EXCLUSIVE LICENSING AGREEMENT

 

 

 

Exhibit 10.2

 

                          EXCLUSIVE LICENSING AGREEMENT

 

This Exclusive Licensing Agreement   ("Agreement") is made as of July 12, 2005 by

and between Biowell   Technology Inc., a company duly   incorporated and organized

under the laws of Taiwan, Republic of China ("ROC"), having its principal office

at 18F, No. 959, Chung-Cheng Rd., Chung-Ho City, Taipei County,   Taiwan, 235 ROC

(hereinafter   referred to as "Biowell"),   APDN (B.V.I.) Inc., a corporation duly

incorporated   under   the laws of the   British   Virgin   Islands,   with an   office

located at Nemours Chambers,   P.O. Box 3170, Road Town, Tortola,   British Virgin

Islands   ("Licensor")   and   Applied   DNA   Sciences,   Inc.,   a   corporation   duly

incorporated   under the laws of the State of   Nevada,   United   States of America

having its principal   office at 9229 West Sunset Blvd.,   Suite 830, Los Angeles,

California 90069, USA ("APDN"). RECITALS

 

     A. Pursuant to that certain Asset Purchase Agreement,   dated as of December

22, 2004, (the "Asset Purchase   Agreement"),   Biowell transferred certain of its

assets and liabilities to Rixflex Holdings Limited,   a corporation   formed under

the laws of the   British   Virgin   Islands,   the shares of which are owned by the

majority   existing   shareholders for the interests of all of the shareholders of

Biowell ("Rixflex").

 

     B. Biowell and APDN are parties to a Stock Purchase Agreement,   dated as of

January 28, 2005 (the "Purchase Agreement"),   providing for, among other things,

the   acquisition   by APDN of all of   Biowell's   intellectual   property   used in,

useful to or relating to the Business.

 

     C. The   acquisition of Biowell's   intellectual   property as contemplated by

the Purchase   Agreement   was   accomplished   by a merger of Rixflex with and into

Licensor, a wholly owned subsidiary of APDN (the "Merger").

 

     D.   Licensor (i) has acquired the   Intellectual   Property and   Intellectual

Property   Rights from Biowell as a result of the Merger and/or (ii) owns various

technologies,   proprietary knowledge,   patents,   patent applications,   marketing

rights   and   expertise    including,    without   limitation,    various   DNA   based

anti-counterfeiting technologies, (all collectively hereafter referred to as the

"Technology"). Licensor desires to exclusively license the right to manufacture,

market,   sell and sub-license the Technology,   Product   Materials,   and Licensed

Products (all as hereinafter   defined) to Biowell in the Biowell   Territory,   as

defined in Exhibit 1 attached.

 

     E. APDN desires to have and Biowell   hereby agrees to grant,   the perpetual

option to purchase   finished   Licensed Products and other Product Materials from

Biowell for resale and other   purposes.   Biowell agrees to supply these finished

Licensed   Products and other Product   Materials to APDN in   accordance   with the

terms of this Agreement.

 

     F. APDN may   choose   to build   lab(s)   at its own cost for the   purpose   of

manufacturing   APDN   Products   and   analyzing,   selling   and   testing   the   APDN

Products,   Technology and Product   Materials.   Biowell agrees during the term of

its license hereunder to fully support APDN,   provided that it is reimbursed for

all reasonable costs incurred by it in providing these support activities.

 

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                                   DEFINITIONS

 

     Unless the context requires otherwise,   whenever used in this Agreement the

following terms and expressions shall have the following meaning:

 

     "APDN   Products"   means   products   incorporating   the Technology or Product

Materials that are manufactured by APDN.

 

     "Agreement"   means this   agreement   including the Exhibits,   as they may be

amended from time to time.

 

     "Biowell   Territory"   means   the   territories    specified   as   the   Biowell

Territory in Exhibit 1.

 

     "Business"   means business of developing and   manufacturing   DNA markers to

protect corporate and intellectual property from counterfeiting,   fraud, piracy,

product diversion or unauthorized intrusion

 

     "Business   Day"   means any day   except a   Saturday,   Sunday or other day on

which   commercial   banks in the city of Taipei or New York are authorized by law

to close.

 

     "Business   Methods" means business methods   developed,   licensed to, and/or

owned by Licensor or Biowell relating to the Technology and Products.

 

         "Confidential Information" includes all information, whether written or

oral, in whatever form disclosed by the parties, concerning any technologies,

products, developments, business methods, business plans, marketing, investment,

management, financial and other business affairs in connection with all matters

relating to or arising out of this Agreement, including without limitation, its

contemplated methods of doing business in the future, its past and present, and

future research and development, test information, product information and

service information, as well as customer and sales information, the Technology,

the Business Methods and Know-How.

 

     "Customers"   means any natural or legal   person(s)   or   entities   primarily

solicited by Biowell under this Agreement in the Biowell Territory.

 

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     "Delivery   Date" means the date   specified by APDN or Biowell,   as the case

may be, in a Purchase Order on which a Licensed   Product or Product   Material is

required to be delivered   by Biowell to APDN or by APDN to Biowell,   as the case

may be.

 

     "Intellectual   Property" means the   intellectual   property (other than with

respect to   "off-the-shelf"   or other third party   software   which is   generally

commercially   available)   of Licensor and is used in the conduct of the Business

as   presently   conducted or as presently   proposed to be   conducted,   including,

computer programs and other computer software   (including,   without   limitation,

all   source   and   object   code,   algorithms,   architecture,   structure,   display

screens,    layouts   and   development    tools),    inventions,    patents,    patent

applications,    designs,    samples,    specifications,     schematics,    Know-how,

Confidential Information, trade secrets, proprietary processes and formulae, and

development tools, promotional materials,   databases,   customer lists, supplier,

vendor and dealer lists and marketing research,   and all documentation and media

constituting,   describing   or   relating   to the   foregoing,   including,   without

limitation,   processes,   devices and   facilities   for   manufacturing   (including

sequencing,   imprinting and incorporating DNA),   stabilizing DNA,   encapsulating

DNA,   immobilizing DNA, purifying DNA, extracting DNA, detecting the presence of

DNA and any DNA sequence,   or fragment   thereof,   the subject of any experiment,

test,   work,   or   investigation   undertaken   by   Licensor,   and any DNA sequence

corresponding   to a sample of DNA,   isolated or   otherwise,   at any time stored,

secured or employed   by   Licensor,   and all   validation   and testing   procedures

related thereto

 

     "Intellectual   Property   Rights" means all Patents,   trademarks,   trademark

applications, trade names, service marks, service mark applications,   copyrights

(both registered and unregistered, the "Copyrights"), copyright applications and

trade secrets of Licensor with respect to Intellectual Property.

 

     "Know-How"   means all   information   and materials owned by, or licensed to,

Licensor in   conducting   its   business,   including   any product   specifications,

technical knowledge,   expertise, skill, practice, inventions,   procedures, trade

secrets,   equipment   arrangements,   Confidential   Information,   and other   data,

market studies and all other experience and know-how,   in tangible or intangible

form, whether or not patented or patentable;   provided,   however, that except as

set forth   above with   respect to   equipment   arrangements,   Know-how   shall not

include (i) any plant, property,   equipment or employees,   and (ii) any items to

the extent that any applicable law prohibits their transfer.

 

     "Licensed Products" means products, as described in Exhibit 3 (which may be

 

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amended from time to time), manufactured by Biowell incorporating the Technology

and/or Product Materials.

 

     "Net Sales" means Licensee's or any sub-licensee's total gross billings for

sales, leases, licenses or other dispositions of Technology,   Product Materials,

Licensed Products or APDN Products, as the case may be, to any party (including,

gross billings for sales or other dispositions thereof to Licensor, APDN and any

affiliate   thereof   notwithstanding   the fact that such sale or   disposition   is

outside of the Biowell Territory) which is not an affiliate,   less the following

deductions   where factually   applicable:   (a) discounts   (other than advertising

allowances, fees or commissions to salesmen or sales representatives),   credits,

rebates and other allowances allowed and taken; (b) transportation and insurance

charges   separately   billed to the   customer   or prepaid;   (c) special   outbound

packing separately billed to the customer or prepaid;   (d) sales, use, turnover,

and similar taxes and customs duties imposed upon and with specific reference to

the particular sales of Licensed Products, excluding income tax of Licensee; (e)

amounts refunded or credited for returned merchandise.

 

     "Product Materials" means any and all raw materials required to manufacture

the Licensed Products or APDN Products.

 

     "Purchase Order" means an order for Licensed Products that APDN submits and

Biowell   accepts or an order for APDN   Products   that   Biowell   Submits and APDN

accepts, as the case may be. All Purchase Orders will be gathered and controlled

by the terms of this Agreement   unless otherwise agreed to in writing by Biowell

and APDN, as the case may be.

 

 

 

                          1. Grant of Exclusive Right

 

1.1 Subject to the terms and   conditions   of this   Agreement   and for so long as

Biowell is in compliance with all of its obligations hereunder,   Licensor hereby

grants an exclusive   right for Biowell to: (a) use the   Technology in connection

with the manufacture of Licensed Products in the Biowell Territory; and (b) sell

the Licensed   Products   manufactured by Biowell or APDN Products   purchased from

APDN in the   Biowell   Territory;   and (c)   sub-license   the   Technology   for the

purpose of manufacturing   and selling Licensed Products in the Biowell Territory

(collectively,   "Exclusive License").   Except as provided for herein, no express

or   implied   licenses   of any   type for the   Technology,   Product   Materials   or

Licensed Products shall be granted to Biowell.

 

1.2 Biowell   acknowledges that the Technology is the sole and exclusive property

of Licensor,   subject to the license hereby granted.   If during the term of this

Agreement,   Biowell,   any   sub-licensee   (or any   employee,   consultant or agent

thereof) or APDN makes any improvements,   modifications, or alterations in or to

 

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the   Technology,   the Licensed   Products,   the Product   Materials or the mode of

using same related to the business of developing and   manufacturing   DNA markers

to protect   corporate   and   intellectual   property from   counterfeiting,   fraud,

piracy,   product   diversion   or   unauthorized   intrusion   then such party   shall

communicate such   improvements,   modifications,   and alterations to the Licensor

and such party hereby   transfers and assigns to Licensor all right,   title,   and

interest in and to the   improvements,   modifications   and alterations,   and such

improvements,   modifications and alterations shall become the sole and exclusive

property of Licensor.   Any   technology   or   intellectual   property   developed or

acquired   by Biowell   that does not relate to the   business   of   developing   and

manufacturing   DNA markers to protect   corporate and intellectual   property from

counterfeiting, fraud, piracy, product diversion or unauthorized intrusion shall

be the sole and exclusive property of Biowell.

 

1.3 Licensor hereby agrees to exclusively   license to Biowell within the Biowell

Territory any new   improvements,   modifications or alterations owned by Licensor

or APDN   related   to the   Technology,   the   Product   Materials   or the   Licensed

Products   in   this   Agreement    (related   to   the   business   of   developing   and

manufacturing   DNA markers to protect   corporate and intellectual   property from

counterfeiting,   fraud,   piracy,   product   diversion or unauthorized   intrusion)

subject to the Parties' negotiations on terms and conditions mutually agreed on.

 

1.4 In order   to   maintain   the   exclusivity   of   rights   granted   to it in this

Agreement,   for each specific   territory within the Biowell   Territory,   Biowell

shall make   Royalty   payments to Licensor as set forth in Section 3.1 below.   In

each   annual   period   Biowell   shall   achieve   the Net   Sales   targets   for each

territory   within   the   Biowell   Territory   as set   forth in   Exhibit   1 of this

Agreement.   Any sales of   Licensed   Products or APDN   Products   or any   products

utilizing the Product   Materials or   Technology   made by directly by Licensor or

APDN within the Biowell   Territory   shall count   towards the Biowell's Net Sales

target for such   territory   and Biowell shall not be required to pay any Royalty

(as defined   below)   payments to Licensor for any such sales.   For sales made by

APDN into the Biowell Territory,   APDN shall pay Biowell a Royalty equivalent to

ten percent (10.0%) of its Net Sales   (calculated by using the definition of Net

Sales set forth in this   Agreement).   Subject to Section   1.6, Net Sales must be

met   in   each   territory   and   payment   of the   required   Royalty   shall   not be

considered sufficient consideration for the retention of rights of exclusivity.

 

1.5. On each   Payment   Date (as   defined in Section   3.2 below),   whether or not

payment is received by Licensor on such Payment   Date,   or as   otherwise   may be

agreed per   territory in writing   between the   parties,   and for as long as this

Agreement remains in effect, Licensor and Biowell shall review Net Sales. In the

 

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event Biowell fails to meet its Net Sales obligations for any specific territory

within   the   Biowell   Territory,   Licensor   reserves   the   right,   at   its   sole

discretion as deemed reasonable under the circumstances, to:

 

     (i) If Biowell fails to attain its Net Sales target in a specific territory

in any one   (1)   year   period,   Licensor   may   immediately   terminate   Biowell's

exclusive rights as a licensee in such territory; and

 

     (ii) If   Biowell   fails   to   attain   its Net   Sales   target   in a   specific

territory for two (2) consecutive years, Licensor may terminate all of Biowell's

rights   as a   licensee   granted   under   this   Agreement   with   respect   to   such

territory.

 

1.6.   Licensor   shall   not   terminate   or limit   Biowell's   rights,   except   for

non-performance   of its   obligations   under   this   Agreement,   and as   otherwise

provided   in this   Agreement.   In the event   Biowell is   notified   in writing by

Licensor of the   non-performance   of its obligations under this Agreement at any

time   during the period   that this   Agreement   is in   effect,   Biowell   shall be

allowed   a cure   period   of   sixty   (60)   Business   Days   in   which   to   address

non-performance   and to implement a remedy   reasonably   acceptable   to Licensor;

provided,   that,   in the event   that such   non-performance   is with   respect   to

payment of Royalties under this Agreement,   such cure period shall be reduced to

thirty (30) Business Days. 1.7 Subject to the   requirements set forth in Section

1.4, under no circumstances   will (i) APDN or any affiliate   thereof or (ii) any

sub-licensee   approved   by   Licensor   for a   territory   outside   of the   Biowell

Territory or any affiliate thereof, market or sell in the Biowell Territory: (1)

any Licensed   Products,   APDN   Products,   or any products   utilizing the Product

Materials or Technology;   (2) any of its products that are competitive   with the

Licensed   Products,   (3) products   bearing its name from third   parties that are

competitive with the Licensed   Products or (4) products packaged or sold under a

private label that are competitive with the Licensed Products;   provided,   that,

it will not be   considered a violation of the terms of this a Agreement in those

cases where APDN,   its   sub-licensee,   or   affiliates   of either,   enter into an

agreement with any multinational   corporation or other organization (or a parent

or affiliate   thereof)   headquartered   outside of the Biowell   Territory for the

sale, lease or license of Technology,   Product   Materials,   Licensed Products or

APDN Products and such Technology,   Product Materials, Licensed Products or APDN

Products are subsequently   transported into or used in the Biowell   Territory by

such corporation or organization.

 

1.8 Under no circumstances will (i) Biowell or any affiliate thereof or (ii) any

sub-licensee   approved by Licensor for a territory within the Biowell   Territory

or any affiliate   thereof,   market or sell:   (1) products   bearing its name from

 

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third parties that are   competitive   with the Licensed   Products or (2) products

packaged or sold under a private   label that are   competitive   with the Licensed

Products;   provided, that, it will not be considered a violation of the terms of

this Agreement in those cases where Biowell,   its   sub-licensee   or affiliate of

either,    enters   into   an   agreement   with   a    multinational    corporation   or

organization   (or a parent or affiliate   thereof)   headquartered   in the Biowell

Territory   for the sale,   lease or license   of   Technology,   Product   Materials,

Licensed   Products or APDN   Products   and such   Technology,   Product   Materials,

Licensed Products or APDN Products are subsequently   transported   outside of the

Biowell Territory by such corporation or organization.   Biowell shall pay APDN a

Royalty   of ten   percent   (10.0%)   of its Net Sales   from all sales of   Licensed

Products, APDN Products or Product Materials made by Biowell or any sub-licensee

of Biowell outside of the Biowell Territory

 

1.9   Each   party   shall   provide   reasonable    telephonic   and   electronic   mail

("e-mail")   support   to each   other   party on an as needed   basis,   during   such

party's   regular   business   hours.   Upon   execution of this Agreement each party

shall appoint a liaison to   communicate   with each other party,   and the parties

shall funnel their   inquiries   through such appointed   liaison so as to minimize

any   disruption   to the staff of each other party.   Each party agrees to provide

each other   party   with   timely   written   notification   containing   the name and

contact   information for such liaison and when   applicable,   specific details of

problems to enable such other party to diagnose such problems.

 

1.10 APDN may build a lab(s) at its own cost for the   purpose of   manufacturing,

selling,   analyzing,   and testing the   Technology,   Product   Materials   and APDN

Products.   During the Initial Term and the Second Term,   Biowell agrees to fully

support   APDN in   these   activities.   It   will   provide   professional   guidance,

technical   support,    engineering   designs,    plans,   and   all   other   pertinent

documentation and information   related to Biowell's   facilities,   products,   and

operations   together with training,   manuals,   budgets,   cost data and all other

relevant   disclosures.   APDN will   reimburse   Biowell for all costs   incurred by

Biowell in providing these support activities.

 

                                     2. Term

 

2.1   Unless   terminated   in   accordance   with the   terms of this   Agreement   and

provided Biowell meets the performance requirements set forth on Exhibit 1, this

Agreement   shall be effective as of the date of execution of this   Agreement and

shall   remain   in   effect   for the   remainder   of the year 2005 and the five (5)

calendar   year period   thereafter   ("Initial   Term").   In the event that Biowell

meets the performance   requirements set forth on Exhibit 1, this Agreement shall

be   automatically   renewed   for an   additional   five (5)   calendar   year   period

 

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following the Initial Term ("Second   Term").   Upon the   expiration of the Second

Term and if Biowell so requests, the Licensor shall negotiate in good faith with

Biowell for further   renewal of this   Agreement   or entering   into a new license

agreement under reasonable commercial terms and conditions.

 

2.2 In the event of circumvention of this Agreement by a party hereto,   directly

or indirectly;   the   circumvented   party shall be entitled to a monetary payment

equal to the maximum   benefit it should have realized   from such a   transaction,

plus any and all   expenses   including   but not   limited   to all legal   costs and

expenses incurred to recover the lost revenue.

 

2.3 In the event of termination not attributable to Biowell,   APDN will have the

responsibility   to continue to honor this   Agreement   with Biowell in respect of

assisting   Biowell to fulfill   any   outstanding   agreements   with   Customers   of

Biowell.

 

                              3. Price and Payment

 

3.1 In consideration of the license granted to Biowell herein, Biowell shall pay

Licensor a royalty   ("Royalty" or "Royalties") equal to ten (10%) percent of the

Net Sales of the   Licensee   for orders   received   by it   subsequent   to the date

hereof. For the purpose of computing   Royalties,   (i) sales shall be regarded as

made when payments are due under Biowell's normal commercial terms of sale, (ii)

sales by a sub-licensee of Biowell shall be deemed sales by Biowell, (iii) sales

in currencies   other than U.S. dollars shall be converted to U.S. dollars at the

foreign   official   conversion   rate   effective   when payment is due and (iv) any

sales for a   financial   consideration   other than   currency   shall be subject to

prior approval of Licensor for consideration acceptable to Licensor.

 

3.2   Royalties   shall be paid by Biowell to   Licensor   on a   semi-annual   basis,

within   thirty (30) days after the end of such six (6) month   period   during the

Initial term and Second Term; provided,   that, with respect to the first payment

of Royalties   hereunder,   payment shall be made on or prior to January 30, 2006,

based upon Net Sales during the period   commencing on the date hereof and ending

on December   31,   2005.   Commencing   in   January,   2006 and for each year of the

Initial Term and the Second Term (and any additional extensions),   Biowell shall

pay   Royalties   to   Licensor   on or before   July 30 and January 30 of each year,

based upon Net Sales from the preceding   six (6) month period (each,   a "Payment

Date").

 

3.3 Royalty payments shall be made to Licensor at its offices at the address set

forth above, or by wire transfer of immediately   available funds to such banking

institution   as Licensor   may direct from time to time,   in legal   tender of the

United States of America.

 

3.4 In addition to any other remedy   available to the   Licensor,   if any payment

due under this Agreement is delayed for reasons solely   attributable to Biowell,

interest shall accrue and be payable, to the extent legally enforceable, on such

 

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unpaid   amounts from and after the date on which the same was due at the rate of

one and one half percent (1.5%) per month or any portion thereof. The obligation

of Biowell to pay any amounts due hereunder   shall be absolute,   notwithstanding

any claim which Biowell may assert against Licensor.   Biowell shall not have the

right   to set   off,   compensate,   or   make   any   deduction   from   such   payments

whatsoever.

 

3.5 Together with payment of the Royalties,   during the Term of this   Agreement,

Biowell   agrees to submit   written   reports to   Licensor   stating,   in each such

report,   (i) the total sales for the Biowell Territory and each territory within

the Biowell Territory,   by Biowell and all sub-licensees of Technology,   Product

Materials,   Licensed   Products and APDN   Products for the previous six (6) month

period,   (ii)   the   total   adjustments   to such   sales   in   connection   with the

determination   of Net Sales for the Biowell   Territory and each territory within

the Biowell Territory,   and (iii) the Royalty due thereon. In addition,   Biowell

shall   deliver a written   report to Licensor   within   ninety (90) days after the

date of termination of this   Agreement,   stating in such report the   information

stated   above that was not   previously   reported to Licensor and the Royalty due

thereon, and shall accompany such report with payment of the amount of Royalties

shown to be due therein.

 

3.6 Biowell   agrees to keep,   for at least three (3) years after   expiration   or

termination of this Agreement, full and accurate books of account and records on

Biowell's   and   all   sub-licensee's   sales   of   Technology,   Product   Materials,

Licensed   Products and APDN Products.   Biowell also agrees to permit Licensor or

its authorized representative, upon at least ten (10) days prior written notice,

to conduct   reasonable   audits of Biowell's   books,   records and   inventories to

verify Biowell's   performance,   the total sales of Biowell and all sub-licensees

from Technology,   Product   Materials,   Licensed Products and APDN Products,   the

total   adjustments   to such sales in connection   with the   determination   of Net

Sales, the Royalty due thereon and the reports due under this Agreement.   Unless

otherwise   agreed by the parties,   such audits shall occur only during   business

hours at the offices of Biowell,   dusirng the term of this   Agreement and during

the three (3) years immediately   following the expiration or termination of this

Agreement,   and in no event   exceed   two (2)   times   per   year.   If any audit of

Biowell's or any   sub-licensee's   books and records shows a discrepancy   of more

than five percent (5.0%) from payments and/or reports to Licensor,   Biowell will

in addition   to payment of any unpaid   amounts   due as   disclosed   by the audit,

immediately   reimburse   Licensor   for the cost of the audit.   A final   audit may

occur once during the year immediately   succeeding   expiration or termination of

this Agreement. Any information provided to Licensor or its accountants pursuant

 

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hereto shall be treated as   Confidential   Information   (hereinafter   defined) of

Biowell to be used only for the purpose of the   examination   in accordance   with

this Agreement and shall not be otherwise disclosed.

 

                             4. Biowell O