Provision Language
Definitions
“Net Sales” means the total gross receipts for sales of Licensed Products or practice of Licensed Processes by or on behalf of Licensee or its sublicensees, and from leasing, renting, or otherwise making Licensed Products available to others without sale or other dispositions, whether invoiced or not, less returns and allowances, packing costs, insurance costs, freight out, taxes or excise duties imposed on the transaction (if separately invoiced), and wholesaler and cash discounts in amounts customary in the trade to the extent actually granted. No deductions shall be made for commissions paid to individuals, whether they be with independent sales agencies or regularly employed by Licensee, or sublicensees, and on its payroll, or for the cost of collections.
6. ROYALTIES AND REIMBURSEMENT
6.01 Licensee agrees to pay to PHS a noncreditable, nonrefundable license issue royalty as set forth in Appendix C.
6.02 Licensee agrees to pay to PHS a nonrefundable minimum annual royalty as set forth in Appendix C. The minimum annual royalty is due and payable on January 1 of each calendar year and may be credited against any other royalties (including all amounts listed in Appendix C as earned royalties, benchmark royalties, license issue royalties and sublicense royalties) accruing under Appendix C in that year. The minimum annual royalty due for the first calendar year of this Agreement may be prorated according to the fraction of the calendar year remaining between the effective date of this Agreement and the next subsequent January 1.
6.03 Licensee agrees to pay PHS earned royalties as set forth in Appendix C.
6.04 Licensee agrees to pay PHS benchmark royalties as set forth in Appendix C.
6.05 Licensee agrees to pay PHS sublicensing royalties as set forth in Appendix C.
6.06 A patent or patent application licensed under this Agreement shall cease to fall within the Licensed Patent Rights for the purpose of computing earned royalty payments in any given country on the earliest of the dates that a) the application has been abandoned and not continued, b) the patent expires or irrevocably lapses, or c) the claim has been held to be invalid or unenforceable by an unappealed or unappealable decision of a court of competent jurisdiction or administrative agency.
6.07 No multiple royalties shall be payable because any Licensed Products or Licensed Processes are covered by more than one of the Licensed Patent Rights.
6.08 On sales of Licensed Products by Licensee to sublicensees or on sales made in other than an arm’s-length transaction, the value of the Net Sales attributed under this Article 6 to such a transaction shall be that which would have been received in an arm’s-length transaction, based on sales of like quantity and quality products on or about the time of such transaction.
6.09 Within thirty (30) days of the earliest to occur of 1) the second anniversary of the effective date of this Agreement; 2) upon completion of the first round of financing in which a total of Five (5) million U.S. Dollars in equity investment is received by Licensee; or 3) the completion of a sublicensing agreement in the Exclusive Licensed Territory, Licensee will be obligated to pay PHS patent costs accumulated by them as follows: a) costs associated with the preparation, filing, prosecution, and maintenance of the PRV and PCT applications and Licensed Patent Rights in the Non-Exclusive Licensed Territory listed in Appendix A, said expenses being those incurred by PHS prior to the time that payment by Licensee under this Paragraph 6.09 is obligated and said expenses to be divided by the greater of 1) four (4), or 2) the number of relevant commercialization licenses of record as of the time payment is obligated; and b) one hundred percent (100%) of costs associated with the preparation, filing, prosecution, and maintenance of all patent applications and patents included within the Licensed Patent Rights listed in Appendix A in the Exclusive Licensed Territory.
6.10 With regard to expenses associated with the preparation, filing, prosecution, and maintenance of all patent applications and patents included within the Licensed Patent Rights in the Licensed Territories incurred by PHS on or after the date on which expenses under Paragraph 6.09 become due, PHS , at its sole option, may require Licensee:
a) to pay PHS on an annual basis, within sixty (60) days of PHS’s submission of a statement and request for payment, a royalty amount equivalent to all such patent expenses incurred during the previous calendar year(s), said expenses to be calculated in the same way as in Paragraph 6.09; or
b) to pay such expenses directly to the law firm employed by PHS to handle such functions, said expenses to be calculated in the same way as in Paragraph 6.09. However, in such event, PHS and not Licensee shall be the client of such law firm.
6.11 Licensee may elect to surrender its rights in any country of the Licensed Territories under any Licensed Patent Rights upon ninety (90) days written notice to PHS and owe no payment obligation under Paragraph 6.10 for patent-related expenses incurred in that country after ninety (90) days of the effective date of such written notice.
APPENDIX C—Royalties
ROYALTIES: Licensee agrees to pay to PHS a noncreditable, nonrefundable license issue royalty in the amount of [***] as follows:
- [ *** ] due three (3) months after effective date of this Agreement
- [***] due two (2) years after the effective date of this Agreement.
- [***] at the first to occur of:
- 1) raising a cumulative [***] in financing, whether from individuals, venture capital, or through the formation of partnership/sublicensing, where such payment is due within thirty (30) days of this event; or
- 2) a firmly underwritten initial public offering and sale of Licensee’s Common Stock pursuant to an effective registration statement under the Securities Act of 1933, as amended, where such payment is due within sixty (60) days of this event. This clause shall survive termination or expiration of this Agreement.
Licensee agrees to pay to PHS a nonrefundable minimum annual royalty in the amount of:
- [***] for years one through three (1-3)
- [***] for years four (4) through the year in which the First Commercial Sale occurs
- [***] after the year in which the First Commercial Sale occurs through the remainder of this Agreement.
Minimum annual royalties shall be creditable as provided in Paragraph 6.02 of this Agreement.
Licensee agrees to pay PHS earned royalties on Net Sales by or on behalf of Licensee and its sublicensees as follows:
- [***] in the Exclusive Licensed Territory where Licensed Patent Rights exist
- [***] in the Non-Exclusive Licensed Territory where Licensed Patent Rights exist
- [***] in the Exclusive Licensed Territory where no Licensed Patent Rights exist
- [***] in the Non-Exclusive Licensed Territory where no Licensed Patent Rights exist
The above earned royalties shall be reduced, on a Licensed Product-by-Licensed Product, country-by-country, and year-to-year basis by [***] for every [***] paid as royalties for third party licenses required to sell Licensed Product or Licensed Process where said royalties for the third party license exceed [***] and provided that such reduction in earned royalties owed to PHS shall never be reduced below [***] of the earned royalties rates specified above.
Licensee agrees to pay PHS benchmark royalties within ninety (90) days after accomplishment of the following Benchmarks , whether achieved by Licensee or sublicensee:
- [***] — upon completion of Phase II clinical trials necessary for the first complete regulatory license application for a Licensed Product;
- [***] — upon commencement of a Phase III clinical trial for the evaluation of safety of a Licensed Product;
- [***] — upon completion of the Phase III clinical trials necessary for the first complete regulatory license application for a Licensed Product;
- [***] — upon launch of the first Licensed Product.
Licensee agrees to pay PHS additional sublicensing royalties as follows:
- [***] of the fair market value of any consideration received for granting each sublicense, excluding earned royalties received for Net Sales of Licensed Products, for which the earned royalties noted above shall accrue.