Royalty Agreement - EpiCept Corp. and R. Douglas Cassel
REVISED & RESTATED
ROYALTY AGREEMENT
This Royalty Agreement (this "Agreement"), dated as of July 16, 2003 (the
"Effective Date"), is entered into by and between EpiCept Corporation,
successor-in-interest of American Pharmed Labs, Inc., a corporation organized
under the laws of Delaware and having its principal place of business at 270
Sylvan Avenue, Englewood Cliffs, NJ 07632 ("EpiCept") and R. Douglas Cassel,
M.D., an individual with his principal place of business at 4401 Fargreen Road,
Harrisburg, PA 17110 ("Cassel").
WHEREAS:
EpiCept owns the entire right, title and interest in, to and under the
inventions described in U.S. patent application. Serial No. 09/425,925 (the
"'925 application"), entitled, "Local Prevention or Amelioration of Pain from
Surgically Closed Wounds," which issued as U.S. Patent No. 6,383,511 (the "'511
Patent") to Cassel, as the inventor.
For consideration as described herein, Cassel has assigned his entire right,
title and interest in, to and under the inventions described in the '925
application to EpiCept (Exhibit A).
EpiCept and Cassel originally entered into that certain Royalty Agreement, dated
October 6, 1999. EpiCept and Cassel intend and desire that this Agreement amends
and restates the Original Agreement in its entirety and in particular the
parties expressly acknowledge and agree that this Agreement contains a
consulting arrangement with Cassel and, among others, modified and amended
financial provisions and due diligence provisions.
IT IS HEREBY AGREED as follows:
1.0 Definitions
1.1 Affiliate: The term "Affiliate" means, with respect to any
person, entity, or any other person or entity that it directly or
indirectly controls, is under common control with, or is controlled by
that person or entity. For purposes of this definition, "control"
(including with correlative meaning, the terms "controlled by" and under
"common control with"), as used with respect to any person, or entity,
means the possession, directly or indirectly, of the power to direct or to
cause the direction of the management and policies of such person or
entity, whether through the ownership of voting securities, by contract,
or otherwise.
1.2 Cassel Technology: The term "Cassel Technology" means all
copyrightable material, notes, records, inventions, improvements,
developments, discoveries and trade secrets conceived, made by or
discovered by Cassel outside of the performances of his services.
1.3 Effective Date: The term "Effective Date" means the date set
forth in the preamble to this Agreement.
-1-
<PAGE>
1.4 First Commercial Sale: The term "First Commercial Sale" means,
after all necessary marketing approvals have been obtained in a relevant
country, the initial transfer of a Product in such country to a third
party customer not controlled by EpiCept in exchange for cash or some cash
equivalent to which a value can be assigned for the purpose of determining
"Net Sales."
1.5 Patent: The term "Patent" means the '511 Patent and any other
patent issued by the U.S. Patent and Trademark Office or any comparable
foreign authority that results from the '925 application, including,
without limitation U.S. Patent application Serial No. 10/137,685, filed
May 3, 2002..
1.6 Product: The term "Product" means any composition of matter,
material, device, apparatus, or system developed by EpiCept for the
treatment of pain from surgically closed wounds, which the making, using,
offering for sale, sale or importation by an unlicensed third party, would
infringe one or more issued claims of a Patent.
1.7 Net Sales: The term "Net Sales" means gross sales of the
Products invoiced by EpiCept or any of its Affiliates to a third party,
but not to an Affiliate, and accepted by the third party, less shipping
costs, returns, allowances, and taxes.
1.8 Territory: The term "Territory" means a territory consisting of
the entire world.
1.9 Royalty Year: The "Royalty Year" shall be a twelve-month
calendar year ending on December 31, except that the first Royalty Year,
if the First Commercial Sale of Product should occur during the year, may
be less than twelve months.
2.0 Royalty
2.1 Monthly Payment: Within *** business days after the end of each
calendar month, EpiCept shall pay to Cassel a payment of four thousand
United States Dollars ($4,000) for a period of three (3) years from the
Effective Date. Such monthly payments shall be fully creditable against
future royalty payments to Cassel, provided that no more than *** of the
total annual payments shall be credited to the royalties payable to Cassel
in any one Royalty Year.
2.2 Amount of Royalty: EpiCept shall pay to Cassel, on a
country-by-country, Product-by-Product basis, a royalty of *** of Net
Sales of Product per Royalty Year.
2.3 No Multiple Royalties: No multiple royalties shall be payable in
the event that any Product or the manufacture, use or sale thereof is
covered by more than one patent included in the Patent.
2.4 Payment: EpiCept shall submit a payment to Cassel annually that
is equal to the royalties due for that Royalty Year, less applicable
withholding taxes and credits, except that EpiCept shall reserve and hold
back *** of the royalty payment each Royalty Year to account for returns,
allowances, and write-offs of customer accounts. The reserved royalty
payment, adjusted for returns, allowances, and write-offs of customer
accounts, will be paid
-2-
<PAGE>
with the following Royalty Year's royalty payments. The royalty payments
to Cassel shall be made within *** days of the end of each Royalty Year in
which Net Sales occurred. With each royalty payment, EpiCept shall submit
to Cassel an itemized statement setting forth the amount of Net Sales
during the Royalty Year and the royalties accrued.
2.5 Records: The books and records of EpiCept which relate to the
royalties under this Agreement shall be open for inspection by an
independent accounting firm appointed by Cassel (subject to the consent of
EpiCept, such consent not to be unreasonably withheld or delayed) for the
sole purpose of verifying royalty payments during regular business hours at
such place or places where such books and records are customarily kept and
upon suitable written notice, but not more frequently than once each year.
The relevant records shall be maintained by EpiCept for a period of three
(3) years after the expiration or termination of this Agreement. The cost
of any such inspection shall be paid by Cassel. Any books and/or records
received from EpiCept during the course of any such inspection shall be
kept confidential.
3.0 Term and Termination
3.1 Term: The Term of this Agreement shall begin on the Effective
Date, and unless sooner terminated by the parties as herein provided,
shall continue in full force and effect, on a country-by-country and
Product-by-Product basis, until the date of expiration of expiration of
the last to expire patent within the Patent.
3.2 Termination:
(a) At Will: *** years after the Effective Date, EpiCept may
terminate this Agreement and all of its obligations
hereunder at any time upon *** days advance written
notice to Cassel, if a patent within the Patent is
determined to be invalid and/or unenforceable.
(b) By Mutual Agreement: EpiCept and Cassel may terminate
this Agreement at any time by mutual written agreement.
(c) For Breach: Except as set forth in Section 5.6, if
either party breaches this Agreement, the non-breaching
party, at its option, may terminate this Agreement,
provided that the non-breaching party has provided
written notice to the breaching party of the breach and
the non-breaching party's intention to terminate this
Agreement, and the breaching party has failed to cure
its breach within ninety (90) days following the date
such notice was received by the breaching party.
4.0 Due Diligence
4.1 Due Diligence: EpiCept by itself, or through its Affiliates or
licensees, throughout the Term, shall use commercially reasonable efforts
to proceed with the development and commercialization of Product through a
program for exploiting the Patent, consistent with reasonable business
practices and judgments.
-3-
<PAGE>
5.0 Consulting Arrangements
5.1 Services and Compensation:
(a) Cassel agrees to provide general scientific consulting
services for EpiCept and in particular, EpiCept expects
such services to involve the development and
commercialization of Product ("Services") for a period
of three (3) years from the Effective Date ("Consulting
Term as defined herein below), with each twelvemonth
(12) month period designated a Consulting Year. EpiCept
agrees to give Cassel three (3) days advance notice of
EpiCept's need for Cassel to perform the Services, and
Cassel agrees to perform such Services upon EpiCept's
request, unless Cassel has a valid excuse in which case
the parties shall agree to a mutually acceptable date
for Cassel to perform such Services.
(b) During the Consulting Term, EpiCept agrees to pay to
Cassel *** per day (each day being eight (8) hours) for
the performance of the Services. Such payment shall be
made within *** business days after receipt of a
detailed invoice by EpiCept. Such invoice shall include
a description of the Services performed by Cassel and
the number of hours of Service. In any Consulting Year
that EpiCept does not use Cassel's Services for ***
days, EpiCept shall, within *** days after the end of
such year, pay to Cassel the difference between the
amount paid to Cassel up to that date and the ***. For
purposes of clarity, EpiCept. shall pay to Cassel a
minimum of *** per Consulting Year for Services during
the Consulting Term, regardless of whether or not
EpiCept has utilized Cassel's Services during any
Consulting Year.
5.2 Confidentiality:
(a) "Confidential Information" means any and all proprietary
information, technical data, trade secrets or know-how
provided by EpiCept to Cassel, as well as any
information, data, trade secrets or know-how developed
by Cassel in the course of providing the Services to
EpiCept whether provided in written, oral, graphic,
visual, video, computer or other form, including, but
not limited to, research and product plans, products,
services, customer lists and customers (including, but
not limited to, customers of EpiCept on whom Cassel
called or with whom Cassel became acquainted during the
Consulting Term), markets, developments, inventions,
processes, formulas, technology, marketing, finances or
other business information.
(b) Cassel shall not, during or subsequent to the Consulting
Term, use Confidential Information for any purpose
whatsoever other than the performance of the Services on
behalf of EpiCept, or disclose Confidential Information
to any third party. It is understood and agreed that
-4-
<PAGE>
Confidential Information also includes such information
received during Cassel's initial consulting agreement
with EpiCept. Cassel agrees that Confidential
Information shall remain the sole property of EpiCept.
Cassel further agrees to take all reasonable precautions
to prevent any unauthorized disclosure of Confidential
Information. Notwithstanding the above, Cassel's
obligation under this Section 5.2 (b) relating to
Confidential Information shall not apply to information:
(i) which is already known to Cassel (other than
under an obligation of confidentiality), at the time of
disclosure by EpiCept to the extent that Cassel has
documentary evidence to that effect;
(ii) which is generally available to the public or
otherwise part of the public domain at the time of its
disclosure to Cassel;
(iii) which becomes generally available to the
public or otherwise part of the public domain after its
disclosure or development, as the case may be, and other
than through any act or omission of Cassel in breach of
Cassel's confidentiality obligations under this
Agreement;
(iv) which is subsequently lawfully disclosed to
Cassel by a third party who had no obligation to EpiCept
not to disclose such information to others;
(v) which is approved for release by EpiCept in
writing.
(c) Cassel shall not, during the Consulting Term, improperly
use or disclose any proprietary information or trade
secrets of any former or current employer or other
person or entity with which Cassel has an agreement or
duty to keep in confidence information acquired by
Cassel in confidence and that Cassel shall not bring
onto the premises of EpiCept any unpublished document or
proprietary information belonging to such employer,
person or entity unless consented to in writing by such
employer, person or entity.
(d) Cassel recognizes that EpiCept has received and in the
future will receive from third parties their
confidential or proprietary information subject to a
duty on EpiCept's part to maintain the confidentiality
of such information and to use it only for certain
limited purposes. Cassel agrees that Cassel owes EpiCept
and such third parties, during the Consulting Term and
thereafter, a duty to hold all such confidential or
proprietary information in the strictest confidence and
not to disclose it to any person, firm or corporation or
to use it except as necessary in carrying out the
Services for EpiCept consistent with EpiCept's agreement
with such third party.
(e) Upon the termination of the Consulting Term, or upon
EpiCept's earlier request, Cassel shall deliver to
EpiCept all of EpiCept's property relating
-5-
<PAGE>
to, and all tangible embodiments of, Confidential
Information in Cassel's possession or control.
(f) The obligations of Cassel under this Section 5.2 shall
continue in full force and effect for three (3) years
after termination of Cassel's performance of the
Services.
5.3 Ownership:
(a) Cassel agrees that all copyrightable material, notes,
records, inventions, improvements, developments,
discoveries and trade secrets (collectively,
"Inventions") conceived, made or discovered by Cassel in
performing the Services, solely or in collaboration with
others, during the Consulting Term relating to the
business of EpiCept shall be the sole property of
EpiCept. In addition, to the extent allowed by law, any
Inventions which constitute copyrightable subject matter
shall be considered "works made for hire", as that term
is defined in the United States Copyright Act. Cassel
further agrees to assign (or cause to be assigned) and
does hereby assign fully to EpiCept all such Inventions
and any copyrights, patents or other intellectual
property rights relating thereto.
(b) Upon termination of the Consulting Term, or upon
EpiCept's earlier request, Cassel shall deliver to
EpiCept all of EpiCept's property relating to, and all
tangible embodiments of, Inventions in Cassel's
possession or control.
(c) Cassel agrees to assist EpiCept, or its designee, at
EpiCept's expense, to obtain and from time to time
enforce and defend EpiCept's rights in the Inventions
and any copyrights, patents or other intellectual
property rights relating thereto in any and all
countries, and to execute all documents reasonably
necessary for EpiCept to do so.
(d) Cassel agrees that if in the course of performing the
Services, Cassel incorporates into any Inventions
developed hereunder any invention, improvement,
development, concept, discovery or other proprietary
information owned by Cassel or in which Cassel has an
interest ("Item"), EpiCept is hereby granted and shall
have a non-exclusive, royalty-free, perpetual,
irrevocable, worldwide license to make, have made,
modify, reproduce, display. use and sell such Item as
part or in connection with such inventions.
5.4 Option to Cassel Technology: Cassel hereby grants to EpiCept an
exclusive option to obtain an exclusive, worldwide license to any Cassel
Technology. Cassel shall provide to EpiCept a written notice of any such
Cassel Technology and a summary detailing any such Cassel Technology.
EpiCept shall have the right to exercise its option under this Section 5.4
within *** months of receipt of the written notification and summary by
written notice to Cassel indicating that EpiCept is exercising its option,
whereupon the parties shall
-6-
<PAGE>
negotiate in good faith the terms and conditions for an agreement for a
*** month negotiation period, extendible upon mutual agreement. If EpiCept
does not exercise its option(s) within the *** month option period or
enter into a definitive agreement with Cassel within the *** month
negotiation period or any agreed upon extension period, Cassel shall have
no further obligation to EpiCept regarding any such Cassel Technology,
provided, however, that EpiCept's failure to exercise its option or enter
a definitive agreement with respect a particular Cassel Technology shall
not affect EpiCept' s exclusive option to obtain an exclusive license for
any other Cassel Technology. Cassel shall not enter into any negotiations
or agreement with a third party during the *** month option period or any
particular negotiation period, whichever is longer.
5.5 Reports: Cassel agrees that Cassel will from time to time during
the Consulting Term or any extension thereof (as mutually agreed upon by
the parties in writing) keep EpiCept advised as to Cassel's progress in
performing the Services hereunder and that Cassel shall, as requested by
EpiCept, prepare written reports with respect thereto. It is understood
that the time required in the preparation of such written reports shall be
considered time devoted to the performance of the Services by Cassel.
Reports prepared by Cassel shall be the sole property of Cassel.
5.6 Conflicting Obligations: Cassel certifies that Cassel has no
outstanding agreement or obligation that is in conflict with any of the
provisions of this Agreement, or that would preclude Cassel from complying
with the provisions hereof, and further certifies that Cassel shall not
enter into any such conflicting agreement during the Consulting Term or
any extension thereof.
5.7 Term and Termination for Consulting Arrangements:
(a) Cassel's obligation to perform the Services and
EpiCept's obligation to compensate Cassel for the
Services shall commence on the Effective Date and end
three (3) years from the Effective Date ("Consulting
Term"). For purposes of clarity, the Consulting Term
shall commence on the Effective Date and end thirty-six
(36) months after the Effective Date.
(b) Cassel may terminate the consulting arrangement between
Cassel and EpiCept set forth in this Section 5 by giving
*** days prior written notice thereof.
(c) EpiCept and Cassel may terminate the consulting
arrangement between Cassel and EpiCept set forth in this
Section 5 at anytime by mutual written agreement.
(d) EpiCept may terminate the consulting arrangement between
Cassel and EpiCept set forth in this Section 5
immediately and without prior written notice or
opportunity to cure if Cassel refuses or is unable to
perform the Services or is in breach of any material
provision of this Section 5.
-7-
<PAGE>
(e) Upon termination of the consulting arrangement between
Cassel and EpiCept set forth in this Section 5, all
rights and duties of the parties hereunder shall cease
except:
(i) in the event that the consulting arrangement
between Cassel and EpiCept is terminated by EpiCept,
EpiCept shall be obliged to pay, within *** days after
receipt of Cassel's final statement, all undisputed
amounts owing to Cassel for unpaid Services and related
expenses, if any, in accordance with Section 5.1 hereof;
and
(ii) Sections 5.2, 5.3 and 6.7 shall survive
termination of this Section 5 of this Agreement.
6.0 Miscellaneous
6.1 Sports Medicine and Rehabilitation: EpiCept acknowledges that
Cassel is free to pursue with any interested third party sports medicine
and/or rehabilitation.
6.2 No Implied Licenses: No license rights to the Patent or any
Inventions shall be created hereunder by implication, estoppel or
otherwise and nothing herein shall be construed to grant to Cassel any
rights or licenses under the Patent or Inventions.
6.3 Notice: Any notices required or permitted to be given under this
Agreement shall be deemed given if communicated in the English language
and delivered to the party to be notified at its address shown below or at
such other address as may be furnished from time to time by the party to
be notified to the notifying party in writing either (a) by registered air
mail, postage prepaid, which notice shall be effective five (5) days after
the date of mailing or (b) in person, by telefax (with proof of
transmission and confirmation by first-class mail postage paid), or
overnight courier, which notice shall be effective on the business day
immediately following the date of such delivery.
If to Cassel, addressed to: R. Douglas Cassel, M.D.
4401 Fargreen Road
Harrisburg, P0A 17110
With a copy to: Jered L. Hock
Metzger, Wickersham
3211 North Front Street
P.O. Box 5300
Harrisburg, PA 17110
If to EpiCept: EpiCept Corporation
270 Sylvan Avenue
Englewood Cliffs, NJ 07632
Attn.: Jack V. Talley, Chief
Executive Officer
-8-
<PAGE>
6.4 Entire Agreement: This Agreement and exhibit hereto set forth
the entire agreement and understanding between the parties regarding the
Patent, and supercedes and replaces any and all prior arrangements and
understandings relating to such matters, including the Original Agreement.
None of the terms of this Agreement may be modified except as set forth in
writing and signed by Cassel and EpiCept.
6.5 Amendments: This Agreement may only be amended by a written
agreement signed by both parties.
6.6 Waiver: A waiver by either party of any term or condition of
this Agreement in any one instance shall not be deemed to be a waiver of
such term or condition for any similar instance in the future or any
subsequent breach thereof. No delay or failure by either party to exercise
any right, power, or remedy hereunder shall constitute a waiver thereof,
nor shall any single or partial exercise of any right, power, or remedy
preclude other or further exercise thereof or the exercise of any other
right power, ore remedy.
6.7 Severability: The invalidity of any provision or part of this
Agreement shall not affect the validity of this Agreement in its entirety
nor any provision or part thereof. In the event any provisions of this
Agreement are judged legally invalid, they shall automatically be severed
herefrom and the remaining provisions shall continue in full force and
effect, provided that should such invalidity substantially alter the
rights of either Party, the Parties shall promptly renegotiate in good
faith the severed provisions of this Agreement.
6.8 Assignment: This Agreement may not be assigned by Cassel. This
Agreement may be assigned by EpiCept provided that such assignee agrees in
writing to be bound by the terms and provisions of this Agreement or is so
bound by operation of law. Any purported assignment in violation of the
provisions of this paragraph shall be null and void.
6.9 No Agency, Partnership, or Joint Venture: Nothing in this
Agreement shall be deemed to make the parties partners, joint venturers,
or agents of one another. No party to this agreement shall have the power
to bind or obligate the other. Cassel shall perform the Services hereunder
as an independent contractor. Cassel acknowledges and agrees that Cassel
is obligated to report as income all compensation received by Cassel
pursuant to this Agreement, and Cassel agrees to indemnify EpiCept and
hold it harmless to the extent of any obligation imposed on EpiCept (i) to
pay withholding taxes or similar items or (ii) resulting from Cassel's
being determined not to be an independent contractor.
6.10 Survival. Sections 5.2, 5.3 and 6.7 shall survive termination
of this Agreement.
6.11 Governing Law: This Agreement shall be deemed to have been made
in the State of New Jersey, and shall be governed and construed in
accordance with the laws of New Jersey.
6.12 Counterparts. This Agreement may be executed in two (2)
counterparts, whereby each party may execute a duplicate original thereof,
and each counterpart shall have
-9-
<PAGE>
the same force and effect as an original and shall constitute an
effective, binding agreement on the part of each of the undersigned.
[SIGNATURE PAGE TO FOLLOW]
-10-
<PAGE>
IN WITNESS HEREOF, the parties have executed this Agreement as of the date first
written above.
EpiCept Corporation R. Douglas Cassel, M.D.
By: /s/ JACK V. TALLEY By: /s/ R. DOUGLAS CASSEL
--------------------------------- ------------------------------
Jack V. Talley R. Douglas Cassel, M.D.
Chief Executive Officer 7/18/03 7/22/03
-11-