<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For Quarter Ended: November 27, 1999
-----------------
Commission File No: 0-10824
-------
GENOME THERAPEUTICS CORP.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2297484
-------------------------------- ------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
100 BEAVER STREET
WALTHAM, MASSACHUSETTS 02453
---------------------- -----
(Address of principal (ZIP Code)
executive offices)
REGISTRANT'S TELEPHONE NUMBER: (781) 398-2300
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock 19,516,056
-------------- -----------------------------
$.10 Par Value Outstanding January 5, 2000
<PAGE>
Genome Therapeutics Corp. and Subsidiaries
Index to Financial Information (Unaudited) and Other Information
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I
Financial Information (Unaudited):
Consolidated Condensed Balance Sheets as of 3
November 27, 1999 and August 31, 1999
Consolidated Condensed Statements of Operations 4
for the 13 week periods ended November 27, 1999
and November 28, 1998
Consolidated Statements of Cash Flows for the 5
13 week periods ended November 27, 1999
and November 28, 1998
Notes to Consolidated Condensed Financial 6-12
Statements for the 13 week periods ended
November 27, 1999 and November 28, 1998
Management's Discussion and Analysis of Financial 13-17
Conditions and Results of Operations
Part II
Other Information:
Other Information 18
Signature 19
</TABLE>
2
<PAGE>
GENOME THERAPEUTICS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
November 27, August 31,
1999 1999
(Unaudited)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $23,091,486 $12,802,162
Marketable securities 7,017,740 12,060,230
Interest receivable 746,809 448,192
Unbilled costs and fees 92,103 35,328
Prepaid expenses and other current assets 749,990 324,211
Note receivable from officer 120,000 120,000
------------------ -----------------
Total current assets 31,818,128 25,790,123
Equipment and leasehold improvements, at cost:
Laboratory and scientific equipment 17,843,653 15,844,262
Leasehold improvements 8,217,451 8,205,701
Equipment and furniture 1,353,953 1,344,703
------------------ -----------------
27,415,057 25,394,666
Less accumulated depreciation
and amortization 13,129,739 12,173,500
------------------ -----------------
14,285,318 13,221,166
Restricted cash 200,000 200,000
Other assets 265,083 273,708
------------------ -----------------
Total assets $46,568,529 $39,484,997
------------------ -----------------
------------------ -----------------
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $2,457,047 $987,958
Accrued expenses 2,570,044 2,322,780
Deferred revenue 4,907,543 2,903,534
Current maturities of long-term obligations 4,064,376 3,934,547
------------------ -----------------
Total current liabilities 13,999,010 10,148,819
Long-term obligations, net of current maturities 5,353,830 5,925,086
Shareholders' equity 27,215,689 23,411,092
------------------ -----------------
Total liabilities and shareholders' equity $46,568,529 $39,484,997
------------------ -----------------
------------------ -----------------
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
3
<PAGE>
GENOME THERAPEUTICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Thirteen Weeks Ended
November 27, November 28,
1999 1998
(Unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Contract research, licenses, and subscription fees $6,035,002 $5,110,257
Costs and Expenses:
Research and development 5,341,305 6,813,002
Selling, general and administrative 969,645 910,552
------------------ -----------------
Total cost and expenses 6,310,950 7,723,554
------------------ -----------------
------------------ -----------------
Interest income 363,671 412,000
Interest expense (209,326) (270,345)
------------------ -----------------
Net interest income 154,345 141,655
------------------ -----------------
------------------ -----------------
Net loss $(121,603) $(2,471,642)
------------------ -----------------
------------------ -----------------
Net Loss per Common Share:
Basic and diluted $(0.01) $(0.13)
------------------ -----------------
------------------ -----------------
Weighted Average Common Equivalent Shares Outstanding:
Basic and diluted 18,947,684 18,317,843
------------------ -----------------
------------------ -----------------
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
4
<PAGE>
GENOME THERAPEUTICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Thirteen Weeks Ended
November 27, November 28,
1999 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(121,603) $(2,471,642)
Adjustments to reconcile net loss to net
cash povided by operating activities:
Depreciation and amortization 960,624 1,013,122
Deferred compensation 95,208 40,762
Changes in assets and liabilities:
Interest receivable (298,617) 98,421
Unbilled costs and fees (56,775) (61,688)
Prepaid expenses and other current assets (425,779) 122,983
Accounts payable 1,469,089 (58,510)
Accrued expenses 247,264 210,365
Deferred revenue 2,004,009 1,808,601
----------------- -----------------
Total adjustments 3,995,023 3,174,056
----------------- -----------------
Net cash provided by operating activities 3,873,420 702,414
----------------- -----------------
Cash Flows from Investing Activities:
Purchases of marketable securities (5,353,510) (5,657,554)
Proceeds from sale of marketable securities 10,396,000 8,290,000
Purchases of equipment and leasehold improvements (1,652,777) (55,222)
Decrease in other assets 8,625 7,085
----------------- -----------------
Net cash provided by investing activities 3,398,338 2,584,309
----------------- -----------------
Cash Flows from Financing Activities:
Proceeds from exercise of stock options 98,877 64,167
Proceeds from sale of common stock 3,732,115 --
Payments on long-term obligations (813,426) (1,327,717)
----------------- -----------------
Net cash provided by (used in) financing activities 3,017,566 (1,263,550)
----------------- -----------------
Net Increase in Cash and Cash Equivalents 10,289,324 2,023,173
Cash and Cash Equivalents, at beginning of period 12,802,162 10,978,176
----------------- -----------------
Cash and Cash Equivalents, at end of period $23,091,486 $13,001,349
----------------- -----------------
----------------- -----------------
Supplemental Disclosure of Cash Flow Information:
Taxes paid during period $4,800 $7,200
----------------- -----------------
Interest paid during period $209,326 $270,345
----------------- -----------------
Supplemental Disclosure of Non-cash Investing Activities:
Property and equipment acquired under capital lease obligations $372,000 $592,987
----------------- -----------------
----------------- -----------------
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
5
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. In the opinion of management, the
unaudited consolidated condensed financial statements have been prepared on the
same basis as the audited consolidated financial statements and include all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of interim period results. Certain information and footnote
disclosures normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Company believes, however, that its
disclosures are adequate to make the information presented not misleading. The
results of operations for the 13 week period ended November 27, 1999 are not
necessarily indicative of the results to be expected for the full fiscal year.
The accompanying consolidated condensed financial statements should be read in
conjunction with the Company's Form 10-K, which was filed with the Securities
and Exchange Commission on November 24, 1999.
2. REVENUE RECOGNITION
Revenues are from contract research and licenses derived from collaborative
agreements with pharmaceutical companies and from government grants and
contracts. Revenues from research and development and collaborative agreements
are recognized ratably over their respective contract periods. Subscription fees
from the PathoGenome-TM- database are recognized ratably over the life of the
subscription. Milestone payments from collaborative research and development
agreements are recognized when they are achieved. Royalties from the Company's
pro licensed technologies are recognized as earned.
Unbilled costs and fees represent revenue recognized prior to billing.
Deferred revenue represents amounts received prior to revenue recognition.
3. NET LOSS PER COMMON SHARE
The Company applies Statement of Financial Accounting Standards (SFAS)
No.128, EARNINGS PER SHARE. This statement established standards for computing
and presenting earnings per share and applies to entities with publicly held
common stock or potential common stock. Basic earnings per share was determined
by dividing net loss by the weighted average common shares outstanding during
the period. Diluted earnings per share was determined by dividing net loss by
diluted weighted average shares outstanding. Diluted loss per share is the same
as basic loss per share for the periods ended November 27, 1999 and November 28,
1998 as the effect of the potential common stock equivalents is antidilutive.
Potential common stock equivalents of 3,385,715 and 3,631,756 were excluded from
diluted loss per share at November 27, 1999 and November 28, 1998, respectively.
4. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company applies SFAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT
AND EQUITY SECURITIES. At November 27, 1999 and August 31, 1999, the Company's
cash equivalents and marketable securities are classified as held-to-maturity,
as the Company has the positive intent and ability to hold these securities to
maturity. Cash equivalents are short-term, highly liquid
6
<PAGE>
investments with original maturities of less than three months. Marketable
securities are investment securities with original maturities of greater than
three months. Cash equivalents are carried at cost, which approximates market
value, and consist of money market funds, repurchase agreements and debt
securities. Marketable securities are recorded at amortized cost, which
approximates market value. The Company has not recorded any realized gains or
losses on its marketable securities. Marketable securities consist of commercial
paper and U.S. government debt securities. The Company has $200,000 in
restricted cash at August 31, 1999 and November 27, 1999 in connection with
certain long-term obligations (see Note 7).
5. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
6. COMPREHENSIVE INCOME
The Company applies SFAS No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No.
130 requires disclosure of all components of comprehensive income on an annual
and interim basis. Comprehensive income is defined as the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. The Company's total comprehensive net loss
for the thirteen week periods ended November 27, 1999 and November 28, 1998 were
the same as reported net loss for those periods.
7. LONG-TERM OBLIGATIONS
On February 28, 1997, the Company entered into an equipment lease line of
credit under which it financed $6,000,000 of laboratory, computer and office
equipment. The lease is payable in 48 monthly installments from the point of
takedown, at a variable interest rate of LIBOR (5.375% as of November 27, 1999)
plus 2%. On March 9, 1998, the Company increased the equipment lease line of
credit by $4,300,000 to $10,300,000. The additional borrowings under the
equipment lease line of credit will be utilized to finance laboratory, computer
and office equipment. Borrowings under the new credit line are payable in 15
quarterly installments commencing March 31, 1999, at a variable rate of LIBOR
plus 1.75%. At any time during the term of this agreement, the Company may elect
to convert to a fixed rate loan at the prevailing interest rate. The Company is
required to maintain certain restricted cash balances, as defined (see Note 4).
In addition, the Company is required to maintain certain financial ratios
pertaining to minimum cash balances, tangible net worth and debt service
coverage. The Company had approximately $1,953,000 available under the modified
line of credit at November 27, 1999.
On July 31, 1997, the Company entered into a financing arrangement under
which it financed $6,000,000 of laboratory and office renovations at its
primary Street facility. The principal amount of the loan will be repaid over
48 consecutive months commencing on July 1, 1998. The interest rates range
from 7.19% to 8.16%. The Company is required to maintain certain financial
ratios pertaining to minimum cash balances, debt to net worth and tangible
net worth. The Company has no additional availability under this financing
arrangement at November 27, 1999.
The Company has entered into other capital lease line arrangements under
which it financed approximately $9,725,000 of certain laboratory, computer and
office equipment. These leases are
7
<PAGE>
payable in 36 monthly installments. The interest rates range from 7.52% to
10.29%. The Company is required to maintain certain financial ratios pertaining
to minimum cash balances, tangible net worth, debt to tangible net worth and
debt service coverage. The Company has no borrowing capacity under these capital
lease agreements at November 27, 1999.
8. COLLABORATIVE AGREEMENTS
(a) ASTRA
In 1995, the Company entered into a collaboration agreement with
AstraZeneca PLC ("Astra"), formerly Astra Hassle AB, to develop
pharmaceutical, vaccine, and diagnostic products effective against
gastrointestinal infections or any other disease caused by H. PYLORI. The
Company granted Astra exclusive access to the Company's H. PYLORI genomic
sequence database and exclusive worldwide rights to make, use and sell
products based on the Company's expertise working with H. PYLORI. The
agreement provided for a four-year research collaboration to further develop
and annotate the Company's H. PYLORI genomic sequence database, with the
objective of identifying therapeutic and vaccine targets and developing
appropriate biological assays. In August 1999, GTC's portion of the research
collaboration concluded and the program transitioned to Astra. The research
collaboration resulted in the identification and validation of a number of
targets by GTC. These targets, as well as screening assays, were delivered to
Astra for high-throughput drug candidate screening. The Company is entitled
to future milestone payments and royalties based upon successful development
of any products arising from the research collaboration.
Under this agreement, Astra agreed to pay the Company subject to the
achievement of certain product development milestones, up to approximately $23
million (and possibly a greater amount if more than one product is developed
under the agreement) in license fees, expense allowances, research funding and
milestone payments. The Company received approximately $13.5 million in license
fees, expense allowances, milestone payments and research funding under the
Astra agreement through November 27, 1999. Of such fees, $500,000 is creditable
against any future royalties payable to the Company by Astra under the
agreement.
The Company will also be entitled to receive royalties on Astra's sale of
products (i) protected by the claims of patents licensed exclusively to Astra by
the Company pursuant to the agreement, or (ii) the discovery of which was
enabled in a significant manner by the genomic database licensed to Astra by the
Company. The Company has the right, under certain circumstances, to convert
Astra's license to a nonexclusive license in the event Astra is not actively
pursuing commercialization of the technology.
For the 13 week periods ended November 27, 1999 and November 28, 1998, the
Company recorded revenue of $13,000 and $251,000, respectively, under this
agreement, which consisted of sponsored research funding.
(b) SCHERING-PLOUGH
In December 1995, the Company entered into a collaboration and license
agreement with Schering Corporation and Schering-Plough Ltd. (collectively
"Schering-Plough") providing for the use by Schering-Plough of the genomic
sequence of STAPHYLOCOCCUS AUREUS to identify new gene targets for development
of antibiotics effective against drug-resistant infectious organisms. As part of
this agreement, the Company granted Schering-Plough exclusive access to the
Company's
8
<PAGE>
proprietary S. AUREUS genomic sequence database. The Company also granted
Schering-Plough a nonexclusive license to use the Company's bioinformatics
systems for Schering-Plough's internal use in connection with the genomic
databases licensed to Schering-Plough under the agreement and other genomic
databases Schering-Plough develops or acquires. The Company also agreed to
undertake certain research efforts to identify bacteria-specific genes essential
to microbial survival and to develop biological assays to be used by
Schering-Plough in screening natural product and compound libraries to identify
antibiotics with new mechanisms of action.
Under this agreement, Schering-Plough agreed to pay an initial license fee
and fund a research program for a minimum of two-and-a-half years with an option
to extend. On March 4, 1998, Schering-Plough elected to extend the research
program to the full term of the agreement which expires on March 31, 2000. Under
the agreement as extended, Schering-Plough has agreed to pay the Company a
minimum of $18.5 million in an up-front license fee, research funding and
milestone payments. Subject to the achievement of additional product development
milestones, Schering-Plough has agreed to pay the Company up to an additional
$24 million in milestone payments.
The agreement grants Schering-Plough exclusive worldwide rights to make, use
and sell pharmaceutical and vaccine products based on the genomic sequence
databases licensed to Schering-Plough by the Company and on the technology
developed in the course of the research program. The Company has also granted
Schering-Plough a right of first negotiation if during the term of the research
plan the Company desires to enter into a collaboration with a third party with
respect to the development or sale of any compounds that are targeted against,
as their primary indication, the pathogen that is the principal subject of the
Company's agreement with Schering-Plough. The Company will be entitled to
receive royalties on Schering-Plough's sale of therapeutic products and vaccines
developed using the technology licensed from the Company. Subject to certain
limitations, the Company retained the rights to make, use and sell diagnostic
products developed based on the Company's genomic database licensed to
Schering-Plough or the technology developed in the course of the research
program.
For the 13 week periods ended November 27, 1999 and November 28, 1998, the
Company recorded revenue of $587,000 and $711,000, respectively, under this
agreement, which consisted of sponsored research funding.
In December 1996, the Company entered into its second research collaboration
and license agreement with Schering-Plough. This agreement calls for the use of
genomics to discover new therapeutics for treating asthma. As part of the
agreement, the Company will employ its high-throughput positional cloning,
bioinformatics, and genomics sequencing capabilities to identify genes and
associated proteins that can be utilized by Schering-Plough to develop new
pharmaceuticals. Under this agreement, the Company has granted Schering-Plough
exclusive access to (i) certain gene sequence databases made available under
this research program, (ii) information made available to the Company under
certain third-party research agreements, (iii) an exclusive worldwide right and
license to make, use and sell pharmaceutical and vaccine products based on the
rights to develop and commercialize diagnostic products that may result from
this collaboration.
Under this agreement, Schering-Plough agreed to pay an initial license fee
and an expense allowance to the Company. Schering-Plough is also required to
fund a research program for a minimum number of years with an option to extend.
In July 1998, Schering-Plough amended the original agreement in order to
accelerate the research effort being undertaken. In addition, upon completion of
certain scientific developments, Schering-Plough will make milestone payments to
9
<PAGE>
the Company, as well as pay royalties to the Company based on sales of
therapeutics products developed from this collaboration. If all milestones are
met and the research program continues for its full term, total payments to the
Company will approximate $68 million, excluding royalties. Of the total
potential payments, approximately $23.5 million represents license fees and
research payments, and $44.5 million represents milestone payments based on
achievement of research and product development milestones.
Under this second agreement, the Company has recognized $1,439,000 and
$1,944,000 in revenue for the 13 week periods ended November 27, 1999 and
November 28, 1998, respectively, which consisted of a sponsored research funding
and subcontract activity.
On September 24, 1997, the Company entered into a third research
collaboration and license agreement with Schering-Plough to use genomics to
discover and develop new pharmaceutical products to treat fungal infection.
Under the agreement, the Company will employ its bioinformatics,
high-throughput sequencing and functional genomics capabilities to identify and
validate genes and associated proteins as drug discovery targets that can be
utilized by Schering-Plough to develop novel antifungal treatments.
Schering-Plough will receive exclusive access to the genomic information
developed in the collaboration related to two fungal pathogens, CANDIDA ALBICANS
and ASPERGILLUS FUMIGATUS. Schering-Plough will also receive exclusive worldwide
right to make, use and sell products based on the technology developed in the
course of the research program. In return, Schering-Plough has agreed to fund a
research program for two-and-a-half years with an option to extend. In December
1999, Schering-Plough elected to extend the research program to the full term of
the agreement which expires on September 23, 2001. Subject to the achievement of
certain scientific milestones, total payments to the Company will approximate
$34 million, excluding royalties. Of the total potential payments, approximately
$11 million represents license fees and research payments and $23 million
represents milestone payments based on achievement of research and product
development milestones. Additionally, the Company entered into a subscription
agreement with Schering-Plough to provide Schering-Plough with nonexclusive
access to the Company's PathoGenome-TM- database (see Note 9).
For the 13 week period ended November 27, 1999, the Company recorded revenue
of $1,654,000 under this third agreement, which consisted of sponsored research
funding and a milestone payment. For the 13 week period ended November 28, 1998,
the Company recorded revenue of $689,000 under this agreement, which consisted
of sponsored research funding.
(c) NATIONAL HUMAN GENOME RESEARCH INSTITUTE
In July 1999, the Company was named as one of the nationally funded DNA
sequencing centers of the international Human Genome Project. The Company will
participate in an international consortium in a full scale effort to sequence
the human genome. The Company is entitled to receive research and development
funding from the National Human Genome Research Institute ("NHGRI") of up to
$15.6 million over a three year period of which $5 million will be received over
the initial 12 months as the Company performs research under the project. For
the 13 week period ended November 27, 1999, the Company recorded revenue of
$912,000 in connection with the international Human Genome Project.
10
<PAGE>
(d) MOUSE GENOME SEQUENCING NETWORK
In October 1999, the NHGRI named the Company as a pilot center to the Mouse
Genome Sequencing Network. The Mouse Genome Sequencing Network will be composed
of several facilities that will be responsible for deciphering the genetic
makeup of the mouse. The Company is entitled to receive $12.9 million in funding
over the next three years with respect to this agreement of which the Company
will receive $2.4 million during the first fiscal period, which ends April 30,
2000 as the Company performs research under the project. For the 13 week period
ended November 27, 1999, the Company recorded revenue of $51,000 in connection
with the Mouse Genome Project.
(e) bioMerieux ALLIANCE
In September 1999, the Company entered into a strategic alliance with
bioMerieux to develop, manufacture and sell IN VITRO diagnostic products for
human clinical and industrial applications. As part of the alliance,
bioMerieux purchased a subscription to the Company's PathoGenome-TM-
database, agreed to fund a research program for at least four years and pay
royalties on future products. In addition, bioMerieux purchased $3.75 million
of the Company's common stock at $5.53 per share. The total amount of
guaranteed research and development funding and PathoGenome-TM- database
subscription for the first year, and the proceeds from the sale of the common
stock, approximates $6.2 million. The research and development funding will
be recognized ratably over the four year term of the agreement. For the 13
week period ended November 27, 1999, the Company recorded revenue of $89,000
under this agreement.
(9) DATABASE SUBSCRIPTIONS
The Company has entered into PathoGenome-TM- database subscriptions with
Bayer AG, Bristol-Meyers Squibbs, Scriptgen Pharmaceuticals, Inc.,
Schering-Plough, Hoechst Marion Roussel and bioMerieux. The
database subscription provides nonexclusive access to the Company's genome
sequence database, PathoGenome-TM- and associated information relating to
microbial organisms. The subscription agreement calls for the Company to provide
periodic data updates, analysis tools and software support. Under the
subscription agreements, the customer has agreed to pay an annual subscription
fee and royalties on any molecules developed as a result of access to the
information provided by PathoGenome-TM- database. The Company retains all rights
associated with protein therapeutic, diagnostic and vaccine use of bacterial
genes or gene products.
The Company has recognized $1,063,000 and $1,242,000 in revenue under these
subscription agreements for the 13 week periods ended November 27, 1999 and
November 28, 1998, respectively.
(10) SUBSEQUENT EVENT
In December 1999, the Company entered into a strategic alliance with
Wyeth-Ayerst Laboratories to develop novel therapeutics for the prevention and
treatment of osteoporosis. The alliance will focus on developing therapeutics
utilizing targets based on the characterization of a gene associated with a
unique high bone mass trait.
The agreement calls for the Company to employ its established capabilities
in positional cloning, bioinformatics and functional genomics in conjunction
with Wyeth-Ayrst's drug discovery capabilities and its expertise in bone biology
and the osteoporotic disease process to develop new
11
<PAGE>
pharmaceuticals. Under the terms of the agreement, Wyeth-Ayerst will pay the
Company an up-front license fee, fund a multi-year research program, make
milestone payments and pay royalties on sales of therapeutics products developed
from this collaboration. If the research program continues for its full term and
substantially all of the milestone payments are met, total payments to the
Company, excluding royalties, would exceed $118 million.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Genome Therapeutics Corp. ("GTC" or the "Company") is a leader in the field
of genomics-based drug target discovery -- the identification and functional
characterization of genes associated with infectious and human diseases. The
Company has over ten years of experience in genomic research. Having served as
one of the initial research institutions under genome programs sponsored by the
United States government, GTC has developed numerous techniques and tools that
are widely used in the field of genomics. GTC's commercial strategy capitalizes
on its pioneering work in genomics by applying its integrated platform
technologies of high-throughput sequencing, bioinformatics, disease gene
identification, and functional genomics to identify and validate novel drug
targets. The two areas of scientific focus are the discovery and
characterization of novel targets in (i) pathogens that are responsible for many
serious diseases and (ii) human diseases. The Company believes that its genomic
discoveries will lead to the development of novel therapeutics, vaccines, and
diagnostic products by it and its strategic partners. The Company has several
corporate collaborations in connection with its infectious disease and human
disease gene discovery programs.
The Company does not anticipate revenues on a sustained basis until such
time that therapeutic, vaccine and diagnostic products based on the Company's
research efforts are commercialized, if at all. The Company's product
development strategy is to form collaborations with pharmaceutical and
biotechnology companies accessing drug discovery and clinical development
capabilities that currently do not exist at the Company. In the pharmaceutical
alliances, the Company generates revenues from license fees, sponsored research
and milestone payments during the term of the collaboration. Once a product
resulting from the research collaboration is commercialized, the Company is
entitled to receive royalty payments based upon product revenues. Additionally,
the Company sells non-exclusive licenses to access its proprietary
PathoGenome-TM- database. The sale of this database generates subscription
revenue over the term of the subscription with the potential for royalty
payments to the Company from future product sales. The expectations of these
collaborations are to result in the discovery and commercialization of novel
therapeutics, vaccines, and diagnostics. In order for a product to be
commercialized based on the Company's research, it will be necessary for the
collaborators to conduct preclinical tests and clinical trials, obtain
regulatory clearances, manufacture, sell, and distribute the product.
Accordingly, the Company does not expect to receive royalties based upon product
revenues for many years. Additionally, the Company sells, as a contract service
business, its core competency in providing high quality genomic sequencing
information to pharmaceutical companies, governmental agencies, and academic
institutions.
The Company's primary sources of revenue are collaborative agreements
with pharmaceutical company partners, subscription agreements to the
Company's PathoGenome-TM- database and government research grants and
contracts. As of January 2000, the Company has six collaborative research
agreements and has sold six subscriptions to its PathoGenome-TM- database.
The Company entered into a corporate collaboration with AstraZeneca PLC,
formerly Astra Hassle AB, ("Astra") to develop pharmaceutical, vaccine and
diagnostic products effective against gastrointestinal infections or any
other disease caused by H. PYLORI. In August 1999, the Company's portion of
the research collaboration concluded and the program transitioned to Astra.
The Company is entitled to receive additional milestone payments and
royalties based upon the development by Astra of any products from the
research collaboration. The
13
<PAGE>
Company entered into a corporate collaboration with Schering Corporation and
Schering-Plough, Ltd. (collectively, "Schering-Plough") in December 1995
providing for the use by Schering-Plough of the Company's S. AUREUS genomic
database to identify new gene targets for the development of novel antibiotics.
In December 1996, the Company entered into its second research collaboration
with Schering-Plough to identify genes and associated proteins that can be
utilized by Schering-Plough to develop new pharmaceuticals for treating asthma.
In September 1997, the Company established its third research collaboration with
Schering-Plough to use genomics to discover and develop new pharmaceutical
products to treat fungal infections. In September 1999, the Company entered into
a strategic alliance with bioMerieux to develop, manufacture and sell IN VITRO
pathogen diagnostic products for human clinical and industrial applications. As
part of the collaboration, bioMerieux has purchased a subscription to the
Company's PathoGenome-TM- database and made an equity investment. In December
1999, the Company entered into strategic alliance with Wyeth-Ayerst Laboratories
to develop, novel therapeutics for the prevention and treatment of osteoporosis.
The alliance will focus on developing therapeutics utilizing targets based on
the characterization of a gene associated with a unique high bone mass trait.
In May 1997, the Company introduced its proprietary PathoGenome-TM- database
and sold its first subscription. Since that date, the Company has sold five
additional subscriptions. Under these agreements, the subscribers received a
non-exclusive license to access the Company's PathoGenome-TM- database and
associated information relating to microbial organisms.
Since 1989, the Company has been awarded a number of research grants and
contracts by various agencies of the United States government related to the
government genomics programs. The scope of the research covered by grants and
contracts encompasses technology development, sequencing production, technology
automation, and disease gene identification. These programs strengthen the
Company's genomics technology base and enhance the expertise of its scientific
personnel. In July 1999, the Company was named as one of the nationally funded
DNA sequencing centers of the international Human Genome Project. The Company
will participate in an international consortium in a full-scale effort to
sequence the human genome. The Company will receive funding from the National
Human Genome Research Institute (NHGRI) of up to $15.6 million over a three-year
period of which $5 million is guaranteed over the initial twelve months. In
October 1999, the Company was named as one of the pilot centers in the Mouse
Genome Sequencing Network. The Company will participate in deciphering the
genetic makeup of the mouse. The Company will receive funding from the NHGRI of
up to $12.9 million over a three-year period of which $2.4 million is guaranteed
over the initial seven months. These programs are subject to annual
appropriations by the government based upon the availability of government funds
and the achievement by the Company of certain scientific milestones.
The Company has incurred significant losses, since inception, with an
accumulated deficit of approximately $66,819,000 at November 27, 1999. The
Company's results of operations have fluctuated from period to period and may
continue to fluctuate in the future based upon the timing and composition of
funding under existing and new collaborative agreements and government research
grants and contracts. The Company is subject to risks common to companies in its
industry including unproven technology and business strategy, availability of,
and competition for, family resources, reliance upon collaborative partners and
others, history of operating losses, need for future capital, competition,
patent and proprietary rights, dependence on key personnel, uncertainty of
regulatory approval, uncertainty of pharmaceutical pricing, healthcare reform
and related matters, product liability exposure, and volatility of the Company's
stock price.
14
<PAGE>
RESULTS OF OPERATIONS
THIRTEEN WEEK PERIOD ENDED NOVEMBER 27, 1999 AND NOVEMBER 28 , 1998
REVENUE
Contract research, licenses, and subscription fees increased 18% to
$6,035,000 for the 13 week period ended November 27, 1999 from $5,110,000 for
the 13 week period ended November 28, 1998 due primarily to revenue earned
under the Company's government research grant with the National Human Genome
Research Institute (NHGRI) to participate in the international Human Genome
Project, as well as a milestone payment received this quarter under the
Company's antifungal collaboration with Schering-Plough.
COSTS AND EXPENSES
Total costs and expenses decreased 18% to $6,311,000 for the 13 week
period ended November 27, 1999 from $7,724,000 for the 13 week period ended
November 28, 1998. Research and development expense, which includes
company-sponsored research and development, and research funded pursuant to
arrangements with the Company's corporate collaborators and government
agencies, decreased by 22% to $5,341,000 for the 13 week period ended
November 27, 1999 from $6,813,000 for the 13 week period ended November 28,
1998. The reduction in research and development expenses was primarily
attributable to the Company's decision to focus its investment in selected
internally funded programs, specifically in the area of microbial genetics
and pharmacogenomics. The reduction consisted primarily of decreases in
payroll and related expenses, laboratory supplies and overhead expenses.
Selling, general and administrative expenses increased by 6% to $970,000
for the 13 week period ended November 27, 1999 from $911,000 for the 13 week
period ended November 28, 1998. The increase in selling, general and
administrative expenses was primarily due to an increase in compensation
expense associated with the Company's restricted stock plan.
INTEREST INCOME AND EXPENSE
Interest income decreased 12% to $364,000 for the 13 week period ended
November 27, 1999 from $412,000 for the 13 week period ended November 28, 1998
reflecting a decrease in funds available for investment during as a result of
cash being utilized to fund the Company's operations.
Interest expense decreased 23% to $209,000 for the 13 week period ended
November 27, 1999 from $270,000 for the 13 week period ended November 28, 1998.
The decrease in interest expense was attributable to the decrease in the
Company's outstanding balances under long-term obligations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash have been revenue from collaborative
research
15
<PAGE>
agreements and subscription fees, revenue from government grants and contract,
borrowings under equipment lending facilities and capital leases and proceeds
from sale of equity securities.
As of November 27, 1999, the Company had cash, cash equivalents,
restricted cash and long and short-term marketable securities of
approximately $30,309,000. The Company has various arrangements under which
it can finance certain office and laboratory equipment and leasehold
improvements. At November 27, 1999, the Company had approximately $1,953,000
available under these arrangements for future borrowings. At November 27,
1999, the Company had an aggregate of approximately $9,418,000 outstanding
under its borrowing arrangements which is repayable over the next 36 months,
of which $4,064,000 is repayable within the next 12 months. Under these
arrangements, the Company is required to maintain certain financial ratios,
including minimum levels of tangible net worth, total indebtedness to
tangible net worth, minimum cash level, debt service coverage and minimum
restricted cash balances.
The Company's operating activities provided cash of approximately
$3,873,000 for the 13 week periods ended November 27, 1999 due to an increase
in deferred revenue, accounts payable and accrued expenses. The increase in
accounts payable reflects the purchase of laboratory equipment which will
eventually be financed through the Company's existing or new equipment
financing arrangements. The increase in deferred revenue represents cash
received under the bioMerieux alliance prior to revenue recognition. The
Company's operating activities provided cash of approximately $702,000 for
the 13 week periods ended November 28, 1998, due to an increase in deferred
revenue and accrued expenses, partially offset by cash used to fund the
Company's operations.
For the 13 week periods ending November 27, 1999 and November 28, 1998, the
Company's investing activities provided cash of approximately $3,398,000 and
$2,584,000, respectively, through the conversion of its marketable securities to
cash and cash equivalents, partially offset by the purchase of laboratory and
computer equipment.
Capital expenditures, including property and equipment acquired under capital
leases, totaled $2,025,000 for the 13 week period ended November 27, 1999
consisting primarily of laboratory, and computer equipment. The Company
currently estimates that it will acquire an additional $1,300,000 in capital
equipment in fiscal 2000 consisting primarily of computer and laboratory
equipment which it intends to finance under existing and new equipment financing
arrangements, yet to be negotiated. The Company is currently in discussions with
several potential sources of equipment financing.
The Company's financing activities provided cash of approximately
$3,018,000 for the 13 week period ended November 27, 1999 primarily from the
sale of equity securities, exercise of stock options, net of payments of
long-term obligations. Financing activities used cash of approximately
$1,264,000 for the 13 week period ended November 28, 1998 primarily for
payments of long-term obligations.
At August 31, 1999, the Company had net operating loss and tax credits
(investment and research) carryforwards of approximately $63,785,000 and
$3,137,000, respectively, available to reduce federal taxable income and federal
income taxes, respectively, if any. Net operating loss carryforwards and credits
are subject to review and possible adjustment by the Internal Revenue Service
and may be limited in the event of certain cumulative changes in ownership
interests of significant shareholders over a three-year period in excess of
50%. Additionally, certain of these losses are expiring due to the limitation
of the carryforward period.
The Company believes that its existing capital resources are adequate to
meet its cash requirements for approximately two years under its current rate of
investment in research and
16
<PAGE>
development. There is no assurance, however, that changes in the Company's plans
or events affecting the Company's operations will not result in accelerated or
unexpected expenditures.
The Company may seek additional funding through public or private financing
and expects additional funding through collaborative or other arrangements with
corporate partners. There can be no assurance, however, that additional
financing will be available from any of these sources or will be available on
terms acceptable to the Company.
The Company does not use derivative financial instruments in its investment
portfolio. The Company places its investments in instruments that meet high
credit quality standards, as specified in the Company's investment policy
guidelines; the policy also limits the amount of credit exposure to any one
issue, issuer, and type of instrument. The Company does not expect any material
loss with respect to its investment portfolio.
IMPACT OF YEAR 2000
Many currently installed computer systems and software applications are
designed to accept only two-digit entries in the date code field used to
identify years. These date code fields require modification to recognize
twenty-first century years. As a result, computer systems and software
applications used by many companies may need to be upgraded to comply with the
Year 2000 requirements. There is some uncertainty concerning the potential
effects of failure to comply with all such requirements.
The Company had performed an extensive inventory and testing of its
electronic equipment, computer systems, software applications, and genomic
database storage and retrieval systems used both internally and sold to its
customers, to identify which systems may be impacted by Year 2000. The Company
formed a Y2K Task Force with coordinators from every department, which
identified the Company's mission-critical systems. The Company completed its
assessment and developed a comprehensive compliance program, using internal and
external resources to address Year 2000 issues. The compliance program
incorporated best practices from such sources as the General Services
Administration and the Government Accounting Office (see www.y2k.gov). The
program included an evaluation and testing of its internally developed operating
systems and internally used financial and administration systems. Externally,
the program had solicited compliance certificates from third-party software and
equipment vendors as well as statements of readiness from major suppliers. The
Company had developed a contingency plan for critical aspects for its systems
and operations to address problems that may arise despite our Year 2000
compliance efforts.
As of January 7, 2000, the Company had not detected any system failures
or issues related to the Year 2000 changeover. The Company will continue to
monitor the performance of its electronic systems as well as its major
suppliers to ensure that its operations will not be impacted by Year 2000
issues. The Company has incurred approximately $475,000 to date on the year
2000 initiative, which consists of $450,000 in fiscal 1999 and $25,000 in
fiscal 2000. The Company anticipates no further expenditures related to Y2K
unless significant problems occur.
Statements in this Form 10K that are not strictly historical are "forward
looking" statements as defined in the Private Securities Litigation Reform Act
of 1995. The actual results may differ from those projected in the forward
looking statement due to risks and uncertainties that exist in the Company's
operations and business environment.
17
<PAGE>
PART II
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS:
10.47 Collaboration and License Agreement between the Company and
bioMerieux, Incorporated, dated September 30, 1999*
b) REPORTS ON FORM 8-K
None.
- ---------------------
* Confidential treatment requested with respect to a portion of this exhibit.
18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized who also serves in the capacity of principal financial
officer.
Genome Therapeutics Corp.
/s/ Philip V. Holberton
---------------------------
Philip V. Holberton
(Principal Financial Officer)
Date: January 11, 1999
19
<PAGE>
Exhibit 10.47
COLLABORATION AND LICENSE AGREEMENT
between
GENOME THERAPEUTICS CORPORATION
and
BIOMERIEUX INCORPORATED
dated as of September 30, 1999
<PAGE>
COLLABORATION AND LICENSE AGREEMENT
THIS COLLABORATION AND LICENSE AGREEMENT (the "Agreement") is dated as of
September 30, 1999 and is made by and among GENOME THERAPEUTICS CORPORATION, a
Massachusetts corporation having its principal place of business at 100 Beaver
Street, Waltham, Massachusetts 02453 U.S.A. ("GTC"), and BIOMERIEUX
INCORPORATED, a corporation organized under the laws of the state of Missouri
having its principal place of business at 595 Anglum Drive, Hazelwood, Missouri
63042-2395 U.S.A. (together with its Affiliates, "BMI"). GTC and BMI are
sometimes referred to herein individually as a party and collectively as the
parties.
R E C I T A L S
WHEREAS, GTC has compiled and is compiling a PathoGenome-TM- Database
containing certain genomic sequence information and has compiled and is
compiling additional pathogen genomic sequence information;
WHEREAS, GTC has expertise in molecular biology, high-throughput
sequencing microarrays and the development and utilization of the software tools
necessary to assemble, annotate, process, search, manipulate and analyze the
genomic sequence information it generates in its research programs (GTC's
"bioinformatics" capability);
WHEREAS, BMI is the leader in pathogen diagnostics and a pioneer in
molecular diagnostics and is interested in obtaining access to GTC's pathogen
sequence information and microarrays, high-throughput sequencing, bioinformatics
capability and subtractive cloning techniques by entering into a collaboration
with GTC to identify and validate targets for pathogens for the development,
manufacture and sale of IN VITRO diagnostics; and
WHEREAS, GTC is willing to grant BMI such access and enter into such a
collaboration upon the terms and conditions set forth below;
NOW THEREFORE, in consideration of the premises and of the covenants herein
contained, the parties hereto mutually agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the terms defined in this Article 1 shall have
the meanings specified below:
1.1 "AFFILIATE" shall mean any corporation or other entity which
directly or indirectly controls, is controlled by or is under common control
with a party to this Agreement. A corporation or other entity shall be regarded
as in control of another corporation or entity if it owns or directly or
indirectly controls more than forty-nine percent (49%) of the outstanding voting
stock or other ownership interest of the other corporation or entity, or if it
possesses,
* Confidential Treatment Requested
1
<PAGE>
directly or indirectly, the power to manage, direct or cause the direction of
the management and policies of the corporation or other entity or the power to
elect or appoint forty-nine percent (49%) or more of the members of the
governing body of the corporation or other entity. Any such other relationship
as in fact results in actual control over the management, business and affairs
of a corporation or other entity shall also be deemed to constitute control.
1.2 "ANNUAL RESEARCH PROGRAM" shall have the meaning set forth in
Section 4.5.2 hereof.
1.3 "BLOCKING INVENTION" shall have the meaning set forth in Section 3.2.3.
hereof.
1.4 "BMI FIELD" shall mean the field of IN VITRO pathogen diagnostics,
including any human clinical and any industrial applications (e.g. food and
cosmetics). It is understood that the BMI Field is included within the GTC
PathoGenome-TM- Field.
1.5 "BMI PRODUCT" shall mean any product used within the BMI Field which
(i) *...* or (ii) *...*. BMI Products shall include BMI Multi-Target Products as
described in Section 6.5.3(i) hereunder.
1.6 "BMI BLOCKBUSTER PRODUCT" shall mean any BMI Product which: (i) *...*
and (ii) exceeds Net Sales of *...* United States dollars ($*...*) during the
*...* year following the First Commercial Sale of such BMI Product. For the
purpose of the present paragraph, year shall be deemed to mean the twelve (12)
month period commencing on the first day of the calendar year quarter following
the First Commercial Sale and every subsequent twelve (12) month period
thereafter. For the sake of clarity, the two (2) conditions mentioned in the
present paragraph are cumulative.
1.7 "BMI TECHNOLOGY" shall mean and include all proprietary materials,
procedures, processes, technical information, know-how, data, formulas,
expertise and trade secrets discovered or developed solely by BMI prior to or
during the course of, but outside of, the Research Collaboration and owned or
controlled by BMI.
1.8 "CONTRACT YEAR" shall mean each twelve (12) month period starting on
(i) the Effective Date in the case of the first Contract Year and (ii) the
anniversary of the Effective Date for each subsequent Contract Year.
1.9 "EFFECTIVE DATE" shall have the meaning set forth in Section 2.1.
1.10 "FIRST COMMERCIAL SALE" of a GTC Product or BMI Product shall mean the
first for profit sale of a GTC Product or BMI Product.
1.11 "GTC DNA SEQUENCE PATENT RIGHTS" shall mean (a) the United States
and/or foreign patent applications filed covering the DNA sequences in the GTC
PathoGenome-TM- Database or other proprietary DNA sequences of GTC (including
components thereof) excluding, for the sake of clarity, the sequences contained
in the Research Collaboration Database, (b) any United States patents and/or
foreign patents issuing from such patent
* Confidential Treatment Requested
2
<PAGE>
applications and (c) any continuations, continuations-in-part directed to
subject matter specifically described in such patent applications, divisionals,
patents of addition, renewals, registrations, confirmations, reexaminations,
reissues, extensions or provisional applications of any of the foregoing.
1.12 "GTC PATHOGENOME-TM- FIELD" shall mean the development, use,
manufacture, marketing, importing or sale of products consisting of or
incorporating a gene, a partial gene or a fragment thereof, or a protein (or
protein fragment) encoded thereby, identified or characterized, in whole or in
part, utilizing GTC PathoGenome-TM- Proprietary Information, including, without
limitation, gene therapy, vaccine, antisense, and diagnostic products containing
such gene or protein or portions thereof, but *...*.
1.13 "GTC PATHOGENOME-TM- PROPRIETARY INFORMATION" shall mean any sequence
information, annotations and other information contained in the GTC
PathoGenome-TM- Database which was not, prior to the commencement of any BMI
Product development utilizing such information: (i) developed independently by
BMI or otherwise lawfully available to BMI (which BMI can demonstrate by written
evidence) or (ii) in the public domain.
1.14 "GTC TECHNOLOGY" shall mean and include all proprietary materials
(excluding GTC Products developed by GTC), procedures, processes, technical
information, know-how, data, formulae, expertise and trade secrets discovered or
developed solely by GTC prior to or during the course of, but outside of, the
Research Collaboration and owned or controlled by GTC, excluding, however, the
Research Collaboration Database, the Research Collaboration Software and GTC's
sequencing and microarray technology and the procedures, processes, technical
information, know-how, data, formulae, expertise and trade secrets related
thereto.
1.15 "GTC PATHOGENOME-TM- DATABASE" shall mean the database currently
known as the GTC PathoGenome-TM- Database, as may be updated from time to time,
consisting of genome sequence, annotations and associated information relating
to microbial, fungal or other organisms, which information may consist of either
information developed by GTC or information in the public domain, as more fully
described in EXHIBIT B hereto.
1.16 "GTC PATHOGENOME-TM- DATABASE SOFTWARE" shall mean software and
components thereof and any associated documentation, whether existing on the
date of this Agreement or developed by GTC during the Research Collaboration,
which is owned or controlled by, or licensed (with the right to sublicense) to
GTC, and which is necessary or useful to pursue searches in the GTC
PathoGenome-TM- Database and/or to interpret, manipulate or analyze the data
contained in the GTC PathoGenome-TM- Database. GTC PathoGenome-TM- Database
Software shall not include any Third Party software that BMI has independently
of GTC licensed from a Third Party.
1.17 "GTC PRODUCT" shall mean any product, other than a BMI Product, that
contains a component whose discovery or development was made by any direct or
indirect use of the Results.
1.18 "LICENSED SOFTWARE" shall mean the Research Collaboration Software and
the GTC PathoGenome-TM- Database Software.
* Confidential Treatment Requested
3
<PAGE>
1.19 "MATERIAL DEFAULT" shall have the meaning set forth in Section 11.2.1
hereof.
1.20 "NET SALES" shall mean, with respect to BMI and its sublicensees, the
gross invoice price of BMI Products billed by BMI and its sublicensees to Third
Party customers less the following included in the invoiced price:
(a) *...* per cent of the invoiced price as an average
reasonable factor for all deductible costs attributable to such sales.
These deductible costs include, but are not limited to: customs and cash
discounts, trade discounts or quantity discounts; allowances or credits to
customers on account of settlement of complaints; returns or retroactive
price reductions, freight costs, insurance, excise taxes, and duties
imposed upon the BMI Products.
(b) any sales taxes (e.g. VAT) appearing on the Third Party
customer's invoice.
(c) an amount equal to an increase in the gross selling price of
the BMI Products to cover the costs *...*. GTC may, at its discretion,
appoint an independent certified public accountant to carry out an audit at
BMI *...*.
GTC and BMI will determine a mutually agreeable method of calculation
so that a fair and reasonable portion of the aggregate purchase price
is allocated to the BMI Product(s) included in either of the following
transactions:
(a) a sale by BMI or its permitted sublicensees of BMI Products
pursuant to an agreement with an independent customer specifying, for a
combination of products, a single price where other terms of purchase do
not separately identify either a price per product or any given deductions
per product; or
(b) a sale by BMI or its permitted sublicensees of BMI Products
pursuant to an agreement with an independent customer specifying, for a
combination of products, a unit price that is discounted below BMI's or its
permitted sublicensee's standard invoice price per unit of the BMI Product
by at least *...* percentage points more than the amount that any other
product or service included in the arrangement is discounted below such
other product's standard invoice price.
"Net Sales" shall mean, with respect to GTC, its Affiliates and
sublicensees, the gross invoice price of GTC Products billed by GTC, its
Affiliates and sublicensees to Third Party customers less the following included
in the invoiced price:
(a) *...* per cent of the invoiced price as an average
reasonable factor for all deductible costs attributable to such sales.
These deductible costs include, but are not limited to: customs and cash
discounts, trade discounts or quantity discounts; allowances or credits to
customers on account of settlement of complaints; returns or retroactive
price reductions, freight costs, insurance, excise taxes, and duties
imposed upon the GTC Products.
* Confidential Treatment Requested
4
<PAGE>
(b) any sales taxes (e.g. VAT) appearing on the Third Party
customer's invoice.
1.21 "PAYMENT DEFAULT" shall have the meaning set forth in Section 11.2.2
hereof.
1.22 "RESEARCH COLLABORATION" shall mean the work described in the
various Research Programs to be agreed upon by the Management Committee, as set
forth in Section 4.5.1, the aim of which is to carry out computational and
genetic analyses, sequencing and other laboratory work in relation to Targets
selected by BMI with a view to developing BMI Products.
1.23 "RESEARCH COLLABORATION DATABASE" shall mean the sequence database
containing all sequence information developed pursuant to the Research
Collaboration, such sequence information arising out of the use of either or
both, information in the GTC PathoGenome-TM- Database and information not
included in the GTC PathoGenome-TM- Database plus any and all electronic and
hard copy data related thereto.
1.24 "RESEARCH COLLABORATION SOFTWARE" shall mean software and components
thereof, and any associated documentation, whether existing on the date of this
Agreement or developed by GTC during the Research Collaboration, which is owned
or controlled by, or licensed (with the right to sublicense) to, GTC and which
is necessary or useful to pursue searches in the Research Collaboration Database
and/or to interpret or analyze the data contained in the Research Collaboration
Database, excluding, however, any software used in the creation of, as opposed
to providing access to and interpretation or analysis of, the Research
Collaboration Database.
1.25 "RESULTS" shall mean the Research Collaboration Database and the
DNA sequence information contained therein and all other scientific results,
patented or not, arising directly or indirectly from the activities of the
parties under the Research Collaboration.
1.26 "RESULTS PATENT RIGHTS" shall mean (a) the United States and/or
foreign patent applications filed covering Results, (b) any United States
patents and/or foreign patents issuing from such patent applications and (c) any
continuations, continuations-in-part directed to subject matter specifically
described in such patent applications, divisionals, patents of addition,
renewals, registrations, confirmations, reexaminations, reissues, extensions or
provisional applications of any of the foregoing.
1.27 "TARGET" shall mean any specific DNA sequence developed as a
diagnostic target under the Research Collaboration with a view to its use in the
development of a BMI Product.
1.28 "TERRITORY" shall mean the world.
1.29 "THIRD PARTY" shall mean any entity other than GTC or BMI and
their respective Affiliates.
* Confidential Treatment Requested
5
<PAGE>
1.30 "VALID CLAIM" shall mean a claim of a patent application or a
patent which has not been held permanently revoked, unenforceable or invalid by
a decision of a court or other governmental agency of competent jurisdiction,
and which is not subject to appeal.
ARTICLE 2
SCOPE AND STRUCTURE OF THE COLLABORATION
2.1 GENERAL; EFFECTIVENESS AND EFFECTIVE DATE. GTC and BMI wish to
establish a Research Collaboration as described herein. The Research
Collaboration shall commence on the earlier of (i) the adoption of the first
Research Program pursuant to Section 4.5.1 or (ii) *...* days after the date
hereof (the "Effective Date"). GTC and BMI will each countersign a notice
identifying the Effective Date promptly after the Effective Date is determined
pursuant to the preceding sentence. During the course of the Research
Collaboration, GTC and BMI shall communicate regularly and shall assume
different rights and responsibilities for the development of BMI Products, all
as more specifically described below. During the course of the Research
Collaboration, BMI shall be the exclusive partner of GTC in the BMI Field
subject to Section 2.2.
2.2 ACKNOWLEDGEMENT OF OTHER COLLABORATIONS. BMI acknowledges that GTC is
currently engaged in certain research collaborations with Third Parties and
intends to enter into additional research collaborations in the future. GTC
agrees that, during the term of the Research Collaboration, it will not enter
into any collaboration with any Third Party related to the discovery or
development of products in the BMI Field without the prior written approval of
BMI, which approval shall be given at its sole discretion, or except as
otherwise contemplated by this Agreement.*...*.
2.3 SUBSCRIPTION TO THE GTC PATHOGENOME-TM- DATABASE. BMI acknowledges that
GTC has compiled and is compiling a GTC PathoGenome-TM- Database containing
certain genomic sequence information and that GTC has granted and will continue
to grant non-exclusive rights of access to subscribers to the GTC
PathoGenome-TM- Database pursuant to PathoGenome-TM- license agreements. BMI
agrees that, as a part of this Agreement, it will become a subscriber to the GTC
PathoGenome-TM- Database.
2.4 RIGHT OF FIRST NEGOTIATION. In the event that GTC wishes to conduct
research internally, is approached by a Third Party to conduct research or
itself approaches a Third Party to conduct research, the primary focus of which
is *...* (the "Additional Research"), GTC recognizes that BMI may have an
interest in such Additional Research and shall therefore use its best efforts to
negotiate with the Third Party for the benefit of BMI, exclusive rights to use
the results of the Additional Research*...*, provided that, GTC shall not be
required by this sentence to use efforts in such negotiations to the extent that
such efforts would impair or hinder GTC's negotiations with such Third Party.
Presuming GTC is successful in its negotiations with such Third Party, BMI shall
have *...* days from receipt of written notice from GTC describing the scope of
the Additional Research to exercise an option (the "Option") on the exclusive
rights to use the results of the Additional Research *...*. In the event that
BMI exercises the Option pursuant to the preceding sentence, then BMI and GTC
shall negotiate in good faith for a period of not more than *...* days the
conditions of access to the exclusive rights to use the results of
* Confidential Treatment Requested
6
<PAGE>
the Additional Research within the BMI Field for the Territory. If, at the end
of such *...* day period, BMI and GTC have not reached agreement on the terms of
such exclusive rights, then GTC shall thereafter be free to conduct such
internal research or enter into an agreement with a Third Party regarding the
use of the results of the Additional Research *...*.
ARTICLE 3
LICENSE GRANTS; MARKETING RIGHTS
3.1 GRANT OF RIGHTS BY GTC TO BMI.
3.1.1 EXCLUSIVE GRANT FOR GTC DNA SEQUENCE PATENT RIGHTS AND GTC
PATHOGENOME-TM- DATABASE. Subject to the terms of this Agreement, GTC hereby
grants to BMI the exclusive, worldwide right and license under the GTC DNA
Sequence Patent Rights and, for the period of the Research Collaboration, as may
be extended pursuant to the terms hereof, exclusive access (except as described
in Section 2.2), without the right to permit Third Parties any right of access,
to the GTC PathoGenome-TM- Database to research, develop, use, manufacture, have
manufactured, market, promote, import, export, sell and have sold BMI Products.
The rights granted to BMI in this Subsection 3.1.1. with respect to the GTC DNA
Sequence Patent Rights shall survive the termination or expiration of the
Research Collaboration and continue for the entire term of this Agreement.
3.1.2. COPIES OF GTC PATHOGENOME-TM- DATABASE AND RESEARCH
COLLABORATION DATABASE. BMI may make copies of the GTC PathoGenome-TM- Database
and both parties may make copies of the Research Collaboration Database only to
the extent reasonably necessary to exercise their respective rights under this
Agreement, and both parties agree that all such copies will be treated as
Information, as defined in Section 8.1, and further agree to establish, and to
cause their Affiliates to establish, reasonable security measures to prevent
copies of the GTC PathoGenome-TM- Database or the Research Collaboration
Database from being made available to Third Parties.
3.1.3. LICENSING AND SUB-LICENSING. Without limiting the
generality of Article 7.1, and for the sake of clarity, BMI may grant
sublicenses and licenses, respectively, to the GTC PathoGenome-TM- Database and
Research Collaboration Database to any Third Party only for the purpose of
developing, manufacturing, marketing and selling BMI Products.
3.1.4 NON-EXCLUSIVE GRANT FOR GTC TECHNOLOGY AND LICENSED SOFTWARE.
Subject to the terms of this Agreement, GTC hereby grants to BMI (i) the
non-exclusive right and license to use the GTC Technology to research, develop,
use, manufacture, have manufactured, market, promote, import, export, sell and
have sold BMI Products and (ii) the non-exclusive right and license to use the
Licensed Software for the purpose of obtaining access to, pursuing searches in,
and/or interpreting or analyzing the data contained in the Research
Collaboration Database, the GTC PathoGenome-TM- Database and other genomic
databases which may be or become available to BMI. The rights granted to BMI in
this Subsection 3.1.4 shall, subject to provisions of Article 11 hereof, survive
the termination of the Research Collaboration, but only to the extent and for so
long as is necessary to continue the development, marketing, promotion, import,
export and sale of any BMI Product for which the development commenced
* Confidential Treatment Requested
7
<PAGE>
prior to the expiration or termination of the Research Collaboration. BMI's use
of the Licensed Software shall be subject to the following conditions:
(a) To the extent that the Licensed Software incorporates or
requires the use of software licensed by GTC from a Third Party as
described in EXHIBIT C, which may be amended by GTC from time to time, BMI
shall be responsible for obtaining any necessary license and paying all
fees and charges associated with BMI's use of any such software;
(b) BMI agrees to use the Licensed Software only for the
internal purposes of BMI in accordance with the terms and conditions of
this Agreement and not to use the Licensed Software for processing data for
Third Parties or to make the Licensed Software available to Third Parties;
(c) BMI agrees to make copies of the Licensed Software only to
the extent reasonably necessary for the exercise of its rights hereunder,
and that all such copies will be treated as confidential Information of GTC
and further agrees to establish reasonable security measures to prevent
copies of the Licensed Software from being made available to Third Parties;
(d) BMI agrees that it will not attempt to reverse engineer,
reverse compile or otherwise obtain access to the source code of the
Licensed Software without the prior written approval of GTC, which approval
shall be given at its sole discretion;
(e) BMI may install the Licensed Software in multiple sites in
accordance with Section 4.1.3(b) hereof, but BMI shall only be entitled to
receive support services from GTC at one single facility of BMI, as set
forth in Section 4.1.3(c) hereof; and
(f) BMI may itself, or through the services of a Third Party,
adapt or modify the Licensed Software (a "Modification"), PROVIDED THAT,
BMI shall cause any such Third Party to be bound by obligations of
confidentiality no less protective than the provisions hereof, and any
Modification may only be used and kept in confidence in the same manner as,
and shall be subject to the same terms and conditions as apply to, the
Licensed Software licensed to BMI hereunder. GTC shall have no obligation
to support any such Modification. GTC shall have no ownership interest in,
nor any rights to license, use or disclose, any such Modification developed
by or for BMI, all of which shall be owned by BMI. BMI shall not acquire by
reason of this Subsection (f) ownership of the Licensed Software or the GTC
PathoGenome-TM- Database or any portions thereof, or any rights to use or
disclose either of the foregoing other than as expressly set forth in this
Agreement.
3.1.5 SUBLICENSE OF RIGHTS LICENSED FROM OTHER SUBSCRIBERS TO THE GTC
PATHOGENOME-TM- DATABASE. Subject to the terms of this Agreement, GTC hereby
grants to BMI the exclusive right and license under its interest in all
inventions and under any patents covering such inventions in the BMI Field which
are licensed to GTC by any Third Party having access to
* Confidential Treatment Requested
8
<PAGE>
the GTC PathoGenome-TM- Database under terms in any license relating to the GTC
PathoGenome-TM- Database substantially similar to those set forth in
Section 3.2.3 hereof.
3.2 GRANT OF RIGHTS BY BMI TO GTC.
3.2.1 GRANT OF RIGHTS TO BMI TECHNOLOGY. Subject to the terms of this
Agreement, BMI hereby grants to GTC the *...* right and license to use the BMI
Technology *...*.
3.2.2 GRANT OF RIGHTS TO RESULTS. BMI hereby grants to GTC the *...*
right and license to use the Results and the Results Patent Rights to research,
develop, have developed, use, manufacture, promote, have promoted, import, have
imported, export, have exported, sell and have sold GTC Products *...*. The
rights granted pursuant to this Section shall include the right of GTC to grant
sublicenses subject to BMI's prior consent, which consent shall not be
unreasonably withheld.
3.2.3 NON-EXCLUSIVE LICENSE TO INVENTIONS OUTSIDE OF THE GTC
PATHOGENOME-TM- FIELD. GTC and BMI acknowledge that BMI may through use of the
GTC PathoGenome-TM- Database or the GTC PathoGenome-TM- Database Software make
inventions or be assigned joint inventions outside of the GTC PathoGenome-TM-
Field which block GTC, its Affiliates, sublicensees or Third Party subscribers
from using the GTC PathoGenome-TM- Database or the GTC PathoGenome-TM- Database
Software to the extent of the rights granted to other subscribers of the GTC
PathoGenome-TM- Database ("Blocking Inventions"). In order to prevent this
occurrence, BMI hereby grants GTC an irrevocable, non-exclusive, royalty-free
right and license outside of the GTC PathoGenome-TM- Field, with the right to
grant sublicenses under BMI's rights to Blocking Inventions and any patents
arising from patent applications filed on Blocking Inventions which are
required, and only to the extent required, to enable GTC, its Affiliates and
Third Party subscribers, to use the GTC PathoGenome-TM- Database and GTC
PathoGenome-TM- Database Software to research, develop and use products other
than BMI Products, including without limitation the right to develop and use
drug screening assays.
3.3 RESERVATION OF RIGHTS. In conformity with the rights granted to BMI
under this Article 3, GTC at all times reserves its rights to the *...* and the
right to use the same to research, develop, use, manufacture, have manufactured,
and sell *...* including the right to grant licenses with respect to any such
intellectual property rights for such purposes.
3.4 NO GRANT OF OTHER TECHNOLOGY OR PATENT RIGHTS. Except as otherwise
expressly provided in this Agreement, under no circumstances shall a party
hereto, as a result of this Agreement, obtain any ownership interest in or other
right to any technology, know-how, patents, patent applications, genomic
sequence data, products, or biological materials of the other party, including
items owned, controlled or developed by the other party, or transferred by the
other party to said party, at any time pursuant to this Agreement. Any
technology or know-how derived, developed or acquired by either party
independent of the Research Collaboration Database and/or the Research
Collaboration shall be the property of such party.
* Confidential Treatment Requested
9
<PAGE>
ARTICLE 4
CONDUCT OF THE RESEARCH COLLABORATION
4.1 OBLIGATION OF THE PARTIES.
4.1.1 DILIGENT RESEARCH EFFORTS. During the Research Collaboration and
thereafter, each of the parties agrees to use its respective diligent efforts to
perform its obligations under the Research Programs, each Annual Research
Program and this Agreement in a timely manner.
4.1.2 DELIVERY OF RESEARCH COLLABORATION DATABASE AND COLLABORATION
INFORMATION. During the term of the Research Collaboration, GTC will deliver to
BMI electronic and, upon mutual agreement of BMI and GTC, hard copies, of the
information contained in the Research Collaboration Database, as well as an
outline of the methodologies and procedures used to obtain data and to perform
sequence analysis, periodically as such information is developed pursuant to the
Research Collaboration.
4.1.3 DELIVERY, INSTALLATION AND USE OF THE GTC PATHOGENOME-TM-
DATABASE.
(a) DELIVERY AND INSTALLATION OF THE GTC PATHOGENOME-TM- DATABASE.
*...*, GTC shalldeliver to BMI electronic copies of the GTC PathoGenome-TM-
Database and associated GTC PathoGenome-TM- Database Software, in its most
current version as of the installation date. BMI must acquire at its own
expense the hardware and Third Party software identified in EXHIBIT C hereto
required in order to install and utilize the GTC PathoGenome-TM- Database
information provided in electronic format. GTC will work with BMI to install
the GTC PathoGenome-TM- Database and GTC PathoGenome-TM- Database Software
*...*. During the Research Collaboration, BMI shall have the *...* the GTC
PathoGenome-TM- Database is installed. However, BMI will pay GTC all costs
incurred by GTC associated with changing the installation site. Each party
shall notify the other party of the name of a Scientific Project Coordinator to
receive all scientific communications hereunder. In addition, each party shall
notify the other party of the name of an appropriately qualified System Support
Specialist to establish hardware requirements, facilitate software exchange,
and maintain communication links.
(b) ELECTRONIC TRANSMISSION OF SCIENTIFIC DATA AMONG MULTIPLE
SITES. BMI shall be entitled to install, maintain and transmit during the
Research Collaboration electronic copies of the GTC PathoGenome-TM- Database or
portions thereof, including the resident data and any updates thereto, on
computers maintained by BMI *...* PROVIDED, HOWEVER, that prior to any such
installation BMI shall inform GTC *...* and BMI shall agree to use security
measures no less rigorous than the security measures BMI uses to protect its own
confidential information from unauthorized access by Third Parties.
(c) TRAINING, ERROR CORRECTION AND SUPPORT SERVICES. During the
Research Collaboration, GTC will provide the training, support and error
correction services for the GTC PathoGenome-TM- Database described in
Sections IB, II and III of EXHIBIT D hereto. Such services shall be available
to BMI at a single facility, notwithstanding any installation or
* Confidential Treatment Requested
10
<PAGE>
transmission of the GTC PathoGenome-TM- Database by BMI to multiple facilities
as permitted by Section 4.1.3(b).
(d) MAINTENANCE OF THE GTC PATHOGENOME-TM- DATABASE. GTC will
provide BMI, in accordance with Section IV of EXHIBIT D, with updates of the GTC
PathoGenome-TM- Database, including annotations, as additional GTC Proprietary
PathoGenome-TM- Information and public domain data are included in the GTC
PathoGenome-TM- Database, and will use reasonable efforts to provide such
updates at least quarterly. As provided in Section V of EXHIBIT D, new releases
of the GTC PathoGenome-TM- Database Software will be furnished to BMI during the
Research Collaboration.
(e) CORRECTIONS TO THE GTC PATHOGENOME-TM- DATABASE. If BMI
identifies or discovers an error in the primary sequence information contained
in the GTC PathoGenome-TM- Database, then BMI shall communicate such error
within a reasonable time (not to exceed ninety (90) days) thereafter. Upon
disclosure by BMI of such error to GTC, GTC shall be entitled to include such
information in subsequent updates to the GTC PathoGenome-TM- Database
distributed by GTC for use by such subscribers in accordance with the terms of
their GTC PathoGenome-TM- Database license agreement.
(f) DELIVERY OF OTHER MATERIALS. In the event that BMI wishes to
obtain from GTC, in connection with sequence information contained in the GTC
PathoGenome-TM- Database that was generated by GTC, a microbial organism used to
produce the genomic sequence information in the GTC PathoGenome-TM- Database,
BMI shall so notify GTC. Promptly upon receipt of any such notice, GTC shall
provide BMI with the microbial organism specified in such notice or a written
explanation of why it is not available. Within thirty (30) business days of
receipt of such microbial organism, BMI shall pay to GTC *...* United States
dollars *...* for each organism plus shipping costs. At such time that BMI makes
its first request under this Section 4.1.3(f), BMI and GTC will execute the
Material Transfer Agreement shown in EXHIBIT E.
4.2 ACCESS TO DATA AND INFORMATION EXCHANGE. BMI will have direct access to
raw sequence data that form part of the Research Collaboration Database and to
other work resulting from the Research Collaboration including, but not limited
to, clones containing genes, DNA sequences or components thereof described in
the Research Collaboration Database, targeted sequencing data, comparative
sequence data and molecular genetic methodologies and technologies.
4.3 TERM OF RESEARCH COLLABORATION; LEVEL OF EFFORTS BY GTC AND BMI
EMPLOYEES. The Research Collaboration shall continue for a minimum term of
*...*and may be extended upon mutual agreement of the parties, for up to *...*.
During each Contract Year, GTC will provide the number of full time employee
(FTE) equivalents, consisting of highly skilled scientists or highly trained
personnel, as is set forth in the Annual Research Program approved for such
Contract Year by the Management Committee. Any reference above to a number of
FTEs for a period of less than a full Contract Year shall mean a level of effort
equivalent to the stated number of employees working full-time for such period.
* Confidential Treatment Requested
11
<PAGE>
4.4 AVAILABILITY OF EMPLOYEES; BMI RESEARCH EMPLOYEE. GTC agrees to make
its employees reasonably available at their places of employment to consult with
BMI on issues arising during the Research Collaboration. During all or any part
of the term of the Research Collaboration (as such may be extended pursuant to
the terms hereof), BMI may, at its own expense, send one (1) of its employees
(the "BMI Research Employee") to work at GTC's facility to act as a contact
person to help ensure the smooth flow of information between GTC and BMI. BMI
acknowledges that the BMI Research Employee shall only have access to
information directly relating to the Research Collaboration. As a condition to
working at GTC's facility, the BMI Research Employee shall execute any
confidentiality agreement requested by GTC and shall comply with any
restrictions imposed by GTC regarding access within GTC's facility. Any failure
by the BMI Research Employee to comply with the provisions of any such
confidentiality agreement or any such restrictions shall constitute sufficient
cause for GTC to immediately have the BMI Research Employee removed from the GTC
facility.
4.5 MANAGEMENT AND JOINT RESEARCH COMMITTEES.
4.5.1 RESEARCH PROGRAMS. Within *...* days after the date of this
Agreement, a joint committee (the "Management Committee") shall be appointed and
shall agree upon the individual research programs which shall describe the work
to be undertaken in relation to any Target selected by BMI for study under the
Research Collaboration (each a "Research Program"). Possible Research Program
subjects are described in EXHIBIT A attached hereto. Each Research Program shall
establish:
(i) the technical specifications and research
objectives (the "Research Goals");
(ii) the provisional budget (the "Research
Budget");
(iii) the experimental procedures, work plan
activities and time schedules with respect
to the Research Program (the "Research
Plan"); and
(iv) the responsibilities of each party with
respect to the work to be performed,
including the number of FTEs to be provided
by GTC.
The Research Programs may be revised and updated from time to time as
agreed upon by the Management Committee.
4.5.2 ANNUAL RESEARCH PROGRAMS. Within *...* days after the date of
this Agreement, the Management Committee shall agree upon the Annual Research
Program for the remainder of the first Contract Year. Thereafter, before the
beginning of each following Contract Year, the parties shall submit to the
Management Committee a written proposed Annual Research Program consisting of
each Research Program that is continuing beyond the prior Contract Year and new
proposed Research Programs, if any, for the following Contract Year. The
Management Committee shall review each such proposal as soon as practicable and
shall
* Confidential Treatment Requested
12
<PAGE>
approve no later than one month prior to the new Contract Year the final Annual
Research Program, including the Research Goals and Research Budget, for the new
Contract Year.
4.5.3 PERIODIC REVIEWS. The Management Committee shall review the
Research Programs on an ongoing basis and may make changes to the Annual
Research Program then in effect; PROVIDED, HOWEVER, the Annual Research Program
then in effect shall not be modified except as agreed in writing by the
Management Committee.
4.5.4 RESEARCH PLAN. The oversight of each Research Plan shall
be managed by a joint committee (the "Joint Research Committee"). The Joint
Research Committee shall be responsible for overseeing the direction of the
experimental procedures, time schedules and work plan activities of the parties
in carrying out each Research Plan and for the flow of information between the
parties during the Research Collaboration. The Joint Research Committee may
revise a Research Plan that has been approved by the Management Committee as
part of a Research Program; provided that, any such revision is consistent with
the Research Goals and Research Budget set forth in the applicable Research
Program.
4.5.5 MEMBERSHIP OF MANAGEMENT COMMITTEE AND JOINT RESEARCH COMMITTEE.
Each of the Management Committee and Joint Research Committee shall be comprised
of three (3) representatives from each of BMI and GTC, with each party's members
to be selected by that party. GTC and BMI may replace one or more of its
representatives on the Management Committee or Joint Research Committee at any
time upon written notice to the other party. Unless the parties otherwise agree,
*...*. From time to time the Management Committee or Joint Research Committee
may establish subcommittees to oversee particular projects or activities, and
such subcommittees will be constituted as the Management Committee or Joint
Research Committee, as applicable, shall agree.
4.5.6 MANAGEMENT COMMITTEE AND JOINT RESEARCH COMMITTEE MEETINGS. The
Management Committee and Joint Research Committee shall meet
*...*, respectively, at regular intervals during the term of the Research
Collaboration, or more often as agreed upon by both parties, at such locations
as the parties may agree upon. Regularly scheduled meetings or special meetings
of the Management Committee and Joint Research Committee may be in such form
(e.g. in person, by telephone or by video conference) as the members of the
applicable Committee shall agree. At such meetings, the Management Committee and
Joint Research Committee shall take such actions as may be specified under this
Agreement or as the parties may deem appropriate. With the consent of both
parties, other representatives of GTC or BMI or their respective Affiliates may
attend the meetings of the Management Committee and Joint Research Committee as
nonvoting observers. Each party shall be responsible for all expenses of its
representatives on the Management Committee and Joint Research Committee. Each
of the Management Committee and Joint Research Committee shall keep accurate
minutes of its deliberations which shall record all proposed decisions and all
actions recommended or taken and which shall be countersigned by one
representative of each party. All records of the Management Committee and Joint
Research Committee shall be available to both parties.
4.5.7 DECISION MAKING. Any approval, determination or other action
agreed to by a majority of the members of the Management Committee or Joint
Research Committee or their respective designees present at the relevant
Management Committee or Joint Research
* Confidential Treatment Requested
13
<PAGE>
Committee meeting shall be the approval, determination or other action of the
entire Management Committee or Joint Research Committee, PROVIDED THAT, *...*.
For the purposes of voting within the Joint Research Committee, *...*. In the
event any member of either party is unable to attend the relevant Committee
meetings, he/she may authorize one of the other members of the relevant
Committee who shall be present to cast his/her vote(s) on his/her behalf.
4.5.8 REPORTING ON RESEARCH PROGRAMS. GTC shall provide the Joint
Research Committee every quarter with a written report (the "Quarterly Report")
containing an assessment of the work under progress in relation to each Research
Program, highlighting any possible problems or change of directions which seem
necessary. At the end of each Contract Year, instead of a Quarterly Report, GTC
shall submit to the Joint Research Committee a final report (the "Yearly
Report") which shall summarize the work carried out during the entire Contract
Year and shall report on progress made in relation to the work planned, as
described in the Research Plans.
4.6 JOINT PATENT COMMITTEE. A joint committee comprised of one (1)
named representative of each party plus a chair from BMI (the "Joint Patent
Committee") shall be appointed and shall meet or have written contacts as and
when needed. A party may change its representative to the Joint Patent Committee
at any time and likewise BMI may change its appointed chair. In any instance in
which GTC informs BMI in writing that it reasonably objects to the filing of any
patent application by BMI because it believes in good faith that the filing of
such patent application would compromise its own patent position, the filing of
such application shall be subject to the prior written approval of the two
ordinary representatives of the Joint Patent Committee, who shall promptly
consult with each other in person, by telephone or otherwise meet to address
such objection. In the event that they are unable to reach a consensus within
five (5) business days of their first contact, the chair will use his/her
casting vote to settle the issue.
ARTICLE 5
DEVELOPMENT AND MARKETING DUE DILIGENCE
5.1 DILIGENT DEVELOPMENT EFFORTS. BMI agrees, at its own expense, to use
diligent efforts to develop and commercialize, either directly or through its
permitted sublicensees, the BMI Products based on the Targets selected by it.
Such diligent efforts shall be comparable to those efforts used by BMI for other
BMI products with comparable commercial potential, value and development status.
*...* BMI or its permitted sublicensees may, but shall have no obligation under
this Agreement to, develop and commercialize more than one *...*at any one time
during the term of this Agreement.
5.2 DILIGENT MARKETING AND DISTRIBUTION EFFORTS. BMI shall have the
exclusive worldwide right to market and distribute the BMI Products. Upon
receipt of approvals for commercial sale and pricing or pricing reimbursement,
if applicable, of a BMI Product in any country, BMI agrees, at its own expense,
to use diligent efforts to launch, promote, market and sell such BMI Product in
the Territory. Such efforts shall be comparable to those efforts used by BMI to
promote its own products of similar commercial potential, value and development
status.
* Confidential Treatment Requested
14
<PAGE>
5.3 REPORTS. Annually after the expiration or termination of the Research
Collaboration and until the termination or expiration of this Agreement, BMI
shall, within thirty (30) days of receipt of a written request, which request
shall not be made more than once per calendar year, provide GTC with a
reasonably detailed report which shall describe BMI's progress with respect to
its development, commercialization and marketing efforts under this Agreement.
ARTICLE 6
PAYMENTS
6.1 GTC TECHNOLOGY ACCESS AND GTC PATHOGENOME-TM- DATABASE SUBSCRIPTION
FEE. In consideration of GTC providing to BMI access to certain technology and
the GTC PathoGenome-TM- Database as provided in this Agreement, BMI shall pay
to GTC, *...*. This payment shall include the costs of delivery and
installation of the GTC PathoGenome-TM- Database except for those costs which
are specifically mentioned under Section 4.1.3(a) as being payable by BMI.
6.2 GTC PATHOGENOME-TM- DATABASE MAINTENANCE FEES. BMI shall pay to GTC,
as a maintenance fee for the GTC PathoGenome-TM- Database, *...* United States
dollars (*...*) for each Contract Year during the Research Collaboration,
commencing with the second Contract Year. All such payments shall be due in
full in advance of the applicable Contract Year, with the first such payment
due on the first anniversary hereof as payment for the second Contract Year.
6.3 MILESTONE PAYMENTS. BMI shall promptly notify GTC in writing upon
achievement of the milestones set forth on EXHIBIT F hereto, and payments shall
be made within *...* days of receipt by BMI of the corresponding invoice issued
by GTC. *...* percent (*...*) of all milestone payments made by BMI hereunder
shall be credited against royalties which may become payable to GTC in
connection with Net Sales of BMI Products pursuant to Section 6.5 hereof,
provided that such credit shall not result in a reduction of the royalties due
to GTC during any quarter of more than *...* percent (*...*) of the royalties
that would otherwise be payable to GTC.
6.4 RESEARCH FUNDING.
6.4.1 FUNDING DURING THE RESEARCH COLLABORATION TERM. Commencing with
the first Contract Year and continuing for each Contract Year thereafter,
during the term of the Research Collaboration (as such may be extended pursuant
to the terms hereof), BMI shall pay to GTC funding for the sponsored research
outlined in the Annual Research Program in an amount equal to a minimum of
*...* United States dollars (*...*) per Contract Year (regardless of the Annual
Research Program needs), which minimum amount shall be increased by an amount
equal to the FTE Rate (as defined below) multiplied by the number of GTC FTEs
required in excess of *...* FTEs in a Contract Year (such threshold number of
FTE's to be appropriately adjusted in each Contract Year after the first
Contract Year as a result of adjustments to the FTE Rate as described
below) to carry out all activities of the Research Programs that have been
approved by the Management Committee for such Contract Year. Such amounts shall
be payable in advance in four (4) equal quarterly payments for each Contract
Year with the first
* Confidential Treatment Requested
15
<PAGE>
quarterly payment of *...* United States dollars (*...*) (as may be adjusted
pursuant to the preceding sentence) due within five (5) business days after the
Effective Date. The last quarterly payment shall be made upon approval of a
majority of the votes entitled to be cast by the members of the Joint Research
Committee of the Yearly Report which must be submitted to the Joint Research
Committee in accordance with Section 4.5.8 above. As used herein, "FTE Rate"
shall mean the following:
FTE Rate = *...* x (1 + CPI)
Where
CPI = a fraction, the numerator of which shall be the difference
between the Consumer Price Index (CPI-U; U.S. City Average for all items;
1982-84 = 100) as of the last month of the immediately preceding quarter and the
Consumer Price Index as of the month immediately preceding the Effective Date
and the denominator of which shall be the Consumer Price Index as of the month
immediately preceding the Effective Date.
Notwithstanding the foregoing, in no event shall the FTE Rate
increase by more than an average annual rate of *...* percent (*...*).
6.4.2 ADDITIONAL EXPENDITURES. In the event that the conduct of the
Research Programs approved by the Management Committee requires capital
expenditures for equipment or specialized software or modifications to GTC's
facility (including any modifications reasonably required to accommodate the BMI
Research Employee), then a request for such acquisitions or modifications shall
be submitted to the Management Committee for its approval. *...*. Any payments
which become due under this Subsection shall be made in advance of such
acquisition or modification.
6.5 ROYALTIES PAYABLE BY EACH PARTY AND ITS AFFILIATES AND SUBLICENSEES.
6.5.1 ROYALTIES ON NET SALES OF BMI PRODUCTS AND GTC PRODUCTS.
(a) BMI shall pay royalties to GTC based on the Net Sales of a
BMI Product at the rate, *...*, specified in EXHIBIT G
hereto. *...*.
In the event a BMI Product should subsequently become a BMI
Blockbuster Product, the Parties shall determine, within *...* days following
the BMI Product's change of status, a new royalty rate to be applied to the BMI
Blockbuster Product, it being understood that such rate shall be *...*.
(b) GTC, its Affiliates and sublicensees shall pay royalties to
BMI based on the Net Sales of a GTC Product at a rate to be determined in good
faith by mutual agreement of the parties with respect to each GTC Product within
*...* days following the First Commercial Sale of the GTC Product. The royalty
rate for Net Sales of each GTC Product shall be determined *...*.
6.5.2 SUBLICENSES. (i) BMI and GTC shall, with respect to any
sublicenses by BMI or GTC hereunder, pay to the other party *...* percent
(*...*) of all consideration received
* Confidential Treatment Requested
16
<PAGE>
by BMI or GTC from any such Third Party sublicensee which is not based upon Net
Sales of the BMI Products or the GTC Products by such Third Party and (ii) BMI
and GTC shall (A) with respect to any sublicense hereunder to any Third Party to
make, have made, use, or sell BMI Products or GTC Products in any country, pay
to the other party royalties on Net Sales of the BMI Products or GTC Products,
as applicable, sold by such Third Party in such country or (B) provide in such
sublicense that such sublicensee shall pay to the other party royalties on Net
Sales of the BMI Products or GTC Products, as applicable, sold by such
sublicensee in such country, in either case at the royalty rate determined
pursuant to this Section 6.5 that would be applicable had such sales been made
by BMI or GTC, and provided that in either case, BMI or GTC, as the case may be,
shall remain liable for the timely payment of all such royalties.
Notwithstanding the foregoing, BMI's obligations under Section 6.5.2(i) shall
not include any consideration received by BMI in return for rights to any other
technologies and/or services, and/or products which are not BMI Products,
granted by BMI under such sublicenses, to the extent that such consideration is
reasonably allocable to such rights.
6.5.3 ADJUSTMENTS.
(i) MULTI-TARGET PRODUCT. With respect to sales
of BMI Products, the parties recognize that
BMI may incorporate targets into a BMI
Product *...* hereinafter "Other Targets"),
and, therefore, BMI may market a BMI Product
consisting of Targets and Other Targets
(hereinafter a "Multi-Target Product"). It
is agreed by the parties that in the case of
Multi-Target Product sales, BMI shall have
the option to adjust the Net Sales for such
products, for the purpose of paying the
royalties due to GTC hereunder. Net Sales
shall be calculated by multiplying the
actual amount of Net Sales by the fraction
A/(A+B) where A is the number of Targets and
where B is the number of Other Targets
included in a Multi-Target Product.
COMBINATION PRODUCT. With respect to sales of
GTC Products, in the event that a GTC
Product(s) is sold in the form of a
combination product containing GTC Product(s)
and one or more other active ingredients (a
"Combination Product"), Net Sales for such
Combination Product will be calculated by
multiplying actual Net Sales of such
Combination Product by the fraction A/(A+B),
where A is the invoice price of all GTC
Product(s) if sold separately by GTC, an
Affiliate or a sublicensee and containing a
GTC Product(s) as the only active ingredient
and B is the invoice price of any other
active component(s) in the Combination
Product if sold separately by GTC, or an
Affiliate or a sublicensee. In the event that
the GTC Product(s) is sold in the form of a
Combination Product containing such GTC
Product(s) and one or more other active
ingredient(s) and one or more of such other
active ingredients of the
* Confidential Treatment Requested
17
<PAGE>
Combination Product are not sold separately,
then the above formula shall be modified such
that A shall be the total manufacturing cost
to GTC, its Affiliate or sublicensee of the
GTC Product and B shall be the total
manufacturing cost to GTC, its Affiliate,
sublicensee or other supplier of any other
active component(s) in the Combination
Product. Notwithstanding the foregoing,
active ingredients shall not include
diluents, vehicles or adjuvants.
(ii) ROYALTY STACKING. In the event that patent
licenses from Third Parties (hereinafter the
"Third Party Patent Licenses") are required
by either party in order to develop, have
developed, use, manufacture, have
manufactured, market, promote, import,
export, sell and have sold a BMI Product or a
GTC Product, then the royalty rate shall be
reduced by an amount of *...* percent (*...*)
of Net Sales for *...* of Net Sales paid
under such Third Party Patent Licenses.
(iii) GUARANTEED MINIMUM ROYALTY. It is however
expressly understood by BMI and GTC that a
party owing royalties hereunder shall not be
allowed to cumulate the benefits of
paragraphs (i) and (ii) above and will
therefore be required to make a choice
between the provisions of such two
paragraphs. Furthermore, it is agreed that in
no event shall the aggregate royalties due to
the other party under the present Agreement
in any given quarter be *...*, except in the
case of a BMI Blockbuster Product in which
event the royalties due shall *...* of total
Net Sales (the "Guaranteed Minimum Royalty"),
such Net Sales being calculated before
application of the provisions of paragraphs
(i) and (ii) above.
6.5.4 ROYALTY REPORTS, EXCHANGE RATES. During the term of this
Agreement following the First Commercial Sale of any BMI Product or GTC Product,
BMI or GTC, as applicable, shall within sixty (60) days after each calendar
quarter furnish to the other party a written quarterly report showing: (i) the
gross sales of the BMI Products or GTC Products sold by such party and its
Affiliates during the reporting period and the calculation of Net Sales from
such gross sales; (ii) the sublicense payments received by such party during the
reporting period; (iii) the royalties payable in United States dollars which
shall have accrued hereunder in respect of such sales and sublicense payments;
(iv) withholding taxes, if any, required by law to be deducted in respect of
such royalties and sublicense payments; (v) the dates of the First Commercial
Sales of BMI Products or GTC Products, as applicable, in any country during the
reporting period. If no royalty or payment is due for any royalty period
hereunder, BMI or GTC, as applicable, shall so report. Each party shall keep
complete and accurate records in sufficient detail to properly reflect all gross
sales and Net Sales and to enable the royalties payable hereunder to be
determined.
* Confidential Treatment Requested
18
<PAGE>
For the purposes of calculating the royalty payments to be made in
United States dollars, GTC shall multiply the sales made in countries other than
the United States by the appropriate royalty rate before converting such sum
into United States dollars at the exchange rate used by GTC for reporting such
sales for United States financial statement purposes.
BMI shall use, for the purposes of calculating the royalty
payments to be made in United States dollars, the following rules:
(a) For the period from January 1, 1999 until *...*:
For the conversion of all currencies, other
than United States dollars, into United
States dollars, the amount shall be first
converted into the Euro using the official
spot rate published by the European Central
Bank on the last business day of the period
to which the payment of royalties relates and
then, the amount so obtained in the Euro
shall be converted into United States dollars
applying the official rate published by the
European Central Bank on the last business
day of the period to which the payment of
royalties relates.
(b) For the period from *...* until the expiration of the contract:
(i) For the conversion of the Euro into United
States dollars, the amount shall be converted
applying the official rate published by the
European Central Bank on the last business
day of the period to which the payment of
royalties relates.
(ii) For the conversion of currencies other than
the Euro into United States dollars, the
amount shall be first converted into the Euro
using the official spot rate published by the
European Central Bank on the last business
day of the period to which the payment of
royalties relates and then, the amount so
obtained in the Euro shall be converted into
United States dollars applying the official
rate published by the European Central Bank
on the last business day of the period to
which the payment of royalties relates.
6.5.5 AUDITS. Upon the written request of GTC or BMI (the "Requesting
Party"), the other party (the "Audited Party") shall permit an independent
certified public accountant selected by the Requesting Party and acceptable to
the Audited Party, which acceptance shall not be unreasonably withheld, to have
access during normal business hours to such records of the Audited Party as may
be reasonably necessary to verify the accuracy of the royalty reports described
herein, in respect of any fiscal year ending not more than twenty-four (24)
months prior to the date of such request. Each party shall use commercially
reasonable efforts to schedule all such verifications within forty-five (45)
days after the Requesting Party makes its written request. All such
verifications shall be conducted at the Requesting Party's expense and not more
than once in each calendar year. In the event the Requesting Party's
* Confidential Treatment Requested
19
<PAGE>
independent certified public accountant concludes that additional royalties were
owed to the Requesting Party during such period, the additional royalty shall be
paid by the Audited Party within thirty (30) days of the date the Requesting
Party delivers to the Audited Party such independent certified public
accountant's written report so concluding. In the event the Requesting Party's
independent certified public accountant concludes that there was an overpayment
of royalties to the Requesting Party during such period, the overpayment shall
be repaid by the Requesting Party within thirty (30) days of the date the
Requesting Party received such independent certified public accountant's written
report so concluding. The fees charged by such independent certified public
accountant shall be paid by the Requesting Party unless the audit discloses an
underpayment of the royalties payable by the Audited Party for the audited
period of more than *...* percent (*...*), in which case the Audited Party shall
pay the reasonable fees and expenses charged by such representative. Each party
shall include in each Third Party sublicense granted by it pursuant to this
Agreement a provision requiring the sublicensee to make reports to such party,
to keep and maintain records of sales made pursuant to such sublicense and to
grant access to such records by the other party's independent certified public
accountant to the same extent required of such party under this Agreement. Each
party agrees that all information subject to review under this Section 6.5.5 or
under any sublicense agreement is confidential and that such party shall cause
its independent certified public accountant to enter into a confidentiality
agreement with the other party obligating such accountant to retain all such
information in confidence. Each party's independent certified public accountant
shall only report to such party as to the computation of the royalties and other
payments due to such party under this Agreement and shall not disclose to such
party any other information of the other party or its sublicensees.
6.5.6 ROYALTY PAYMENT TERMS. Royalties shown to have accrued by each
royalty report provided for under this Agreement shall be due sixty (60) days
after the end of each calendar quarter. Payment of royalties in whole or in part
may be made in advance of such due date. Royalties determined to be owing with
respect to any prior quarter shall be added, together with interest thereon
accruing under this Agreement from the date of the report for the quarter for
which such amounts are owing, to the next quarterly payment hereunder.
6.6 WITHHOLDING TAXES. Each party *...*. Neither party shall *...*,
including but not limited to any such taxes or charges incurred as a result of
an assignment or sublicense by such party to any Affiliate or any Third Party,
*...*. Each party shall maintain *...*. The parties will exercise diligent
efforts to ensure that any withholding taxes imposed are reduced as far as
possible under the provisions of any treaties applicable to any payment made
hereunder.
6.7 BLOCKED CURRENCY. If transfer of amounts payable hereunder to Euros or
United States dollars is subject to administrative authorization, BMI or GTC, as
applicable, shall promptly file the transfer application with the competent
authorities supported by all requisite documentation, and use its reasonable
efforts to obtain such authorization and effect the remittance within the
applicable period set forth under this Article 6; PROVIDED, HOWEVER, that
nothing in this Section 6.7 shall relieve either party from its obligation to
pay any amounts payable hereunder within the applicable period set forth under
this Article 6.
6.8 INTEREST ON LATE PAYMENTS. Any payments by either party to the
other party that are not paid on or before *...* days after the date such
payments are due under this Agreement
* Confidential Treatment Requested
20
<PAGE>
shall bear interest, to the extent permitted by applicable law, at an annual
prorated rate equal to the prime rate, as published from time to time by
BankBoston, N.A., or successor, plus *...* percent (*...*), calculated on the
total number of days payment is delinquent; PROVIDED, HOWEVER, that interest
shall not accrue pursuant to this Section 6.8 on any amounts payable under this
Agreement with respect to which payment is disputed in good faith; PROVIDED
FURTHER that interest shall accrue pursuant to this Section 6.8 once such
dispute has been resolved if payment is not made promptly thereafter.
6.9 MANNER OF PAYMENT. All payments to be made under this Agreement shall
be payable in United States dollars within thirty (30) days upon receipt of an
invoice unless otherwise noted in this Agreement and shall be paid by bank wire
transfer in immediately available funds to such bank account as is designated in
writing by the party entitled to payment from time to time.
ARTICLE 7
INTELLECTUAL PROPERTY
7.1 OWNERSHIP OF INTELLECTUAL PROPERTY. Subject to the rights and licenses
granted under this Agreement (i) GTC shall retain ownership of the GTC
Technology, the Licensed Software, the GTC PathoGenome-TM- Database and the GTC
DNA Sequence Patent Rights, (ii) BMI shall retain or be deemed to have ownership
of the BMI Technology, Results and Results Patent Rights, and (iii) the
ownership of all other intellectual property rights shall be determined in
accordance with the rules of inventorship and other laws affecting the ownership
of intellectual property under U.S. patent laws.
7.2 FILING, PROSECUTION AND MAINTENANCE OF RESULTS PATENT RIGHTS.
7.2.1 PROSECUTION AND MAINTENANCE OF RESULTS PATENT RIGHTS. BMI shall
be responsible for the filing, prosecution (including oppositions) and
maintenance of the Results Patent Rights at its expense in its own name. BMI
shall consult with GTC and keep GTC fully informed of important issues relating
to the preparation, filing, prosecution and maintenance of such patent
applications and the patents related thereto, including BMI's patent strategy
with respect to both existing and future patent applications, patents and patent
extensions. BMI shall furnish to GTC copies of documents relevant to such
preparation or filing (such copies of documents with respect to initial patent
filings to be furnished to GTC sufficiently prior to filing such document or
making any payment due thereunder to allow for review and comment by GTC). BMI
shall seriously consider all GTC comments on such initial patent filings,
PROVIDED THAT, in any instance in which GTC informs BMI in writing that it
objects to the filing of any patent application by BMI, the filing of such
application shall be subject to the prior written approval of the Joint Patent
Committee pursuant to Section 4.6 hereof. If BMI elects not to continue to seek
or maintain patent protection on any patent or patent application included in
the Results Patent Rights in any country, GTC shall have the right, at its
option and expense, with the reasonable assistance of BMI to file, prosecute
(including oppositions) and maintain such patent applications and patents;
PROVIDED, HOWEVER, that the rights of the parties with respect to any such
Results Patent Rights shall in all other respects be as described in this
Agreement. BMI
* Confidential Treatment Requested
21
<PAGE>
will advise GTC of all decisions taken with respect to any such election in a
timely manner in order to allow GTC to protect its rights under this Section
7.2.1.
7.2.2 ABANDONMENT; FAILURE TO PAY. BMI agrees that it will not abandon
the prosecution of any patent applications included within the Results Patent
Rights nor shall it fail to make any payment or fail to take any other action
necessary to maintain a patent under the Results Patent Rights unless it has
notified GTC in sufficient time for GTC to assume such prosecution or make such
payment.
7.2.3 COOPERATION. Each party shall make available to the other party
(or to the other party's authorized attorneys, agents or representatives), its
employees, agents or consultants to the extent reasonably necessary or
appropriate to enable the appropriate party to file, prosecute and maintain
patent applications and resulting patents as set forth in this Section 7.2 for
periods of time reasonably sufficient for such party to obtain the assistance it
needs from such personnel. Where appropriate, each party shall sign or cause to
have signed all documents relating to said patent applications or patents at no
charge to the other party.
7.3 INFRINGEMENT BY OTHERS; PROSECUTION BY BMI. GTC and BMI shall each
promptly notify the other in writing of any alleged or threatened infringement
of patents or patent applications included in the Results Patent Rights of which
they become aware, and the parties shall consult concerning the action to be
taken. BMI shall have the right, but not the obligation, to prosecute at its own
expense any such infringement. Any recovery of damages derived from such action
shall be used (i) first to reimburse BMI for all legal expenses relating to the
suit and (ii) second to pay GTC the royalty it would have been entitled to
receive had the sale of such infringing products been sales of BMI Products
licensed by BMI hereunder *...*.
7.4 INFRINGEMENT BY OTHERS; PROSECUTION BY GTC. If, within six (6) months
after BMI first becomes aware of any infringement of the Results Patent Rights,
BMI fails to cause such infringement to terminate or to bring a suit or action
to compel termination, GTC shall have the right, but not the obligation, to
bring such suit or action to compel termination at the sole expense of GTC. Any
recovery or damages in such suit shall be retained by GTC.
BMI shall have the right, prior to the commencement of the trial of any
suit or action brought by GTC, to join any such suit or action and, in such
event, shall pay one-half of the entire cost of such suit or action. Provided
that BMI has joined in the action and shared the costs thereof as stated in the
preceding sentence, no settlement, consent judgment or other voluntary final
disposition of the suit may be entered into without the consent of BMI, which
consent shall not unreasonably be withheld. Any recovery of damages derived from
such action shall be used (i) first to reimburse GTC for all legal expenses
relating to the suit (ii) second to reimburse BMI for all legal expenses
relating to the suit and (iii) third to pay GTC the royalty it would have been
entitled to receive had the sale of such infringing products been sales of BMI
Products licensed by BMI hereunder. *...* percent (*...*) of any remaining
recovery of damages shall thereafter be retained by GTC and the balance shall be
distributed to BMI.
7.5 COOPERATION IN INFRINGEMENT ACTIONS. In any infringement suit which
either party may institute to enforce the Results Patent Rights pursuant to this
Agreement, the other party hereto shall, at the request of the party initiating
such suit, cooperate in all respects and, to the
* Confidential Treatment Requested
22
<PAGE>
extent possible, have its employees testify when requested and make available
relevant records, papers, information, samples and the like. GTC's cooperation
in any suit initiated by BMI shall be at BMI's expense. BMI's cooperation in any
suit initiated by GTC shall be at GTC's expense.
7.6 TRADEMARKS. BMI shall be free to use and to register in any trademark
office in the world any trademark for use with BMI Products it desires in its
sole discretion. BMI shall own all right, title and interest in and to any such
trademark in its own name or that of its designated Affiliate during and after
the term of this Agreement.
ARTICLE 8
CONFIDENTIALITY
8.1 NONDISCLOSURE OBLIGATIONS.
8.1.1 GENERAL. Except as otherwise provided in this Article 8, during
the term of this Agreement and for a period of ten (10) years thereafter, the
parties shall maintain in confidence and use only for purposes specifically
authorized under this Agreement (i) the Research Collaboration Database, (ii)
the BMI Technology insofar as GTC is concerned, (iii) the GTC Technology insofar
as BMI is concerned, (iv) the GTC PathoGenome-TM- Database, (v) any other
information and data received from the other party resulting from or related to
the Research Collaboration and the BMI Products or GTC Products and (vi) all
information and data not described in clauses (i), (ii), (iii), (iv) and (v) but
supplied by the other party under this Agreement marked "Confidential." For
purposes of this Article 8, information and data described in clauses (i)
through (vi) shall be referred to as "Information."
8.1.2 LIMITATIONS. To the extent it is reasonably necessary or
appropriate to fulfill its obligations or exercise its rights under this
Agreement: (i) a party may disclose Information it is otherwise obligated under
this Section 8.1 not to disclose to its Affiliates, sublicensees, consultants,
outside contractors and clinical investigators, on a need-to-know basis and on
condition that such entities or persons agree to non-use obligations essentially
the same as those set forth herein and to keep the Information confidential for
the same time periods and to the same extent as such party is required to keep
the Information confidential; and (ii) a party or its sublicensees may disclose
such Information to government or other regulatory authorities to the extent
that such disclosure is reasonably necessary to obtain patents or authorizations
to conduct clinical trials of, and to commercially market, BMI Products or GTC
Products pursuant to this Agreement. The obligation not to disclose Information
shall not apply to any part of such Information that: (i) is or becomes part of
the public domain other than by unauthorized acts of the party obligated not to
disclose such Information or its Affiliates or sublicensees; (ii) can be shown
by written documents to have been disclosed to the receiving party or its
Affiliates or sublicensees by a Third Party, provided such Information was not
obtained by such Third Party directly or indirectly from the other party to this
Agreement pursuant to a confidentiality agreement; (iii) prior to disclosure
under this Agreement, was already in the possession of the receiving party or
its Affiliates or sublicensees, provided such Information was not obtained
directly or indirectly from the other party to this Agreement pursuant to a
confidentiality agreement; (iv) can be shown by written documents to have been
independently developed by the receiving party or its Affiliates without breach
of any of the provisions of this Agreement; or (v)
* Confidential Treatment Requested
23
<PAGE>
is disclosed by the receiving party pursuant to interrogatories, requests for
information or documents, subpoena, civil investigative demand issued by a court
or governmental agency or as otherwise required by law, PROVIDED, HOWEVER, that
the receiving party notifies the other party immediately upon receipt thereof,
giving such other party sufficient advance notice to permit it to seek a
protective order or other similar order with respect to such Information AND
PROVIDED, FURTHER, that the disclosing party furnishes only that portion of the
Information which it is advised by counsel is legally required whether or not a
protective order or other similar order is obtained by the other party.
8.2 SAMPLES. Samples of genes, other biological targets identified,
sequenced, synthesized, purified or developed in the course of the Research
Collaboration shall not be supplied or sent by either party to any Third Party,
other than to regulatory agencies or for use in clinical trials, unless such
release is approved by a member of the Joint Research Committee from the other
party and protected by an appropriate materials transfer agreement substantially
similar to the form of the Material Transfer Agreement attached hereto as
EXHIBIT E. Samples of materials other than those described above provided by one
party (the "supplying party") to the other party (the "receiving party") in the
course of the Research Collaboration shall not be supplied or sent by the
receiving party to any Third Party, other than to regulatory agencies or for use
in clinical trials, without the written consent of the supplying party.
8.3 INJUNCTIVE RELIEF. The parties hereto understand and agree that
remedies at law may be inadequate to protect against any breach of any of the
provisions of this Article 8 by either party or their employees, agents,
officers or directors or any other person acting in concert with it or on its
behalf. Accordingly, each party shall be entitled to the granting of injunctive
relief by a court of competent jurisdiction against any action that constitutes
any such breach of this Article 8.
ARTICLE 9
REPRESENTATIONS AND WARRANTIES
9.1 REPRESENTATIONS, WARRANTIES AND COVENANTS OF GTC. GTC represents and
warrants to and covenants with BMI that:
9.1.1 GTC is a corporation duly organized, validly existing and in
corporate good standing under the laws of the Commonwealth of Massachusetts;
9.1.2 GTC has the legal right, authority and power to enter into this
Agreement, and to extend the rights and licenses granted to BMI in this
Agreement;
9.1.3 GTC has taken all necessary action to authorize the execution,
delivery and performance of this Agreement;
9.1.4 upon the execution and delivery of this Agreement, this Agreement
shall constitute a valid and binding obligation of GTC enforceable in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' and contracting parties' rights generally and
* Confidential Treatment Requested
24
<PAGE>
except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law);
9.1.5 the performance of its obligations under this Agreement will not
conflict with its charter documents or result in a breach of any agreements,
contracts or other arrangements to which it is a party;
9.1.6 to the best of GTC's knowledge but without independent
investigation, the performance of GTC's obligations under this Agreement,
including without limitation *...*;
9.1.7 GTC will not during the term of this Agreement enter into any
agreements, contracts or other arrangements that would be inconsistent with its
obligations under this Agreement; and
9.1.8 GTC will not during the term of this Agreement *...*,
including without limitation *...*. GTC is currently *...*.
9.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF BMI. BMI represents and
warrants to and covenants with GTC that:
9.2.1 BMI is a corporation duly organized, validly existing and in
corporate good standing under the laws of the state of Missouri;
9.2.2 BMI has the legal right, authority and power to enter
into this Agreement, and to extend the rights and licenses granted to GTC in
this Agreement;
9.2.3 BMI has taken all necessary action to authorize the execution,
delivery and performance of this Agreement;
9.2.4 upon the execution and delivery of this Agreement, this Agreement
shall constitute a valid and binding obligation of BMI enforceable in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' and contracting parties' rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law);
9.2.5 the performance of its obligations under this Agreement will not
conflict with BMI's charter documents or result in a breach of any agreements,
contracts or other arrangements to which it is a party; and
9.2.6 BMI will not after the date of this Agreement enter into any
agreements, contracts or other arrangements that would be inconsistent with its
obligations under this Agreement.
9.3 VALIDITY AND SCOPE. Nothing in this Agreement shall be construed as a
warranty or representation by either party as to the validity or scope of any
GTC Technology, BMI Technology, Research Collaboration Database, GTC
PathoGenome-TM- Database, GTC DNA Sequence Patent Rights, Licensed Software or
the Results Patent Rights.
* Confidential Treatment Requested
25
<PAGE>
9.4 LIMITED WARRANTIES RELATING TO PERFORMANCE OF THE GTC PATHOGENOME-TM-
DATABASE SOFTWARE. GTC warrants that the GTC PathoGenome-TM- Database Software
delivered to BMI represents the latest version of the GTC PathoGenome-TM-
Database Software which GTC has made publicly available to subscribers to the
GTC PathoGenome-TM- Database. GTC does not represent that the operations of the
GTC PathoGenome-TM- Database Software will be trouble-free or that the GTC
PathoGenome-TM- Database Software contains no errors. GTC's only obligation to
BMI with respect to the GTC PathoGenome-TM- Database Software will be to use
reasonable efforts to correct any errors and to otherwise support BMI as
provided in EXHIBIT D.
9.5 WARRANTY DISCLAIMER. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY WITH RESPECT TO ANY GTC TECHNOLOGY,
BMI TECHNOLOGY, RESEARCH COLLABORATION DATABASE, LICENSED SOFTWARE, RESULTS,
GOODS, SERVICES OR OTHER SUBJECT MATTER OF THIS AGREEMENT AND HEREBY DISCLAIMS
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NONINFRINGEMENT WITH RESPECT TO ANY AND ALL OF THE FOREGOING.
9.6 LIMITED LIABILITY. NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT,
NEITHER GTC NOR BMI WILL BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS
AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR
EQUITABLE THEORY FOR (I) ANY PUNITIVE, EXEMPLARY, INCIDENTAL OR CONSEQUENTIAL
DAMAGES OR LOST PROFITS OR (II) COST OF PROCUREMENT OF SUBSTITUTE GOODS,
TECHNOLOGY OR SERVICES.
ARTICLE 10
INDEMNITY
10.1 BMI INDEMNITY OBLIGATIONS. BMI agrees to defend, indemnify and hold
GTC, its Affiliates and their respective employees and agents harmless from all
claims, losses, damages or expenses arising as a result of: (a) actual
violations of any applicable law or regulation by BMI or its sublicensees by
virtue of which the BMI Products manufactured, distributed or sold hereunder
shall be alleged or determined to be adulterated, misbranded, mislabeled or
otherwise not in compliance with any applicable law or regulation; (b) bodily
injury, death or property damage attributable to the manufacture, distribution,
sale or use of the BMI Products by BMI or its sublicensees; or (c) a BMI Product
recall ordered by a governmental agency or required by a confirmed BMI Product
failure as reasonably determined by the parties hereto.
10.2 LIMITATION ON BMI INDEMNITY OBLIGATIONS. GTC, its Affiliates and
their respective employees and agents shall not be entitled to the indemnities
set forth in Section 10.1 where the claim, loss, damage or expense for which
indemnification is sought was caused by a grossly negligent act or intentional
act of misconduct or omission by GTC, its directors, officers, employees or
authorized agents.
10.3 GTC INDEMNITY OBLIGATIONS. GTC agrees to defend, indemnify and hold
BMI, its Affiliates and their respective employees and agents harmless from all
claims, losses, damages or
* Confidential Treatment Requested
26
<PAGE>
expenses arising as a result of: (a) actual violations of any applicable law or
regulation by GTC, its Affiliates or its sublicensees by virtue of which the GTC
Products manufactured, distributed or sold hereunder shall be alleged or
determined to be adulterated, misbranded, mislabeled or otherwise not in
compliance with any applicable law or regulation; (b) bodily injury, death or
property damage attributable to the manufacture, distribution, sale or use of
the GTC Products by GTC, its Affiliates or its sublicensees; (c) a GTC Product
recall ordered by a governmental agency or required by a confirmed GTC Product
failure as reasonably determined by the parties hereto; or (d) Third Party suits
claiming that BMI's use of the GTC PathoGenome-TM- Database or the GTC DNA
Sequence Patent Rights violates such Third Party's industrial property rights.
10.4 LIMITATION ON GTC INDEMNITY OBLIGATIONS. BMI, its Affiliates and their
respective employees and agents shall not be entitled to the indemnities set
forth in Section 10.3 where the claim, loss, damage or expense for which
indemnification is sought was caused by a grossly negligent act or intentional
act of misconduct or omission by BMI, its directors, officers, employees or
authorized agents.
10.5 INSURANCE. BMI shall maintain appropriate product liability insurance
with respect to development, manufacture and sales of the BMI Products by BMI in
such amount as BMI customarily maintains with respect to sales of its other
products. BMI shall maintain such insurance for so long as it continues to
manufacture or sell the BMI Products, and thereafter for so long as BMI
maintains insurance for itself covering such manufacture or sales.
ARTICLE 11
EXPIRATION AND TERMINATION
11.1 EXPIRATION.
11.1.1 TERM OF RESEARCH COLLABORATION. Unless this Agreement is sooner
terminated in accordance with the provisions of this Article 11, the term of
the Research Collaboration shall expire at the end of the *...* Contract
Year; PROVIDED, HOWEVER, that the Research Collaboration may be extended upon
mutual agreement of the parties, reached no later than six (6) months prior to
the end of the initial term of the Research Collaboration, for up to *...*
additional periods of *...* Contract Year each. In any event, GTC may, in its
discretion, engage in an orderly wind-down of the Research Collaboration,
including the reassignment of the scientists devoted thereto, during the last
six (6) months thereof. In such an event, the financial contribution of BMI to
the Research Collaboration under the terms of Article 6.4.1 shall be adjusted
accordingly but shall, in no event, for such six (6) month period, fall below
the sum of *...* United States dollars (*...*) in accordance with the minimum
research funding amount provided for under Section 6.4.1.
11.1.2 TERM OF AGREEMENT. Unless this Agreement is sooner terminated in
accordance with the provisions of this Article 11, this Agreement shall expire
and all licenses granted by GTC to BMI hereunder and by BMI to GTC hereunder
shall become fully paid and perpetual, on a BMI Product by BMI Product basis and
on a GTC Product by GTC Product basis, *...* years after the First Commercial
Sale of the relevant BMI Product or GTC Product.
* Confidential Treatment Requested
27
<PAGE>
11.2 DEFAULT.
11.2.1 MATERIAL DEFAULT BY EITHER PARTY. A Material Default shall have
occurred upon (i) the occurrence of a material breach (other than a material
breach described in clause (ii) of this paragraph or in Section 11.2.2 below) if
the breaching party fails to remedy such breach within ninety (90) days after
written notice thereof by the non-breaching party, or (ii) the bankruptcy,
insolvency, dissolution or winding up of a party. The parties further
acknowledge that a breach by BMI under Section 5.2 shall be deemed a Material
Default by BMI hereunder if not cured within one hundred eighty (180) days after
GTC delivers written notice thereof to BMI specifying such failure.
11.2.2 PAYMENT DEFAULT BY BMI. A Payment Default shall have occurred if
BMI fails to make payments due hereunder sixty (60) days after GTC delivers
written notice thereof to BMI specifying such failure and its claim of right to
terminate, unless BMI makes such payments plus interest or contests in good
faith the payment or the related amount in writing within such sixty (60) day
period.
11.3 EFFECT OF DEFAULT.
11.3.1 REMEDIES AVAILABLE TO GTC.
(a) UPON MATERIAL DEFAULT. In the event that a Material Default
occurs relating to BMI and BMI fails to cure such default during any applicable
cure period, GTC shall have the right, at its option exercisable in its sole
discretion, in addition to any other rights or remedies available to it at law
or in equity, to require BMI to grant GTC, in addition to the rights it already
benefits from, a non-exclusive license to the Results and the Results Patent
Rights allowing GTC to develop, have developed, use, manufacture, have
manufactured, market, promote, have promoted, import, have imported, export,
have exported, sell or have sold products within the BMI Field and BMI shall, on
commercially reasonable terms and subject to contractual or legal limitations,
sublicense BMI Products to GTC, including the right to grant sublicenses. Unless
otherwise agreed in writing by the parties, the provisions of this Agreement
which remain unaffected by such modifications shall remain in force, including
the obligation for GTC to pay to BMI royalties on the sale of GTC Products as
well as products sold in the BMI Field.
(b) UPON PAYMENT DEFAULT. In the event that a Payment Default
occurs relating to BMI's obligation to make payments hereunder, then GTC shall
have the right, at its option exercisable in its sole discretion, in addition to
any other rights or remedies available to it at law or in equity, to terminate
the licenses granted to BMI pursuant to Article 3 and to require that the
license granted to GTC pursuant to Section 3.2.2 be enlarged to include the
exclusive right to use the Results to develop, have developed, use, manufacture,
have manufactured, market, promote, have promoted, import, have imported,
export, have exported, sell or have sold any products within the BMI Field. In
addition, if BMI has filed Results Patent Rights or other patent rights to any
BMI Product, then BMI shall, subject to contractual or legal limitations, take
all action reasonably necessary to grant to GTC an exclusive, fully-paid (other
than royalties, as described below) license, to all of its right, title and
interest in such rights (or an undivided interest therein if such rights also
cover BMI Products to which BMI retains its license rights
* Confidential Treatment Requested
28
<PAGE>
under this Agreement). The royalty rate applicable to sales of any BMI Product
sold by GTC under the license granted pursuant to the preceding sentence shall
be one half of the royalty that BMI paid or would have paid with respect to such
BMI Product. For the sake of clarity, none of BMI or its sublicensees shall any
longer have the right to sell BMI Products. Unless otherwise agreed in writing
by the parties, the provisions of this Agreement which remain unaffected by such
modifications shall remain in force, including the obligation for GTC to pay to
BMI royalties on the sale of GTC Products as well as BMI Products.
11.3.2 REMEDIES AVAILABLE TO BMI. In the event that a Material Default
occurs relating to GTC pursuant to Section 11.2.1, and GTC fails to cure such
breach within the applicable cure period, then BMI shall have the right, at its
option exercisable in its sole discretion, to seek any rights or remedies
available to it at law or in equity, including the right at its option
exercisable in its sole discretion, to terminate the license granted pursuant to
Section 3.2.2 hereof, subject to the limitations set forth in Section 9.5 and
Section 12.6 hereof.
11.4 *...* BMI. BMI may *...* after the expiration of *...* upon *...*
months prior written notice to GTC.
11.5 EFFECT OF EXPIRATION OR TERMINATION OF RESEARCH COLLABORATION. Upon
the expiration or termination of the Research Collaboration, GTC's obligation to
update the Research Collaboration Database and disclose additional GTC
Technology shall terminate but all licenses to BMI to continue to use the GTC
Technology and the Licensed Software as they exist on the termination of the
Research Collaboration shall continue in full force and effect for the remaining
term of the Agreement. Within thirty (30) days after the end of the Research
Collaboration, BMI shall return to GTC, or destroy, according to GTC's
instructions any and all information and material related to the GTC
PathoGenome-TM- Database provided by GTC pursuant to this Agreement that is not
then in the public domain (including, without limitation, all copies of the GTC
PathoGenome-TM- Database, but excluding formal laboratory notebooks kept as a
record by BMI), and any copies thereof (including electronic copies) and shall
delete all copies of the GTC PathoGenome-TM- Database from all computers at all
sites on which such information has been installed or transmitted, PROVIDED
THAT, BMI may, upon notification to GTC, retain such portions of the GTC
PathoGenome-TM- Database to the extent, and only for so long as is, necessary to
continue the development of any BMI Product commenced prior to the expiration of
the Research Collaboration, and may notify GTC of its desire to retain
additional selected sequence information beyond the end of the Research
Collaboration on terms to be agreed upon by the parties. Following the
expiration of the Research Collaboration, GTC shall have no further obligation
under this Agreement to provide to BMI (i) any updates, corrections or
additional information of any nature with respect to the GTC PathoGenome-TM-
Database, (ii) any new releases of the GTC PathoGenome-TM- Database Software, or
(iii) any support services with respect to the GTC PathoGenome-TM- Database or
the GTC PathoGenome-TM- Database Software, except as the parties may further
agree in writing.
11.6 EFFECT OF EXPIRATION OR TERMINATION OF AGREEMENT. The expiration or
termination of this Agreement shall not relieve the parties of any obligation
accruing prior to such expiration or termination.
* Confidential Treatment Requested
29
<PAGE>
11.6.1 SURVIVAL OF PROVISIONS UPON EXPIRATION. The provisions of
Articles 7, 8, 10 and 11 and Sections 9.5, 9.6, 12.5, 12.6 and 12.11 hereof
shall survive the expiration of this Agreement.
11.6.2 SURVIVAL OF PROVISIONS UPON TERMINATION. The provisions of
Articles 7, 8, 10 and 11 and Sections 9.5, 9.6, 12.5, 12.6 and 12.11 hereof
shall survive the termination of this Agreement; PROVIDED, HOWEVER, that GTC
shall have no obligation to maintain the confidentiality of the Research
Collaboration Database in the event that this Agreement is terminated due to
breach by BMI. The provisions of Article 6 hereof shall survive the termination
of this Agreement until such time as the Agreement would have expired with
respect to any BMI Product pursuant to Section 11.1.2 hereof had it not been
earlier terminated.
ARTICLE 12
MISCELLANEOUS
12.1 FORCE MAJEURE. Neither party shall be held liable or responsible
to the other party nor be deemed to have defaulted under or breached this
Agreement for failure or delay in fulfilling or performing any term of this
Agreement when such failure or delay is caused by or results from causes beyond
the reasonable control of the affected party, including but not limited to fire,
floods, embargoes, war, acts of war (whether war is declared or not),
insurrections, riots, civil commotions, strikes, lockouts or other labor
disturbances, acts of God or acts, omissions or delays in acting by any
governmental authority or the other party; PROVIDED, HOWEVER, that the party so
affected shall use reasonable commercial efforts to avoid or remove such causes
of nonperformance, and shall continue performance hereunder with reasonable
dispatch whenever such causes are removed. Either party shall provide the other
party with prompt written notice of any delay or failure to perform that occurs
by reason of FORCE MAJEURE. The parties shall mutually seek a resolution of the
delay or the failure to perform as noted above.
12.2 ASSIGNMENT. This Agreement may not be assigned or otherwise
transferred by either party without the consent of the other party; PROVIDED,
HOWEVER, that either GTC or BMI may, without such consent, assign any or all of
its rights and obligations under this Agreement (i) to any Affiliate, or (ii) in
connection with a merger, consolidation or sale of substantially all of such
party's assets to an unrelated Third Party; PROVIDED, HOWEVER, that such party's
rights and obligations under this Agreement shall be assumed by its successor in
interest in any such transaction and shall not be transferred separate from all
or substantially all of its other business assets, including those business
assets that are the subject of this Agreement. Any purported assignment in
violation of the preceding sentence shall be void. Any permitted assignee shall
assume all obligations of its assignor under this Agreement. For the sake of
clarity, the rights and obligations described in the present Agreement, taken
separately or as a whole, may be exercised or performed by either party and/or,
as the case may be, their respective Affiliates.
12.3 SEVERABILITY. Each party hereby agrees that it does not intend to
violate any public policy, statutory or common laws, rules, regulations, treaty
or decision of any government agency or executive body thereof of any country or
community or association of countries. Should one or more provisions of this
Agreement be or become invalid, the parties hereto shall substitute, by mutual
consent, valid provisions for such invalid provisions which valid provisions
* Confidential Treatment Requested
30
<PAGE>
in their economic effect are sufficiently similar to the invalid provisions that
it can be reasonably assumed that the parties would have entered into this
Agreement with such valid provisions. In case such valid provisions cannot be
agreed upon, the invalidity of one or several provisions of this Agreement shall
not affect the validity of this Agreement as a whole, unless the invalid
provisions are of such essential importance to this Agreement that it is to be
reasonably assumed that the parties would not have entered into this Agreement
without the invalid provisions.
12.4 NOTICES. Any consent, notice or report required or permitted to be
given or made under this Agreement by one of the parties hereto to the other
shall be in writing, delivered personally or by facsimile (and promptly
confirmed by telephone, personal delivery or courier) or courier, postage
prepaid (where applicable), addressed to such other party at its address
indicated below, or to such other address as the addressee shall have last
furnished in writing to the addressor and shall be effective upon receipt by the
addressee.
If to GTC: Genome Therapeutics Corporation
100 Beaver Street
Waltham, Massachusetts 02453
Attention: President
Telephone: 1-781-398-2300
FAX: 1-781-893-8277
with a copy to: Palmer & Dodge LLP
One Beacon Street
Boston, Massachusetts 02108
Attention: Marc A. Rubenstein, Esq.
Telephone: 1-617-573-0100
FAX: 1-617-227-4420
If to BMI: bioMerieux Incorporated
595 Anglum Drive
Hazelwood, Missouri 63042-2395
Attention: President
Telephone: 1-314-731-8500
FAX: 1-314-731-8800
with a copy to: bioMerieux Incorporated,
Legal Department
595 Anglum Drive
Hazelwood, Missouri 63042-2395
Attention: General Counsel
Telephone: 1-314-731-8500
FAX: 1-314-731-8800
12.5 APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, without giving
effect to the choice of laws provisions thereof.
* Confidential Treatment Requested
31
<PAGE>
12.6 DISPUTE RESOLUTION.
12.6.1 The parties hereby agree that they will attempt in good
faith to resolve any controversy or claim arising out of or relating to this
Agreement promptly by negotiations. If a controversy or claim should arise
hereunder, the matter shall be referred to the Chief Scientific Officer (or the
equivalent position) of GTC and the President of BMI (or the equivalent
position) of BMI (the "Representatives"). If the matter has not been resolved
within thirty (30) days of the first meeting of the Representatives of the
parties (which period may be extended by mutual agreement) concerning such
matter, subject to rights to injunctive relief and specific performance, and
unless otherwise specifically provided for herein, any controversy or claim
arising out of or relating to this Agreement, or the breach thereof, will be
settled as set forth in Section 12.6.2.
12.6.2 All disputes arising in connection with this Agreement shall be
finally settled under the Commercial Arbitration Rules of the American
Arbitration Association by a single arbitrator appointed in accordance with said
Rules and the terms set forth in EXHIBIT H. Notwithstanding the above, either
party has the right to bring suit in a court of competent jurisdiction against
the other party for (i) any breach of such other party's duties of
confidentiality pursuant to Article 8 of this Agreement and (ii) any
infringement of its own proprietary rights by the other party. In respect to any
dispute settled by arbitration, the arbitrator's ruling shall be final. The
award of the arbitrator may include compensatory damages against either party,
but under no circumstances will the arbitrator be authorized to, nor shall he,
award punitive damages or multiple damages against either party. The parties
agree not to institute any litigation or proceedings against each other in
connection with this Agreement except as provided in this Section 12.6.2
12.7 ENTIRE AGREEMENT. This Agreement, together with the exhibits hereto,
contains the entire understanding of the parties with respect to the subject
matter hereof. All express or implied agreements and understandings, either oral
or written, heretofore made are expressly merged in and made a part of this
Agreement. This Agreement may be amended, or any term hereof modified, only by a
written instrument duly executed by both parties hereto.
12.8 PUBLICITY AND PUBLICATIONS. GTC and BMI each agree not to disclose the
existence of, or any terms or conditions of, this Agreement, or any results
arising from the Research Collaboration, to any Third Party without consulting
the other party prior to such disclosure. In particular, the parties agree and
undertake that any and all scientific or technical publications intended for a
specialized readership or audience (the "Scientific Publications"), which are
developed and/or made under whatever form whether written, oral or whatsoever,
either directly or indirectly, shall have to be submitted to the other party for
its prior written consent at least one (1) month before the intended date of
submission or presentation. Failing a written reply within the stipulated one
(1) month period, consent shall be presumed granted. It is agreed that
patentable Results are meant to remain confidential until their publication by
way of a patent application. A decision as to delay the Scientific Publication
for reasons of establishing patent right shall be taken within the month of
submission. It is further agreed, in relation to press releases and other
non-specialized publications ("Press Releases") that the above submission
procedure shall also apply in its entirety with the exception of the advance
notification period which shall be reduced from one (1) month to five (5)
working days before
* Confidential Treatment Requested
32
<PAGE>
the intended date of publication. Notwithstanding the foregoing, prior to
execution of this Agreement, GTC and BMI shall agree upon the substance of
information that can be used as a routine reference in the usual course of
business to describe the terms of this transaction, and GTC and BMI may disclose
such information, as modified by mutual agreement from time to time, without
consulting the other party.
12.9 HEADINGS. The captions to the several Articles and Sections hereof are
not a part of this Agreement, but are merely guides or labels to assist in
locating and reading the several Articles and Sections hereof.
12.10 INDEPENDENT CONTRACTORS. It is expressly agreed that GTC and BMI
shall be independent contractors and that the relationship between the two
parties shall not constitute a partnership, joint venture or agency. Neither GTC
nor BMI shall have the authority to make any statements, representations or
commitments of any kind, or to take any action, which shall be binding on the
other, without the prior consent of the other party to do so.
12.11 AGREEMENT NOT TO SOLICIT EMPLOYEES. During the term of the
Research Collaboration and for a period of *...* years following the expiration
or termination of the Research Collaboration pursuant to Article 11, GTC and BMI
agree not to seek to persuade or induce any employee of the other company to
discontinue his or her employment with that company in order to become employed
by or associated with any business, enterprise or effort that is associated with
its own business; *...*.
12.12 EXPORTS. The parties acknowledge that the export of technical
data, materials or products is subject to the exporting party receiving any
necessary export licenses and that the parties cannot be responsible for any
delays attributable to export controls which are beyond the reasonable control
of either party. GTC and BMI agree not to export or re-export, directly or
indirectly, any information, technical data, the direct product of such data,
samples or equipment received or generated under this Agreement in violation of
any applicable export control laws or governmental regulations. GTC and BMI
agree to obtain similar covenants from their licensees, sublicensees and
contractors with respect to the subject matter of this Section.
12.13 WAIVER. The waiver by either party hereto of any right hereunder
or the failure to perform or of a breach by the other party shall not be deemed
a waiver of any other right hereunder or of any other breach or failure by said
other party whether of a similar nature or otherwise.
12.14 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officer to execute and deliver this Agreement as of the date first set forth
above.
GENOME THERAPEUTICS CORPORATION
* Confidential Treatment Requested
33
<PAGE>
By:_______S/S___________________
Christopher T. Kelly
Senior Vice President
Strategic Planning/Business Development
BIOMERIEUX INCORPORATED
By:_______S/S____________________
Albert A. Luderer
President and Chief Operating Officer
* Confidential Treatment Requested
34
<PAGE>
TABLE OF CONTENTS
*...*
* Confidential Treatment Requested
<PAGE>
EXHIBIT B - DESCRIPTION OF THE GTC PATHOGENOME-TM- DATABASE
DNA Sequence Information: The GTC PathoGenome-TM- Database consists of genome
sequence and associated information relating to microbial organisms, which
information consists of both GTC Proprietary Information and information in the
public domain - listed below are the planned contents. Genome sequence and
associated information relating to the microbial organisms listed below will be
provided to subscribers on the earliest reasonable date, but in no event later
than the date it is provided to similar subscribers to the GTC PathoGenome-TM-
Database.
GTC PATHOGENOME-TM- PROPRIETARY INFORMATION IN RELEASE 6.0
Bacteria:
*...*
Fungi:
*...*
*...*
PUBLIC DATABASE:
Bacteria:
BACILLUS SUBTILIS
BORRELIA BURGDORFERI
CHLAMYDIA TRACHOMATI
CHLAMYDIA PNEUMONIAE
CLOSTRIDIUM ACETOBUTYLICUM
ESCHERICHIA COLI
* Confidential Treatment Requested
B -1
<PAGE>
HAEMOPHILUS INFLUENZAE
HELICOBACTER PYLORI strain 26695
HELICOBACTER PYLORI strain J99
MYCOBACTERIUM TUBERCULOSIS
MYCOPLASMA GENITALIUM
MYCOPLASMA PNEUMONIAE
RICKETTSIA PROWAZEKII
STREPTOCOCCUS PYOGENES
Archea:
METHANOCOCCUS JANNASCHII
METHANOBACTERIUM THERMOAUTOTROPHICUM
Fungi:
SACCHAROMYCES CEREVISIAE
BIOINFORMATICS: The GTC PathoGenome-TM- Database is designed for use at the
subscriber's facility, with a software environment specified by GTC.
DATABASE CONTENTS: The GTC PathoGenome-TM- Database consists of a set of
microbial genome data. Each of the proprietary microbial genomes is assembled
and subjected to analyses *...* are searched against a non-redundant database
*...* are also included in the GTC PathoGenome-TM- Database, to *...*. The data
are stored *...*. Scientists can explore the database *...*.
ANALYSIS TOOLS: The GTC PathoGenome-TM- Database will be provided with
*...*. Initial capabilities include *...*.
* Confidential Treatment Requested
B - 2
<PAGE>
EXHIBIT C - GTC PATHOGENOME-TM- DATABASE HARDWARE/SOFTWARE REQUIREMENTS
In order to ensure complete compatibility, ease of maintenance, and lack of
interference with BMI's existing systems, the GTC PathoGenome-TM- Database
*...*.
Client computers *...* should be adequate.
GTC's staff will work with BMI to determine a hardware configuration appropriate
to the expected level of use. BMI should also expect that any initial
configuration will grow as the size and use of the GTC PathoGenome-TM- Database
increases. *...*:
SERVER REQUIREMENTS
*...*
* Confidential Treatment Requested
C - 1
<PAGE>
* Confidential Treatment Requested
C - 2
<PAGE>
EXHIBIT D - GTC INSTALLATION AND SUPPORT PROGRAM
During the Access Period, GTC agrees to provide BMI with the following
services:
I. INSTALLATION AND TRAINING
A. INSTALLATION BY GTC. GTC will deliver the computer media containing the
current shipping release of the GTC PathoGenome-TM- Database and GTC
PathoGenome-TM- Database Software, within sixty (60) days of the date of this
Agreement. GTC will subsequently coordinate installation at a single site at
BMI at a mutually agreeable time and date,*...*.
B. TRAINING. Following installation, GTC will provide *...* user training in
the use of the GTC PathoGenome-TM- Database Software and the GTC
PathoGenome-TM- Database *...* documentation will be provided to BMI at the
time of initial user training. In addition, GTC will provide *...* refresher
training requested by BMI in *...* the Research Collaboration. *...*.
II. SUPPORT
GTC will make available to BMI telephone consultation on the use of the GTC
PathoGenome-TM- Database Software and the GTC PathoGenome-TM- Database, *...*.
Support will be provided during GTC's normal business hours (9:00 a.m. to
5:00 p.m. United States Eastern time).
III. *...* CORRECTION.
A. *...* GTC agrees to use reasonable commercial efforts to promptly *...*
in the GTC PathoGenome-TM- Database Software *...*.
B. ON-SITE SERVICE. At BMI's request, GTC will provide on-site service *...*
the GTC PathoGenome-TM- Database Software.
* Confidential Treatment Requested
D - 1
<PAGE>
IV. UPDATES TO THE GTC PATHOGENOME-TM- DATABASE.
GTC will provide BMI *...*, during the Research Collaboration *...*
included in the GTC PathoGenome-TM- Database, and will use reasonable efforts to
provide such updates *...*.
V. ENHANCEMENTS AND RELEASES.
GTC intends to *...* the GTC PathoGenome-TM- Database Software. BMI will
receive *...* the GTC PathoGenome-TM- Database Software made generally available
to all subscribers. Such *...* will be distributed to all subscribers
periodically as new releases. BMI agrees to upgrade the GTC PathoGenome-TM-
Database Software to the latest release as soon as practical. If a release is
not installed within *...* months after GTC has provided BMI with such release,
then GTC will no longer be obligated to support or provide error correction
service on those components of the GTC PathoGenome-TM- Database Software
upgraded by such release.
VI. FEES.
A. BASIC SERVICES. During the Research Collaboration, except as expressly
otherwise indicated in this Agreement, GTC will provide the services described
above *...*.
B. ADDITIONAL *...*. In the event that a *...* is determined to result from
(a) *...* in the GTC PathoGenome-TM- Database Software, or (b) *...* the GTC
PathoGenome-TM- Database Software implemented by BMI *...*.
In the event GTC considers, at any given time during the term of this
Agreement, that the *...* facility at which BMI wishes to receive the support
services mentioned in Subsection 4.1.3. (c), is *...* requires additional
unforeseen expense on the part of GTC in order to fulfill its obligations under
the present EXHIBIT D, then the Parties shall *...* of the amount which GTC
could reasonably have expected to pay to fulfill such obligations (the
"Reasonable and Foreseeable Costs").
* Confidential Treatment Requested
D - 2
<PAGE>
It is understood that the *...* to receive the services mentioned in
Subsection 4.1.3.(c) initially, shall be *...*. The *...* shall be calculated
in relation to the costs incurred by GTC in carrying out the services at this
aforementioned site, *...*.
BMI shall pay the *...* to GTC within *...* days of any service under
Subsection 4.1.3.(c) being performed.
* Confidential Treatment Requested
D - 3
<PAGE>
EXHIBIT E - MATERIAL TRANSFER AGREEMENT
This Agreement is made by and between Genome Therapeutics Corporation, a
Massachusetts corporation having its principal place of business at 100 Beaver
Street, Waltham, Massachusetts 02453 (hereinafter "GTC") and BMI, a corporation
organized under the laws of the state of Missouri having its principal place of
business at 595 Anglum Drive, Hazelwood, Missouri 63042-2395 U.S.A. (hereinafter
"BMI").
Whereas, GTC and BMI are parties to a Collaboration and License Agreement dated
September 30, 1999, relating in part to the GTC PathoGenome-TM- Database
containing certain microbial genomic sequence information;
Whereas GTC has rights to Materials (hereinafter defined) including microbial,
fungal or other organisms whose genomic sequence information is contained in the
GTC PathoGenome-TM- Database; and
Whereas BMI is interested in obtaining Materials to be used in connection with
its rights granted under, and subject to the restrictions contained in, the
Collaboration and License Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein, the parties, GTC and BMI, intending to be legally bound, hereby agree as
follows:
1. DEFINITION.
"MATERIAL" shall mean the material, not specifically granted to BMI
in the Collaboration and License Agreement, to be transferred from GTC to BMI,
identified in EXHIBIT B (including any replicates, progeny and unmodified
derivatives thereof created by BMI from such material transferred to it by GTC).
2. FEES. BMI shall pay to GTC *...* United States dollars for each microbial,
fungal or other organism used to produce the genomic sequence data in the GTC
PathoGenome-TM- Database.
3. DELIVERY OF MATERIAL. Promptly upon receipt of a written request from BMI,
GTC shall promptly provide BMI with the Material specified in such notice or a
written explanation of why such Material is not available. Within thirty (30)
days of receipt of such Material, BMI shall pay to GTC the amount as set forth
above, so long as the Material is active when tested by BMI within 30 days
following delivery.
4. OWNERSHIP: INVENTORSHIP. GTC retains all right and title in and to the
Material. Nothing contained in this Agreement shall restrict GTC's rights to use
or distribute the Material, retained by GTC, to other commercial or
noncommercial entities. Inventions and ownership of inventions created through
the use of the Material will be determined in the same manner as in the
Collaboration and License Agreement.
5. USE OF MATERIAL. BMI agrees that the Material will be used only to the extent
that BMI is permitted to use the GTC PathoGenome-TM- Database pursuant to the
Collaboration and License Agreement and such use shall be subject to all
restrictions on the use of the GTC PathoGenome-TM- Database under the
Collaboration and License Agreement. BMI still further
* Confidential Treatment Requested
E - 1
<PAGE>
agrees that the Material will not be distributed or disclosed to any third party
except to the extent that disclosure of the GTC PathoGenome-TM- Database is
permitted under the Collaboration and License Agreement. BMI agrees to comply
with all laws and regulations applicable to its handling and use.
6. ACKNOWLEDGMENT. BMI acknowledges that the Material is experimental in nature
and may have hazardous properties.
7. CONFIDENTIALITY. BMI agrees that the Material shall be deemed to be
Information (as defined in the Collaboration and License Agreement) subject to
the restrictions contained in the Collaboration and License Agreement.
8. PUBLICATIONS. Notwithstanding BMI's confidentiality obligations under the
Collaboration and License Agreement, BMI may publish scientific results of its
research and work. Publication shall be subject to the same terms and conditions
contained in the Collaboration and License Agreement.
9. NO TRANSFER OF RIGHTS. No right or license is granted under this Agreement by
GTC to BMI either expressly or by implication, except those specifically set
forth in the Collaboration and License Agreement. It is understood that any and
all proprietary rights, including but not limited to patent rights, trademarks
and trade secret rights, in and to the Material provided by GTC shall be and
remain in GTC, subject to the rights granted in the Collaboration and License
Agreement.
10. WARRANTY. BMI ACKNOWLEDGES THAT THE MATERIAL IS EXPERIMENTAL IN NATURE AND
THAT IT IS PROVIDED WITHOUT WARRANTY OF ANY KIND, BY WAY OF EXAMPLE AND NOT
LIMITATION, GTC MAKES NO REPRESENTATION OR WARRANTIES OF COMMERCIAL UTILITY,
TITLE, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER
WARRANTY, EXPRESS OR IMPLIED. GTC MAKES NO REPRESENTATIONS THAT THE USE OF THE
MATERIAL WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK OR OTHER PROPERTY OR
PROPRIETARY RIGHTS.
11. INDEMNIFICATION. Each party shall indemnify, defend and hold harmless the
other party and its trustees, officers, employees, Affiliates (as defined in the
Collaboration and License Agreement), and agents and their respective
successors, heirs and assigns against any liability, damage, loss or expense
(including reasonable attorney's fees and expenses of litigation) incurred by or
imposed upon the party seeking indemnification in connection with any claims,
suits, actions, demands or judgments arising out of BMI's use of the Materials
except to the extent that any such losses, liabilities, damages and expenses
(including attorney's fees and costs) are attributable to:
(i) a violation of law, regulation or court order by the party seeking
indemnification or its Affiliates;
* Confidential Treatment Requested
E - 2
<PAGE>
(ii) a violation of any contractual or fiduciary duty (including
misappropriation of trade secrets) owed by the party seeking
indemnification or its Affiliates;
(iii) any grossly negligent act or omission or intentional misconduct of
the party seeking indemnification or its Affiliates;
(iv) any breach of this Agreement or misrepresentation contained herein
by the party seeking indemnification or its Affiliates; and/or
(v) infringement by the party seeking indemnification or its Affiliates
of any Third Party's (as defined in the Collaboration and License
Agreement) patent rights, copyrights or other intellectual property
rights.
12. TERMINATION BY EITHER PARTY WITHOUT CAUSE. This Agreement will continue
until BMI is obligated under the terms of the Collaboration and License
Agreement to return or destroy the information in the GTC PathoGenome-TM-
Database to which the Material relates unless earlier terminated (i) by BMI,
upon thirty (30) days prior written notice, with or without cause, or (ii) by
GTC for breach of this Agreement that, where curable, is not cured within thirty
(30) days after written notice of such breach is delivered to BMI.
13. EFFECT OF TERMINATION OR EXPIRATION. Upon termination or expiration of this
Agreement for any reason BMI shall immediately return to GTC or, at GTC's
direction, destroy any and all unused Material and if instructed to destroy such
Material will provide evidence documenting the manner of destruction to GTC.
Upon termination or expiration of this Agreement all of BMI's rights to use the
Material shall cease. Following termination or expiration, neither party shall
have any further obligations under this Agreement, except that Sections 4, 7, 8,
9, 10, 11, and 15 shall survive and remain in force.
14. NOTICES. Any consent, notice or report required or permitted to be given
under this Agreement by one of the parties hereto shall be in writing delivered
by first class mail (or by any manner permitted under the Collaboration and
License Agreement) addressed to
If to GTC: Genome Therapeutics Corporation
100 Beaver Street
Waltham, Massachusetts 02453
Attention: President
Telephone: 1-781-398-2300
FAX: 1-781-893-8277
with a copy to: Palmer & Dodge LL
One Beacon Street
Boston, Massachusetts 02108
Attention: Marc A. Rubenstein, Esq.
Telephone: 1-617-573-0100
FAX: 1-617-227-4420
* Confidential Treatment Requested
E - 3
<PAGE>
If to BMI: bioMerieux Incorporated
595 Anglum Drive
Hazelwood, Missouri 63042-2395
Attention: President
Telephone: 1-314-731-8500
FAX: 1-314-731-8800
with a copy to: bioMerieux Incorporated,
Legal Department
595 Anglum Drive
Hazelwood, Missouri 63042-2395
Attention: General Counsel
Telephone: 1-314-731-8500
FAX: 1-314-731-8800
15. GOVERNING LAW. This Agreement shall be governed and construed under the laws
of the Commonwealth of Massachusetts irrespective of any conflict of laws
principles.
16. ENTIRE AGREEMENT. Subject to Section 17 hereof, this Agreement, together
with the exhibits hereto, contains the entire understanding of the parties with
respect to the subject matter hereof. This Agreement may not be assigned by any
party without the prior written consent of the other party. This Agreement sets
forth the entire understanding between the parties and cannot be changed or
amended except by written agreement executed by the parties.
17. GOVERNING AGREEMENT. In the event of any inconsistencies between the
terms of this Agreement and the Collaboration and License Agreement,
the terms of the Collaboration and License Agreement will govern.
IN WITNESS WHEREOF, GTC and BMI have caused this Agreement to be executed
by their duly authorized representatives as of the last date written below.
GENOME THERAPEUTICS CORPORATION BMI
By: ____________________________ By:________________________
--------------------------- ------------------------
Date: _____________________ Date: ____________________
* Confidential Treatment Requested
E - 4
<PAGE>
EXHIBIT F - MILESTONES
The following milestones shall be paid by BMI to GTC in relation to BMI
Products: (a) upon the First Commercial Sale *...* of a BMI Product *...*, BMI
shall pay to GTC *...* and (b) BMI shall pay to GTC a one time payment of *...*
United States dollars (*...*) for each BMI Blockbuster Product commercialized by
BMI or its sublicensees.
* Confidential Treatment Requested
F - 1
<PAGE>
EXHIBIT G - ROYALTY RATES
<TABLE>
- ------------------------------------------------------------------------------
<S> <C>
BMI Product *...* *...*
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BMI Product *...* *...*
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BMI Blockbuster Product *...*
- -------------------------------------------------------------------------------
</TABLE>
* Confidential Treatment Requested
G - 1
<PAGE>
EXHIBIT H - ARBITRATION PROCEDURES
The parties recognize that a bona fide dispute as to certain matters may
from time to time arise during the term of the Agreement. In the event of the
occurrence of any dispute, controversy or claim arising out of or relating to
the validity, construction, enforceability or performance of the Agreement,
including disputes relating to an alleged breach or termination of the
Agreement, it shall be settled by binding Alternative Dispute Resolution ("ADR")
in the manner set forth below; PROVIDED, HOWEVER, that the neutral referred to
below shall give effect to the provisions of the Agreement and shall not adjust,
modify or change the effects of termination as set forth in the Agreement.
(a) If a party intends to begin an ADR to resolve a dispute, such party
shall provide written notice (the "ADR Request") by certified or registered mail
or properly documented overnight delivery to the other party informing such
other party of such intention and the issues to be resolved. The notice shall
explain the nature of the complaint and refer to the relevant sections of the
Agreement upon which the complaint is based. The complaining party shall also
set forth a proposed solution to the problem, including a suggested time frame
within which the parties must act.
(b) The non-complaining party must respond in writing within *...* days of
receiving notice with an explanation, including references to the relevant
provisions of the Agreement and a response to the proposed solution and
suggested time frame for action. The non-complaining party may add additional
issues to be resolved.
(c) Within *...* days of receipt of the response from the
non-complaining party, the parties shall meet and discuss options for resolving
the dispute. The complaining party must initiate the scheduling of this
resolution meeting. Each party shall make available appropriate personnel to
meet and confer with the other party within the *...* day period following the
complaining party's receipt of the response by the non-complaining party.
(d) Any and all disputes that cannot be resolved pursuant to Paragraphs
(a), (b) and (c) shall be submitted to a neutral who shall be selected by mutual
agreement of the parties. If the parties are unable to agree upon a neutral,
then the neutral shall be selected in accordance with the procedures of the
American Arbitration Association. The neutral shall be an individual who shall
preside over and resolve any disputes between the parties. The neutral selected
shall be a former judge of a state or federal court and shall not be a current
or former employee, director or shareholder of, or otherwise have any current or
previous relationship with, either party or its respective Affiliates. The ADR
shall be conducted in accordance with the rules of the American Arbitration
Association then in effect, subject to the time periods and other provisions of
this Exhibit or as otherwise set forth in the Agreement.
(e) Consistent with the time schedule established pursuant to Paragraphs
(f) and (g) the neutral shall hold a hearing to resolve each of the issues
identified by the parties and shall render the award as expeditiously as
possible but in no event more than *...* days after the close of hearings.
* Confidential Treatment Requested
H - 1
<PAGE>
In making the award, the neutral shall rule on each disputed issue and the award
shall be based on, in whole or in part, the proposed ruling of one of the
parties on each disputed issue.
(f) During the meeting referred to in Paragraph (c), the parties shall
negotiate in good faith the scope and schedule of discovery, relating to
depositions, document production and other discovery devices, taking into
account the nature of the dispute submitted for resolution. If the parties are
unable to reach agreement as to the scope and schedule of discovery, the neutral
may order such discovery as he deems necessary. To the extent practicable taking
into account the nature of the dispute submitted for resolution, such discovery
shall be completed within *...* days from the date of the selection of the
neutral. At the hearing, which shall commence within *...* days after completion
of discovery unless the neutral otherwise orders, the parties may present
testimony (either live witness or deposition), subject to cross-examination, and
documentary evidence. To the extent practicable taking into account the nature
of the dispute submitted for resolution and the availability of the neutral, the
hearing shall be conducted over a period not to exceed *...* consecutive
business days, with each party entitled to approximately half of the allotted
time unless otherwise ordered by the neutral. The hearing shall be conducted in
Boston, Massachusetts. Each party shall have sole discretion with regard to the
admissibility of any evidence and all other matters relating to the conduct of
the hearing. The neutral shall, in rendering his decision, apply the substantive
law of the Commonwealth of Massachusetts. The decision of the neutral shall be
final and not appealable, except in the case of fraud or bad faith on the part
of the neutral or any party to the ADR proceeding in connection with the conduct
of such proceedings.
(g) At least *...* business days prior to the date set for the hearing,
each party shall submit to each other party and the neutral a list of all
documents on which such party intends to rely in any oral or written
presentation to the neutral and a list of all witnesses, if any, such party
intends to call at such hearing and a brief summary of each witness' testimony.
At least five (5) business days prior to the hearing, each party must submit to
the neutral and serve on each other party a proposed findings of fact and
conclusions of law on each issue to be resolved. Following the close of
hearings, the parties shall each submit such post-hearing briefs to the neutral
addressing the evidence and issues to be resolved as may be required or
permitted by the neutral.
(h) Except as otherwise set forth herein, the neutral shall determine
the proportion in which the parties shall pay the costs and fees of the ADR,
except that each party shall pay its own costs (including, without limitation,
reasonable attorney's fees) and expenses in connection with such ADR; PROVIDED,
HOWEVER, that if the neutral determines that the action of any party was
arbitrary, frivolous or in bad faith, the neutral may award such costs and
expenses to the prevailing party.
(i) The ADR proceedings shall be confidential and, except as required
by law, neither party shall make (or instruct the neutral to make) any public
announcement with respect to the proceedings or decision of the neutral without
the prior written consent of the other party. The existence of any dispute
submitted to ADR, and the award of the neutral, shall be kept in confidence by
the parties and the neutral, except as required in connection with the
enforcement of such award or as otherwise required by applicable law.
* Confidential Treatment Requested
H - 2
<PAGE>
(j) For the purposes of these arbitration provisions, the parties
acknowledge their diversity and agree to accept the jurisdiction of the
Federal District Court in Boston, Massachusetts for the purposes of enforcing
awards entered pursuant to these arbitration provisions and for enforcing the
agreements reflected in this Paragraph (j).
(k) Nothing contained herein shall be construed to permit the neutral
or any court or any other forum to award punitive, exemplary or any similar
damages. By entering into the Agreement and exercising their rights to
arbitrate, the parties expressly waive any claim for punitive, exemplary or any
similar damages. The only damages recoverable under this Agreement are
compensatory damages.
(l) The procedures specified herein shall be the sole and exclusive
procedures for the resolution of disputes between the parties which are
expressly identified for resolution in accordance with these arbitration
provisions.
* Confidential Treatment Requested
H-3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-START> SEP-01-1999
<PERIOD-END> NOV-27-1999
<CASH> 23,091
<SECURITIES> 7,018
<RECEIVABLES> 839
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 31,818
<PP&E> 27,415
<DEPRECIATION> 13,130
<TOTAL-ASSETS> 46,568
<CURRENT-LIABILITIES> 13,999
<BONDS> 0
0
0
<COMMON> 1,926
<OTHER-SE> 25,290
<TOTAL-LIABILITY-AND-EQUITY> 46,568
<SALES> 0
<TOTAL-REVENUES> 6,035
<CGS> 0
<TOTAL-COSTS> 6,311
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 154
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (122)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
