Provision Language
Definitions
“Discovered Product” means any product (whether developed or commercialized by Licensee, its Subsidiaries or Discovered Product Licensees) that: [***].
“Know-How Enabled Product” means any product (whether developed or commercialized by Licensee, its Subsidiaries, its Sublicensees, Strategic Partners or Know-How Enabled Product Licensees) incorporating [***]. A Know-How Enabled Product also includes [***].
“Licensed Product” means, with respect to a given product, that a Valid Claim would (absent a license thereunder or ownership thereof) be infringed (directly, indirectly by contributory infringement or inducement to infringe) by the making, using, selling, offering for sale, importation or other exploitation of such product.
“Licensed Product Royalty Term” means, on a country-by-country and Licensed Product-by-Licensed Product basis, the period commencing on the Effective Date and ending on the earlier of : (a) the expiration of the last Valid Claim within the Patent Rights covering such Licensed Product in such country or (b) termination of this Agreement.
“Net Sales” means the gross amount billed or invoiced by or on behalf of Licensee, its Subsidiaries, Sublicensees, Know-How EnabledProduct Licensees and Discovered Product Licensees (in each case, the “Invoicing Entity”) on sales, leases or other transfers of Royalty- Bearing Products to third parties (including Distributors), less the following to the extent applicable with respect to such sales, leases or other transfers and not previously deducted from the gross invoice price: (a) customary trade, quantity or cash discounts to the extent actually allowed and taken; (b) amounts actually repaid or credited by reason of rejection or return of any previously sold, leased or otherwise transferred Royalty-Bearing Products;(c) customer freight charges that are paid by or on behalf of the Invoicing Entity; and (d) to the extent separately stated on purchase orders, invoices orother documents of sale, any sales, value added or similar taxes, custom duties or other similar governmental charges levied directly on the production, sale, transportation, delivery or use of a Royalty-Bearing Product that are paid by or on behalf of the Invoicing Entity, but not including any tax levied with respect to income; provided that:
(i) in any transfers of Royalty-Bearing Products between an Invoicing Entity and an Affiliate of such Invoicing Entity not for the purpose of resale by such Affiliate, Net Sales will be equal to the fair market value of the Royalty-Bearing Products so transferred, assuming an arm’s length transaction made in the ordinary course of business;
(ii) in the event that an Invoicing Entity receives non-cash consideration for any Royalty-Bearing Products or in the case of transactions not at arm’s length with a non-Affiliate of an Invoicing Entity, Net Sales will be calculated based on the fair market value of such consideration or transaction, assuming an arm’s length transaction made in the ordinary course of business;
(iii) Sales of Royalty-Bearing Products by an Invoicing Entity to its Subsidiary or a Sublicensee for resale by such Subsidiary or Sublicensee will not be deemed Net Sales. Instead, Net Sales will be determined based on the gross amount billed or invoiced by such Subsidiary orSublicensee upon resale of such Royalty-Bearing Products to a Third Party purchaser;
(iv) any transfer of Royalty-Bearing Products for compassionate use, clinical trials, or as samples or demos will not be included in the calculation of Net Sales provided such Royalty-Bearing Products are provided at or below cost.
(v) Sales of Know-How Enabled Products and Discovered Products by or on behalf of, or under a license granted from, any entity that previously practiced the Patent Rights or used the Harvard Technology Transfer Materials to develop such Know-How Enabled Products or that used the Discovery Materials to develop such Discovered Products under a Strategic Partnership, Sublicense, Know-How Enabled Product License orDiscovered Product License (as applicable), shall be included in the calculation of Net Sales of Know-How Enabled Products or Discovered Products (as applicable) subject to royalties under this Agreement.
“Non-Covered Royalty Term” means the period commencing on the Effective Date and ending on the earlier of : (a) [***] after the First Commercial Sale of the first Know-How Enabled Product and (b) [***] after the First Commercial Sale of the first Licensed Product. For sake of clarity, the remainder of the royalty term for Licensed Products that cease to be covered by a Valid Claim of the Patent Rights shall be the Non-Covered Royalty Term.
“Non-Royalty Income” means any payments or other consideration that Licensee or any of its Subsidiaries receives in connection with a Sublicense, Strategic Partnership or Know-How Enabled Product License, including without limitation license fees, milestone payments, bonus payments, license maintenance fees, and other payments, other than (a) Profit Sharing Payments, [***], and provided that with respect to sales of Licensed Products and Know-How Enabled Products on which such profit share is based, running royalties are paid to Harvard to the extent and for the period required by the terms of this Agreement, (b) running royalties from the sale or transfer of Licensed Products and Know-How Enabled Products, (c) amounts received as reimbursement for documented direct costs incurred by Licensee or its Subsidiaries after the effective date of the Sublicense, Strategic Partnership or Know-How Enabled Product License for research and development of Licensed Products and/or Know-How Enabled Products that are the subject of such Sublicense, Strategic Partnership or Know-How Enabled Product Sublicense, [***] under the terms of the applicable Sublicense, Strategic Partnership or Know-How Enabled Product License agreement, (d) amounts received as reimbursement for payments made to Harvard pursuant to Section 6.2 (Patent Expenses) of this Agreement, [***] under the terms of the applicable Sublicense or Strategic Partnership agreement; and (e) consideration for the issuance of equity interests in Licensee to the extent the amount paid for such equity does not exceed its fair market value. If Licensee or its Subsidiary receives non-cash consideration other than equity in connection with a Sublicense, Strategic Partnership, or Know-How Enabled Product License or in the case of transactions not at arm’s length, Non-Royalty Income will be calculated based on the fair market value of such consideration or transaction, at the time of the transaction, assuming an arm’s length transaction made in the ordinary course of business. For clarity, any payments or other consideration that Licensee or any of its Subsidiaries receives in connection with a transaction that constitutes a Change of Control of Licensee shall not be included within Non-Royalty Income. For additional clarity, Non-Royalty Income does not include payments received in connection with a Discovered Product License.
“Royalty-Bearing Products” means Licensed Products, Know-How Enabled Products and Discovered Products.
4. Consideration for Grant of License
4.1 License Issuance Fee. As partial consideration for the license granted hereunder to the Patent Rights, Licensee shall pay Harvard a non-refundable license fee of One Hundred Seventy Thousand U.S. Dollars ($170,000), due and payable as follows: (a) Fifty Six Thousand, Six Hundred Sixty Six U.S. Dollars ($56,666) on the First Payment Due Date; (b) Fifty Six Thousand, Six Hundred Sixty Seven U.S. Dollars ($56,667) on the first anniversary of the First Payment Due Date; and (c) Fifty Six Thousand, Six Hundred Sixty Seven U.S. Dollars ($56,667) on the second anniversary of the First Payment Due Date. In the event of termination of this Agreement after the First Payment Date and prior to the payment of the last installment, the remaining amounts to be paid under this Section 4.1 shall be accelerated and become due and payable as of the effective date of termination upon written notice provided by Harvard to Licensee declaring any such remaining amounts due; provided, however, if Licensee provides notification of termination for convenience under the terms of Section 10.2.1 of this Agreement or for Harvard’s breach under the terms of Section 10.2.2 prior to the First Payment Due Date, then the entire obligation to make the payments under this Section 4.1 shall terminate as of the date of such notice and not survive termination.
4.2 Equity
4.2.1 Issuance. As partial consideration for the license granted hereunder to the Patent Rights and pursuant to a mutually-agreeable stock purchase or subscription agreement, to be negotiated and, if applicable, executed and consummated on the First Payment Due Date, Licensee shall issue to Harvard 227,486 shares of Licensee’s common stock, which represents the quotient obtained by dividing (x) Three Million U.S. Dollars ($3,000,000) by (y) $13.18760, which is the price per share paid by investors purchasing shares of Licensee’s Series A-1 Preferred Stock for cash in the Licensee’s Series A preferred equity financing. The issuance of the Shares by Licensee to Harvard will be subject to and fully conditioned upon Harvard executing a counterpart signature page to each of the following agreements as a “Key Holder” thereunder: the Right of First Refusal and Co-Sale Agreement by and among the Licensee and the other parties thereto (as amended and/or restated from time to time, the “ROFR and Co-Sale Agreement“) and the Voting Agreement by and among the Licensee and the other parties thereto (as amended and/or restated from time to time, the “Voting Agreement“), each dated as of [***], in substantially similar form as provided to Harvard on or before the Effective Date and as may be amended and/or restated from time to time. The Shares shall have the rights and obligations set forth in the then-effective Certificate of Incorporation (as the same may be amended and/or restated from time to time, the “Certificate of Incorporation“) and Bylaws of Licensee. The obligations in this Section 4.2 shall accrue as of the First Payment Due Date; provided, however, if Licensee provides notification of termination for convenience under the terms of Section 10.2.1 of this Agreement or for Harvard’s breach under the terms of Section 10.2.2 prior to the First Payment Due Date, then the entire obligation to issue any equity under this Section 4.2 shall terminate in its entirety automatically and be of no further force or effect as of the date of such notice and not survive termination.
4.2.2 Representations and Warranties. Licensee represents and warrants to Harvard that, upon issuance of the Shares:
4.2.2.1 The price of $13.18760 per share of Series A-1 Preferred Stock is the true and correct price per share of Series A-1 Preferred Stock.
4.2.2.2 the Shares, when issued pursuant to the terms hereof, shall, upon such issuance, be duly authorized, validly issued, fully paid and nonassessable.
4.3 Annual License Maintenance Fees. As partial consideration for the license granted hereunder to the Patent Rights, Licensee shall pay Harvard annual license maintenance fee as follows:
[details redacted]
Each such fee shall be due and payable on [***] of the calendar year to which such fee applies. Each annual license maintenance fee shall be creditable against any royalty amounts payable under Section 4.5 below with respect to Royalty-Bearing Products sold in the same calendar year that such annual license maintenance fee was due. Annual license maintenance fees under Section 4.3.4 shall also be creditable against any milestone payments due and payable under Section 4.4 in the same calendar year that such annual license maintenance fee was due.
4.4 Milestone Payments
4.4.1 Licensed Product/Know-How Enabled Product Milestone Payments. Licensee shall pay Harvard the following milestone payments only with respect to the first Licensed Product or Know-How Enabled Product to reach each milestone, regardless of whether such milestone is achieved by Licensee, its Subsidiary, its Sublicensee, its Strategic Partner, its other Affiliates or its Know-How Enabled Product Licensee. If a milestone is achieved as to a Know-How Enabled Product, the milestone payment shall be [***] of the amount set forth in this Section 4.4.1. [Milestone details redacted].
4.4.2 Discovered Product Milestone Payment. Licensee shall pay Harvard a one-time milestone payment of [***] with respect to each Discovered Product to obtain FDA Marketing Authorization.
4.4.3 Payment. Licensee shall notify Harvard in writing within [***] following the achievement of each milestone described in Section 4.4.1 and 4.4.2, including, with regard to Licensed Products, a list of Harvard Case numbers for all Patent Rights that have Valid Claims covering the Licensed Product and, with regard to Licensed Products and Know-How Enabled Products, a list of Harvard Case numbers for Harvard Technology Transfer Materials that were used in the development of such Licensed Product and/or Know-How Enabled Product to which such milestone relates, and shall make the appropriate milestone payment within [***] after the achievement of such milestone. If Licensee’s equity is publicly traded on an SEC-regulated exchange at the time of achievement of a milestone, then Licensee shall have the right, in its sole discretion, to pay the milestone payment in cash or in publicly-traded securities of Licensee, with such value being determined based on the closing price per share on the date of issuance of such securities to Harvard. If Licensee’s equity is not publicly tradable at the time of achievement of the milestone on an SEC-regulated exchange, then Licensee shall make such milestone payment in cash.
4.4.4 Skipped Milestones. The milestones set forth in Section 4.4.1.1 through 4.4.1.5 are intended to be successive. If a Licensed Product or Know-How Enabled Product is not required to undergo the event associated with a particular milestone for a Licensed Product or Know-How Enabled Product (“Skipped Milestone“), such Skipped Milestone will be deemed to have been achieved upon the achievement by such Licensed Product of the next successive milestone (“Achieved Milestone“). Payment for any Skipped Milestone that is owed in accordance with the provisions of this Section 4.4 shall be due within [***] after the achievement of the Achieved Milestone.
4.4.5 Credit Against Future Royalties for Certain Milestone Payments. The milestone payments set forth in Section 4.4.1.4 through Section 4.4.1.10 shall be creditable against any royalty amounts payable under Section 4.5 below with respect to Royalty-Bearing Products sold in the [***] period following the achievement date of the milestone.
4.5 Royalty on Net Sales
4.5.1 Rates
4.5.1.1 Licensed Products. Licensee shall pay Harvard an amount equal to the following applicable percentage of Net Sales of Licensed Products for the Licensed Product Royalty Term; provided, however, that with respect to Net Sales attributable to Licensed Products sold in any Developing Country(ies), solely for use in such Developing Country(ies) and not for further sale or use in any Developed Country(ies), Licensee and Harvard will negotiate in good faith on a country-by-country basis a royalty percentage for such Developing Country(ies), keeping in mind anticipated and actual profits in such countries, as well as the degree to which Licensed Products are available on a locally-affordable basis on a Developing-Country-by-Developing-Country basis: [Table redacted].
4.5.1.2 Know-How Enabled Products. Licensee shall pay Harvard an amount equal to the following applicable percentage of Net Sales of Know-How Enabled Products for the Non-Covered Royalty Term; provided, however, (i) that with respect to Net Sales attributable to Know-How Enabled Products sold in any Developing Country(ies), solely for use in such Developing Country(ies) and not for further sale or use in any Developed Country(ies), Licensee and Harvard will negotiate in good faith on a country-by-country basis a royalty percentage for such Developing Country(ies) keeping in mind [***] and (ii) with respect [***]. This exception shall not apply to any other Sublicense or Know-How Enabled License for a Know-How Enabled Product. [Table redacted].
4.5.1.3 Discovered Products. Licensee shall pay Harvard an amount equal to [***] of Net Sales of Discovered Products for the Non-Covered Royalty Term.
4.5.2 Third Party Royalty Set-Off. If Licensee obtains a license from a Third Party to an Infringed Patent after arm’s length negotiations, it may offset [***] of any running royalty payments due thereunder with respect to sales of Licensed Products and/or Know-How Enabled Products (as applicable) made after the effective date of such license to the Infringed Patent against the running royalty payments that are due to Harvard with respect to Net Sales of such Licensed Products or Know-How Enabled Products in such country (as applicable); provided that in no event shall the royalty payments to Harvard with respect to such Licensed Products and/or Know-How Enabled Products (as applicable) be reduced by more than [***] of the amount otherwise due. There shall be no Third Party royalty set-off for Discovered Products.
4.5.3 Patent Challenge. If Licensee, its Affiliate, Sublicensee, Strategic Partner, Know-How Enabled Product Licensee or Discovered Product Licensee (“Challenging Party“) commences an action in which it challenges the validity, enforceability or scope of any of the Patent Rights (a “Challenge Proceeding“), the royalty rates specified in Section 4.5.1 will be doubled with respect to Net Sales of Royalty-Bearing Products that are sold during the pendency of such Challenge Proceeding. If the outcome of such Challenge Proceeding is a determination against the Challenging Party, (a) the royalty rates specified in Section 4.5.1 with respect to Net Sales of Royalty-Bearing Products shall remain at such doubled rate and (b) Licensee shall reimburse Harvard for all expenses incurred by Harvard (including reasonable attorneys’ fees) in connection with such Challenge Proceeding. If the outcome of such Challenge Proceeding is a determination in favor of the Challenging Party, Licensee will have no right to recoup any royalties paid before or during the pendency of such Challenge Proceeding.
4.6 Non-Royalty Income. Licensee will pay Harvard an amount equal to the following applicable percentage of all Non-Royalty Income, without allocation, offsets or exclusions of any kind except as specifically set forth in the definition of Non-Royalty Income. Licensee will pay Harvard an amount equal to:
(a) [***] of all Non-Royalty Income received by Licensee or its Subsidiaries under Sublicenses, Strategic Partnerships or Know-How Enabled Product Licenses entered into [***];
(b) [***] of all Non-Royalty Income received by Licensee or its Subsidiaries under Sublicenses, Strategic Partnerships or Know-How Enabled Product Licenses entered into [***]; and
(c) [***] all Non-Royalty Income received by Licensee or its Subsidiaries under Sublicenses, Strategic Partnerships or Know-How Enabled Product Licenses entered into [***]. Licensee will not enter into any transaction [***].
4.7 Participation Rights. On or following the First Payment Due Date, if Licensee proposes to sell for bona fide capital raising purposes any equity securities or securities that are convertible into equity securities of Licensee (collectively, “New Securities“), then Harvard and/or its Assignee (as defined below) will have the right to purchase up to that portion of the New Securities issued in each offering of New Securities that equals Harvard’s and its Assignee’s then current, fully-diluted percentage ownership of Licensee on the same terms and conditions as are offered to other holders of the Licensee’s equity securities in each such financing. Licensee shall provide written notice of each issuance of New Securities, including reasonable detail regarding the terms of the financing (each, an “Offer Notice“), and Harvard and/or its Assignee may exercise the participation rights hereunder by notification to Licensee within [***] after the Offer Notice has been provided by the Licensee. The term “Assignee” means (a) [***], or (b) any entity that is controlled by Harvard, is not a competitor of the Licensee, and is reasonably acceptable to Licensee. Subject to the subsequent conditions and provisions, this paragraph shall survive the termination of this Agreement. Notifications to be sent pursuant to this Section 4.7 of this Agreement shall be sent to [***]. Notwithstanding the foregoing, if Licensee provides notification of termination for convenience under the terms of Section 10.2.1 of this Agreement prior to the First Payment Due Date, then the entire obligations under this Section 4.7 shall terminate as of the date of such notice and not survive termination. In addition, notwithstanding the foregoing, in the event that Harvard or any Assignee exercises the participation rights set forth in this Section 4.7 and invests in Licensee, then such Assignee shall become a party to the applicable investment documentation of Licensee and the participation rights in this Section 4.7 shall terminate as of the date of execution of such investment documentation. Notwithstanding anything herein to the contrary, the participation rights herein (i) shall not be applicable to (a) Exempted Securities (as defined in the Certificate of Incorporation), or (b) the issuance of Second Tranche Shares (as defined in the [***]), and (ii) shall terminate in their entirety upon the earlier of (x) immediately prior to the consummation of the Licensee’s first underwritten public offering or (y) the closing of a Deemed Liquidation Event (as defined in the Certificate of Incorporation).
4.8 Additional Information Rights. In addition to the Major Investor information rights described in Section 4.7, Licensee shall provide such information related to this Agreement as reasonably necessary for Harvard to comply with state law for accounting for the value of investments, upon reasonable request by Licensee.
4.9 Complex Consideration. The parties acknowledge and agree (i) that the licenses granted by Harvard to Licensee in the Patent Rights, the Harvard Technology Transfer Materials and the Discovery Materials hereunder will enable Licensee, its Affiliates, Sublicensees and/or Strategic Partners to develop Licensed Products, including Know-How Enabled Products and Discovered Products, and (ii) that in consideration of the rights to practice the Patent Rights and use the Harvard Technology Transfer Materials granted hereunder, the royalty rates, milestone payments and other payments in this Article IV have been structured for Licensee’s convenience in calculating and paying such amounts, and that certain royalty rates and milestone payments incorporate discounts reflecting that certain Licensed Products may be Know-How Enabled Products and/or Discovered Products, but may be based upon, derived from or developed through the practice of the Patent Rights or use of the Harvard Technology Transfer Materials and Discovery Materials, with the intent of compensating Harvard for the fair market value of such rights as determined and agreed upon by the parties hereunder. Licensee agrees that, unless explicitly provided otherwise in this Agreement, it shall not be entitled to a reduction in the royalty rates or milestone payments, even if it does not at all times need or use a license to specific Patent Rights or Harvard Technology Transaction Materials or Discovery Materials, until the end of any payment period set forth in this Article IV.