively, due to a significant refocusing
of the Company's research efforts. During Fiscal 1997 the Company made the
strategic decision to primarily focus upon its Prostate cancer therapeutic.
Therefore, the Company entered into a license agreement with Mycogen relative
to its agricultural applications, and curtailed its research and development
efforts relative to other applications for its peptide.
Interest expense decreased by $0.25 million to $0.17 million due to the
settlements in Fiscal 1997 and 1996 where amounts payable and debt were either
extinguished or settled for a combination of cash and Common Stock of the
Company.
Depreciation and amortization doubled to $0.07 million due to an increase in
depreciation of property, plant and equipment. There was no amortization in
Fiscal 1996 as the Company has just begun capitalizing patent costs associated
with the Company's processes.
The Company did not have a federal or state income tax provision in either
Fiscal 1997 or 1996 due to the loss recorded in each year. An allowance was
recognized to offset the tax benefit until such time that the Company generates
taxable income.
LIQUIDITY AND CAPITAL RESOURCES
FISCAL 1999
During the nine month period ended June 30, 1999, the Company's cash and cash
equivalents decreased by $0.9 million to $0.8 million. Net cash provided by
financing of $0.09 million was offset by $0.21 million of net cash utilized by
investing activities and net cash used by operating activities $0.79 million.
Specifically, cash inflows from financing activities included $0.02 million was
realized from the exercise of stock options, $0.02 million from an equipment
financing and a $0.05 million increase in payables to related parties.
The $0.79 million of cash utilized by operating activities consisted of the net
loss of $0.86 million, and a decrease of $0.07 million in unearned revenue.
Partially offset by $0.11 million of depreciation and amortization, and a $0.02
million decrease in accounts receivable.
The $0.21 million of cash utilized by investing activities relates to the
purchase of property, plant and equipment.
FISCAL 1998
During the year ended September 30, 1998, the Company's cash and cash
equivalents increased by $1.4 million to $1.7 million. Net cash provided by
financing of $1.6 million was partially offset by a $0.08 million of net cash
utilized by operating activities and $0.14 million of net cash utilized by
investing activities.
Specifically, cash inflows from financing activities included the $1.9 million
net proceeds from the issuance of preferred stock and warrant to the CEO Venture
fund in June 1998. Additionally, $0.09 million was realized from the exercise
of stock options. These sources of funds were partially offset by a $0.43
million decrease in payables to related parties.
The $0.14 million of cash utilized by operating activities consisted of the net
loss of $2 million and a decrease of $0.14 million decrease in accounts payable
and other liabilities offset by the $1.7 million of non-cash compensation
related to the issuance of below market stock options issued to employees and
directors that vested during the year, $0.12 million of depreciation and
amortization, $0.09 million of stock issued for services and a $0.18 million
increase in unearned revenue relating to the $0.3 million three year
administration fee paid to the Company in October 1997 by Mycogen.
The $0.14 million of cash utilized by investing activities relates to $0.05
million for the purchases of property, plant and equipment and $0.08 million of
patent costs capitalized as intangible assets in the current year.
FISCAL 1997
During the year ended September 30, 1997, the Company's cash increased by $0.3
million. Net cash provided by financing of $0.9 million was partially offset by
a $0.6
19
<PAGE> 21
million of net cash utilized by operating activities and $0.07 million of net
cash utilized by investing activities.
Cash from financing activities was generated from $0.1 million net proceeds from
the issuance of the Company's Common Stock and $0.82 million increase in
payables to related parties due to services provided to the Company.
Cash utilized in operating activities was caused by the net loss of $0.94
million and a $0.2 million decrease in accounts payable and accrued expenses.
This was partially offset by $0.7 million of depreciation and amortization and
$0.48 million of stock issued for services rendered to the Company.
Cash utilized by investing activities was primarily due to a $0.08 million
increase in intangible assets due to the capitalization of patent related
expenses.
FISCAL 1996
During the year ended September 30, 1996, the Company's cash increased by $0.02
million. Net cash provided by financing of $1.65 million was almost fully offset
by a $1.58 million of net cash utilized by operating activities and $0.05
million of net cash utilized by investing activities.
Cash from financing activities was generated from $0.48 million net proceeds
from the issuance of the Company's Common Stock and $1.2 million increase in
payables to related parties due to services provided to the Company.
Cash utilized in operating activities was caused by the net loss of $2.57
million and a $0.15 million decrease in interest payable. This was partially
offset by $0.04 million of depreciation and amortization, and a $0.5 million
increase in accounts payable and accrued expenses and $0.54 million of stock
issued for services rendered to the Company.
Cash utilized by investing activities was primarily due to a $0.02 million
increase in intangible assets due to the capitalization of patent related
expenses and $0.03 million of capital expenditures.
Year 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any computer program
that is not Year 2000 compliant and has date sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000.
The Company processes its financial information on a commercially sold
accounting package. This package has been modified by the developer such that
they have represented to the Company that it is Year 2000 compliant. The
Company's payroll is processed by a third party processor who has notified the
Company that they are year 2000 compliant. The remaining computer applications
at the Company are not date sensitive and are primarily of a word processing,
data base or scientific research nature.
The Company has not and does not expect to perform an assessment of the Year
2000 preparedness of all of its third party relationships. In making this
decision the Company has considered that there are many vendors for the
products that they purchase should they have to change suppliers due to a Year
2000 problem. The Company has not selected an institution to perform its Phase
I clinical Tests. The issue of Year 2000 preparedness will be part of the
selection process at the time that the institution to handle the clinical
trials is selected.
In the worst case, a Year 2000 failure at one of the Company's vendors could
result in a delay in the availability of an item on order. Except for the
purchase of peptides from vendors, of which the Company keeps a sufficient
inventory to manage short-term requirements, all other items purchased from
third party vendors are of the nature of office supplies and miscellaneous
items. The unavailability of any of the aforementioned would result in the
purchase of the affected items from another vendor as none of these items are
vendor specific.
20
<PAGE> 22
Prospective Information
The Company believes that it has adequate liquidity to fund its operations in
Fiscal 1999 but will require a cash infusion in the first six months of fiscal
2000 to sustain expenditures at their current levels. On a long term basis, it
will be necessary for the Company to access additional funding so that it can
continue funding the Phase I and Phase II testing of its therapeutic agents.
This funding may be in the form of a private placement of equity securities or a
secondary issuance of securities into the market.
ITEM 3 - DESCRIPTION OF PROPERTY
The Company's office and lab are located at 1051 Brinton Road, Pittsburgh, PA
15221. The Company occupies 3,000 square feet of leased space. The lease is for
a three year term, expiring September 2001 at a gross monthly rental, including
utilities, of $3,948. Prior to the Company's move to Pittsburgh in September
1998, the Company was located in Durham, North Carolina.
The Company fully utilizes its office space and expects that the laboratory will
be fully operational by the third quarter of Fiscal 1999.
The majority of the Company's application research is conducted by independent
labs, academic and research institutions and commercial partners. The Company's
laboratory focuses primarily on research related to the Company's core
technologies in assisting Mycogen in an ancillary capacity with the development
and commercialization of the agricultural technologies.
The Company believes that these facilities are adequate for its current needs.
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 30, 1999, the ownership of the
Company's Common Stock and Convertible Preferred Stock by (i) each director of
the Company, (ii) all executive officers and directors of the Company as a
group, and (iii) all persons known by the Company to own more that 5% of the
Company's Common and Convertible Preferred Stock.
<TABLE>
<CAPTION>
Beneficial Ownership
--------------------
Title of Number of
Name and Address Class Shares (1) % (1)
- ------------------ --------- ------------ -----
<S> <C> <C> <C>
Richard D. Ekstrom (2) Common 2,578,250 7.93%
1051 Brinton Road
Pittsburgh, PA 15221
Donald A. Guthrie, Ph.D. (3) Common 1,651,184 5.28%
1051 Brinton Road
Pittsburgh, PA 15221
Jesse M. Jaynes, Ph.D. (4) Common 2,173,726 6.71%
1051 Brinton Road
Pittsburgh, PA 15221
</TABLE>
21
<PAGE> 23
<TABLE>
<S> <C> <C> <C>
James E. Thornton (5) Common 740,001 2.39%
1051 Brinton Road
Pittsburgh, PA 15221
John Bridwell (7) Common 1,009,937 3.28%
1051 Brinton Road
Pittsburgh, PA 15221
Alfonso Lovo-Cordero (6) Common 240,000 0.77%
1051 Brinton Road
Pittsburgh, PA 15221
Konrad Weis Ph.D. (7) Common 293,816 0.95%
1445 Bennington Avenue
Pittsburgh, PA 15217
James Colker (8) Common 9,435,000 26.38%
2000 Technology Drive
Suite 160
Pittsburgh, PA 15219
Robert E. Hannon (9) Common 100,000 0.32%
29 Park Street
Montclair, NJ 07042
All Directors and Officers Common 18,221,914 45.45%
as a group (9 persons)
</TABLE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities & Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of Common Stock subject to options or
warrants currently exercisable or convertible, or exercisable or convertible
within 60 days of June 30, 1999, are deemed outstanding for computing the
percentage of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person. Except as
indicated in the footnotes to this table and pursuant to applicable community
property laws, the persons named in the table have sole voting and investment
power with respect to all shares of Common Stock beneficially owned.
(2) Includes 1,700,000 shares of Common Stock issuable upon the exercise of
options that are currently exercisable.
(3) Includes 455,000 shares of Common Stock issuable upon the exercise of
options that are currently exercisable.
(4) Includes 1,600,000 shares of Common Stock issuable upon the exercise of
options that are currently exercisable and 15,000 shares of Common Stock owned
by Mr. Jaynes' minor child over which he claims beneficial ownership.
(5) Includes 200,000 shares of Common Stock issuable upon the exercise of
options that are currently exercisable and 2,000 shares of Common Stock owned by
Mr. Thornton's minor grand-children over which he claims beneficial ownership.
(6) Includes 190,000 shares of Common Stock issuable upon the exercise of
options that are currently exercisable.
(7) Includes 25,000 shares of Common Stock issuable upon the exercise of
options that are currently exercisable.
(8) Mr. Colker is the Managing General Partner of the CEO Venture Fund III
("CEO") and, therefore, has beneficial ownership over the Company's Convertible
Preferred Stock
22
<PAGE> 24
and related Warrant held by the Fund. The 4,444,444 shares of Convertible
Preferred Stock are convertible into 4,444,444 shares of the Company's Common
Stock. Additionally, CEO has a Warrant to purchase 4,965,556 shares of the
Company's Common Stock at an exercise price of $0.45 per share. The Warrant
expires on June 14, 2008.
Additionally, Mr. Colker has assigned options, that he received as a Director
of the company, to purchase 25,000 shares of Common Stock to the CEO Venture
Fund III. The options are currently exercisable.
(9) Includes 100,000 shares of Common Stock issuable upon the exercise of
options that are currently exercisable.
ITEM 5 - DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS AND OFFICERS
The Company's executive officers and directors are as follows:
<TABLE>
<CAPTION>
Name Age Position Director Since
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Richard D. Ekstrom 54 Chairman of the Board of 1996
Directors and President
Jesse M. Jaynes, Ph.D. 47 Vice President of Research 1992
and Director
John Bridwell 66 Director 1999
James Colker 71 Director 1998
Donald A. Guthrie, Ph.D. 72 Director, formerly Executive 1992
Vice President until 1996
Robert E. Hannon 52 Director 1999
Alfonso Lovo-Cordero, LL.D. 71 Director 1992
Konrad M. Weis, Ph. D. 70 Director 1998
James E. Thornton 67 Vice President of Agriculture
</TABLE>
All directors were elected at the annual stockholders meeting on January 22,
1999 for a one year term except for Robert Hannon who was appointed at the May
24, 1999 meeting of the Board of Directors. Mr. Hannon will serve until the next
annual shareholders meeting.
Richard D. Ekstrom has served as Chairman of the Board of Directors and
President of the Company since January 1996. Additionally, Mr. Ekstrom was Chief
Financial officer from December 1994 until August 1998. Mr. Ekstrom holds a B.A.
from Cornell University and an M.B.A. from Boston University. From 1990 through
1991, Mr. Ekstrom was President of Cost Containment Corporation and from 1993
through 1994, he was Chief Operating Officer of Preferred Solutions Inc., both
of which were start-up pharmacy benefit management companies. Mr. Ekstrom is the
founder of Prescription
23
<PAGE> 25
Price Watch, a buying guide for pharmacy benefit programs. From 1968 to 1990, he
was employed by Westinghouse Electric Corporation where he served in a variety
of management positions, including controller, manufacturing manager and
corporate staff positions
Jesse M. Jaynes, Ph.D. is Co-founder of the Company. He has served as Vice
President of Research since 1992. He is the Company's Chief Scientist and the
inventor of the core technologies. He holds an AS. In Biology from the College
of Eastern Utah, a BS in Zoology from Southern Utah State University and earned
his doctorate in BioChemistry at Brigham Young University. He completed post
doctoral fellowships in the Department of Plant Pathology at Montana State
University and the Plant Growth Laboratory at the University of California,
Davis before joining the faculty at Louisiana State University. Dr. Jaynes was
the first to demonstrate that lytic peptides were active against pathogens other
than bacteria and to successfully introduce antimicrobial and nutrition storage
genes into plants. He has authored over seventy-five papers and over thirty
meeting abstracts on peptides.
John Bridwell has been President of Ditch Witch of Oklahoma for the past twenty
years. Presently, he is involved with an Oklahoma health care company; Health
Heaven, Shepard Mall Partnership, Riva Finance Co. and the City of Edmond
Economic Development. He also currently serves as director of First Enterprise
Bank of Oklahoma City
James Colker is the Managing General partner of the CEO Venture Fund since 1985.
He is also chairman of the Pittsburgh Biomedical Development Corporation, the
Pennsylvania Technology Council and trustee of Penn's Southwest Association, as
well as a board member of a number of small advanced technology companies.
Previously, Mr. Colker was Chairman and President of Contraves Goerz
Corporation.
Donald A. Guthrie, Ph.D. is Co-founder of the Company and currently retired.
From 1992 until his retirement in 1996 he was Executive Vice President of the
Company. Previously, he has served as Vice President, Science and Engineering,
Gulf South Research Institute, Manager, New Product Planning, Ciba Geigy
Corporation and Vice President, Corporate Development, Lord Corporation. Dr.
Guthrie is a Founding Member of the Licensing Executives Society and is a former
member of the Pennsylvania Science/Engineering Foundation and a former trustee
of Edinboro College.
Robert E. Hannon is the Principal and Chief Executive Officer of The Genesis
Group a diversified business development consulting firm since 1981. Genesis
Group has served the health care and biotechnology industries since its
inception. Mr. Hannon is also Founder and Chief Executive Officer of POV
Incorporated, a strategic management publishing firm and is Founder and
Editorial Director of four health care news releases under the brand name The
Genesis Report. Mr. Hannon is a member of the American Association for the
Advancement of Science and the New York Academy of Science. Mr. Hannon is a
member of the Board of Directors of four privately held Healthcare and
Biotechnology companies.
Alfonso Lovo-Cordero, LL.D., for the past 8 years has been the President and
Founder of ALCOR International Consultants, which specializes in agricultural
and pharmaceutical business development between the United States and the
developing world. Dr. Lovo was the former Head of State (President) of Nicaragua
from 1972 to 1975. He also served as Secretary of Agriculture of Nicaragua form
1968 to 1972. Dr. Lovo was the former President of numerous FAO (United Nations)
conferences throughout the world related to agriculture.
Konrad M. Weis, Ph.D., retired in 1991 as President and Chief Executive Officer
of Bayer USA Inc., the North American subsidiary of Bayer AG, a chemical,
pharmaceutical and information technology company. Dr. Weis is currently on the
Board of Directors of Michael Baker Corporation, Titan Pharmaceuticals, Inc. and
Visible Genetics Inc, In addition, he is a life trustee of Carnegie Mellon
University and the Carnegie Museums of Pittsburgh.
24
<PAGE> 26
James E. Thornton has served as Vice President of Agriculture since 1993. Mr.
Thornton is a graduate of the University of Denver in International Relation and
of the Senior Managers Program at the John F. Kennedy School of Government at
Harvard University. He was Assistant to the Secretary of Agriculture in the
Kennedy and Johnson Administrations and directed several federal committees on
growth management and agricultural issues. He also served as Associate
Administrator of the Farmer's Home Administration. In the 1980's, Mr. Thornton
was Chief Operating Officer for the Joint Agricultural Consultative Corporation
(JACC), an international agribusiness group facilitating joint ventures between
United States agricultural companies and similar entities in eleven developing
nations.
At the September 18, 1998 Special Meeting of the Shareholders an amendment to
the Company's Articles of Incorporation which, among other matters, reduced the
size of the Board to six members effective with the next Annual Meeting
currently scheduled for January 1999. The amendments provide that holders of
Preferred Stock will have the right to elect two directors; one director will be
elected by all stockholders (preferred and common); and three directors will be
elected solely by the Common Shareholders.
At the October 1998 Board of Directors meeting the Board was expanded to seven
members for one year with the consent of the holder of the Preferred Stock, as
permitted by the Amendments; the seventh member will be solely elected by the
Common Stockholders.
At the May 24, 1999 Board of Directors meeting the Board was expanded to eight
members for the incumbency of Robert Hannon with the consent of the holder of
the Preferred Stock.
SCIENTIFIC ADVISORY BOARD
The Company's Scientific Advisory Board comprises leading scientists from
several disciplines. The Company frequently consults with its Scientific
Advisory Board on research and development and strategies and techniques. The
member of the Company's Scientific Advisory Board are as follows:
Paul L. Kornblith, M.D., is President and Founder of Precision Therapeutics. Dr.
Kornblith serves as an Adjunct Professor in the School of Health and
Rehabilitation Sciences at the University of Pittsburgh. Dr. Kornblith also
serves as Vice Chairman and Professor of Neurosurgery and Co-Director of the
University of Pittsburgh's Brain Tumor Center. He also serves on the editorial
boards of five other cancer and
25
<PAGE> 27
neurosurgical journals. Previously, Dr. Kornblith served as Chief of the
Surgical Neurology Branch, NINCDA, and the National Institute of Health (NIH).
Roger A. Laine, Ph. D., is a Professor of BioChemistry and Molecular Biology and
Director of the LSU Mass Spectrometry Facility at Louisiana State University.
Dr. Laine serves as President and Founder of Anomeric, Inc. He was previously
the Scientific Founder of Glycomed, now part of Ligand Pharmaceuticals.
Wayne F. Tompkins, Ph.D., is Professor in the Department of Microbiology,
Pathology and Parasitology at North Carolina State University. Dr. Tompkins also
serves as the Immunology Programs Coordinator at North Carolina State. He
received his Ph.D. in Virology and Immunology from the University of Wisconsin.
Dr. Tompkins is the co-developer of the Feline Immunodeficiency Virus (FIV) cat
model, an accepted animal model for testing potential HIV therapeutics
Paul Zorner, Ph.D., is senior scientist of the Global Industrial Biochemistry
Platform at the Dow Chemical Co. and was formerly vice president of product
development at Mycogen. Dr. Zorner has had over 20 U.S. patents issues. He is
also Chairman of the strategic planning committee, member of the publication
board and member of the sustainable agricultural committee of the Weed Science
Society of America.
PRINCIPAL SCIENTIFIC COLLABORATORS
The Company's primary scientific collaborators are as follows:
Cancer Therapeutics
Robert H. Getzenberg, Ph.D. Co-Director, Prostate & Urologic Cancer
Center, University of Pittsburgh Center Institute, Pittsburgh, PA
Cary N. Robinson, M.D., Urologist/Oncologist Associate Professor of
Urology, Duke University Medical School, Durham, NC
Bacterial Preventatives & Therapeutics
Sharon Hillier, Ph.D. Associate professor of Obstetrics, Gynecology &
Reproduction, Magee-Womens Research Institute at the University of
Pittsburgh Medical Center, Pittsburgh, PA
Crop Disease Resistance and Nutrition Enhancement
CARY N. ROBERTSON, M.D., is urologist and Assistant Professor of
Medicine at Duke University Medical Center in Durham, North Carolina.
Dr. Robertson's laboratory has tested the Company's compounds for
anti-cancer activity in vitro and in animal experiments, since
1996. The Company does not have any service contracts or formal
relationship with Dr. Robertson or Duke University Medical Center.
ROBERT GETZENBERG, PH.D., is the Co-Director of the Prostate &
Urologic Cancer Center at the University of Pittsburgh Cancer
Institute. Dr. Getzenberg is testing Company compounds to determine
their efficiency against prostate cancer. The Company has a contract
with the University of Pittsburgh to support its prostate cancer
research, providing $15,000 per month to Dr. Getzenberg's lab. This
agreement can be terminated upon 60 day notice.
SHARON HILLIER, PH.D., is an Associate Professor of Obstetrics,
Gynecology & Reproductive Sciences at Magee-Womens Hospital at the
University of Pittsburgh Medical Center. Dr. Hillier is testing
Company compounds to develop a female controlled sexually transmitted
disease preventative gel. Dr. Hillier has not received any funding
from the Company and she is not under any service contract; nor is
Magee-Women's Hospital.
WILLIAM BELKNAP, PH.D. is a Research Scientist at the USDA, Albany CA
Agricultural Research Center. He has been testing the Company's
agricultural genes under at Cooperative Research and Development
Agreement (CRADA) that the Company has with the USDA. The Company has
assigned the rights to this Research and Development Agreement to
Mycogen, under the terms of our license agreement.
C.S. PRAKASH. PH.D., is a Professor and Director of the Center of
Plant Biotechnology at Tuskegee University in Alabama. Dr. Prakash is
developing nutrition-enhanced sweet potatoes with the Company's plant
genes. Dr. Prakash serves as consultant to the Company for its
agricultural projects, and receives a fee of $1,000 per month.
26
<PAGE> 28
ITEM 6 - COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the total remuneration to be paid to the
President and all executive officers of the Company whose total salary exceeds
$100,000
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Awards Payouts
------------------- --------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name Other All
and Annual Restricted LTIP Other
Principal Compen- Stock Options/ Pay- Compen-
Position Year Salary Bonus sation Awards SARS outs sation
($)(a)(b) ($) ($) ($)(c) (#)(d) ($) ($)(e)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard D
Ekstrom 1998 $ 120,000 -- -- -- 1,600,000 -- --
President 1997 $ 10,000 -- -- -- -- -- --
1996 $ -0- -- -- $ 15,075 600,000 -- --
Jesse M
Jaynes 1998 $ 120,000 -- -- -- 1,600,000 -- $3,833
Vice President 1997 $ 10,000 -- $ 17,000 -- -- -- --
1996 $ -0- -- -- -- -- -- --
James E
Thornton 1998 $ 120,000 -- -- -- 300,000 -- --
Vice President 1997 $ 120,000 -- $ 18,000 -- 200,000 -- --
1996 $ 106,000 -- 28,000 $ 15,075 -- -- --
</TABLE>
a) Represents fiscal years ended September 30.
b) In 1998 Mr. Thornton received $60,000 in the form of cash compensation
with the remaining $60,000 in the form of deferred compensation. The
deferred compensation shall accrue interest at 6% per annum and shall
be paid out in equal monthly installments of $3,500 beginning the next
month after the final payment has been made by the Company to Mr.
Thornton under his employment agreement. In 1997 Mr. Thornton agreed to
accept $140,000 due him for services and expenses in the form of
deferred compensation, payable in accordance with the aforementioned
agreement.
c) The Restricted stock issued to Messrs. Ekstrom and Thornton in Fiscal
1996 consisted of 25,000 shares (valued at $0.603 per share) for a
bonus
d) All options are fully vested. The options issued in Fiscal 1998 are at
an exercise price of $0.05 per share and expire on March 5, 2008. The
options issued in Fiscal 1997 are at an exercise price of $0.875 per
share and expire on October 2, 2001. The options issued in Fiscal 1996
are at an exercise price of $0.15 per share and expire on October 31,
2000.
e) Represents premiums on $1 million life insurance policy on the life of
Dr. Jaynes whose beneficiary is Dr. Jaynes' family.
Options Granted In Last Fiscal Year
The following table shows the options that have been granted to the Executive
Officers of the Company in the prior Fiscal Year.
27
<PAGE> 29
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
Value at Assumed
Annual Rates
Number of % of Total of Stock Price
Securities Options Appreciation for
Underlying Granted to Option Term
Options Employees Exercise -------------------------------
Name Granted in Fiscal Price Expiration
Year (%) ($/Sh) Date 0% 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Richard D.
Ekstrom 1,600,000 27.5% 0.05 03/05/08 $528,000 $910,000 $1,497,000
Jesse M
Jaynes 1,600,000 27.5% 0.05 03/05/08 $528,000 $910,000 $1,497,000
James E
Thornton 300,000 5.2% 0.05 03/05/08 $ 99,000 $171,000 $ 281,000
</TABLE>
a) The market price as of the date of grant was $0.38 per share
b) All options are fully vested
c) Potential realizable value is based on the assumption that the Common
Stock appreciates at the annual rates shown (compounded annually) from
the date of grant until the expiration of the option term These assumed
rates of appreciation are mandated by the rules of the Securities and
Exchange Commission and do not represent the Company's estimate or
projection of the future Common Stock price. There can be no assurance
that any of the values reflected in this table will be achieved.
AGGREGATE OPTIONS EXERCISES IN LATEST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying In-the-Money
Unexercised Options at at Fiscal Year-End
Shares Value Fiscal Year-End 1998
Acquired On Realized
Name Exercise (#) ($)(b) Exercisable Exercisable
- ---- ------------ ------ ----------- -----------
<S> <C> <C> <C> <C>
Richard D.
Ekstrom 500,000 $165,000 1,700,000 $382,000
Jesse M.
Jaynes -0- N/A 1,600,000 $416,000
James E.
Thornton 300,000 $104,400 200,000 -$0-
</TABLE>
a) All options were vested, therefore, there were no unexercisable
options.
b) Based upon the difference between the market value of the Common Stock
at time of exercise and exercise price.
c) Based upon market value of Common Stock at September 30, 1998
28
<PAGE> 30
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Richard Ekstrom, James E. Thornton
and Dr. Jesse Jaynes.
Mr. Ekstrom, Chairman of the Board of Directors and President, has a one year
employment agreement with the Company effective June 1, 1998. The agreement
automatically renews unless either he or the Company provides notice not to
renew to the other party 90 days prior to the expiration date. The agreement
provides that Mr. Ekstrom receive an annual base salary of $120,000.
Additionally, Mr. Ekstrom is eligible for performance based bonuses at the sole
discretion of the Board of Directors and to participate in any Stock Option
Plans established by the Company.
As an incentive to further the commercial applications of the Company's peptide
technology, the Company agreed that during the term of the agreement and
renewals that Mr. Ekstrom will receive a bonus of not less than $5,000 and not
greater than $50,000 for each IND of the Company submitted to the FDA. The
determination of amount of each IND Bonus is at the sole discretion of the Board
of Directors. In the event that the Company terminates Mr. Ekstrom's employment
without cause, the Company shall pay Mr. Ekstrom his salary for six months from
the date of termination.
The Company maintains a $1,000,000 life insurance policy upon Mr. Ekstrom for
the benefit of the Company.
Mr. Jaynes, Vice President of Research, has a five year employment agreement
with the Company effective June 1, 1998. The agreement automatically renews
unless either the employee or the Company provides notice to the other party 90
days prior to the expiration date. The agreement provides that Mr. Jaynes
receive an annual base salary of $120,000. Additionally, Mr. Jaynes is eligible
for performance based bonuses at the sole discretion of the Board of Directors
and to participate in any Stock Option Plans established by the Company.
As an incentive to further its research and the development of patent worthy
compounds, processes and/or methodology, the Company agreed that during the term
of the agreement and renewals that Mr. Jaynes will receive a Patent Registration
Bonus for each invention made (solely or jointly) by him which results in the
issuance of one or more United States or Foreign patents with potential
commercial applications. The determination of the amount of the Patent
Registration Bonus is at the sole discretion of the Board of Directors. In the
event that the Company terminates Mr. Jaynes' employment without cause, the
Company shall pay Mr. Jaynes his salary for six months from the date of
termination.
Additionally, the Company maintains a $1,000,000 life insurance policy upon Mr.
Jaynes for the benefit of his wife and children and another $1,000,000 life
insurance policy upon Mr. Jaynes for the benefit of the Company.
Mr. Thornton, Vice President of Agriculture, has a two year employment agreement
with the Company effective August 1, 1998, expiring August 31, 2000. The
agreement provides that Mr. Thornton receive an annual base salary of $60,000.
Additionally, Mr. Thornton is to receive in the form of deferred compensation,
$5,000 for each month of employment from August 1, 1998 until termination. The
deferred compensation shall accrue interest at 6% and shall be paid out in equal
monthly installments of $3,500
29
<PAGE> 31
beginning the next month after the final payment has been made by the Company to
Mr. Thornton under the terms of the Compensation Release Agreement dated
September 1997.
Additionally, $168,000 of payments due Mr. Thornton for services rendered in
previous years were deferred and are payable over the 48 months after his
retirement from the Company. This amount can be converted into shares of the
Company's Common Stock at $1 per share at Mr. Thornton's discretion.
The three executives noted above, along with four other officers, employees and
directors, share in a $185,000 bonus pool payable upon the Company achieving a
royalty milestone. The aforementioned bonus amounts may be received in the form
of Common Stock of the Company at a conversion price of $1 per share at the
option of the employee.
COMPENSATION OF DIRECTORS
The directors of the Company are reimbursed for expenses that they incur in
attending the Board of Directors' meeting.
At the May 24, 1999 Board of Directors meeting Mr. Hannan was awarded an option
to purchase 100,000 shares of the Company's Common Stock for $0.45 per share.
The option expires May 23, 2004.
At the February 19, 1999 Board of Directors meeting Messrs Bridwell, Weis and
Colker were each awarded options to purchase 25,000 shares of the Company's
Common stock for $0.45 per share. The options expire February 18, 2004. Mr.
Colker assigned his options to the CEO Venture Fund III of which he is the
Managing General Partner.
During Fiscal 1998, the members of the Company's Board of Directors received the
following options to purchase shares of the Company's Common Stock for $0.05 per
share. The options expire March 8, 2008:
<TABLE>
<CAPTION>
Director Options to Purchase
- -------- -------------------
<S> <C>
Don Guthrie 530,000 shares
George Keeney (A) 150,000 shares
Alfonso Lovo-Cordero 150,000 shares
Antonio Maggioni (A) 150,000 shares
</TABLE>
(A) Messrs. Keeney and Maggioni did not stand for reelection as Directors
at the Company's Annual Meeting of Stockholders on January 22, 1999.
COMPENSATION OF SCIENTIFIC ADVISORY BOARD
The members of the Scientific Advisory Board receive, upon appointment, options
to purchase 5,000 shares of the Company's Common Stock at $0.45 per share. The
right to purchase the shares vests immediately and the option is exercisable
over the next five years. Additionally, each member receives $1,000 for each
meeting attended.
In October 1998 the four members were appointed to the Scientific Advisory
Board, Options to purchase a total of 15,000 shares of the Company's Common
Stock were issued. Mr. Zorner declined to accept stock options or cash
compensation due to on going business relationships between the Company and Dow
Chemical Company.
STOCK OPTION PLANS
On May 12, 1998, the Board of Directors unanimously approved the adoption of the
Stock Option Plan (the "Plan") for the issuance of up to 3 million shares of the
Company's Common Stock in accordance with the terms of the Plan subject to the
approval of the shareholders as part of the January 1999 Annual Meeting. Once
approved by the shareholders, all options issued prospectively under the Plan
will qualify as Incentive Stock Options as defined by the Internal Revenue Code
30
<PAGE> 32
Purpose
The Board of Directors believes that the attraction and retention of employees,
consultants and non-employee directors is essential to the Company's growth and
success. The purpose of the Plan is to encourage stock ownership by selected
employees, consultants and by non-employee directors and to provide them with
additional incentives to remain with the Company and increase their efforts on
its behalf.
The Plan is the only long-term incentive plan which the Company provides for its
employees, consultants and non-employee directors. The Board of Directors
believes that stock options are a superior incentive to motivate employees,
consultants and non-employee directors to act and think like owners of the
Company and to exert their best efforts on behalf of the Company and its
shareholders. Additionally, the Board of Directors believes that such long-term
incentive plans are essential for the Company to remain competitive in its
compensation practices and to continue to attract, retain and motivate
outstanding employees and non-employee directors.
Eligibility to Receive Options and Awards
All employees, consultants and non-employee directors of the Company are
eligible to be granted options under the Plan.
Administration, Amendment and Termination
The Plan is administered by the Board of Directors and/or by a duly appointed
committee of the Board. The Board and/or its duly appointed committee has the
sole discretion to determine the employees and consultants to whom options are
to be granted, the number of shares to be subject to such options and the terms,
conditions and any performance criteria for the options.
Without shareholder approval, no amendment may be made to the Plan to increase
the limit on the aggregate number of shares subject to the Plan (except for
adjustments resulting from stock splits and similar events), to extend the term
of an option beyond 10 years from the date of its grant, or otherwise to
increase materially the benefits accruing to participants under the Plan. In
substantially all other respects, the Plan can be amended, modified, suspended
or terminated by the Board of Directors or the Committee.
Options
Option agreements may provide for progressive vesting of the stock options
received by the optionee. Currently vesting periods of zero to three years have
been included in option agreements. However, option agreements do not restrict
the Company's right to terminate such employment at any time.
The price of the shares subject to each option is set by the Board and/or
Committee shall, in the case of Incentive Stock Options, be not less than the
fair market value on the date of the granting of the Option and, in the case of
Nonqualified Stock Options shall be not less than 85% of the fair market value
on the date of the granting of the Option. Additionally, no Incentive Stock
Option shall be granted at an exercise price less than 110% of the fair market
value on the date of the grant of the Option to an Optionee who at the time the
Incentive Stock Option is granted owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company
The Board and/or Committee shall have the power to set the time within each
Option shall be execrable or the event upon the occurrence of which all or a
portion of each Option shall be execrable and the term of each Option, provided,
however, that (i) no Option shall be execrable after the expiration of ten years
after the date such Option is granted, and (ii) no Incentive Stock Option
granted to a holder of more than 10% of the outstanding voting
31
<PAGE> 33
stock of the Company shall be execrable after the expiration of five years after
the date the Option is granted.
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AGREEMENTS WITH AFFILIATED PARTIES
None
ITEM 8 - LEGAL PROCEEDINGS
None
ITEM 9 - MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS' COMMON EQUITY AND
RELATED MATTERS
The Company's Common Stock has been quoted on the Over-the-Counter Bulletin
Board since 1994 under the symbol "DBOT". The following table sets forth, based
upon information received from the National Quotation Bureau, the high and low
bid/ask prices for the Common Stock for the quarters indicated. The quotations
represent bid between dealers and do not include retail mark-up, mark-down or
commissions, and do not represent actual transactions.
<TABLE>
<CAPTION>
Fiscal December 31 March 31 June 30 September 30
- ------ ----------- -------- ------- ------------
<S> <C> <C> <C> <C>
1999
High $0.51 $0.51 $0.63
Low $0.21 $0.34 $0.29
1998
High $0.77 $0.60 $0.68 $0.50
Low $0.43 $0.34 $0.31 $0.25
1997
High $0.91 $0.47 $0.88 $0.69
Low $0.31 $0.20 $0.27 $0.32
</TABLE>
At June 30, 1999 there were 503 holders of record of 26,361,899 share of Common
Stock, exclusive of holders which maintain their ownership in "Street-Name" at
brokerage houses, and one holder of record of 4,444,444 shares of Preferred
Stock. There are another 1,230 stockholders which hold their ownership in street
name.
32
<PAGE> 34
SHARES ELIGIBLE FOR SALE
Sales in the market of substantial amounts of currently outstanding Common Stock
could have an adverse effect on the price of the Common Stock. At October 31,
1998 15,211,269 shares of Common Stock are freely trading shares with the
remainder of 10,905,630 shares of Common Stock currently subject to restrictions
as to their resale. Most of the shares subject to restrictions merely require
the holder of the Common Stock to have the Transfer Agent remove the restrictive
legend as the required holding period has expired. A total of 24,590,913 shares
of the 26,116,889 shares of Common Stock currently issued and outstanding are,
or within the next 12 months will be, eligible for resale, subject, in certain
cases, to the applicable volume and other limitations set forth in Rule 144 of
the Securities Act. The remaining 1,525,976 shares of Common Stock are held by
Messrs. Ekstrom and Jaynes (collectively "Principal Shareholders") and subject
to a Shareholder Agreement (the "Agreement"), dated, June 15, 1998, among the
Company, the CEO Venture Fund III ("CEO") and Messrs. Ekstrom and Jaynes. The
Agreement restricts the transfer and resale of shares of the Company's Common
Stock held by the Principal Shareholders by providing CEO with the right of
first refusal on all share sales by the Principal Shareholders. Additionally,
the Principal Shareholders may not enter into a transaction that reduces their
shareholdings by more than 50% without notifying CEO and upon termination each
Principal Shareholder the Company shall have the option to repurchase up to 50%
of that Principal Shareholder's holdings.
Additionally, at any time and at the option of CEO, CEO would receive 4,444,444
shares upon the conversion of the Preferred Shares that they hold into Common
Stock. The Company has granted registration rights to CEO relative to the
aforementioned Common Shares so that those shares would become freely trading
upon the Registration Statement filed by the Company covering those shares of
Common Stock being declared effective by the Securities and Exchange Commission.
DIVIDENDS
The Company anticipates that for the foreseeable future, earnings will be
retained for the development of its business. Accordingly, the Company does not
anticipate paying dividends on the Preferred Stock or Common Stock in the
foreseeable future. The payment of future dividends will be at the sole
discretion of the Company's Board of Directors and will depend upon. among other
things, future earnings, capital requirements, the general financial condition
of the Company and general business conditions. Refer to the discussion of the
Preferred Stock on Page 37 for a more detailed description of the Preferred
Stock dividend.
ITEM 10 - RECENT SALES OF UNREGISTERED SECURITIES
FISCAL 1999
COMMON SHARES
In April 1999 the Company received $5,000 from the exercise of stock options for
100,000 shares (exercise price of $0.05 per share) held by a director.
In January 1999 the Company issued 145,000 shares (at an issuance price of $0.46
per share) as part of an employment agreement with a retiring employee.
In October 1998, the Company received $12,500 from the exercise of stock options
for 250,000 shares (exercise price of $0.05 per share) held by an employee.
FISCAL 1998
COMMON SHARES
During the Fiscal Year ending September 30, 1998, the Company received $87,500
from the exercise of stock options (exercise price of $0.05 per share) held by
officers, employees and directors. The exercises occurred from April to
September 1998 and
33
<PAGE> 35
consisted of 500,000 shares by Richard Ekstrom, 250,000 shares by Thomas Roane,
550,000 shares by Bruce Guthrie, 300,000 shares by James Thornton, 150,000
shares by George Keeney. Additionally, 1,975,000 shares were issued (at a
current market price of $0.36 per share) in January 1998 to settle the claims of
a former employee, 85,000 shares were issued to two purchasers of the Company's
Common Stock in Fiscal 1997 to compensate them for a subsequent equity sale at a
price below their purchase price and 207,500 shares as compensation for services
rendered (average current market price of $0.33 per share).
PREFERRED SHARES
In June 1998, the Company issued 4,444,444 shares of Preferred Stock to the CEO
Venture Fund III for net proceeds of $1,943,873 (net of $56,127 of expenses
incurred in connection with the issuance). The Preferred Shares are convertible
into 4,444,444 shares of Common Stock. The proceeds were utilized by the Company
to fund current operations.
FISCAL 1997
COMMON SHARES
During the Fiscal Year ending September 30, 1997, the Company received proceeds
from the sale of 906,750 shares of Common Stock (average price of issuances of
$0.36 per share). The proceeds were utilized to fund operations. Additionally,
the Company issued 700,000 shares to Louisiana State University in exchange for
a patent and technology license, 145,000 in exchange for the cancellation of
redemption rights held by Mr. Ekstrom, 533,980 shares in settlement of debts
including 225,000 shares issued to Richard Ekstrom, 522,308 shares as
compensation for services rendered the Company and 150,000 shares to settle
legal claims. The current market price at the time of the issuance of the shares
discussed in the preceding sentence ranged from $0.33 to $0.46 per share.
FISCAL 1996
COMMON SHARES
During the Fiscal Year ending September 30, 1996, the Company received proceeds
from the sale of 531,750 shares of Common Stock (average price of issuances of
$0.703 per share). The proceeds were utilized to fund operations. Additionally,
the Company issued 3,780,153 shares in settlement of outstanding debt or other
obligations, 300,000 shares to settle legal claims, 600,000 shares to settle an
employment agreement with James Ladd (former President of the Company), 463,000
shares as compensation for services rendered the Company and 367,500 shares to
replace 210,000 shares of their freely trading Common Stock that they made
available to the Company. The current market price at the time of the issuance
of the shares discussed in the preceding sentence ranged from $0.474 to $0.78
per share.
ITEM 11 - DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The Company has authorized for issuance 140,000,000 share of capital stock, of
which 40,000,000 share are designated as preferred stock, $0.001 par value and
100,000,000
34
<PAGE> 36
share are designated as common stock, $0.001 par value. The following is a brief
description of the Preferred and Common Stock.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders except for the
election of two directors. Additionally, all holders of Preferred Stock are
entitled to vote their shares on a one share for one share basis on all matters
submitted for the approval of the Common Shareholders. In all matters other than
the election of Directors, when a quorum is present at any stockholders'
meeting, the affirmative vote of the majority of shares present in person or
represented by proxy shall decide any question before such meeting. Directors
are elected by a plurality of the votes of the shares present in person or
represented by proxy at a stockholders' meeting. The Board of Directors of the
Company currently consists of eight members but effective with the Annual
Meeting on January 22, 1999 it will be reduced to six members. The Board of
Directors is divided into three classes of Directors serving one-year terms and
until their successors are elected and qualified. The holders of Preferred Stock
have the right to elect two of the members of the Board of Directors, the Common
Shareholders and Preferred Stockholders elect one member of the Board of
Directors; and the Common Shareholders elect three members of the Board of
Directors. At the October 16, 1998 meeting of the Board of Directors the Board
of Directors was expanded to seven members for one year with the Common
Stockholders electing this additional member of the Board of Directors.
The holders of Common Stock are not entitled to cumulative voting rights with
respect to the election of Directors, and, as a consequence, minority
stockholders will not be able to elect Directors on the basis of their votes
alone. Subject to preferences that are applicable to the outstanding shares of
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor.
In the event of a liquidation, dissolution or winding up of the Company, holders
of the Common Stock would be entitled to share ratably in all assets remaining
after payment of liabilities and the satisfaction of any liquidation preference
of any then outstanding series of Preferred Stock, including the Convertible
Preferred Stock. Holders of Common Stock have no preemptive rights and no right
to convert their Common Stock into any other securities. There are no redemption
or sinking fund provisions applicable to the Common Stock.. All outstanding
shares of Common Stock are fully paid and nonassessable.
As of November 1, 1998, there were 26,116,899 shares of Common Stock outstanding
(excluding 4,444,444 shares of Common Stock issuable upon the conversion of
4,444,444 shares of Convertible Preferred Stock) held of record by 502
stockholders. Options to purchase 5,095,000 shares of Common stock were
outstanding and 4,965,556 shares of Common Stock issuable upon the conversion of
the Stock Warrant held by the holder of the of Convertible Preferred Stock.
TRANSFER AGENT
The Transfer Agent and Registrar for the Company's Common Stock is American
Securities Transfer and Trust Company
35
<PAGE> 37
PREFERRED STOCK
The Company has 4,444,444 shares of Convertible Preferred Stock outstanding. The
Convertible Preferred Stock is convertible into 4,444,444 shares of Common
Stock. The following description of the preferences, limitations and relative
rights of the Convertible Preferred Stock is qualified in its entity by
reference to the Restated Articles of Incorporation of the Company which is
filed as an exhibit to this Registration Statement.
DIVIDENDS The holders of the Convertible Preferred Stock are entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, dividends at the rate of $0.036 per share,
semi-annually, on each outstanding share of Convertible Preferred Stock, Such
dividends have a priority over any dividends paid on the Common Stock. Dividends
on the Convertible Preferred Stock are cumulative and the right to such
dividends shall accrue to holders of Convertible Preferred Stock until declared
by the Board of Directors. The Company does not anticipate declaring any cash
dividends in the foreseeable future.
LIQUIDATION PREFERENCE In the event of any liquidation, dissolution or winding
up of the Company, the holders of Convertible Preferred Stock shall be entitled
receive the greater of $0.45 per share of Convertible Preferred Stock, plus all
unpaid and accrued dividends thereon, computed to the date payment thereof is
made available or the amount the holders of such shares of Convertible Preferred
Stock would otherwise be entitled had each such share of Convertible Preferred
Stock been converted into Common Stock, as discussed in the following paragraph,
immediately prior to such liquidation, dissolution or winding up.
CONVERSION Each share of Convertible Preferred Stock is convertible at any time,
at the option of the holder thereof, into such number of fully paid and
nonassessable shares of Common Stock as shall be determined by multiplying the
number of shares of Convertible Preferred Stock so to be converted by $0.45 and
dividing the result by the conversion price of $0.45 per share. In addition, if
at any time the Company shall effect a firm commitment underwritten public
offering of shares of Common Stock in which the aggregate price paid for such
shares by the public shall be at least $8,000,000, then effective immediately
before the closing of the sale of such shares by the Company pursuant to such
public offering, all outstanding shares of Convertible Preferred Stock shall
automatically convert to share of Common Stock.
REDEMPTION The shares of Convertible Preferred Stock shall be redeemable on a
voluntary basis at the election of any holder of shares of Convertible Preferred
Stock upon at least 90 days notice to the Company, the Company shall redeem from
such holder on or at any time after May 31, 2003, 2004 and 2005 up to one-third
of the shares of Convertible Preferred Stock held by such holder, with the
intent that, should any holder so elect, at any time after May 31, 2005, the
total number of shares held by such holder would be subject to redemption. The
Convertible Preferred Stock to be redeemed shall be paid for in cash at an
amount equal to the greater of (I) $0.45 per share plus, in the case of each
share, an amount equal to all accruing dividends unpaid thereon (whether or not
declared), or (ii) such amount per share as would have been payable has each
such share been converted to Common Stock immediately prior to the actual date
of redemption.
VOTING RIGHTS The holders of shares of Convertible Preferred Stock vote on
matters on an as converted basis, ie. each share of Preferred Stock has one vote
as does each owner of a share of Common Stock.
WARRANTS The holder of the Convertible Preferred Stock has a warrant to purchase
4,965,556 shares of Common Stock of the Company at $0.45 per share of Common
Stock. The Warrant is exercisable, in whole or in part, through June 14, 2008.
The Company may call the Warrant at any time after December 31, 1998 provided
the Company's Common Stock has been in excess of $1.50 per share for each of the
forty consecutive trading days immediately preceding the date of the call.
36
<PAGE> 38
Upon receipt of the call, the Warrant holder shall have sixty days to elect to
exercise all or a portion of this Warrant. Upon such exercise, in addition to
receiving the number of shares of Common Stock to which the holder shall be
entitled, the holder of the Warrant also shall receive a new Warrant
("Replacement Warrant"). The Replacement Warrant shall be exercisable for one
share of Common Stock for every two shares of Common Stock purchased in response
to the aforementioned call. The exercise price of the Replacement Warrant is
$1.50 per share and the term of the Replacement Warrant shall be the longer of
two years from the date of the issuance or the balance of the original term of
the Warrant.
ITEM 12 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with the Colorado Business Corporation Act (the "Act"), the
Company's Articles of Incorporation (the "Articles") contain provisions which
provide indemnification rights to officers, directors, employees and agents of
the Company ("Potential Indemnitees"), subject to certain limitations set forth
in the Act and in the Articles. A Potential Indemnitee has a right of mandatory
indemnification by the Company if he is successful on the merits in defense of
any proceeding brought against him for actions taken on behalf of the Company.
Under the Articles, the Corporation may indemnify a Potential Indemnitee if the
Board of Directors shall determine that Potential Indemnitee acted in good faith
and in a manner he reasonably believed to be in the best interests of the
Company, and with respect to any criminal action or proceeding had no reasonable
cause to believe his conduct was unlawful. The Company may advance a Potential
Indemnitee the expense incurred in defense of any action upon receipt of an
agreement of the Potential Indemnitee to repay the expenses unless it is
determined that he is entitled to indemnification under the Articles. In
addition, the Articles also provide that the directors of the Company shall not
be liable to the Company or its stockholders to the fullest extent permitted by
the Act.
ITEM 13 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to Item 13 is contained in the Company's financial
statements and is set forth herein beginning on page F-1.
ITEM 14 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL MATTERS
Not applicable
ITEM 15 - FINANCIAL STATEMENTS AND EXHIBITS
a. Each of the following items are contained in the Company's financial
statements and are set forth herein beginning on page F-1.
(i) Report of Ernst & Young LLP, Independent Auditors
37
<PAGE> 39
(ii) Balance Sheet as of September 30, 1998 and 1997 and June 30,
1999 (unaudited)
(iii) Statement of Operations for the Years Ended September 30,
1998, 1997 and 1996 and for the period December 6, 1991
(inception) to September 30, 1998, for the Quarter Ended June
30, 1999 and 1998 (unaudited) and for the nine months periods
ended June 30, 1999 and 1998 (unaudited) and for the period
December 6, 1991 (inception) to June 30, 1999 (unaudited)
(iv) Statement of Stockholders' Equity for the Years Ended
September 30, 1998, 1997 and 1996 and for the period December
6, 1991 (inception) to September 30, 1998 and for the
nine months ended June 30, 1999 (unaudited) the period
December 6, 1991 (inception) to June 30, 1999 (unaudited)
(v) Statement of Cash Flows for the Years Ended September 30,
1998, 1997 and 1996 and for the period December 6, 1991
(inception) to September 30, 1998 and for the Nine Months
Ended June 30, 1999 and 1998 (unaudited) and for the period
December 6, 1991 (inception) to June 30, 1999 (unaudited)
(vi) Notes to Financial Statements
b. Exhibits
3.1 Articles of Incorporation of the Company, as amended
3.2 Amended and Restated By-laws of the Company
4.1 Specimen of Common Stock Certificate
4.2 Stock Purchase Agreement, dated June 15, 1998, between the Registrant
and the Principal Shareholders of the Registrant and the CEO Venture
Fund III
4.2.1 Terms of Convertible Preferred Stock
4.3 Warrant to Purchase Common Stock, dated June 15, 1998, between the
Registrant and the Registrant and the CEO Venture Fund III
4.4 Shareholders' Agreement, dated June 15, 1998, by and among the Company,
Richard Ekstrom, Jesse Jaynes and the CEO Venture Fund III
10.1 License and Royalty Agreement, effective May 1, 1997, between the
Registrant and Louisiana State University*
10.2 Restated Demeter-Mycogen License and Royalty Agreement, effective
September 23, 1997, between the Registrant and Mycogen Corporation*
10.3 Addendum to Restated Demeter-Mycogen License and Royalty Agreement,
effective November 13, 1998, between the Registrant and Mycogen
Corporation*
10.4 Employment Agreement, dated June 15, 1998, between the Registrant and
Richard D. Ekstrom
10.4-1 Employment Agreement, dated November 1, 1995, between the Registrant
and Richard D. Ekstrom
10.5 Employment Agreement, dated June 15, 1998, between the Registrant and
Jesse M. Jaynes
38
<PAGE> 40
10.6 Employment Agreement, dated June 15, 1998, between the Registrant and
James E. Thornton
10.7 Compensation Release Agreements dated September 19, 1997:
a) Richard D. Ekstrom
b) Bruce A. Guthrie
c) Donald A. Guthrie
d) Jesse M. Jaynes
e) D. Thomas Roane
f) A. Lee Caldwell
g) James E. Thornton
10.8 Consulting Agreement between the Company and Progressive Media Group,
Inc., dated February 12, 1998
10.9 Settlement Agreement between the Company and Philip Sears dated
January, 1998
10.10 Settlement Agreement dated September 11, 1996, among the Company and
Gordon Julian and Sirius Enterprises, Inc.
10.11 Technology Transfer, Support and Royalty Assignment Agreement dated
February 19, 1992, between the Company and Dr. Jesse M. Jaynes
10.12 Letter of Understanding dated November 13, 1996 between the Company and
Pacific West Cancer Fund
10.13 Stock Option Agreements dated March 6, 1998
a) Richard D. Ekstrom
b) Bruce A. Guthrie
c) Donald A. Guthrie
d) Jesse M. Jaynes
e) D. Thomas Roane
f) A. Lee Caldwell
g) Alfonso Lovo-Cordero
h) Antonio Maggioni
i) George N. Keeney
j) James E. Thornton
k) Ute Schweb
10.14 Stock Option Agreements dated November 2, 1996
a) Bruce A. Guthrie
b) Thomas Roane
c) Alfonso Lovo-Cordero
d) Antonio Maggioni
e) George N. Keeney
f) James E. Thornton
10.15 Stock Option Agreements dated September 1, 1997
a) Donald A. Guthrie
b) Alfonso Lovo-Cordero
c) Antonio Maggioni
d) George N. Keeney
39
<PAGE> 41
10.16 Stock Option Agreements dated September 18, 1998
a) Roger A. Laine, Ph.D.
b) Wayne F. Topkins, Ph.D.
c) Paul L. Kornblith, M.D.
10.17 Settlement Agreement dated, September 25, 1996 between the Company and
The Peregrine Group
10.18 Compensation Release Agreement dated September 19, 1997 between the
Company and Richard D. Ekstrom relative to the cancellation of the
Share Repurchase Agreement and the issuance of 145,000 shares of the
Company's Restricted Stock
10.19 Settlement Agreement and Mutual Release between the Company and James
Ladd dated December 31, 1996 with subsequent Letter Agreement of
December 31, 1997 between the Company and James Ladd
10.20 1998 Stock Option Plan
10.21 Sample Employee Nondisclosure, Noncompete and Developments Agreement
10.22 The Company's United States Patents
a) Patent # 5,561,107 Method of Enhancing Wound Healing by Stimulating
Fibroblast and Keratinocyte Growth in Vivo, Utilizing Amphipathic
Peptides
b) Patent #5,597,945 Plants Generically Enhanced for Disease Resistance
c) Patent #5,597,946 Method for Introduction of Disease and Pest
Resistance into Plants and Novel Genes Incorporated into Plants Which
Code Therefore
d) Patent #5,717,064 Methylated Lysine-Rich Lytic Peptides and Method of
Making Same by Reductive Alkylation
e) Patent #5,744,445 Method of Treating Pulmonary Diseases with
Non-Naturally Occurring Amphipathic Peptides
f) Patent #5,773,413 Method of Combating Mammalian Neoplasias and Lytic
Peptides Therefor
g) Patent # 5,811,654 Plants genetically enhanced for nutritional quality
10.23 Settlement Agreement, dated September 17, 1996, between the Company and
John Bridwell
10.24 Stock Option Agreement date February 19, 1999
a) Konrad M. Weis Ph.D.
b) John Bridwell
c) James Colker
10.25 Assignment of Option dated May 1, 1999 by and among James Colker, CEO
Venture Fund III and Demegen, Inc.
24 Power of Attorney
27. Financial Statement Schedules
* Certain portions of this exhibit have been omitted based upon a request for
Confidential Treatment. The non-public information has been filed with the
Commission.
40
<PAGE> 42
SIGNATURES
In accordance with Section 12 of the Securities and Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Demegen, Inc.
Date: August 9, 1999
By: /s/ Richard D. Ekstrom
---------------------------------
Richard D. Ekstrom
Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
registrations statement has been signed below by the followings persons on
behalf of the registrant and in the capacities and on the dates indicated.
Date: August 9, 1999 By: /s/ Richard D. Ekstrom
-----------------------
Richard D. Ekstrom
Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 9, 1999 By: /s/ Jesse M. Jaynes, Ph.D.
---------------------------
Jesse M. Jaynes, Ph.D.
Vice President and Director
Date: August 9, 1999 By: /s/ James Colker
-----------------
James Colker
Director
Date: August 9, 1999 By: /s/ Donald A. Guthrie, Ph.D.
-----------------------------
Donald A. Guthrie, Ph.D.
Director
Date: August 9, 1999 By: /s/ John Bridwell
------------------
John Bridwell
Director
Date: By:
--------------------------------
Alfonso Lovo-Cordero, LL.D.
Director
Date: August 9, 1999 By: /s/ Konrad M. Weis, Ph.D.
--------------------------
Konrad M. Weis. Ph.D.
Director
Date: August 9, 1999 By: /s/ Robert E. Hannan
--------------------------
Robert E. Hannan
Director
41
<PAGE> 43
[ERNST & YOUNG LLP LETTERHEAD]
Report of Independent Auditors
Board of Directors
Demegen, Inc.
We have audited the accompanying balance sheets of Demegen, Inc. (a development
stage company) as of September 30, 1998 and 1997, and the related statements of
operations, shareholders' deficit, and cash flows for the years ended September
30, 1998, 1997, and 1996, and for the period from December 6, 1991 (inception)
through September 30, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements for the
period from December 6, 1991 (inception) through September 30, 1994, were
audited by other auditors whose report dated November 10, 1994, expressed an
unqualified opinion on those statements and included an explanatory paragraph
regarding the entity's ability to continue as a going concern, that is not
included in our current report as the result of additional financing obtained by
the Company. The financial statements for the period December 6, 1991
(inception) through September 30, 1994, include total revenues and net loss of
$1,116,800 and $3,056,682, respectively. Our opinion on the statements of
operations, shareholders' deficit, and cash flows for the period December 6,
1991 (inception) through September 30, 1998, insofar as it relates to amounts
for prior periods through September 30, 1994, is based solely on the report of
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Demegen, Inc. (a development stage company) at
September 30, 1998 and 1997, and the results of its operations and its cash
flows for the years ended September 30, 1998, 1997, and 1996, and for the period
from December 6, 1991 (inception) through September 30, 1998, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
October 29, 1998 (except for Note 12,
as to which the date is November 13, 1998)
F-1
<PAGE> 44
Demegen, Inc.
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30 JUNE 30
1998 1997 1999
-------------------------------------------- -----------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $1,686,658 $310,252 $ 781,035
Accounts receivable 59,929 -- 41,318
Prepaid expenses and other current assets 11,859 1,450 2,507
-------------------------------------------- -----------------
Total current assets 1,758,446 311,702 824,860
Property and equipment:
Furniture and equipment 38,440 32,168 127,828
Computer hardware and software 113,416 65,661 232,416
-------------------------------------------- -----------------
151,856 97,829 360,244
Less accumulated depreciation and amortization (94,271) (63,447) (133,641)
-------------------------------------------- -----------------
57,585 34,382 226,603
Intangible assets:
Licenses 245,000 245,000 245,000
Patents 183,504 98,894 183,504
-------------------------------------------- -----------------
428,504 343,894 428,504
Less accumulated amortization (129,785) (38,015) (198,582)
-------------------------------------------- -----------------
298,719 305,879 229,922
-------------------------------------------- -----------------
Total assets $2,114,750 $651,963 1,281,385
============================================ =================
</TABLE>
F-2
<PAGE> 45
<TABLE>
<CAPTION>
SEPTEMBER 30 JUNE 30,
1998 1997 1999
-------------------------------------------- -----------
(Unaudited)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Payable to employees and directors $ 110,933 $ 1,415,263 75,619
Accounts payable 178,232 333,919 197,502
Unearned revenue 91,668 -- 91,669
Other liabilities 48,072 60,997 36,435
-------------------------------------------- ----------
Total current liabilities 428,905 1,810,179 401,225
Payable to employees and directors 178,400 -- 201,641
Unearned revenue 91,665 -- 22,914
Other 27,426 -- 43,089
-------------------------------------------- -----------
Total liabilities 726,396 1,810,179 668,869
Commitments and contingency
Redeemable convertible preferred stock, $.001 par value--
40,000,000 shares authorized; 4,444,444 shares issued
and outstanding 1,510,484 -- 1,703,655
Shareholders' deficit:
Common stock, $.001 par value--100,000,000 shares
authorized; 26,361,899, 25,866,899 and 21,849,399 shares
issued and outstanding at June 30, 1999 and
September 30, 1998 and 1997, respectively. 25,867 21,849 26,362
Warrants 497,000 -- 497,000
Additional paid-in capital 11,878,361 8,263,707 11,962,166
Deficit accumulated during the development stage (12,523,358) (9,443,772) (13,576,667)
-------------------------------------------- -----------
Total shareholders' deficit (122,130) (1,158,216) (1,091,139)
-------------------------------------------- -----------
Total liabilities and shareholders' deficit $ 2,114,750 $ 651,963 1,281,385
============================================ ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 46
Demegen, Inc.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 6, 1991
(INCEPTION) TO
YEAR ENDED SEPTEMBER 30 SEPTEMBER 30
1998 1997 1996 1998
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income:
License $ 906,651 $ 100,000 $ -- $ 1,006,651
Grant and other 425,398 664,834 271,777 1,646,401
Interest 44,869 -- -- 44,869
-------------------------------------------------------------------------------
Total income 1,376,918 764,834 271,777 2,697,921
Expenses:
Research and development 880,965 596,772 754,059 3,979,205
General and administrative 2,338,817 866,910 1,623,443 8,887,728
Interest 28,295 172,356 424,205 979,584
Depreciation and amortization 122,594 72,569 39,548 288,929
-------------------------------------------------------------------------------
Total expenses 3,370,671 1,708,607 2,841,255 14,135,446
-------------------------------------------------------------------------------
Net loss (1,993,753) (943,773) (2,569,478) (11,437,525)
Preferred dividend and accretion
amounts (1,085,833) -- -- (1,085,833)
-------------------------------------------------------------------------------
Net loss applicable to common stock
$(3,079,586) $ (943,773) $(2,569,478) $(12,523,358)
===============================================================================
Net loss per common share, basic and
diluted $ (0.13) $ (0.05) $ (0.17)
===========================================================
Weighted average common stock
outstanding 23,867,091 19,537,047 15,479,889
===========================================================
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
NINE MONTHS ENDED DECEMBER 6, 1991
JUNE 30, (INCEPTION) TO
----------------------------------------- JUNE 30,
1999 1998 1999
----------------------------------------- -------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Income:
License $ 350,000 $ 900,000 $ 1,356,651
Grant and other 516,754 401,681 2,163,155
Interest 51,297 25,308 96,166
----------------------------------------- -------------------
Total income 918,051 1,326,989 3,615,972
Expenses:
Research and development 1,075,084 703,253 5,054,289
General and administrative 592,799 2,257,806 9,480,527
Interest 2,139 28,077 981,723
Depreciation and amortization 108,167 85,289 397,096
----------------------------------------- -------------------
Total expenses 1,778,189 3,074,425 15,913,635
----------------------------------------- -------------------
Net income (loss) (860,138) $(1,747,436) (12,297,663)
Preferred dividend and accretion
amounts (193,171) (1,022,222) (1,279,004)
----------------------------------------- -------------------
Net income (loss) applicable to
common stock $(1,053,309) $(2,769,658) $(13,576,667)
========================================= ===================
Net per common share,
basic and diluted $ (0.04) $ (0.12)
=========================================
Weighted average common stock
outstanding 26,219,115 22,964,105
=========================================
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-----------------------------------------
1999 1998
-----------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Income:
License $ -- $ --
Grant and other 22,917 53,903
Interest 13,737 4,503
-----------------------------------------
Total income 36,654 58,406
Expenses:
Research and development 439,895 216,732
General and administrative 242,557 203,444
Interest 611 327
Depreciation and amortization 40,001 28,768
-----------------------------------------
Total expenses 723,064 449,271
-----------------------------------------
Net income (loss) (686,410) $ (390,865)
Preferred dividend and accretion
amounts (64,786) (1,022,222)
-----------------------------------------
Net income (loss) applicable to
common stock $ (751,196) $(1,411,087)
=========================================
Net per common share,
basic and diluted $ (0.03) $ (0.06)
=========================================
Weighted average common stock
outstanding 26,355,297 23,410,816
=========================================
</TABLE>
See accompanying notes.
F-4
<PAGE> 47
Demegen, Inc.
(A Development Stage Company)
Statements of Shareholders' Deficit
<TABLE>
<CAPTION>
COMMON STOCK
AVERAGE ---------------------------------
PRICE
PER SHARE SHARES AMOUNT WARRANTS
-------------- ---------------- ---------------- --------
<S> <C> <C> <C> <C>
Capital contributed by a shareholder -- $ -- --
Proceeds from the sale of unrestricted shares contributed by
shareholders in exchange for restricted shares $.62 439,045 439 --
Payment of debt with stock warrants -- -- --
Payment of interest with stock warrants -- -- --
Issuance of receivable from officer -- -- --
Net loss for the year -- -- --
---------------- ---------------- --------
Balance at September 30, 1993 11,182,616 11,183 --
Proceeds from the sale of unrestricted shares by shareholders
in exchange for restricted shares .75 691,738 692 --
Issuance of stock for consulting services 1.54 58,336 58 --
Issuance of stock subscriptions for loan origination fee 1.14 131,250 131 --
Payment of interest with stock warrants -- -- --
Net loss for the year -- -- --
---------------- ---------------- --------
Balance at September 30, 1994 12,063,940 12,064 --
Proceeds from the sale of restricted common shares 1.06 192,133 193 --
Issuance of restricted shares in exchange for unrestricted
shares contributed by shareholders 171,694 172 --
Proceeds from the sale of unrestricted shares contributed by
shareholders in exchange for restricted shares 2.18 -- -- --
Issuance of restricted shares for payment of services/compensation .89 402,251 402 --------
Issuance of warrants -- -- --
Payment of interest with stock warrants -- -- --
Net loss for the year -- -- --
---------------- ---------------- --------
Balance September 30, 1995 12,831,018 12,831 --
Proceeds from the sale of common shares .70 683,250 683 --
Issuance of shares for payment of services/compensation .60 890,868 891 --
Issuance of shares in settlement of outstanding debt
and other obligations .47 4,468,285 4,468 --
Payment of interest with warrants -- -- --
Net loss for the year -- -- --
---------------- ---------------- --------
Balance at September 30, 1996 18,873,421 18,873 --
Proceeds from the sale of restricted and unrestricted common shares .36 340,000 340 --
Issuance of shares for payment of services/compensation .41 1,178,258 1,178 --
Issuance of shares in exchange for patent and technology license .35 700,000 700 --
Issuance of restricted shares in exchange for unrestricted
shares contributed by shareholders 162,720 163 --
Exchange of amounts due to related parties for restricted shares .33 450,000 450 --
Exchange of redemption right of related party for additional
restricted shares .33 145,000 145 --
Settlement of amounts due to related parties through debt
forgiveness and issuance of shares -- -- --
Net loss for the year -- -- --
---------------- ---------------- --------
Balance at September 30, 1997 21,849,399 21,849 --
Proceeds from exercise of stock options $.05 1,750,000 1,750 --
Compensation expense from Stock option activity -- -- --
Issuance of warrants -- -- 497,000
Allocation of conversion feature of redeemable convertible
preferred stock -- --
Accretion of conversion feature of redeemable convertible
preferred stock -- --
Dividends on redeemable convertible preferred stock -- --
Accretion of redeemable convertible preferred stock -- -- --
Issuance of shares for payment of collaborators $.47 20,000 20 --
Settlement of employee litigation $.36 1,975,000 1,975 --
Issuance of shares for services $.47 187,500 188 --
Issuance of additional shares to venture capital funds and
individual investors 85,000 85 --
Net loss for the year -- -- --
---------------- ---------------- --------
Balance at September 30, 1998 25,866,899 $25,867 497,000
================ ================ ========
Dividends on redeemable convertible preferred stock (unaudited) -- -- --
Accretion of redeemable convertible preferred stock (unaudited) -- -- --
Proceeds from exercise of Stock options (unaudited) $.05 350,000 350 --
Issuance of shares for services (unaudited) $0.46 145,000 145
Net loss for 9 month period ended June 30, 1999 (unaudited) -- -- --
---------------- ---------------- --------
Balance at June 30, 1999 (unaudited) 26,361,899 $26,362 497,000
================ ================ ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 48
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE
PAID-IN RECEIVABLE DEVELOPMENT
CAPITAL FROM OFFICER STAGE TOTAL
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital contributed by a shareholder $ 123,700 $ -- $ -- $ 123,700
Proceeds from the sale of unrestricted shares contributed by
shareholders in exchange for restricted shares 272,461 -- -- 272,900
Payment of debt with stock warrants 33,333 -- -- 33,333
Payment of interest with stock warrants 17,774 -- -- 17,774
Issuance of receivable from officer -- (65,117) -- (65,117)
Net loss for the year -- -- (1,044,154) (1,044,154)
--------------------------------------------------------------
Balance at September 30, 1993 759,949 (65,117) (1,288,254) (582,239)
Proceeds from the sale of unrestricted shares by shareholders
in exchange for restricted shares 517,708 -- -- 518,400
Issuance of stock for consulting services 89,942 -- -- 90,000
Issuance of stock subscriptions for loan origination fee 149,869 -- -- 150,000
Payment of interest with stock warrants 56,164 -- -- 56,164
Net loss for the year -- -- (1,768,428) (1,768,428)
--------------------------------------------------------------
Balance at September 30, 1994 1,573,632 (65,117) (3,056,682) (1,536,103)
Proceeds from the sale of restricted common shares 204,807 -- -- 205,000
Issuance of restricted shares in exchange for unrestricted
shares contributed by shareholders (172) -- -- --
Proceeds from the sale of unrestricted shares contributed by
shareholders in exchange for restricted shares 349,304 65,117 -- 414,421
Issuance of restricted shares for payment of services/compensation 357,681 -- -- 358,083
Issuance of warrants 11,625 -- -- 11,625
Payment of interest with stock warrants 127,500 -- -- 127,500
Net loss for the year -- -- (2,873,839) (2,873,839)
--------------------------------------------------------------
Balance September 30, 1995 2,624,377 -- (5,930,521) (3,293,313)
Proceeds from the sale of common shares 479,817 -- -- 480,500
Issuance of shares for payment of services/compensation 536,359 -- -- 537,250
Issuance of shares in settlement of outstanding debt
and other obligations 2,113,054 -- -- 2,117,522
Payment of interest with warrants 84,996 -- -- 84,996
Net loss for the year -- -- (2,569,478) (2,569,478)
--------------------------------------------------------------
Balance at September 30, 1996 5,838,603 -- (8,499,999) (2,642,523)
Proceeds from the sale of restricted and unrestricted common shares 104,660 -- -- 105,000
Issuance of shares for payment of services/compensation 477,629 -- -- 478,807
Issuance of shares in exchange for patent and technology license 244,300 -- -- 245,000
Issuance of restricted shares in exchange for unrestricted
shares contributed by shareholders (163) -- -- --
Exchange of amounts due to related parties for restricted shares 149,550 -- -- 150,000
Exchange of redemption right of related party for additional
restricted shares (145) -- -- --
Settlement of amounts due to related parties through debt
forgiveness and issuance of shares 1,449,273 -- -- 1,449,273
Net loss for the year -- -- (943,773) (943,773)
--------------------------------------------------------------
Balance at September 30, 1997 8,263,707 -- (9,443,772) (1,158,216)
Proceeds from exercise of stock options 85,750 -- -- 87,500
Compensation expense from stock option activity 1,699,440 -- -- 1,699,440
Issuance of warrants -- -- -- 497,000
Allocation of conversion feature of redeemable
convertible preferred stock 1,022,222 -- -- 1,022,222
Accretion of conversion feature of redeemable
convertible preferred stock -- -- (1,022,222) (1,022,222)
Dividends on redeemable convertible preferred stock -- -- (40,000) (40,000)
Accretion of redeemable convertible preferred stock -- -- (23,611) (23,611)
Issuance of shares for payment of collaborators 9,360 -- -- 9,380
Settlement of employee litigation 710,217 -- -- 712,192
Issuance of shares for services 87,750 -- -- 87,938
Issuance of additional shares to venture capital funds and
individual investors (85) -- -- --
Net loss for the year -- -- (1,993,753) (1,993,753)
--------------------------------------------------------------
Balance at September 30, 1998 $11,878,361 $ -- $(12,523,358) $ (122,130)
==============================================================
Dividends on redeemable convertible preferred stock (unaudited) -- -- (120,000) (120,000)
Accretion of redeemable convertible preferred stock (unaudited) -- -- (73,171) (73,171)
Proceeds from exercise of Stock options (unaudited) 17,150 -- -- 17,500
Issuance of shares for services (unaudited) 66,655 -- -- 66,800
Net loss for 9 month period ended June 30, 1999 (unaudited) -- -- (860,138) (860,138)
--------------------------------------------------------------
Balance at June 30, 1999 (unaudited) 11,962,166 -- (13,576,667) (1,091,139)
==============================================================
</TABLE>
F-6
<PAGE> 49
Demegen, Inc.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 6, 1991
(INCEPTION)
YEAR ENDED SEPTEMBER 30 TO SEPTEMBER 30
1998 1997 1996 1998
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(1,993,753) $(943,773) $(2,569,478) $(11,437,525)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 122,594 72,569 39,548 288,929
Stock issued for services 97,318 478,807 537,250 1,729,058
Loss on disposals of equipment -- 17,722 -- 17,722
Issuance of stock options to employees and
directors 1,699,440 -- -- 1,699,440
Warrants issued for interest -- -- 84,996 286,434
Notes payable issued for services -- -- -- 58,194
Write-off of intangible assets -- -- -- 6,626
Changes in operating assets and liabilities:
Accounts receivable (59,929) -- -- (59,929)
Prepaid expenses and other current assets (10,409) 23,363 (21,847) (11,859)
Unearned revenue 183,333 -- -- 183,333
Accounts payable and other liabilities (141,186) (206,861) 497,204 1,208,710
Interest payable -- -- (146,888) --
-------------------------------------------------------------------------------
Net cash used in operating activities (102,592) (558,173) (1,579,215) (6,030,867)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment (54,027) (3,595) (29,478) (173,218)
Cash received on equipment disposals -- 9,643 -- 9,643
Intangible assets (84,610) (79,532) (19,362) (183,504)
-------------------------------------------------------------------------------
Net cash used in investing activities (138,637) (73,484) (48,840) (347,079)
CASH FLOW FROM FINANCING ACTIVITIES
Net proceeds from issuance of equity
instruments 1,943,873 105,000 480,500 4,309,500
Proceeds from exercise of stock options 87,500 -- -- 87,500
Proceeds from notes payable -- -- -- 1,127,500
(Decrease) increase in payable to employees
and directors (413,738) 817,643 1,189,011 2,600,798
Payments on notes payable -- -- (23,194) (60,694)
-------------------------------------------------------------------------------
Net cash provided by financing activities 1,617,635 922,643 1,646,317 8,064,604
-------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 1,376,406 290,986 18,262 1,686,658
Cash and cash equivalents at beginning of
period 310,252 19,266 1,004 --
-------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,686,658 $ 310,252 $ 19,266 $ 1,686,658
===============================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest $ 14,080 $ -- $ -- $ 21,642
===============================================================================
NONCASH ACTIVITIES
Common stock issued in satisfaction of related
party payable $ 712,192 $ -- $ -- $ 712,192
===============================================================================
Dividends on redeemable convertible preferred
stock $ 40,000 $ -- $ -- $ 40,000
===============================================================================
Accretion of redeemable convertible preferred
stock $ 1,045,833 $ -- $ -- $ 1,045,833
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
NINE MONTHS ENDED DECEMBER 6, 1991
JUNE 30, (INCEPTION)
----------------------------------------- TO JUNE 30,
1999 1998 1999
----------------------------------------- ------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (860,138) $(1,747,436) $(12,297,663)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 108,167 85,289 397,096
Stock issued for services -- 21,308 1,729,058
Loss on disposals of equipment -- -- 17,722
Issuance of stock options to employees and
directors -- 1,699,440 1,699,440
Warrants issued for interest -- -- 286,434
Notes payable issued for services -- -- 58,194
Write-off of intangible assets -- -- 6,626
Changes in operating assets and liabilities:
Accounts receivable 18,611 -- (41,318)
Prepaid expenses and other current assets 9,352 1,450 (2,507)
Unearned revenue (68,750) 206,250 114,583
Accounts payable and other liabilities 2,187 (173,965) 1,210,897
Interest payable -- -- --
-------------------------------------------------------------------------------
Net cash used in operating activities (790,571) 92,336 (6,821,438)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment (208,388) (40,325) (381,606)
Cash received on equipment disposals -- -- 9,643
Intangible assets -- (1,450) (183,504)
-------------------------------------------------------------------------------
Net cash used in investing activities (208,388) (41,775) (555,467)
CASH FLOW FROM FINANCING ACTIVITIES
Net proceeds from issuance of equity
instruments -- 1,943,873 4,309,500
Proceeds from exercise of stock options 17,500 58,750 105,000
Proceeds from notes payable 21,109 -- 1,148,609
(Decrease) increase in payable to employees
and directors 54,727 (348,764) 2,655,525
Payments on notes payable -- -- (60,694)
-------------------------------------------------------------------------------
Net cash provided by financing activities 93,336 1,653,859 8,157,940
-------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (905,623) 1,704,420 781,035
Cash and cash equivalents at beginning of
period 1,686,658 310,252 --
-------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 781,035 $ 2,014,672 $ 781,035
===============================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest $ 2,217 $ 10,613 $ 23,859
===============================================================================
NONCASH ACTIVITIES
Common stock issued in satisfaction of related
party payable $ 66,800 $ 712,192 $ 778,992
===============================================================================
Dividends on redeemable convertible preferred
stock $ 120,000 $ -- $ 160,000
===============================================================================
Accretion of redeemable convertible preferred
stock $ 73,171 $ 1,022,222 $ 1,119,004
===============================================================================
</TABLE>
See accompanying notes.
F-7
<PAGE> 50
Demegen, Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1998
(Information as of March 31, 1999 and for the
Six Months Ended June 30, 1999 and 1998 is unaudited)
1. HISTORY AND NATURE OF THE BUSINESS
Demeter BioTechnologies, Ltd. was formed after the July 27, 1992 acquisition of
the assets of The Demeter Corporation by Excelsior Capital Corporation
("Excelsior"). Excelsior was incorporated in Colorado on September 16, 1987.
Excelsior acquired all the assets of The Demeter Corporation in exchange for
6,625,821 shares of Excelsior's $.001 par value common stock. The Demeter
Corporation's assets consisted of intangible assets related to various
biotechnology applications in the fields of human and animal health care,
agriculture, and commercial chemicals.
For accounting purposes, the acquisition was treated as a reverse acquisition
whereby The Demeter Corporation acquired Excelsior Capital Corporation. The
historical financial statements prior to the acquisition are those of The
Demeter Corporation utilizing the capital structure of Excelsior. However, The
Demeter Corporation had no operating activities from the date of inception,
December 6, 1991, through July 27, 1992. Likewise, Excelsior had no operating
activities prior to December 6, 1991.
On September 18, 1998, the Board of Directors of the Company ratified the
shareholder vote changing the Company's name from Demeter BioTechnologies, Ltd.
to Demegen, Inc. (the "Company").
The Company designs unique molecules which have antimicrobial characteristics,
but with low toxicity and benign environmental impact. The Company's products,
called MIMS(TM) (Membrane Interactive Molecules), are peptides (small proteins)
or peptide-like molecules. Their primary feature is their ability to destroy a
wide range of bacteria, viruses, fungi, protozoa, and cancer cells at low
concentrations without harming healthy cells. The Company also designs genes
which, when incorporated into a plant, have the ability to confer disease
resistance or improve nutritional value. The Company uses university, corporate,
and governmental strategic alliance partners to determine efficacy in treating a
specific pathogen and then licenses the use of the compounds for that
application. If successful, the Company's primary source of revenues will be
from supplying the compounds to licensees, royalties, and research grants. The
Company has licensed substantially all of its plant agricultural technologies to
Mycogen Corporation.
INTERIM FINANCIAL INFORMATION
The financial information at June 30, 1999 and for the three and nine months
ended June 30, 1999 and 1998 is unaudited, but includes all adjustments
(consisting only of normal recurring adjustments) that the Company considers
necessary for a fair presentation of the financial position at such date and the
operating results and cash flows for those periods. Operating results for the
three and nine months ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the entire year.
F-8
<PAGE> 51
Demegen, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consists principally of currency on hand, demand
deposits at commercial banks, and liquid investment funds having a maturity of
three months or less at the time of purchase.
RECLASSIFICATIONS
Certain amounts reflected in the prior period financial statements have been
reclassified in order to conform with the fiscal 1998 presentation.
PREOPERATING COSTS
Costs incurred during the developmental stage, such as expenses associated with
research and development, raising capital, establishing markets, and developing
sources of supply, are expensed as incurred.
COMMON STOCK ISSUED FOR OTHER THAN CASH
Services purchased and other transactions settled in the Company's common stock
are recorded at the estimated fair value of the stock issued if that value is
more readily determinable than the fair value of the consideration received.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives (generally three to five
years) of the individual assets. Depreciation expense amounted to $30,824,
$34,554, and $39,598 during 1998, 1997, and 1996, respectively. Accelerated
depreciation methods are used for income tax purposes.
F-9
<PAGE> 52
Demegen, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets include patent costs and purchased license agreements and are
stated at cost, net of accumulated amortization. Amortization is calculated
using the straight-line method over estimated useful lives ranging from 3 to 17
years. The Company assesses on an ongoing basis the recoverability of the cost
of its patents and licenses by determining its ability to generate future cash
flows sufficient to recover the recorded amounts over the remaining useful lives
of the assets. This process necessarily involves significant management
judgment. The Company currently anticipates fully recovering the recorded cost
of these assets and, accordingly, no valuation adjustment has been recognized to
date. Because of the development stage nature of the Company, significant
uncertainty exists as to whether revenue expectations will be met. Should the
Company determine in the future that permanent diminution in value of the
intangibles has occurred, a charge against operating results would be recorded.
GRANT AND OTHER INCOME
Grant income is not recognized until received.
During the six months ending March 31, 1999 and fiscal years 1998 and 1997, the
Company received grant proceeds of $250,000 (unaudited), $250,000 and $500,000,
respectively, from the Pacific West Cancer Fund in support of the Company's
cancer research efforts. The funds were recognized as revenue upon receipt as
the contract did not contain any penalties, successful outcomes clauses or
refunding provisions.
The Company received approximately $79,000, $85,000 and $50,000 in fiscal 1998,
1997 and 1996 under research agreements with the National Institute of Health
and the National Science Foundation. Revenue was recognized as the research
funds were expended.
LICENSE AND SUPPORT
License fees are recognized at the time that the agreement is entered into as
the earning process is complete and the Company has no future performance
obligations. Support fees are recognized ratably over the contract period as the
related costs are incurred.
Milestone payments will be recognized upon the achievement of the related
criteria by the respective license subject to a reasonable assurance that the
milestone payment will be forthcoming.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No.
123"). SFAS No. 123 permits the Company to continue accounting for stock-based
compensation as set forth in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB Opinion No. 25"), provided the
Company discloses the pro forma effect on net income and earnings per share of
adopting the full provisions of SFAS No. 123. Accordingly, the Company continues
to account for stock-based compensation under APB Opinion No. 25 and has
provided the required pro forma disclosures.
F-10
<PAGE> 53
Demegen, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
3. INCOME TAXES
The Company accounts for income taxes using the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities.
Significant components of the Company's deferred tax asset at September 30,
1998 and 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
* Compensation expense on unexercised
stock options $ 454,000 --
* NOL carry forwards 2,251,000 1,974,000
* Excess book amortization 35,000 10,000
----------- ----------
Total deferred tax asset $ 2,740,000 1,984,000
Valuation allowance (2,740,000) 1,984,000
----------- ----------
Net deferred tax assets $ 0 $ 0
</TABLE>
Net operating losses totaling approximately $5,900,000 are currently available
and begin to expire in 2007. Deferred tax liabilities relate to differences in
the financial and tax carrying amounts of fixed assets.
A valuation allowance has been provided for the entire deferred tax asset
amount until such time that the Company demonstrates the ability to produce
taxable income.
4. RELATED PARTY TRANSACTIONS
During 1997, the Company reached agreements with certain current and former
employees related to amounts payable to these individuals for primarily wages.
The amounts payable to these individuals at August 31, 1997 of approximately
$2,200,000 were reduced to approximately $646,000 at September 30, 1997
primarily through the exchange of amounts accrued and payable for shares of the
Company's common stock. The Company has recorded the issuance of shares as a
contribution of capital from certain of its officers, management, and key
employees at the value per share as negotiated in the agreements. Accordingly,
common stock and additional paid-in capital increased by approximately
$1,600,000 related to the agreement. The agreements also provide for either the
payment of bonuses totaling $185,000 or the issuance of 185,000 shares of the
Company's common stock at $1.00 per share to the employees in future years
should target levels of license and/or royalty revenues be achieved.
During 1996, the Company converted the majority of its notes payable to
shareholders through the issuance of common stock. Pursuant to the terms of
these settlements, notes payable of $1,091,667, accrued interest of $361,094,
and outstanding warrants covering 1,832,194 shares of common stock, valued at
$319,767 were satisfied through the issuance of 3,755,285 shares of the
Company's restricted common stock. The value assigned to the common stock issued
was based upon the amounts contained in the respective debt agreements relative
to the forgone debt and related accrued interest and the value of the warrants
were based upon debt and interest payments exchanged for warrants in prior
years.
In December 1996, a former employee filed a claim against the Company for
payment of back compensation, payment of outstanding promissory notes, and for
termination provisions of his employment contract. The Company filed for
arbitration, as called for in the employment contract. In October 1997, the
Court stayed the litigation and ordered the parties to proceed with
F-11
<PAGE> 54
Demegen, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
arbitration. In January 1998, the matter was settled with the issuance of
1,975,000 shares of the Company's common stock and a cash payment of $30,000.
The expenses related to this settlement were recorded in fiscal 1997 and prior
years.
5. COMMON STOCK
Included in the common stock account balances at September 30, 1998 and 1997 are
425,000 and 855,950 restricted shares for which the Company has received
consideration, either in cash or services provided, but has not yet issued the
restricted share certificates to the shareholders.
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In June 1998, the Company issued 4,444,444 shares of redeemable convertible
preferred stock ("preferred stock") and warrants for net proceeds of $1,943,873
(net of $56,127 of expenses incurred in connection with the issuance). Of the
total proceeds $497,000 was allocated to warrants as the estimated fair value
and $1,022,222 was allocated to the conversion feature associated with the
preferred stock and classified as additional paid in capital. The entire
discount was immediately, in June 1998, accreted back to the preferred stock and
treated as a dividend as the preferred shares are immediately convertible into
common stock at the option of the preferred shareholder.
The holders of the preferred stock are entitled to receive, when, as and if
declared by the Board of Directors, out of funds legally available therefore,
dividends at the rate of $0.036 per share, semiannually, on each outstanding
share of convertible preferred stock. Such dividends have a priority over any
dividends paid on the common stock. Dividends on the preferred stock are
cumulative and the right to such dividends shall accrue to holders of
convertible preferred stock until declared by the Board of Directors. The
Company has accounted for the cumulative semiannual dividends through periodic
accretion to the preferred stock.
In the event of any liquidation, dissolution, or winding up of the Company, the
holders of preferred stock shall be entitled to receive the greater of $0.45 per
share, plus all unpaid and accrued dividends thereon, or the amount the holder
of the shares of the preferred stock would otherwise be entitled to receive had
each such share been converted into common stock immediately prior to such
liquidation, dissolution or wind-up.
Each share of preferred stock is convertible at any time, at the option of the
holder thereof, into an equal number of fully paid and nonassessable shares of
common stock. In addition, if at any time the Company shall effect a firm
commitment underwritten public offering of shares of common stock in which the
aggregate price paid for such shares by the public shall be at least $8,000,000,
then effective immediately before the closing of the sale of such shares by the
Company pursuant to such public offering, all outstanding shares of preferred
stock shall automatically convert to common stock.
F-12
<PAGE> 55
Demegen, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
The shares of preferred stock shall be redeemable at the election of the holder
upon at least ninety days notice to the Company. The Company shall redeem from
the holder on or at any time after May 31, 2003, 2004, and 2005, up to one-third
of the shares of preferred stock held by the holder, with the intent that,
should the holder elect, at any time after May 31, 2005, the total number of
shares held by the holder would be subject to redemption. The preferred stock to
be redeemed shall be paid for in cash at an amount equal to the greater of (i)
$0.45 per share plus, in the case of each share, an amount equal to all accruing
unpaid dividends (whether or not declared), or (ii) such amount per share as
would have been payable had each such share been converted to common stock
immediately prior to the actual date of redemption.
The shares of preferred stock vote on matters on an as-converted basis; i.e.,
each share of preferred stock has one vote, as do each owner of a share of
common stock.
The holder of the preferred stock has a warrant to purchase 4,965,556 shares of
common stock of the Company at $0.45 per share. The warrant shall be
exercisable, in whole or in part, through June 14, 2008. The Company may call
the warrant at any time after December 31, 1998, provided the Company's common
stock has been in excess of $1.50 per share for each of the forty consecutive
trading days immediately preceding the date of the call.
Upon receipt of the call, the call holder shall have sixty days to elect to
exercise all or a portion of this warrant. Upon such exercise, in addition to
receiving the number of shares of common stock to which the holder shall be
entitled, the holder of the warrant also shall receive a new warrant
("replacement warrant"). The replacement warrant shall be exercisable for one
share of common stock for every two shares of common stock purchased in response
to the aforementioned call. The exercise price of the replacement warrant is
$1.50 per share, and the term of the replacement warrant shall be the longer of
two years from the date of the issuance or the balance of the original term of
the warrant.
7. STOCK OPTIONS AND WARRANTS
The Company granted stock options to certain employees and directors during the
year ended September 30, 1998 at a $0.05 per share exercise price, which was
below the fair value based upon management's estimate of the fair value of the
stock issued at the date of grant. The shares were fully vested at September 30,
1998, and a $1,699,440 noncash charge was recognized to reflect the compensation
value of the options issued. All of these options expire in 2008.
F-13
<PAGE> 56
Demegen, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
7. STOCK OPTIONS AND WARRANTS (CONTINUED)
The Company granted stock options to certain employees and directors during the
years ended September 30, 1996 and 1997 at exercise prices which approximated
fair value at the date of grant. Options granted to an officer in 1996 vested
200,000 shares each at the date of issuance and November 1, 1996, with the
remaining options vesting on November 1, 1997.
Options granted during the year ended September 30, 1997 vested immediately.
A summary of the Company's stock option activity is at follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE FAIR VALUE
----------------------------------------------------------------
<S> <C> <C> <C>
Options granted during year 600,000 $0.15 $0.03
----------------------------------------------------------------
Balance at September 30, 1996 600,000 $0.15 $0.03
Options granted during year 425,000 $0.77 $0.17
----------------------------------------------------------------
Balance at September 30, 1997 1,025,000 $0.41 $0.09
Options granted during year 5,820,000 $0.05 $0.27
Options exercised for common stock during year
(1,750,000) $0.05 $0.27
----------------------------------------------------------------
Balance at September 30, 1998 5,095,000 $0.12 $0.23
================================================================
Granted 310,000 $0.45 $0.45
Options exercised for common stock (350,000) $0.05 $0.27
----------------------------------------------------------------
Balance at June 30, 1999 5,055,000 $0.13 $0.24
================================================================
</TABLE>
As of June 30, 1999, September 30, 1998 and 1997, 4,985,000, 5,095,000 and
825,000, respectively, of the options were vested and exercisable.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
options pricing model with the following weighted average assumptions for fiscal
1998, 1997, and 1996: risk-free interest rate of 6%; dividend yield of 0%; and
volatility factors of the expected market price of the Company's common stock of
0.97, 1.24, and 2.47 in fiscal 1998, 1997, and 1996, respectively.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics
F-14
<PAGE> 57
Demegen, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
7. STOCK OPTIONS AND WARRANTS (CONTINUED)
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
Changes in the subjective input assumptions can materially affect the fair value
estimate, and therefore, the existing models do not necessarily provide a
reliable single measure of the fair value of employee stock options. Had the
compensation cost of the Company's stock option plans been determined based on
the fair value at the date of grant for awards in 1998, 1997, and 1996
consistent with the provisions of SFAS No. 123, the Company's net loss would
have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1998 1997 1996
--------------------------------------------------
<S> <C> <C> <C>
Net loss available to common stock:
As reported $(3,079,586) $ (943,773) $(2,569,478)
Pro forma $(4,615,720) $(1,370,617) $(2,597,900)
Basic and diluted earnings per share:
As reported $(0.13) $(0.05) $(0.17)
Pro forma $(0.19) $(0.07) $(0.17)
</TABLE>
At September 30, 1998, there were outstanding warrants to purchase 4,000 shares
of the Company's common stock at an exercise price of $2.50 per warrant. The
warrants expire December 31, 1999. Additionally, the holder of the preferred
stock holds a warrant to purchase common stock (refer to Note 6 for additional
information).
8. COMMITMENTS
The Company leases its office and laboratory facilities under a three-year lease
expiring September 30, 2001 at a monthly rental of $3,793. During 1998, 1997,
and 1996, the Company incurred rent expense totaling $34,105, $45,100, and
$48,540, respectively.
During 1996, the Company received equity investments totaling $285,000 from a
venture capital fund and/or its individual investors. The Company has issued an
aggregate of 577,000 shares
F-15
<PAGE> 58
Demegen, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
8. COMMITMENTS (CONTINUED)
related to these investments. The Company has subsequently issued 85,000
additional shares during 1998 as the per share price in the Company's next round
of financing was less than $.50 per share.
During 1997, the Company entered into a license agreement with a university to
obtain certain patent rights. In exchange for the license of the patents, the
Company issued common stock. The value assigned to the patents was based upon
management's estimate of the fair value of the stock issued. In addition, the
Company is obligated to pay certain royalties under the terms of the agreement
for each licensed product. The agreement requires minimum royalty payments to
maintain the license of the patents. The Company paid $45,000 in royalty
payments pursuant to this agreement in 1998.
9. MARKETING
In December 1997, the Company entered into a license agreement with Mycogen
Corporation whereby the Company licensed substantially all rights for disease
prevention and treatment for agricultural applications. The Company received a
license issue fee of $950,000, consisting of $700,000 for the rights to licensed
patents and the Company's technology in the field of activity, $200,000 for the
rights to the Company's patents and technology for use in formulated licensed
products and $50,000 for the right of first refusal through September 30, 1998
to obtain an exclusive license to the Company's Nutrition Patents and
Technology. These payments were recognized as revenue in fiscal 1998, as the
earnings process was complete according to the terms of the contract.
The agreement also provided that the Company receive $300,000 to provide Mycogen
with support services of personnel for a joint research effort for a three year
period. This was classified as unearned revenue on the balance sheet and is
being amortized into revenue, on a straight-line basis, over the three year life
of the support services commitment.
The agreement also provides for milestone payments (amounts based upon Mycogen's
attainment of certain contract defined outputs measures) to be made to the
Company by Mycogen upon 1) regulatory approval or first sale of any type of
product by Mycogen, 2) additional payment for first commercial sale of certain
crops by Mycogen and 3) additional payment for first commercial sale of any
other crop within the field of activity by Mycogen. The Company will also
receive royalties on all sales by Mycogen and all sublicenses entered into by
Mycogen. Minimum annual royalties are due beginning January 1, 2003 through 2014
and are recoupable against the aforementioned royalties due from Mycogen.
Mycogen will undertake management of future development, regulatory approvals,
seed production and marketing. The companies will also undertake a joint
agricultural research effort, as discussed above, to identify new molecular
designs. Mycogen may unilaterally terminate this agreement without cause.
10. NET LOSS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30 9 MONTHS ENDED JUNE 30
1998 1997 1996 1999 1998
------------------------------------------------- -------------------------
<S> <C> <C> <C> <C>
Numerator:
Net loss $(1,993,753) $ (943,773) $(2,569,478) (860,138) (1,747,436)
Preferred stock dividends and accretion
amounts (1,085,833) -- -- (193,171) (1,022,222)
------------------------------------------------- ------------------------
Numerator for basic earnings per
share--income available to common
stockholders (3,079,833) (943,773) (2,569,478) (1,053,309) (2,769,658)
Denominator:
Denominator for basic and earnings per
share--weighted average shares 23,867,091 19,537,047 15,479,889 26,219,115 22,964,105
------------------------------------------------- ------------------------
Basic and diluted loss per share $ (0.13) $ (0.05) $ (0.17) $ (0.04) $ (0.12)
================================================= ========================
</TABLE>
At September 30, 1998, the Company had 5,095,000 options outstanding for the
purchase of the Company's Common Stock at exercise prices ranging form $0.05
per share to $0.77 per share. Additionally, the 4,444,444 shares of Redeemable
Convertible Preferred Stock are convertible into the Company's Common Stock on a
1 for 1 basis. Furthermore, the holder of the Redeemable Convertible Preferred
Stock holds a warrant for 4,965,556 shares of the Company's Common Stock at an
exercise price of $0.45 per share. These potentially dilutive securities were
not included in the calculation of dilutive earnings per share because the
effect would be anti-dilutive.
F-16
<PAGE> 59
Demegen, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
11. SUBSEQUENT EVENT
The Mycogen Agreement was amended on October 11, 1998 to provide Mycogen with an
additional license for the Company's agricultural nutrition technologies. The
Company received a minimum annual royalty of $200,000 at the execution of the
contract. Additionally, the Company received an initial payment of $150,000 with
an additional $150,000 to be received six months after the contract execution.
The research funding is to increase by $50,000 annually over the remaining four
years of the funding term. These payments were currently recognized as revenue
as the earnings process was complete according to the terms of the contract and
the payments are not subject to recoupment by Mycogen.
The agreement also provides for milestone payments (amounts based upon Mycogen's
attainment of certain contract defined output measures) to be made to the
Company by Mycogen upon 1) technical feasibility benchmark payments for certain
products developed by Mycogen, 2) animal feeding benchmark in certain animal
studies by Mycogen 3) additional payment for first commercial sale of certain
crops by Mycogen, 4) additional payment for first commercial sale of any other
crop within a contractually defined field of activity by Mycogen and 5)
additional payments for achievement of cumulative gross margin benchmark for
sale of certain crops by Mycogen. The Company will also receive royalties on all
sales by Mycogen and all sublicenses entered into by Mycogen. Minimum annual
royalties cease upon the achievement of certain of the aforementioned
benchmarks.
In addition, Mycogen will be responsible for all development and
commercialization costs, Mycogen is now owned by the Dow Chemical Company.
F-17
<PAGE> 1
Certain portions of this Exhibit have been omitted based upon a request for
confidential treatment. The non-public information has been filed with the
Commission.
Exhibit 10.1
LICENSE AND ROYALTY AGREEMENT
The Board of Supervisors of Louisiana State University and Agricultural
and Mechanical College, a public constitutional corporation, organized and
existing under the laws of the State of Louisiana ("LSU"); and Demeter
BioTechnologies, Ltd., a North Carolina corporation having a principal place of
business at 905 West Main Street, Suite 19D Brightleaf Square, Durham, North
Carolina 27701 ("DEMETER" or "LICENSEE"); enter into the following Agreement
effective the 1st day of May, 1997 (the "EFFECTIVE DATE").
WHEREAS LSU owns certain patent rights in certain countries regarding
disease resistance in plants, as set forth in Article I, Paragraph (A) below;
WHEREAS Demeter is in the business of producing, licensing, and
sublicensing disease resistant plants and genetic constructs useful in producing
disease resistant plants;
WHEREAS Demeter affirmatively desires a license under each of the
components of "Licensed Patents" and "Supplemental Patent Rights" defined in
Article I, Paragraphs (A) and (B) below, respectively; and each of those
components has therefore been included in those definitions at Demeter's
request;
WHEREAS Demeter desires to fund certain research at LSU, as described
in greater detail below; and
WHEREAS LSU and Demeter have agreed to the following terms and
conditions, and desire to enter this License and Royalty Agreement (the
"AGREEMENT");
THEREFORE, in consideration of the mutual obligations set forth in this
Agreement, LSU and Demeter agree as follows:
ARTICLE I. DEFINITIONS
A. "LICENSED PATENTS" shall mean: (1) Jaynes and Derrick, "Method for
Introduction of Disease and Pest Resistance into Plants and Novel Genes
Incorporated into Plants which Code Therefor," United States patent number
5,597,946, issued January 28, 1997; (2) Jaynes and Derrick, "Plants Genetically
Enhanced for Disease Resistance," United States patent number 5,597,945, issued
January 28, 1997; (3) Jaynes and Derrick, European patent application
93113536.2; (4) Jaynes and Derrick, European patent application 89900103.6; (5)
Jaynes and Derrick, Japanese patent application SHO 62-504491; (6) Jaynes and
Derrick, "Method for Introduction of Disease and Pest Resistance into Plants and
Novel Genes Incorporated into Plants which Code Therefor," European patent 0 330
655, issued June 7, 1995, nationalized in United Kingdom, France, Germany, and
Italy; (7) Jaynes and Derrick, "Plants Genetically Enhanced for Disease
Resistance," Canadian patent number 1,321,157, issued August 10, 1993; (8)
Jaynes and Derrick, "Method for Introduction of Disease and Pest Resistance into
Plants and Novel Genes Incorporated into Plants which Code Therefor," Australian
patent number 611,859, sealed November 5, 1991; and (9) any United States or
non-United States patent, reissue patent, or reexamination certificate resulting
from the applications and patents of parts (1) through (8) of this Paragraph,
including any renewals or extensions of the term of any such patent.
B. "SUPPLEMENTAL PATENT RIGHTS" shall mean, subject to the limitations set forth
in this Paragraph, any United States divisional or continuation application (but
not a continuation-in-part application) either of United
<PAGE> 2
ARTICLE I
States patent application serial number 08/444,762, filed May 19, 1995, or of
United States patent application serial number 08/453,436, filed May 30, 1995;
and any United States patent, reissue patent, or reexamination certificate
resulting from such a divisional or continuation application. "SUPPLEMENTAL
PATENT RIGHTS" shall not include any patent rights outside the United States.
Furthermore, "SUPPLEMENTAL PATENT RIGHTS" shall not include any patent rights
concerning any invention or activity whose unlicensed practice would infringe
any of the following claims: (1) any claim of United States patent number
5,597,945 or 5,597,946, or (2) any claim in any reissue patent or reexamination
certificate resulting from United States patent number 5,597,945 or 5,597,946.
The "SUPPLEMENTAL PATENT RIGHTS" shall be treated as Licensed Patents for all
purposes under this Agreement, except as provided in Article III, Subparagraphs
(A)(3) and (B)(4), concerning patent prosecution and maintenance, and
sublicensing royalties, respectively.
C. "FUNDED TECHNOLOGY" shall mean all rights in any invention (whether or not
patentable) that satisfies both of the following conditions: (1) the invention
is owned by LSU, or is subject to an obligation of assignment to LSU; and (2)
the invention is first actually reduced to practice in the course of a research
project that is funded by Licensee under Article III, Paragraph (E), where the
first actual reduction to practice occurs at a time when Licensee's financial
obligations to LSU under this Agreement are current. "FUNDED TECHNOLOGY" shall
also include all rights in any computer software (whether or not patentable)
that satisfies both of the following conditions: (1) the software is owned by
LSU, or is subject to an obligation of assignment to LSU; and (2) the software
is first fixed in a tangible medium of expression in the course of a research
project that is funded by Licensee under Article III, Paragraph (E), at a time
when Licensee's financial obligations to LSU under this Agreement are current.
If LSU is a co-owner of rights in an invention or in certain software under
circumstances where LSU's part-interest in that invention or software, if
considered alone, would otherwise satisfy this definition of "FUNDED
TECHNOLOGY," then LSU's part-interest in that invention or software shall be
treated as "FUNDED TECHNOLOGY."
- 2 -
<PAGE> 3
ARTICLE II
ARTICLE II. LICENSE GRANT
A. SCOPE OF LICENSE. Subject to the terms and conditions of this Agreement, LSU
grants to Licensee, and Licensee accepts from LSU, an exclusive license under
Licensed Patents to make, use, offer to sell, sell, and import Licensed Products
in each Patent Country. At Licensee's request the license granted to Licensee
includes a license under Licensed Patents to create derivatives of Licensed
Products (to the extent that LSU has the right to grant a license to create
derivatives). Subject to the terms and conditions of this Agreement, LSU grants
and Licensee accepts an exclusive license of all LSU's rights in Licensed
Patents. If applicable, this license is subject to certain rights that the
United States Government may have in Licensed Patents pursuant to 35 U.S.C.
Sections 200- 212. Licensee shall have the right to grant sublicensees, as
provided in greater detail in Paragraphs 2.2 and 2.2.1 of the Supplemental
Terms.
B. TERM. The term of this Agreement shall be from the Effective Date until the
last to expire of any patent within Licensed Patents, unless earlier terminated
in accordance with applicable provisions of this Agreement. On a
country-by-country basis, following the expiration of the last patent in a
particular country covering a particular Licensed Product, Licensee shall
thereafter owe LSU no royalties solely on account of activities concerning that
particular Licensed Product in that particular country.
C. RIGHTS IN FUNDED TECHNOLOGY. The rights of the parties in Funded Technology
are as set forth in Paragraph 2.8 of the Supplemental Terms.
D. SUPPLEMENTAL LICENSING TERMS AND CONDITIONS. The "Supplemental Licensing
Terms and Conditions" attached to this Agreement as Appendix A are incorporated
into and made an integral part of this Agreement. All terms defined in the
Supplemental Licensing Terms and Conditions (the "SUPPLEMENTAL TERMS") shall
have the same meaning in this Agreement. The provisions of the main body of this
Agreement and of the Supplemental Licensing Terms and Conditions shall be
construed so as to give full effect to both. However, in the event of an
otherwise irresolvable inconsistency, the provisions of the main body of this
Agreement shall control.
ARTICLE III. ROYALTIES AND FEES
A. (1) INITIAL FEE. Upon execution of this Agreement, as a condition
precedent to this Agreement, Demeter shall irrevocably issue to LSU
700,000 shares of Demeter's common stock, adjusted for any stock
splits, stock dividends, mergers, consolidations, reorganizations,
recapitalizations, or the like occurring after August 1, 1996. This
stock shall be freely tradeable by LSU or its assignees without
restriction immediately upon receipt.
(2) PROSECUTION AND MAINTENANCE OF LICENSED PATENTS. While this
Agreement is in effect, Licensee shall timely pay all maintenance fees
on all United States patents within Licensed Patents. So long as
- 3 -
<PAGE> 4
ARTICLE III
Licensee fulfills its obligations under this Agreement, Licensee shall
also manage the prosecution and maintenance of all non-United States
patent applications and non-United States patents within Licensed
Patents as Licensee in its discretion sees fit, within the bounds
imposed by applicable law. Licensee shall promptly provide both to LSU
and to LSU's patent counsel copies of all non-United States issued
patents (including English translations, where available) within
Licensed Patents, and such other pertinent communications to or from
non-United States patent offices as LSU may request from time to time.
The address for LSU's patent counsel is Mr. John H. Runnels, Taylor,
Porter, Brooks & Phillips, L.L.P., P.O. Box 2471, Baton Rouge,
Louisiana 70821, or such other patent counsel as LSU may specify from
time to time. The address for LSU is as stated in Article VII. On
Licensee's request, LSU shall provide reasonable assistance to
Licensee's efforts in prosecuting non-United States applications within
Licensed Patents, at no out-of-pocket expense to LSU. Licensee may
abandon any non-United States patent application or non-United States
patent within Licensed Patents if, in Licensee's judgment, it is
prudent to do so, upon giving LSU reasonable notice of Licensee's
intention to abandon. In such a case, LSU shall have the right, but not
the obligation, to assume responsibility for future prosecution and
maintenance of affected non-United States applications or non-United
States patents. LSU shall at all times be the sole owner of Licensed
Patents in all countries.
(3) PROSECUTION AND MAINTENANCE OF SUPPLEMENTAL PATENT RIGHTS. So long
as Licensee fulfills its obligations under this Agreement, Licensee may
prepare, file, prosecute, and maintain such United States patent
applications and United States patents directed to the Supplemental
Patent Rights as Licensee in its discretion sees fit, at Licensee's
expense. The scope of the claims sought in any such patent application
may not exceed that defined in Article I, Paragraph (B) without LSU's
prior written consent, the granting or withholding of such consent to
be within LSU's sole discretion. Licensee understands that under 35
U.S.C. Section 154(a)(2) any patent issuing on the Supplemental Patent
Rights is expected to expire no later than July 25, 2006 or November 2,
2007 (except to the extent that some statutory extension of term might
apply). At the addresses provided in Subparagraph (A)(2) above,
Licensee shall promptly provide both to LSU and to LSU's patent counsel
copies of all communications to or from the United States Patent and
Trademark Office concerning the Supplemental Patent Rights. On
Licensee's request, LSU shall provide reasonable assistance to
Licensee's efforts in filing or prosecuting applications directed to
the Supplemental Patent Rights, at no out-of-pocket expense to LSU.
Licensee may abandon any patent application or patent within the
Supplemental Patent Rights if, in Licensee's judgment, it is prudent to
do so, upon giving LSU written notice of Licensee's intention to
abandon at least two months prior to the last date on which action may
be taken to prevent the abandonment. In such a case, LSU shall have the
right,
- 4 -
<PAGE> 5
ARTICLE III
but not the obligation, to assume responsibility for future prosecution
and maintenance of the affected applications or patents. LSU shall at
all times be the sole owner of the Supplemental Patent Rights.
(The information marked by *** has been omitted by a request for
confidential treatment. The omitted portion will be separately filed
with the Commission.)
B. (1) ROYALTY ON SALES BY LICENSEE. On a quarterly basis, Licensee shall
pay to LSU a royalty equal to the greater of the following two amounts
for each Licensed Product that is made, used, sold, or imported by
Licensee: (a) *** of Net Sales Receipts, or (b) *** of Gross Value
Added. Except as provided in Subparagraph (B)(2), this rate of *** of
Net Sales Receipts, or *** of Gross Value Added, whichever is greater,
shall apply in all cases, and shall apply to any Licensed Product that
is made, used, sold, or imported in any Patent Country, regardless of
whether other acts concerning that Licensed Product occur outside the
Patent Countries. Any ambiguities in Licensee's records regarding the
location of any of these activities shall be construed so that the
affected Licensed Products are deemed to have been made, used, or sold
in a Patent Country. This royalty shall be paid quarterly, by January
31, April 30, July 31, and October 31, based on payments and non-cash
consideration received by Licensee during the prior three calendar
months. The royalty calculation for each calendar quarter shall be
determined independently, without carrying forward or carrying backward
amounts attributable to any other calendar quarter. Furthermore, the
royalty for different Licensed Products shall be determined separately
-- so that it is possible, for example, that the royalty for a first
Licensed Product could be *** of Net Sales Receipts, while the royalty
for a second Licensed Product during the same calendar quarter would be
*** of Gross Value Added.
(2) ROYALTIES ON SUBLICENSE PAYMENTS. Payments due to LSU on account of
a bona fide, arms-length sublicense shall be computed under this
Subparagraph (B)(2). On a quarterly basis, on the same schedule as
provided in Subparagraph (B)(1), Licensee shall pay to LSU the
Applicable Percentage (defined in Subparagraphs (3) and (4) below) of
Gross Sublicensing Receipts.
(3) APPLICABLE PERCENTAGE FOR SUBLICENSES -- GENERAL RULE. Except as
provided in Subparagraph (4) below, from the Effective Date until
December 31, 2000, the "APPLICABLE PERCENTAGE" shall be *** in all
cases. Except as provided in Subparagraph (4) below, on and after
January 1, 2001, the "APPLICABLE PERCENTAGE" shall be as follows in all
cases: *** if the Benchmark Share Price is below ***; *** if the
Benchmark Share Price is greater than or equal to ***, but less than
***; or *** if the Benchmark Share Price is greater than or equal to
***. Note that the "APPLICABLE PERCENTAGE" is redetermined a single
time only, and shall then remain constant after January 1, 2001,
regardless of the subsequent history of Demeter's stock price.
(4) APPLICABLE PERCENTAGE FOR SUBLICENSES -- SUPPLEMENTAL PATENT
RIGHTS. Notwithstanding Subparagraph (3) above, the "APPLICABLE
PERCENTAGE" shall be *** (regardless of date) in
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<PAGE> 6
ARTICLE III
the case of a bona fide, arms-length sublicense that conveys rights
under the Supplemental Patent Rights in the United States only, that
does not convey any rights under Licensed Patents other than under the
Supplemental Patent Rights in the United States, and that is not
directly or indirectly tied to a sublicense or other grant of rights
under any Licensed Patents other than the Supplemental Patent Rights in
the United States.
C. MINIMUM ROYALTIES. Beginning calendar year 2000, minimum royalty payments in
the following amounts shall be required to keep Licensee's license under this
Agreement in force:
<TABLE>
<CAPTION>
PERIOD MINIMUM ANNUAL ROYALTY PAYMENT
------ ------------------------------
<S> <C>
Calendar Year 2000 $25,000
Calendar Year 2001 $25,000
Calendar Year 2002 $25,000
Each Subsequent Calendar
Year, or Fraction
Thereof, During the Term
of this Agreement. $25,000
</TABLE>
The minimum royalty payment for a given calendar year shall be paid to LSU not
later than January 31 of the following year. For example, the minimum royalty
for calendar year 2000 is due by January 31, 2001. If Licensee fails to make any
royalty or minimum royalty payment timely, and if LSU has notified Licensee of
that failure, and if that failure has not been cured within thirty (30) days of
Licensee's receipt of that notice, then LSU shall have the option to terminate
this Agreement, or to make Licensee's license under this Agreement nonexclusive,
in either case upon giving Licensee thirty days written notice. If Licensee's
license becomes nonexclusive, it shall continue to be governed by all provisions
of this Agreement not inherently inconsistent with such nonexclusivity, except
that minimum royalty obligations (and only minimum royalty obligations) shall be
reduced by fifty percent (50%). All minimum royalty payments required under this
paragraph (C) of this Article III are subject to the inflation adjustment
defined in Article 12 of the Supplemental Terms. Royalty payments made under
Article III, Paragraph (B) attributable to a particular calendar year shall be
credited against the minimum royalty payments due under this paragraph for that
calendar year. However, no royalty or minimum royalty payment may be carried
forward or carried back as a credit against royalties or minimum royalties in
any other period.
D. QUARTERLY REPORTS. Licensee shall forward to LSU quarterly reports on or
before January 31, April 30, July 31, and October 31 of each year, for the
preceding three calendar months, containing the data, information,
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<PAGE> 7
ARTICLE III
and documentation necessary to determine fully the amounts owed by Licensee to
LSU under this Agreement, and containing quarterly reports on the status of
Licensee's marketing of Licensed Products. Such a report shall be made for each
quarter, whether or not any payment is due for that quarter.
E. RESEARCH GRANT. Once Cumulative Receipts reach a total of $1,000,000,
Licensee shall thereafter pay LSU a research grant equal to the sum of one
percent (1%) of Net Sales Receipts and two percent (2%) of Gross Sublicensing
Receipts in each calendar year, with total research grant amounts not to exceed
$25,000 per calendar year, subject to the inflation adjustment of Article 12 of
the Supplemental Terms. In making the calculations defined in the previous
sentence, there shall be no carry-forward or carry-backward of Net Sales
Receipts or Gross Sublicensing Receipts between calendar years. These research
grant amounts are not due on the first $1,000,000 in Cumulative Receipts. These
research grant amounts shall be paid on a quarterly basis, on the same schedule
as provided in Paragraph (B) of this Article III. These research grant amounts
shall be used for research at LSU primarily directed to lytic peptides, and
shall be conducted under the general direction of an LSU principal investigator
jointly approved by LSU and Licensee. Licensee's approval of a principal
investigator proposed by LSU shall not be unreasonably withheld.
ARTICLE IV. REPRESENTATIONS, WARRANTIES, AND DISCLAIMERS
A. NO WARRANTIES OR REPRESENTATIONS. LSU makes no warranty or representation
whatsoever as to the usefulness of Licensed Patents or Licensed Products, or
their fitness for the purpose for which intended or for any other purpose. LSU
makes no representations, and extends no warranties of any kind, either express
or implied, except as expressly provided in this Agreement.
B. DISCLAIMERS. Nothing in this Agreement shall be construed as:
1. A warranty or representation by LSU as to the validity,
enforceability, scope, or inventorship of any patent; or
2. A warranty or representation by LSU that anything licensed,
sublicensed, made, used, sold, imported, or otherwise disposed
of under any license granted in or sublicense permitted by
this Agreement is or will be free from infringement of patents
of third parties or other rights of third parties; or
3. An obligation that LSU bring or litigate actions against third
parties for infringement, except to the extent and in the
circumstances stated in Article 4 of the Supplemental Terms;
or
4. A requirement that LSU file or prosecute any patent
application, secure the issuance of any patent, or maintain
any patent; or
5. An establishment of a partnership, joint venture, agency, or
employer-employee relationship
- 7 -
<PAGE> 8
ARTICLE IV
between the parties; and neither party shall represent the
contrary to anyone else; or
6. A warranty or representation that LSU's rights in Licensed
Patents include a right to grant a license to "create
derivatives of Licensed Products."
C. DISCLAIMER OF RESPONSIBILITY. LSU assumes no responsibilities whatever for
any damages caused to Licensee, any Affiliate, any vendees, other transferees,
or sublicensees of or by any product or process incorporating or made by the use
of inventions licensed under this Agreement, or incorporating or made by the use
of any information furnished under this Agreement.
D. SMALL ENTITY STATUS. Licensee represents that, as of the Effective Date,
Licensee is a small entity within the contemplation of 37 C.F.R. Section 1.9(f)
with respect to Licensee's rights in Licensed Patents under this Agreement.
During the term of this Agreement, Licensee shall promptly notify LSU of any
event that changes, or that might change, Licensee's status as a small entity.
ARTICLE V. USE OF LSU'S NAME
Licensee will make no use whatsoever of LSU's name, marks, insignia, or
logos; or of the name of any LSU campus, department, center, or institute; or
the name of any then-current LSU employee; in news releases, advertisements,
promotional materials, or otherwise, without the prior written consent of LSU
for each such use.
ARTICLE VI. INSURANCE
A. LICENSEE. Prior to the first sale of any Licensed Product, Licensee shall
obtain liability insurance coverage on an "occurrence" basis for any and all
liability arising out of the sublicensing, manufacture, use, distribution,
marketing, importation, or sale of any Licensed Product, by Licensee, its
Affiliates, and its Sublicensees, in all countries. LSU shall be an additional
insured in any such liability insurance. This liability insurance must be issued
by a company having a current A. M. Best rating of A+ 8 or better. The limits of
this insurance coverage shall be not less than $3,000,000 per occurrence, with
aggregate limits not less than $5,000,000 per year. The maximum deductible may
not exceed $50,000. This liability insurance shall include contractual liability
coverage and products/completed operations coverage in at least the minimum
amounts required by this Paragraph. Licensee shall forward written evidence of
such liability insurance coverage, including the declarations page(s) describing
the coverage provided by the policy, and including the endorsement naming LSU as
additional insured, to LSU at least thirty days prior to the first use or sale
of any Licensed Product. The insurer shall be required to give at least thirty
days' notice of cancellation or modification of coverage to LSU. The obligation
to provide LSU the liability insurance required by this Article VI and written
evidence thereof shall continue until the earliest of the following three
events: (a) the expiration or termination of
- 8 -
<PAGE> 9
ARTICLE VI
this Agreement in accordance with its terms; (b) the time when Licensee
permanently ceases to make, use, import, sell, or offer to sell Licensed
Products, or to sublicense any rights under this Agreement; or (c) the
expiration or invalidation of all claims of Licensed Patents, with all
applicable appeals and appeal delays having run. In addition, Licensee shall
thereafter obtain and maintain a "tail" insurance policy otherwise satisfying
the requirements of this Paragraph, and insuring the same persons against the
same risks until the expiration of any remaining pertinent statute of
limitations period. The amount of liability insurance coverage required by this
Article is subject to the inflation adjustment defined in Article 12 of the
Supplemental Terms. At any time when Licensee obtains, renews, or replaces a
liability insurance policy, the aggregate limits for the liability insurance
coverage shall be at least equal to the sum of Net Sales Receipts and Gross
Sublicensing Receipts for the most recently completed Licensee fiscal year. The
alternative amount of liability insurance provided by the preceding sentence is
not subject to the inflation adjustment otherwise required by Article 12 of the
Supplemental Terms, and applies only if this alternative amount is greater than
the amount of insurance otherwise required by this Paragraph.
B. SUBLICENSEE OR ASSIGNEE. Each sublicensee, assignee, or transferee of any of
Licensee's rights under this Agreement shall obtain the type and amount of
liability insurance required by Paragraph (A) of this Article VI, except that in
calculating the alternative amount provided by the last two sentences of
Paragraph (A) of this Article VI, that sublicensee's, assignee's, or
transferee's Net Sales Receipts shall be used in place of the sum of Licensee's
Net Sales Receipts and Gross Sublicensing Receipts--substituting for "Licensee"
that sublicensee, assignee, or transferee in the definition of Net Sales
Receipts found in Paragraph 1.3 of the Supplemental Terms. A sublicensee's
obligation to obtain liability insurance may, if mutually agreeable to Licensee
and the sublicensee, be satisfied by a single insurance policy for both Licensee
and the sublicensee; provided that such a single policy satisfies all other
requirements of Paragraphs (A) and (B) of this Article VI; and further provided
that the amount of liability insurance provided by such a single policy is at
least equal to the sum of the amounts required by Paragraphs (A) and (B) of this
Article VI. A self-insured sublicensee may request that LSU accept the
sublicensee's self-insurance as satisfying the requirements of this Paragraph;
LSU shall not act unreasonably in approving such a request, provided that the
self-insurance is adequately capitalized and otherwise satisfies the
requirements of this Article VI.
ARTICLE VII. NOTICES
All written notices, payments, and other correspondence under this
Agreement shall be considered given when deposited in the United States Mail,
first class postage prepaid, to:
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<PAGE> 10
ARTICLE VII
DEMETER:
Mr. Richard D. Ekstrom, President
Demeter BioTechnologies, Ltd.
905 West Main Street
Suite 19D Brightleaf Square
Durham, North Carolina 27701
LSU: IF LSU, AN ADDITIONAL COPY TO:
Vice Chancellor for Research & Director Assistant Director
La. Agricultural Experiment Station La. Agricultural Experiment Station
LSU Agricultural Center LSU Agricultural Center
104 J. Norman Efferson Hall 104 J. Norman Efferson Hall
P. O. Box 25055 P. O. Box 25055
Baton Rouge, Louisiana 70894-5055 Baton Rouge, Louisiana 70894-5055
These names or addresses may be changed by giving notice as provided in this
Paragraph.
ARTICLE VIII. MISCELLANEOUS
A. ENTIRE UNDERSTANDING. This Agreement (including the Supplemental Terms)
constitutes the entire understanding between LSU and Licensee, and supersedes
any prior agreement or understanding on the same subject matter. Any
modification or amendment to this Agreement shall not be effective unless and
until reduced to writing and signed on behalf of both LSU and Licensee.
B. CONSTRUCTION. The parties acknowledge that this Agreement followed extended
and extensive negotiations by the parties, and that this Agreement incorporates
the negotiated suggestions of both parties, and that both parties have had the
benefit of the advice of counsel in the conduct of these negotiations. The
parties therefore agree that no presumptions shall arise favoring any party by
virtue of the authorship of any of the provisions of this Agreement (including
the Supplemental Terms).
- 10 -
<PAGE> 11
ARTICLE VIII
C. HEADINGS. The headings or captions appearing at the beginnings of the
Articles and Paragraphs of this Agreement (including the headings and captions
appearing in the Supplemental Terms) are provided for convenience of reference
only, and do not constitute part of this Agreement.
WITNESSES: BOARD OF SUPERVISORS OF LOUISIANA
STATE UNIVERSITY AND AGRICULTURAL
AND MECHANICAL COLLEGE
/s/ Barbara Rubinson BY: /s/ Allen A. Copping
- -------------------------------- ------------------------------------
ALLEN A. COPPING, PRESIDENT
DATE: May 19, 1997
- -------------------------------- ----------------------------------
DEMETER BIOTECHNOLOGIES, LTD.
/s/ Scott Gardner BY: /s/ Richard D. Ekstrom
- -------------------------------- ------------------------------------
RICHARD D. EKSTROM, PRESIDENT
DATE: April 18, 1997
- -------------------------------- ----------------------------------
- 11 -
<PAGE> 12
RATIFICATIONS
RATIFICATION
I, Jesse M. Jaynes, a person of the full age of majority, domiciled in
Wake County, State of North Carolina, hereby ratify Paragraph 3.8 of the
Supplemental Licensing Terms and Conditions, attached to and made part of this
License and Royalty Agreement as Appendix A.
WITNESSES: JESSE M. JAYNES
D. Thomas Roane /s/ Jesse M. Jaynes
- --------------------------------- ----------------------------------
Bruce A. Guthrie DATE: April 21, 1997
- --------------------------------- -----------------------------
STATE OF NORTH CAROLINA
COUNTY OF DURHAM
On this 21 day of April, 1997, before me personally appeared Jesse M.
Jaynes, personally known to me, and known by me to be the person described in
and who executed the foregoing instrument, and acknowledged that he executed the
same as his free act and deed, on the day and year aforesaid.
/s/ Louise D. Miller
-----------------------------------
NOTARY PUBLIC
Louise D. Miller
---------------------------------------
(PRINTED NAME OF NOTARY)
MY COMMISSION EXPIRES 3-20-01 (SEAL)
----------------------------
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<PAGE> 13
RATIFICATIONS
RATIFICATION
I, Jeannette Jaynes, a person of the full age of majority, domiciled in
Wake County, State of North Carolina, and wife of Jesse M. Jaynes, hereby ratify
Paragraph 3.8 of the Supplemental Licensing Terms and Conditions, attached to
and made part of this License and Royalty Agreement as Appendix A.
WITNESSES: JEANNETTE JAYNES
D. Thomas Roane /s/ Jeanette Jaynes
- --------------------------------- ----------------------------------
Bruce A. Guthrie DATE: April 21, 1997
- --------------------------------- -----------------------------
STATE OF NORTH CAROLINA
COUNTY OF DURHAM
On this 21 day of April, 1997, before me personally appeared Jeannette
Jaynes, personally known to me, and known by me to be the person described in
and who executed the foregoing instrument, and acknowledged that she executed
the same as his free act and deed, on the day and year aforesaid.
/s/ Louise D. Miller
------------------------------
NOTARY PUBLIC
Louise D. Miller
---------------------------------------
(PRINTED NAME OF NOTARY)
MY COMMISSION EXPIRES 3-20-01 (SEAL)
-------------------------
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<PAGE> 14
APPENDIX A
SUPPLEMENTAL LICENSING TERMS AND CONDITIONS
FOR LSU/DEMETER LICENSE AND ROYALTY AGREEMENT OF MAY 1, 1997
1. DEFINITIONS
1.1 The "AGREEMENT" shall mean the License and Royalty Agreement between LSU and
Demeter of May 1, 1997, the agreement to which these Supplemental Licensing
Terms and Conditions are appended. The term "AGREEMENT" shall also be deemed to
include these incorporated Supplemental Licensing Terms and Conditions. All
terms defined in the main body of the Agreement shall have the same meaning in
these Supplemental Licensing Terms and Conditions (the "SUPPLEMENTAL TERMS").
1.2 "LICENSED PRODUCT" shall mean any product that is claimed by one or more
pending or issued claims of Licensed Patents; or that is produced by a process
claimed by one or more pending or issued claims of Licensed Patents; or that is
especially made or especially adapted for use in a process claimed by one or
more pending or issued claims of Licensed Patents, and that is not a staple
article or commodity of commerce suitable for a substantial use that does not
encompass such a process; or that is packaged or sold with instructions for
using the product in a process claimed by one or more pending or issued claims
of Licensed Patents.
1.3 "NET SALES RECEIPTS" shall mean, excluding only the amounts defined as
"Gross Sublicensing Receipts" in Paragraph 1.4 below, all revenue received or
accrued by Licensee during the term of the Agreement, arising out of or related
to the use, transfer, lease, or sale of any Licensed Product at the actual
amounts charged by Licensee or by any Affiliate. "NET SALES RECEIPTS" shall also
include consideration received by Licensee for a Licensed Product that is made
during the term of a Licensed Patent, but that is used, sold, or otherwise
transferred after that term. "NET SALES RECEIPTS" shall not include the
following amounts: (I) revenue attributable to Licensed Products that are
actually returned to Licensee for refund; (II) transportation charges or
allowances, if any, added to the price; (III) sales tariffs, duties, or taxes
for Licensed Products that Licensee is required to collect and remit to a
government as a matter of law; but in no circumstances shall any deduction or
exclusion from Net Sales Receipts be taken for any franchise tax or income tax;
and (IV) consideration received by Licensee under a bona fide research contract.
No other deductions of any kind shall be made, whether for agents' commissions
or otherwise. Where all or part of the consideration received by Licensee, an
Affiliate of Licensee, or a sublicensee as otherwise set forth in this Paragraph
1.3 for the use or transfer of any Licensed Product is not cash, or where the
final use of a Licensed Product is by a Special Party (as that term is defined
below), then the "NET SALES RECEIPTS" for that Licensed Product for purposes of
computing royalties or other amounts due under the Agreement shall be deemed to
be the fair market value for such Licensed Product. In determining fair market
value, appropriate weight shall be given to any arms-length transaction by
Licensee, an Affiliate of Licensee, or a sublicensee involving the same or a
similar Licensed Product. The time when "NET SALES RECEIPTS" for any Licensed
Product are deemed received for purposes of computing royalties or other amounts
due under the Agreement shall be (1) the date when a purchaser is billed by
Licensee, (2) the date when the purchaser actually uses or receives that
Licensed Product, (3) the date when Licensee bills for the use of that Licensed
Product, or (4) the date when Licensee receives payment for that Licensed
Product, whichever date is earliest; provided that Licensee must actually
receive payment for that Licensed Product before Licensee is obligated to pay
royalties or other amounts to LSU for that Licensed Product. Where the
consideration to Licensee for the right to use or receive any Licensed Product
is not cash, the date "NET SALES RECEIPTS" shall be deemed to be received shall
be the date that Licensed Product is first used or received. If any Licensed
Product is sold or otherwise transferred between any of the following persons
(collectively, "SPECIAL PARTIES"): Licensee, a Sublicensee, and Affiliates of
Licensee or of a Sublicensee--then "NET SALES RECEIPTS" shall be counted for
that Licensed Product only once, and shall be the consideration defined above
for the final sale or transfer of the Licensed Product to a third party, or the
final use of the Licensed Product by a Special Party.
1.4 "GROSS SUBLICENSING RECEIPTS" shall mean all revenue received by Licensee,
and arising out of the sublicensing of all or part of any item within Licensed
Patents. Without limitation, "GROSS SUBLICENSING RECEIPTS" shall include all
cash or other consideration received by Licensee from any sublicense or other
grant of any rights under all or any part of Licensed Patents; whether such
amounts are denominated "royalties," "license fees," "option payments," or
otherwise. No deductions of any kind shall be made in calculating "GROSS
SUBLICENSING RECEIPTS." If any consideration from a sublicensee is not cash, LSU
and Licensee shall negotiate in good faith to agree on the value of that
consideration for purposes of calculating Gross Sublicensing Receipts.
1.5 "AFFILIATE" shall mean a company or other person controlling, controlled by,
or under common control with Licensee, where "control" shall mean the direct or
indirect control by ownership or otherwise of more than fifty percent (50%) of
the
<PAGE> 15
ARTICLE 1
outstanding voting shares or voting rights, or other similar measure of control.
An "AFFILIATE" shall also include a party who has been approved by LSU to act as
Licensee's joint venture partner in performing one or more activities under this
Agreement. An "AFFILIATE" of a Sublicensee shall mean a company or other person
controlling, controlled by, or under common control with that Sublicensee, where
"control" shall mean the direct or indirect control by ownership or otherwise of
more than fifty percent (50%) of the outstanding voting shares or voting rights,
or other similar measure of control.
1.6 "PROSECUTION" or to "PROSECUTE" means to take action in the United States
Patent and Trademark Office (or, if appropriate in context, in a non-United
States patent office) respecting a patent application or patent, as provided
generally in title 37 of the Code of Federal Regulations (or, if appropriate in
context, as provided in analogous regulations of a nonUnited States patent
office).
1.7 "MAINTENANCE" or to "MAINTAIN" means to pay maintenance fees for a patent
under 35 U.S.C. Section 41(b) and (c) (or, if appropriate in context, to pay
taxes or annuities to keep a patent application pending, or patent in force in a
country other than the United States).
1.8 "PATENT COUNTRY" shall mean any country in which at least one patent
application within Licensed Patents is pending; or in which there is at least
one issued, unexpired patent within Licensed Patents.
1.9 "GROSS VALUE ADDED" for a particular Licensed Product shall mean the
difference between Net Sales Receipts for that Licensed Product, and the
arms-length, fair-market price to a substantially similar purchaser under
substantially similar circumstances (such substantially similar circumstances
including, but not being limited to, the transfer of substantially similar
quantities) of a product that is otherwise substantially identical in all
respects to the Licensed Product, except that it lacks the features that bring
the Licensed Product within the scope of one or more claims of Licensed Patents.
(Where a product "that is otherwise substantially similar in all respects . . ."
is not in fact commercially available, the above comparison shall be based on a
good-faith estimate of the price that would be charged for a hypothetical
product having such characteristics.)
(The information below marked by *** has been omitted by a request for
confidential treatment. The omitted portion will be separately filed with the
Commission.)
1.10 "BENCHMARK SHARE PRICE" shall mean the volume-weighted mean price per share
of publicly-reported sales of freely tradeable Demeter common stock during the
twelve-month period ***, subject to the following two adjustments: (1) The
"BENCHMARK SHARE PRICE" shall be adjusted to reflect any stock splits, stock
dividends, mergers, consolidations, reorganizations, recapitalizations, or the
like occurring after August 1, 1996; and (2) The "BENCHMARK SHARE PRICE," as
otherwise defined above, shall be divided by the Multiplier as of ***, as the
"Multiplier" is defined in Paragraph 12.1 of these Supplemental Terms,
regardless of whether LSU has given Licensee any notices under Paragraph 12.1.
1.11 "CUMULATIVE RECEIPTS" as of a particular date shall mean the sum of all Net
Sales Receipts and Gross Sublicensing Receipts from the Effective Date through
the date in question.
1.12 A "STANDARD-FORM SUBLICENSE" is a sublicense that fully complies with
Paragraph 2.2.1 of these Supplemental Terms. A "NON-STANDARD-FORM SUBLICENSE" is
a sublicense of any or all of Licensee's rights under this Agreement, that is
not in full compliance with Paragraph 2.2.1 of these Supplemental Terms, and
that therefore requires LSU's prior written consent under Paragraph 2.2.
- 2 -
<PAGE> 16
ARTICLE 2
2. LICENSE GRANT
2.1 RIGHTS OF AFFILIATES. The license granted to Licensee by the Agreement shall
extend to any Affiliate of Licensee as well, provided that prior to the exercise
by any Affiliate of any rights under the Agreement, LSU shall be given a written
notice, signed on behalf of both Licensee and each such Affiliate: (1) stating
that the Affiliate intends to exercise such rights, and (2) agreeing that the
Affiliate and Licensee shall be solidarily (i.e., jointly and severally) liable
for all obligations to LSU under the Agreement arising from the activities of
that Affiliate. The activities of the Affiliate under the Agreement shall be
deemed to be the activities of Licensee. The rights of any Affiliate under the
Agreement shall continue only so long as the Agreement continues in effect with
respect to Licensee; such rights shall terminate, for example, upon any
termination, assignment, or transfer of Licensee's rights under the Agreement.
Furthermore, an Affiliate's rights under the Agreement shall terminate on the
occurrence of an event (for example, a sale or other transfer of the Affiliate's
stock) that causes an entity that was once an Affiliate no longer to be an
Affiliate under the definition of Paragraph 1.5 of these Supplemental Terms. A
wholly-owned subsidiary of Licensee may assign, sublicense, or transfer rights
under this Agreement to the same extent that Licensee is permitted to do so
under Paragraphs 2.2 and 2.2.1 below. An Affiliate other than a wholly-owned
subsidiary of Licensee may not sublicense, assign, or otherwise transfer any
rights that Affiliate has acquired under the Agreement.
2.2 RESTRICTIONS ON ASSIGNMENT, SUBLICENSE, OR TRANSFER. Except as expressly
provided in Paragraph 2.2.1 below, Licensee shall not assign, transfer, or
sublicense any rights under the Agreement without the express prior written
approval of LSU, such approval not to be unreasonably withheld. Notwithstanding
the foregoing, neither a written sublicense nor prior approval from LSU is
required to sell Licensed Products to arms-length purchasers (e.g., distributors
or farmers), even where such a sale is accompanied (as a matter of law) by an
implied license or implied sublicense under one or more of Licensed Patents.
2.2.1 STANDARD-FORM SUBLICENSE. At any time during the term of this Agreement,
Licensee may request that LSU and Licensee negotiate in good faith to develop
one or more Standard-Form Sublicenses. Licensee shall prepare the first draft of
each proposed Standard-Form Sublicense, and thereafter the parties shall discuss
and negotiate modifications to the initial draft in good faith. Each party's
obligation in this respect is limited to an obligation to negotiate in good
faith; neither party is obligated to approve a proposed Standard-Form Sublicense
if mutually agreeable terms cannot be found.
By way of illustration and not limitation, the factors that LSU considers
important in reviewing proposed sublicenses include the following: adequate
liability insurance; adequate indemnity in favor of LSU; prohibitions against
further assignment, sub-sublicensing, or transfer; prohibitions against the use
of LSU's name; prohibitions against patent misuse; the right to audit; marking
of Licensed Products with appropriate patent numbers; and, if a particular
sublicense is intended to survive a possible termination of the present
Agreement before the expiration of all pertinent Licensed Patents, a clear and
acceptable demarcation of the respective rights and obligations of LSU and the
sublicensee in those circumstances.
Once LSU and Licensee have approved the form and substance of a particular
Standard-Form Sublicense, Licensee may thereafter enter into one or more
sublicenses with third parties using that approved Standard-Form Sublicense,
without further approval from LSU, provided that: (1) no modifications are made
to the approved Standard-Form Sublicense that would diminish in any respect the
protections afforded to LSU by the approved Standard-Form Sublicense (other
modifications being permissible if they do not diminish the protections afforded
to LSU in any manner); and (2) a complete copy of the fully-executed
Standard-Form Sublicense is delivered to LSU within thirty days of execution. A
proposed sublicense that does not satisfy these criteria may be submitted for
LSU's review and approval under Paragraph 2.2 above.
LSU may at any time, acting in good faith, withdraw its approval of a particular
Standard-Form Sublicense upon notice to Licensee. Such a withdrawal of approval
shall not affect the validity of any sublicense using that Standard-Form
Sublicense that was fully executed by all parties prior to LSU's withdrawal of
approval. Where reasonably feasible, LSU shall inform Licensee of the reason for
LSU's withdrawal of a previous approval, and shall propose modifications to the
Standard-Form Sublicense that would make it once again acceptable to LSU.
2.3 NO LICENSE BY ESTOPPEL. Except as the Agreement may expressly and
unambiguously provide otherwise, nothing in the Agreement shall be construed as
granting by implication, estoppel, or otherwise any licenses or rights under any
patents,
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<PAGE> 17
ARTICLE 2
patent applications, or know how owned in whole or in part by LSU, other than
the express license under Licensed Patents provided in Paragraph (A) of Article
II of the Agreement, regardless of whether such patents, patent applications, or
know how are dominant of or subordinate to any patent within Licensed Patents.
2.4 EFFECT OF PATENT INVALIDITY. In a particular Patent Country, if no patent
within Licensed Patents ever issues, or if all such patents are judicially held
invalid or judicially held unenforceable and there are no longer any pending
applications within Licensed Patents in that country, and all applicable appeals
and appeal delays have expired, then thereafter this Agreement shall cease to
have effect in that country.
2.5 MARKETING OBLIGATIONS. Licensee shall: (1) act with commercially reasonable
judgment and diligence to develop commercially marketable Licensed Products, and
to develop competitive markets for those Licensed Products, in order to maximize
royalties payable to LSU; (2) act with commercially reasonable judgment and
diligence to obtain any state, federal, or other governmental licenses or
regulatory clearances necessary for Licensee's intended use of Licensed
Products; and (3) review Licensee's progress of the above performance
obligations with appropriate LSU personnel at intervals of twelve months to
assure a reasonable level of contact, communication, and compliance.
2.6 REGULATORY APPROVAL. Licensee will undertake all reasonable efforts required
to obtain any state, federal, or other governmental license or regulatory
clearance necessary for the use of Licensed Products, and all resulting expenses
of this undertaking shall be borne solely by Licensee. Any research necessary or
desirable for the commercialization or marketing of Licensed Products by
Licensee shall be the sole responsibility of Licensee. Licensee, at Licensee's
sole expense, will prepare and deliver all necessary and appropriate documents,
and take all reasonably necessary and appropriate actions, to seek to obtain any
such license or regulatory clearance.
2.7 RESERVED LSU RIGHTS. The license granted by the Agreement is subject to a
reserved, non-exclusive, worldwide right in LSU to make, have made, and use
Licensed Products for non-commercial purposes that are experimental or
educational in nature, in any field of use, throughout the term of the
Agreement, including any extensions of the term of the Agreement.
2.8 RIGHTS IN FUNDED TECHNOLOGY. LSU shall own all Funded Technology. LSU shall
promptly notify Licensee of the development of any invention within Funded
Technology that is reasonably believed by LSU to have commercial potential,
under reasonable confidentiality provisions to be negotiated. LSU may file such
patent applications directed to inventions within Funded Technology as LSU in
its sole discretion sees fit.
On Licensee's written request to LSU within 180 days after Licensee is given
written notice of the filing date of the first patent application directed to a
particular invention within Funded Technology and a copy of that patent
application, LSU and Licensee shall negotiate in good faith to try to reach
mutually agreeable terms for an exclusive or non-exclusive license to Licensee
under any such application or resulting patent. It is anticipated that the terms
of any such license agreement would include the following provisions: (1) a
reasonable licensing fee to be negotiated, due upon execution of the license;
(2) a reasonable royalty to be negotiated; (3) reasonable minimum royalties to
be negotiated; (4) payment of patent filing, prosecution, and maintenance costs
by Licensee; and (5) other standard LSU patent license provisions, including (by
way of example and not limitation) those provisions contained in the present
Agreement and Supplemental Terms concerning such matters as the use of LSU's
name, indemnity, insurance, inflation, and disclaimer of warranties. However,
neither party shall be obligated to enter into such a license agreement if
mutually agreeable terms cannot be found; the obligation imposed by this
Paragraph is an obligation only to negotiate in good faith.
If Licensee has not requested LSU to negotiate for a license respecting a
particular invention within Funded Technology within 180 days after the filing
date of the first patent application directed to that invention, then LSU shall
be free to dispose of LSU's rights in that invention as LSU in its sole
discretion sees fit, with no further obligation to Licensee with respect to that
invention.
If Licensee has requested LSU to negotiate for a license respecting a particular
invention within Funded Technology within 180 days after the filing date of the
first patent application directed to that invention, but no license agreement
respecting that
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<PAGE> 18
ARTICLE 2
invention has been entered into between LSU and Licensee within that 180-day
period, then for a period of one year following the expiration of that 180-day
period Licensee shall have a right of first refusal respecting any license of
that invention. During this one-year period, prior to entering into any patent
license agreement with a third party respecting an invention specified in the
previous sentence, LSU shall submit to Licensee a copy of the proposed patent
license agreement. If, no later than thirty days after this submission, LSU
receives written notice from Licensee of Licensee's exercise of its right of
first refusal, then LSU shall not enter into the proposed patent license
agreement with the proposed licensee. In such a case, LSU and Licensee shall
both be obligated promptly to enter a patent license agreement whose terms are
identical with those of the proposed patent license agreement, or are as nearly
similar as is reasonably possible under the circumstances. If Licensee does not
give this notice to LSU within this thirty-day period, then LSU may enter into
the proposed patent license agreement with the proposed licensee, with no
further obligation to Licensee concerning that invention. Following the
expiration of the one-year right of first refusal period respecting rights in a
particular invention, if the right of first refusal has not yet been exercised,
then thereafter LSU shall be free to dispose of LSU's rights in that invention
as LSU in its sole discretion sees fit, with no further obligation to Licensee
with respect to that invention.
2.9 FUTURE PATENTS. LSU may, from time to time, acquire patent rights that may
be improvements to the inventions of Licensed Patents, and the scope of whose
claims lies entirely within the scope of the claims of Licensed Patents.
Licensee may, or may not, desire to make, use, sell, or import improved Licensed
Products that are covered by any such future patent rights. Accordingly, at
Licensee's request LSU and Licensee shall, to the extent not inconsistent with
LSU's other contractual obligations (by way of example, contractual obligations
incurred by LSU consistent with paragraph 2.10 below), negotiate in good faith,
for a period of six months from the date LSU first notifies Licensee of the
existence of such patent rights, to attempt to seek a mutually satisfactory
solution to avoid any unauthorized infringement of such patent rights by
improved Licensed Products made, used, sold, or imported by Licensee. This
obligation is an obligation only to negotiate in good faith for a period of six
months, and does not require either Party to enter into any agreement respecting
such patent rights that is not mutually satisfactory to both parties.
2.10 RIGHT OF FIRST REFUSAL RESPECTING CERTAIN SPONSORED RESEARCH. While this
Agreement remains in effect, Licensee shall have a right of first refusal to
sponsor any research at LSU that satisfies both of the following conditions: (A)
the research is intended to produce Improvements, or may reasonably be expected
to result in Improvements; and (B) the research contract grants the sponsor of
the research any rights in patents or know how resulting from the research.
Prior to entering into any such research contract with any party other than
Licensee, LSU shall submit a copy of the proposed research contract to Licensee.
If the prospective sponsor so requests, LSU may mask those portions of the
proposed research contract that may reasonably be expected to reveal the
identity of the proposed sponsor. If, no later than thirty days after the
submission of the proposed contract to Licensee, LSU receives notice from
Licensee of Licensee's exercise of its first right to sponsor the research, then
LSU shall not enter into the proposed research contract with the proposed
sponsor, but instead LSU and Licensee shall both be obligated promptly to enter
into a contract whose terms are identical with those of the proposed research
contract, or are as nearly identical as is reasonably possible under the
circumstances. If Licensee does not give this notice to LSU within this
thirty-day period, then until a period ending ninety days after LSU's submission
of the proposed contract to Licensee LSU may enter into the proposed research
contract with the proposed sponsor, and the terms of the research contract
regarding rights in patents and know how shall supersede the provisions of this
Paragraph 2.10 and of Paragraph 2.9 above to the extent that there may exist any
conflict. If the proposed contract with the proposed sponsor has not been fully
executed within ninety days after LSU's submission of the proposed contract to
Licensee, then LSU may not enter into the proposed contract with the proposed
sponsor, unless LSU follows the procedures of this Paragraph 2.10 again, giving
Licensee a new thirty-day period of first refusal. The provisions of this
Paragraph 2.10 shall not apply where the proposed research sponsor is a state or
federal governmental agency. For purposes of this Paragraph 2.10, an
"IMPROVEMENT" is a new invention whose unlicensed practice would necessarily and
inherently infringe at least one claim of at least one United States patent
within Licensed Patents.
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<PAGE> 19
ARTICLE 3
3. FEES AND ROYALTIES
3.1 GENERAL. The various fees and royalties that are due from Licensee to LSU
under the Agreement are cumulative, and not exclusive. In other words, except as
expressly provided in Article III, Paragraph (C), each such amount is to be paid
without regard to any other amount that may be due. In the event any claim
within Licensed Patents is judicially held invalid or judicially held
unenforceable, and all applicable appeals and appeal delays have run, then
royalties and fees from that point forward (but not retroactively) shall be
computed as if that claim had never issued.
3.2 PATENT EXPIRATION. The obligation to pay royalties under any patent within
Licensed Patents shall terminate as to each such patent upon its expiration,
except that royalties accrued but not paid prior to such expiration shall be
payable with the next quarterly payment otherwise due under Paragraph (B) of
Article III of the Agreement. If a Licensed Product is covered by claims of more
than one patent within Licensed Patents, the obligation to pay royalties for
that Licensed Product shall continue so long as any such patent has not expired.
3.3 TERMINATION. Upon termination of the Agreement for any reason, Licensee
shall pay LSU within 60 days all royalties and other amounts that have accrued
on or before the termination, regardless of whether such royalties or other
amounts would otherwise be due at that time.
3.4 EFFECT OF INVALIDITY. In a particular Patent Country, in the event that: (1)
all issued claims within Licensed Patents are judicially held invalid or
judicially held unenforceable or that no patents within Licensed Patents ever
issue; and (2) no claims within Licensed Patents are still pending in any
application; and (3) all applicable appeals and appeal delays have run; then
from that point forward (but not retroactively) no further royalty payments
shall be due solely on account of activities occurring within that country.
3.5 CURRENCY. All dollar amounts defined in the Agreement refer to United States
dollars. All payments under the Agreement shall be in United States currency.
Where payments are received by Licensee in a given non-United States currency,
conversion to United States currency will be made as follows: All payments
received in that currency during each calendar month will be totalled. The total
payments for the calendar month will then be converted to United States currency
at the "mean exchange rate" for that month. The "mean exchange rate" for a month
is the arithmetic mean of the spot exchange rates reported in the Wall Street
Journal for the following two dates: (a) the first business day falling on or
after the 7th of the month, and (b) the first business day falling on or after
the 22nd of the month. The pertinent exchange rate for purposes of computing
this mean is the number of United States dollars (or fraction thereof)
equivalent to one unit of foreign currency.
3.6 LATE PAYMENTS. If any payment is made more than thirty days after the date
due under the Agreement, then Licensee shall also pay LSU interest at the prime
rate of interest announced from time to time by Citibank (New York), plus one
percent (1%) per annum, until paid. If this amount is higher than allowed by
applicable law, then the highest amount allowed by law shall apply.
3.7 PAYMENT PROCEDURE. All payments due under this agreement shall be payable to
"LOUISIANA STATE UNIVERSITY," and shall be made at the appropriate address given
for notices in Article VII of the Agreement. All payments due shall be made
without any deduction for taxes, assessments, or charges of any kind that may be
imposed on Licensee by any government or by any political subdivision of any
government. Any such taxes, assessments, or other charges shall be assumed
solely by Licensee.
3.8 WAIVER OF INVENTOR'S SHARE OF ROYALTIES. Demeter represents and warrants
that as of the Effective Date Jesse M. Jaynes, who is a principal in Demeter,
has or will have irrevocably relinquished all claim to, and has or will have
irrevocably assigned to Demeter his entire share of all royalties, fees, and
other consideration received, or to be received in the future, by LSU under this
Agreement (i.e., Dr. Jaynes' portion of the inventors' share of "DISTRIBUTABLE
ROYALTIES," as that term is defined in the August 1991 revision of Chapter 7 of
LSU's Bylaws and Regulations). Demeter hereby irrevocably relinquishes all claim
to, and hereby irrevocably assigns over to LSU the entire share of all such
Distributable Royalties under this Agreement to which Jesse M. Jaynes would
otherwise be entitled under LSU's Bylaws and Regulations. Licensee shall
indemnify LSU and hold LSU harmless against any claim brought by a spouse,
former spouse, heir, legatee, or assignee of
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<PAGE> 20
ARTICLE 3
Dr. Jaynes for alleged entitlement to any portion of such Distributable
Royalties, and shall assume the responsibility for defending LSU in any
resulting legal proceedings, at Licensee's sole expense. The portion of
Distributable Royalties under this Agreement that would otherwise have been paid
to Jesse M. Jaynes (in the absence of the above assignments) shall instead be
placed in a fund that is administered by LSU, and that is dedicated to be used
for one or more of the following purposes to support research at LSU, in the
sole discretion of LSU: directly supporting research at LSU; supporting research
at LSU by providing matching funds as may be required by an outside sponsor of
research at LSU; providing bridge funds to support research at LSU until funding
from an outside sponsor is secured; providing start-up funds for a laboratory at
LSU; providing funds for a seed grant for a new research effort at LSU;
providing funds to pay for research that has been conducted by LSU and for which
expenses have been incurred by LSU, but for which an outside sponsor has failed
to provide expected financial support; and maintaining laboratory equipment at
LSU. Licensee is not granted any rights under this Agreement in any inventions
that may result from research that is supported by this fund. Licensee
represents and warrants that, as of the Effective Date, Dr. Kenneth S. Derrick,
co-inventor of Licensed Patents, is neither an officer, nor a director, nor a
shareholder in Licensee; in reliance on this representation and warranty, LSU is
not requesting a similar relinquishment and assignment of Distributable
Royalties from Dr. Derrick. This relinquishment and assignment of certain
Distributable Royalties applies only to Dr. Jaynes' share of Distributable
Royalties that are attributable to the present Agreement. This relinquishment
and assignment has no effect (one way or the other) on the distribution of any
Distributable Royalties that may be attributable to other contracts or licenses
- -- by way of example, Distributable Royalties under licenses of other LSU-owned
inventions on which Dr. Jaynes may be an inventor; or a future license under
Licensed Patents from LSU to a third party should the present Agreement be
terminated; or Distributable Royalties received by LSU and attributable to a
sublicense that survives the termination of the present Agreement; in each case,
subject to the right of offset in the event Demeter has unpaid debts to LSU,
whether arising from the present Agreement or otherwise.
3.9 ESCROW. If LSU and Licensee in good faith disagree as to whether certain
payments are due to LSU, then the procedures of this Paragraph 3.9 shall be
followed. If these procedures are followed, then Licensee shall not be deemed to
be in default for failure to make the disputed payments timely. If these
procedures are not followed, however, then Licensee shall be deemed to be in
default for failure to make payments timely under the Agreement, regardless of
whether or not it is ultimately determined that the disputed amounts were
actually due under the Agreement.
1. Any undisputed amounts shall be paid to LSU as provided in the
Agreement.
2. All disputed amounts shall be paid to an escrow agent mutually
acceptable to LSU and Licensee. These amounts shall be paid by
the dates otherwise applicable under the Agreement. LSU shall
be given prompt confirmation of the date and amount of any
such payments made. At Licensee's option, Licensee may elect
to pay the disputed amount up to a maximum of $100,000 to the
escrow agent. The payment of $100,000 (at Licensee's election)
will be deemed to satisfy Licensee's obligations to pay
disputed amounts to the escrow agent under this Paragraph,
even if the amount that is subject to good faith dispute
exceeds that amount. However, Licensee's payment of these
limits to an escrow agent shall not relieve Licensee of any
underlying liability in excess of that amount, together with
any interest that may be due on such amounts under Paragraph
3.6 above. The $100,000 limit established by this provision is
subject to the inflation adjustment of Paragraph 12 of these
Supplemental Terms.
3. The escrow agent shall place the funds in a safe,
interest-bearing instrument or account jointly approved by LSU
and Licensee; or if LSU and Licensee are unable thus to agree,
in a safe, interest-bearing instrument or account chosen by
the escrow agent. Any interest thus received shall ultimately
be distributed by the escrow agent in the same proportions as
the distribution of the principal amount. A reasonable fee for
the escrow agent's services may first be deducted from the
interest.
4. The escrow agent shall release the funds in escrow only in
accordance with the joint, written instructions of both LSU
and Licensee; or in accordance with an order of the court or
an award of the arbitrator under Paragraph 13.3 below.
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<PAGE> 21
ARTICLE 4
4. ENFORCEMENT OF LICENSED PATENTS, AND RELATED MATTERS
4.1 INFRINGEMENT; SUIT BY LICENSEE. Licensee shall investigate and report any
infringements or possible infringements of Licensed Patents to LSU. At
Licensee's option Licensee may, in its own name (or jointly in the names of
Licensee and LSU if required by law), bring and litigate such suits for
infringement of Licensed Patents as Licensee in its discretion sees fit.
Licensee shall give LSU thirty days notice of Licensee's intention to bring such
a suit before Licensee files the suit. The expenses of such litigation shall be
borne solely by Licensee, except as expressly provided in the remainder of this
Paragraph. Licensee at its option may invite LSU to participate in the
litigation and contribute to the costs of litigation, in any proportion chosen
by LSU, except that the proportion of LSU's participation shall not exceed a
limit specified by Licensee in Licensee's invitation to LSU to participate.
Following such an invitation, LSU may elect to participate in the lawsuit in any
proportion chosen by LSU, not to exceed this limiting proportion. LSU shall have
not less than ninety days to respond to Licensee's invitation, and to notify
Licensee of the proportion in which LSU will participate, if any. If LSU thus
participates in the litigation, LSU will then share in any damages, profits,
awards, and settlements in the same proportion as its proportionate contribution
to litigation costs.
Should LSU not participate in the litigation, either because LSU elects not to
do so, or because Licensee does not invite LSU to participate, then Licensee
shall pay LSU a proportion of any recovery received by Licensee from the
litigation as follows: (1) A recovery attributable to a judgment (or arbitration
award) based on a "reasonable royalty" shall be pro rata and retroactively added
to Licensee's Gross Sublicensing Receipts for the calendar quarter(s)
corresponding to the infringer's sales, and Licensee shall then pay LSU the
amount otherwise provided on account of Gross Sublicensing Receipts in Article
III, Subparagraphs (B)(2), (B)(3), and (B)(4). (2) If a recovery attributable to
a judgment (or arbitration award) includes amounts based on "lost profits," then
a dollar amount equal to the infringer's underlying net sales receipts (applying
the definition of Paragraph 1.3 of these Supplemental Terms by analogy to the
infringer's sales) shall be added to Licensee's Net Sales Receipts for the
calendar quarter in which the lost profit award is received by Licensee, and
Licensee shall then pay LSU the amount otherwise provided on account of Net
Sales Receipts in Article III, Subparagraph (B)(1). (3) LSU shall receive no
portion of any costs or attorneys fees that may be awarded by a court or by
arbitration. (4) If prejudgment or postjudgment interest is received, the amount
paid by Licensee to LSU shall be increased proportionately. (5) If damages are
enhanced pursuant to 35 U.S.C. Section 284, second paragraph, second sentence,
the amount paid by Licensee to LSU shall be increased proportionately. (6) If
the dispute is resolved by settlement between Licensee and the accused
infringer, then LSU and Licensee shall negotiate in good faith to apportion the
settlement between them equitably, in accordance with the above principles,
based where possible upon the premises underlying the determination of the
amounts paid in settlement. Licensee may settle an infringement suit by granting
the accused infringer a sublicense or assignment only by compliance with all
applicable provisions of this Agreement concerning sublicenses or assignments.
4.2 INFRINGEMENT; SUIT BY LSU. If LSU gives Licensee written notice of an
infringement or possible infringement of Licensed Patents, including information
sufficient to identify the accused infringer, the accused product or method, and
the Licensed Patent said to be infringed, then within 90 days of receipt of that
notice Licensee must either make written demand on the purported infringer to
cease infringement, or notify LSU of Licensee's decision not to make such a
demand. If, within six months of Licensee's receipt of the original notice from
LSU, Licensee has neither secured cessation of the purported infringement nor
brought suit against the purported infringer, then LSU shall have the right to
sue the purported infringer for infringement of Licensed Patents. In such a case
LSU may, in its own name (or jointly in the names of LSU and Licensee if
required by law), bring and litigate such suits for infringement of Licensed
Patents as LSU in its discretion sees fit. LSU shall give Licensee thirty days
notice of LSU's intention to bring such a suit before LSU files the suit. The
expenses of such litigation shall be borne solely by LSU, except as expressly
provided in the remainder of this Paragraph. LSU at its option may invite
Licensee to participate in the litigation and contribute to the costs of
litigation, in any proportion chosen by Licensee, except that the proportion of
Licensee's participation shall not exceed a limit specified by LSU in LSU's
invitation to Licensee to participate. Following such an invitation, Licensee
may elect to participate in the lawsuit in any proportion chosen by Licensee,
not to exceed this limiting proportion. Licensee shall have not less than ninety
days to respond to LSU's invitation, and to notify LSU of the proportion in
which Licensee will participate, if any. If Licensee thus participates in the
litigation, Licensee will then share in any damages, profits, awards, and
settlements in the same proportion as its proportionate contribution to
litigation costs.
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<PAGE> 22
ARTICLE 4
Should Licensee not participate in the litigation, either because Licensee
elects not to do so, or because LSU does not invite Licensee to participate,
then Licensee shall receive no portion of any recovery received by LSU from the
litigation. LSU may settle an infringement suit by granting the accused
infringer a license or sublicense under Licensed Patents only with Licensee's
consent.
4.3 CERTAIN ASSIGNMENT OBLIGATIONS AND PARTICIPATION RIGHTS. In the event either
that Licensee brings suit pursuant to Paragraph 4.1 of these Supplemental Terms,
or that LSU brings suit pursuant to Paragraph 4.2, then the other party shall
assign to the plaintiff in such litigation any right that the other party may
have for an injunction against or damages resulting from the infringement;
subject to the provisions of Paragraphs 4.1 and 4.2 concerning distribution of
any amounts recovered. That other party shall also provide reasonable
cooperation to the plaintiff in the conduct of such suits, at the plaintiff's
expense.
4.4 LITIGATION DOES NOT AFFECT ROYALTIES. The pendency of a lawsuit for
infringement of Licensed Patents, or otherwise concerning the validity or
enforceability of Licensed Patents shall not affect in any way Licensee's
obligations to pay royalties or other amounts under the Agreement.
4.5 INTERFERENCE. Licensee shall pay all reasonable legal and other costs
associated with any interference proceedings involving any of Licensed Patents,
whether such proceedings be in court or in the Patent and Trademark Office.
Decisions regarding the initiation, prosecution, defense, appeal, or settlement
of any such interference proceedings shall be made jointly by LSU and Licensee.
Notwithstanding the foregoing, Licensee may elect in writing to irrevocably
waive all rights under this Agreement respecting all the claims of Licensed
Patents that are involved in an interference proceeding, thereafter avoiding the
obligation to pay future costs under the first sentence of this paragraph 4.5
and thereafter waiving the right to participate in further decisions under the
second sentence of this paragraph 4.5.
4.6 INDEMNIFICATION BY LICENSEE. If Licensee takes any action under the
Agreement or otherwise that leads to or results in litigation or other legal
proceedings (in any country) concerning or related to Licensed Patents or the
Agreement, including but not limited to a suit for declaratory judgment or claim
or counterclaim for infringement, noninfringement, validity, invalidity,
enforceability, unenforceabilty, ownership, or inventorship of Licensed Patents,
then Licensee shall assume the responsibility for such legal proceedings (at
both trial and appellate levels) at Licensee's sole expense. If LSU so requests,
Licensee's legal counsel shall represent LSU, at Licensee's expense, in any such
legal proceedings at both trial and appellate levels. If Licensee's legal
counsel is unable to represent LSU because of a conflict of interest or other
bona fide reason, LSU may engage other competent legal counsel, whose reasonable
fees and expenses shall be promptly paid or reimbursed by Licensee, to represent
LSU in any such suit or legal proceeding. If LSU does not wish to be represented
by Licensee's legal counsel, LSU may engage competent legal counsel of LSU's
choosing to represent LSU at LSU's own expense (except in the case of a conflict
of interest or other bona fide reason as described in the preceding sentence, in
which case reasonable expenses for such representation shall be borne by
Licensee). Licensee shall indemnify LSU and hold LSU harmless from any and all
claims, damages, or other obligations arising out of or resulting from any such
claim or legal proceedings. Any sublicense, transfer, or assignment of any of
Licensee's rights under the Agreement shall expressly impose the obligations of
this Paragraph on any sublicensee, transferee, or assignee.
4.7 FRAUDULENT OR WILLFUL MISCONDUCT. Notwithstanding Paragraph 4.6 above,
Licensee shall have no contractual obligation under this Agreement to indemnify
LSU to the extent that damages may be attributable to LSU's own fraudulent or
willful misconduct. In the event that a claim is brought against LSU or Licensee
that is otherwise within Licensee's indemnification obligations under Paragraph
4.6 above, except that allegations of fraudulent or willful misconduct are made
against LSU, then the provisions of this Paragraph 4.7 shall apply. LSU shall
defend both itself and Licensee, at LSU's expense, against any claim that is
based on an allegation or claim of fraudulent or willful misconduct by LSU. If
the final judgment or verdict respecting the fraudulent or willful misconduct
claim -- after all applicable appeals and appeal delays have expired -- is other
than liability against LSU resulting from a finding that LSU committed
fraudulent or willful misconduct, then Licensee shall promptly indemnify LSU as
otherwise provided in Paragraph 4.6 above, and Licensee shall also promptly
reimburse LSU's reasonable legal and other out-of-pocket expenses incurred in
defending the claim at both trial and appellate levels; provided that LSU shall
not settle any such claim without Licensee's prior, written consent, such
consent not to be unreasonably withheld. If the final resolution of the
fraudulent or willful misconduct claim -- after all applicable appeals and
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<PAGE> 23
ARTICLE 4
appeal delays have expired -- is a finding that LSU committed fraudulent or
willful misconduct, then LSU shall indemnify Licensee against that judgment or
award, and Licensee shall have no obligation to indemnify LSU with respect to
that claim under Paragraph 4.6 above. If the fraudulent or willful misconduct
claim is settled prior to a final judgment or verdict (including all applicable
appeals and appeal delays), then LSU and Licensee shall make good faith efforts
to resolve their respective obligations under Paragraphs 4.6 and 4.7, and if
unable to reach agreement, shall have recourse to the dispute resolution
mechanism of Paragraph 13.3. As otherwise provided in Paragraph 4.6 above,
Licensee shall defend, indemnify, and hold LSU harmless against any claim that
may be made against LSU in the same proceedings, and that is not based on an
allegation or claim of fraudulent or willful misconduct by LSU; and in such a
case LSU and Licensee shall cooperate in allocating those costs that are common
to the defense of both sets of claims, subject to LSU's contingent right to
later indemnification and reimbursement after final resolution, as otherwise
provided in this Paragraph 4.7.
Because a finding of "inequitable conduct" in the Patent and Trademark Office
can be based on a lesser showing than that required for "fraudulent or willful
misconduct," it is understood that a finding of "inequitable conduct" in the
Patent and Trademark Office would not necessarily constitute "fraudulent or
willful misconduct" within the contemplation of this Paragraph 4.7, depending on
the specific circumstances.
Because Dr. Jesse Jaynes, who was once an employee of LSU, is a principal of
Licensee and has been a principal of Licensee since its inception,
notwithstanding any provision of this Paragraph 4.7 to the contrary, LSU shall
have no obligation to defend or indemnify Licensee against any claim, judgment,
or award that is based on allegations of fraudulent or willful misconduct by Dr.
Jaynes.
5. AUDITING
5.1 LICENSEE'S RECORDS. Licensee (and any Affiliate exercising rights under the
Agreement) shall make and keep full and accurate books and records in accordance
with Generally Accepted Accounting Principles showing the sublicensing,
manufacture, use, distribution, importation, lease, and sale of any Licensed
Product by Licensee and by Licensee's Affiliates. Licensee shall require any
Sublicensees to keep similar books and records. Licensee agrees that LSU, LSU's
designee, or the Louisiana Legislative Auditor may inspect and audit the books
and records of Licensee (and of any Affiliate of Licensee exercising rights
under this Agreement) pertaining to Licensed Products during regular business
hours on ten days' written notice, and may make copies of those books and
records at Licensee's place of business to the extent necessary to verify the
payments due under the Agreement. Any such audit shall be at the expense of LSU,
of LSU's designee, or of the Louisiana Legislative Auditor, as applicable;
except that should such an audit indicate an underpayment of 10% or more for any
calendar quarter, then Licensee shall pay the cost of the audit within thirty
days of its completion.
5.2 CONFIDENTIALITY. LSU agrees that, except to the extent that LSU may be
required by applicable law to so disclose, LSU will not disclose, and will keep
confidential for a period of three years, any information about Licensee's
customers, prices, or other confidential information about the business affairs
of Licensee that LSU may discover in the course of any examination of books and
records permitted under this Article 5, provided that at the time of the audit
Licensee clearly identifies any such information that Licensee considers to be
confidential.
5.3 SUBLICENSE OR ASSIGNMENT. In the event that any right granted under the
Agreement is sublicensed, assigned, or otherwise transferred, any agreement
sublicensing, assigning, or otherwise transferring that right shall grant LSU
the same rights to audit the books and records of the sublicensee, assignee, or
other transferee as LSU has with respect to Licensee's books and records under
this Article 5.
5.4 TERM OF AUDIT RIGHTS. The right of LSU to inspect the books and records of
Licensee or of any Affiliate, sublicensee, assignee, or transferee shall
continue past the term or termination of the Agreement, until the later of the
date on which all payments due under the Agreement have been made, or until two
years after the expiration of the Agreement.
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<PAGE> 24
ARTICLE 6
6. INDEMNIFICATION
6.1 GENERAL. Licensee shall defend, indemnify, and hold harmless LSU and LSU's
agents, officers, board members, employees, and anyone for whom LSU may be
liable (collectively, "INDEMNITEES") from and against any and all claims,
damages, losses, and expenses, in any country, including reasonable attorney's
fees at both trial and appellate levels to or for an attorney of LSU's choosing,
for claims for damages to property, injury to persons, or death of persons, or
for any other damage arising out of or in any way relating to the sublicensing,
manufacture, use, distribution, marketing, importation, lease, or sale of
Licensed Products or Licensed Patents by Licensee or by anyone for whom Licensee
may be responsible, including but not limited to Licensee's associates,
Affiliates, directors, officers, employees, sublicensees, assignees, and
transferees. Licensee agrees to defend any Indemnitee against any such lawsuit
or arbitration proceeding at Licensee's expense, and to pay any judgment
rendered against any Indemnitee in any such lawsuit or arbitration proceeding,
together with all costs and reasonable attorney's fees at both trial and
appellate levels to or for an attorney of LSU's choosing incurred in preparing
for or defending any such lawsuit or arbitration proceeding. Any sublicense,
transfer, or assignment of any of Licensee's rights under the Agreement shall
expressly impose the obligations of this Paragraph on any sublicensee,
transferee, or assignee.
6.1.1 FRAUDULENT OR WILLFUL MISCONDUCT. Notwithstanding Paragraph 6.1 above,
Licensee shall have no contractual obligation under this Agreement to indemnify
LSU to the extent that damages may be attributable to LSU's own fraudulent or
willful misconduct. In the event that a claim is brought against LSU or Licensee
that is otherwise within Licensee's indemnification obligations under Paragraph
6.1 above, except that allegations of fraudulent or willful misconduct are made
against LSU, then the provisions of this Paragraph 6.1.1 shall apply. LSU shall
defend both itself and Licensee, at LSU's expense, against any claim that is
based on an allegation or claim of fraudulent or willful misconduct by LSU. If
the final judgment or verdict respecting the fraudulent or willful misconduct
claim -- after all applicable appeals and appeal delays have expired -- is other
than liability against LSU resulting from a finding that LSU committed
fraudulent or willful misconduct, then Licensee shall promptly indemnify LSU as
otherwise provided in Paragraph 6.1 above, and Licensee shall also promptly
reimburse LSU's reasonable legal and other out-of-pocket expenses incurred in
defending the claim at both trial and appellate levels; provided that LSU shall
not settle any such claim without Licensee's prior, written consent, such
consent not to be unreasonably withheld. If the final resolution of the
fraudulent or willful misconduct claim -- after all applicable appeals and
appeal delays have expired -- is a finding that LSU committed fraudulent or
willful misconduct, then LSU shall indemnify Licensee against that judgment or
award, and Licensee shall have no obligation to indemnify LSU with respect to
that claim under Paragraph 6.1 above. If the fraudulent or willful misconduct
claim is settled prior to a final judgment or verdict (including all applicable
appeals and appeal delays), then LSU and Licensee shall make good faith efforts
to resolve their respective obligations under Paragraphs 6.1 and 6.1.1, and if
unable to reach agreement, shall have recourse to the dispute resolution
mechanism of Paragraph 13.3. As otherwise provided in Paragraph 6.1 above,
Licensee shall defend, indemnify, and hold LSU harmless against any claim that
may be made against LSU in the same proceedings, and that is not based on an
allegation or claim of fraudulent or willful misconduct by LSU; and in such a
case LSU and Licensee shall cooperate in allocating those costs that are common
to the defense of both sets of claims, subject to LSU's contingent right to
later indemnification and reimbursement after final resolution, as otherwise
provided in this Paragraph 6.1.1.
Because a finding of "inequitable conduct" in the Patent and Trademark Office
can be based on a lesser showing than that required for "fraudulent or willful
misconduct," it is understood that a finding of "inequitable conduct" in the
Patent and Trademark Office would not necessarily constitute "fraudulent or
willful misconduct" within the contemplation of this Paragraph 6.1.1, depending
on the specific circumstances.
Because Dr. Jesse Jaynes, who was once an employee of LSU, is a principal of
Licensee and has been a principal of Licensee since its inception,
notwithstanding any provision of this Paragraph 6.1.1 to the contrary, LSU shall
have no obligation to defend or indemnify Licensee against any claim, judgment,
or award that is based on allegations of fraudulent or willful misconduct by Dr.
Jaynes.
6.2 PRIOR LICENSE. The Licensed Patents were previously licensed to Helix
Phytonetix, Inc., a Louisiana corporation ("PHYTONETIX"), under a February 1,
1993 License Agreement (the "PRIOR LICENSE") between LSU and Phytonetix. The
Prior License was executed pursuant to a February 1, 1993 Agreement in
Settlement, Compromise, and Release (the "HELIX SETTLEMENT") among LSU,
Phytonetix, and the following private corporations: Helix International
Corporation (a Louisiana
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<PAGE> 25
ARTICLE 6
corporation), Helix BioMedix, Inc. (a Colorado corporation), Helix BioMedix,
Inc. (a Louisiana corporation), and University Research and Marketing, Inc. (a
Louisiana Corporation). (Phytonetix, each of the other private corporations
named in the preceding sentence, and each of their respective affiliates,
officers, directors, shareholders, assignees, and other persons or entities
claiming any right through any of the above may be referred to individually or
collectively as a "PRIOR PARTY" or the "PRIOR PARTIES.") LSU represents that LSU
has prior to the Effective Date neither granted nor authorized any licenses
under the Licensed Patents to any party other than: (1) to Phytonetix under the
Prior License on and after February 1, 1993; and (2) to one or more of the Prior
Parties before February 1, 1993. (The license rights in Licensed Patents held by
Prior Parties other than Phytonetix were extinguished under the terms of the
Helix Settlement.)
When Phytonetix failed to pay a minimum royalty timely under the Prior License,
LSU notified Phytonetix that the Prior License was terminated as of April 10,
1996. LSU has previously provided Licensee with copies of the Prior License, the
Helix Settlement (with all Exhibits), and the correspondence by which LSU
notified Phytonetix that the Prior License was terminated as of April 10, 1996.
Although LSU believes that the Prior License was properly terminated as of April
10, 1996, LSU can make no representations or warranties that the Prior License
was properly terminated. Licensee assumes the risk that a Prior Party may
challenge the April 10, 1996 termination of the Prior License, whether by
litigation, arbitration, or otherwise.
Licensee shall (subject to the limitation set forth below regarding the "Notes")
indemnify and hold harmless LSU and LSU's agents, officers, board members,
employees, and anyone for whom LSU may be liable (collectively, "INDEMNITEES")
from and against any and all claims, damages, losses, and expenses, in any
country, asserted by any Prior Party and arising out of or related to the Prior
License or the Helix Settlement -- excluding attorney's fees. Attorney's fees
are the responsibility of the respective Indemnitee or Indemnitees, who shall
therefore also have full control of the defense and settlement of any such
lawsuit or arbitration proceeding. Without Licensee's consent, such consent not
to be unreasonably withheld, a settlement of such a lawsuit or arbitration
proceeding shall not grant any rights under Licensed Patents.
Licensee's obligation to indemnify under this Paragraph 6.2 is limited to an
amount equal to the total principal, interest, and attorney's fees owed
(calculated at the time when the judgment, arbitration award, or settlement
becomes final and non-appealable) on the following two promissory notes, both of
which were executed by Phytonetix in connection with the Helix Settlement: (1)
"Negotiable Instrument" dated February 1, 1993 in the principal amount of
$168,899 by Phytonetix in favor of LSU; and (2) "Negotiable Instrument" dated
February 1, 1993 in the principal amount of $50,000 by Phytonetix in favor of
LSU (collectively, the "NOTES").
As of the Effective Date, Phytonetix is in default on both Notes; LSU has
received no payments on either of the Notes, and LSU has no reason to expect
that payment is forthcoming or collectable on either Note. LSU hereby assigns
each of the Notes to Licensee. LSU shall retain a security interest in both
Notes to assure the performance of Licensee's obligations under this Paragraph
6.2, and LSU shall retain possession of both Notes until their potential use to
offset or defend against a claim by a Prior Party becomes moot or has been
fulfilled. Licensee shall make the Notes available to offset or otherwise defend
against any claim that is made by a Prior Party, and that Licensee is obligated
to indemnify under this Paragraph 6.2. Licensee shall not assign, transfer,
mortgage, pledge, or otherwise encumber either Note without LSU's prior written
consent; and any such attempted assignment, transfer, mortgage, pledge, or other
encumbrance without LSU's prior written consent shall be null and of no effect.
Licensee shall be responsible for taking appropriate steps to prevent the Notes
from prescribing (i.e., to take appropriate steps to prevent the successful
assertion of a defense based on a pertinent statute of limitations), until their
potential use to offset or defend against a claim by a Prior Party becomes moot
or has been fulfilled. Once the potential use of the Notes to offset or defend
against a claim by a Prior Party becomes moot or has been fulfilled, LSU shall
release its security interest in the Notes, and shall deliver the Notes to
Licensee. Licensee's ownership of the Notes shall automatically revert to LSU
upon the termination of the present Agreement for any reason, without the
necessity of any formalities to accomplish this reversion. Should Licensee be in
possession of the Notes on the termination of the present Agreement, Licensee
shall promptly deliver the Notes to LSU without the necessity of any demand from
LSU to do so.
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<PAGE> 26
ARTICLE 7
7. DEFAULT
7.1 If Licensee is in breach or default of any term or condition of the
Agreement, or fails to perform any obligation under the Agreement, LSU may give
written notice to Licensee, specifying the reason why there is a default or
breach, after which notice Licensee shall have 30 days to cure the breach. If
the breach is not cured, or if efforts reasonably satisfactory to LSU are not
instituted within that 30 day period to cure the breach, the Agreement may be
terminated at the option of LSU, upon written notice of termination to Licensee,
and Licensee shall have no further rights to sublicense, make, use, import,
offer to sell, or sell Licensed Patents or Licensed Products. If the breach is
cured, or if efforts reasonably satisfactory to LSU are instituted within the 30
day period to cure the breach, the Agreement shall continue as if no breach had
occurred; provided, however, that upon the third default arising out of failure
to pay monies due to LSU under the Agreement, or upon default or rejection under
the provisions of Article 8 of these Supplemental Terms, no notice or period to
cure shall be necessary, and LSU may terminate the Agreement at its option
without further notice to Licensee and without allowing Licensee a period to
cure, and in such an event Licensee shall have no further right to sublicense,
make, use, import, offer to sell, or sell Licensed Patents or Licensed Products.
Following termination of the Agreement under this Paragraph 7.1, Licensee shall
have one hundred eighty days to sell any Licensed Products then in stock or then
under production, subject to the payment of royalties on those Licensed Products
as otherwise provided in Article III, Paragraph (B)(1).
8. BANKRUPTCY OF LICENSEE
8.1 ACCELERATED PROCEDURES. If bankruptcy proceedings under any Chapter of the
Bankruptcy Code, or other insolvency proceedings, voluntary or involuntary, are
filed by or against Licensee, then Licensee or its representative must assume
the Agreement within thirty days of that filing, and Licensee must cure all
defaults existing under the Agreement within that thirty day period, and
Licensee must provide such adequate assurance of future performance of its
obligations under the Agreement as may be required by the Bankruptcy or other
Court, and should Licensee fail to assume the Agreement within thirty days of
that filing, or should Licensee fail to cure all defaults existing under the
Agreement within that thirty day period, or should Licensee fail to provide
adequate assurance of its future performance of its obligations under the
Agreement as may be required by the Bankruptcy or other Court, then the
Agreement shall be deemed to be rejected.
9. ADDITIONAL RIGHTS AND OBLIGATIONS
9.1 COMPLIANCE WITH LAWS. In fulfilling its obligations under the Agreement,
Licensee shall comply with all applicable licensing, regulatory, and statutory
requirements. Licensee shall be responsible for paying any taxes or other
assessments, and for complying with all applicable laws and regulations of the
United States and other countries, including without limitation all applicable
laws and regulations relating to the environment, to agriculture, and to
foodstuffs.
9.2 TERMINATION TERMINATES NON-STANDARD-FORM SUBLICENSES. Any termination of the
Agreement shall terminate any non-Standard-Form Sublicense that Licensee has
entered under the Agreement, unless LSU has expressly and unambiguously agreed
to the contrary respecting a particular Sublicense. Following termination of
this Agreement, a Standard-Form Sublicense that fully complies with Paragraph
2.2.1 of these Supplemental Terms may continue in effect as a license directly
between LSU and the sublicensee if the Standard-Form Sublicense so provides,
subject to any modifications specified in the Standard-Form Sublicense governing
events occurring after termination of this Agreement. Where a sublicense does
not fully comply with Paragraph 2.2.1, and therefore requires LSU's prior
written approval, a sublicensee desiring different treatment may request a
different agreement regarding termination of sublicense rights directly from LSU
at the time that it negotiates with Licensee for a sublicense agreement, but LSU
shall have no obligation to consent to such a different agreement in the context
of a non-Standard-Form Sublicense.
9.3 MARKING. Licensee, any Affiliate of Licensee, and each sublicensee shall
mark any article or composition within the claims of any issued patent within
Licensed Patents, or any article or composition intended for a use within the
claims of any issued patent within Licensed Patents, with the word "Patent,"
"Patents," "For Use Under Patent," or "For Use Under Patents," and the number or
numbers of each such issued patent. When, from the character of the article or
composition, this marking cannot be made, the marking shall instead be placed on
a label attached to any packaging containing any such article or composition.
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<PAGE> 27
ARTICLE 9
9.4 PROHIBITION ON MISUSE. Licensee shall engage in no activity that would
constitute a misuse of any patent or patent application within Licensed Patents.
Each sublicense, assignment, or other transfer of any rights in Licensed Patents
shall contain a provision forbidding the sublicensee, assignee, or other
transferee from engaging in any activity that would constitute a misuse of any
item in Licensed Patents. As used in this Paragraph, "misuse" of a patent or
patent application means an action that, aside from issues of patent validity or
infringement, renders a patent wholly or partially unenforceable, whether
temporarily or permanently.
9.5 LICENSEE TRADEMARKS. Subject to Article V of the Agreement, Licensee may
acquire its own trademarks for use in connection with Licensed Products.
10. CONSULTING SERVICES
10.1 CONSULTING SERVICES. LSU will entertain requests by Licensee to allow
current LSU employees, acting independently of their employment at LSU, to serve
as consultants to Licensee. The terms and conditions of any such consulting
agreements shall be negotiated between Licensee and any prospective consultant,
and shall be consistent with the laws of the State of Louisiana and the rules,
regulations, and policies of LSU. It is understood that LSU employees who act as
consultants may not ordinarily grant rights in intellectual property to the
outside employer.
11. PUBLICATION
11.1 PUBLICATION. Whereas LSU is an academic institution, LSU shall be free to
make such publications as LSU sees fit concerning Licensed Patents; except to
the extent (if any) precluded by a separate confidentiality agreement between
LSU and Licensee.
11.2 SUPPLEMENTAL PATENT RIGHTS. Notwithstanding anything in Paragraph 11.1 to
the contrary, LSU and Licensee shall each maintain the confidentiality of the
status of the Supplemental Patent Rights, until the earlier of the following two
dates: (1) the earliest date when no patent application within the Supplemental
Patent Rights is pending, or (2) five years after the Effective Date of this
Agreement. No obligation of confidentiality shall exist as to such information
that: (1) is public knowledge, or becomes public knowledge through no act or
omission of LSU or Licensee; (2) is required to be disclosed by a court or
government agency, provided that the other party is given reasonable notice of
the required disclosure; or (3) is disclosed in any issued patent or published
patent application within Licensed Patents in any country. Because patents
within Licensed Patents have issued in several countries, it is understood that
the information subject to this confidentiality obligation is directed primarily
to that concerning the procedural status of the prosecution of the Supplemental
Patent Rights, and to the subject matter of the claims presented in the
Supplemental Patent Rights.
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<PAGE> 28
ARTICLE 12
12. INFLATION ADJUSTMENT
12.1 INFLATION ADJUSTMENT. The dollar amounts of any items specifically stated
in the Agreement to be subject to adjustment for inflation under Paragraph 12 of
the Supplemental Terms are subject to adjustment as follows. (This inflation
adjustment does not apply to any item that does not specifically refer to the
inflation adjustment of this Paragraph 12 of these Supplemental Terms.) The
"MULTIPLIER" on any given date is defined to be the ratio of (a) the Consumer
Price Index for All Urban Consumers, All Items, U.S. City Average (the "INDEX")
most recently issued by the United States Government as of that date to (b) the
Index on the effective date of the Agreement. At any time when the Multiplier is
at least 1.10 times the value of the Multiplier on the date of the most recent
adjustment under this Paragraph (or is at least 1.10 if there has been no
previous adjustment under this Paragraph), then LSU may give Licensee written
notice that the effective amount of each of the dollar amounts that is subject
to inflation adjustment under the Agreement is adjusted to the original amount
as specified in the Agreement, multiplied by the Multiplier as of the date of
the written notice. The adjusted amounts are effective immediately following
this notice, and shall then remain constant until another notice of adjustment
under this Paragraph is given. Notwithstanding any other provision of this
Paragraph to the contrary, in the specific case of liability insurance required
by Article VI of the Agreement, an adjustment notice under this Paragraph is
effective as of the time when Licensee (or a sublicensee) next renews or
replaces its then-current liability insurance policy; and the amount of
liability insurance coverage required shall be the amount specified in Article
VI, multiplied by the Multiplier as of the date of issuance, renewal, or
replacement of the policy.
13. MISCELLANEOUS
13.1 EFFECT OF AN INVALID PROVISION. If any part of the Agreement (including the
Supplemental Terms) is finally adjudged to be invalid by a court of competent
jurisdiction, or by an arbitrator as provided in Paragraph 13.3 of these
Supplemental Terms, the remaining parts of the Agreement shall remain in full
force and effect. Furthermore, in lieu of that invalid part, there shall be
automatically added to the Agreement a provision as similar in terms to that
invalid part as may be possible, legal, valid, and enforceable.
13.2 GOVERNING LAW. This contract, its terms, and the enforcement of this
contract shall be governed by the substantive law of the State of Louisiana.
13.3 DISPUTE RESOLUTION. In the event of a controversy or claim arising out of
or relating to this Agreement, or the breach, validity, or termination of this
Agreement, the parties shall first negotiate in good faith for a period of sixty
days to try to resolve the controversy or claim. If the controversy or claim is
unresolved after this period of good-faith negotiations, the parties shall then
make good-faith efforts for a period of sixty days to mediate the controversy or
claim in Baton Rouge, Louisiana before a sole mediator selected by the Center
for Public Resources, Inc. (New York, New York), under the Center for Public
Resources' Model Mediation Procedure for Business Disputes in effect as of the
Effective Date. If the controversy or claim is unresolved after this period of
mediation, on the written demand of either party, any controversy arising out of
or relating to this Agreement or to the breach, termination, or validity of this
Agreement, shall be settled by binding arbitration in Baton Rouge, Louisiana in
accordance with the Center for Public Resources' Rules for Non-Administered
Arbitration of Patent and Trade Secret Disputes in effect as of the Effective
Date before three arbitrators, of whom each party shall appoint one. No
arbitrator may be a resident of, or have a place of business in, Louisiana,
North Carolina, Utah, or Montana. The arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. Sections 1-16, and judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. All applicable statutes of limitation and defenses based
upon the passage of time shall be tolled while the procedures described above in
this Paragraph are pending. LSU and Licensee shall each take such action, if
any, required to effectuate this tolling. Each party is required to continue to
perform its obligations under this Agreement pending final resolution of any
dispute arising out of or relating to this Agreement. Otherwise, any controversy
arising under or relating to this Agreement, or the breach, termination, or
validity of this Agreement, may be adjudicated only in a court, state or
federal, having jurisdiction over the subject matter and including Baton Rouge,
Louisiana within its territorial district. Both parties consent to the
jurisdiction and venue of such a court. A party's right to demand arbitration of
a particular dispute arising under or related to this Agreement, or the breach,
termination, or validity of this Agreement, shall be waived if that party
either: (1) brings a lawsuit over that controversy or claim against the other
party in any state or federal court; or (2) does not make a written demand for
mediation, arbitration, or
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<PAGE> 29
ARTICLE 13
both within 60 days of service of process on that party of a summons or
complaint from the other party instituting such a lawsuit in any state or
federal court.
13.4 ATTORNEY'S FEES. If it becomes necessary for one party to employ the
services of an attorney for the protection and enforcement of its rights under
the Agreement, or to compel performance of the other party's obligations under
the Agreement, upon final judgment or award by a court of competent jurisdiction
or an arbitrator against the other party, the court or arbitrator in its
discretion may order that other party to pay reasonable attorney's fees at both
trial and appellate levels to or for an attorney of the employing party's
choice.
13.5 NO WAIVER. The failure of either party to insist upon strict performance of
any provision of the Agreement, or to exercise any right under the Agreement,
shall not constitute a waiver of that provision or right.
14. TERMINATION
14.1 EFFECT OF TERMINATION. Upon termination of the Agreement for any reason,
each of the following provisions shall continue in effect indefinitely, until
its purpose can no longer be fulfilled, or is no longer meaningful: Main Body of
Agreement {Article I (all); II (par. (D) only); III (except that Licensee shall
have no obligation to pay patenting expenses accruing after termination of the
Agreement); IV (all); V; VI (ALL); VII; and VIII (ALL)}; Supplemental Terms
(Appendix A) {Article 1 (all), 2.8 (but only to the extent that an applicable
180-day period defined in paragraph 2.8 has not yet run, and only if the
Agreement is terminated for a reason other than Licensee's default), 3 (all),
4.6, 5 (all), 7.1 (final sentence of paragraph 7.1 only, respecting the sale of
Licensed Products then in stock or then under production), 6 (all), 9.1, 9.2,
11.1, 12, 13 (all), and 14}; and the ratifications by Jesse Jaynes and Jeannette
Jaynes. Following the termination of the Agreement, any provision of the
Agreement (or of the Supplemental Terms) not referred to in the preceding list
shall cease to have effect. By way of illustration and not limitation, following
the termination of the Agreement Licensee shall remain obligated to pay LSU all
licensing fees, royalties, minimum royalties, and other amounts that are due
under Article III and that accrued prior to the effective date of termination.
INITIALS OF SIGNATORIES TO MAIN BODY OF AGREEMENT:
/s/ AAC 5/19/97 /s/ RDE 4/18/97
- -------------------- ----------- ----------------------------- -----------
(Initialled for LSU) (Date) (Initialled for Licensee) (Date)
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<PAGE> 1
Certain portions of this Exhibit have been omitted based upon a request for
confidential treatment. The non-public information has been filed with the
Commission.
Exhibit 10.2
RESTATED
DEMETER-MYCOGEN
LICENSE AND ROYALTY AGREEMENT
Demeter BioTechnologies, Ltd., a Colorado corporation having a
principal place of business at 905 West Main Street, Suite 20B Brightleaf
Square, Durham, North Carolina 27701 ("DEMETER") and Mycogen Corporation
("LICENSEE"), having a place of business at 5501 Oberlin Drive, San Diego,
California 92121, enter into the following Agreement effective September 23,
1997 (the "EFFECTIVE DATE").
WHEREAS the Board of Supervisors of Louisiana State University and
Agricultural and Mechanical College, a public constitutional corporation,
organized and existing under the laws of the State of Louisiana ("LSU") owns
certain patent rights in certain countries regarding certain technology
involving disease resistance in plants;
WHEREAS Demeter is in the business of producing, licensing, and
sublicensing disease resistant plants and genetic constructs useful in producing
disease resistant plants or treating plants and has developed technology and
know-how and has obtained or filed patents of its own;
WHEREAS Demeter has obtained from LSU, effective May 1, 1997, a license
("LSU LICENSE") under each of the components of "LSU LICENSED PATENTS" and
"SUPPLEMENTAL PATENT RIGHTS" defined in Article I, Paragraphs (A) and (B) below,
respectively;
WHEREAS Licensee desires to obtain a license from Demeter of Demeter
Technology or a sublicense from Demeter of rights under Licensed Patents and
Supplemental Patent Rights, all for certain fields of use;
WHEREAS Demeter and Licensee have agreed to the following terms and
conditions, and desire to enter this License and Royalty Agreement (the
"AGREEMENT");
THEREFORE, in consideration of the mutual obligations set forth in this
Agreement, Demeter and Licensee agree as follows:
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ARTICLE I. DEFINITIONS
A. "LSU LICENSED PATENTS" means: (1) Jaynes and Derrick, "Method for
Introduction of Disease and Pest Resistance into Plants and Novel Genes
Incorporated into Plants which Code Therefor," United States patent number
5,597,946, issued January 28, 1997; (2) Jaynes and Derrick, "Plants Genetically
Enhanced for Disease Resistance," United States patent number 5,597,945, issued
January 28, 1997; (3) Jaynes and Derrick, European patent application
93113536.2; (4) Jaynes and Derrick, European patent application 89900103.6; (5)
Jaynes and Derrick, Japanese patent application SHO 62-504491; (6) Jaynes and
Derrick, "Method for Introduction of Disease and Pest Resistance into Plants and
Novel Genes Incorporated into Plants which Code Therefor," European patent 0 330
655, issued June 7, 1995, nationalized in United Kingdom, France, Germany, and
Italy; (7) Jaynes and Derrick, "Plants Genetically Enhanced for Disease
Resistance," Canadian patent number 1,321,157, issued August 10, 1993; (8)
Jaynes and Derrick, "Method for Introduction of Disease and Pest Resistance into
Plants and Novel Genes Incorporated into Plants which Code Therefor," Australian
patent number 611,859, sealed November 5, 1991; and (9) any United States or
non-United States patent, reissue patent, or reexamination certificate resulting
from the applications and patents of parts (1) through (8) of this Paragraph,
including any renewals or extensions of the term of any such patent.
B. "SUPPLEMENTAL PATENT RIGHTS" means, subject to the limitations set forth in
this Paragraph, any United States divisional or continuation application (but
not a continuation-in-part application) either of United States patent
application serial number 08/444,762, filed May 19, 1995, or of United States
patent application serial number 08/453,436, filed May 30, 1995; and any United
States patent, reissue patent, or reexamination certificate resulting from such
a divisional or continuation application. "SUPPLEMENTAL PATENT RIGHTS" shall not
include any patent rights outside the United States. Furthermore,
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"SUPPLEMENTAL PATENT RIGHTS" shall not include any patent rights concerning any
invention or activity whose unlicensed practice would infringe any of the
following claims: (1) any claim of United States patent number 5,597,945 or
5,597,946, or (2) any claim in any reissue patent or reexamination certificate
resulting from United States patent number 5,597,945 or 5,597,946. The
"SUPPLEMENTAL PATENT RIGHTS" will be treated as Licensed Patents for all
purposes under this Agreement.
C. "DEMETER PATENTS" means the U.S. patents and patent applications listed in
Sections A-1 and A-2 of Schedule A hereto, and all patents issuing from such
applications, together with all foreign counterparts of such patents and
applications, and all continuations, continuations-in-part, divisionals, and
reissues thereof.
D. "DEMETER TECHNOLOGY" means technology, know-how and materials, whether or not
patentable, (including the materials listed on Schedule B hereto and the
technology rights resulting from the current Demeter Agricultural Agreements
listed in Schedule C) covered by Demeter Patents, and/or related to the
development, manufacture or use of Biocontrol Peptides currently owned by or
available to Demeter or developed by Demeter during the term of this Agreement,
excluding Joint Technology.
E. "LICENSED TECHNOLOGY" means all Demeter Technology and Joint Technology.
F. "LICENSED PATENTS" means LSU Licensed Patents, Supplemental Patents, Demeter
Patents and Joint Patents.
G. "FIELD OF USE" means the use of Biocontrol Peptides for disease and/or pest
resistance purposes in transgenic plants of all plant species but not including
the use of plants as a production mechanism for producing Biocontrol Peptides
which are to be used for purposes not permitted under this Agreement.
H. "DOLLARS" means U.S. dollars.
I. "CROP" means a plant species designated by its formal binomal nomenclature
(e.g. Lycopersicon esculentum for tomato; Zea mays for corn, etc.).
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J. "LICENSED PLANT PRODUCT(S)" means transgenic plant(s) containing a Biocontrol
Peptide the use of which either (i) involves the use of Demeter Technology
and/or Joint Technology licensed to Licensee under this Agreement; or (ii) would
otherwise infringe a valid claim of any applicable Licensed Patent absent the
licenses granted under this Agreement.
K. "LICENSED FORMULATED PRODUCT(S)" means any product, regardless of how
formulated, for application externally to a plant, or to any plant surface or
the growing media of any plant, containing one or more Biocontrol Peptides the
use of which either (i) involves the use of Demeter Technology or Joint
Technology licensed to Licensee under this Agreement; or (ii) would otherwise
infringe a valid claim of any applicable Licensed Patents absent the licenses
granted under this Agreement.
L. "NUTRITION PATENTS AND TECHNOLOGY" means all technology, materials and
patents or patent applications which relate to Demeter research on proteins with
improved nutritional quality including but not limited to the following patent
applications and applications in preparation listed in Section A3 of Schedule A
attached hereto, their foreign counterparts, and all continuations,
continuations-in-part, divisionals and reissues thereof.
M. "NET SALES" means all revenue received or accrued during the term of the
Agreement by Licensee, Licensee's Affiliates or their sublicensees,
respectively, arising out of or related to the use, transfer, lease, or sale of
any Licensed Product(s) at the actual amounts charged by Licensee or by any
Affiliate or their Sublicensee, excluding any Trait Marketing Revenue. "Net
Sales" also includes consideration received, at any time, by Licensee for a
Licensed Product that is made during the term of a Licensed Patent, but that is
used, sold, or otherwise transferred after that term. "Net Sales" shall not
include the following amounts: (i) revenue attributable to Licensed Products
that are actually returned to Licensee for refund; (ii) transportation charges
or allowances, if any, added to the price; and (iii) sales tariffs, duties, or
taxes for Licensed Products that
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Licensee is required to collect and remit to a government as a matter of law;
but in no circumstances shall any deduction or exclusion from Net Sales receipts
be taken for any franchise tax or income tax. No other deductions of any kind
shall be made, whether for agents' commissions or otherwise. Where all or part
of the consideration received by Licensee, or an Affiliate of Licensee as
otherwise set forth in this Paragraph M for the use or transfer of any Licensed
Product is not cash, or where the final use of a Licensed Product is by Licensee
or an Affiliate of Licensee, then the "Net Sales" for that Licensed Product for
purposes of computing royalties or other amounts due under the Agreement shall
be deemed to be the fair market value for such Licensed Product. In determining
fair market value, appropriate weight shall be given to any arms-length
transaction by Licensee, an Affiliate of Licensee, or a sublicensee involving
the same or a similar Licensed Product. For Licensed Products which are Licensed
Plant Products, Net Sales will be determined in accordance with the above solely
on the basis of the revenue or value of such Licensed Plant Products as planting
materials (such as seeds, rootstocks, cutting and/or other plant parts) for
purposes of the production of a commercial crop and not on their end-use revenue
or value. The time when "Net Sales" for any Licensed Product are deemed received
for purposes of computing royalties or other amounts due under the Agreement
shall be (1) the date when a purchaser is billed by Licensee, (2) the date when
the purchaser actually uses or receives that Licensed Product, (3) the date when
Licensee bills for the use of that Licensed Product, or (4) the date when
Licensee receives payment for that Licensed Product, whichever date is earliest;
provided that Licensee must actually receive payment for that Licensed Product
before Licensee is obligated to pay royalties or other amounts to Demeter for
that Licensed Product. Where the consideration to Licensee for the right to use
or receive any Licensed Product is not cash, the date "Net Sales" shall be
deemed to be received shall be the date that Licensed Product is first used or
received. "Net Sales" will exclude any revenue
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received or accrued by Licensee during the term of this Agreement from
sublicensing and Trait Marketing Revenue.
N. "TRAIT MARKETING REVENUE" means the net revenue received by Licensee or its
Affiliates, respectively from licenses to customers for the commercial use of
the pest or disease control traits in Licensed Plant Products to the extent
separately invoiced from the sale of Licensed Plant Products. Such fees would
include those based upon usage including, but not limited to, per acre charges,
box charges, or unit (e.g. volume or weight) charges. However, Trait Marketing
Revenue will not include any payments which are up-front license issuance fees,
technology milestone payments (e.g., for the achievement of sales thresholds),
or payments in the nature of license maintenance fees payable on a periodic
basis for continuation of a license.
O. "BIOCONTROL PEPTIDE(S)" means natural or synthetically derived peptide
compound(s) which express activity to control plant pests or plant diseases.
P. "GROSS VALUE ADDED" means the average difference between the sales price
charged customers for a Licensed Plant Product from the sales price charged
customers under substantially similar circumstances (including, but not limited
to, substantially similar quantities) for a plant product substantially
identical in every meaningful way to the Licensed Plant Product save for the
addition to the Licensed Plant Product of the technology subject to Licensed
Patents or Licensed Technology
Q. "LICENSED PRODUCT(S)" means Licensed Plant Product(s) or Licensed Formulated
Product(s), or both.
R. "FIRST COMMERCIAL SALE" means the receipt among the group consisting of
Licensee, Affiliate, and any sublicensee of the cumulative amount of fifty
thousand Dollars ($50,000) from the sale of Licensed Plant Products.
S. "CONFIDENTIAL INFORMATION" means any and all proprietary information
(including, without limitation, information related to technical, business and
intellectual property matters), know-how, data, trade secrets and biological and
other physical
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materials owned and held by either party to this Agreement which such party
maintains as confidential.
T. "AFFILIATE" means any entity controlled by, controlling or under common
control with a party. For purposes of this definition, control will mean
ownership of fifty percent (50%) or more of the equity or voting control of such
party or entity.
U. "JOINT PATENTS" means patents and patent applications to the extent they
cover technology jointly invented by Demeter (or Demeter's agents) and Licensee
(or Licensee's agents) under the joint development program set forth in Article
VII of this Agreement.
V. "JOINT TECHNOLOGY" means technology, know-how and materials jointly developed
by Demeter (or Demeter's agents) and Licensee (or Licensee's agents) under the
joint development program set forth in Article VII of this Agreement, which are
not subject to Demeter Patents.
W. "JOINT INVENTIONS" means any invention, technology, know-how and materials
conceived jointly under the joint development program set forth in Article VII
of this Agreement by Demeter (or Demeter agents) on the one hand, and Mycogen
(or Mycogen agents) on the other hand, whether or not patentable, including any
Joint Patents and Joint Technology.
ARTICLE II. LICENSE GRANT
A. SCOPE OF LICENSE.
1. LICENSED PLANT PRODUCTS. Subject to the terms and conditions of this
Agreement, Demeter grants to Licensee, and Licensee accepts from
Demeter, an exclusive world-wide license to Licensed Technology and
Licensed Patents to make, have made, use, offer to sell, sell for use
and sublicense Licensed Plant Products in the Field of Use, subject to
the rights granted to Sanford Scientific Inc., Treetech Management,
Inc. d/b/a Dry Creek Laboratories, Rhone-Poulenc and Clause, S.A.
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2. LICENSED FORMULATED PRODUCTS Subject to the terms and conditions of
this Agreement, Demeter grants to Licensee, and Licensee accepts from
Demeter, an exclusive world-wide license of Licensed Technology and
Licensed Patents to make, have made, use, offer to sell, sell for use
and sublicense Licensed Formulated Products, again subject to the
rights, if any, granted to Sanford Scientific Inc., Treetech
Management, Inc. d/b/a Dry Creek Laboratories, Rhone-Poulenc and
Clause, S.A.
3. SUBLICENSING RIGHTS AND RESTRICTIONS. Licensee will have the right to
sublicense any of the rights granted to Licensee hereunder, except that
Licensee will not have the right to assign, transfer or sublicense any
rights under the LSU Licensed Patents or the Supplemental Patent Rights
without the express prior approval of LSU, such approval not to be
unreasonably withheld. Notwithstanding the foregoing, no prior approval
from LSU will be required: (i) to sell Licensed Products to arms-length
purchasers (e.g. distributors or farmers), even where such a sale is
accompanied by an express or implied sublicense under one of more of
the LSU Licensed Patents or Supplemental Patent Rights regarding the
commercial use of such Licensed Product for non-developmental purposes
(ii) to sublicense an Affiliate of Licensee in accordance with
Paragraph 7 of this Article II; or (iii) to license a third party under
one or more LSU-approved standard-form sublicenses (the "Standard-Form
Sublicenses"). Attached as Schedule D is a Standard-Form Sublicense
which has been approved by LSU.
4. STANDARD-FORM SUBLICENSE. At any time during the term of this
Agreement, Licensee may request that LSU and Licensee negotiate in good
faith to develop one or more additional Standard-Form Sublicenses.
Licensee shall prepare the first draft of each proposed Standard-Form
Sublicense, and thereafter the parties shall discuss and negotiate
modifications to the initial draft in good
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faith. Each party's obligation in this respect is limited to an
obligation to negotiate in good faith; neither party is obligated to
approve a proposed Standard-Form Sublicense if mutually agreeable terms
cannot be found.
By way of illustration and not limitation, the factors that LSU
considers important in reviewing proposed sublicenses include the
following: adequate liability insurance; adequate indemnity in favor of
LSU; prohibitions against further assignment, sub-sublicensing, or
transfer; prohibitions against the use of LSU's name; prohibitions
against patent misuse; the right to audit; marking of Licensed Products
with appropriate patent numbers; and, if a particular sublicense is
intended to survive a possible termination of the present Agreement
before the expiration of all pertinent Licensed Patents, a clear and
acceptable demarcation of the respective rights and obligations of LSU
and the sublicensee in those circumstances. Once LSU and Licensee have
approved the form and substance of a particular Standard-Form
Sublicense, Licensee may thereafter enter into one or more sublicenses
with third parties using that approved Standard-Form Sublicense,
without further approval from LSU, provided that: (1) no modifications
are made to the approved Standard-Form Sublicense that would diminish
in any respect the protections afforded to LSU by the approved
Standard-Form Sublicense (other modifications being permissible if they
do not diminish the protections afforded to LSU in any manner); and (2)
a complete copy of the fully-executed Standard-Form Sublicense is
delivered to LSU within thirty days of execution. A proposed sublicense
that does not satisfy these criteria may be submitted for LSU's review
and approval under Paragraph 3 above.
LSU may at any time, acting in good faith, withdraw its
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approval of a particular Standard-Form Sublicense upon notice to
Licensee. Such a withdrawal of approval shall not affect the validity
of any sublicense using that Standard-Form Sublicense that was fully
executed by all parties prior to LSU's withdrawal of approval. Where
reasonably feasible, LSU shall inform Licensee of the reason for LSU's
withdrawal of a previous approval, and shall propose modifications to
the Standard-Form Sublicense that would make it once against acceptable
to LSU.
5. U.S. GOVERNMENT RIGHTS. The licenses granted to Licensee under
paragraphs 1 and 2 above are subject to any rights that the United
States Government may have in Licensed Patents pursuant to 35 U.S.C.
Sections 200-212.
6. ASSIGNMENT OF CERTAIN CONTRACTS. In connection with the grant of the
above licenses, if Licensee requests in writing within one year of the
Effective Date, Demeter hereby agrees to assign to Licensee (to the
extent permitted under the applicable contract), under and subject to
all of the terms of this Agreement, including but not limited to the
royalty and payment obligations of Articles III and IV, technology
subject to Article II, of this Agreement developed under any university
or government contract (other than the LSU License) to which Demeter is
a party to the extent that such contract relates to the development,
manufacture, use or sale of Licensed Plant Products or Licensed
Formulated Products for Crop disease and/or pest control; provided that
Licensee agrees to assume the obligations of Demeter under such
contract. Demeter further agrees to execute any and all documents
necessary or desirable to implement these rights.
7. AFFILIATES. Licensee will have the right to extend the license rights
granted under this Agreement to Affiliates of Licensee, provided that
such Affiliates agree in
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writing to be bound by all of the provisions of this Agreement.
8. ADDITIONAL LIMITATIONS. No right or license is granted by Demeter to
use or sell Biocontrol Peptides for human or animal health care
applications or to use plants to produce Biocontrol Peptides for such
or for other non-licensed uses, which human and animal healthcare
applications and production use of plants is retained by Demeter.
B.TERM. The term of this Agreement will be from the Effective Date until the
later of (i) expiration of the last to expire of any patent within Licensed
Patents; or (ii) the cessation of the sale or use of any Licensed Products by
Licensee or its Affiliates, or any of their sublicensee, unless earlier
terminated in accordance with applicable provisions of this Agreement. Should
the LSU License be terminated or converted into a non-exclusive license by LSU,
LSU has agreed that Licensee's rights under this Agreement regarding LSU
Licensed Patents and Supplemental Patent Rights will not be diminished for the
term of the LSU License, provided that; (i)Licensee pays to LSU, or to such
other person or entity which holds the rights granted by LSU to Demeter which
are sublicensed to Licensee under this Agreement, the royalties otherwise
payable under this Agreement; (ii) Licensee is not in breach of any other
material term of this Agreement; and (iii) in connection with the continuation
of this License following the termination of the LSU License, LSU will not incur
any obligation which it did not already have to Demeter under the LSU License,
or to Licensee under the terms of this Agreement. The parties acknowledge that
the term of the LSU License only extends until the last to expire of any patents
included within the definition of "Licensed Patents" as defined in said License
Agreement.
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ARTICLE III. ROYALTIES AND FEES
A. LICENSE ISSUE FEES. Upon execution of this Agreement, and as a condition
precedent to this Agreement, Licensee shall pay Demeter the following three
amounts: (a) seven hundred thousand Dollars ($700,000) for the rights to
Licensed Patents and Demeter Technology for use in Licensed Plant Products in
the Field of Activity; (b) two hundred thousand Dollars ($200,000) for the
rights to Demeter Patents and Demeter Technology for use in Formulated Licensed
Products; and (c) an additional fifty thousand Dollars ($50,000) for a right of
first refusal through October 1, 1998 to obtain an exclusive license to Demeter
Nutrition Patents and Technology for applications involving nutrition in plants
in accordance with the provisions of Article VI.
(The information marked by *** has been omitted by a request for confidential
treatment. The omitted portions will be separately filed with the Commission.)
B. MINIMUM ANNUAL ROYALTIES. Licensee shall pay Demeter a minimum royalty of
five hundred thousand dollars ($500,000) per year for the licenses granted
pursuant to this Agreement (the "Minimum Annual Royalty"), such Minimum Annual
Royalty will be first payable on January 1, 2003 and on January 1 of each
subsequent year to and including January 1, 2014, which amount will be increased
for each year after January 1, 2003 by an amount equal to five percent of the
amount payable in the prior year. The amount of Minimum Annual Royalty paid by
Licensee in excess of actual earned royalties in any year will be treated as a
prepayment of future earned royalties. Such excess will be accrued, and will
then be creditable against fifty percent (50%) of any future earned royalties
which are in excess of Minimum Annual Royalty in subsequent years until fully
utilized.
C. EARNED ROYALTY ON SALES BY LICENSEE.
1. On a quarterly basis, Licensee shall pay to Demeter an earned royalty
for Licensed Plant Products in an amount equal to the greater of the
following two amounts [(a) or (b)] for each Licensed Plant Product that
is made, used, sold, or imported by Licensee: (a) the sum of *** of Net
Sales, if any, and *** of Trait Marketing
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Revenue, if any; or (b) the sum of *** of Gross Value Added, if any,
and *** of Trait Marketing Revenue, if any. Examples of the application
of the provisions of this paragraph are presented below:
EXAMPLE 1: Licensee sells a unit of a particular Licensed Plant Product
in exchange for Net Sales Revenue of $125 per unit. The Gross Value
Added with respect to such unit is $25.00. The earned royalty payable
to Demeter on the sale of such Licensed Plant Product on a per unit
basis is the greater of (a) ***% of $125 = $***, or (b) ***% of $25.00
= $***. Licensee pays $*** per unit in royalties to Demeter for such
Licensed Plant Product.
EXAMPLE 2: Licensee sells a unit of a particular Licensed Plant Product
in exchange for Net Sales Revenue of $100 per unit. The Gross Value
Added with respect to such unit is $0. (That is, there is no premium
charged for the Licensed Plant Product over substantially similar plant
products which do not have the traits licensed under this Agreement.)
In addition, Licensee also receives $25.00 in Trait Marketing Revenue
in connection with the sale of each such unit. (For example, in the
form of a per acre license fee for the use of the trait incorporated
into said unit.) The earned royalty payable to Demeter for the combined
sale and trait license on a per unit basis is the greater of (a) ***%
of $100 + ***% of $25 = $***, or (b) ***% of $25 = $***. Licensee pays
$*** per unit in royalties to Demeter for such Licensed Plant Product.
EXAMPLE 3: Licensee sells a unit of a particular Licensed Plant Product
in exchange for Net Sales Revenue of $110. The Gross Value Added with
respect to such unit is $10. In addition, Licensee receives $15.00 in
Trait Marketing Revenue in connection with the sale of each such unit
from a per acre license fee. The earned
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royalty payable to Demeter for the combined sale and trait license on a
per unit basis is the greater of (a) ***% of $110 + ***% of $15 = $***,
or (b) ***% of ($10 + $15) = $***. Licensee pays $3.75 per unit in
royalties to Demeter for such Licensed Plant Product.
(Note: In connection with Examples 2 and 3 above, the per acre license
fee has been converted into an equivalent per unit Trait Marketing
Revenue for purposes of the royalty calculation. Thus, in Example 2, if
each unit of the Licensed Plant Product was utilized to produce two
acres of a Crop, then the purchaser of the seed would have paid a per
acre trait license fee of $12.50 per acre, which equates to the $25.00
in per unit Trait Marketing Revenue indicated in Example 2. Under the
same circumstances, the trait license fee in Example 3 would have been
$7.50 per acre.)
2. On a quarterly basis, Licensee shall pay to Demeter an earned royalty
for Licensed Formulated Products which are made, used, sold or imported
by Licensee in an amount equal to four percent (4%) of Net Sales.
3. Earned royalties on sales will be paid quarterly, by March 15, June 15,
September 15, and December 15 based on Net Sales receipts received by
Licensee during the prior three-month calendar quarter. The royalty
calculation for each calendar quarter will be determined independently,
without carrying forward or carrying backward amounts attributable to
any other calendar quarter. Furthermore, the royalty for each Licensed
Plant Product will be determined separately -- so that it is possible,
for example, that the royalty for a first such Licensed Plant Product
could be two percent (2%) of Net Sales, while the royalty for a second
Licensed Plant Product during the same calendar quarter could be
fifteen percent (15%) of Gross Value Added.
4. In the event that no plant product exists which is the suitable
standard of comparison for use in the
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determination of Gross Value Added for a Licensed Plant Product,
Licensee and Demeter will meet, discuss and attempt to mutually agree
upon an appropriate standard plant product to be used for the purposes
of calculating the Gross Value Added. In the event the parties are
unable to agree upon this standard, the matter will be referred to
arbitration in accordance with Paragraph J of Article XVIII.
5. No royalty will be due on the sale, use, importation or transfer of any
Licensed Plant Product which is used for the production of additional
planting stock of such Licensed Plant Product under a contract for the
repurchase of such production by Licensee or its Affiliates. No royalty
will be due on the resale of planting stock of Licensed Plant products
purchased from a sublicensee in the case of crop failure, or on the use
of a crop of Licensed Plant Products purchased from a customer of such
planting stock (e.g., a grain crop used to produce oil), to the extent
that Demeter has already received royalties to which it was entitled
with respect to the planting stock of such Licensed Plant Products
under the terms of this Agreement calculated on the basis of a
bona-fide arms-length transaction at royalty rates offered to
purchasers not having the relationship of seller to or producer for
Licensee.
D. EARNED ROYALTIES FROM SUBLICENSEES. For payments received from sublicensees
for the use of the technology licensed to Licensee under this Agreement (other
than payments made for the purchase or use by a sublicensee of a Licensed
Product manufactured by Licensee or its Affiliates, which payments are subject
to the provisions of Paragraph C above), Licensee shall pay to Demeter earned
royalties on a quarterly basis in accordance with the provisions set forth
below:
1. For payments from sublicensees which are license issue fees, license
maintenance fees, or technology milestone payments, an amount equal to
*** of such
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payments received by Licensee for all Crops with the exception of
peanut, potato, tomato, tobacco and grapes, for which an amount equal
to *** of such payments received by Licensee shall apply. Specifically
excluded from such payments are payments to Licensee attributed for
bona fide services rendered by Licensee to sublicensees for regulatory
support, product registration, and research and development funding,
and Trait Marketing Revenue.
2. For payments from sublicensees which are running royalties calculated
as a percentage of sublicensee's Net Sales, an amount equal to *** of
the first *** of such payments received by Licensee on a Licensed
Product-by-Licensed Product basis and *** of the amount in excess of
the first *** for each such Licensed Product.
3. For payments from sublicensees of Trait Marketing Revenue which are not
covered by the provisions of Paragraph C, an amount equal to *** of
such payments received by Licensee.
4. Earned royalties on payments received from sublicensees which are
covered by this Paragraph D will be paid quarterly, by March 15, July
15, September 15, and December 15 based on all such payments received
by Licensee during the prior calendar quarter.
E. QUARTERLY REPORTS. Licensee shall forward to Demeter quarterly reports on or
before March 15, July 15, September 15, and December 15 of each year, for the
preceding calendar quarter, containing the data, information, and documentation
necessary to determine fully the amounts owed by Licensee to Demeter under this
Agreement. The quarterly reports will also provide information on the status of
Licensee's marketing and/or sublicensing of Licensed Products. Such a report
shall be made for each quarter beginning after commercialization of the first
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Licensed Product, whether or not any payment is due for that quarter.
F. PATENT COSTS. Without affecting Demeter's obligation to LSU for patent
prosecution under the License Agreement, Licensee will pay all reasonable
out-of-pocket costs, fees and attorneys' fees and expenses of maintenance and/or
further prosecution of (i) the LSU Licensed Patents, (ii) the Supplemental
Patent Rights and (iii) the Licensed Patents listed under Section A1 of Appendix
A, before the United States Patent and Trademark Office and before any other
office or entity concerning patents (related to Licensed Patents) in those
nations other than the United States of America which have been selected by
Licensee for foreign patent protection on a patent-by-patent basis. Licensee
will have a right to review any such patent applications and advise on the
coverage of protection sought to the extent within the scope of the license
rights granted under this Agreement. Demeter may elect to seek patent protection
for Licensed Patents in countries not selected by Licensee at Demeter's expense;
however, in such event, Licensee will forfeit its rights with respect to
affected patents in such countries. Licensee will be entitled to a credit of
fifty percent (50%) of the cumulative costs and fees paid by Licensee pursuant
to this Paragraph against any royalty or other payments that may be due to
Demeter under this Agreement. No credit may be taken prior to the third
anniversary of the effective date. Thereafter, no more than 50% of the amount
due Demeter under this Agreement in any given year may be offset by such credit.
Licensee will have no obligation to pay any costs or fees in connection with the
prosecution and/or maintenance of the Licensed Patents listed under Section A2
or A3 of Appendix A under this Agreement, except to the extent that Licensee
elects to make such payments with respect to the Section A3 patents as set forth
in Article VI.
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<PAGE> 18
ARTICLE IV - BENCHMARK PAYMENTS
(The information marked by *** has been omitted by a request for confidential
treatment. The omitted portions will be separately filed with the Commission.)
A. REGULATORY APPROVAL OR FIRST SALE OF ANY TYPE. A payment of *** shall be made
by Licensee to Demeter upon the earlier of (i) receipt of the first regulatory
approval for sale of a Licensed Plant Product in the United States; or (ii) if
no approval described in part (i) hereof is obtained prior thereto, the First
Commercial Sale of any Licensed Plant Product. Only one such payment will be
made. The payment made under this Paragraph A shall not discharge any of
Licensee's obligations to make payments under paragraphs B or C of this Article
or under the provisions of any other Article of this Agreement.
B. ADDITIONAL PAYMENT FOR FIRST COMMERCIAL SALE OF CERTAIN CROP(S). In addition
to the payment provided under subparagraph A hereof, payments of *** each shall
be made by Licensee to Demeter on the First Commercial Sale of Licensed Plant
Products within a ***, *** or ***, up to a total of *** if there is a First
Commercial Sale in each of said three crops.
C. ADDITIONAL PAYMENT FOR FIRST COMMERCIAL SALE OF ANY OTHER CROP WITHIN THE
FIELD OF ACTIVITY Licensee shall make a payment to Demeter upon the First
Commercial Sale of any Licensed Plant Products for any crop other than ***, ***
and *** an amount equal to *** for each Crop up to a maximum total of *** (***).
D. INFLATION AND ADJUSTMENT. To the extent that any of the specific dollar
amounts set forth in paragraph A, B, and C of this Article have not been paid by
January 1, 2006 such remaining amounts will be adjusted upward annually by any
increases in the United States Consumer Price Index For All Urban Consumers, All
Items U.S. City Average (the "Index") from its value in January,
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<PAGE> 19
1998, less one percent (1%) per year. No downward adjustments will be made. The
dollar figures shall first be adjusted beginning in January 2006.
ARTICLE V - AUDITING AND PAYMENT PROCEDURES
A. LATE PAYMENTS. If any payment is made more than thirty days after the date
due under the Agreement, then Licensee shall also pay interest at the prime rate
of interest announced from time to time by Citibank (New York), plus one percent
(1%) per annum, until paid. If this amount is higher than allowed by applicable
law, then the highest amount allowed by law shall apply.
B. PAYMENT PROCEDURE. All payments due under this agreement shall be payable to
"DEMETER BIOTECHNOLOGIES, LTD.," and shall be made at the appropriate address
given for notices in the Agreement. All payments due shall be made without any
deduction for taxes, assessments, or other charges that may be imposed on
Licensee by any government or by any political subdivision of any government.
Any such taxes, assessments or other charges shall be assumed solely by
Licensee.
C. LICENSEE'S RECORDS. Licensee (and any sublicensee exercising rights under the
Agreement) shall make and keep full and accurate books and records in accordance
with Generally Accepted Accounting Principles showing the sublicensing,
manufacture, use, distribution, importation, lease, and sale of any Licensed
Product by Licensee. Licensee agrees that Demeter, LSU, or the Louisiana
Legislative Auditor may require that the books and records of Licensee
pertaining to Licensed Products be inspected by a designee reasonably acceptable
to Licensee during regular business hours, on reasonable written notice, to the
extent necessary to verify the payments due under the Agreement; provided that
the inspection is conducted in a manner to (i) insure the confidentiality of
Licensee's books and records; and (ii) prevent any misuse of the information
contained therein. Any such audit shall be at the expense of Demeter, LSU, or
LSU's
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<PAGE> 20
designee, or of the Louisiana Legislative Auditor, as applicable; except that
should such an audit indicate an underpayment of ten percent (10%) or more for
any calendar quarter, then Licensee shall pay the cost of the audit within
thirty days of its completion.
D. TERM OF AUDIT RIGHTS. The right of Demeter and/or LSU to inspect the books
and records of Licensee shall continue past the term or termination of the
Agreement, until the later of the date on which all payments due under the
Agreement have been made, or until two years after the expiration of the
Agreement.
ARTICLE VI- AGREEMENT NOT TO LICENSE CONCERNING PLANT NUTRITIONAL APPLICATIONS
In order to provide Licensee with the opportunity to negotiate an
exclusive license for said applications, Demeter will not license, prior to
October 1, 1998, absent Licensee's consent, rights under the Nutrition Patents
and Technology to any third party for plant nutritional applications. In the
event Demeter and Licensee are unable to reach agreement on the terms of any
such license, and obtain LSU's consent thereto, to the extent that LSU Licensed
Patents or Supplemental Patent Rights are involved, on or before October 1,
1998, Demeter will thereafter be free to license said applications to others.
However, should Demeter offer a license to a third party on terms more favorable
than those offered to Licensee within one year from said date, Licensee will
have a right of first refusal to obtain such license on the terms so offered.
During the term of the option, and prior to Licensee's exercise of the option,
Licensee will have the right, but not the obligation, to designate and pay for
patent prosecution and maintenance of patents for plant nutritional
applications.
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<PAGE> 21
ARTICLE VII - JOINT DEVELOPMENT PROGRAM REGARDING PEPTIDES FOR
DISEASE RESISTANCE IN PLANTS
Licensee and Demeter, without restricting any activities they may
desire to participate in with third parties, will engage in a joint development
program over a period of three years from the effective date of this Agreement
to screen and produce peptides for use in disease resistance in plants. Demeter
will provide the services of Dr. Jessie Jaynes, on a part-time basis, to design,
plan the synthesis of and interpret testing results regarding such peptides.
Licensee shall use diligent efforts to screen between one hundred fifty (150)
and three hundred (300) Biocontrol Peptides during said period, against a
battery of relevant plant diseases, and will make the results thereof available
to Demeter for Demeter's own business purposes. Biocontrol Peptides or other
technology invented solely by Demeter employees, consultants or other agents
shall be owned by Demeter and not jointly owned. Biocontrol Peptides or other
technology invented solely by Licensee's employees, consultants or other agent
shall be owned by Licensee and not jointly owned but in the event such
Biocontrol Peptides or other technology are subject to Licensed Patents or were
developed from or by use of Licensed Technology then they will be subject to the
terms of this Agreement, including but not limited to the royalty provisions set
forth in Article III and applicable payments in Article IV. Joint Inventions
will be jointly owned by Licensee and Demeter. Subject to the terms of this
Agreement, including but not limited to the royalty provisions set forth in
Article III and applicable payments in Article IV, Licensee will be granted a
world-wide, perpetual, exclusive license in Joint Inventions, with a right to
sublicense, for all applications in disease and pest control for plants.
Licensee hereby grants to Demeter a world-wide, royalty free, perpetual,
exclusive license, in Joint Inventions, with a right to sublicense, for all
applications other than applications for use in disease and pest control for
plants.
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<PAGE> 22
ARTICLE VIII - DEMETER SUPPORT SERVICES
Upon execution of this Agreement, and as a condition precedent to this
Agreement, Licensee shall pay Demeter a total of three hundred thousand Dollars
($300,000) for technical assistance and support concerning Demeter Technology
and the joint development program of Article VII for a period of three years
from the Effective Date. In the event that Dr. Jaynes leaves the employ of
Demeter, Demeter will retain Dr. Jaynes as a consultant, if reasonably
practicable, to provide the same level of services to Demeter, under this joint
development program as provided prior to Dr. Jayne's departure.
ARTICLE IX- RETURN OF RIGHTS
If Licensee fails to begin to develop specific plans for applications
for particular Crops, uses or territories subject to this Agreement within three
years of the Effective Date of this Agreement, Demeter may propose a specific
plan for such and bring to Licensee a suitable party ready, willing and able to
implement such plan. If Licensee does not reach an agreement with such party for
the particular Crop(s) involved, or develop and initiate a suitable alternative
plan for development internally or with another party, then Demeter may request
that Licensee's rights to Licensed Patents and Demeter Technology in said
area(s) be returned to Demeter so as to permit Demeter to pursue said plan.
Licensee shall not unreasonably refuse to return said rights to Demeter,
provided, however, that Licensee will retain a non exclusive license to Licensed
Patents and Licensed Technology in said area(s) unless the parties negotiate
otherwise. As long as Licensee is not in breach of any material term of this
agreement, it will not be compelled under this Article IX to turn over to
Demeter any of Licensee's rights in Joint Inventions without compensation. If
the parties are unable to agree on the application of this provision with
respect to a particular Crop
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<PAGE> 23
application, or the terms of a license for such application, then the matter
will be submitted to arbitration in accordance with the provisions of Paragraph
J of Article XVIII.
ARTICLE X - DEVELOPMENT AND COMMERCIALIZATION
A. RESEARCH COMMITTEE. Licensee and Demeter will establish a research committee
consisting of four (4) members, two (2) of which will be appointed by each
party. The function of this research committee will be to recommend research
goals and activities and evaluate progress toward those goals. The research
committee will meet four (4) times per year.
B. MARKETING OBLIGATIONS. Licensee, at Licensee's sole expense, shall: (1) act
with commercially reasonable judgment and diligence to develop commercially
marketable Licensed Products, and to develop competitive markets for those
Licensed Products; (2) actively seek sublicensees or partners for Licensed
Products, uses of Licensed Products or in geographic areas Licensee is not
actively pursuing on its own; and (3) from time to time, at the request of a
party, but no less than semi-annually, Licensee and Demeter will meet to discuss
Licensee's marketing activities as set forth above.
C. REGULATORY APPROVAL. Licensee, at Licensee's expense, will undertake all
reasonable efforts required to file by the end of the year 2002 and subsequently
to obtain any state, federal, or other governmental license or regulatory
clearance necessary for the use of Licensed Products. Any research necessary or
desirable for the commercialization or marketing of Licensed Products by
Licensee shall be the sole responsibility of Licensee. Licensee, at Licensee's
sole expense, will prepare and deliver all necessary and appropriate documents,
and take all reasonably necessary and appropriate actions, to seek to obtain any
such license or regulatory clearance. All such registrations or clearances will
be held in Licensee's name and will be owned exclusively by Licensee.
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<PAGE> 24
ARTICLE XI - REPRESENTATIONS, WARRANTIES, AND DISCLAIMERS
A. AUTHORITY. Each party represents and warrants to the other party that it has
the power and authority to enter into this Agreement and to perform its
obligations hereunder.
B. DEMETER WARRANTIES. Demeter further warrants that LSU has consented to this
Agreement under Paragraph 2.2 of the Supplemental Licensing Terms and Conditions
of the LSU License, and that as of the date of execution of this Agreement
Demeter has no knowledge of any intellectual property rights of third parties
other than those disclosed in this Agreement, to which the use of the technology
as licensed to Licensee under this Agreement would be subject.
C. EXCLUSIONS. Demeter and LSU make no warranty or representation whatsoever as
to the usefulness of Licensed Patents, Demeter Technology or Licensed Products,
or their fitness for the purpose for which they are intended or for any other
purpose. Demeter and LSU make no representations, and extend no warranties of
any kind, either express or implied, except as expressly provided in this
Agreement.
D. ADDITIONAL DISCLAIMERS. Nothing in this Agreement shall be construed as:
1. A warranty or representation by Demeter or LSU as to the
validity, enforceability, scope, or inventorship of any
patent; or
2. A warranty or representation by Demeter or LSU that anything
licensed, sublicensed, made, used, sold, imported, or
otherwise disposed of under any license granted in or
sublicense permitted by this Agreement is or will be free from
infringement of patents of third parties or other rights of
third parties; or
3. An obligation that Demeter or LSU bring or litigate actions
against third parties for infringement, except to the extent
and in the circumstances stated in Article XIV of this
Agreement ; or
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<PAGE> 25
4. A requirement that Demeter or LSU file or prosecute any patent
application, secure the issuance of any patent, or maintain
any patent; or
5. An establishment of a partnership, joint venture, agency, or
employer-employee relationship between the parties; and
neither party shall represent the contrary to anyone else.
E. DISCLAIMER OF RESPONSIBILITY. Neither Demeter nor LSU assume any
responsibilities whatever for any damages caused to Licensee, any Affiliate, any
vendees, other transferees, or sublicensees of Licensee or its Affiliates, or by
any product or process incorporating or made by the Licensed Patents or Licensed
Technology, or incorporating or made by the use of any information furnished
under this Agreement.
ARTICLE XII - CONFIDENTIALITY
For a period of five (5) years from the termination of this Agreement, each
party will keep confidential any and all Confidential Information (not otherwise
excluded from the confidentiality and non-use obligation of this Article XII as
set forth below) received from the other party in connection with the
performance of this Agreement and will not disclose it to third parties or use
it for any purpose other than pursuant to this Agreement, without the prior
written consent of the disclosing party.
The confidentiality and non-use obligation of this Article XII will not apply to
information and other items listed under the definition of Confidential
Information: (a) which is public knowledge at the time of disclosure, or which
after disclosure becomes public knowledge in any way except through the wrongful
act of the party so disclosing it;(b) which the receiving party is able to prove
was in its possession at the time of disclosure by the disclosing party and
which had not been obtained from the latter, either directly or indirectly; (c)
whose disclosure is
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<PAGE> 26
compelled by administrative or judicial order; or (d) which either party
received from a third party having the legal right to disclose such information.
The provisions of this Article XII will survive any termination of this
Agreement.
In the event that Licensee determines that Confidential Information received
from Demeter or any Demeter Affiliate needs to be disclosed to regulatory
authorities for the sale or use of any Licensed Plant Product or Licensed
Formulated Product or to a third party in connection with the grant of a
sublicense to such third party, then disclosure may be made to such third party
only upon Demeter's prior written consent, which may not be unreasonably
withheld, and only if such third party agrees to be bound by terms of
confidentiality equivalent to those specified with this Article XII.
ARTICLE XIII. NON-USE OF NAMES
Licensee and Demeter will make no use whatsoever of the other party's
name, marks, insignia or logos or the name of any then-current employee of the
other in news releases, advertisements, promotional materials, or otherwise,
without the prior written consent of the other party for each such use. Licensee
will make no use whatsoever of LSU's name, marks, insignia, or logos; or of the
name of any LSU campus, department, center, or institute; or the name of any
then-current LSU employee; in news releases, advertisements, promotional
materials, or otherwise, without the prior written consent of LSU for each such
use. However, the foregoing provision will not restrict either party from using
the other's name or LSU's name to the extent required under securities laws,
regulations or rules, or as required by law or the rules of any securities
exchange listing either party's securities.
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<PAGE> 27
ARTICLE XIV - PATENT ENFORCEMENT
A. INFRINGEMENT OF LICENSED PATENTS. Licensee will investigate and report any
infringements or possible infringements of Licensed Patents to Demeter. Demeter
will have the right to enforce Licensed Patents at Demeter's expense. Licensee
will provide reasonable cooperation to Demeter or LSU in the conduct of such
suits. Such participation by Licensee will be at the expense of Demeter or LSU,
whichever entity has requested Licensee's participation. However, Licensee, at
Licensee's sole option and expense, may request to join in the enforcement of
Licensed Patents when the infringing activity is within the scope of any
licenses granted to Licensee under this Agreement. In the event neither Demeter
nor LSU brings suit to enforce Licensed Patents within ninety (90) days of
notification of a potential infringement, then Licensee will have the right to
request to enforce Licensed Patents on behalf of Demeter and LSU, at Licensee's
expense. If Demeter and LSU do not enforce Licensed Patents and do not permit
Licensee to enforce Licensed Patents regarding infringing activity occurring
within the scope of any license granted to Licensee under this Agreement on
their respective behalf where appropriate, then Licensee's royalty and other
payment obligations under this Agreement will be suspended until such
enforcement is instituted. Any damages recovered in connection with the
enforcement of Licensed Patents by Licensee will be retained by Licensee. Any
such recovery in excess of the expenses incurred by Licensee in pursuing said
enforcement will be subject to the royalty and other payment obligations of this
Agreement but only to the extent that it is attributable to sources of income
concerning which Licensee is obligated to make royalty or other payments under
this Agreement.
B. LITIGATION DOES NOT AFFECT ROYALTIES. For so long as Demeter and/or LSU
enforce or permit Licensee to enforce Licensed Patents, the pendency of a
lawsuit for infringement of Licensed Patents, or other action concerning the
validity or
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<PAGE> 28
enforceability of Licensed Patents, will not affect Licensee's obligations to
pay royalties or other amounts under this Agreement.
C. INDEMNIFICATION BY LICENSEE. If Licensee or any Affiliate or any entity
acting in its capacity as a sublicensee under the Agreement takes any action
under the Agreement or otherwise (other than a proceeding by Licensee or such
Affiliate against LSU or Demeter on the validity or invalidity of the LSU
Licensed Patents or Demeter Patents) that leads to or results in litigation or
other legal proceedings (in any country) concerning or related to Licensed
Patents or the Agreement, including but not limited to a suit for declaratory
judgment or claim or counterclaim for infringement, non-infringement, validity,
invalidity, enforceability, unenforceability, ownership, or inventorship of
Licensed Patents, then Licensee will assume the responsibility for such legal
proceedings (at both trial and appellate levels) at Licensee's sole expense. If
Demeter or LSU so requests, Licensee's legal counsel shall represent Demeter
and/or LSU, at Licensee's expense, in any such legal proceedings at both trial
and appellate levels. If Licensee's legal counsel is unable to represent Demeter
and/or LSU because of a conflict of interest or other bona fide reason, Demeter
and/or LSU may engage other competent legal counsel, whose reasonable fees and
expenses will be promptly paid or reimbursed by Licensee, to represent Demeter
and/or LSU in any such suit or legal proceeding. If Demeter and/or LSU does not
wish to be represented by Licensee's legal counsel, Demeter and/or LSU may
engage competent legal counsel of Demeter's and/or LSU's choosing to represent
Demeter and/or LSU at Demeter's and/or LSU's own expense (except in the case of
a conflict of interest or other bona fide reason as described in the preceding
sentence, in which case reasonable expenses for such representation will be
borne by Licensee). Licensee will indemnify Demeter and/or LSU and hold Demeter
and/or LSU harmless from any and all claims, damages, or other obligations
arising out of or resulting from any such claim
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<PAGE> 29
or legal proceedings; provided that Demeter and/or LSU will not settle any such
claim without Licensee's prior written consent, such consent not to be
unreasonably withheld. Any sublicense, transfer, or assignment of any of
Licensee's rights under the Agreement shall expressly impose the obligations of
this Paragraph on any sublicensee, transferee, or assignee.
D. FRAUDULENT OR WILLFUL MISCONDUCT. Notwithstanding Paragraph C above, Licensee
will have no contractual obligation under this Agreement to indemnify either:
(i) Demeter to the extent that damages may be attributable to Demeter's
fraudulent or willful misconduct; or (ii) LSU to the extent that damages may be
attributable to LSU's fraudulent or willful misconduct. In the event that a
claim is brought against any or all of Demeter, LSU and Licensee that is
otherwise within Licensee's indemnification obligations under Article XIV C
above, except that allegations of fraudulent or willful misconduct are made
against Demeter or LSU, or both, then the provisions of this Paragraph will
apply. Demeter or LSU or both, as the case may be, will defend both itself
(themselves) and Licensee, at Demeter's or LSU's expense (or both, as the case
may be) from and against any claim that is based on an allegation or claim of
fraudulent or willful misconduct by Demeter or LSU, respectively, or both if
both are allegedly culpable for such misconduct. If the final judgment or
verdict respecting the fraudulent or willful misconduct claim -- after all
applicable appeals and appeal delays have expired -- is other than a finding
that Demeter or LSU or both committed fraudulent or willful misconduct, then
Licensee shall promptly indemnify Demeter or LSU, or both (as the case may be)
as otherwise provided in Article XIV C above, and Licensee will also promptly
reimburse the reasonable legal and other out-of-pocket expenses incurred by
Demeter or LSU (or both, as the case may be) in defending the claim at both
trial and appellate levels; provided that neither Demeter nor LSU will be
entitled to settle any such claim without Licensee's prior, written consent,
such consent not to be
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<PAGE> 30
unreasonably withheld. If the final resolution of the fraudulent or willful
misconduct claim -- after all applicable appeals and appeal delays have expired
- -- is a finding that Demeter or LSU, or both committed fraudulent or willful
misconduct, then Demeter or LSU, respectively (or both if both parties are
culpable) will indemnify Licensee against that judgment or award, and Licensee
will have no obligation to indemnify Demeter or LSU, respectively, (or both, as
the case may be) with respect to that claim under Article XIV C above. If the
fraudulent or willful misconduct claim is settled prior to a final judgment or
verdict (including all applicable appeals and appeal delays), then Demeter, LSU
and Licensee will make good faith efforts to resolve their respective
obligations under Article XIV C and D, and if unable to reach agreement, will
have recourse to the dispute resolution mechanism of Paragraph J Article XVIII.
As otherwise provided in Article XIV C above, Licensee will defend, indemnify,
and hold Demeter and LSU harmless against any claim that may be made against
Demeter and/or LSU in the same proceedings to the extent that it is not based on
an allegation or claim of fraudulent or willful misconduct by such party; and in
such a case Demeter, LSU and Licensee shall cooperate in allocating those costs
that are common to the defense of both sets of claims (i.e., those alleging
fraudulent or willful misconduct against Demeter and LSU and those not so
alleging), subject to Demeter and LSU's contingent rights to later
indemnification and reimbursement after final resolution, as otherwise provided
in this Paragraph.
Because a finding of "inequitable conduct" in the Patent and Trademark Office
can be based on a lesser showing than that required for "fraudulent or willful
misconduct," it is understood that a finding of "inequitable conduct" in the
Patent and Trademark Office would not necessarily constitute "fraudulent or
willful misconduct" within the contemplation of this Paragraph depending on the
specific circumstances. Notwithstanding any provision of this Agreement to the
contrary, LSU shall have no obligation to defend or indemnify Licensee against
any claim,
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<PAGE> 31
judgment or award that is based on allegations of fraudulent or willful
misconduct by Dr. Jesse Jaynes.
ARTICLE XV. INDEMNIFICATION
A. GENERAL. Except as otherwise set forth below, Licensee will defend,
indemnify, and hold harmless Demeter, LSU and their respective agents, officers,
board members, employees, and anyone for whom Demeter and/or LSU may be liable
(collectively, "INDEMNITEES") from and against any and all claims, damages,
losses, and expenses, in any country, including reasonable attorney's fees at
both trial and appellate levels to or for attorneys of Demeter's and /or LSU's
choosing, for claims for damages to property, injury to persons, or death of
persons, or for any other damage arising out of or in any way relating to
Licensee's or its Affiliates' sublicensing, manufacture, use, distribution,
marketing, importation, lease, sale or other conduct relating to Licensed
Products, Licensed Patents or Licensed Technology by Licensee or Licensee's
Affiliates and sublicensees and/or those manufacturing, marketing, selling, or
otherwise acting on behalf of Licensee and/or Licensee's Affiliates or
sublicensees. Licensee agrees to defend any Indemnitee against any such lawsuit,
administrative or arbitration proceeding at Licensee's expense, and to pay any
judgment rendered against any Indemnitee in any such lawsuit, administrative or
arbitration proceeding, together with all costs and reasonable attorney's fees
at both trial and appellate levels to or for attorneys of Demeter's and/or LSU's
choosing incurred in preparing for or defending any such lawsuit, administrative
or arbitration proceeding. Demeter and/or LSU will not settle any such claim
without Licensee's prior written consent, such consent not to be unreasonably
withheld. However, Licensee will not be required to indemnify Demeter for any
injury to persons or property arising solely from Demeter's employees'
activities causing injury to persons or property on premises where a Demeter
employee is physically located or solely from Demeter's improper
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<PAGE> 32
shipment of materials in connection with the conduct of joint development
programs set forth under Article VII. Any sublicense, transfer or assignment of
any of Licensee's rights under this Agreement shall expressly impose the
obligations of this Paragraph on any sublicensee, transferee, or assignee.
B. FRAUDULENT OR WILLFUL MISCONDUCT. Notwithstanding Paragraph A above, Licensee
will have no contractual obligation under this Agreement to indemnify either (i)
Demeter to the extent that damages may be attributable to Demeter's or LSU's
fraudulent or willful misconduct, or (ii) LSU to the extent that damages may be
attributable to LSU's fraudulent or willful misconduct. In the event that a
claim is brought against any or all of Demeter, LSU or Licensee that is
otherwise within Licensee's indemnification obligations under Paragraph A above,
except that allegations of negligence are made against Demeter or allegations of
fraudulent or willful misconduct are made against Demeter or LSU, or both, then
the provisions of this Paragraph will apply. Demeter or LSU or both, as the case
may be, will defend both itself (themselves) and Licensee, at Demeter's or LSU's
expense, (or both, as the case may be) from and against any claim that is based
on an allegation or claim of fraudulent or willful misconduct by Demeter or LSU,
respectively, or both if both are allegedly culpable for such misconduct. If the
final judgment or verdict respecting the fraudulent or willful misconduct claim
- -- after all applicable appeals and appeal delays have expired -- is other than
a finding that Demeter or LSU or both committed fraudulent or willful
misconduct, then Licensee will promptly indemnify Demeter or LSU or both (as the
case may be) as otherwise provided in Paragraph A above, and Licensee will also
promptly reimburse the reasonable legal and other out-of-pocket expenses
incurred by Demeter or LUS (or both, as the case may be) in defending the claim
at both trial and appellate levels; provided that neither Demeter nor LSU, will
be entitled to settle any such claim without Licensee's prior, written consent,
such consent not to be unreasonably withheld.
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<PAGE> 33
If the final resolution of the fraudulent or willful misconduct claim -- after
all applicable appeals and appeal delays have expired -- is a finding that
Demeter or LSU or both committed fraudulent or willful misconduct, then Demeter
or LSU, respectively (or both if both parties are culpable) will indemnify
Licensee against that judgment or award, and Licensee will have no obligation to
indemnify Demeter or LSU, respectively, (or both, as the case may be) with
respect to that claim under Paragraph A above. If the fraudulent or willful
misconduct claim is settled prior to a final judgment or verdict (including all
applicable appeals and appeal delays), then Demeter, LSU and Licensee will make
good faith efforts to resolve their respective obligations under this Article
XV, and if unable to reach agreement, shall have recourse to the dispute
resolution mechanism of Paragraph J, Article XVIII. As otherwise provided in
Paragraph A above, Licensee will defend, indemnify, and hold Demeter or LSU
harmless against any claim that may be made against Demeter or LSU in the same
proceedings, to the extent that it is not based on an allegation or claim of
fraudulent or willful misconduct by such party, or an allegation of negligence
by Demeter and in such a case Demeter, LSU and Licensee shall cooperate in
allocating those costs that are common to the defense of both sets of claims
(i.e., those alleging fraudulent or willful misconduct against Demeter and/or
LSU and/or negligence against Demeter and those not so alleging), subject to
Demeter's and/or LSU's contingent right to later indemnification and
reimbursement after final resolution, as otherwise provided in this Paragraph B.
Because a finding of "inequitable conduct" in the Patent and Trademark Office
can be based on a lesser showing than that required for "fraudulent or willful
misconduct," it is understood that a finding of "inequitable conduct" in the
Patent and Trademark Office would not necessarily constitute "fraudulent or
willful misconduct" within the contemplation of this Paragraph B., depending on
the specific circumstances. Notwithstanding any
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provision of this Agreement to the contrary, LSU shall have no obligation to
defend or indemnify Licensee against any claim, judgment or award that is based
on allegations of fraudulent or willful misconduct by Dr. Jesse Jaynes.
C. PRIOR LICENSE. The LSU Licensed Patents and Supplemental Patent Rights were
previously licensed to Helix Phytonetix, Inc., a Louisiana corporation
("Phytonetix") under a February 1, 1993 License Agreement (the "Prior License")
between LSU and Phytonetix. The Prior License was executed pursuant to a
February 1, 1993 Agreement in Settlement, Compromise, and Release (the "Helix
Settlement") among LSU, Phytonetix, and the following private corporations:
Helix International Corporation (a Louisiana corporation), Helix BioMedix, Inc.
(a Colorado corporation), Helix BioMedix, Inc. (a Louisiana corporation), and
University Research and Marketing, Inc. (a Louisiana Corporation). (Phytonetix,
each of the other private corporations named in the preceding sentence, and each
of their respective affiliates, officers, directors, shareholders, assignees,
and other persons or entities claiming any right through any of the above may be
referred to individually or collectively as a "Prior Party" or the "Prior
Parties"). LSU has represented that other than the May 1, 1997 LSU License to
Demeter, LSU has neither granted nor authorized any licenses under the LSU
Licensed Patents and Supplemental Patents to any party other than: (1) to
Phytonetix under the Prior License on and after February 1, 1993; and (2) to one
or more of the Prior Parties before February 1, 1993. (The license rights in LSU
Licensed Patents and Supplemental Patents held by Prior Parties other than
Phytonetix were extinguished under the terms of the Helix Settlement).
When Phytonetix failed to pay a minimum royalty timely under the Prior License,
LSU notified Phytonetix that the Prior License was terminated as of April 10,
1996. LSU has previously provided Demeter and Demeter has provided Licensee with
copies of the
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<PAGE> 35
Prior License, the Helix Settlement (with all Exhibits), and the correspondence
by which LSU notified Phytonetix that the Prior License was terminated as of
April 10, 1996. Although Demeter and LSU believe that the Prior License was
properly terminated as of April 10, 1996, Demeter and LSU can make no
representations or warranties that the Prior License was properly terminated.
Licensee assumes the risk that a Prior Party may challenge the April 10, 1996
termination of the Prior License, whether by litigation, arbitration, or
otherwise. Demeter shall Defend Licensee against any such claims.
D. PRIOR PARTY CLAIMS. Licensee will have no obligation to indemnify LSU or
Demeter against any claims by Helix Phytonetix Inc., Helix International
Corporation, Helix Biomedix Inc., or University Research and Marketing, Inc.
regarding any claim relating to their rights to LSU Licensed Patents under any
license to them by LSU. Demeter shall defend itself and Licensee against any
claim by Helix Phytonetix, Inc.; Helix International Corporation; Helix
BioMedix, Inc.; or University Research and Marketing, Inc. regarding any license
to them by LSU and will indemnify Licensee from any claims demands, damages or
liability arising therefrom.
ARTICLE XVI. INSURANCE
A. Prior to the first sale of any Licensed Product, Licensee shall maintain a
program of self-insurance reasonably acceptable to Demeter and LSU or shall
obtain liability insurance coverage on an "occurrence" basis for any and all
liability arising out of the sublicensing, manufacture, use, distribution,
marketing, importation, or sale of any Licensed Product, by Licensee, its
Affiliates, and their customers, in all countries. Demeter and LSU shall be
additional insureds in any such liability insurance. This liability insurance
must be issued by a company having a current A. M. Best rating of A+ 8 or
better. The limits of this insurance coverage shall be not less than three
million Dollars
- 35 -
<PAGE> 36
($3,000,000) per occurrence, with aggregate limits not less than five million
Dollars ($5,000,000) per year. The amount of liability insurance coverage
required by this Paragraph A is subject to the inflation adjustment set forth in
Paragraph C, below. The maximum deductible may not exceed fifty thousand Dollars
($50,000) or such other amount as may be reasonably acceptable to Demeter and
LSU. This liability insurance shall include contractual liability coverage and
products/completed operations coverage in at least the minimum amounts required
by this Article. If applicable, Licensee shall forward written evidence of such
liability insurance coverage, including the declarations page(s) describing the
coverage provided by the policy, and including the endorsement naming Demeter
and LSU as additional insureds, to Demeter and LSU at least sixty days prior to
the first use or sale of any Licensed Product. The insurer shall be required to
give at least thirty days' notice of cancellation or modification of coverage to
Demeter and LSU. The obligation to provide Demeter and LSU the liability
insurance required by this Article and written evidence thereof shall continue
until the earliest of the following two events: (a) the expiration or
termination of this Agreement in accordance with its terms; or (b) the time when
Licensee permanently ceases to make, use, import, sell, or offer to sell
Licensed Products, or to sublicense any rights under this Agreement. In
addition, Licensee shall thereafter obtain and maintain a "tail" insurance
policy otherwise satisfying the requirements of this Paragraph, and insuring the
same persons against the same risks until the expiration of any remaining
pertinent statute of limitations period. At any time when Licensee obtains,
renews, or replaces a liability insurance policy, the aggregate limits for the
liability insurance coverage shall be at least equal to the sum of Net Sales,
Trait Marketing Revenue and gross payments to Licensee from sublicensees for the
most recently completed Licensee fiscal year. The alternative amount of
liability insurance provided by the preceding sentence is not subject to the
inflation adjustment otherwise required by this Article XVI,
- 36 -
<PAGE> 37
and only applies if this alternative amount is greater than the amount of
insurance otherwise required by this Paragraph A.
B. Obligation of Sublicensees. Each sublicensee, assignee, or transferee of any
of Licensee's rights under this Agreement shall obtain the type and amount of
liability insurance required by Paragraph A of this Article XVII, except that in
calculating the alternative amount provided by the last two sentences of
Paragraph A. of this Article XVII, that sublicensee's, assignee's or
transferee's Net Sales and Trait Marketing Revenue shall be used in place of the
sum of Licensee's Net Sales, Trait Marketing Revenue and gross payments from
sublicensees, substituting for "Licensee" that sublicensee, assignee, or
transferee in the definitions of Net Sales and Trait Marketing Revenue found in
Article I, Paragraphs M and N. A sublicensee's obligation to obtain liability
insurance may, if mutually agreeable to Licensee and the sublicensee, be
satisfied by a single insurance policy for both Licensee and the sublicensee;
provided that such a single policy satisfies all other requirements of
Paragraphs A and B of this Article XVII; and further provided that the amount of
liability insurance provided by such a single policy is at least equal to the
sum of the amounts required by Paragraph A and B of this Article XVII. A
self-insured sublicensee may request that Demeter and LSU accept the
sublicensee's self-insurance as satisfying the requirements of this Paragraph;
Demeter and LSU shall not act unreasonably in deciding whether to approve such a
request, provided that the self-insurance is adequately capitalized and
otherwise satisfies the requirements of this Article XVII.
C. INFLATION ADJUSTMENT. The dollar amounts of insurance coverage stated in
Paragraph (A) above will be subject to inflation adjustment as follows: The
"Multiplier" on any given date is defined to be the ratio of (a) the Consumer
Price Index for All Urban Consumers, All Items, U.S. City Average (the "Index")
most recently issued by the United States Government as of that date to (b) the
Index on the effective date of this Agreement. At any time when the Multiplier
is at least 1.10
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<PAGE> 38
times the value of the Multiplier on the date of the most recent adjustment
under this Paragraph (or is at least 1.10 if there has been no previous
adjustment under this Paragraph), then Demeter or LSU may give Licensee written
notice that each of the dollar amounts defined in Paragraph A is adjusted to the
original amount of insurance required under this Agreement as specified above,
multiplied by the Multiplier. The adjustment notice under this Paragraph is
effective as of the time when Licensee (or a sublicensee) next renews or
replaces its then-current liability insurance policy; and the amount of
liability insurance coverage required shall be the amount specified in this
Article XVI, multiplied by the Multiplier as of the date of issuance, renewal,
or replacement of the policy. The required adjusted coverage shall then remain
constant until another notice of adjustment under this Paragraph is given.
ARTICLE XVII. NOTICES
All written notices, payments, and other correspondence under this
Agreement shall be considered given when deposited in the United States Mail,
first class postage prepaid, to:
DEMETER: LICENSEE:
Mr. Richard D. Ekstrom, President Mr. Andrew C. Barnes
Demeter BioTechnologies, Ltd. Executive Vice President
905 West Main Street Mycogen Corporation
Suite 20B Brightleaf Square 5501 Oberlin Drive
Durham, North Carolina 27701 San Diego, California 92121
LSU: IF LSU, AN ADDITIONAL
COPY TO:
Vice Chancellor for Research & Director Assistant Director
La. Agricultural Experiment Station La. Agricultural
LSU Agricultural Center Experiment Station
104 J. Norman Efferson Hall LSU Agricultural Center
P.O. Box 25055 104 J. Norman Efferson
Baton Rouge, Louisiana 70894-5055 Hall
P. O. Box 25055
Baton Rouge, Louisiana 70894-5055
- 38 -
<PAGE> 39
These names or addresses may be changed by giving notice as provided in this
Paragraph.
ARTICLE XVIII. MISCELLANEOUS
A. ENTIRE UNDERSTANDING. This Agreement constitutes the entire understanding
between Demeter and Licensee, and supersedes any prior agreement or
understanding on the same subject matter. Any modification or amendment to this
Agreement shall not be effective unless and until reduced to writing and signed
on behalf of both Demeter and Licensee and, to the extent that it affects any of
the rights or obligations relating to the LSU Patent Rights or Supplemental
Patent rights, approved in writing by LSU, which approval will not be
unreasonably withheld.
B. CONSTRUCTION. The parties acknowledge that this Agreement followed
negotiations by the parties, and that this Agreement incorporates the negotiated
suggestions of both parties, and that both parties have had the benefit of the
advice of counsel in the conduct of these negotiations. The parties therefore
agree that no presumptions shall arise favoring any party by virtue of the
authorship of any of the provisions of this Agreement.
C. HEADINGS. The headings or captions appearing at the beginnings of the
Articles and Paragraphs of this Agreement are provided for convenience of
reference only, and do not constitute part of this Agreement.
D. COMPLIANCE WITH LAWS. In fulfilling its obligations under the Agreement,
Licensee shall comply with all applicable licensing, regulatory, and statutory
requirements. Licensee shall be responsible for paying any taxes or other
assessments, and for complying with all applicable laws and regulations of the
United States and other countries, including without limitation all applicable
laws and regulations relating to the environment, to agriculture, and to
foodstuffs.
E. MARKING. Licensee shall mark any article or composition within the claims of
any issued patent within Licensed Patents, or any article or composition
intended for a use within the
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<PAGE> 40
claims of any issued patent within Licensed Patents, with the word "Patent,"
"Patents," "For Use Under Patent," or "For Use Under Patents," and the number or
numbers of each such issued patent. When, from the character of the article or
composition, this marking cannot be made, the marking shall instead be placed on
a label attached to any packaging containing any such article or composition.
F. PROHIBITION ON MISUSE. Licensee shall engage in no activity that would
constitute a misuse of any patent or patent application within Licensed Patents.
As used in this Paragraph, "misuse" of a patent or patent application means an
action that, aside from issues of patent validity or infringement, renders a
patent wholly or partially unenforceable, whether temporarily or permanently.
G. LICENSEE TRADEMARKS. Subject to Article XIII of the Agreement, Licensee may
acquire its own trademarks for use in connection with Licensed Products.
H. EFFECT OF AN INVALID PROVISION. If any part of the Agreement is finally
adjudged to be invalid by a court of competent jurisdiction, or by an arbitrator
as provided in Article XVIII.J, the remaining parts of the Agreement shall
remain in full force and effect. Furthermore, in lieu of that invalid part,
there shall be automatically added to the Agreement a provision as similar in
terms to that invalid part as may be possible, legal, valid, and enforceable.
I. GOVERNING LAW. This contract, its terms, and the enforcement of this contract
shall be governed by the substantive law of the State of North Carolina for all
situations except where rights or obligations of LSU are being interpreted in
which instance Louisiana Law applies.
J. DISPUTE RESOLUTION. In the event of a controversy or claim arising out of or
relating to this Agreement, or the breach, validity, or termination of this
Agreement, the parties shall first negotiate in good faith for a period of sixty
days to try to resolve the controversy or claim. If the controversy or claim is
unresolved after this period of good-faith negotiations, the
- 40 -
<PAGE> 41
parties shall then make good-faith efforts for a period of sixty days to mediate
the controversy or claim in Durham, North Carolina, before a sole mediator
selected by the Center for Public Resources, Inc. (New York, New York), under
the Center for Public Resources' Model Mediation Procedure for Business Disputes
in effect as of the Effective Date. If the controversy or claim is unresolved
after this period of mediation, on the written demand of either party, any
controversy arising out of or relating to this Agreement or to the breach,
termination, or validity of this Agreement, will be settled by binding
arbitration in Durham, North Carolina unless LSU is a party, in which case the
location will be Baton Rouge, Louisiana. The arbitration will be conducted in
accordance with the Center for Public Resources' Rules for Non-Administered
Arbitration of Patent and Trade Secret Disputes in effect as of the Effective
Date before one neutral arbitrator selected by the parties. If the parties are
unable to agree upon the appointment of a neutral arbitrator within 45 days then
the Center for Public Resources will appoint an arbitrator. The appointed
arbitrator will be neutral, impartial, and independent of the parties and others
having any known interest in the outcome, abide by the ABA and AAA Canons of
Ethics for neutral arbitrators, and have no ex parte communications about the
case with either party in the appointing process or during the pendency of the
arbitration. The arbitration shall be governed by the United States Arbitration
Act, 9 U.S.C. Sections 1-16, and judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. All
applicable statutes of limitation and defenses based upon the passage of time
shall be tolled while the procedures described above in this Paragraph are
pending. Demeter and Licensee will each take such action, if any, required to
effectuate this tolling. Each party is required to continue to perform its
obligations under this Agreement pending final resolution of any dispute arising
out of or relating to this Agreement. Otherwise, any controversy arising under
or relating to this Agreement, or the breach, termination, or validity of
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<PAGE> 42
this Agreement, may be adjudicated only in a court, state or federal, having
jurisdiction over the subject matter and including Durham, North Carolina within
its territorial district. Both parties consent to the jurisdiction and venue of
such a court unless LSU is a party in which case the location will be Baton
Rouge, Louisiana. A party's right to demand arbitration of a particular dispute
arising under or related to this Agreement, or the breach, termination, or
validity of this Agreement, shall be waived if that party either: (1) brings a
lawsuit over that controversy or claim against the other party in any state or
federal court; or (2) does not make a written demand for mediation, arbitration,
or both within 60 days of service of process on that party of a summons or
complaint from the other party instituting such a lawsuit in any state or
federal court. Notwithstanding the foregoing, except with respect to LSU, to
whom the following will not apply, either party may avail itself of any
appropriate tribunal to obtain injunctive or other equitable relief to protect
its rights in any technology covered by the terms of this Agreement, or to
prevent the unauthorized disclosure of any Confidential Information disclosed by
one party to the other under this Agreement.
K. NO WAIVER. The failure of either party to insist upon strict performance of
any provision of the Agreement, or to exercise any right under the Agreement
shall not constitute a waiver of that provision or right.
L. NO LICENSE BY ESTOPPEL. Except as the Agreement may expressly and
unambiguously provide otherwise, nothing in the Agreement shall be construed as
granting by implication, estoppel, or otherwise any licenses or rights under any
patents, patent applications, or know how owned in whole or in part by LSU,
other than the express license under LSU Licensed Patents and Supplemental
Patent Rights provided in Paragraph (A) of Article II of the Agreement,
regardless of whether such patents, patent applications, or know-how are
dominant of or subordinate to any patent within Licensed Patents.
- 42 -
<PAGE> 43
M. RESERVED LSU RIGHTS. The license granted by the Agreement is subject to a
reserved, non-exclusive, worldwide right in LSU to use LSU Licensed Patents and
Supplemental Patent Rights for non-commercial purposes that are experimental or
educational in nature.
N. LIMITATIONS OF LSU'S OBLIGATION UNDER THIS AGREEMENT. LSU's obligations under
this Agreement will not be greater than LSU's obligations to Demeter under the
LSU License, except as expressly provided in this Agreement with respect to the
following matters (i) LSU's acceptance of the financial and other obligations of
Licensee under this Agreement including but not limited to, the escrow
provisions of Article XX; (ii) LSU's acceptance of the right of Licensee to
grant sublicenses of the LSU Licensed Patents and Supplemental Licensed patents
to Affiliates under Section A, Paragraph 7 of Article II; (iii) LSU's agreement
that this Agreement will survive termination of Demeter's license under the LSU
License, as provided under Section B of Article II of this Agreement; and (iv)
the obligations of confidentiality under Article XII to the extent that such
Article XII may become applicable to LSU (e.g., in the event that Demeter's
license under the LSU License terminates). Without limiting the applicability of
the foregoing, in no event will LSU have any obligation to Licensee with respect
to: any technology or patent rights other than the LSU Licensed Patents and
Supplemental Patent Rights; the conduct of the joint development program under
Article VII; the provision of support services under Article VIII; any
participation in the activities set forth in Article X; any of Demeter's
indemnification obligations to Licensee under Article XV; provided, however, in
the event that (i) Demeter's license under the LSU License has terminated; and
(ii) Licensee is paying royalties and fees under this Agreement to LSU which are
in excess of the amount which Demeter would have been paying to LSU under the
LSU License as a direct result of this Agreement; and (iii) Demeter is unable to
meet its obligations to licensee with respect to claims subject to
indemnification by Demeter under this Agreement; then Licensee will have the
right
- 43 -
<PAGE> 44
to offset any unreimbursed damages suffered as a result of Demeter's inability
to provide said required indemnification against that portion of Licensee's
payment obligation to LSU which is in excess of the amount that LSU would have
received from Demeter under the LSU License as a direct result of this
Agreement.
ARTICLE XIX DEFAULT AND TERMINATION
A. EFFECT OF TERMINATION. Upon termination of the Agreement for any reason, each
of the following provisions shall continue in effect indefinitely, until its
purpose can no longer be fulfilled, or is no longer meaningful: Article I;III;
V; XI; XII; XIII; XIV; XV, XVI; XVII, XVIII, XIX, AND XX. Following the
termination of the Agreement, any provision of the Agreement not referred to in
the preceding list shall cease to have effect. By way of illustration and not
limitation, following the termination of the Agreement, Licensee shall remain
obligated to pay Demeter all licensing fees, royalties, minimum royalties, and
other amounts that were due under Article III or Article IV which were accrued
prior to termination, except for amounts subject to disposition under Article
XX, hereof.
B. Licensee will have the right to terminate this Agreement at any time on six
(6) months written notice to Demeter at any time after the second anniversary of
the Effective Date. In the event of any termination prior to the satisfaction of
all the conditions set forth in Article XX, the balance of the amount being held
in escrow at the time of such notice will be released to Licensee following
termination of the Agreement.
C. If Licensee is in breach or default of any term or condition of the
Agreement, or fails to perform any obligation under the Agreement, Demeter may
give written notice to Licensee, specifying the reason why there is a default or
breach, after which notice Licensee shall have thirty (30) days to cure the
breach. If the breach is not cured, or if efforts reasonably satisfactory to
Demeter are not instituted within that 30 day
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<PAGE> 45
period to cure the breach, the Agreement may be terminated at the option of
Demeter, upon written notice of termination to Licensee, and Licensee shall have
no further rights to sublicense Licensed Patents or make, use, import, offer to
sell, or sell Licensed Products. If the breach is cured, or if efforts
reasonably satisfactory to Demeter are instituted within the thirty (30) day
period to cure the breach, the Agreement shall continue as if no breach had
occurred; provided, however, that upon the third default arising out of failure
to pay monies due to Demeter under the Agreement or upon default or rejection
under paragraph E of this Article, no notice or period to cure shall be
necessary, and Demeter may terminate the Agreement at its option without further
notice to Licensee and without allowing Licensee a period to cure, and in such
an event Licensee shall have no further rights under this Agreement. A bona fide
dispute with respect to the amount of any payment required to be made by
Licensee under this Agreement will not constitute a default by Licensee under
this Agreement, if the payment in dispute is paid to an escrow agent, mutually
selected by Demeter and Licensee, for placement into an interest bearing
investment or account jointly approved by Demeter and Licensee.
D. Following termination of the Agreement under either Paragraph B or C,
Licensee shall have one hundred eighty days (180) to sell any Licensed Products
then in stock or then under production, subject to the payment of royalties,
fees, and payments on those Licensed Products as otherwise provided in Articles
III and IV
E. ACCELERATED PROCEDURES. If bankruptcy proceedings under any Chapter of the
Bankruptcy Code, or other insolvency proceedings, voluntary or involuntary, are
filed by or against Licensee, then Licensee or its representative must assume
the Agreement within thirty (30) days of that filing, and Licensee must cure all
defaults existing under the Agreement within that thirty day period, and
Licensee must provide such adequate assurance of future performance of its
obligations under the Agreement as may be required by the Bankruptcy or other
Court, and should Licensee fail to assume the Agreement within thirty (30) days
of that
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<PAGE> 46
filing, or should Licensee fail to cure all defaults existing under the
Agreement within that thirty (30) day period, or should Licensee fail to provide
adequate assurance of its future performance of its obligations under the
Agreement, as may be required by the Bankruptcy or other Court, then the
Agreement shall be deemed to be rejected.
ARTICLE XX ESCROW PROVISIONS
A. Upon the execution of the Agreement between Demeter and Licensee, Licensee
will pay the license issue fees set forth in Paragraph A of Article III and the
technical assistance and support amount set forth in Article VIII (totaling
$1,250,000) as follows: (i) the sum of Seventy-five Thousand Dollars ($75,000)
will be paid directly to Demeter (which amount relates to the amounts due under
Article IIIA(c) and a portion of the amount due under Article VIII) and (ii) the
sum of One Million, One Hundred Seventy-five Thousand Dollars ($1,175,000) will
be paid into a mutually agreeable interest bearing escrow account using an
escrow agent mutually acceptable to Demeter and Licensee; which payments will
satisfy Licensee's obligation under the indicated provisions set forth in this
Paragraph A.
B. Promptly upon LSU's signature to this Agreement, Two Hundred and Seventy-five
Thousand Dollars ($275,000) of the amount held in escrow (which amount relates
to the balance of the amount due under Article VIII) will be released to
Demeter. The balance of the amount held in escrow will be released to Demeter
upon the receipt by Demeter or LSU of a letter from Phytonetix releasing any
interest that the Prior Parties may have in the LSU Licensed Patents by virtue
of the Prior License; or, if such release cannot be obtained, such other
documentation as Licensee may, in its sole discretion, accept in lieu of such
release.
C. In the event that the conditions set forth in Paragraph B above cannot be
satisfied within six (6) months from the date of execution of this Agreement,
then the balance of the escrow account will be released to Licensee.
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<PAGE> 47
D. In the event Licensee is subsequently able to secure the Prior Parties'
release of any interest in the LSU Licensed Patents and Supplemental Patent
Rights by the Prior Parties, or in the event that the Prior Parties' right to
assert any such interest is barred by statute or adjudicated adversely to the
Prior Parties, then Licensee will pay to Demeter the amount of any funds
remaining from the previously escrowed balance released to Licensee to the
extent that such funds were not utilized by Licensee in obtaining such release ,
or otherwise used in securing Licensee's right to use the LSU Licensed Patents
and Supplemental Patent Rights.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed in duplicate counterparts, each of which shall be deemed to
constitute an original, effective as of the date first above written.
The Undersigned verify that they have the power to bind to this
Agreement the party on behalf of which they are executing below.
WITNESSES: MYCOGEN CORPORATION
/s/ Elaine Hartnett BY: /s/ Andrew C. Barnes
- ------------------------------ ---------------------------------
ANDREW C. BARNES
EXECUTIVE VICE PRESIDENT
/s/ Carol Meikey DATE: Dec. 1, 1997
- ------------------------------ -------------------------------
DEMETER BIOTECHNOLOGIES, LTD.
/s/ Jesse M. Jaynes BY: /s/ Richard D. Ekstrom
- ------------------------------ ---------------------------------
RICHARD D. EKSTROM,
PRESIDENT
/s/ D. Thomas Roane DATE: Dec. 4, 1997
- ------------------------------ -------------------------------
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<PAGE> 48
ACKNOWLEDGEMENT OF LICENSE AND ROYALTY AGREEMENT BY LSU
Approved and accepted by the Board of Supervisors of Louisiana State University
and Agricultural and Mechanical College pursuant to Paragraph 2.2 of the
Supplemental Terms of the May 1, 1997 License and Royalty Agreement between the
Board of Supervisors of Louisiana State University and Agricultural and
Mechanical College and Demeter Biotechnologies, Ltd.
WITNESSES: THE BOARD OF SUPERVISORS OF
LOUISIANA STATE UNIVERSITY AND
AGRICULTURAL AND MECHANICAL COLLEGE
BY: /s/ Allan A. Copping
- --------------------------- -------------------------------
ALLAN A. COPPING
TITLE: PRESIDENT
- ---------------------------
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<PAGE> 49
Schedule A.
Section A1
1. Methylated-lysine-rich lytic peptides and method of making same by
reductive alkylation. United States application number 08/474547 filed June
7, 1995 and all foreign filings such as: EP number 95901738.5; IL number
111516; WO number 9412550.
2. Modified arginine-containing lytic peptides and method of making same by
glyoxation. United States application number 08/148491 filed November 8,
1993 and all foreign filings such as: EP number 95000498.7; IL number
111515; WO number 9412553.
3. Ubiquitin-lytic peptide fusion gene constructs, protein products deriving
therefrom, and methods of making and using same. United States patent
application number 08/801028 filed February 19, 1997 and all foreign
filings such as: EP number 95928127.0; IL number 1146967; WO number
9509339.
4. Methods for the design of amphipathic peptides have enhanced biological
activities. US patent application number 60/027628 filed October 4, 1996
and all associated foreign filings.
5. Ubiquitin-lytic peptide fusion gene constructs, protein products deriving
therefrom, and method of making. United States application number 08/505486
filed July 21, 1995 and associated foreign filings such as: EP number
95928126.2; WO number 9509338.
6. Design of Non-Peptidyl Membrane Interactive Molecules (MIMs) to Enhance
Biological Activity. In Preparation.
7. Modified arginine containing lytic peptides and method of making the
same by glyoxylation. United States application number 08/475328 filed
June 7, 1995 and all associated foreign filings.
8. Methylated lysine-rich lytic peptides and method of making same by
reductive alkylation. United States application number 08/427001 filed
April 24, 1995 and all associated foreign filings.
Section A2
1. Method of treating pulmonary disease states with non-naturally occurring
amphipathic peptides. United States application number 08/457798 filed June
1, 1995 and all foreign filings such as: IL number 109897; KZ number
941795.1; WO number 9406176.
2. Method of combating mammalian neoplasias, and lytic peptides thereof.
United States patent application number 08/457171 filed June 1, 1995 and
all associated foreign filings such as: EP number 95916249.6; IL number
113244; WO number 9504335.
3. Method of enhancing wound healing by stimulating fibroblasts and
keratinocyte growth in vivo, utilizing amphipathic peptides. United States
issued patent number 5561107 allowed October 1, 1996 and all associated
foreign filings such as: CA number 2188391; EP number 95916435.1; IL number
113423; WO number 9504718.
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<PAGE> 50
4. Method of enhancing wound and healing by stimulating fibro-blast and
keratinocyte in vivo utilizing amphipathic peptides. United States patent
application number 08/689489 filed August 12, 1996 and all associated
foreign applications.
Section A3
1. Plants Genetically Enhanced for Disease Resistance. United States patent
application number 08/798963 filed January 24, 1997 and all associated
foreign applications. In preparation.
2. Design, Construction, and Expression of Genes Encoding Proteins High in
Essential Amino Acid Content for Food and Feeding for Humans and Animals.
In preparation.
3. Technique to Increase Overall Protein Content in Plants. In preparation.
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<PAGE> 51
Schedule C
CURRENT DEMETER AGRICULTURAL AGREEMENTS
(As of August, 1997)
<TABLE>
<CAPTION>
TYPES OF PLANT(S) DEMETER COLLABORATOR TYPE OF AGREEMENT
- ----------------- -------------------- -----------------
<S> <C> <C>
1. Apples Cornell University To Be Developed (Post LSU)
2. Peanuts National Peanut Foundation/ Research & Development
North Carolina State University
University of Georgia
3. Tobacco North Carolina State University Research & Development
4. Rice Cornell University Research & Development
5. Cotton USDA/Univ. of S.W.LA CRADA
6. U.S. Potatoes USDA/WRRC CRADA
7. European Potatoes Austrian Research Center Research & Development
8. Sugarcane Texas A&M University Research & Development
9. Sweet potatoes Tuskegee University Research & Development
10. Trees Canadian Forest Service Research & Development
11. Bartlett Pear USDA CRADA
12. Walnuts USDA/Univ. of Calif. Davis CRADA
</TABLE>
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<PAGE> 52
SCHEDULE D
STANDARD FORM SUBLICENSE AGREEMENT(1)
Mycogen Corporation ("MYCOGEN"), having a place of business at 5501
Oberlin Drive, San Diego, California 92121, and
________________________________________, ("LICENSEE") enter into the following
Agreement effective __________________, 1997 (the "EFFECTIVE DATE").
WHEREAS Mycogen is the exclusive licensee or sublicensee, for certain
uses, of certain technology and patent rights from the Board of Supervisors of
Louisiana State University and Agricultural and Mechanical College, a public
constitutional corporation, organized and existing under the laws of the State
of Louisiana ("LSU") and Demeter BioTechnologies, Ltd., a Colorado corporation
("DEMETER") relative to disease and pest control for use with plant crop species
of all kinds;
WHEREAS Mycogen has developed or has rights in technology and know-how
useful in producing disease resistant plants or treating plants and has obtained
or filed patents of its own;
WHEREAS Licensee desires to obtain a license from Mycogen of
_______________ and a sublicense of certain rights under Licensed Patents and
Supplemental Patent Rights, all for certain fields of use;
- --------
1 The Standard Form Sublicense Agreement may include such other terms as
are agreed upon between Mycogen and Licensee without requiring separate
approval from LSU, provided that such additional terms, (i) do not
expand the scope of Mycogen's license from LSU; (ii) do not impose any
additional obligations on LSU beyond those set forth in the
Demeter-Mycogen License and Royalty Agreement; and (iii) do not
diminish in any respect the protections afforded to LSU by this
approved Standard Form Sublicense Agreement. In addition, solely with
respect to Demeter, the Standard Form Sublicense Agreement may not
include any provisions that are not in compliance with the provisions
of the Demeter-Mycogen License and Royalty Agreement without Demeter's
written consent.
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<PAGE> 53
WHEREAS Mycogen and Licensee have agreed to the following terms and
conditions, and desire to enter this License and Royalty Agreement (the
"AGREEMENT");
THEREFORE, in consideration of the mutual obligations set forth in this
Agreement, Mycogen and Licensee agree as follows:
ARTICLE I. DEFINITIONS
A. "LSU LICENSED PATENTS" means: (1) Jaynes and Derrick, "Method for
Introduction of Disease and Pest Resistance into Plants and Novel Genes
Incorporated into Plants which Code Therefor," United States patent number
5,597,946, issued January 28, 1997; (2) Jaynes and Derrick, "Plants Genetically
Enhanced for Disease Resistance," United States patent number 5,597,945, issued
January 28, 1997; (3) Jaynes and Derrick, European patent application
93113536.2; (4) Jaynes and Derrick, European patent application 89900103.6; (5)
Jaynes and Derrick, Japanese patent application SHO 62-504491; (6) Jaynes and
Derrick, "Method for Introduction of Disease and Pest Resistance into Plants and
Novel Genes Incorporated into Plants which Code Therefor," European patent 0 330
655, issued June 7, 1995, nationalized in United Kingdom, France, Germany, and
Italy; (7) Jaynes and Derrick, "Plants Genetically Enhanced for Disease
Resistance," Canadian patent number 1,321,157, issued August 10, 1993; (8)
Jaynes and Derrick, "Method for Introduction of Disease and Pest Resistance into
Plants and Novel Genes Incorporated into Plants which Code Therefor," Australian
patent number 611,859, sealed November 5, 1991; and (9) any United States or
non-United States patent, reissue patent, or reexamination certificate resulting
from the applications and patents of parts (1) through (8) of this Paragraph,
including any renewals or extensions of the term of any such patent.
B. "SUPPLEMENTAL PATENT RIGHTS" means, subject to the limitations set forth in
this Paragraph, any United States divisional or continuation application (but
not a continuation-in-part application) either of United States patent
application serial number 08/444,762, filed May 19, 1995, or of United States
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<PAGE> 54
patent application serial number 08/453,436, filed May 30, 1995; and any United
States patent, reissue patent, or reexamination certificate resulting from such
a divisional or continuation application. "SUPPLEMENTAL PATENT RIGHTS" shall not
include any patent rights outside the United States. Furthermore, "SUPPLEMENTAL
PATENT RIGHTS" shall not include any patent rights concerning any invention or
activity whose unlicensed practice would infringe any of the following claims:
(1) any claim of United States patent number 5,597,945 or 5,597,946, or (2) any
claim in any reissue patent or reexamination certificate resulting from United
States patent number 5,597,945 or 5,597,946. The "SUPPLEMENTAL PATENT RIGHTS"
will be treated as Licensed Patents for all purposes under this Agreement.
C. "LICENSED TECHNOLOGY" means _____________________________.
D. "LICENSED PATENTS" means LSU Licensed Patents, Supplemental Patents, and
________________________________.
E. "FIELD OF USE" means the use of Biocontrol Peptides for [disease and/or pest
resistance purposes in transgenic plants of ________________________ but not
including the use of plants as a production mechanism for producing Biocontrol
Peptides which are to be used for purposes not permitted under this Agreement]
or [disease and/or pest control purposes for crops of ____________].
F. "DOLLARS" means U.S. dollars.
G. "BIOCONTROL PEPTIDE(S)" means natural or synthetically derived peptide
compound(s) which express activity to control plant pests or plant diseases.
H. "LICENSED PRODUCT(S)" means product containing a biocontrol peptide the use
of which would (i) infringe a valid claim of any applicable Licensed Patents
absent the license rights granted under this Agreement, or.(ii)
____________________________.
I. "CONFIDENTIAL INFORMATION" means any and all proprietary information
(including, without limitation, information related to technical, business and
intellectual property matters), know-how, data, trade secrets and biological and
other physical
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materials owned and held by either party to this Agreement which such party
maintains as confidential.
J. "AFFILIATE" means any entity controlled by, controlling or under common
control with a party. For purposes of this definition, control will mean
ownership of fifty percent (50%) or more of the equity or voting control of such
party or entity.
ARTICLE II. LICENSE GRANT
A. SCOPE OF LICENSE.
1. LICENSED PRODUCTS. Subject to the terms and conditions of this
Agreement, Mycogen grants to Licensee, and Licensee accepts from
Mycogen, a license under Licensed Technology and Licensed Patents to
make, have made, use, offer to sell and sell for use Licensed Products
in the Field of Use.
2. SUBLICENSING RESTRICTION. Licensee will not have the right to
sublicense any of the rights granted to Licensee hereunder.
Notwithstanding the foregoing, Licensee may sell Licensed Products to
arms-length purchasers (e.g. distributors or farmers), even where such
a sale is accompanied by an express or implied sublicense under one of
more of the LSU Licensed Patents or Supplemental Patent Rights
regarding the commercial use of such Licensed Product for
non-developmental purposes.
3. U.S. GOVERNMENT RIGHTS. The license granted to Licensee under Paragraph
1 above is subject to any rights that the United States Government may
have in Licensed Patents pursuant to 35 USC Sections 200-212.
4. ADDITIONAL LIMITATIONS. No right or license is granted under this
Agreement by Mycogen to use or sell Licensed Products for human or
animal health care applications or to use plants to produce Biocontrol
Peptides for such or for other non-licensed uses.
B. TERM. The term of this Agreement will be from the Effective Date until the
later of (i) expiration of the last to expire of
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<PAGE> 56
any patent within Licensed Patents; or (ii) the cessation of the sale or use of
any Licensed Products by Licensee [and its Affiliates], or any purchasers of
Licensed Products from Licensee [and its Affiliates], unless earlier terminated
in accordance with applicable provisions of this Agreement. Should Mycogen's
rights under Licensed Patents be terminated, Licensee's rights under this
Agreement regarding Licensed Patents will continue, provided that; (i)Licensee
[and its Affiliates] pay to Demeter or to such other person or entity which
holds the Licensed Patents which are sublicensed to Licensee under this
Agreement, the royalties otherwise payable to Mycogen under this Agreement; and
(ii) Licensee [and its Affiliates] are not in breach of any other material term
of this Agreement. The parties acknowledge that the term of the LSU License only
extends until the last to expire of any patents included within the definition
of "Licensed Patents" as defined in said License Agreement.
ARTICLE III. ROYALTIES AND FEES
A. QUARTERLY REPORTS. Licensee shall forward to Mycogen quarterly reports on or
before March 15, July 15, September 15, and December 15 of each year, for the
preceding calendar quarter, containing the data, information, and documentation
necessary to determine fully the amounts owed by Licensee to Demeter under this
Agreement. The quarterly reports will also provide information on the status of
Licensee's marketing of Licensed Products. Such a report shall be made for each
quarter beginning after commercialization of the first Licensed Product, whether
or not any payment is due for that quarter.
ARTICLE IV - AUDITING AND PAYMENT PROCEDURES
A. LATE PAYMENTS. If any payment is made more than thirty days after the date
due under the Agreement, then Licensee shall also pay interest at the prime rate
of interest announced from time to time by Citibank (New York), plus one percent
(1%) per
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annum, until paid. If this amount is higher than allowed by applicable law, then
the highest amount allowed by law shall apply.
B. PAYMENT PROCEDURE. All payments due under this agreement shall be payable to
Mycogen and shall be made at the appropriate address given for notices in the
Agreement. All payments due shall be made without any deduction for taxes,
assessments, or other charges that may be imposed on Licensee by any government
or by any political subdivision of any government. Any such taxes, assessments
or other charges shall be assumed solely by Licensee.
C. LICENSEE'S RECORDS. Licensee shall make and keep full and accurate books and
records in accordance with Generally Accepted Accounting Principles showing the
manufacture, use, distribution, importation, lease, and sale of any Licensed
Product by Licensee. Licensee agrees that Mycogen, LSU or the Louisiana
Legislative Auditor may require that the books and records of Licensee
pertaining to Licensed Products be inspected by a designee reasonably acceptable
to Licensee during regular business hours, on reasonable written notice, to the
extent necessary to verify the payments due under the Agreement; provided that
the inspection is conducted in a manner to (i) insure the confidentiality of
Licensee's books and records; and (ii) prevent any misuse of the information
contained therein. Any such audit shall be at the expense of the designee;
except that should such an audit indicate an underpayment of ten percent (10%)
or more for any calendar quarter, then Licensee shall pay the cost of the audit
within thirty days of its completion.
D. TERM OF AUDIT RIGHTS. The right of Mycogen or LSU to inspect the books and
records of Licensee shall continue past the term or termination of the
Agreement, until the later of the date on which all payments due under the
Agreement have been made, or until two years after the expiration of the
Agreement.
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<PAGE> 58
ARTICLE V - REPRESENTATIONS, WARRANTIES, AND DISCLAIMERS
A. AUTHORITY. Each party represents and warrants to the other party that it has
the power and authority to enter into this Agreement and to perform its
obligations hereunder.
B. MYCOGEN WARRANTIES. Mycogen further warrants that LSU has consented to the
form of this Agreement and that, as of the date of execution of this Agreement,
Mycogen has no knowledge of any intellectual property rights of third parties
other than those disclosed in this Agreement, to which the use of the technology
as licensed to Licensee under this Agreement would be subject.
C. DISCLAIMER OF RESPONSIBILITY. None of Mycogen, Demeter or LSU assume any
responsibilities whatever for any damages caused to Licensee, any Affiliate, any
vendees, or other transferees of Licensee or its Affiliates, or by any product
or process incorporating or made by the Licensed Patents or Licensed Technology,
or incorporating or made by the use of any information furnished under this
Agreement.
ARTICLE VI - CONFIDENTIALITY
For a period of five (5) years from the termination of this Agreement, each
party will keep confidential any and all Confidential Information (not otherwise
excluded from the confidentiality and non-use obligation of this Article VI as
set forth below) received from the other party in connection with the
performance of this Agreement and will not disclose it to third parties or use
it for any purpose other than pursuant to this Agreement, without the prior
written consent of the disclosing party.
The confidentiality and non-use obligation of this Article VI will not apply to
information and other items listed under the definition of Confidential
Information: (a) which is public knowledge at the time of disclosure, or which
after disclosure becomes public knowledge in any way except through the wrongful
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<PAGE> 59
act of the party so disclosing it; (b) which the receiving party is able to
prove was in its possession at the time of disclosure by the disclosing party
and which had not been obtained from the latter, either directly or indirectly;
(c) whose disclosure is compelled by administrative or judicial order; or (d)
which either party received from a third party having the legal right to
disclose such information.
The provisions of this Article XI will survive any termination of this
Agreement.
In the event that Licensee determines that Confidential Information received
from Mycogen or any Mycogen Affiliate needs to be disclosed to regulatory
authorities for the sale or use of any Licensed Product or to a third party in
connection with a sale of a Licensed Product to such third party, then
disclosure may be made to such third party only upon Mycogen's prior written
consent, which may not be unreasonably withheld, and only if such third party
agrees to be bound by terms of confidentiality equivalent to those specified
with this Article VI.
ARTICLE VII. NON-USE OF NAMES
Licensee and Mycogen will make no use whatsoever of the other party's name,
marks, insignia or logos or the name of any then-current employee of the other
in news releases, advertisements, promotional materials, or otherwise, without
the prior written consent of the other party for each such use. Licensee will
make no use whatsoever of Demeter or LSU's name, marks, insignia, or logos; or
of the name of any LSU campus, department, center, or institute; or the name of
any then-current LSU employee; in news releases, advertisements, promotional
materials, or otherwise, without the prior written consent of Demeter or LSU,
respectively, for each such use.
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<PAGE> 60
ARTICLE VIII - PATENT ENFORCEMENT
A. INFRINGEMENT OF LICENSED PATENTS. Licensee will investigate and report any
infringements or possible infringements of Licensed Patents to Mycogen. If
infringing activity is occurring within the scope of any license granted to
Licensee under this Agreement, then Licensee's royalty and other payment
obligations under this Agreement will be suspended until an action to enforce
the Licensed Patents against said infringement is instituted, unless Licensee is
granted permission to enforce Licensed Patents against said infringement. Any
damages recovered in connection with the enforcement of Licensed Patents in an
action maintained solely by Licensee will be retained by Licensee. Any such
recovery by Licensee in excess of the expenses incurred by Licensee in pursuing
said enforcement will be subject to the royalty and other payment obligations of
this Agreement. Licensee will provide reasonable cooperation to Mycogen, LSU and
or Demeter in the conduct of any enforcement action, provided that the entity
requesting such participation reimburses Licensee for any reasonable expenses
incurred by Licensee in connection therewith.
B. LITIGATION DOES NOT AFFECT ROYALTIES. For so long as a proceeding has been
initiated to enforce Licensed Patents, the pendency of a lawsuit for
infringement of Licensed Patents, or other action concerning the validity or
enforceability of Licensed Patents, will not affect Licensee's obligations to
pay royalties or other amounts under this Agreement.
C. INDEMNIFICATION BY LICENSEE. If Licensee or any Affiliate takes any action
under the Agreement or otherwise (other than a proceeding by Licensee or such
Affiliate against LSU or Demeter on the validity or invalidity of the LSU
Licensed Patents) that leads to or results in litigation or other legal
proceedings (in any country) concerning or related to Licensed Patents or the
Agreement, including but not limited to a suit for declaratory
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<PAGE> 61
judgment or claim or counterclaim for infringement, non-infringement, validity,
invalidity, enforceability, unenforceability, ownership, or inventorship of
Licensed Patents, then Licensee will assume the responsibility for such legal
proceedings (at both trial and appellate levels) at Licensee's sole expense. If
Demeter or LSU so requests, Licensee's legal counsel shall represent Demeter
and/or LSU, at Licensee's expense, in any such legal proceedings at both trial
and appellate levels. If Licensee's legal counsel is unable to represent Demeter
and/or LSU because of a conflict of interest or other bona fide reason, Demeter
and/or LSU may engage other competent legal counsel, whose reasonable fees and
expenses will be promptly paid or reimbursed by Licensee, to represent Demeter
and/or LSU in any such suit or legal proceeding. If Demeter and/or LSU does not
wish to be represented by Licensee's legal counsel, Demeter and/or LSU may
engage competent legal counsel of Demeter's and/or LSU's choosing to represent
Demeter and/or LSU at Demeter's and/or LSU's own expense (except in the case of
a conflict of interest or other bona fide reason as described in the preceding
sentence, in which case reasonable expenses for such representation will be
borne by Licensee). Licensee will indemnify Demeter and/or LSU and hold Demeter
and/or LSU harmless from any and all claims, damages, or other obligations
arising out of or resulting from any such claim or legal proceedings; provided
that Demeter and/or LSU will not settle any such claim without Licensee's prior
written consent, such consent not to be unreasonably withheld.
ARTICLE IX. INDEMNIFICATION
A. GENERAL. Except as otherwise set forth below, Licensee will defend,
indemnify, and hold harmless Mycogen, Demeter, LSU and their respective agents,
officers, board members, employees, and anyone for whom Mycogen, Demeter and/or
LSU may be liable (each, individually, referred to as an "INDEMNITEE" hereafter)
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from and against any and all claims, damages, losses, and expenses, in any
country, including reasonable attorney's fees at both trial and appellate levels
to or for attorneys of an Indemnitee's choosing, for claims for damages to
property, injury to persons, or death of persons, or for any other damage
arising out of or in any way relating to Licensee's or its Affiliates'
manufacture, use, distribution, marketing, importation, lease, sale or other
conduct relating to Licensed Products, Licensed Patents or Licensed Technology
by Licensee or Licensee's Affiliates and/or those manufacturing, marketing,
selling, or otherwise acting on behalf of Licensee and/or Licensee's Affiliates.
Licensee agrees to defend any Indemnitee against any such lawsuit,
administrative or arbitration proceeding at Licensee's expense, and to pay any
judgment rendered against any Indemnitee in any such lawsuit, administrative or
arbitration proceeding, together with all costs and reasonable attorney's fees
at both trial and appellate levels to or for attorneys of Mycogen, Demeter's
and/or LSU's choosing incurred in preparing for or defending any such lawsuit,
administrative or arbitration proceeding. Mycogen, Demeter and/or LSU will not
settle any such claim without Licensee's prior written consent, such consent not
to be unreasonably withheld.
ARTICLE X. INSURANCE
A. Prior to the first sale of any Licensed Product, Licensee shall maintain a
program of self-insurance reasonably acceptable to Mycogen, Demeter and LSU or
shall obtain liability insurance coverage on an "occurrence" basis for any and
all liability arising out of the sublicensing, manufacture, use, distribution,
marketing, importation, or sale of any Licensed Product, by Licensee, its
Affiliates, and their customers, in all countries. Mycogen, Demeter and LSU
shall be additional insureds in any such liability insurance. This liability
insurance must be issued by a company having a current A. M. Best rating of A+ 8
or better.
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<PAGE> 63
The limits of this insurance coverage shall be not less than three million
Dollars ($3,000,000) per occurrence, with aggregate limits not less than five
million Dollars ($5,000,000) per year. The amount of liability insurance
coverage required by this Paragraph A is subject to the inflation adjustment set
forth in Paragraph B, below. The maximum deductible may not exceed fifty
thousand Dollars ($50,000) or such other amount as may be reasonably acceptable
to Mycogen, Demeter and LSU. This liability insurance shall include contractual
liability coverage and products/completed operations coverage in at least the
minimum amounts required by this Article. If applicable, Licensee shall forward
written evidence of such liability insurance coverage, including the
declarations page(s) describing the coverage provided by the policy, and
including the endorsement naming Mycogen, Demeter and LSU as additional
insureds, to Mycogen, Demeter and LSU at least sixty days prior to the first use
or sale of any Licensed Product. The insurer shall be required to give at least
thirty days' notice of cancellation or modification of coverage to Mycogen,
Demeter and LSU. The obligation to provide Mycogen, Demeter and LSU the
liability insurance required by this Article and written evidence thereof shall
continue until the earliest of the following two events: (a) the expiration or
termination of this Agreement in accordance with its terms; or (b) the time when
Licensee permanently ceases to make, use, import, sell, or offer to sell
Licensed Products. In addition, Licensee shall thereafter obtain and maintain a
"tail" insurance policy otherwise satisfying the requirements of this Paragraph,
and insuring the same persons against the same risks until the expiration of any
remaining pertinent statute of limitations period. At any time when Licensee
obtains, renews, or replaces a liability insurance policy, the aggregate limits
for the liability insurance coverage shall be at least equal to Net Sales for
the most recently completed Licensee fiscal year. The alternative amount of
liability insurance provided by the preceding sentence is not subject to the
inflation adjustment otherwise required by this
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<PAGE> 64
Article X, and only applies if this alternative amount is greater than the
amount of insurance otherwise required by this Paragraph A.
B. INFLATION ADJUSTMENT. The dollar amounts of insurance coverage stated in
Paragraph (A) above will be subject to inflation adjustment as follows: The
"Multiplier" on any given date is defined to be the ratio of (a) the Consumer
Price Index for All Urban Consumers, All Items, U.S. City Average (the "Index")
most recently issued by the United States Government as of that date to (b) the
Index on the effective date of this Agreement. At any time when the Multiplier
is at least 1.10 times the value of the Multiplier on the date of the most
recent adjustment under this Paragraph (or is at least 1.10 if there has been no
previous adjustment under this Paragraph), then Mycogen, Demeter or LSU may give
Licensee written notice that each of the dollar amounts defined in Paragraph A
is adjusted to the original amount of insurance required under this Agreement as
specified above, multiplied by the Multiplier. The adjustment notice under this
Paragraph is effective as of the time when Licensee (or a sublicensee) next
renews or replaces its then-current liability insurance policy; and the amount
of liability insurance coverage required shall be the amount specified in this
Article X, multiplied by the Multiplier as of the date of issuance, renewal, or
replacement of the policy. The required adjusted coverage shall then remain
constant until another notice of adjustment under this Paragraph is given.
ARTICLE XI. NOTICES
All written notices, payments, and other correspondence under this Agreement
shall be considered given when deposited in the United States Mail, first class
postage prepaid, to:
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<PAGE> 65
LICENSEE: MYCOGEN:
Mr. Andrew C. Barnes
Executive Vice President
Mycogen Corporation
5501 Oberlin Drive
San Diego, California 92121
These names or addresses may be changed by giving notice as provided in this
Paragraph.
ARTICLE XII. MISCELLANEOUS
A. ENTIRE UNDERSTANDING. This Agreement constitutes the entire understanding
between Mycogen and Licensee, and supersedes any prior agreement or
understanding on the same subject matter. Any modification or amendment to this
Agreement shall not be effective unless and until reduced to writing and signed
on behalf of both Mycogen and Licensee and, to the extent that it affects any of
the rights or obligations relating to the LSU Patent Rights or Supplemental
Patent rights, approved in writing by LSU, which approval will not be
unreasonably withheld.
B. CONSTRUCTION. The parties acknowledge that this Agreement followed
negotiations by the parties, and that this Agreement incorporates the negotiated
suggestions of both parties, and that both parties have had the benefit of the
advice of counsel in the conduct of these negotiations. The parties therefore
agree that no presumptions shall arise favoring any party by virtue of the
authorship of any of the provisions of this Agreement.
C. HEADINGS. The headings or captions appearing at the beginnings of the
Articles and Paragraphs of this Agreement are provided for convenience of
reference only, and do not constitute part of this Agreement.
D. COMPLIANCE WITH LAWS. In fulfilling its obligations under the Agreement,
Licensee shall comply with all applicable licensing, regulatory, and statutory
requirements. Licensee shall be responsible for paying any taxes or other
assessments, and for complying with all applicable laws and regulations of the
United States and other countries, including without limitation
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<PAGE> 66
all applicable laws and regulations relating to the environment, to agriculture,
and to foodstuffs.
E. MARKING. Licensee shall mark any article or composition within the claims of
any issued patent within Licensed Patents, or any article or composition
intended for a use within the claims of any issued patent within Licensed
Patents, with the word "Patent," "Patents," "For Use Under Patent," or "For Use
Under Patents," and the number or numbers of each such issued patent. When, from
the character of the article or composition, this marking cannot be made, the
marking shall instead be placed on a label attached to any packaging containing
any such article or composition.
F. PROHIBITION ON MISUSE. Licensee shall engage in no activity that would
constitute a misuse of any patent or patent application within Licensed Patents.
As used in this Paragraph, "misuse" of a patent or patent application means an
action that, aside from issues of patent validity or infringement, renders a
patent wholly or partially unenforceable, whether temporarily or permanently.
G. LICENSEE TRADEMARKS. Subject to Article VII of the Agreement, Licensee may
acquire its own trademarks for use in connection with Licensed Products.
H. EFFECT OF AN INVALID PROVISION. If any part of the Agreement is finally
adjudged to be invalid by a court of competent jurisdiction, or by an arbitrator
as provided in Article XII.J, the remaining parts of the Agreement shall remain
in full force and effect. Furthermore, in lieu of that invalid part, there shall
be automatically added to the Agreement a provision as similar in terms to that
invalid part as may be possible, legal, valid, and enforceable.
I. GOVERNING LAW. This contract, its terms, and the enforcement of this contract
shall be governed by the substantive law of the State of California for all
situations except where rights or obligations of LSU are being interpreted in
which instance Louisiana Law applies.
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<PAGE> 67
J. DISPUTE RESOLUTION. In the event of a controversy or claim arising out of or
relating to this Agreement, or the breach, validity, or termination of this
Agreement, the parties shall first negotiate in good faith for a period of sixty
days to try to resolve the controversy or claim. If the controversy or claim is
unresolved after this period of good-faith negotiations, the parties shall then
make good-faith efforts for a period of sixty days to mediate the controversy or
claim in ____________________, before a sole mediator selected by the Center for
Public Resources, Inc. (New York, New York), under the Center for Public
Resources' Model Mediation Procedure for Business Disputes in effect as of the
Effective Date. If the controversy or claim is unresolved after this period of
mediation, on the written demand of either party, any controversy arising out of
or relating to this Agreement or to the breach, termination, or validity of this
Agreement, will be settled by binding arbitration in ___________________, unless
LSU is a party, in which case the location will be Baton Rouge, Louisiana. The
arbitration will be conducted in accordance with the Center for Public
Resources' Rules for Non-Administered Arbitration of Patent and Trade Secret
Disputes in effect as of the Effective Date before one neutral arbitrator
selected by the parties. If the parties are unable to agree upon the appointment
of a neutral arbitrator within 45 days then the Center for Public Resources will
appoint an arbitrator. The appointed arbitrator will be neutral, impartial, and
independent of the parties and others having any known interest in the outcome,
abide by the ABA and AAA Canons of Ethics for neutral arbitrators, and have no
ex parte communications about the case with either party in the appointing
process or during the pendency of the arbitration. The arbitration shall be
governed by the United States Arbitration Act, 9 U.S.C. Sections 1-16, and
judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof. All applicable statutes of limitation and defenses
based upon the passage of time shall be tolled while the procedures described
above in this Paragraph are pending. Mycogen and Licensee will each take such
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<PAGE> 68
action, if any, required to effectuate this tolling. Each party is required to
continue to perform its obligations under this Agreement pending final
resolution of any dispute arising out of or relating to this Agreement.
Otherwise, any controversy arising under or relating to this Agreement, or the
breach, termination, or validity of this Agreement, may be adjudicated only in a
court, state or federal, having jurisdiction over the subject matter and
including ______________________________ within its territorial district. Both
parties consent to the jurisdiction and venue of such a court unless LSU is a
party in which case the location will be Baton Rouge, Louisiana. A party's right
to demand arbitration of a particular dispute arising under or related to this
Agreement, or the breach, termination, or validity of this Agreement, shall be
waived if that party either: (1) brings a lawsuit over that controversy or claim
against the other party in any state or federal court; or (2) does not make a
written demand for mediation, arbitration, or both within 60 days of service of
process on that party of a summons or complaint from the other party instituting
such a lawsuit in any state or federal court. Notwithstanding the foregoing,
except with respect to LSU, to whom the following will not apply, either party
may avail itself of any appropriate tribunal to obtain injunctive or other
equitable relief to protect its rights in any technology covered by the terms of
this Agreement, or to prevent the unauthorized disclosure of any Confidential
Information disclosed by one party to the other under this Agreement.
K. NO WAIVER. The failure of either party to insist upon strict performance of
any provision of the Agreement, or to exercise any right under the Agreement
shall not constitute a waiver of that provision or right.
L. NO LICENSE BY ESTOPPEL. Except as the Agreement may expressly and
unambiguously provide otherwise, nothing in the Agreement shall be construed as
granting by implication, estoppel, or otherwise any licenses or rights under any
patents, patent applications, or know how owned in whole or in part by Demeter,
Mycogen or LSU, other than the express license under Licensed
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<PAGE> 69
Patents provided in Paragraph (A) of Article II of the Agreement, regardless of
whether such patents, patent applications, or know-how are dominant of or
subordinate to any patent within Licensed Patents.
M. RESERVED LSU RIGHTS. The license granted by this Agreement is subject to a
reserved, non-exclusive, worldwide right in LSU to use LSU Licensed Patents and
Supplemental Patent Rights for non-commercial purposes that are experimental or
educational in nature.
ARTICLE XIII DEFAULT AND TERMINATION
A. EFFECT OF TERMINATION GENERALLY. Upon termination of the Agreement for any
reason, each of the following provisions shall continue in effect indefinitely,
until its purpose can no longer be fulfilled, or is no longer meaningful:
Article I;III; IV; V; VI; VII; VIII; IX; X; XI; XII; and XIII. Following the
termination of the Agreement, any provision of the Agreement not referred to in
the preceding list shall cease to have effect. By way of illustration and not
limitation, following the termination of the Agreement, Licensee shall remain
obligated to pay Mycogen all licensing fees, royalties, minimum royalties, and
other amounts that were due under Article III or Article IV which were accrued
prior to termination, except for amounts properly placed in escrow under
Paragraph B of this Article XIII.
B. EFFECT OF LICENSEE'S DEFAULT. If Licensee is in breach or default of any term
or condition of the Agreement, or fails to perform any obligation under the
Agreement, Mycogen may give written notice to Licensee, specifying the reason
why there is a default or breach, after which notice Licensee shall have thirty
(30) days to cure the breach. If the breach is not cured, or if efforts
reasonably satisfactory to Mycogen are not instituted within that 30 day period
to cure the breach, the Agreement may be terminated at the option of Mycogen,
upon written notice of termination to Licensee, and Licensee shall have no
further rights to make, use, import, offer to sell, or sell Licensed
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<PAGE> 70
Products. If the breach is cured, or if efforts reasonably satisfactory to
Mycogen are instituted within the thirty (30) day period to cure the breach, the
Agreement shall continue as if no breach had occurred; provided, however, that
upon the third default arising out of failure to pay monies due to Mycogen under
the Agreement or upon default or rejection under paragraph D of this Article, no
notice or period to cure shall be necessary, and Mycogen may terminate the
Agreement at its option without further notice to Licensee and without allowing
Licensee a period to cure, and in such an event Licensee shall have no further
rights under this Agreement. A bona fide dispute with respect to the amount of
any payment required to be made by Licensee under this Agreement will not
constitute a default by Licensee under this Agreement, if the payment in dispute
is paid to an escrow agent, mutually selected by Mycogen and Licensee, for
placement into an interest bearing investment or account jointly approved by
Mycogen and Licensee.
C. SALE OF INVENTORY AND WORK-IN-PROCESS. Following termination of the Agreement
under either Paragraph A or B, Licensee shall have one hundred eighty days (180)
to sell any Licensed Products then in stock or then under production, subject to
the payment of royalties, fees, and payments on those Licensed Products as
otherwise provided in Article III.
D. ACCELERATED PROCEDURES. If bankruptcy proceedings under any Chapter of the
Bankruptcy Code, or other insolvency proceedings, voluntary or involuntary, are
filed by or against Licensee, then Licensee or its representative must assume
the Agreement within thirty (30) days of that filing, and Licensee must cure all
defaults existing under the Agreement within that thirty day period, and
Licensee must provide such adequate assurance of future performance of its
obligations under the Agreement as may be required by the Bankruptcy or other
Court, and should Licensee fail to assume the Agreement within thirty (30) days
of that filing, or should Licensee fail to cure all defaults existing under the
Agreement within that thirty (30) day period, or should Licensee fail to provide
adequate assurance of its future
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<PAGE> 71
performance of its obligations under the Agreement, as may be required by the
Bankruptcy or other Court, then the Agreement shall be deemed to be rejected.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed in duplicate counterparts, each of which shall be deemed to
constitute an original, effective as of the date first above written.
The Undersigned verify that they have the power to bind to this
Agreement the party on behalf of which they are executing below.
WITNESSES: [NAME OF LICENSEE]
___________________________ BY: ________________________________
[NAME & TITLE]
___________________________ DATE: ______________________________
___________________________ BY: ________________________________
[NAME & TITLE]
___________________________ DATE: ______________________________
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<PAGE> 1
Certain portions of this Exhibit have been omitted based upon a request for
confidential treatment. The non-public information has been filed with the
Commission.
Exhibit 10.3
ADDENDUM TO RESTATED DEMEGEN-MYCOGEN
LICENSE AND ROYALTY AGREEMENT
This Addendum is made this 11th day of October, 1998 (the "Addendum
Effective Date"), by and between Demegen, Inc. ("Demegen") and Mycogen
Corporation ("Licensee").
WHEREAS, Demegen (formerly known as Demeter BioTechnologies, Ltd.) and
Mycogen are parties to that certain Restated Demegen-Mycogen License and Royalty
Agreement effective September 23, 1997, relating to an exclusive license of
certain biocontrol peptide technology by Demegen to Mycogen for disease control
in plants (the "Agreement"); and
WHEREAS, Mycogen was granted a first right of refusal under the
Agreement through October 1, 1998, to obtain an exclusive license to Demegen
Nutrition Patents and Technology (as defined therein); and
WHEREAS, Licensee desires to execute its right of first refusal and
obtain a license from Demegen for the Demegen Nutrition Patents and Technology
and Demegen desires to grant said license;
THEREFORE, in consideration of the mutual obligations set forth in this
Addendum, Demegen and Licensee agree as follows.
ARTICLE I. DEFINITIONS
A. All capitalized terms defined in the Agreement will have the same meanings as
set forth therein when used in this Addendum.
B. "Licensed Nutritional Plant Products" means transgenic plant(s) containing a
gene encoding for a nutritional protein the use of which either (i) involves the
use of technology included within Nutrition Patents and Technology; or (ii)
would otherwise infringe a valid claim of any applicable patent included within
Nutrition Patents and Technology absent the license granted under this Addendum.
The first sentence of this Paragraph B includes, but not limited to, plant(s)
which are induced to produce a nutritional protein (e.g., through the use of RNA
viral expression systems).
C. "Supplemental Nutrition Applications" means (i) the use of genes in plants to
produce amino acids or proteins for extraction and removal from all associated
plant material and subsequent sale of the purified amino acids or proteins for
nutrition purposes in animals, and (ii) the production of amino acids or
proteins in bacteria for extraction and inclusion for nutritional purposes in
animal feedstuff.
D. "Foundation" means the not-for-profit foundation being established by Dr.
Jesse Jaynes and/or Demegen for humanitarian purposes.
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<PAGE> 2
E. "Nutritional Field of Use" means the use of peptides to increase the protein
levels, or increase the levels of particular amino acids in transgenic plants or
the use of peptides to increase the bioavailability of proteins in plants when
these plants or plant parts are ingested by animals including, but not limited
to, humans and fish. This field of use does not include the field of
Supplemental Nutritional Applications.
F. "Cumulative Revenue Benchmark" means the actual receipt by Licensee and its
Affiliates of the sum of Twenty Million Dollars ($20,000,000) in the cumulative
aggregated Net Sales and Trait Marketing Income of a Crop species designated in
Paragraph E of Article IV.
G. "Addendum Effective Date" means the date on which this Addendum becomes
effective in accordance with Article XII.
H. The definition of Nutrition Patents and Technology is hereby amended to
exclude any technology, material and patents or patent applications acquired by
Demegen (other than by the development by Demegen) after the Addendum Effective
Date (the "After Acquired Nutritional Technology").
ARTICLE II. LICENSE AND OTHER GRANTS
A. SCOPE OF LICENSE TO LICENSEE
1. LICENSED NUTRITIONAL PLANT PRODUCTS. Subject to the terms and
conditions of this Addendum, Demegen grants to Licensee, and Licensee accepts
from Demegen, an exclusive world-wide license to Nutrition Patents and
Technology to make, have made, use, offer to sell, sell for use and sublicense
Licensed Nutritional Plant Products in the Nutritional Field of Use.
2. SUBLICENSING RIGHTS AND RESTRICTIONS. Licensee will have the right
to sublicense any of the rights granted to Licensee hereunder, except that
Licensee will not have the right to assign, transfer or sublicense any rights
under the LSU Licensed Patents or the Supplemental Patent Rights without the
express prior approval of LSU, such approval not to be unreasonably withheld.
Notwithstanding the foregoing, no prior approval from LSU will
be required: (i) to sell Licensed Nutritional Products to arms-length purchasers
(e.g. distributors or farmers), even where such a sale is accompanied by an
express or implied sublicense under one or more of the LSU Licensed Patents or
Supplemental Patent Rights regarding the commercial use of such Licensed
Nutritional Product for non-developmental purposes (ii) to sublicense an
Affiliate of Licensee in accordance with Paragraph 5 of this Article II; or
(iii) to license a third party under one or more LSU-approved standard-form
sublicenses (the "Standard-Form Sublicenses"). Attached as Schedule D is a
Standard-Form Sublicense which has been approved by LSU.
3. STANDARD-FORM SUBLICENSE. At any time during the term of this
Addendum, Licensee may request that LSU and Licensee negotiate in good faith to
develop one or more
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<PAGE> 3
additional Standard-Form Sublicenses. Licensee shall prepare the first draft of
each proposed Standard-Form Sublicense, and thereafter the parties shall discuss
and negotiate modifications to the initial draft in good faith. Each party's
obligation in this respect is limited to an obligation to negotiate in good
faith; neither party is obligated to approve a proposed Standard-Form Sublicense
if mutually agreeable terms cannot be found.
By way of illustration and not limitation, the factors that
LSU considers important in reviewing proposed sublicenses include the following:
adequate liability insurance; adequate indemnity in favor of LSU; prohibitions
against further assignment, sub-sublicensing, or transfer; prohibitions against
the use of LSU's name; prohibitions against patent misuse; the right to audit;
marking of Licensed Nutritional Products with appropriate patent numbers; and,
if a particular sublicense is intended to survive a possible termination of the
present Agreement before the expiration of all pertinent LSU patents, if any,
included within Nutrition Patents and Technology, a clear and acceptable
demarcation of the respective rights and obligations of LSU and the sublicensee
in those circumstances. Once LSU and Licensee have approved the form and
substance of a particular Standard-Form Sublicense, Licensee may thereafter
enter into one or more sublicenses with third parties using that approved
Standard-Form Sublicense, without further approval from LSU, provided that: (1)
no modifications are made to the approved Standard-Form Sublicense that would
diminish in any respect the protections afforded to LSU by the approved
Standard-Form Sublicense (other modifications being permissible if they do not
diminish the protections afforded to LSU in any manner); and (2) a complete copy
of the fully-executed Standard-Form Sublicense is delivered to LSU within thirty
days of execution. A proposed sublicense that does not satisfy these criteria
may be submitted for LSU's review and approval under Paragraph 2 above.
LSU may at any time, acting in good faith, withdraw its
approval of a particular Standard-Form Sublicense upon notice to Licensee. Such
a withdrawal of approval shall not affect the validity of any sublicense using
that Standard-Form Sublicense that was fully executed by all parties prior to
LSU's withdrawal of approval. Where reasonably feasible, LSU shall inform
Licensee of the reason for LSU's withdrawal of a previous approval, and shall
propose modifications to the Standard-Form Sublicense that would make it once
again acceptable to LSU.
4. U.S. GOVERNMENT RIGHTS. The licenses granted to Licensee under
Paragraphs 1 and 2 above are subject to any rights that the United States
Government may have in Nutritional Patents and Technology pursuant to 35 U.S.C.
Sections 200-212.
5. AFFILIATES. Licensee will have the right to extend the license
rights granted under this Addendum to Affiliates of Licensee, provided that such
Affiliates agree in writing to be bound by all of the provisions of this
Addendum.
B. TERM. The term of this Addendum will continue until the later of (i)
expiration of the last to expire of any patent within Nutritional Patents and
Technology; or (ii) the cessation of the sale or use of any Licensed Nutritional
Plant Products by Licensee or its Affiliates, or any of their sublicensee,
unless earlier terminated in accordance with applicable provisions of this
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<PAGE> 4
Addendum. Should the LSU License be terminated or converted into a non-exclusive
license by LSU, LSU has agreed that Licensee's rights under this Addendum
regarding the LSU Licensed Patents and Supplemental Patent Rights will not be
diminished for the term of the LSU License, provided that; (i) Licensee pays to
LSU, or to such other person or entity which holds the rights granted by LSU to
Demegen which are sublicensed to Licensee under this Addendum, the royalties
otherwise payable under this Addendum; (ii) Licensee is not in breach of any
other material term of the Agreement; and (iii) in connection with the
continuation of this License following the termination of the LSU License, LSU
will not incur any obligation which it did not already have to Demegen under the
LSU License, or to Licensee under the terms of this Addendum. The parties
acknowledge that the term of the LSU License only extends until the last to
expire of any patents included within the definition of "Licensed Patents" as
defined in said License Agreement.
C. RIGHT OF FIRST REFUSAL. Subject to the terms and conditions of this Addendum,
Demegen also grants to Licensee rights of first refusal to obtain exclusive
licenses to: (i) Nutrition Patents and Technology for Supplemental Nutrition
Applications; and (ii) After Acquired Nutritional Technology; in accordance with
the provisions of Article VI.
D. LIMITED RESERVATION OF RIGHTS. Licensee agrees to a limited reservation of
rights by Demegen in Nutritional Patents and Technology to permit Demegen to
grant to the Foundation a non-exclusive, royalty-free license to Nutrition
Patents and Technology solely for humanitarian purposes, subject to Licensee's
consent, which consent will not be unreasonably withheld. Licensee further
agrees, as additional consideration for the grant of the license under this
Addendum, to amend the Agreement to permit Demegen to grant a license to the
Foundation to Licensed Patents and Licensed Technology solely for humanitarian
purposes, subject to Licensee's consent, which consent will not be unreasonably
withheld.
ARTICLE III. ROYALTIES AND FEES
(The information marked by *** has been omitted by a request for confidential
treatment. The omitted portion will be filed separately with the Commission.)
A. MINIMUM ANNUAL ROYALTIES. Licensee shall pay Demegen a minimum royalty of two
hundred thousand dollars ($200,000) per year for the licenses granted pursuant
to this Addendum (the "Minimum Annual Royalty"), such Minimum Annual Royalty
will be first payable upon the signing of this Addendum and on the anniversary
of said date in each subsequent year, which amount will be increased for each
year after the first year by $20,000 per year. The Minimum Annual Royalty
obligation will terminate upon: (i) the achievement of both "Technical
Feasibility Benchmarks" set forth in Section A of Article IV and any one of the
three "Animal Feeding Benchmarks" set forth in Section B of Article IV; and (ii)
the payment by Licensee of the amounts due to Demegen for the achievement of
said benchmarks.
B. EARNED ROYALTY ON SALES BY LICENSEE.
1. On a quarterly basis, Licensee shall pay to Demegen an earned
royalty for Licensed Nutritional Plant Products in an amount equal to the
greater of the following two amounts [(a) or (b)] for each Licensed Nutritional
Plant Product that is made, used, sold, or
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<PAGE> 5
imported by Licensee; (a) the sum of *** of Net Sales, if any, and *** of Trait
Marketing Revenue, if any; or (b) the sum of *** of Gross Value Added, if any,
and *** of Trait Marketing Revenue, if any.
2. Earned royalties on sales will be paid quarterly, by March 15, June
15, September 15 and December 15 based on Net Sales receipts received by
Licensee during the prior three-month calendar quarter. The royalty calculation
for each calendar quarter will be determined independently, without carrying
forward or carrying backward amounts attributable to any other calendar quarter.
Furthermore, the royalty for each Licensed Plant Product will be determined
separately - so that it is possible, for example, that the royalty for the first
such Licensed Plant Product could be *** of Net Sales, while the royalty for a
second Licensed Plant Product during the same calendar quarter could be *** of
Gross Value Added.
3. In the event that no plant product exists which is the suitable
standard of comparison for use in the determination of Gross Value Added for a
Licensed Plant Product, Licensee and Demegen will meet, discuss and attempt to
mutually agree upon an appropriate standard plant product to be used for the
purposes of calculating the Gross Value Added. In the event the parties are
unable to agree upon this standard, the matter will be referred to arbitration
in accordance with Paragraph J of Article XVIII.
4. No royalty will be due on the sale, use, importation or transfer of
any Licensed Nutritional Plant Product which is used for the production of
additional planting stock of such Licensed Nutritional Plant Product under a
contract for the repurchase of such production by Licensee or its Affiliates. No
royalty will be due on the resale of planting stock of Licensed Nutritional
Plant Products purchased from a sublicensee in the case of crop failure, or on
the use of a crop of Licensed Nutritional Plant Products purchased from a
customer of such planting stock (e.g., a grain crop used to produce oil), to the
extent that Demegen has already received royalties to which it was entitled with
respect to the planting stock of such Licensed Nutritional Plant Products under
the terms of this Addendum calculated on the basis of a bona-fide arms-length
transaction at royalty rates offered to purchasers not having the relationship
of seller to or producer for Licensee.
C. EARNED ROYALTIES FROM SUBLICENSEES. For payments received from sublicensees
for the use of the technology licensed to Licensee under this Addendum (other
than payments made for the purchase or use by a sublicensee of a Licensed
Nutritional Product manufactured by Licensee or its Affiliates, which payments
are subject to the provisions of Paragraph B above), Licensee shall pay to
Demegen earned royalties on a quarterly basis in accordance with the provisions
set forth below:
1. For payments from sublicensees which are license issue fees, license
maintenance fees, or technology milestone payments, an amount equal to *** of
such payments received by Licensee for all Crops. Specifically excluded from
such payments are payments to Licensee attributed for bona fide services
rendered by Licensee to sublicensees for regulatory support, product
registration, and research and development funding, and Trait Marketing Revenue.
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<PAGE> 6
2. For payments from sublicensees which are running royalties
calculated as a percentage of sublicensee's Net Sales, an amount equal to *** of
the *** of such payments received by Licensee on a Licensed Nutritional
Product-by-Licensed Nutritional Product basis and *** of the amount *** for each
such Licensed Nutritional Product; except that, for Licensed Nutritional
Products for fruit and vegetable crops (other than Solanum tuberosum (potato),
the amount to be paid to Demegen for said payments from sublicenses in *** for
each such Licensed Nutritional Product will be *** of such excess.
3. For payments from sublicensees of Trait Marketing Revenue which are
not covered by the provisions of Paragraph B, an amount equal to *** of such
payments received by Licensee. (That is, for Trait Licensing Revenue received in
connection with applicable sales by sublicensees under the Agreement, the earned
royalty due will be *** of the net amount of said revenue actually received by
Licensee and its Affiliates after all discounts, rebates, collection fees,
refunds and returns.)
4. Earned royalties on payments received from sublicensees which are
covered by this Paragraph C will be paid quarterly, by March 15, July 15,
September 15 and December 15 based on all such payments received by Licensee
during the prior calendar quarter.
D. QUARTERLY REPORTS. Licensee shall forward to Demegen quarterly reports on or
before March 15, July 15, September 15, and December 15 of each year, for the
preceding calendar quarter, containing the data, information, and documentation
necessary to determine fully the amounts owed by Licensee to Demegen under this
Addendum. The quarterly reports will also provide information on the status of
Licensee's marketing and/or sublicensing of Licensed Nutritional Plant Products.
Such a report shall be made for each quarter beginning after commercialization
of the first Licensed Product, whether or not any payment is due for that
quarter.
E. PATENT COSTS. Without affecting Demegen's obligation to LSU for patent
prosecution under the License Agreement, Licensee will pay all reasonable
out-of-pocket costs, fees and attorneys' fees and expenses of maintenance and/or
further prosecution of all patents included within the Nutritional Patent Rights
and Technology listed in section A3 of the Agreement on the same basis as set
forth in Section F of Article III of the Agreement.
ARTICLE IV. BENCHMARK PAYMENTS
A. TECHNICAL FEASIBILITY BENCHMARKS IN MONOCOTS AND DICOTS. A payment of ***
shall be made by Licensee to Demegen upon the achievement of the technical
feasibility benchmarks set forth on Addendum Schedule A in each of a monocot and
a dicot (other than sweet potato), up to a total of *** for the achievement of
said benchmarks in both a monocot and a dicot (other than sweet potato).
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<PAGE> 7
B. ANIMAL FEEDING BENCHMARKS. A payment of *** shall be made by Licensee to
Demegen upon the achievement of the animal feeding benchmarks set forth in
Addendum Schedule B in each of swine, poultry and rat feeding studies with plant
material, up to a total of *** for the achievement of the animal feeding
benchmarks for all three animals.
C. ADDITIONAL PAYMENT FOR FIRST COMMERCIAL SALE OF CERTAIN CROP(S). In addition
to the payment provided under subparagraph C hereof, payments of *** each shall
be made by Licensee to Demegen on the First Commercial Sale of Licensed Plant
Products within a Crop of ***, ***, ***, *** or ***, up to a total of *** if
there is a First Commercial Sale in each of four of said *** crops.
D. ADDITIONAL PAYMENT FOR FIRST COMMERCIAL SALE OF ANY OTHER CROP WITHIN THE
FIELD OF ACTIVITY. Licensee shall make a payment to Demegen upon the First
Commercial Sale of any Licensed Plant Products for any Crop, other than a Crop
for which a *** payment was made to Demegen under Section C of this Article IV,
of an amount equal to *** for each Crop up to a maximum total of *** (that is,
*** for each of the first *** such Crops.
E. ADDITIONAL PAYMENTS FOR ACHIEVEMENT OF CUMULATIVE GROSS MARGIN BENCHMARK FOR
SALE OF CERTAIN CROP(S). In addition to the payment set forth above, payments of
*** each shall be made by Licensee upon the achievement of Cumulative Gross
Margin Benchmark in each of a ***, ***, ***, ***, and ***, up to a total of ***
if a Cumulative Gross Margin Benchmark is achieved in each of ***.
F. PAYMENT. Each Benchmark payment will be due and payable in full on or before
the thirtieth (30th) day following the satisfaction of all conditions which give
rise to the payment obligation for such benchmark.
G. INFLATION ADJUSTMENT. To the extent that any of the specific dollar amounts
set forth in Paragraph A, B and C of this Article have not been paid by January
1, 2006 such remaining amounts will be adjusted upward annually by any increases
in the United States Consumer Price Index For All Urban Consumers, All Items
U.S. City Average (the "Index") from its value in January, 1999, less one
percent (1%) per year. No downward adjustments will be made. The dollar figures
shall first be adjusted beginning in January 2006.
ARTICLE V. AUDITING AND PAYMENT PROCEDURES
The Auditing and Payment Provisions of Article V of the Agreement will
apply to Licensees payments and recordkeeping under this Addendum.
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<PAGE> 8
ARTICLE VI. AGREEMENT NOT TO LICENSE CONCERNING
SUPPLEMENTAL NUTRITION APPLICATIONS
In order to provide Licensee with the opportunity to negotiate an
exclusive license for said applications, Demegen will not license rights under
the Nutrition Patents and Technology to any third party for Supplemental
Nutritional Applications or to After-Acquired Nutritional Technology for use in
the Nutritional Field of Use or in the field of Supplemental Nutritional
Applications without first offering Licensee an opportunity to negotiate for
said license. In the event Demegen and Licensee are unable to reach agreement on
the terms of any such license, and obtain LSU's consent thereto to the extent
that LSU Licensed Patents or Supplemental Patent Rights are involved, within 120
days after the commencement of said negotiations Demegen will thereafter be free
to license said applications to others. However, should Demegen offer a license
to said rights to a third party on terms more favorable than those offered to
Licensee within one year from said date, Licensee will have a right of first
refusal to obtain such license on the terms so offered. During the term of the
option, and prior to Licensee's exercise of the option, Licensee will have the
right, but not the obligation to designate and pay for patent prosecution and
maintenance of patents for Supplemental Nutritional Applications or
After-Acquired Nutritional Technology.
ARTICLE VII. JOINT DEVELOPMENT PROGRAM
REGARDING PEPTIDES FOR NUTRITIONAL
IMPROVEMENT OF PLANTS
A. JOINT DEVELOPMENT PROGRAM. Licensee and Demegen, without restricting any
activities they may desire to participate in with third parties, will engage in
a joint development program commencing on the effective date of this Addendum to
screen and produce peptides for use in nutritional improvements in plants.
B. RESEARCH COMMITTEE. The joint development program will be conducted under the
direction of a research committee composed of two members appointed by Demegen
and two members appointed by Licensee. The research committee will establish the
specific objectives of the program, determine the activities to be performed by
the parties, and measure progress against goals. All decisions of the research
committee will be made by unanimous consent. The research committee will meet
four (4) times per year. In the event the committee is unable to agree on any
issue, the matter will be decided by the Presidents of both Demegen and
Licensee.
C. SERVICES OF DR. JAYNES. Demegen will provide the services of Dr. Jessie
Jaynes, on a part-time basis, to design, plan the synthesis of and interpret
testing results regarding such peptides.
D. FUNDING BY LICENSEE. Licensee will fund Demegen's activities under the joint
development program in accordance with the following schedule for a total of Two
Million Dollars ($2,000,000) over 5 years, subject to Demegen's commitment of
providing personnel for such activities at or in excess of the minimum indicated
full-time equivalent (FTE) level indicated for said years. Payment by Licensee
to Demegen under this provision will be made in
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<PAGE> 9
equal semi-annually installments in advance for the duration of the joint
research program. Accordingly, for the first year of the joint research program,
$150,000 will be due promptly after the Addendum Effective Date, and $150,000
will be due on the date which is six months after the Addendum Effective Date.
Thereafter, one-half of the annual funding will be payable on the annual
anniversaries of said dates.
RESEARCH FUNDING SCHEDULE
<TABLE>
<CAPTION>
Program Year Licensee Funding of Demegen Min. FTE
Demegen Level
<S> <C> <C>
1998 - 1999 $300,000.00 2.0
1999 - 2000 $350,000.00 2.3
2000 - 2001 $400,000.00 2.6
2001 - 2002 $450,000.00 3.0
2002 - 2003 $500,000.00 3.0
</TABLE>
ARTICLE VIII. OWNERSHIP OF INTELLECTUAL PROPERTY
A. DEMEGEN INVENTIONS. Nutritional peptides or other technology for use within
the Nutritional Field of Use, invented solely by Demegen employees, consultants
or other agents shall be owned by Demegen and not jointly owned ("Demegen
Inventions").
B. LICENSEE INVENTIONS. Nutritional peptides or other technology for use within
the Nutritional Field of Use, invented solely by Licensee's employees,
consultants or other agents shall be owned by Licensee and not jointly owned but
in the event such Nutritional peptides or other technology are subject to, or
were developed from or by use of, Demegen Nutritional Patents and Technology,
then they will be subject to the terms of this Addendum, including but not
limited to the royalty provisions set forth in Article III and applicable
payments in Article IV.
C. JOINT INVENTIONS. Joint Inventions will be jointly owned by Licensee and
Demegen ("Joint Inventions").
D. LICENSE OF INVENTIONS.
1. Subject to the terms of this Addendum, including but not limited to
the royalty provisions set forth in Article III and applicable
payments in Article IV; Licensee will be granted a world-wide,
perpetual, exclusive license with a right to sublicense said
license, to use Demegen Inventions and Joint Inventions in the
Nutritional Field of Use. Licensee hereby grants to Demegen a
world-wide, royalty free, perpetual, exclusive license, in Joint
Inventions, with a right to sublicense, for all applications other
than to the extent that such applications have been exclusively
licensed to Licensee by Demegen; and
2. With respect to Licensee Inventions or Joint Inventions outside
both the Nutritional Field of Use and other uses authorized by this
Addendum and the Agreement which either (i) were developed using
non-public technology licensed or sublicensed by Demegen under this
Addendum and the Agreement or (ii) the development of which
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was subject to one or more claims included within said technology,
then neither Licensee nor Demegen will have the right to
commercially exploit said Inventions until a mutually acceptable
written agreement is reached covering such commercialization.
However, nothing in this paragraph will restrict Licensee from
using any invention on a royalty-free basis to the extent that any
third party would be free to develop such and do so using publicly
available information without violating patents or trade secrets
owned by or licensed to Demegen.
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ARTICLE IX. RETURN OF RIGHTS
If Licensee fails to begin to develop specific plans for applications
for particular Crops, uses or territories subject to this Addendum within three
years of the Addendum Effective Date, Demegen may propose a specific plan for
such and bring to Licensee a suitable party ready, willing and able to implement
such plan. If Licensee does not reach an agreement with such party for the
particular Crop(s) involved, or develop and initiate a suitable alternative plan
for development internally or with another party, then Demegen may request that
Licensee's rights to Licensed Patents and Demegen Technology in said area(s) be
returned to Demegen so as to permit Demegen to pursue said plan. Licensee shall
not unreasonably refuse to return said rights to Demegen, provided, however,
that Licensee will retain a non exclusive license to Licensed Patents and
Licensed Technology in said area(s) unless the parties negotiate otherwise. As
long as Licensee is not in breach of any material term of this agreement, it
will not be compelled under this Article IX to turn over to Demegen any of
Licensee's rights in Joint Inventions without compensation. If the parties are
unable to agree on the application of this provision with respect to a
particular Crop application, or the terms of a license for such application,
then the matter will be submitted to arbitration in accordance with the
provisions of Paragraph J of Article XVIII of the Agreement.
ARTICLE X. COMMERCIALIZATION
A. MARKETING OBLIGATIONS. Licensee, at Licensee's sole expense, shall: (1) act
with commercially reasonable judgment and diligence to develop commercially
marketable Licensed Nutritional Plant Products, and to develop competitive
markets for those Licensed Nutritional Products; (2) actively seek sublicensees
or partners for Licensed Nutritional Products, uses of Licensed Nutritional
Plant Products or in geographic areas Licensee is not actively pursuing on its
own; and (3) from time to time, at the request of a party, but no less than
semi-annually, Licensee and Demegen will meet to discuss Licensee's marketing
activities as set forth above.
B. REGULATORY APPROVAL. Licensee, at Licensee's expense, will undertake all
reasonable efforts required to file and subsequently to obtain any state,
federal, or other governmental license or regulatory clearance necessary for the
use of Licensed Nutritional Plant Products. Any research necessary or desirable
for the commercialization or marketing of Licensed Nutritional Plant Products by
Licensee shall be the sole responsibility of Licensee. Licensee, at Licensee's
sole expense, will prepare and deliver all necessary and appropriate documents,
and take all reasonably necessary and appropriate actions, to seek to obtain any
such license or regulatory clearance. All such registrations or clearances will
be held in Licensee's name and will be owned exclusively by Licensee.
11
<PAGE> 12
ARTICLE XI. REPRESENTATIONS, WARRANTIES AND DISCLAIMERS
A. AUTHORITY. Each party represents and warrants to the other party that it has
the power and authority to enter into this Addendum and to perform its
obligations hereunder.
B. DEMEGEN WARRANTIES. Demegen further warrants that LSU has consented to this
Addendum under Paragraph 2.2 of the Supplemental Licensing Terms and Conditions
of the LSU License, and that as of the date of execution of this Agreement
Demegen has no knowledge of any intellectual property rights of third parties
other than those disclosed in this Addendum, to which the use of the technology
as licensed to Licensee under this Addendum would be subject.
C. EXCLUSIONS. Demegen and LSU make no warranty or representation whatsoever as
to the usefulness of Demegen Nutritional Patents and Technology or Licensed
Nutritional Products, or their fitness for the purpose for which they are
intended or for any other purpose. Demegen and LSU make no representations, and
extend no warranties of any kind, either express or implied, except as expressly
provided in this Agreement.
D. ADDITIONAL DISCLAIMERS. Nothing in this Addendum shall be construed as:
1. A warranty or representation by Demegen or LSU as to the validity,
enforceability, scope, or inventorship of any patent; or
2. A warranty or representation by Demegen or LSU that anything
licensed, sublicensed, made, used, sold, imported, or otherwise disposed of
under any license granted in or sublicense permitted by this Addendum is or will
be free from infringement of patents of third parties or other rights of third
parties; or
3. An obligation that Demegen or LSU bring or litigate actions against
third parties for infringement, except to the extent and in the circumstances
stated in Article XIV of this Addendum; or
4. A requirement that Demegen or LSU file or prosecute any patent
application, secure the issuance of any patent, or maintain any patent; or
5. An establishment of a partnership, joint venture, agency, or
employer-employee relationship between the parties; and neither party shall
represent the contrary to anyone else.
12
<PAGE> 13
E. DISCLAIMER OF RESPONSIBILITY. Neither Demegen nor LSU assume any
responsibilities whatever for any damages caused to Licensee, any Affiliate, any
vendees, other transferees, or sublicensees of Licensee or its Affiliates, or by
any product or process incorporating or made by the Nutrition Patents and
Technology, or incorporating or made by the use of any information furnished
under this Addendum.
ARTICLE XII. EFFECTIVE DATE
The provisions of this Addendum will become effective only upon the
separate approval of the terms and conditions set forth herein by the Board of
Directors of both Demegen and Licensee.
ARTICLE XIII. TERMINATION
A. This Addendum will terminate if the conditions set forth in Article XII are
not satisfied by November 15, 1998, or such later date as may be mutually agreed
upon by Demegen and Licensee.
B. Demegen may terminate this Addendum and the license granted hereunder upon
written notice to Licensee in the event that Licensee shall materially breach
its obligations under this Addendum and such default is not cured within thirty
(30) days of receipt of a written demand from Demegen to cure said default.
Termination of the Addendum under this provision will not operate to terminate
Licensee's other rights and obligations under the Agreement, provided that
Licensee is not also in material breach of its other obligations under the
Agreement.
C. Licensee shall have the right to terminate this Addendum on the first
anniversary of the Addendum Effective Date or anytime thereafter upon one
hundred thirty-five (135) days advance written notice to Demegen. Any such
termination of this Addendum will not affect any other rights or obligations of
Licensee under the Agreement not set forth in this Addendum.
D. Upon termination of this Addendum, Licensee's license and other rights under
the Addendum will terminate. However, the rights of sublicensees of Licensee
will continue following such termination provided that the sublicensees agree to
make all future royalty payments and license fees under their sublicense
agreements directly to Demegen. In addition, (i) Licensee shall have the right
to sell its existing inventory of Licensed Nutritional Plant Products until such
inventory is exhausted, provided that Licensee pays any earned royalties or
other amounts which may be due under this Addendum with respect to such sales;
and (ii) Licensee shall remain obligated to pay to Demegen any unpaid license
fees, minimum royalties, earned royalties and benchmark payments which had
accrued prior to termination; except that, if Licensee terminates this Agreement
under Paragraph C above, Licensee will not be required to make any minimum
royalty payment or benchmark payment which had accrued after the date of the
advance written notice of said termination to Demegen, or within thirty (30)
days prior to such notice.
13
<PAGE> 14
ARTICLE XIV. OTHER PROVISIONS
A. To the extent applicable, the provisions of Article XII through XIX of the
Agreement will apply to the activities of the parties under this Addendum. In
this connection, for purposes of the Agreement, references to Licensed Products
in Articles XII through XIX shall also be deemed to include Licensed Nutritional
Products, and references to Licensed Patents will also be deemed to include the
patents included within Demegen Nutritional Patents and Technology.
B. In view of the change of the corporate name of Demegen, all references to
Demeter in the Agreement will now refer to Demegen, Inc. This Paragraph B will
survive any termination of this Addendum.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
duly executed in duplicate counterparts, each of which shall be deemed to
constitute an original, effective as of the date first above written.
The undersigned verify that they have the power to bind to this
Agreement the party on behalf of which they are executing below.
WITNESSES: MYCOGEN CORPORATION
/s/ Paul S. Zorner By: /s/Andrew C. Barnes
- ------------------- -------------------
Andrew C. Barnes
Executive Vice President
Date: 10/13/98
DEMEGEN, INC.
/s/ James E. Thornton By: /s/Richard D. Ekstrom
- --------------------- ---------------------
Richard D. Ekstrom
President
Date: 10/13/98
14
<PAGE> 15
ACKNOWLEDGEMENT OF ADDENDUM
TO LICENSE AND ROYALTY AGREEMENT BY LSU
Approved and accepted by the Board of Supervisors of Louisiana State
University and Agricultural and Mechanical College pursuant to Paragraph 2.2 of
the Supplemental Terms of May 1, 1997 License and Royalty Agreement between the
Board of Supervisors of Louisiana State University and Agricultural and
Mechanical College and Demegen, Inc.
WITNESS: THE BOARD OF SUPERVISORS OF
LOUISIANA STATE UNIVERSITY
__________________________________ AND AGRICULTURAL AND
MECHANICAL COLLEGE
__________________________________
By: __________________________
Allan A. Copping
Title: President
15
<PAGE> 16
ADDENDUM SCHEDULE "A"
Technical Feasibility Benchmarks
The "Technical Benchmarks" for genetic expression of Demegen nutritional
proteins in recombinant monocot and dicot plants are as follows:
1. Genetically stable expression of a Demegen nutritional protein in a
recombinant monocot or dicot plant (with the exception of sweet potato) at
two percent (2%) or better of the total protein in that plant tissue that
serves as that portion fed to an animal, e.g., alfalfa foliage (leaves) or
rice grain (seeds).
2. Proof of genetic expression will be determined through the use of one or
several standard "Northern", "Western" and immunological plant tissue test
methods.
The specific design of experiments to determine the achievement of these
benchmarks must be agreed to beforehand by both Mycogen and Demegen.
<PAGE> 17
ADDENDUM SCHEDULE "B"
Animal Feeding Benchmarks
The animal feeding benchmark goals that must be met to prove the safety and
nutritional feeding benefits of Demegen nutritional proteins are as follows:
1. No adverse health effects to the animal such as toxicity or allergic
reactions that are directly attributable to the Demeter nutritional
protein(s).
2. Statistically significant (P(is less than)0.5) evidence that the Demegen
nutritional protein(s) is a more efficient protein source than the protein
normally found in a standard animal feed ration where efficient is defined
as achieving one or more of the following during the first quarter of the
animal's feeding cycle:
a) Improved animal gain per pound of ration fed
b) Lower ration cost for an equivalent pound of animal gain
c) Faster growth rate per dollar cost of ration
d) Acceptable substitute (in terms of comparable costs and
nutrition benefit) for a current feed ingredient that is
considered less desirable
The specific design of experiments to determine the achievement of these
benchmarks must be agreed to beforehand by both Mycogen and Demegen.
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
KNOW BY ALL MEN BY THESE PRESENTS, that the undersigned director of
Demegen, Inc., a Colorado Corporation, does make, constitute and appoint
RICHARD D. EKSTROM, with full power and authority his true and lawful
attorney-in-fact and agent, for him and his name, place and stead in any and all
capacities, to sign the Initial Report of Demegen, Inc. on Form 10/Amendment
No. 3 for the period ended September 30, 1998, and to file such Initial Report,
so signed, with all exhibits thereto, with the Securities and Exchange
Commission, hereby further granting unto said attorney-in-fact full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do in person; the undersigned hereby ratifies and confirms all
that said attorney and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, THE UNDERSIGNED HAS HEREUNTO SET HIS HAND AND SEAL
THIS 2nd day of August, 1999.
/s/ James Colker (SEAL)
- ----------------------
James Colker, Director
<PAGE> 2
POWER OF ATTORNEY
KNOW BY ALL MEN BY THESE PRESENTS, that the undersigned director of
Demegen, Inc., a Colorado Corporation, does make, constitute and appoint
RICHARD D. EKSTROM, with full power and authority his true and lawful
attorney-in-fact and agent, for him and his name, place and stead in any and all
capacities, to sign the Initial Report of Demegen, Inc. on Form 10/Amendment
No. 3 for the period ended September 30, 1998, and to file such Initial Report,
so signed, with all exhibits thereto, with the Securities and Exchange
Commission, hereby further granting unto said attorney-in-fact full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do in person; the undersigned hereby ratifies and confirms all
that said attorney and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, THE UNDERSIGNED HAS HEREUNTO SET HIS HAND AND SEAL
THIS 2nd day of August, 1999.
/s/ Robert E. Hannan (SEAL)
- --------------------------
Robert E. Hannan, Director
<PAGE> 3
POWER OF ATTORNEY
KNOW BY ALL MEN BY THESE PRESENTS, that the undersigned director of
Demegen, Inc., a Colorado Corporation, does make, constitute and appoint
RICHARD D. EKSTROM, with full power and authority his true and lawful
attorney-in-fact and agent, for him and his name, place and stead in any and all
capacities, to sign the Initial Report of Demegen, Inc. on Form 10/Amendment
No. 3 for the period ended September 30, 1998, and to file such Initial Report,
so signed, with all exhibits thereto, with the Securities and Exchange
Commission, hereby further granting unto said attorney-in-fact full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do in person; the undersigned hereby ratifies and confirms all
that said attorney and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, THE UNDERSIGNED HAS HEREUNTO SET HIS HAND AND SEAL
THIS 2nd day of August, 1999.
/s/ Donald A. Guthrie (SEAL)
- ----------------------------------
Donald A. Guthrie, Ph.D., Director
<PAGE> 4
POWER OF ATTORNEY
KNOW BY ALL MEN BY THESE PRESENTS, that the undersigned director of
Demegen, Inc., a Colorado Corporation, does make, constitute and appoint
RICHARD D. EKSTROM, with full power and authority his true and lawful
attorney-in-fact and agent, for him and his name, place and stead in any and all
capacities, to sign the Initial Report of Demegen, Inc. on Form 10/Amendment
No. 3 for the period ended September 30, 1998, and to file such Initial Report,
so signed, with all exhibits thereto, with the Securities and Exchange
Commission, hereby further granting unto said attorney-in-fact full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do in person; the undersigned hereby ratifies and confirms all
that said attorney and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, THE UNDERSIGNED HAS HEREUNTO SET HIS HAND AND SEAL
THIS 2nd day of August, 1999.
/s/ Jesse M. Jaynes (SEAL)
- --------------------------------
Jesse M. Jaynes, Ph.D., Director
<PAGE> 5
POWER OF ATTORNEY
KNOW BY ALL MEN BY THESE PRESENTS, that the undersigned director of
Demegen, Inc., a Colorado Corporation, does make, constitute and appoint
RICHARD D. EKSTROM, with full power and authority his true and lawful
attorney-in-fact and agent, for him and his name, place and stead in any and all
capacities, to sign the Initial Report of Demegen, Inc. on Form 10/Amendment
No. 3 for the period ended September 30, 1998, and to file such Initial Report,
so signed, with all exhibits thereto, with the Securities and Exchange
Commission, hereby further granting unto said attorney-in-fact full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do in person; the undersigned hereby ratifies and confirms all
that said attorney and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, THE UNDERSIGNED HAS HEREUNTO SET HIS HAND AND SEAL
THIS 2nd day of August, 1999.
/s/ John Bridwell (SEAL)
- -----------------------
John Bridwell, Director
<PAGE> 6
POWER OF ATTORNEY
KNOW BY ALL MEN BY THESE PRESENTS, that the undersigned director of
Demegen, Inc., a Colorado Corporation, does make, constitute and appoint
RICHARD D. EKSTROM, with full power and authority his true and lawful
attorney-in-fact and agent, for him and his name, place and stead in any and all
capacities, to sign the Initial Report of Demegen, Inc. on Form 10/Amendment
No. 3 for the period ended September 30, 1998, and to file such Initial Report,
so signed, with all exhibits thereto, with the Securities and Exchange
Commission, hereby further granting unto said attorney-in-fact full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do in person; the undersigned hereby ratifies and confirms all
that said attorney and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, THE UNDERSIGNED HAS HEREUNTO SET HIS HAND AND SEAL
THIS 2nd day of August, 1999.
/s/ Konrad M. Weis (SEAL)
- -------------------------------
Konrad M. Weis, Ph.D., Director
<TABLE> <S> <C>
<ARTICLE> 5
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
BALANCE SHEET AT JUNE 30, 1999 AND STATEMENT OF OPERATIONS FOR THE NINE MONTHS
ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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