<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
For Quarter Ended March 31, 1995 Commission File Number 0-14587
</TABLE>
------------------------
GENETICS INSTITUTE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 04-2718435
(State or other jurisdiction of incorporation
or organization) (I.R.S. Employer Identification No.)
87 CAMBRIDGEPARK DRIVE,
CAMBRIDGE, MA 02140
(Address of principal executive offices) (zip code)
</TABLE>
Registrant's telephone number, including area code (617) 876-1170
NONE
(Former name, former address and former fiscal year if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
26,662,473 shares of Common Stock, par value $.01 (including 10,661,732
shares represented by Depositary Shares) were outstanding on May 4, 1995.
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GENETICS INSTITUTE, INC.
<TABLE>
INDEX
<CAPTION>
PAGE
NUMBER
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<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1 -- Financial Statements
Consolidated Condensed Balance Sheets -- March 31, 1995
and December 31, 1994....................................................... 1
Consolidated Statements of Operations for the Three Months Ended March 31,
1995
and 1994.................................................................... 2
Consolidated Condensed Statements of Cash Flows for the Three Months Ended
March 31, 1995 and 1994...................................................... 3
Notes to Consolidated Condensed Financial Statements.......................... 4
Item 2 -- Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 7
PART II -- OTHER INFORMATION
Item 1 -- Legal Proceedings........................................................ 9
Item 6 -- Exhibits and Reports on Form 8-K......................................... 9
Signatures......................................................................... 9
</TABLE>
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<TABLE>
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED - IN THOUSANDS)
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents......................................... $ 3,438 $ 21,793
Marketable securities............................................. 250,056 247,970
Accounts receivable............................................... 40,405 16,127
Inventories:
Materials and supplies....................................... 4,976 4,354
Work in progress............................................. 814 776
Finished goods............................................... 9,640 13,543
-------- --------
15,430 18,673
Other current assets......................................... 6,186 5,275
-------- --------
Total current assets.................................... 315,515 309,838
Property, plant and equipment..................................... 165,234 158,712
Less accumulated depreciation................................ (56,443) (53,397)
-------- --------
108,791 105,315
Other assets................................................. 7,215 6,440
-------- --------
$431,521 $421,593
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable............................................. $ 11,046 $ 11,544
Accrued expenses............................................. 19,270 21,045
-------- --------
Total current liabilities............................... 30,316 32,589
Shareholders' Equity:
Common stock, par value $.01................................. 266 266
Additional paid-in capital................................... 596,808 595,360
Accumulated deficit.......................................... (195,869) (206,622)
-------- --------
Total shareholders' equity.............................. 401,205 389,004
-------- --------
$431,521 $421,593
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
1
<PAGE> 4
<TABLE>
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED - IN THOUSANDS EXCEPT SHARE DATA)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1995 1994
------- --------
<S> <C> <C>
REVENUE
Product sales....................................................... $23,878 $ 12,952
Royalties........................................................... 10,563 8,872
Collaborative research and development.............................. 17,330 5,126
------- --------
Total revenue.................................................. 51,771 26,950
OPERATING EXPENSES
Cost of sales....................................................... 13,464 7,600
Research and development............................................ 26,924 27,124
General and administrative.......................................... 4,400 4,217
------- --------
Total operating expenses....................................... 44,788 38,941
------- --------
INCOME (LOSS) FROM OPERATIONS............................................ 6,983 (11,991)
OTHER INCOME (EXPENSE), NET
Investment income................................................... 4,177 3,820
Losses of affiliates................................................ (2,755) (1,109)
Other, net.......................................................... (2,706) (771)
------- --------
Total other income (expense), net.............................. (1,284) 1,940
------- --------
NET INCOME (LOSS)........................................................ $ 5,699 $(10,051)
======= ========
Weighted Average Common Shares and Common Share Equivalents
Outstanding............................................................ 26,909 26,335
======= ========
NET INCOME (LOSS) PER COMMON SHARE....................................... $ .21 $ (.38)
======= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
2
<PAGE> 5
<TABLE>
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED -- IN THOUSANDS)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1995 1994
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................................. $ 5,699 $(10,051)
Adjustments to reconcile net income (loss) to net cash used in
operating activities --
Depreciation and amortization................................ 3,194 3,009
Equity in losses of affiliates............................... 2,755 1,109
Compensation related to incentive plans...................... 174 220
Changes in assets and liabilities............................ (24,218) 17
-------- --------
Net cash used in operating activities............................. (12,396) (5,696)
-------- --------
INVESTING ACTIVITIES
Purchase of marketable securities................................. (46,702) (90,881)
Proceeds from sale/maturity of marketable securities.............. 49,670 88,695
Additions to property, plant and equipment........................ (6,522) (8,750)
Investments in affiliates......................................... (2,755) (1,109)
Other investing activities, net................................... (924) 451
-------- --------
Net cash used in investing activities............................. (7,233) (11,594)
-------- --------
FINANCING ACTIVITIES
Stock issuances................................................... 1,274 1,200
-------- --------
Net cash provided by financing activities......................... 1,274 1,200
-------- --------
Net decrease in cash and cash equivalents......................... (18,355) (16,090)
Cash and cash equivalents, beginning of period.................... 21,793 20,869
-------- --------
Cash and cash equivalents, end of period.......................... $ 3,438 $ 4,779
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
<PAGE> 6
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying consolidated condensed financial
statements are unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of these financial statements have been
included. Such adjustments consisted only of normal recurring items. Interim
results are not necessarily indicative of results for a full year. Certain
amounts in the prior period financial statements have been reclassified to
conform to the current period presentation. The consolidated condensed financial
statements should be read in conjunction with the Company's audited consolidated
financial statements and related footnotes for the year ended December 31, 1994.
The consolidated condensed financial statements include all accounts of
Genetics Institute, Inc. and its wholly-owned subsidiaries. Investments in 50%
owned joint ventures are accounted for on the equity method. Under the equity
method, investments in such affiliated joint ventures are recorded at cost and
adjusted by the Company's share of the income and losses of and the investments
in and distributions from such affiliates. All significant intercompany balances
and transactions have been eliminated in consolidation.
Losses of affiliates consists of the Company's share of research and
development expenses incurred by affiliated joint ventures, excluding any
research and development or other services provided by the Company to the joint
ventures, and net of the Company's share of benchmark payments or license fees
received by the joint ventures. The Company's share of affiliate losses is
generally funded as incurred and its share of affiliate income is generally
distributed when received by the joint venture. Investments in such affiliates
are accounted for on the equity method and amounted to $1.2 million and $0.4
million at March 31, 1995 and December 31, 1994, respectively. The more
significant of these affiliates are GI-Yamanouchi, Inc. (GYJ) and IL-12
Partners. The GYJ is a 50/50 joint venture with Yamanouchi Pharmaceutical Co.,
Ltd. formed to develop certain of the Company's product candidates in Japan.
IL-12 Partners is a 50/50 joint venture with American Home Products Corporation
formed in 1994 to develop recombinant human interleukin-twelve (rhIL-12)
worldwide, except Japan. Amounts included in losses of affiliates representing
the Company's share of the net losses of the GYJ were $2.1 million and
$1.1 million for the first quarters of 1995 and 1994, respectively. The
Company's share of the loss of IL-12 Partners for the first quarter of 1995
was $0.6 million.
2. TRANSACTIONS WITH AMERICAN HOME PRODUCTS CORPORATION
On September 19, 1991, the Company and American Home Products Corporation
("AHP") entered into an Agreement and Plan of Merger (the "AHP Transaction")
that was consummated on January 16, 1992 through which AHP acquired a 60%
interest in the Company. In connection with the AHP Transaction, the Company
issued 9,466,709 new shares of Common Stock to AHP for an aggregate purchase
price of approximately $300.0 million and, for shares of common stock owned, the
Company's shareholders received a combination of cash and Depositary Shares
subject to a call option. Under the terms of the call option, AHP has the right
but not the obligation, to purchase the outstanding Depositary Shares that it
does not own, in whole but not in part, at any time until December 31, 1996, at
a call price of $73.95 per share for the period April 1, 1995 to June 30, 1995
and increasing by approximately $1.84 on a quarterly basis to $85.00 per share
for the quarter ending December 31, 1996.
Independent of its right to call the Depositary Shares, AHP is permitted by
the terms of the agreements with the Company to acquire additional Depositary
Shares through open market purchases or privately negotiated purchases, provided
that its aggregate holdings do not exceed 75% of the Company's outstanding
equity, subject to certain exceptions. As of March 31, 1995, such transactions
have brought AHP's total ownership position in the Company to approximately 64%.
4
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GENETICS INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Collaborative research and development revenue includes $3.1 million and
$1.5 million, respectively, for the three months ended March 31, 1995 and 1994
and losses of affiliates includes $0.6 million for the three months ended March
31, 1995 relating to collaborations with AHP in the area of cellular adhesion
proteins and in the development and commercialization of recombinant human
interleukin-twelve (rhIL-12), an immune system modulatory protein.
3. INVESTMENTS IN DEBT SECURITIES
<TABLE>
The Company's portfolio of debt securities consists of cash equivalents
classified as held-to-maturity and marketable securities classified as
available-for-sale. The fair value of cash equivalents approximated the
amortized cost of $3.1 million at March 31, 1995. Aggregate fair value,
amortized cost and average maturity for marketable securities held at March 31,
1995 are presented below. The average maturities presented below include
estimates of the effective life for certain securities whose actual maturities
will differ from contractual maturities because the borrowers have the right to
call or prepay the obligations without call or prepayment penalties.
<CAPTION>
GROSS UNREALIZED
AMORTIZED HOLDING GAINS FAIR
COST AND (LOSSES) VALUE
--------- ---------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government and Agency securities (average
maturity of 3.4 years)........................... $145,663 $675 $(3,724) $142,614
Corporate and other debt securities (average
maturity
of 2.5 years).................................... 110,511 99 (3,168) 107,442
--------- ---- ------- --------
$256,174 $774 $(6,892) $250,056
========= ==== ======= ========
</TABLE>
The decrease in the net unrealized loss on marketable securities for the
three months ended March 31, 1995 was $5.1 million. Gross realized gains and
losses on sales of marketable securities for the three month periods ended March
31, 1995 and 1994 were not material.
4. CONTINGENCIES
The Company has been engaged in legal proceedings relating to the amount of
damages payable by the Company as a result of the holding of the U.S. Court of
Appeals for the Federal Circuit ("CAFC") that the Company infringed a U.S.
patent of Amgen Inc. ("Amgen") relating to recombinant erythropoietin ("EPO").
On May 11, 1993, the Company and Amgen agreed to settle all then outstanding
claims of Amgen against the Company in the United States relating to recombinant
EPO.
In August 1991, Ortho Pharmaceutical Co., Ltd. and its affiliates
("Ortho"), a licensee of Kirin-Amgen, Inc.'s ("Kirin-Amgen") recombinant EPO
patents, initiated infringement proceedings against the Company in the U.S.
District Court in Massachusetts. Ortho moved to consolidate the case with the
infringement suit brought by Amgen. Upon motion by the Company and Amgen, the
District Court dismissed Ortho's claims and the CAFC affirmed the District
Court's decision in April 1995.
In June 1994, the Company sued Ortho in the U.S. District Court in
Delaware. The Company's suit claimed that Ortho's manufacture, use and sale of
EPO in the U.S. infringes a patent covering pharmaceutical compositions
containing homogeneous EPO that was issued to the Company by the U.S. Patent and
Trademark Office on June 21, 1994 (the '837 patent). In September 1994, Amgen
sued the Company in U.S. District Court in Massachusetts. Amgen's suit asked the
court to declare that the Company's '837 patent is invalid and not infringed by
Amgen and to declare that any dispute over the patent was resolved by the prior
litigation. The Company has filed counterclaims against Amgen for infringement
for the '837 patent. Ortho intervened in the Amgen suit in Massachusetts and the
suit against Ortho in Delaware has been stayed. In
5
<PAGE> 8
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
February 1995, the Massachusetts court granted a motion by Amgen for summary
judgment. The court ruled that the CAFC decision in the prior litigation
invalidating an earlier U.S. EPO patent of the Company precluded the assertion
of the '837 patent. The Company has appealed the decision. The Company can
provide no assurances as to the outcome of these disputes with Ortho and Amgen.
The Company and its licensees are engaged in various patent litigation
proceedings in Europe related to EPO. Beginning in 1991, Ortho and certain Ortho
affiliates initiated patent infringement litigation in Europe against Boehringer
Mannheim GmbH ("Boehringer Mannheim"), the Company's European EPO licensee,
based on a European recombinant EPO patent issued to Kirin-Amgen, its licensor.
The suits have included requests for damages and/or injunctive relief.
Boehringer Mannheim filed suits against Ortho and/or certain of its affiliates
in Europe claiming infringement of the Company's European EPO patents. This
litigation has expanded into many of the European Community countries in
Boehringer Mannheim's territory. In some countries, where the patentee is a
legally necessary party to a suit to enforce a patent, the Company has joined as
a plaintiff. The Company is also a defendant in suits in the United Kingdom,
Germany, Italy and the Netherlands brought by an Ortho affiliate seeking to
invalidate and revoke the Company's EPO patents in the United Kingdom, the
former East Germany, Italy and the Netherlands, respectively. The revocation
suit in Germany was dismissed in May 1994. However, this decision has been
appealed.
In June 1994, a claim in the Company's European patent covering homogeneous
EPO compositions (the '539 patent) was upheld by the Opposition Division of the
European Patent Office. This decision has been appealed. In September 1994, an
appellate hearing was held before the Board of Technical Appeals of the European
Patent Office relating to the oppositions to Kirin-Amgen's European recombinant
EPO patent. The Board ruled that a modified version of certain of Kirin-Amgen's
original claims in the patent filing was valid.
The Company can provide no assurance as to the outcome of these European
proceedings. If the courts ultimately rule in Ortho's favor in these European
proceedings, including issuing an injunction against the future manufacture or
sale of recombinant EPO by Boehringer Mannheim, or if this litigation is
otherwise concluded in a manner adverse to Boehringer Mannheim or the Company,
future royalty income from EPO in Europe, which totaled $11.3 million in fiscal
1994, could be reduced or eliminated.
The Company is engaged in a patent interference proceeding among the
Company, Genentech, Inc. and Chiron Corporation concerning the Factor VIII
patent rights which are cross-licensed between Baxter (the Company's licensee)
and Genentech, Inc. While the Company believes it or Genentech should prevail in
the interference, no assurance can be given as to the outcome of this
interference. Any disposition of this proceeding in a manner unfavorable to the
Company or its licensee could have a material adverse effect on the Company's
future consolidated results of operations.
The Company is engaged in a patent interference proceeding among the
Company, Transgene, S.A., Zymogenetics, Inc. and British Technology Group, Ltd.
("BTG") concerning U.S. patent rights directed to the use of vitamin K as a
culture medium supplement in the manufacture of recombinant Factor IX. BTG has
licensed and Zymogenetics and Transgene have agreed to license their respective
Factor IX patent rights to the Company. In addition, the Company is engaged in a
patent interference proceeding with Stryker Corporation, the assignee of
Creative BioMolecules, Inc., concerning one of the Company's U.S. patents
covering recombinant BMP-2. Both Factor IX and BMP-2 are currently in the
clinical development stage. The Company can provide no assurance as to the
outcome of these proceedings.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Genetics Institute, Inc. is principally engaged in discovering, developing
and commercializing protein-based therapeutic products using recombinant DNA and
related technologies. Significant volatility has been associated with the
business and operations of biopharmaceutical companies. Developments involving
the Company or its competitors concerning technological innovations, new
commercial products, results of clinical trials, patents, proprietary rights and
related infringement disputes, results of litigation and the expense and time
associated with obtaining requisite government approvals may have a significant
impact on the Company's business.
The Company's consolidated results of operations have fluctuated from
period to period and may continue to fluctuate in the near-term as a result of
the timing of production and shipment of bulk protein products, changes in the
timing and composition of funding under its collaborative research and
development agreements, the ability to consummate new collaborative agreements,
royalty income (and the impact of infringement litigation on royalty income),
interest income and the amount of expenditures committed to research and
development programs.
As of March 31, 1995, five of the Company's proprietary product candidates
were in phase I or phase II human clinical trials. Phase I and phase II data are
preliminary measurements of a product's safety and efficacy and do not assure
positive phase III data or ultimate regulatory approval for commercial sale. The
Company's market valuation could be subject to volatility as investors interpret
the results of the Company's current and future clinical trials.
The Company and American Home Products Corporation ("AHP") entered into a
transaction (the "AHP Transaction") through which AHP acquired a majority
interest in the Company effective January 16, 1992 (see Note 2 of Notes to
Consolidated Condensed Financial Statements).
RESULTS OF OPERATIONS
Three Months Ended March 31, 1995 and 1994. The Company reported net
income of $5.7 million for the first quarter ended March 31, 1995 compared with
a net loss of $10.1 million for the first quarter of 1994. The net income for
the first quarter of 1995 as compared with the net loss for the first quarter of
1994 is primarily due to increases in revenue which included $12.5 million in
licensing revenue as discussed below. However, with five products presently in
clinical trials, the Company expects to incur a net loss for the full
fiscal year.
The Company's revenues include product revenue from the supply of
recombinant human antihemophilic factor concentrate ("rhAHF") to Baxter
Healthcare Corporation ("Baxter"), royalties on sales of products by marketing
partners, and collaborative research and development revenue for license fees
and activities conducted under the Company's agreements with its various
collaborative partners. Revenues for the 1995 first quarter of $51.8 million
increased 92%, or $24.8 million, from the first quarter of fiscal 1994.
Product sales increased 84%, or $10.9 million for the 1995 first
quarter due primarily to increases in the unit volume of rhAHF shipped to
Baxter. The 19% increase in royalties for the 1995 first quarter is principally
due to increases in collaborative partners' sales of finished drug products.
Collaborative research and development revenue increased $12.2 million for the
1995 first quarter, principally due to $12.5 million recognized in the first
quarter of 1995 in connection with an agreement between the Company and Sofamor
Danek Group, Inc. to commercialize recombinant human bone morphogenetic
protein-two (rhBMP-2) in North America for use in certain surgical procedures
involving the spine. Collaborative research and development revenue includes
$3.1 million and $1.5 million, respectively, for the first quarter of 1995 and
1994 relating to collaborations with AHP in the development and
commercialization of recombinant human interleukin-twelve (rhIL-12), an immune
system modulatory protein, and in the area of cellular adhesion discovery
research. AHP's discovery research funding commitment relating to the cellular
adhesion collaboration will end as scheduled during the second quarter of 1995.
7
<PAGE> 10
Cost of sales includes royalties payable to third parties upon the receipt
of certain royalty revenues from collaborative partners. Such third party
royalties totaled $1.2 million and $1.0 million in the first quarters of 1995
and 1994, respectively. Cost of sales, excluding third party royalties, as a
percentage of product sales was 51% for the first quarter in both 1995 and 1994.
Research and development expense decreased $0.2 million for the 1995 first
quarter to $26.9 million. Increases in facilities and clinical study costs were
offset by an increase in the amount of facilities and equipment costs absorbed
by inventory, as commercial production of rhAHF expanded from one to two
manufacturing suites during the second quarter of 1994. General and
administrative expenses for the 1995 first quarter approximated prior year
levels.
Investment income increased 9% in the 1995 first quarter as the impact of
higher interest rates more than offset a lower average balance of cash and
marketable securities between periods. Losses of affiliates increased $1.6
million for the first quarter of 1995 compared with the prior year primarily due
to expansion of product development activities in Japan that are being conducted
through GI-Yamanouchi, Inc. (GYJ), a joint venture with Yamanouchi
Pharmaceutical Co., Ltd., and to rhIL-12 product development activities that are
being conducted through IL-12 Partners, a joint venture with AHP. Other expense,
net, for the first quarter of 1995 increased by $1.9 million to $2.7 million
principally due to unrealized losses on foreign currency forward contracts that
are expected to be offset during the balance of 1995 as royalties are earned in
Japan and Germany.
LEGAL PROCEEDINGS
The Company is engaged in a number of legal proceedings. See Note 4 of
Notes to Consolidated Condensed Financial Statements which is incorporated by
reference herein.
LIQUIDITY AND CAPITAL RESOURCES
Cash and marketable securities totaled $253.5 million at March 31, 1995, a
decrease of $16.3 million from December 31, 1994. The net use of cash and
marketable securities is principally due to an increase in accounts receivable
of $24.3 million relating to (i) the initial $12.5 million license fee from
Sofamor Danek which was received in April 1995 and (ii) increased accounts
receivable of $11.5 million from Baxter for shipments of rhAHF, of which $5.2
million is due to increased unit shipment volume with the balance of the
increase resulting from a change in the contractual terms for the payment of
rhAHF product revenue to the Company by Baxter.
The Company expects that its available cash and marketable securities,
together with investment income, operating revenues and lease and debt financing
arrangements, will be sufficient to finance its working capital and capital
requirements for the foreseeable future. Over the next several years, the
Company's cash requirements will be subject to change depending upon numerous
factors including the level of capital expenditures, the amount of expenditures
committed to self-funded research and development programs, the results of
research and development activities, competitive and technological developments,
the levels of resources which the Company devotes to the expansion of its
clinical testing, manufacturing and marketing capabilities and the timing and
cost of obtaining required regulatory approvals for new products.
8
<PAGE> 11
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 4 of Notes to the Consolidated Condensed Financial Statements
provided in Part I of this Quarterly Report on Form 10-Q, which Note is hereby
incorporated by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The Exhibits filed as part of this Form 10-Q are listed on the Exhibit
Index immediately preceding such Exhibits, which Exhibit Index is
incorporated herein by reference.
(b) No reports were filed on Form 8-K during the quarter ended March 31,
1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Genetics Institute, Inc.
------------------------------------
(Registrant)
/S/ GAREN G. BOHLIN
By: --------------------------------
Garen G. Bohlin,
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Date: May 12, 1995
9
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------------- ----
<C> <S> <C>
3.2 1995 Amendment to the Company's By-Laws...................................
10.1 Amended and Restated License Agreement between Genetics Institute, Inc.
and Sofamor Danek Properties, Inc. dated as of February 15, 1995..........
11 Computation of Earnings Per Share.........................................
27 Financial Data Schedules (EDGAR)..........................................
</TABLE>
10
<PAGE> 1
EXHIBIT 3.2
1995 Amendment to By-Laws
-------------------------
ARTICLE XXII of the By-Laws are amended and restated as follows:
Section 1. Actions, Suits or Proceedings Other than by or in the
--------- -----------------------------------------------------
Right of the Corporation. The Corporation shall indemnify any person who was
- ------------------------
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation)
by reason of the fact that he is or was or has agreed to become a director,
officer or employee of the Corporation, or is or was serving or has agreed to
serve at the request of the Corporation as a director, officer, employee or
trustee of another corporation, partnership, joint venture, trust or other
enterprise (all such persons being referred to hereafter as an "Indemnitee"),
or by reason of any action alleged to have been taken or omitted in such
capacity, against costs, charges, expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
---------------
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Notwithstanding
anything to the contrary in this Article XXII, except as set forth in Section 5
of this Article XXII, the Corporation shall not indemnify an Indemnitee seeking
indemnification in connection with a proceeding (or part thereof) initiated by
the Indemnitee unless the initiation thereof was approved by the Board of
Directors of the Corporation.
Section 2. Actions or Suits by or in the Right of the Corporation.
--------- ------------------------------------------------------
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was or has agreed to become a director,
officer or employee of the Corporation or by reason of any action alleged to
have been taken or omitted in such capacity, against costs, charges and
expenses (including attorneys' fees) actually and reasonably incurred by in or
on his behalf in connection with the defense or settlement of such action or
suit and any appeal therefrom, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of such
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such costs, charges and
expenses which the Court of Chancery or such other court
<PAGE> 2
shall deem proper.
Section 3. Indemnification for Costs, Charges and Expenses of
--------- --------------------------------------------------
Successful Party. Notwithstanding the other provisions of this Article XXII,
- ----------------
to the extent that an Indemnitee has been successful, on the merits or
otherwise, including, without limitation, the dismissal of an action without
prejudice or the settlement of an action without admission of liability, in
defense of any action, suit or proceeding referred to in Sections 1 and 2 of
this Article XXII, or in defense of any claim, issue or matter therein, or on
appeal from any such action, suit or proceeding, he shall be indemnified
against all costs, charges and expenses (including attorneys' fees) actually
and reasonably incurred by him or on his behalf in connection therewith.
Section 4. Notification and Defense of Claim. As a condition
--------- ---------------------------------
precedent to his right to be indemnified, the Indemnitee must give to the
Corporation notice in writing as soon as practicable of any action, suit,
proceeding or investigation involving him for which indemnity will or could be
sought. With respect to an action, suit, proceeding or investigation of which
the Corporation is so notified, the Corporation will be entitled to participate
therein at its own expense and/or to assume the defense thereof at its own
expense, with legal counsel reasonably acceptable to such Indemnitee. After
notice from the Corporation to the Indemnitee of its election so to assume such
defense, the Corporation shall not be liable to the Indemnitee for any legal or
other expenses subsequently incurred by the Indemnitee in connection with such
claim, other than as provided below in this Section. The Indemnitee shall have
the right to employ his own counsel in connection with such claim, but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of
such action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation,
except as otherwise expressly provided by this Article XXII. The Corporation
shall not be entitled to assume the defense of any claim brought by or on
behalf of the Corporation or as to which counsel for the Indemnitee shall have
reasonably made the conclusion provided for in clause (ii) above.
Section 5. Advances of Costs, Charges and Expenses. In the event
--------- ---------------------------------------
that the Corporation does not assume the defense pursuant to Section 4 of this
Article XXII of any action, suit, proceeding or investigation about which the
Corporation receives notice under this Article XXII, any costs, charges and
expenses (including attorneys' fees) incurred by an Indemnitee in defending a
civil or criminal action, suit, proceeding or investigation or any appeal
therefrom shall be paid by the Corporation in advance of the final disposition
of such matter; provided, however, that the payment of such costs, charges and
expenses incurred by an Indemnitee in advance of the final disposition of such
matter shall be made only upon receipt of an undertaking by or on behalf of the
Indemnitee to repay all amounts so advanced in the event that it shall
ultimately be determined that such Indemnitee is not entitled to be indemnified
by the
2
<PAGE> 3
Corporation as authorized in this Article XXII.
Section 6. Procedure for Indemnification. Any indemnification or
--------- -----------------------------
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article XXII
shall be made promptly, and in any event within 60 days after receipt by the
Corporation of the written request of the Indemnitee, unless with respect to
requests under Section 1 or 2 of this Article XXII, a determination is made
within such 60-day period by the Board of Directors of the Corporation by a
majority vote of a quorum of disinterested directors that such Indemnitee did
not meet the applicable standard of conduct set forth in Section 1 or Section 2
of this Article XXII, as the case may be. In the event no quorum of
disinterested directors is obtainable, the Board of Directors shall promptly
direct that independent legal counsel shall determine, based on facts known to
such counsel at such time, whether such Indemnitee met the applicable standard
of conduct set forth in such Sections; and, in such event, indemnification
shall be made to the Indemnitee unless within 60 days after receipt by the
Corporation of the request by such Indemnitee for indemnification, such
independent legal counsel in a written opinion determines that the Indemnitee
has not met the applicable standard of conduct. The right to indemnification
or advances as granted by this Article XXII shall be enforceable by the
Indemnitee in any court of competent jurisdiction if the Corporation denies
such request, in whole or in part, or if no disposition thereof is made within
the 60-day period referred to above. Such Indemnitee's costs and expenses
incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such proceeding shall also be
indemnified by the Corporation.
Section 7. Subsequent Amendment. No amendment, termination or repeal
--------- --------------------
of this Article XXII or of relevant provisions of the Delaware General
Corporation Law or any other applicable laws shall affect or diminish in any
way the rights of any Indemnitee to indemnification under the provisions hereof
with respect to any action, suit, proceeding or investigation arising out of,
or relating to any actions, transactions or facts occurring prior to the final
adoption of such amendment, termination or repeal.
Section 8. Other Rights. The indemnification provided by this
--------- ------------
Article XXII shall not be deemed exclusive of any other rights to which an
Indemnitee seeking indemnification may be entitled under any law (common or
statutory), agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in any
other capacity while holding office for or employed by the Corporation, and
shall continue as to a person who has ceased to be a director, officer or
employee, and shall inure to the benefit of the estate, heirs, executors and
administrators of such person. Nothing contained in this Article XXII shall be
deemed to prohibit, and the Corporation is specifically authorized to enter
into, agreements with officers, directors and employees providing
indemnification rights and procedures different from those set forth herein.
Section 9. Partial Indemnification. If an Indemnitee is entitled
--------- -----------------------
under any provision of this Article XXII to indemnification by the Corporation
for some or a portion of the costs, charges, expenses, judgments or fines
actually and reasonably incurred by him in the investigation, defense, appeal
or settlement of any proceeding but not, however, for the total
3
<PAGE> 4
amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for
the portion of such costs, charges, expenses, judgments or fines to which such
Indemnitee is entitled.
Section 10. Insurance. The Corporation may purchase and maintain
---------- ---------
insurance, at its expense, to protect itself and any director, officer,
employee or agent of the Corporation or another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability or loss
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General Corporation
Law.
Section 11. Merger, Consolidation, Etc. If the Corporation is merged
---------- --------------------------
into or consolidated with another corporation and the Corporation is not the
surviving corporation, or if substantially all of the assets or stock of the
Corporation is acquired by any other corporation, or in the event of any other
similar reorganization involving the Corporation, the Board of Directors of the
Corporation or the board of directors of any corporation assuming the
obligations of the Corporation shall assume the obligations of the Corporation
under this Article XXII, with respect to any action, suit proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger, consolidation, acquisition or
reorganization.
Section 12. Savings Clause. If this Article XXII or any portion
---------- --------------
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee
as to any costs, charges, expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement with respect to any action, suit,
proceeding or investigation, whether civil, criminal or administrative,
including an action by or in the right of the Corporation, to the full extent
permitted by any applicable portion of this Article XXII that shall not have
been invalidated and to the full extent permitted by applicable law.
Section 13. Definitions. Terms used herein and defined in Section
---------- -----------
145 (h) and Section 145 (i) of the Delaware General Corporation Law shall have
the respective meanings assigned to such terms in such Section 145 (h) and
Section 145 (i).
Section 14. Subsequent Legislation. If the Delaware General
---------- ----------------------
Corporation Law is amended after adoption of this Article XXII to further
expand the indemnification permitted to Indemnitees, then the Corporation shall
indemnify such persons to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
As amended by the Board of Directors
on February 7, 1995.
4
<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED
LICENSE AGREEMENT
between
GENETICS INSTITUTE, INC.
and
SOFAMOR DANEK PROPERTIES, INC.
<PAGE> 2
AMENDED AND RESTATED
LICENSE AGREEMENT
-----------------
AGREEMENT dated as of February 15, 1995 between GENETICS INSTITUTE,
INC., a Delaware corporation, having its principal place of business at 87
CambridgePark Drive, Cambridge, Massachusetts 02140 (hereinafter referred to as
"GI") and SOFAMOR DANEK PROPERTIES, INC., a Delaware corporation, having its
principal place of business at 1800 Pyramid Place, Memphis, Tennessee 38132
(hereinafter referred to as "Licensee").
INTRODUCTION
------------
1. GI has research, development and manufacturing facilities and
experienced scientists, clinicians, engineers, technical associates and
assistants and other personnel which enable it to conduct research and
development activities in the area of biotechnology and the application thereof
to the manufacture and marketing of biotechnology-based products.
2. Licensee, through its Affiliates, is engaged in the development,
manufacture and marketing of spinal implant devices which are used in the
surgical treatment of spinal degenerative diseases and deformities and are used
to increase stability during the healing of spinal traumas.
3. GI has identified, isolated, purified and cloned a number of bone
morphogenetic proteins and has developed, manufactured, and sold for
consideration a bone morphogenetic protein known as BMP-2.
<PAGE> 3
4. GI has filed patent applications and been issued certain patents
relating to BMP-2 and other bone morphogenetic proteins in various countries.
5. Licensee desires to license from GI the right to use, distribute
and sell products incorporating BMP-2 and other bone morphogenetic proteins for
use in the Licensed Field (as defined below) in the Territory (as defined
below).
6. GI is willing, for the consideration and on the terms set forth
herein, to grant such license to Licensee for such purposes.
In consideration of the mutual covenants and promises contained in this
Agreement and other good and valuable consideration, GI and Licensee agree as
follows:
Article I. DEFINITIONS
----------------------
As used in this Agreement, the following terms, whether used in the
singular or plural, shall have the following meanings:
1.1. "ACS Matrix" means the absorbable collagen sponges developed by
----------
ILS and distributed by GI for use in conjunction with Bone Growth Factors.
1.2. "Affiliate(s)" of a Party means any corporation or other
------------
business entity controlling, controlled by or under common control with such
Party. For purposes of this Section 1.2, "control" shall mean (i) the direct
or indirect ownership of at least fifty percent (50%) of the voting or income
interest in such corporation or other business entity, or (ii) such other
relationship as, in fact, constitutes actual control.
2
<PAGE> 4
1.3. "Base Sales" means:
----------
(a) subject to paragraphs (b)-(e) below, the aggregate United States
dollar equivalent of gross revenues derived by or payable to Licensee and its
Affiliates from the sale of Licensed Products and Matrix Components to
non-Affiliated third parties less, to the extent included in such gross
revenues, (i) discounts, rebates, credits or allowances, if any, actually
granted on account of price adjustments on, or recalls, rejection or return of,
Licensed Products and Matrix Components; (ii) excises, sales taxes, value added
taxes, consumption taxes, duties or other taxes imposed upon and paid with
respect to such sales (excluding income or franchise taxes of any kind); and
(iii) separately itemized insurance and transportation costs incurred in
shipping Licensed Products and Matrix Components to such non-Affiliated third
parties. No deduction shall be made for any item of cost incurred by Licensee
and its Affiliates in preparing, manufacturing, shipping or selling Licensed
Products and Matrix Components except as permitted pursuant to clauses (i),
(ii) and (iii) of the foregoing sentence. Base Sales shall not include any
transfer between Licensee and any of its Affiliates for resale. Notwithstanding
the foregoing, in the event that Licensee or any of its Affiliates sells
Licensed Products and Matrix Components in the United States to a
non-Affiliated third party who acts as a distributor of Licensee, the gross
revenues included in Base Sales shall be the gross revenues
3
<PAGE> 5
derived by or payable to such distributor from its resale of the Licensed
Products and Matrix Components and not the gross revenues derived by or payable
to Licensee or such Affiliates (it being specifically agreed that this sentence
shall not apply to Mexico or Canada). Further, the provisions of paragraphs
(b)-(e) below shall apply to the resale of the Licensed Products and Matrix
Components by such distributor. For purposes of the foregoing sentences,
hospital buying groups or other managed care providers shall not be deemed to
be distributors.
(b) In the event that Licensee or any of its Affiliates shall use,
transfer or otherwise dispose of Licensed Products and Matrix Components for
other than monetary value, such Licensed Products and Matrix Components shall
be deemed to be sold hereunder. The gross revenues to be included in Base
Sales for any such deemed sales shall be the average price of "arms length"
sales by Licensee and its Affiliates in the Territory during the quarterly
accounting period in which such deemed sale occurs or, if no such "arms length"
sales occurred during such period, during the last quarterly accounting period
in which such "arms length" sales occurred.
(c) In the event that Licensee or any of its Affiliates shall price
and sell Licensed Products and Matrix Components in conjunction with other
products of Licensee or its Affiliates and if the weighted average discount on
the list price granted on such Licensed Products and Matrix Components is
4
<PAGE> 6
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
related to the sale of such other products and is greater than the weighted
average discount on list price granted on such other products, Base Sales for
any such sales shall be calculated based on the weighted average discount on
list price granted on such other products. GI and Licensee agree to evaluate
material discount packages on a case-by-case basis and, where appropriate,
mutually agree to include sales under such packages in the calculation of Base
Sales and exclude such sales from the discount limitation calculation provided
in this paragraph (c).
(d) If a Licensed Product and Matrix Component is sold by Licensee or
any of its Affiliates together with instrumentation in an SKU Package Sale and
the instrumentation has, in the aggregate, a selling price equal to greater
than *** ************* of the selling price of the Licensed Product and Matrix
Component, then the portion of the selling price of the Licensed Product and
Matrix Component included in Base Sales shall be calculated as follows:
Base Sales = *************************
where X = the average quarterly unit selling price of
the Licensed Product and Matrix Component without
the instrumentation;
Y = the average quarterly unit selling price of the
instrumentation; and
5
<PAGE> 7
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
Z = the average quarterly unit selling price of the
Licensed Product and Matrix Component with the
instrumentation,
provided that in no event shall ********* equal less than ****. If either the
Bone Growth Factor and Matrix Component or the instrumentation are not sold
separately in the Licensed Field, the Parties shall agree on the appropriate
selling price to be attributed to the Bone Growth Factor and Matrix Components
or the instrumentation. If available, the Parties shall use as a reference the
selling price of comparable protein and comparable matrix components or
instrumentation in the Licensed Field.
(e) If Licensee is required to pay license fees, option fees,
royalties or similar payments to third parties (i) which are mutually agreed to
by GI and Licensee or (ii) which result from a settlement, judgment or similar
obligation arising out of an infringement dispute under Section 6.4, 6.5 or 6.6
of this Agreement (subject to a ****************** of any such payment to the
Licensed Products in the Licensed Field in the Territory) and, in either case,
are directly attributable to the sale of a Bone Growth Factor or Matrix
Component (including, without limitation, the royalties to the GPDC identified
in Section 2.5 of this Agreement), gross revenues to be included in Base Sales
of such Licensed Product and Matrix Component shall be reduced by
************************** of such amounts so paid. If GI is required to pay
license fees, option fees, royalties or similar
6
<PAGE> 8
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
payments to third parties (x) which are mutually agreed to by GI and Licensee
or (y) which result from a settlement, judgment or similar obligation arising
out of an infringement dispute under Section 6.4, 6.5 or 6.6 of this Agreement
(subject to a ***************** of any such payment to the Licensed Products in
the Licensed Field in the Territory) and, in either case, are directly
attributable to the sale of a Bone Growth Factor or Matrix Component
(including, without limitation, the royalties to ILS identified in Section 2.5
of this Agreement), gross revenues to be included in Base Sales of such
Licensed Product and Matrix Component shall be increased by
************************** of such amounts so paid. Base Sales shall also be
reduced by *** ********************** of any fees paid by Licensee to the IBR
based on sales of Licensed Products and Matrix Components.
1.4. "BMP-2" means the bone morphogenetic protein known at GI as
-----
BMP-2.
1.5. "Bone Growth Factors" means (a) BMP-2 (but specifically
-------------------
excluding the polynucleotides encoding such protein) and (b) any additional
bone morphogenetic proteins (but specifically excluding the polynucleotides
encoding such proteins) which (i) are set forth on Schedule A to this
----------
Agreement, (ii) have an application in the Licensed Field, (iii) are being
clinically and commercially developed by GI and (iv) are selected for license
by Licensee pursuant to the option set forth in Section 3.2 of this Agreement.
7
<PAGE> 9
1.6. "Confidential Information" means (a) all proprietary
------------------------
information and materials, patentable or otherwise, of a Party which is
disclosed by or on behalf of such Party to the other Party, including DNA
sequences, vectors, cells, substances, formulations, techniques, methodology,
equipment, data, reports, know-how, regulatory studies and the results thereof,
sources of supply, patent positioning and business plans, including any
relevant or material developments, and (b) any other information designated by
the disclosing Party to the other Party as confidential or proprietary, whether
or not related to the making, using or selling of Bone Growth Factors, GI
Products or Licensed Products.
1.7. "Direct Cost" means (a) the purchase price to GI or
-----------
Licensee (including any royalties paid) in the event that GI or Licensee
contracts for the manufacture of the matrix component and (b) (i) costs
directly attributable to manufacturing, quality assurance and quality control
related to a unit of product (i.e., those costs which vary with production),
including, but not limited to, direct labor and benefit expenses for
manufacturing, and consumable bulk and other production materials, as
determined in accordance with United States generally accepted cost accounting
practices, plus (ii) fixed manufacturing overhead costs allocable to the
product based on the actual utilization of the manufacturing facility,
including but not limited to, direct benefit and labor expenses for technical
services and support
8
<PAGE> 10
services, depreciation, maintenance and repairs and insurance costs associated
with such utilization of the manufacturing facility, as determined in
accordance with United States generally accepted cost accounting practices, in
the event that GI or Licensee manufactures the matrix component.
1.8. "FDA" shall mean the United States Food and Drug Administration.
---
1.9. "GI Products" means any product containing BMP-2 or any other
-----------
bone morphogenetic protein set forth on Schedule A to this Agreement or any
product containing ACS Matrix or any other matrix supplied by GI under this
Agreement and any and all formulations, mixtures or compositions thereof
developed, used, manufactured, distributed or sold by GI, by any Affiliates of
GI, or by any licensees or distributors of GI or any of its Affiliates.
1.10. "GI Technology" is defined in Section 6.1 of this Agreement.
-------------
1.11. "GPDC" means GPDC Partnership, a Delaware general partnership.
----
1.12. "IBR" means the Institute for Biological Reconstruction
---
described in Section 4.5 of this Agreement.
1.13. "IDE" means an Investigational Device Exemption (or application
---
therefor) or its equivalent or any corresponding foreign exemption or
application.
9
<PAGE> 11
1.14. "Improvements" means any technical information, clinical data,
------------
know-how or intellectual property rights, patentable or otherwise, developed,
applied or acquired by Licensee (other than that licensed from GI pursuant to
the terms of Section 2.1 of this Agreement) during the term of this Agreement
in connection with Licensed Products, ACS Matrix or any other matrix supplied
by GI under this Agreement which is reasonably useful or necessary or is
required in connection with the use, manufacture, distribution and/or sale of
GI Products or Licensed Products.
1.15. "ILS" means Integra LifeSciences Corporation, a Delaware
---
corporation.
1.16. "Know-How" means all technical information, clinical data,
--------
know-how or intellectual property rights, patentable or otherwise, of GI,
developed, applied or acquired (with the right to sublicense) by GI (other than
that licensed to GI pursuant to the terms of Section 6.2 of this Agreement) as
of and during the term of this Agreement, including any improvements,
enhancements or modifications thereto, in connection with the identification,
characterization, expression, use or production of Bone Growth Factors which is
reasonably useful or necessary or is required to use, distribute and/or sell
Licensed Products. Know- How shall not include rights obtained by GI in the
course of a collaboration with a third party unless GI has the right to license
the same to Licensee, provided that after the date of
10
<PAGE> 12
this Agreement, GI shall use commercially reasonable and diligent efforts to
obtain the right from any such third party to license to Licensee any such
Know-How. Schedule B describes in reasonable detail any Know-How that GI is
contractually prohibited from licensing to Licensee as of the date of this
Agreement.
1.17. "Licensed Field" means bone and related connective tissue
--------------
(including, tendons, ligaments and cartilage) repair, regeneration and/or
augmentation of the human spine (specifically, the cervical, thoracic, lumbar,
sacral, bones of the human spine along with concomitant repair of the adjacent
regions of the human iliac and pelvic bones but not including the acetabulum).
Licensed Field shall exclude neural repair and regeneration of the human spinal
cord.
1.18. "Licensed Products" means any product consisting of a Bone
-----------------
Growth Factor and any and all formulations, mixtures or compositions thereof
which product is labelled (and solely labelled) for use in the Licensed Field.
1.19. "Licensee Technology" is defined in Section 6.1 of this
-------------------
Agreement.
1.20. "Matrix Component" means a matrix component packaged or
----------------
labelled specifically for use with a Licensed Product.
1.21. "Party" means GI or Licensee; "Parties" means GI and Licensee.
----- -------
11
<PAGE> 13
1.22. "Patent Rights" means all United States and foreign patents
-------------
and patent applications (which for all purposes of this Agreement shall
be deemed to include certificates of invention and applications for
certificates of invention) developed, applied or acquired (with the right to
sublicense) by GI (other than those licensed to GI pursuant to the terms of
Section 6.2 of this Agreement) as of and during the term of this Agreement,
including any improvements, enhancements or modifications thereto, (including
any reissues, extensions (or other governmental acts which effectively extend
the period of exclusivity by the patent holder), substitutions, confirmations,
negotiations, revalidations, additions, continuations, continuations-in-part,
or divisions of or to any of the foregoing) in connection with the
identification, characterization, expression, use or production of Bone Growth
Factors which are reasonably useful or necessary or are required to use,
distribute and/or sell Licensed Products. Patent Rights shall not include
rights obtained by GI in the course of a collaboration with a third party
unless GI has the right to license the same to Licensee, provided that after
the date of this Agreement, GI shall use commercially reasonable and diligent
efforts to obtain the right from any such third party to license to Licensee
any such Patent Rights. Schedule B sets forth in reasonable detail any Patent
----------
Rights that GI is contractually
12
<PAGE> 14
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
prohibited from licensing to Licensee as of the date of this Agreement.
1.23. "PMA" means a Pre-Marketing Approval application or its
---
equivalent or any corresponding foreign application.
1.24. "SKU Package Sale" means a single packaged unit designated by a
----------------
separate stock keeping unit number.
1.25. "Territory" means Canada, Mexico and the United States and any
---------
territory, protectorate or commonwealth of Canada, Mexico or the United States.
Article II. PATENT AND KNOW-HOW LICENSES
-----------------------------------------
2.1. Licenses. Subject to the reservation of rights set forth in
--------
Section 2.2 of this Agreement, GI hereby grants to Licensee and its Affiliates:
(a) an exclusive license in the Territory to GI's interest
under the Patent Rights; and
(b) an exclusive license to use GI's interest in the
Know-How in the Territory, without the right to grant sublicenses, for the sole
and exclusive purpose of using, distributing and selling Licensed Products in
the Licensed Field in the Territory. The license granted pursuant to Section
2.1(a) shall continue in effect until the earlier of (i) the expiration of the
last patent licensed to Licensee under this Section 2.1 or (ii) the
***************** anniversary of the date of the first commercial sale of a
Licensed Product after FDA approval or clearance (or such later
13
<PAGE> 15
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
date to which the term of this Agreement may be extended pursuant to Section
9.2). The license granted pursuant to Section 2.1(b) shall be for a period of
********************** from the date of the first commercial sale of a Licensed
Product after FDA approval or clearance (or such later date to which the term
of this Agreement may be extended pursuant to Section 9.2). In addition to the
foregoing licenses, Licensee shall be permitted to purchase ACS Matrix and
other matrix components from GI in accordance with the terms of Article V of
this Agreement for use with (and solely for use with) Licensed Products.
2.2. Reservation of Rights. GI retains the exclusive right under
---------------------
the Patent Rights and the Know-How to manufacture Bone Growth Factors in the
Territory for the Licensed Field and to use, manufacture, distribute and sell
Bone Growth Factors in the Territory outside the Licensed Field. GI also
retains the non-exclusive right to (a) use Bone Growth Factors in the Licensed
Field in the Territory for the purpose of distributing and/or selling GI
Products in the Licensed Field outside the Territory, (b) conduct discovery
research relating to Bone Growth Factors in the Licensed Field in the
Territory, and (c) perform contract activities for the Licensee in the Licensed
Field in the Territory.
2.3. Representation and Warranty Regarding Patent Rights and Know-How.
----------------------------------------------------------------
GI represents and warrants that (a) to the best of its knowledge, it has
sufficient right, title and interest in the
14
<PAGE> 16
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
Patent Rights and Know-How to grant the licenses set forth in this Agreement,
(b) it owns the Patent Rights and Know-How or owns license rights to the Patent
Rights and Know-How free of any liens, encumbrances, pledges or claims of any
third party which would interfere with GI's obligations or Licensee's rights
under this Agreement, provided that any Patent Rights and Know-How which are
licensed to GI are subject to the terms of the licenses granted to GI and (c)
the rights and licenses granted in this Agreement to Licensee do not violate
any rights or licenses previously granted by GI or any of its Affiliates to any
third party. GI also represents and warrants that, to the best of its
knowledge, all ************** the ******************** or ******* to GI, as of
the date of this Agreement, on ***** are ***** and ***********.
2.4. Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, GI
----------
MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
NON-INFRINGEMENT. LICENSEE EXPRESSLY ACKNOWLEDGES THAT GI IS NOT AN EXPERT IN
THE LICENSED FIELD AND THAT LICENSEE IS SOLELY RESPONSIBLE FOR EVALUATING THE
SAFETY, EFFICACY AND SUITABILITY OF ANY LICENSED PRODUCTS FOR USE OR SALE IN
THE LICENSED FIELD IN THE TERRITORY.
2.5. Royalties Due Third Parties. Licensee shall be responsible for
---------------------------
paying any and all royalties due GPDC on sales or other dispositions of
Licensed Products. GI shall be responsible
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for paying any and all royalties due ILS on sales or other dispositions of
Licensed Products and Matrix Components. GI represents and warrants that it
has delivered to Licensee prior to the date of this Agreement true and correct
copies of all agreements with GPDC and ILS that require the payment of any
royalties or other similar fees to GPDC or ILS, as the case may be. GI shall
not amend or modify any such agreement in a manner adverse to Licensee.
Schedule C sets forth in reasonable detail a summary of any royalty or other
- ----------
similar fees payable to GPDC or ILS under any such agreement.
2.6 Representation and Warranty as to Bone Growth Factors. GI
-----------------------------------------------------
represents and warrants that, to the best of its knowledge, Schedule A lists
----------
all bone morphogenetic proteins (other than BMP-2) cloned by GI as of the date
of this Agreement.
Article III. LICENSE FEES AND OTHER CONSIDERATION
--------------------------------------------------
<TABLE>
3.1. License to BMP-2. In consideration of the licenses granted by GI
----------------
to Licensee under this Agreement with respect to BMP-2, Licensee shall make
the following non-refundable license fee payments to GI on the following dates
subject, however, to the applicable provisions of Articles VIII and IX of this
Agreement:
<CAPTION>
Date Amount
- ---- ------
<S> <C>
Effective Date of this $ 12,500,000
Agreement (as set forth in
Section 9.l)
June 30, 1996 **********
</TABLE>
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<TABLE>
<S> <C>
June 30, 1997 **********
June 30, 1998 **********
Total $50,000,000
===========
</TABLE>
The foregoing license fee payments are expressly stipulated not to be construed
as payments for research and development, the feasibility of the Patent Rights
and Know-How pertaining to BMP-2 having been adequately demonstrated. Further,
it is expressly agreed that any past or future research and development of
Patent Rights and Know-How is not the financial responsibility of Licensee.
3.2. Option to License Other Bone Growth Factors; Expansion of
----------------------------------------------------------
Proteins and Licensed Field.
- ---------------------------
(a) GI hereby grants to Licensee the option to license from GI,
pursuant to the terms of this Agreement, any Bone Growth Factors other than
BMP-2 clinically and commercially developed by GI after the date of this
Agreement. GI hereby agrees to give Licensee prompt written notice if and when
GI decides to clinically and commercially develop a bone morphogenetic protein
which is (i) set forth on Schedule A and (ii) may have an application in the
----------
Licensed Field. Licensee shall have the right to license any such bone
morphogenetic protein, pursuant to the terms of this Agreement, at any time
after GI's delivery of such written notice by providing written notice to GI.
In the event that Licensee exercises its option with respect to any such bone
morphogenetic protein, such bone
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morphogenetic protein shall thereafter be a Bone Growth Factor licensed to
Licensee pursuant to the terms of this Agreement. Notwithstanding the
foregoing, GI shall have the right to request a definitive decision from
Licensee as to whether or not it desires to license any such bone morphogenetic
protein from GI by making a written request to Licensee that it make such a
definitive decision within ***************************** of such written
request. If Licensee fails to notify GI in writing within such
**************************** period that it desires to license the bone
morphogenetic protein, such bone morphogenetic protein shall no longer be
available to Licensee and GI shall be free to develop and commercialize such
bone morphogenetic protein in the Licensed Field in the Territory. In
consideration of both the option set forth in this Section 3.2 and, if
exercised, any related license, Licensee hereby agrees to act as a
non-exclusive distributor of GI Products in accordance with Section 4.4 of this
Agreement and to supply GI with its requirements of matrix components in
accordance with Section 5.5 of this Agreement.
(b) GI agrees that if it discovers and develops proteins in addition
to those set forth on Schedule A to this Agreement which it develops for use in
**** and ******* ************************, ************ and ************, it
will discuss with Licensee terms for the expansion of this Agreement to include
such proteins and give due consideration to such
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expansion. In addition, GI agrees that if it discovers and develops a protein
for ************* and ************, it will discuss terms with Licensee for the
expansion of this Agreement to include rights to use and sell such protein for
****** and ************ of the ***************** and give due consideration to
such expansion. Licensee acknowledges that American Home Products Corporation
holds certain rights of first refusal to such uses and fields.
Article IV. COMMERCIALIZATION
------------------------------
4.1. Obligations of GI. GI agrees to disclose to Licensee and its
-----------------
Affiliates, on an on-going basis, in writing, all Patent Rights and Know-How
and any other laboratory, animal, clinical, regulatory, production and other
scientific data in GI's possession relating to Licensed Products and/or Matrix
Components (except for manufacturing information which shall not be disclosed
to Licensee) as may be reasonably useful or necessary for Licensee to perform
its responsibilities under this Agreement and/or exploit the Licensed Products.
In addition, because of GI's experience in the commercialization of BMP-2
outside the Licensed Field, GI agrees to use commercially reasonable and
diligent efforts to:
(a) provide for production of Bone Growth Factors; and
(b) conduct all additional animal studies of Bone
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Growth Factors and matrix components as are reasonably requested by Licensee to
support the filing by Licensee of government regulatory approval applications
for Licensed Products in the Licensed Field in the Territory. Notwithstanding
the obligation of GI to perform the additional animal studies described in the
foregoing clause (b), Licensee shall reimburse GI for all mutually agreed to
out-of-pocket costs actually incurred and paid or payable to third parties by
GI in connection with the performance of such additional animal studies.
4.2. Obligations of Licensee. Licensee agrees to use commercially
-----------------------
reasonable and diligent efforts to:
(a) conduct all necessary and appropriate regulatory studies and
control the manner and extent of such regulatory studies in order to file IDEs
and PMAs (or other similar filings) which it believes will be sufficient to
obtain approval to use, distribute and sell Licensed Products in the Licensed
Field in the Territory;
(b) prepare, file and prosecute all governmental applications
necessary to obtain approvals to import, export, use, distribute and sell
Licensed Products in the Licensed Field in the Territory;
(c) provide for the assembly and packaging of Licensed Products; and
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(d) market Licensed Products in the Licensed Field in the Territory
on a commercial basis after receipt of all necessary approvals for marketing by
applicable government regulatory agencies. The obligation of Licensee set
forth in the foregoing clause (b) shall include, but not be limited to,
exerting commercially reasonable and diligent efforts to (i) submit an IDE to
the FDA for a Licensed Product in the Licensed Field by ***************, (ii)
except for ****************** that *************** be ****************,
******** any **************** within ****** **** days after receipt of notice
of such ************, (iii) initiate human studies within *********** days
after IDE approval, (iv) enroll at least ***************** patients within
******* months after all IRB's approvals for the FDA approved sites have been
obtained and (v) submit a PMA for such Licensed Product to the FDA within
******* months after Licensee has ********************** the requirements of
the ************ IDE protocol. In the event that any of these milestones is
not achieved, the provisions of Section 8.2 of this Agreement shall apply and
be GI's sole remedy with respect to the failure of Licensee to achieve such
milestones, provided that Licensee is not otherwise in default of any of its
material obligations under this Agreement.
4.3. Cooperative Efforts.
-------------------
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(a) Because of GI's experience in the commercialization of BMP-2
outside the Licensed Field, in order to effect an efficient transfer of
knowledge regarding the conduct of regulatory studies involving Bone Growth
Factors, the Parties shall discuss and give due consideration to the
possibility of Licensee's utilizing GI to assist in the conduct of Licensee's
regulatory studies in the United States of Licensed Products in the Licensed
Field according to protocols designed by Licensee.
(b) GI shall grant Licensee the right to cross-reference any IDE and
any PMA (or other similar filings) submitted and/or filed by GI with any
government regulatory agency in the Territory relating to GI Products
containing Bone Growth Factors for the purpose (and solely for the purpose) of
supporting the regulatory approval of an IDE and PMA (or other similar filings)
submitted and/or filed by Licensee with a government regulatory agency in the
Territory for Licensed Products for use in the Licensed Field. In addition, to
the extent that GI possesses the right, GI shall also grant Licensee the right
to cross- reference any IDE and any PMA (or other similar filings) submitted
and/or filed by GI or any of its licensors or suppliers with any government
regulatory agency in the Territory relating to matrix components which are
usable with Licensed Products for the purpose (and solely for the purpose) of
supporting the regulatory approval of an IDE and PMA
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(or other similar filings) filed by Licensee with a government regulatory
agency in the Territory for Licensed Products for use in the Licensed Field.
(c) Licensee agrees to disclose to GI, on an on-going basis, in
writing, all Improvements and any other laboratory, animal, clinical,
regulatory, production and other scientific data in Licensee's possession as
may be reasonably useful or necessary for GI, any Affiliates of GI, or any
licensees or distributors of GI or any of its Affiliates to use, manufacture
and sell GI Products, provided that GI shall not be permitted to disclose such
Improvements and data to an Affiliate or to a licensee or distributor of GI or
any of its Affiliates unless GI has a similar reciprocal arrangement with such
entity running to the benefit of Licensee.
(d) Licensee shall grant GI the right to cross-reference any IDE
and any PMA (or other similar filings) submitted and/or filed by Licensee with
any government regulatory agency in the Territory relating to Licensed Products
for the purpose (and solely for the purpose) of supporting the regulatory
approval of an IDE and PMA (or other similar filings) submitted and/or filed by
GI, any Affiliates of GI, or any licensees or distributors of GI or any of its
Affiliates with any government regulatory agency in or outside the Territory
relating to GI Products. In addition, to the extent that Licensee possesses
the right, Licensee shall also grant GI the
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<PAGE> 25
right to cross-reference any IDE and any PMA (or other similar filings)
submitted and/or filed by Licensee or any of its licensors or suppliers with
any government regulatory agency in the Territory relating to matrix components
which are contained in GI Products for the purpose (and solely for the purpose)
of supporting the regulatory approval of an IDE and PMA (or other similar
filings) submitted and/or filed by GI, any Affiliates of GI, or any licensees
or distributors of GI or any of its Affiliates with any government regulatory
agency relating to such GI Products for use outside the Licensed Field.
(e) GI shall furnish Licensee with copies of all medical device
reports (or the equivalents thereof) related to GI Products containing Bone
Growth Factors and/or matrix components which are used with Licensed Products
or requested by Licensee for potential use with Licensed Products. Licensee
shall furnish GI with copies of all medical device reports (or the equivalents
thereof) related to Licensed Products and products containing matrix components
which are incorporated in GI Products, in each case, as required by law and, in
addition, in accordance with those procedures mutually agreed upon by GI and
Licensee.
(f) GI and Licensee shall agree on the reporting, communication and
coordination activities with respect to GI Products and Licensed Products to be
undertaken by the Parties
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during the term of the exclusive licenses granted under this Agreement.
4.4 Appointment as Non-Exclusive Distributor. Licensee agrees that,
----------------------------------------
at GI's request and upon the terms and conditions of each distribution
agreement contemplated by this Section 4.4, Licensee shall act as a
non-exclusive distributor in the Territory of those GI Products outside the
Licensed Field designated by GI. In the event of any such request by GI, GI
and Licensee shall each use good faith efforts to negotiate and enter into a
separate distribution agreement. GI shall sell the GI Products that are the
subject of the distribution agreement to Licensee and its Affiliates at a
purchase price equal to the ***** of (a) the ****** price ******** such GI
Products to other of its distributors or (b) ****************** of GI's list
price for such GI Products. In addition to such terms regarding purchase
price, each distribution agreement shall contain terms regarding forecast
procedures and permitted variances from forecasted amounts, order and delivery
times and other usual and customary terms. Other than requirements to purchase
specified percentages of forecasted amounts, in no event shall any such
distribution agreement contain any requirement by Licensee to purchase a
minimum number of GI Products in any period.
4.5. Institute for Biological Reconstruction. GI and Licensee agree
---------------------------------------
that they will cooperate in supporting medical education programs related to
the biological reconstruction of
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bone and related connective tissues through the establishment and funding of a
not-for-profit foundation, to be named the Institute for Biological
Reconstruction or such other name as the Parties mutually agree ("IBR"), to
further such purposes. Unless otherwise agreed by the Parties, the Parties
shall use commercially reasonable and diligent efforts to establish the IBR no
later than ***************. Prior to the first commercial sale of Licensed
Products, the funding of the IBR shall be mutually agreed upon and shared
equally by GI and Licensee and any other then-existing licensees or
distributors of GI Products in the Territory. Commencing with the first
commercial sale of a Licensed Product, (a) Licensee shall support the IBR by
contributing to the IBR **************** of Base Sales (prior to taking into
account such percentage) or such other percentage as is mutually agreed to by
GI and Licensee and (b) GI shall support the IBR by contributing to the IBR
**************** of net sales of GI Products or such other percentage as is
mutually agreed to by GI and Licensee.
Article V. SUPPLY
------------------
5.1. Regulatory Supply. GI shall, at its own expense, supply Licensee
-----------------
and its Affiliates with such quantities of Bone Growth Factors and, if so
desired by Licensee, ACS Matrix as are reasonably requested by Licensee for all
regulatory study purposes in the Licensed Field in the Territory. GI shall
have the right to undertake the manufacture of Bone Growth Factors
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itself or through an Affiliate or any other third party approved by Licensee in
writing, which approval shall be promptly given and not unreasonably withheld.
Licensee shall have no right to test or otherwise use ACS Matrix other than in
conjunction with the regulatory studies of Bone Growth Factors in the Licensed
Field in the Territory. Notwithstanding the foregoing, if Licensee or its
Affiliates receive monetary value in conjunction with such regulatory studies,
Licensee or its Affiliates shall be deemed to have sold a Licensed Product and
such sale shall be included in the calculation of Base Sales.
5.2. Commercial Supply. GI shall supply Licensee and its Affiliates
-----------------
with one hundred percent (100%) of their requirements of Bone Growth Factors
and, if so desired by Licensee, ACS Matrix for all commercial purposes in the
Licensed Field in the Territory. GI shall have the right to undertake the
manufacture of Bone Growth Factors itself or through an Affiliate or any other
third party approved by Licensee in writing, which approval shall be promptly
given and not unreasonably withheld. Licensee shall have no right to purchase
ACS Matrix except for the purpose of using the matrix component with a Licensed
Product to be distributed or sold in the Licensed Field in the Territory. All
Bone Growth Factors and ACS Matrix supplied by GI for commercial purposes shall
be supplied to Licensee pursuant to the terms of separate supply agreements.
Each of GI and Licensee shall use good faith efforts to negotiate and
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enter into each such supply agreement at least ********** prior to the
********************** of ********************* relating to the applicable
Licensed Product. GI shall supply commercial Bone Growth Factors at a supply
price equal to ************* ***** of the per unit Base Sales price of Licensed
Products and Matrix Components, as specified below. GI shall supply Licensee
with its reasonable requirements of ACS Matrix at *******. Licensee shall
deliver to GI within thirty (30) days after the end of each calendar quarter
following the first market approval of a Licensed Product a written report
showing its computation of Base Sales for such calendar quarter for Licensed
Products and Matrix Components. All Base Sales shall be segmented in each such
report according to sales by the Licensee, and each Affiliate and, if
applicable, United States distributor, as well as on a product-by- product and
country-by-country basis, including the rates of exchange used to convert
retail selling prices to United States Dollars from the currency in which such
sales were made. For the purposes hereof, the rates of exchange to be used for
converting retail selling prices to United States Dollars shall be those
published for the purchase of Dollars in the East Coast Edition of the
Wall Street Journal for the last business day of the calendar quarter as to
- -------------------
which the report relates. GI shall invoice Licensee (net 30 days) on each
shipment to Licensee of Bone Growth Factors for ************* ***** of the
Base Sales reasonably anticipated to be generated
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from such supply based on the weighted-average Territory-wide Base Sales price
per Licensed Product and Matrix Component as reported in the most recent
quarterly report furnished to GI, provided that an estimate shall be used until
such time as a full quarter of sales has occurred following FDA approval or
clearance of a Licensed Product. GI and Licensee shall within sixty (60) days
after the first full quarter of sales adjust such estimated payments to reflect
the prices from Base Sales generated in the first full quarter after FDA
approval or clearance. All Bone Growth Factors and ACS Matrix shall be deemed
sold when shipped to Licensee except for permitted returns for failures to meet
specifications. In addition to such terms regarding supply price
specifications, shortage of supply and inability to supply Licensed Products as
further specified in Sections 5.3 and 5.4, each supply agreement shall contain
terms regarding audits by GI (or its representatives) of the calculation of
Base Sales, forecast procedures and permitted variances from forecasted
amounts, order and delivery times, and other usual and customary terms. All
forecast procedures and order and delivery times shall take into account the
lead time necessary for the manufacture and delivery of biologics. Other than
requirements to purchase specified percentages of forecasted amounts, in no
event shall any such supply agreement contain any requirement by Licensee to
purchase a minimum amount of Bone Growth Factors or ACS Matrix in any period.
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Notwithstanding anything to the contrary, GI and Licensee shall each in good
faith negotiate and attempt to agree upon the terms, conditions and form of the
supply agreements contemplated by this Section 5.2 by ******************.
5.3. Specifications. GI agrees that all Bone Growth Factors
--------------
and ACS Matrix supplied to Licensee will be manufactured in accordance with the
Good Manufacturing Practices of the FDA. In addition, GI and Licensee shall
consult and cooperate in good faith in providing the optimal specifications,
configurations and packaging for the Bone Growth Factors and ACS Matrix to be
supplied by GI pursuant to Section 5.2; provided, however, that any such
specifications, configurations and packaging shall be agreed to in writing by
Licensee prior to any supply of Bone Growth Factors and ACS Matrix pursuant to
Section 5.2. GI agrees to supply Bone Growth Factors and ACS Matrix in
accordance with such specifications. In the event Licensee desires Bone Growth
Factors or ACS Matrix in specifications, configurations or packaging which
varies from GI's own clinical or commercial specifications, configurations or
packaging, GI shall offer such products, however, Licensee shall reimburse GI
for ******************* of its cost incurred in developing and implementing
such changes. GI and Licensee shall in such event mutually agree in advance on
a development budget.
5.4. Shortage of Supply. In the event of a shortage of supply of
------------------
either Bone Growth Factors or ACS Matrix, GI shall
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promptly notify Licensee and, unless otherwise agreed by the Parties, (a) prior
to such time as GI, GI's other licensees of Bone Growth Factors or purchasers
of ACS Matrix and Licensee have each been marketing a GI Product or Licensed
Product on a commercial basis for a period of ******************, available
supply shall be allocated on a pro-rata basis based on good faith forecasts of
requirements and (b) thereafter, available supply shall be allocated on a
pro-rata basis based on quantities purchased during the prior *****************
period. GI shall not be liable for any damages of Licensee arising from a
shortage of supply of Bone Growth Factors and/or ACS Matrix except to the
extent that (x) Licensee incurs ************** ************** to *************
as a result of such *********** ****** and (y) such ***************** was the
subject of a mutually agreeable *********************** and ***************,
provided that this provision shall not limit Licensee's rights and remedies for
any breaches of mutually agreed to standards under the applicable supply
agreement.
5.5. Supply of Licensee Matrix.
-------------------------
(a) Licensee shall, at its own expense, supply GI with such quantities
of any matrix component (other than OPLA) that Licensee develops or acquires as
of and during the term of this Agreement as are reasonably requested for use in
regulatory studies of GI Products by GI and its Affiliates, licensees and
distributors outside the Licensed Field whether in or outside
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the Territory. To the extent permitted by (and available under) Licensee's
existing contractual arrangements regarding Licensee's polymer matrix known as
OPLA, Licensee shall be obligated to supply such matrix under this paragraph
(a).
(b) Licensee shall supply GI with one hundred percent (100%) of GI's
commercial requirements (including those of its Affiliates, licensees and
distributors) of any matrix component (other than OPLA) Licensee develops or
acquires as of and during the term of this Agreement for use in GI Products
outside the Licensed Field whether in or outside the Territory. All matrix
supplied by Licensee for commercial purposes shall be supplied to GI pursuant
to the terms of separate supply agreements. Each of GI and Licensee shall use
good faith efforts to negotiate and enter into each supply agreement at least
********** prior to the ********************** of *********************
relating to the applicable GI Product. Licensee shall supply matrix at a price
equal to Licensee's Direct Cost plus *******************. In addition to such
terms regarding supply price specifications, shortage of supply and inability
to supply such matrices specified in paragraphs (c) and (d) of this Section
5.5, each supply agreement shall contain terms regarding forecast procedures
and permitted variances from forecasted amounts, order and delivery times, and
other usual and customary terms. Other than requirements to purchase specified
percentages of forecasted amounts, in no event shall any such supply agreement
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contain any requirement by GI to purchase a minimum amount of matrix in any
period. Licensee shall have the right to undertake such manufacture itself or
through an Affiliate or any third party. To the extent permitted by (and
available under) Licensee's existing contractual arrangements regarding
Licensee's polymer matrix known as OPLA, Licensee shall be obligated to supply
such matrix under this paragraph (b). Notwithstanding anything to the
contrary, GI and Licensee shall each in good faith negotiate and attempt to
agree upon the terms, conditions and form of the supply agreements contemplated
by this Section 5.5 (b) within ********** prior to ********** of
********************* by GI, by any of its Affiliates or by any licensee or
distributor of GI or any of its Affiliates.
(c) Licensee agrees that all matrices supplied to GI will be
manufactured in accordance with the Good Manufacturing Practices of the FDA.
Licensee's obligation to supply matrix shall be limited to those matrices which
are being commercially sold by Licensee. GI and Licensee shall consult and
cooperate in good faith in providing the optimal specifications, configurations
and packaging for the matrix to be supplied by Licensee pursuant to this
Section 5.5; provided, however, that any such specifications, configurations
and packaging shall be agreed to in writing by GI prior to supplying any matrix
pursuant to this Section 5.5. Licensee agrees to supply the matrix in
accordance with such specifications. In the event GI
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desires matrices in specifications, configurations, or packaging which varies
from Licensee's own clinical or commercial specifications, configurations or
packaging, Licensee shall offer such matrices, however, GI shall reimburse
Licensee for ************************** of its cost incurred in developing and
implementing such changes. Licensee and GI shall in such event mutually agree
in advance on a development budget.
(d) In the event of a shortage of supply of matrix, unless otherwise
agreed by the Parties, (a) prior to such time as Licensee, Licensee's other
purchasers of matrix and GI have each been marketing a product containing the
matrix on a commercial basis for a period of ******************, available
supply shall be allocated on a pro-rata basis based on good faith forecasts of
requirements and (b) thereafter, available supply shall be allocated on a
pro-rata basis based on quantities purchased during the prior *****************
period. Licensee shall not be liable for any damages of GI arising from a
shortage of supply of matrix except to the extent that (x) GI incurs
**************************** to ************* as a result of such
****************** and (y) such ***************** was the subject of a mutually
agreeable *********************** and ***************, provided that this
provision shall not limit GI's rights and remedies for any breaches of mutually
agreed to standards under the applicable supply agreement.
5.6. Supply of Matrix Other Than ACS Matrix by GI.
--------------------------------------------
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(a) GI shall, at its own expense, supply Licensee with such quantities
of any matrix component (other than ACS Matrix) that GI develops or acquires as
of and during the term of this Agreement as are reasonably requested for use
(and solely for use) by Licensee in regulatory studies of Licensed Products in
the Licensed Field in the Territory.
(b) GI shall supply Licensee with one hundred percent (100%) of
Licensee's commercial requirements of any matrix component (other than ACS
Matrix) that GI develops or acquires as of and during the term of this
Agreement for use (and solely for use) by Licensee with Licensed Products in
the Licensed Field in the Territory. All matrix supplied by GI for commercial
purposes shall be supplied to Licensee pursuant to the terms of separate supply
agreements. Each of GI and Licensee shall use good faith efforts to negotiate
and enter into each supply agreement at least ********** prior to the
********************** of ********************* relating to the applicable
Licensed Product. GI shall supply matrix at a price equal to GI's Direct Cost
plus *******************. In addition to such terms regarding supply price
specifications, shortage of supply and inability to supply such matrices
specified in paragraphs (c) and (d) of this Section 5.6, each supply agreement
shall contain terms regarding forecast procedures and permitted variances from
forecasted amounts, order and delivery times, and other usual and customary
terms. GI shall have the
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right to undertake such manufacture itself or through an Affiliate or any third
party. Other than requirements to purchase specified percentages of forecasted
amounts, in no event shall any such supply agreement contain any requirement by
Licensee to purchase a minimum amount of matrix in any period. Notwithstanding
anything to the contrary, GI and Licensee shall each in good faith negotiate
and attempt to agree upon the terms, conditions and form of the supply
agreements contemplated by this Section 5.6 (b) within ********** prior to
********** of ********************* by Licensee of the applicable Licensed
Product.
(c) GI agrees that all matrices supplied to Licensee will be
manufactured in accordance with the Good Manufacturing Practices of the FDA.
GI's obligation to supply matrix shall be limited to those matrices (other than
ACS Matrix) which are being commercially sold by GI. GI and Licensee shall
consult and cooperate in good faith in providing the optimal specifications,
configurations and packaging for the matrix to be supplied by GI pursuant to
this Section 5.6; provided, however, that any such specifications,
configurations and packaging shall be agreed to in writing by GI prior to
supplying any matrix pursuant to this Section 5.6. GI agrees to supply the
matrix in accordance with such specifications. In the event Licensee desires
matrices in specifications, configurations, or packaging which varies from GI's
own clinical or commercial
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specifications, configurations or packaging, GI shall offer such matrices,
however, Licensee shall reimburse GI for *********** ************** of its cost
incurred in developing and implementing such changes. GI and Licensee shall in
such event mutually agree in advance on a development budget.
(d) In the event of a shortage of supply of matrix, unless otherwise
agreed by the Parties, (a) prior to such time as GI, GI's other purchasers of
matrix and Licensee have each been marketing a product containing the matrix on
a commercial basis for a period of ******************, available supply shall
be allocated on a pro-rata basis based on good faith forecasts of requirements
and (b) thereafter, available supply shall be allocated on a pro-rata basis
based on quantities purchased during the prior ***************** period. GI
shall not be liable for any damages of Licensee arising from a shortage of
supply of matrix except to the extent that (x) Licensee incurs
**************************** to ************* as a result of such
****************** and (y) such ***************** was the subject of a mutually
agreeable *********************** and ***************, provided that this
provision shall not limit Licensee's rights and remedies for any breaches of
mutually agreed to standards under the applicable supply agreement.
Article VI. INTELLECTUAL PROPERTY RIGHTS
-----------------------------------------
6.1. Ownership of Technology. GI shall own the entire right, title
-----------------------
and interest in and to all Patent Rights and
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Know-How (the "GI Technology"). Licensee shall own the entire right, title and
interest in and to all Improvements (the "Licensee Technology").
6.2. Improvements. Licensee hereby grants to GI a non-exclusive,
------------
royalty-free license, including the right to grant sublicenses, to all
Improvements for the sole and exclusive purpose of (a) manufacturing Bone
Growth Factors and/or ACS Matrix for the Licensed Field for both GI Products
and Licensed Products, (b) discovering, developing, using, manufacturing,
distributing and selling GI Products outside the Licensed Field, (c) using Bone
Growth Factors and/or ACS Matrix in the Licensed Field in the Territory for the
purpose of distributing and/or selling GI Products in the Licensed Field
outside the Territory, (d) conducting discovery research relating to GI
Products in the Licensed Field and (e) performing contract activities for the
Licensee in the Licensed Field. The license granted under clause (c) above
shall only be sublicenseable to parties which grant to GI reciprocal
improvement license grants, with the right to further sublicense to Licensee,
under their respective agreements with GI.
6.3. Responsibility for Patenting of GI Technology.
---------------------------------------------
(a) Except as otherwise provided in paragraph (b) below, GI and its
licensors of Patent Rights shall have the right and responsibility, at their
own expense, to decide whether or not to seek or continue to seek or maintain
patent
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protection on any GI Technology in any country in the Territory, and shall have
the right to file for, procure and maintain patents on any GI Technology in any
country in the Territory.
(b) To the extent permitted by GI's agreements with its licensors
of Patent Rights, if both GI and its licensors of Patent Rights elect not to
seek or continue to seek or maintain patent protection on any GI Technology in
the Licensed Field in any country in the Territory, Licensee shall have the
right, at its expense but in the name of GI or its licensors of Patent Rights,
to file, procure and maintain in such countries in the Territory patents on
such GI Technology in the Licensed Field. GI agrees to advise Licensee of all
decisions made under paragraph (a) above in a timely manner in order to allow
Licensee to protect its rights under this paragraph (b).
(c) Except as otherwise provided in paragraph (d) below, Licensee
shall have the right and responsibility, at its own expense, to decide whether
or not to seek or continue to seek or maintain patent protection on any
Licensee Technology in any country, and shall have the right to file for,
procure and maintain patents on any Licensee Technology in any country.
(d) If Licensee elects not to seek or continue to seek or maintain
patent protection on any Licensee Technology in any country, GI shall have the
right, at its expense but in the name of Licensee to file, procure and maintain
in such countries patents on such Licensee Technology. Licensee agrees to
advise
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GI of all decisions taken under paragraph (c) above in a timely manner in order
to allow GI to protect its rights under this paragraph (d).
(e) Patent counsel for the Parties shall agree on the degree to
which substantive communications to and from the various patent offices
regarding applications or patents on any GI Technology and Licensee Technology
shall be shared. The final decision with respect to such communications shall
be GI's with respect to GI Technology and Licensee's with respect to Licensee
Technology.
(f) Each Party shall make available to the other Party or its
authorized attorneys, agents or representatives, such of its employees whom the
other Party in its reasonable judgment deems necessary in order to assist it in
obtaining patent protection for the GI Technology or the Licensee Technology.
Each Party shall sign or use commercially reasonable and diligent efforts to
have signed all legal documents necessary to file and prosecute patent
applications or to obtain or maintain patents at no cost to the other Party.
6.4. Infringement.
------------
(a) Each Party shall promptly report in writing to the other Party
during the term of this Agreement any (i) known infringement or suspected
infringement of any of the Patent Rights or Licensee Technology in the
Territory, or (ii) unauthorized use or misappropriation of any Know-How,
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Confidential Information or Licensee Technology by a third party in the
Territory of which it becomes aware, and shall provide the other Party with all
available evidence supporting said infringement, suspected infringement or
unauthorized use or misappropriation.
(b) ** and its ********* of Patent Rights and/or Know-How shall
have the **** and *************** to initiate an infringement or other
appropriate suit anywhere in the Territory against any third party who at any
time has infringed, or is suspected of infringing, any of the Patent Rights in
the Territory or of using without proper authorization all or any portion of
the Know-How in the Territory. ** shall give
********************************** of its intent to file any such suit and the
reasons therefor, and shall provide ******** ******************* to make
*********** and ****************** such suit which shall in ********** be
**********. ** shall keep ******** promptly informed, and shall from time to
time consult with ******** regarding the status of any such suit and shall
provide ******** with copies of all documents filed in, and all written
communications relating to, such suit. In the event that both ** and its
********* of Patent Rights and/or Know-How decide not to initiate an
infringement or other appropriate suit pursuant to this paragraph (b), ** shall
promptly advise ******** of its intent not to initiate such suit.
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(c) ** and its ********* of Patent Rights and/or Know-How shall
have the **** and *************** to select counsel for any suit initiated by
them referred to in paragraph (b) above and shall, except as provided below,
pay all expenses of the suit, including without limitation attorneys' fees and
court costs. If ** or its ********* of Patent Rights and/or Know-How, as the
case may be, obtain from a third party, in connection with such suit, any
damages, license fees, option fees, royalties or other compensation (including
any amount received in settlement of such litigation), ** shall pay
**************************** of the monies received by ** from that third party
(including ********** of monies received by ****) as may be **************** to
******************* in the Licensed Field in the Territory remaining after **,
or its *********, as the case may be, ******* and ************** for itself or
themselves, the monies equal to that ***************, or ***************, *****
and ******** associated with obtaining the damages, license fees, option fees,
royalties or other compensation as may be **************** to the
***************** in the Licensed Field in the Territory. The Parties agree to
negotiate in good faith the *************** of the foregoing payments and costs
and expenses. If necessary or desirable, ******** shall join as a party to the
suit but shall be under no obligation to participate except to the extent that
such participation is required as the result of being a named party
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to the suit. ******** shall offer reasonable assistance to ** and its
********* of Patent Rights and/or Know-How in connection therewith at no charge
to them except for reimbursement of reasonable out-of-pocket expenses,
including salaries of ******** personnel, incurred in rendering such
assistance. ******** shall have the right to participate and be represented in
any such suit in the Licensed Field by its own counsel at its own expense. If
** or its ********* of Patent Rights and/or Know-How requires ******** to join
in such suit, ** shall indemnify and defend ******** against any claims or
damages arising out of such suits or any claims for injunctive or other relief
against such third party infringers. ** shall not settle any such suit
involving rights of ******** in the Licensed Field without obtaining the prior
written consent of ********, which consent shall not be unreasonably withheld.
** agrees that a valid reason for ******** to withhold such consent shall
include, but not be limited to, a ********** in which **********
******************** with respect to *************************** **************
than ********** from such ********************** **************.
6.5. Claimed Infringement.
--------------------
(a) In the event that a third party at any time provides written
notice of a claim to, or brings an action, suit or proceeding against either
Party or any of their respective Affiliates or licensees or distributors,
claiming infringement
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of its patent rights or unauthorized use or misappropriation of its know-how,
based upon an assertion or claim arising out of the development, use,
manufacture, distribution or sale of Bone Growth Factors, Licensed Products,
Matrix Components or matrix components used by Licensee and incorporated in GI
Products, such Party shall promptly notify the other Party of the claim or the
commencement of such action, suit or proceeding, enclosing a copy of the claim
and/or all papers served. Each Party agrees to make available to the other
Party its advice and counsel regarding the technical merits of any such claim
at no cost to the other Party and to offer reasonable assistance to the other
Party at no cost to the other Party.
(b) ** shall have **** and ************************ for the defense
of any such claim brought against ** or its ********** or ********* or
************ arising out of the development, use, manufacture, distribution or
sale of Bone Growth Factors (a "********"). ** shall also have the right to
assume **** and ************************ for the defense of any such claim
brought against ******** or its ********** or ********* or ************ arising
out of the development, use, manufacture, distribution or sale of Bone Growth
Factors (a "**************") no later than **************** following notice
from ******** of the ************** under paragraph (a) above.
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(c) ** shall have the **** and *************** to select counsel for
any ******** and for any ************** for the defense of which it has assumed
**** and ********* responsibility pursuant to paragraph (b) above.
************** costs and expenses incurred by ** in connection with any **
***** or ************** shall be borne by ******* shall keep ******** promptly
informed, and shall from time to time consult with ******** regarding the
status of any such claims and shall provide ******** with copies of all
documents filed in, and all written communications relating to any suit brought
in connection with such claims. ******** shall also have the right to
participate and be represented in any ************** or related suit at its own
expense.
(d) In the event that ** shall not have assumed the **** and
************************ for the defense of any **************, ******** shall
have **** and ********* ************** for the defense of any **************.
Subject to the last sentence of paragraph (f) below, ************** costs and
expenses incurred by ******** in connection with such ************** shall be
borne by ********. All such ********** costs and expenses shall be
************************** ********** by ******** against **************** by
******** of Bone Growth Factors, provided that the total ************ otherwise
****** for any ******** of ******************* shall not be reduced by more
than ******************* as a result of
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such *******. ** shall have the right to audit such ************ costs and
expenses to confirm that they are ******************* as ******* against the
************. ******** shall keep ** promptly informed, and shall from time to
time consult with ** regarding the status of any such *************** and shall
provide ** with copies of all documents filed in, and all written
communications relating to, any suit brought in connection with such
***************.
(e) Neither Party shall settle any claims or suits involving rights of
the other Party in the Licensed Field without obtaining the prior written
consent of the other Party, which consent shall not be unreasonably withheld.
** agrees that a valid reason for ******** to withhold such consent shall
include, but not be limited to, a ********** in which **********
******************** with respect to such *******************
****************** than ********** from such ******************
******************.
(f) All damages, license fees, option fees, royalties or similar
payments **************** to ******************* used or sold in the Licensed
Field in the Territory which arise out of a settlement, judgment or other
resolution of a ******** or ************** which are not ********************
from Base Sales in the ******* in which they are ************ by a Party, shall
be ****** and ************ by the Parties. If, during the period ending
****************** after the *********************
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of a Licensed Product after FDA approval or clearance, ******** is
********************, after ********** of *********** (or earlier if ** is not
******************* such *******), from ******* BMP-2 in the Licensed Field in
the Territory as a result of a ******** or ************** relating to BMP-2, **
shall ****** to ******** all ******************** previously made by
************** under ***********, to the extent such *********** ******** have
not otherwise been ******** or ******** against ******** actually *********
pursuant to ***********, and ******** shall have no further obligations under
************ In such event, ** shall also ****************** for the
**************** and ******** referred to in paragraph (d) above ******** by
******** and as to which ******** has not otherwise ******** a ******.
(g) GI agrees to make available to Licensee any indemnity it
receives from *** with respect to **********.
(h) EXCEPT FOR ANY BREACH OF THE LAST SENTENCES OF SECTIONS ****
AND **** AND SECTIONS *** AND ***** OF THIS AGREEMENT, THE FOREGOING STATES THE
ENTIRE RESPONSIBILITY OF GI, AND THE SOLE AND EXCLUSIVE REMEDY OF LICENSEE, IN
THE CASE OF ANY CLAIMED INFRINGEMENT OR VIOLATION OF ANY THIRD PARTY'S RIGHTS
OR UNAUTHORIZED USE OR MISAPPROPRIATION OF ANY THIRD PARTY'S KNOW-HOW.
6.6. Other Infringement Resolutions. In the event of a dispute or
------------------------------
potential dispute which has not ripened into a
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demand, claim or suit of the types described in Sections 6.4 and 6.5, the same
principles governing control of the resolution of the dispute, consent to
settlements of the dispute, and implementation of the settlement of the
dispute (including the giving or taking of a license and the sharing in and
allocating the payment or receipt of damages, license fees, option fees,
royalties and other compensation) shall apply.
Article VII. CONFIDENTIAL INFORMATION
--------------------------------------
7.1. Treatment of Confidential Information. Subject to Section 7.2,
-------------------------------------
each Party hereto shall maintain the Confidential Information of the other
Party in confidence, and shall not disclose, divulge or otherwise communicate
such Confidential Information to others, or use it for any purpose, except
pursuant to, and in order to carry out, the terms and objectives of this
Agreement, and hereby agrees to exercise every reasonable precaution to prevent
and restrain the unauthorized disclosure of such Confidential Information by
any of its directors, officers, employees, consultants, subcontractors,
sublicensees or agents.
7.2. Release from Restrictions. The provisions of Section 7.1 shall
-------------------------
not apply to any Confidential Information disclosed hereunder which:
(a) was known or used by the receiving Party or its Affiliates
prior to its date of disclosure to the receiving
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Party, as evidenced by the prior written records of the receiving Party or its
Affiliates;
(b) either before or after the date of the disclosure to the
receiving Party is lawfully disclosed to the receiving Party or its Affiliates
by an independent, unaffiliated third Party rightfully in possession of the
Confidential Information and without legal obligation to the disclosing Party;
(c) either before or after the date of the disclosure to the
receiving Party becomes published or generally known to the public through no
fault or omission on the part of the receiving Party or its Affiliates; or
(d) is required to be disclosed by the receiving Party to comply
with applicable laws, to defend or prosecute litigation or to comply with
governmental regulations, provided that the receiving Party provides prior
written notice of such disclosure to the other Party and takes reasonable and
lawful actions to avoid and/or minimize the degree of such disclosure.
7.3. Publications. Notwithstanding the provisions of Section 7.1, and
------------
subject to the following restrictions, each Party and any employee or
consultant of such Party shall be permitted to make disclosures in scientific
journals or publications which relate to Bone Growth Factors or Licensed
Products and contain Confidential Information of the other Party:
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(a) a Party (the "publishing Party") shall provide the other Party
with a copy (which may be in draft form) of any proposed publication before
disclosure to any third party (including journal peer review committees) and
such other Party shall have a reasonable opportunity to recommend any changes
it reasonably believes are necessary to preserve patent rights or know-how
belonging in whole or in part to GI or Licensee, and the incorporation of such
recommended changes shall not be unreasonably refused; and
(b) if such other Party informs the publishing Party, within thirty
(30) days of receipt of an advance copy of a proposed publication, that such
publication in its reasonable judgment could be expected to have a material
adverse effect on any patent rights or know-how belonging in whole or in part
to GI or Licensee or on the commercial interests of GI or Licensee, the
publishing Party shall, to the extent permitted by its agreements with its
employees and consultants, delay or prevent such publication as proposed. In
the case of inventions, the delay shall be sufficiently long to permit the
timely preparation and filing of a patent application(s) or application(s) for
a certificate of invention on the information involved.
Article VIII. LICENSE CONVERSION
--------------------------------
8.1. Termination by GI of Exclusivity without Cause. GI shall have
----------------------------------------------
the right, beginning ****************** following the
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first commercial sale of a Licensed Product after FDA approval or clearance, to
convert the exclusive licenses granted by it to Licensee pursuant to Section
2.1 of this Agreement to non-exclusive licenses upon at least
***************************** prior written notice to Licensee, provided that
GI has not materially breached this Agreement.
8.2. Termination by GI of Exclusivity for Cause. In the event that
------------------------------------------
Licensee fails to achieve any of the milestones set forth in Section 4.2 of
this Agreement and such failure is not due to ************ or ******** reasons
or other reasons beyond the control of Licensee (such as a failure on the part
of GI to perform its obligations under this Agreement or a circumstance of the
type described in Section 12.4 of this Agreement), Licensee shall promptly
notify GI and Licensee and GI shall promptly meet, discuss the reasons for such
failure, and attempt in good faith to agree on appropriate action plans and
revised milestones for Section 4.2. If after such discussion, GI is not
satisfied with such explanation, GI shall have the right, at its sole option,
exercisable within **************************** **** of GI's notice, to convert
the exclusive licenses granted by it to Licensee pursuant to Section 2.1 of
this Agreement to non-exclusive licenses upon written notice to Licensee.
8.3 Termination by GI of *********** in Connection with ********
------------------------------------------------------------
of *************. In the event that ** shall ****** to cease the
- ----------------
************************ of Bone Growth Factors in
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******************************** in the Territory in connection with the
******** of ************************ by **** or ******* to a *********** which
is not a *********************** of **, ** shall have the right, in its sole
discretion, to ******* the ************************** by it pursuant to
*********** of this Agreement to ********************** upon the giving of
written notice to ********. The grant, at any time, of distribution or license
rights by ** to a *********** for the *** and **** of Bone Growth Factors for
******************* shall not prevent ** from ********** the ****************
in connection with a ******************* of ******************* to another
***** *****.
8.4. Consequences of Conversion.
--------------------------
(a) Upon any conversion by GI of the licenses granted to Licensee in
Section 2.1 of this Agreement to non- exclusive licenses pursuant to Section
8.1 ****** of this Agreement, (i) Licensee shall have no obligation to make any
license fee payments to GI which would otherwise become due subsequent to such
conversion pursuant to Article III of this Agreement and (ii) all license fee
payments paid by Licensee to GI prior to such conversion pursuant to Article
III of this Agreement shall be ************************** creditable by
Licensee against future purchases by Licensee of Bone Growth Factors, provided
that the total supply price otherwise due GI for any shipment of Bone Growth
Factors taking into account any other credits shall
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not be reduced by more than ******************* as a result of such credit.
(b) Upon any conversion by GI of the licenses granted to Licensee in
Section 2.1 of this Agreement to non- exclusive licenses pursuant to Section
8.2 of this Agreement, Licensee's obligation to make any license fee payments
to GI subsequent to such conversion shall be reduced by *******************.
Such reduced license fee payments and any previously made license fee payments
shall not, however, be creditable against purchases by Licensee of Bone Growth
Factors.
(c) In the event of a conversion by GI of the licenses granted to
Licensee in Section 2.1 of this Agreement to non-exclusive licenses pursuant to
Section 8.1, 8.2 or 8.3 of this Agreement, (i) Licensee shall, to the extent
permitted by law, irrevocably transfer a non-exclusive interest to GI in any
existing orphan drug designations, regulatory filings or approvals in the
Territory relating to Licensed Products in the Licensed Field and (ii) Licensee
hereby grants to GI a non-exclusive, royalty-free license, including the right
to grant sublicenses, to all Improvements to develop, use and manufacture GI
Products in the Territory for the purpose of distributing and selling GI
Products in the Licensed Field in the Territory.
(d) In the event of a conversion by GI of the license granted to
Licensee in Section 2.1 of this Agreement to a non-exclusive license pursuant
to Section 8.3 of this Agreement,
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and, in such event, if GI or any successor shall enter into any agreement with
respect to the licensing of GI Technology in the Licensed Field or the supply
of Bone Growth Products or Matrix Components in the Licensed Field on terms
more favorable than those contained in this Agreement, this Agreement shall be
promptly amended to reflect such more favorable terms, which shall apply
thereafter.
Article IX. EFFECTIVENESS AND TERMINATION
------------------------------------------
9.1. Conditions to Effectiveness. The Parties shall cooperate fully
---------------------------
and use their best efforts to comply with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations issued
thereunder (the "HSR Act") to file the appropriate Notification Report form
with the Federal Trade Commission and the Department of Justice in accordance
with such rules and regulations with respect to the transactions contemplated
in this Agreement. This Agreement shall not take effect until after the
expiration of the appropriate waiting periods as prescribed by such rules and
regulations (the "Effective Date").
9.2. Term. This Agreement shall remain in effect until terminated in
----
accordance with the provisions of this Article IX or until the
******************************* of the date of the first commercial sale of a
Licensed Product after FDA approval or clearance; provided, however, that this
Agreement shall be
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renewable upon written agreement of the Parties for successive *************
periods.
9.3. Termination for Breach. Except for a failure of Licensee to meet
----------------------
any of the milestones set forth in Section 4.2 of this Agreement as to which
the sole remedy is set forth in Section 8.2 of this Agreement, each Party shall
be entitled to terminate this Agreement and the licenses granted by it
hereunder to the other Party by written notice to the other Party in the event
that the other Party shall be in default of any of its material obligations or
representations and warranties hereunder, and shall fail to remedy any such
default within one hundred and eighty (180) days after notice thereof by the
non-breaching Party. Any such notice shall specifically state that the
non-breaching Party intends to terminate this Agreement in the event that the
breaching Party shall fail to remedy the default.
9.4. Termination by Mutual Agreement. This Agreement may be
-------------------------------
terminated by the Parties if the Parties mutually agree that the Licensed
Products are no longer commercially viable. If the Parties are unable to agree
whether the Licensed Products are no longer commercially viable, either Party
may submit such matter to arbitration in accordance with the Rules of the
American Arbitration Association. The Parties agree to be bound by the ruling
under such arbitration. If such ruling is to the effect
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that the Licensed Products are no longer commercially viable, this Agreement
shall automatically terminate.
9.5 Consequences of Termination.
---------------------------
(a) Upon any termination of this Agreement, neither Party shall be
relieved of any obligations incurred prior to such termination (it being
understood that any obligation to make license fee payments on a date following
the termination of this Agreement shall also be terminated). Further, Licensee,
shall within thirty (30) days of the effective date of such termination notify
GI in writing of the amount of Licensed Products which Licensee and its
Affiliates and distributors then have completed on hand and Licensee and its
Affiliates and distributors shall thereupon be permitted during the ***********
****** following such termination to sell that amount of Licensed Products. At
the end of such ***************** period, ***************** from ******** any
************************* ***************** at Licensee's ****.
(b) In the event of a termination of this Agreement by GI for breach by
Licensee pursuant to Section 9.3 of this Agreement or in the event of a
termination of this Agreement by Licensee pursuant to Section 9.4 of this
Agreement, (i) Licensee shall promptly deliver to GI, at no cost to GI, all
animal and human data and such other information, materials (including
biological materials) and documents in Licensee's possession that GI or any
successor licensee may require in order to obtain
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approval of applicable government regulatory agencies to use, manufacture,
distribute and sell Licensed Products in the Licensed Field in the Territory,
(ii) Licensee shall, to the extent permitted by law, irrevocably transfer a
non-exclusive interest to GI in any existing orphan drug designations,
regulatory filings or approvals in the Territory relating to Licensed Products
in the Licensed Field and (iii) the licenses set forth in Section 6.2 of this
Agreement shall survive. In addition, in the event of a termination of either
of the types described in the foregoing sentence, Licensee hereby grants to GI
a non-exclusive, royalty-free license, including the right to grant
sublicenses, to all Improvements to use and manufacture GI Products in the
Territory for the purpose of distributing and selling GI Products in the
Licensed Field in the Territory.
9.6 Survival. Notwithstanding any termination of this Agreement,
--------
the obligations of the Parties under Articles VII, IX and X and Sections 6.4,
6.5 and 6.6, as well as under any other provisions which by their nature are
intended to survive any such termination, shall survive and continue to be
enforceable, and no termination of this Agreement shall relieve any party
hereto of any liability for any breach of this Agreement. Upon any termination
of this Agreement, each Party shall promptly return to the other Party all
written Confidential Information, and all copies thereof, of the other Party
which is not covered by a license surviving such termination, provided that
each
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Party shall be permitted to retain such copies as are reasonably necessary for
legal purposes.
Article X. PRODUCT LIABILITY, INDEMNIFICATION AND INSURANCE
------------------------------------------------------------
10.1. Licensee Indemnification. Licensee agrees to defend GI and its
------------------------
Affiliates, their agents, directors, officers and employees (the "GI
Indemnitees") at Licensee's cost and expense, and will indemnify and hold
harmless the GI Indemnitees from and against any and all product liability
related losses, costs, damages, fees or expenses ("Losses") arising out or in
connection with the use, assembling, distribution and/or sale of any Licensed
Product, including, but not limited to, any actual or alleged injury, damage,
death or other consequence occurring to any person claimed to result, directly
or indirectly, from the possession, use or consumption of, or treatment with,
any Licensed Product, whether claimed by reason of breach of warranty,
negligence, product defect or otherwise, and regardless of the form in which
any such claim is made, provided that the foregoing indemnity shall not apply
to the extent that any such Losses are attributable to (i) the failure of the
Bone Growth Factors or ACS Matrix delivered by GI to Licensee pursuant to
Sections 5.1 and 5.2 hereunder to meet applicable specifications or (ii) the
gross negligence or willful misconduct of the GI Indemnitees. In the event of
any such claim against any GI Indemnitee, GI shall promptly notify Licensee in
writing of the claim and Licensee shall manage and
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control, at its sole expense, the defense of the claim and its settlement. GI
shall cooperate with Licensee and may, at its option and expense, be
represented in any such action or proceeding. Licensee shall not be liable for
any settlements, litigation costs or expenses incurred by GI without Licensee's
written authorization. Notwithstanding the foregoing, if Licensee believes
that either of the exceptions to its indemnification of the GI Indemnitees set
forth in foregoing clause (i) or (ii) above may apply, Licensee shall promptly
notify GI and the GI Indemnitees shall then have the right to be represented in
any such action or proceeding by separate counsel at GI's expense, provided
that Licensee shall be responsible for payment of such expenses, plus interest,
if the GI Indemnitees are ultimately determined to be entitled to
indemnification from Licensee.
10.2. GI Indemnification. GI agrees to defend Licensee and its
------------------
Affiliates, their agents, directors, officers and employees (the "Licensee
Indemnitees") at GI's cost and expense, and will indemnify and hold harmless
the Licensee Indemnitees from and against any and all Losses arising out of or
in connection with the failure of the Bone Growth Factors or ACS Matrix
delivered by GI to Licensee pursuant to Sections 6.1 and 6.2 hereunder to meet
applicable specifications, including, but not limited to, any actual or alleged
injury, damage, death or other consequence occurring to any person claimed to
result, directly or
59
<PAGE> 61
indirectly, from the possession, use or consumption of, or treatment with, any
Licensed Product, whether claimed by reason of breach of warranty, negligence,
product defect or otherwise and regardless of the form in which any such claim
is made, provided that the foregoing indemnity shall not apply to the extent
that any such Losses are attributable to the gross negligence or willful
misconduct of the Licensee Indemnitees. In the event of any such claim against
any Licensee Indemnitee, Licensee shall promptly notify GI in writing of the
claim and GI shall manage and control, at its sole expense, the defense of the
claim and the settlement. Licensee shall cooperate with GI and may, at its
option and expense, be represented in any such action or proceeding. GI shall
not be liable for any settlements, litigation costs or expenses incurred by
Licensee without GI's written authorization. Notwithstanding the foregoing, if
GI believes that the exception to its indemnification of the Licensee
Indemnitees set forth above may apply, GI shall promptly notify Licensee and
the Licensee Indemnitees shall then have the right to be represented in any
such action or proceeding by separate counsel at Licensee's expense, provided
that GI shall be responsible for payment of such expenses, plus interest, if
the Licensee Indemnities are ultimately determined to be entitled to
indemnification from GI.
10.3. Insurance. Beginning at such time as any Licensed Product is
---------
being commercially distributed or sold (other than
60
<PAGE> 62
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
for the purpose of obtaining regulatory approvals) by Licensee or its
Affiliates or distributors, each of GI and Licensee shall, at its sole cost and
expense, to the extent generally available to biopharmaceutical and medical
device companies, procure and maintain product liability insurance policies in
commercially reasonable amounts (as further described below) and naming the
other Party as an additional insured or including it in a vendor endorsement
with respect to liabilities for which the other Party is indemnified above to
the full extent of all such policies (regardless of the minimums specified
below). Such insurance shall, to the extent included in policies generally
available to biopharmaceutical and medical device companies, provide (i)
product liability coverage in an annual aggregate amount of not less than
*********** and (ii) broad form contractual liability coverage for such Party's
indemnification under this Article X in an annual aggregate amount of not less
than *********** and shall be primary. The ************** of
*************************** under this Section 10.3 shall not be construed to
*************************** ********* with respect to its indemnification under
this Article X. Each Party shall use commercially reasonable efforts to
maintain such insurance during (x) the period that any Licensed Product is
being commercially distributed or sold (other than for the purpose of obtaining
regulatory approvals) by Licensee or its Affiliates or distributors and (y) a
reasonable period
61
<PAGE> 63
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
after the period referred to in (x) above which in no event shall be less than
******************. In the event either Party is unable to maintain such
insurance, it shall promptly notify the other Party and reimburse the other
Party for the incremental cost incurred by the other Party in maintaining the
other Party's insurance arising out of the loss of such Party's insurance (not
to exceed *************** of ************** of Licensed Products).
Article XI. EXPORT
------------------
11.1. Acknowledgment. The Parties acknowledge that the export of
--------------
technical data, materials or products is subject to the exporting Party
receiving the 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. The Parties agree that regardless of any
disclosure made by the Party receiving an export of an ultimate destination of
any technical data, materials or products, the receiving Party will not
reexport either directly or indirectly, any technical data, material or
products without first obtaining the applicable validated or general license
from the United States Department of Commerce, the FDA and/or any other agency
or department of the United States Government, as required. The receiving
Party shall provide the exporting Party with any information, materials,
certifications or other documents which may be reasonably required in
connection with
62
<PAGE> 64
such exports under the Export Administration Act of 1979, as amended, its rules
and regulations, the Federal Food, Drug and Cosmetic Act and other applicable
export laws.
11.2. Written Assurance. Without limitation of the foregoing, and in
-----------------
support of maintaining a general license for the export of technical data under
this Agreement, a Party receiving an export agrees to not knowingly export or
reexport any technical data or materials furnished to such Party under this
Agreement, any part thereof or any direct product thereof, directly or
indirectly, without first obtaining permission to do so from the United States
Department of Commerce, the FDA and/or other appropriate United States
governmental agencies, into Afghanistan, the People's Republic of China, South
Africa, Namibia or any of those countries listed from time to time in
supplements to Part 370 to Title 15 of the Code of Federal Regulations in
Country Groups Q, S, Y or Z, which, as of the date of this Agreement, are as
follows: Group Q (Romania), Group S (Libya), Group Y (Albania, Armenia,
Azerbijan, Bulgaria, Cambodia, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Laos,
Latvia, Lithuania, Mongolia, Russia, Tajikistan, Turkmenistan, Ukraine,
Uzbekistan and Vietnam) and Group Z (Cuba and North Korea).
Article XII. MISCELLANEOUS
---------------------------
12.1. Representation and Warranties of GI.
-----------------------------------
63
<PAGE> 65
(a) GI is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware and has all necessary
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder. This Agreement has been duly executed and delivered by
GI, and (assuming due authorization, execution and delivery by Licensee) this
Agreement constitutes a legal, valid and binding obligation of GI enforceable
against GI in accordance with its terms.
(b) The execution, delivery and performance of this Agreement by GI do
not and will not (i) violate or conflict with the Certificate of Incorporation
or By-laws of GI, (ii) conflict with or violate any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award applicable to
GI, or (iii) result in any material breach of, or constitute a material default
(or event which with the giving of notice or lapse of time, or both, would
become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in creation of any
material lien or other material encumbrance on any of GI's assets or properties
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument relating to GI's assets or
properties to which GI is a party or by which any of GI's assets or properties
is bound or affected.
64
<PAGE> 66
(c) The execution and delivery of this Agreement by GI do not, and the
performance of this Agreement by GI will not, (i) other than under the HSR Act,
require any consent, approval, authorization, or other action by, or filing
with or notification to any governmental or regulatory authority, except where
failure to obtain such consent, approval, authorization or action, or to make
such filing or notification, would not prevent GI from performing any of its
material obligations under this Agreement and (ii) require any third-party
consents, approvals, authorizations or actions on the part of GI, other than
consent from American Home Products Corporation which GI has obtained.
(d) No claim, action or proceeding or investigation is pending which
seeks to delay or prevent the consummation of the transactions contemplated
hereby or which would be reasonably likely to adversely affect or restrict GI's
ability to perform its obligations under this Agreement.
12.2. Representation and Warranties of Licensee.
-----------------------------------------
(a) Licensee is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware and has all necessary
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder. This Agreement has been duly executed and delivered by
Licensee, and (assuming due authorization, execution and delivery by GI) this
Agreement constitutes a
65
<PAGE> 67
legal, valid and binding obligation of Licensee enforceable against Licensee in
accordance with its terms.
(b) The execution, delivery and performance of this Agreement by
Licensee do not and will not (i) violate or conflict with the Certificate of
Incorporation or By-laws of Licensee, (ii) conflict with or violate any law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award applicable to Licensee, or (iii) result in any material breach of, or
constitute a material default (or event which with the giving of notices or
lapse of time, or both, would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of any material lien or other material encumbrance on any of
Licensee's assets or properties pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument relating to Licensee's assets or properties of which Licensee is a
party or by which any of Licensee's assets or properties is bound or affected.
(c) The execution and delivery of this Agreement by Licensee do not,
and the performance of this Agreement by Licensee will not, (i) other than
under the HSR Act, require any consent, approval, authorization or other action
by, or filing with or notification to, any governmental or regulatory
authority, except where failure to obtain such consent,
66
<PAGE> 68
approval, authorization or action, or to make such filing or notification,
would not prevent Licensee from performing any of its material obligations
under this Agreement and (ii) require any third-party consents, approvals,
authorizations or actions on the part of Licensee.
(d) No claim, action or proceeding or investigation is pending which
seeks to delay or prevent the consummation of the transactions contemplated
hereby or which would be reasonably likely to adversely affect or restrict
Licensee's ability to perform its obligations under this Agreement.
12.3. Publicity. Except as otherwise required by law, rule or
---------
regulation or stock exchange requirements, neither Party, nor any of its
Affiliates, shall originate any publicity, news release or other public
announcement, written or oral, relating to this Agreement or the existence of
an arrangement between the Parties, without the prior written approval of the
other Party, which approval shall not be unreasonably withheld.
12.4. Assignment. Except as otherwise provided in this Agreement,
----------
neither this Agreement nor any of the rights or obligations hereunder may be
assigned by either Party without the prior written consent of the other Party,
except (i) to a party who acquires all or substantially all of the business of
the assigning Party by merger, consolidation, sale of assets or otherwise and
(ii) Licensee shall be permitted to assign its rights to any of its Affiliates
with written notice to GI.
67
<PAGE> 69
12.5. Governing Law. This Agreement shall be governed by and
-------------
interpreted in accordance with the laws of the State of Delaware.
12.6. Force Majeure. In the event that either Party is prevented from
-------------
performing or is unable to perform any of its obligations under this Agreement
due to any act of God; fire; casualty; flood; war; strike; lockout; failure of
public utilities; injunction or any act, exercise, assertion, action or
inaction or requirement of governmental authority; epidemic; destruction of
production facilities; riots; insurrection; inability to procure or use
materials, labor, equipment, transportation or energy; or any other cause
beyond the reasonable control of the Party invoking this Section 12.4 if such
Party shall have used commercially reasonable and diligent efforts to avoid
such occurrence, such Party shall give notice to the other Party in writing
promptly, and thereupon the affected Party's performance shall be excused and
the time for performance shall be extended for the period of delay or inability
to perform due to such occurrence.
12.7. Waiver. The waiver by either Party of a breach or a default of
------
any provision of this Agreement by the other Party shall not be construed as a
waiver of any succeeding breach of the same or any other provision, nor shall
any delay or omission on the part of either Party to exercise or avail itself
of any right, power or privilege that it has or may have hereunder
68
<PAGE> 70
operate as a waiver of any right, power or privilege by such Party. Any waiver
shall be made in writing.
12.8. Notices. Any notice or other communication in connection with
-------
this Agreement must be in writing and if sent by mail, by first class certified
mail prepaid, return receipt requested, and shall be effective when delivered
to the addressee at the address listed below or such other address as the
addressee shall have specified in a notice actually received by the addressor.
If to GI:
Genetics Institute, Inc.
87 CambridgePark Drive
Cambridge, Massachusetts 02140
Attention: President
with a copy to:
General Counsel
Legal Department
If to Licensee:
Sofamor Danek Properties, Inc.
1800 Pyramid Place
Memphis, Tennessee 38132
Attention: President
with copies to:
General Counsel
Legal Department
Sofamor Danek Group, Inc.
1800 Pyramid Place
Memphis, Tennessee 38132
and
Chief Financial Officer
Sofamor Danek Group, Inc.
1800 Pyramid Place
69
<PAGE> 71
Memphis, Tennessee 38132
12.9. No Agency. Nothing herein shall be deemed to constitute either
---------
Party as the agent or representative of the other Party, or both Parties as
joint venturers or partners for any purpose. Each Party shall be an
independent contractor, not an employee or partner of the other Party, and the
manner in which each Party renders its services under this Agreement shall be
within its sole discretion. Neither Party shall be responsible for the acts or
omissions of the other Party, and neither Party will have authority to speak
for, represent or obligate the other Party in any way without prior written
authority from the other Party.
12.10. Entire Agreement. This Agreement and the Schedules hereto
----------------
(which Schedules are deemed to be a part of this Agreement for all purposes)
contain the full understanding of the Parties with respect to the subject
matter hereof and supersede all prior understandings and writings relating
thereto. No waiver, alteration or modification of any of the provisions hereof
shall be binding unless made in writing and signed by the Parties by their
respective officers thereunto duly authorized.
12.11. Headings. The headings contained in this Agreement are for
--------
convenience of reference only and shall not be considered in construing this
Agreement.
70
<PAGE> 72
12.12. Severability. In the event that any provision of this
------------
Agreement is held by a court of competent jurisdiction to be unenforceable
because it is invalid or in conflict with any law of any relevant jurisdiction,
the validity of the remaining provisions shall not be affected, and the rights
and obligations of the Parties shall be construed and enforced as if the
Agreement did not contain the particular provisions held to be unenforceable;
provided, however, it is the intention of the Parties that any such provision
be construed and interpreted by the courts as narrowly as necessary in order to
make such provision valid and enforceable.
12.13. Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the Parties hereto and their successors and
permitted assigns.
12.14. Third Parties. None of the provisions of this Agreement shall
-------------
be for the benefit of or enforceable by any third party.
12.15. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered to the other Party
shall be deemed an original but all of which together shall constitute one and
the same instrument.
12.16. Sofamor Danek Group, Inc. Sofamor Danek Group, Inc., an
------------------------
Indiana corporation and the owner of all issued and outstanding common stock of
Licensee, shall take all actions necessary to cause Licensee to perform its
obligations or
71
<PAGE> 73
perform in its place under this Agreement and hereby guarantees the performance
of all of Licensee's or its licensed Affiliates (or any of their assignees)
obligations hereunder.
12.17. Legal Requirements. If the laws of any country in the
------------------
Territory require that this Agreement or any document relating to the subject
matter hereof must be legalized and/or notarized, or submitted, filed or
registered with any government agency or ministry, GI and Licensee agree that
each shall assist the other in complying with those requirements. Any such
submission, filing or registration shall be made in the name and or the benefit
of Licensee.
12.18. Non-Interference with Rights. In connection herewith, Licensee
----------------------------
and GI agree that neither shall, either directly or indirectly, utilize or act
in connection with the GI Technology or the Licensed Products so as to
interfere with the rights granted to Licensee in the Licensed Field or the
rights reserved by GI in the Licensed Field during the term of this Agreement.
Licensee and GI shall each have the affirmative obligation to take such action
as may be necessary to prevent any such interference.
72
<PAGE> 74
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as a sealed instrument in their names by their properly and duly
authorized officers or representatives as of the date first above written.
GENETICS INSTITUTE, INC.
By: /s/ Tuan Ha-Ngoc
----------------------------------
SOFAMOR DANEK PROPERTIES, INC.
By: /s/ E.R. Pickard
----------------------------------
For purposes of Section 12.16 only:
SOFAMOR DANEK GROUP, INC.
By: /s/ E.R. Pickard
----------------------------------
<PAGE> 75
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
SCHEDULE A
----------
GROWTH FACTORS SUBJECT TO OPTION
--------------------------------
*****
*****
*****
*****
*****
*****
*****
******
******
******
******
******
*****
*****
*****
******
(and any ************ of the foregoing)
Acknowledged:
GENETICS INSTITUTE, INC.
By: /s/ Tuan Ha-Ngoc
--------------------------
SOFAMOR DANEK PROPERTIES, INC.
By: /s/ E.R. Pickard
--------------------------
<PAGE> 76
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
SCHEDULE B
----------
Description of Know-How that GI is contractually prohibited from licensing to
Licensee as of the date of this Agreement:
Pursuant to Section 2.2 of a supply agreement dated as of
April 1, 1994 between GI and ILS, a copy of which has been
furnished to Licensee, ILS appointed GI as (1) an exclusive
distributor of certain "Sponges" in the "Territory" for use in
the "Bone Field" and (2) a non-exclusive distributor of such
Sponges in the Territory for use in the "Cartilage, Tendon and
Ligament Field" (all terms marked by quotations being defined
therein). Such appointment included, inter alia, an exclusive
----------
right to cross-reference any ILS Sponge "PMAs" in the Bone
Field, and a non-exclusive right to reference any ILS Sponge
PMAs in the Cartilage, Tendon and Ligament Field. Pursuant to
Section 2.3 of the GI-ILS supply agreement, GI may exercise
its right to cross-reference such PMAs under Section 2.2 of
that agreement through, named "Designees", such as Licensee,
**** in the **********, and *** in the
******************************* ****** pursuant to
****************** with any such Designees which are
consistent with GI's obligations under its agreement with ILS.
Description of Patent Rights that GI is contractually prohibited from licensing
to Licensee as of the date of this Agreement:
Pursuant to a license agreement dated January 4, 1993 between
GI and Chiron Corporation ("Chiron"), Chiron granted to GI a
non-exclusive license under U.S. Patent 4,563,489 and any
reissues thereof, which license included a right to grant
sublicenses of the same scope to third parties who are
licensees under certain "GI Patent Rights", provided each
sublicensee shall agree in writing with GI and Chiron to be
bound by the terms of the GI-Chiron license agreement insofar
as they relate to the operations of such sublicensee (all
terms marked by quotations being defined therein).
In the event Licensee elects to exercise its sublicense rights
under this agreement with Chiron, Licensee agrees that the
************************ and ******* to Chiron on ***** of
***************** for *** with ******************
**************** will be ************** by the Parties in
accordance with Section 1.3.
<PAGE> 77
Acknowledged:
GENETICS INSTITUTE, INC. SOFAMOR DANEK PROPERTIES, INC.
By: /s/ Tuan Ha-Ngoc By: /s/ E.R. Pickard
------------------------ -------------------------
<PAGE> 78
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
SCHEDULE C
----------
Summary of Royalties Payable by GI to GPDC
------------------------------------------
Pursuant to Section 3.1 of a sublicense agreement dated as of
May 30, 1990 between GI and GPDC, a copy of which has been
furnished to Licensee, GI is obligated to pay to GPDC during
the term of the license granted pursuant to the agreement
earned royalties at a rate equal to ** of "Net Sales" on all
"Net Sales" made by GI, its "Affiliates" and sublicensees of
"Licensed Products" which fall within the definition of
"Licensed Products" by virtue of involving (i) a "Valid Claim"
under the "Patent Rights" or (ii) "Know-How" (all terms marked
by quotations being defined therein).
Summary of Royalties Payable by GI to ILS
-----------------------------------------
Pursuant to Section 3.8 of a supply agreement dated as of
April 1, 1994 between GI and ILS, a copy of which has been
furnished to Licensee, GI is obligated to pay to ILS during
the term of the agreement distribution fees at a rate equal to
(i) ** of "Net Sales" of "GI Products" sold in the "Bone
Field" and (ii) ** of "Net Sales" of "GI Products" sold in the
"Cartilage, Tendon and Ligament Field" (all terms marked by
quotations being defined therein).
Acknowledged:
GENETICS INSTITUTE, INC.
By: /s/ Tuan Ha-Ngoc
-------------------------
SOFAMOR DANEK PROPERTIES, INC.
By: /s/ E.R. Pickard
-------------------------
<PAGE> 1
EXHIBIT 11
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED-IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Primary earnings (loss) per common share is computed by dividing net income
(loss) by the weighted average number of shares of common stock and common stock
equivalents outstanding.
Common stock equivalents consist of stock options and warrants and are not
included in the calculation of earnings per share in loss periods because their
effect would be antidilutive.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1995 1994
------- --------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
Weighted average number of shares outstanding..................... 26,628 26,335
Shares deemed outstanding from the assumed exercise of stock
options and warrants reduced by the number of shares purchased
with proceeds................................................... 281 --
------- --------
Total................................................... 26,909 26,335
------- --------
Net income (loss) applicable to common shares..................... $ 5,699 $(10,051)
------- --------
Primary earnings (loss) per common share.......................... $ .21 $ (.38)
======= ========
FULLY DILUTED EARNINGS PER SHARE
Weighted average number of shares outstanding..................... 26,628 26,335
Shares deemed outstanding from the assumed exercise of stock
options and warrants reduced by the number of shares purchased
with proceeds................................................... 923 --
------- --------
Total................................................... 27,551 26,335
------- --------
Net income (loss) applicable to common shares..................... $ 5,699 $(10,051)
------- --------
Fully diluted earnings (loss) per common share.................... $ .21 $ (.38)
======= ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF GENETICS INSTITUTE, INC. FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 3,438
<SECURITIES> 250,056
<RECEIVABLES> 40,405
<ALLOWANCES> 0
<INVENTORY> 15,430
<CURRENT-ASSETS> 315,515
<PP&E> 165,234
<DEPRECIATION> 56,443
<TOTAL-ASSETS> 431,521
<CURRENT-LIABILITIES> 30,316
<BONDS> 0
<COMMON> 266
0
0
<OTHER-SE> 400,939
<TOTAL-LIABILITY-AND-EQUITY> 431,521
<SALES> 23,878
<TOTAL-REVENUES> 51,771
<CGS> 13,464
<TOTAL-COSTS> 13,464
<OTHER-EXPENSES> 32,608
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,699
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,699
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,699
<EPS-PRIMARY> .21
<EPS-DILUTED> 0
</TABLE>
