U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
|X| Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2002
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[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to_______.
Commission file number 0-27282
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ATLANTIC TECHNOLOGY VENTURES, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 36-3898269
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
350 Fifth Avenue, Suite 5507, New York, New York 10118
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(Address of principal executive offices)
(212) 267-2503
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(Issuer's telephone number)
150 Broadway, Suite 1110, New York, New York 10038
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(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer: (1) filed all reports required 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
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Number of shares of common stock outstanding as of August 12, 2002: 16,989,596
Transitional Small Business Disclosure Format (check one): Yes No X
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INDEX
Page
PART I-- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets (unaudited)
as of June 30, 2002 and December 31, 2001 3
Consolidated Statements of Operations (unaudited)
for the three and six months ended June 30, 2002 and 2001,
and the period from July 13, 1993 (inception) to June 30, 2002 4
Consolidated Statements of Cash Flows (unaudited)
for the six months ended June 30, 2002 and 2001, and the
period from July 13, 1993 (inception) to June 30, 2002 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 11
PART II-- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 24
2
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
2002 2001
------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 445,375 1,591,761
Accounts receivable 501,667 --
Prepaid expenses 5,000 38,593
------------ ------------
Total current assets 952,042 1,630,354
Property and equipment, net 83,756 105,153
Other assets 22,337 22,838
------------ ------------
Total assets $ 1,058,135 1,758,345
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 427,737 508,613
Stockholders' equity:
Preferred stock, $.001 par value. Authorized 10,000,000
shares; 1,375,000 shares designated as Series A
convertible preferred stock -- --
Series A convertible preferred stock, $.001 par value
Authorized 1,375,000 shares; 356,039 and 346,357 shares issued and
outstanding at June 30, 2002 and December 31, 2001, respectively
(liquidation preference aggregating $4,628,507 and $4,502,641 at
June 30, 2002 and December 31, 2001, respectively) 356 346
Convertible preferred stock warrants, 112,896 issued and outstanding at
June 30, 2002 and December 31, 2001 520,263 520,263
Common stock, $.001 par value. Authorized 50,000,000
shares; 16,989,596 and 15,965,359 shares issued and outstanding
at June 30, 2002 and December 31, 2001, respectively 16,990 15,965
Common stock subscribed. 182 shares at June 30, 2002
and December 31, 2001 -- --
Additional paid-in capital 27,411,577 27,442,106
Deficit accumulated during development stage (27,318,246) (26,728,406)
------------ ------------
630,940 1,250,274
Less common stock subscriptions receivable (218) (218)
Less treasury stock, at cost (324) (324)
------------ ------------
Total stockholders' equity 630,398 1,249,732
------------ ------------
Total liabilities and stockholders' equity $ 1,058,135 1,758,345
============ ============
See accompanying notes to unaudited consolidated financial statements.
3
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
Cumulative
period from
July 13, 1993
(inception) to
Three months ended June 30, Six months ended June 30, June 30,
-----------------------------------------------------------------
2002 2001 2002 2001 2002
-------------- ------------- -------------- -------------- ----------------
Revenues:
Development revenue $ -- $ -- $ -- $ 2,461,922 $ 8,713,720
License revenue 500,000 -- 500,000 -- 3,000,000
Grant revenue -- -- -- 250,000 616,659
-------------- ------------- -------------- -------------- ----------------
Total revenues 500,000 -- 500,000 2,711,922 12,330,379
-------------- ------------- -------------- -------------- ----------------
Costs and expenses:
Cost of development revenue -- -- -- 2,082,568 7,084,006
Research and development 139,935 295,316 341,777 602,083 10,733,403
Acquired in-process research and
development -- -- -- -- 2,653,382
General and administrative 333,114 1,155,325 762,337 1,837,273 19,436,970
Compensation expense (benefit)
relating to stock warrants
(general and administrative), net (4,376) 22,695 (5,845) 34,666 1,093,631
License fees -- -- -- -- 173,500
-------------- ------------- -------------- -------------- ----------------
Total operating expenses 468,673 1,473,336 1,098,269 4,556,590 41,174,892
-------------- ------------- -------------- -------------- ----------------
Operating income (loss) 31,327 (1,473,336) (598,269) (1,844,668) (28,844,513)
Other (income) expense:
Interest and other income (2,907) (14,334) (8,429) (34,352) (1,301,575)
(Gain) loss on sale of Optex assets -- 240,000 -- (2,569,451) (2,569,451)
Loss on sale of Gemini assets -- 334,408 -- 334,408 334,408
Interest expense -- -- -- -- 625,575
Equity in loss of affiliate -- 17,963 -- 21,684 146,618
Distribution to minority shareholders -- 69,760 -- 837,274 837,274
-------------- ------------- -------------- -------------- ----------------
Total other (income) expense (2,907) 647,797 (8,429) (1,410,437) (1,927,151)
-------------- ------------- -------------- -------------- ----------------
Net income (loss) $ 34,234 $(2,121,133) $ (589,840) $ (434,231) $ (26,917,362)
-------------- ------------- -------------- -------------- ----------------
Imputed convertible preferred stock
dividend -- -- -- 600,000 5,931,555
Dividend paid upon repurchase of Series B -- -- -- 167,127 400,884
Preferred stock dividend issued in
preferred shares -- -- 39,162 64,144 1,429,674
-------------- ------------- -------------- -------------- ----------------
Net income (loss) applicable to common
shares $ 34,234 $(2,121,133) $ (629,002) $ (1,265,502) $ (34,679,475)
============== ============= ============== ============== ================
Net income (loss) per common share:
Basic $ 0.00 $ (0.32) $ (0.04) $ (0.19)
============== ============= ============== ==============
Diluted $ 0.00 $ (0.32) $ (0.04) $ (0.19)
============== ============= ============== ==============
Weighted average shares of common stock
outstanding:
Basic 16,965,763 6,608,751 16,929,568 6,515,753
============== ============= ============== ==============
Diluted 19,888,843 6,608,751 16,929,568 6,515,753
============== ============= ============== ==============
See accompanying notes to unaudited consolidated financial statements.
4
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
Cumulative
period from
July 13, 1993
(inception) to
Six months endec June 30,
-----------------------------------------
2002 2001 2002
----------- ----------- -----------
Cash flows from operating activities:
Net loss $ (589,840) (434,231) (27,541,436)
Adjustments to reconcile net loss to
net cash used in operating activities:
Acquired in-process research and
development -- -- 1,800,000
Expense relating to issuance
of common stock and warrants 13,500 444,000 799,802
Expense relating to the issuance of options -- -- 81,952
Expense related to Channel merger -- -- 657,900
Change in equity of affiliate -- 21,684 146,618
Compensation expense (benefit) relating to
stock options and warrants (5,845) 34,666 1,300,207
Discount on notes payable - bridge
financing -- -- 300,000
Depreciation 24,087 43,911 608,029
Gain on sale of Optex assets -- (2,569,451) (2,569,451)
Distribution to Optex minority shareholders -- 837,274 837,274
Loss on sale of Gemini assets -- 334,408 334,408
Loss on disposal of furniture and equipment -- -- 73,387
Changes in assets and liabilities:
(Increase) decrease in accounts (501,667) 192,997 (501,667)
receivable
Decrease in prepaid expenses 33,593 12,784 13,519
Decrease in deferred revenue -- (1,294,615) --
Decrease in accrued expenses (80,876) (706,118) (223,328)
Increase (decrease) in accrued interest -- -- 172,305
Decrease (increase) in other assets 501 (19,937) (22,337)
----------- ----------- -----------
Net cash used in operating activities (1,106,547) (3,102,628) (23,732,818)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of furniture and equipment (2,690) (101,834) (924,021)
Investment in affiliate -- -- (146,618)
Proceeds from sale of Optex assets -- 3,000,000 3,000,000
Proceeds from sale of furniture and equipment -- -- 6,100
----------- ----------- -----------
Net cash provided by (used in)
investing activities (2,690) 2,898,166 1,935,461
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from exercise of warrants -- -- 5,500
Proceeds from exercise of stock options -- -- 397,098
Proceeds from issuance of demand notes payable -- -- 2,395,000
Repayment of demand notes payable -- -- (125,000)
Proceeds from the issuance of notes payable -
bridge financing -- -- 1,200,000
Proceeds from issuance of warrants -- -- 300,000
Repayment of notes payable - bridge financing -- -- (1,500,000)
Repurchase of common stock -- -- (324)
Preferred stock dividend paid (512) (577) (2,329)
Net proceeds from the issuance of common stock (36,637) -- 9,412,568
Proceeds from issuance of convertible
preferred stock -- -- 11,441,672
Repurchase of convertible preferred stock -- (617,067) (1,128,875)
Distribution to Optex minority shareholders -- (811,114) (811,114)
----------- ----------- -----------
Net cash provided by (used in)
financing activities (37,149) (1,428,758) 21,584,196
----------- ----------- -----------
Net decrease in cash and cash (1,146,386) (1,633,220) (213,161)
equivalents
Cash and cash equivalents at beginning of period 1,591,761 2,663,583 --
----------- ----------- -----------
Cash and cash equivalents at end of period $ 445,375 1,030,363 (213,161)
=========== =========== ===========
Supplemental disclosure of noncash financing activities:
Issuance of common stock in exchange for
common stock subscriptions $ -- -- 7,027
Conversion of demand notes payable and the related
accrued interest to common stock -- -- 2,442,304
Cashless exercise of preferred warrants -- -- 49,880
Conversion of preferred to common stock 40 409 2,929
Preferred stock dividend issued in shares 39,162 64,144 1,311,653
=========== =========== ===========
See accompanying notes to unaudited consolidated financial statements.
5
ATLANTIC TECHNOLOGY VENTURES, INC. and SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2002
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information. Accordingly, the
financial statements do not include all information and footnotes required by
accounting principles generally accepted in the United States of America for
complete annual financial statements. In the opinion of management, the
accompanying consolidated financial statements reflect all adjustments,
consisting of only normal recurring adjustments, considered necessary for fair
presentation. Interim operating results are not necessarily indicative of
results that may be expected for the year ending December 31, 2002 or for any
subsequent period. These consolidated financial statements should be read in
conjunction with the Annual Report on Form 10-KSB, as amended, of Atlantic
Technology Ventures, Inc. and its subsidiaries ("Atlantic") as of and for the
year ended December 31, 2001.
(2) LIQUIDITY
Atlantic has reported net losses of $1,734,945, $5,802,478, and
$2,446,515 for the years ended December 31, 2001, 2000 and 1999, respectively.
Atlantic has reported a net loss of $589,840 for the six months ended June 30,
2002. The loss from date of inception, July 13, 1993, to June 30, 2002 amounts
to $26,917,362. Also, Atlantic has $445,375 in cash and cash equivalents and
$501,667 in accounts receivable as of June 30, 2002 being received in cash on
July 8, 2002. Atlantic's cash reserves are primarily the result of a private
placement of its common stock in December 2001. In addition, on June 28, 2002,
Atlantic licensed the exclusive worldwide rights to the CT-3 compound to Indevus
Pharmaceuticals, Inc. As a result of this agreement, Atlantic received a
licensing fee of $500,000, which is included in accounts receivable at June 30,
2002 and was received on July 8, 2002. Aside from this, Atlantic currently has
no revenue-generating activities. Atlantic anticipates that its current
resources will be sufficient to finance for the next several months its
currently anticipated needs for operating and capital expenditures. Atlantic
plans to achieve this by continuing to reduce expenses, including by means of
voluntary salary deferrals. As a result of these changes, Atlantic expects that
its average monthly cash outlay will be approximately $130,000. Atlantic does
not currently have any committed sources of financing, and due to the trading
price of its common stock it is not currently able to access funding under its
agreement with Fusion Capital Fund II, LLC. These factors raise substantial
doubt about its ability to continue as a going concern. The consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of reported asset amounts or the amounts or
classification of liabilities which might result from the outcome of this
uncertainty.
Atlantic's continued operations will depend on its ability to raise
additional funds through various potential sources such as equity and debt
financing, collaborative agreements, strategic alliances and its ability to
realize the full potential of its technology in development. As stated above, in
June 2002, Atlantic licensed the rights to the CT-3 compound to Indevus
Pharmaceuticals, Inc. in exchange for, among other things, a licensing fee of
$500,000 being received in cash on July 8, 2002. During December 2001, Atlantic
received net proceeds of approximately $1,848,000 from the private placement of
securities with various individual investors and $100,000 from Fusion Capital.
During the second quarter of 2002, Fusion also purchased 10,000 shares of
Atlantic common stock for $1,667. Additional funds are currently not available
on acceptable terms and may not become available, and there can be no assurance
that any additional funding that Atlantic does obtain will be sufficient to meet
Atlantic's needs in the short and long term. To date, a significant portion of
Atlantic's financing has been through private placements of common stock and
warrants, the issuance of common stock for stock options and warrants exercised,
debt financing and the licensing of its technologies. Until Atlantic's
operations generate significant revenues, Atlantic will continue to fund
operations from cash on hand and through the sources of capital previously
described.
Atlantic's common stock was delisted from the Nasdaq SmallCap Market
effective at the close of business August 23, 2001 for failing to meet the
minimum-bid-price requirements set forth in the NASD Marketplace Rules. As of
August 23, 2001, Atlantic's common stock trades on the Over-the-Counter Bulletin
Board under the symbol "ATLC.OB". Delisting of Atlantic's common stock from
Nasdaq could have a material adverse effect on its ability to raise additional
capital, its stockholders' liquidity and the price of its common stock.
6
(3) COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is calculated by dividing net
income (loss) applicable to common shares by the weighted-average number of
common shares outstanding for the period plus contingently issuable shares for
little or no consideration. Diluted net income (loss) per common share for the
three months ended June 30, 2002 is calculated by dividing net income (loss)
applicable to common shares by the weighted-average common shares outstanding
for the period plus 2,923,080 common stock equivalents from assumed conversions
of the Series A preferred stock. Assumed exercise of stock options and warrants
were excluded since their effect is antidilutive. Diluted net loss per common
share for the three months ended June 30, 2001 and the six-month periods ended
June 30, 2002 and 2001, respectively equals basic net loss per common share,
since common stock equivalents from stock options, stock warrants, stock
subscriptions and convertible preferred stock would have an anti dilutive effect
because Atlantic incurred a net loss for these periods. The common stock
equivalents from stock options, stock warrants, stock subscriptions, and
convertible preferred stock which have not been included in the diluted
calculations since their effect is antidilutive were 17,511,305 for the six
months ended June 30, 2002 and 3,793,037 for the six months ended June 30, 2001.
(4) INCOME TAXES
Atlantic incurred a net loss for the six months ended June 30, 2002. In
addition, Atlantic does not expect to generate book income for the year ended
December 31, 2002. Therefore, no income taxes have been reflected for the three-
and six-month periods ended June 30, 2002.
(5) PREFERRED STOCK DIVIDEND
On February 7, 2002 and January 16, 2001, Atlantic's board of directors
declared a payment-in-kind dividend of 0.065 of a share of Series A convertible
preferred stock for each share of Series A convertible preferred stock held as
of a specified record date. The estimated fair value of these dividends of
$39,162 and $64,144 was included in Atlantic's calculation of net income (loss)
per common share for the six month periods ended June 30, 2002 and 2001,
respectively.
(6) ISSUANCE OF STOCK, STOCK OPTIONS AND WARRANTS
On March 8, 2001, Atlantic entered into an agreement with The Investor
Relations Group, Inc. ("IRG") under which IRG will provide Atlantic investor
relations services. Pursuant to this agreement, Atlantic issued to Dian Griesel,
the principal of IRG, warrants to purchase 120,000 shares of its common stock at
an exercise price of $0.875 per share and agreed to pay IRG $7,500 per month.
These warrants vest monthly in 5,000 share increments over a 24-month period. As
part of its effort to reduce expenses, Atlantic concluded the agreement with IRG
as of May 31, 2002 and therefore, the 45,000 unvested warrants have terminated.
In addition, in lieu of paying $15,000 for services rendered in April and May
2002, IRG agreed to accept 75,000 common shares. The estimated fair value of
these shares of $13,500 was recorded as a general and administrative expense
during the second quarter of 2002. In addition, pursuant to EITF Issue No.
96-18, "Accounting for Equity Instruments That are Issued to Other Than
Employees for Acquiring or in Conjunction with Selling Goods or Services,"
Atlantic recorded compensation expense of $22,695 and $34,666 for the three- and
six-month periods ended June 30, 2001 relating to the original issuance of the
stock warrants to purchase 120,000 shares. As a result of a decline in
Atlantic's common stock price during the three- and six-month periods ended June
30, 2002 and the termination of 45,000 warrants, the cumulative expense
associated with these warrants was reduced. The reduction in the estimated fair
value of the warrants previously recorded and the current period expense
resulted in a net reversal of compensation expense of $4,376 and $5,845, which
reversal is recorded as a benefit during the three- and six-month periods ended
June 30, 2002.
Compensation for these warrants relates to investor relations services
and represents a general and administrative expense (benefit).
During the six months ended June 30, 2002, Atlantic granted employees
an aggregate of 2,000,000 options outside of the Atlantic Pharmaceuticals, Inc.
1995 Stock Option Plan. Of these options, 475,000 options represent the annual
issuance of stock options to Atlantic employees on terms similar to those of
prior year. They vest 25% upon issuance and the remaining options vest in 25%
7
increments on an annual basis. In addition, 950,000 of these options were issued
as incentive options and will vest upon the earlier of the achievement of
certain milestones by Atlantic or five years. The remaining 575,000 options were
issued and fully vested in March 2002 as part of voluntary revisions to
compensation arrangements with certain employees which principally resulted in
the employees deferring a significant portion of their salary. This deferred
salary is payable on the earlier of Atlantic's discretion, the employee's
termination, and, in certain cases, at the conclusion of the employee's contract
and as such Atlantic continues to accrue for those salary costs. The 2,000,000
options were granted at the stock price on the day of issuance, and are
exercisable for a period of ten years regardless of whether the grantee
continues to be employed by Atlantic.
(7) REDEEMABLE SERIES B PREFERRED SHARES
As described further in Atlantic's Form 10-KSB for the year ended
December 31, 2001, Atlantic entered into a convertible preferred stock and
warrants purchase agreement (the "Purchase Agreement"), with BH Capital
Investments, L.P. and Excalibur Limited Partnership (together, the "Investors"),
for the issuance of Atlantic's Series B convertible preferred stock and
warrants.
Pursuant to Atlantic's subsequent renegotiations with the Investors,
the conversion price per share of the Series B preferred stock on any given day
was amended to be the lower of (1) $1.00 or (2) 90% of the average of the two
lowest closing bid prices on the principal market of the common stock out of the
fifteen trading days immediately prior to conversion. The change in conversion
price upon the renegotiations on January 9, 2001 resulted in a difference
between the conversion price of the Series B preferred stock and the market
price of the common stock on the effective date of the renegotiation. This
amount, estimated at $600,000, was recorded as an imputed preferred-stock
dividend within equity and is deducted from net income (loss) to arrive at net
income (loss) applicable to common shares during the six month period ended June
30, 2001.
On January 19, 2001, 41,380 shares of Series B preferred stock were
converted by the Investors into 236,422 shares of Atlantic's common stock. On
March 9, 2001, Atlantic and the Investors entered into a second stock repurchase
agreement pursuant to which Atlantic repurchased from the Investors, for an
aggregate purchase price of $617,067, all 165,518 shares of Atlantic's Series B
preferred stock held by the Investors on March 9, 2001. The carrying amount of
the 165,518 shares was equal to $480,000; therefore the amount in excess of the
carrying amount, plus the estimated fair value of the warrants retained by the
Investors, which equals $167,127, was recorded as a dividend upon repurchase of
shares of Series B preferred stock and is deducted from net loss to arrive at
net loss applicable to common shares.
(8) DEVELOPMENT REVENUE
In accordance with a now-terminated license and development agreement,
Bausch & Lomb Surgical paid Atlantic's subsidiary, Optex Ophthalmologics, Inc.
("Optex"), for developing its Avantix (formerly known as Catarex) technology.
For the six months ended June 30, 2002, this agreement provided no development
revenue and no related cost-of-development revenue as compared to $2,461,922 of
development revenue (including $1,067,345 in project-completion bonuses paid out
and recognized at the completion of the project in March 2001) and related
cost-of-development revenue of $2,082,568 for the six months ended June 30,
2001. The decrease in revenues and related expenses from Bausch & Lomb over last
year was due to the fact that there were no revenues and related expenses since
termination of the agreement in March 2001. With termination of the above
agreement at the conclusion of the sale of substantially all of Optex's assets
(mostly intangible assets with no book value) in March 2001, as described in
note 9 below, Atlantic will no longer have the revenues or profits associated
with that agreement.
(9) SALE OF OPTEX ASSETS
Pursuant to an asset purchase agreement dated January 31, 2001, among
Bausch & Lomb Incorporated, a Bausch & Lomb affiliate, Atlantic, and Optex, on
March 2, 2001, Optex sold to Bausch & Lomb substantially all of its assets
(mostly intangible assets with no book value), including all those related to
the Avantix (formerly known as Catarex) technology. The purchase price was $3
million paid at closing (of which approximately $564,000 has been distributed to
Optex's minority shareholders). In addition, Optex is entitled to receive
additional consideration, namely $1 million once Bausch & Lomb receives
regulatory approval to market the Avantix device in Japan,
8
royalties on net sales on the terms stated in the original development agreement
dated May 14, 1998, between Bausch & Lomb and Optex, as amended, and minimum
royalties of $90,000, $350,000, and $750,000 for the first, second, and third
years, respectively, starting on first commercial use of the Avantix device or
January 1, 2004, whichever is earlier. Optex also has the option to repurchase
the acquired assets from Bausch & Lomb at fair value if it ceases developing the
Avantix technology.
Upon the sale of Optex assets, Bausch & Lomb's development agreement
with Optex was terminated and Optex has no further involvement with Bausch &
Lomb. As a result of this transaction, Atlantic recorded a net gain on the sale
of Optex assets of $2,569,451 for the six-month period ended June 30, 2001. This
includes a net loss of $240,000 for the quarter ended June 30, 2001, as
described below. The purchase price of $3,000,000 is nonrefundable and upon the
closing of the asset purchase agreement in March 2001, Optex had no further
obligation to Bausch & Lomb or with regard to the assets sold. In the asset
purchase agreement, Optex agreed to forgo future contingent payments provided
for in the earlier development agreement. Optex has recorded a profit
distribution for the six months ended June 30, 2001 of $837,274, representing
the minority shareholders' percentage of the cumulative profit from the Bausch &
Lomb development and asset purchase agreements up to and including proceeds from
the sale of Optex's assets. (This figure includes the $564,000 referred to
above.)
On May 9, 2001, Atlantic's board of directors, after considering all
the relevant facts and circumstances and consulting counsel agreed to authorize
an aggregate payment of $240,000 to three former employees of Optex (who are now
employed by Bausch & Lomb). The payments were made on May 11, 2001, and
represented the settlement of claims made by the employees subsequent to the
asset purchase agreement referred to above for severance monies allegedly due
under their employment agreement. Atlantic did not believe these monies were due
pursuant to the terms of the transaction or the respective employment
agreements. The board of directors elected to acquiesce to the demands of the
former employees and resolve the matter in light of the potential future
royalties from Bausch & Lomb and the importance of these individuals to the
ongoing development activities. The payment was recorded as an expense netted
against gain on the sale of Optex assets during the second quarter of 2001.
(10) PRIVATE PLACEMENT OF COMMON SHARES
On November 6, 2001, Atlantic entered into an agreement with Joseph
Stevens & Company, Inc. in which Joseph Stevens agreed to act as placement agent
for a private placement of shares of Atlantic's common stock. In that private
placement, the price of each share of Atlantic's common stock was $0.24 and the
minimum and maximum subscription amounts were $2,000,000 and $3,000,000,
respectively. In addition, each investor received a warrant to purchase one
share of Atlantic's common stock for every share of Atlantic's common stock
purchased by that investor. The warrants have an exercise price of $0.29 and are
exercisable for five years from the closing date. On December 3, 2001, Atlantic
issued to certain investors an aggregate of 8,333,318 shares of common stock for
the minimum subscription of $2,000,000. In connection with the private
placement, Atlantic paid Joseph Stevens a placement fee of $140,000, equal to 7%
of the aggregate subscription amount, a warrant to purchase 833,331 shares of
Atlantic's common stock, which represented 10% of the number of shares issued to
the investors and 833,331 shares of Atlantic common stock. The term of the
warrant is five years and the per share exercise price is $0.29. In conjunction
with this private placement, Atlantic received net proceeds of approximately
$1,848,000 in December 2001.
(11) SERIES A ANTIDILUTION PROVISION
The conversion price and conversion rate of the Series A preferred
stock is subject to adjustment upon the occurrence of certain events, including
the issuance of common stock at a per-share price less than either the
conversion price or the then market price. Recent issuances of stock, options
and warrants, including in connection with Atlantic's recent private placement,
have necessitated that Atlantic adjust the conversion rate and conversion price
of the Series A preferred stock. Accordingly, the conversion price of the Series
A preferred stock has been decreased from $3.058 to $1.22, and the conversion
rate has been increased from 3.27 to 8.21 to reflect all recent issuances of
stock options and warrants through December 31, 2001. In connection with these
changes, Atlantic has issued 66,666 make-up shares of common stock to certain
former Series A preferred stock holders which are included in the net loss per
common share calculation for the six months ended June 30, 2002. During the
second quarter of 2002, the conversion rate was increased further to 8.22 as a
result of the issuance of 75,000 shares to IRG and 10,000 shares to Fusion
Capital.
9
(12) LICENSING OF CT-3 TO INDEVUS PHARMACEUTICALS, INC.
On June 28, 2002, Atlantic entered into a license agreement with
Indevus Pharmaceuticals, Inc. in which Atlantic licensed to Indevus the
exclusive worldwide rights to CT-3, its novel anti-inflammatory and analgesic
compound currently in clinical development. Indevus will be responsible for all
further development of CT-3, and Atlantic will have no future involvement with
Indevus or CT-3 other than its rights under the license agreement to royalties
and milestone payments. Under the license agreement, Atlantic received an
initial licensing fee of $500,000. In accordance with SAB No. 101, "Revenue
Recognition," Atlantic recognized $500,000 of licensing revenue during the
quarter ended June 30, 2002, since it has no further obligations under the
license agreement. Atlantic is entitled to additional milestone payments on
occurrence of certain events specified in the license agreement, including
commencement and completion of various clinical trials, the FDA's acceptance for
filing of a New Drug Application, or "NDA," and Indevus securing other
regulatory approvals for CT-3 in the United States and Europe, and Atlantic will
be entitled to royalties once the compound begins to generate revenue.
(13) LICENSING OF ANTIMICROBIAL AGENT ATV-02
Atlantic has licensed from its inventors the worldwide rights to
ATV-02, a potent and broad-spectrum antimicrobial agent for the local treatment
of topical infections. This compound is more commonly known as N-Chlorotaurine,
or "NCT." This compound has completed safety and tolerability studies in a
limited number of subjects and has begun a series of Phase II human clinical
studies for the treatment of several indications, including viral and bacterial
conjunctivitis and acute and chronic sinusitis.
Under the terms of the license agreement, Atlantic has exclusively
licensed the inventors' rights (including the right to sublicense) pertaining to
any novel therapeutic use or formulation of the compound. Atlantic has no
clinical-development obligations under the license agreement, but it plans to
continue developing ATV-02 in Europe in cooperation with the inventors using
their philanthropic funding sources and plans to file an IND in the United
States to develop the compound according to FDA regulations for approval in the
United States. Atlantic was not required to pay a license fee under the license
agreement, but if Atlantic proceeds with clinical development of the compound it
would be required to make payments to the investors upon achieving certain
milestones. Such payments would be payable in cash or company stock, at
Atlantic's discretion. The milestone payments as set forth in the license
agreement include (a) $100,000 upon the first new patent issuance, (b) $250,000
upon successful completion of a Phase III clinical trial, and (c) $1,000,000
upon receiving new drug approval. Atlantic would also be required to pay the
inventors a total royalty of 4% of the net sales of the licensed products sold
by Atlantic and 20% of the royalties which Atlantic receives from sublicensees.
Atlantic is responsible for preparing, filing, prosecuting, and maintaining the
patent applications and patent rights.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
You should read the following discussion of our results of operations
and financial condition in conjunction with our Annual Report on Form 10-KSB for
the year ended December 31, 2001. This discussion includes "forward-looking"
statements that reflect our current views with respect to future events and
financial performance. We use words such as we "expect," "anticipate,"
"believe," and "intend" and similar expressions to identify forward-looking
statements. Investors should be aware that actual results may differ materially
from our expressed expectations because of risks and uncertainties inherent in
future events, particularly those risks identified in the "Risk Factors" section
of our most recent Annual Report on Form 10-KSB, and should not unduly rely on
these forward looking statements.
RESULTS OF OPERATIONS
THREE-MONTH PERIOD ENDED JUNE 30, 2002 VS. 2001
In the quarter ended June 30, 2002, Indevus Pharmaceuticals, Inc. paid
us a $500,000 license fee as part of the consideration for our having licensed
to Indevus, under a license agreement effective June 28, 2002, exclusive
worldwide rights to CT-3, our novel anti-inflammatory and analgesic compound
currently in clinical development. Indevus will be responsible for all further
development of CT-3, and we will have no future involvement with Indevus or CT-3
other than in connection with our rights to royalties and milestone payments
under the license agreement. Those milestone payments are contingent on
occurrence of certain events specified in the agreement, including commencement
and completion of various clinical trials, the FDA's acceptance for filing of an
NDA, and Indevus securing other regulatory approvals for CT-3 in the United
States and Europe. In accordance with SAB No. 101, "Revenue Recognition," we
recognized $500,000 of licensing revenue during the quarter ended June 30, 2002,
since we have no further obligations under the license agreement. We will record
as additional revenue any additional payments we receive under the license
agreement.
For the quarter ended June 30, 2002, research and development expense
was $139,935 as compared to $295,316 for the second quarter of 2001. The
cessation of research and development activities on the antisense technology as
a result of sale of the assets of our subsidiary Gemini Technologies, Inc.
("Gemini") accounted for approximately $81,000 of this decrease and a one time
purchase of the CT-3 compound in the first quarter of 2002 accounted for $80,000
of the decrease since no similar purchase was required during the second quarter
of 2002.
For the quarter ended June 30, 2002, general and administrative expense
was $333,114 as compared to $1,155,325 for the quarter ended June 30, 2001. A
significant portion of this decrease is a result of the $444,000 estimated fair
value of the 600,000 commitment shares we issued to Fusion Capital Fund II, LLC
during the second quarter of 2001 in conjunction with a common stock purchase
agreement entered into with Fusion Capital Fund II, LLC. Fusion's obligation to
purchase our shares under this agreement is subject to certain conditions. A
material contingency that affects our ability to raise funds under this
agreement is our stock price. Currently, our stock price is below the floor
price of $0.68 specified in the Fusion agreement and as a result we are
currently unable to draw funds pursuant to that agreement. As the Fusion
agreement is currently structured, we cannot guarantee that we will be able to
draw any funds. In addition, the decrease was also due to reduced spending due
to an increased effort to conserve cash as well as reduced levels of general and
administrative activity. We had a decrease in payroll of approximately $73,000,
a decrease in legal expenses of approximately $76,000, a decrease in investor
relations services expenses of about $63,000, a decrease in accounting expense
of about $52,000, a decrease in travel expenses of approximately $31,000, and a
decrease of approximately $83,000 in other expenses.
For the quarter ended June 30, 2002, we had a reduction in compensation
expense relating to stock warrants of $4,376 as compared to an expense relating
to stock warrants of $22,695 in the prior year. This expense was associated with
warrants issued to Dian Griesel during March 2001 as partial compensation for
investor relations services provided to us by The Investor Relations Group, Inc.
("IRG"). The reduction of compensation expense associated with these warrants is
due to the decrease in our stock price during the quarter and the reversal of
expense associated with 45,000 unvested warrants which were terminated on May
31, 2002. With the termination of the agreement with IRG there will be no more
vesting of warrants and therefore we will not incur any additional compensation
expense associated with the Dian Griesel warrants. Compensation expense relating
to these investor relations services represents a general and administrative
expense.
11
For the second quarter of 2002, interest and other income was $2,907,
compared to $14,334 for the second quarter of 2001. The decrease in interest
income is primarily due to the decline in our cash reserves.
Net income applicable to common shares for the quarter ended June 30,
2002, was $34,234 as compared to net loss applicable to common shares of
$2,121,133 for the quarter ended June 30, 2001. The difference between the net
income applicable to common shares for the quarter ended June 30, 2002 and the
net loss applicable to common shares of $2,121,133 for the quarter ended June
30, 2001 is due in part to $500,000 of licensing revenue we recorded in
connection with our licensing to Indevus exclusive worldwide rights to CT-3. In
addition, research and development expenses decreased by $155,381 and general
and administrative expenses, including compensation expenses relating to stock
options and warrants, decreased by $849,282. Also, in the quarter ended June 30,
2001, we agreed to authorize an aggregate payment of $240,000 to three former
employees of Optex; this payment was recorded as an expense netted against gain
on the sale of Optex assets during the second quarter of 2001. In addition, we
recorded a loss of $334,408 on the sale of the assets of our subsidiary Gemini,
and our subsidiary Optex made an earnings distribution to its minority
shareholders of $69,760. Currently, we do not have a recurring source of
revenue.
SIX-MONTH PERIOD ENDED JUNE 30, 2002 VS. 2001
In the six-month period ended June 30, 2002, Indevus Pharmaceuticals,
Inc. paid us a $500,000 license fee as part of the consideration for our having
licensed to Indevus, under a license agreement effective June 28, 2002,
exclusive worldwide rights to CT-3, our novel anti-inflammatory and analgesic
compound currently in clinical development. Indevus will be responsible for all
further development of CT-3, and we will have no future involvement with Indevus
or CT-3 other than in connection with our rights to royalties and milestone
payments under the license agreement. Those milestone payments are contingent on
occurrence of certain events specified in the agreement, including commencement
and completion of various clinical trials, the FDA's acceptance for filing of an
NDA, and Indevus securing other regulatory approvals for CT-3 in the United
States and Europe. In accordance with SAB No. 101, "Revenue Recognition," we
recognized $500,000 of licensing revenue during the quarter ended June 30, 2002,
since we have no further obligations under the license agreement. We will record
as additional revenue any additional payments we receive under the license
agreement.
In accordance with a now-terminated license and development agreement,
Bausch & Lomb Surgical paid our subsidiary, Optex Ophthalmologics, Inc.
("Optex"), for developing its Avantix (formerly known as Catarex) technology.
For the six months ended June 30, 2002, this agreement provided no development
revenue and no related cost-of-development revenue as compared with $2,461,922
of development revenue (including $1,067,345 in project-completion bonuses paid
out and recognized at the completion of the project in March 2001) and related
cost-of-development revenue of $2,082,568 for the six months ended June 30,
2001. The decrease in revenues and related expenses from Bausch & Lomb over last
year was due to the fact that there were no revenues and related expenses since
termination of the agreement in March 2001.
For the six months ended June 30, 2002, research and development
expense was $341,777 as compared to $602,083 for the six months ended June 30,
2001. The cessation of research and development activities on our antisense
technology as a result of the sale of the assets of Gemini accounted for
approximately $156,000 of this decrease. In addition, research and development
consulting expense decreased by approximately $86,000 and research and
development salaries decreased by about $26,000.
For the six months ended June 30, 2002, general and administrative
expense was $762,337 as compared to $1,837,273 for the six months ended June 30,
2001. A significant portion of this decrease is a result of a finder's fee of
$120,000 and the $444,000 estimated fair value of the 600,000 commitment shares
we issued to Fusion Capital Fund II, LLC in conjunction with a common stock
purchase agreement with Fusion Capital Fund II, LLC we entered into during 2001.
Fusion's obligation to purchase our shares under this agreement is subject to
certain conditions. A material contingency that affects our ability to raise
funds under this agreement is our stock price. Currently, our stock price is
below the floor price of $0.68 specified in the Fusion agreement and as a result
we are currently unable to draw funds pursuant to that agreement. As the Fusion
agreement is currently structured, we cannot guarantee that we will be able to
draw any funds. In addition, the decrease was also due to reduced spending as a
result of increased efforts to conserve cash as well as reduced levels of
general and administrative activity. We had a decrease in payroll of
approximately $69,000, a decrease in legal expenses of approximately $195,000, a
decrease
12
in investor relations services of about $77,000,a decrease in due diligence fees
and Nasdaq fees of approximately $46,000 a decrease in accounting expense of
about $44,000, a decrease in travel of approximately $27,000, and a decrease of
approximately $53,000 in other expenses.
For the six months ended June 30, 2002, we had a reduction in
compensation expense relating to stock warrants of $5,845 as compared to an
expense relating to stock warrants of $34,666 in the prior year. This expense
was associated with warrants issued to Dian Griesel during March 2001 as partial
compensation for investor relations services provided to us by IRG. The
reduction of compensation expense associated with these warrants is due to the
decrease in our stock price as compared to 2001 and the reversal of previously
recorded expense associated with 45,000 unvested warrants which were terminated
as of May 31, 2002. Compensation expense relating to these investor relations
services represents a general and administrative expense. With the termination
of the agreement with IRG there will be no more vesting of warrants and
therefore we will not incur any additional compensation expense associated with
the Dian Griesel warrants.
For the six months ended June 30, 2002, interest and other income was
$8,429, compared to $34,352 for the six months ended June 30, 2001. The decrease
in interest income is primarily due to the decline in our cash reserves.
Net loss applicable to common shares for the six months ended June 30,
2002, was $629,002 as compared to $1,265,502 for the six months ended June 30,
2001. This decrease in net loss applicable to common shares is attributable in
part to $500,000 of licensing revenue we recorded in connection with our
licensing to Indevus exclusive worldwide rights to CT-3. A gain on the sale of
the assets of our subsidiary, Optex, was recognized during the six months ended
June 30, 2001 in the amount of $2,569,451, partially offset by a distribution to
the minority shareholders of Optex of $837,274. In addition, with the
termination of our agreement with Bausch & Lomb, we no longer have available to
us the revenue or profits associated with that agreement; as a result, we had no
profit from this agreement for the six months ended June 30, 2002 as compared
with $379,354 of profit for the same period in 2001. We recorded grant revenue
of $250,000 for the six months ended June 30, 2001 that we did not have in six
months ended June 30, 2002. The net loss applicable to common shares was further
decreased by a reduction in research and development expenses and general and
administrative expenses, including compensation expense relating to stock
options and warrants of $260,306 and $1,115,447, respectively, for the six
months ended June 30, 2002 as compared with the six months ended June 30, 2001.
In the six months ended June 30, 2001, we also recorded a loss of $334,408 on
sale of the assets of our subsidiary Gemini.
Net loss applicable to common shares for the six months ended June 30,
2001 also included a beneficial conversion on our Series B preferred stock in
the amount of $600,000 and a dividend of $167,127 paid on our repurchase of the
outstanding Series B preferred stock, both recorded during the six months ended
June 30, 2001. We also issued preferred stock dividends on our Series A
preferred stock, for which the estimated fair value of $39,162 and $64,144 was
included in the net income (loss) applicable to common shares for the six months
ended June 30, 2002 and 2001, respectively. The decrease in the estimated fair
value of these dividends as compared to the prior year is primarily a reflection
of a decline in our stock price and a reduction of the number of shares of
shares of Series A preferred stock outstanding.
LIQUIDITY AND CAPITAL RESOURCES
From inception to June 30, 2002, we incurred an accumulated deficit of
$27,318,246, and we expect to continue to incur additional losses through the
year ending December 31, 2002 and for the foreseeable future. This loss has been
incurred primarily through research and development activities related to the
various technologies under our control.
Pursuant to an asset purchase agreement dated January 31, 2001, among
Bausch & Lomb Incorporated, a Bausch & Lomb affiliate, Atlantic, and Optex, on
March 2, 2001, Optex sold to Bausch & Lomb substantially all its assets (mostly
intangible assets with no book value), including all those related to the
Avantix (formerly known as Catarex) technology. As a result of this sale,
Atlantic and Optex no longer have any obligations to Bausch & Lomb in connection
with development of the Avantix technology. The purchase price was $3 million
paid at closing (approximately $564,000 of which was distributed to minority
shareholders). In addition, Optex is entitled to receive additional
consideration, namely $1 million once Bausch & Lomb receives regulatory approval
to market the
13
Avantix device in Japan, royalties on net sales on the terms stated in the
original development agreement dated May 14, 1998, between Bausch & Lomb and
Optex, as amended, and minimum royalties of $90,000, $350,000, and $750,000 for
the first, second, and third years, respectively, starting on first commercial
use of the Avantix device or January 1, 2004, whichever is earlier. Optex also
has the option to repurchase the acquired assets from Bausch & Lomb if it ceases
developing the Avantix technology at fair value. Upon the sale of Optex assets,
Bausch & Lomb's development agreement with Optex was terminated. In the asset
purchase agreement, Optex agreed to forgo future contingent payments provided
for in the earlier development agreement. As a result of this transaction, we
recorded a gain on the sale of Optex assets of $2,569,451. We made a profit
distribution of $837,274 to Optex's minority shareholders, representing their
share of the cumulative profit from the development agreement with Bausch & Lomb
and the proceeds from the sale of Optex' assets.
On November 6, 2001, we entered into an agreement with Joseph Stevens &
Company, Inc. in which Joseph Stevens agreed to act as placement agent for a
private placement of shares of our common stock. In that private placement, the
price of each share of our common stock was $0.24 and the minimum and maximum
subscription amounts were $2,000,000 and $3,000,000, respectively. In addition,
each investor received a warrant to purchase one share of our common stock for
every share of our common stock purchased by that investor. The warrants have an
exercise price of $0.29 and are exercisable for five years from the closing
date. On December 3, 2001, we issued to certain investors an aggregate of
8,333,318 shares of common stock for the minimum subscription of $2,000,000. In
connection with the private placement, we paid Joseph Stevens a placement fee of
$140,000, equal to 7% of the aggregate subscription amount, a warrant to
purchase 833,331 shares of Atlantic's common stock, which represented 10% of the
number of shares issued to the investors and 833,331 shares of our common stock.
The term of this warrant is five years and the per share exercise price is
$0.29. In conjunction with this private placement, we received net proceeds of
approximately $1,848,000 in December 2001.
On June 28, 2002, we licensed to Indevus Pharmaceuticals, Inc. the
exclusive worldwide rights to CT-3 in exchange for a $500,000 licensing fee.
Atlantic is also entitled to additional milestone payments on occurrence of
certain events specified in the license agreement, including commencement and
completion of various clinical trials, the FDA's acceptance for filing of a New
Drug Application, or "NDA," and Indevus securing other regulatory approvals for
CT-3 in the United States and Europe, and Atlantic will be entitled to royalties
once the compound begins to generate revenue. Under the license agreement,
Indevus is responsible for the clinical development, regulatory activities and
commercializing this compound.
We have financed our operations since inception primarily through
equity and debt financing, our now-terminated collaborative arrangement with
Bausch & Lomb and our licensing of CT-3 to Indevus. During the three- and
six-month periods ended June 30, 2002, we had a net decrease in cash and cash
equivalents of $487,850 and $1,146,386, respectively.
This decrease primarily resulted from net cash used in operating
activities for the six months ended June 30, 2002 of $1,120,047. Total cash
resources as of June 30, 2002 were $445,375 compared to $1,591,761 at December
31, 2001. In addition, $501,667 of accounts receivable was collected subsequent
to June 30, 2002.
Our available working capital and capital requirements will depend upon
numerous factors, including progress of our research and development programs,
our progress in and the cost of ongoing and planned pre-clinical and clinical
testing, the timing and cost of obtaining regulatory approvals, the cost of
filing, prosecuting, defending, and enforcing patent claims and other
intellectual property rights, competing technological and market developments,
changes in our existing collaborative and licensing relationships, the resources
that we devote to developing manufacturing and commercializing capabilities,
technological advances, the status of our competitors, our ability to establish
collaborative arrangements with other organizations and our need to purchase
additional capital equipment.
Our current liabilities as of June 30, 2002 were $427,737 compared to
$508,613 at December 31, 2001, a decrease of $80,876. The decrease was primarily
due to reduced spending due to an increased effort to conserve cash. As of June
30, 2002, our working capital was $524,305, primarily the result of receiving a
$500,000 licensing fee from Indevus and of receiving $1,948,000 in net proceeds
from two private placements of our common stock during December 2001.
14
Our continued operations will depend on whether we are able to raise
additional funds through various potential sources, such as equity and debt
financing, other collaborative agreements, strategic alliances, and our ability
to realize the full potential of our technology in development. Such additional
funds may not become available as we need them or be available on acceptable
terms. To date, a significant portion of our financing has been through private
placements of common and preferred stock and warrants, the issuance of common
stock for stock options and warrants exercised, and debt financing. Until our
operations generate significant revenues, we will continue to fund operations
from cash on hand and through the similar sources of capital previously
described. We can give no assurances that any additional capital that we are
able to obtain will be sufficient to meet our needs.
We anticipate that our current resources (including the $500,000
received in July 2002 from Indevus) will be sufficient to finance for the next
several months our currently anticipated needs for operating and capital
expenditures. We plan to achieve this by continuing to reduce expenses,
including by means of voluntary salary deferrals. We expect that after
implementing these cost-saving measures, our cash utilized for operations for
the next year will be approximately $130,000 per month (including approximately
$35,000 per month for research and preclinical development expenses and
approximately $95,000 for general and administrative expenses). Our major
outstanding contractual obligations relate to our operating (facilities) leases.
Our facilities lease expense in future years extends through May 2003 at an
aggregate rate of $7,675 per month, net of monthly sublease income of $750 per
month which commenced March 2002.
The report of our independent auditors on our 2001 consolidated
financial statements includes an explanatory paragraph that states that our
recurring losses and our limited liquid resources raise substantial doubt about
our ability to continue as a going concern. Our consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Subsequent to an oral hearing before a Nasdaq Listing Qualifications
Panel, on August 23, 2001, our securities were delisted from the Nasdaq Stock
Market for failing to meet the minimum-bid-price requirements set forth in the
NASD Marketplace Rules, as our common stock had traded for less than $1.00 for
more than 30 consecutive business days. Our common stock trades now on the OTC
Bulletin Board under the symbol "ATLC.OB". Delisting our common stock from
Nasdaq could have a material adverse effect on our ability to raise additional
capital, our stockholders' liquidity and the price of our common stock.
Critical Accounting Policies
In December 2001, the SEC requested that all registrants discuss their
most "critical accounting policies" in management's discussion and analysis of
financial condition and results of operations. The SEC indicated that a
"critical accounting policy" is one which is both important to the portrayal of
the company's financial condition and results and requires management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. Our
significant accounting policies are described in Note 1 to our consolidated
financial statements included in our annual report filed on Form 10-KSB as
amended for the year ended December 31, 2001, however, we believe that none of
them are considered to be critical.
RESEARCH AND DEVELOPMENT ACTIVITIES
Optex and the Avantix(TM) (formerly Catarex(TM)) Technology
Our majority-owned (81.2%) subsidiary, Optex, is entitled to royalties
and other revenues in connection with commercialization of the Catarex
technology. Bausch & Lomb Incorporated, a multinational ophthalmics company, is
developing this technology under the new trade name "Avantix" to overcome the
limitations and deficiencies of traditional cataract-extraction techniques.
Optex had been the owner of this technology and was developing it under a
development agreement with Bausch & Lomb, but on March 2, 2001, Optex sold to
Bausch & Lomb substantially all of its assets (mostly intangible assets with no
book value), including those related to the Avantix technology, and delivered
2,400 "First-Generation" Avantix handpieces to Bausch & Lomb for use in human
feasibility studies and clinical trials.
15
Bausch & Lomb, which has committed over $15 million on the project to
date, has assumed full responsibility for developing and marketing the
technology and will pay Optex royalties on sales of the device and the
associated system. Under the agreement governing Bausch & Lomb's purchase of
Optex's assets, Bausch & Lomb is required to meet certain development
milestones. The next such milestone is completion by December 31, 2002, of a
clinical study designed by Bausch & Lomb to assess the functionality of the
Avantix handpiece in human cataract surgery. We continue to work closely with
Bausch & Lomb to monitor their progress in developing this technology, and, to
the extent permitted by our agreement with Bausch & Lomb, we will report
achievement of any development milestones.
CT-3 Anti-inflammatory/Analgesic Compound
On June 28, 2002, we licensed exclusive world wide rights of our
proprietary compound CT-3 to Indevus Pharmaceuticals, Inc. CT-3 is a patented
synthetic derivative of carboxylic tetrahydrocannabinol (THC-7C) and is an
alternative to nonsteroidal anti-inflammatory drugs, or "NSAIDs," such as
aspirin and ibuprofen. Over 130 million Americans suffer from chronic pain and
40 million suffer from arthritis. Worldwide prescription sales of
analgesic/anti-inflammatory drugs exceeded $9 billion in 1999. The overall field
of inflammation and pain management is large and not fully satisfied, and a
compound such as CT-3 may have broad applications in these major markets.
CT-3 is being developed as a new medication for painful inflammatory
conditions such as arthritis, post-operative pain, musculoskeletal injuries,
headache and neuropathic pain. In addition, the compound possesses activity in
preclinical models of multiple sclerosis and the cutaneous inflammation
associated with exposure to the chemical warfare blister agent sulfur mustard.
The U.S. Army Medical Research Institute is pursuing further work on this
application.
The principle mechanism of action of the compound appears to be the
potent inhibition of the inflammatory cytokines, particularly interleukin-1 and
TNF-alpha. Preliminary studies have shown that CT-3 demonstrates
analgesic/anti-inflammatory properties at microgram doses without central
nervous system or gastrointestinal side effects and also reduces joint damage
caused by rheumatoid arthritis.
An IND (investigational new drug application) has been filed with the
U.S. Food and Drug Administration for CT-3, and an initial Phase I clinical
trial designed to assess the safety of CT-3 showed that it was well tolerated,
with no clinical significant adverse events and no evidence of psychotropic
activity. The compound is currently being studied in Europe in a small Phase II
study in patients with chronic neuropathic pain.
On acquiring CT-3 Indevus paid us a licensing fee, and under the terms
of our licensing agreement with Indevus it is required to pay us development
milestones and royalties. Indevus will be responsible for developing and
commercializing CT-3 and obtaining any required approvals. A director of Indevus
is one of our shareholders; the transaction was approved by all the
disinterested directors of Indevus.
ATV-02 Antimicrobial Agent (N-Chlorotaurine/NCT)
We have licensed from its inventors the worldwide rights to the ATV-02,
a potent and broad-spectrum antimicrobial agent for the local treatment of
topical infections. This compound is more commonly known as N-Chlorotaurine or
"NCT." The compound has completed safety and tolerability studies in a limited
number of subjects and has begun a series of phase II human clinical studies for
the treatment of several indications, including viral and bacterial
conjunctivitis and acute and chronic sinusitis.
Under the terms of the agreement, the company has exclusively licensed,
including the right to sublicense, the inventors rights pertaining to any novel
therapeutic use or formulation of N-Chlorotaurine and any of its derivatives or
analogs, including pending and future patent applications for methods of using
N-Chlorotaurine for a variety of clinical indications. Under the terms of the
agreement there was no initial license fee, but we are required to pay the
inventors milestone payments payable in cash or company stock at our discretion
of (a) $100,000 upon the first new patent issuance, (b) $250,000 upon successful
completion of a Phase III clinical trial, and (c) $1,000,000 upon receiving new
drug approval. We are also required to pay the inventors a total royalty of 4%
of
16
the net sales of the licensed products sold by the Company, and 20% of the
royalties which the company receives from sublicensees. Although the Company has
no clinical development obligations under the license agreement, it plans to
continue developing ATV-02 in Europe in cooperation with the inventors using
their philanthropic funding sources and begin filing an IND in the US to develop
it according to FDA regulations for approval in the US. The Company has assumed
the responsibility for the preparation, filing, prosecution and maintenance of
the patent applications and patent rights.
As a broad-spectrum drug with bacterial, virucidal and fungicidal
activity, ATV-02 has the potential to be a viable alternative to the use of
antibiotics for the treatment of local infections. Since their discovery over a
half a century ago, the misuse and overuse of antibiotics has caused a crisis of
antibiotic resistant bacteria. In contrast to antibiotics, ATV-02 is a human
disinfectant that is not expected to promote drug resistant bacteria.
ATV-02 is a long-lived endogenous oxidant that is normally produced in
the body by human granulocytes and monocytes. It demonstrates immune modulatory
properties exerted by down regulation of pro-inflammatory cytokines such as
tumor necrosis factor, nitric oxide, and protaglandins. Oxidants are important
tools that stimulate human phagocytes used to attack and kill pathogens. Besides
its immune controlling function, ATV-02 has demonstrated broad-spectrum
bactericidal, virucidal, fungicidal and vermicidal activity, along with very low
cytotoxicity against human cells and sufficient stability.
All the human clinical studies completed to date have been conducted at
the University of Innsbruck, Austria under the direction of the inventors: Dr.
Waldemar Gottardi, Dr. Markus Nagl and Dr. Andreas Neher. These studies have all
been approved by the Innsbruck Ethics Committee, were registered by the Austrian
Ministry of Health, and funded by various philanthropic sources including the
Austrian Science Fund and the Jubilee Research Fund of the Austrian National
Bank.
The Company will continue to evaluate the safety and efficacy of ATV-02
throughout the completion of the ongoing clinical studies being conducted in
Innsbruck. Upon successful completion of these studies and the filing and
approval of a US IND, the Company plans to initiate a licensing program to
sublicense ATV-02 to a suitable strategic partner to assist in the clinical
development, regulatory approval filing, manufacturing and marketing of ATV-02.
About Sinusitis
Sinusitis, or inflammation of the membrane lining the sinuses, is
usually caused or complicated by a bacterial, viral or fungal infection. It's
the most common reason for office-visit prescription of antibiotics in adults in
the United States, and affects an estimated 14 percent of the population
according to a report published in the June issue of The Journal of Allergy and
Clinical Immunology. It is estimated to result in over 13 million office visits
per year. Figures suggest the total annual direct cost of treatment, including
drugs, office visits to doctors and surgery, is in excess of US $2.4 billion.
About Conjunctivitis
Conjunctivitis, or "pink eye", is a bacterial or viral infection of the
eye's conjunctiva, and is probably the most common infection seen in eye
doctors' offices. It is a very contagious disease and causes symptoms such as
tearing, redness and swelling of the conjunctiva, purulent discharge and light
sensitivity. Conjunctivitis usually takes up to two weeks to run its course, and
there remains no effective treatment to date for viral conjunctivitis.
17
PART II -- OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
Exhibits
The following documents are referenced or included in this report.
Exhibit No. Description
3.1(1) Certificate of incorporation of Atlantic, as amended to date.
3.2(1) Bylaws of Atlantic, as amended to date.
3.3(5) Certificate of designations of Series A Convertible Preferred Stock.
3.4(6) Certificate of increase of Series A Convertible Preferred Stock.
3.5(9) Certificate of designations, preferences and rights of Series B
convertible preferred stock of Atlantic, filed on September 28, 2000.
3.6(9) Certificate of amendment of the certificate of designations,
preferences and rights of Series B convertible preferred stock of
Atlantic, filed on November 17, 2000.
3.7(10) Certificate of amendment of the certificate of designations,
preferences and rights of Series B convertible preferred stock of
Atlantic, filed on January 9, 2001.
3.8(10) Certificate of amendment of the certificate of designations,
preferences and rights of Series B convertible preferred stock of
Atlantic, filed on January 19, 2001.
4.2(1) Form of unit certificate.
4.3(1) Specimen common stock certificate.
4.4(1) Form of redeemable warrant certificate.
4.5(1) Form of redeemable warrant agreement by and between Atlantic and
Continental Stock Transfer & Trust Company.
4.6(1) Form of underwriter's warrant certificate.
4.7(1) Form of underwriter's warrant agreement by and between Atlantic and
Joseph Stevens & Company, L.P.
4.8(1) Form of subscription agreement by and between Atlantic and the Selling
Stockholders.
4.9(1) Form of bridge note.
4.10(1) Form of bridge warrant.
4.11(2) Investors' rights agreement by and among Atlantic, Dreyfus Growth and
Value Funds, Inc. and Premier Strategic Growth Fund.
4.12(2) Common stock purchase agreement by and among Atlantic, Dreyfus Growth
and Value Funds, Inc. and Premier Strategic Growth Fund.
18
10.2(1) Employment agreement dated July 7, 1995, between Atlantic and Jon D.
Lindjord.
10.3(1) Employment agreement dated September 21, 1995, between Atlantic and
Dr. Stephen R. Miller.
10.4(1) Employment agreement dated September 21, 1995, between Atlantic and
Margaret A. Schalk.
10.5(1) Letter agreement dated August 31, 1995, between Atlantic and Dr. H.
Lawrence Shaw.
10.6(1) Consulting agreement dated January 1, 1994, between Atlantic and John
K. A. Prendergast.
10.8(1) Investors' Rights agreement dated July 1995, between Atlantic, Dr.
Lindsay A. Rosenwald and VentureTek, L.P.
10.9(1) License and assignment agreement dated March 25, 1994, between Optex
Ophthalmologics, Inc., certain inventors and NeoMedix Corporation, as
amended.
10.10(1) License agreement dated May 5, 1994, between Gemini Gene Therapies,
Inc. and the Cleveland Clinic Foundation.
10.11(1)+ License agreement dated June 16, 1994, between Channel Therapeutics,
Inc., the University of Pennsylvania and certain inventors, as
amended.
10.12(1)+ License agreement dated March 28, 1994, between Channel Therapeutics,
Inc. and Dr. Sumner Burstein.
10.13(1) Form of financial advisory and consulting agreement by and between
Atlantic and Joseph Stevens & Company, L.P.
10.14(1) Employment agreement dated November 3, 1995, between Atlantic and
Shimshon Mizrachi.
10.15(3) Financial advisory agreement between Atlantic and Paramount dated
September 4, 1996 (effective date of April 15, 1996).
10.16(3) Financial agreement between Atlantic, Paramount and UI USA dated June
23, 1996.
10.17(3) Consultancy agreement between Atlantic and Dr. Yuichi Iwaki dated July
31, 1996.
10.18(3) 1995 stock option plan, as amended.
10.19(3) Warrant issued to an employee of Paramount Capital, LLC to purchase
25,000 shares of Common Stock of Atlantic.
10.20(3) Warrant issued to an employee of Paramount Capital, LLC to purchase
25,000 shares of Common Stock of Atlantic.
10.21(3) Warrant issued to an employee of Paramount Capital, LLC to purchase
12,500 shares of Common Stock of Atlantic.
10.22(4) Letter agreement between Atlantic and Paramount Capital, Inc. dated
February 26,1997.
10.23(4) Agreement and plan of reorganization by and among Atlantic, Channel
Therapeutics, Inc. and New Channel, Inc. dated February 20, 1997.
10.24(4) Warrant issued to John Prendergast to purchase 37,500 shares of
Atlantic's Common Stock.
19
10.25(4) Warrant issued to Dian Griesel to purchase 24,000 shares of Atlantic's
Common Stock.
10.26(7) Amendment No. 1 to development & license agreement by and between
Optex and Bausch & Lomb Surgical, Inc. dated September 16, 1999.
10.27(8) Financial advisory and consulting agreement by and between Atlantic
and Joseph Stevens & Company, Inc. dated January 4, 2000.
10.28(8) Warrant No. 1 issued to Joseph Stevens & Company, Inc. to purchase
150,000 shares of Atlantic's Common Stock exercisable January 4, 2000.
10.29(8) Warrant No. 2 issued to Joseph Stevens & Company, Inc. to purchase
150,000 shares of Atlantic's Common Stock exercisable January 4, 2001.
10.30(8) Warrant No. 3 issued to Joseph Stevens & Company, Inc. to purchase
150,000 shares of Atlantic's Common Stock exercisable January 4, 2002.
10.31(9) Preferred stock purchase agreement dated May 12, 2000, between
Atlantic and TeraComm Research, Inc.
10.32(9) Warrant certificate issued May 12, 2000, by Atlantic to TeraComm
Research, Inc.
10.33(9) Stockholders agreement dated May 12, 2000, among TeraComm Research,
Inc., the common stockholders of TeraComm, and Atlantic.
10.34(9) Registration rights agreement dated May 12, 2000, between Atlantic and
TeraComm Research, Inc. with respect to shares of TeraComm preferred
stock issued to Atlantic.
10.35(9) Registration rights agreement dated May 12, 2000, between Atlantic and
TeraComm Research, Inc. with respect to shares of Atlantic common
stock issued to TeraComm.
10.36(9) Employment agreement dated as of April 10, 2000, between Atlantic and
A. Joseph Rudick.
10.37(9) Employment agreement dated as of April 3, 2000, between Atlantic and
Frederic P. Zotos.
10.38(9) Employment agreement dated as of April 10, 2000, between Atlantic and
Nicholas J. Rossettos, as amended.
10.39(9) Employment agreement dated as of May 15, 2000, between Atlantic and
Walter Glomb.
10.40(9) Employment agreement dated as of April 18, 2000, between Atlantic and
Kelly Harris.
10.41(10) Amendment dated as of July 18, 2000, to the Preferred Stock Purchase
agreement dated May 12, 2000, between Atlantic and TeraComm Research,
Inc.
10.42(10) Convertible preferred stock and warrants purchase agreement dated
September 28, 2000, among Atlantic, BH Capital Investments, L.P. and
Excalibur Limited Partnership.
10.43(10) Registration rights agreement dated September 28, 2000, among
Atlantic, BH Capital Investments, L.P., and Excalibur Limited
Partnership.
10.44(10) Escrow agreement dated September 28, 2000, among Atlantic, BH Capital
Investments, L.P., and Excalibur Limited Partnership.
20
10.45(10) Form of stock purchase warrants issued on September 28, 2000, to BH
Capital Investments, L.P., exercisable for shares of common stock of
Atlantic.
10.46(10) Form of stock purchase warrants issued on September 28, 2000, to
Excalibur Limited Partnership, exercisable for shares of common stock
of Atlantic.
10.47(10) Amendment No. 1 dated October 31, 2000, to convertible preferred stock
and warrants purchase agreement dated September 28, 2000, among
Atlantic, BH Capital Investments, L.P., and Excalibur Limited
Partnership.
10.48(12) Stock repurchase agreement dated December 4, 2000, among Atlantic, BH
Capital Investments, L.P., and Excalibur Limited Partnership.
10.49(14) Letter agreement dated December 28, 2000, among Atlantic and BH
Capital Investments, L.P., and Excalibur Limited Partnership.
10.50(11) Amendment No. 2 dated January 9, 2001, to convertible preferred stock
and warrants purchase agreement dated September 28, 2000, among
Atlantic, BH Capital Investments, L.P., and Excalibur Limited
Partnership.
10.51(14) Amendment No. 1 dated January 9, 2001, to registration rights
agreement dated September 28, 2000, among Atlantic and BH Capital
Investments, L.P. and Excalibur Limited Partnership.
10.52(11) Amendment No. 3 dated January 19, 2001, to convertible preferred stock
and warrants purchase agreement dated September 28, 2000, among
Atlantic, BH Capital Investments, L.P., and Excalibur Limited
Partnership.
10.53(14) Letter agreement dated January 25, 2001, among Atlantic and BH Capital
Investments, L.P., and Excalibur Limited Partnership.
10.54(13) Stock repurchase agreement No. 2 dated March 9, 2001, among Atlantic,
BH Capital Investments, L.P., and Excalibur Limited Partnership.
10.55(15) Common stock purchase agreement dated March 16, 2001, between Atlantic
and Fusion Capital Fund II, LLC. 10.56(15) Warrant certificate issued
March 8, 2001 by Atlantic to Dian Griesel.
10.57(16) Common stock purchase agreement dated as of May 7, 2001, between
Atlantic and Fusion Capital Fund II, LLC.
10.58(16) Form of registration rights agreement between Atlantic and Fusion
Capital Fund II, LLC.
10.59(17) Asset purchase agreement dated as of January 31, 2001, between Bausch
& Lomb Incorporated, Bausch & Lomb Surgical, Inc., Optex
Ophthalmologics, Inc. and Atlantic (the "January 31 Asset Purchase
Agreement).
10.60(17) Amendment No. 1 dated March 2, 2001, to the January 31 Asset Purchase
Agreement.
10.61(17) Asset purchase agreement dated as of April 23, 2001, between Atlantic,
Gemini Technologies, Inc., and IFN, Inc.
10.62(18) Securities purchase agreement dated as of November 2, 2001, between
Atlantic and certain investors.
10.62(18) Placement agreement dated as of November 6, 2001, between Joseph
Stevens & Company, Inc. and Atlantic.
21
10.64* License agreement dated October 18, 2001, between Dr. Waldemar
Gottardi, Dr. Markus Nagl and Dr. Andreas Neher and Atlantic.
10.65*++ License agreement dated June 28, 2002, between Atlantic and Indevus
Pharmaceuticals, Inc.
21.1(1) Subsidiaries of Atlantic.
99.1* Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act.
99.2* Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act.
- ------
+ Confidential treatment has been granted as to certain portions of these
exhibits.
++ Confidential treatment has been requested as to certain portions of these
exhibits.
* Filed herewith.
(1) Incorporated by reference to exhibits of Atlantic's registration
statement on Form SB-2, Registration #33-98478, as filed with the
Securities and Exchange Commission (the "SEC") on October 24, 1995 and
as amended by Amendment No. 1, Amendment No. 2, Amendment No. 3,
Amendment No. 4 and Amendment No. 5, as filed with the SEC on November
9, 1995, December 5, 1995, December 12, 1995, December 13, 1995 and
December 14, 1995, respectively.
(2) Incorporated by reference to exhibits of Atlantic's Current Report on
Form 8-K, as filed with the SEC on August 30, 1996.
(3) Incorporated by reference to exhibits of Atlantic's Form 10-QSB for
the period ended September 30, 1996.
(4) Incorporated by reference to exhibits of Atlantic's Form 10-QSB for
the period ended March 31, 1996.
(5) Incorporated by reference to exhibits of Atlantic's Current Report on
Form 8-KSB, as filed with the SEC on June 9, 1997.
(6) Incorporated by reference to exhibits of Atlantic's Registration
Statement on Form S-3 (Registration No. 333-34379), as filed with the
Commission on August 26, 1997, and as amended by Amendment No. 1 as
filed with the SEC on August 28, 1997.
(7) Incorporated by reference to exhibits of Atlantic Form 10-QSB for the
period ended September 30, 1999.
(8) Incorporated by reference to exhibits of Atlantic's Form 10-KSB for
the period ended December 31, 1999.
(9) Incorporated by reference to exhibits of Atlantic's Form 10-QSB for
the period ended June 30, 2000.
(10) Incorporated by reference to exhibits of Atlantic's Form 10-QSB for
the period ended September 30, 2000.
22
(11) Incorporated by reference to exhibits of Atlantic's Form 8-K filed on
January 24, 2001.
(12) Incorporated by reference to exhibits of Atlantic's Form 8-K filed on
December 11, 2000.
(13) Incorporated by reference to exhibits of Atlantic's Form 8-K filed on
March 14, 2001.
(14) Incorporated by reference to exhibits of Atlantic's Form 10-KSB filed
on April 17, 2001.
(15) Incorporated by reference to exhibits of Atlantic's Form 10-QSB for
the period ended March 31, 2001.
(16) Incorporated by reference to exhibits of Atlantic's Registration
Statement on Form SB-2 (Registration No. 333-61974), as filed with the
Commission on May 31, 2001, and as amended by Amendment No. 1 as filed
with the SEC on June 29, 2001.
(17) Incorporated by reference to exhibits of Atlantic's Form 10-QSB for
the period ended September 30, 2001.
(18) Incorporated by reference to exhibits of Atlantic's Form 8-K filed on
December 6, 2001.
Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this
report is filed.
23
SIGNATURES
In accordance with the requirements of the Exchange Act, Atlantic
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ATLANTIC TECHNOLOGY VENTURES, INC.
Date: August 14, 2002 /s/ Frederic P. Zotos
------------------------------------
Frederic P. Zotos
President, Chief Executive Officer, and Director
Date: August 14, 2002 /s/ Nicholas J. Rossettos
------------------------------------
Nicholas J. Rossettos
Chief Financial Officer
24
EXHIBIT 10.64
-------------
License Agreement
This Agreement is made and entered into between individuals Dr. Waldemar
Gottardi, Dr. Markus Nagl and Dr. Andreas Neher, Institute for Hygiene and
Social Medicine, Leopold-Franzens-Universitat, Fritz-Pregl-Straae 3, A-6010
Innsbruck, Austria ("LICENSORS") and Atlantic Technology Ventures, Inc., a
Delaware Corporation ("LICENSEE"), having offices at 350 Fifth Avenue, Suite
5507, New York, NY 10118.
Whereas, LICENSORS are the owners of the entire right, title and interest
in the Patents and/or Patent Applications described in Exhibit A attached
hereto, and the Technology described and/or claimed therein; and
Whereas, LICENSEE is desirous of obtaining an exclusive worldwide license
in order to practice the above referenced Technology covered by said Patent
Rights and to manufacture, have manufactured, use and sell in the commercial
market the products made in accordance therewith; and
Whereas, LICENSORS are desirous of granting such a license to LICENSEE in
accordance with the terms of this Agreement.
Now, therefore, in consideration of the foregoing and the mutual
agreements contained herein, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "Patent Rights" shall mean (i) the Patents and Patent Applications
described in Exhibit A attached hereto, the Technology described and/or claimed
therein, and any substitutions, divisions, continuations, continuations-in-part,
patents issuing thereon or reissues or re-examinations thereof and any and all
patents and patent applications corresponding thereto; (ii) all patents and
patent applications to the extent assigned to LICENSORS and to the extent
LICENSORS are able, under their obligations to third parties, to grant rights to
LICENSEE and on which Inventors are a named inventor, the Technology described
and/or claimed therein and any substitutions, divisions, continuations,
continuations-in-part, patents issuing thereon or reissues or re-examinations
thereof, which relate to the design, development and/or manufacture of any
products incorporating the Technology and any and all patents and patent
applications corresponding thereto; (iii) all patents and patent applications to
the extent assigned to LICENSORS and to the extent LICENSORS are able, under
their obligations to third parties, to grant rights to LICENSEE and on which
Inventors are a named inventor, the Technology described and/or claimed therein
and any substitutions divisions, continuations, continuations-in-part, patents
issuing thereon or reissues or re-examinations thereof which relate to any
improvements in the Technology and any and all patents and patent applications
corresponding thereto. The patents and patent applications corresponding thereto
referred to in (i), (ii) and (iii) above, when filed or issued, will be
automatically incorporated in and added to this Agreement and shall periodically
be added to Appendix A attached to this Agreement and made a part hereof;
provided, however, that failure to periodically add such patents and/or patent
applications
thereto shall not be considered to exclude such patents and/or patent
applications from the meaning of "Patent Rights."
1.2 "Licensed Processes" shall mean all technologies, methods, formulas,
plans or processes and any improvements thereof, relating to or which are
covered in whole or in part by any claim contained in the Patent Rights.
1.3 "Licensed Products" shall mean products or components thereof claimed
in Patent Rights or products or components thereof made in accordance with or by
means of any Licensed Process.
1.4 "Net Sales" shall mean the amount billed or invoiced on sales of
Licensed Products or Licensed Processes less:
(a) Customary trade, quantity or cash discounts and non-affiliated
brokers' or agents' commissions actually allowed and taken;
(b) Amounts repaid or credited by reason of rejections or return;
(c) Transportation, insurance, brokerage and handling charges paid or
reimbursed by LICENSEE or its Affiliates;
(d) Amounts withheld by governments;
(e) Tariffs, import/export duties, sales, use, value added and other
excise or turnover taxes and other governmental charges imposed
on the sale of Licensed Products or Licensed Processes, the
provision of services using Licensed Products or Licensed
Processes, or on the production, importation and/or exportation,
use or distribution of Licensed Products or Licensed Processes;
(f) Sales commissions, exportation, use or distribution; and/or
(g) Bad debt deductions actually written off during the period.
Net Sales shall not include amounts paid or sales between or among LICENSEE
and/or its Affiliates. In the event of a use or sale of Licensed Products or
Licensed Processes solely for clinical testing or research and development
purposes for which LICENSEE receives no revenue, the no royalty shall be due or
payable to LICENSORS pursuant to Article 3 hereof or otherwise.
1.5 "Affiliates" shall mean any company, corporation, or business of which
LICENSEE owns or controls at least fifty percent (50%) of the voting stock or
which owns or controls at least fifty percent (50%) of the voting stock of
LICENSEE.
-2-
1.6 "Field" shall mean all potential fields of use of the Patent Right,
the Licensed Products, and the Licensed Processes.
1.7 "Sublicensee" shall mean an entity which LICENSEE has granted (a) the
right to manufacture and market the Licensed Products, (b) the right to practice
the Licensed Processes, or (c) the right to sublicense the Licensed Processes to
others.
1.8 "Technology" shall mean any novel therapeutic use or formulation of
N-Chlorotaruine and any of its derivatives or analogs.
ARTICLE 2
GRANT
2.1 LICENSORS hereby grant to LICENSEE and LICENSEE accepts, subject to
the terms and conditions hereof, a worldwide exclusive (event against LICENSORS)
license in the Field, under the Patent Rights, to make and have made, to use and
have used, to sell and have sold, to distribute and have distributed, and to
market and have marketed the Licensed Products, and to practice the Licensed
Processes, for the life of the Patent Rights. Such license shall include the
right to grant sublicenses. LICENSORS agree they will not assign, encumber,
grant a license to and/or permit a lien to exist upon, the Patent Rights in any
territory for any Field to or by any third party and will not themselves
practice the Patent Rights other than for their own non-commercial research
purposes. Licensors agree, on behalf of themselves, their successors and any
other person or entity who or which may claim a right in or under the Patent
Rights, that any purported transfer or encumbrance of rights shall be null and
void and of no effect.
2.2 LICENSORS hereby grant to LICENSEE the right to extend the licenses
granted in paragraph 2.1 to one or more Affiliates, subject to the terms and
conditions hereof.
2.3 LICENSORS hereby represent and warrant to LICENSEE that LICENSORS are
the sole owners of the Patent Rights as reflected on Exhibit A on the date
hereof, no person or entity has or will have any rights of any kind with respect
to such Patent Rights except for the rights of LICENSEE pursuant to this
Agreement, and accordingly, LICENSORS have full legal right to grant to LICENSEE
the license provided for herein, and such grant does not and will not violate or
conflict with the rights of any person or entity.
ARTICLE 3
ROYALTIES AND FEES
3.1 LICENSEE shall pay to LICENSORS jointly and severally, during the term
of the license of paragraph 2.1, a total royalty of four percent (4%) of the Net
Sales of all Licensed Products sold by LICENSEE and its Affiliates. LICENSEE
shall pay to LICENSORS jointly and severally, during the term of the license of
paragraph 2.1, a total royalty of twenty percent (20%) of the royalties which
LICENSEE and its Affiliates receive from Sublicensees for sublicenses of the
Licensed Products or Licensed Processes. No multiple royalties shall be due
because the sale or sublicense of any Licensed Product or Licensed Process is
described in more than one sentence of this section 3.1. In the event of any
such overlap, the sentence which most accurately describes the relevant
transaction at issue shall prevail. On Net Sales or sublicenses
-3-
between LICENSEE and its Affiliates, royalties shall be payable only on the
resale or resublicense by such Affiliate.
3.2 As further consideration for the license and other rights granted to
LICENSEE hereunder, (a) LICENSEE shall pay to LICENSORS jointly and severally a
one-time patent issue fee of One Hundred Thousand Dollars ($100,000) payable in
cash or registered stock of the Licensee, (b) LICENSEE shall pay to LICENSORS
jointly and severally a one-time milestone payment of Two Hundred and Fifty
Thousand Dollars ($250,000) payable in cash or registered stock of the LICENSEE
upon successful completion of a Phase III clinical trial for a licensed Products
or Licensed Processes, and (c) LICENSEE shall pay to LICENSORS jointly and
severally a one-time milestone payment of One Million Dollars ($1,000,000)
payable in cash or registered stock of the Licensee upon receiving new drug
approval for Licensed Products or Licensed Processes.
ARTICLE 4
REPORTING
4.1 LICENSEE shall report to LICENSORS the date of first sale of Licensed
Products (or results of Licensed Processes) in each country within thirty (30)
day of occurrence.
4.2 LICENSEE shall provide LICENSORS within sixty (60) days after each of
the calendar half-years ending June 30 and December 31, reports setting forth,
for the preceding six (6) -month period, the amount of Licensed Products sold by
LICENSEE and its Affiliates in each country, the Net Sales thereof, the amount
of Sublicensee royalties received by LICENSEE and its Affiliates and the amount
of royalty due to LICENSORS with respect to the foregoing. With each such
royalty report, LICENSEE shall include the payment of the royalty due. Such
report shall include a detailed listing of all deductions from Net Sales,
sublicensee income, or royalties as specified herein. If no royalties are due to
LICNESORS for any reporting period, then no written report shall be required.
All royalties due hereunder shall be payable in United States dollars.
Conversion of foreign currency to U.S. dollars shall be made at the conversion
rate existing in the United States, as quoted in The Wall Street Journal, three
(3) days prior to the date that such royalty payments by LICENSEE was due to
LICENSOR. Payments which are more than thirty (30) days past due and which are
not the subject of a good faith controversy between the parties hereto shall be
subject to an interest charge of one percent (1%) per month.
4.3 LICENSORS agree that at all times, both during the term and after the
termination of this Agreement, they will keep in confidence and trust all
information provided to it hereunder by LICENSEE or provided to them by any
third party pursuant to Section 5.1 hereof (the "Proprietary Information"), and
it will not use or disclose any Proprietary Information or anything directly
relating to such Proprietary Information without the written consent of the
LICENSEE. LICENSORS acknowledge that the Proprietary Information constitutes a
unique and valuable asset of the LICENSEE, which is secret and confidential and
which will be communicated to LICENSORS in confidence and that any disclosure or
other use of the Proprietary Information other than for the sole benefit of the
LICENSEE would be wrongful and would cause irreparable harm to the LICENSEE.
-4-
ARTICLE 5
[Intentionally blank]
ARTICLE 6
PATENT FILING AND MAINTENANCE
6.1 LICENSEE shall take responsibility for the preparation, filing,
prosecution and maintenance of any all patent applications and patents included
in Patent Rights and shall use his best efforts to promptly procure the broadest
possible patents in all countries designated by LICENSEE pursuant to Section
6.2.
6.2 Without limiting the provisions of Section 6.1, LICENSORS and LICENSEE
shall cooperate fully in the preparation, filing, prosecution and maintenance of
the Patent Rights including without limitations, the execution of all papers and
instruments necessary or desirable to enable LICENSEE to apply for, to prosecute
and to maintain patent applications and patents in LICENSORS' name in any
country. Each party shall provide to the other prompt notice as to all matters
which come to its attention and which may affect the preparation, filing,
prosecution or maintenance of any such patent applications or patents. Either
party may give notice to the other of any country in which such party wishes to
seek patent protections for all or any part of the Patent Rights. In the case of
such a designation by LICENSEE (and the provision of reasonable assurance of
payment by it of the expenses to be incurred) LICENSORS may not refuse to seek
such patent protection in the country so designated.
ARTICLE 7
INFRINGEMENT
7.1 With respect to any Patent Rights, LICENSEE and/or its Sublicensees
shall have the right to prosecute in their own names and at their own expense
any infringement thereof. LICENSORS agree to notify LICENSEE promptly of each
infringement of the Patent Rights of which LICENSORS are or become aware.
Failure by either party to commence an action which is contemplated by this
Section 7.1 shall not constitute a breach of this Agreement.
7.2 If LICENSEE or its Sublicensee elects to commence an action as
described above or if an action is third party, LICENSORS shall have the right
either to join the action as a co-plaintiff or co-defendant or to assign to
LICENSEE all of LICENSOR's right, title and interest, expressly including the
right to sue for past infringement thereof, in each patent which is a part of
the Patent Rights and is the subject of such action. In the event LICENSORS join
the action as a co-plaintiff, LICENSEE shall nevertheless control the action
provided that LICENSEE will endeavor to consult with LICENSORS as to the
prosecution of such action. In the event that LICENSORS make an assignment of
such patent, such assignment shall be irrevocable, and such action on that
patent or patents shall thereafter be brought or continued without LICENSOR as a
parties, unless LICENSORS are legally indispensable parties. Notwithstanding any
such assignment to LICENSEE by LICENSORS and regardless of whether LICENSORS are
or are
-5-
not indispensable parties, LICENSORS shall cooperate fully with LICENSEE,
at LICENSEE'S expense, in connection with any action commenced by LICENSEE or
any sublicensee. In the event that any patent is assigned to LICENSEE by
LICENSORS pursuant to this paragraph, LICENSEE shall continue to meet its
obligations under this Agreement, including without limitation its obligation to
pay royalties, as if the assigned patent or patent application were still
licensed to LICENSEE.
7.3 If LICENSEE or its Sublicensee elects to commence an action as
described above, LICENSEE may cover the costs and expensed of such action
(including reasonable attorneys fees and including the coverage of LICENSORS'
costs) by reducing the royalty due to LICENSOR hereunder by up to fifty percent
(50%). In the event that such fifty percent (50%) costs and expenses exceed the
amount of royalties reduced by LICENSEE for any calendar year, LICENSEE may to
that extent reduce the royalties due to LICENSORS from LICENSEE in succeeding
calendar years, but never by more than fifty percent (50%) of the royalty due in
any one calendar year.
7.4 Recoveries or reimbursements from such action (regardless of whether
LICENSEE or LICENSORS receive the award) shall first be applied to reimburse
LICENSEE and LICENSORS for litigation costs not paid from royalties (if any) and
then to reimburse LICENSORS for royalties withheld. Any remaining recoveries or
reimbursements shall be paid to LICENSEE.
7.5 In the event that LICENSEE and its Sublicensee, if any, elect not to
exercise their right to prosecute an infringement of the Patent Rights pursuant
to the above paragraphs, LICENSORS may do so at their own expense, controlling
such action and retaining all recoveries therefrom.
ARTICLE 8
TERMINATION OF AGREEMENT
8.1 This Agreement, unless extended or terminated as provided herein,
shall remain in effect until the last to expire patent in the Patent Rights;
provided, however, that LICENSEE'S obligation to pay royalties pursuant to
Section 3.1 will terminate as to any Licensed Products or Licensed Processes
when the Patent Rights to which they relate expire or are abandoned.
8.2 (a) The following events shall constitute an event of default under
this Agreement (an "Event of Default"):
(i) LICENSEE shall become more than sixty (60) days in arrears in
payment of royalties or expenses due pursuant to this AGREEMENT which
are not the subject of a bona fide dispute between LICENSORS and
LICENSEE and which have not been paid within forty five (45) days
after LICENSEE has received notice of such arrearage from LICENSORS;
or
(ii) LICENSEE breaches this Agreement in any material respect
(other than a breach covered by paragraph 8.2 (a) (i)) and does not
cure such breach within sixty
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(60) days after written notice thereof from LICENSORS or, with respect
to any breach incapable of being fully cured within such sixty (60)
day period, has not made substantial good faith efforts to cure any
such breach within thirty (30) days after written notice thereof from
LICENSORS;
(b) LICENSEE may, at its option, terminate this Agreement at any
time for any reason whatsoever by doing all of the following:
(i) Cease making, having made, using and selling any Licensed
Products or Licensed Processes; and
(ii) Revoke all sublicenses causing all sublicensees to cease
making, having made, using and selling Licensed Products or Licensed
Processes; and
(iii) Give notice to LICENSORS of such cessation and of
LICENSEE'S election to terminate; and
(iv) Tender payment of all accrued royalties.
8.3 On the occurrence of an Event of Default, and if such Event of Default
has not been remedied within sixty (60) days after notice in writing of such
Event of Default has been given to the LICENSEE by LICENSORS, LICENSORS may
terminate this Agreement by written notice.
8.4 Any sublicenses granted by LICENSEE under this Agreement shall provide
for termination or assignment to LICENSORS, at the option of LICENSORS, of
LICENSEE'S interest therein upon termination of this Agreement.
ARTICLE 9
ASSIGNMENT
9.1 This Agreement, the Patent Rights and the other rights and duties
appertaining hereto may not be assigned by either party without first obtaining
the written consent of the other which shall not otherwise be unreasonably
withheld. Any such purported assignment, without the written consent of the
other party, shall be null and void and of no effect. Notwithstanding the
foregoing, LICENSEE may assign this Agreement (i) to a purchaser, merging or
consolidating corporation, or acquirer of substantially all of LICENSEE'S assets
or business and/or pursuant to any reorganization qualifying under section 368
of the Internal Revenue Code of 1986 as amended, as may be in effect at such
time, or (ii) to an Affiliate of LICENSEE.
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ARTICLE 10
GENERAL
10.1 LICENSORS represent and warrant that they own the entire right,
title, and interest in the patent applications or patents comprising the Patent
Rights and that LICNESORS have the authority to issue licenses under said Patent
Rights. LICENSORS do not warrant the validity of the Patent Rights licensed
hereunder and make no representations whatsoever with regard to the scope of the
licensed Patent Rights or that such Patent Rights may be exploited by LICENSEE,
an Affiliate, or Sublicensee without infringing other patents provided, however,
that LICNESORS have no reason to believe that the Patent Rights are invalid or
that exploitation by LICENSEE, an Affiliate or Sublicensee of the Patent Rights
will infringe other patents.
10.2 LICENSORS EXPRESSLY DISCLAIM ANY AND ALL IMPLIED OR EXPRESS
WARRANTIES AND MAKES NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS OF THE TECHNOLOGY, LICENSED PROCESSES OR LICENSED PRODUCTS CONTEMPLATED
BY THIS AGREEMENT FOR ANY PURPOSE.
10.3 (a) LICENSEE shall indemnify, defend and hold harmless LICENSORS and
their heirs and assigns (the "Indemnitees"), against any liability, damage, loss
or expenses (including reasonable attorney's fees and expenses of litigation)
incurred by or imposed upon the Indemnitees or any one of them in connection
with claims, suits, actions, demands or judgments arising out of any theory of
product liability (including, but not limited to, actions in the from of tort,
warranty, or strict liability) concerning any product, process or service made,
used or sold pursuant to any right or license granted under this Agreement. The
above indemnification shall apply whether or not such liability, damage, loss or
expense is attributable to the negligent activities of the Indemnitees but shall
not apply if such liability, damage, loss or expense is attributable to the
willful misconduct of any Indemnitee.
(b) LICENSEE agrees, at its own expense, to provide attorneys reasonably
acceptable to LICENSORS to defend against any actions brought or filed against
any party indemnified hereunder with respect to the subject of indemnity
contained herein, whether or not such actions are rightfully brought.
10.4 The interpretation and application of the provisions of this
Agreement shall be governed by the laws of the State of New York, in the United
States of America without regard to principles of conflicts of law.
10.5 LICENSEE agrees to comply with all applicable laws and regulations.
In particular, it is understood and acknowledged that the transfer of certain
commodities and technical data is subject to United States laws and regulations
controlling the export of such commodities and technical data, including all
Export Administration Regulations of the United States Department of Commerce.
These laws and regulations, among other things, prohibit or require a license
for the export of certain types of technical data to certain specified
countries. LICENSEE hereby agrees and gives written assurance that it will
comply with all United States laws and regulations controlling the export of
commodities and technical data, that it will be solely responsible for any
violation of such by LICENSEE or its Affiliates or Sublicensees, and
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that it will defend and hold LICENSORS harmless in the event of any legal action
of any nature occasioned by such violation.
10.6 Written notices required to be given under this Agreement shall be
addressed as follows:
If to LICENSORS: Dr. Waldemar Gottardi
Dr. Markus Nagl
Institute for Hygiene and Social Medicine,
Leopold-Franzens-Universitat
Fritz-Pregl-Straae 3
A-6010 Innsbruck, Austria
Telephone No.: +43 512 507 3430
FacsimileNo.: +43 512 507 2070
If to LICENSEE: Atlantic Technology Ventures, Inc.
350 Fifth Avenue
Suite 5507
New York, NY 10118
Telephone No.: (212) 267-2503
Facsimile No.:(212) 267-2159
or such other address as either party may request in writing.
10.7 Should a court of competent jurisdiction later consider any provision
of this Agreement to be invalid, illegal, or unenforceable, it shall be
considered severed provision, provided that the remaining provisions of this
Agreement are in accordance with the intention of the parties.
10.8 (a) In the event of any controversy or claim arising out of or
relating to any provision of this Agreement or the breach thereof, the parties
shall try to settle such conflicts amicably between themselves. Subject to the
limitation stated in the final sentence of this section, 10.8, and any such
conflict which the parties are unable to resolve shall be settled through
binding arbitration conducted in accordance with the Rules of the Commercial
Arbitration of the International Chamber of Commerce by one or more arbiter(s)
knowledgeable in commercial law and practices, appointed in accordance with such
rules.
(b) The demand for arbitration shall be filed within a reasonable
time after the controversy or claim has arisen, and in no event after the date
upon which institution of legal proceedings based on such controversy or claim
would be barred by the applicable statue of limitation. The arbitration shall be
in Innsbruck, Austria if initiated by LINCENSORS and New York, U.S.A. if
initiated by LICENSEE.
(c) At the request of either party, arbitration proceedings will be
conducted in the utmost secrecy; in such case, all documents, testimony and
records shall be received, heard and maintained by the arbitrator in the secrecy
under seal, available for the inspection only of the parties and their
respective attorneys and their respective experts who shall agree in advance and
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in writing to receive all such information confidentially and to maintain such
information in secrecy until such information shall become generally known.
(d) The award through arbitration shall be final and binding. Either
party may enter any such award in a court having jurisdiction or may make
application to such court for judicial acceptance of the award and an order of
enforcement, as the case may be. Notwithstanding the foregoing, either party
may, without recourse to arbitration, assert against the other party a
third-party claim or cross-claim in any action brought by a third party, to
which the subject matter of this Agreement may be relevant.
10.9 This Agreement constitutes the entire understanding between the
parties and neither party shall be obligated by any condition or representation
other than those expressly stated herein or therein or as may be subsequently
agreed to by the parties hereto in writing.
10.10 This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile or transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives.
The effective date of this Agreement is October 18, 2001.
Dr. Andreas Neher Dr. Waldemar Gottardi
/s/ Dr. Andreas Neher /s/ Dr. Waldemar Gottardi
---------------------------- ----------------------------------
Dr. Markus Nagl
/s/ Dr. Markus Nagl
----------------------------------
Atlantic Technology Ventures, Inc.
/s/ Frederic P. Zotos, Esq.
----------------------------------
By: Frederic P. Zotos, Esq.
Its: CEO and President
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EXHIBIT 10.65
-------------
CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENTS HAVE
BEEN REDACTED AND HAVE BEEN FILED SEPARATELY WITH THE U.S. SECURITIES AND
EXCHANGE COMMISSION
LICENSE AGREEMENT
by and between
ATLANTIC TECHNOLOGY VENTURES, INC.
and
INDEVUS PHARMACEUTICALS, INC
dated
June 28, 2002
THIS LICENSE AGREEMENT effective as of June 28, 2002 ("Effective
Date"), by and between ATLANTIC TECHNOLOGY VENTURES, INC., a corporation
organized and existing under the laws of the State of Delaware and having its
principal office at 350 Fifth Avenue, Suite 5507, New York, New York 10118
("ATLANTIC") and INDEVUS PHARMACEUTICALS INC., a corporation organized and
existing under the laws of the State of Delaware and having its principal office
at 99 Hayden Avenue, Suite 200, Lexington, Massachusetts 02421, United States
("INDEVUS").
W I T N E S S E T H:
WHEREAS, ATLANTIC has exclusively licensed from Sumner Burstein certain
of the Patent Assets pursuant to the Burstein License and is the owner of other
ATLANTIC Intellectual Property, all as defined herein and;
WHEREAS, INDEVUS desires to obtain exclusive license rights, with a
right to grant sublicenses, under the ATLANTIC Intellectual Property, and
ATLANTIC desires to grant such license to INDEVUS, upon the terms and conditions
set forth herein; and
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Unless specifically set forth to the contrary herein, the following
terms, where used in the singular or plural, shall have the respective meanings
set forth below:
1.1 "Act" shall mean the Federal Food Drug and Cosmetic Act of 1934, and
the rules and regulations promulgated thereunder, or any successor act,
as the same shall be in effect from time to time.
1.2 "Affiliate" shall mean (i) any corporation or business entity of which
more than fifty percent (50%) of the securities or other ownership
interests representing the equity, the voting stock or general
partnership interest are owned, controlled or held, directly or
indirectly, by a Party; (ii) any corporation or business entity which,
directly or indirectly, owns, controls or holds more than fifty percent
(50%) (or the maximum ownership interest permitted by law) of the
securities or other ownership interests representing the equity, voting
stock or general partnership interest of a Party or (iii) any
corporation or business entity of which a Party has the right to
acquire, directly or indirectly, at least fifty percent (50%) of the
securities or other ownership interests representing the equity, voting
stock or general partnership interest thereof.
1.3 "ATLANTIC Intellectual Property" shall mean the Patent Assets and
ATLANTIC Know-How.
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1.4 "ATLANTIC Know-How" shall mean all information and materials, including
but not limited to, discoveries, information, Improvements, processes,
formulas, data, inventions, know-how and trade secrets, patentable or
otherwise, which
(a) relate to Compound or Product; and
(b) are owned by ATLANTIC or are in ATLANTIC's possession
or control, have been licensed by ATLANTIC from
Burstein or are otherwise subject to the Burstein
License and/or as to which ATLANTIC has the right to
license or sublicense to Third Parties.
Such know-how shall include, without limitation, all chemical,
pharmaceutical, toxicological, preclinical, clinical, assay
control, regulatory, and any other information used or useful
for the development, manufacturing and/or regulatory approval
of Compound or Product, including such rights which ATLANTIC
may have to information developed by Third Parties and
including any data included in or generated as a result of or
under an IND or the Hannover Trial.
1.5 "Business Day(s)" means any day that is not a Saturday or a Sunday or a
day on which the New York Stock Exchange is closed.
1.6 "Burstein License" shall mean the License Agreement dated as of March
28, 1994, by and between Sumner Burstein ("Burstein") and Channel
Pharmaceuticals, Inc., a wholly-owned subsidiary of ATLANTIC, as
amended to date, a complete copy of which is attached hereto as Exhibit
1.6.
1.7 "Calendar Quarter" shall mean the respective periods of three (3)
consecutive calendar months ending on March 31, June 30, September 30
and December 31.
1.8 "Calendar Year" shall mean each successive period of twelve (12) months
commencing on January 1 and ending on December 31.
1.9 "cGMP" shall mean current applicable good manufacturing practices as
defined in regulations promulgated by the FDA under the Act relating to
the formulation, manufacture, testing prior to delivery, storage and
delivery of the Product.
1.10 "Centralized Procedure" shall mean the European Community Centralized
Procedure for marketing authorization in accordance with Council
Regulation EEC (2309-93) or any successor regulations.
1.11 "CFR" shall mean the United States Code of Federal Regulations.
1.12 "Compound" shall mean the chemical compounds known as (3R, 4R) Delta
6-Tetrahydrocannabinol-7-oic Acids, including the compound designated
CT-3 as diagrammed on Schedule 1.12 hereto, and any other compounds
disclosed or covered in the Patent Assets and any derivative, homolog,
or analog of any of the foregoing, and any isomer, salt, hydrate,
solvate, amide, ester, metabolite, or prodrug of any of the foregoing.
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1.13 "Effective Date" shall mean the date first above written.
1.14 "End of Phase 2 Meeting" shall mean the first end of Phase 2 meeting
with the FDA, as defined in 21 CFR Section 312.47, intended to
determine the safety of proceeding to Phase 3, evaluate the Phase 3
plan and protocols and identify any additional information necessary to
support an NDA for Product.
1.15 "Europe" shall mean the United Kingdom, France, Germany, Spain and
Italy.
1.16 "FDA" shall mean the United States Food and Drug Administration and any
successor agency having substantially the same functions, and any
corresponding or successor regulatory authority in Europe or having
jurisdiction over the Centralized Procedure if the context so
indicates.
1.17 "First Commercial Sale" shall mean the first sale of Product in any
country by INDEVUS, its Affiliate or its sublicensee(s), for end use or
consumption, after all required Regulatory Approvals have been granted
by the governing health authority of such country.
1.18 "GAAP" means generally accepted accounting principles in the United
States.
1.19 "Hannover Trial" shall mean the ongoing Phase 1 /2 Clinical Trial being
conducted at Medizinische Hochscule Hannover (the University of
Hannover Medical School in Hannover, Germany) pursuant to a Clinical
Trials Agreement dated February 14, 2002.
1.20 "Improvement" shall mean any and all improvements and enhancements,
patentable or otherwise, related to the Compound or Product including,
without limitation, in the manufacture, formulation, ingredients,
preparation, presentation, means of delivery or administration, dosage,
indication, use or packaging of Compound or Product.
1.21 "IND" shall mean an investigational new drug application and any
amendments thereto relating to the use of Compound or Product in the
United States or the equivalent application in any other regulatory
jurisdiction in the Territory, the filing of which is necessary to
commence clinical testing of pharmaceutical products in humans,
including IND number [*].
1.22 "NDA" shall mean a new drug application filed with the FDA for
marketing authorization of a Product in the United States, or a
corresponding submission in Europe or under the Centralized Procedure
or with the Japanese Ministry of Health, Labour and Welfare if the
context so indicates, and any amendments and supplements thereto.
1.23 "Net Sales" shall mean the actual gross amount invoiced by INDEVUS or
its Affiliates for commercial sales of Product in the Territory,
commencing upon the date of First Commercial Sale, after deducting, in
accordance with GAAP, the following :
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- -----------------------
* Confidential treatment requested.
(i) trade, cash and quantity discounts;
(ii) recalls, credits and allowances on account
of returned or rejected Product, including
allowance for breakage or spoilage;
(iii) rebates and chargebacks;
(iv) retroactive price reductions;
(v) sales or excise taxes, VAT or other taxes,
and transportation and insurance charges and
additional special transportation, custom
duties, and other governmental charges;
(vi) rebates or similar payments paid in
connection with sales of Product to any
governmental or regulatory authority in
respect of any state or federal Medicare,
Medicaid or similar programs in any country
of the Territory; and
(vii) write-offs for bad debts or allowances.
Sales or other transfers between INDEVUS and
its Affiliates shall be excluded from the
computation of Net Sales and no payments
will be payable on such sales or transfers
except where such Affiliates are end users,
but Net Sales shall include the subsequent
sales to Third Parties by such Affiliates.
1.24 "Party" shall mean ATLANTIC or INDEVUS.
1.25 "Patent Assets" shall mean the United States patents and patent
applications which as of the Effective Date or at any time during the
term of this Agreement
(a) are owned by ATLANTIC or which ATLANTIC through the
Burstein License or any other license or otherwise
has or acquires rights from a Third Party, and
(b) relate to Compound, Product or any Improvement,
including but not limited to methods of their
development, manufacture, or use, or otherwise relate
to ATLANTIC Know-How,
including all certificates of invention and applications for
certificates of invention, substitutions, divisions,
continuations, continuations-in-part, patents issuing thereon
or reissues or reexaminations thereof and any and all foreign
patents and patent applications corresponding thereto,
supplementary protection certificates or the like of any such
patents and current and future patent applications, including
but not limited to the patents and patent applications listed
on Schedule 1.25 hereto and the patents and patent
applications included in the definition of Patent Rights under
the Burstein License, and any counterparts thereof which have
been or may be filed in other countries.
-5-
1.26 "Phase 2 Clinical Trial" shall mean the first clinical trial of Product
in patients with a particular medical indication that is designed to
show safety and efficacy of Product for its intended use.
1.27 "Phase 3 Clinical Trial" means a clinical trial conducted after an End
of Phase 2 Meeting and conducted on a sufficient number of patients
that is designed to establish that Product is safe and efficacious for
its intended use, and to define warnings, precautions and adverse
reactions that are associated with Product in the dosage range to be
prescribed, and supporting marketing authorization of such
pharmaceutical product or label expansion of Product.
1.28 "Product" shall mean any product in final form for commercial sale by
prescription, over-the-counter, or by any other method (or, where the
context so indicates, the product being tested in clinical trials),
which contains Compound as at least one of the therapeutically active
ingredients in all dosage forms and package configurations for any
indication.
1.29 "Proprietary Information" shall mean any and all scientific, clinical,
regulatory, marketing, financial and commercial information or data,
whether communicated in writing, orally or by any other means, which is
owned and under the protection of one Party and is being provided by
that Party to the other Party in connection with this Agreement.
1.30 "Regulatory Approval" means all approvals (including pricing and
reimbursement approvals required for marketing authorization), product
and/or establishment licenses, registrations or authorizations of all
regional, federal, state or local regulatory agencies, departments,
bureaus or other governmental entities, necessary for the manufacture,
use, storage, import, export, transport and sale of Product in a
regulatory jurisdiction.
1.31 "Royalty Year" shall mean each successive twelve (12) month period
commencing with the first day of the first month in which occurs the
First Commercial Sale.
1.32 "Sublicense Non-Royalty Payments" shall mean any payments received by
INDEVUS from sublicensees of rights granted by ATLANTIC to INDEVUS
under Section 2.1 of this Agreement, as consideration for the grant of
such sublicense, including without limitation, license fees, milestone
payments and license maintenance fees, but excluding amounts received
by INDEVUS (i) as Sublicense Royalty Payments; (ii) in connection with
or as a result of amounts or payments to fund or reimburse INDEVUS'
research and development in connection with Compound or Product or
(iii) in connection with or as a result of amounts or payments made as
consideration for a sublicensee's purchase of securities of INDEVUS.
1.33 "Sublicense Royalty Payments" shall mean royalty payments received by
INDEVUS from sublicensees of rights granted by ATLANTIC to INDEVUS
under Section 2.1 of this Agreement, as consideration for the grant of
such sublicensee, based on net sales of Product by such sublicensee.
1.34 "Territory" shall mean all of the countries in the world.
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1.35 "Third Party(ies)" shall mean a person or entity who or which is
neither a Party nor an Affiliate of a Party.
1.36 "Valid Claim" means a claim of an issued and unexpired patent included
within the Patent Assets, which has not been revoked or held
unenforceable or invalid by a decision of a court or other governmental
agency of competent jurisdiction, and which has not been disclaimed or
surrendered through reissue or disclaimer.
ARTICLE II
LICENSE; SUBLICENSES
2.1 License Grant. ATLANTIC hereby grants to INDEVUS an exclusive (even as
to ATLANTIC) license under the Patent Assets and the ATLANTIC Know-How,
including the right to grant sublicenses, to develop, make, have made,
use, import, offer for sale, market, commercialize, distribute and sell
and otherwise dispose of Compound and Product for all uses in the
Territory.
2.2 Improvements by INDEVUS. All rights and title to and interest in any
Improvement developed or discovered by INDEVUS in connection with the
license granted under Section 2.1 above or INDEVUS' activities
hereunder shall be vested solely in INDEVUS.
2.3 Sublicenses. INDEVUS shall have the right to grant sublicenses to
Affiliates or any Third Party to develop, make, have made, use, import,
offer for sale, market, commercialize, distribute and sell and
otherwise dispose of Compound or Product in the Territory; provided,
however that any such sublicense shall be consistent with the terms of
this Agreement. In the event that INDEVUS proposes to grant a
sublicense to any Third Party, INDEVUS shall give ATLANTIC a written
notice prior to entering into the sublicense describing the proposed
sublicense, including the specific rights proposed to be sublicensed
and the material commercial and professional terms of the proposed
sublicense. INDEVUS shall also provide ATLANTIC with a copy of any
sublicense agreements. Upon any termination of this Agreement pursuant
to Section 8.3.1 (a) by ATLANTIC for an uncured material breach by
INDEVUS, ATLANTIC may elect to have any existing sublicense
agreement(s) survive and assigned by INDEVUS to ATLANTIC provided that
(i) the sublicensee is not in breach of its sublicense agreement at the
time of such termination of this Agreement, and (ii) any sublicensee
who desires its sublicense to survive shall promptly agree in writing
to be bound by the applicable terms of and assume all obligations of
INDEVUS under this Agreement. In the event of a sublicense by INDEVUS
to a Third Party, the provisions of Section 5.3.2 of this Agreement
shall be applicable.
ARTICLE III
DEVELOPMENT AND COMMERCIALIZATION
3.1 Exchange of Information. Within ten (10) days after execution of this
Agreement, ATLANTIC shall disclose to INDEVUS in English and in writing
all ATLANTIC Intellectual Property not previously available or made
available to INDEVUS in
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electronic format, where available, and hard copies (or, upon INDEVUS'
request, originals). Throughout the term of this Agreement, and in
addition to the other communications required under this Agreement,
ATLANTIC shall also promptly disclose to INDEVUS in English and in
writing on an ongoing basis all ATLANTIC Intellectual Property, and any
and all additions or revisions thereto. In particular, ATLANTIC shall
disclose to INDEVUS in writing within two Business Days of its receipt
of any data or results of the Hannover Trial.
3.2 Diligence; Development and Commercialization. INDEVUS shall use
commercially reasonable efforts to develop and commercialize Product.
As used herein, "commercially reasonable efforts" shall mean efforts
and resources normally used by INDEVUS for a product owned by it or to
which it has exclusive rights, which is of similar market potential at
a similar stage in its development or product life, taking into account
issues of safety and efficacy, product profile, the competitiveness of
the marketplace, the proprietary position of the compound or product,
the regulatory and reimbursement structure involved, the profitability
of the applicable products, and other relevant factors. The obligations
set forth in this Section 3.2 are expressly conditioned upon the
absence of any serious adverse conditions or event relating to the
safety or efficacy of Compound or Product including the absence of any
action by any regulatory authority limiting the development or
commercialization of Compound or Product.
3.3 Reports.
3.3.1 INDEVUS shall provide ATLANTIC with an annual written report
summarizing the status of INDEVUS's clinical development and
regulatory activities with respect to Compound and Product,
with the delivery to ATLANTIC of the summary of the annual
report to an IND submitted by INDEVUS to the FDA in connection
with a clinical trial of Product to be in satisfaction of the
foregoing requirement In addition, within two (2) Business
Days prior to the anticipated filing of INDEVUS' Annual Report
on Form 10-K ("Form 10-K) with the Securities and Exchange
Commission ("SEC"), INDEVUS shall provide ATLANTIC with a
draft copy of the portion of such Form 10-K that discloses the
status of INDEVUS clinical development and regulatory
activities with respect to Compound and Product. ATLANTIC
shall designate an appropriate representative of ATLANTIC to
receive such reports and to coordinate further correspondence
between the Parties. ATLANTIC's initial designee shall be
notified to INDEVUS in writing.
3.3.2 Any disclosures of such progress and results in any of the
foregoing reports or draft reports shall be deemed Proprietary
Information of INDEVUS.
3.4 Regulatory Matters.
(a) INDEVUS shall own, control and retain primary legal
responsibility for the preparation, filing and
prosecution of all filings and regulatory
applications required to obtain authorization to
commercially develop, sell and use Product in the
Territory. INDEVUS shall promptly notify
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ATLANTIC upon the receipt of Regulatory Approvals and
of the date of First Commercial Sale.
(b) ATLANTIC shall transfer to INDEVUS as soon as
practicable after the Effective Date any IND or other
regulatory filings relating to Compound or Product
owned or controlled by ATLANTIC, and ATLANTIC shall
allow INDEVUS to cross reference any other IND or
Drug Master File relating to Compound or Product.
Upon INDEVUS' request, ATLANTIC shall consult and
cooperate with INDEVUS in connection with obtaining
regulatory approval of Product.
3.5 Trademark. INDEVUS shall select, own and maintain trademarks for
Product in the Territory.
3.6 Product Inventory. Effective as of the Effective Date, all right, title
and interest in ATLANTIC's entire current inventory of Product or
Compound (excluding that being used in the Hannover Trial) (the
"Product Inventory"), which ATLANTIC represents consists of 30.5 grams
of Product currently held at [*] shall be transferred to INDEVUS and
shall remain at [*] in the name of and for the account of INDEVUS.
ATLANTIC represents and warrants that the manufacture, testing,
delivery and storage of Product Inventory was and is in compliance with
cGMP and all other applicable laws and regulations.
3.7 Agreements. Attached hereto as Exhibit 3.7 is a list of all contracts,
agreements and other arrangements between ATLANTIC and any and all
Third Parties relating to the research, development or
commercialization of the Compound or Product (other than the Burstein
License which is attached as Exhibit 1.6). ATLANTIC shall promptly (and
in no event later than five days after a request from INDEVUS) assign
to INDEVUS those contracts and agreements listed in Exhibit 3.7 which
INDEVUS shall specifically request, and ATLANTIC shall terminate such
other contracts, agreements or other arrangements, with any costs,
expenses or liability associated with such contracts, agreements or
other arrangements or the termination thereof, to be the sole
responsibility of ATLANTIC. With the exception of obligations under
Agreements specifically assigned to INDEVUS pursuant to this Section
3.7, INDEVUS shall not be responsible for any contractual obligations
relating to Compound or Product incurred by ATLANTIC.
ARTICLE IV
CONFIDENTIALITY AND PUBLICITY
4.1 Non-Disclosure and Non-Use Obligations. All Proprietary Information
disclosed by one Party to the other Party hereunder shall be maintained
in confidence and shall not be disclosed to any Third Party or used for
any purpose except as expressly permitted herein without the prior
written consent of the Party that disclosed the Proprietary Information
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to the other Party during the term of this Agreement and for a period
of five years thereafter. The foregoing non-disclosure and non-use
obligations shall not apply to the extent that such Proprietary
Information:
(a) is known by the receiving Party at the time of its
receipt, and not through a prior disclosure by the
disclosing Party, as documented by business records;
(b) is or becomes properly in the public domain or
knowledge;
(c) is subsequently disclosed to a receiving Party by a
Third Party who may lawfully do so and is not under
an obligation of confidentiality to the disclosing
Party; or
(d) is developed by the receiving Party independently of
Proprietary Information received from the other
Party, as documented by research and development
records.
4.2 Permitted Disclosure of Proprietary Information. Notwithstanding
Section 4.1, a Party receiving Proprietary Information of another Party
may disclose such Proprietary Information:
(a) to governmental or other regulatory agencies in order
to obtain patents pursuant to this Agreement, or to
gain approval to conduct clinical trials or to market
Product, but such disclosure may be only to the
extent reasonably necessary to obtain such patents or
authorizations;
(b) by each of INDEVUS or ATLANTIC to its respective
agents, consultants, Affiliates, INDEVUS'
sublicensees and/or other Third Parties for the
research and development, manufacturing and/or
marketing of the Compound and/or Product (or for such
parties to determine their interests in performing
such activities) on the condition that such Third
Parties agree to be bound by the confidentiality
obligations consistent with this Agreement; or
(c) if required to be disclosed by law or court order,
provided that notice is promptly delivered to the
non-disclosing Party in order to provide an
opportunity to challenge or limit the disclosure
obligations; provided, however, without limiting any
of the foregoing, it is understood that the Parties
or their Affiliates may make disclosure of this
Agreement and the terms hereof in any filings
required by the SEC, may file this Agreement as an
exhibit to any filing with the SEC and may distribute
any such filing in the ordinary course of its
business, provided, however, that to the maximum
extent allowable by SEC rules and regulations, the
Parties shall be obligated to maintain the
confidentiality obligations set forth herein and
shall redact any confidential information set forth
in such filings..
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(d) Upon execution of this Agreement, either Party may
issue a press release in the form to be attached as
Exhibit 4.2.
4.3 Publication In the event ATLANTIC or any Affiliate of or consultant to
ATLANTIC wishes to make a publication relating to Compound or Product,
it shall deliver to INDEVUS a copy of the proposed publication or an
outline of the oral disclosure at least sixty (60) Business Days prior
to submission or presentation, such that any issue of patent protection
can be resolved in accordance with the terms of this Agreement.
ARTICLE V
PAYMENTS; ROYALTIES AND REPORTS
5.1 License and Transfer Fee. In consideration of the rights granted by
ATLANTIC hereunder, INDEVUS shall pay ATLANTIC US $[*] within ten (10)
days after the Effective Date, of which US$[*] shall be deemed a
license fee and US$[*] shall be deemed a transfer fee for the Product
Inventory.
5.2 Milestone Payments. Subject to the terms and conditions contained in
this Agreement, and in further consideration of the rights granted by
ATLANTIC hereunder, INDEVUS shall pay ATLANTIC the following milestone
payments, contingent upon occurrence of the specified event, with each
milestone payment to be made no more than once with respect to the
achievement of such milestone (but payable the first time such
milestone is achieved) for Compound or Product, as applicable:
(a) US [*] upon completion of a Phase 2 Clinical Trial,
the results of which meet or exceed the primary
clinical efficacy endpoints and safety outcome
measurements outlined in the Clinical Trial protocol;
(b) US $[*] upon the commencement (first dosing of the
first patient) of the first Phase 3 Clinical Trial;
(c) US $[*] upon the commencement (first dosing of the
first patient) of the second Phase 3 Clinical Trial;
(d) US $[*] upon the FDA's first acceptance for filing of
an NDA;
(e) US $[*] upon the first acceptance for filing of an
NDA under the Centralized Procedure or in Europe;
(f) US $[*] upon receipt of first written Regulatory
Approval for marketing in the United States by the
FDA;
(g) US $[*] upon receipt of written Regulatory Approval
for marketing each of the second and third
indications in the United States by the FDA;
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(h) US $[*] upon receipt of written Regulatory Approval
in Europe, provided that in the event the approval is
granted in less than all of the countries listed in
the definition of "Europe", INDEVUS shall pay an
amount equal to US $[*] multiplied by the number of
countries in Europe in which such approval is
granted;
(i) US $[*] upon receipt of written Regulatory Approval
by the Ministry of Health, Labour and Welfare (or any
successor agency having substantially the same
functions) in Japan; and
(j) US $[*] upon the achievement of cumulative Net Sales
of US $[*].
INDEVUS shall notify ATLANTIC in writing within thirty (30)
days after the achievement of each milestone (ninety (90) days
for milestone (j)), and such notice shall be accompanied by
the appropriate milestone payment. An amount equal to (i) [*]
of milestone payments made under Section 5.2 (f), (g) (h)
and/or (i) (the "Approval Milestone Payments") shall be
creditable against any amounts otherwise payable to ATLANTIC
under Section 5.3.1 or 5.3.2 (b) of this Agreement and (ii)
[*] of any payments made under Section 5.1 and 5.2 of this
Agreement shall be creditable against any amounts otherwise
payable under Section 5.3.2 (a) of this Agreement. Except as
specifically set forth in this Section 5.2, the payments
described in this Section 5.2 shall be payable only upon the
initial achievement of each milestone, and no amounts shall be
due hereunder for any subsequent or repeated achievement of
such milestones, regardless of the number of Products for
which such milestone may be achieved.
5.3 Royalties and Other Payments.
5.3.1 Royalties Payable By INDEVUS.
(i) Subject to the terms and conditions of this
Agreement, and in further consideration of
the rights granted by ATLANTIC hereunder,
INDEVUS shall pay to ATLANTIC royalties in
an amount equal to [*] of Net Sales in each
Royalty Year by INDEVUS or its Affiliates in
the United States if the manufacture, use or
sale of such Product would, absent the
license granted hereunder, infringe one or
more Valid Claims of the Patent Assets in
the United States.
(ii) Subject to the terms and conditions of this
Agreement, and in further consideration of
the rights granted by ATLANTIC hereunder,
INDEVUS shall pay to ATLANTIC royalties
equal to [*] of Net Sales in each Royalty
Year by INDEVUS or its Affiliates in each
country in the Territory other than the
United States where the manufacture, use or
sale of such Product would,
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absent the license granted hereunder,
infringe one or more Valid Claims of the
Patent Assets in such country.
(iii) Royalties on Net Sales at the rates set
forth in (i) and (ii) above shall accrue as
of the date of First Commercial Sale of
Product in the applicable country and shall
continue and accrue on Net Sales on a
country-by-country basis until the
expiration of the last to expire Patent
Asset in such country. Thereafter, INDEVUS
shall be relieved of any royalty payment
under this Section 5.3.
(iv) The payment of royalties set forth above
shall be subject to the following
conditions:
(A) only one payment shall be due with
respect to the same unit of
Product;
(B) no royalties shall accrue on the
disposition of Product by INDEVUS,
Affiliates or sublicensees as
samples (promotion or otherwise) or
as donations (for example, to
non-profit institutions or
government agencies) or to clinical
trials; and
(C) ATLANTIC shall be responsible for
payment of any royalties or other
obligations owed by ATLANTIC or
relating to the Patent Assets to
any Third Party, including without
limitation, pursuant to the
Burstein License.
5.3.2 Payments in the Event of Sublicense. In the event INDEVUS
enters into a sublicense with a Third Party or Third Parties
under Section 2.3 of this Agreement, then the following shall
be applicable as of the effective date of the sublicense:
(a) INDEVUS' obligation to pay ATLANTIC any of the
milestone payments set forth in Section 5.2 above
shall terminate and, in lieu thereof, ATLANTIC shall
be entitled to [*] of Sublicense Non-Royalty Payments
received by INDEVUS, net of [*] of any amounts paid
by INDEVUS under Section 5.1 or 5.2 of this Agreement
prior to the effective date of the sublicense; and
(b) INDEVUS'obligation to pay ATLANTIC any royalties
under Section 5.3.1 above shall terminate and, in
lieu thereof, ATLANTIC shall be entitled to [*] of
Sublicense Royalty Payments received by INDEVUS, for
the same period set forth in Section 5.3.1(iii), net
of [*] (not to exceed an aggregate of $[*]) of (i)
any Approval Milestone Payments paid by
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INDEVUS prior to the effective date of the sublicense
and (ii) any amounts paid by INDEVUS under Section
5.3.2 (a) above. .
5.3.3 Affiliate Sales. In the event that INDEVUS transfers Compound
(for conversion to Product) or Product to one of its
Affiliates, there shall be no royalty due at the time of
transfer. Subsequent sales of Product by the Affiliate to end
users such as patients, hospitals, medical institutions,
health plans or funds, wholesalers (which are not
sublicensees), pharmacies or other retailers, shall be
reported as Net Sales hereunder by INDEVUS.
5.3.4 Compulsory Licenses. If a compulsory license is granted to a
Third Party with respect to Product in any country in the
Territory with a royalty rate lower than the royalty rate
provided by Section 5.3.1, then the royalty rate to be paid by
INDEVUS on Net Sales in that country under Section 5.3.1 shall
be reduced to the rate paid by the compulsory Third Party
licensee.
5.3.5 Third Party Licenses. If one or more licenses from a Third
Party or Third Parties are obtained by INDEVUS in order to
develop, make, have made, use, sell or import Compound or
Product in a particular country, any royalties or other
payments paid under such Third Party patent licenses by
INDEVUS in such country for such Calendar Quarter shall be
creditable against the royalty or other payments payable to
ATLANTIC by INDEVUS in such country.
5.3.6 Combination Product. Notwithstanding the provisions of Section
5.3.1, in the event a Product is sold as a combination product
with other biologically active components, Net Sales, for
purposes of royalty payments on the combination product, shall
be calculated by multiplying the Net Sales of that combination
product by the fraction A/B, where A is the gross selling
price of the Product sold separately and B is the gross
selling price of the combination product. If no such separate
sales are made by INDEVUS or its Affiliates, Net Sales for
royalty determination shall be calculated by multiplying Net
Sales of the combination product by the fraction C/(C+D),
where C (excluding the fully allocated cost of the other
biologically active component in question) is the fully
allocated cost of the Compound and D is the fully allocated
cost of such other biologically active components.
5.4 Reports; Payment of Royalty. During the term of the Agreement for so
long as royalty or other payments are due, INDEVUS shall furnish to
ATLANTIC a quarterly written report for the Calendar Quarter showing
the Net Sales of all Products subject to royalty payments sold by
INDEVUS and its Affiliates (or, if sales of Product were made by an
INDEVUS sublicensee, the Sublicense Royalty Payments received from such
sublicensee as a result of such sales) during the reporting period and
the royalties or other payments payable to ATLANTIC under this
Agreement. Reports shall be due on the ninetieth (90th) day following
the close of each Calendar Quarter. Royalties or other payments shown
to have accrued by each royalty report, if any, shall be due and
payable on the date such report is due. INDEVUS shall keep complete and
accurate records in sufficient detail to enable the royalties or other
payments hereunder to be determined.
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5.5 Audits. Upon the written request of ATLANTIC and not more than once in
each Calendar Year, INDEVUS shall permit an independent certified
public accounting firm selected by ATLANTIC and reasonably acceptable
to INDEVUS to have access during normal business hours, upon ten-days
notice to INDEVUS, to such of the records of INDEVUS as may be
reasonably necessary to verify the accuracy of the royalty reports
hereunder for any Royalty Year ending not more than twenty-four (24)
months prior to the date of such request. The accounting firm shall
disclose to ATLANTIC only whether the royalty reports are correct or
incorrect and the specific details concerning any discrepancies.
5.5.1 If such accounting firm concludes that additional royalties
were owed during such Royalty Year, INDEVUS shall pay the
additional royalties within sixty (60) days of the date
ATLANTIC delivers to INDEVUS such accounting firm's written
report so concluding; provided however, that, in the event
that INDEVUS shall not be in agreement with the conclusion of
such report (a) INDEVUS shall not be required to pay such
additional royalties and (b) such matter shall be resolved
pursuant to the provisions of Section 9.5 herein. In the event
such accounting firm or, if the matter is resolved in
accordance with Section 9.5 herein, any arbitration award
concludes that amounts were overpaid by INDEVUS during such
period, ATLANTIC shall repay INDEVUS the amount of such
overpayment within sixty (60) days of the date ATLANTIC
delivers to INDEVUS such accounting firm's written report so
concluding. The fees charged by such accounting firm shall be
paid by ATLANTIC; provided, however, that if an error in favor
of ATLANTIC of more than the greater of (i) [*] or (ii) [*] of
the royalties due hereunder for the period being reviewed is
discovered, then the fees and expenses of the accounting firm
shall be paid by INDEVUS.
5.5.2 Upon the expiration of twenty-four (24) months following the
end of any Royalty Year the calculation of royalties payable
with respect to such year shall be binding and conclusive upon
ATLANTIC, and INDEVUS shall be released from any liability or
accountability with respect to royalties for such year.
5.5.3 ATLANTIC shall treat all financial information subject to
review under this Section 5.5 in accordance with the
confidentiality provisions of this Agreement.
5.6 Payment Exchange Rate. All payments to ATLANTIC under this Agreement
shall be made in United States dollars. In the case of sales outside
the United States, the rate of exchange to be used in computing Net
Sales shall be calculated monthly in accordance with GAAP and based on
the conversion rates published in the Wall Street Journal, Eastern
edition (if available).
5.7 Tax Withholding. If laws, rules or regulations require withholding of
income taxes or other taxes imposed upon payments set forth in this
Article V, ATLANTIC shall provide INDEVUS, prior to any such payment,
once each Royalty Year or more frequently if
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required, with all forms or documentation required by any applicable
taxation laws, treaties or agreements to such withholding or as
necessary to claim a benefit thereunder (including, but not limited to
Form W-8BEN or any successor forms) and INDEVUS shall make such
withholding payments as required and subtract such withholding payments
from the payments set forth in this Article V. INDEVUS will use
commercially reasonable efforts consistent with its usual business
practices and cooperate with ATLANTIC to ensure that any withholding
taxes imposed are reduced as far as possible under the provisions of
the current or any future taxation treaties or agreements between
foreign countries.
5.8 Exchange Controls. Notwithstanding any other provision of this
Agreement, if at any time legal restrictions prevent the prompt
remittance of part or all of the royalties with respect to Net Sales in
any country, payment shall be made through such lawful means or methods
as INDEVUS may determine. When in any country the law or regulations
prohibit both the transmittal and deposit of royalties on sales in such
a country, royalty payments shall be suspended for as long as such
prohibition is in effect (and such suspended payments shall not accrue
interest), and promptly after such prohibition ceases to be in effect,
all royalties or other payments that INDEVUS or its Affiliates would
have been obligated to transmit or deposit, but for the prohibition,
shall be deposited or transmitted, as the case may be, to the extent
allowable (with any interest earned on such suspended royalties which
were placed in an interest-bearing bank account in that country, less
any transactional costs). If the royalty rate specified in this
Agreement should exceed the permissible rate established in any
country, the royalty rate for sales in such country shall be adjusted
to the highest legally permissible or government-approved rate.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1 ATLANTIC Representations and Warranties. ATLANTIC represents and
warrants to INDEVUS that as of the Effective Date:
(a) the issued patents included in the Patent Assets are
valid and enforceable over any references or prior
art known to ATLANTIC or its agents, including
Burstein, taken alone or in combination;
(b) this Agreement has been duly executed and delivered
by ATLANTIC and constitutes legal, valid, and binding
obligations enforceable against ATLANTIC in
accordance with its terms, except as enforceability
is limited by (A) any applicable bankruptcy,
insolvency, reorganization, moratorium or similar law
affecting creditor's rights generally, or (B) general
principals of equity, whether considered in a
proceeding in equity or at law;
(c) no approval, authorization, consent, or other order
or action of or filing with any court, administrative
agency or other governmental authority is
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required for the execution and delivery by ATLANTIC
of this Agreement or the consummation by ATLANTIC of
the transactions contemplated hereby;
(d) ATLANTIC has the full corporate power and authority
to enter into and deliver this Agreement, to perform
and to grant the licenses granted under Article II
hereof and to consummate the transactions
contemplated hereby; all corporate acts and other
proceedings required to be taken to authorize such
execution, delivery, and consummation have been duly
and properly taken and obtained;
(e) ATLANTIC has not previously assigned, transferred,
conveyed or otherwise encumbered its right, title and
interest in the ATLANTIC Intellectual Property or
entered into any agreement with any Third Party which
is in conflict with the rights granted to INDEVUS
pursuant to this Agreement;
(f) it is the sole owner or exclusive licensee under the
ATLANTIC Intellectual Property, all of which are free
and clear of any liens, charges and encumbrances, no
other person, corporate or other private entity, or
governmental or university entity or subdivision
thereof (including, without limitation, [*]) has any
claim of ownership or rights with respect to the
ATLANTIC Intellectual Property, whatsoever
Notwithstanding the foregoing, with respect only to
(a) U. S. Serial No. [*], (b) International patent
application number [*] and (c) U.S. Serial No. [*],
which are listed in Schedule 1.25 (Patent Assets)
attached hereto, ATLANTIC is an owner of at least an
undivided interest in the invention disclosed and
claimed in (a) and (b), above, and has been granted a
license, with a right to grant a sublicense, by the
United States Government under the United States
Government's ownership rights in (c);
(g) ATLANTIC has disclosed to INDEVUS the complete texts
of all Patent Assets as well as all information
received by ATLANTIC concerning the institution or
possible institution of any interference, opposition,
re-examination, reissue, revocation, nullification,
or any official proceeding involving a Patent Asset,
and that it will continue such disclosure with
respect to new events during the term of the
Agreement;
(h) to the best of ATLANTIC's knowledge, the development,
manufacture, use and sale of Compound and Products
would not infringe any patent rights owned or
possessed by any Third Party;
(i) Schedule 1.25 is a complete and accurate list of all
patents and patent applications in the Territory
relating to Compound or Product owned or
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exclusively licensed by ATLANTIC or to which ATLANTIC
has the right to license;
(j) there are no claims, judgments or settlements against
or owed by ATLANTIC relating to the Patent Assets or
pending or, to the best of ATLANTIC's knowledge,
threatened claims or litigation against ATLANTIC or
Burstein relating to the Patent Assets;
(k) ATLANTIC has disclosed to INDEVUS all relevant
information known by it regarding the ATLANTIC
Intellectual Property reasonably related to the
activities contemplated under this Agreement;
(l) no contract research organization, corporation,
business entity or individual which have been
involved in any studies conducted for the purpose of
obtaining regulatory approvals have been debarred
individuals or entities within the meaning of 21
U.S.C. section 335(a) or (b);
(m) in connection with development of Compound and
Product, ATLANTIC has complied and is complying in
all material respects with applicable U.S. and German
laws and regulations including U.S. good laboratory
practices in its conduct of toxicology studies on
Compound and U.S. good clinical practices in its
conduct of clinical studies on Compound and any
corresponding German regulations in connection with
the Hannover Trial;
(n) attached as Exhibit 1.6 is a true and complete copy
of the Burstein License, including all supplements
thereto and modifications or amendments thereof.
ATLANTIC is not, and to the best of ATLANTIC's
knowledge, Burstein is not, in default under or in
breach of any terms or provisions of the Burstein
License and such agreement is in full force and
effect as of the date hereof. During the term of this
Agreement, ATLANTIC shall not amend, modify,
terminate or cause a default under the Burstein
License, or reject the Burstein License pursuant to
11 U.S.C. ss. 365;
(o) IND number [*] is owned by ATLANTIC free and clear of
any rights of any Third Party and is active, in good
standing and in full force and effect with all
applicable regulatory agencies; and
(p) EXCEPT AS SPECIFICALLY PROVIDED HEREIN, ATLANTIC DOES
NOT MAKE, AND EXPRESSLY DISCLAIMS ANY WARRANTIES,
EITHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, AS TO ANY
MATTER WHATSOEVER, INCLUDING, INCLUDING WITHOUT
LIMITATION ANY EXPRESS OR IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
CONCERNING THE PATENT ASSETS.
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6.2 INDEVUS Representations and Warranties. INDEVUS represents and warrants
to ATLANTIC that as of the Effective Date:
(a) this Agreement has been duly executed and delivered
by it and constitutes legal, valid, and binding
obligations enforceable against it in accordance with
its terms;
(b) it has full corporate power and authority to execute
and deliver this Agreement and to consummate the
transactions contemplated hereby. All corporate acts
and other proceedings required to be taken to
authorize such execution, delivery, and consummation
have been duly and properly taken and obtained;
(c) no approval, authorization, consent, or other order
or action of or filing with any court, administrative
agency or other governmental authority is required
for the execution and delivery by it of this
Agreement or the consummation by it of the
transactions contemplated hereby.
ARTICLE VII
PATENT MATTERS
7.1 Filing, Prosecution and Maintenance of Patent Applications or Patents.
INDEVUS shall have the first right to file, prosecute and maintain the
Patent Assets in ATLANTIC's name and shall initially be responsible for
the payment of all patent prosecution and maintenance costs, subject to
the next sentence. INDEVUS shall credit against any milestone payments
payable to ATLANTIC under Section 5.2 of this Agreement and/or under
Section 5.3.2 (a) amounts paid by INDEVUS for patent prosecution and
maintenance costs incurred during the Term of this Agreement in
connection with the filing, prosecution and maintenance of the Patent
Assets. If INDEVUS elects not to file, prosecute or maintain a patent
application or patent included in the Patent Assets in any particular
country, it shall provide ATLANTIC with written advance notice
sufficient to avoid any loss or forfeiture, and ATLANTIC shall have the
right, but not the obligation, at its sole expense, to file, prosecute
or maintain such patent application or patent in such country in
ATLANTIC's name. Thereafter, INDEVUS' royalty obligations related to
that Patent Asset in such country shall terminate and such patent or
patent application in such country shall no longer be deemed a Patent
Asset. Upon INDEVUS' request, ATLANTIC shall reasonably cooperate in
the filing, prosecution or maintenance of any patent application or
patent included in the Patent Assets.
7.2 Patent Office and Court Proceedings. Each Party shall inform the other
Party of any request for, filing, or declaration of any proceeding
before a patent office seeking to protest, oppose, cancel, reexamine,
declare an interference proceeding, initiate a conflicts proceeding, or
analogous process involving a patent application or patent included in
the Patent Assets, or of the filing of an action in a court of
competent jurisdiction seeking a judgment that a patent included in the
Patent Assets is either invalid or unenforceable or both.. Each Party
thereafter shall cooperate fully with the other with respect to any
such
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patent office or court proceeding. Each Party will provide the other
with any information or assistance that is reasonable. Notwithstanding
the foregoing or the provisions of Section 7.3 below, in the event of
any such action or proceeding, ATLANTIC shall indemnify and hold
INDEVUS and its Affiliates harmless from and against any and all
claims, damages, judgments, liabilities, costs and expenses including,
without limitation reasonable litigation costs and legal fees and
expenses, that may be incurred by, levied upon or are payable by
INDEVUS or any of its Affiliates as a result of such action or
proceeding or due to the breach of ATLANTIC's representations and
warranties under Section 6.1 of this Agreement.
7.3 Enforcement and Defense.
(a) Each Party shall promptly give the other Party notice
of any infringement in the Territory of any patent
application or patent included in the Patent Assets
that comes to such Party's attention. The Parties
will thereafter consult and cooperate fully to
determine a course of action, including, without
limitation, the commencement of legal action by any
Party. However, INDEVUS shall have the first right to
initiate and prosecute such legal action at its own
expense and in the name of ATLANTIC and INDEVUS, or
to control the defense of any declaratory judgment
action relating to Patent Assets. INDEVUS shall
promptly inform ATLANTIC if INDEVUS elects not to
exercise such first right, and ATLANTIC thereafter
shall have the right either to initiate and prosecute
such action or to control the defense of such
declaratory judgment action in the name of ATLANTIC
and, if necessary, INDEVUS. In no event shall
ATLANTIC be obligated to enforce or defend any of the
Patent Assets.
(b) If INDEVUS elects not to initiate and prosecute an
infringement or defend a declaratory judgment action
in any country in the Territory as provided in
Subsection 7.3(a), and ATLANTIC elects to do so, the
cost of any agreed-upon course of action, including
the costs of any legal action commenced or any
declaratory judgment action defended, shall be borne
solely by ATLANTIC.
(c) For any such legal action or defense, in the event
that any Party is unable to initiate, prosecute, or
defend such action solely in its own name, the other
Party will join such action voluntarily and will
execute all documents necessary for the Party to
prosecute, defend and maintain such action. In
connection with any such action, the Parties will
cooperate fully and will provide each other with any
information or assistance that either reasonably may
request.
(d) Any recovery obtained by INDEVUS or ATLANTIC shall be
shared as follows:
(i) the Party that initiated and prosecuted, or
maintained the defense of, the action shall
recoup all of its costs and expenses
(including
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reasonable attorneys' fees) incurred in
connection with the action, whether the
recovery is by settlement or otherwise;
(ii) the other Party then shall, to the extent
possible, recover its costs and expenses
(including reasonable attorneys' fees)
incurred in connection with the action;
(iii) if ATLANTIC initiated and prosecuted, or
maintained the defense of, the action, the
amount of any recovery remaining then shall
be retained by ATLANTIC; and
(iv) if INDEVUS initiated and prosecuted, or
maintained the defense of, the action, the
amount of any recovery remaining shall be
retained by INDEVUS, except that ATLANTIC
shall receive a portion equivalent to the
royalties it would have received in
accordance with the terms of this Agreement
if such amount were deemed Net Sales.
(e) ATLANTIC shall inform INDEVUS of any certification
regarding any Patent Assets it has received pursuant
to either 21 U.S.C.ss.ss.355(b)(2)(A)(iv) or
(j)(2)(A)(vii)(IV) or under Canada's Patented
Medicines (Notice of Compliance) Regulations Article
5 and shall provide INDEVUS with a copy of such
certification within five (5) days of receipt.
ATLANTIC's and INDEVUS' rights with respect to the
initiation and prosecution, or defense, of any legal
action as a result of such certification or any
recovery obtained as a result of such legal action
shall be allocated as defined in Subsections 7.3(d)
(i) through (iv); provided, however, that INDEVUS
shall exercise the first right to initiate and
prosecute, or defend, any action and shall inform
ATLANTIC of such decision within fifteen (15) days of
receipt of the certification, after which time, if
INDEVUS has not advised ATLANTIC of its intention to
initiate and prosecute, or defend, such action,
ATLANTIC shall have the right to initiate and
prosecute, or defend, such action.
7.4 Patent Term Extensions or Restorations and Supplemental Protection
Certificates. The Parties shall cooperate with each other in obtaining
patent term extensions or restorations or supplemental protection
certificates or their equivalents in any country in the Territory where
applicable and where desired by INDEVUS. If elections with respect to
obtaining such extension or supplemental protection certificates are to
be made, INDEVUS shall have the right to make the election and ATLANTIC
shall abide by such election. ATLANTIC shall notify INDEVUS of (a) the
issuance of each U.S. patent included within the Patent Assets, giving
the date of issue and patent number for each such patent, and (b) each
notice pertaining to any patent included within the Patent Assets
pursuant to the United States Drug Price Competition and Patent Term
Restoration Act of 1984 (hereinafter called the " 1984 Act"), including
notices pursuant to ss.ss. 101 and 103 of the 1984 Act from persons who
have filed an abbreviated NDA ("ANDA"). Such notices shall be given
promptly, but in any event within five (5) calendar days of each such
-21-
patent's date of issue or receipt of each such notice pursuant to the
Act, whichever is applicable. ATLANTIC shall notify INDEVUS of each
filing for patent term extension or restoration under the 1984 Act, any
allegations of failure to show due diligence and all awards of patent
term restoration (extensions) with respect to the Patent Assets.
Likewise, ATLANTIC shall inform INDEVUS of patent extensions in the
rest of the world regarding Compound or Product.
7.5 Security Interest. Within fifteen (15) days from the Effective Date,
ATLANTIC shall grant to INDEVUS a first priority security interest,
senior to any and all other liens and encumbrances, in all of the
ATLANTIC Patent Assets, whether now owned or hereafter acquired by
ATLANTIC and in all of ATLANTIC'S rights in and to all ATLANTIC Patent
Assets controlled by ATLANTIC (collectively, the "Collateral"). The
grant of the security interest will secure the performance when due of
the obligations of ATLANTIC owed to INDEVUS under this Agreement.
ATLANTIC shall execute and deliver such agreements, instruments,
documents or notices (including without limitation financing statements
or amendments thereto), and take such other actions, as INDEVUS may
reasonably deem necessary in order to perfect, protect and preserve any
lien granted or purported to be granted by such security interest and
to enable INDEVUS to exercise and enforce any of its rights and
remedies hereunder with respect to any Collateral.
ARTICLE VIII
TERM AND TERMINATION
8.1 Term and Expiration. This Agreement shall be effective as of the
Effective Date and unless terminated earlier pursuant to Section 8.2
and 8.3 below, the term of this Agreement shall continue in effect on a
country-by-country basis until the expiration of the last to expire
Patent Asset in such country..
8.2 Termination by Notice. Notwithstanding anything contained herein to the
contrary, INDEVUS shall have the right to terminate this Agreement at
any time by giving thirty (30) days advance written notice to ATLANTIC.
Except as set forth in this Agreement, in the event of such
termination, (i) the rights and obligations hereunder, excluding any
payment obligation that has accrued as of the termination date and
excluding rights and obligations relating to confidentiality, shall
terminate immediately, and (ii) the provisions of Section 8.4 shall be
applicable.
8.3 Termination.
8.3.1 Termination for Cause. Either Party may terminate this
Agreement by notice to the other Party at any time during the
term of this Agreement as follows:
(a) if the other Party is in breach of any material
obligation hereunder by causes and reasons within its
control, or has breached, in any material respect,
any representations or warranties set forth in
Article VI, and has not cured such breach within
ninety (90) days after notice requesting cure of the
breach, provided, however, that if the breach is not
capable of being cured within ninety (90) days of
such written notice, the Agreement may
-22-
not be terminated sooner than one hundred twenty
(120) days of such written notice so long as the
breaching Party commences and is taking commercially
reasonable actions to cure such breach as promptly as
practicable; or
(b) upon the filing or institution of bankruptcy,
reorganization, liquidation or receivership
proceedings, or upon an assignment of a substantial
portion of the assets for the benefit of creditors by
the other Party; provided, however, in the case of
any involuntary bankruptcy, reorganization,
liquidation, receivership or assignment proceeding
such right to terminate shall only become effective
if the Party consents to the involuntary proceeding
or such proceeding is not dismissed within ninety
(90) days after the filing thereof.
8.3.2 Licensee Rights Not Affected.
(a) In the event INDEVUS terminates this Agreement under
Section 8.3.1(b), or this Agreement is otherwise
terminated under Section 8.3.1(b), or ATLANTIC is a
debtor in a bankruptcy proceeding, whether voluntary
or involuntary, all rights and licenses granted
pursuant to this Agreement are, and shall otherwise
be deemed to be, for purposes of Section 365(n) of 11
U.S.C.ss.101 et seq. (the "Bankruptcy Code"),
licenses of rights to "intellectual property" as
defined under Section 101(35A) of the Bankruptcy
Code. The Parties agree that INDEVUS and ATLANTIC
shall retain and may fully exercise all of their
respective rights, remedies and elections under the
Bankruptcy Code. The Parties further agree that, in
the event of the commencement of a bankruptcy
proceeding by or against ATLANTIC under the
Bankruptcy Code, INDEVUS shall be entitled to all
applicable rights under Section 365 of the Bankruptcy
Code, including but not limited to, entitled to a
complete duplicate of (or complete access to, as
appropriate) any such intellectual property and all
embodiments of such intellectual property upon
written request therefor by INDEVUS.
(b) In the event INDEVUS is a debtor in a bankruptcy
proceeding, whether voluntary or involuntary, all
rights and licenses granted pursuant to this
Agreement are, and shall otherwise be deemed to be,
for purposes of Section 365 of the Bankruptcy Code,
executory contracts. The Parties agree that
applicable law does not excuse ATLANTIC from
accepting performance by, or rendering performance
under this Agreement and all rights and licenses
granted hereunder to, a person or entity other than
INDEVUS.
8.4 Effect of Expiration or Termination. Expiration or termination of this
Agreement shall not relieve the Parties of any obligation accruing
prior to such expiration or termination. INDEVUS and its Affiliates and
sublicensees shall have the right to sell or otherwise dispose of the
stock of any Product subject to this Agreement then on hand or in
process
-23-
of manufacture. In addition to any other provisions of this Agreement
which by their terms continue after the expiration of this Agreement,
the provisions of Article IV shall survive the expiration or
termination of this Agreement and shall continue in effect for five (5)
years from the date of expiration or termination. In addition, any
other provision required to interpret and enforce the Parties' rights
and obligations under this Agreement shall also survive, but only to
the extent required for the full observation and performance of this
Agreement. Any expiration or early termination of this Agreement shall
be without prejudice to the rights of any Party against the other
accrued or accruing under this Agreement prior to termination. Except
as expressly set forth herein, the rights to terminate as set forth
herein shall be in addition to all other rights and remedies available
under this Agreement, at law, or in equity, or otherwise. Upon
termination of this Agreement pursuant to Section 8.2 or upon
termination by ATLANTIC pursuant to Section 8.3.1(a), INDEVUS shall, if
requested to do so in writing by ATLANTIC, negotiate a license to
ATLANTIC of know-how relating to the manufacture or sale of Compound or
Product that was developed by INDEVUS during the Term of this Agreement
and is owned and controlled by INDEVUS at the time of termination, on
commercially reasonable terms to be negotiated in good faith between
the Parties.
ARTICLE IX
MISCELLANEOUS
9.1 Force Majeure. Neither Party shall be held liable or responsible to the
other Party nor be deemed to have defaulted under or breached the
Agreement for failure or delay in fulfilling or performing any term of
the Agreement during the period of time when such failure or delay is
caused by or results from causes beyond the reasonable control of the
affected Party including, but not limited to, fire, flood, embargo,
war, acts of war (whether war be declared or not), insurrection, riot,
civil commotion, strike, lockout or other labor disturbance, act of God
or act, omission or delay in acting by any governmental authority or
the other Party. The affected Party shall notify the other Party of
such force majeure circumstances as soon as reasonably practicable.
9.2 Assignment. The Agreement may not be assigned or otherwise transferred
without the prior written consent of the other Party; provided,
however, that either Party may assign this Agreement to an Affiliate or
in connection with the transfer or sale of its business or all or
substantially all of its assets related to Compound or Product or in
the event of a merger, consolidation, change in control or similar
corporate transaction. Any permitted assignee shall assume all
obligations of its assignor under this Agreement.
9.3 Severability. In the event that any of the provisions contained in this
Agreement are held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby,
unless the absence of the invalidated provision(s) adversely affect the
substantive rights of the Parties. In such event, the Parties shall
replace the invalid, illegal or unenforceable provision(s) with valid,
legal and enforceable provision(s) which, insofar as practical,
implement the purposes of this Agreement.
-24-
9.4 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered
personally, sent by facsimile (and promptly confirmed by personal
delivery, registered or certified mail or overnight courier), sent by
nationally-recognized overnight courier or sent by registered or
certified mail, postage prepaid, return receipt requested, addressed as
follows:
if to INDEVUS to:
INDEVUS PHARMACEUTICALS, INC.
99 Hayden Avenue, Suite 200
Lexington, MA 02421
Attention: President
Fax No.: 781-862-3859
if to ATLANTIC to:
ATLANTIC TECHNOLOGY VENTURES, INC.
350 Fifth Avenue, Suite 5507
New York, New York 10118
Attention: Chief Executive Officer
Fax No.: 212.267.2159
or to such other address as the Party to whom notice is to be given may have
furnished to the other Parties in writing in accordance herewith. Any such
communication shall be deemed to have been given when delivered if personally
delivered or sent by facsimile on a Business Day, upon confirmed delivery by
nationally-recognized overnight courier if so delivered and on the third
Business Day following the date of mailing if sent by registered or certified
mail.
9.5 Applicable Law and Dispute Resolution. The Agreement shall be governed
by and construed in accordance with the laws of the United States of
America and State of New York without reference to any rules of
conflict of laws.
(a) The Parties agree to attempt initially to solve all
claims, disputes, or controversies arising under, out
of, or in connection with this Agreement (a
"Dispute") by conducting good faith negotiations. Any
Disputes which cannot be resolved by good faith
negotiation within twenty (20) Business Days, shall
be referred, by written notice from either Party to
the other, to the Chief Executive Officer of each
Party. Such Chief Executive Officers shall negotiate
in good faith to achieve a resolution of the Dispute
referred to them within twenty (20) Business Days
after such notice is received by the Party to whom
the notice was sent. If the Chief Executive Officers
are unable to settle the Dispute between themselves
within twenty (20) Business Days, they shall so
report to the Parties in writing. The Dispute shall
then be referred to mediation as set forth in the
following subsection (b).
-25-
(b) Upon the Parties receiving the Chief Executive
Officers' report that the Dispute referred to them
pursuant to subsection (a) has not been resolved, the
Dispute shall be referred to mediation by written
notice from either Party to the other. The mediation
shall be conducted pursuant to the American
Arbitration Association ("AAA") procedures. The place
of the mediation shall be New York, New York. If the
Parties have not reached a settlement within twenty
(20) Business Days of the date of the notice of
mediation, the Dispute shall be referred to
arbitration pursuant to subsection (c) below.
(c) If after the procedures set forth in subsections (a)
and (b) above, the Dispute has not been resolved, a
Party shall decide to institute arbitration
proceedings, it shall give written notice to that
effect to the other Party. The Parties shall refrain
from instituting the arbitration proceedings for a
period of sixty (60) days following such notice.
During such period, the Parties shall continue to
make good faith efforts to amicably resolve the
dispute without arbitration. If the Parties have not
reached a settlement during that period the
arbitration proceedings shall go forward and be
governed by the AAA rules then in force. Each such
arbitration shall be conducted by a panel of three
arbitrators: one arbitrator shall be appointed by
each of ATLANTIC and INDEVUS and the third
arbitrator, who shall be the Chairman of the
tribunal, shall be appointed by the two
Party-appointed arbitrators. Any such arbitration
shall be held in New York, New York, USA .
The arbitrators shall have the authority to grant specific performance. Judgment
upon the award so rendered may be entered in any court having jurisdiction or
application may be made to such court for judicial acceptance of any award and
an order of enforcement, as the case may be. In no event shall a demand for
arbitration be made after the date when institution of a legal or equitable
proceeding based on such claim, dispute or other matter in question would be
barred by the applicable statute of limitations. Each Party shall bear its own
costs and expenses incurred in connection with any arbitration proceeding and
the Parties shall equally share the cost of the mediation and arbitration levied
by the AAA.
Any mediation or arbitration proceeding entered into pursuant to this Section
9.5 shall be conducted in the English language. Subject to the foregoing, for
purposes of this Agreement, each Party consents, for itself and its Affiliates,
to the jurisdiction of the courts of the State of New York, county of New York
and the U.S. District Court for the Southern District of New York.
9.6 Entire Agreement. This Agreement, including the exhibits and schedules
hereto and the security interest required by Section 7.5 hereto,
contains the entire understanding of the Parties with respect to the
subject matter hereof and supersedes all previous writings and
understandings. This Agreement may be amended, or any term hereof
modified, only by a written instrument duly executed by all Parties
hereto.
-26-
9.7 Independent Contractors. It is expressly agreed that the Parties shall
be independent contractors and that the relationship between the
Parties shall not constitute a partnership, joint venture or agency.
Neither Party shall have the authority to make any statements,
representations or commitments of any kind, or to take any action,
which shall be binding on the other Party, without the prior consent of
such other Party.
9.8 Waiver. The waiver by a Party hereto of any right hereunder or the
failure to perform or of a breach by another Party shall not be deemed
a waiver of any other right hereunder or of any other breach or failure
by said other Party whether of a similar nature or otherwise.
9.9 Headings. The captions to the several Articles and Sections hereof are
not a part of the Agreement, but are merely guides or labels to assist
in locating and reading the several Articles and Sections hereof.
9.10 Counterparts. The Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
9.11 Use of Names. Except as otherwise provided in this Agreement, neither
Party shall use the name of the other Party in relation to this
transaction in any public announcement, press release or other public
document without the consent of such other Party, which consent shall
not be unreasonably withheld or delayed; provided, however, that either
Party may use the name of the other Party in any document required to
be filed to obtain Regulatory Approval or to comply with applicable
laws, rules or regulations.
9.12 LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR
ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES ARISING OUT
OF THIS AGREEMENT, HOWEVER CAUSED, UNDER ANY THEORY OF LIABILITY.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first set forth above.
ATLANTIC TECHNOLOGY VENTURES, INC.
By: /s/ Frederic P. Zotos
-----------------------------------------------------
Name: Frederic P. Zotos, Esq.
Title: President and Chief Executive Officer
INDEVUS PHARMACEUTICALS, INC.
By: /s/ Glenn L. Cooper
-----------------------------------------------------
Name: Glenn L. Cooper, M.D.
Title: President and Chief Executive Officer
-27-
EXHIBIT 1.6
- -----------
[The License Agreement dated March 28, 1994 between Channel Therapeutics, Inc.
and Dr. Sumner Burstein was previously filed as an exhibit to Atlantic's
registration statement on Form SB-2 as filed with the SEC on October 24, 1995,
as amended. Confidential treatment for this agreement was granted by the SEC.]
SCHEDULE 1.12
DIAGRAM OF [CT-3]
[*]
- ------------------
* CONFIDENTIAL TREATMENT REQUESTED.
SCHEDULE 1.25
-------------
PATENT ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Country Filed Serial # Issued Patent # Inventors
- ------------------------------------------------------------------------------------------------------------------------------------
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[**] [**] [**].2 [**] [**]
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[**] [**] [**].2 [**] [**].
[**] [**] [**] [**].
[**] [**] [**] [**] [**]
*Application for restoration on file. [**]
[**] [**] [**] [**] [**]
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[**] [**] [**] [**] [**]
[**] [**] [**] [**] [**]
*The British Patent Office has allowed Atlantic's application for restoration, subject to payment of outstanding renewal fees, &
recordation of the exclusive license and licensee's name change. These matters will be taken care of by the July 22, 2002
deadline.
[**] [**] [**] [**] [**] [**]
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- ------------------
* CONFIDENTIAL TREATMENT REQUESTED.
EXHIBIT 3.7
LIST OF AGREEMENTS
License Agreements
l. Channel Pharmaceuticals and Dr. Sumner Burstein - March 28th, 1994
Consulting Agreements
1. [*]
2. Channel Pharmaceuticals and Dr. Sumner Burstein - September 27th, 1995
Material Transfer Agreements
1. [*]
2. [*]
3. [*]
4. [*]
5. [*]
6. [*]
7. [*]
8. [*]
9. [*]
10. [*]
Research Service Agreements
1. [*]
2. [*
3. [*]
4. [*]
5. [*]
6. Quintiles Master Service Agreement - January 1998
7. Product Development Proposal - Atlantic Pharmaceuticals and
Pharmaceutics International, Inc. - February 1997
8. [*]
9. [*]
Additional Documents
1. [*]
2. [*]
3. [*]
4. Assignment of Patent Application Serial #[*] and Serial #[*]
- ------------------
* CONFIDENTIAL TREATMENT REQUESTED.
EXHIBIT 4.2
FORM OF PRESS RELEASE
FOR IMMEDIATE RELEASE
Contact:
Michael W. Rogers William B. Boni
Executive Vice President and CFO VP, Corp. Communications
(781) 861-8444 (781) 402-3410
INDEVUS LICENSES WORLDWIDE RIGHTS
TO ANTI-INFLAMMATORY AND ANALGESIC COMPOUND
Company also updates status of other compounds in pipeline
LEXINGTON, MA, July 1, 2002 -- Indevus Pharmaceuticals, Inc. (NASDAQ: IDEV)
today announced that it has licensed exclusive worldwide rights from Atlantic
Technology Ventures, Inc. (OTC BB:ATLC.OB) to CT-3, a novel anti-inflammatory
and analgesic compound currently in clinical development.
CT-3, a new chemical entity also known as ajulemic acid, is a nonpsychoactive
synthetic derivative of tetrahydrocannabinol (THC). The principal mechanism of
action of the compound appears to be the potent inhibition of the inflammatory
cytokines, particularly interleukin-l(beta) and TNF-alpha. The compound has
significant activity in multiple pre-clinical models of pain and inflammation.
Unlike most available nonsteroidal anti-inflammatory agents (NSAIDS), in
pre-clinical studies CT-3 does not appear to produce gastrointestinal
ulceration.
An IND (investigational new drug application) has been filed with the U.S. Food
and Drug Administration (FDA) for CT-3, and an initial Phase I clinical trial
designed to assess the safety of CT-3 showed that it was well tolerated, with no
clinically significant adverse events and no evidence of psychotropic activity.
The compound is currently being studied in Europe in a small Phase II study in
patients with chronic neuropathic pain.
"We are excited about the potential of a novel potent NSAID which lacks the
ulcerogenic effects of traditional compounds," said Glenn L. Cooper, M.D.
chairman, president and chief executive officer of Indevus. "CT-3 has the
potential to be an important new medication for painful inflammatory conditions
such as arthritis, post-operative pain, musculoskeletal injuries, headache and
neuropathic pain. Furthermore, the compound possesses activity in preclinical
models of multiple sclerosis and the cutaneous inflammation associated with
exposure to the chemical warfare blister agent sulfur mustard. The U.S. Army
Medical Research Institute is pursuing further work on this important
application. The overall field of inflammation and pain management is large and
not fully satisfied, and we believe a compound such as CT-3 may have broad
applications in these major markets."
The acquisition of CT-3 by Indevus includes an up-front licensing payment,
development milestones and royalty payments from Indevus to Atlantic. Indevus is
responsible for the clinical
development, regulatory activities and commercialization of this compound. A
director of Indevus is a shareholder of Atlantic Technology Ventures. The
transaction was approved by all of the disinterested directors of Indevus.
Atlantic Technology Ventures is a biopharmaceutical company engaged in the
development of biomedical and pharmaceutical products and related technologies
for use in cancer, infection, ophthalmic disorders, pain and inflammation and
dermatological conditions. Atlantic's strategy is to identify nascent medical
products and technologies that have the potential to address unmet market needs,
rapidly develop these through a definitive proof-of-principle, then parmer,
license or sell them td realize significant revenue.
Status of additional Indevus products
CT-3 is the latest addition to the Indevus product portfolio, which also
includes: trospium, in Phase III for overactive bladder; pagoclone, in Phase III
for panic disorder and Phase II for generalized anxiety disorder; PRO 2000, in
Phase II for the prevention of the sexual transmission of HIV; dersalazine, in
Phase I for inflammatory bowel disease; and citicoline for stroke, which has
completed several Phase III clinical trials.
Trospium
As recently announced, enrollment has been completed in a Phase III, 524-patient
clinical trial with trospium in overactive bladder. The co-primary endpoints of
the trial are the comparisons of the reduction in the frequency of urination and
the reduction in incontinence episodes among trospium-treated patients versus
placebo patients. Data from this trial is expected in the fall, and assuming a
positive outcome, the Company expects to file a New Drug Application for
trospium by the end of 2002. This data will expand the current clinical trial
database for trospium, which comprises over 2200 patients in Europe. European
trials include two double-blind, placebo-controlled dose-ranging studies, five
double-blind, placebo-controlled studies and several comparative trials, one of
which was a long-term comparative 52-week study on safety, tolerability and
efficacy.
Pagoclone
Following the return of exclusive, worldwide rights to pagoclone from Pfizer Inc
on June 7, 2002, Indevus has initiated corporate partnering discussions for this
compound. Decisions regarding the continued clinical development and partnering
of pagoclone for generalized anxiety and panic disorders will be based on
additional analyses of a total data package from six clinical trials and will
include ongoing consultation with Aventis, S.A., licensor of this drug. Aventis
has a contractual right for a period of 90 days from the termination of the
agreement between Pfizer and Indevus to elect to develop pagoclone under the
terms established in that agreement.
Dersalazine
Dersalazine, for inflammatory bowel disease, is undergoing Phase I clinical
testing in the U.K. Plans for future Phase II testing in ulcerative colitis will
be dependent on the successful completion of this trial.
Citicoline
Two important meta-analyses of clinical trials with citicoline presented at the
27th International Stroke Conference in February 2002 suggest that treatment
with this drug may reduce infarct growth after stroke and reduce rates of death
or disability over a long term. The first of these analyses retrospectively
analyzed seven controlled trials enrolling 1,963 patients who received oral or
intravenous citicoline at doses ranging from 500 to 2000 milligrams daily and
showed that treatment with citicoline was associated with a significant
reduction in rates of death or disability at long-term follow-up. On a combined
basis across these trials, 54.6 percent of citicoline patients experienced death
or disability, compared with 66.4 percent of placebo patients, p<0.00001.
The second of these analyses retrospectively analyzed data regarding infarct
growth following stroke from two clinical trials in a total of 214 patients.
Doses of 500 milligrams/day and 2000 milligrams/day were used in these trials.
The mean volume increase in infarct size was 84.7 percent for the placebo group,
34.0 percent for the 500 milligram group and 1.8 percent for the 2,000 milligram
group, p=0.015.
As a result of corporate partnering interest following these findings, Indevus
has signed a non-binding memorandum of agreement with a privately held
biotechnology company to fund the further development of citicoline. The
finalization of this agreement is contingent upon the negotiation of a
definitive contract and agreement on the design and clinical endpoints of an
additional large Phase III trial.
PRO 2000
Government agencies in the U.S. and the U.K. have selected PRO 2000, a topical
microbicide to prevent the sexual transmission of HIV, for testing in large,
logistically complex Phase II and Phase III trials planned to begin in 2002 and
2003. The U.K.'s Department for International Development provided the most
recent financial support for the clinical testing of PRO 2000 through a grant of
approximately $22.7 million made to an international research collaboration.
Indevus Pharmaceuticals is engaged in the development and commercialization of a
portfolio of products and product candidates, including multiple compounds in
latestage clinical development. The Company's lead products under development
include trospium for overactive bladder, pagoclone for panic/anxiety disorders,
PRO 2000 for the prevention of infection by HIV and other sexually transmitted
pathogens, and dersalazine for inflammatory bowel disease.
Except for the descriptions of historical facts contained herein, this press
release contains forward-looking statements that involve risks and uncertainties
that could cause the Company's actual results and financial condition to differ
materially from those anticipated by the forward looking statements. These risks
and uncertainties are set forth in the Company's filings under the Securities
Act of 1933 and the Securities Exchange Act of 1934 under "Risk Factors" and
elsewhere, and include, but are not limited to: uncertainties relating to
clinical trials, including the Phase III trial with trospium; regulatory
approval and commercialization of our products; the early stage of products
under development; need for additional funds and corporate partners; history of
operating losses and expectation of future losses; product liability and
insurance
uncertainties; risks relating to the Redux-related litigation; dependence on
third parties for manufacturing and marketing; competition; risks associated
with contractual arrangements; limited patent and proprietary rights; and other
risks.
Exhibit 99.1
CERTIFICATION OF THE
CHIEF EXECUTIVE OFFICER OF
ATLANTIC TECHNOLOGY VENTURES, INC.
In connection with the Quarterly Report of Atlantic Technology Ventures, Inc. on
Form 10-QSB for the period ending June 30, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Frederic P. Zotos,
Chief Executive Officer of Atlantic, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities and Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of Atlantic.
/s/ Frederic P. Zotos
-----------------------------------
Frederic P. Zotos
Chief Executive Officer
August 14, 2002
Exhibit 99.2
CERTIFICATION OF THE
CHIEF FINANCIAL OFFICER OF
ATLANTIC TECHNOLOGY VENTURES, INC.
In connection with the Quarterly Report of Atlantic Technology Ventures, Inc. on
Form 10-QSB for the period ending June 30, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Nicholas J. Rossettos,
Chief Financial Officer of Atlantic, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities and Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of Atlantic.
/s/ Nicholas J. Rossettos
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Nicholas J. Rossettos
Chief Financial Officer
August 14, 2002