<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _____________.
Commission file number 0-22170
EPOCH PHARMACEUTICALS, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 91-1311592
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12277 134th Court N.E., Suite 110, Redmond, Washington 98052
------------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(425) 821-7535
(Issuer's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the past 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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
Class Outstanding at November 3, 1999
----- -------------------------------
Common Stock, $.01 par value 19,212,669
Page 1 of 14 Pages
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EPOCH PHARMACEUTICALS, INC.
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
Part I. Financial Information Page Number
<S> <C>
Item 1. Financial Statements
Balance Sheets as of December 31, 1998
and September 30, 1999 (unaudited)................................ 3
Statements of Operations (unaudited) for the three months and
nine months ended September 30, 1998 and 1999..................... 4
Statements of Cash Flows (unaudited) for the
nine months ended September 30, 1998 and 1999..................... 5
Notes to Financial Statements (unaudited)......................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations; Plan of Operations............... 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K...................................... 14
Note: Items 1- 5 are omitted, as they are not applicable.
Signature .......................................................................... 15
</TABLE>
2
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EPOCH PHARMACEUTICALS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, 1999
1998 (UNAUDITED)
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................ $ 658,363 $ 218,584
Receivables .............................................. 38,303 61,065
Prepaid expenses ......................................... 45,769 43,904
------------ ------------
Total current assets .................................. 742,435 323,553
Equipment, net ............................................... 173,831 322,286
Other assets ................................................. 53,937 39,628
------------ ------------
Total assets .......................................... $ 970,203 $ 685,467
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable ......................................... $ 215,813 $ 222,811
Accrued interest on note payable to related party ........ 208,804 405,979
Accrued expenses for canceled relocation ................. 391,042 103,645
Other accrued liabilities ................................ 356,033 322,201
Deferred revenue - current portion ....................... -- 350,000
Note payable to related party ............................ -- 3,000,000
------------ ------------
Total current liabilities ............................. 1,171,692 4,404,636
Note payable to related party ................................ 3,000,000 --
Deferred revenue ............................................. -- 2,201,613
Stockholders' deficit:
Preferred stock, par value $.01; 10,000,000 shares
authorized; no shares issued and outstanding ............ -- --
Common stock, par value $.01; 50,000,000 shares authorized;
issued and outstanding: 14,824,227 at December 31, 1998
and 14,932,669 at September 30, 1999 .................... 148,242 149,327
Additional paid-in capital ................................. 54,460,706 54,531,269
Deferred compensation expense .............................. (159,826) (123,862)
Deferred financing expense ................................. (817,794) (317,781)
Accumulated deficit ........................................ (56,832,817) (60,159,735)
------------ ------------
Total stockholders' deficit ........................... (3,201,489) (5,920,782)
------------ ------------
Contingency
Total liabilities and stockholders' deficit .................. $ 970,203 $ 685,467
============ ============
</TABLE>
See accompanying notes to financial statements.
3
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EPOCH PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTH ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Research contract revenue .................. $ 41,787 $ 17,162 $ 126,159 $ 169,779
Operating expenses:
Research and development ................... 712,053 617,167 2,114,240 1,914,983
General and administrative ................. 913,246 334,936 1,667,266 988,571
------------ ------------ ------------ ------------
Total operating expenses .............. 1,625,299 952,103 3,781,506 2,903,554
------------ ------------ ------------ ------------
Operating loss ........................ (1,583,512) (934,941) (3,655,347) (2,733,775)
Other income (expense):
Interest income ............................ 26,732 4,065 92,820 35,992
Interest and financing expense ............. (260,696) (235,531) (566,210) (699,135)
Other income ............................... 200 -- 23,290 --
------------ ------------ ------------ ------------
Loss from continuing operations ....... (1,817,276) (1,166,407) (4,105,447) (3,396,918)
Discontinued operations -
gain on disposal of discontinued operations 30,000 -- 90,000 70,000
------------ ------------ ------------ ------------
Net loss .............................. $ (1,787,276) $ (1,166,407) $ (4,015,447) $ (3,326,918)
============ ============ ============ ============
Loss per share from continuing operations -
basic and diluted ......................... $ (0.12) $ (0.08) $ (0.28) $ (0.22)
Income per share from discontinued
operations - basic and diluted ............ -- -- 0.01 --
------------ ------------ ------------ ------------
Net loss per share - basic and diluted ..... $ (0.12) $ (0.08) $ (0.27) $ (0.22)
============ ============ ============ ============
Weighted average number of common shares
outstanding - basic and diluted ........... 14,821,968 14,926,539 14,817,185 14,876,983
</TABLE>
See accompanying notes to financial statements.
4
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EPOCH PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1998 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................................... $(4,015,447) $(3,326,918)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization .............................. 44,023 73,134
Amortization of deferred financing expense ................. 419,224 500,013
Amortization of deferred compensation expense .............. -- 35,964
Changes in operating assets and liabilities:
Receivables ............................................. 41,526 (22,762)
Prepaid expenses and other assets ....................... (93,772) 16,174
Accounts payable ........................................ (76,444) 6,998
Accrued interest on note payable to related party ....... 144,951 197,175
Accrued expenses for canceled relocation ................ 391,042 (287,397)
Deferred revenue ........................................ -- 2,551,613
Other accrued liabilities ............................... 142,096 (33,832)
----------- -----------
Net cash used in operating activities ............... (3,002,801) (289,838)
----------- -----------
Cash used in investing activities -
acquisition of equipment ...................................... (65,963) (221,589)
----------- -----------
Cash flows from financing activities:
Proceeds from note payable .................................... 3,000,000 --
Exercise of stock options ..................................... 4,861 71,648
----------- -----------
Net cash provided by financing activities .................. 3,004,861 71,648
----------- -----------
Net decrease in cash and cash equivalents ......................... (63,903) (439,779)
Cash and cash equivalents at beginning of period .................. 1,485,483 658,363
----------- -----------
Cash and cash equivalents at end of period ........................ $ 1,421,580 $ 218,584
=========== ===========
Supplemental disclosure of non-cash financing activities - warrants
issued in debt financing ..................................... $ 1,133,361 $ --
=========== ===========
Supplemental disclosure of cash flow information - cash
payments made during the period for interest .................. $ 2,036 $ 1,262
=========== ===========
</TABLE>
See accompanying notes to financial statements.
5
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EPOCH PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE (1) BASIS OF PRESENTATION
The unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB. Accordingly, they do not include all
of the information and footnotes required to be presented for complete financial
statements. The accompanying financial statements include all adjustments
(consisting only of normal recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods presented. Certain 1998 balances have been reclassified to conform with
the 1999 presentation.
The financial statements and related disclosures have been prepared
with the presumption that users of the interim financial information have read
or have access to the audited financial statements for the preceding fiscal
year. Accordingly, these financial statements should be read in conjunction with
the audited financial statements and the related notes thereto included in the
Company's 1998 Annual Report on Form 10-KSB as filed with the Securities and
Exchange Commission on April 15, 1999.
NOTE (2) NATURE OF BUSINESS
Epoch Pharmaceuticals, Inc. ("Epoch" or the "Company") is a biomedical
company utilizing nucleoside and nucleotide chemistry to develop molecular tools
for genetic analysis. Utilizing unique and proprietary technology in the
rational design, synthesis and chemical modification of oligonucleotides, the
Company has positioned itself to provide products and techniques for high
throughput genetic sequence analysis that are in increasing demand in the
rapidly expanding field of genetic pharmacology.
Previously, Epoch's therapeutic research and development program had
focused on the modification of gene expression by altering cellular genomic DNA
using oligonucleotide targeting technology combined with chemical reactivity.
The Company's technology is based on its expertise in designing and synthesizing
oligonucleotides bearing modifications that selectively bind to and interact
with the target genes.
Epoch discovered that the compounds and techniques that were being
developed for its gene modification therapeutic program could be adapted to
several gene sequencing analysis systems currently in use or being developed by
others. The Company believes that this technology has broad application
potential in the developing fields of molecular diagnostics and genomics,
including the detection of infectious diseases, inheritable diseases through
prenatal testing, screening populations to identify genetic markers that
correlate with disease risk or drug response, as well as any other genetic
analysis based on DNA sequence determination. The Company is pursuing these
technologies.
NOTE (3) LICENSE AND SUPPLY AGREEMENT
In January 1999, the Company and the PE Biosystems Division of PE
Corporation (formerly known as The Perkin-Elmer Corporation) ("Perkin-Elmer")
entered into a License and Supply Agreement (the "License and Supply Agreement')
pursuant to which the Company licensed certain of its enabling genetic analysis
technology to Perkin-Elmer. Under the terms of the agreement, Perkin-Elmer made
payments to the Company consisting of initial fees for licensed technology and
proprietary know
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how, and will make ongoing payments for chemical intermediate purchases as well
as royalties on sales of product which use the licensed technology. The
agreement also requires Perkin-Elmer to purchase annual minimum amounts of
proprietary chemical intermediates from the Company.
In June 1999, the Company and Perkin-Elmer amended the License and
Supply Agreement to increase the scope of the agreement to include Epoch's
proprietary probe design software. This software allows for the efficient custom
design of Perkin-Elmer's Taqman(R) probes by the end user. The software will be
incorporated into Perkin-Elmer's Primer Express(TM) software which is sold with
its 7700 Sequence Detection System. In addition to license fees, Epoch shall
receive a royalty on all products that Perkin-Elmer sells which incorporate the
software.
In November 1999, the License and Supply Agreement was amended and
restated pursuant to a subsequent License and Supply Agreement entered into
between the Company and Perkin-Elmer.
In November 1999, Perkin-Elmer converted $1,000,000 of prepayments made
by it pursuant to the License and Supply Agreement into equity in the Company.
Through September 1999, the Company received $2,552,000 under the agreements, a
portion of which represented prepayments to be credited against future product
purchases and royalty payments. There have been no further receipts under the
License and Supply Agreement since September 1999. See Note 5.
In order to secure any unused portion of the purchased product
prepayments, the Company granted to Perkin-Elmer a security interest in the
Company's patents related to its enabling genetic technology (the "Patents")
under the terms of a Security Agreement (the "Security Agreement"). The security
interest automatically terminates when any unused portion of the purchased
product prepayments is $50,000 or less. Although no security interest was
granted with respect to the royalty prepayments, if such royalty payments do not
become due under the agreement, the Company will also be required to refund any
unused prepayments to Perkin-Elmer.
Under the terms of the agreement, if Perkin-Elmer terminates the
agreement upon 60 days written notice to the Company, or if the Company
terminates the agreement following a material breach by Perkin-Elmer,
Perkin-Elmer will release its security interest in the Patents and forfeit any
unused portion of the prepayments. However, if the Company and Perkin-Elmer
mutually agree to terminate the agreement, or if Perkin-Elmer terminates the
agreement as a result of a material breach by the Company, the Company must
reimburse Perkin-Elmer the difference between the unused portion of the
purchased product prepayments and $50,000.
NOTE (4) LOSS PER SHARE
Basic earnings per share (EPS) is computed based on weighted average
shares outstanding and excludes any potential dilution. Diluted EPS reflects
potential dilution from the exercise or conversion of securities into common
stock or from other contracts to issue common stock. The capital structure of
the Company includes common stock options and common stock warrants. At
September 30, 1999, there were 1,419,756 options outstanding to purchase the
common stock of the Company with exercise prices ranging from $0.30 to $5.88.
Also outstanding at September 30, 1999 were 7,798,775 warrants to purchase the
common stock of the Company with exercise prices ranging from $0.30 to $9.21 per
share. At September 30, 1998, there were 1,107,016 options outstanding to
purchase the common stock of the Company with exercise prices ranging from $0.30
to $10.00. Also outstanding at September 30, 1998 were 7,498,875 warrants to
purchase the common stock of the Company with exercise prices ranging from $0.30
to $9.21 per share. The assumed conversion and exercise of these securities have
been excluded from the calculation of Diluted EPS as their effect is
anti-dilutive.
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NOTE (5) LIQUIDITY
The Company has experienced recurring losses from operations and has a
total stockholders' deficit of approximately $5,921,000 at September 30, 1999
and cash of approximately $219,000.
In November 1999, the Company concluded $7 million of private equity
financing. The financing included:
The sale of 1,200,000 shares of common stock for $3,000,000 in cash at
$2.50 per share.
The conversion by Bay City Capital of $1.2 million of its $3 million
loan to the Company to 480,000 shares of the Company's common stock at
$2.50 per share.
The application by Bay City Capital of $1.8 million of its $3 million
loan to the Company to the purchase of 2 million shares of the
Company's common stock at $.90 per share pursuant to a warrant issued
to Bay City Capital in connection with the $3 million loan.
The conversion of $1 million of prepayments under the licenses
agreement with Perkin Elmer to 400,000 shares of the Company's common
stock at $2.50 per share.
The $2.50 price per share of common stock received by the Company in
the Private Equity Financing represented a premium to the trading price of the
Company's common stock as of the close of the transaction. Investors who
purchased the 1,200,000 shares included PE Corporation (the parent company of PE
Biosystems), Bay City Capital, Grace Brothers Ltd. and Hilspen Capital
Management.
Management estimates that the September 30, 1999 cash balance, coupled
with the $3,000,000 in new funding, will be sufficient to operate into the
second quarter of 2000.
To continue operations, the Company will be required to sell additional
equity securities, borrow additional funds, or obtain additional financing
through licensing, joint venture, or other collaborative arrangements. The
Company is pursuing other financing arrangements but has no commitments for such
financing and there can be no assurance that such financing will be available on
satisfactory terms, if at all. If additional funds are not available, the
Company will be required to delay, reduce, or eliminate expenditures for certain
or all of its programs or products.
NOTE (6) DEFERRED REVENUE
Deferred revenue represents unrecognized license and technology fees,
prepaid royalties, and prepayments for product purchases related to the
Perkin-Elmer license and supply agreement. License fees, technology fees, and
prepayments for product purchases will be recognized as revenue based upon
minimum sales of products sold to the licensee by the Company as specified over
the term of the agreement. Prepaid royalties will be recognized as revenue based
upon sales of the licensed product by the licensee as specified in the
agreement.
As a general policy, revenues are not recognized if amounts received
are refundable or the Company has related future performance obligations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS; PLAN OF OPERATIONS
William G. Gerber, M.D., was appointed to the position of Chief
Executive Officer in September 1999. Prior to joining Epoch, Dr. Gerber served
as President and Chief Executive Officer of diaDexus LLC, a joint venture
established by Incyte Pharmaceuticals and SmithKline Beecham to apply genomics
to the discovery of novel diagnostic products. Dr. Gerber previously served as
Vice President and Chief Operating Officer of Onyx Pharmaceuticals, a
biotechnology firm involved in the discovery of novel cancer therapeutics; as
President of Chiron Diagnostics; and as Senior Vice President and General
Manager of the PCR Division with Cetus Corporation. Dr. Gerber also has medical
practice and managerial experience in emergency medicine and founded an urgent
care center management company. He also served on and was President of the Board
of Medical Quality Assurance, State of California. He received his M.D. and B.S.
from the University of California, San Francisco Medical Center after attending
Dartmouth College.
Dr. Gerber will lead the daily operations of the Company and the
commercialization of the Company's technologies. Dr. Fred Craves will continue
as Chairman of the Board of Directors and Mr. Zweifach will continue as
President and Chief Financial Officer.
This Quarterly Report on Form 10-QSB contains certain forward-looking
statements that are based on current expectations. In light of the important
factors that can materially affect results, including those set forth below and
elsewhere in this Quarterly Report on Form 10-QSB, the inclusion of
forward-looking information herein should not be regarded as a representation by
the Company or any other person that the objectives or plans of the Company will
be achieved. The Company may encounter competitive, technological, financial and
business challenges making it more difficult than expected to continue to
develop therapeutic technologies and products; the market may not accept the
Company's therapeutic products; the Company may be unable to retain existing key
management personnel; and there may be other material adverse changes in the
Company's operations or business. Certain important factors affecting the
forward-looking statements made herein include, but are not limited to (i) the
successful development of viable therapeutic technologies and products, (ii)
accurately forecasting capital expenditures, and (iii) obtaining new sources of
external financing. Assumptions relating to budgeting, product development and
other management decisions are subjective in many respects and thus susceptible
to interpretations and periodic revisions based on actual experience and
business developments, the impact of which may cause the Company to alter its
operating, capital expenditure or other budgets, which may in turn affect the
Company's financial position and results of operations.
Future operating results may be impacted by a number of factors that
could cause actual results to differ materially from those stated herein, which
reflect management's current expectations. These factors include industry
specific factors, the Company's ability to maintain access to external financing
sources and its financial liquidity, the Company's ability to timely develop and
produce commercially viable therapeutic products and the Company's ability to
manage expense levels.
RESULTS OF OPERATIONS
Research Contract Revenue. Research contract revenue reflects revenue
from U.S. government grants and contracts, and subcontracts.
Research and Development. The decreases in research and development
expenses of $95,000 for the quarter and $199,000 for the nine months ended
September 30, 1999, respectively, in relation to comparable 1998 periods, are
primarily the result of reduced rent and building expenses in 1999, as the
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new facility is smaller than the previous facility. Additional variations in
research and development expense are the result of normal business fluctuations.
General and Administrative. General and administrative expenses
decreased $578,000 and $679,000, respectively, in the three and nine month
periods ended September 30, 1999 compared to the respective prior year periods.
These decreases in expenditures are primarily the result of expenses incurred
prior to the abandonment of a proposed facility in 1998, which resulted in the
recognition of $472,000 in expenses for the three and nine month periods ended
September 30, 1998. Also included in the three and nine month period expenses of
1998 is $77,000 in expenses associated with the move to a new building. A
further decrease in expenditures is the result of a decrease in expenditures for
the filing of patents on new technologies. During the first nine months of 1998,
the Company expended $145,000 for patent filings on new technologies, as
compared to $90,000 in the comparable period of the current year. Similarly, the
Company expended $44,000 less in the quarter ended September 1999 than in the
comparable third quarter of 1998. We believe that these patents, if issued, will
improve the Company's proprietary position with regard to its genetic analysis
technologies. However, there can be no assurance that the Company's patent
applications will result in further issued patents or that such issued patents
will offer protection against competitors with similar technology. Additionally,
there can be no assurance that any manufacture, use or sale of the Company's
technology or products will not infringe on patents or proprietary rights of
others, and the Company may be unable to obtain licenses or other rights to
these other technologies that may be required for commercialization of the
Company's proposed products. Further variances in the results for the three and
nine month periods ended September 30, 1999 are the result of normal business
fluctuations.
Interest Income. Interest income in the 1999 periods is less than the
1998 comparable periods due to lower cash balances available for investment.
Interest and Financing Expense. Interest and financing expense
represents the costs associated with the $3,000,000 note payable to a related
party, which was funded at the end of February 1998. The increase in the nine
month period of 1999 results from nine months of expense in 1999 versus seven
months in 1998. Interest expense in the three month period ended September 30,
1998 was higher than the comparable period of 1999 as a result of an adjustment
to the amortization of deferred financing expense in 1998 from a five year term
to a two year term.
Other Income. Other income in 1998 represents payments received from a
sublease and administrative support agreement. As of April 1998, this agreement
was terminated and, consequently, there is no further income from this source
beyond April 1998.
Gain on Disposal. The gain on disposal of discontinued operations
represents only that portion of the gain for which cash payments were received
during the reporting periods.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had cash and cash equivalents of
$219,000, which resulted primarily from $2,552,000 received from Perkin-Elmer
through September 1999 under a license and supply agreement, less normal
expenditures for operations.
In January 1999, the Company and the PE Biosystems Division of The
Perkin-Elmer Corporation ("Perkin-Elmer") entered into a License and Supply
Agreement pursuant to which the Company licensed certain of its enabling genetic
analysis technology to Perkin-Elmer. Under the terms of the agreement,
Perkin-Elmer made payments to the Company consisting of initial fees for
licensed technology and proprietary know how, and will make ongoing payments for
chemical intermediate
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purchases as well as royalties on sales of product which uses the licensed
technology. The agreement also requires Perkin-Elmer to purchase annual minimum
amounts of proprietary chemical intermediates from the Company.
In July 1999, the Company announced that it had licensed its
proprietary probe design software to Perkin-Elmer. This agreement increased the
scope of the licensing agreement that it entered into in January 1999 with
Perkin-Elmer to include software that allows for the efficient custom design of
Taqman(R) probes by the end user. The software will be incorporated into
Perkin-Elmer's Primer Express(TM) software which is sold with its 7700 Sequence
Detection System. In addition to license fees, Epoch shall receive a royalty on
all products that Perkin-Elmer sells which incorporate the software.
Through September 1999, the Company received $2,552,000 under the
agreements, a portion of which represented prepayments to be credited against
future product purchases and royalty payments. There have been no further
receipts since September1999.
In order to secure any unused portion of the purchased product
prepayments, the Company granted to Perkin-Elmer a security interest in the
Company's patents related to its enabling genetic technology (the "Patents")
under the terms of a Security Agreement (the "Security Agreement"). The security
interest automatically terminates when any unused portion of the purchased
product prepayments is $50,000 or less. Although no security interest was
granted with respect to the royalty prepayments, if such royalty payments do not
become due under the agreement, the Company will also be required to refund any
unused prepayments to Perkin-Elmer.
Under the terms of the agreement, if Perkin-Elmer terminates the
agreement upon 60 days written notice to the Company, or if the Company
terminates the agreement following a material breach by Perkin-Elmer,
Perkin-Elmer will release its security interest in the Patents and forfeit any
unused portion of the prepayments. However, if the Company and Perkin-Elmer
mutually agree to terminate the agreement, or if Perkin-Elmer terminates the
agreement as a result of a material breach by the Company, the Company must
reimburse Perkin-Elmer the difference between the unused portion of the
purchased product prepayments and $50,000.
In November 1999, the Company concluded $7 million of private equity
financing. The financing included:
The sale of 1,200,000 shares of common stock for $3,000,000 in cash at
$2.50 per share.
The conversion by Bay City Capital of $1.2 million of its $3 million
loan to the Company to 480,000 shares of the Company's common stock at
$2.50 per share.
The application by Bay City Capital of $1.8 million of its $3 million
loan to the Company to the purchase of 2 million shares of the
Company's common stock at $.90 per share pursuant to a warrant issued
to Bay City Capital in connection with the $3 million loan.
The conversion of $1 million of prepayments under the licenses
agreement with Perkin Elmer to 400,000 shares of the Company's common
stock at $2.50 per share.
Management estimates that the September 30, 1999 cash balance coupled
with the $3,000,000 in new funding will be sufficient to operate into the second
quarter of 2000.
Using the proceeds of the Perkin-Elmer licensing agreement, the
November 1999 Private Equity Financing, and any future financing, the Company
plans to further develop and verify applicability of its
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compounds and techniques in the developing fields of molecular diagnostics and
genomics and to determine how its technology may be exploited.
The Company is focused on the development of its products with the goal
of entering into corporate partnering arrangements to further commercialize the
technology. Our primary future needs for capital are for continued research and
development and relocation expenses anticipated to be incurred in a move to new
facilities. The Company's working capital requirements may vary depending upon
numerous factors including the progress of our research and development,
competitive and technological advances, possible relocation expenses and other
factors. We anticipate operating with approximately 25 employees.
To continue operations, the Company will be required to sell additional
equity securities, borrow additional funds, or obtain additional financing
through licensing, joint venture, or other collaborative arrangements. The
Company is pursuing other financing arrangements but has no commitments for such
financing and there can be no assurance that such financing will be available on
satisfactory terms, if at all. If additional funds are not available, the
Company will be required to delay, reduce, or eliminate expenditures for certain
or all of its programs or products.
Cash decreased by $440,000 during the first nine months of 1999
primarily as a result of the net of $2,552,000 received from Perkin-Elmer offset
by normal expenditures on the Company's operations, the acquisition of $222,000
of equipment used in research and development, and payment of $287,000 on the
canceled building facility project discussed below. The comparable period of the
prior year had a cash decrease of $64,000, the net result of proceeds from a
$3,000,000 note payable offset by normal operating expenditures on the Company's
operations and the acquisition of $66,000 of equipment used in research and
development.
Prior to September 1998, the Company had been in negotiations for a
lease on approximately 21,000 square feet in the general vicinity of its then
current facility in Bothell, Washington. A design build team had been selected
and was working on plans for the new space. In September 1998, the project was
canceled in favor of an already existing space. Costs for architectural fees and
long lead equipment items incurred prior to cancellation of the project are
estimated at $472,000, which were included in general and administrative
expenses in the year ended 1998. Cash payments of $287,000 were distributed
during the first quarter of 1999. There were no cash expenditures toward this
obligation in the second or third quarters of 1999. $104,000 remains in accrued
liabilities. The remaining liability is expected to be resolved by the end of
1999.
Variances in receivables, accounts payable and other accrued
liabilities in 1999 and 1998 are the result of normal business fluctuations.
The note payable to related party was converted into equity in November
1999.
SUBSEQUENT EVENTS
In November 1999, the Company concluded $7 million of private equity
financing. The financing included:
The sale of 1,200,000 shares of common stock for $3,000,000 in cash at
$2.50 per share.
The conversion by Bay City Capital of $1.2 million of its $3 million
loan to the Company to 480,000 shares of the Company's common stock at
$2.50 per share.
12
<PAGE> 13
The application by Bay City Capital of $1.8 million of its $3 million
loan to the Company to the purchase of 2 million shares of the
Company's common stock at $.90 per share pursuant to a warrant issued
to Bay City Capital in connection with the $3 million loan.
The conversion of $1 million of prepayments under the licenses
agreement with Perkin Elmer to 400,000 shares of the Company's common
stock at $2.50 per share.
The $2.50 price per share of common stock received by the Company in
the Private Equity Financing represented a premium to the trading price of the
Company's common stock as of the close of the transaction. Investors who
purchased the 1,200,000 shares included PE Corporation (the parent company of PE
Biosystems), Bay City Capital, Grace Brothers Ltd. and Hilspen Capital
Management.
In connection with the private equity financing, the Company and
Perkin-Elmer entered into an Amended and Restated License and Supply Agreement,
dated as of November 1, 1999 (the "Amended License Agreement"), which restated
the License Agreement entered into between the parties on January 11, 1999, as
amended June 30, 1999.
The terms of the Amended License Agreement are substantially the same
as the terms of the License Agreement, except that certain products will no
longer be sold to Perkin-Elmer pursuant to the Amended License Agreement.
YEAR 2000 COMPLIANCE
Many existing information technology (IT) systems, such as computer
systems and software products, as well as non-IT systems that include embedded
technology, were not designed to correctly process dates after December 31,
1999. We have assessed the impact of such "Year 2000" issues on our products,
our internal IT and non-IT systems, as well as on our suppliers and service
providers. We have determined that our business systems are not Year 2000 ready.
We have developed a plan to replace these systems in a timely fashion at a cost
of approximately $30,000 by December 1999. We are also discussing with our
significant suppliers and service providers their plans to investigate, identify
and fix their Year 2000 issues. We believe that most of our significant
suppliers and service providers will cooperate in resolving any Year 2000
problems. However, we are also dependent on certain utility companies,
telecommunication service companies and other service providers that are outside
our control. Therefore, it may be difficult for us to obtain assurances of Year
2000 readiness from such third parties. We believe that we will have identified
all of our material Year 2000 issues. However, given the pervasiveness of Year
2000 issues and the complex interrelationships among Year 2000 issues both
internal and external to us, we cannot guarantee that we will be able to
identify and accurately evaluate all such issues.
If any supplier or service provider fails to appropriately address
their Year 2000 issues, our business, financial condition and operating results
could be significantly hurt. For example, if a supplier or service provider
experiences a Year 2000 problem which results in or contributes to delays or
interruptions in delivering products or services to us, our business, financial
condition and operating results could be significantly hurt. Finally, general
economic disruption resulting from Year 2000 issues could also significantly
hurt us.
In preparation for the Year 2000, we are developing contingency plans
in case we fail to complete our remediation programs in a timely manner and in
the event that any third party who provides goods or services essential to our
business fails to appropriately address their Year 2000 issues. We expect to
finalize these contingency plans by the end of 1999. Even if we complete these
plans on
13
<PAGE> 14
time and put them in place, we cannot guarantee that such plans will be
sufficient to address any third party failures or that unresolved or undetected
internal and external Year 2000 issues will not significantly hurt our business,
financial condition and operating results.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.22 Amended and Restated License and Supply
Agreement between the Registrant and
Perkin-Elmer Corporation dated November 1,
1999. (Portions of this exhibit are omitted and
were filed separately with the Secretary of the
SEC pursuant to the Registrant's application
requesting confidential treatment under Rule
406 of the Securities Act.
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8K
None
14
<PAGE> 15
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Epoch Pharmaceuticals, Inc.
Date: November 15, 1999 By: /s/ Sanford S. Zweifach
------------------------------------
Sanford S. Zweifach
President/Chief Financial Officer
15
<PAGE> 16
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
10.22 Amended and Restated License and Supply Agreement between the
Registrant and Perkin-Elmer Corporation dated November 1, 1999.
(Portions of this exhibit are omitted and were filed separately with
the Secretary of the SEC pursuant to the Registrant's application
requesting confidential treatment under Rule 406 of the Securities Act.
27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.22
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED
BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934
AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION
AMENDED AND RESTATED LICENSE AND SUPPLY AGREEMENT
This Amended and Restated License and Supply agreement ("Agreement")
dated as of November 1, 1999 ("Amendment Date"), amends and restates the License
and Supply Agreement dated as of January 11, 1999 ("Effective Date") between
EPOCH PHARMACEUTICALS, INC., 12277 134th Court NE, Suite 100, Redmond, WA
("Epoch") and PE CORPORATION (formerly known as THE PERKIN-ELMER CORPORATION)
having its PE Biosystems Division at 850 Lincoln Centre Drive, Foster City, CA
94404 ("Perkin-Elmer"), as amended June 30, 1999.
ARTICLE I. BACKGROUND OF THE AGREEMENT
1.01 Epoch represents that it has rights under certain patents pertaining to
oligonucleotides having a minor-groove binding moiety covalently
attached thereto ("MGB Oligonucleotide"), and methods for making and
using such MGB Oligonucleotides.
1.02 Perkin-Elmer wishes to acquire exclusive and non-exclusive licenses,
depending on fields of use, under such patents.
1.03 Epoch represents that it has certain know-how relating to the synthesis
of MGB Oligonucleotides, and the design of sequence-specific probes
comprising such oligonucleotides.
1.04 Perkin-Elmer wishes to have Epoch supply (i) intermediate compounds
useful for making MGB Oligonucleotides, and (ii) information with
respect to chemical synthesis and purification know-how relating to the
production of MGB Oligonucleotides using such intermediate compounds.
1.05 Concurrently with this Agreement, which amends and restates the License
and Supply Agreement by and between Perkin-Elmer and Epoch dated as of
January 11, 1999, as amended on June 30, 1999 ("Original Agreement"),
Perkin-Elmer and Epoch will enter into a Know-How Escrow Agreement,
pursuant to which Epoch will deposit into escrow documentation of
know-how necessary to enable a person skilled in oligonucleotide
chemistry to manufacture MGB Intermediates. The Know-How Escrow
Agreement is being entered into between Epoch and Perkin-Elmer to
provide that Perkin-Elmer will have access to the know-how required to
manufacture MGB Intermediates if Epoch should be unable to meet its
obligations to supply Perkin-Elmer MGB Intermediates pursuant to this
Agreement.
<PAGE> 2
1.06 In connection with the Original Agreement, Epoch granted Perkin-Elmer a
security interest in the Licensed Patent (as hereinafter defined), in
order to induce Perkin-Elmer to provide a pre-payment of [ * ] Dollars
([ * ]) under the Original Agreement. Pursuant to a Stock Purchase
Agreement between Epoch and the Investors Listed on Schedule A thereto,
dated November 1, 1999 (the "Stock Purchase Agreement"), Perkin-Elmer
is using One Million Dollars ($1,000,000) of this pre-payment, and an
additional One Million Dollars ($1,000,000) in cash, to purchase Eight
Hundred Thousand (800,000) shares of Common Stock of Epoch, at a
purchase price of Two Dollars And Fifty Cents ($2.50) per share. Other
Investors will purchase up to Two Million Six Hundred Thousand
(2,600,000) shares of the Common Stock of Epoch pursuant to the Stock
Purchase Agreement at the same purchase price of Two Dollars And Fifty
Cents ($2.50) per share. It is the parties intent that the Security
Agreement previously executed by the parties in conjunction with the
Original Agreement, and attached thereto as Exhibit A, will remain in
effect to secure any unused portion of the pre-payments made by
Perkin-Elmer pursuant to Section 5.12 of this Agreement.
ARTICLE II. DEFINITIONS
2.01 "Affiliates" means 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,
as the case may be, to the extent of at least fifty percent 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.
2.02 "Net Sales" means (1) with respect to sales by a Party, or an Affiliate
of a Party, to non-affiliated third party purchasers, the actual amount
of gross sales of Licensed Product(s) to a third party, less: trade,
cash and quantity discounts granted at the time invoiced, if any,
actually allowed, amounts refunded for faulty or defective product,
returns, rejections, freight, insurance and other transportation costs
(except income taxes), tariffs, duties and similar governmental charges
paid, to the extent included in gross sales price, (2) with respect to
sales by a Party made to any Affiliate or to any person, firm or
corporation enjoying a special course of dealing with a Party, the Net
Sales will be determined based on the first resale in a bona fide
arms-length transaction of Licensed Product(s) by such Affiliate,
person, firm or corporation to third parties, and (3) with respect to
Licensed Product(s) which are used by a Party, or an Affiliate of a
Party, to supply services or information to a third party for
commercial purposes, or are otherwise disposed of, the Net Sales will
be determined as if such Licensed Product(s) had been sold at the
average Net Sales for such Licensed Product(s) during the past one
hundred and twenty days prior to the supply of such services or
information.
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION.
2
<PAGE> 3
With respect to Licensed Product comprising Licensed Know-How in the
form of software embodying algorithms for determining the melting
temperature of MGB Oligonucleotides, Net Sales for software sold
separately shall be calculated as set forth above, and Net Sales for
software sold or otherwise transferred in combination with equipment,
other software or other products, or otherwise provided by Perkin-Elmer
to its customers, will be determined as if such software had been sold
at the average Net Sales price for such software during the past one
hundred and twenty (120) days prior to such sale, transfer or
disposition.
2.03 "License Year" means the twelve month period beginning on the first day
of January, April, July or October next following the Effective Date,
and each twelve month period thereafter, except that the first License
Year will include the period from the Effective Date to the first day
of the twelve month period.
2.04 "Party" means Epoch or Perkin-Elmer and, when used in the plural, will
mean Epoch and Perkin-Elmer.
2.05 "Licensed Patent" means U.S. Patent No. 5,801,155 titled Covalently
Linked Oligonucleotide Minor Groove Binder Conjugates, issued September
1, 1998, including any Related Patent.
2.06 "Related Patent" means any patent or patent application owned, held, or
otherwise controlled, in whole or in part by Epoch that (1) discloses
and/or claims substantially the same subject matter as a Licensed
Patent, (2) discloses and/or claims improvements to inventions
disclosed or claimed in a Licensed Patent and requires rights under the
Licensed Patent to exploit such improvements, (3) claims priority to, a
Licensed Patent, including but not limited to continuation applications
and patents, continuation-in-part applications and patents, divisional
applications and patents, reexamination applications and patents,
reissue applications and patents, and continuing prosecution
applications and patents, (4) is a parent of U.S. Patent No. 5,801,155,
and/or (5) any foreign equivalents of a Licensed Patent or any patent
or patent application in (1), (2), (3) or (4) above.
2.07 "Licensed Product" means any product for use in the Exclusive Licensed
Field or the Non-Exclusive Licensed Field (i) which, but for the
license granted hereunder, manufacture, use or sale thereof would
infringe at least one Valid Claim of a Licensed Patent, or (ii) which
otherwise uses, incorporates or was developed or manufactured using
Licensed Know-How.
2.08 "MGB Oligonucleotide" means Licensed Product comprising an
oligonucleotide having a minor-groove binding moiety covalently
attached thereto, and, at Perkin-Elmer's option, further comprising a [
* ]. A Purified MGB Oligonucleotide means an MGB Oligonucleotide that
is at least [ * ] pure based on the HPLC assay specified in Exhibit B.
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION.
3
<PAGE> 4
2.09 "MGB Intermediate" means an intermediate useful for the synthesis of an
MGB Oligonucleotide, including but not limited to [ * ]. The identity
of a MGB Intermediate will be confirmed based on an assay which shall
be mutually agreed upon by the parties hereto, and included in an
amendment to Exhibit B within ninety (90) days from the execution of
this Agreement.
2.10 "Probe Unit" means that amount of MGB Intermediate required to make [ *
] of a Purified MGB Oligonucleotide.
2.11 "Kits" means products containing MGB Oligonucleotides packaged with
other materials and reagents, such other reagents including but not
limited to enzymes, reaction buffers and nucleotide triphosphates. Also
included within the definition of Kits are microfluidic devices
containing or packaged with MGB Oligonucleotides.
2.12 "Bare Probe" means a MGB Oligonucleotide provided alone.
2.13 "Valid Claim" means a claim of a Licensed Patent (or pending
application included in the Related Patents) which has not been held
permanently invalid or otherwise unenforceable by a court of competent
jurisdiction, unappealable or unappealed within the time allowed for
appeal, or has not otherwise finally been held unpatentable by an
appropriate administrative agency, unappealable or unappealed within
the time allowed for appeal.
2.14 "Exclusive Licensed Field" means the 5'-Nuclease Assay Field.
2.15 "Real-Time Nucleic Acid Amplification Monitoring Field" means the
monitoring of a polymerase chain reaction by detecting a change in a
magnitude of a detectable signal as a function of reaction cycle
practiced outside of the HIVD Field only.
2.16 "5'-Nuclease Assay Field" means the detection of a nucleic acid
sequence based on the cleavage of a nucleic acid probe that is
hybridized to the nucleic acid sequence by a 5' to 3' nuclease activity
of a polymerase enzyme, as generally described in U.S. Patent No.
5,487,972, practiced outside of the HIVD Field only.
2.17 "Non-Exclusive Licensed Field" means (1) use of MGB Oligonucleotides as
ligation probes in an oligonucleotide ligation assay, generally as
described in U.S. Patent No. 4,883,750; (2) use of MGB Oligonucleotides
in an assay employing [ * ]; (3) use of MGB Oligonucleotides as primers
in a primer extension reaction, including but limited to a PCR reaction
or a DNA sequencing reaction, and (4) use of MGB Oligonucleotides in
the Real-Time Nucleic Acid Monitoring Field, to the extent that (1),
(2), (3) and (4) are practiced outside of the Exclusive Licensed Field
and practiced outside of the HIVD Field.
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION.
4
<PAGE> 5
2.18 "Human In Vitro Diagnostics Field ("HIVD Field") means products and
processes for the measurement of attributes, characteristics, diseases,
traits or other conditions of a human being for the medical management
of that human being.
2.19 "Licensed Know-How" means trade secrets, technical information,
experimental data, software and other knowledge now existing and
controlled by Epoch relating to (1) the chemical synthesis and
purification of MGB Oligonucleotide using MGB Intermediate, and (2)
algorithms and related software for determining the melting temperature
of MGB Oligonucleotide, as described in Section 5.04 and Exhibit C, to
the extent that such technical information, experimental data, software
and other knowledge is not publicly available.
2.20 "Confidential Information" means information received by one Party
(Receiving Party) from the other Party (Disclosing Party) (1) that the
Receiving Party has a reasonable basis to believe is confidential to
the Disclosing Party, or is treated by the disclosing Party as
confidential, (2) is identified at the time of disclosure as
"CONFIDENTIAL" and, (3) in the case of disclosures in non-written form,
is identified in writing within thirty (30) days as confidential.
Notwithstanding the above, Confidential Information will not include
any information which:
(1) can be demonstrated to have been in the public domain as of
the Effective Date or comes into the public domain during the
term of this Agreement through no act of the recipient; or
(2) can be demonstrated to have been independently known to the
recipient prior to the receipt thereof, or made available to
the recipient as a matter of lawful right by a third party; or
(3) can be demonstrated to have been rightfully received by the
recipient from a third party who did not require the recipient
to hold it in confidence or limit its use and who did not
acquire it, directly or indirectly, from the other Party to
this Agreement under a continuing obligation of
confidentiality; or
(4) will be required for disclosure to any governmental regulatory
agencies pursuant to approval for use, provided the Disclosing
Party is given reasonable notice of such proposed disclosure
and, if requested by the Disclosing Party, the Receiving Party
uses reasonable efforts to maintain the confidentiality of
such information in such governmental submission; or
(5) is independently conceived, invented or acquired by
researchers of the recipient who have not been personally
exposed to the information provided to the recipient
hereunder; or
(6) is published by a governmental agency as part of the normal
patent filing and prosecution process.
5
<PAGE> 6
2.21 "Discovery Order" means a sale or other disposition by Perkin-Elmer of
Bare Probes represented to the customer as containing 2,000 picomols of
MGB Oligonucleotides.
2.22 "Small Order" means a sale or other disposition by Perkin-Elmer of Bare
Probes represented to the customer as containing 5,000 picomols of MGB
Oligonucleotides.
2.23 "Medium Order" means a sale or other disposition by Perkin-Elmer of
Bare Probes represented to the customer as containing 20,000 picomols
of MGB Oligonucleotides.
2.24 "Large Order" means a sale or other disposition by Perkin-Elmer of Bare
Probes represented to the customer as containing more than 75,000 and
less than 100,000 picomols of MGB Oligonucleotides.
ARTICLE III. LICENSE GRANT
3.01 Exclusive License. Epoch hereby grants to Perkin-Elmer a world-wide
exclusive license under Licensed Patents and Licensed Know-How to make,
use, offer to sell, sell and import Licensed Products in the Exclusive
Licensed Field.
3.02 Non-Exclusive License. Epoch hereby grants to Perkin-Elmer a world-wide
non-exclusive license under Licensed Patents and Licensed Know-How to
make, use, offer to sell, sell and import Licensed Products in the
Non-Exclusive Licensed Field.
3.03 Sublicenses. Perkin-Elmer will have no right to sublicense its license
rights granted hereunder.
3.04 Restrictions. Perkin-Elmer will not knowingly sell, market, make or
have made, Licensed Products for use outside the Exclusive Licensed
Field or the Non-Exclusive Licensed Field. In the event that
Perkin-Elmer does inadvertently sell, market, make or have made,
Licensed Products for use outside the Exclusive Licensed Field or the
Non-Exclusive Licensed Field, Perkin-Elmer will within thirty (30) days
of learning of such activity cease such activity. Epoch will not
knowingly sell, market, make or have made MGB Intermediate and/or MGB
Oligonucleotide to third parties in the Exclusive Licensed Field. In
the event that Epoch does inadvertently sell, market, make or have made
MGB Intermediate and/or MGB Oligonucleotide to third parties in the
Exclusive Licensed Field, Epoch will within thirty (30) days of
learning of such activity cease such activity. Licensed Products
comprising Licensed Know-How in the form of software embodying
algorithms for determining the melting temperature of MGB
Oligonucleotide, as described in Section 5.04 and Exhibit C, will only
be sold or marketed pursuant to a limited-use non-exclusive license
agreement consistent with Perkin-Elmer's normal practice for the sale
and marketing of like software products.
6
<PAGE> 7
3.05 Patent Prosecution. To the extent commercially practicable, Epoch will
file and diligently prosecute patent applications with respect to the
Licensed Patent in at least the United States, Germany, France,
Switzerland, United Kingdom, Sweden, Italy, Japan, Australia and
Canada.
ARTICLE IV. LICENSE FEE; ROYALTIES; PAYMENT FOR KNOW-HOW
4.01 License Fees. Perkin-Elmer paid to Epoch after the Effective Date, [ *
] Dollars ([ * ]), [*]% of which will be creditable against future
royalties called for under Section 4.02. Perkin-Elmer will use credits
against future royalties at a rate not to exceed [ * ] Dollars ([ * ])
per License Year. In addition, upon the first commercial sale of a
Licensed Product for each of the four uses listed in the definition of
"Non-Exclusive Licensed Field," Perkin-Elmer will pay to Epoch, within
ten (10) business days of each such first commercial sale, an
additional license fee of [ * ] Dollars ([ * ]).
4.02 Royalties.
(a) Percentage Royalties. Perkin-Elmer will pay to Epoch
percentage royalties on the Net Sales of Licensed Products
sold or otherwise disposed of under the license granted under
Sections 3.01 and 3.02 of this Agreement as follows:
<TABLE>
<S> <C>
Bare Probes covered by a Valid Claim [ * ]% for Discovery Orders, Small
Orders and Medium Orders and [ * ]%
for Large Orders
Kits covered by a Valid Claim [ * ]%
Bare Probes not covered by a Valid Claim [ * ]% for Discovery Orders, Small
Orders and Medium Orders and [ * ]%
for Large Orders
Kits not covered by a Valid Claim [ * ]%
Software [ * ]%
</TABLE>
No percentage royalties will be owed under this Section 4.02
(a) for the sale by Perkin-Elmer of any Bare Probes or Kits
not covered by a Valid Claim in the event that (i) the
Licensed Know-How becomes publicly available, (ii)
Perkin-Elmer is placed at a commercial disadvantage as a
result of such know-how becoming publicly available, and (iii)
such know-how was not made publicly available by Perkin-Elmer.
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION.
7
<PAGE> 8
(b) Unit Royalties. In addition to any percentage royalties
which may be payable under Section 4.02(a), Perkin-Elmer will
pay to Epoch unit royalties on sales or other dispositions of
Licensed Products under the license granted under Sections
3.01 and 3.02 of this Agreement as follows:
Each Discovery Order $[ * ]
Each Small Order $[ * ]
Each Medium Order $[ * ]
Each Large Order $[ * ]
Perkin-Elmer may credit against amounts due under this Section 4.02(b),
any amounts paid to Epoch for MGB Intermediates under Section 5.03.
4.03 Acknowledgment for Payment for Know-How. Perkin-Elmer paid Epoch after
the Effective Date of this Agreement, as additional consideration for
the transfer of and license under Licensed Know-How and for Epoch
having made available, after the Effective Date of the First Amendment
of this Agreement, source code embodying algorithms for determining the
melting temperature of MGB Oligonucleotide as described in Section 3.04
and Exhibit C, the following payments: (i) a one time payment of [ * ]
Dollars ([ * ]), and (ii) three (3) payments totaling [ * ], which
represented monthly payments of [ * ] Dollars ([ * ]) (adjusted on a
pro rata basis), paid between June 15, 1999 and August 23, 1999 (the
date of the first New Product Release of a Licensed Product); as used
herein, the term "New Product Release" means that point in a
Perkin-Elmer product development program at which a product is released
for unrestricted manufacture and sale to customers under PE Biosystems
ISO 9001 Product Development Procedures. As yet additional
consideration for the transfer of and license under Licensed Know-How,
Perkin-Elmer will give to Epoch an ABI PRISM tm Model 7700 Sequence
Detection System instrument (p/n 7700-01-200/208) [ * ]. The instrument
provided hereunder will include all installation services and
warranties typically provided to customers in connection with the
purchase of such instrument. However, Perkin-Elmer will not provide an
optional service contract covering the instrument. All reagents will be
purchased by Epoch using conventional retail distribution channels.
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION.
8
<PAGE> 9
4.04 Payment Dates and Statements. Within forty-five (45) days of the end of
each calendar quarter in which Net Sales occur, Perkin-Elmer will
calculate the royalty amount owed to Epoch under this Section 4 and
will remit such amount to Epoch. Such payment will be accompanied by a
statement showing the calculation of the amount owed for Licensed
Products, including the number of Discovery Orders, Small Orders,
Medium Orders and Large Orders, the Net Sales of Licensed Products for
that quarter (including the gross invoiced sales and permissible
deductions therefrom), and the exchange rate (as determined pursuant to
Section 4.06) used to directly convert any royalty amounts into U.S.
Dollars.
4.05 Late Payments. Any payment owed to Epoch under this Agreement that is
not paid on or before the date such payment is due will bear interest,
to the extent permitted by applicable law, at twelve percent (12%) per
annum, calculated on the number of days such payment is delinquent.
4.06 Currency of Payments. All payments under this Agreement will be made
U.S. Dollars by wire transfer to such bank account as Epoch may
designate from time to time. Any payments due hereunder on Net Sales
outside of the United States will be payable in U.S. Dollars at the
average of the rate of exchange of the currency of the country in which
the Net Sales are made as reported in the New York edition of The Wall
Street Journal, for the last three (3) business days of the quarter for
which the royalties are payable.
4.07 Other Taxes. Perkin-Elmer will pay all sales, use, transfer or similar
taxes, whether foreign, federal (United States), state or local,
however designated, that are levied or imposed by reason of the sale or
transfer of Licensed Products contemplated hereby, and any penalties,
interest and collection or withholding costs associated with any of the
foregoing items.
4.08 Records, Review. Perkin-Elmer will keep accurate records of all
operations affecting payments hereunder, and will permit Epoch or its
duly authorized agent to inspect all such records and to make copies of
or extracts from such records during regular business hours throughout
the term of this Agreement and for a reasonable period of not less than
three (3) years thereafter, provided that the frequency of such
inspections is no more than once per License Year. If the review
results in a determination of an underpayment of royalties to Epoch,
such underpayment will be promptly remitted to Epoch with interest as
provided in Section 4.05. If such inspection determines that Net Sales
were more than 105% of the Net Sales reported by Perkin-Elmer for the
period under review, Perkin-Elmer will pay all of the reasonable costs
of such review.
4.09 Review and Revision of Agreement Terms. In November 2000, the Parties
will negotiate in good faith to such revisions to the terms of this
Agreement, including without limitation, the royalties and the purchase
price for MGB Intermediates, so that the revenue and profitability to
Epoch is based on the currently anticipated mix of Discovery Orders,
Small Orders, Medium Orders and Large Orders sold by Perkin-Elmer, and
so that Epoch shares in profitability gains from increased
manufacturing efficiencies of Perkin-Elmer. In furtherance of this
Section, prior to such negotiation, Perkin-Elmer shall supply to Epoch
reports which set forth the revenue and gross profit of Perkin-Elmer
with respect to all Discovery Orders, Small Orders, Medium Orders and
Large
9
<PAGE> 10
Orders up to that point, so as to allow the parties to fairly evaluate
the economics of this Agreement.
ARTICLE V. SUPPLY
5.01 Purchases. Subject to the terms and conditions of this Agreement, Epoch
will sell MGB Intermediates to Perkin-Elmer, and Perkin-Elmer will
purchase such MGB Intermediates from Epoch. Perkin-Elmer will not
purchase any Licensed Product from any third-party. By March 31, 2000,
Perkin-Elmer shall purchase [Quantity] of MGB Intermediate which
represents Perkin-Elmer's forecasted annual requirements. Perkin-Elmer
shall within [__] days of the beginning of each calendar quarter
provide to Epoch a revised forecast for the subsequent four (4)
quarters and during such quarter shall purchase sufficient MGB
Intermediate to maintain, at all times, an inventory of MGB
Intermediate equal to its current forecasted annual requirements.
Notwithstanding anything to the contrary contained herein, it is the
parties intent that Perkin-Elmer shall at all times, from March 31,
2000 until this Agreement expires or is terminated pursuant to Article
VIII, maintain a level of inventory of MGB Intermediate which is equal
to its current forecasted annual requirements.
5.02 Specifications. MGB Intermediates will meet the product specifications
set forth in Exhibit A. The Parties will reasonably agree on any
changes to such specifications, and any such changes will be in
writing.
5.03 Price. Epoch will charge Perkin-Elmer and Perkin-Elmer will pay Epoch
[ * ] ([ * ]) per Probe Unit of MGB Intermediate.
5.04 Transfer of Know-How. Epoch will transfer Licensed Know-How to
Perkin-Elmer to the extent necessary for Perkin-Elmer to make full use
of MGB Intermediates, MGB Oligonucleotides, and algorithms and related
software for determining the melting temperature of MGB
Oligonucleotides. Such Licensed Know-How will include, but not be
limited to, that information specified in Exhibit C. All Licensed
Know-How is considered Confidential Information and will only be used
by Perkin-Elmer in connection with the exploitation of the license
rights granted in Article III. All Licensed Know-How will remain owned
by Epoch.
5.05 Contingent Manufacturing Rights for MGB Intermediates. Perkin-Elmer has
no rights hereunder to manufacture or purchase MGB Intermediates from
third parties. However, in the event Epoch is unable to supply at least
ninety-five percent (95%) of Perkin-Elmer's requirements of MGB
Intermediates for more than four (4) months after receipt of written
notice from Perkin-Elmer of a material failure to so supply,
Perkin-Elmer shall have the right to manufacture or purchase from third
parties its requirements of MGB Intermediates until Epoch demonstrates
that it can again supply Perkin-Elmer's requirements of MGB
Intermediates. Epoch shall cooperate in obtaining such alternate supply
source, including, without limitation, transferring such technology and
know-how,
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION.
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and license rights as are reasonably necessary for Perkin-Elmer or a
third party to manufacture MGB Intermediates. To facilitate such
transfer, prior to December 31, 1999, Epoch shall deposit with Heller
Ehrman White & McAuliffe as escrow agent, pursuant to an Escrow
Agreement in the form attached as Exhibit C, sufficient documentation
of the know-how necessary to enable a person skilled in oligonucleotide
chemistry to manufacture MGB Intermediates. The Escrow Agreement shall
contain a provision granting the right to the Escrow Agent (as defined
therein), or a neutral third party mutually agreeable to Perkin-Elmer
and Epoch, to verify, audit and inspect the documentation to be held or
held in deposit to confirm that it is sufficient to provide a person
skilled in oligonucleotide chemistry the know-how necessary to
manufacture MGB Intermediates.
5.06 Purchase Orders. Perkin-Elmer will purchase MGB Intermediates from
Epoch by issuing a written purchase order identifying MGB Intermediates
to be purchased, the quantity, price, shipping instructions, delivery
dates, and any other special information. To the extent the terms of
any such purchase order differ from or conflict with the terms of this
Agreement, the terms of this Agreement will govern. Within thirty (30)
days of the date hereof and prior to the end of each calendar month
thereafter, Perkin-Elmer will submit a six-month rolling forecast of
estimated MGB Intermediates requirements. The forecast for the first
two (2) months will constitute a binding purchase order and the balance
of such Perkin-Elmer's forecast will be non-binding.
5.07 Modifications. Perkin-Elmer may modify, defer or cancel a purchase
order not later than two (2) months prior to the scheduled shipment of
MGB Intermediates.
5.08 Shipment. Shipment will be made freight prepaid, F.O.B. Epoch's
facility, to the address set forth on Perkin-Elmer's purchase order.
Epoch will invoice Perkin-Elmer on a separate line for all shipping
charges ("pre-pay and add"). Title and risk of loss will pass from
Epoch to Perkin-Elmer upon delivery to carrier at the F.O.B. point.
5.09 Invoicing; Payment. Epoch will submit an invoice to Perkin-Elmer with
each shipment of MGB Intermediates. Each invoice will be due and
payable net forty five (45) days from the date of shipment.
5.10 Inspection, Rejection. Perkin-Elmer will inspect all MGB Intermediates
received for defects and for conformance with the purchase order.
Perkin-Elmer may reject any MGB Intermediates that is defective or that
fails to conform to the purchase order. Any such rejection must be made
within ten days (10) of receipt of the MGB Intermediates by
Perkin-Elmer. To reject any MGB Intermediates, Perkin-Elmer will notify
Epoch of its rejection and will promptly return the rejected MGB
Intermediates to Epoch. Epoch will immediately replace the MGB
Intermediates with conforming goods.
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<PAGE> 12
5.11 Pre-Payment. In addition to the License Fees paid under 4.01,
Perkin-Elmer has paid Epoch [ * ] Dollars ([ * ]) as a pre-payment
towards future purchases of MGB Oligonucleotides and MGB Intermediates.
Epoch will credit One Million Dollars ($1,000,000) of this pre-payment
to purchase 400,000 shares of Common Stock of Epoch, at a purchase
price of Two Dollars And Fifty Cents ($2.50) per share, pursuant to a
Stock Purchase Agreement dated November 1, 1999. Perkin-Elmer will
credit purchases of MGB Intermediates against the remaining [ * ]
Dollars ([ * ]) of this pre-payment at a rate not to exceed [ * ]
Dollars ([ * ]) per License Year.
5.12 Security Interest. In order to secure any unused portion of the
pre-payments made under Section 5.11 (up to [ * ] Dollars ([ * ])),
Epoch has granted to Perkin-Elmer a security interest in the Licensed
Patent pursuant to a Security Agreement dated December, 1998, which is
in the form attached hereto as Exhibit A, which the parties agree shall
remain in force and in effect. Epoch may, at any time, return all or a
portion of the unused prepayments. In the event the unused balance of
the prepayments is Fifty Thousand Dollars ($50,000) or less, the
security interest will terminate.
5.13 Annual Minimum Purchase. Perkin-Elmer will, during each License Year,
purchase at least [ * ] Dollars ([ * ]) worth of MGB Intermediates from
Epoch (based on the purchase price set forth in Section5.03). In the
event that Perkin-Elmer has not, by the end of such License Year,
purchased such minimum amount, it will promptly, within thirty (30)
days of the end of such License Year, purchase an amount of MGB
Intermediates necessary to meet such annual minimum amount. Such
additional amounts will not be counted towards the annual minimum
amount in the License Year in which they were purchased.
ARTICLE VI. REPRESENTATIONS AND WARRANTIES
6.01 Product Warranty. Epoch warrants to Perkin-Elmer that, upon delivery of
any MGB Intermediates to Perkin-Elmer, such MGB Intermediates will be
free from defects in material, workmanship, design and title, and will
substantially meet the specifications attached hereto as Exhibit A (or
any mutually agreed upon replacements).
6.02 Documentation Warranty. Epoch further warrants that the MGB
Intermediates, and all literature, packaging, inserts, accompanying
materials, and any other documentation supplied by Epoch in connection
with the MGB Intermediates will not contain any misrepresentation as to
the nature or performance of the MGB Intermediates.
6.03 Remedies. If any MGB Intermediates fails to meet the foregoing
warranties, in addition to satisfying any other remedies Perkin-Elmer
may have, Epoch will replace such deficient MGB Intermediates in the
most timely manner possible at its own expense or Epoch will refund to
Perkin-Elmer all costs associated with the purchase and shipping of
that MGB Intermediates.
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION.
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6.04 Disclaimer. EXCEPT FOR THE EXPRESS WARRANTY AGAINST DEFECTS IN DESIGN,
MATERIALS, TITLE AND WORKMANSHIP CONTAINED HEREIN, EPOCH MAKES NO
WARRANTY OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, AND ALL WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY
DISCLAIMED BY EPOCH. Without limitation of the foregoing, Epoch
expressly disclaims any liability whatsoever for any damages incurred,
directly or indirectly, in connection with the Licensed Products and/or
the MGB Intermediates, including without limitation, loss of profits
and special, incidental or consequential damages.
6.05 Representations and Warranties. Each Party represents, warrants and
covenants to the other Party that:
(1) it has the corporate power and authority and legal right to
enter into this Agreement and to perform its obligations
hereunder;
(2) the execution and delivery of this Agreement and the
performance of the transactions contemplated thereby have been
duly authorized by all necessary corporate action of such
Party;
(3) the execution and delivery of this Agreement and the
performance by such Party of any of its obligations under this
Agreement do not and will not (a) conflict with, or constitute
a breach or violation of, any other contractual obligation to
which it is a party, any judgment of any court or governmental
body applicable to such Party or its properties or, to such
Party's knowledge, any statute, decree, order, rule or
regulation of any court or governmental agency or body
applicable to such Party or its properties, and (b) with
respect to the execution and delivery of the Agreement,
require any consent or approval of any governmental authority
or other person;
(4) each Party will to the best of its knowledge without
undertaking a special investigation, disclose to the other
Party any material adverse proceedings, claims or actions that
arise, which would materially interfere with that Party's
performance of its obligations under this Agreement; and
(5) each Party's employees have executed or will execute
agreements whereby all right, title and interest in any
technology and invention(s) will be assigned to their
respective employers.
ARTICLE VII. INDEMNITY
7.01 Indemnification of Epoch. Perkin-Elmer will defend, indemnify and hold
Epoch harmless against any judgment, damage, liability, loss, cost or
other expense, including legal fees ("Liability"), resulting from any
third party claims made or proceedings brought against Epoch to the
extent that such Liability arises from Perkin-Elmer's use, marketing ,
distribution or sale of Licensed Product and/or MGB Intermediates,
except to the extent such claims or proceedings result (1) from Epoch's
negligence or willful act or
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<PAGE> 14
omission in the manufacture, storage, or delivery of Licensed Product
and/or MGB Intermediates, (2) from Epoch's breach of any warranty set
forth in Article VI, or (3) infringement of a patent owned or
controlled by a third party, only to the extent such infringement
arises from the inclusion in the Licensed Product of inventions claimed
in a Licensed Patent or the use of the Licensed Know-How.
7.02 Indemnification of Perkin-Elmer. Epoch will defend, indemnify and hold
Perkin-Elmer harmless against any Liability resulting from any third
party claims made or proceedings brought against Perkin-Elmer to the
extent that such Liability arises (1) from Epoch's negligence or
willful act or omission in the manufacture, storage, or delivery of
Licensed Product and/or MGB Intermediates or (2) from Epoch's breach of
any warranty set forth in Article VI.
7.03 Indemnification Procedures. This agreement of indemnity is conditioned
upon the indemnified Party's obligation to: (1) advise the indemnifying
Party of any claim or lawsuit, in writing, within ten (10) days after
the indemnified Party has received notice of said claim or lawsuit, or,
within such a time frame as not to materially prejudice the rights of
the indemnifying Party, and (2) assist the indemnifying Party and its
representatives in the investigation and defense of any lawsuit and/or
claim for which indemnification is provided. This agreement of
indemnity will not be valid as to any settlement of a claim or lawsuit
or offer of settlement or compromise without the prior written approval
of the indemnifying Party.
ARTICLE VIII. TERM AND TERMINATION
8.01 Term. Unless terminated earlier as provided herein, this Agreement will
commence on the Effective Date and will remain in full force until the
expiration of the last to expire Licensed Patent.
8.02 Termination. This Agreement may be terminated as follows:
(1) by mutual written agreement of the Parties, effective as of
the time specified in such written agreement; or
(2) by either Party, (a) in the event the other Party will 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
will be served with an involuntary petition against it, filed
in any insolvency proceeding, and such petition will not be
dismissed within sixty days after the filing thereof, or if
the other Party will propose or be a Party to any dissolution
or liquidation, or if the other Party will make an assignment
for the benefit of creditors, or (b) upon any material breach
of this Agreement by the other Party, provided that the Party
alleging such breach must first give the other Party written
notice thereof, which notice must state the nature of the
breach in
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reasonable detail and the Party receiving such notice must
have failed to cure such alleged breach within sixty (60) days
after receipt of such notice.
(3) Perkin-Elmer may terminate this Agreement at any time upon
sixty (60) days advance written notice to Epoch. In the event
that Perkin-Elmer terminates the Agreement pursuant to this
Section 8.02(3), Perkin-Elmer (1) will release its security
interest in the Licensed Patent granted in Section 5.11 and
Exhibit A, (2) will forfeit any unused portion of the
pre-payments paid to Epoch under Section 5.10, (3) will pay
for any orders placed under Article V prior to termination,
and (4) return all tangible embodiments of the Licensed
Know-How to Epoch.
8.03 Survival. Upon any termination of this Agreement, neither Party will be
relieved of any obligations incurred prior to such termination.
Notwithstanding any termination of this Agreement, the obligations of
the Parties under Articles IV, VI, VII, VIII, X and XI, as well as
under any licenses which are maintained in effect and any other
provisions which by their nature are intended to survive any such
termination, will survive and continue to be enforceable.
ARTICLE IX. INFRINGEMENT LITIGATION
9.01 Notification. Each Party will notify the other Party in writing of any
suspected infringement(s) of Licensed Patents in the Exclusive Licensed
Field or the Non-Exclusive Licensed Field and will inform the other
Party of any evidence of such infringement(s).
9.02 Infringement in Exclusive Licensed Field. Perkin-Elmer will have the
first right to institute suit for infringement(s) in the Exclusive
Licensed Field. Epoch agrees to join as a party plaintiff in any such
lawsuit initiated by Perkin-Elmer, if requested by Perkin-Elmer, with
all costs, attorneys' fees, and expenses to be paid by Perkin-Elmer.
However, if Perkin-Elmer does not institute suit for infringement(s)
within ninety (90) days of receipt of written notice from Epoch of
Epoch's desire to bring suit for infringement in its own name and on
its own behalf, then Epoch may, at its own expense, bring suit or take
any other appropriate action.
9.03 Infringement Outside Exclusive Licensed Field. Epoch will have the sole
right, but not the obligation, to institute suit for infringement and
to recover damages outside of the Exclusive Licensed Field.
9.04 Recovery. Perkin-Elmer will be entitled to any recovery of damages
resulting from a lawsuit brought by it pursuant to Section 9.02. Epoch
will be entitled to recovery of damages resulting from any lawsuit
brought by Epoch pursuant to Sections 9.02 or 9.03.
9.05 Settlement. Neither Party may settle with an infringer without the
prior written approval of the other Party if such settlement would
affect the rights of the other Party under the Licensed Patents.
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<PAGE> 16
ARTICLE X. CONFIDENTIALITY
10.01 Non-Disclosure. Because Epoch and Perkin-Elmer will be cooperating with
each other under this Agreement, each may reveal Confidential
Information to the other. The Parties agree, by using the same degree
of care as each uses for its own information of like importance, but
not less than a reasonable degree of care, to hold in confidence any
Confidential Information disclosed by the other Party hereunder, and
not to disclose any Confidential Information to any third party without
the express written consent of the other Party. Each Party will
disclose Confidential Information only to its employees or agents who
have a need to know. With respect to any Confidential Information that
is revealed by a Party to the other Party, this confidentiality
requirement will remain in force for a period of 5 years following the
date the Confidential Information is revealed.
10.02 Responsibility over Employees and Agents. Each Party will assume
individual responsibility for the actions and omissions of its
respective employees, agents and assigns, and to inform same of the
responsibilities for confidentiality under this Agreement, and to
obtain their agreement to be bound in the same manner that the Party is
bound.
10.03 Affiliates. Nothing herein will be construed as preventing either Party
from disclosing any information to an Affiliate of Perkin-Elmer or
Epoch, provided such Affiliate has undertaken a similar obligation of
confidentiality with respect to the Confidential Information.
10.04 Bankruptcy. All Confidential Information disclosed by one Party to the
other will remain the intellectual property of the disclosing Party.
The bankrupt or insolvent Party will, to the extent permitted by law,
take all steps necessary or desirable to maintain the confidentiality
of the other Party's Confidential Information and to ensure that the
court or other tribunal maintain such information in confidence in
accordance with the terms of this Agreement. 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
will 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.
10.05 Publication. Neither Perkin-Elmer nor Epoch will submit for written or
oral publication any manuscript, abstract or the like that includes
data or other information generated and provided by the other Party
without first obtaining the prior written consent of the other Party,
which consent will not be unreasonably withheld or delayed. If written
consent or written denial is not provided by the other Party within 90
days, the first Party will have the right to publish. But, the
foregoing will not apply to customary literature that is
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prepared for marketing and sales purposes and that does not contain
Confidential Information.
10.06 Publicity. Neither Party nor any of its Affiliates will originate any
news relating to this Agreement without the prior written approval of
the other Party, which approval will not be unreasonably withheld or
delayed. However, within 30 days after the execution of this Agreement
the Parties will mutually agree on a joint press release announcing the
existence of this Agreement.
ARTICLE XI. GENERAL PROVISIONS
11.01 Force Majeure. 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
will, 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 will use its
reasonable best efforts to avoid or remove such causes of
non-performance and will continue performance with the utmost dispatch
whenever such causes are removed. When such circumstances arise, the
Parties will discuss what, if any, modification of the terms of this
Agreement may be required in order to arrive at an equitable solution.
11.02 Governing Law. This Agreement will be deemed to have been made in the
State of California and its form, execution, validity, construction and
effect will be determined in accordance with the laws of the State of
California.
11.03 Informal Dispute Resolution. In an effort to resolve informally and
amicably any claim, controversy, or dispute arising out of or related
to the interpretation, performance, or breach of this Agreement (a
"Dispute") without resorting to litigation, each party will notify the
other party to the Dispute in writing of any Dispute hereunder that
requires resolution. Such notice will set forth the nature of the
Dispute, the amount involved, if any, and the remedy sought. Each party
will promptly designate an executive-level employee to investigate,
discuss and seek to settle the matter between them. If the two
designated representatives are unable to settle the matter within
thirty (30) days after such notification, the matter will be submitted
to Epoch's Chief Executive Officer and Perkin-Elmer's President of the
PE Biosystems Division for consideration. If settlement cannot be
reached through their efforts within an additional thirty (30) days (or
such longer time period as they will agree upon in writing), each party
will have the right to take such action as it deems appropriate. The
statute of limitations of the State of California applicable to the
commencement of a lawsuit will be tolled as of initial written
notification of a dispute to the other party as set forth above for
sixty (60) days (or such longer time as the parties agree in writing)
if all interim deadlines have been complied with by the notifying
party.
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11.04 Attorneys' Fees. Except as otherwise provided herein, each party will
bear its own legal fees incurred in connection with the transactions
contemplated hereby, provided, however, that if any party to this
Agreement seeks to enforce its rights under this Agreement by legal
proceedings or otherwise, subject to Section 10.03, the non-prevailing
party will pay all costs and expenses incurred by the prevailing party,
including, without limitation, all reasonable attorneys' fees.
11.05 Separability. In the event any portion of this Agreement will be held
illegal, void or ineffective, the remaining portions hereof will be
interpreted to maintain the intent of the Parties. 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 will be deemed
inoperative to the extent that they may conflict therewith and will be
deemed to be modified to conform with such statute or rule of law.
11.06 Entire Agreement. This Agreement constitutes the sole agreement between
the Parties relating to the subject matter hereof and supersedes all
previous writings and understandings. Confidential disclosures made
pursuant to previously executed Confidentiality Agreements between
Epoch and Perkin-Elmer will remain subject to the terms of those
Confidentiality Agreements. No terms or provisions of this Agreement
will 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.
11.07 Assignment. This Agreement and the licenses herein granted will be
binding upon and inure to the benefit of the successors in interest of
the respective Parties. Neither Party will have the power to assign
this Agreement nor any interest hereunder without the written consent
of the other, such consent not to be unreasonably withheld, provided,
however, that Perkin-Elmer or Epoch may assign this Agreement or any of
its rights or obligations hereunder to any Affiliate or to any third
party with which it may merge or consolidate, or to which it may
transfer all or substantially all of its assets or business to which
this Agreement relates, without obtaining the consent of the other
Party, subject to the other Party assuming all liabilities and
obligations under the Agreement.
11.08 Bankruptcy. All rights and licenses granted under this Agreement by
Epoch to Perkin-Elmer will be considered for purposes of Section 365(n)
of the Bankruptcy Code, licenses of rights to "intellectual property"
as defined under Section 101(56) of the Bankruptcy Code. The parties
agree that Perkin-Elmer, as a licensee of such rights under this
Agreement, will retain and may fully exercise all of its rights and
elections under the Bankruptcy Code. In the event that Epoch seeks or
is involuntarily placed under the protection of the Bankruptcy Code,
and the trustee in bankruptcy rejects this Agreement, Perkin-Elmer
hereby elects, pursuant to Section 365(n), to retain all rights granted
to it under this Agreement to the extent permitted by the law.
11.09 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart will be deemed an original
instrument, but all such counterparts together will constitute but one
agreement.
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11.10 Notices. Any notice required or permitted under this Agreement will be
sent by air mail, postage pre-paid, to the following addresses of the
Parties:
If to Epoch: If to Perkin-Elmer:
Epoch Pharmaceuticals, Inc. PE Corporation
12277 134th Court NE PE Biosystems Division
Suite 100 850 Lincoln Centre Drive
Redmond, WA 98052 Foster City, CA 94404
Attn.: President Attn.: Legal Department
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IN WITNESS WHEREOF, the Parties, through their authorized officers,
have executed this Agreement as of the date first written above.
EPOCH PHARMACEUTICALS, INC. PE CORPORATION, THROUGH ITS
PE BIOSYSTEMS DIVISION
By: By:
/s/ William G. Gerber /s/ Michael W. Hunkapiller
--------------------------------- ---------------------------------
Name: Name:
William G. Gerber Michael W. Hunkapiller
--------------------------------- ---------------------------------
Title: Title:
Chief Executive Officer Senior Vice President
--------------------------------- ---------------------------------
Date: November 2, 1999 Date: November 2, 1999
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EXHIBIT A
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Security Agreement") is made and entered
into this ___ day of December, 1998 by and between EPOCH PHARMACEUTICALS, INC.,
a Delaware corporation (the "Debtor"), and THE PERKIN-ELMER CORPORATION, a New
York corporation (the "Secured Party").
R E C I T A L S
1. Pursuant to that certain License and Supply Agreement by and between
the Company and the Secured Party of even date herewith (the "License
and Supply Agreement"), Debtor will receive [ * ] from Secured Party as
pre-payment for certain goods (the "Pre-Payment").
2. As an inducement to Secured Party to provided the Pre-Payment, Debtor
has agreed to grant a security interest as set forth herein.
A G R E E M E N T
1. Security Interest. Pursuant to the Uniform Commercial Code, Debtor
hereby grants to Secured Party a security interest in the property of
Debtor (the "Collateral") described at Paragraph 2 below to secure the
Pre-Payment, as described at Paragraph 3 below.
2. Collateral. The Collateral of Debtor is described as follows: US Patent
No. 5,801,155 titled Covalently Linked Oligonucleotide Minor Groove
Binder Conjugates, issued September 1, 1998 (the "Licensed Patent"),
including any Related Patent. "Related Patent" means any patent or
patent application owned, held, or otherwise controlled, in whole or in
part by Epoch that (1) discloses and/or claims substantially the same
subject matter as a Licensed Patent, (2) discloses and/or claims
improvements to inventions disclosed or claimed in a Licensed Patent
and requires rights under the Licensed Patent to exploit such
improvements, (3) claims priority to, a Licensed Patent, including but
not limited to continuation applications and patents,
continuation-in-part applications and patents, divisional applications
and patents, reexamination applications and patents, reissue
applications and patents, and continuing prosecution applications and
patents, (4) is a parent of U.S. Patent No. 5,801,155, and/or (5) any
foreign equivalents of a Licensed Patent or any patent or patent
application in (1), (2), (3) or (4) above.
3. Obligations Secured. The obligations ("Obligations") secured by this
Security Agreement will be any repayment of any unused portion of the
Pre-Payment corresponding to goods not received by Secured Party in
accordance with the terms of the License and Supply Agreement, in
excess of Fifty Thousand Dollars ($50,000).
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION.
<PAGE> 22
4. Collateral Encumbrances; Covenants of Debtor.
(a) Debtor owns the Collateral free and clear of any lien except
for the lien created by this Security Agreement, and no
effective financing statement or other instrument similar in
effect, which covers all or any part of the Collateral, exists
or is on file in any recording office.
(b) As to the Collateral, Debtor covenants with Secured Party as
follows:
(i) Except as otherwise created by this Security
Agreement, Debtor will keep the Collateral free of
all levies, liens, encumbrances and other security
interests of any nature whatsoever.
(ii) Debtor will comply with all laws, statutes and
regulations pertaining to the Collateral.
(iii) Debtor will pay when due all taxes, licenses, charges
and other impositions on or for the Collateral.
(iv) Debtor, at its own expense, (1) will execute, file
and record such assignments, statements, notices and
agreements including without limitation Form UCC-1,
if applicable, and assignments, statements, notices
and agreements to be filed with government patent
offices, and (2) take such action and obtain such
certificates and documents, in accordance with all
applicable laws, statutes, and regulations (whether
state, federal or local), as necessary to perfect,
evidence and continue Secured Party's security
interest in the Collateral, including, without
limitation, assignments for security in the U.S.
Patent and Trademark Office and corresponding foreign
patent offices. This subparagraph (iv) is subject to
specific performance and injunctive relief for the
benefit of Secured Party in the event of a failure by
Debtor to duly comply with a reasonable request for
such compliance.
(v) Debtor will deliver to Collateral Agent all
instruments and other items of Collateral for which
possession is required for perfection.
(vi) Except as otherwise created by this Security
Agreement, Debtor will not create, permit or suffer
to exist, and will defend the Collateral against and
take such other action as is necessary to remove, any
lien or encumbrance on the Collateral and will defend
the right, title and interest of Secured Party in and
to the Collateral and in and to the proceeds thereof
against the claims and demands of all persons
whomsoever.
5. Default. In the event of any termination of the License and Supply
Agreement (other than a termination by Debtor under Section 8.02(2)(b)
thereof due to a breach thereof by
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Secured Party), Debtor will within fifteen (15) days of such
termination reimburse Secured Party the difference between the then
unused portion of the Pre-Payment and Fifty Thousand Dollars ($50,000).
Upon such reimbursement, Secured Party will release its security
interest in the Collateral. In the event Debtor does not so reimburse
Secured Party, Secured Party may declare an event of default.
6. Remedies. Upon the occurrence of an event of default pursuant to
Section 5 hereof, the Secured Party may exercise any rights or remedies
that it may have as a secured party under applicable law.
7. Termination.
(a) This Security Agreement and the security interest granted to
Secured Party by Debtor hereunder will terminate at such time
as the unused portion of the Pre-Payment corresponding to
goods not received by Secured Party in accordance with the
terms of the License and Supply Agreement is Fifty Thousand
Dollars ($50,000) or less.
(b) If applicable, and promptly upon termination of this Security
Agreement, the Secured Party agrees to execute and file with
the Washington Secretary of State a termination statement on
Form UCC-2 and a collateral assignment for filing in the
Patent and Trademark Office terminating Secured Party's
security interest in the Collateral at the expense of the
Debtor. This subparagraph (b) is subject to specific
performance and injunctive relief for the benefit of Debtor in
the event of a failure by the Secured Party to duly comply
with a reasonable request for such compliance.
8. Cumulative Rights. The rights, powers and remedies of Secured Party
under this Security Agreement will be in addition to all rights, powers
and remedies given to Secured Party by virtue of any statute or rule of
law, or any other agreement between Debtor and Secured Party or
otherwise, all of which rights, powers and remedies will be cumulative
and may be exercised successively or concurrently without impairing
Secured Party's security interest in the Collateral.
9. Waiver. Any forbearance or failure or delay by Secured Party in
exercising any right, power or remedy will not preclude the further
exercise thereof, and every right, power or remedy of Secured Party
will continue in full force and effect until such right, power or
remedy is specifically waived in a writing executed by Secured Party.
Debtor waives any right to require Secured Party to proceed against any
person or to exhaust any of the Collateral or to pursue any remedy in
Secured Party's power.
10. Binding Upon Successors. All rights of Secured Party under this
Security Agreement will inure to the benefit of their successors and
assigns, and all obligations of Debtor will bind its successors and
assigns.
11. Entire Agreement; Severability. This Security Agreement, along with the
associated License and Supply Agreement, contains the entire agreement
between Secured Party, and Debtor with respect to the subject matter
hereof. If any of the provisions of this
3
<PAGE> 24
Security Agreement will be held invalid or unenforceable, this Security
Agreement will be construed as if not containing those provisions and
the rights and obligations of the parties hereto will be construed and
enforced accordingly.
12. Choice of Law. This Security Agreement will be construed in accordance
with and governed by the internal laws of the State of Washington, and
where applicable and except as otherwise defined herein, terms used
herein will have the meanings given them in the Washington Uniform
Commercial Code.
13. Place of Business; Trade Name; Collateral Location; Records. Debtor
represents that its chief place of business is 12277 134th Court, NE,
#110, Redmond, WA 98052 and that Epoch Pharmaceuticals, Inc., is the
only trade name or style used by Debtor and that Debtor's records
concerning the Collateral are kept at 12277 134th Court, NE, #110,
Redmond, WA 98052.
14. Notice. Any written notice, consent or other communication provided for
in this Security Agreement will be deemed given if delivered by hand,
by courier against receipt, by certified or registered mail, return
receipt requested, or by overnight delivery service providing evidence
of receipt, at the following addresses, or to such other address with
respect to any party as such party will notify the other in writing:
Secured Party: The Perkin-Elmer Corp.
PE Biosystems Division
850 Lincoln Centre Drive
Foster City, CA 94404
Attn.: Legal Department
Debtor: Epoch Pharmaceuticals, Inc.
12277 134th Court NE
Suite 100
Redmond, WA 98052
Attn.: President
15. Attorneys' Fees. In the event of any controversy, claim or dispute
between or among the Debtor and the Secured Party arising out of or
relating to this Security Agreement, or the breach hereof, the
prevailing party will be entitled to recover from the losing party
reasonable attorneys' fees, expenses and costs.
4
<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
DEBTOR: SECURED PARTY:
EPOCH PHARMACEUTICALS, INC. THE PERKIN-ELMER CORPORATION,
THROUGH ITS PE BIOSYSTEMS DIVISION
By: By:
/s/ Sanford S. Zweifach /s/ Michael W. Hunkapiller
- ----------------------------------- ------------------------------------
Name: Name:
Sanford S. Zweifach Michael W. Hunkapiller
- ----------------------------------- ------------------------------------
Title: Title:
President Senior Vice President
- ----------------------------------- ------------------------------------
Date: Date:
January 11, 1999 January 11, 1999
- ----------------------------------- ------------------------------------
5
<PAGE> 26
EXHIBIT B
CERTAIN SPECIFICATIONS
I. HPLC ASSAY OF MGB OLIGONUCLEOTIDE
1. Equipment
a. Perkin-Elmer UV/Vis Detector or equivalent
b. [ * ] Ion Exchange Column [ * ]
c. [ * ] Rheodyne sample loop (Alltech Associates Inc. or
equivalent)
2. Reagents
a. [ * ] or equivalent
b. Water, Milli-Q or HPLC grade
c. Standard Buffer Salt is pH [ * ] Fisher P/N [ * ] or
equivalent
d. [ * ] Filtration Membrane, [ * ] (Alltech Associates Inc. or
equivalent)
3. Mobile Phases
[ * ]
4. [ * ]
5. [ * ]
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION.
<PAGE> 27
II. PURITY OF MGB OLIGONUCLEOTIDE
The purity of a MGB Oligonucleotide will be determined based on an area
percent of a product peak based on the above-described HPLC Method. A
Purified MGB Oligonucleotide will have a purity of at least [ * ]%.
However, the value of the required purity of a MGB Oligonucleotide may
be amended pursuant to Section 10.06 of the Agreement.
III. YIELD OF MGB OLIGONUCLEOTIDE
The yield of a MGB Oligonucleotide will be determined based on a
relative area of a product peak as compared to an appropriate internal
standard based on the above-described HPLC Method, where the HPLC
analysis is performed immediately following synthesis of the MGB
Oligonucleotide. A Purified MGB Oligonucleotide will have a yield of at
least [ * ].
IV. IDENTITY OF MGB INTERMEDIATE
The parties agree that they will amend this Exhibit B to the Agreement
(the "Exhibit B Amendment") within ninety (90) days from execution of
the Agreement. The Exhibit B Amendment to define a mutually acceptable
assay for confirming the identity of MGB Intermediates supplied to
Perkin-Elmer by Epoch.
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION.
2
<PAGE> 28
EXHIBIT C
LICENSED KNOW-HOW
The Licensed Know-How transferred from Epoch to Perkin-Elmer will
include at least the following information.
1. Chemical structures of all reagents and probes provided to Perkin-Elmer
by Epoch to the extent necessary for Perkin-Elmer to make full use of
such reagents and probes for the synthesis and/or use of MGB
Intermediates and MGB Oligonucleotides.
2. Details of Epoch's manufacturing and QC methods to extent necessary for
Perkin-Elmer to manufacture MGB Oligonucleotides in conformance with
the specifications set forth in Exhibit B, including at least the
following:
a) detailed description of all DNA synthesis, purification,
formulation and analytical instrumentation, including vendors;
b) detailed DNA synthesis cycles;
c) cleavage conditions;
d) deprotection conditions;
e) purification methods, including HPLC, OPC and other protocols;
f) analytical methods, including HPLC and other protocols;
g) formulation and quantitation methods;
h) [ * ];
i) [ * ];
j) stability data of MGB reagents in DNA synthesis reagents and
under cleavage/deprotection conditions;
k) long term stability data of MGB probes;
l) data correlating analytical specs (HPLC, etc.) to performance
of probes in relevant applications;
m) method used for validating probe manufacturing process;
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION.
<PAGE> 29
n) method used for monitoring probe manufacturing process; and
o) extinction coefficients (at [ * ] nm) for MGB reagents.
3. Algorithms, object code, source code and any other embodiments of
methods or processes useful for predicting the melting temperature of
MGB Oligonucleotides, whether patented, copyrighted or not.
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION.
2
<PAGE> 30
EXHIBIT D
KNOW-HOW ESCROW AGREEMENT
EPOCH PHARMACEUTICALS, INC.
KNOW-HOW ESCROW AGREEMENT
This Know-How Escrow Agreement ("Agreement") is effective this 1st day
of November 1999, by and between Heller Ehrman White & McAuliffe ("Escrow
Agent"), PE Corporation, a Delaware corporation (formerly known as The
Perkin-Elmer Corporation) ("Perkin-Elmer") and Epoch Pharmaceuticals, Inc., a
Delaware corporation ("Epoch").
WHEREAS, concurrently herewith, Perkin-Elmer and Epoch are entering
into that certain Amended and Restated License and Supply Agreement of even date
herewith (the "License Agreement"). Perkin-Elmer and Epoch desire that this
Agreement be supplementary to said License Agreement; and
WHEREAS, pursuant to Section 5.05 of the License Agreement, Epoch has
agreed to deliver to Escrow Agent documentation of know-how (the
"Documentation") necessary to enable a person skilled in oligonucleotide
chemistry to manufacture MGB Intermediates (as defined in Section 2.09 of the
License Agreement).
NOW THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, and in consideration of the promises, mutual
covenants and conditions contained herein, the parties hereto agree as follows:
1. DEPOSIT ACCOUNT. Following the execution of this Agreement, Escrow
Agent shall open a "Deposit Account" for the benefit of Epoch and Perkin-Elmer,
said Deposit Account to be entitled the "Epoch/Perkin-Elmer Know-How Escrow
Account".
2. INITIAL DEPOSIT. Concurrently with the opening of the Deposit
Account, Epoch shall deliver an "Initial Deposit" to Escrow Agent, which shall
consist of the Documentation. The Initial Deposit materials, as updated,
changed, supplemented or replaced, as may be necessary, shall hereinafter be
referred to as the "Deposit."
3. CONFIDENTIALITY OBLIGATIONS OF ESCROW AGENT.
(a) Escrow Agent agrees to retain and properly dispose of the
Deposit in accordance with this Agreement. Escrow Agent shall not be liable for
any act or omission to act under this Agreement except for its own gross
negligence or willful misconduct.
(b) Escrow Agent acknowledges Epoch's assertion that the
Deposit shall contain confidential information and proprietary data of Epoch and
that Escrow Agent has an obligation to preserve and protect that
confidentiality.
(c) Escrow Agent may duplicate the Deposit only as necessary
to preserve and safely store the Deposit, and to provide copies thereof, as
authorized herein. Escrow Agent shall
<PAGE> 31
reproduce on all copies of the Deposit made by Escrow Agent any proprietary or
confidentiality notices contained in the Deposit. Except as expressly provided
in this Agreement, Escrow Agent agrees that it shall not divulge, disclose,
otherwise make available to Perkin-Elmer or any third parties, or make any use
whatsoever of the Deposit, or of any information provided to it by Epoch in
connection with this Agreement, without the express prior written consent of
Epoch. This obligation will continue indefinitely notwithstanding any
termination of this Agreement.
4. TERM OF AGREEMENT. This Agreement will commence on the effective
date of this Agreement and will terminate concurrently with the termination of
the License Agreement, as provided for in Section 8.01 and 8.02 of the License
Agreement.
5. RELEASE OF DEPOSIT. Upon notice to Escrow Agent by Perkin-Elmer (in
the form of an affidavit or declaration by an officer of Perkin-Elmer) of the
occurrence of the Release Condition defined in Section 6, Escrow Agent shall
immediately notify Epoch with a copy of the notice from Perkin-Elmer. If Epoch
provides contrary instruction within ten (10) working days of Epoch's receipt of
the notice, Escrow Agent shall not deliver the Deposit to Perkin-Elmer except as
provided below. "Contrary instruction" means the filing of an affidavit or
declaration with Escrow Agent by an officer of Epoch stating that the Release
Condition has not occurred, has been cured, or there is some other dispute or
issue which necessitates that the Deposit not be delivered to Perkin-Elmer. Upon
receipt of contrary instruction, Escrow Agent shall (i) immediately deliver a
copy of the affidavit or declaration containing the contrary instruction to
Perkin-Elmer, (ii) not deliver a copy of the Deposit to Perkin-Elmer and (iii)
and continue to store the Deposit until otherwise directed by Perkin-Elmer and
Epoch jointly, or until resolution of the dispute pursuant to Section 7.
6. RELEASE CONDITION. As used herein, the term "Release Condition"
shall mean the failure of Epoch, pursuant to Article V of the License Agreement,
to supply at least ninety-five percent (95%) of Perkin-Elmer's requirements of
MGB Intermediates for more than four (4) months after receipt of written notice
from Perkin-Elmer (pursuant to the terms of the License Agreement) of a material
failure to so supply.
7. GOVERNING LAW; INFORMAL DISPUTE RESOLUTION; ATTORNEYS' FEES. This
Agreement will be deemed to have been made in the State of California and its
form, execution, validity, construction and effect will be determined in
accordance with the laws of the State of California. In the event of a dispute
arising under this Agreement, Escrow Agent shall so notify Perkin-Elmer and
Epoch in writing. Upon receipt of such notice, Perkin-Elmer and Epoch will
attempt to resolve such dispute informally pursuant to the terms and provisions
of Section 11.03 of the License Agreement. The non-prevailing party in any legal
proceedings brought under this Agreement will pay all costs and expenses
incurred by the prevailing party, including, without limitation, all reasonable
attorneys' fees.
8. INDEMNIFICATION. Perkin-Elmer and Epoch agree to defend and
indemnify Escrow Agent and hold Escrow Agent harmless from and against all
claims, actions and suits, whether in contract or in tort, and from and against
any and all liabilities, losses, damages, costs, charges, penalties, counsel
fees, and other expenses of any nature (including, without limitation,
settlement costs) incurred by Escrow Agent as a result of performance of this
Agreement except in the event of a judgment or arbitration decision which
specified that Escrow Agent acted with gross negligence or willful misconduct.
2
<PAGE> 32
Escrow Agent may decline to act and shall not be liable for failure to
act if in doubt as to its duties under this Agreement. Escrow Agent may act upon
any instrument or signature reasonably believed by it to be genuine and may
assume that any person purporting to give any notice or instruction pursuant to
this Agreement reasonably believed by it to be authorized, has been duly
authorized to do so. Escrow Agent's duties shall be determined only with
reference to this Agreement and applicable laws, and Escrow Agent is not charged
with knowledge of or any duties or responsibilities in connection with any other
document or agreement, including, but not limited to, the License Agreement. In
the event Escrow Agent shall be uncertain as to its duties or rights under this
Agreement, it shall be entitled to refrain from taking any action, other than to
keep safely the Deposit, until it shall (i) receive written instructions signed
by Perkin-Elmer and Epoch or (ii) is directed otherwise by a court of competent
jurisdiction.
In the event Escrow Agent should at any time be confronted with
inconsistent or conflicting claims or demands by the parties to this Agreement,
Escrow Agent shall have the right to interplead the parties in any court of
competent jurisdiction and request that the court determine the respective
rights of the parties with respect to this Agreement and, upon doing so, Escrow
Agent shall be released from any obligations or liability to any party as a
consequence of any claims or demands.
Escrow Agent may execute any of its powers, rights, or responsibilities
under this Agreement either directly or by or through its agents or attorneys.
Escrow Agent shall not be responsible for and shall not be under a duty to
examine, inquire into, or pass upon the validity, binding effect, execution, or
sufficiency of this Agreement or of any amendment or supplement to this
Agreement.
9. NOTICES. Any notice required or permitted under this Agreement will
be sent by Federal Express or certified mail to the following addresses of the
parties:
If to Epoch: If to Perkin-Elmer:
Epoch Pharmaceuticals, Inc. PE Biosystems Division
12277 134th Court NE 850 Lincoln Centre Drive
Suite 100 Foster City, California 94404
Redmond, Washington 98052 Attn.: Legal Department
Attn.: President
If to Escrow Agent:
Heller Ehrman White & McAuliffe
333 Bush Street
San Francisco, California 94104-2878
Attention: Brett Dick
3
<PAGE> 33
10. VERIFICATION RIGHTS. Epoch grants to Escrow Agent, or a neutral
third party mutually agreeable to Perkin-Elmer and Epoch and who shall be bound
by the confidentiality provisions set forth in Section 3 of this Agreement, the
right to verify, audit and inspect the Deposit to confirm that the Documentation
contains sufficient documentation and information to provide a person skilled in
oligonucleotide chemistry the know-how necessary to manufacture MGB
Intermediates.
11. ESCROW FEES. Perkin-Elmer and Epoch agree to jointly pay all escrow
fees due Escrow Agent pursuant to its services under this Agreement. All such
fees shall be those specified in Escrow Agent's standard Schedule of Fees in
effect at the time of this Agreement, which are attached hereto as Exhibit A,
except as otherwise agreed. For any increase in Escrow Agent's standard fees,
Escrow Agent shall notify Perkin-Elmer and Epoch at least ninety (90) days prior
to any renewal of this Agreement. For any service not listed on the Schedule of
Fees, Escrow Agent shall provide a quote prior to rendering such service.
12. SUCCESSOR ESCROW AGENTS. Escrow Agent may resign at any time upon
giving at least 30 days' written notice to the parties; provided, however, that
no such resignation shall become effective until the appointment of a successor
escrow agent which shall be accomplished as follows: The parties shall use their
best efforts to mutually agree on a successor escrow agent within 30 days after
receiving such notice. If the parties fail to agree upon a successor escrow
agent within such time, Escrow Agent shall have the right to appoint a successor
escrow agent authorized to do business in the state of California. The successor
escrow agent shall execute and deliver an instrument accepting such appointment,
and it shall, without further acts, be vested with all the rights, powers and
duties of the predecessor Escrow Agent as if originally named as Escrow Agent.
Upon such appointment, the predecessor Escrow Agent shall be discharged from any
further duties and liability under this Agreement, except for obligations or
liabilities arising by reason of the prior gross negligence or willful
misconduct on the part of Escrow Agent.
4
<PAGE> 34
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PE CORPORATION, EPOCH PHARMACEUTICALS, INC.,
a Delaware corporation a Delaware corporation
- ------------------------------------- -------------------------------------
By: By:
---------------------------------- ----------------------------------
Its: Its:
--------------------------------- ---------------------------------
ESCROW AGENT
Heller Erhman White & McAuliffe
- -------------------------------------
By:
---------------------------------
Its:
--------------------------------
5
<PAGE> 35
EXHIBIT A
ESCROW AGENT'S STANDARD SCHEDULE OF FEES
Standard hourly rates of Escrow Agent.
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 218,584
<SECURITIES> 0
<RECEIVABLES> 61,065
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 323,553
<PP&E> 322,286
<DEPRECIATION> 0
<TOTAL-ASSETS> 685,467
<CURRENT-LIABILITIES> 4,404,636
<BONDS> 0
0
0
<COMMON> 149,327
<OTHER-SE> (6,070,109)
<TOTAL-LIABILITY-AND-EQUITY> 685,467
<SALES> 0
<TOTAL-REVENUES> 169,779
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,903,554
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 699,135
<INCOME-PRETAX> (3,326,918)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,396,918)
<DISCONTINUED> 70,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,326,918)
<EPS-BASIC> (0.22)
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