Exhibit 10.6
PATENT LICENSE
AGREEMENT
UNITHER PHARMA, INC.
and
Real Health Laboratories, Inc.
May 1, 2002
PATENT LICENSE
AGREEMENT
This PATENT LICENSE AGREEMENT (this
“License Agreement”) is made as of May 1, 2002
between Unither Pharma, Inc. (formerly Cooke Pharma, Inc.)
(“Unither”), located at 1110 Spring Street, Silver
Spring, Maryland 20910 (“Licensor”), and Real Health
Laboratories, Inc. (“Licensee”), located at 1424
30 th Street #B1, San Diego, California
92154.
RECITALS
WHEREAS a dispute (“the
Dispute”) has arisen between Licensor and Licensee over the
alleged infringement of the patents identified in Exhibit A
attached hereto (the “Issued Patents”), which the
parties desire to settle on terms which include Licensor granting
to Licensee a nonexclusive license to the Issued
Patents;
WHEREAS Licensor holds certain
licenses to the Issued Patents granted by the Board of Trustees of
the Leland Stanford Junior University (“Stanford”) and
New York Medical College (“NYMC”) (collectively
“Patentees”), which Issued Patents claim L-Arginine and
methods for administering the amino acid L-Arginine, and Licensor
desires to grant a nonexclusive license to Licensee;
WHEREAS Licensee sells certain
nutritional supplements containing the amino acid L-Arginine,
Licensee admits that the sale of its L-Arginine containing products
infringes certain claims contained in the Issued Patents (the
“Infringed Claims”), Licensee admits the validity and
enforceability of the Issued Patents and Licensee desires to obtain
a nonexclusive license to the Issued Patents so that it may
continue selling products containing L-Arginine in accordance with
this License Agreement;
NOW THEREFORE,
for the consideration herein
described and upon the terms listed below, the parties hereby agree
as follows:
ARTICLE I -
DEFINITIONS
“Cardiovascular” means
referring or relating to the human heart and circulatory system
including veins, arteries, and capillaries, and further including
references to diseases of the human cardiovascular
system.
The “Field of Use” is
enhancing human sexual performance, specifically nutritional
supplements that are offered, promoted and/or marketed as enhancing
human sexual performance through products containing L-Arginine or
oral administration of L-Arginine. Field of Use shall include and
permit Cardiovascular claims that are limited to human sexual
performance as specifically permitted in Article VII of this
License Agreement.
“Fiscal Year” means from
November 1 through October 31, which is Licensee’s
current fiscal year used for accounting purposes.
“Infringed Claims” means
those numbered claims of each of the Issued Patents identified as
Infringed Claims in Exhibit A attached hereto.
“L-Arginine-Based
Products” means products intended for human consumption that
contain the amino acid L-Arginine, including but not limited to
salts and peptides or other compositions in which L-Arginine may be
bonded to other moieties, as an ingredient for enhancing nitric
oxide, reducing vascular resistance, increasing blood flow, and/or
enhancing physical performance.
“Licensed Patents” means
the Issued Patents and any patents that hereafter issue in the
United States from applications pending before the U.S. Patent and
Trademark Office as herein described, and any other patents issued
or licensed to, or acquired by, Licensor in the United States or
elsewhere in the world that relate to composition of L-Arginine
Based Products, or to any method of orally administering L-Arginine
Based Products. Without limiting the generality of the foregoing,
Licensed Patents shall include any patent issuing pursuant to U.S.
Patent Application No. 10/060,252 entitled “Enhancement
of Vascular Function by Modulation of Endogenous Nitric Oxide
Production or Activity” filed February 1, 2002 (the
“Pending Application”), subject to the royalty
obligations set forth in Paragraph 3.2, below. Licensed Patents
does not include any other Stanford-owned or managed patents or
NYMC-owned or managed patents other than those specifically
included within the license between Stanford and Licensor and NYMC
and Licensor.
“Licensed Products”
means any product within the Field of Use, including any L-Arginine
Based Products, the manufacture, importation, sale or marketing of
which would infringe any claim of the Licensed Patents.
“Net Sales” means gross
revenues from sales of Licensed Products in any country in which
Licensed Patents are issued and outstanding, less sales taxes,
value added taxes, direct to consumer sales shipping costs
(incurred in connection with sales for which shipping and handling
costs are billed to consumers and included in gross sales), product
returns, early payment and other discounts, and slotting allowances
directly attributed to Licensed Products. For the purposes of this
License Agreement and for determining Net Sales, Licensed Products
are considered sold on the date of the associated invoice or credit
card payment processing, and gross revenues from sales of Licensed
Products shall be calculated on cash payments received by licensee
pursuant to such invoices or credit card payment
processing.
“Promotional Statements”
means statements printed or displayed on or in product labels,
product inserts, product advertisements, books, brochures, product
catalogs, Licensee’s web site, and public statements made by
Licensee’s officers, agents, consultants and spokespersons,
and any other public statements by or on behalf of Licensee, its
officers, agents, distributors and assigns that may have the effect
of promoting, advertising or sustaining sales of Licensee’s
Licensed Products.
“Related Company” means
any corporation, partnership or other entity with respect to which
more than fifty percent (50%) of the beneficial ownership is
held by Licensor.
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“Quarter” means three
successive calendar months commencing November 1 through
January 31 (“First Quarter”), February 1
through April 30 (“Second Quarter”), May 1
through July 31 (“Third Quarter”) and
August 1 through October 31 (“Fourth
Quarter”).
“Term” means for the
duration of this License Agreement as provided for in Article
V.
“Third Party” means any
person, company or entity that manufactures or sells Licensed
Products.
“Total Net Sales of Licensed
Products within a Fiscal Year” means Licensee’s running
total of the Net Sales of Licensed Products through all sales
channels that are invoiced within the Fiscal Year of the Quarter
for which the Royalty Payment is being calculated.
ARTICLE II - LICENSE
GRANT
2.1. License Grant . Licensor
hereby grants to Licensee a nonexclusive license under the Licensed
Patents to make, have made, use, offer to sell, sell, and import
Licensed Products within the Field of Use throughout the world for
the Term of this License Agreement.
2.2. Licensee agrees that Licensed
Products sold in the United States shall be manufactured
substantially in the United States, although Licensee shall be
entitled to import ingredients for use in the manufacture of
Licensed Products.
2.3. No Other Rights Granted
. The license granted hereunder shall not be construed to confer
any rights upon Licensee by implication, estoppel or otherwise to
any technology not specifically claimed in the Licensed
Patents.
2.4. Notice of Licensed
Patents . Licensor shall give notice to Licensee of the
issuance to or acquisition by Licensor of any patents included
within the definition of Licensed Patents, which notice shall be
given within sixty (60) days after any such patent is issued
to or acquired by Licensor.
ARTICLE III - ROYALTIES, PAYMENTS
AND REPORTS
3.1. Continuing Royalty
Obligations - Initial Royalty Calculation . In consideration
for the patent license granted in Paragraph 2.1, Licensee shall pay
Licensor a continuing royalty every Quarter of the Term as
specified in this Article III. Royalty obligations will be
calculated and paid quarterly based upon Licensee’s total Net
Sales invoiced within the Fiscal Year associated with that Quarter.
Royalty Payments are due forty-five (45) days after the end of
each Quarter. Royalty Payments shall be calculated for each Quarter
as follows:
(a) For Total Net Sales of Licensed
Products within a Fiscal Year up to Six Million Dollars
($6,000,000), the Royalty Payment is two percent (2%) of the
total Net Sales invoiced in the Quarter.
(b) During any Quarter in which
Total Net Sales within a Fiscal Year exceeds Six Million Dollars
($6,000,000), but is less than Twenty-Five Million Dollars
($25,000,000),
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the Royalty Payment is two percent
(2%) of that portion of total Net Sales invoiced in the
Quarter that brings the Fiscal Year total to Six Million Dollars
($6,000,000), and five percent (5%) of the remaining
additional Net Sales invoiced in the Quarter.
(c) During any Quarter in which
Total Net Sales within a Fiscal Year exceeds Twenty-Five Million
Dollars ($25,000,000), the Royalty Payment is two percent
(2%) of that portion of total Net Sales invoiced in the
Quarter that brings the Fiscal Year total to Six Million Dollars
($6,000,000), five percent (5%) of that portion of the
additional Net Sales invoiced in the Quarter that brings the Fiscal
Year total to Twenty-Five Million Dollars ($25,000,000), and ten
percent (10%) of the remaining additional Net Sales invoiced
in the Quarter.
3.2. Continuing Royalty
Obligations - Provisional Royalty Calculation . Whereas the
parties have agreed that the Pending Application, if granted by the
U.S. Patent Office, would cover the Licensed Products, and whereas
Licensee desires that this License Agreement address such an
eventuality, the parties agree to implement the Provisional Royalty
Calculation defined in this paragraph in consideration for
including within the Licensed Patents any patent that issues from
the Pending Application. This Provisional Royalty Calculation will
automatically become effective in the Quarter following the Quarter
in which a U.S. Patent issues containing at least one claim that is
substantially the same as or broader than the present claim number
22 in the Pending Application, a copy of which claim is attached
hereto as Exhibit B. When the Provisional Royalty Calculation is
effective, royalty obligations will be paid quarterly based upon
Licensee’s total Net Sales invoiced within the Fiscal Year
associated with that Quarter, due forty-five (45) days after
the end of each Quarter, and calculated for each Quarter as
follows:
(a) For Total Net Sales of Licensed
Products within a Fiscal Year up to Five Million Dollars
($5,000,000), the Royalty Payment is three percent (3%) of the
total Net Sales invoiced in the Quarter.
(b) During any Quarter in which
Total Net Sales within a Fiscal Year exceeds Five Million Dollars
($5,000,000), but is less than Twenty-Five Million Dollars
($25,000,000), the Royalty Payment is three percent (3%) of
that portion of total Net Sales invoiced in the Quarter that brings
the Fiscal Year total to Five Million Dollars ($5,000,000), and six
percent (6%) on the remainder of total Net Sales invoiced in
the Quarter.
(c) During any Quarter in which
total Net Sales within a Fiscal Year exceeds Twenty-Five Million
Dollars ($25,000,000), the Royalty Payment is three percent
(3%) of that portion of total Net Sales invoiced in the
Quarter that brings the Fiscal Year total to Five Million Dollars
($5,000,000), six percent (6%) of that portion of the
additional Net Sales invoiced in the Quarter that brings the Fiscal
Year total to Twenty-Five Million Dollars ($25,000,000), and ten
percent (10%) of the remaining additional Net Sales invoiced
in the Quarter.
3.3. Third Party Licenses: Most
Favored Nations Option . If Licensor shall hereafter grant to a
Third Party, other than a Related Company, a license under any of
the Issued Patents (a “Third Party License”) that
permits such Third Party to make or sell Licensed Products within
the Field of Use, then Licensor shall:
(a) Promptly notify Licensee of such
Third Party License, which notification shall contain a complete
and accurate description of the royalties and other material terms
contained in such Third Party License, and
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(b) Extend to Licensee an option to
modify this License Agreement by incorporating into this License
Agreement as a whole all of the material terms contained in such
Third Party License, including all royalty rates and financial
terms, in substitution of the corresponding material terms of this
License Agreement. Licensee may exercise such option to modify this
License Agreement by advising Licensor in a written notice that it
accepts all offered terms of the Third Party License,
provided Licensee’s notice is received by Licensor within
sixty (60) days following notification of such Third Party
License.
3.4. Times and Currencies of
Payments .
(a) Payments owing hereunder shall
be payable in United States dollars. Payments may be made by check
payable to “Unither Pharma, Inc.” mailed to Licensor at
the address for notices set forth in this License Agreement.
However, if the license between Stanford and/or NYMC and Licensor
is terminated, payments owing hereunder shall be paid directly to
Stanford and/or NYMC as Stanford and NYMC jointly
designate.
(b) Royalty Payments received after
the due date specified herein shall accrue interest from the date
such amounts are due and payable at two percentage points above the
prime lending rate as established by the Chase Manhattan Bank,
N.A., in New York City, New York, or at such lower rate as may be
required by law.
(c) Licensee shall, within one
hundred twenty (120) days after the end of each Fiscal Year of
Licensee ending during the term of this License Agreement, submit
an annual report (an “Annual Report”) showing total net
sales of Licensed Products for each such Fiscal Year, based upon
the audited financial statements of Licensee for such Fiscal Year.
To the extent that the aggregate Royalty Payments already made for
the four (4) Quarters of such Fiscal Year are greater than the
Royalty Payments owing as set forth in the Annual Report, the
excess shall be applied to the Royalty Payments owing for the first
Quarter of the following Fiscal Year. To the extent that the
aggregate Royalty Payments made for the four (4) Quarters of
such Fiscal Year are less than the Royalty Payments owing pursuant
to the Annual Report, Licensee shall make payment of the deficit to
Licensor within one hundred twenty (120) days after the end of
such Fiscal Year, and, if such payment is timely made, Licensee
shall not be deemed to be in default of this License Agreement
notwithstanding any shortfall for any individual Quarter in such
Fiscal Year.
3.5. Record Keeping and
Reports .
(a) Licensee shall keep good and
accurate books of account sufficient to permit the calculation of
the Royalty Payments and prepare the written reports due hereunder.
Licensee shall maintain the books of account for at least three
(3) years following the end of the Fiscal Year to which they
pertain for inspection and audit by Licensor as provided for in
Paragraph 3.6.
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(b) Within forty-five 45) days
following the end of each Quarter, Licensee shall send to Licensor,
with a copy to Stanford, a written report setting forth the number
and description of Licensed Products sold or otherwise disposed of
by Licensee during the preceding Quarter and the associated
aggregate Net Sales invoiced during the Quarter. The quarterly
report shall also identify all wholesale customers to whom Licensee
delivered Licensed Products during each Quarter. A report shall be
sent to Licensor even when no Licensed Products were sold or
otherwise disposed of during the Quarter.
3.6. Audit Rights . Licensee
shall make its books of account available for inspection by an
independent accountant designated by Licensor. Such inspections
shall be no more frequent than once each calendar year during the
Term and once within six months after termination of this License
Agreement. The designated accountant shall retain in confidence the
information in the books of account and shall report to Licensor
only the accuracy or inaccuracies of the reports rendered pursuant
to Paragraph 3.5(b) herein. Such inspections will be at
Licensor’s expense unless the designated accountant
identifies underpayment of royalties due by five percent
(5%) or more, in which event Licensee shall pay for such
inspection. Licensor’s failure to inspect shall not
constitute a waiver of Licensor’s right to object to the
accuracy of the reports rendered or payments made under this
License Agreement; provided, however, that Licensor shall have no
right to audit or object to the reports submitted by Licensee, and
royalties paid by Licensee, for any Fiscal Year, unless such audit
or objection is made no later than two (2) years following the
end of such Fiscal Year. Refusal of a Licensor’s request for
an audit shall constitute a material breach of this License
Agreement.
ARTICLE IV - TRANSFERABILITY OF
RIGHTS AND OBLIGATIONS
4.1. No Right To Sublicense .
Licensee shall not sublicense the rights granted hereunder to any
third party. Licensee may, however, contract with third parties for
the manufacture of Licensed Products provided such Licensed
Products are only sold or distributed by Licensee pursuant to this
License Agreement.
4.2. Assignment Restrictions
. The license granted by this License Agreement is personal to
Licensee, and therefore may not, except as provided below, be
assigned, conveyed or otherwise transferred to any third party
without the prior express written consent of Licensor. Licensor
reserves the right to withhold consent for the assignment or
transfer of this License Agreement to third parties for any reason
whatsoever. Notwithstanding the foregoing, in the event of a
transaction consisting of a sale by Licensee of substantially all
of its assets and business, or a transaction in which Licensee is
acquired by, or merged or consolidated with, any other person and
Licensee is not the surviving entity in such transaction, then the
person acquiring all of the assets and business of Licensee, or the
person constituting the surviving entity in any such merger,
acquisition or consolidation transaction (any such person being
referred to herein as a “Succeeding Party”), shall
acquire all of the rights of Licensee under this License Agreement,
without any requirement for consent of Licensor, but subject to the
remaining provisions of this Paragraph 4.2. The Succeeding Party in
any of the foregoing transactions shall be required to give written
notice to Licensor of the consummation of any transaction described
in the preceding sentence within thirty (30) days following
the closing of such transaction, which notice shall state that the
Succeeding Party agrees to be bound by all of the provisions of
this License Agreement in consideration for acquiring all the
rights of the
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Licensee under this License Agreement. The
Succeeding Party in any such transaction shall succeed to all of
the rights of Licensee hereunder except, however, if the Succeeding
Party also has been granted a license to the Issued Patents at
royalty rates greater than those specified in Article III of this
License Agreement, then the license granted to the Succeeding Party
shall take precedence and this License Agreement shall
terminate.
ARTICLE V - TERM AND
TERMINATION
5.1. Term . The
“Term” of this License Agreement is from the date of
its execution until it is terminated as provided in Paragraphs 5.2
– 5.4 herein.
5.2. Termination Upon Expiration
of Licensed Patents . This License Agreement shall terminate
upon the expiration of the last to expire of the Licensed Patents
unless terminated earlier under a provision of this Article
V.
5.3. Termination Upon Patent
Invalidation . This License Agreement shall terminate in the
same manner as if all of the Licensed Patents had expired in the
event that every Infringed Claim, and every claim that would be
infringed by Licensed Products as contained in every Licensed
Patent other than the Issued Patents, is rendered abandoned,
invalid or unenforceable by an order of a court of law of competent
jurisdiction, or by action of the United States Patent and
Trademark Office acting in an official capacity, provided said
order or action is unappealable or the time for any appeal has
expired.
5.4. Termination For Cause .
This License Agreement may be terminated as provided for
