----------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1999
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-15271
---------------------------
CISTRON BIOTECHNOLOGY, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 22-2487972
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10 Bloomfield Avenue, Pine Brook, New Jersey 07058
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(973) 575-1700
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 and 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90 days.
Yes _X_ No ___
The aggregate number of Registrant's outstanding shares on February 14,
2000 was 20,810,670 shares of Common Stock, .01 par value.
Page 1 of 14 pages
<PAGE> 2
CISTRON BIOTECHNOLOGY, INC.
---------------------------
(A DEVELOPMENT STAGE COMPANY)
---------------------------
INDEX
-----
<TABLE>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance sheets as of December 31, 1999 and June 30, 1999.... 3
Statements of operations for the three months and six months
ended December 31, 1999 and 1998............................ 4
Statements of cash flows for the six months ended
December 31, 1999 and 1998.................................. 6
Notes to financial statements............................... 7
Item 2. Management's discussion and analysis of results of
operations and financial condition.......................... 9
Item 3. Quantitative and Qualitative Disclosures about
Market Risk................................................. 11
PART II - OTHER INFORMATION........................................... 12
Item 5. Other Information................................... 12
Item 6. Exhibits and Report on Form 8-K..................... 12
Signatures.................................................. 14
-2-
</TABLE>
<PAGE> 3
CISTRON BIOTECHNOLOGY,INC.
--------------------------
BALANCE SHEETS
--------------
<TABLE>
<S> <C> <C>
June 30, December 31,
ASSETS 1999 1999
- ------ ------------ --------------
CURRENT ASSETS: (unaudited)
Cash and equivalents $ 8,760,916 $ 9,064,524
Accounts receivable-trade 28,279 -
Accounts receivable-other 2,942,361 956,360
Inventories 1,023 -
Taxes receivable 369,557 103,617
Notes receivable $230,000;
reserve $230,000 - -
---------- ----------
TOTAL CURRENT ASSETS $ 12,102,136 $ 10,124,501
ACCOUNTS RECEIVABLE - OTHER - Long-term 931,440 -
PROPERTY AND EQUIPMENT:
Machinery and equipment 507,557 -
Furniture and fixtures 147,113 -
Leasehold improvements 77,674 -
---------- ----------
732,344 -
Less: Accumulated depreciation 706,980 -
---------- ----------
25,364 -
SECURITY DEPOSITS 23,938 22,962
PATENTS, Net of accumulated amortization
of $17,186 and $18,511, respectively 19,919 18,594
---------- ----------
TOTAL ASSETS $ 13,102,797 $ 10,166,057
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses and accounts payable $ 390,386 $ 105,623
Other current liabilities 775,484 296,114
---------- ----------
TOTAL CURRENT LIABILITIES 1,165,870 401,737
Deferred revenue 69,750 -
Other non-current liabilities 270,796 -
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value: 50,000,000
shares authorized; 29,633,854 and
29,883,854 shares respectively, issued
at June 30, and December 31, 1999 296,839 298,339
Additional paid-in capital 9,865,036 9,873,092
Earnings accumulated during the developm 2,106,961 1,529,045
Treasury stock: 3,946,500 and 9,504,906 (394,650) (1,658,350)
Note receivable for shares of stock (277,805) (277,805)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 11,596,381 9,764,321
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 13,102,797 $ 10,166,057
========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE> 4
CISTRON BIOTECHNOLOGY, INC.
---------------------------
STATEMENTS OF OPERATIONS
------------------------
(UNAUDITED)
---------
<TABLE>
February 2, 1982
(commencement of
Three months ended December 31, operations) to
1998 1999 December 31, 1999
-----------------------------------------------------
<S> <C> <C> <C>
Sales...................................... $ 51,210 $ 1,380 $ 9,804,427
Cost of sales.............................. 75,884 100,636 4,472,394
---------- ----------- ----------
Gross profit............................. (24,674) (99,256) 5,332,033
Other income:
Litigation settlements................... - - 14,684,206
License fees and funded research......... 69,750 69,750 5,210,086
Expenses:
Research and development................. 51,981 85,383 9,154,470
Administrative and marketing............. 248,662 348,349 12,788,682
Occupancy................................ 48,582 20,873 2,746,106
Employee severance....................... - - 369,762
---------- ----------- ----------
Total expenses............................. 349,225 454,605 25,059,020
---------- ----------- ----------
Operating income/(loss).................. (304,149) (484,111) 167,305
Interest income/(expense) - net............ 65,593 75,154 1,421,359
Other income (expense)..................... - 17,620 (42,275)
Amortization of deferred financing costs... - - (173,079)
Acquisition expense........................ - - (429,620)
---------- ----------- ----------
Income/(loss) before income taxes
and extraordinary credit................. (238,556) (391,337) 943,690
Income tax provision (benefit)............. (90,651) 50 1,176,586
---------- ----------- ----------
Income/(loss) before extraordinary credit.. (147,905) (391,387) (232,896)
Extraordinary credit - benefit of tax loss
carryforward............................. - - 262,838
Net income/(loss)........................ $ (147,905) $ (391,387) $ 29,942
========== =========== ============
Net loss per share......................... $ (0.01) $ (0.02)
========== ============
Weighted average shares outstanding........ 24,317,020 20,270,252
========== ============
Net income/(loss) per share -
assuming dilution........................ $ (0.01) $ (0.02)
========== ============
Weighted average shares outstanding -
assuming dilution........................ 24,317,020 20,270,252
========== ============
See accompanying notes to financial statements
</TABLE>
<PAGE> 5
CISTRON BIOTECHNOLOGY, INC.
---------------------------
STATEMENTS OF OPERATIONS
------------------------
(UNAUDITED)
---------
<TABLE>
February 2, 1982
(commencement of
Six months ended December 31, operations) to
1998 1999 December 31, 1999
----------------------------------------------------
<S> <C> <C> <C>
Sales....................................... $ 204,780 $ 52,690 $ 9,804,427
Cost of sales............................... 155,518 142,417 4,472,394
---------- ---------- ----------
Gross profit.............................. 49,262 (89,727) 5,332,033
Other revenues:
Litigation settlement, net................ - - 14,684,206
License fee and funded research........... 69,750 171,437 5,210,086
Expenses:
Research and development.................. 155,642 159,686 9,154,470
Administrative and marketing.............. 474,331 597,978 12,788,682
Occupancy................................. 98,795 80,531 2,746,106
Employee severance........................ - - 369,762
---------- ---------- ----------
Total expenses.............................. 728,768 838,195 25,059,020
---------- ---------- ----------
Operating income (loss)................... (609,756) (756,484) 167,305
Interest income/(expense) - net............. 202,304 161,423 1,421,359
Other income (expense)...................... - 17,620 (42,275)
Amortization of deferred financing costs.... - - (173,079)
Acquisition expense......................... - - (429,620)
---------- ---------- ----------
Income/(loss) before income taxes -
and extraordinary credit.................. (407,452) (577,441) 943,690
Income tax provision (benefit).............. (154,831) 100 1,176,586
---------- ---------- ----------
Income/(loss) before extraordinary credit... (252,621) (577,541) (232,896)
Extraordinary credit - benefit of
tax losscarryforward..................... - - 262,838
---------- ---------- ----------
Net income/(loss)......................... $ (252,621) $ (577,541) $ 29,942
========== ========== ==========
Net loss per share.......................... $ (0.01) $ (0.03)
========== ==========
Weighted average shares outstanding......... 24,317,020 20,466,270
========== ==========
Net loss pr share - assuming dilution....... $ (0.01) $ (0.03)
========== ==========
Weighted average shares outstanding -
assuming dilution......................... 24,317,020 20,466,270
========== ==========
See accompanying notes to financial statements
</TABLE>
<PAGE> 6
CISTRON BIOTECHNOLOGY, INC.
---------------------------
STATEMENTS OF CASH FLOWS
------------------------
(UNAUDITED)
---------
<TABLE>
February 2, 1982
(commencement of
Six Months ended December 31, operations) to
1998 1999 December 31, 1999
--------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 274,580 $ 80,990 $ 11,753,327
Cash paid to suppliers and employees (1,726,880) (2,254,747) (36,160,239)
Interest received 139,304 181,475 1,100,902
Acquisition expenses paid - - (429,620)
Royalties, research funding,
license fees received 139,500 106,937 3,829,529
Other receipts 3,003,678 3,368,098 21,519,197
---------- ---------- -----------
Net cash provided by (used in)
operating activities 1,830,182 1,482,753 1,613,096
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection of note receivable - - 15,097
Issuance of note receivable - - (230,000)
Sale of property and equipment - 75,000 (692,121)
---------- ---------- -----------
Net cash (used in) investing activities - 71,015 (907,024)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of capital stock
and additional contributions 930,000 9,555 10,887,040
Principal payments on notes payable - - (870,238)
Purchase of treasury stock - (1,263,700) (1,658,350)
---------- ---------- -----------
Net cash provided by financing activities 930,000 (1,254,145) 8,358,452
---------- ---------- -----------
Net change in cash and cash equivalents 2,760,182 303,608 9,064,524
CASH AND CASH EQUIVALENTS, beginning of period 5,832,031 8,760,916 -
---------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 8,592,213 $ 9,064,524 9,064,524
========= ========== ===========
RECONCILIATION OF NET INCOME (LOSS) TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) $ (252,621) $ (577,541) $ 29,942
Adjustments to reconcile net income (loss)
to net cash provided used in
operating activities:
Depreciation and amortization 3,843 5,310 756,329
Issue of warrants - - 65,000
Deferred income taxes - - -
Loss(Gain) on disposal of property and equipment - (54,945) (46,414)
Increase in reserve for note receivable - - 230,000
Amortization of deferred financing costs - - 195,179
Decrease (increase) in assets:
Accounts receivable 65,437 2,013,906 1,985,627
Inventory 2,842 1,023 -
Taxes receivable - 265,940 (103,617)
Notes and other receivables 2,838,883 931,440 (2,958,061)
Security deposit - 975 (22,963)
Intangible assets - 1,325 (35,780)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (48,575) (764,134) 1,490,008
Other current and non-current liabilities (779,627) (340,546) 27,846
---------- ---------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: $ 1,830,182 1,482,753 $ 1,613,096
========== ========== ===========
See accompanying notes to financial statements
</TABLE>
<PAGE> 7
CISTRON BIOTECHNOLOGY, INC.
---------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Unaudited)
A. BASIS OF PRESENTATION
---------------------
The financial statements for the three and six month periods ended
December 31, 1999 and 1998 have been prepared without audit and, in the
opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to fairly present the Company's
financial position, results of operations, and cash flows at December
31, 1999 and 1998 and for the periods then ended have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. Certain amounts in prior year
financial statements have been reclassified to conform to current year
presentation.
These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1999. The
results of operations for the periods ended December 31, 1999 and 1998
are not necessarily indicative of the operating results for the full
year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
B. OTHER INCOME
------------
Other income includes sales related royalties and $75,000 ($69,750 net
of commissions) per quarter under a three-year program funded by Aventis
Pasteur formally known as Pasteur Merieux Serums & Vaccins, S.A.
("PMS&V") a subsidiary of Rhone-Poulenc (now known as Aventis
Pharmaceuticals) to fund the Company's vaccine adjuvant development
program.
C. INCOME TAXES
------------
Although tax benefits were recorded against the net losses incurred in
periods ending on or before June 30, 1999, such benefits are no longer
available for periods commencing thereafter.
D. ACCOUNTS RECEIVABLE
-------------------
Accounts receivable - other consists of an amount due in November 2000
pursuant to a litigation settlement agreement entered into in 1996. This
amount has been discounted to reflect its present value. The Company
has licensed manufacture and sale of its products to another company and
discontinued all manufacturing and sales activities in October 1999.
All of the Company's trade receivables have been collected.
<PAGE> 8
E. CHANGES IN SHAREHOLDERS' EQUITY
-------------------------------
During the six-month period ended December 31, 1998, shareholders'
equity increased $677,378 due to the sale of 1,333,333 shares of common
stock to Pasteur Merieux Serums & Vaccins, S.A. ("PMS&V") for $1
million, less $70,000 due to BlueStone on the transaction offset, in
part, by a net loss of $252,621. In July 1999, shareholders' equity
decreased due to the repurchase, for $1,263,700, of 5,558,406 shares of
the Company's Common Stock for Treasury. In November 1999, 150,000
shares of the Company's Common Stock were issued pursuant to the
exercise of an option by a former director of the Company, increasing
shareholders' equity by $9,555. During the three and six month periods
ended December 31, 1999, shareholders' equity was decreased by net
losses of $186,154 and $577,441, respectively, and the effect of the
aforementioned transactions.
F. EARNINGS PER SHARE CALCULATIONS
-------------------------------
The following is a summary of the numerators and denominators used to
calculate Earnings per Share:
<TABLE>
Three Months Ended Six Months Ended
December 31, December 31,
---------------------------- ----------------------------
1998 1999 1998 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Earnings per common share:
- -------------------------
Net income (loss)
(numerator) $ (147,905) $ (391,387) $ (252,621) $ (577,541)
Weighted average shares
(denominator) 24,317,020 20,270,252 24,317,020 20,466,270
Earnings (loss) per share $ (0.01) $ (0.02) $ (0.01) $ (0.03)
========== ========== ========== ==========
Earnings per common share
- assuming dilution:
- -------------------------
Net income (loss)
(numerator) $ (147,905) $ (391,387) $ (252,621) $ (577,541)
Weighted average shares 24,317,020 20,270,252 24,317,020 20,466,270
Effect of dilutive options - - - -
========== ========== ========== ==========
Weighted average shares -
assuming dilution
(denominator) 24,317,020 20,270,252 24,317,020 20,466,270
Earnings (loss) per share $ (0.01) $ (0.02) $ (0.01) $ (0.03)
========== ========== ========== ==========
</TABLE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
--------------------------------------------------
The following discussion should be read in conjunction with and is
qualified in its entirety by the accompanying financial information and
notes thereto, and management's discussion and analysis of results of
operations and financial condition contained in the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1999.
Certain statements in this discussion and analysis constitute forward-
looking statements, are not historical facts, and involve risks and
uncertainties that could cause actual results to differ from those
<PAGE> 9
expected and projected. Such risks and uncertainties include but are not
limited to: (i) general economic conditions; (ii) conditions specific to
the biotechnology industry; (iii) the Company's ability to develop or
acquire new technology or products through licensing, merger or acquisition
and to obtain regulatory approval to commercialize diagnostic or
therapeutic products; (iv) the effectiveness and ultimate market acceptance
of any such products; (v) limitations on third party reimbursements with
respect to any such products; and (vi) competition. The Company does not
undertake to update or revise any forward-looking statements contained
herein whether as a result of new information, future events or otherwise.
Results of Operations
- ---------------------
The Company has only sold its products to the research market and has not
generated any significant revenues therefrom. The Company ceased the direct
sale of its products to the research market as of October 31, 1999.
The Company believes it is a development stage enterprise because planned
principal operations have not yet commenced. The Company's planned
principal operations include the development of clinical and therapeutic
products for distribution through pharmaceutical and diagnostic companies.
This requires the approval of the Company's products by the FDA. At
December 31, 1999, none of the Company's products had received such
approval. In addition, the Company continues to devote most of its efforts
to activities such as research and development, financial planning and
developing markets which are typical activities for a development stage
enterprise.
Specifically, the Company has expended funds relating to its vaccine
adjuvant program. From October 5, 1998 through December 15, 1999, the
Company engaged the services of Genome Securities, Inc. ("Genome"), whose
Chairman and CEO, Robert Naismith, Ph.D. is also a member of the Company's
Board of Directors, to act as Cistron's financial advisor as to corporate
strategic and financial initiatives. Accordingly, as the Company has not yet
commenced principal operations and is devoting most of its efforts to
activities typical of a development stage enterprise as outlined in Statement
of Financial Accounting Standards No.7, the Company believes that it continues
to be in the development stage.
The Company has outsourced all of its manufacturing and research and
development efforts. The Company reached an agreement with its landlord to
terminate the lease on its office and production space and has further
arranged with the new tenant temporarily to share office space in the
formerly leased facility where it can oversee its research and development
programs and pursue its strategic objectives. The lease change coincided
with an employee reduction in force and all but two of the Company's
employees have been terminated.
The Company has held exploratory discussions with several biotechnology
and pharmaceutical companies regarding possible strategic alliances including
joint ventures, mergers or the sale of the Company. There can be no
assurance that the Company will be successful in consummating a merger or
entering into a partnership agreement. Without such event, the Company may
consider a partial or full liquidation of the Company, though no such
decision has been made at this time. Management believes that it will have
sufficient assets to fund the Company's current programs and plans through
fiscal 2000 and beyond.
<PAGE> 10
Three Months Ended December 31, 1999 and Three Months Ended December 31, 1998
- -----------------------------------------------------------------------------
Sales decreased $49,830 (97%) in the quarter ended December 31, 1999 versus
the same period of the prior year due to the Company's earlier decision to
withdraw from direct production and sale of its IL-1 assays. Only
accommodation sales of remaining available products occurred in this
quarter.
Operating expenses increased $105,380 (30%) in the quarter ended December
31, 1999 versus the same quarter of the prior year reflecting significantly
higher administrative and R&D expenses offset by reduced occupancy expense.
Research and development expenses increased $33,320 (64%) due primarily to
the timing of payments for external research funding for vaccine adjuvant
studies. Administrative expenses increased $99,687 (40%) due primarily to
the increase in patent related legal expenses of $34,151, and to
higher consultant and audit expenses offset by reduced employee salary
expense as a result of the staff reduction in October 1999. Occupancy
expense decreased $27,709(57%) due to the termination of the Company's
facility lease and the transition to use of a small part of the facility.
Interest income of $96,707, an increase of $25,483, was earned on the
investment of cash balances which were higher than in the same period of
the prior year. In addition, net interest expense of $21,553 was
recognized on accounts receivable-other and other non-current liabilities
to reflect the increase in their present value and a revised estimate of
the liabilities.
The Company had an operating loss of $391,387 in the quarter and there
can be no assurance that its operations will reach profitability.
Cash was increased in the quarter by the collection of a receivable from
Immunex in the amount of $3 million ($2,167,500 net to the Company).
Six Months Ended December 31, 1999 and Six Months Ended December 31, 1998
- -------------------------------------------------------------------------
Sales decreased $152,090 (74%) in the six months ended December 31, 1999
as compared to the same period of the prior year due to the Company's
decision to withdraw from direct production and sale of its products.
Operating expenses increased $109,427(15%) in the six-month period ended
December 31, 1999 versus the same period of the prior year due primarily to
higher administrative expenses offset by lower occupancy expenses.
Administrative expenses increased $123,647(26%) due mainly to higher legal
and consulting expenses offset, in part, by decreases in employee salaries
and benefits. Legal expense increased $62,936 (84%) over the same period
of the prior year. This change included an increase of $34,151 in patent
related legal expenses. Occupancy expenses decreased $18,264(18%) due to
the termination of the Company's facility lease and the transition to use
of a small part of the facility.
Interest income of $180,736, an increase of $41,436, was earned on the
investment of cash balances, which were higher than in the same period of
the prior year. In addition, net interest expense of $20,052 was
recognized on accounts receivable-other and other non-current liabilities
to reflect the increase in their present value and a revised estimate of
the liabilities. $739 in interest was collected on a tax receivable.
<PAGE> 11
The Company had an operating loss of $577,541 in the six-month period
ended December 31, 1999 and there can be no assurance that its operations
will reach profitability.
Cash was increased in the six month period by the collection in November
1999 of a receivable from Immunex in the amount of $3 million ($2,167,500
net to the Company).
Liquidity and Capital Resources
- -------------------------------
At December 31, 1999, the Company had current assets of $10,124,501
including cash and cash equivalents of $9,064,524 and had current
liabilities of $401,737. Cash was increased in the quarter ended December
31, 1999, by the collection of a payment of $3 million ($2,167,500 after
payments to counsel and certain health and research institutions) from
Immunex pursuant to settlement of patent litigation in November 1996.
A final payment of $1 million ($640,000 net to the Company) is due in
November 2000. Cash used in the six-month period ended December 31, 1999
was largely for operating expenses.
From October 1998 through December 15, 1999, Cistron engaged Genome
Securities, Inc., whose Chairman and CEO, Robert Naismith, Ph. D. is also a
member of the Company's Board of Directors, to act as Cistron's financial
advisor as to corporate strategic and financial initiatives. In this
regard, the Company has held exploratory discussions with several
biotechnology and pharmaceutical companies regarding possible strategic
alliances including joint ventures, mergers or the sale of the Company.
There can be no assurance that the Company will be successful in
consummating a merger or entering into a partnership agreement. Without
such event, the Company may consider a partial or full liquidation of the
Company, though no such decision has been made at this time.
Management believes that it will have sufficient assets to fund the
Company's current programs and plans through fiscal 2000 and beyond.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
-----------------------------------------------------------
The table below presents, as of the end of the prior fiscal year, the
carrying values and estimated fair values of the Company's financial
instruments, none of which has been entered into for trading purposes. The
estimated fair values were determined based upon the terms of the
various instruments then and have not been subsequently revised.
<TABLE>
June 30, 1999
------------------------
Carrying Estimated
Description value fair value
- -----------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 8,760,916 $ 8,760,916
Accounts receivable - trade 28,279 28,279
Accounts receivable - other current 2,942,361 2,942,361
Accounts receivable - other long term 931,440 826,415
Other current liabilities 775,484 775,484
Other non-current liabilities 270,796 231,396
</TABLE>
<PAGE> 12
PART II - OTHER INFORMATION
---------------------------
Item 5. Other Information
On January 28, 2000, the Company agreed to lend Richard S.
Dondero, a former officer of the Company, an aggregate of $102,158.27, the
amount necessary under stock options then exercisable by Mr. Dondero to
purchase 481,722 shares of the Company's Common Stock under a loan and
pledge agreement. Under a non-recourse secured promissory note, payment of
the note is required upon on the earliest of: (a) January 1, 2002, (b)
receipt of the proceeds of sale of shares securing the loan, upon the
merger or sale of the Company or (c) the liquidation or dissolution of the
Company.
On September 1, 1998, the Company entered into a Sponsored
Research Agreement ("Agreement") with Duke University ("Duke") whereby
research was to be performed at Duke to determine the safety and efficacy
of IL-1 beta ("IL-1") as a vaccine adjuvant by way of intranasal
administration in mice utilizing tetanus toxoid and Streptococcus
pneumoniae antigen. In December 1998, under Amendment 1 of Agreement the
research was extended to June 1999. In March 1999, under Amendment 2 of
the Agreement, the term of the Agreement was extended through December 31,
1999 and a dosing study was to be performed to determine the safety and
efficacy of IL-1 as a vaccine adjuvant by way of intranasal and
subcutaneous administration in rabbits utilizing tetanus toxoid. In
September 1999, under Amendment 3 of the Agreement, the term of the
Agreement was extended through March 31, 2000 and during this time a dosing
study is to be performed to determine the safety and efficacy of IL-1 and
an IL-1 mutant as a vaccine adjuvant by way of intranasal and subcutaneous
administration in rabbits utilizing tetanus toxoid.
In August 1999, the Company entered into a Licensing Agreement
with Duke for exclusive rights by the Company to commercialization of
intranasally administered adjuvants formulated with IL-1b, under patents
owned jointly with Duke or by Duke separately, in return for an immediate
royalty of $100,000 and subsequent contingent milestone and sales-related
royalties.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits.
10.24 Sponsored Research Agreement dated, September 1, 1998,
between Registrant and Duke University
10.24a 1st Amendment to Sponsored Research Agreement, dated
December 18, 1998, between Registrant and Duke University
10.24b 2nd Amendment to Sponsored Research Agreement, dated
March 22, 1999, between Registrant and Duke University
10.24c 3rd Amendment to Sponsored Research Agreement, dated
September 1, 1999, between Registrant and Duke University
<PAGE> 13
10.25 License Agreement, dated August 1, 1999, between
Registrant and Duke University
10.26 Loan and Pledge Agreement dated January 28, 2000,
between Registrant and Richard S. Dondero
10.27 Non-Recourse Secured Promissory Note dated January 28,
2000, between Registrant and Richard S. Dondero
27. Financial Data Schedule
b. Reports on Form 8-K. Not applicable.
<PAGE> 14
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.
Date: February 9, 1999 CISTRON BIOTECHNOLOGY, INC.
/s/ISIDORE S. EDELMAN
---------------------
Isidore S. Edelman, M.D.
Chairman & CEO
/s/JONATHAN E. ROTHSCHILD
-------------------------
Jonathan E. Rothschild
Chief Financial Officer
(Principal Financial and
Accounting Officer)
SPONSORED RESEARCH AGREEMENT
----------------------------
This agreement ("Agreement") is between Duke University("Duke"),
a North Carolina non-profit corporation, located in Durham, North Carolina,
and CISTRON Biotechnology, Inc. ("Sponsor"), a Delaware corporation.
WHEREAS, the research program contemplated by this Agreement is of
mutual interest and benefit to Duke and Sponsor, and will further the
instructional and research objectives of Duke in a manner consistent with
its status as a non-profit educational institution.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1 - STATEMENT OF WORK
-----------------------------
Duke agrees to use its best effort to perform the research program
described in the "Statement of Work" ("Statement"), a copy of which is
attached to this Agreement as Exhibit A.
ARTICLE 2 - INDEPENDENT CONTRACTOR
----------------------------------
Duke's relationship to Sponsor under this agreement will be that of
an independent contractor and not an agent, joint venturer or partner of
Sponsor.
ARTICLE 3 - PRINCIPAL INVESTIGATOR
----------------------------------
The research will be supervised by Herman F. Staats, Ph.D.
("Investigator") at Duke. If, for any reason Investigator is unable to
continue to serve as Principal Investigator and a successor acceptable to
both Duke and Sponsor is not available, the Agreement will be terminated in
accordance with Article 7 below.
ARTICLE 4 - CONSIDERATION
-------------------------
In consideration of the foregoing, and as more specifically provided
in the budget included as Exhibit B, Sponsor will pay Duke for all direct and
indirect costs incurred in the performance of the research as set forth in
the Statement, a total not to exceed $78,543.00. Payment of one third of
the total amount, or $26,181.00, will be due upon signature by Sponsor,
payment of one third of the total amount will be due upon completion of
Project 1, and payment of the remaining one third of the total amount will
be due upon completion of Project 3.
ARTICLE 5 - PERIOD OF PERFORMANCE
---------------------------------
The research will be conducted during an eight-month period commencing
on September 1, 1998 and concluding on or before April 30, 1999. This
agreement will be renewable for additional periods upon the mutual consent
of the parties by a new agreement or by amendment hereto expressed in
writing. Either party may terminate this Agreement on any anniversary date
of this Agreement after the first anniversary date by giving the other
party at least sixty (60) days prior written notice of such
- page 1 of 6 -
<PAGE> 2
termination. In the case of such termination, Duke will proceed in an
orderly fashion to terminate any outstanding commitments and to stop the
work as soon as it is practicable to do so. All reasonable costs to Duke
associated with termination will be considered reimbursable costs,
including costs incurred prior to the notice of termination but which have
not yet been reimbursed, and commitments existing at the time the notice
of termination is received which cannot be cancelled.
ARTICLE 6 - RESEARCH REPORTS
----------------------------
Duke will provide Sponsor with one-page biweekly status reports on the
research. In addition, Duke will provide Sponsor with a final report on
such research within sixty (60) days of completion of the research
described herein or termination of this Agreement.
ARTICLE 7 - TERMINATION
-----------------------
In the event that either party commits a breach or default in any of
the terms or conditions of this Agreement and that party fails to remedy that
default or breach within thirty (30) days after receipt of written notice
of that breach from the other party, the party giving notice may, at its
option and in addition to any other remedies it may have in law or in
equity, terminate this Agreement by sending written notice of termination
to stop the work as soon as it is practicable to do so. In the case of
termination by Sponsor for reasons other than breach of this Agreement by
Duke, all costs to Duke associated with termination will be considered
reimbursable costs, including costs incurred prior to the notice of
termination but which have not yet been reimbursed, and commitments
existing at the time the notice of termination is received which cannot be
cancelled. In no case will reimbursement under this Agreement exceed the
total estimated project costs specified in Exhibit B.
ARTICLE 8 - CONFIDENTIAL INFORMATION
------------------------------------
"Confidential Information" ("Information") shall mean all information
provided by one party to the other and clearly identified as confidential
by the transmitting party at the time of disclosure. Specifically excepted
from this definition is all information: (a) known by the receiving party
at the time of disclosure; (b) publicly disclosed except by breach of this
Agreement; (c) rightfully received by the receiving party from a third
party without an express obligation of confidence; and (d) independently
developed by the employees or agents of either party without any knowledge
of the confidential information provided by the other party. The party
receiving the Information agrees to hold that Information in trust and
confidence for the transmitting party, using the same care and discretion
that the receiving party uses with similar Information which it considers
confidential. The receiving party will not use Information other than for
the benefit of the two parties and relating to the Agreement and except as
may be provided for in Article 9 regarding publication herein, neither
party will disclose such information without authorization from the other
party. Duke will not disclose the results of the research to third parties
except through the publications provisions of Article 9. This provision
shall remain in effect during the term of this Agreement and for three (3)
years thereafter.
- page 2 of 6 -
<PAGE> 3
ARTICLE 9 - PUBLICATION AND OTHER USE
-------------------------------------
Duke shall be free to use the results of the subject research for its
own teaching, research, educational, clinical and publication purposes without
the payment of royalties or other fees. All such use shall be subject to
the confidentiality provisions of Article 8. Duke agrees to submit to
Sponsor for its review, a copy of any proposed publication resulting from
the subject research at least sixty (60) days prior to the estimated date
of publication, and if no response is received within thirty (30) days of
the date submitted to Sponsor, it will be conclusively presumed that the
publication may proceed without delay. If Sponsor determines that the
proposed publication contains patentable subject matters which require
protection, Sponsor may require the delay of the publication for a period
of time not to exceed sixty (60) days for the purpose of allowing the
pursuit of such protection.
ARTICLE 10 - INVENTIONS
-----------------------
It is recognized and understood that certain existing inventions and
technologies are the separate property of Sponsor or Duke and are not
affected by this Agreement, and neither party shall have any claims to or
rights in such separate inventions and technologies. Any new invention,
development, or discovery ("Invention") resulting from the subject
research shall be promptly disclosed in writing to Sponsor. Inventorship
of any such Invention shall be determined in accordance with patent law,
or by mutual agreement based upon the relative contributions of the
parties if the Invention is not patentable. All Inventions that represent
a reduction to practice of Sponsor's conception as described through
written documentation shall be the sole and exclusive property of Sponsor.
Title to other Inventions shall reside with Sponsor if Sponsor personnel
are the sole inventors, with Duke if Duke personnel are the sole
inventors, and will be held jointly if both Duke and Sponsor personnel are
inventors. To the extent that Duke owns the right of sole or joint
inventorship of an Invention, Sponsor is hereby granted, without option
fee other than the consideration of the research sponsored herein and the
reimbursement of Duke for all patent expenses related to the Invention
incurred by Duke prior to and during the option period, an option to
acquire an exclusive, worldwide fee and royalty-bearing license of Duke's
rights to any Invention, which option shall extend for ninety (90) days
after Sponsor's receipt of an Invention disclosure. Upon Sponsor's
exercise of the option, the parties shall promptly negotiate a license
agreement in good faith.
ARTICLE 11 - USE OF A PARTY'S NAME
----------------------------------
Neither party will, without the prior written consent of the other
party: (a) use in advertising, publicity or otherwise, the name of any
employee or agent, any trade-name, trademark, trade device, service mark,
symbol, or any abbreviation, contraction or simulation thereof owned by the
other party, or (b) represent, either directly or indirectly, that any
product or service of the other party is a product or service of the
representing party or that it is made in accordance with or utilizes the
information or documents of the other party. Sponsor may disclose any
information regarding this Agreement required by law to be disclosed.
ARTICLE 12 - NOTICE
-------------------
Any notice or other communication required or permitted under this
Agreement will be in writing and will be deemed given as of the date it
is: (a) delivered by hand, or (b) mailed, postage prepaid, first
- page 3 of 6 -
<PAGE> 4
class, certified mail, return receipt requested, to the party at the
address listed below or subsequently specified in writing, or (c) sent,
shipping prepaid, return receipt requested, by national courier service,
to the party at the address listed below or subsequently specified in
writing:
As to Duke: Office of Grants and Contracts
107 Seeley G. Mudd Building
Duke University Medical Center - Box 3001
Durham, North Carolina 27710
cc: University Counsel
Duke University - 011 Allen Building
Durham, North Carolina 27708
As to Sponsor: CISTRON Biotechnology, Inc.
10 Bloomfield Avenue, Box 2004
Pine Brook, NJ 07058
Attn: Mr. Richard Dondero
cc: Seth Truwit, Esq.
Epstein, Becker & Green, P.C.
250 Park Avenue
New York, NY 10177-0077
This Agreement is for professional research services. Neither party may
assign, delegate or otherwise transfer any of its rights or obligations
under this Agreement without the prior written consent of the other party.
ARTICLE 13 - ENTIRE AGREEMENT
-----------------------------
This Agreement and all attached Exhibits contain the entire agreement
and understanding between the parties as to its subject matter. It merges all
prior discussions between the parties and neither party will be bound by
conditions, definitions, warranties, understandings, or representations
concerning such subject matter except as provided in this Agreement or as
specified on or subsequent to the effective date of this Agreement in a
writing signed by properly authorized representatives of the parties. This
Agreement can only be modified by written agreement duly signed by persons
authorized to sign agreements on behalf of both Sponsor and Duke.
ARTICLE 14 - WAIVER
-------------------
The failure of a party in any instance to insist upon the strict
performance of the terms of this Agreement will not be construed to be a
waiver or relinquishment of any of the terms of this Agreement, either at
the time of the party's failure to insist upon strict performance or at
any time in the future, and such terms will continue in full force and
effect.
-page 4 of 6-
<PAGE> 5
ARTICLE 15 - SEVERANCE
----------------------
Each clause of this Agreement is a distinct and severable clause and
if any clause is deemed illegal, void or unenforceable, the validity,
legality or enforceability of any other clause or portion of this
Agreement will not be affected thereby.
ARTICLE 16 - GOVERNING LAW
--------------------------
The construction and performance of this Agreement will be governed
by the laws of the State of North Carolina.
ARTICLE 17 - TITLES
-------------------
All titles and articles headings contained in this Agreement are
inserted only as a matter of convenience and reference. They do not define,
limit, extend or describe the scope of this Agreement or the intent of any
of its provisions.
IN WITNESS WHEREOF, the parties hereunto set their hands and seals.
DUKE UNIVERSITY SPONSOR: CISTRON Biotechnology, Inc.
By:/S/RALPH SNYDERMAN M.D. By: /S/ RICHARD S. DONDERO
----------------------- -----------------------
Name: Ralph Snyderman, M.D. Name: Richard S. Dondero
Title: Chancellor for Health Affairs Title: V. P. - Operations and
Product Development
Date executed: 8/20/98 Date executed: 9/8/98
OS&T
8/25/98
#100488
READ AND ACKNOWLEDGED:
By: /S/ HERMAN F. STAATS 8/31/98
---------------------------
Herman F. Staats, Ph.D.
Principal Investigator
- page 5 of 6 -
<PAGE> 6
EXHIBIT A - STATEMENT OF WORK
EXHIBIT B - TOTAL ESTIMATED PROJECT COSTS
- page 6 of 6 -
Amendment #1
------------
By this Amendment, Duke University ("DUKE"), and CISTRON
Biotechnology, Inc. ("SPONSOR") agree to amend the terms of the Clinical
Study and Research Agreement entered into by the parties effective
September 1, 1998, ("Agreement") as follows:
1. The parties agree that Article 5, Period of Performance, is revised
so that the research will be conducted in an ten-month period
commencing on September 1, 1998, and concluding on or before June
30, 1999.
2. All other terms of the Agreement are unchanged and remain in full
force and effect.
AGREED:
DUKE UNIVERSITY SPONSOR:
By: /s/RALPH SNYDERMAN, M.D. By: /s/BRUCE C. GLATON
------------------------ -------------------
Ralph Snyderman, MD Printed Name: Bruce C. Galton
Chancellor for Health Affairs Title: Chairman & CEO
Date executed: 12/18/98 Date executed: 12-16-98
Acknowledged:
/s/HERMAN F. STAATS
----------------
Herman F. Staats
Principal Investigator
Amendment #2
------------
By this Amendment, Duke University ("DUKE") and CISTRON
Biotechnology, Inc. ("SPONSOR") agree to amend the terms of the Clinical
Study and Research Agreement entered into by the parties effective
September 1, 1998, ("Agreement") and first amended on December 18, 1998 as
follows:
1. The parties agree that article 1, Statement of Work, shall be
expanded to include the research described in an additional
Statement of Work, a copy of which is attached to the Agreement as
Exhibit C. The parties also agree that the SPONSOR shall provide
additional compensation to DUKE for the research set forth in
Exhibit C in accordance with the terms described in the supplemental
budget attached to this Agreement as Exhibit D.
2. The parties agree that Article 1 will be further expanded to
include the research described in the Statement of Work attached to this
Agreement as Exhibit E. Likewise, the parties agree that SPONSOR
shall provide additional compensation to DUKE for the research set
forth in Exhibit E in accordance with the terms described in the
supplemental budget attached to this Agreement as Exhibit F.
3. The parties agree that the term of the Clinical Study and Research
Agreement shall be extended through December 31, 9999 and may be
extended beyond that date by mutual agreement of both parties.
4. All other terms of the Agreement are unchanged and remain in full
force and effect.
AGREED:
DUKE UNIVERSITY SPONSOR
By: /s/RALPH SNYDERMAN, M.D. By: /s/BRUCE C. GALTON
------------------------ ------------------
Ralph Snyderman, M.D. Bruce C. Galton
Chancellor for Heath Affairs Chairman and CEO
Date executed: 3/17/99 Date executed: 3-22-99
Acknowledged:
By: /s/Herman F. Staats 3/19/99
--------------------
Herman Staats, Ph.D.
Principal Investigator
Amendment #3
------------
By this Amendment, Duke University ("DUKE") and CISTRON
Biotechnology, Inc. ("SPONSOR") agree to amend the terms of the Clinical
Study and Research Agreement entered into by the parties effective
September 1, 1998 ("Agreement"), and amended on December 18, 1999 and in
March, 1999 as follows:
1. The parties agree that Article 1, Statement of Work, shall be
further expanded to include the research described in an additional
Statement of Work, a copy of which is attached to this Agreement as
Exhibit G. The parties also agree that the SPONSOR shall provide
additional compensation to DUKE for the research set forth in
Exhibit G in accordance with the terms described in the supplemental
budget attached to this Agreement as Exhibit H.
2. The parties agree that SPONSOR shall compensate DUKE as follows:
$20,719.16 shall be paid to DUKE no later that September 15, 1999.
The remaining balance of $20,719.16 shall be paid to DUKE on
completion of the Research and receipt by CISTRON of a final report
as detailed in the Agreement.
3. The parties agree that the terms of the Clinical Study and
Research Agreement shall be extended through March 31, 2000 and may be
extended beyond that date by mutual agreement of both parties.
4. All other terms of the Agreement are unchanged and remain in
full force and effect.
AGREED:
DUKE UNIVERSITY CISTRON BIOTECHNOLOGY, INC.
By: /s/RALPH SNYDERMAN, M.D. By: /s/RICHARD S.DONDERO
------------------------ ----------------------
Ralph Snyderman, M.D. Name: Richard S. Dondero
Chancellor for Health Affairs Title: Vice President - Operations
and New Product Development
Date: 9/8/99 Date: September 1, 1999
Acknowledged:
By: /s/HERMAN F. STAATS, Ph.D.
--------------------------
Herman Staats, Ph.D.
Principal Investigator
LICENSE AGREEMENT
-----------------
THIS LICENSE AGREEMENT is made and entered into this first day of
August, 1999, by and between Duke University, a North Carolina corporation
not-for-profit having its principal office at Durham, North Carolina
("DUKE"), and Cistron Biotechnology, a corporation having its principal
office at 10 Bloomfield Avenue, Pine Brook, NJ 07058 ("CISTRON").
WITNESSETH:
WHEREAS, Herman Staats, Ph.D., a resident of North Carolina and DUKE
employee ('STAATS") is an inventor of certain DUKE PATENTS as hereinafter
defined; and
WHEREAS, DUKE represents that it is the sole owner of the entire
right, title and interest in the DUKE PATENTS; and
WHEREAS, STAATS has assigned any and all of his right, title, and
interest in and to said DUKE PATENTS and said JOINT PATENTS to DUKE; and
WHEREAS, DUKE has the right to grant licenses under the DUKE PATENTS
and to the JOINT PATENTS and wishes to have the technology protected by
these patents utilized in the public interest; and
WHEREAS, as herein set forth and subject to the terms hereof, CISTRON
desires a license in and to DUKE's rights in the DUKE PATENTS and the
JOINT PATENTS;
NOW, THEREFORE, for good and valuable consideration, which DUKE
acknowledges having received from CISTRON, and in further consideration of
the mutual promises set forth herein, the parties agree as follows:
1. Definitions. As used herein the following defined terms shall
have the following respective meanings:
a. "AFFILIATED COMPANY" means any company (i) in which CISTRON
now or hereafter owns or controls, directly or indirectly, fifty percent
(50%) or more of the stock having the right to vote for directors thereof,
or (ii) which owns or controls, directly or indirectly, fifty percent
(50%) or more of CISTRON's stock having the right to vote for directors.
b. "AGREEMENT" means this License Agreement.
c. "BLA" shall mean Biologics License Application with the FDA
or its component PLA and ELA applications arising from the LICENSED
PATENTS, or any equivalent application filed with a similar foreign
regulatory or governmental agency with jurisdiction over new drug
approvals.
d. "DUKE PATENTS" means patent application serial number
09/168910 entitled "Substantially non-toxic biologically active mucosal
adjuvants in vertebrate subjects" filed October 8, 1998 in the United
States Patent and Trademark Office, including all amendments, continuation
applications, divisional applications, continuation-in-part applications,
and reissues based thereon, and foreign counter parts thereto.
e. "EFFECTIVE DATE" means the date of the last signature
inscribed on page 13 of this AGREEMENT.
f "FDA" means the United States Food and Drug Administration.
g. "FIELD" shall mean, and shall be strictly limited to, the
development, manufacture, importation, offer for sale, and sale of intra-
nasally administered vaccines or vaccine adjuvants formulated with IL-lb
for
<PAGE> 2
prophylaxis and/or therapy of all human diseases.
h. "FIRST COMMERCIAL SALE" means the initial transfer, following
Product Licensing Application or Biological Licensing Application approval
by the FDA, by CISTRON of LICENSED PRODUCTS in exchange for cash or some
equivalent to which value can be assigned for the purpose of determining
NET SALES.
i. "IL-1b" shall mean human Interleukin-1 beta protein,
fragments of human Interleukin 1-beta protein, and mutant forms of human
Interleukin 1-beta protein.
j. "JOINT PATENTS" shall mean any patent or patent application
that, first, has inventors from both CISTRON and DUKE, and, second,
relates to the FIELD, and, third, has claims protecting the use of a
mutant form of IL-1b as an intranasal vaccine adjuvant, and, fourth, is
based on an invention disclosed to DUKE in an Invention Disclosure Form
which was assigned File # 1689 and which is incorporated in its entirety
as Exhibit A of this AGREEMENT. The term "JOINT PATENTS" shall also
include all amendments, continuation applications, divisional
applications, continuation-in-part applications, reissues, and foreign
counter parts thereto.
k. "LICENSED PATENTS" shall mean, collectively, DUKE PATENTS and
DUKE's rights in JOINT PATENTS.
1. "LICENSED PRODUCT(S)" means any product which is produced or
sold by CISTRON, any AFFILIATED COMPANY or any sublicensee that infringes
one or more issued claims of the LICENSED PATENTS in the FIELD.
m. "NDA" means a New Drug Application with the FDA or its
component PLA and ELA applications arising from the development of a
LICENSED PRODUCT, or any equivalent application filed with a similar
foreign regulatory or governmental agency with jurisdiction over new drug
approvals.
n. "NET SALES" means the gross sales of the LICENSED PRODUCT by
CISTRON or any sublicensee of CISTRON to independent third parties, less
price adjustments, return goods, billing corrections, cash, trade and
contract discounts, taxes arising from the sale of the LICENSED PRODUCT,
freight, and other special charges. If a LICENSED PRODUCT is not sold
independently, but rather is sold in combination with other material which
is not a LICENSED PRODUCT, then (i) the NET SALES of said LICENSED PRODUCT
shall be deemed to be the current equivalent NET SALES for the same
quantity of said LICENSED PRODUCT which is sold independently; or (ii) if
there are not independent current sales of said LICENSED PRODUCT, the NET
SALES shall be deemed to be equal to one hundred fifty percent (150%) of
the direct cost of producing said LICENSED PRODUCT, determined in
accordance with generally accepted accounting principles consistently
applied, not to exceed the actual Net Sales price of such compound
product.
o. "PMC" shall mean the Pasteur-Merieux-Connaught division of
Aventis Pharmaceuticals.
2. License.
a. DUKE hereby grants to CISTRON and CISTRON hereby accepts from
DUKE, upon the terms and conditions herein specified, an exclusive license
to make, have made, use, import, offer for sale, and sell the LICENSED
PRODUCTS in the FIELD.
b. The territory of the license granted in this AGREEMENT shall
include the United States of America and all DESIGNATED COUNTRIES in which
CISTRON elects to support patent expenses under Sections 6 and 7 herein.
<PAGE> 3
CISTRON shall have the exclusive right to grant sublicenses
under this AGREEMENT without the payment of a further license fee. Any
such sublicenses shall be subject to the terms of this AGREEMENT but
may include such additional terms as CISTRON determines to be appropriate.
Royalties due on sublicenses shall be determined in the same manner as
royalties due from CISTRON, as set forth in Section 3 of this AGREEMENT,
and shall be based on the NET SALES of the sublicensee. Any income
received from such sublicensing is creditable against minimum royalty
requirements set forth in Section 3c of this AGREEMENT. CISTRON agrees to
be responsible for the performance hereunder by its sublicensees, if any.
If, for any reason, this AGREEMENT is terminated, CISTRON agrees to assign
all such sublicense directly to DUKE. In the event that, due to
termination of this AGREEMENT, a sublicense is assigned directly to DUKE
licensee shall have all the rights that CISTRON has under this AGREEMENT
including the termination on rights as set forth in Section 11 of this
AGREEMENT.
3. Royalties, Other Consideration, Records and Reports.
a. CISTRON shall pay to DUKE a license issue royalty of One
hundred Thousand Dollars ($100,000) upon the execution of this AGREEMENT
by all parties thereto. In addition, CISTRON shall pay to DUKE milestone
royalties upon the achievement by CISTRON, its sublicensees, or its
AFFILIATES of certain milestone-based royalties in the development of
LICENSED PRODUCTS as follows:
i. Fifty thousand dollars ($50,000) upon the issuance of
the first patent in the United States of America based on
DUKE PATENTS; and
ii. Twenty five thousand dollars ($25,000) upon the
issuance of the first patent in the United States of
America based on JOINT PATENTS; and
iii. Two Hundred Thousand Dollars ($200,000) upon approval
of the first NDA or BLA for a LICENSED PRODUCT.
iv. One hundred thousand dollars ($100,000) upon a
decision by PMC to exercise its option to participate with
CISTRON in the development of LICENSED PRODUCTS that are
therapeutic vaccines.
v. One hundred thousand dollars ($100,000) upon a
decision by PMC to exercise its option to participate with
CISTRON in the development of LICENSED PRODUCTS that are
prophylactic vaccines.
Such milestone-based royalties shall not be creditable to any
royalty or other fee or payment due to DUKE under this AGREEMENT. All such
milestone fees shall be due and payable thirty (30) days from the
attainment of the milestone by CISTRON.
b. Commencing with the FIRST COMMERCIAL SALE and at such times
and in such manner set forth hereinafter, CISTRON shall pay to DUKE a
royalty on NET SALES of LICENSED PRODUCTS. Such royalty shall be at the
rate of one-half of one percent (0.5%) of NET SALES.
c. If CISTRON, its AFFILIATES, or its sublicensees is required
to pay royalties based on net sales to any third party in order to make,
have made, use, or sell LICENSED PRODUCTS in a country, then the royalty
for such LICENSED PRODUCTS in such country payable to DUKE by CISTRON
shall be reduced by fifty-percent (50%) of the amount actually paid by
CISTRON to such third parties; provided, however, that in no event shall
the rate of the royalty paid by CISTRON to DUKE pursuant hereto be less
than one quarter of one percent (0.25%) of NET SALES of such LICENSED
PRODUCTS in such countries.
d. Beginning with the year that ensues on the second January 1
following the approval of the first LICENSED PRODUCT by the FDA or a
comparable regulatory authority in the European Union, CISTRON shall be
obligated to pay DUKE a minimum annual royalty of Twentyfive Thousand
Dollars ($25,000).
e. Commencing with the FIRST COMMERCIAL SALE and at such times
and in such manner set
<PAGE> 4
forth hereinafter, CISTRON shall render to DUKE prior to February 28th and
August 31st of each year a written account of the NET SALES of LICENSED
PRODUCTS subject to royalty hereunder made during the prior six (6) month
periods ending December 31st and June 30th, respectively, and shall
simultaneously pay to DUKE the royalties due on such NET SALES in United
States Dollars. Minimum annual royalties, if any, which are due DUKE for
any calendar year, shall be paid by CISTRON along with the written report
due on February 28th of each year. Reports of NET SALES shall reference
DUKE File numbers 1500 and 1689 and shall be made using a form
substantially similar to the model presented in EXHIBIT B of this
AGREEMENT.
f. CISTRON will make all payments due under this subsections a-d
of this Section 3 on or before the date required by the terms of this
AGREEMENT, or within thirty (30) days of any invoice date on invoices
received from DUKE pursuant to this AGREEMENT. If LICENSEE has not paid
any amount due to DUKE in accordance with this subsection d, DUKE may
increase the amount due (in U.S. Dollars) by an annual percentage rate
equal to one percent (1%) of the amount then due, compounded monthly until
such time as CISTRON has met the full financial obligation due at the time
of the next payment or invoice due date.
g. Excepting the existing business relationship between CISTRON
and PMC to develop IL1-based vaccine adjuvants, should CISTRON enter into
any strategic alliance, joint venture, partnership or other business
relationship with another commercial party or parties, other than an
AFFILIATED COMPANY, for the purpose of developing or commercializing the
LICENSED PRODUCTS, CISTRON shall pay to Duke the greater of Fifty Thousand
Dollars ($50,000) or ten percent (10%) of the aggregate of any
sublicensing fees or cash payments received by CISTRON pursuant to such
business relationship ("Rights Payments"); provided, however, such Rights
Payments shall specifically exclude amounts received by CISTRON in the
form of research and development funding, equity investments,
performance-based research, development, or commercialization milestone
payments, or sales bonuses. Should any Rights Payments be made in the form
of non-cash consideration, CISTRON and DUKE agree to negotiate in good
faith to determine a cash value for such consideration, and such
determined cash value shall be included in calculating the Rights
Payments, if any, due DUKE. All Rights Payments shall be due and payable
to DUKE by CISTRON thirty (30) days following the later of (i) the event
that obligates CISTRON for such Rights Payments or (ii) the agreement by
DUKE and CISTRON as to the cash value for any non-cash consideration
received by CISTRON which obligates CISTRON for such Rights Payments.
h. CISTRON shall keep full, true and accurate books of accounts
and other records containing all particulars which may be necessary to
properly ascertain and verify the royalties payable by them hereunder.
Upon DUKE's request, but no more than one time per calendar year, CISTRON
shall permit an independent Certified Public Accountant selected by DUKE
(except one to whom CISTRON has some reasonable objection) to have access
during ordinary business hours to such of CISTRON's records as may be
necessary to determine, in respect of any quarter ending not more than two
(2) years prior to the date of such request, the correctness of any report
and/or payment made under this AGREEMENT.
i. During the term of this AGREEMENT, representatives of DUKE
will meet with representatives of CISTRON at times and places mutually
agreed upon to discuss the progress and results, as well as the ongoing
plans, with respect to the evaluation and development of the LICENSED
PATENTS; provided, however, that should DUKE's personnel be required by
CISTRON to consult with CISTRON outside of Durham, North Carolina, CISTRON
will reimburse reasonable travel and living expenses incident thereto.
4. Representations by DUKE.
a. DUKE represents that:
i. To the best of DUKE's knowledge, DUKE is the sole and
exclusive owner of the entire right, title and interest in
the DUKE PATENTS unencumbered by any outstanding contracts,
agreements or priority claims;
ii. DUKE has full right to enter into this AGREEMENT,
grant this license, and carry out the
<PAGE> 5
transactions contemplated hereby;
5. CISTRON's Due Diligence Requirements.
a. CISTRON shall use commercially reasonable efforts to bring
the LICENSED PRODUCTS to market through a thorough, vigorous and diligent
program for exploitation of the LICENSED PATENTS throughout the term of
this AGREEMENT.
b. In addition, CISTRON shall adhere to the following
commercialization milestones:
i. deliver to DUKE prior to November 1, 2001,
verification -of PMC's decision as to whether PMC will
participate with CISTRON in the development and marketing
of LICENSED PRODUCTS;
ii. present to DUKE on a yearly basis in the report
specified in Section 5.e. herein, evidence establishing
whether PMC and CISTRON are continuing to collaborate to
develop and market LICENSED PRODUCTS;
iii. initiate preparation of an Investigational New Drug
application with the FDA, or an equivalent application with
a comparable foreign regulatory agency, for a LICENSED
PRODUCT prior to November 1, 2006; and
iv. initiate clinical trials in humans prior to November
1, 2008.
c. CISTRON shall inform DUKE within fourteen [14] days of a
decision to terminate the existing business relationship between PMC and
CISTRON or of a decision by PMC not to collaborate with CISTRON to develop
and/or market LICENSED PRODUCTS.
d. In the event that PMC and CISTRON decide not to collaborate
to develop and/or market LICENSE PRODUCTS or terminate such a
collaboration, CISTRON shall, within six months following the date of such
a decision or termination, deliver to DUKE a plan reasonably acceptable to
DUKE describing how CISTRON will develop LICENSED PRODUCTS.
e. During the term of this AGREEMENT, CISTRON will submit
annual progress reports, including a financial report of moneys spent to
date, to DUKE by August 31 of each year which discuss the progress and
results, as well as ongoing plans, with respect to the LICENSED PATENTS.
DUKE shall have the right to request one meeting per year to discuss such
information.
f. DUKE may terminate this AGREEMENT or convert this AGREEMENT
to a non-exclusive agreement if CISTRON fails to meet any of the
commercialization milestones set forth in subsections b-d. of this Section
5. However, in the event that DUKE informs CISTRON that DUKE intends to
convert this AGREEMENT to a non-exclusive license because CISTRON has
failed to meet either of the milestones put forth in Section 5.b. iii. or
Section 5.b.iv, CISTRON may maintain an exclusive license by paying to
DUKE a non-refundable, noncreditable diligence royalty of twenty-five
thousand dollars ($25,000) per year in every year that the development of
LICENSED PRODUCTS is delayed relative to the specified milestone, such
diligence royalty to be paid within thirty (30) days of notification by
DUKE of an intent to convert the license to non-exclusive and on a yearly
basis in any subsequent years.
6. Matters relating to DUKE PATENTS.
a. Prosecution of DUKE PATENTS. Subsequent to the EFFECTIVE DATE
of this AGREEMENT, DUKE shall continue to have sole responsibility for the
filing, prosecuting and maintaining of appropriate worldwide patents for
the DUKE PATENTS. DUKE shall keep CISTRON advised as to the prosecution of
such
<PAGE> 6
applications by forwarding to CISTRON copies of all official
correspondence relating thereto. CISTRON agrees to cooperate with DUKE in
the prosecution of worldwide patent applications to insure that the
applications reflect, to the best of CISTRON's knowledge, all items of
commercial and technical interest and importance.
b. US. Patent Expense for DUKE PATENTS. DUKE shall pay for all
expenses prior to and during the term of this AGREEMENT associated with
prosecution and maintenance of patent applications and patents related to
the DUKE PATENTS in the United States of America, and CISTRON shall
reimburse DUKE for all such patent expenses within thirty [30] days of
being invoiced by DUKE.
c. Foreign Patent Expenses for DUKE PATENTS. DUKE shall request
from CISTRON a written list of foreign countries in which CISTRON wishes
DUKE to prosecute and maintain DUKE PATENTS ("DESIGNATED COUNTRIES"), and
DUKE shall proceed to prosecute and maintain DUKE PATENTS in the
DESIGNATED COUNTRIES. CISTRON shall reimburse DUKE for all expenses
associated with prosecution and maintenance of patent applications and
patents related to the DUKE PATENTS in the DESIGNATED COUNTRIES, such
reimbursement to be made within thirty [30] days of being invoiced. DUKE
shall be free, at its own option and expense, to file patents in foreign
countries that are not DESIGNATED COUNTRIES. CISTRON shall have no rights
under Section 2 of this AGREEMENT to practice patents in countries that
are not DESIGNATED COUNTRIES and no obligation to reimburse DUKE for
patent expenses incurred in pursuing patent protection in countries that
are not DESIGNATED COUNTRIES.
d. Discontinuance of Patent Support for DUKE PATENTS. CISTRON
may, at its sole option, elect to discontinue reimbursement of patent
expenses incurred during prosecution or maintenance of any individual
patent or patent application within DUKE PATENTS within the United States
or any DESIGNATED COUNTRY by providing DUKE with written notice that it no
longer wishes to reimburse DUKE for such expenses. However, any rights
granted to CISTRON in Section 2 of this AGREEMENT shall be revoked with
respect to any patent application or patent that CISTRON elects not to
support financially, such revocation of rights to become effective
immediately upon receipt by DUKE of written notice from CISTRON that it no
longer wishes to reimburse DUKE for patent expenses for a given patent or
patent application.
e. Sharing of Patent Expenses with Other Parties Licensing DUKE
PATENTS. DUKE agrees that any license agreement granting rights in DUKE
PATENTS outside the FIELD to third parties shall participate in
reimbursing DUKE for patent expenses related to prosecution and
maintenance of DUKE PATENTS, the share to be paid by each licensee to be
determined by DUKE. DUKE will consider total patent expenses incurred and
the scope of the field licensed by each licensee to determine an equitable
allocation of expenses. DUKE shall inform all licensees when any new
license agreement is executed and what the revised allocation of patent
expenses will be. To the extent a licensee has not paid its allocated
share of such patent expenses, said licensee will be invoiced for
reimbursement of its share of said expenses.
f. Divisional applications with no claims in the FIELD. In the
event that DUKE is required to respond to a restriction requirement issued
by the United States Patent and Trademark Office or a comparable foreign
agency during prosecution of the DUKE PATENTS and file divisional
applications which do not include claims in the licensed FIELD
[NON-LICENSED DIVISIONALS], CISTRON will have no rights in such
NONLICENSED DIVISIONALS, and no obligation to reimburse DUKE for expenses
incurred by DUKE in prosecuting or maintaining such NON-LICENSED
DIVISIONALS.
7. Matters relating to JOINT PATENTS.
a. Prosecution of JOINT PATENTS. CISTRON shall have sole
responsibility for the filing, prosecuting and maintaining of appropriate
worldwide patents and patent applications for the JOINT PATENTS using
counsel reasonably acceptable to DUKE, and CISTRON shall pay all expenses
incurred in such activities. CISTRON shall keep DUKE advised as to the
prosecution of such applications by forwarding to DUKE copies of all
official correspondence relating thereto. CISTRON and DUKE agree to
cooperate in the prosecution of worldwide JOINT PATENTS to insure that the
applications reflect, to the best of both parties' knowledge, all items of
commercial and technical interest and importance. CISTRON agrees to allow
DUKE sufficient time to
<PAGE> 7
make suggestions with regard to patent prosecution and to give such
suggestions reasonable consideration. CISTRON will not abandon, nor allow
to go abandoned, any patent application that is included in JOINT PATENTS
without first giving DUKE written notice that CISTRON intends to abandon
such an application, such notice to be given in sufficient time for DUKE
to assume responsibility for prosecution of such JOINT PATENTS. In the
event that DUKE assumes responsibility for prosecuting any JOINT PATENT
that CISTRON intends to abandon, CISTRON shall lose all rights in such
application, and DUKE shall assume full financial responsibility for the
prosecution and maintenance of such an application.
b. Foreign Patent Filings for JOINT PATENTS. CISTRON shall
supply to DUKE a written list of foreign countries in which CISTRON
intends to prosecute and maintain JOINT PATENTS ("DESIGNATED COUNTRIES"),
DUKE shall be free, at its own option and expense, to file, prosecute, and
maintain JOINT PATENTS in foreign countries that are not DESIGNATED
COUNTRIES. CISTRON shall have no rights under Section 2 of this AGREEMENT
to practice JOINT PATENTS in countries that are not DESIGNATED COUNTRIES.
8. Infringement of Third Party Patents. Each party to this
AGREEMENT (here, the "notifying party") shall give the other party to this
AGREEMENT prompt notice of each claim or allegation received by the
notifying party that the manufacture, use or sale of LICENSED PRODUCTS
constitutes an infringement of a third-party patent or patents. CISTRON
shall have the primary right and responsibility at its own expense to
defend and control the defense of any such claim against CISTRON, by
counsel of CISTRON's own choosing. The settlement of any such actions must
be approved by DUKE, which approval may not be unreasonably withheld or
delayed. DUKE agrees to cooperate with CISTRON in any reasonable manner
deemed by CISTRON to be necessary in defending or prosecuting such
actions. CISTRON shall reimburse DUKE for all expenses incurred in
providing such assistance. Notwithstanding the foregoing, DUKE, shall, in
its sole discretion and at its sole expense, be entitled to participate
through counsel of its own choosing in any such action.
9. Infringement by Third Parties. Upon learning of the infringement
of the LICENSED PATENTS by a third party, the party learning of such
infringement shall promptly inform the other party in writing of that fact
along with any evidence available pertaining to the infringement. CISTRON
may at its own expense take whatever steps are necessary to stop the
infringement and recover damages. In such case, CISTRON will keep DUKE
informed of the steps taken and the progress of any legal action taken.
DUKE shall receive twelve and one-half percent (12.5%) of any damages
received in excess of legal expenses incurred by CISTRON in enforcing
rights in the LICENSED PATENTS. If CISTRON does not undertake, within
sixty (60) days of notice, to enforce the rights in the LICENSED PATENTS
against the infringing party, the DUKE shall have the right, at its own
expense to take whatever steps are necessary to stop the infringement and
recover damages and shall be entitled to retain the damages so recovered.
10. Government Clearance, Publication, Other Use, Export.
a. CISTRON agrees that it and its sublicensees will use
reasonable efforts to have the LICENSED PRODUCTS cleared for marketing in
those counties in which CISTRON intends to sell the LICENSED PRODUCTS by
the responsible government agencies requiring such clearance. To
accomplish said clearances at the earliest possible date, CISTRON agrees
to file, according to the usual practice of CISTRON, any necessary data
with said government agencies. Should CISTRON cancel its development
efforts under this AGREEMENT, CISTRON agrees to assign its full interest
and title in such market clearance application, including all data
relating thereto, to DUKE..
b. DUKE shall be free to publish the results of its continued
research on the subject area of LICENSED PATENTS but agrees to submit to
CISTRON for its review and comment, a copy of any proposed publication
authored by STAATS and resulting from research involving IL1 beta in
vaccine adjuvants at least thirty (30) days prior to the date submitted
for publication, and if no response is received within thirty (30) days of
the date submitted to CISTRON, it will be conclusively presumed that the
publication may proceed without delay. DUKE shall in good faith consider
any comments provided by CISTRON and shall consider the sensitive nature
and
<PAGE> 8
timing of publication of unprotected intellectual property. If CISTRON
determines that the proposed publication contains proprietary subject
matters which require protection, CISTRON may request the delay of the
publication for sixty (60) days from the date first submitted to CISTRON
in order to perfect such protection. Nothing in this AGREEMENT shall be
construed as giving CISTRON editorial control over any publication.
Nothing in this AGREEMENT shall be construed as prohibiting DUKE or
CISTRON from reporting on the results of such research to a governmental
agency if so required by law. For purposes of this AGREEMENT, publication
shall mean the disclosure of information to any person or entity who is
not subject to the confidentiality provisions of Section 13 of this
AGREEMENT.
c. Except CISTRON's publication review rights set forth in
Section 10.b of this AGREEMENT, nothing in this Section 9 shall be
construed as to restrict DUKE's right to use the LICENSED PATENTS for its
own educational, teaching, and research purposes without restriction.
d. This AGREEMENT is subject to all United States laws, rules,
and regulations controlling the export of technical data, computer
software, laboratory prototypes and other commodities and technology.
11. Duration and Termination.
a. This AGREEMENT shall become effective upon the EFFECTIVE
DATE, and unless sooner terminated in accordance with any of the
provisions of this AGREEMENT, shall remain in full force and effect until
the last-to-expire of any LICENSED PATENTS, or any extension thereof under
the Waxman-Hatch Act or any other relevant legislation extending patent
life or market exclusivity based on patent protection.
b. CISTRON may terminate this AGREEMENT by giving DUKE written
notice at least three (3) months prior to such termination, and thereupon
terminate the license granted under this AGREEMENT.
c. Either party may immediately terminate this AGREEMENT for
fraud, willful misconduct, or illegal conduct of the other party upon
written notice of same to such other party. If either party fails to
fulfill any of its obligations under this AGREEMENT, the non-breaching
party may terminate this AGREEMENT upon written notice to the breaching
party as provided in this subsection c. Such notice must contain a full
description of the event or occurrence constituting a breach of the
AGREEMENT. The party receiving notice of the breach will have the
opportunity to cure the breach within thirty (30) days of receipt of such
notice. If the breach is not cured within such thirty (30) day period, the
termination will be effective as of the thirtieth (30th) day after receipt
of notice.
d. Upon termination of this AGREEMENT, CISTRON may notify DUKE
of the amount of LICENSED PRODUCT CISTRON then has on hand, and CISTRON
shall then have a license to sell only that amount of the LICENSED
PRODUCT, provided CISTRON shall pay the royalty thereon at the rate and at
the time provided pursuant to this AGREEMENT.
e. If during the term of this AGREEMENT, CISTRON shall be
adjudicated bankrupt or insolvent or if the business of CISTRON shall be
placed in the hands of a receiver or trustee, whether by the voluntary act
of CISTRON or otherwise, or if CISTRON shall cease to exist as an active
business, this AGREEMENT shall immediately terminate, and DUKE shall have
all remedies and rights available to it for termination with cause.
12. Force Majeure.
a. Neither party shall be considered in breach of its
obligations under this AGREEMENT nor liable for any costs or damages due
to nonperformance under this AGREEMENT arising out of any cause or event
not within the reasonable control of such party and without such party's
fault or negligence, such causes or events being hereinafter referred to
as "Events of Force Majeure."
b. Each party shall give the other party prompt notice of the
occurrence of any Event of Force Majeure, including such information as is
reasonably necessary to establish the Event of Force Majeure; thereupon,
<PAGE> 9
the obligations of the party giving notice, so far as they are affected by
the Event of Force Majeure, shall be suspended during, but no longer than,
the continuance of the Event of Force Majeure.
c. Events of Force Majeure shall only excuse delays in
performance and only to the extent such delays are directly attributable
to the Event of Force Majeure. No Event of Force Majeure shall be an
excuse for permanent nonperformance.
d. Neither party shall be liable for any delay or failure in the
performance of its obligations under this AGREEMENT that directly results
from any failure of the other party to perform its obligations as set
forth in this AGREEMENT.
13. Confidentiality.
a. "Confidential Information" means all information, including,
but not limited to, the trade secrets and know-how of the respective
parties which is clearly identified as "Confidential" or "Proprietary" by
the disclosing party at the time of disclosure. If such transmittal occurs
orally, the disclosing party shall identify the oral disclosure as
confidential at the time of disclosure and shall confirm in writing the
confidential nature of such information within thirty (30) days of the
disclosure. Confidential information shall not mean any information that:
i. is known to the receiving party at the time of
disclosure by the disclosing party;
ii. is developed independently by the receiving party;
iii. is within, or later falls within, the public domain
without breach of this AGREEMENT by the receiving party;
iv. is publicly disclosed with written approval of the
disclosing party; or
v. becomes lawfully known or available to the receiving
party without restriction from a source having the lawful right to
disclose the information without breach of this AGREEMENT by the
receiving party.
Provided further, the receiving party shall have the burden of proof
as to prior knowledge and absence of breach.
b. Confidential Information disclosed on a restricted basis
pursuant to a judicial or other lawful government order shall remain
Confidential Information as between the parties and shall only be
disclosed under terms which provide for continued protection of the
information, and, where possible, the disclosing party shall be a party to
the negotiation of the terms for such protection. Notwithstanding any
provision herein to the contrary, this AGREEMENT shall not be construed to
limit the receiving party's obligation and ability to comply with any
judicial or other lawful government order to disclose Confidential
Information on a restricted basis.
c. Subject to the marking requirements of Section 13.a. of this
AGREEMENT, the obligation of confidentiality under this AGREEMENT shall
apply regardless of the form the Confidential Information takes..
d. Each party acknowledges that in the performance of this
AGREEMENT it shall receive Confidential Information from the other party
and that such Confidential Information is the exclusive property of the
disclosing party. The receiving party agrees to hold the Confidential
Information of the disclosing party in strict confidence in accordance
with the provisions of this AGREEMENT. A receiving party:
i. shall not permit or suffer its employees or agents to
remove any proprietary or other legends or restrictive
notices contained or included in any Confidential
information provided by the disclosing party;
ii. shall not permit or suffer its employees or agents to
copy any Confidential Information,
<PAGE> 10
except as provided in this AGREEMENT or consented to in
writing by the disclosing party
iii. shall not, except as may be provided in Section 10 of
this AGREEMENT regarding publication, disclose any
Confidential Information to a third party without the prior
written consent of the disclosing party hereto;
iv. shall exercise care to keep secure and maintain the
Confidential Information of the disclosing party in a
manner no less protective than that used to maintain the
confidentiality of the receiving party's own Confidential
Information, but in any event not less than a reasonable
degree of care; and
v. agrees to use the Confidential Information only to
further the purposes set forth in this AGREEMENT.
e. A receiving party may disclose Confidential Information to
officers, employees or agents under the control and direction of the
receiving party only in the normal course of business and on a
need-to-know basis within the purpose of this AGREEMENT. Provided,
however, prior to any disclosure all such officers, employees or agents
shall have entered into written agreements with the receiving party, or
have in place binding policies covering the disclosure of such third-party
Confidential Information and have on file signed acknowledgments of such
binding policies from each officer, employee or agent to which
Confidential Information is disclosed, requiring such officers, employees
or agents to treat and use all such Confidential Information in a manner
consistent with the terms and conditions of this AGREEMENT.
f. A receiving party's obligation to comply with the
confidentiality provisions of this AGREEMENT with respect to Confidential
Information disclosed by the disclosing party shall extend for a period of
six (6) years from the date of disclosure of Confidential Information.
g. Upon thirty (30) days written notice from the disclosing
party, the receiving party shall: (i) surrender and deliver all
Confidential Information of the disclosing party, including all copies
thereof; or (ii) with the written consent of the disclosing party, destroy
the Confidential Information and all copies thereof and provide
satisfactory evidence of such destruction to the disclosing party within
one (1) month following said notice. Notwithstanding anything in this
AGREEMENT to the contrary, (i) a receiving party may retain one copy of
each item of Confidential Information disclosed by the disclosing party
solely as evidence of compliance with this AGREEMENT and for no other
purpose, and (ii) upon a request by CISTRON to surrender and deliver all
CISTRON's Confidential Information, DUKE shall be relieved of its
obligation to continue any research dependent upon CISTRON's Confidential
Information.
14. Notices. All notices or other communication shall be in writing
and shall be deemed duly given one (1) day after delivery by facsimile,
provided that an originator copy of the notice is deposited in the
international mail, postage pre-paid, and addressed as set forth below; or
five (5) days after deposit thereof in the registered international mail,
return receipt requested, postage pre-paid with copies to the other
parties addressed as follows:
If to DUKE:
Office of Science and Technology
Attn: License Administrator
Duke University
Room 230, North Building
Box 90083
Durham, North Carolina 27708
Facsimile No.: (919) 681 - 7599
with a copy to:
Office of the University Counsel
<PAGE> 11
Duke University Medical Center
DUMC Box 3024
2400 Pratt Street, Suite 4000
Durham, North Carolina 27710
Facsimile No.: (919) 684-8725
If to CISTRON:
CISTRON Biotechnology
10 Bloomfield Avenue
Pine Brook, NJ 07058
Facsimile no. 973-575-4854
Any party may change its address for notice by giving notice to the other
party of the change.
15. Assignment. Neither DUKE nor CISTRON may assign, delegate or
otherwise transfer any of its rights or obligations under this AGREEMENT
without the prior written consent of the other party; provided, however,
CISTRON may assign its rights and obligations under this AGREEMENT to any
AFFILIATED COMPANY of CISTRON or to any AFFILIATED COMPANY of such
AFFILIATED COMPANY of CISTRON or to any surviving entity with which
CISTRON merges or to which CISTRON sells substantially all of CISTRON's
assets, provided CISTRON shall give DUKE prior written notice of such
assignment.
16. Binding Effect. This AGREEMENT will be binding upon and will
inure to the benefit of the parties and their respective successors and
assigns.
17. Indemnity, Insurance, Representations, Status.
a. CISTRON agrees to indemnify, hold harmless and defend DUKE,
its officers, employees, and agents, against any and all claims, suits,
losses, damages, costs, fees and expenses asserted by third parties, both
government and non-government, resulting from or arising out of CISTRON's
omission, negligence or wrongful act in the development, production,
manufacturing, exploitation, or marketing of the LICENSED PATENTS. CISTRON
further agrees to indemnify and save DUKE harmless from and against any
loss, damage, or expense suffered by DUKE as a result of CISTRON's default
under or breach of this AGREEMENT. DUKE agrees to indemnify and save
CISTRON harmless against any loss, damages, or expense suffered by CISTRON
as a result of DUKE's negligence, wrongful acts or default under or breach
of this AGREEMENT.
b. CISTRON shall maintain in force at its sole cost and expense,
with reputable insurance companies, general liability insurance and
products liability insurance coverage in an amount reasonably sufficient
to protect against liability under subsection a of this Section 17. DUKE
shall have the right to ascertain from time to time that such coverage
exists, such right to be exercised in a reasonable manner.
c. NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO BE A
REPRESENTATION OR WARRANTY BY DUKE OF THE VALIDITY OF ANY OF THE PATENTS
OR THE ACCURACY, SAFETY, EFFICACY, OR USEFULNESS, FOR ANY PURPOSE, OF THE
LICENSED PATENTS. DUKE SHALL HAVE NO OBLIGATION, EXPRESS OR IMPLIED, TO
SUPERVISE, MONITOR, REVIEW OR OTHERWISE ASSUME RESPONSIBILITY FOR THE
PRODUCTION, MANUFACTURE, TESTING, MARKETING OR SALE OF ANY LICENSED
PRODUCT, AND, EXCEPT AS SET FORTH IN SECTION 17A ABOVE, DUKE SHALL HAVE NO
LIABILITY WHATSOEVER TO CISTRON OR ANY THIRD PARTIES FOR OR ON ACCOUNT OF
ANY INJURY, LOSS, OR DAMAGE, OF ANY KIND OR NATURE, SUSTAINED BY, OR ANY
DAMAGE ASSESSED OR ASSERTED AGAINST, OR ANY OTHER LIABILITY INCURRED BY OR
IMPOSED UPON CISTRON OR ANY OTHER PERSON OR ENTITY, ARISING OUT OF OR IN
CONNECTION WITH OR RESULTING FROM:
<PAGE> 12
i. the production, use, or sale of any LICENSED PRODUCT;
ii. the use of the PATENT RIGHTS; or
iii. any advertising or other promotional activities with
respect to any of the foregoing.
d. The parties to this AGREEMENT recognize and agree that each
is operating as an independent contractor and not as an agent of the
other. This AGREEMENT shall not constitute a partnership or joint venture,
and neither party may be bound by the other to any contract, arrangement
or understanding except as specifically stated herein.
18. Use of a Party's Name. Neither party will, without the prior
written consent of the other party:
a. use in advertising, publicity or otherwise, any trade-name,
personal name, trademark, trade device, service mark, symbol, or any
abbreviation, contraction or simulation thereof owned by the other party;
or
b. represent, either directly or indirectly, that any product or
service of the other party is a product or service of the representing
party or that it is made in accordance with or utilizes the information or
documents of the other party.
19. General.
a. Severance. Each clause of this AGREEMENT is a distinct and
severable clause and if any clause is deemed illegal, void or
unenforceable, the validity, legality or enforceability of any other
clause or portion of this AGREEMENT will not be affected thereby so long
as the principal intent of this AGREEMENT is unaffected.
b. Waiver. The failure of a party in any instance to insist upon
the strict performance of the terms of this AGREEMENT will not be
construed to be a waiver or relinquishment of any of the terms of this
AGREEMENT, either at the time of the party's failure to insist upon strict
performance or at any time in the future, and such terms will continue in
full force and effect. No waiver of any obligation under this AGREEMENT
shall be effective unless in writing and signed by the authorized
representative of the party consenting to such waiver.
c. Modification. Any alteration, modification, or amendment of
this AGREEMENT must be in writing and signed by the authorized
representative of each party.
d. Governing Law. This AGREEMENT shall be construed and enforced
in accordance with and governed by the substantive law of the State of
North Carolina and the United States of America, including the patent and
copyright laws of the United States of America.
e. Construction. All titles and section headings contained in
this AGREEMENT are inserted only as a matter of convenience and reference.
Such titles and headings shall not define, limit, extend or describe the
scope of this AGREEMENT or any of its provisions.
f. Entire Understanding. This AGREEMENT represents the entire
understanding between the parties with respect to the subject matter
contained therein and supersedes all other agreements, express or implied,
between the parties with respect to the same.
g. Counterparts. This AGREEMENT may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of
which together will constitute one and the same document.
h. All references to payments of monies under this AGREEMENT
shall be deemed to be in U.S. dollars.
<PAGE> 13
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IN WITNESS WHEREOF, the authorized representatives of the parties
have caused these presents to be executed under seal as of the date and
year first above written.
DUKE UNIVERSITY
By:/s/ ROBERT L. TABER, Ph.D.
--------------------------
Name: Robert L. Taber, Ph.D.
Title: Associate Vice Chancellor
CISTRON Biotechnology
By: /s/ FRANKLIN J. IRIS
---------------------
Name: Franklin J. Iris
Title: CEO
10/1/99
<PAGE> 14
EXHIBIT A - DUKE UNIVERSITY INVENTION DISCLOSURE FOR OST FILE 1689
<PAGE> 15
EXHIBIT B- FORM FOR REPORTING ROYALTIES BASED ON NET SALES
LOAN AND PLEDGE AGREEMENT
-------------------------
This Loan and Pledge Agreement (the "Agreement") dated
as of January 28, 2000, by and between Cistron Biotechnology,
Inc., a Delaware corporation ("Cistron"), and Richard S. Dondero
("Dondero").
1. Cistron hereby loans to Dondero the amount of
$102,158.27 (the "Loan"), on a non-recourse basis secured only
by the Four Hundred Eighty-One Thousand Seven Hundred Twenty-Two
(481,722) shares of Cistron common stock, $.01 par value per
share (the "Shares"), being purchased by Dondero upon exercise
of options to purchase the Shares.
2. The Loan is evidenced by a non-recourse,
promissory note (the "Note") executed by Dondero in favor of
Cistron, secured by a pledge of the Shares by Dondero. Dondero
does not assume any personal liability or responsibility for the
failure to pay the principal amount of the Note. The sole
remedy available upon such failure shall be to proceed against
the Collateral in accordance with the terms of this Agreement.
3. The Note shall be due and payable in full on the
earliest of January 1, 2002, the merger or sale of Cistron, or
the liquidation or dissolution of Cistron. In addition, the
Note shall be due and payable in part or in whole to the extent
provided under paragraph 5.
4. Dondero agrees to pay to Cistron all expenses
incurred by Cistron, including reasonable attorneys' fees, in
proceeding against the Collateral in which the security interest
is granted under this Agreement.
5. Dondero agrees to do, execute, acknowledge,
deliver, file and take any and all such other actions as Cistron
may deem necessary or advisable in order to direct Cistron's
transfer agent for its common stock that beginning on the date
hereof and ending on the date the Note is paid in full, the
transfer agent shall pay all proceeds from the sale of Shares
and any
<PAGE> 2
dividends or other distributions with respect to the Shares
directly to Cistron. Cistron shall apply such proceeds,
dividends or distributions to the reduction of the principal
amount of the Note. In connection with any sale of the Shares
prior to the full payment of the Note, Cistron shall deliver the
certificates representing the Shares to the transfer agent for
Cistron's common stock upon receipt of the foregoing proceeds
from any such sale.
6. Dondero hereby pledges with Cistron as collateral
(the "Collateral") security for the due and punctual payment of
the Note in accordance with its terms and the performance by
Dondero of his obligations under the Note, the Shares (which
include any other securities or property receivable or
distributable with respect thereto after the date hereof). The
certificate(s) representing the Shares, together with a stock
power(s) attached thereto executed in blank by Dondero, are
being delivered to Cistron and shall be retained by Cistron
until the Note has been paid in full. At the time the Note
shall have been paid in full, Cistron shall deliver to Dondero
the certificate representing the Shares, together with the stock
power.
7. So long as no Event of Default (as hereinafter
defined) shall have occurred and be continuing Dondero shall
have the irrevocable proxy to vote and have all other consensual
rights with respect to the Shares, and Cistron shall deliver to
Dondero any proxies, reports or other materials received by it
which are necessary to enable Dondero to exercise such rights.
Upon the occurrence of an Event of Default, all voting and other
consensual rights of Dondero in the Shares shall cease and may
be exercised by Cistron.
8. Upon the occurrence of an Event of Default,
Cistron shall have and may exercise all rights and remedies
afforded to a secured party under the New Jersey Uniform
Commercial Code, including, without limitation, the right to
sell the Shares at a public or private sale (provided that
Cistron shall give Dondero at least 5 days prior written notice
of the date in
<PAGE> 3
which any public sale is to be held or the date after which any
private sale may be made), at which sale Cistron may purchase
the Shares (free from any right of redemption by Dondero, which
right is hereby waived and released) and have the right to
retain the Shares in full satisfaction of Dondero's obligations
under the Note in accordance with the provisions of the New
Jersey Uniform Commercial Code.
9. Each of Dondero and Cistron has all power and
authority necessary to enter into and consummate the
transactions contemplated by this Agreement and this Agreement
is valid and enforceable against each of Cistron and Dondero in
accordance with its terms. Dondero has not created or permitted
any lien or encumbrance to attach to the Shares, other than the
pledge set forth in this Agreement.
10. If any of the following events ("Events of
Default") shall occur:
(a) Dondero shall default in the payment of any
part of the principal on the Note when the same shall become due
and payable, whether at maturity, by acceleration or otherwise;
(b) Dondero shall default in the performance or
compliance with any term or provision contained in this
Agreement;
(c) Dondero shall (i) become insolvent or be
unable, or admit in writing his inability, to pay his debts as
they mature, (ii) make a general assignment for the benefit of
creditors, (iii) be adjudicated a bankrupt or insolvent or file
a voluntary petition in bankruptcy, (iv) file a petition or an
answer seeking an arrangement with creditors or to take
advantage of any insolvency law or (v) file an answer admitting
to the material obligations of, or consent to, or default in
answering, or fail to have dismissed within 60 days after the
filing thereof, a petition filed against him in any bankruptcy
or insolvency proceeding; or
<PAGE> 4
(d) If any of the Shares shall be encumbered,
pledged, attached or levied upon or seized at any legal
proceeding; then the holder of the Note may at any time by written
notice to Dondero (or without such notice with respect to subsection
(c) above), declare the entire unpaid principal on the Note to be
forthwith due and payable, without other notices or demands of
any kind, all of which are hereby waived by Dondero.
11. Dondero will do, execute, acknowledge, deliver,
file and record all such further acts, conveyances, transfers
and assurances as Cistron may deem necessary or advisable to
perfect, preserve, protect and continue the pledge granted by
this Agreement.
12. All notices and communications provided for
herein shall be delivered or mailed by registered or certified
mail, postage prepaid, or telegraphed, addressed as follows:
If to Cistron at:
Cistron Biotechnology, Inc.
10 Bloomfield Avenue
Pine Brook, New Jersey 07058
If to Dondero:
Mr. Richard S. Dondero
37 Hillside Avenue
Riverdale, New Jersey 07457
or such other address or to the attention of such other person
as the recipient party has specified by prior written notice to
the sending party.
13. All representations and warranties made by
Dondero and Cistron herein shall survive the making of the Loan
and the delivery of the Note hereunder.
14. No delay on the part of Cistron in exercising any
right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right,
<PAGE> 5
power or privilege hereunder preclude other or further exercise
thereof, or the exercise of any other right, power or privilege.
The rights and remedies herein provided are cumulative and are
not exclusive of any rights or remedies which Cistron would
otherwise have.
15. This Agreement and the Note shall be construed
under the laws of the State of New Jersey applicable to
agreements made and performed entirely in such State.
16. This Agreement shall be binding upon the
successors and assigns of the parties hereto; provided, however,
that this Agreement and the Shares shall not be assignable by
Dondero.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date and year first above written.
CISTRON BIOTECHNOLOGY, INC.
By:/S/ISIDORE S. EDELMAN
---------------------
Isidore S. Edelman
Title: CHAIRMAN & CEO
/S/ RICHARD S. DONDERO
----------------------
Richard S. Dondero
NON-RECOURSE SECURED PROMISSORY NOTE
------------------------------------
$102,158.27 January 28, 2000
FOR VALUE RECEIVED, Richard S. Dondero (the "Maker")
hereby promises to pay to the order of Cistron Biotechnology,
Inc., a Delaware corporation ("Cistron"), at Cistron's principal
offices at 10 Bloomfield Avenue, Pine Brook, New Jersey 07058,
or such other address as Cistron shall have given to the Maker,
the principal sum of One Hundred Two Thousand One Hundred Fifty-
Eight Dollars and Twenty-Seven Cents ($102,158.27) on the
earliest of January 1, 2002, the merger or sale of Cistron, or
the liquidation or dissolution of Cistron
Payments shall be made in such currency of the United
States as at the time of payment shall be legal tender for the
payment of public and private debts.
This Note evidences the Loan made by Cistron under the
Loan and Pledge Agreement dated the date hereof (the
"Agreement") between Cistron and the Maker providing, among
other things, for the securing of the Note by a pledge of the
Shares, for the prepayment of this Note and for the acceleration
of the maturity of this Note following an Event of Default, all
on the terms set forth in the Agreement.
This Note may be prepaid, in whole or in part, at any
time and from time to time without premium. This Note shall be
paid without deduction by reason of any set-off, defense or
counterclaim of the Maker.
Upon any sale of the Shares, this Note shall become
due and payable as set forth in the Agreement. In addition,
upon the occurrence of an Event of Default (as defined in the
Agreement), this Note shall become due and payable as set forth
in the Agreement.
The Maker agrees to pay to the holder hereof all
expenses incurred by such holder, including reasonable
attorneys' fees, in enforcing and collecting this Note. The
Maker
<PAGE> 2
does not assume any personal liability or responsibility for the
failure to pay the principal amount of this Note. The sole
remedy available upon such failure shall be to proceed against
the Collateral in accordance with the terms of the Agreement.
The Maker hereby forever waives presentment, demand,
presentment for payment, protest, notice of protest, notice of
dishonor of this Note and all other demands and notices in
connection with the delivery, acceptance, performance and
enforcement of this Note.
This Note shall be governed by and construed in
accordance with the laws of the State of New Jersey and shall be
binding upon the heirs or legal representatives of the Maker and
shall inure to the benefit of the successors and assigns of
Cistron.
/s/RICHARD S. DONDERO
- --------------------
Richard S. Dondero
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information taken from the
balance sheet as of December 31, 1999 (unaudited) and the statement of
operations for the six-month period ended December 31, 1999 (unaudited)
and is qualified in its entirety by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 9,064,524
<SECURITIES> 0
<RECEIVABLES> 1,289,977
<ALLOWANCES> 230,000
<INVENTORY> 0
<CURRENT-ASSETS> 10,124,501
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,166,057
<CURRENT-LIABILITIES> 401,737
<BONDS> 0
0
0
<COMMON> 298,339
<OTHER-SE> 9,465,982
<TOTAL-LIABILITY-AND-EQUITY> 10,166,057
<SALES> 52,690
<TOTAL-REVENUES> 224,127
<CGS> 142,417
<TOTAL-COSTS> 142,417
<OTHER-EXPENSES> 820,575
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (161,423)
<INCOME-PRETAX> (577,441)
<INCOME-TAX> 100
<INCOME-CONTINUING> (577,541)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (577,541)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
