THIS
AGREEMENT (“Agreement”) dated as of August 22,
2000 (the “Effective Date”) by and between Mitchell S.
Roslin, M.D., a citizen of the United States of America residing in
New York, NY (“Licensor”), and Cyberonics, Inc., a
Delaware corporation with offices in Houston, Texas
(“Licensee”).
Licensee is
engaged in designing, developing, investigating, testing, and
marketing specialized medical devices primarily used or to be used
for treating disorders by nervous system stimulation, and owns
basic patents related to the use of nerve stimulation for eating,
endocrine and other disorders, including patents on the use of
vagus nerve stimulation (VNS) to treat obesity;
Licensor is
medical doctor licensed to practice medicine in the State of New
York, and is a co-inventor with Burke T. Barrett of Licensee and
Ramesh Reddy, M.D. on a United States patent application for
bi-lateral VNS for the treatment of obesity, Serial
No. 09/346,396, filed on or about July 1, 1999, and/or
continuations or divisions thereof, and a PCT counterpart
application thereof (collectively, “the ‘396
Application”), the original animal studies for which were
initiated by Licensor with participation, assistance, support,
advice and devices of Licensee; and
Licensee and
Licensor desire to enter into an agreement under which Licensee
will acquire from Licensor the exclusive right and license to
practice the inventions) covered by the ‘396 Application to
the fullest extent of Licensor’s right, title and interest in
and to the invention(s), and in and to all other inventions
conceived, made, reduced to practice, owned or controlled by
Licensor in the field of nervous system stimulation, on the terms
and conditions set forth in this Agreement.
In consideration
of the foregoing recitals, and the mutual undertakings set forth
herein, Licensee and Licensor (collectively, “the
Parties”) do hereby AGREE AS FOLLOWS:
Article I. Definitions.
As used in this Agreement, terms
shall have the following meanings:
1.01 “
Confidential Information ” shall mean information of
Licensee relating to its business plans, experimental products,
research or development activities, financial information, identity
of customers and key personnel, marketing and distribution, and
other transactions, actual or prospective, treated by Licensee as
secret and protected as such by confidentiality or nondisclosure
agreements or the like and by applicable marking of documents and
other tangible items with words indicative of information of
confidential or secret content and with applicable notice where the
content is communicated orally or visually.
1.02 “
FDA ” shall mean the U.S. Food and Drug
Administration, which has responsibility under the law for, among
other things, establishing protocol for clinical investigation of
medical devices and granting Investigational Device Exemption
(“IDE”), determining from results of clinical
investigation whether a medical device is safe and effective for
treating a disease or disorder, and
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granting
Pre-Market Approval (“PMA”) of medical
devices.
1.03 “
Invention ” shall mean an advance, innovation,
discovery, or improvement in a product, process, method, or
technique, whether patentable or not, conceived, made, or reduced
to practice by Licensor, alone or with others, or owned or
controlled in whole or in part by Licensor, at any time during the
term of this Agreement, in the field of nervous system
stimulation.
1.04 “
Licensed Patents ” shall mean United States patent
application Serial No. 09/346,396 filed July 1, 1999 in the
names of Mitchell Roslin and others for “Treatment of Obesity
by Bilateral Vagus Nerve Stimulation”, and all continuations,
continuations in part and divisions thereof, all patents issued,
reissued, reexamined, and renewed (e.g., by payment of maintenance
fees or annuities, as the case may be) thereon, and all
counterparts (i.e., corresponding applications and patents) and
equivalents (i.e., statutorily protected or designated by status of
invention, characterized as other than a patent application or
patent) thereof filed or issued in other countries (including but
not limited to nationalizations under the Patent Cooperation Treaty
(PCT) in the name (with or without others), on behalf, or with
concurrence of Licensor; and any and all Inventions, whether or not
applications for patent, patents or equivalents are filed thereon,
and, if filed, such patent, patents or equivalents. The Licensed
Patents as of the Effective Date hereof are set forth in
Exhibit A (attached hereto and integrated herein),
subject to modification from time to time to add newly arising,
filed or issued Licensed Patents as provided herein.
1.05 “
Licensed Products ” shall mean any and all products,
devices, apparatus, and systems, and “ Licensed
Methods ” shall mean any and all methods, techniques, and
processes, covered by any claim(s) of the Licensed
Patents.
1.06 “
Net Sales ” shall mean gross sales of Licensed
Products by Licensee or its sublicensee(s), as the case may be,
less taxes and tariffs (by whatever name they may be designated)
imposed by governmental authorities on the manufacture, sale,
importation, lease or storage of Licensed Products and actually
paid by Licensee (or its sublicensee(s)); packing and freight
charges (including insurance costs for transportation) actually
included in Licensee’s (or its sublicensee’(s’))
invoices for Licensed Products; and credits for returns, discounts,
and allowances actually granted by Licensee (or it sublicensee(s))
to customers for Licensed Products. In the event that a Licensed
Product is disposed of in a transaction with a third party other
than an arms length sale between unrelated parties, the transaction
shall be treated and accounted for by Licensee and its
sublicensees, as applicable, as a typical sale at the average gross
sales price of the Licensed Product by Licensee or the sublicensee,
as the case may be, in the market in which such transaction
occurred.
1.07 “
License Fee ” shall mean a fee paid to Licensee by a
sublicensee for the privilege of receiving a sublicense, which is
neither based on Net Sales by the sublicensee nor deductible from
royalties paid or payable to Licensee by the sublicensee for its
Net Sales.
Article II. Grant of
License.
2.01 Exclusive
License . Licensor agrees to grant and hereby does grant to
Licensee the
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exclusive
worldwide right and license to all of Licensor’s rights in
and to the Licensed Patents, including but not limited to the
exclusive worldwide right and license to make, have made, use,
sell, import, export and otherwise dispose of the Licensed
Products, and to practice the Licensed Methods.
2.02 Right to
grant Sublicenses . The license granted to Licensee hereunder
shall include the exclusive right to grant sublicenses to third
parties for the exercise of any or all of the rights granted in the
Licensee’s license in any territory constituting a country,
portion of a country, or countries of the world.
Article III. Royalties; Advances;
Audit.
(a) Licensee
shall pay Licensor Royalties at the royalty rate specified in
Exhibit B applied to (i) Net Sales of Licensed Products
by Licensee and its sublicensees and (ii) any License Fees
received by Licensee on account of sublicenses.
(b) Royalties
shall be deemed earned when sales are made, but shall be due and
payable quarterly in United States dollars, within 90 days
after the end of the fiscal quarter of Licensee in which the
applicable sales were made. Only one Royalty shall be due per
Licensed Product sold, regardless of the number of Licensed Patents
and/or claims that may apply or the number of times a Licensed
Product may be used to practice Licensed Methods.
(c) With each
quarterly payment of Royalties, Licensee shall furnish a quarterly
report to Licensor setting forth its own and its
sublicensees’ cumulative gross sales, permitted deductions
and resulting Net Sales of the Licensed Products, License Fees and
the Royalty payment due thereon for the applicable fiscal quarter.
If no sales of Licensed Products were made in the quarter by
Licensee or its sublicensees, the report shall so state.
(a)
Annual . Licensee shall pay Licensor annual advances
(“Annual Advances”) against earned Royalties in the
amount of $25,000.00 each, to be paid on January 1 of each year,
retroactive to January 1, 2000, for a period of five years
ending December 31, 2004 (totaling $125,000.00), or until the
first sale of a Licensed Product, whichever occurs first. Annual
Advances shall be deducted from Royalties earned at any time during
the term of this Agreement (or payable thereafter as provided
herein).
(b)
Milestone . Licensee shall also pay Licensor advances for
each of the following milestones against future earned Royalties
(“Milestone Advances”), within 30 days after the
respective milestone is first reached during the term of this
Agreement, in the following amounts (up to a maximum cumulative
amount of $325,000.00): (1) $25,000.00 upon the first implant by
Licensor of a Licensee VNS device in a patient in the pilot
clinical study of VNS as a treatment for obesity
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(which
milestone the parties acknowledge has been reached as of the date
hereof), (2) $50,000.00 upon completion of a 30-patient pilot
clinical study of VNS as a treatment for obesity, (3) $100,000.00
upon completion of a pivotal or Phase III clinical study of VNS as
a treatment for obesity that would support a Premarket Approval
(PMA) application to FDA and submission of the results
of that study as part of a PMA application submission to the FDA,
and (d) $150,000.00 upon FDA approval of VNS for the treatment of
obesity. A prerequisite for the payment of each Milestone Advance,
in addition to actual achievement of the respective milestone, is
that Licensor shall have performed the implant for milestone (1),
and, except in
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