<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE SECOND QUARTER ENDED MARCH 31, 1995
Commission File Number 1-10492
EPITOPE, INC.
INCORPORATED IN IRS EMPLOYER
THE STATE OF OREGON IDENTIFICATION NO. 93-0779127
8505 S.W. Creekside Place
Beaverton, Oregon 97008-7108
(503) 641-6115
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Number of shares of Common Stock, no par value, outstanding as of March
31, 1995: 12,083,706
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PAGE NO.
--------
Condensed Consolidated Balance Sheets at March 31, 1995 and
September 30, 1994. . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations for the three months
and six months ended March 31, 1995 and 1994 . . . . . . . . . . . 4
Condensed Consolidated Statement of Changes in Shareholders' Equity for
the six months ended March 31, 1995 . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows for the six months ended
March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders . . . . . 11
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . 11
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EPITOPE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
3/31/95 9/30/94
(Unaudited)
- - ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . $13,345,962 $11,024,997
Marketable securities (Note 2). . . . . . . . . . . . . . . 9,063,322 5,603,414
Accounts receivable, net of allowance for doubtful
accounts of $45,114 and $51,696, respectively . . . . . . 469,527 348,312
Other receivables. . . . . . . . . . . . . . . . . . . . . . 302,286 373,668
Inventories (Note 2) . . . . . . . . . . . . . . . . . . . . 2,357,704 1,668,772
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . 426,656 141,855
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . 25,965,457 19,161,018
Property and equipment, net. . . . . . . . . . . . . . . . . 4,700,251 4,430,695
Patents and proprietary technology, net . . . . . . . . . . 480,727 411,238
Other assets and deposits (Note 3) . . . . . . . . . . . . . 502,017 552,302
------------ ------------
$31,648,452 $24,555,253
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of installment notes payable . . . . . . . . $ 17,758 $ 17,758
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 595,753 522,085
Salaries, benefits and other accrued liabilities . . . . . . 1,418,517 1,437,142
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . 2,032,028 1,976,985
Long-term portion of installment notes payable . . . . . . . 28,989 37,886
Convertible notes, due 1997 (Note 3) . . . . . . . . . . . . 3,620,003 4,070,000
Commitments and contingencies. . . . . . . . . . . . . . . . -- --
Shareholders equity (Notes 3 and 4):
Preferred stock, no par value - 1,000,000 shares authorized;
no shares issued or outstanding. . . . . . . . . . . . . -- --
Common stock, no par value - 30,000,000 shares
authorized; 12,083,706 and 10,926,551 shares issued and
outstanding, respectively. . . . . . . . . . . . . . . . 88,191,642 71,559,900
Accumulated deficit. . . . . . . . . . . . . . . . . . . . (62,224,210) (53,089,518)
------------ ------------
25,967,432 18,470,382
------------ ------------
$31,648,452 $24,555,253
</TABLE>
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EPITOPE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
3/31/95 3/31/94 3/31/95 3/31/94
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<S> <C> <C> <C> <C>
REVENUES
Product sales . . . . . . . . . . . . . . . . . . . . . $ 1,672,837 $ 1,985,005 $ 2,787,950 $ 2,847,868
Grants and contracts. . . . . . . . . . . . . . . . . . 1,806 1,562 21,465 11,047
----------- ----------- ----------- -----------
1,674,643 1,986,567 2,809,415 2,858,915
COSTS AND EXPENSES
Product costs . . . . . . . . . . . . . . . . . . . . . 2,202,088 2,835,325 3,975,638 3,513,312
Research and development costs. . . . . . . . . . . . . 1,692,517 1,415,371 3,237,228 2,810,669
Selling, general, and administrative expenses . . . . . 2,826,569 2,093,157 5,079,109 3,846,109
----------- ----------- ----------- -----------
6,721,174 6,343,853 12,291,975 10,170,090
Loss from operations . . . . . . . . . . . . . . . . . . (5,046,531) (4,357,286) (9,482,560) (7,311,175)
Other income (expense), net. . . . . . . . . . . . . . . 214,051 (9,650) 347,868 (3,475)
----------- ----------- ----------- -----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $(4,832,480) $(4,366,936) $(9,134,692 $(7,314,650)
Net loss per share . . . . . . . . . . . . . . . . . . . $ (.41) $ (.46) $ (.80) $ (.78)
Weighted average number of shares outstanding. . . . . . 11,710,176 9,489,851 11,372,657 9,360,867
</TABLE>
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EPITOPE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
<TABLE>
<CAPTION>
Common Stock Accumulated
Shares Dollars deficit Total
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at September 30, 1994 . . . . . . . . . . . . . 10,926,551 $71,559,900 $(53,089,518) $18,470,382
Common stock issued upon exercise of options . . . . . . 84,723 1,416,716 1,416,716
Common stock issued as compensation . . . . . . . . . . 10,891 167,190 167,190
Compensation expense on stock option grants. . . . . . . 659,002 659,002
Common stock issued upon exercise of warrants. . . . . . 1,038,500 14,467,438 14,467,438
Common stock issued upon exchange of convertible notes . 23,041 449,991 449,991
Equity issuance costs . . . . . . . . . . . . . . . . . (528,595) (528,595)
Net loss for the period . . . . . . . . . . . . . . . . (9,134,692) (9,134,692)
---------- ----------- ----------- -----------
Balances at March 31, 1995 . . . . . . . . . . . . . . . 12,083,706 $88,191,642 $(62,224,210) $25,967,432
</TABLE>
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EPITOPE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Six months ended March 31 1995 1994
- - ---------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . . . . . . . $(9,134,692) $(7,314,650)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . 772,720 520,734
(Gain) loss on disposition of property . . . . . . . . (24) 1,541
Increase in accounts receivable and other
receivables. . . . . . . . . . . . . . . . . . . . . . (49,833) (799,184)
Increase in inventories . . . . . . . . . . . . . . . . (688,932) (486,491)
Increase in prepaid expenses . . . . . . . . . . . . . (284,801) (323,660)
(Increase) decrease in other assets and deposits . . . (2,360) 17,265
Increase in accounts payable and accrued liabilities. . 143,101 273,608
Common stock issued as compensation for services. . . . 193,487 275,244
Compensation expense on stock option grants and
deferred salary increases. . . . . . . . . . . . . . . 570,944 601,224
------------ -----------
Net cash used in operating activities . . . . . . . . . (8,480,390) (7,234,369)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in marketable securities . . . . . . . . . . (6,401,070) --
Proceeds from sale of marketable securities . . . . . . 2,941,162 --
Additions to property and equipment . . . . . . . . . . (927,355) (1,938,340)
Proceeds from sale of property . . . . . . . . . . . . 10,080 1,000
Expenditures for patents and proprietary technology . . (144,055) (88,713)
Expenditures for investments. . . . . . . . . . . . . . (20,260) (15,449)
------------ -----------
Net cash used in investing activities . . . . . . . . . (4,541,498) (2,041,502)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under installment purchase
obligations . . . . . . . . . . . . . . . . . . . . . (8,897) (9,152)
Proceeds from issuance of common stock. . . . . . . . . 15,880,345 11,767,693
Cost of equity issuance . . . . . . . . . . . . . . . . (528,595) (1,236,320)
------------ -----------
Net cash provided by financing activities . . . . . . . 15,342,853 10,522,221
Net increase in cash and cash equivalents . . . . . . . 2,320,965 1,246,350
Cash and cash equivalents at beginning of period . . . 11,024,997 8,556,676
------------ -----------
Cash and cash equivalents at end of period . . . . . . $ 13,345,962 $ 9,803,026
</TABLE>
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<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - THE COMPANY
Epitope, Inc. (the Company or Epitope) is an Oregon corporation utilizing
biotechnology to develop and market medical diagnostic products and, through
its agricultural units, new plants and related products.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The interim condensed consolidated financial statements include the accounts
of Epitope and its wholly owned subsidiaries.
The interim condensed consolidated financial statements included herein are
unaudited; however, in the opinion of the Company, the interim data includes
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair statement of the results of operations for the interim periods.
These condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's 1994 Annual Report on Form 10-K.
Results of operations for the period ended March 31, 1995 are not necessarily
indicative of the results of operations for the full fiscal year.
MARKETABLE SECURITIES
At March 31, 1995, marketable securities consisted of commercial paper and
U.S. Treasury securities with an original maturity period greater than three
months, but not greater than 12 months. The Company's policy is to invest
its excess cash in securities that maximize (a) safety of principal, (b)
liquidity for operating needs, and (c) after-tax yields.
Effective October 1, 1994, the Company adopted Financial Accounting Standards
Board Statement No. 115 (SFAS 115), Accounting for Certain Investments in
Debt and Equity Securities. Pursuant to SFAS No. 115, the Company has
categorized all of its investments as available-for-sale securities. This
adoption did not have a material impact on the Company's financial statements.
INVENTORIES
March 31, 1995 September 30, 1994
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Raw materials. . . . . . . . . $1,077,018 $ 721,199
Work-in-process. . . . . . . . 877,523 595,597
Finished goods . . . . . . . . 301,487 293,674
Supplies . . . . . . . . . . . 101,676 58,302
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$2,357,704 $1,668,772
INCOME TAXES
The Company accounts for certain revenue and expense items differently for
income tax purposes than for financial reporting purposes. These differences
arise principally from methods used in accounting for stock options,
depreciation rates, clinical trials, and amortization associated with
acquired technologies.
Taxable income for the fiscal year is not expected to exceed the net
operating loss carryforward. Therefore, there is no current provision for
income tax expense.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares of
common stock outstanding during the period. Unexercised stock options and
warrants are excluded from such computations because their effect on net loss
per share would be antidilutive.
SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash financing activities not included in the Consolidated Statements of
Cash Flows for the six months ended March 31, 1995 and 1994 are as follows:
1995 1994
- - ---------------------------------------------------------------------
Conversion of notes to equity (Note 3) . . . . . $427,496 $ 341,357
Discount on private placement of common stock. . -- 1,027,013
NOTE 3 - LONG-TERM DEBT
On June 30, 1992, a wholly owned subsidiary of the Company, Agritope, Inc.
(Agritope), completed a private placement with several European institutional
investors pursuant to which $5,495,000 of convertible notes were issued. The
notes are unsecured, mature on June 30, 1997 and bear interest at the rate of
4% per annum which is payable on each June 30 and December 31 until all
outstanding principal and interest on the notes have been paid in full. In
the event of an initial public offering of Agritope common stock, the notes
would be automatically converted to shares of Agritope common stock at 90% of
the public offering price. Costs incurred in connection with the debt
issuance are included in other assets and are being amortized over the
five-year life of the notes. Amortization expense of debt issuance costs for
the six months ended March 31, 1995 amounted to $50,411, leaving an
unamortized balance of $242,803.
During the six months ended March 31, 1995 and 1994, investors exchanged
$449,991 and $369,976, respectively, principal amount of convertible notes
for Epitope common stock at a conversion price of $19.53 per share. In
conjunction with the exchanges, unamortized debt issuance costs of $22,495
and $28,619 respectively, related to such notes were recognized as equity
issuance costs.
NOTE 4 - SHAREHOLDERS' EQUITY
On March 29, 1995 the Company announced that it would extend the expiration
date and modify certain terms for several series of warrants that were
originally scheduled to expire on April 22, 1995.
The action involved warrants issued in private placements, to purchase 1.3
million shares of Epitope common stock at a price of $14-7/8 per share,
478,100 shares at a price of $17-7/8 per share and 375,000 shares at a price
of $20 per share. Warrantholders may exercise the warrants at current
exercise prices through April 22, 1995. Thereafter, through December 31,
1995, holders of warrants currently exercisable at $14-7/8 will be permitted
to exercise at a price of $16 per share. On January 1, 1996, through
September 30, 1996, the exercise price for such warrants will be increased to
$18-1/2 per share. For holders of the warrants currently exercisable at
$17-7/8 per share, the exercise price will increase to $18-1/2 per share from
April 23, 1995, through a new expiration date of March 31, 1997. The $20 per
share warrants may be exercised at that price until March 31, 1997. After
April 22, 1995, holders exercising any of the extended warrants may not sell
the newly acquired shares for a period of sixty days following date of
purchase.
-8-
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company recorded revenues of $1,675,000 and $2,809,000, respectively, for
the quarter and six-month period ended March 31, 1995, which were 16% and 2%
lower than revenues for the respective periods of fiscal 1994.
Sales of the Company's Western Blot Kit HIV confirmatory test,
EPIblot-Registered Trademark-, for the current quarter totaled $508,000, 14%
above the revenues for the second quarter of 1994. For the six-months ended
March 31, 1995, EPIblot sales of $1,088,000 were 12% over sales for the
comparable period of the prior year. The Company's marketing partner for
EPIblot continues to achieve greater market share for this product. As of
March 31, 1995, firm orders for EPIblot amounting to $416,000 were scheduled
for shipment during the upcoming quarter.
The Company's OraSure-Registered Trademark- oral specimen collection device
(OraSure) produced revenues of $212,000 for the current quarter as compared
to $199,000 for the second quarter of fiscal 1994. Sales of OraSure for the
six-month period ended March 31, 1995 were $329,000, a decrease of 16% as
compared to the first six months of fiscal 1994. Late in the current
quarter, the Company commenced shipments of OraSure for use in the detection
of antibodies to the HIV virus, following approval by the U. S. Food and Drug
Administration (FDA) in December 1994. Prior to receiving FDA approval, sales
of the product were limited to use for testing for cotinine, a nicotine
derivative, in the U.S. and for HIV screening in foreign countries approved
for export by the FDA. As of March 31, 1995, the Company had firm orders for
OraSure totaling $2,637,000, including $304,000 for shipment before June 30,
1995.
The Company's wholly owned subsidiary, Agrimax Floral Products, Inc.
(Agrimax), generated revenues from sales of Fresche Blossoms-Registered
Trademark- fresh-cut flowers totaling $936,000 for the current quarter, a
decrease of 30% from the second quarter of fiscal 1994. For the six-months
ended March 31, 1995, revenues were down 10% to $1,329,000 as compared to the
first six-months of fiscal 1994. The decrease in fresh flower sales was due
to timing of Easter holiday shipments. In 1995, Easter shipments were higher
than 1994 levels, but they were made in early April instead of late March and
will be reported in third quarter results.
Gross margin on product sales were negative for both the current quarter and
for the first six-months of fiscal 1995. EPIblot margins for the current
periods, while still favorable, were lower than margins for the comparable
quarter and six-months of fiscal 1994 due to lower production yields.
OraSure margins were negative due to increased levels of overhead expense
incurred in preparation for product launch. Fresche Blossoms gross margins
continue to be negative as the present sales volume is below levels necessary
to achieve profitable operations. The Company is currently seeking a
strategic alliance with a partner with sales volumes that, when combined with
those of Agrimax, would reach the volumes necessary to achieve positive
margins.
Research and development expenses for Epitope Medical Products of $1,047,000
and $2,010,000 for the three-month and six-month periods ended March 31, 1995
increased 11.6% and 11.2% as compared to the same periods of fiscal 1994. In
the months following the December 1994 FDA approval to sell OraSure in the
U.S. for HIV screening, the medical products division increased clinical
trials and product development activities to develop new applications of the
OraSure technology and to complete an application to the FDA for use of
EPIblot to confirm OraSure results. Agricultural research expenses totaled
$645,000 for the current quarter and $1,227,000 for the six-months ended
March 31, 1995, representing increases of 35% and 22%, respectively, over the
comparable prior year periods. The increase is attributable to accelerating
the product development of Agritope's genetically engineered, extended
shelf-life tomato.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
The Company incurred selling, general and administrative expense of
$2,827,000 and $5,079,000 for the current quarter and six-month year-to-date
period of fiscal 1995, respectively, representing an increase of 35% and 32%
as compared to the same periods of fiscal 1994. During 1995, the Company
increased marketing and support staff and incurred additional expenses in
preparation for the launch of OraSure. These increases were partially offset
by reductions in overhead costs at Agrimax.
Other income (expense), net, for the six-months ended March 31, 1995 and 1994
consisted of interest income on the Company's investment of excess funds,
less interest expense on the Agritope convertible notes (see Note 3 to the
Condensed Consolidated Financial Statements). Interest income increased in
1995 due to higher levels of funds available for investment and increased
interest rates.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and marketable securities as of March 31, 1995
amounted to $22,409,000 as compared to $16,628,000 at September 30, 1994. At
March 31, 1995, the Company had working capital of $23,933,000, which
compares to $17,184,000 at September 30, 1994. The increases are primarily a
result of receipt of proceeds from exercises of warrants and employee stock
options.
Proceeds from the issuance of equity securities represent the primary source
of funds for meeting the Company's requirements for operations, working
capital, and business expansion. During the six-months ended March 31, 1995,
the Company received $15,352,000 in net proceeds from the exercise of
warrants and options to purchase common stock.
Inventories increased $689,000 from September 30, 1994, as the Company
purchased OraSure components in anticipation of product launch and flower
packaging supplies for holiday sales in the Spring. Prepaid expenses
increased $285,000 due to renewal of the Company's insurance coverage in
February.
Capital expenditures of $927,000 in 1995 include cash outlays for furniture
and equipment for newly leased office space and for additional OraSure
manufacturing equipment.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The 1995 annual meeting to shareholders (the Annual Meeting) of
the Company was held on February 21, 1995.
(b) At the Annual Meeting, the following individuals were elected by
the votes indicated as Class III directors of the Company for terms
expiring in 1998:
SHARES VOTED AT ANNUAL MEETING
Nominee For Withheld
------------------ --------- --------
Richard K. Donahue 8,341,471 257,901
Margaret H. Jordan 8,334,739 264,633
Michael J. Paxton 8,343,396 255,976
The other directors whose terms of office continued after the Annual
Meeting are: W. Charles Armstrong; Adolph J. Ferro, Ph.D.; Andrew S.
Goldstein; R. Douglas Norby; Roger L. Pringle; G. Patrick Sheaffer.
(c) The following other matter was approved by the shareholders at the
Annual Meeting by the vote indicated:
SHARES VOTED AT ANNUAL MEETING
Matter For Against Abstentions and
------ --- ------- Broker Non-Votes
----------------
Approval of amendment to 1991
Stock Award Plan providing for
(i) an additional 550,000
shares of common stock available
for grant and (ii) certain
changes to Article 14. 7,542,608 902,116 154,648
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT NO. EXHIBIT
----------- -------
10.1 Development, License and Supply Agreement between
Epitope, Inc. and SmithKline Beecham plc dated
February 24, 1995, as amended. Portions of this
agreement are subject to a request for confidential
treatment.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
The Company filed a current report on Form 8-K dated March 29,
1995, reporting under item 5 the modification of certain terms of
its series of warrants scheduled to expire on April 22, 1995.
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<PAGE>
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.
EPITOPE, INC., an Oregon corporation
May 15, 1995 ADOLPH J. FERRO, PH.D.
- - ------------------------ -------------------------------------------------
Date Adolph J. Ferro, Ph.D.
President, Chief Executive Officer and Director
(PRINCIPAL EXECUTIVE OFFICER)
May 15, 1995 GILBERT N. MILLER
- - ------------------------ -------------------------------------------------
Date Gilbert N. Miller
Executive Vice President, Chief Financial Officer
(PRINCIPAL FINANCIAL OFFICER)
May 15, 1995 TERRY J. PAULSEN
- - ------------------------ -------------------------------------------------
Date Terry J. Paulsen
Accounting Manager
(PRINCIPAL ACCOUNTING OFFICER)
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EXHIBIT INDEX
Exhibit Description
- - ------- -----------
10.1 Development, License and Supply Agreement between Epitope, Inc.
and SmithKline Beecham plc dated February 24, 1995, as amended.
Portions of this agreement are subject to a request for
confidential treatment.
<PAGE>
Exhibit 10.1
<PAGE>
DEVELOPMENT, LICENSE AND SUPPLY AGREEMENT
THIS DEVELOPMENT, LICENSE AND SUPPLY AGREEMENT (hereinafter referred
to as "AGREEMENT"), made as of the 24th day of February, 1995, between
Epitope, Inc., a corporation of the state of Oregon, having a place of
business at 8505 SW Creekside Place, Beaverton, Oregon 97008, U.S.A. and
SmithKline Beecham plc, a company organized under English law and having its
registered office at New Horizons Court, Brentford, Middlesex TW8 9EP,
England,
WITNESSETH THAT:
WHEREAS, EPITOPE (as hereinafter defined) has developed the
OraSure-Registered Trademark- HIV-1 Oral Specimen Collection Device, and such
device has received FDA (as hereinafter defined) approval for certain use by
properly trained personnel under a physician's supervision, and EPITOPE has
plans to seek FDA permission to market such device as an Over-the-Counter
product for use in home collection of HIV-1 antibodies;
WHEREAS, EPITOPE is the owner of all right, title and interest in
certain patents and patent applications identified in Appendix A hereto and
know-how which relate to the collection of antibodies and other substances
from mucosal transudate and to other BODILY FLUID-based diagnostic, screening
and/or detection technologies; further, such know-how includes, without
limitation, techniques for the use of such BODILY FLUID as a matrix from
which to detect the presence of such antibodies or other substances, such as,
but not limited to, the OraSure-Registered Trademark- HIV-1 Oral Specimen
Collection Device and applications of the OraSure-Registered Trademark- Oral
Specimen Collection Device outside of the field of HIV-1 antibody detection,
as well as all applications of EPITOPE's proprietary BODILY FLUID-based
diagnostic, screening and/or detection technologies including, but not
limited to, EPITOPE's OraQuick-Registered Trademark- technology; and EPITOPE
is seeking a partner to collaborate on the development and commercialization
of products which are embraced by such patents and know-how throughout the
world to the extent EPITOPE is legally permitted to do so in view of
pre-existing contractual obligations between EPITOPE and third parties; and
WHEREAS, SB (as hereinafter defined) is interested in collaborating
on the development and commercialization of products which are embraced by
such patents and know-how throughout the world to the extent EPITOPE is
legally permitted to do so in view of pre-existing contractual obligations
between EPITOPE and third parties, including commercializing the
OraSure-Registered Trademark-HIV-1 Oral Specimen Collection Device to all
legally available market segments and geographic locations, to the full
extent of the marketing and regulatory approvals received, now and in the
future from the FDA and other domestic and foreign regulatory agencies, and
in obtaining certain licenses from EPITOPE under the aforesaid patents and
know-how, and EPITOPE is willing to grant to SB such licenses;
NOW, THEREFORE, in consideration of the covenants and obligations
expressed herein, and intending to be legally bound, and otherwise to be
bound by proper and reasonable conduct, the parties agree as follows:
1. DEFINITIONS
1.01 "AFFILIATES" shall mean any corporation, firm, partnership,
or other entity, whether DE JURE or DE FACTO, which directly or indirectly
owns, is owned by or is under common ownership with a party to this AGREEMENT
where "owns" or "ownership" means possession of at least fifty percent (50%)
of the equity (or such lesser percentage which is the maximum allowed to be
owned by a foreign corporation in a particular jurisdiction) having the power
to vote on or direct the affairs of the entity and any person, firm,
partnership, corporation or other entity actually controlled by, controlling
or under common control with a party to this AGREEMENT.
1.02 "APPROVED PRODUCT" shall mean a PRODUCT for a SPECIFIED
APPLICATION for which a DEVELOPMENT PLAN is approved in accordance with
Paragraph 2.02. Notwithstanding the
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foregoing, the ORASURE-Registered Trademark- HIV-1 ORAL SPECIMEN COLLECTION
DEVICE shall constitute an APPROVED PRODUCT for the SPECIFIED APPLICATION of
screening, detection and/or diagnosis of Human Immunodeficiency Virus-1
(HIV-1) antibodies.
1.03 "BODILY FLUID" shall mean all [CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION].
1.04 "BUNDLED PRODUCT" shall mean a collection device that is an
APPROVED PRODUCT marketed to the professional MARKET SEGMENT as a unit with a
testing service provided by SmithKline Beecham Clinical Laboratories and/or
any AFFILIATES that are operating as a clinical laboratory.
1.05 "COLLECTION DEVICE" shall mean a device for the collection
of BODILY FLUID specimens for the purpose of detecting and/or screening for
substances and/or indications and/or diagnosing conditions in BODILY FLUID
for which the presence of the collected substances, indications or conditions
is determined with a validated BODILY FLUID detection test which is
independent of the device used for the collection of the substances,
indications or conditions.
1.06 "COMBINATION PRODUCT" shall mean a product, in finished pack
form, that includes two or more PRODUCTS, or any PRODUCT which tests and/or
screens for the detection and/or diagnosis of two or more substances or
conditions.
1.07 "COST OF GOODS" shall mean all direct costs related to the
cost of raw materials, packaging, direct labor and associated fringe benefits
directly attributable to manufacturing of an APPROVED PRODUCT. EPITOPE's
methods for allocating direct costs shall be in accordance with U.S.
Generally Accepted Accounting Principles (GAAP) consistently applied over
time and consistent with methods applied by EPITOPE to products which have
similar requirements to such APPROVED PRODUCT with respect to manufacturing,
testing and storage in finished form.
1.08 "DEVELOPMENT PLAN" shall mean each collaborative development
project between EPITOPE and SB which shall be drafted, amended, and approved
by the DEVELOPMENT STEERING COMMITTEE in accordance with Paragraph 2.02, and
which shall thereafter be fully incorporated into this AGREEMENT as though
fully set forth herein.
1.09 "DEVELOPMENT STEERING COMMITTEE" shall mean a committee
containing senior members from both parties which the parties shall establish
in accordance with Paragraph 2.02. The responsibilities of the DEVELOPMENT
STEERING COMMITTEE are set forth in Paragraph 2.02.
1.10 "E.C." shall mean the countries which are members of the
European Community as of the EFFECTIVE DATE.
1.11 "EFFECTIVE DATE" shall mean February 21, 1995.
1.12 "EPITOPE" shall mean Epitope, Inc., a corporation of the
state of Oregon, having a place of business at 8505 SW Creekside Place,
Beaverton, Oregon 97008, U.S.A.
1.13 "EPITOPE MARKET SEGMENT(S)" shall mean all MARKET SEGMENTS
in the EXCLUDED TERRITORY and the LIFE INSURANCE MARKET SEGMENT in the
U.S.A., Japan and Canada.
1.14 "EPITOPE NET SALES" shall mean the gross receipts received
from sales of EXCLUDED PRODUCT by EPITOPE and/or its sublicensees and/or
AFFILIATES, other than sales in the EPITOPE MARKET SEGMENTS and EXCLUDED
TERRITORY, less deductions taken for (i) transportation charges, including
insurance; (ii) sales and excise taxes and duties paid or allowed by a
selling party and any other governmental charges imposed upon the production,
importation, use or sale of such EXCLUDED
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PRODUCT; (iii) trade, quantity, and cash discounts allowed; (iv) allowances
or credits to customers on account of rejection or return of EXCLUDED PRODUCT
subject to royalty under this AGREEMENT or on account of retroactive price
reduction affecting such EXCLUDED PRODUCT; and (v) rebates and chargebacks.
Sales between or among EPITOPE and its sublicensees and/or AFFILIATES shall
be excluded from the computation of EPITOPE NET SALES except where such
sublicensees and/or AFFILIATES are end users, but EPITOPE NET SALES shall
include the subsequent final sales to THIRD PARTIES by such sublicensees
and/or AFFILIATES.
1.15 "EXCLUDED PRODUCT(S)" shall mean any and all present and
future PRODUCTS designated as EXCLUDED PRODUCTS in accordance with this
AGREEMENT.
1.16 "EXCLUDED COMBINATION PRODUCT" shall mean a product, in
finished pack form, that includes two or more EXCLUDED PRODUCTS, or any
EXCLUDED PRODUCT for detecting, screening or diagnosing two or more
substances, indications or conditions.
1.17 "EXCLUDED PRODUCT KNOW-HOW" shall mean all KNOW-HOW as well
as all SB KNOW-HOW, to the extent that SB is free to disclose such as
provided by this AGREEMENT, which relates to EXCLUDED PRODUCT and shall
include, without limitation, all chemical, pharmacological, toxicological,
clinical, assay, regulatory, control and manufacturing data and any other
information and reagents relating to EXCLUDED PRODUCT and useful or required
for the development and commercialization of EXCLUDED PRODUCT or the products
which are the subject of the written notice given to SB in accordance with
Paragraph 7.02(b).
1.18 "EXCLUDED PRODUCT PATENT(S)" shall mean all PATENTS and SB
PATENTS which generically or specifically claim EXCLUDED PRODUCT, a process
for manufacturing EXCLUDED PRODUCT, an intermediate used in such process or a
use of EXCLUDED PRODUCT. In addition, included within the definition of
EXCLUDED PRODUCT PATENTS are any continuations, continuations-in-part,
divisions, patents of addition, reissues, renewals or extensions thereof and
all SPCs covering an EXCLUDED PRODUCT. Also included within the definition of
EXCLUDED PRODUCT PATENTS are any patents or patent applications which
generically or specifically claim any improvements on EXCLUDED PRODUCT or
intermediates or manufacturing processes required or useful for production of
EXCLUDED PRODUCT.
1.19 "EXCLUDED PRODUCT SPC(S)" shall mean a right which is not an
EXCLUDED PRODUCT PATENT but which is based upon an EXCLUDED PRODUCT PATENT to
exclude others from making, using or selling EXCLUDED PRODUCT, such as a
Supplementary Protection Certificate.
1.20 "EXCLUDED TERRITORY" shall mean Singapore, Malaysia,
Argentina, Brazil, Paraguay, South Africa, Thailand, Uruguay, and the
People's Republic of China.
1.21 "FDA" shall mean the United States Food and Drug
Administration.
1.22 "LAUNCH" shall mean, with respect to a PRODUCT and/or
APPROVED PRODUCT in a country, the first sales of the PRODUCT and/or APPROVED
PRODUCT for commercial use in that country, but shall not be deemed to have
occurred until PRODUCT APPROVAL in that country.
1.23 "KNOW-HOW" shall mean all present and confidential future
information and know-how owned by EPITOPE, or for which EPITOPE otherwise
has, now or in the future, the right to grant licenses during the term of
this AGREEMENT, which relates to PRODUCT and shall include, without
limitation, all chemical, pharmacological, toxicological, clinical, assay,
regulatory, control and manufacturing data and any other information and
reagents relating to PRODUCT and useful or required for the development and
commercialization of PRODUCT, to the extent that EPITOPE is free to disclose
such as provided by this AGREEMENT.
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1.24 "LIFE INSURANCE MARKET SEGMENT" shall mean sales of a
PRODUCT for the purpose of risk assessment of applicants in connection with
underwriting of insurance.
1.25 "MARKET SEGMENTS" shall mean, depending on the particular
PRODUCT, any or all of the customer business segments for PRODUCTS in any
country of the world, exemplified by, but not limited to:
(a) the entire Over-the-Counter market segment, including
retail and direct mail;
(b) the managed care market segment;
(c) the office-based physician/dentist market segments
(e.g., general practice physicians, family practice physicians,
internal medicine physicians, osteopathic physicians);
(d) the LIFE INSURANCE MARKET SEGMENT; and
(e) the government, hospital and institutional market
segments.
1.26 "NET SALES" shall mean the gross receipts received from
sales of APPROVED PRODUCT in the TERRITORY by SB and/or its AFFILIATES and/or
sublicensees to THIRD PARTIES under this AGREEMENT less deductions for (i)
transportation charges, including insurance; (ii) sales and excise taxes and
duties paid or allowed by a selling party and any other governmental charges
imposed upon the production, importation, use or sale of such APPROVED
PRODUCT; (iii) trade, quantity and cash discounts allowed; (iv) allowances or
credits to customers on account of rejection or return of APPROVED PRODUCT
subject to royalty under this AGREEMENT or on account of retroactive price
reductions affecting such APPROVED PRODUCT; and (v) rebates and chargebacks.
Sales between or among SB and its AFFILIATES or sublicensees shall be
excluded from the computation of NET SALES except where such AFFILIATES or
sublicensees are end users, but NET SALES shall include the subsequent final
sales to THIRD PARTIES by such AFFILIATES or sublicensees.
1.27 "NON INVASIVE" when applied to a diagnostic device, means
one that does not by design or intention penetrate or pierce the skin or
mucous membranes of the body, the ocular cavity, or the urethra.
1.28 "ORASURE-Registered Trademark- HIV-1 ORAL SPECIMEN
COLLECTION DEVICE" shall mean a device for the collection of oral fluid
specimens for the purpose of screening, detecting and/or diagnosing
antibodies to Human Immunodeficiency Virus Type I (HIV-1) in oral mucosal
transudate fluid for which the presence of the collected antibodies is
determined with a validated test which is independent of the device used for
the collection of the antibodies.
1.29 "OTC APPROVAL" shall mean the date when FDA approval for OTC
sales ("Over-the-Counter" direct to consumer), or other such approval as
pertinent, is final.
1.30 "OTC LAUNCH" shall mean, with respect to a PRODUCT and/or
APPROVED PRODUCT in a country, the first sale direct to the consumer,
"Over-the-Counter" where such regulatory distinction exists.
1.31 "OTC LAUNCH YEAR" means the 12 month period after OTC LAUNCH
in each country.
1.32 "PATENT(S)" shall mean all patents and patent applications
which are or become owned in whole or in part by EPITOPE, or in which EPITOPE
otherwise has, now or in the future, the right to grant licenses during the
term of this AGREEMENT, which generically or specifically claim APPROVED
PRODUCT, a process for manufacturing APPROVED PRODUCT, an intermediate used
in such process, or a use of APPROVED PRODUCT. In addition, included within
the definition of PATENTS are any continuations, continuations-in-part,
divisions, patents of addition, reissues, renewals or extensions thereof and
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all SPC's. Also included within the definition of PATENTS are any patents or
patent applications which generically or specifically claim any improvements
on APPROVED PRODUCT or intermediates or manufacturing processes required or
useful for production of APPROVED PRODUCT which are developed by EPITOPE, or
for which EPITOPE otherwise has the right to grant licenses, now or in the
future, during the term of this AGREEMENT. The current list of patent
applications and patents as of the EFFECTIVE DATE is set forth in APPENDIX A
attached hereto. APPENDIX A shall be updated by EPITOPE on a semi-annual
basis.
1.33 "PRODUCT(S)" shall mean any and all present and future tests
and/or devices, including, but not limited to, the ORASURE-Registered
Trademark- HIV-1 ORAL SPECIMEN COLLECTION DEVICE and tests and/or devices
based upon OraQuick-Registered Trademark- technology, and/or improvements of
such tests and/or devices, and/or any combination thereof, which are based on
BODILY FLUID diagnostic screening and/or detection technology and any
underlying technology which are owned or controlled in whole or in part by
EPITOPE as of the EFFECTIVE DATE or are acquired or developed by EPITOPE
during the term of this AGREEMENT or which EPITOPE otherwise has the right to
grant licenses, now or in the future, during the term of this AGREEMENT.
Notwithstanding the foregoing, PRODUCT shall not include any ELISA,
screening, or detection assay which is sold separately from a BODILY FLUID
collection device except for such assays which become APPROVED PRODUCTS in
accordance with Paragraph 2.02.
1.34 "PRODUCT APPROVAL" shall mean, with respect to a PRODUCT
and/or APPROVED PRODUCT to be sold for a specific use in a country, the
issuance of all governmental approvals, permits, licenses, or other
authorization required for sale of the PRODUCT and/or APPROVED PRODUCT for
the SPECIFIED APPLICATION. If no such authorizations are required in a
country, PRODUCT APPROVAL shall be deemed to have occurred in that country
when the PRODUCT and/or APPROVED PRODUCT is first launched for the specific
use in that country.
1.35 "SB" shall mean SmithKline Beecham plc, a company organized
under English law and having its registered office at New Horizons Court,
Brentford, Middlesex TW8 9EP, England and only such of its AFFILIATES and
subsidiaries to which it may assign all or part of its rights and obligations
in accordance with Paragraph 4.03 or Paragraph 26.01.
1.36 "SB KNOW-HOW" shall mean all information and know-how owned
in whole or in part by SB which is developed in the course of and during the
term of this AGREEMENT, to the extent that SB is free to disclose such as
provided by this AGREEMENT, which relates to APPROVED PRODUCT and shall
include, without limitation, all chemical, pharmacological, toxicological,
clinical, assay, regulatory, control and manufacturing data and any other
information and reagents relating to APPROVED PRODUCT and useful or required
for the development and commercialization of APPROVED PRODUCT.
1.37 "SB MARKET SEGMENT(S)" shall mean all MARKET SEGMENTS other
than the EPITOPE MARKET SEGMENTS.
1.38 "SB PATENT(S)" shall mean all patents and applications which
are owned in whole or in part by SB which claim inventions which are invented
in the course of and during the term of the AGREEMENT, which generically or
specifically claim APPROVED PRODUCT, a process for manufacturing APPROVED
PRODUCT, an intermediate used in such process, or a use of APPROVED PRODUCT.
In addition, included within the definition of SB PATENTS are any
continuations, continuations-in-part, divisions, patents of addition,
reissues, renewals or extensions thereof and all SPCS covering APPROVED
PRODUCT. Also included within the definition of SB PATENTS are any patents
or patent applications which generically or specifically claim any
improvements on APPROVED PRODUCT or intermediates or manufacturing processes
required or useful for production of APPROVED PRODUCT.
1.39 "SPC(S)" shall mean a right which is not a PATENT or SB
PATENT but which is based upon a PATENT or SB PATENT to exclude others from
making, using or selling APPROVED PRODUCT, such as a Supplementary Protection
Certificate.
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1.40 "SPECIFICATIONS" means the specifications for manufacturing
for each APPROVED PRODUCT required by applicable governmental regulatory
authorities.
1.41 "SPECIFIED APPLICATION" shall mean the use of an APPROVED
PRODUCT with its accompanying assay, requiring separate regulatory approval
or development costs, for the screening, detection and/or diagnosis of a
particular substance, indication or condition, and each use of an APPROVED
PRODUCT with different assays to the extent additional regulatory approvals
or development costs are required.
1.42 "TERRITORY" shall mean all the countries and territories of
the world except Singapore, Malaysia, Argentina, Brazil, Paraguay, South
Africa, Thailand, Uruguay and the People's Republic of China, except as
otherwise provided by Paragraph 8.01. In the event that EPITOPE reacquires
the right to grant the license outlined in Article 4 with respect to any or
all of Singapore, Malaysia, Argentina, Brazil, Paraguay, South Africa,
Thailand, Uruguay, and the People's Republic of China, EPITOPE shall so
notify SB, in writing to be sent within thirty (30) days, and the TERRITORY
shall automatically be expanded to include such country and, in such event,
with respect to each country added to the TERRITORY, SB must provide EPITOPE,
no later than six (6) months after SB's receipt of EPITOPE's notice, with a
written business plan outlining SB's envisioned approach to the registration
and commercialization of PRODUCT and/or APPROVED PRODUCT in each added
country selected by SB. Any country not selected by SB in accordance with
this Paragraph 1.43 shall then be subject to the procedures described in
Paragraph 8.01(b).
1.43 "THIRD PARTY(IES)" shall mean any party other than a party
to this AGREEMENT, AFFILIATE, or sublicensee.
1.44 "U.S.A." shall mean the United States of America and all of
its territories and possessions.
2. DEVELOPMENT
2.01 As of the EFFECTIVE DATE, it is envisioned that the
principles guiding the development of PRODUCT during the term of the
AGREEMENT shall include:
(a) continuously improving the underlying technology of
BODILY FLUID-based screening, detection and/or diagnostic testing,
including a laboratory ELISA assay, and confirmatory testing required
therefor; and
(b) applying this technology to an array of professional
and Over-the-Counter screening and/or diagnostic testing applications.
2.02 (a) Promptly after the EFFECTIVE DATE, the parties shall
establish a DEVELOPMENT STEERING COMMITTEE. The DEVELOPMENT STEERING
COMMITTEE shall consist of six (6) members, three (3) of whom shall be
appointed by SB and three (3) of whom shall be appointed by EPITOPE, and
shall be chaired by a member appointed by SB. The purpose of the DEVELOPMENT
STEERING COMMITTEE shall be to agree, in good faith, on the development of
each PRODUCT for a SPECIFIED APPLICATION, to set forth such agreement in a
DEVELOPMENT PLAN to be drafted by the DEVELOPMENT STEERING COMMITTEE for each
such PRODUCT for such SPECIFIED APPLICATION, to determine the respective
activities and responsibilities of the parties for such development, to audit
the actual costs incurred by EPITOPE in conducting its specified activities
and responsibilities outlined in the DEVELOPMENT PLAN and utilize such audit
to determine when such costs are equal to the Estimated Development Costs as
defined in Paragraph 3.02, to determine the technical feasibility criteria
required by Paragraph 2.06, to determine the development costs funded by SB
for purposes of Paragraph 7.03, and to determine the necessity for the
additional funding contemplated by Paragraph 3.01. Once a DEVELOPMENT PLAN is
approved for a particular PRODUCT, such PRODUCT shall thereafter become an
APPROVED PRODUCT. Each such DEVELOPMENT PLAN shall be amended by the
DEVELOPMENT STEERING
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COMMITTEE as necessary. Each such DEVELOPMENT PLAN shall include, for each
individual target APPROVED PRODUCT, at least the following:
(1) projected timelines to commercialization;
(2) resource requirements;
(3) the respective activities and responsibilities of
the parties for such development;
(4) technology to be developed (e.g., OraSure-Registered
Trademark- versus OraQuick-Registered Trademark-);
(5) Estimated Development Costs outlined in Paragraph
3.02; and
(6) the milestones to be achieved for the payments
outlined in Paragraph 3.02.
(b) All decisions for which the DEVELOPMENT STEERING COMMITTEE
cannot reach consensus shall be submitted for resolution by senior EPITOPE
and SB management if such decisions relate to issues concerning the
milestones to be achieved for the payments outlined in Paragraph 3.02,
determination of actual achievement of any such milestone, or auditing of
actual costs incurred by EPITOPE in carrying out its development
responsibilities in accordance with a particular APPROVED PRODUCT's
DEVELOPMENT PLAN. If the parties cannot reach agreement within 30 days, the
matter will be submitted to arbitration in accordance with Article 21. All
other decisions for which the DEVELOPMENT STEERING COMMITTEE cannot reach
consensus shall be submitted for resolution to senior SB management.
(c) The DEVELOPMENT STEERING COMMITTEE shall schedule periodic
meetings to be held at least quarterly provided that the first such meeting
shall be held no later than forty-five (45) days, after the EFFECTIVE DATE.
At its first meeting, the DEVELOPMENT STEERING COMMITTEE shall establish the
procedure, including deadlines from the date of submission, for deciding
whether to fund, defer, or reject a PRODUCT proposed for development by
EPITOPE, and shall establish the period during which projects may be
deferred. Such procedure may be amended from time to time.
2.03 The parties shall use reasonable efforts to carry out their
respective responsibilities in the development of APPROVED PRODUCT(S),
substantially in accordance with the DEVELOPMENT PLAN for each PRODUCT.
2.04 Except as provided in Paragraph 2.02 with respect to
EPITOPE's responsibility for performing development work as provided in the
DEVELOPMENT PLAN, SB shall have full control, authority and responsibility
for the development of each PRODUCT and/or APPROVED PRODUCT within the
TERRITORY, including, but not limited to, the selection of any PRODUCT for
development or the termination of any APPROVED PRODUCT's development and,
subject only to Paragraph 4.02, Article 7 or as otherwise expressly provided
in this AGREEMENT, commercialization thereof, provided that any decision to
discontinue an APPROVED PRODUCT's development shall not be made without SB's
prior full disclosure to EPITOPE concerning the rationale and consequences of
such discontinuance. Attainment and maintenance of regulatory approvals and
price registrations for APPROVED PRODUCT within the TERRITORY shall also be
the sole responsibility of SB, except that such shall also be EPITOPE's
responsibility, to the extent, if any, it is necessary to enable EPITOPE to
promote and sell APPROVED PRODUCT to the EPITOPE MARKET SEGMENTS in
accordance with Paragraph 8.02 or sell EXCLUDED PRODUCTS as provided in this
AGREEMENT.
2.05 In addition to EPITOPE's development responsibilities
outlined in the DEVELOPMENT PLAN, EPITOPE shall provide to SB, at SB's
request, reasonable technical assistance within its area of expertise
concerning development, registration and commercialization of APPROVED
PRODUCT.
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2.06 (a) EPITOPE shall agree to undertake the development of
any PRODUCT including any accompanying assets at the DEVELOPMENT STEERING
COMMITTEE's request, provided such development is in accordance with Articles
2 and 3 of this AGREEMENT.
(b) EPITOPE agrees to present any concepts, proposals, and
projects concerning the continuous improvement and/or development of APPROVED
PRODUCT, PRODUCT, and/or any underlying technology to the DEVELOPMENT
STEERING COMMITTEE. The obligation of the DEVELOPMENT STEERING COMMITTEE to
evaluate any such PRODUCT shall be performed in accordance with subparagraph
(c) herein.
(c) SB shall have the option to fund development of and market
any PRODUCT and/or underlying technology which EPITOPE desires to develop,
provided that EPITOPE has demonstrated that such PRODUCT is technically
feasible. Such development shall be in accordance with Article 2 and 3 of
this AGREEMENT.
(i) If development funding on an annual
budgeted basis is equal to or greater than [CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION] then:
(A) SB may defer funding PRODUCT development
within the context of its strategic planning process without
the loss of any SB rights. If SB defers funding development
for a given PRODUCT, then Epitope may request and DEVELOPMENT
STEERING COMMITTEE may approve EPITOPE's request to fund the
PRODUCT development itself. SB shall have the right at any
time during the development process to assume responsibility
for funding such development upon reimbursement of EPITOPE's
direct cost already incurred in connection with such
development; or
(B) SB may decline to fund PRODUCT development
and through completion of its next internal budgetary cycle
shall have the option with respect to such PRODUCT
development. If SB then elects to develop such PRODUCT, SB
shall reimburse EPITOPE for any direct costs in connection with
such development already incurred by EPITOPE; or
(C) In the event SB elects not to exercise such
option with respect to funding PRODUCT development, EPITOPE
may elect to continue funding such development on its own and
shall be permitted to commercialize such PRODUCT to any MARKET
SEGMENT provided EPITOPE does not utilize a THIRD PARTY
sales force and/or marketing organization (other than an
independent, locally-based sales force and/or marketing
organization without significant internationally based
affiliations) for such commercialization.
(D) EPITOPE may elect to fund development of a
PRODUCT deferred by the DEVELOPMENT STEERING COMMITTEE
without approval of the DEVELOPMENT STEERING COMMITTEE
provided it had not exercised such right within the preceding
two years.
(ii) If development funding on an annual
budgeted basis is less than [CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION], then SB may exercise or not
exercise, but may not defer its option to fund development. If SB
elects not to exercise its option with respect to a particular
PRODUCT, then:
(A) EPITOPE may elect to fund such development on
its own. However, SB shall have the option through completion
of its next internal budgetary
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cycle to assume the PRODUCT development. If SB then elects
to assume such PRODUCT development, SB shall reimburse
EPITOPE for any direct costs in connection with such
development already incurred by EPITOPE;
(B) If at the end of SB's next internal
budgeting cycle SB elects not to exercise such option with
respect to funding a particular PRODUCT, EPITOPE shall be
permitted to commercialize such PRODUCT to any MARKET SEGMENT,
provided EPITOPE does not utilize a THIRD PARTY sales force
and/or marketing organization (other than an independent,
locally-based sales force and/or marketing organization
without significant, internationally-based affiliations for
such commercialization).
(iii) In the event SB elects not to exercise its
option under either Paragraph 2.06(c)(i)(C) or Paragraph 2.06(c)(ii)(B),
above, then EPITOPE shall have the right to offer such product and/or
underlying technology to a THIRD PARTY provided that SB shall have a
right of first refusal on terms as favorable as those last offered to
such THIRD PARTY. In the event EPITOPE shall elect not to commercialize
such PRODUCT to one or more MARKET SEGMENTS in one or more countries of
the world, SB shall have the first right to such commercialization upon
terms to be mutually negotiated by the parties in good faith. EPITOPE
shall be reimbursed for the direct costs already incurred in developing
such PRODUCT, provided that in the event SB elects not to exercise such
first right, EPITOPE shall not offer such commercialization rights to
any THIRD PARTY upon terms any more favorable than those which were
offered to SB.
(d) [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION].
(e) [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION].
(f) "Technically feasible" as used in this Paragraph 2.06 shall
mean that a PRODUCT has demonstrable ability to perform its intended function
as determined by criteria set up by the DEVELOPMENT STEERING COMMITTEE.
(g) Any SB option set forth in this Paragraph 2.06 shall expire
within [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] after SB receives notice of a situation that gives rise to its
right to exercise its option. Such time frame shall not affect any other rights
reserved to SB in this Paragraph 2.06.
3. DEVELOPMENT FUNDING
3.01 EPITOPE shall perform and fund all clinical trials and
regulatory work required in the U.S.A. after the EFFECTIVE DATE for obtaining
approval from the FDA for marketing the ORASURE-Registered Trademark- HIV-1 ORAL
SPECIMEN COLLECTION DEVICE to the non-professional, Over-the-Counter market
segments for the screening, diagnosis and/or detection of Human Immunodeficiency
Virus-I (HIV-1), up to a maximum of [CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]. In the event the costs of such clinical trials
and other regulatory work exceeds [CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION], the DEVELOPMENT STEERING COMMITTEE shall meet
to determine if additional funding of such clinical trials and other regulatory
work is likely to achieve the desired FDA approval, and if the DEVELOPMENT
STEERING COMMITTEE determines that additional funding is warranted, SB will
fully fund the remaining clinical trials and other regulatory work, provided
that fifty percent (50%) of all such funding shall be fully creditable against
any future royalties SB may owe to EPITOPE under Article 5.
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3.02 (a) SB shall provide funding to EPITOPE to assist EPITOPE
in carrying out EPITOPE's responsibilities outlined in each DEVELOPMENT PLAN.
Prior to initiating development (including clinical trials in any country of the
TERRITORY) of any PRODUCT (other than the ORASURE-Registered Trademark- HIV-1
ORAL SPECIMEN COLLECTION DEVICE in the U.S.A.), the DEVELOPMENT STEERING
COMMITTEE shall estimate the total development costs for such PRODUCT
("Estimated Development Costs"). It is understood that, with respect to any
ORASURE-Registered Trademark- COLLECTION DEVICE, including the
ORASURE-Registered Trademark- HIV-1 ORAL SPECIMEN COLLECTION DEVICE, SB shall
not be responsible for reimbursing to EPITOPE any costs incurred by EPITOPE
prior to the EFFECTIVE DATE with the exception of the [CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION] COLLECTION DEVICES whose
development expense to date shall be reimbursed as a condition of SB designating
these items as APPROVED PRODUCTS.
(b) Estimated Development Costs shall include a reasonable
estimated budget of all direct expenses, including salaries, which will be
incurred by EPITOPE for the development of a particular PRODUCT and SB shall pay
EPITOPE [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] of such Estimated Development Costs within sixty (60) days after
the DEVELOPMENT PLAN for such PRODUCT has been accepted by the DEVELOPMENT
STEERING COMMITTEE, minus any portion of such payment which is satisfied by
the escrow account provided for in Paragraph 3.03. The remaining [CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION] of the Estimated
Development Costs shall be paid to EPITOPE, on an incremental basis, within
thirty (30) days after the achievement of relevant milestones for the particular
PRODUCT as set forth in the DEVELOPMENT PLAN for such PRODUCT provided:
(i) each payment which is owed in accordance with this
Paragraph 3.02 shall be made only once for each APPROVED PRODUCT;
(ii) such payments shall be non-refundable to SB for any
reason; and
(iii) such payments shall be the remainder of any portion of
such payment which is satisfied by the escrow account provided for in
Paragraph 3.03.
3.03 SB shall pay one million U.S. dollars (U.S. $1,000,000) into an
interest bearing escrow account within forty-five (45) days of the EFFECTIVE
DATE if the AGREEMENT has not been terminated by SB prior to such date, provided
that the transfer of such money to EPITOPE shall be only in accordance with the
Estimated Development Cost procedure outlined in Paragraph 3.02, and further
provided that the parties agree that there shall be at least one DEVELOPMENT
PLAN approved in accordance with Paragraph 2.02 no later than six (6) months
after the EFFECTIVE DATE, involving Estimated Development Costs of at least
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION] to
be spent within [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] of the EFFECTIVE DATE.
3.04 The funding to be provided by SB to EPITOPE under Paragraphs
3.01 and 3.02 is the full extent of SB's responsibility for paying the direct
costs to EPITOPE associated with EPITOPE's development responsibilities outlined
in the DEVELOPMENT PLAN. EPITOPE may halt its development activities for any
APPROVED PRODUCT after the DEVELOPMENT STEERING COMMITTEE has determined that
the Estimated Development Costs for such APPROVED PRODUCT have been reached or
that further support is not warranted. If the DEVELOPMENT STEERING COMMITTEE
determines that additional funding is warranted, and SB determines that it will
fully fund the additional amount, EPITOPE shall continue the development
activities for the APPROVED PRODUCT in accordance with such APPROVED PRODUCT's
DEVELOPMENT PLAN. If SB determines that it is unwilling to fund any APPROVED
PRODUCT's development either after the Estimated Development Cost for such
APPROVED PRODUCT have been reached or the DEVELOPMENT STEERING COMMITTEE has
determined that further support is not warranted, then such APPROVED PRODUCT
shall thereafter become an EXCLUDED PRODUCT and written notice of the
determination shall be provided to EPITOPE.
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3.05 SB shall have full responsibility, at its expense, for the
attainment and maintenance of regulatory and price registrations for APPROVED
PRODUCT throughout the TERRITORY, except for the ORASURE, HIV-1 ORAL SPECIMEN
COLLECTION DEVICE in the U.S.A., provided that [CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE COMMISSION] of all such expense shall be fully
creditable against any future royalties SB may owe to EPITOPE under Article 5.
4. GRANT
4.01 EPITOPE hereby grants to SB an exclusive license under all
of EPITOPE's interests and rights in PATENTS and KNOW-HOW to use and sell
APPROVED PRODUCT to the SB MARKET SEGMENTS in the TERRITORY subject to the
terms and conditions of this AGREEMENT.
4.02 SB hereby grants to EPITOPE an exclusive license under all
of SB's interests and rights in SB PATENTS and SB KNOW-HOW, to the extent
necessary to enable EPITOPE to make, have made, use and sell APPROVED PRODUCT
to the EPITOPE MARKET SEGMENTS subject to Paragraph 8.02 and the other terms
and conditions of this AGREEMENT.
4.03 The license granted to SB under Paragraph 4.01 includes the
right to grant sublicenses, provided that such right shall mean that SB shall
have the unqualified right to sublicense any or all of its rights and
obligations under this AGREEMENT to any of its AFFILIATES, and SB's right to
grant any such sublicense to any THIRD PARTY is subject to the prior written
consent of EPITOPE which consent shall not be unreasonably withheld.
4.04 SB's obligations under this AGREEMENT are subject to
satisfaction, or waiver by SB, of each of the following conditions:
(a) EPITOPE shall have entered into amendments to existing
Supply Agreements with [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION].
(b) EPITOPE shall have entered into the option agreement with
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
described in Paragraph 9.13;
(c) [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION], a joint venture company established under the laws of [CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION], shall have been
dissolved, or steps satisfactory to SB to effect dissolution shall have been
taken; and
(d) SB's due diligence review of EPITOPE's quality assurance
procedures and records, patents, regulatory affairs, and legal proceedings,
which shall be completed within forty-five (45) days of the EFFECTIVE DATE,
shall not have revealed materially adverse information, condition or issues
which could be material to SB's decision to enter into this AGREEMENT and to
undertake the commitments and obligations set forth herein.
4.05 EPITOPE shall exercise its best efforts to ensure the
removal of the conditions set forth in Paragraph 4.04.
5. PAYMENTS AND ROYALTIES
5.01 As consideration for the license under PATENTS and KNOW-HOW
granted to SB under this AGREEMENT, SB shall pay to EPITOPE one million U.S.
dollars (U.S. $1,000,000) within forty-five (45) days
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after the EFFECTIVE DATE if the AGREEMENT has not been terminated by SB prior
to such date. Furthermore, SB shall pay an additional four million U.S.
dollars (U.S. $4,000,000) into an interest bearing escrow account within
forty-five (45) days of the EFFECTIVE DATE if the AGREEMENT has not been
terminated by SB prior to such date, provided that the transfer of such money
to EPITOPE shall occur upon, and only upon the occurrence of one of the
following conditions:
(a) EPITOPE is able to get FDA-approved expiration dating of at
least [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] for the ORASURE-Registered Trademark- HIV-1 ORAL SPECIMEN COLLECTION
DEVICE; or
(b) SB is able to achieve $[CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION] in annual NET SALES of the
ORASURE-Registered Trademark- HIV-1 ORAL SPECIMEN COLLECTION DEVICE in the
TERRITORY.
5.02 In the event that the present nine (9) month expiration
dating approved by the FDA is reduced to six (6) months, or less, as a result
of stability testing currently under consideration or as a result of other
FDA mandate, the Development Steering Committee shall meet to assess the
problem and reach a mutually acceptable solution. If no agreement is reached
within a reasonable period of time, but no longer than 30 days, then the
issue shall be referred to senior SB management for disposition which may
include immediate termination of this agreement. In the event this agreement
is terminated, then Epitope shall return to SB the one million U.S. dollars
(U.S. $1,000,000) that was paid pursuant to Paragraph 5.01, less any direct
out-of-pocket costs expended by Epitope for clinical trials pursuant to
Paragraph 3.01 and for any additional stability/expiry testing expressly
requested by SB.
In addition, if EPITOPE is unable to get FDA-approved expiration
dating of at least [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION] for the ORASURE, HIV-1 ORAL SPECIMEN COLLECTION DEVICE within
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
after the EFFECTIVE DATE, the one million U.S. dollar payment made by SB to
EPITOPE within forty-five days after the EFFECTIVE DATE shall be fully
creditable against any future royalties SB may owe EPITOPE under this
AGREEMENT. If, however, EPITOPE subsequently obtains such FDA approved
expiration dating, no part of the one million dollar payment shall thereafter
be credited against royalties.
5.03 As consideration for the license under PATENTS granted to SB
under this AGREEMENT, and subject to Paragraphs 5.04, 5.05 and 11.02, SB
shall pay to EPITOPE a royalty of [CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION] on NET SALES in all countries of the TERRITORY
in which there is an issued and enforceable PATENT which claims the APPROVED
PRODUCT sold. After all such patents have expired royalties shall be payable
for the applicable APPROVED PRODUCT under Paragraph 5.07(a).
5.04 Royalties on a BUNDLED PRODUCT shall consist of the royalty
set in Paragraph 5.03 or 5.07(a), as appropriate, plus a royalty for the
testing service as set forth in APPENDIX B, attached and made a part hereto.
Should NET SALES of a particular BUNDLED PRODUCT exceed [CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]% of total NET
SALES on a corresponding APPROVED PRODUCT, then EPITOPE shall be entitled
to extend the exclusive manufacturing period as set forth in
Paragraph 9.03(d) by up to two years as set forth in Appendix B attached
hereto. Such extension shall only be adjusted on December 31 of each year.
In no event shall the cumulative extension of Paragraph 9.03(d) and this
Paragraph exceed five (5) years. In no way shall this Paragraph limit the
rights of SB as set forth in Paragraph 9.06.
Within [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] of the EFFECTIVE DATE, SB will provide EPITOPE with a transfer price
for the sale of the COLLECTION DEVICE to []CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION]. Such price shall be reasonable and in
accordance with
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<PAGE>
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION].
5.05 Notwithstanding Paragraph 5.03, for each [CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION] reduction
of an APPROVED PRODUCT's market share in a particular country of
the TERRITORY due to substantial competition, the royalty outlined in
Paragraph 5.03 for NET SALES of such APPROVED PRODUCT in such country shall
be reduced by [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION]. No reduction shall occur until SB's market share is reduced
at least [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]% for a [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION] period because of any third party's competitive
product; the aforementioned royalty reduction shall be applied retroactively
to the date on which substantial competition (as defined in this Paragraph)
is first established in such country and shall continue only for so long as
such substantial competition continues. Notwithstanding Paragraph 5.07(a),
the royalty outlined in Paragraph 5.07(a) shall be reduced to [CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION] in any country
of the TERRITORY in which there is competition with an APPROVED PRODUCT
based on the technology, know-how, and proprietary information described
herein. The term "competition" as used in this Paragraph 5.05 means all
THIRD PARTY, same BODILY FLUID-based diagnostic and/or detection technology
which tests and/or screens for the same substance, indication or condition
as an APPROVED PRODUCT and which has been launched in a country of the
TERRITORY.
5.06 Notwithstanding Paragraphs 5.03, 5.04 and 5.07(a), in the
event that NON-INVASIVE diagnostic technology based on a different BODILY
FLUID from that used in the applicable APPROVED PRODUCT is commercially
launched in any country of the TERRITORY which competes with an APPROVED
PRODUCT during the royalty term provided in Paragraph 11.02, the parties
shall promptly meet to negotiate, in good faith, a mutually acceptable
downward adjustment to (a) the payments and royalties owed to EPITOPE for
such APPROVED PRODUCT under Paragraph 5.03 or 5.07(a), whichever is
applicable; and (b) the forecasts for such country provided to EPITOPE in
accordance with Paragraph 5.09.
5.07 (a) For NET SALES which are not subject to the royalty
obligations in Paragraph 5.03, as consideration for the license under
KNOW-HOW granted to SB under this AGREEMENT, SB shall pay to EPITOPE
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
of NET SALES, subject to Paragraphs 5.04, 5.05 and 11.02(b).
(b) Royalties for the sale of COMBINATION PRODUCT by SB shall be
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION].
5.08 SB's royalty obligations under Paragraphs 5.03 shall become
effective in each country in the TERRITORY at such time as APPROVED PRODUCT
is LAUNCHED in such country. [CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
5.09 SB will exercise its reasonable efforts and diligence in
development, registration and commercialization of APPROVED PRODUCT to the SB
MARKET SEGMENTS in the TERRITORY in accordance with SB's business, legal,
medical and scientific judgment and SB's normal practices and procedures for
products having similar technical and commercial potential. In the event
that, the annual aggregate NET SALES in the TERRITORY for a particular
APPROVED PRODUCT are less than []CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION] of the annual forecasted NET SALES in the
TERRITORY for such APPROVED PRODUCT, then EPITOPE shall meet with SB to
review the reasons for the shortfall and to agree on a plan of action to
address such reasons. In addition, SB shall elect one of the following:
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<PAGE>
(a) SB can pay EPITOPE [CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION];
(b) The annual aggregate forecast of NET SALES in the TERRITORY
for such APPROVED PRODUCT [CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]; or
(c) SB's exclusive license to APPROVED PRODUCT shall be
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION].
Further under this subparagraph (c) during any year after [CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION].
It is also understood that, for purposes of this Paragraph 5.09:
(1) Such forecasts shall be produced by SB as part of
its normal budgetary process, on a per country basis, once every year
for the subsequent year, and such forecasts shall take into account
phased-in launches of APPROVED PRODUCT in those countries of the
TERRITORY in which SB (itself or through its AFFILIATES or sublicensees)
chooses to launch APPROVED PRODUCT as well as the level of market
exclusivity APPROVED PRODUCT can be expected to achieve in such
countries.
(2) Such forecasts shall not take into account sales of a
particular APPROVED PRODUCT in any country of the TERRITORY in which SB
(itself or through its AFFILIATES or sublicensees) chooses not to launch
such APPROVED PRODUCT.
(3) If EPITOPE believes, in good faith, that any such
forecast does not represent a reasonable assessment of the likely future
sales, the parties shall endeavor to find a mutually acceptable revision
of the forecast. If the parties cannot determine such a mutually
acceptable resolution, the parties shall submit the dispute to a
mutually acceptable third party expert for a final and binding forecast,
and the cost of such expert shall be equally shared by the parties.
(4) In addition, after consultation with EPITOPE, SB shall
be permitted to reasonably alter the forecast, as necessary, in any
country in which:
(a) launch of the APPROVED PRODUCT is delayed
for reasons beyond SB's, its AFFILIATES' and sublicensees'
reasonable direct control, including, but not limited to,
pricing and/or reimbursement delays imposed by the relevant
governmental authorities;
(b) SB had forecasted for market exclusivity,
but such exclusivity has diminished; or
(c) a royalty reduction has occurred in
accordance with Paragraph 5.05 or a governmental agency in any
country of the TERRITORY compels EPITOPE to grant a license to
any THIRD PARTY to make, have made, use or sell APPROVED
PRODUCT.
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6. COMPULSORY LICENSES AND THIRD PARTY LICENSES
6.01 In the event that a governmental agency in any country or
territory grants or compels EPITOPE to grant a license to any THIRD PARTY to
make, have made, use or sell an APPROVED PRODUCT, SB shall have the benefit
in such country or territory of the terms granted to such THIRD PARTY to the
extent that such terms are more favorable to the THIRD PARTY than those of
this AGREEMENT, and the parties shall promptly meet to discuss an appropriate
downward adjustment to the forecasts for such country provided to EPITOPE in
accordance with Paragraph 5.09. In addition, if EPITOPE is required to
supply APPROVED PRODUCT to the THIRD PARTY at lower prices than those at
which EPITOPE sells the APPROVED PRODUCT to SB:[CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
6.02 If, during the term of this AGREEMENT SB, in its sole
discretion, deems it necessary to seek a license from any THIRD PARTY in
order to avoid infringement during the exercise of the license herein
granted, [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] of any royalties or other fees paid to such THIRD PARTY under
such license may be deducted from royalties otherwise due EPITOPE under this
AGREEMENT.
7. EXCLUDED PRODUCTS
7.01 (a) All sales by EPITOPE of any product designated as an
EXCLUDED PRODUCT in accordance with this AGREEMENT in any country of the
world, including all sales resulting from EPITOPE's use of a THIRD PARTY
sales force or other marketing organization for such commercialization, shall
be subject to the provisions of this Article 7, and shall be considered as
sales by EPITOPE for the purpose of the calculation of EPITOPE NET SALES.
(b) Any PRODUCT which utilizes underlying technology
(technology applied to both EXCLUDED and APPROVED PRODUCT) which was funded
by SB shall entitle SB to the royalty for an EXCLUDED PRODUCT, and shall be
subject to the provisions of this Article 7. There shall be no sale of any
such product by EPITOPE or any THIRD PARTY until EPITOPE has provided written
notification to SB in accordance with Paragraph 7.02(b).
7.02 (a) With respect to those products which become
designated as EXCLUDED PRODUCTS in accordance with this AGREEMENT, EPITOPE
shall automatically have an exclusive license, with the right to grant
sublicenses, under all of SB's interests and rights in the EXCLUDED PRODUCT
PATENTS and EXCLUDED PRODUCT KNOW-HOW to make, have made, use and sell
EXCLUDED PRODUCT in the world for the particular SPECIFIED APPLICATION for
which it was developed by EPITOPE with funding from SB; and SB shall promptly
disclose to EPITOPE and/or supply EPITOPE with all relevant EXCLUDED PRODUCT
KNOW-HOW owned by SB or under which SB has a right to grant such license in
accordance with this AGREEMENT.
(b) With respect to those products described in Paragraph
7.01(b), EPITOPE shall notify SB, in writing, of each such product and its
SPECIFIED APPLICATION, and EPITOPE shall thereafter have an exclusive
license, with the right to grant sublicenses, under all of SB's interests and
rights in the EXCLUDED PRODUCT PATENTS and EXCLUDED PRODUCT KNOW-HOW to make,
have made, use and sell such product in the world for the particular
SPECIFIED APPLICATION.
7.03 (a) As consideration for the license of SB's interests
and rights under Paragraph 7.02, EPITOPE shall either (1) reimburse SB for
all development funds paid by SB for the EXCLUDED PRODUCT or the underlying
technology, or (2) pay SB a royalty at the rates stated below. SB shall
decide whether the consideration shall be reimbursement of development costs
or payment of a royalty, if SB funded at least one-half of the development
costs (as determined by the DEVELOPMENT STEERING COMMITTEE). EPITOPE shall
otherwise decide whether to reimburse SB for development costs or pay a
royalty.
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(b) If SB funded at least one-half of the development costs, the
royalty described in Paragraph 7.03(a): (i) shall be [CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]% of EPITOPE NET
SALES in those countries in which there is an issued and enforceable EXCLUDED
PRODUCT PATENT which claims the EXCLUDED PRODUCT or product described in
Paragraph 7.01(b) and (ii) shall be [CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION]% as to all other EPITOPE NET SALES of
the EXCLUDED PRODUCT or product described in Paragraph 7.01(b). In each
case, the royalty shall be subject to reduction using the same principles
described in Paragraph 5.05 in case of competition.
(c) If SB funded less than one-half of the development costs,
the royalty (i) shall be [CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]% of EPITOPE NET SALES in those countries in
which there is an issued and enforceable EXCLUDED PRODUCT PATENT which claims
EXCLUDED PRODUCT or PRODUCT described in Paragraph 7.01(b) and (ii) shall be
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]%
as to all other EPITOPE NET SALES of the EXCLUDED PRODUCT or product
described in Paragraph 7.01(b). The royalty rate shall be subject to
reduction using the same principles described in Paragraph 5.05 in case of
competition.
7.04 Royalties for the sale of EXCLUDED COMBINATION PRODUCT
containing an EXCLUDED PRODUCT shall be [CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION].
7.05 EPITOPE's royalty obligations under Paragraphs 7.03 and 7.04
shall become effective in each country in the TERRITORY at such time EXCLUDED
PRODUCT is LAUNCHED in such country.
7.06 EPITOPE's royalty obligations for a particular EXCLUDED
PRODUCT or product due to SB under Paragraph 7.03(b)(i) and 7.03(c)(i) shall
expire in each country upon the expiration, or invalidation by a court or
other legal or administrative tribunal from which no appeal is or can be
taken of the last EXCLUDED PRODUCT PATENT in such country which claims such
EXCLUDED PRODUCT or product described in Paragraph 7.01(b).
7.07 Royalty obligations due to SB under Paragraph 7.03(b)(ii)
and 7.03(c)(ii) shall expire in each such country upon the earlier of (a)
fifteen (15) years from the date of first marketing of such EXCLUDED PRODUCT
or product in such country by EPITOPE or a permitted sublicensee, or (b) in
any country which is a member state of the E.C. when all EXCLUDED PRODUCT
KNOW-HOW used by EPITOPE in the making, using or selling of such EXCLUDED
PRODUCT or product has become publicly known other than by the action of SB
or an undertaking connected with SB.
7.08 Expiration of royalty obligations for a particular EXCLUDED
PRODUCT due to SB under both Paragraphs 7.03 and 7.04 in any country of the
TERRITORY shall not preclude EPITOPE from continuing to make, have made, use
and sell such EXCLUDED PRODUCT in such country and to use EXCLUDED PRODUCT
KNOW-HOW without any further royalty obligation or other compensation to SB.
7.09 Royalty payments due to SB under this Article 7 shall be
made in accordance with Article 17.
7.10 SB shall have no scientific, development, regulatory,
commercialization, or financial responsibility or authority, or any other
form of responsibility or authority for any EXCLUDED PRODUCT. Thus, SB shall
have no responsibility or authority, financially or otherwise, for the
attainment and maintenance of regulatory approvals and price registrations
for any EXCLUDED PRODUCT.
7.11 EPITOPE will exercise its reasonable efforts and diligence
in development, registration and commercialization of any EXCLUDED PRODUCT or
product described in 7.01(b) in accordance with EPITOPE's normal practices
and procedures for devices having similar technical and commercial potential,
provided, however, that EPITOPE may terminate its rights with respect to any
EXCLUDED PRODUCT in
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any country in the TERRITORY by giving SB at least thirty (30) days written
notice thereof based on a reasonable determination by EPITOPE, using the same
standards EPITOPE would use in assessing whether or not to continue
development and marketing of a product of its own making, that the patent,
medical/scientific, technical, regulatory or commercial profile of such
EXCLUDED PRODUCT does not justify continued development or marketing of such
EXCLUDED PRODUCT. Termination of EPITOPE's rights with respect to an EXCLUDED
PRODUCT in any country in the TERRITORY under this provision shall terminate
all licenses granted to EPITOPE in such country related to such EXCLUDED
PRODUCT under Article 7 with full reversion to SB of all SB's interest and
rights in EXCLUDED PRODUCT PATENTS and EXCLUDED PRODUCT KNOW-HOW in such
country related to such EXCLUDED PRODUCT.
7.12 All EXCLUDED PRODUCT sold by EPITOPE or its sublicensees
shall have product design and trade dress which will be clearly
distinguishable from all APPROVED PRODUCTS, and EPITOPE and its sublicensees
shall be strictly prohibited from promoting any EXCLUDED PRODUCT for any
off-label purpose. If off-label use can be documented, then the injured
party may require the other party to take all necessary and legally available
steps to prevent such off-label use, including but not limited to legal
action and cancellation of relevant agreements with any party responsible for
such off-label use. The injured party shall also be reimbursed in full by
the other party for any lost profit which the injured party can document.
7.13 If, during the term of the AGREEMENT, EPITOPE, in marketing
EXCLUDED PRODUCT which relies exclusively on an SB PATENT, deems it in its
sole discretion necessary to seek a license from any third party in order to
avoid infringement during the exercise of the license granted herein,
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
of any royalties or any other fees paid to such third party under such
license may be deducted from the royalties otherwise due SB for the sale of
such EXCLUDED PRODUCT.
8. APPROVED PRODUCT PROMOTION AND MARKETING BY THE PARTIES
8.01 (a) No later than [CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION] months from the EFFECTIVE DATE, SB
shall provide EPITOPE with a written list of countries of the TERRITORY in
which SB intends to market APPROVED PRODUCTS. At the same time, SB will
provide EPITOPE with a written business plan outlining SB's envisioned
approach to the registration and commercialization of APPROVED PRODUCT in
each selected country. Notwithstanding the above, SB may extend the time
period provided in this Paragraph 8.01, on a monthly basis, for up to
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION],
by paying EPITOPE [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION] for each month, provided such payment is made no later than
fifteen (15) days after the first day of the relevant month;
(b) Any country not selected by SB in accordance with this
Paragraph 8.01 shall automatically be deleted from the scope of the
TERRITORY, provided that, in the event that EPITOPE has not LAUNCHED any
APPROVED PRODUCT in any deleted country within two (2) years after the date
SB provided the written list to EPITOPE contemplated by this Paragraph 8.01,
such deleted country shall automatically become within the scope of the
TERRITORY. Once such deleted country has returned within the scope of the
TERRITORY, SB shall have six (6) months to provide EPITOPE with a written
business plan outlining SB's envisioned approach to the registration and
commercialization of APPROVED PRODUCT in such country or else such country
shall automatically become deleted from the scope of the TERRITORY. Once so
deleted from the TERRITORY, it shall be available for commercialization to
either party on a non-exclusive basis without remuneration to the other
party. EPITOPE shall promptly reimburse SB for all out-of-pocket expenses
connected with EPITOPE's use, if any, of SB's market analysis of each country
elected by EPITOPE.
8.02 During the term of this AGREEMENT, EPITOPE shall have the
option to exclusively promote APPROVED PRODUCT(S) to the EPITOPE MARKET
SEGMENTS and to all MARKET SEGMENTS in those countries that are not part of
the TERRITORY on a product-by-product basis. In the event EPITOPE shall
elect not to promote a particular APPROVED PRODUCT to a particular EPITOPE
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MARKET SEGMENT in a particular country, EPITOPE shall notify SB, in writing,
and such market segment in such country shall thereafter be within the scope
of the term SB MARKET SEGMENTS, and SB (and its sublicensees) shall be
entitled thereafter to exclusively promote such APPROVED PRODUCT to such
market segment in such country.
8.03 The following principles shall apply to the promotion and
commercialization of each APPROVED PRODUCT to the SB MARKET SEGMENTS and the
EPITOPE MARKET SEGMENTS in the TERRITORY by SB and EPITOPE:
(a) SB shall be solely responsible for the preparation of a
marketing plan to include plans related to the prelaunch, launch, promotion
and sale of APPROVED PRODUCT to the SB MARKET SEGMENTS. SB shall be
permitted to review EPITOPE's marketing plan related to the prelaunch,
launch, promotion and sale of the APPROVED PRODUCTS to the EPITOPE MARKET
SEGMENTS (except with respect to any EPITOPE pricing strategy), to ensure
that there is no conflict with SB's marketing strategy with respect to such
APPROVED PRODUCT, and EPITOPE shall incorporate all of SB's reasonable
comments related thereto.
(b) Each party shall use its own promotional materials,
advertising and literature items with respect to its promotion and sale of
APPROVED PRODUCT, provided that each party shall have the right to receive
copies of the other party's promotional materials, advertising and literature
items. EPITOPE shall incorporate all of SB's reasonable comments related
thereto. Each party shall bear the financial responsibility for its own
promotional materials, advertising and literature items with respect to its
promotion and sale of APPROVED PRODUCT.
(c) All other costs and expenses incurred by a party in the
promotion and detailing of APPROVED PRODUCT in accordance with this
AGREEMENT, such as, but not limited to, expenses related to a party's sales
force or marketing support, shall be at the incurring party's sole expense.
(d) SB shall book all sales of APPROVED PRODUCT by SB. EPITOPE
shall book all sales of APPROVED PRODUCT by EPITOPE.
(e) Each party shall promote and sell APPROVED PRODUCT strictly
in accordance with all administrative, federal, state and local laws and
regulations governing such promotion and sale.
8.04 EPITOPE shall prevent, to the extent legally possible, the
unauthorized trans-shipment of APPROVED PRODUCT and EXCLUDED PRODUCTS from
outside the TERRITORY into the TERRITORY. Likewise, SB shall prevent, to the
extent legally possible, the trans-shipment of APPROVED PRODUCT from inside
the TERRITORY to outside of the TERRITORY. If unauthorized trans-shipment
can be documented, then the injured party may require the other party to take
all necessary and legally available steps to prevent any further unauthorized
trans-shipment, including, but not limited to, legal action and cancellation
of relevant agreements with any party responsible for the unauthorized
trans-shipment. The injured party shall also be reimbursed, in full, by the
other party, for any lost profit which the injured party can document.
9. APPROVED PRODUCT SUPPLY AND DISTRIBUTION
9.01 During the term of the AGREEMENT, EPITOPE shall supply SB
with all SB's and its sublicensee's promotional and commercial requirements
for APPROVED PRODUCT, and SB shall exclusively purchase all such commercial
requirements from EPITOPE, except as otherwise provided in Paragraph 9.06.
All such APPROVED PRODUCT shall be supplied in the form of a finished pack,
i.e., a fully labeled package ready for sale to the appropriate ultimate
customer, in an appropriate shipping container. Promptly after the EFFECTIVE
DATE, the parties shall establish a Manufacturing Capacity Team consisting of
six (6) members, three (3) of whom shall be appointed by SB and three (3) of
whom shall be appointed by EPITOPE. The purpose of the Manufacturing
Capacity Team shall be to determine the capability of EPITOPE to supply SB's
and its sublicensee's promotional and commercial requirements for APPROVED
PRODUCT.
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<PAGE>
9.02 EPITOPE shall maintain [CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION] for the purpose of satisfying the
supply requirements of APPROVED PRODUCT of SB and its sublicensees under this
AGREEMENT. In addition, not later than [CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION] after the EFFECTIVE DATE, EPITOPE shall
qualify [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] for the purpose of satisfying the supply requirements of APPROVED
PRODUCT of SB and its sublicensees under this AGREEMENT which EPITOPE is
unable to supply on its own. All such facilities shall each (i) have an
approved Device Master File for APPROVED PRODUCT, (ii) be a GMP facility; and
(iii) be approved by the Manufacturing Capacity Team, such approval not to be
unreasonably withheld or delayed. Furthermore, immediately after the
EFFECTIVE DATE, EPITOPE shall transfer all KNOW-HOW and other technical
information to SB necessary to [CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION].
9.03 SB shall pay EPITOPE for supplying APPROVED PRODUCT as set
forth below in Paragraph 9.03 (a), (b), (c) and (f). In addition, SB shall
pay EPITOPE for supplying its commercial requirements for APPROVED PRODUCT at
a cost to be mutually negotiated by the parties in good faith. In no case,
however, shall SB pay more than [CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION].
(a) SB shall pay EPITOPE $[CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION]/unit for each ORASURE-Registered
Trademark- HIV-1 ORAL SPECIMEN COLLECTION DEVICE supplied to SB for its
requirements in the TERRITORY. [CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
(b) SB shall pay EPITOPE for SB's reasonable promotional
requirements $[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]/unit for each ORASURE HIV-1 ORAL SPECIMEN COLLECTION DEVICE.
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
(c) For Over-the-Counter products, the packaging cost will be
determined by the Manufacturing Capacity Team. [CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
(d) In addition, notwithstanding Paragraph 9.01, it is
understood that if SB can [CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION] after the APPROVED PRODUCT's LAUNCH date
obtain such APPROVED PRODUCT more economically (i.e., at a charge to SB at
least [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] less than EPITOPE's charge to SB for the same quantity of
APPROVED PRODUCT) from a legitimate THIRD PARTY supplier, SB may do so
provided SB provides reasonable documentation to EPITOPE regarding the THIRD
PARTY supplier's price, and EPITOPE does not match such price within
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION].
In such event, EPITOPE shall immediately grant SB a co-exclusive license,
with the right to grant a sublicenses to such THIRD PARTY supplier, under
relevant PATENTS and KNOW-HOW, as well as transfer all required KNOW-HOW and
other technical information to SB and the THIRD PARTY supplier to permit the
THIRD PARTY supplier to make APPROVED PRODUCT.
(e) Furthermore, it is understood that, for so long as EPITOPE
is supplying APPROVED PRODUCT to SB, the parties shall work together, in good
faith, to reduce the COST OF GOODS. [CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION] of any reduction in COSTS OF GOODS,
regardless of how they are achieved, including those cost savings achieved
due to large scale production, shall be credited to the price charged to SB
by EPITOPE for APPROVED PRODUCT supply.
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<PAGE>
(f) Notwithstanding Paragraphs 9.03(a) and (b) EPITOPE shall not
increase its price to SB above $[CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]/unit or $[CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE COMMISSION]/unit, as appropriate, for the
ORASURE HIV-1 ORAL SPECIMEN COLLECTION DEVICE for [CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION] after the EFFECTIVE DATE.
9.04 EPITOPE shall be responsible for supplying its own clinical,
promotional and commercial requirements of APPROVED PRODUCT and EXCLUDED
PRODUCT during the term of this AGREEMENT at its own expense.
9.05 EPITOPE will use its best efforts to supply or have supplied
a sufficient quantity of the APPROVED PRODUCT to meet SB's requirements.
(a) Within six months of the EFFECTIVE DATE SB will develop a
rolling annualized manufacturing forecast, updated quarterly, setting forth
anticipated volumes on a country by country and APPROVED PRODUCT by APPROVED
PRODUCT basis. SB shall submit written purchase orders setting forth
quantities, delivery dates, and shipping instructions for delivery of
APPROVED PRODUCT. Shipment of APPROVED PRODUCT will normally take place no
earlier than two (2) months after receipt of a purchase order from SB;
provided, however, if EPITOPE receives a purchase order for a quantity of
APPROVED PRODUCT that is outside the parameters expressed in 9.05(b),
shipment of such APPROVED PRODUCT will take place no earlier than three (3)
months after receipt of such purchase order.
(b) SB agrees to purchase and EPITOPE agrees to supply
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
of the forecasted volume for the first quarter and between [CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION] and up to
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
of the amount estimated for the second quarter of any forecast. Further, SB
will be solely responsible for the inventory of the APPROVED PRODUCT other
than EPITOPE stock awaiting shipment, and EPITOPE will not be required to
carry any additional inventory.
(c) The parties will jointly endeavor to determine when an OTC
APPROVAL will occur in each country in the TERRITORY. SB will determine
initial estimates of volume in OTC LAUNCH YEAR. In anticipation of such OTC
Approval, SB will place its initial firm order covering purchases of the
APPROVED PRODUCT. Such initial orders shall allow a three (3) month lead
time subsequent to EPITOPE's receipt of all approved packaging and labeling
text and illustrations from SB. [CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION] months prior to the anticipated OTC LAUNCH
DATE, SB shall furnish EPITOPE with a written estimate of the quantity of
APPROVED PRODUCT which SB expects to purchase during the next [CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION] calendar
quarters beginning [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION] months after the furnishing of such estimate. All SB
forecasts will be updated on a quarterly basis thereafter.
(d) EPITOPE and SB will work to develop a plan to manage
inventories during the OTC LAUNCH YEAR. This plan will include a provision
whereby EPITOPE will maintain an additional inventory of the APPROVED PRODUCT
equal to [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] of SB's requirements for the current quarter. Further, this
requirement will be reduced to a [CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION] supply of additional inventory during the
third quarter following the OTC LAUNCH DATE. This requirement will be
reduced to a [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] supply of additional inventory during the fourth quarter
following the OTC LAUNCH DATE. EPITOPE retains the right to invoice SB for
any and all such additional inventory of the APPROVED PRODUCT up to a maximum
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limit of [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] of additional inventory at the end of the OTC LAUNCH YEAR.
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
of such inventory will be invoiced with payment terms at net thirty (30)
days. The [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] of additional inventory will be invoiced on net sixty (60) days'
terms and the [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] of additional inventory will be invoiced at net ninety (90) days.
This inventory will be available to SB for immediate shipment if sales
exceed SB's forecast. At no time during the OTC LAUNCH YEAR will EPITOPE be
required to carry more than [CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION] supply of additional inventory.
(e) EPITOPE and SB will work together to determine reasonable
requirements of inventory to account for expansion into other countries in
the TERRITORY and for increases in the number of indications, substances,
and/or diseases encompassed by the APPROVED PRODUCT.
9.06 EPITOPE shall give SB immediate written notice if EPITOPE
becomes aware that it will not be able to satisfy SB's or its sublicensee's
entire requirements of APPROVED PRODUCT for any quarter on a
country-by-country and APPROVED PRODUCT-by-APPROVED PRODUCT basis.
(a) If EPITOPE is unable to meet SB's forecast demands for
APPROVED PRODUCT by failing to ship at least [CONFIDENTIAL INFORMATION 1638
OMITTED AND FILED SEPARATELY WITH THE COMMISSION]% of SB's firm orders for
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
in any calendar quarter then at SB's request, [CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION].
(b) If EPITOPE fails to meet SB's forecast demands for APPROVED
PRODUCT by failing to ship at least [CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION]% of SB's firm orders for [CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION] in any calendar
year then [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION].
(c) If EPITOPE fails to meet SB's forecast demand for an
APPROVED PRODUCT in a particular country by failing to ship at least
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]%
of SB's firm orders for that APPROVED PRODUCT in a particular country for
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
in any calendar quarter then [CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION].
(d) SB's payment obligation set forth in Article 5 on NET SALES
of any APPROVED PRODUCT that EPITOPE is unable to supply shall be reduced by
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION].
(e) If SB's unanticipated demand exceeds EPITOPE's manufacturing
capacity, [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION].
9.07 With respect to any APPROVED PRODUCT supplied to SB in
accordance with Article 9, SB shall pay EPITOPE for all APPROVED PRODUCT
accepted by SB no later than thirty (30) days after its delivery to SB.
Amounts past due shall bear a late fee of [CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION] or, if lower, the maximum
amount allowed by law, from the invoice date, provided such invoice is sent
no earlier than the date of the delivery of the APPROVED PRODUCT for which
such invoice is being generated.
9.08 Notwithstanding anything stated in this AGREEMENT to the
contrary, and subject to Paragraph 9.02, it is understood and agreed that
EPITOPE shall have the right at any time to satisfy its supply obligations to
SB hereunder either in whole or in part through arrangements with THIRD
PARTIES engaged to
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perform services or supply facilities or goods in connection with the
manufacture, testing, and/or packaging of APPROVED PRODUCT, provided such
APPROVED PRODUCT is produced in accordance with Paragraph 9.12.
9.09 Upon expiration of the AGREEMENT in each country of the
TERRITORY in accordance with Paragraph 11.01, in the event that SB requires a
continued supply of APPROVED PRODUCT EPITOPE shall continue to supply SB at
the same cost as negotiated by the parties under Paragraph 9.03 and in
accordance with the provisions of this Article 9. However, if SB can obtain
the manufacture of an APPROVED PRODUCT more economically (i.e. less than
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]%
of EPITOPE's charge to SB) then EPITOPE shall have [CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION] to agree to supply such
product at an equivalent cost. If EPITOPE fails to meet the lower quote SB
is free to use such third party manufacturer.
9.10 SB shall be solely responsible for the distribution in the
TERRITORY of all APPROVED PRODUCT, whether or not such APPROVED PRODUCT is
supplied to SB by EPITOPE, subject to EPITOPE's right to promote and
commercialize APPROVED PRODUCT to the EPITOPE MARKET SEGMENTS as provided in
this AGREEMENT.
9.11 Delivery of APPROVED PRODUCT supplied by EPITOPE to SB shall
be "F.O.B." (as such term is defined by Incoterms 1990), Portland, Oregon,
U.S.A., by whatever means SB instructs and EPITOPE determines is reasonable,
provided that such shipment is made in accordance with all relevant statutory
requirements.
9.12 EPITOPE represents and warrants, without limitation to any
other warranties, express or implied, that all APPROVED PRODUCT shall be
supplied to SB free and clear of any liens or encumbrances. EPITOPE further
represents and warrants that in the event that EPITOPE breaches its duty to
supply SB under this Article 9 and Article 10, such would cause SB
irreparable harm for which money damages may not be adequate. Therefore,
EPITOPE agrees that, in addition to other remedies, SB shall be entitled to
injunctive or other equitable relief to restrain EPITOPE's breach.
9.13 Within 30 days of the EFFECTIVE DATE, EPITOPE shall enter
into an AGREEMENT with [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION], in form and substance satisfactory to SB, under which
EPITOPE will have an option to [CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION].
10. MANUFACTURING STANDARDS AND QUALITY ASSURANCE
10.01 EPITOPE guarantees that each APPROVED PRODUCT(s) made and
shipped by it hereunder will not on the date of shipment be adulterated or
misbranded within the meaning of the Food, Drug, and Cosmetic Act ("Act") and
any other applicable laws and regulations of the TERRITORY. EPITOPE further
agrees to manufacture the APPROVED PRODUCT(s) and maintain its facilities in
accordance with GMP's (as defined in the Act). The parties therefore agree
that EPITOPE's representations and warranties set forth in this Article 10 do
not apply to any text and non-text materials for the labeling and packaging
of APPROVED PRODUCT(s) which are supplied to EPITOPE by SB nor do they apply
to the advertising and promotional activities and materials produced or
conducted by or on behalf of SB in respect of the APPROVED PRODUCT(s). SB
accepts full responsibility for the design, content, and use of all such
packaging labeling, advertising, and promotional activities and materials.
SB further agrees that EPITOPE shall not be responsible if an APPROVED
PRODUCT(s) becomes adulterated or misbranded as described above as a result
of any packaging, labeling, advertising, or promotional activities or
materials supplied by SB to EPITOPE regarding the APPROVED PRODUCT(S) that
are not in accordance with the SPECIFICATIONS. EPITOPE will assume
responsibility if an APPROVED PRODUCT becomes adulterated or misbranded as
described above as a result of any packaging, labeling, advertising or
promotional activities or materials in respect of the APPROVED
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PRODUCT that are not in accordance with SPECIFICATIONS, where such error
results from the negligence of EPITOPE.
10.02 EPITOPE shall test according to its internal standard
operating procedures the APPROVED PRODUCT(s) against the SPECIFICATIONS prior
to shipment to SB. SB shall test in the APPROVED PRODUCT(s) after receipt as
SB deems appropriate. Further, as part of the audit function, SB reserves the
right to review Certificates of Analysis, batch records, and perform facility
inspection. If, within thirty (30) days after receipt of the APPROVED
PRODUCT(s) by SB at either SB's facility or a facility designated by SB, SB
notifies EPITOPE in writing that the APPROVED PRODUCT(S) does not meet the
SPECIFICATIONS as determined by SB's or a third party's testing of the
APPROVED PRODUCT(s), then EPITOPE shall, subject to paragraphs 10.04, 10.05,
and 10.06 below, promptly replace all such nonconforming APPROVED PRODUCT(s)
with APPROVED PRODUCT(s) meeting the SPECIFICATIONS. Nonconforming APPROVED
PRODUCT(s) shall be destroyed by SB at EPITOPE's sole discretion. EPITOPE
shall issue a credit to SB in the amount representing EPITOPE's selling price
of the nonconforming APPROVED PRODUCT(s) to SB plus freight charges, for the
shipment to SB, within thirty (30) days from SB's notice of its determination
that the APPROVED PRODUCT(s) is nonconforming or from such notice given by
the independent testing laboratory under Paragraph 10.04. EPITOPE's credit
to SB for the nonconforming APPROVED PRODUCT(s) shall not be due until sixty
(60) days after receipt of SB's request for replacement APPROVED PRODUCT(s),
or final determination whether the APPROVED PRODUCT(s) in question was
nonconforming, if later. If there is outstanding credit to SB upon
termination of this AGREEMENT, EPITOPE will reimburse to SB by check the
amount of such credit within thirty (30) days after this AGREEMENT is
terminated.
10.03 SB's failure to notify EPITOPE in accordance with Paragraph
10.02 of a failure to meet SPECIFICATIONS shall constitute acceptance of such
APPROVED PRODUCT(s).
10.04 If EPITOPE and SB do not agree on whether APPROVED
PRODUCT(s) meets the SPECIFICATIONS the matter will be submitted for testing
to an independent testing laboratory acceptable to both parties. The
determination of such independent laboratory will be binding on both parties.
The cost of the independent testing laboratory shall be borne by the party
whose testing results were in error.
10.05 EPITOPE and SB will each promptly send to the other a copy
of each customer complaint received in connection with the APPROVED
PRODUCT(s). Each party will give the other immediate notice of any
contemplated recall. Any recall of APPROVED PRODUCT(s) other than that
PRODUCT sold by EPITOPE in the EPITOPE MARKET SEGMENTS will be handled by SB
in accordance with its recall procedures. EPITOPE and SB will cooperate in
any recall. In the event APPROVED PRODUCT(s) is recalled for medical or
safety reasons due to the negligence or willful misconduct of EPITOPE,
EPITOPE shall take back any trade inventory and/or APPROVED PRODUCT(s) in
consumer's possession so affected and refund SB's purchase price of such
APPROVED PRODUCT(s). EPITOPE will pay any (including SB's) recall costs, as
well as damages and settlements, to the extent they result from EPITOPE's
negligence or willful misconduct. In the event an APPROVED PRODUCT(s) is
recalled for any reasons due to the negligence or willful misconduct of SB,
SB shall take back any trade inventory and/or APPROVED PRODUCT(s) in
consumer's possession so affected, and pay any royalties due EPITOPE on the
sale of all recall APPROVED PRODUCT(s) previously sold to SB. SB will pay any
(including EPITOPE's) recall costs, as well as damages and settlements to the
extent they result from SB's negligence or willful misconduct. For any
recall due to reasons other than the negligence of willful misconduct of
either party, each party shall be responsible for its costs, damages and
settlements related to such recalls provided, however, EPITOPE, at SB's
request, will replace all trade inventory taken back or destroyed by SB as a
result of such recall at no profit, charging SB only the costs of materials
and direct labor associated with such replacement APPROVED PRODUCT(s).
Further, EPITOPE agrees that no royalties shall be due to EPITOPE on the sale
of such replacement APPROVED PRODUCT(S) by SB. Under no circumstances shall
either party enter into an agreement or settlement with a third party
regarding recall which binds or purports to bind the other party without the
other party's prior written consent, which shall not be unreasonably withheld.
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<PAGE>
10.06 If EPITOPE fails to supply acceptable replacement APPROVED
PRODUCT(s) within sixty (60) days of receipt from SB of its written notice
pursuant to Paragraph 10.02 that such APPROVED PRODUCT(s) has not met the
written SPECIFICATIONS in effect at the time of shipment to SB, or notice
given by the independent testing laboratory under Paragraph 10.04, SB shall
have the right to manufacture or have manufactured such quantities of
APPROVED PRODUCT(s) as to meet its requirements until such time as EPITOPE
gives SB written assurances that EPITOPE is able to supply replacement
conforming APPROVED PRODUCT(s). Any APPROVED PRODUCT(s) that is manufactured
by SB in accordance with this Paragraph will not be subject to any royalty
otherwise due EPITOPE. EPITOPE shall reimburse SB for all reasonable
incremental costs incurred by SB if it manufactures APPROVED PRODUCT(s). SB
shall keep complete and accurate records of all such costs incurred by SB in
the manufacture of the APPROVED PRODUCT(s) for a minimum of two (2) years.
Said records shall be open during reasonable business hours to a certified
public accountant selected by EPITOPE, who shall at EPITOPE's expense have
access to all records deemed by such accountant as reasonably necessary in
verifying for EPITOPE not more often than once each calendar year (unless
errors are found) such costs incurred by SB.
10.07 Upon reasonable prior written notice outlining the scope of
the inspection and personnel involved, SB shall have the right to inspect
EPITOPE's manufacturing facilities used in the production of APPROVED
PRODUCT(s) on an annual basis, during normal business hours, to determine
compliance with the Act and GMP's.
10.08 EXCEPT AS EXPRESSLY PROVIDED HEREIN, EPITOPE MAKES NO
EXPRESS OR IMPLIED WARRANTIES OF ANY KIND, AND FURTHER EXPRESSLY DISCLAIMS
THE WARRANTY OF MERCHANTABILITY AND THE WARRANTY OF FITNESS FOR A PARTICULAR
PURPOSE. EPITOPE HAS NOT AUTHORIZED ANYONE TO MAKE ANY REPRESENTATION OR
WARRANTY OTHER THAN AS PROVIDED HEREIN. THE WARRANTY REFERRED TO IN
PARAGRAPH 10.01 DOES NOT EXTEND TO ANY PRODUCT(S) THAT IS (A) DAMAGED,
MODIFIED, OR ALTERED ONCE OUTSIDE EPITOPE'S POSSESSION, (B) NOT STORED IN
ACCORDANCE WITH THE APPROVED PACKAGING AND LABELING OR (C) TREATED WITH
ABUSE, NEGLIGENCE OR IN ANY IMPROPER MANNER. EXCEPT AS STATED IN PARAGRAPH
10.05 AND ARTICLE 18, IF SO TREATED BY EPITOPE, SB'S RIGHT TO REPLACEMENT OF
NON-CONFORMING PRODUCT(S) PURSUANT TO PARAGRAPH 10.02 SHALL BE ITS EXCLUSIVE
REMEDY FOR BREACH OF THE FOREGOING WARRANTY. EPITOPE SHALL NOT, IN ANY
EVENT, BE LIABLE TO SB FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE
DAMAGES UNDER ANY LEGAL OR EQUITABLE THEORY WITH RESPECT TO THE BREACH OF ANY
WARRANTY MADE TO SB REGARDING THE PRODUCT(S).
11. TERM AND TERMINATION
11.01 Unless otherwise terminated, this AGREEMENT shall expire in
each country of the TERRITORY upon the later of (a) the expiration, lapse or
invalidation of the last remaining PATENT in such country; or (b) fifteen
(15) years from the date of LAUNCH in such country of the last APPROVED
PRODUCT marketed by SB. The AGREEMENT shall expire in its entirety upon its
expiration in all of the countries of the TERRITORY under this provision.
11.02 (a) SB's royalty obligations for a particular APPROVED
PRODUCT under Paragraph 5.03 in each country of the TERRITORY shall expire
upon the expiration or invalidation of the last remaining PATENT in such
country which claims the APPROVED PRODUCT. Expiration of SB's royalty
obligations for a particular APPROVED PRODUCT under this provision shall not
preclude SB from continuing to market such APPROVED PRODUCT and to use
KNOW-HOW in such country without further royalty payments to EPITOPE, except
as otherwise provided by Paragraph 5.07(a) and 11.02(b).
(b) Except as otherwise provided by Paragraph 5.05, SB's royalty
obligations for a particular APPROVED PRODUCT under Paragraph 5.07(a) in each
country of the TERRITORY shall commence upon the date of LAUNCH of such
APPROVED PRODUCT in such country and shall expire upon the expiration
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of the earlier of (i) fifteen (15) years from the date of LAUNCH of such
APPROVED PRODUCT in such country, or (ii) in any country which is a member
state of the EC when all KNOW-HOW used by SB in the making, using or selling
of such APPROVED PRODUCT has become publicly known other than by the action
of SB or an undertaking connected with SB. Expiration of SB's royalty
obligations for a particular APPROVED PRODUCT under this provision shall not
preclude SB from continuing to market such APPROVED PRODUCT and to use
KNOW-HOW in such country without further royalty payments to EPITOPE.
(c) EPITOPE shall have no right to market a particular APPROVED
PRODUCT or to use such associated KNOW-HOW in a particular country of the
TERRITORY until such time as SB has no further royalty obligations to EPITOPE
under Article 5 with respect to such APPROVED PRODUCT in such country except
as otherwise specifically provided in this AGREEMENT.
11.03 If either party materially fails or neglects to perform its
obligations set forth in this AGREEMENT and if such default is not corrected
within sixty (60) days after receiving written notice from the other party
with respect to such default, such other party shall have the right to
terminate this AGREEMENT by giving written notice to the party in default
provided the notice of termination is given within six (6) months of the
notification of the default and prior to correction of the default.
11.04 SB may terminate this AGREEMENT with respect to any APPROVED
PRODUCT in any country in the TERRITORY by giving EPITOPE at least thirty
(30) days written notice thereof based on a reasonable determination by SB,
using the same standards SB would use in assessing whether or not to continue
development and marketing of a product of its own making, that the patent,
medical/scientific, technical, regulatory or commercial profile of such
APPROVED PRODUCT does not justify continued development or marketing of such
APPROVED PRODUCT in such country, and such APPROVED PRODUCT shall thereafter
be designated as an EXCLUDED PRODUCT with respect to that particular country.
Termination of this AGREEMENT with respect to any APPROVED PRODUCT in any
country in the TERRITORY under this provision shall terminate all licenses
granted to SB in such country under Article 4 with respect to such APPROVED
PRODUCT with full reversion to EPITOPE of all EPITOPE's interest and rights
in PATENTS and KNOW-HOW in such country to such APPROVED PRODUCT, except as
otherwise provided in Article 7. Termination of this AGREEMENT with respect
to all APPROVED PRODUCTS in all countries of the TERRITORY shall effectively
terminate this AGREEMENT. In the event SB terminates this AGREEMENT with
respect to a particular APPROVED PRODUCT in a particular country in the
TERRITORY in accordance with this Paragraph 11.04, EPITOPE shall make a
reasonable effort to sell, use or otherwise dispose of any inventory held by
EPITOPE for such APPROVED PRODUCT for such country as a result of EPITOPE's
obligations under Paragraph 9.05, provided that, after EPITOPE has exhausted
such efforts, SB shall purchase at current prices any such remaining
forecasted inventory of such APPROVED PRODUCT for such country which had at
least [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] of the then current expiration dating at the time SB gave EPITOPE
notice in accordance with this Paragraph 11.04.
11.05 Either party may terminate this AGREEMENT if, at any time,
the other party shall file in any court or agency pursuant to any statute or
regulation of any state or country, a petition in bankruptcy or insolvency or
for reorganization or for an arrangement or for the appointment of a receiver
or trustee of the party or of its assets, or if the other party proposes a
written agreement of composition or extension of its debts, or if the other
party shall be served with an involuntary petition against it, filed in any
insolvency proceeding, and such petition shall not be dismissed within sixty
(60) days after the filing thereof, or if the other party shall propose or be
a party to any dissolution or liquidation, or if the other party shall make
an assignment for the benefit of creditors.
11.06 Notwithstanding the bankruptcy of EPITOPE, or the impairment
of performance by EPITOPE of its obligations under this AGREEMENT as a result
of bankruptcy or insolvency of EPITOPE, SB shall be entitled to retain the
licenses granted herein, subject to EPITOPE's rights to terminate this
AGREEMENT for reasons other than bankruptcy or insolvency as expressly
provided in this AGREEMENT, and subject to performance by SB of its
preexisting obligations under this AGREEMENT. Notwithstanding the
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bankruptcy of SB, or the impairment of performance by SB of its obligations
under this AGREEMENT as a result of bankruptcy or insolvency of SB, EPITOPE
shall be entitled to retain the licenses granted herein, subject to SB's
rights to terminate this AGREEMENT for reasons other than bankruptcy or
insolvency as expressly provided in this AGREEMENT, and subject to
performance by EPITOPE of its preexisting obligations under this AGREEMENT.
11.07 All rights and licenses granted under or pursuant to this
AGREEMENT by EPITOPE to SB, and by SB to EPITOPE, are, and shall otherwise be
deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code,
licenses of rights to "intellectual property" as defined under Section
101(52) of the U.S. Bankruptcy Code. The parties agree that each party, as a
licensee of such rights under this AGREEMENT, shall retain and may fully
exercise all of its rights and elections under the U.S. Bankruptcy Code,
subject to performance by the licensee of its preexisting obligations under
this AGREEMENT. The parties further agree that, in the event of the
commencement of a bankruptcy proceeding by or against the licenser under the
U.S. Bankruptcy Code, the licensee shall be entitled to a complete duplicate
of (or complete access to, as appropriate) any such intellectual property and
all embodiments of such intellectual property, and same, if not already in
its possession, shall be promptly delivered to the licensee (a) upon any such
commencement of a bankruptcy proceeding upon written request therefor by the
licensee, unless the licenser elects to continue to perform all of its
obligations under this AGREEMENT, or (b) if not delivered under (a) above,
upon the rejection of this AGREEMENT by or on behalf of the licenser upon
written request therefor by the licensee, provided, however, that upon the
licenser's (or its successor's) written notification to the licensee that it
is again willing and able to perform all of its obligations under this
AGREEMENT, the licensee shall promptly return all such tangible materials to
the licenser, but only to the extent that the licensee does not require
continued access to such materials to enable the licensee to perform its
obligations under this AGREEMENT.
12. RIGHTS AND DUTIES UPON TERMINATION
12.01 Upon termination of this AGREEMENT, EPITOPE shall have the
right to retain any sums already paid by SB hereunder, and SB shall pay all
sums accrued hereunder which are then due.
12.02 Upon termination of this AGREEMENT in its entirety or with
respect to any country under Article 11, SB shall notify EPITOPE of the
amount of APPROVED PRODUCT SB and its sublicensees and distributors then have
on hand, the sale of which would, but for the termination, be subject to
royalty, and SB and its sublicensees and distributors shall thereupon be
permitted to sell that amount of APPROVED PRODUCT provided that SB shall pay
the royalty thereon at the time herein provided for. In addition, EPITOPE
shall make a reasonable effort to sell, use or otherwise dispose of any
inventory held by EPITOPE for APPROVED PRODUCT for such country as a result
of EPITOPE's obligations under Paragraph 9.05(a), provided that, after
EPITOPE has exhausted such efforts, SB shall purchase at current prices any
such remaining forecasted inventory of APPROVED PRODUCT for such country
which had at least [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION] of the then current expiration dating at the time of
termination.
12.03 Termination or expiration of this AGREEMENT shall terminate
all obligations, licenses and rights between the parties arising from this
AGREEMENT except those described in Articles 11, 12, 13, and 20 through 23
and Paragraphs 14.02, 14.04, 18.06, 18.07, 18.08, and 18.09, as well as any
other provision which, by its terms, is stated to survive the termination or
expiration of this AGREEMENT. In addition, any other provision required to
interpret and enforce the parties' rights and obligations under this
AGREEMENT also shall survive to the extent required for the full observation
and performance of this AGREEMENT by the parties hereto.
12.04 Termination of this AGREEMENT under Paragraph 11.03 for a
default by EPITOPE shall terminate SB's obligation to make any remaining
payments required by Article 5 for the period effective as of the date
EPITOPE received written notice from SB with respect to such default if after
the elapse of sixty (60) days from receipt of such notice such default is not
corrected. Termination of this AGREEMENT with respect
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to all countries of the TERRITORY under Paragraph 11.04 shall terminate SB's
obligation to make any remaining payments required by Article 5 for periods
after the effective date of termination.
12.05 If, as a result of the happening of any event described in
Paragraph 11.05 above, any tangible or intangible asset owned by EPITOPE
relating to APPROVED PRODUCT (e.g., intellectual property, machinery) is
offered for sale or license, in addition to other remedies in law or equity
which may be available to SB, SB shall have a right of first refusal with
respect to the asset, with the proviso that, to the extent the asset also
relates to subject matter other than APPROVED PRODUCT, SB's right of first
refusal shall extend only to so much of the asset as relates to APPROVED
PRODUCT. If, as a result of the happening of any event described in
Paragraph 11.05 above, any tangible or intangible asset owned by SB relating
to EXCLUDED PRODUCT (e.g., intellectual property, machinery) is offered for
sale or license, in addition to other remedies in law or equity which may be
available to EPITOPE, EPITOPE shall have a right of first refusal with
respect to the asset, with the proviso that, to the extent the asset also
relates to subject matter other than EXCLUDED PRODUCT, EPITOPE's right of
first refusal shall extend only to so much of the asset as relates to
EXCLUDED PRODUCT.
12.06 All rights to terminate, and rights upon termination,
provided for either party in this AGREEMENT are in addition to other remedies
in law or equity which may be available to either party.
13. EXCHANGE OF INFORMATION AND CONFIDENTIALITY
13.01 Promptly after the EFFECTIVE DATE, each party shall disclose
to the other and/or supply the other with KNOW-HOW and SB KNOW-HOW.
13.02 During the term of this AGREEMENT and for [CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION] thereafter,
irrespective of any termination earlier than the expiration of the term of
this AGREEMENT, EPITOPE and SB shall not use or reveal or disclose to THIRD
PARTIES any confidential information received from the other party or
otherwise developed by either party in the performance of activities in
furtherance of this AGREEMENT without first obtaining the written consent of
the other party, except as may be otherwise provided herein, or as may be
required for purposes of investigating, developing, manufacturing or
marketing APPROVED PRODUCT or EXCLUDED PRODUCT or for securing essential or
desirable authorizations, privileges or rights from governmental agencies, or
as required to be disclosed to a governmental agency or is necessary to file
or prosecute patent applications concerning APPROVED PRODUCT or EXCLUDED
PRODUCT or to carry out any litigation concerning APPROVED PRODUCT or
EXCLUDED PRODUCT. This confidentiality obligation shall not apply to such
information which is or becomes a matter of public knowledge, or is already
in the possession of the receiving party, or is disclosed to the receiving
party by a THIRD PARTY having the right to do so, or is subsequently and
independently developed by employees of the receiving party or AFFILIATES
thereof who had no knowledge of the confidential information disclosed. The
parties shall take reasonable measures to assure that no unauthorized use or
disclosure is made by others to whom access to such information is granted.
13.03 Nothing herein shall be construed as preventing a receiving
party from disclosing any information received from the other party to an
AFFILIATE, sublicensee or distributor of the receiving party, provided such
AFFILIATE, sublicensee or distributor has undertaken, in writing, a similar
obligation of confidentiality with respect to the confidential information.
13.04 All confidential information disclosed by one party to the
other shall remain the intellectual property of the disclosing party. In the
event that a court or other legal or administrative tribunal, directly or
through an appointed master, trustee or receiver, assumes partial or complete
control over the assets of a party to this AGREEMENT based on the insolvency
or bankruptcy of such party, the bankrupt or insolvent party shall promptly
notify the court or other tribunal (a) that confidential information received
from the other party under this AGREEMENT remains the property of the other
party and (b) of the confidentiality obligations under this AGREEMENT. In
addition, the bankrupt or insolvent party shall, to the extent permitted by
law,
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take all steps necessary or desirable to maintain the confidentiality of the
other party's confidential information and to insure that the court, other
tribunal or appointee maintains such information in confidence in accordance
with the terms of this AGREEMENT.
13.05 No public announcement or other disclosure to THIRD PARTIES
concerning the existence of or terms of this AGREEMENT shall be made, either
directly or indirectly, by any party to this AGREEMENT, except as may be
legally required or as may be required for recording purposes, without first
obtaining the approval of the other party and agreement upon the nature and
text of such announcement or disclosure. The party desiring to make any such
public announcement or other disclosure shall inform the other party of the
proposed announcement or disclosure in reasonably sufficient time prior to
public release, and shall provide the other party with a written copy
thereof, in order to allow such other party to comment upon such announcement
or disclosure. Each party agrees that it shall cooperate fully with the
other with respect to all disclosures regarding this AGREEMENT to the
Securities and Exchange Commission and any other governmental or regulatory
agencies, including requests for confidential treatment of proprietary
information of either party included in any such disclosure.
13.06 Neither SB nor EPITOPE shall submit for written publication
or oral presentation any manuscript, abstract or the like which includes data
or other information generated and provided by the other party or developed
by either party during the term of the AGREEMENT without first obtaining the
prior written consent of the other party, which consent shall not be
unreasonably withheld. The contribution of each party shall be noted in all
publications or presentations by acknowledgment or coauthorship, whichever is
appropriate.
13.07 Nothing in this AGREEMENT shall be construed as preventing
or in any way inhibiting SB or EPITOPE from complying with statutory and
regulatory requirements governing the development, manufacture, use and sale
or other distribution of APPROVED PRODUCT in any manner which it reasonably
deems appropriate, including, for example, by disclosing to regulatory
authorities confidential or other information received from the other party
or THIRD PARTIES.
14. INVENTIONS, PATENTS AND PATENT PROSECUTION
14.01 During the term of the AGREEMENT, SB shall have the right to
review all such PATENTS and all proceedings related thereto and make
recommendations to EPITOPE concerning them and their conduct. EPITOPE agrees
to keep SB promptly and fully informed of the course of patent prosecution or
other proceedings involving such PATENTS including, without limitation,
providing SB with copies of substantive communications, search reports and
third party observations submitted to or received from patent offices within
the TERRITORY. SB shall provide such patent consultation to EPITOPE related
to such PATENTS at no cost to EPITOPE. SB shall hold all information
disclosed to it under this Paragraph as confidential subject to the
provisions of Article 13. SB shall have the right to assume responsibility
for any such PATENT or any part of any such PATENT which EPITOPE intends to
abandon or otherwise cause or allow to be forfeited provided that the claim
of such PATENT claims APPROVED PRODUCT.
14.02 Each party shall have and retain sole and exclusive title to
all inventions and discoveries which are made, conceived, reduced to practice
and generated solely by its employees or agents in the course of or as a
result of activities performed in furtherance of this AGREEMENT. Each party
shall own a fifty percent (50%) undivided interest in all inventions and
discoveries made, conceived, reduced to practice or generated jointly by
employees or agents of both parties in the course of or as a result of
activities performed in furtherance of this AGREEMENT. Each party shall own,
and may fully exploit, all of its rights and interests in PATENTS, SB
PATENTS, EXCLUDED PRODUCT PATENTS, KNOW-HOW, SB KNOW-HOW and EXCLUDED PRODUCT
KNOW-HOW, without any encumbrances to each other or any THIRD PARTY, except
as otherwise specifically set forth in this AGREEMENT.
14.03 Each party shall promptly notify the other upon the making,
conceiving or reducing to practice of any invention or discovery referred to
in Paragraph 14.02. With respect to any such invention,
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(a) SB shall have the first right, using in-house or outside
legal counsel selected at SB's sole discretion, to prepare, file, prosecute,
maintain and extend patent applications and patents concerning all such
inventions and discoveries owned in whole by SB or jointly by SB and EPITOPE
in countries of SB's choice throughout the world with appropriate credit to
EPITOPE representatives, including the naming of such parties as inventors
where appropriate and in accordance with the relevant legal requirements, for
which SB shall bear the costs relating to such activities which occur at SB's
request or direction. SB shall solicit EPITOPE's advice and review of the
nature and text of such patent applications and important prosecution matters
related thereto in reasonably sufficient time prior to filing thereof, and SB
shall take into account EPITOPE's reasonable comments related thereto.
(b) EPITOPE shall have the first right, using in-house or
outside legal counsel selected at EPITOPE's sole discretion, to prepare,
file, prosecute, maintain and extend patent applications and patents
concerning all such inventions and discoveries owned in whole by EPITOPE in
countries of EPITOPE's choice throughout the world, for which EPITOPE shall
bear the costs relating to such activities which occur at EPITOPE's request
or direction. EPITOPE shall solicit SB's advice and review of the nature and
text of such patent applications and important prosecution matters related
thereto in reasonably sufficient time prior to filing thereof, and EPITOPE
shall take into account SB's reasonable comments related thereto.
(c) If SB, prior or subsequent to filing certain patent
applications on any inventions or discoveries which are owned in whole or in
part by EPITOPE, elects not to file, prosecute or maintain such patent
applications or ensuing patents or certain claims encompassed by such patent
applications or ensuing patents in any country of the TERRITORY, SB shall
give EPITOPE notice thereof within a reasonable period prior to allowing such
patent applications or patents or such certain claims encompassed by such
patent applications or patents to lapse or become abandoned or unenforceable,
and EPITOPE shall thereafter have the right, at its sole expense, to prepare,
file, prosecute and maintain patent applications and patents or divisional
applications related to such certain claims encompassed by such patent
applications or patents concerning all such inventions and discoveries in
countries of its choice throughout the world.
(d) If EPITOPE, prior or subsequent to filing certain patent
applications on any inventions or discoveries which are owned in whole by SB,
elects not to file, prosecute or maintain such patent applications or ensuing
patents or certain claims encompassed by such patent applications or ensuing
patents in any country of the TERRITORY, EPITOPE shall give SB notice thereof
within a reasonable period prior to allowing such patent applications or
patents or such certain claims encompassed by such patent applications or
patents to lapse or become abandoned or unenforceable, and SB shall
thereafter have the right, at its sole expense, to prepare, file, prosecute
and maintain patent applications and patents or divisional applications
related to such certain claims encompassed by such patent applications or
patents concerning all such inventions and discoveries in countries of its
choice throughout the world.
(e) The party filing patent applications for jointly owned
inventions and discoveries shall do so in the name of and on behalf of both
SB and EPITOPE. Each of EPITOPE and SB shall hold all information it
presently knows or acquires under this Paragraph 14.03 which is related to
all such patents and patent applications as confidential subject to the
provisions of Article 13.
14.04 Each party on behalf of itself and its AFFILIATES, and the
directors, employees, officers, shareholders, agents, successors and assigns
of any of them, hereby waives any and all actions and causes of action,
claims and demands whatsoever, in law or equity of any kind it or they may
have against the other party and its AFFILIATES, and their officers,
directors, employees, shareholders, agents, successors and assigns, which may
arise in any way in the course of performance of its rights under Paragraph
14.03 except as a result of the other party's gross negligence, recklessness,
or willful misconduct.
14.05 Notwithstanding the provisions of Paragraph 14.03, each
party shall, at its own expense, provide reasonable assistance to the other
party to facilitate filing of all patent applications covering inventions
referred to in Paragraph 14.02 and shall execute all documents deemed
necessary or desirable therefor.
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14.06 SB shall have the right but not the obligation to seek
extensions of the terms of PATENTS. At SB's request, EPITOPE shall either
authorize SB to act as EPITOPE's agent for the purpose of making any
application for any extensions of the term of PATENTS and provide reasonable
assistance therefor to SB or shall diligently seek to obtain such extensions
or SPC's in either event, at EPITOPE's expense.
14.07 At SB's request, EPITOPE shall seek to obtain SPC's or
authorize SB to obtain SPC's on EPITOPE's behalf. Where SB holds a relevant
Marketing Authorization, SB shall at its sole discretion provide to EPITOPE a
copy of said Marketing Authorization and any information necessary for the
purpose of obtaining an SPC.
15. PATENT LITIGATION
15.01 In the event of the institution of any suit by a THIRD PARTY
against EPITOPE, SB and/or their sublicensees for patent infringement
involving the manufacture, use, sale, distribution or marketing of APPROVED
PRODUCT or EXCLUDED PRODUCT anywhere in the TERRITORY, the party sued shall
promptly notify the other party in writing. SB shall have the right but not
the obligation to defend such suit at its own expense. If SB does not
commence a defense of such suit within ninety (90) days after it received
such written notice, EPITOPE, after notifying SB in writing, shall be
entitled to defend such suit at EPITOPE's expense. EPITOPE and SB shall
assist one another and cooperate in any such litigation at the other's
reasonable request without expense to the requesting party. This paragraph
shall not prevent Epitope from timely filing a response to avoid a default in
such suit. The party which is not defending a suit may retain counsel to
participate in the defense at its own expense.
15.02 In the event that EPITOPE or SB becomes aware of actual or
threatened infringement of a PATENT and/or SB PATENT related to APPROVED
PRODUCT or EXCLUDED PRODUCT, anywhere in the TERRITORY, that party shall
promptly notify the other party in writing. SB shall have the first right but
not the obligation to bring, at its own expense, an infringement action or
file any other appropriate action or claim directly related to infringement
of a PATENT and/or SB PATENT, wherein such infringement relates to APPROVED
PRODUCT or EXCLUDED PRODUCT, against any THIRD PARTY and to use EPITOPE's
name in connection therewith and to include EPITOPE's name as a party
thereto. If SB does not commence a particular infringement action within
ninety (90) days after it received such written notice, EPITOPE after
notifying SB in writing, shall be entitled to bring such infringement action
or any other appropriate action or claim at its own expense and to use SB's
name in connection therewith and to include SB's name as a party thereto.
The party conducting such action shall have full control over its conduct,
including settlement thereof. In any event, EPITOPE and SB shall assist one
another and cooperate in any such litigation at the other's request without
expense to the requesting party.
15.03 EPITOPE and SB shall recover their respective actual
out-of-pocket expenses, or equitable proportions thereof, associated with any
litigation or settlement thereof from any recovery made by any party.
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
15.04 The parties shall keep one another informed of the status of
their respective activities regarding any litigation or settlement thereof
concerning APPROVED PRODUCT.
16. TRADEMARKS AND TRADE NAMES
16.01 Except as otherwise provided in Paragraph 16.04, SB shall be
responsible for the selection of all trademarks and trade names which are
employed in connection with any APPROVED PRODUCT promoted and sold to the SB
MARKET SEGMENTS. SB shall be responsible for registration and maintenance of
all such trademarks and trade names, and, in those countries where
recordation is required, SB shall be recorded as the registered user of such
trademarks. Nothing in this AGREEMENT shall be construed as a grant of
rights, by license or otherwise, to EPITOPE to use such trademarks and trade
names or any other trademarks and trade
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names owned by SB for any purpose. SB shall own such trade names and
trademarks and shall retain such ownership upon termination of this AGREEMENT.
16.02 EPITOPE shall be responsible for the selection of all
trademarks and trade names which are employed in connection with any APPROVED
PRODUCT promoted and sold to the EPITOPE MARKET SEGMENTS. EPITOPE shall be
responsible for registration and maintenance of all such trademarks and trade
names, and, in those countries where recordation is required, EPITOPE shall
be recorded as the registered user of such trademarks. Nothing in this
AGREEMENT shall be construed as a grant of rights, by license or otherwise,
to SB to use such trademarks and trade names or any other trademarks and
trade names owned by EPITOPE for any purpose. EPITOPE shall own such trade
names and trademarks and shall retain such ownership upon termination of this
AGREEMENT.
16.03 Nothing in this AGREEMENT shall be construed as a grant of
rights, by license or otherwise, to either party, to use the name of the
other party or any entity affiliated therewith for any purpose whatsoever
except as may otherwise be expressly provided for in this AGREEMENT.
16.04 (a) SB shall have an option to a license to use
EPITOPE's proprietary trademark OraSure-Registered Trademark- in connection
with APPROVED PRODUCT in its MARKET SEGMENTS in the TERRITORY, provided that
SB exercises the option by giving written notice to EPITOPE thereof no later
than four (4) months after the EFFECTIVE DATE, and in such case SB shall
enter into an appropriate exclusive license and right to use the
OraSure-Registered Trademark- trademark in each country of the TERRITORY for
the term of this AGREEMENT and after its expiration in accordance with
Paragraph 11.01, in connection with the marketing and promotion of APPROVED
PRODUCT as contemplated by this AGREEMENT, provided that:
(i) In consideration for such exclusive license, SB
agrees to obtain and/or maintain registration of the
OraSure-Registered Trademark- trademark at SB's sole expense in the
name of EPITOPE in each country of the TERRITORY in which such
trademark is legally available, is not subject to actual confusion in
the market with any other trademark, and does not infringe another's
trademark. SB shall not be obligated to use such trademark in any such
country in which such trademark is not legally available, is subject to
actual confusion in the market with any other trademark, or infringes
another's trademark. The consideration outlined in this Paragraph 16.04
shall be SB's total financial remuneration obligation to EPITOPE for
the exclusive license.
(ii) SB shall submit representative APPROVED PRODUCT
promotional materials employing the OraSure-Registered Trademark-
trademark to EPITOPE for EPITOPE's reasonable approval upon their
first use and thereafter upon any change or addition to the
previously approved promotional materials and as may be required
under applicable law to maintain the validity of such trademark.
(iii) Except in the event of the expiration of the
AGREEMENT in a country of the TERRITORY in accordance with Paragraph
11.01, SB's right to use the OraSure-Registered Trademark- trademark
will continue on a per country basis as long as SB shall market any
product(s) in that country of the TERRITORY in which SB's license rights
to APPROVED PRODUCT are terminated in accordance with this AGREEMENT.
(b) In the event that SB shall elect to use the
OraSure-Registered Trademark- trademark in the manner provided in Paragraph
16.04(a), the following shall apply:
(i) The ownership and all goodwill from the use of the
OraSure-Registered Trademark- trademark in each country of the
TERRITORY shall vest in and inure to the benefit of EPITOPE.
(ii) For as long as SB is permitted to use the
OraSure-Registered Trademark- trademark in connection with APPROVED
PRODUCT in any country of the TERRITORY in accordance with this
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AGREEMENT, EPITOPE shall not permit the OraSure-Registered Trademark-
trademark to be used by any THIRD PARTY in connection with APPROVED
PRODUCT in any country outside of the TERRITORY, in order to avoid
potential liability issues, except to the extent that regulatory
requirements or local laws may require a uniform trademark to be used
in such territory. Notwithstanding the foregoing, EPITOPE shall be
permitted to use, and may permit THIRD PARTIES to use, its ORASURE
trademark in the EXCLUDED TERRITORY and EPITOPE MARKET SEGMENTS that
exist on the EFFECTIVE DATE.
(iii) Nothing in this AGREEMENT shall be construed as a
grant of rights, by license or otherwise, to SB to use the
OraSure-Registered Trademark- trademark or any other trademarks owned
by EPITOPE for any purpose except as otherwise specifically provided in
this AGREEMENT.
16.05 The parties shall meet within six months to discuss the
feasibility of transferring the ORASURE trademark in EPITOPE MARKET SEGMENTS
in the U.S. and Canada to SB.
17. STATEMENTS AND REMITTANCES
17.01 SB shall keep, and shall require its AFFILIATES and
sublicensees to keep, complete and accurate records of all sales and
manufacturing costs, if any, of APPROVED PRODUCT under the licenses granted
herein. EPITOPE shall have the right, at EPITOPE's expense, through a
certified public accountant or like person reasonably acceptable to SB, to
examine such records during regular business hours during the life of this
AGREEMENT and for twelve (12) months after the earlier of its termination or
the last sale of APPROVED PRODUCT by SB subject to the royalty obligations
outlined in Article 5; provided, however, that such examination shall not
take place more often than once a year, except such examination may occur
more frequently only when the immediate previous examination has revealed
material errors, and shall not cover such records for more than the preceding
two (2) years and provided further that such accountant shall report to
EPITOPE only as to the accuracy of the royalty statements and payments.
17.02 Within sixty (60) days after the close of each calendar
quarter, SB shall deliver to EPITOPE a true accounting of all APPROVED
PRODUCT sold by SB, its AFFILIATES and its sublicensees during such quarter
and shall, at the same time, pay all royalties due. Such accounting shall
show sales on a country-by-country and APPROVED PRODUCT-by-APPROVED PRODUCT
basis, and such accounting shall state the NET SALES subject to royalty under
Article 5, the calculation of royalties with respect thereto, and shall
separately show the calculation of all adjustments thereto.
17.03 Any tax paid or required to be withheld by SB on account of
royalties payable to EPITOPE under this AGREEMENT shall be deducted from the
amount of royalties otherwise due. SB shall secure and send to EPITOPE
written proof of any such taxes withheld and paid by SB or its sublicensees
for the benefit of EPITOPE in a form sufficient to satisfy the United States
Internal Revenue Service.
17.04 All royalties due under this AGREEMENT shall be payable in
U.S. dollars. If governmental regulations prevent remittances from a country
of the TERRITORY to any other country with respect to sales made in that
country, the obligation of SB to pay royalties on sales in that country shall
be suspended until such remittances are possible, and once they are possible,
SB shall pay EPITOPE any back royalties which may be owed. Alternatively,
EPITOPE shall have the right, upon giving written notice to SB, to receive
payment in that country in local currency.
17.05 Monetary conversions from the currency of a foreign country,
in which APPROVED PRODUCT is sold, into United States currency shall be
calculated at the actual average rates of exchange for the year as used by SB
in producing its annual accounts, as confirmed by SB's auditors.
17.06 (a) EPITOPE shall keep and require its licensees to keep
complete and accurate records of all sales of EXCLUDED PRODUCT under Article
7. SB shall have the right, at SB's expense, through a certified public
accountant or like person reasonably acceptable to EPITOPE, to examine such
records during
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<PAGE>
regular business hours during the duration of EPITOPE's royalty obligation to
SB under Article 7 and for twelve (12) months after its termination;
provided, however, that such examination shall not take place more often than
once a year, except such examination may occur more frequently only when the
immediate previous examination has revealed material errors, and shall not
cover such records for more than the preceding two (2) years and provided
further that such accountant shall report to SB only as to the accuracy of
the royalty statements and payments.
(b) Within sixty (60) days after the close of each calendar
quarter, EPITOPE shall deliver to SB a true accounting of all EXCLUDED
PRODUCT sold by EPITOPE and its licensees under Article 7 during such quarter
and shall at the same time pay all royalties due. Such accounting shall show
sales on a country-by-country and EXCLUDED PRODUCT-by-EXCLUDED PRODUCT basis,
and such accounting shall state the EPITOPE NET SALES subject to royalty
under Article 7, the calculation of royalties with respect thereto, and shall
separately show the calculation of all adjustments thereto.
(c) Any tax paid or required to be withheld by EPITOPE on
account of royalties payable to SB under Article 7 shall be deducted from the
amount of royalties otherwise due. EPITOPE shall secure and send to SB
written proof of any such taxes withheld and paid by EPITOPE or its
sublicensees for the benefit of SB in a form sufficient to satisfy the United
States Internal Revenue Service.
(d) All royalties due under Article 7 shall be payable in U.S.
dollars. If governmental regulations prevent remittances from a country of
the TERRITORY to any other country with respect to sales made in that
country, the obligation of EPITOPE to pay royalties on sales in that country
shall be suspended until such remittances are possible, and once they are
possible, EPITOPE shall pay SB any back royalties which may be owed.
Alternatively, SB shall have the right, upon giving written notice to
EPITOPE, to receive payment in that country in local currency for APPROVED
PRODUCT.
(e) Monetary conversions from the currency of a foreign country
in which APPROVED PRODUCT is sold, into United States currency, shall be made
at the foreign exchange selling rates for trading among banks in amounts of
one million ($1,000,000) or more as shown in the Wall Street Journal or
comparable source for the last business day of the calendar quarter for which
the royalties are being paid. If there is no such rate, the conversion shall
be made at the rate for such remittances on that date as certified by
Citibank, N.A., New York, New York, U.S.A.
18. WARRANTIES, REPRESENTATIONS, INDEMNIFICATIONS AND INSURANCE
18.01 As of the EFFECTIVE DATE, EPITOPE warrants that, to the best
of its belief and knowledge, it owns the entire right and title to the extent
of its ownership interest in PATENTS and KNOW-HOW, or has the right to grant
the license outlined in Article 4 with respect to PATENTS and KNOW-HOW, and
has the right to enter into this AGREEMENT. EPITOPE further warrants that
there is nothing in any THIRD PARTY agreement EPITOPE has entered into as of
the EFFECTIVE DATE which, in any way, will limit EPITOPE's ability to perform
all of the obligations undertaken by EPITOPE hereunder, including, but not
limited to the legal cause of action known as Epitope, Inc. Securities
Litigation, Civ. No. 92-759-RE, or which grants any ownership interest to any
THIRD PARTY to any APPROVED PRODUCTS, PATENTS or KNOW-HOW. Furthermore, with
respect to all of the countries of the TERRITORY, including, but not limited
to, the countries of [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION], in the event any such countries shall be part of the
written list to be provided to EPITOPE by SB under Paragraph 8.01, EPITOPE
warrants and represents that EPITOPE is able to grant the license to SB
outlined in Paragraph 4.01 in each such country. EPITOPE warrants that its
distribution agreement with [CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION] covering [CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE COMMISSION] is terminated.
18.02 As of the EFFECTIVE DATE, EPITOPE represents and warrants that:
-33-
<PAGE>
(a) There are no actions, suits, or proceedings pending, or, to
the knowledge of EPITOPE, threatened against EPITOPE or any subsidiary,
EPITOPE's properties, or its patents, in any court or before any governmental
or administrative agency, which could have a material adverse effect on the
ability of EPITOPE to perform its obligations under this Agreement.
(b) EPITOPE has never been a party to a proceeding in any court
or before any governmental or administrative agency involving a product
liability or other claim for damages asserting a defect in any EPITOPE
product.
18.03 EPITOPE warrants that it has disclosed to SB the complete
texts of all PATENTS, as well as all information received concerning the
institution or possible institution of any interference, opposition,
re-examination, reissue, revocation, nullification or any official proceeding
involving a PATENT anywhere in the TERRITORY as of the EFFECTIVE DATE.
Nothing in this AGREEMENT shall be construed as a warranty that PATENTS are
valid or enforceable or that their exercise does not infringe any valid
patent rights of THIRD PARTIES. EPITOPE hereby represents that it has no
present knowledge from which it can be inferred that PATENTS are invalid or
that their exercise would infringe valid patent rights of THIRD PARTIES. A
holding of invalidity or unenforceability of any PATENT, from which no
further appeal is or can be taken, shall not affect any obligation already
accrued hereunder.
18.04 EPITOPE acknowledges that, in entering into this AGREEMENT,
SB has relied upon information supplied by EPITOPE and information which
EPITOPE has caused to be supplied to SB by EPITOPE's agents and/or
representatives, pursuant to the existing Confidentiality Agreement between
the parties (all of such information being hereinafter referred to
collectively as "Product Information"), and EPITOPE warrants and represents
that, to the best of its belief and knowledge, based on the exercise of
reasonable care, skill and diligence, the Product Information is timely and
accurate in all material respects. EPITOPE further warrants and represents
that, to the best of its knowledge, based on the exercise of reasonable care,
skill and diligence under the circumstances, it has not, up through and
including the EFFECTIVE DATE, omitted to furnish SB with any information
available to EPITOPE concerning APPROVED PRODUCT or the transactions
contemplated by this AGREEMENT, which could be material to SB's decision to
enter into this AGREEMENT and to undertake the commitments and obligations
set forth herein.
18.05 EPITOPE warrants and represents that, based on the exercise
of reasonable care, skill and diligence under the circumstances, it has no
present knowledge of the existence of any pre-clinical or clinical data or
information concerning APPROVED PRODUCT which EPITOPE has not disclosed to SB
as of the EFFECTIVE DATE which could materially influence SB's decision to
enter into this AGREEMENT.
18.06 Except as otherwise set forth in Paragraphs 18.07 and 18.08,
SB shall indemnify and hold harmless EPITOPE, its officers, directors,
shareholders, employees, subsidiaries, affiliates, partners, successors and
assigns from any loss, damage, or liability, including reasonable attorney's
fees, resulting from any THIRD PARTY claim, complaint, suit, proceeding or
cause of action against any of them arising out of or relating to (i) the
administration, utilization and/or ingestion of APPROVED PRODUCT distributed,
sold or otherwise provided by SB (or its permitted sublicensee), to the
extent the loss, damage, or liability is attributable to SB's conduct or
omission, and/or (ii) breach by SB of any of its representations, warranties
or covenants in this AGREEMENT, provided:
(a) SB shall not be obligated under this Paragraph if it is
shown by evidence acceptable in a court of law having jurisdiction over the
subject matter and meeting the appropriate degree of proof for such action,
that the injury was the result of the negligence or willful misconduct of any
employee or agent of EPITOPE;
(b) SB shall have no obligation under this Paragraph unless
EPITOPE (i) gives SB prompt written notice of any claim or lawsuit or other
action for which it seeks to be indemnified under this AGREEMENT, (ii) SB
shall have full authority and control over the defense, including settlement,
of such claim or lawsuit or other action, and (iii) EPITOPE cooperates fully
with SB and its agents in defense of the claims or lawsuit or other action;
and
-34-
<PAGE>
(c) EPITOPE shall have the right to participate in the defense
of any such claim, complaint, suit, proceeding or cause of action referred to
in this Paragraph at its own expense utilizing attorneys of its choice,
provided, however, that SB shall have full authority and control to handle
any such claim, complaint, suit, proceeding or cause of action, including any
settlement or other disposition thereof, for which EPITOPE seeks
indemnification under this Paragraph.
18.07 Except as otherwise set forth in Paragraphs 18.06 and 18.08,
EPITOPE shall indemnify and hold harmless SB, its officers, directors,
shareholders, employees, subsidiaries, affiliates, partners, successors and
assigns from any loss, damage, or liability, including reasonable attorney's
fees, resulting from any THIRD PARTY claim, complaint, suit, proceeding or
cause of action against any of them arising out of or relating to (i) the
administration, utilization and/or ingestion of APPROVED PRODUCT distributed,
sold or otherwise provided by EPITOPE (or its permitted sublicensee) to the
extent the loss, damage, or liability is attributable to EPITOPE's conduct or
omission, and/ or (ii) a breach by EPITOPE of any of its warranties,
representations or covenants in this AGREEMENT, provided:
(a) EPITOPE shall not be obligated under this Paragraph if it is
shown by evidence acceptable in a court of law having jurisdiction over the
subject matter and meeting the appropriate degree of proof for such action,
that the injury was the result of the negligence or willful misconduct of any
employee or agent of SB;
(b) EPITOPE shall have no obligation under this Paragraph unless
(i) SB gives EPITOPE prompt written notice of any claim or lawsuit or other
action for which it seeks to be indemnified under this AGREEMENT, (ii)
EPITOPE shall have full authority and control over the defense, including
settlement, of such claim or lawsuit or other action, and (iii) SB cooperates
fully with EPITOPE and its agents in defense of the claims or lawsuit or
other action; and
(c) SB shall have the right to participate in the defense of any
such claim, complaint, suit, proceeding or cause of action referred to in
this Paragraph at its own expense utilizing attorneys of its choice,
provided, however, that EPITOPE shall have full authority and control to
handle any such claim, complaint, suit, proceeding or cause of action,
including any settlement or other disposition thereof, for which SB seeks
indemnification under this Paragraph.
18.08 Notwithstanding the foregoing, SB and EPITOPE agree and
understand that, in the event of a claim, complaint, suit, proceeding or
cause of action arising out of or relating to the administration, utilization
and/or ingestion of APPROVED PRODUCT that was distributed or sold by one
party and manufactured by the other party or that otherwise involves both
activities for which SB was responsible and activities for which EPITOPE was
responsible, unless one party agrees to defend the other, each party shall
bear costs of and may control its own defense so long as allegations relating
to that party's activities remain unresolved, and the indemnification
obligations of the parties set forth in Paragraphs 18.06 and 18.07 shall
depend upon the proof.
18.09 Immediately upon the first commercialization of the first
APPROVED PRODUCT in accordance with this AGREEMENT, and for a period of five
(5) years after the expiration of this AGREEMENT or earlier termination, each
party shall obtain and/or maintain, respectively, at its sole cost and
expense, product liability insurance in amounts, respectively, which are
reasonable and customary in the U.S. medical device industry for companies of
comparable size and activities, except that SB may satisfy this requirement
through self-insurance. Such product liability insurance shall insure
against all liability, including product liability, personal liability,
physical injury or property damage. Each party shall provide written proof
of the existence of such insurance or self-insurance to the other party upon
request therefor. Notwithstanding this Paragraph 18.09 or any other
provision of this AGREEMENT, EPITOPE shall maintain products liability
insurance, including coverage of indemnification obligation for THIRD PARTY
claims pursuant to contract, with a minimum limit of liability of
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
per occurrence and in the aggregate annually. If such products liability
insurance is written on a "claims made" basis, EPITOPE shall maintain
"run-off coverage" for
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<PAGE>
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION] years after the date of expiration or termination of the
AGREEMENT.
19. FORCE MAJEURE
19.01 If the performance of any part of this AGREEMENT by either
party, or of any obligation under this AGREEMENT, is prevented, restricted,
interfered with or delayed by reason of any cause beyond the reasonable
control of the party liable to perform, unless conclusive evidence to the
contrary is provided, the party so affected shall, upon giving written notice
to the other party, be excused from such performance to the extent of such
prevention, restriction, interference or delay, provided that the affected
party shall use its reasonable best efforts to avoid or remove such causes of
non-performance and shall continue performance with the utmost dispatch
whenever such causes are removed. When such circumstances arise, the parties
shall discuss what, if any, modification of the terms of this AGREEMENT may
be required in order to arrive at an equitable solution.
20. GOVERNING LAW
20.01 This AGREEMENT shall be deemed to have been made in the
state of New York and its form, execution, validity, construction and effect
shall be determined in accordance with the laws of the state of New York,
U.S.A.
21. DISPUTE RESOLUTION
21.01 Any dispute, controversy or claim arising out of or relating
to this AGREEMENT (hereinafter collectively referred to as "Dispute") shall
be attempted to be settled by the parties, in good faith, by submitting each
such Dispute to appropriate senior management representatives of each party
in an effort to effect a mutually acceptable resolution thereof.
21.02 Any significant controversy, claim, or dispute arising out
of or relating to this AGREEMENT or significant breach thereof not settled in
accordance with Paragraph 21.01 shall be resolved by binding arbitration.
Such arbitration shall take place in New York, New York and it shall proceed
in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. Within ten (10) days from the filing of the Demand
or Submission, or longer if the parties mutually agree, EPITOPE and SB shall
each select one arbitrator; the two arbitrators so appointed shall select and
appoint the third neutral arbitrator. Judgment upon the award rendered by
arbitrators may be entered in any court having jurisdiction thereof. Costs
of arbitration are to be divided by the parties in the following manner:
EPITOPE shall pay for the arbitrator it chooses, SB shall pay for the
arbitrator it chooses, and the costs of the third neutral arbitrator shall be
divided equally. All other costs shall be divided equally.
21.03 This paragraph shall not prevent a party from resort to a
court of competent jurisdiction solely for the purpose of seeking injunctive
relief.
22. SEPARABILITY
22.01 In the event any portion of this AGREEMENT shall be held
illegal, void or ineffective, the remaining portions shall remain in full
force and effect.
22.02 If any of the terms or provisions of this AGREEMENT are in
conflict with any applicable statute or rule of law, then such terms or
provisions shall be deemed inoperative to the extent that they may conflict
therewith and shall be deemed to be modified to conform with such statute or
rule of law.
22.03 In the event that the terms and conditions of this AGREEMENT
are materially altered as a result of Paragraphs 22.01 or 22.02, the parties
will renegotiate the terms and conditions of this AGREEMENT to resolve any
inequities.
-36-
<PAGE>
23. WAIVER OF BREACH
23.01 The failure of either party at any time or times to require
performance of any provision hereof shall in no manner affect its rights at a
later time to enforce the same. No waiver by either party of any condition
or term in any one or more instances shall be construed as a further or
continuing waiver of such condition or term or of another condition or term.
24. ENTIRE AGREEMENT
24.01 This AGREEMENT, entered into as of the date written above,
constitutes the entire agreement between the parties relating to the subject
matter and supersedes all previous writings and understandings, including the
existing confidentiality agreement between the parties. All KNOW-HOW, other
confidential information or PATENTS disclosed under such confidentiality
agreement are deemed disclosed to the receiving party hereunder and are
governed by the terms hereof. No terms or provisions of this AGREEMENT shall
be varied or modified by any prior or subsequent statement, conduct or act of
either of the parties, except that the parties may amend this AGREEMENT by
written instruments specifically referring to and executed in the same manner
as this AGREEMENT.
24.02 This AGREEMENT restates, amends, and supersedes the
DEVELOPMENT, LICENSE, AND SUPPLY AGREEMENT dated as of February 21, 1995.
25. NOTICES
25.01 Any notice required or permitted under this AGREEMENT shall
be sent by air mail, postage pre-paid, to the following addresses of the
parties:
EPITOPE
EPITOPE, INC.
8505 SW Creekside Place
Beaverton, Oregon 97008, U.S.A.
Attention: President
SB
SMITHKLINE BEECHAM CONSUMER HEALTHCARE
100 Beecham Drive
Pittsburgh, Pennsylvania 15205
U.S.A.
Attention: Vice President, Business Development
copy to:
SMITHKLINE BEECHAM CORPORATION
One Franklin Plaza
P.O. Box 7929
Philadelphia, Pennsylvania 19101
U.S.A.
Attention: Corporate Law-U.S. (FP2225)
SMITHKLINE BEECHAM CONSUMER HEALTHCARE
100 Beecham Drive
Pittsburgh, Pennsylvania 15205
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<PAGE>
U.S.A.
Attention: Legal Department
25.02 Any notice required or permitted to be given concerning this
AGREEMENT shall be effective upon receipt by the party to whom it is
addressed.
26. ASSIGNMENT
26.01 This AGREEMENT, including all of its covenants and
obligations, and the licenses herein granted shall be binding upon and inure
to the benefit of the successors in interest of the respective parties.
Neither this AGREEMENT nor any interest hereunder shall be assignable by
either party without the written consent of the other provided, however, that
(a) SB may assign this AGREEMENT or any SB PATENT or EXCLUDED PRODUCT PATENT
owned by it to any AFFILIATE, or to any corporation with which it may merge
or consolidate or to which it may transfer all or substantially all of its
assets to which this AGREEMENT relates, without obtaining the consent of
EPITOPE; and (b) EPITOPE may assign this AGREEMENT or any PATENT owned by it
to any AFFILIATE, or to any corporation with which it may merge or
consolidate or to which it may transfer all or substantially all of its
assets to which this AGREEMENT relates, without obtaining the consent of SB.
27. RECORDING
27.01 SB shall have the right, at any time, to record, register,
or otherwise notify this AGREEMENT in appropriate governmental or regulatory
offices anywhere in the TERRITORY, and EPITOPE shall provide reasonable
assistance to SB in effecting such recording, registering or notifying.
28. EXECUTION IN COUNTERPARTS
28.01 This AGREEMENT may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties, through their authorized officers,
have executed this AGREEMENT as of the date first written above.
SMITHKLINE BEECHAM plc
BY:
-------------------------------------------
TITLE:
-------------------------------------------
EPITOPE, INC.
BY:
-------------------------------------------
TITLE:
-------------------------------------------
-38-
<PAGE>
DEVELOPMENT, LICENSE AND SUPPLY AGREEMENT
SMITHKLINE BEECHAM plc, EPITOPE, INC.
APPENDIX A
[CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION]
-39-
<PAGE>
DEVELOPMENT, LICENSE AND SUPPLY AGREEMENT
SMITHKLINE BEECHAM plc, EPITOPE, INC.
APPENDIX B
BUNDLED PRODUCT ROYALTY CHART
<TABLE>
<S> <C> <C>
SmithKline Beecham Clinical Laboratories Royalty on Testing Service
Customer Price to Prof. Market Segment Component of Customer Price Total Exclusive Manufacturing
Period
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
[CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
-40-
<PAGE>
April 13, 1995
Mr. Dick Arnold VIA FACSIMILE
SmithKline Beecham plc
100 Beecham Drive
Post Office Box 1467
Pittsburgh, Pennsylvania 15230
Subject: Assay Development in Connection with Development,
License and Supply Agreement
Dear Dick:
This will confirm our agreement regarding development and marketing of
assays and related collection devices in connection with the Development,
License and Supply Agreement dated as of February 24, 1995 ("Agreement")
between Epitope, Inc. ("Epitope"), and SmithKline Beecham plc ("SB").
Capitalized terms not defined herein have the meanings given in the Agreement.
Section 2.06(a) of the Agreement requires Epitope to develop Products
"including any accompanying assays" at the Development Steering Committee's
request. We have agreed that:
1. Epitope may use third parties to develop assays for SB, if
Epitope deems it advisable to do so or does not have the capability to
develop the requested assay.
2. Epitope may develop (directly or through third parties), obtain
regulatory approval for, and market an assay presented to the Development
Steering Committee unless the Development Steering Committee funds
development of the assay in accordance with the provisions of Section 2.06 of
the Agreement. An assay developed under this paragraph shall not be subject
to Paragraphs 3 or 4(iii).
3. If Epitope is already developing or marketing an assay for a
particular condition or indication at the time the Development Steering
Committee requests
<PAGE>
Mr. Dick Arnold - 2 - April 13, 1995
development of an assay for that condition or indication, Epitope will make
the developed assay available to SB for sale in the SB Market Segments in the
Territory. Additionally, Epitope will at its option either agree to continue
development of the assay for SB as an Approved Product if SB reimburses
development costs already incurred, or will agree to develop a different
assay for SB for the particular indication or condition.
4. Epitope may independently develop (directly or through third
parties), obtain regulatory approval for, and market an assay for a new
indication or condition if the assay is not an Approved Product. If Epitope
develops an assay for use with a Collection Device (a) that is an Approved
Product and (b) that can be used without alteration (other than packaging and
labeling changes) with the new assay ("Existing Collection Device"):
(i) Epitope may obtain regulatory approval for use of the
Existing Collection Device with the new assay;
(ii) Epitope may market the Existing Collection Device
for use with the new assay in the Epitope Market Segments and any other
territories or markets in which Epitope could market the Existing
Collection Device for the last Specified Application approved by the
Development Steering Committee; and
(iii) SB may elect to have the Existing Collection Device
and new assay treated as an Approved Product under the Agreement, if SB
reimburses development costs already incurred. SB shall make the
election by the date SB's long-term development plan (known internally
as a 10-3-1 plan) calls for introduction of a similar product, but no
later than ten years after notice from Epitope that development of the new
assay is completed. If SB elects not to treat the new assay and Existing
Collection Device as an Approved Product, Epitope may thereafter market
the new assay and the Existing Collection Device for use with the new
assay in all markets.
5. After a Collection Device and assay have been developed for SB
for a Specified Application pursuant to the Agreement, Epitope may develop
(directly or through third parties), obtain regulatory approval for, and
market an alternate assay for use with that Collection Device for the
Specified Application. This paragraph is not intended to change the
requirement that Epitope present to the Development Steering Committee any
proposed change that is merely an improvement to an existing Approved
Product. If Epitope develops an assay under this paragraph, it may also
obtain regulatory approval for use of the Collection Device with the new
assay.
6. The Agreement shall not apply to the Western Blot confirmatory
tests.
<PAGE>
Mr. Dick Arnold - 3 - April 13, 1995
This letter constitutes an amendment to the Agreement.
Very truly yours,
EPITOPE, INC.
By _____________________________
Title:
Agreed:
SMITHKLINE BEECHAM plc
By ___________________________
Title:
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 13,345,962
<SECURITIES> 9,063,322
<RECEIVABLES> 514,641
<ALLOWANCES> 45,114
<INVENTORY> 2,357,704
<CURRENT-ASSETS> 25,965,457
<PP&E> 4,700,251
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,648,452
<CURRENT-LIABILITIES> 2,032,028
<BONDS> 0
<COMMON> 88,191,642
0
0
<OTHER-SE> (62,224,210)
<TOTAL-LIABILITY-AND-EQUITY> 31,648,452
<SALES> 2,787,950
<TOTAL-REVENUES> 2,809,415
<CGS> 3,975,638
<TOTAL-COSTS> 12,291,975
<OTHER-EXPENSES> (347,868)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (9,134,692)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,134,692)
<EPS-PRIMARY> (.80)
<EPS-DILUTED> 0
</TABLE>
