Table of Contents

 

As filed on February 14, 2012

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Amendment No. 2

 

to

 

FORM 10

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

Pursuant to Section 12(b) or 12(g) of the Securities Exchange Act Of 1934

 

TROVAGENE, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

(State of other jurisdiction of incorporation)

 

27-2004382

I.R.S. Employer Identification Number

 

11055 Flintkote Avenue, Suite B

San Diego, CA 92121

(Address of Principal Executive Office) (Zip Code)

 

858-217-4838

(Registrant’s Telephone Number)

 

Securities to be registered under Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which

To be so registered

 

each class is to be registered

None

 

None

 

Securities to be registered under Section 12(g) of the Act:

 

Common stock, par value $0.0001 per share

 

None

(Title of class)

 

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company x

(Do not check if a smaller reporting
company)

 

 

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

Item 1.

Business.

3

Item 1A.

Risk Factors

14

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

26

Item 3.

Properties.

32

Item 4.

Security Ownership of Certain Beneficial Owners and Management.

32

Item 5.

Directors and Executive Officers.

33

Item 6.

Executive Compensation.

36

Item 7.

Certain Relationships and Related Transactions, and Director Independence.

39

Item 8.

Legal Proceedings.

39

Item 9.

Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.

40

Item 10.

Recent Sales of Unregistered Securities.

41

Item 11.

Description of Registrant’s Securities to be Registered.

42

Item 12.

Indemnification of Directors and Officers.

43

Item 13.

Financial Statements

44

Item 14.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

44

Item 15.

Financial Statements and Exhibits.

45

 

2



Table of Contents

 

Item 1.  Business.

 

Background

 

TrovaGene, Inc. (“Trovagene” or “the Company”) is a development stage molecular diagnostic company that focuses on the development and marketing of urine-based nucleic acid tests for patient/disease screening and monitoring.  Our novel tests predominantly use transrenal DNA, or Tr-DNA, and transrenal RNA, or Tr-RNA.  Our primary focus is to leverage our urine-based testing platform to facilitate improvements in Women’s Healthcare.  Tr-DNAs and Tr-RNAs are fragments of nucleic acids derived from dying cells inside the body. The intact DNA is fragmented in dying cells and released in the blood stream. These fragments have been shown to cross the kidney barrier (i.e. transrenal) and can be detected in urine. In addition, there is evidence that some species of RNA or their fragments are stable enough to cross the renal barrier. These RNA can also be isolated from urine, detected and analyzed. Our technology is applicable to all transrenal nucleic acids, or Tr-NA.

 

Our patented technology uses safe, non-invasive, cost effective and simple urine collection and can be applied to a broad range of testing including: prenatal genetic testing, infectious diseases, tumor detection and monitoring, tissue transplantation, forensic identification and for patient selection in clinical trials.  We believe that our technology is ideally suited to be used in developing molecular diagnostic assays that will allow physicians to provide very simple, non-invasive and convenient screening and monitoring tests for their patients by identifying specific biomarkers involved in the disease process.  Our novel assays will facilitate much improved testing compliance resulting in earlier diagnosis of disease, more targeted treatment which will be more cost effective, and improvements in the quality of life for the patient.

 

Our products are developed using commercially available chemicals and biological, as well as instrumentation and equipment.  The only custom components we use are specific sequences of nucleic acids (DNA and RNA) synthesized in a sequence to order.  Raw materials are commercially available, often from multiple vendors.  Vendors of biological and chemical components include QIAGEN, GE Healthcare, Life Technologies Corporation, and Sigma-Aldrich Corporation.  Synthetic DNA is available from multiple vendors including IDT.  Special chemical modifications of synthetic DNA are available from ABI (now part of Life Technologies) and licensed providers.  These vendors either have worldwide distribution or alternative vendors are available.

 

As relates to our urine-based testing platform and focus on improving Women’s Healthcare, one of our corporate priorities may include to pursue and receive a European Conformity, or CE mark, and thus marketing approval, for our human papillomavirus, or HPV urine-based test to identify women at increased risk for cervical cancer.  The CE mark is obtained through a self-certification, performed by a qualified European marketing and manufacturing partner.  We may pursue this strategy in all countries that recognize and accept CE marks for regulatory marketing approval.  During 2012 we intend to commence a pilot clinical study of our HPV urine-based test.  We anticipate that this study will be led by very well respected key opinion leaders in Obstetrics and Gynecology, or OB/Gyn pathology.  The anticipation is that positive results from this study would be used for publication purposes and to file for marketing approval in all countries that recognize CE Marks.  Our HPV test would be the first urine-based HPV test approved for marketing, providing key advantages versus the current tests which are all based on cervical samples, such as patient convenience and privacy, non-invasive sample collection, etc.

 

Another key priority within our Women’s Healthcare testing pipeline falls within the fetal medicine arena.  We plan to develop a urine-based prenatal screening test to detect pregnancies at increased risk for various chromosomal disorders, with an initial emphasis on Down Syndrome.  Such a test would address a huge unmet need for an accurate, reliable and non-invasive screening modality.

 

In August 2010, we acquired a highly sensitive complementary metal-oxide-semiconductor, or CMOS, detection technology for DNA, RNA as well as proteins through our merger with Etherogen, Inc. A key advantage of this technology is that it is extremely sensitive and doesn’t require amplification of nucleic acids. Therefore, it reduces the complexity and cost of molecular diagnostics as it will not require significant equipment purchases or amplification training. Our CMOS detection technology may also open up new markets for molecular diagnostics such as hospitals and independent labs that currently do not perform high complexity assays such as those requiring use of a polymerase chain reaction, or PCR.  We believe that this detection technology is highly complementary and synergistic with our transrenal technology, and can also be positioned in certain situations as a standalone molecular diagnostic device. In this regard, we plan to leverage this novel CMOS technology toward the development of Women’s Healthcare diagnostics.  We have finalized the system architecture, operating procedure and software specifications for our CMOS technology.

 

During 2006 we in-licensed a new DNA-based biomarker, NPM1, specific for a subtype of acute myeloid leukemia, or AML from Brunangelo Falini and Cristina Mecucci. This NPM1 marker provides valuable information and insights as to disease prognosis and monitoring for minimal residual disease. Testing for NPM1 mutations has been added to AML practice guidelines by the National Comprehensive Cancer Network.  Pursuant to the license agreement we are responsible for preparing, filing, prosecuting, obtaining and maintaining the NPM1 patent rights. We are obligated to pay a royalty in the single digits based on net sales and in the teens on sublicense income received and in the single digits on all sublicense royalties received. The term of the license ends on October 28, 2025. The license can terminate at our option for a commercially reasonable reason or in the event of a material breach. In the event that the licensor decides to sell or convey the licensed rights, we shall have an option to acquire such property.  Since 2006 we have executed out-licenses incorporating this biomarker with Sequenom, Inc. which was terminated in March of 2011, and with Ipsogen S.A. (Europe) and Asuragen Inc. (U.S.), who have developed and are manufacturing test kits for sale to labs from which we earn a royalty. We have also signed non-exclusive royalty bearing licenses with various labs including LabCorp (U.S.), Invivoscribe Technologies, Inc. (U.S.), Skyline Diagnostics B.V.  (Europe), MLL Munich Leukemia Laboratory GmbH (Europe) and Warnex Inc. (Canada), who will be providing lab testing services for

 

3



Table of Contents

 

this marker.  We are actively seeking to sign additional royalty bearing non-exclusive license agreements with labs that wish to provide this testing service.

 

The material terms of the sublicense agreements we have entered into are as follows:

 

Ipsogen S.A.   On August 27, 2007 we entered into a sublicense agreement with Ipsogen S.A, or Ipsogen.  Pursuant to the agreement, we are obligated to manage the filing, prosecution, and maintenance of the NPM1 patent rights including improvements.  Ipsogen is obligated to develop, seek registration and sell licensed products derived from the NPM1 patent rights.  Ipsogen is obligated to pay a royalty in the teens with annual minimum royalties of $10,000 for the first year, $25,000 for the second year, $40,000 for the third and fourth year and $50,000 thereafter and milestone payments with a potential aggregate of $230,000.  The term of the license ends on October 28, 2025 which is the date of expiration of the issued patent rights.  Though February 9, 2012, the amount paid to us under the agreement is $234,718.  The license terminates if Ipsogen fails to pay, or upon 60 day written notice to us.  If we determine that Ipsogen is not developing or selling products or services, we may notify Ipsogen.  If resolution is not achieved within 3 months, we may terminate the agreement.

 

Asuragen, Inc.   On October 22, 2007, we entered into a Co-Exclusive Sublicensing Agreement with Asuragen, Inc., or Asuragen Pursuant to the agreement, we are obligated to manage the filing, prosecution, and maintenance of the NPM1 patent rights.  Asuragen is obligated to develop, seek registration and sell licensed products derived from the NPM1 patent rights.  Asuragen is obligated to pay a single digit royalty on a sliding scale based on sales volume with annual minimum royalties of $10,000 for the first year, $25,000 for the second year and $50,000 thereafter and milestone payments with a potential aggregate of $300,000.  The term of the license ends on October 28, 2025 which is the date of expiration of the issued patent rights.  Through February 9, 2012, the amount paid to date to us under the agreement is $312,049.  The license terminates if Asuragen fails to pay, or upon 30 day written notice to us.  If we determine that Asuragen is not developing or selling products or services, we may notify Asuragen.  If resolution is not achieved within 3 months, we may terminate the agreement.

 

Laboratory Corporation of America Holdings .   On August 25, 2008, we entered into a sublicense agreement with Laboratory Corporation of America Holdings, or LabCorp.  Pursuant to the agreement, we are obligated to manage the filing, prosecution, and maintenance of the NPM1 patent rights including improvements.  LabCorp is obligated to pay a royalty in the teens with annual minimum royalties of $10,000 for the first and second year, $15,000 for the second year, $20,000 for the third year and $25,000 thereafter.  Through February 9, 2012, the amount paid under the agreement is $43,085.  The term of the license ends August 25, 2018  .  The license terminates if LabCorp fails to pay, or upon 90 day written notice to us.

 

InVivoScribe Technologies, Inc.)   On December 1, 2008, we entered into a sublicense agreement with InVivoScribe Technologies, Inc., or IVS, Pursuant to the agreement, we are obligated to manage the filing, prosecution, and maintenance of the NPM1 patent rights including improvements.  IVS is obligated to pay a royalty in the teens with annual minimum royalties of $5,000 for the first year, $20,000 for the second year and $25,000 thereafter.  Through February 9, 2012, the amount paid to us under the agreement is $21,932.  The term of the license ends on October 28, 2025 which is the date of expiration of the issued patent rights.  The license terminates if IVS fails to pay, or upon 90 day written notice to us.

 

Warnex Medical Laboratories.   On January 8, 2008, we entered into a sublicense agreement with Warnex Medical Laboratories, or Warnex.  The Warnex sublicense agreement is limited to the territory of Canada.  Pursuant to the agreement we are obligated to manage the filing, prosecution, and maintenance of the NPM1 patent rights including improvements.  Warnex is obligated to pay a royalty in the teens.  No amount has been paid through February 9, 2012.  The term of the license ends on October 28, 2025 which is the date of expiration of the issued patent rights.  The license terminates if Warnex fails to pay, or upon 60 days written notice to us.

 

Skyline Diagnostics BV .  On June 15, 2010, we entered into a sublicense agreement with Skyline Diagnostics BV, or Skyline.  Pursuant to the agreement, we are obligated to manage the filing, prosecution, and maintenance of the NPM1 patent rights including improvements.  Skyline is obligated to pay the greater of a royalty of 1% or $20 per reported test on a leukemia panel test with annual minimum royalties of $10,000 for the first year, $15,000 for the second year and $20,000 thereafter and milestone payments with a potential aggregate of $70,000.  Through February 9, 2012, the amount paid to us under the agreement is $27,500.  The term of the license ends on October 28, 2025 which is the date of expiration of the issued patent rights.  The license terminates if Skyline fails to pay, or upon 60 days written notice to us.

 

MLL Münchner Leukämielabor, .   On February 8, 2011, we entered into a sublicense agreement with MLL Münchner Leukämielabor, or MLL.  Pursuant to the agreement, we are obligated to manage the filing, prosecution, and maintenance of the NPM1 patent rights including improvements.  MLL is obligated to use diligent effort to develop and sell laboratory services as soon as practicable.  MLL is obligated to pay a royalty in the teens with annual minimum of $15,000 for the first year and $20,000 thereafter.  Through February 9, 2012, the amount paid to us under the agreement is $16,250.  The term of the

 

4



Table of Contents

 

license ends on October 28, 2025 which is the date of expiration of the issued patent rights.  The license terminates if MLL fails to pay, or upon 90 days written notice to us.

 

On January 18, 2011, we entered into an asset purchase agreement pursuant to which we acquired a hybridoma able to produce a monoclonal antibody targeting the NPM1 biomarker for $10,000.  In addition we have agreed to pay the seller of the hybridoma for a period of seven years commencing with the first sale of the antibody, annual royalties on a country by country basis in the aggregate amount of 10% of all royalties received by us from licensees pursuant to any licenses of rights to the antibody which has not occurred as of the date hereof.  In addition, we agreed to pay (i) 10% of all cash consideration received by us from licensees as an upfront license fee pursuant to any licenses of the product and (ii) 7% of all cash consideration received by us from licensees as milestone payments.  The agreement may be terminated at any time by either us or the seller in case of non-fulfillment of the obligations of the agreement or by sell in case of non-compliance of us with respect to the royalty payments.

 

In October 2011, we entered into an exclusive license agreement pursuant to which we licensed the patent rights to a specific gene mutation with respect to chronic lymphoblastic leukemia.  In consideration of the license, we paid $1,000 as an upfront license fee and agreed to make royalty payments in the single digits on net sales if sales are made by us or a single digit royalty on sublicense income received by us if sales are made by sublicensees which has not occurred as of the date hereof.  We have an option to purchase the licensed patent rights in the event the licensor decides to sell such licensed patent rights.  The license agreement shall continue until September 29, 2031 which is the date of the last to expire of the licensed patent rights covering the license product.  The license agreement may also be terminated upon a material breach by any party or by us if we determine that it is not commercially or scientifically appropriate to further develop the license product rights

 

On December 12, 2011, we entered into an exclusive license agreement pursuant to which we licensed the patent rights to hairy cell leukemia biomarkers.  In consideration of the license, we paid $1,000 as an upfront license fee and agreed to make royalty payments in the single digits on net sales if sales are made by us or a single digit royalty on sublicense income received by us if sales are made by sublicensees which has not occurred as of the date hereof.  The license agreement shall continue until May 10, 2021 which is the date of the last to expire of the licensed patent rights covering the license product.  The license agreement may also be terminated upon a material breach by any party or by us if we determine that it is not commercially or scientifically appropriate to further develop the license product rights.

 

In order to facilitate early availability and use of our products and technologies, on February 1, 2012, we acquired the CLIA laboratory assets of MultiGEN Diagnostics, Inc., or MultiGEN, which included CLIA (Clinical Laboratory Improvement Amendments of 1998) approval and licensing documentation, laboratory procedures, customer lists and marketing materials.  A CLIA lab is a clinical reference laboratory that can perform high complexity diagnostic assays (e.g. those requiring PCR amplification).  Through this ClIA laboratory we are able to offer laboratory developed tests, or LDTs, in compliance with

 

5



Table of Contents

 

CLIA guidelines, and, depending on the diagnostic assay, without the need for FDA review.  This will make our tests and technology available to physicians to order for their patient management, and in-turn generate revenue.  In connection with the acquisition, we issued 750,000 shares of our restricted common stock to MultiGEN In addition, up to an additional $3.7 million in common stock and cash may be paid to MultiGEN upon the achievement of specific sales and earnings targets.  In addition, in connection with the acquisition, we entered into a Reagent Supply Agreement dated as of February 1, 2012 pursuant to which MultiGEN will supply and deliver to us reagents to be used in connection with our CLIA lab.  The reagents will be sold to us in an amount equal to cost per unit plus 20%.  The Reagent Supply Agreement shall be in effect for a period of three years but can be terminated by either party upon a breach of the agreement and we can terminate the agreement for any reason upon 1 year prior written notice.

 

We will determine on a case-by-case basis whether an eventual FDA review of a given diagnostic assay is necessary. This decision will, amongst others, be based on the desired route of commercialization (e.g., in vitro diagnostic product vs. laboratory testing service) and the specific nature of the respective diagnostic test. We plan to make and sell our products in the U.S. with our own direct commercial sales.  In order to provide our products globally, we plan to establish business partnerships with diagnostic or pharmaceutical companies in Europe and Asia and other international markets.  Our objective is to establish a worldwide network in order to provide the greatest potential return for our shareholders.

 

History

 

We were incorporated in the State of Florida on April 26, 2002 as Used Kar Parts, Inc. and planned to develop an on-line marketplace for used car parts.  In an effort to develop that business, we entered into a contract with a web hosting service on a month to month basis to provide storage for website development and transaction processing.  Our temporary website arrangement was suspended to preserve cash and pending new management’s evaluation of the business.  On February 24, 2004, Jeannine Karklins, our former President, Treasurer, Secretary, principal shareholder and control person entered into a Capital Stock Purchase Agreement with Panetta Partners Ltd., a limited partnership affiliated with our former Co-Chairman and current director, Gabriele M. Cerrone, pursuant to which Panetta purchased an aggregate 2,000,000 restricted shares of our common stock from Ms. Karklins for $386,400 which represented approximately 97% of our outstanding shares of common stock at the time. Pursuant to the agreement, Ms. Karklins resigned as an officer and director of our company.

 

On July 2, 2004, we acquired Xenomics, a California corporation, which was developing and commercializing our Tr-DNA technology.  As part of the acquisition, we changed our corporate name to Xenomics, Inc. (“Xenomics”).

 

In 2007, we changed our fiscal year end from January 31 to December 31. In January 2010, we redomesticated our state of incorporation from Florida to Delaware and changed our name to TrovaGene, Inc.

 

Our Technologies

 

We believe that our scientists were the first to report the discovery that a portion of cell-free DNA or RNA found in the bloodstream can cross the kidney barrier and be detected in the urine.  This genetic material is referred to as Tr-DNA or Tr-RNA, or in aggregate Tr-nucleic acid.  Analysis of Tr-DNA or Tr-RNA provides a simple, non-invasive and cost-effective method for molecular diagnostics and a platform for a broad range of diagnostic tests.  In comparison with conventional tissue, sputum or plasma-based tests, this methodology has significant advantages with respect to patient convenience, privacy and compliance, ease of testing by elimination of difficult extraction steps in sample preparation, speed in performing the assay, and cost effectiveness.

 

We have a dominant patent position as it relates to transrenal molecular testing. We own issued U.S. and European patents that cover any and all testing for molecular targets that pass through the kidney (i.e. transrenal). In addition to these core patents,we have numerous patent applications pending in the areas of cancer, infectious diseases, transplantation, prenatal and genetic testing.  We believe this patent position compares favorably to the Roche PCR and Gen-Probe ribosomal RNA patents in the molecular diagnostic field.

 

In order to test the feasibility of testing urine samples for HPV DNA, we engaged in an in-house study of clinical samples from India during January through August, 2008.  This study was not sanctioned by the FDA nor conducted under the guidance of the FDA.  Results from this study may be presented to the FDA in the event of a pre-IND meeting and are not directly applicable to seeking regulatory approval.  Samples were collected from high and low risk populations in India including those from staged cancer patients by Simbiosys Biowares Inc. and Metropolis Inc. High risk subjects were recruited either from sexually transmitted disease clinics in hospitals or district brothels in West Bengal in eastern India.  The study enrolled 320 patients during January through May, 2008. Pap smears and QIAGEN High-Risk HPV DNA hc2 tests were performed on collected cervical cells by Simbiosys Biowares Inc. and Metropolis Inc.  Urine samples were shipped to us for in-house PCR amplification and detection.  Urine samples which gave results discordant with the cervical specimen-based hc2 assay were further examined by DNA sequencing for resolution.  PCR product sequences were examined by the NCBI Blastn algorithm to match specific human papillomavirus strains.

 

6



Table of Contents

 

We generated very positive clinical study results with our HPV urine-based test to identify women at risk for developing cervical cancer.  In this study, 31 out of 38 cervical swab samples that were initially classified as “negative” were subsequently determined to be positive by PCR followed by DNA sequencing of the urine using our urine-based platform.  Additionally, 24 out of 34 cervical swab samples initially classified as “positive” were determined to be negative based on DNA sequencing of the urine. Our urine-based test only had 10 false negatives and 7 false positives, an impressive 93% sensitivity and 96% specificity. As a result we believe that the sensitivity and specificity of our urine-based test is at least similar to and potentially better than the currently used cervical-cell-based tests. As noted earlier, our test is non-invasive, much more convenient and private for the patient, simpler, less technically demanding in terms of cytology proficiency and cost effective.  Our unique primer pair focused on the E1 region of the HPV genome should provide freedom to operate within the HPV patent landscape (i.e. we are confident that our HPV patent will issue in the major geographic areas and be enforceable). It should be noted that these studies were research studies, not regulatory studies. These studies resulted in valuable insight that needs further work and validation by us. While the results were encouraging, they were not sufficient to complete the development of and launch of a product in the market.

 

Presently, we are working towards finalizing a clinical study protocol and recruiting study sites in conjunction with widely regarded and world renowned Ob/Gyn pathologists. We may use the results of this study, anticipated earliest in 2012, toward the pursuit of a CE Mark in Europe and all other countries that recognize CE Marks for marketing approval.

 

In addition, we are actively involved in the development and subsequent commercialization of our fetal medicine assay, initially to screen for Down Syndrome, one of many genetic disorders caused by chromosomal abnormalities.  There is a huge unmet market need for a simple, convenient and completely non-invasive screening approach in the maternal arena.  Initial studies of our transrenal assays with maternal urine clearly showed that we can detect Y chromosomal sequences which in turn clearly demonstrates the ability to detect transrenal fetal nucleic acids in this maternal urine.  Additionally, our novel assays show and incorporate a complete representation of the maternal and most likely fetal genome in maternal urine.  The combination of our unique transrenal nucleic acid platform in combination with next generation sequencing should allow for the development and commercialization of the first truly non-invasive prenatal screening test for these chromosomal-related diseases.

 

7



Table of Contents

 

Our recent acquisition of a highly sensitive molecular detection platform utilizing proprietary probe chemistry and on chip CMOS signal detection expands our reach within the molecular diagnostic arena. This analytical platform is synergistic and complementary to our transrenal nucleic acid technology and will be leveraged in our Women’s Healthcare and other development endeavors by providing unsurpassed analytical and detection capabilities.  Patents for this detection platform are pending in the U.S., Europe and Japan.  The technology platform consists of several novel inventions: (i) direct attachment of a probe to a CMOS sensor chip, (ii) a proprietary conjugate capture and (iii) a conjugate reporter probe.  In combination they enable ultra-sensitive detection of nucleic acids or proteins, without the need for a separate amplification step such as with PCR.  As such, no expensive equipment is required to be purchased by labs or hospitals, all of which constantly look for ways to reduce their expenses wherever possible.  The chips may be processed using off-the-shelf available liquid handling systems and the results are read with a simple USB to an existing computer running our proprietary software.  The demonstrated sensitivity using an engineering prototype is 300 molecules, or about 3 to 4 orders of magnitude more sensitive than other amplification based technologies on the market, at a small fraction of the expense.

 

Highly complementary to our Tr-DNA and Tr-RNA platform and projects, we have the exclusive worldwide rights to the use of the nucleophosmin protein gene (NPM1) for use in human in-vitro diagnostic testing, monitoring, prognostic evaluation and drug therapy selection for patients with AML.  These rights and subsequent sublicenses have been crucial in terms of generating a steady incoming cash flow stream.  We actively seek sublicense agreements with diagnostic laboratories planning to offer lab testing services to the clinical market based on a LDT for this marker.  Two of our early sublicensees, LabCorp and Invivoscribe Technologies, have already announced commercial availability of a validated LDT molecular test for the NPM1 gene either as a standalone test or as part of an AML profile assay.  In addition, two companies, Asuragen and Ipsogen, have sublicensed the rights to make and sell tests kits for the NPM1 mutations and are now offering these products as Research Use Only kits to the market.  Lastly, we will be seeking drug development partnerships with pharmaceutical companies with active AML drug development initiatives as NPM1 is a valuable biomarker to guide patient selection in clinical trials.

 

The Market

 

Estimates of the size of the global molecular diagnostics market vary, however conservatively speaking the market is projected to approach $7.0 billion in 2011. The market is poised to deliver strong double-digit annual growth during the next 5 years, with one industry source quoting a compound annual growth rate (CAGR) of 19%.  The molecular diagnostics market has emerged as the fastest growing segment of the in-vitro diagnostics, or IVD market.  Geographically, the United States and Europe are the most advanced in terms of adoption of molecular diagnostics and make up the majority of the existing global market (greater than 75% share).  It is noteworthy that the Indian molecular diagnostics market is showing impressive growth, expected to reach 1.0 billion INR ($220 million) by 2011.  By 2012, the United States and Europe markets are projected to surpass $4.0 billion and $1.0 billion respectively.  Key drivers for this impressive growth include the exceptional ability to accurately and quickly detect the primary cause of disease and provide a strong tool for quick therapy decisions, need for automated and easier techniques, and the increased availability of tests for monitoring the efficacy of expensive drugs.

 

Transrenal molecular diagnostics will provide relevant diagnostic information that will lead to improvements in personalized patient management.  Infectious diseases, cancer diagnosis and monitoring are where most of the use and progress in personalized molecular diagnostic medicine has occurred to-date.  In addition, new products that facilitate personalized care are emerging in the areas of CNS, autism, diabetes, and depression, and most major pharmaceutical companies have active pharmacogenomic programs in their clinical studies in anticipation of the need to utilize diagnostic testing to stratify patients for efficacy.

 

We believe that we are very well positioned, with our very broad IP portfolio, to develop and market transrenal molecular diagnostic products, all of which we expect would address the huge unmet market needs of simplicity, patient convenience and privacy, accuracy, and cost effectiveness, and play key roles in their applications to improve testing compliance and as such reduce morbidity and mortality. The use of urine as a sample should provide a paradigm shift in screening and monitoring practices as it provides an easier sample to acquire in a non-invasive fashion, with more target present in the sample leading to greater sensitivity.  These modified screening practices will most likely meet with wide physician and patient acceptance in Women’s Healthcare and beyond.

 

Women’s Healthcare - Human Papilloma Virus (HPV) - HPV Screening and Monitoring is one of our key priority areas.  This specifically relates to our development-stage urine-based HPV test.  The rationale for screening HPV is that high-risk subtypes cause virtually all cases of cervical cancer.  Cervical cancer is the third most commonly diagnosed cancer, and the fourth leading cause of cancer deaths in females worldwide.  Deaths due to cervical cancer are still a huge global problem, especially in the developing world where screening practices are far from ideal.  More than 85% of these cases and deaths occur in developing countries, who typically have poor screening practices.  India alone accounts for 27% (77,100) of the total cervical cancer deaths .  A recent clinical trial in rural India found that a single round of HPV DNA testing was associated with about a 50% reduction in risk of developing advanced cervical cancer and associated deaths.  In the United States, where there is much better patient compliance and screening guidelines, there will be an estimated 12,710 cases in 2011, resulting in only 4,290 deaths..  The major drivers for poor screening in these developing regions are cultural, limited resources/economics and poor cytology proficiency.  Further exacerbating the compliance hurdles is the fact that the primary screening mechanism involves an invasive cervical scraping (e.g. Pap smear).  It is generally agreed that the early detection of cervical cancer leads to much higher cure rates and lower rates of invasive disease. 

 

8



Table of Contents

 

The bottom line is that there is a tremendous unmet need for a new non-invasive, simple, private and cost effective test to simplify the screening process for patients, and in turn improve compliance.  We believe our urine-based test will address these market needs.

 

Women’s Healthcare - Fetal Medicine — i.e. Down Syndrome — This is a second core area within our Women’s Healthcare screening pipeline.  Of the roughly 4.1 million live births annually in the U.S., approximately 580,000 (1 in 7) are born to women over the age of 35 — a population where screening for Down Syndrome is highly recommended due to increasingly higher risk..  The key risk driver is age of the mother (i.e. pregnant women age 20 have a 1 in 1068 risk compared to 1 in 38 for women at age 42). .  However, it is noteworthy that a huge proportion of babies with Down Syndrome are born to mothers < 35 years of age primarily because this is the predominant maternal age.  As such, it is paramount that these younger expectant women be screened.  Our urine-based test would represent an ideal screening option as it will be totally non-invasive (unlike amniocentesis) and likely be more robust (improved specificity, sensitivity and positive predictive value) compared to the Triple Marker Screen or Quad Marker Screen blood tests. The annual U.S. market opportunity for such a convenient non-invasive urine-based screening test, assuming all pregnant women are tested, totals upwards of $2.1-$3.15 billion (4.2MM tests at $500 to $750 each estimated by us)

 

Infectious Diseases - Most infectious diseases are caused by viruses, bacteria, fungi, and parasites.  Tr-DNA and Tr-RNA assays that detect molecular targets in such organisms provide a quick, accurate, simple and cost effective method for screening and monitoring.  Specific areas of interest for us, in addition to the aforementioned HPV infection, include testing for molecular targets from organisms that cause Lyme disease, JC Virus, valley fever, and various fungal infections.  These organisms all tend to be difficult to identify with current technology, making differential diagnosis especially challenging, thus delaying the start of potentially curative anti-infective treatment.  Aspergillus is a genus of a few hundred mold species found worldwide throughout much of nature.  Aspergillus infections can cause a considerable problem in immune compromised patients such as patients with HIV, patients who are undergoing cancer treatments, etc.  This fungal species is difficult to grow and identify via culture techniques resulting in a poor prognosis for these patients.  A test for these fungal infections by targeting (Tr-DNA specific to Aspergillus species in a urine sample will provide a much easier and faster way to diagnose and treat these patients.  With these patients, getting fast test results is paramount and can mean the difference between survival and death.  Our urine-based test addresses this need for speed, as well as simplicity, patient convenience and accuracy.

 

An area with a high unmet market need involves opportunistic infections in patients treated with immunosuppressive drugs such as tumor necrosis factor, or TNF, inhibitors. TNF inhibitors are used for the treatment of such conditions as rheumatoid arthritis, juvenile idiopathic arthritis, psoriatic arthritis, plaque psoriasis, ankylosing spondylitis, and Crohn’s disease.  This class of drugs has a known risk of causing serious infections mediated by induced immunosuppression.  Currently, there are hundreds of thousands of patients being treated with this drug class within the U.S., and the number is steadily growing, especially in patients with advanced arthritic symptoms. The ease of urine collection and urine-based testing and monitoring allows for very quick diagnosis, heightened turnaround time allowing for quick treatment decisions, and enhanced patient convenience (i.e. at-home test). The goal of such a test will be to detect active infection prior to the onset of symptoms, to allow for proactive intervention (i.e. drug holiday).

 

One problematic organism of particular interest to us is Borrelia, the cause of Lyme disease.  Lyme disease is the most common tick-borne disease in the Northern Hemisphere caused by at least three species of Borrelia.  The number of reported annual cases in the U.S. in 2009 was nearly 30,000, although total annual incidence could be higher due to reporting and recognition issues.  Borrelia is transmitted to humans by the bite of infected ticks belonging to a few species of the genus Ixodes (“hard ticks”).  Early symptoms may include fever, headache, fatigue, depression, and a characteristic circular skin rash called erythema migrans.  Left untreated, later symptoms may involve the joints, heart, and central nervous system.  In most cases, the infection and its symptoms are eliminated by antibiotics, especially if the illness is treated early.  Late, delayed, or inadequate treatment can lead to the more serious symptoms, which can be disabling and difficult to treat.  The challenge with Lyme disease is that the early symptoms are often vague and subtle, making differential diagnoses difficult.  Occasionally, symptoms such as arthritis persist after the infection has been eliminated by antibiotics, prompting suggestions that Borrelia causes autoimmunity. A Tr-DNA assay for Borrelia would provide a much needed mechanism for early and quick detection of Lyme disease.

 

JC Virus is a virus that commonly causes infections of no consequence in individuals with normal immune systems.  However, in immunosuppressed individuals, JC Virus is responsible for a life-threatening infection of the brain and spinal cord called progressive multifocal leukoencephalopathy, or PML. JC Virus is also the primary cause of nephropathy (kidney disease) in people who have received a kidney transplant and are on immunosuppressive therapy.  Patients with multiple sclerosis (MS) who are being treated with the drug, Tysabri, are at risk for developing PML.  This prompted the FDA to require a “black box” warning on Tysabri labeling.  By monitoring these patients with a test for JC Virus, a physician would be able to routinely check patients to determine if and when the early signs of PML are present and to discontinue Tysabri therapy prior to the onset of full-blown PML.  Multiple sclerosis currently affects about 2.5 million patients worldwide with more than 350,000 in the U.S.  Tysabri is widely thought of as the most effective treatment for MS, although its use is somewhat restricted due to the “black box” warning.  Another commonly used drug (for rheumatoid arthritis, or RA, and numerous hematologic cancers) associated with a high risk of JCV/PML is Genentech’s immunomodulator Rituxan.  Our very quick and simple urine-based test to monitor for PML would allow many more patients to receive these two highly effective treatments with much less concern about PML.

 

9



Table of Contents

 

Cancer Testing - It is anticipated that Tr-DNA and Tr-RNA analysis may be useful for detecting and monitoring various primary cancers.  Such testing could serve to help the physician choose a treatment regimen offering the highest likelihood of a successful outcome and monitor response to these treatments and check for disease recurrence.  By testing Tr-DNA for the appropriate genetic markers, it may also be possible to carry out pre-cancerous screening.  As a case in point, Tr-DNA technology was evaluated in a cancer clinical study at Thomas Jefferson University, funded jointly by the National Institute of Health (NIH) and the National Cancer Institute (NCI).  The study demonstrated that DNA fragments carrying a specific mutation (K-ras) and released from pre-cancerous colon polyps can be detected in the urine of patients.  Studies have shown that cancer patients who have K-ras mutations do not respond successfully to treatment with anti-EGFR drugs such as Erbitux, Iressa, Tarceva, Tykerb and Vectibix.  These EGFR (epidermal growth factor receptor) agents are a mainstay in treatment for colorectal cancer.  It has been estimated that 17-25% of all human cancers have been found to harbor KRAS mutations, with mutation rates as high as 59-90% in pancreatic cancers and 35-40% in colorectal cancers .  These tumors will most likely not respond to EGFR drugs.  By first testing for these K-ras mutations, the physician will be able to better manage their patients and avoid costly treatments that are not likely to have a positive clinical response.  Screening and monitoring for K-ras and other key biomarker mutations (i.e. BRAF, PIK3CA, EGFR, etc.) using urine-based tests would provide a simple, non-invasive, quick, cost effective and convenient (i.e. at home test) testing alternative for physicians and patients.  The number of patients that could potentially benefit from such a simple urine-based testing approach is enormous, as there are roughly 141,000 and 44,000 new cases of colorectal and pancreatic cancer in the United States per year, respectively, all of whom are at risk for K-ras mutations.  Tr-DNA testing could also be applicable in lung cancer (221,000 new cases per year) and breast cancer (230,000 new cases per year) where the screening and monitoring for mutations is also crucial.  Simple urine-based assays would likely lead to much improved personalized medicine for patients, resulting in the right drug being prescribed for the right disease at the right time leading to an improved quality of life for the patients.

 

In 2006, we in-licensed a new DNA-based biomarker (the nucleophosmin gene known as NPM1) for a subtype of AML. AML remains a complex cancer with poor outcomes in elderly patients. During 2010 there were 12,330  new cases of AML diagnosed, and approximately 9,000 deaths from AML within the U.S. According to the Leukemia and Lymphoma Society, in 2009 there were approximately 27,000 patients with AML in the U.S.  AML is generally a disease of older adults, and the median age of a patient diagnosed with AML is about 67 years.  AML patients with relapsed or refractory disease, and newly diagnosed AML patients over 60 years of age with poor prognostic risk factors, typically die within one year.  There is a definite need for new treatment options for these patients.  Overall, AML has the lowest 5 year survival rate (<17%) of any of the adult leukemias.  There are significant efforts in the pharmaceutical industry for the development of new drugs targeting AML. Of the patients with AML, 48% lack any cytogenetic abnormalities and the monitoring of those patients for minimal residual disease and tumor relapse is a topic of high interest within the medical community. Currently, there is a growing body of evidence released from clinical and academic studies showing that mutations of the nucleophosmin gene (NPM1) correlate with the prognosis of AML and can be used for monitoring of minimal residual disease. We have sublicensed to two companies co-exclusive rights to develop and manufacture test kits for this mutation and have sublicensed non-exclusive rights to several laboratories that wish to develop their own LDTs and provide this NPM1 testing service to the market.  We plan to continue to license the rights to this cancer marker to interested companies, including antibody applications.

 

Transplantation - According to government statistics, there are approximately 28,000 solid organ transplants performed in the U.S. annually.  Post-transplant monitoring for organ rejection episodes requires a highly invasive tissue biopsy.  Approximately 10 such biopsies are taken over a period of one year per patient.  Because organ rejection is marked by early death of the cells, we believe that an early indication of rejection can be identified by measuring a unique series of genetic markers characteristic of the organ donor that can be easily detected in random urine specimens from the transplant recipient.  Providing early evidence of tissue rejection is a key to administration and monitoring of the immunosuppressive therapies used to fend off tissue rejection.  Given the annual number of transplants performed in the U.S. and the annual number of corresponding biopsies performed per patient, this would equate to a market opportunity in the U.S. of roughly 500,000 urine-based tests/year. Transplantation offers opportunities for partnering with companies developing drugs for controlling tissue rejection, developing cell transplantation, or developing novel transplantation technologies.  This illustrates the breadth of commercial potential of our transrenal molecular testing platform technology and we intend to leverage such potential to maximize shareholder value.

 

Drug Development and Monitoring of Therapeutic Outcomes - The Tr-DNA and Tr-RNA technology has significant potential as a very simple, quick, home-based and non-invasive way of monitoring clinical responses to new drugs in clinical development and evaluating patient-specific responses to already approved and marketed therapies. Specific target applications include but are not limited to the monitoring of transplantation patients on immunosuppressive drugs, detection of metastasis following tumor surgery, monitoring of response and tumor progression during chemotherapy, and the development of optimal hormonal and chemotherapeutic treatment protocols.

 

In cancer treatment today, there is no reliable way to determine if a particular patient is responding to their current chemotherapy regimen. Generally, patients are reexamined after a sixty day interval to determine if the tumor has grown in size, reduced in size

 

10



Table of Contents

 

(i.e. partial response), disappeared (i.e. no sign of disease — complete response) or remained the same.  If the tumor has grown in size, or remained the same, the chemotherapy may be adjusted. By measuring and monitoring tumor specific genetic markers in the patient’s urine pre, peri and post chemotherapy, it may be possible to determine whether a patient is responding to chemotherapy within 48 hours after administration, instead of the current sixty day cycle.  Our Tr-DNA or Tr-RNA technology may permit much quicker therapeutic decisions on a patient-specific basis (i.e. personalized medicine). About 1.6 million new cancer cases are diagnosed annually and there are several hundred companies developing chemotherapeutic agents in the United States alone. This defines the tremendous potential for applications of Tr-DNA and Tr-RNA technology in both drug development and monitoring therapeutic outcomes.

 

One of the largest costs associated with development of a new drug is the size of human clinical trials required to identify the cohort of responders to the drug, and the resulting statistical power required.  By measuring specific genetic markers, it may be possible to pre-identify and subsequently screen for the most likely responders to the drug, and restrict patient recruitment to this subset.  This would significantly reduce the cost to develop the drug and improve timelines. Having our urine-based nucleic acid tests incorporated into these clinical trial protocols, and ultimately the post-approval patient identification protocols, represents significant commercial potential for our platform.

 

Ultra-sensitive Analytical and Detection System - As it relates to detection platforms which are required for the final assay analysis, we will be developing a new instrument that provides features that will be synergistic and complementary to our transrenal technology and Women’s Healthcare assays.  In this regard, we recently acquired Etherogen, Inc. which owns the CMOS Sensor Detection Platform, and we will be designing a “next generation” version of this screening and detection device.  The major differentiating features of this platform are simplicity, unsurpassed ultra-sensitive detection of nucleic acids and proteins without the need for target amplification or the resulting investments in amplification-related infrastructure or capital equipment, significantly heightened speed and the ability to perform multi-analyte assays. Such a platform would undoubtedly expand the user base for molecular diagnostics.  Currently, the cost of adding these new testing modalities at hospitals can be daunting. These high costs include extensive capital equipment and infrastructure requirements (i.e. amplification technology, highly trained personnel, special facilities, etc.) that most hospitals cannot afford.  Our platform will address cost efficiencies and potentially help overcome these adoption hurdles. Many of these facilities may adopt our simple, ultra-sensitive, cost effective platform.  We are finalizing the system architecture, operating procedure and software specifications for this platform and will commence system development pending resource availability.

 

Technologies for the collection, shipment and storage of urine specimens, and transrenal nucleic acid extraction - Successful implementation of Tr-DNA or Tr-RNA technology in molecular testing is tightly linked to the availability of techniques and procedures for Tr-DNA and Tr-RNA preservation, purification and analysis. Our strategic plan includes the allocation of sufficient resources for the creation of robust, feasible and inexpensive approaches to improve the efficiency of working with urine samples.

 

Instrumentation/System Platform - As part of our product offerings, we intend to provide various types of automation alternatives which will further enhance the acceptance and use of our urine-based assays incorporating our transrenal platform.  In this regard, there are several alternatives which we will pursue.  For example, in sample extraction, we will either develop applications for existing extraction systems that already exist in laboratories or recommend that they acquire instruments that can be used with our assays. An alternative will be to explore an OEM (original equipment manufacturer) arrangement with one of the instrument suppliers, which will allow us to private label the instrument thus supporting a complete system at the customer site.

 

Our Business Strategy

 

We plan to leverage our transrenal technology to develop and market, either independently or in conjunction with corporate partners, molecular diagnostic products in each of our initial focus markets of Women’s Healthcare, infectious diseases and cancer. Our marketing strategy includes multiple approaches. In the U.S. market, we have acquired a Clinical Laboratory Improvement Amendments of 1988, or CLIA laboratory.  At the late stages of development of each product, while collecting clinical data for regulatory submissions, we intend to market the products as LDTs (laboratory developed tests) through our CLIA laboratory. CLIA laboratories may offer the tests and receive reimbursement under the laboratory developed test, or LDT, rules and it is our plan to establish an initial market presence and generate revenues prior to FDA clearance or approval.

 

Congress passed the Clinical Laboratory Improvement Amendments (CLIA) in 1988 to regulate development, evaluation, and use of LDTs. CLIA states that laboratories must demonstrate how well an LDT performs using certain performance standards.  Laboratories that perform testing on human specimens for the diagnosis, prevention, or treatment of disease, or for the assessment of health must comply with all applicable CLIA ‘88 regulations. These regulations, which were finalized in 2003, establish standards to help ensure the quality and accuracy of laboratory testing.

 

While most common laboratory tests are commercial tests, manufactured and marketed to several labs, some new tests are developed, evaluated, and validated within one particular laboratory. These LDTs are used solely within that laboratory and are not distributed or sold to any other labs or health care facilities.

 

Because LDTs are not marketed to others, they do not require approval for marketing from the U.S. Food and Drug Administration (FDA) as do commercially developed and marketed tests. However, these types of tests must go through rigorous validation procedures and must meet several criteria before results can be used for decisions regarding patient care. These include demonstration of test accuracy, precision, sensitivity, and specificity.

 

If we intend to pursue FDA review and as we receive FDA clearance or approval for our products, we intend to market urine-based test kits through a U.S. commercial organization directly to CLIA medical testing laboratories.  We also intend to complete business partnerships (out-license agreements) with diagnostic and pharmaceutical companies in the U.S., Europe, Asia Pacific and the rest of the world as appropriate given market conditions and opportunity.  This would provide both short term (license fees) and long term (royalties) revenue streams.  These licensees will license and use our platform in clinical development of their products, monitor patients taking their marketed products (i.e. TNF inhibitors) and in certain situations license the rights to develop, market and sell our transrenal products in predefined fields of use and geographic territories.  We plan to become a fully integrated business in which we develop, manufacture, register, market and sell our products.

 

11



Table of Contents

 

In comparison with many other genetic tests, our Tr-DNA or Tr-RNA tests will be very cost effective. It involves a very simple process and can easily be automated. Therefore, major advantages of our Tr-DNA or Tr-RNA test, when commercially available, will be the ease of sample collection, excellent sensitivity and specificity, patient convenience (i.e. home-based test), non-invasive and will provide more efficient and effective monitoring protocols (i.e. for opportunistic infections).

 

During the last decade, medical laboratory operating margins have declined in the face of Medicare fee schedule reductions, managed care contracts, competitive bidding and other cost containment measures. If our technology were commercially available today, reimbursement would be available under the current procedural terminology, or CPT codes, for molecular-based testing.  We expect to initially market our tests to independent and hospital-based laboratories at price points that we believe will translate into substantially higher operating margins than has been traditional in the laboratory industry. We believe this will create a strong incentive for laboratories to adopt our transrenal molecular diagnostic tests.

 

Research and Development

 

We have three dedicated scientists that are located in our office in San Diego, CA.  We plan to continue to grow this organization to 10 to 15 talented individuals that will represent a good mix of senior lead researchers and scientists (PhDs), laboratory associate scientists, and experts in clinical development and regulatory affairs of molecular diagnostics.  It is our goal to have at least two self-funded development projects ongoing at all times.  Starting in 2012 we plan to conduct two projects every 12 to 15 months which will allow us to introduce new products to the market that could be used as lab developed tests to the CLIA labs and to simultaneously continue with the necessary clinical trials and regulatory submissions for marketing approval or clearance depending upon the nature of the product.  We currently do not have sufficient resources to complete these projects in 2012.  Additional funding will be required.  Information and documentation systems infrastructure (e.g. design history files, firewalls, etc.) must be in place to support the confidentiality of multiple partnering programs and the rigorous scientific and regulatory oversight needed for products in the in-vitro diagnostics markets.

 

Intellectual Property

 

We consider the protection of our proprietary technologies and products to be a critical element in the success of our business. As of December 27, 2011, we had six issued U.S. patents and one issued European patent. The six issued patents expire between 2018 and 2027. All patents are directed at the detection of nucleic acid sequences and nucleic acid modifications and alterations in urine.  One of the U.S. patents consists of claims directed to analysis of fetal DNA and determining the sex of a fetus and detecting diseases such as Down Syndrome caused by genetic alterations.  Another of the U.S. patents consists of claims directed to detecting and monitoring cancer through urine-based testing.  A broad reissued U.S. patent covers a number of nucleic acid screening and monitoring applications including cancer, transplantation, infectious diseases and fetal medicine.  The European patent covers the use of our proprietary transrenal nucleic acid technology in the area of potential diagnostics and genetic testing.  We have filed a number of patent applications with claims directed to methods of detection and monitoring specific diseases caused by pathogens and viruses and methods of using urine-based microRNA for detection purposes.  Additionally, we have filed three provisional patent applications with claims directed to methods of detecting Down Syndrome, detecting specific diseases caused by parasites, and methods for the purification of Nucleic Acids from urine.  In addition to pursuing patents and patent applications relating to our platform technology, we have and may enter into other license arrangements to obtain rights to third-party intellectual property where appropriate. Specifically, we have licensed from the inventors a patent application with claims directed to the detection of nucleophosmin (“NPM1”) protein gene mutations, corresponding gene sequences, and use of same for diagnosing, monitoring, and treating AML.

 

Wherever possible we seek to protect our inventions through filing U.S. patents and foreign counterpart applications in selected other countries. Because patent applications in the U.S. are maintained in secrecy for at least eighteen months after the applications are filed and since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were the first to make the inventions covered by each of our issued or pending patent applications or that we were the first to file for protection of inventions set forth in such patent applications. Our planned or potential products may be covered by third-party patents or other intellectual property rights, in which case continued development and marketing of the products would require a license. Required licenses may not be available to us on commercially acceptable terms, if at all. If we do not obtain these licenses, we could encounter delays in product introductions while we attempt to design around the patents, or could find that the development, manufacture or sale of products requiring these licenses is foreclosed.

 

We may rely on trade secrets to protect our technology. Trade secrets are difficult to protect. We seek to protect our proprietary technology and processes by confidentiality agreements with our employees and certain consultants and contractors. These agreements may be breached, we may not have adequate remedies for any breach and our trade secrets may otherwise become

 

12



Table of Contents

 

known or be independently discovered by competitors. To the extent that our employees or our consultants or contractors use intellectual property owned by others in their work for us, disputes may also arise as to the rights in related or resulting know-how and inventions.

 

Manufacturing and Distribution

 

In 2012 we plan to introduce assays into the marketplace through ASR or LDTs in CLIA licensed laboratories.  We may also begin the process of filing a 510(k) statement of equivalency with the FDA, the filing of a pre-market approval (“PMA”) application with the FDA as appropriate, or the pursuit of a CE Mark in countries that recognize this as a means toward garnering marketing approval.  The preferred option would be determined on a case-by-case basis and would be determined by such factors as cost, quantity requirements, etc. We have begun talks with potential partners to accomplish these goals but we have not developed specific manufacturing project plans at this time. Our first priority will be selling LDTs through our own CLIA laboratory.  Assays may be introduced in partnership arrangements with labs or as test kits to be manufactured and sold to labs.  In some cases, the test may be made available under ASR guidelines during the regulatory submission process. Because testing of some diseases under consideration are of great international interest, we may explore manufacturing and licensing partnerships overseas. We expect it will take approximately 2 years for our first kit to be broadly commercialized based on normal regulatory approval (i.e. not based on an LDT).We may rely on third party manufacturers, or set up internal manufacturing.   For internal manufacturing we would also set up all required quality systems to assure regulatory compliance and the production of a quality product.  At the present time our products are still in development and we have not yet entered into manufacturing or distribution agreements.  We plan to establish international partnerships which could expand the global availability of our products, and these partners may have manufacturing and distribution networks that can be leveraged.

 

Reimbursement

 

Medicare and other third-party payers will independently evaluate our technologies by, among other things, a cost/benefit analysis, assessing other available options and reviewing the published literature with respect to the results obtained from our clinical studies.  Currently, CPT codes are available for molecular testing which we believe will allow our technologies to be billed following completion of a test which has been prescribed (ordered) by a physician for a patient.  We believe that the existence of current CPT codes with applicability to our tests will help facilitate Medicare’s reimbursement process as well as that for third party insurance providers.

 

Government Regulation

 

Regulation by governmental authorities in the United States and other countries will be a significant factor in the development, production and marketing of any products that we may develop.  The nature and extent to which such regulation may apply will vary depending on the nature of any such products and the policy of each country. Virtually all of our potential products will require regulatory allowance or approval by governmental agencies prior to commercialization, except for the LTDs as mentioned above.  We may submit and obtain FDA approval or clearance for some or all of our diagnostic products.  Pursuing and receiving FDA approval or clearance may be vital to maximizing our customer base and revenue potential for our numerous products.

 

FDA clearance for our products may be obtained through submission of a 510(k) statement of equivalency. Another regulatory option, albeit more complicated and expensive, is to pursue FDA approval by submitting a Pre-Market Approval (PMA) application.  A 510(k) submission requires that we show equivalency of results in a clinical study with parallel comparison against an existing and FDA-recognized reference method (predicate device).

 

The FDA also regulates the sale of certain reagents, including our potential reagents, used by laboratories under the LDT rules to perform tests.  The FDA refers to such a reagent as an Analyte-Specific Reagent ASR.  ASR’s generally do not require FDA pre-market approval or clearance if they are (i) sold to clinical laboratories certified under the Clinical Laboratory Improvement Act to perform high complexity testing and (ii) are labeled in accordance with FDA requirements, including a statement that their analytical and performance characteristics have not been established.  Prior to, or in lieu of FDA approval, we can sell our reagents to laboratories that meet the established criteria. The FDA also regulates all promotional materials and specifically prohibits medical and efficacy claims.

 

Assuming that FDA approval or clearance is received for our products, a number of other FDA requirements would apply to our manufacturing and distribution efforts. Medical device manufacturers must be registered and their products listed with the FDA, and certain adverse events, such as reagent failures, significant changes in quality control and other events requiring correction and/or replacement/removal of reagents must be documented and reported to the FDA. The FDA also regulates the product labeling, promotion, and in some cases, advertising, of medical devices. As discussed above, we must comply with the FDA’s Quality System Regulation which establishes extensive requirements for design control, quality control, validation and manufacturing. Thus, even with FDA approval or clearance, we must continue to be diligent in maintaining compliance with these various regulations, as failure to comply can lead to enforcement action. The FDA periodically inspects facilities to determine compliance with these and other requirements.

 

13



Table of Contents

 

Competition

 

The medical diagnostic industry is characterized by rapidly evolving technology and intense competition. Our competitors include medical diagnostic companies, most of which have financial, technical and marketing resources significantly greater than our resources. In addition, there are a significant number of biotechnology companies working on evolving technologies that may supplant or make our technology obsolete. Academic institutions, governmental agencies and other public and private research organizations are also conducting research activities and seeking patent protection and may commercialize products on their own or through joint venture. We are aware of certain development projects for products to prevent or treat certain diseases targeted by us. The existence of these potential products or other products or treatments of which we are not aware, or products or treatments that may be developed in the future, may adversely affect the marketability of products developed.

 

Employees

 

As of February 9, 2012 we had three full-time employees.

 

Item 1A. Risk Factors

 

An investment in our securities involves a high degree of risk. An investor should carefully consider the risks described below as well as other information contained in this registration statement. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently believe are immaterial may also impair our business operations. If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected, the value of our securities could decline, and an investor may lose all or part of his or her investment.

 

Risks Related to Our Business

 

We are a development stage company and may never commercialize any of our products or services or earn a profit.

 

We are a development stage company and have incurred losses since we were formed. As of December 31, 2010 and September 30, 2011, we have an accumulated total deficit of $41,320,979 and $42,341,534, respectively.  For the fiscal year ended December 31, 2010 and the nine months ended September 30, 2011, we had net losses attributable to common stockholders of $5,487,378 and $1,020,555, respectively. To date, we have experienced negative cash flow from development of our transrenal molecular technology. We currently have no products ready for commercialization, have not generated any revenue from operations except for licensing and royalty income and expect to incur substantial net losses for the foreseeable future to further develop and commercialize the transrenal molecular technology. We cannot predict the extent of these future net losses, or when we may attain profitability, if at all. If we are unable to generate significant revenue from the transrenal molecular technology or attain profitability, we will not be able to sustain operations.

 

Because of the numerous risks and uncertainties associated with developing and commercializing our transrenal molecular technology and any future tests, we are unable to predict the extent of any future losses or when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our common stock. An investor in our common stock must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of tests in the medical diagnostic industry. We may never successfully commercialize transrenal molecular technology or any future tests, and our business may fail.

 

Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.

 

In their report dated November 23, 2011 our independent registered public accountants stated that our financial statements for the year ended December 31, 2010 were prepared assuming that we would continue as a going concern. Our ability to continue as a going concern, which may hinder our ability to obtain future financing,  is an issue raised as a result of recurring losses from operations. We continue to experience net operating losses. Our ability to continue as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, increasing sales or obtaining loans and grants from various financial institutions where possible. Our continued net operating losses increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.

 

We will need to raise substantial additional capital to commercialize our transrenal molecular technology, and our failure to obtain funding when needed may force us to delay, reduce or eliminate our product development programs or collaboration efforts.

 

As of February 10, 2012 our cash balance was $1,064,545 and our working capital deficit was $99,508.  Our existing capital resources are not sufficient to fund our operations for the next 12 months.  At our current burn rate,  we estimate that our existing capital resources will fund our operations for the next 3 months.  We estimate that we will require approximately $5 million over the next 12 months in order to sustain our operations and implement our business strategy.  Consequently, we will be required to raise additional capital to complete the development and commercialization of our current product candidates. The development of our business will require substantial additional capital in the future to conduct research and

 

14



Table of Contents

 

development and commercialize our transrenal molecular technology. For example we currently estimate that $5 million of capital resources will be required over the next 12 months.  This amount will be sufficient to launch our products in the marketplace currently under development as LDTs.  An additional $5 to $10 million will be required in 2013 to implement our business strategy and launch additional products as LDTs. We have historically relied upon private sales of our equity and issuances of notes to fund our operations. We currently have no credit facility or committed sources of capital. During the next 12 months, we will have to raise additional funds to continue the development and commercialization of our transrenal molecular technology. When we seek additional capital, we may seek to sell additional equity and/or debt securities or to obtain a credit facility, which we may not be able to do on favorable terms, or at all. Our ability to obtain additional financing will be subject to a number of factors, including market conditions, our operating performance and investor sentiment. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more of our product candidates, restrict our operations or obtain funds by entering into agreements on unattractive terms.

 

Our stockholders may experience significant dilution as a result of any additional financing using our equity securities and/or debt securities

 

To the extent that we raise additional funds by issuing equity securities or convertible debt securities, our stockholders may experience significant dilution. Sale of additional equity and/or convertible debt securities at prices below certain levels will trigger anti-dilution provisions with respect to certain securities we have previously sold. If additional funds are raised through a credit facility or the issuance of debt securities or preferred stock, lenders under the credit facility or holders of these debt securities or preferred stock would likely have rights that are senior to the rights of holders of our common stock, and any credit facility or additional securities could contain covenants that would restrict our operations.

 

Our ability to successfully commercialize our technology will depend largely upon the extent to which third-party payors reimburse our tests.

 

Physicians and patients may decide not to order our products unless third-party payors, such as managed care organizations as well as government payors such as Medicare and Medicaid pay a substantial portion of the test price. Reimbursement by a third-party payor may depend on a number of factors, including a payor’s determination that our product candidates are:

 

·                                           not experimental or investigational;

 

·                                           medically necessary;

 

·                                           appropriate for the specific patient;

 

·                                           cost-effective;

 

·                                           supported by peer-reviewed publications; and

 

·                                           included in clinical practice guidelines.

 

Market acceptance, sales of products based upon the Tr-DNA or Tr-RNA technology and our profitability may depend on reimbursement policies and health care reform measures. Several entities conduct technology assessments of medical tests and devices and provide the results of their assessments for informational purposes to other parties. These assessments may be used by third-party payors and health care providers as grounds to deny coverage for a test or procedure. The levels at which government authorities and third-party payors, such as private health insurers and health maintenance organizations, may reimburse the price patients pay for such products could affect whether we are able to commercialize our products.  Our product candidates may receive negative assessments that may impact our ability to receive reimbursement of the test. Since each payor makes its own decision as to whether to establish a policy to reimburse our test, seeking these approvals may be a time-consuming and costly process.  We cannot be sure that reimbursement in the U.S. or elsewhere will be available for any of our products in the future. If reimbursement is not available or is limited, we may not be able to commercialize our products.

 

15



Table of Contents

 

If we are unable to obtain reimbursement approval from private payors and Medicare and Medicaid programs for our product candidates, or if the amount reimbursed is inadequate, our ability to generate revenues could be limited. Even if we are being reimbursed, insurers may withdraw their coverage policies or cancel their contracts with us at any time, stop paying for our test or reduce the payment rate for our test, which would reduce our revenue. Moreover, we may depend upon a limited number of third-party payors for a significant portion of our test revenues and if these or other third-party payors stop providing reimbursement or decrease the amount of reimbursement for our test, our revenues could decline.

 

The commercial success of our product candidates will depend upon the degree of market acceptance of these products among physicians, patients, health care payors and the medical community.

 

We believe our scientists were the first to discover Tr-DNA. The use of the transrenal molecular technology has never been commercialized for any indication. Even if approved for sale by the appropriate regulatory authorities, physicians may not order diagnostic tests based upon the Tr-DNA or Tr-RNA technology, in which event we may be unable to generate significant revenue or become profitable. Acceptance of the transrenal molecular technology will depend on a number of factors including:

 

·                                           acceptance of products based upon the Tr-DNA or Tr-RNA technology by physicians and patients as safe and effective

diagnostic products,

·                                           successful integration into clinical practice;

·                                           adequate reimbursement by third parties;

·                                           cost effectiveness;

·                                           potential advantages over alternative treatments; and

·                                           relative convenience and ease of administration.

 

We will need to make leading physicians aware of the benefits of tests using our technology through published papers, presentations at scientific conferences and favorable results from our clinical studies. In addition, we will need to gain support from thought leaders who believe that testing a urine specimen for these molecular markers will provide superior performance.  Ideally, we will need these individuals to publish support papers and articles which will be necessary to gain acceptance of our products.  There is no guarantee that we will be able to obtain this support. Our failure to be successful in these efforts would make it difficult for us to convince medical practitioners to order Tr-DNA tests for their patients and consequently our revenue and profitability will be limited.

 

If our potential medical diagnostic tests are unable to compete effectively with current and future medical diagnostic tests targeting similar markets as our potential products, our commercial opportunities will be reduced or eliminated.

 

The medical diagnostic industry is intensely competitive and characterized by rapid technological progress. In each of our potential product areas, we face significant competition from large biotechnology, medical diagnostic and other companies.  The technologies associated with the molecular diagnostics industry are evolving rapidly and there is intense competition within such industry. Certain molecular diagnostics companies have established technologies that may be competitive to our product candidates and any future tests that we develop. Some of these tests may use different approaches or means to obtain diagnostic results, which could be more effective or less expensive than our tests for similar indications. Moreover, these and other future competitors have or may have considerably greater resources than we do in terms of technology, sales, marketing, commercialization and capital resources. These competitors may have substantial advantages over us in terms of research and development expertise, experience in clinical studies, experience in regulatory issues, brand name exposure and expertise in sales and marketing as well as in operating central laboratory services. Many of these organizations have financial, marketing and human resources greater than ours; therefore, there can be no assurance that we can successfully compete with present or potential competitors or that such competition will not have a materially adverse effect on our business, financial position or results of operations.

 

Since the transrenal molecular diagnostic (Tr-DNA or Tr-RNA) technology is under development, we cannot predict the relative competitive position of any product based upon the transrenal molecular technology. However, we expect that the following factors will determine our ability to compete effectively: safety and efficacy; product price; turnaround time; ease of administration; performance; reimbursement; and marketing and sales capability.

 

16



Table of Contents

 

We believe that many of our competitors spend significantly more on research and development-related activities than we do. Our competitors may discover new diagnostic tools or develop existing technologies to compete with the transrenal molecular diagnostic technology. Our commercial opportunities will be reduced or eliminated if these competing products are more effective, are more convenient or are less expensive than our products.

 

Our failure to obtain human urine samples from medical institutions for our clinical studies will adversely impact the development of our transrenal molecular technology.

 

We will need establish relationships with medical institutions in order to obtain urine specimens from patients who are testing positive for a relevant infectious disease or from patients that have been diagnosed with solid tumors. We must obtain a sufficient number in order to statistically prove the equivalency of the performance of our assays versus existing assays that are already on the market.

 

If our clinical studies do not prove the superiority of our technologies, we may never sell our products and services.

 

The results of our clinical studies may not show that tests using our transrenal molecular technology are superior to existing testing methods. In that event, we will have to devote significant financial and other resources to further research and development, and commercialization of tests using our technologies will be delayed or may never occur. Our earlier clinical studies were small and included samples from high-risk patients. The results from these earlier studies may not be representative of the results we obtain from any future studies, including our next two clinical studies, which will include substantially more samples and a larger percentage of normal-risk patients.

 

Our inability to establish strong business relationships with leading clinical reference laboratories to perform Tr-DNA/Tr-RNA tests using our technologies will limit our revenue growth.

 

A key step in our strategy is to sell diagnostic products that use our proprietary technologies to leading clinical reference laboratories that will perform Tr-DNA or Tr-RNA tests. We currently have no business relationships with these laboratories and have limited experience in establishing these business relationships. If we are unable to establish these business relationships, we will have limited ability to obtain revenues beyond the revenue we can generate from our limited in-house capacity to process tests.

 

We depend upon our officers, and if we are not able to retain them or recruit additional qualified personnel, the commercialization of our product candidates and any future tests that we develop could be delayed or negatively impacted.

 

Our success is largely dependent upon the continued contributions of our officers such as our current key employee, Dr. Antonius Schuh, Chief Executive Officer.  Our success also depends in part on our ability to attract and retain highly qualified scientific, commercial and administrative personnel. In order to pursue our test development and commercialization strategies, we will need to attract and hire, or engage as consultants, additional personnel with specialized experience in a number of disciplines, including assay development, bioinformatics and statistics, laboratory and clinical operations, clinical affairs and studies, government regulation, sales and marketing, billing and reimbursement and information systems. There is intense competition for personnel in the fields in which we operate. If we are unable to attract new employees and retain existing employees, the development and commercialization of our product candidates and any future tests could be delayed or negatively impacted.

 

We will need to increase the size of our organization, and we may experience difficulties in managing growth.

 

We are a small company with only two full-time employees as of December 27, 2011.  Future growth will impose significant added responsibilities on members of management, including the need to identify, attract, retain, motivate and integrate highly skilled personnel. We may increase the number of employees in the future depending on the progress of our development of transrenal molecular technology. Our future financial performance and our ability to commercialize Tr-DNA and Tr-RNA assays and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to:

 

·                                           manage our clinical studies effectively;

 

·                                           integrate additional management, administrative, manufacturing and regulatory personnel;

 

17



Table of Contents

 

·                                           maintain sufficient administrative, accounting and management information systems and controls; and

 

·                                           hire and train additional qualified personnel.

 

We may not be able to accomplish these tasks, and our failure to accomplish any of them could harm our financial results.

 

If we do not receive regulatory approvals, we may not be able to develop and commercialize our transrenal molecular technology.

 

We may need FDA approval to market products based on the transrenal molecular technology for diagnostic uses in the United States and approvals from foreign regulatory authorities to market products based on the Tr-DNA or Tr-RNA technology outside the United States. We have not yet filed an application with the FDA to obtain approval to market any of our proposed products. If we fail to obtain regulatory approval for the marketing of products based on the Tr-DNA or Tr-RNA technology, we will be unable to sell such products and will not be able to sustain operations.

 

We believe the estimated molecular diagnostics market for many diseases in Europe is approximately as large as that of the United States.  If we seek to market products or services such as a urine-based HPV test in Europe, we need to receive a CE Mark.  If we do not obtain a CE Mark for our urine-based HPV DNA test, we will be unable to sell this product in Europe and countries that recognize the CE Mark.

 

The regulatory review and approval process, which may include evaluation of preclinical studies and clinical trials of products based on the Tr-DNA or Tr-RNA technology, as well as the evaluation of manufacturing processes and contract manufacturers’ facilities, is lengthy, expensive and uncertain. Securing regulatory approval for products based upon the transrenal molecular technology may require the submission of extensive preclinical and clinical data and supporting information to regulatory authorities to establish such products’ safety and effectiveness for each indication. We have limited experience in filing and pursuing applications necessary to gain regulatory approvals.

 

Regulatory authorities generally have substantial discretion in the approval process and may either refuse to accept an application, or may decide after review of an application that the data submitted is insufficient to allow approval of any product based upon the transrenal molecular technology. If regulatory authorities do not accept or approve our applications, they may require that we conduct additional clinical, preclinical or manufacturing studies and submit that data before regulatory authorities will reconsider such application. We may need to expend substantial resources to conduct further studies to obtain data that regulatory authorities believe is sufficient. Depending on the extent of these studies, approval of applications may be delayed by several years, or may require us to expend more resources than we may have available. It is also possible that additional studies may not suffice to make applications approvable. If any of these outcomes occur, we may be forced to abandon our applications for approval, which might cause us to cease operations.

 

Changes in healthcare policy could subject us to additional regulatory requirements that may delay the commercialization of our tests and increase our costs.

 

The U.S. government and other governments have shown significant interest in pursuing healthcare reform.  Any government-adopted reform measures could adversely impact the pricing of our diagnostic products and tests in the United States or internationally and the amount of reimbursement available from governmental agencies or other third party payors.  The continuing efforts of the U.S. and foreign governments, insurance companies, managed care organizations and other payors of health care services to contain or reduce health care costs may adversely affect our ability to set prices for our products and services which we believe are fair, and our ability to generate revenues and achieve and maintain profitability.

 

New laws, regulations and judicial decisions, or new interpretations of existing laws, regulations and decisions, that relate to healthcare availability, methods of delivery or payment for products and services, or sales, marketing or pricing, may limit our potential revenue, and we may need to revise our research and development programs.  The pricing and reimbursement environment may change in the future and become more challenging due to several reasons, including policies advanced by the current executive administration in the United States, new healthcare legislation or fiscal challenges faced by government health administration authorities.  Specifically, in both the United States and some foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the health care system in ways that could affect our ability to sell our products profitably.

 

For example, in March 2010, President Obama signed the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or the PPACA. This law will substantially change the way health care is financed by both government health plans and private insurers, and significantly impact the pharmaceutical industry.  The PPACA contains a number of provisions that are expected to impact our business and operations in ways that may negatively affect our potential revenues in the future.  While it is too early to predict all the specific effects the PPACA or any future healthcare reform legislation will have on our business, they could have a material adverse effect on our business and financial condition.

 

In September 2007, the Food and Drug Administration Amendments Act of 2007 was enacted, giving the FDA enhanced post-marketing authority, including the authority to require post-marketing studies and clinical trials, labeling changes based on new safety information, and compliance with risk evaluations and mitigation strategies approved by the FDA.  The FDA’s exercise of this authority could result in delays or increased costs during product development, clinical trials and regulatory review, increased costs to assure compliance with post-approval regulatory requirements, and potential restrictions on the sale and/or distribution of approved products.

 

If the FDA were to begin regulating our tests, we could be forced to delay commercialization of our current product candidates, experience significant delays in commercializing any future tests, incur substantial costs and time delays

 

18



Table of Contents

 

associated with meeting requirements for pre-market clearance or approval and/or experience decreased demand for or reimbursement of our test.

 

We intend to develop products that are considered to be medical devices and are subject to federal regulations including those covering Quality System Regulations (QSR) and Medical Device Reporting (MDR).

 

The QSR includes requirements related to the methods used in and the facilities and controls used for designing, purchasing, manufacturing, packaging, labeling, storing, installing and servicing of medical devices. Manufacturing facilities undergo FDA inspections to assure compliance with the QS requirements.  The quality systems for FDA-regulated products are known as current good manufacturing practices (cGMPs) as described in the Code of Federal Regulations, part 820 (21 CFR part 820).  Among the cGMP requirements are those requiring manufacturers to have sufficient appropriate personnel to implement required design controls and other portions of the QSR guidelines.

 

Design controls include procedures that describe the product design requirements (design goals) and compare actual output to these requirements, including documented Design Reviews.  Required Design History Files (DHFs) for each device will document the records necessary to demonstrate that the design was developed in accordance with the approved design plan and the requirements of the QSRs.

 

QSRs also include stipulation for control of all documents used in design and production, including history of any changes made.  Production and process controls include stipulations to ensure products are in fact produced as specified by controlled documents resulting from the controlled design phase, using products and services purchased under controlled purchasing procedures.

 

Incidents in which a device may have caused or contributed to a death or serious injury must to be reported to FDA under the Medical Device Reporting (MDR) program. In addition, certain malfunctions must also be reported. The MDR regulation is a mechanism for FDA and manufacturers to identify and monitor significant adverse events involving medical devices. The goals of the regulation are to detect and correct problems in a timely manner.

 

We may be required to participate in MDR through two routes.  As a manufacturer of products for sale within the United States, we will need to report to the FDA any deaths, serious injuries and malfunctions, and events requiring remedial action to prevent an unreasonable risk of substantial harm to the public health.  Our CLIA lab offering services for sale is required to report suspected medical device related deaths to both the FDA and the relevant manufacturers of products we purchase and use.

 

Clinical laboratory tests like our current product offerings are regulated in the United States under CLIA as well as by applicable state laws. Diagnostic kits that are sold and distributed through interstate commerce are regulated as medical devices by the FDA. Clinical laboratory tests that are developed and validated by a laboratory for its own use are called LDTs. Most LDTs currently are not subject to FDA regulation, although reagents or software provided by third parties and used to perform LDTs may be subject to regulation. We expect that, upon the commencement of commercialization, our product candidates will be an LDT and not a diagnostic kit. As a result, we believe that our product candidates should not be subject to regulation under current FDA policies, however there is no assurance that it will not be subject to such regulation in the future. The container we expect to provide for collection and transport of tumor samples from a pathology laboratory to our clinical reference laboratory may be a medical device subject to FDA regulation and while we expect that it will be exempt from pre-market review by FDA, there is no certainty in that respect.

 

We cannot provide any assurance that FDA regulation, including pre-market review, will not be required in the future for our product candidates, either through new policies adopted by the FDA or new legislation enacted by Congress. It is possible that legislation will be enacted into law and may result in increased regulatory burdens for us to offer or continue to offer our product as a clinical laboratory service.

 

If pre-market review is required, our business could be negatively impacted until such review is completed and clearance to market or approval is obtained, and the FDA could require that we stop selling. If pre-market review is required by the FDA, there can be no assurance that our product offerings will be cleared or approved on a timely basis, if at all. Ongoing compliance with FDA regulations, such as the Quality System Regulation and Medical Device Reporting, would increase the cost of conducting our business, and subject us to inspection by the FDA and to the requirements of the FDA and penalties for failure to comply with these requirements. We may also decide voluntarily to pursue FDA pre-market review of our product offerings if we determine that doing so would be appropriate. Some competitors may develop competing tests cleared for marketing by the FDA. There may be a marketing differentiation or perception that an FDA-cleared test is more desirable than our product offerings, and that could discourage adoption and reimbursement of our test.

 

Should any of the reagents obtained by us from vendors and used in conducting our clinical laboratory service be affected by future regulatory actions, our business could be adversely affected by those actions, including increasing the cost of testing or delaying, limiting or prohibiting the purchase of reagents necessary to perform testing.

 

19



Table of Contents

 

If the FDA decides to regulate our tests, it may require that we conduct extensive pre-market clinical studies prior to submitting a regulatory application for commercial sales. If we are required to conduct pre-market clinical studies, whether using retrospectively collected and banked samples or prospectively collected samples, delays in the commencement or completion of clinical studies could significantly increase our test development costs and delay commercialization. Many of the factors that may cause or lead to a delay in the commencement or completion of clinical studies may also ultimately lead to delay or denial of regulatory clearance or approval.

 

           The commencement of clinical studies may be delayed due to insufficient patient enrollment, which is a function of many factors, including the size of the patient population, the nature of the protocol, the proximity of patients to clinical sites and the eligibility criteria for the clinical trial. We may find it necessary to engage contract research organizations to perform data collection and analysis and other aspects of our clinical studies, which might increase the cost of the studies. We will also depend on clinical investigators, medical institutions and contract research organizations to perform the studies properly. If these parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, or if the quality, completeness or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, FDA requirements or for other reasons, our clinical studies may have to be extended, delayed or terminated. Many of these factors would be beyond our control. We may not be able to enter into replacement arrangements without undue delays or considerable expenditures. If there are delays in testing as a result of the failure to perform by third parties, our research and development costs would increase, and we may not be able to obtain regulatory clearance or approval for our test. In addition, we may not be able to establish or maintain relationships with these parties on favorable terms, if at all. Each of these outcomes would harm our ability to market our test, or to become profitable.

 

If we are unable to protect our intellectual property effectively, we may be unable to prevent third parties from using our technologies, which would impair our competitive advantage.

 

We rely on patent protection as well as a combination of trademark, copyright and trade secret protection, and other contractual restrictions to protect our proprietary technologies, all of which provide limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. If we fail to protect our intellectual property, we will be unable to prevent third parties from using our technologies and they will be able to compete more effectively against us.

 

We cannot assure you that any of our currently pending or future patent applications will result in issued patents, or that any patents issued to us will not be challenged, invalidated or held unenforceable. We cannot guarantee you that we will be successful in defending challenges made in connection with our patents and patent applications.

 

20



Table of Contents

 

In addition to our patents, we rely on contractual restrictions to protect our proprietary technology. We require our employees and third parties to sign confidentiality agreements and employees to also sign agreements assigning to us all intellectual property arising from their work for us. Nevertheless, we cannot guarantee that these measures will be effective in protecting our intellectual property rights.

 

We cannot guarantee that the patents issued to us will be broad enough to provide any meaningful protection nor can we assure you that one of our competitors may not develop more effective technologies, designs or methods without infringing our intellectual property rights or that one of our competitors might not design around our proprietary technologies.

 

If we are not able to protect our proprietary technology, trade secrets and know-how, our competitors may use our inventions to develop competing products. We own certain patents relating to the transrenal molecular technology. However, these patents may not protect us against our competitors, and patent litigation is very expensive. We may not have sufficient cash available to pursue any patent litigation to its conclusion because currently we do not generate revenues.

 

We cannot rely solely on our current patents to be successful. The standards that the U.S. Patent and Trademark Office and foreign patent office’s use to grant patents, and the standards that U.S. and foreign courts use to interpret patents, are not the same and are not always applied predictably or uniformly and can change, particularly as new technologies develop. As such, the degree of patent protection obtained in the U.S. may differ substantially from that obtained in various foreign countries. In some instances, patents have been issued in the U.S. while substantially less or no protection has been obtained in Europe or other countries.

 

We cannot be certain of the level of protection, if any that will be provided by our patents if we attempt to enforce them and they are challenged in court where our competitors may raise defenses such as invalidity, unenforceability or possession of a valid license. In addition, the type and extent of any patent claims that may be issued to us in the future are uncertain. Any patents which are issued may not contain claims that will permit us to stop competitors from using similar technology.

 

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights and we may be unable to protect our rights to, or use, our transrenal molecular technology.

 

Third parties may challenge the validity of our patents and other intellectual property rights, resulting in costly litigation or other time-consuming and expensive proceedings, which could deprive us of valuable rights. If we become involved in any intellectual property litigation, interference or other judicial or administrative proceedings, we will incur substantial expenses and the diversion of financial resources and technical and management personnel. An adverse determination may subject us to significant liabilities or require us to seek licenses that may not be available from third parties on commercially favorable terms, if at all. Further, if such claims are proven valid, through litigation or otherwise, we may be required to pay substantial financial damages, which can be tripled if the infringement is deemed willful, or be required to discontinue or significantly delay development, marketing, selling and licensing of the affected products and intellectual property rights.  In our European patent application that covers mutations in the NPM-1 gene related to acute myeloid leukemia, an anonymous third party has filed “Observations” against the claims prior to allowance of the patent.  Observations concern the patentability of the invention to which a European patent application or patent relates and are considered by the examining or opposition division of the European Patent Office.

 

Our competitors may have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent application may have priority over our patent applications and could further require us to obtain rights to issued patents covering such technologies. There may be third-party patents, patent applications and other intellectual property relevant to our potential products that may block or compete with our products or processes. If another party has filed a United States patent application on inventions similar to ours, we may have to participate in an interference proceeding declared by the United States Patent and Trademark Office to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss of our United States patent position with respect to such inventions. In addition, we cannot assure you that we would prevail in any of these suits or that the damages or other remedies if any, awarded against us would not be substantial. Claims of intellectual property infringement may require us to enter into royalty or license agreements with third parties that may not be available on acceptable terms, if at all. We may also become subject to injunctions against the further development and use of our technology, which would have a material adverse effect on our business, financial condition and results of operations

 

Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.

 

21



Table of Contents

 

If we fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to accounting controls and procedures, or, if we discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult.

 

If we fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to disclosure controls and procedures, or, if we discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult. Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting if material weaknesses or significant deficiencies are discovered or if we otherwise fail to achieve and maintain the adequacy of our internal control, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock could drop significantly. In addition, we cannot be certain that material weaknesses or significant deficiencies in our internal controls will not be discovered in the future.

 

Risks Related to Our Common Stock

 

Our Series A Convertible Preferred Stock contain certain covenants that limit the way we can conduct business.

 

         Our Series A Convertible Preferred Stock includes various covenants limiting our ability to pay dividends and make other distributions and issuing securities senior or equivalent to the Series A Convertible Preferred Stock. We also granted the investors a participation right in future financings. These covenants may limit us in raising additional capital, competing effectively, or taking advantage of new business opportunities.

 

The rights of the holders of common stock may be impaired by the potential issuance of preferred stock.

 

Our certificate of incorporation gives our board of directors the right to create new series of preferred stock. As a result, the board of directors may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other

 

22



Table of Contents

 

rights which could adversely affect the voting power and equity interest of the holders of common stock. Preferred stock, which could be issued with the right to more than one vote per share, could be utilized as a method of discouraging, delaying or preventing a change of control. The possible impact on takeover attempts could adversely affect the price of our common stock. Although we have no present intention to issue any additional shares of preferred stock or to create any new series of preferred stock and the certificate of designation relating to the Series A Convertible Preferred Stock restricts our ability to issue additional series of preferred stock, we may issue such shares in the future. Without the consent of the holders of the outstanding shares of Series A Convertible Preferred Stock , we may not alter or change adversely the rights of the holders of the Series A Convertible Preferred Stock or increase the number of authorized shares of Series A Convertible Preferred Stock, create a class of stock which is senior to or on a parity with the Series A Convertible Preferred Stock , amend our certificate of incorporation in breach of these provisions or agree to any of the foregoing.

 

Our common stock price may be volatile and could fluctuate widely in price, which could result in substantial losses for investors.

 

The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including:

 

·                                           technological innovations or new products and services by us or our competitors;

 

·                                           clinical trial results relating to our tests or those of our competitors;

 

·                                           reimbursement decisions by Medicare and other managed care organizations;

 

·                                           FDA regulation of our products and services;

 

·                                           the establishment of partnerships with clinical reference laboratories;

 

·                                           health care legislation;

 

·                                           intellectual property disputes;

 

·                                           additions or departures of key personnel;

 

·                                           sales of our common stock;

 

·                                           our ability to integrate operations, technology, products and services;

 

·                                           our ability to execute our business plan;

 

·                                           operating results below expectations;

 

·                                           loss of any strategic relationship;

 

·                                           industry developments;

 

·                                           economic and other external factors; and

 

·                                           period-to-period fluctuations in our financial results.

 

Because we are a development stage company with no revenues to date, you should consider any one of these factors to be material. Our stock price may fluctuate widely as a result of any of the above.

 

In addition, trading in stock traded over the counter on the pink sheets is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with a company’s operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to our business or operating performance. Moreover, trading is often more sporadic than the trading of securities listed on a quotation system like NASDAQ or a stock exchange like the NYSE Amex. Accordingly, shareholders may have difficulty reselling any of their shares of common stock.

 

If our common stock remains subject to the SEC’s penny stock rules, broker-dealers may experience difficulty in completing customer transactions and trading activity in our securities may be adversely affected.

 

Unless our securities are listed on a national securities exchange, or we have net tangible assets of $5,000,000 or more and our common stock has a market price per share of $5.00 or more, transactions in our common stock will be subject to the SEC’s “penny stock” rules. If our common stock remains subject to the “penny stock” rules promulgated under the Securities Exchange Act of 1934, broker-dealers may find it difficult to effectuate customer transactions and trading activity in our securities may be adversely affected.

 

Under these rules, broker-dealers who recommend such securities to persons other than institutional accredited investors must:

 

·                                           make a special written suitability determination for the purchaser;

 

23



Table of Contents

 

·                 receive the purchaser’s written agreement to the transaction prior to sale;

 

·                 provide the purchaser with risk disclosure documents which identify certain risks associated with investing in “penny stocks” and which describe the market for these “penny stocks” as well as a purchaser’s legal remedies; and

 

·                 obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in a “penny stock” can be completed.

 

As a result, if our common stock becomes subject to the penny stock rules, the market price of our securities may be depressed, and you may find it more difficult to sell our securities.

 

Because certain of our stockholders control a significant number of shares of our common stock, they may have effective control over actions requiring stockholder approval.

 

As of February 9, 2012, our directors, executive officers and principal stockholders, and their respective affiliates, beneficially own approximately 31% of our outstanding shares of common stock. As a result, these stockholders, acting together, would have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, acting together, would have the ability to control the management and affairs of our company. Accordingly, this concentration of ownership might harm the market price of our common stock by:

 

·                 delaying, deferring or preventing a change in corporate control;

 

·                 impeding a merger, consolidation, takeover or other business combination involving us; or

 

·                 discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.

 

We have not paid dividends on our common stock in the past and do not expect to pay dividends on our common stock for the foreseeable future. Any return on investment may be limited to the value of our common stock.

 

No cash dividends have been paid on our common stock. We expect that any income received from operations will be devoted to our future operations and growth. We do not expect to pay cash dividends on our common stock in the near future. Payment of dividends would depend upon our profitability at the time, cash available for those dividends, and other factors as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on an investor’s investment will only occur if our stock price appreciates.  Investors in our common stock should not rely on an investment in our company if they require dividend income.

 

If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

 

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

 

Delaware law and our corporate charter and bylaws will contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.

 

Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. For example, our board of directors have the authority to issue up to 20,000,000 shares of preferred stock in one or more series and to fix the powers, preferences and rights of each series without stockholder approval. The ability to issue preferred stock could discourage unsolicited acquisition proposals or make it more difficult for a third party to gain control of our company, or otherwise could adversely affect the market price of our common stock. Our bylaws require that any stockholder proposals or nominations for election to our board of directors must meet specific advance notice requirements and procedures, which make it more difficult for our stockholders to make proposals or director nominations.

 

Furthermore, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law. These provisions may prohibit or restrict large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us. These provisions in our certificate of incorporation and bylaws and under Delaware law could discourage potential takeover attempts and could reduce the price that investors might be willing to pay for shares of our common stock in the future and result in our market price being lower than it would without these provisions.

 

24



Table of Contents

 

A sale of a substantial number of shares of our common stock may cause the price of our common stock to decline and may impair our ability to raise capital in the future.

 

The market price of our common stock could decline as a result of sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur. In addition, these factors could make it more difficult for us to raise funds through future offerings of common stock.

 

25



Table of Contents

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

You should read this discussion together with the Financial Statements, related Notes and other financial information included elsewhere in this Form 10. The following discussion contains assumptions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors,” and elsewhere in this Form 10. These risks could cause our actual results to differ materially from those anticipated in these forward-looking statements.

 

OVERVIEW

 

From August 4, 1999 (inception) through December 31, 2010 and September 30, 2011, we have sustained cumulative total deficits of $41,320,979 and $42,341,534, respectively. From inception through September 30, 2011, we have generated minimal out-licensing revenues and expect to incur additional losses to perform further research and development activities and do not currently have any commercial biopharmaceutical products. We do not expect to have such for several years, if at all.

 

Our product development efforts are thus in their early stages and we cannot make estimates of the costs or the time they will take to complete. The risk of completion of any program is high because of the many uncertainties involved in bringing new drugs to market including the long duration of clinical testing, the specific performance of proposed products under stringent clinical trial protocols, the extended regulatory approval and review cycles, our ability to raise additional capital, the nature and timing of research and development expenses and competing technologies being developed by organizations with significantly greater resources.

 

CRITICAL ACCOUNTING POLICIES

 

Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. Our accounting policies are described in Item 15. Financial Statements—Note 3 Summary of Significant Accounting Policies. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. We believe that the following discussion represents our critical accounting policies.

 

Royalty and License Revenues

 

Under our royalty and license agreements, payments are received which include minimum royalty and milestone payments as well as license fees. License fees are recognized when earned.  Royalty income is recorded in the same period as the sales that generated such income.  Milestone payments are recognized in the period when the milestone is achieved. Please see “Item 1. Business - Background” for a description of our royalty and license agreements.

 

Allowance for Doubtful Accounts

 

We review the collectability of accounts receivable based on an assessment of historic experience, current economic conditions, and other collection indicators. At December 31, 2010 and 2009 and September 30, 2011 we have not recorded an allowance for doubtful accounts. When accounts are determined to be uncollectible, they are written off against the reserve balance and the reserve is reassessed. When payments are received on reserved accounts, they are applied to the individual’s account and the reserve is reassessed.  Accounts receivable of $91,508, $75,000 and $27,965 at September 30, 2011, December 31, 2010 and December 31, 2009 respectively, represent the minimum royalty payments due as of those dates.

 

Derivative Financial Instruments-Warrants

 

Our derivative liabilities are related to warrants issued in connection with financing transactions and are therefore not designated as hedging instruments. All derivatives are recorded on our balance sheet at fair value in accordance with current accounting guidelines for such complex financial instruments.

 

We have issued common stock warrants in connection with the execution of certain equity and debt financings. Such warrants are classified as derivative liabilities under the provisions of FASB ASC 815 Derivatives and Hedging (“ASC 815”) , and are recorded at their fair market value as of each reporting period. Such warrants do not meet the exemption that a contract should not be considered a derivative instrument if it is (1) indexed to its own stock and (2) classified in stockholders’ equity. Changes in fair value of derivative liabilities are recorded in the consolidated statement of operations under the caption “Change in fair value of derivative instruments.”

 

The fair value of warrants is determined using the Black-Scholes option-pricing model using assumptions regarding volatility of our common share price, remaining life of the warrant, and risk-free interest rates at each period end. We thus use model-derived valuations where inputs are observable in active markets to determine the fair value and accordingly classify such warrants in Level 3 per ASC 820. At December 31, 2009, 2010 and September 30, 2011, the fair value of such warrants was $740,617, $609,155 and $880,137, respectively, which we classified as derivative financial instruments’ liability on our balance sheet.

 

26



Table of Contents

 

We have issued units that were price protected during the years ended December 31, 2010 and 2009, respectively. Based upon our analysis of the criteria contained in ASC Topic 815-40, we have determined that these price protected units issued in connection with the private placements must be recorded as derivative liabilities with a charge to additional paid in capital. The fair value of these price protected units was estimated using the binomial option pricing model. The binomial model requires the input of variable inputs over time, including the expected stock price volatility, the expected price multiple at which unit holders are likely to exercise their warrants and the expected forfeiture rate. We use historical data to estimate forfeiture rate and expected stock price volatility within the binomial model. The risk-free rate for periods within the contractual life of the warrant is based on the U.S. Treasury yield curve in effect at the date of grant for the expected term of the warrant. At December 31, 2009, December 31, 2010 and September 30, 2011, the fair value of such price protected units was $602,133, $1,476,783 and $2,103,409, respectively, which we classified as derivative financial instruments liability on our balance sheet.

 

At December 31, 2009, December 31, 2010 and September 30, 2011, the total fair value of all warrants and price protection, valued using the Black-Scholes option-pricing model and the Binomial option pricing model was $1,342,750, $2,085,938 and $2,983,546, respectively, which we classified as derivative financial instruments’ liability on our balance sheet.

 

Research and Development

 

Research and development costs, which include expenditures in connection with an in-house research and development laboratory, salaries and staff costs, application and filing for regulatory approval of proposed products, purchased in-process research and development, regulatory and scientific consulting fees, as well as contract research, insurance and FDA consultants, are accounted for in accordance with ASC Topic 730-10-55-2, Research and Development. Also, as prescribed by this guidance, patent filing and maintenance expenses are considered legal in nature and therefore classified as general and administrative expense.  We are providing the following summary of our research and development expenses to supplement the more detailed discussions under results of operations.  Costs are not allocated to projects as the majority of the costs relate to employees and facilities costs and we do not track employees’ hours by project or allocate facilities costs on a project basis.

 

 

 

 

 

 

 

 

 

 

 

August 4, 1999

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(Inception) to

 

 

 

2011

 

2010

 

2011

 

2010

 

September 30, 2011

 

Salaries and staff costs

 

$

106,245

 

$

161,276

 

$

395,289

 

$

432,592

 

$

9,702,969

 

Outside services, consultants and lab supplies

 

44,768

 

16,387

 

90,232

 

64,826

 

2,455,042

 

Facilities

 

44,112

 

36,233

 

97,802

 

127,359

 

2,558,701

 

Other

 

5,800

 

15,631

 

18,905

 

26,234

 

503,984

 

Total Research and development

 

$

200,924

 

$

229,527

 

$

602,228

 

$

651,011

 

$

15,220,696

 

 

 

 

For the years ended December 31,

 

 

 

2010

 

2009

 

Salaries, compensation and benefits

 

$

656,740

 

$

354,962

 

Outside Services, consultants and lab Supplies

 

180,429

 

139,434

 

Facilities

 

157,467

 

67,157

 

Other

 

29,522

 

669

 

Total Research and development

 

$

1,024,159

 

$

562,212

 

 

We do not currently have any commercial molecular diagnostic products, and we do not expect to have such for several years if at all. Accordingly our research and development costs are expensed as incurred. While certain of our research and development costs may have future benefits, our policy of expensing all research and development expenditures is predicated on the fact that we have no history of successful commercialization of molecular diagnostic products to base any estimate of the number of future periods that would be benefited.

 

In June 2007, the EITF of the FASB reached a consensus on ASC Topic 730, Research and Development which requires that non-refundable advance payments for goods or services that will be used or rendered for future research and development activities should be deferred and capitalized. As the related goods are delivered or the services are performed, or when the goods or services are no longer expected to be provided, the deferred amounts would be recognized as an expense. We adopted ASC Topic 730 on January 1, 2008 and the adoption did not have a material effect on our consolidated financial position, results of operations or cash flows.

 

27



Table of Contents

 

Stock-Based Compensation

 

We rely heavily on incentive compensation in the form of stock options to recruit, retain and motivate directors, executive officers, employees and consultants. Incentive compensation in the form of stock options and warrants are designed to provide long-term incentives, develop and maintain an ownership stake and conserve cash during our development stage.

 

ASC Topic 718 “Compensation—Stock Compensation” requires companies to measure the cost of employee services received in exchange for the award of equity instruments based on the estimated fair value of the award at the date of grant. The estimated fair value of employee options on the date of grant was determined by using the Black-Scholes option valuation model which requires management to make certain assumptions with respect to selected model inputs.  The risk-free interest rate assumption is based upon observed U.S. Treasury interest rates appropriate for the expected term of the individual stock options. We have not paid any dividends on common stock since its inception and do not anticipate paying dividends on our common stock in the foreseeable future. The computation of the expected option term is based on expectations regarding future exercises of options which generally vest over three years and have a ten year life. The expected volatility is based on the historical volatility of our stock.  Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We estimate future unvested option forfeitures based upon its historical experience and has incorporated this rate in determining the fair value of employee option grants. The expense is to be recognized over the period during which an employee is required to provide services in exchange for the award.

 

ASC Topic 718 did not change the way we account for non-employee stock-based compensation. We continue to account for shares of common stock, stock options and warrants issued to non-employees based on the fair value of the shares of stock and for the stock option or warrant, using the Black-Scholes options pricing model, if that value is more reliably measurable

 

28



Table of Contents

 

than the fair value of the consideration or services received.  We account for equity instruments granted to non-employees in accordance with ASC Topic 505-50 “ Equity-Based Payment to Non-Employees” whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Accordingly the fair value of these options is being “marked to market” quarterly until the measurement date is determined.

 

In accordance with ASC Topic 718 stock-based compensation expense related to our share-based compensation arrangements attributable to employees and non-employees is being recorded as a component of general and administrative expense and research and development expense in accordance with the guidance of Staff Accounting Bulletin 107, Topic 14, paragraph F , Classification of Compensation Expense Associated with Share-Based Payment Arrangements (“SAB 107”).

 

Fair value of financial instruments

 

Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, debentures and derivative liabilities.  We have adopted FASB ASC 820 Fair Value Measurements and Disclosures (“ASC 820”) for financial assets and liabilities that are required to be measured at fair value, and non-financial assets and liabilities that are not required to be measured at fair value on a recurring basis. These financial instruments are stated at their respective historical carrying amounts which approximate to fair value due to their short term nature.

 

ASC 820 provides that the measurement of fair value requires the use of techniques based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. The inputs create the following fair value hierarchy:

 

·               Level 1 — Quoted prices for identical instruments in active markets.

·               Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations where inputs are observable or where significant value drivers are observable.

·               Level 3 — Instruments where significant value drivers are unobservable to third parties.

 

Convertible Debentures

 

We initially had $2,225,500 of 6% convertible debentures initially due November 14, 2008 (the “Debenture” or “Debentures”). The Debentures accrued interest at the rate of 6% per annum, payable semi-annually on April 1 and November 1 of each year beginning November 1, 2007. We could, in our discretion, elect to pay interest on the Debentures in cash or in shares of our common stock, subject to certain conditions related to the market for shares of our common stock and the registration of the shares issuable upon conversion of the Debentures under the Securities Act. The Debentures were convertible at any time at the option of the holder into shares of our common stock at an initial price of $0.55 per share, subject to adjustment for certain dilutive issuances. During the year ended December 31, 2009, we entered into a Forbearance Agreement that resulted in the issuance of 5,437,472 shares of common stock in full settlement of amounts claimed for interest, penalties, late fees and liquidated damages related to the Debentures totaling $2,042,205. Under the terms of the Forbearance Agreement the maturity date was extended to December 31, 2010 and the interest rate increased to 11%. A total of 6,083,763 shares of common stock purchase warrants, expiring November 14, 2012, continued to be outstanding.  We accounted for the forebearance agreement and subsequent modifications and eventual extinguishment of these convertible debentures in accordance with ASC 470 -50 “Debt Modifications and Extinguishments” .

 

The fair value of the shares on January 30, 2009 was $0.32 based on quoted market prices totaling $1,739,959. The difference between the carrying value of the interest, penalties, late fees and liquidated damages and the fair value of the shares of $302,246 was recorded as settlement costs on the statement of operations.

 

The aggregate initial principal amount of $2,170,500 plus two additional issuances of $164,550 in 2009 due under the Debentures remained outstanding totaling $2,335,050. Other significant provisions of the Forbearance Agreement included the following:

 

·                                           An extension of the Debentures’ maturity date to December 31, 2010

 

·                                           An increase in the interest rate payable on the Debentures from 6% to 11%

 

·                                           The payment of interest in the form of Company common stock on a quarterly basis

 

·                                           Rights of certain holders of a majority of the Debentures regarding the appointment of two persons to our Board of Directors

 

·                                           Conditions regarding the determination of compensation to be paid to our officers and directors

 

·                                           A total of 6,083,763 shares of common stock purchase warrants, expiring November 14, 2012, continued to be outstanding.

 

29



Table of Contents

 

The carrying value of the debenture before modification in the amount of $2,335,050 was exchanged for the fair value of the new debt in the amount $1,910,710 and the difference of $424,299 was recorded as a reduction of other forbearance agreement settlement costs in the statement of operations.

 

During the twelve months ended December 31, 2010 and 2009, we incurred interest expense of $256,856 and $244,656, respectively, that was paid in 1,003,021 shares. The Debenture Holders were entitled to interest expense at 11%. The total value of the shares was $256,901 based on the stock price allocation in the fair value of the price protected units issued during the years ended December 31, 2010 and 2009. The difference in the fair value of the consideration given and the amounts due to the debt holder was $244,605 and recorded as a reduction of the interest expense in our Consolidated Statements of Operations.

 

     On July 18, 2011 we settled with the holders of the Debentures by converting the amounts outstanding by issuing 4,670,100 shares of common stock pursuant to a note and warrant agreement and we issued an additional 467,010 shares of common stock to the Debenture Holders as consideration for their agreement to extinguish their debt. This resulted in a $1.2 million gain on extinguishment based on the fair value of the stock being $0.22 a share as of the date of the transaction.  In addition, the 6,083,763 warrants, originally issued in 2006 with the debentures with an expiration date of November 12, 2012, were exchanged for 6,083,763 new warrants with a new expiration date of December 31, 2017.  The additional charge for this modification to the expiration date was $581,503 which offset the gain, resulting in a net gain on extinguishment of $623,383 for the three and nine months ended September 30, 2011 on the Consolidated Statements of Operations.

 

The 6,083,763 warrants had registration rights and in accordance with ASC 815 “ Derivatives and Hedging ”, (“ASC 815”) , we have determined that these warrants were derivative liabilities. The fair value of these warrants on January 1, 2009, the date of adoption of ASC 815, was $884,277. This derivative liability has been marked to market at the end of each reporting period since January 1, 2009. The change in fair value for the years ended December 31, 2010 and 2009 and for the three and nine months ended September 30, 2011and inception (August 4, 1999) to September 30, 2011 was a loss of $31,999, a gain of $491,586 losses on valuation of $463,463 and $40,714 and a gain of $607,389 respectively.  The losses for the three and nine months ended September 30, 2011and the gain from inception (August 4, 1999) to September 30, 2011 exclude the $581,503 charge for the modification in the change in fair value of the derivative liability on the Consolidated Statements of Operations.

 

RESULTS OF OPERATIONS

 

THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

 

We had revenues of $55,000 and $32,569 during the three months ended September 30, 2011 and 2010, respectively, consisting of royalty income of $55,000 and $32,659 in the three months ended September 30, 2011 and 2010, respectively. The increase in royalties related to royalties from seven agreements in 2011 as compared to four in 2010.

 

Research and development expenses for the three months ended September 30, 2011 decreased by $2,695,472 or, 93%, to $200,924 from $2,896,396 for the three months ended September 30, 2010. This decrease was primarily due to the purchased-in-process research and development expense totaling $2,666,869 recorded in the third quarter of 2010 in connection with the Etherogen Inc. merger.

 

General and administrative expenses increased by $214,343, or 58%, to $586,230 for the three months ended September 30, 2011 from $371,887 for the three months ended September 30, 2010. This increase was primarily due to an increase in outside consultants fees of $197,563.

 

30



Table of Contents

 

Net income for the three months ended September 30, 2011 was $ 9,269 as compared to a net loss of $3,574,908 incurred for the three months ended September 30, 2010. This decrease in our net loss of $3,584,177, or 100% was primarily the result of (i) the net gain on extinguishment of debt of $623,383 in the third quarter of 2011, (ii) the gain in the fair value of derivative instruments-warrants of approximately $118,000 compared to a loss of approximately $310,000 during the quarter ended September 30, 2010 and (iii) the above decrease in research and development expenses.

 

NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

 

We had revenues of $223,946 and $50,684 during the nine months ended September 30, 2011 and 2010, respectively, consisting of royalty income of $203,946 and $40.684 in the three months ended September 30, 2011 and 2010, respectively, and license fees of $20,000 in 2011 and $10,000 in 2010. The increase in royalty revenues results from royalties from eight agreements in 2011 compared to five in 2010.  The license fees in 2011 were related to two new agreements signed in 2011 and one signed in 2010.

 

Research and development expenses for the nine months ended September 30, 2011 decreased by $2,715,652, or 82%, to $ 602,228 from $3,317,880 for the nine months ended September 30, 2010. This decrease was primarily due to the decrease in purchased-in-process research and development expense totaling $2,666,869 recorded in the third quarter of 2010 in connection with the Etherogen Inc. merger.

 

General and administrative expenses increased by $428,710, or 33%, to $1,721,301 for the nine months ended September 30, 2011 from $1,292,591 for the nine months ended September 30, 2010. This increase was primarily due to (i) an increase in outside consultants expense of approximately $155,000. The increase of $150,000 was for the value of common stock issued to a consultant in the three and nine months ended September 30, 2011 (ii) approximately $133,000 of other employee expenses in connection with settlements of litigation with former officers and directors, (iii) approximately $133,000 in accounting fees and (iv) approximately $83,000 in legal fees partially offset by (v) a decrease in employee expenses of approximately $59,000, excluding (ii) above.

 

Net loss for the nine months ended September 30, 2011 was $991,875 compared to a net loss of $4,471,629 incurred for the nine months ended September 30, 2010. This decrease in our net loss of $3,479,754, or 78% was a result primarily of (i) the decrease in research and development expenses discussed above (ii) the net gain on extinguishment of debt of $623,383 in the third quarter of 2011, and (iii) the gain in fair value of derivative instruments-warrants of approximately $541,000 compared to a loss of approximately $175,000 in the nine months ended September 30, 2010. This was due to a decline in the stock price of $.01, an increase in the risk free interest rate of 1.38% to 2.04% and a decrease in the volatility from 100% to 90%. The above changes were offset by an increase in general and administrative expenses discussed above.

 

YEARS ENDED DECEMBER 31, 2010 AND 2009

 

We had revenues of $265,665 and $653,994 during the twelve months ended December 31, 2010 and 2009, respectively, consisting of royalty income of $255,665 and and $153,994 in the years ended December 31, 2010 and 2009, respectively, and license fees of $10,000 and $500,000  in the years ended December 31, 2010 and 2009, respectively.

 

The increase in royalty revenues results from royalties from six agreements in 2011 compared to two in 2010.  License fees were received from Skyline in 2010 and from Sequenom in 2009.

 

For the twelve months ended December 31, 2010, research and development expenses increased by $3,128,816 or 556.5% to $3,691,028 as compared to $562,212 during the twelve months ended December 31, 2009. This increase in research and development expenses was primarily attributable to (i) purchased in-process-research and development expense relating to the merger with Etherogen, Inc. (“the Merger”) which was $2,666,689. In accordance with ASC 805 Business Combinations the excess of the fair value of the consideration issued and the fair value of the net assets acquired has been recorded as purchased in process research and development expense-related party, (ii) salaries and related expenses increased by $146,489, or 37%, from $398,132 for the twelve months ended December 31, 2009,(iii) outside consultant services increased by $128,349 to $111,033 for the twelve months ended December 31, 2010 and (iv) stock based compensation expense increased by $64,429 from $21,611 for the twelve months ended December 31, 2009.

 

For the twelve months ended December 31, 2010, general and administrative expenses increased by approximately $293,000, or 13.0%, to approximately $1,954,000, as compared to approximately $1,661,000 during the twelve months ended December 31, 2009. The increase in expenses was primarily attributable to an increase in salaries and wages, stock based compensation and related employee benefits of approximately $720,000, which were $279,000, or 63%, higher as compared to $441,000 during the twelve months ended December 31, 2009 offset by various other items.

 

Net loss for the twelve months ended December 31, 2010 was $5,449,138 compared to a net loss of $2,483,807 incurred for the twelve months ended December 31, 2009. This increase in our net loss of $2,965,331, or 119%, was a result primarily of the above increases in research and development expenses and general and administrative expenses.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of September 30, 2011, we had $157,467 in cash and cash equivalents. Net cash used in operating activities was $1,409,707 for the nine months ended September 30, 2011 and $2,088,716 and $1,234,506, for the twelve months ended December 31, 2010 and December 31, 2009, respectively. Net cash provided by financing activities was $1,510,000 for the nine months ended September 30, 2011 and was $1,734,700 and $1,651,736 for the twelve months ended December 31, 2010 and December 31, 2009, respectively.

 

31



Table of Contents

 

As of September 30, 2011 we had a negative working capital of $859,566 as compared to working capital deficits of $3,136,916 and $2,557,157 as of December 31, 2010 and December 31, 2009. As of February 10, 2012, our working capital deficit was $99,508.

 

On July 18, 2011 we settled with the holders of the Debentures by converting the amounts outstanding by issuing 4,670,100 shares of common stock pursuant to a note and warrant agreement and we issued an additional 467,010 shares of common stock to the Debenture Holders as consideration to extinguish their debt. This resulted in a $1.2 million gain on extinguishment based on the fair value of the stock being $0.22 a share as of the date of the transaction.  In addition, the 6,083,763 warrants, originally issued in 2006 with the debentures with an expiration date of November 12, 2012, were exchanged for 6,083,763 new warrants with a new expiration date of December 31, 2017.  The additional charge for this modification to the expiration date was $581,503 which offset the gain, resulting in a net gain on extinguishment of $623,383 for three and nine months ended September 30, 2011 on the Consolidated Statements of Operations.

 

On February 10, 2012, we closed a private placement which raised gross proceeds of $800,000.  We issued 1,600,000 shares of our common stock and warrants to purchase 1,600,000 shares of common stock in this transaction.  In addition, we issued 74,700 shares of common stock and warrants to purchase 74,700 shares of common stock as a finder’s fee.  The purchase price paid by the investors was $.50 for each unit. The warrants expire December 31, 2018 and are exercisable at $.50 per share. Each of the investors was an accredited investor.  In connection with the issuance of the units, we relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended.

 

Our working capital requirements will depend upon numerous factors including but not limited to the nature, cost and timing of our research and development programs. We will be required to raise additional capital within the next twelve months to complete the development and commercialization of current product candidates, to fund the existing working capital deficit and to continue to fund operations at our current cash expenditure levels. To date, our sources of cash have been primarily limited to the sale of equity securities and debentures. We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct business. If we are unable to raise additional capital when required or on acceptable terms, we may have to (i) significantly delay, scale back or discontinue the development and/or commercialization of one or more of product candidates; (ii) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize ourselves on unfavorable terms.

 

Our consolidated financial statements as of September 30, 2011 and December 31, 2010 have been prepared under the assumption that we will continue as a going concern. Our independent registered public accounting firm has issued a report on our December 31, 2010 consolidated financial statements that included an explanatory paragraph referring to our recurring losses from operations and expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to generate revenue. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

ITEM 3. PROPERTIES.

 

Our corporate offices and laboratory are located at 11055 Flintkote Avenue, Suite B, San Diego, CA 92121 where we lease approximately 5,300 square feet for $9,768 per month. Our lease expires in February 2013.  We believe that our facilities are adequate to support foreseeable growth in our business.

 

ITEM 4.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

 

The following table sets forth information regarding the beneficial ownership of our common stock as of February 9, 2012 by (a) each person who is known by us to beneficially own 5% or more of our common stock, (b) each of our directors and named executive officers, and (c) all of our directors and executive officers as a group.

 

Name and Address of Beneficial Owner

 

Amount and nature of
beneficial ownership (1)

 

Percent of class (2)

 

Thomas Adams

 

3,148,234

(3)

4.8

 

Antonius Schuh

 

 

 

 

Andreas Braun

 

 

 

Gabriele Cerrone

 

7,376,757

(4)

10.7

 

Gary Jacob

 

1,189,334

(5)

1.8

 

John Brancaccio

 

340,081

(6)

*

 

Stanley Tennant

 

1,082,913

(7)

1.7

 

David Robbins

 

462,500

(8)

1.0

 

All Directors and Officers as a group (8 persons)

 

13,599,819

(9)

19.1

 

5% or greater stockholder

 

 

 

 

 

R. Merrill Hunter

 

8,265,004

(10)

12.0

 

 


*       Less than 1%

 

(1)                      The address of each person is c/o TrovaGene, Inc., 11055 Flintkote Avenue, Suite B, San Diego, CA 92121 unless otherwise indicated herein.

 

(2)                    The calculation in this column is based upon 65,172,157 shares of common stock outstanding on February 9, 2012. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with

 

32



Table of Contents

 

respect to the subject securities. Shares of common stock that are currently exercisable or exercisable within 60 days of November 15, 2011 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage beneficial ownership of such person, but are not treated as outstanding for the purpose of computing the percentage beneficial ownership of any other person.

 

(3)               Includes (i) 800,000 shares of common stock issuable upon exercise of stock options and (ii) 274,117 shares of common stock issuable upon exercise of warrants.

 

(4)               Consists of (i) 3,740,356 shares of common stock held by Panetta Partners, Ltd., (ii) 37,500 shares of common stock held by Mr. Cerrone, (iii)  2,576,905 shares of common stock issuable upon exercise of stock options held by Mr. Cerrone, (iv) 984,496 shares of common stock issuable upon exercise of warrants held by Panetta and (v) 37,500 shares of common stock issuable upon exercise of warrants held by Mr. Cerrone.  Mr. Cerrone is the managing partner of Panetta and in such capacity only exercises voting and dispositive control over securities owned by Panetta, despite him having only a small pecuniary interest in such securities.

 

(5)               Includes (i) 388,334 shares of common stock issuable upon exercise of stock options and (ii) 63,000 shares of common stock issuable upon exercise of warrants.

 

(6)               Includes (i) 174,801 shares of common stock issuable upon exercise of stock options and (ii) 83,000 shares of common stock issuable upon exercise of warrants.

 

(7)               Includes 350,000 shares of common stock issuable upon exercise of warrants and 16,667 shares of common stock exercisable upon exercise of stock options.

 

(8)               Consists of 462,500 shares of common stock issuable upon exercise of stock options.

 

(9)               Includes 4,419,207 shares of common stock issuable upon exercise of stock options and 1,792,113 shares of common stock issuable upon exercise of warrants.

 

(10)        Includes 3,600,000 shares of common stock issuable upon exercise of warrants.

 

Item 5. Directors and Executive Officers.

 

The names, ages and positions of our directors and executive officers as of February 9, 2012 are as follows:

 

Name

 

Age

 

Position

Thomas H. Adams, PhD

 

68

 

Chairman of the Board

Antonius Schuh, Ph.D

 

47

 

Chief Executive Officer and Director

Steve Zaniboni

 

54

 

Chief Financial Officer

David Robbins. PhD

 

55

 

Vice President Research and Development

John Brancaccio

 

63

 

Director

Gary S. Jacob

 

64

 

Director

Gabriele M. Cerrone

 

39

 

Director

Dr. Stanley Tennant

 

60

 

Director

 

All directors hold office until the next annual meeting of stockholders and the election and qualification of their successors. Officers are elected annually by the board of directors and serve at the discretion of the board.

 

The principal occupations for the past five years (and, in some instances, for prior years) of each of our directors and executive officers are as follows:

 

Thomas H. Adams .Thomas H. Adams has been our Chairman of the Board since April 2009.  Since June 2005, Dr. Adams has served as a director of IRIS International, Inc., a diagnostics company, and as Chief Technology Officer of IRIS since April 2006. Dr. Adams served as Chairman and Chief Executive Officer of Leucadia Technologies, a privately held medical-device company, from 1998 to April 2006, when Leucadia was acquired by IRIS. In 1989, Dr. Adams founded Genta, Inc., a publicly held biotechnology company in the field of antisense technology, and served as its Chief Executive Officer until 1997. Dr. Adams founded Gen-Probe, Inc. in 1984 and served as its Chief Executive Officer and Chairman until its acquisition by Chugai Biopharmaceuticals, Inc. in 1989. Before founding Gen-Probe, Dr. Adams held management positions at Technicon Instruments and the Hyland Division of Baxter Travenol. He has significant public-company experience serving as a director of Biosite Diagnostics, Inc., a publicly held medical research firm, from 1989 to 1998 and as a director of Invitrogen, a publicly held company that develops, manufactures and markets research tools and products, from 2000 to 2002.  Dr. Adams holds a Ph.D. in Biochemistry from the University of California, at Riverside.  Dr. Adam’s executive leadership, particularly in the diagnostic field, and the extensive healthcare expertise he has developed qualifies Dr. Adams to serve as a director of our company.

 

Antonius Schuh . Antonius Schuh joined us in October 2011 as our Chief Executive Officer and was elected as a Director in December 2011.  Dr. Schuh co-founded Sorrento Therapeutics, Inc., a biopharmaceutical company developing monoclonal antibodies, in January 2006.  From such time until April 2011, he served as Chairman of the Board and Chief Executive Officer from November 2008 to April 2011.  From April 2006 to September 2008, Dr. Schuh served as Chief Executive Officer of AviaraDx (now bioTheranostics, Inc., a bioMerieux company), a molecular diagnostic testing company that is focused on clinical applications in oncology. From March 2005 to April 2006, Dr. Schuh was Chief Executive Officer of Arcturus Bioscience Inc., a developer of laser capture microdissection and reagent systems for microgenomics. From December 1996 to February 2005, Dr. Schuh was

 

33



Table of Contents

 

employed by Sequenom Inc., a publicly traded diagnostic testing and genetics analysis company. He started with Sequenom as a Managing Director and was promoted to Executive Vice President, Business Development and Marketing, and from May 2000 to February 2005, served as Sequenom’s President and Chief Executive Officer. He also previously served as the Head of Business Development at Helm AG, an international trading and distribution corporation for chemical and pharmaceutical products, and in medical and regulatory affairs positions with Fisons Pharmaceuticals (now part of Sanofi-Aventis). Since March 2009, Dr. Schuh has been appointed to the board of directors of Diogenix, Inc., a privately held molecular diagnostic company, and since May 2009, he has served as a director of Transgenomic, Inc., a public biotechnology company focused on genetic analysis and molecular diagnostics. Dr. Schuh is a certified pharmacist and earned his Ph.D. in pharmaceutical chemistry from the University of Bonn, Germany.

 

Steve Zaniboni.   Mr. Zaniboni joined us in January 2012.  He currently is our Chief Financial Officer. From June 2010 to February 2011, Mr. Zaniboni served as Chief Financial Officer of Awarepoint Corporation, a leading provider of healthcare software. Prior to joining Awarepoint Corporation, Mr. Zaniboni served as Chief Financial Officer of XIFIN Inc., the leading provider of revenue cycle management for diagnostic service providers, from January 2009 through June 2010. Prior to joining XIFIN Inc. Mr. Zaniboni served as the Chief Financial Officer of Sorrento Therapeutics, Inc. from January 2006, and as a member of its board of directors from November 2008, through September 2009. From May 2006 to September 2008, Mr. Zaniboni served as Chief Financial Officer of AviaraDx (now bioTheranostics, a bioMerieux company), a molecular diagnostic testing cancer profiling company that is focused on developing and commercializing molecular diagnostic technologies with proven clinical utility. From October 2005 to April 2006, Mr. Zaniboni was Chief Financial Officer of Arcturus Bioscience (acquired by Molecular Devices Corp., now MDS). He joined Arcturus from Sequenom (NASTIQ: SQNM), a publicly traded diagnostic testing and genetics analysis company, where he served as Chief Financial Officer from May 1997 to September 2005. Mr. Zaniboni has also held various financial management positions at Aspect Medical Systems, Behring Diagnostics, and Boston Scientific.

 

David Robbins. David Robbins joined us in 2006. He is currently our Vice President of Research.  Prior to joining us Dr. Robbins served as founding Vice President of Research and Development at ChromoLogic. Prior to ChromoLogic, Dr. Robbins was the founding Director at ViaLogy Before joining ViaLogy, Dr. Robbins served as Research Manager at SmithKline Beecham Clinical Labs (now Quest Diagnostics) from 1997-2000.  From 1994-1997 he served as Manager of Assay Development for SmithKline Pharmaceuticals’ Molecular Diagnostics Venture (now diaDexus).  From 1988-1994, Dr. Robbins was a Project Manager at Abbott Labs.  He received his BA in Chemistry from the Johns Hopkins University in 1978 and his Ph.D. in Biochemistry from the University of Texas at Austin in 1983.

 

John Brancaccio . John Brancaccio, a retired CPA, has served as a director of our company since December 2005. Since April 2004, Mr. Brancaccio has been the Chief Financial Officer of Accelerated Technologies, Inc., an incubator for medical device companies. From May 2002 until March 2004, Mr. Brancaccio was the Chief Financial Officer of Memory Pharmaceuticals Corp., a biotechnology company. From 2000 to 2002, Mr. Brancaccio was the Chief Financial Officer/Chief Operating Officer of Eline Group, an entertainment and media company. Mr. Brancaccio is currently a director of Alfacell Corporation as well as a director of Synergy Pharmaceuticals, Inc. and Callisto Pharmaceuticals, Inc.  Mr. Brancaccio’s chief financial officer experience provides him with valuable financial and accounting expertise which the Board believes qualifies him to serve as a director of our company.

 

Gary S. Jacob. Gary S. Jacob has served as a director of our company since February 2009.  Since July 2008, Dr. Jacob has been President, Chief Executive Officer and a Director of Synergy Pharmaceuticals, Inc. and as Chairman of a subsidiary of Synergy from October 2003 until July 2008. Dr. Jacob currently serves as Chief Executive Officer and a director of Callisto Pharmaceuticals, Inc., Dr. Jacob has over twenty-five years of experience in the pharmaceutical and biotechnology industries across multiple disciplines including research & development, operations and business development. Prior to 1999, Dr. Jacob served as a Monsanto Science Fellow, specializing in the field of glycobiology, and from 1997 to 1998 was Director of Functional Genomics, Corporate Science & Technology, at Monsanto Company. Dr. Jacob also served from 1990 to 1997 as Director of Glycobiology at G.D. Searle Pharmaceuticals Inc. During the period of 1986 to 1990, he was Manager of the G.D. Searle Glycobiology Group at Oxford University, England.  Dr. Jacob’s broad management expertise in the pharmaceutical and biotechnology industries provides relevant experience in a number of strategic and operational areas and led to the Board’s conclusion that he should serve as a director of our company.

 

Gabriele M. Cerrone .  Gabriele M. Cerrone has served as a director of our company since February 2010.  Since July 2008, Mr. Cerrone has served as Chairman of the Board of Directors and a consultant with Synergy Pharmaceuticals, Inc., a biotechnology company.  From March 1999 to January 2005 Mr. Cerrone served as a Senior Vice President of Investments of Oppenheimer & Co. Inc., a financial services firm. In May 2001, Mr. Cerrone led the restructuring of SIGA Technologies, Inc., a biotechnology company, and served on its board of directors from May 2001 to May 2003. Mr. Cerrone also co-founded FermaVir Pharmaceuticals, Inc., a biotechnology company, and served as Chairman from August 2005 to September 2007, when the company was acquired by Inhibitex, Inc., a biotechnology company. Mr. Cerrone currently serves as a director of Inhibitex, Inc.  Since 2003, Mr. Cerrone has been Chairman of Callisto Pharmaceuticals, Inc., a biotechnology company, and a consultant to Callisto since 2005.  Mr. Cerrone is the managing partner of Panetta Partners Ltd.; a limited partnership that is a private investor in both public and private venture capital in the life sciences and technology arena as well as real estate. Mr. Cerrone’s experience in finance and investment banking allows him to contribute broad financial and strategic planning expertise and led to the Board’s conclusion that he should serve as a director of the company.

 

Dr. Stanley Tennant. Dr. Tennant has served as a director of our company since December 2010.  Since 1983, Dr Tennant has been a cardiologist in Greensboro, NC. He graduated from Wake Forest University School of Medicine in 1978 and completed postgraduate training in Internal Medicine and Cardiology at Vanderbilt University in 1983.  Dr. Tennant’s practical experience in the healthcare field led to the Board’s conclusion that he should serve as a director of our company.

 

Family Relationships

 

None.

 

Involvement in Certain Legal Proceedings

 

To our knowledge, during the last ten years, none of our directors, executive officers (including those of our subsidiaries), promoters or control persons have:

 

34



Table of Contents

 

·                                      Had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.

 

·                                      Been convicted in a criminal proceeding or been subject to a pending criminal proceeding, excluding traffic violations and other minor offenses.

 

·                                      Been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities.

 

·                                      Been found by a court of competent jurisdiction (in a civil action), the SEC, or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

 

·                                      Been the subject to, or a party to, any sanction or order, not subsequently reverse, suspended or vacated, of any self-regulatory organization, any registered entity, or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Board Leadership Structure and Board’s Role in Risk Oversight

 

Since April 2009, we have separated the roles of Chairman of the Board and Chief Executive Officer. Although the separation of roles has been appropriate for us during that time period, in the view of the board of directors, the advisability of the separation of these roles depends upon the specific circumstances and dynamics of our leadership.

 

As Chairman of the Board, Dr. Adams serves as the primary liaison between the CEO and the independent directors and provides strategic input and counseling to the CEO. With input from other members of the board of directors, committee chairs and management, he presides over meetings of the board of directors. Mr. Adams has developed an extensive knowledge of our company, its challenges and opportunities and has a productive working relationship with our senior management team.

 

The board of directors, as a unified body and through committee participation, organizes the execution of its monitoring and oversight roles and does not expect its Chairman to organize those functions. Our primary rationale for separating the positions of Board Chairman and the CEO is the recognition of the time commitments and activities required to function effectively as Chairman and as the CEO of a company with a relatively flat management structure. The separation of roles has also permitted the board of directors to recruit senior executives into the CEO position with skills and experience that meet the board of director’s planning for the position who may not have extensive public company board experience.

 

The board of directors has two standing committees—Audit and Compensation. The membership of each of the board committees is comprised of independent directors, with each of the committees having a separate chairman, each of whom is an independent director. Our non-management members of the board of directors meet in executive session at each board meeting.

 

Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. Management is responsible for the day-to-day management of risks the company faces, while the board of directors, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, the board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.

 

The board of directors believes that establishing the right “tone at the top” and that full and open communication between executive management and the board of directors are essential for effective risk management and oversight. Our CEO communicates frequently with members of the board to discuss strategy and challenges facing the company. Senior management usually attends our regular quarterly board meetings and is available to address any questions or concerns raised by the board of directors on risk management-related and any other matters. Each quarter, the board of directors receives presentations from senior management on matters involving our areas of operations.

 

Director Independence

 

Our board of directors has determined that a majority of the board consists of members who are currently “independent” as that term is defined under current listing standards of NASDAQ.  The board of directors considers Messrs. Jacob,  Tennant and Brancaccio to be “independent.”

 

Board Committees

 

Audit Committee

 

The Audit Committee’s responsibilities include: (i) reviewing the independence, qualifications, services, fees, and performance of the independent registered public accountants, (ii) appointing, replacing and discharging the independent auditors, (iii) pre-approving the professional services provided by the independent auditors, (iv) reviewing the scope of the annual audit and reports and recommendations submitted by the independent auditors, and (v) reviewing our financial reporting and accounting policies,

 

35



Table of Contents

 

including any significant changes, with management and the independent auditors. The Audit Committee also prepares the Audit Committee report that is required pursuant to the rules of the SEC.

 

The Audit Committee currently consists of John P. Brancaccio, chairman of the Audit Committee and Thomas Adams.  Our board of directors has determined that each of Mr. Brancaccio and Dr. Adams is “independent” as that term is defined under applicable SEC and NASDAQ rules. Mr. Brancaccio is our audit committee financial expert. The board of directors has adopted a written charter setting forth the authority and responsibilities of the Audit Committee.

 

Compensation Committee

 

The Compensation Committee has responsibility for assisting the board of directors in, among other things, evaluating and making recommendations regarding the compensation of the executive officers and directors of our company; assuring that the executive officers are compensated effectively in a manner consistent with our stated compensation strategy; producing an annual report on executive compensation in accordance with the rules and regulations promulgated by the SEC; periodically evaluating the terms and administration of our incentive plans and benefit programs and monitoring of compliance with the legal prohibition on loans to our directors and executive officers.

 

The Compensation Committee currently consists of Dr. Stanley Tennant, chairman of the Compensation Committee, Dr. Gary S. Jacob and John P. Brancaccio. Our board of directors has determined that all of the members are “independent” under the current listing standards of NASDAQ. The board of directors has adopted a written charter setting forth the authority and responsibilities of the Compensation Committee.

 

Compensation Committee Interlocks and Insider Participation

 

None of the members of our compensation committee is an officer or employee of our company. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.

 

Code of Ethics

 

We have adopted a formal Code of Business Conduct and Ethics applicable to all Board members, executive officers and employees. A copy of our Code of Business Conduct and Ethics will be provided free of charge upon request to: Secretary, TrovaGene, Inc. 11055 Flintkote Avenue, San Diego, California 92121.

 

ITEM 6. EXECUTIVE COMPENSATION.

 

SUMMARY COMPENSATION TABLE

 

The following table provides certain summary information concerning compensation awarded to, earned by or paid to our Principal Executive Officer and the other highest paid executive officer whose total annual salary and bonus exceeded $100,000 (collectively, the “named executive officers”) for fiscal year 2011.

 

Name & Principal Position

 

Year

 

Salary ($)

 

Option
Awards ($)
(1)

 

Total ($)

 

Dr. Antonius Schuh, CEO (2)

 

2011

 

57,291

 

23,254

 

80,545

 

 

 

 

 

 

 

 

 

 

 

Dr. Andreas Braun Former Acting CEO (3)

 

2011

 

105,347

 

 

 

105,347

 

 


(1)               Amount represents aggregate grant date fair value in accordance with FASB ASC Topic 718.  See Note 7 to the Consolidated Financial Statements.

 

(2)               Dr. Schuh was issued 3,800,000 non-qualified stock options upon his appointment as CEO in October 2011.

 

(3)          Dr. Braun resigned from our company effective August 5, 2011. 

 

36



Table of Contents

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

The following table sets forth information for the named executive officers regarding the number of shares subject to both exercisable and unexercisable stock options, as well as the exercise prices and expiration dates thereof, as of December 31, 2011.

 

Name 

 

Number of
Securities
Underlying
Unexercised
Options (#)
exercisable

 

Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable

 

Option
Exercise
Price

 

Option
Expiration
Date

 

Dr. Antonius Schuh

 

 

2,850,000

(1)

0.50

 

October 4, 2021

 

Dr. Andreas Braun

 

 

750,000

(2)

$

0.60

 

February 26, 2020

 

 


(1)  The unexercisable options of 2,850,000 vest as follows:  950,000 each on October 4, 2012, 2013 and 2014.

 

(2)  The unexercisable options of 750,000 vest as follows: 250,000 each on February 26, 2011, 2012 and 2013.

 

DIRECTOR COMPENSATION

 

The following table sets forth summary information concerning the total compensation paid to our non-employee directors in 2011 for services to our company.

 

Name 

 

Fees Earned or Paid
in Cash

 

Option
Awards(1)

 

Total

 

Thomas H. Adams(2)

 

$

27,500

 

$

175,431

 

$

202,931

 

John P. Brancaccio(3)

 

$

33,500

 

$

 

$

33,500

 

Gary S. Jacob(4)

 

$

23,000

 

$

 

$

23,000

 

Gabriel M. Cerrone(5)

 

$

20,500

 

$

 

$

20,500

 

Stanley Tennant (6)

 

$

24,504

 

$

5,187

 

$

29,691

 

 


(1)  Amounts represent the aggregate grant date fair value for fiscal year 2011 of stock options granted in 2011 under ASC Topic 718 as discussed in Item 15. Financial Statements—Note 7 Stock Option Plan .

(2)  As of December 31, 2011, 1,822,500 stock options were outstanding, of which 800,000 were exercisable.

(3)  As of December 31, 2011, 215,747 stock options were outstanding, of which 182,414 were exercisable.

(4)  As of December 31, 20011, 405,000 stock options were outstanding, of which 371,667 were exercisable.

(5)  As of December 31, 2011, 2,593,571 stock options were outstanding, of which 2,560,238 were exercisable.

(6)  As of December 31, 2011, 50,000 stock options were outstanding, of which 16,667 were exercisable.

 

Employment Agreements

 

On October 4, 2011, we entered into an executive agreement with Antonius Schuh, Ph.D. in which he agreed to serve as our Chief Executive Officer.  The term of the agreement is effective as of October 4, 2011 and continues until October 4, 2015 and is automatically renewed for successive one year periods at the end to each term.  Dr. Schuh’s compensation is $275,000 per year.  Dr. Schuh is eligible to receive a cash bonus of up to 50% of his base salary per year based on meeting certain performance objectives and bonus criteria.  Upon entering the agreement, Dr. Schuh was granted 3,800,000 non-qualified stock options which have an exercise price of $0.50 per share and vest annually in equal amounts over a period of four years. Dr. Schuh is also eligible to receive a realization bonus upon the occurrence of either of the following events, whichever occurs earlier;

 

(i)               In the event that during the term of the agreement, for a period of 90 consecutive trading days, the market price of the common stock is $1.25 or more and the volume of the common stock daily trading volume is 125,000 or more, we shall pay or issue Dr. Schuh a bonus in an amount of $3,466,466 in either cash or registered common stock or a combination thereof as mutually agreed by Dr. Schuh and us; or

 

(ii)              In the event that during the term of the agreement, a change of control occurs where the per share enterprise value of our company equals or exceeds $1.25 per share, we shall pay Dr. Schuh a bonus in an amount determined by multiplying the enterprise value by 4.0%.  In the event in a change of control the per share enterprise value exceeds a minimum of $2.40 per share, $3.80 per share or $5.00 per share, Dr.

 

37



Table of Contents

 

Schuh shall receive a bonus in an amount determined by multiplying the incremental enterprise value by 2.5%, 2.0% or 1.5%, respectively.

 

If the executive agreement is terminated by us for cause or as a result of Dr. Schuh’s death or permanent disability or if Dr. Schuh terminates his agreement voluntarily, Dr. Schuh shall receive a lump sum equal to (i) any portion of unpaid base compensation then due for periods prior to termination, (ii) any bonus or realization bonus earned but not yet paid through the date of termination and (iii) all expenses reasonably incurred by Dr. Schuh prior to date of termination.  If the executive agreement is terminated by us without cause Dr. Schuh shall receive a severance payment equal to base compensation for three months if termination occurs ten months after the effective date of the agreement and six months if termination occurs subsequent to ten months from the effective date.  If the executive agreement is terminated as a result of a change of control, Dr. Schuh shall receive a severance payment equal to base compensation for twelve months and all unvested stock options shall immediately vest and become fully exercisable for a period of six months following the date of termination.

 

On February 1, 2012, we entered into an executive agreement with Steve Zaniboni in which he agreed to serve as our Chief Financial Officer.  The term of the agreement is effective as of February 1, 2012 and continues until February 1, 2013 and is automatically renewed for successive one year periods at the end to each term.  Mr. Zaniboni’s compensation is $200,000 per year.  Mr. Zaniboni is eligible to receive a cash bonus of up to 50% of his base salary per year based on meeting certain performance objectives and bonus criteria.  Upon entering the agreement, Mr. Zaniboni was granted 1,000,000 non-qualified stock options which have an exercise price of $0.60 per share and vest annually in equal amounts over a period of four years.

 

If the executive agreement is terminated by us for cause or as a result of Mr. Zaniboni’s death or permanent disability or if Mr. Zaniboni terminates his agreement voluntarily, Mr. Zaniboni shall receive a lump sum equal to (i) any portion of unpaid base compensation then due for periods prior to termination, (ii) any bonus or realization bonus earned but not yet paid through the date of termination and (iii) all expenses reasonably incurred by Mr. Zaniboni prior to date of termination.  If the executive agreement is terminated by us without cause Mr. Zaniboni shall receive a severance payment equal to base compensation for three months if termination occurs ten months after the effective date of the agreement and six months if termination occurs subsequent to ten months from the effective date.  If the executive agreement is terminated as a result of a change of control, Mr. Zaniboni shall receive a severance payment equal to base compensation for twelve months and all unvested stock options shall immediately vest and become fully exercisable for a period of six months following the date of termination.

 

On December 26, 2005, we entered into a letter agreement with David Robbins, Ph.D. to serve as Vice President of Product Development for a term of three years. Mr. Robbins received a grant of 100,000 incentive stock options with an exercise price of $1.86 per share which vested in equal amounts over a period of three years beginning January 3, 2007. The agreement contained a provision pursuant to which all of the unvested stock options would vest in the event there was a change in control of our company. The above options were fully vested at January 3, 2009.

 

On October 7, 2011, we entered into an employment agreement with David Robbins, Ph.D. in which he agreed to serve as our Vice President, Research and Development.  The term of the agreement is effective as of October 7, 2011 and continues until October 7, 2012 and is automatically renewed for successive one year periods at the end to each term.  Dr. Robbins’ salary is $195,000 per year.  Dr. Robbins is eligible to receive a cash bonus of up to 25% of his base salary per year at the discretion of the Compensation Committee.  If the employment agreement is terminated by us without cause, Dr. Robbins shall be entitled to a severance payment equal to three months of base salary.

 

38



Table of Contents

 

ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

On August 6, 2010, we entered into an Agreement and Plan of Merger with E Acq Corp., our wholly-owned subsidiary, and Etherogen, Inc. pursuant to which we acquired all of the outstanding common stock of Etherogen, Inc. by issuing 12,262,782 shares of our common stock to the shareholders of Etherogen. Thomas Adams, our Chairman, Gary Jacob, a director of our company and Panetta Partners, Ltd., each were stockholders in Etherogen.  Gabriele Cerrone, a director of our company, is the managing partner of Panetta and in such capacity only exercises voting and dispositive control over securities owned by Panetta, despite him having only a small pecuniary interest in such securities. Dr. Adams, Dr. Jacob and Panetta received 1,800,000, 600,000 and 1,800,000 shares of our common stock in the merger. The disinterested members of our board of directors determined that the terms of the merger and the merger agreement were fair to, and in the best interests of, the company and our stockholders and the merger was approved by the disinterested board.  The fair value of the shares issued to effect the merger was $2,771,389, based on the fair value of our common stock on the date of the merger.

 

The merger was accounted for as an acquisition of assets for accounting purposes primarily because there were no processes acquired. The assets acquired consisted primarily of de minimus property, plant and equipment, patents, trademarks and other intellectual property, and in-process research and development. In addition, we assumed a note in the amount of $104,700 which was converted in to shares on the date of acquisition. In accordance with ASC Topic 805, Business Combinations, we recorded the total fair value of an intangible asset related to the patent of $104,700 on our consolidated balance sheet. The excess of the fair value of the consideration issued over the fair value of the net assets acquired was $2,666,869. The total excess of the fair value of the net assets acquired and the conversion of the notes was recorded as purchased in process research and development expense-related party on our consolidated statement of operations.

 

In April 2009, pursuant to a written consent of the majority of the shareholders, Thomas Adams was appointed as Chairman of the Board and was given delegated duties as our most senior executive officer until a Chief Executive Officer was appointed. Mr. Adams was granted 4,800,000 ten year options to purchase shares of the Company’s stock at $0.50 a share which vest in three equal annual installments on April 6, 2010, 2011 and 2012 provided he is still a director, officer or consultant and was retained as a consultant for a term of three years at an annual amount of $100,000.

 

In March 2010, the Board of Directors agreed to settle the amount of $100,000 in full due to Thomas Adams by issuing 200,000 units with each unit consisting of one share of common stock and one warrant to purchase shares of common stock at $0.50 a unit.

 

On August 10, 2011, we entered into an agreement with Thomas Adams to: (i) terminate the consulting arrangement and to consider the 200,000 units issued in March 2010 as full payment for his services under the consulting arrangement (ii) amend and restate his April 2009 option agreement by replacing the 4,800,000 options granted with 1,822,500 new options with the following terms:

 

a)               New grant date of August 5, 2011

b)              Exercise price of $0.53 per share

c)               800,000 options vested immediately, with the remaining 340,833 to vest on August 5, 2012, 340,833 to vest on August 5, 2013 and 340,834 to vest on August 5, 2014 provided he continues to provide services to the Company.

d)              Ten year option life, expiring August 5, 2021 or within 90 days of termination

 

Stanley Tennant, a director of our company, and a Debenture Holder in the principal amount of $137,500 received 338,126 shares of common stock relating to the Forbearance Agreement.  R. Merrill Hunter, a principal stockholder of our company, and a Debenture Holder in the principal amount of $550,000 received 1,352,504 shares of common stock relating to the Forbearance Agreement.

 

Any future transactions with officers, directors or 5% stockholders will be on terms no less favorable to us than could be obtained from independent parties. Any affiliated transactions must be approved by a majority of our independent and disinterested directors who have access to our counsel or independent legal counsel at our expense.

 

Our board of directors has determined that a majority of the board consists of members who are currently “independent” as that term is defined under current listing standards of NASDAQ.

 

ITEM 8. LEGAL PROCEEDINGS.

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

 

39



Table of Contents

 

We are not currently a party to any material legal proceedings.

 

ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

 

Market Information

 

Our common stock currently trades over the counter on the pink sheets under the symbol TROV.PK.

 

Our common stock was quoted on the OTC Bulletin Board under the symbol “XNOM.OB” from July 27, 2004 until June 14, 2007. Prior to July 27, 2004, our common stock was quoted on the OTC Bulletin Board under the symbol “UKAR.OB” but never traded. The following table shows the reported high and low closing bid quotations per share for our common stock based on information provided by the OTC Bulletin Board. Such over-the-counter market quotations reflect inter-dealer prices, without markup, markdown or commissions and, particularly since our common stock is traded infrequently, may not necessarily represent actual transactions or a liquid trading market.  The closing price of our common stock on the Pink Sheets on February 9, 2012 was $0.89 per share.

 

Fiscal 2012

 

High

 

Low

 

First Quarter (through February 9, 2012)

 

$

0.89

 

$

0.42

 

 

Fiscal 2011

 

High

 

Low

 

Fourth Quarter

 

$

0.70

 

$

0.35

 

Third Quarter

 

$

0.95

 

$

0.16

 

Second Quarter

 

$

0.39

 

$

0.13

 

First Quarter

 

$

0.50

 

$

0.27

 

 

Fiscal 2010

 

High

 

Low

 

Fourth Quarter

 

$

0.52

 

$

0.19

 

Third Quarter

 

$

0.50

 

$

0.15

 

Second Quarter

 

$

0.70

 

$

0.40

 

First Quarter

 

$

0.59

 

$

0.52

 

 

Number of Stockholders

 

As of February 9, 2012 there were 143 holders of record of our common stock.

 

Dividend Policy

 

Historically, we have not paid any dividends to the holders of our common stock and we do not expect to pay any such dividends in the foreseeable future as we expect to retain our future earnings for use in the operation and expansion of our business. Pursuant to the terms of the Series A Convertible Preferred Stock, dividends cannot be paid to the holders of our common stock so long as any dividends due on the Series A Convertible Preferred Stock remain unpaid.

 

40



Table of Contents

 

Equity Compensation Plan Information

 

The following table summarizes information about our equity compensation plans as of December 31, 2011.

 

Plan Category

 

Number of
Shares of
Common
Stock to be
Issued upon
Exercise of
Outstanding
Options and Warrants

 

Weighted-
Average Exercise
Price of
Outstanding
Options and
Warrants

 

Number of
Options
Remaining
Available for
Future Issuance
Under
Equity
Compensation
Plans
(excluding
securities
reflected in
column (a))

 

 

 

(a)

 

(b)

 

©

 

Equity Compensation Plans Approved by Stockholders(1)

 

12,000,000

 

$

.90

 

0

 

Equity Compensation Plans Not Approved by Stockholders(2)

 

24,165,994

 

$

 

 

Total

 

36,165,994

 

 

 

7,442,849

 

 


(1)                                        Consists entirely of options.

 

(2)                                        Of such amount, 21,608,843 are warrants.  Such warrants have an exercise price equal to $0.50 per share except for 100,000 warrants which have an exercise price of $1.80 per share.  All warrants are exercisable immediately and expire on December 31, 2018 except for (i) 100,000 warrants which expire on June 29, 2014, (ii) 140,000 warrants which expire on November 14, 2012, (iii) 100,000 warrants which expire on October 12, 2012 and (iv) 438,596 warrants which expire on October 29, 2013.  The remaining amount equal to 2,557,151 consist of stock options not approved by the stockholders.  We intend to obtain stockholder approval to increase the number of options available for issuance under our stock option plan as soon as possible.

 

ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.

 

On June 9, 2009 and July 2, 2009, we closed two private placement financings which raised gross proceeds of $275,000. We issued 550,000 shares of our common stock and warrants to purchase 550,000 shares of common stock. The purchase price paid by the investors was $.50 for each unit. The warrants expire on December 31, 2018. Each warrant is exercisable at $.70 per share. Each of the investors was an accredited investor. In connection with the issuance of the units, we relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended.

 

During the period from October 2, 2009 to December 16, 2009 we closed seven private placement financings which raised gross proceeds of $1,190,000. We issued 2,380,000 shares of our common stock and warrants to purchase 2,380,000 shares of common stock. The purchase price paid by the investor was $.50 for each unit. The warrants expire on December 31, 2018 and are exercisable at $.50 per share. Each of the investors was an accredited investor.  In connection with the issuance of the units, we relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended.

 

During the year ended December 31, 2010, we closed twelve private placement financings which raised gross proceeds of $1,734,700. We issued 3,469,400 shares of our common stock and warrants to purchase 3,469,400 shares of common stock in these transactions. The purchase price paid by the investors was $.50 for each unit. Each of the investors was an accredited investor.  The warrants expire December 31, 2018 and are exercisable at $.50 per share. In connection with the issuance of the units, we relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended.

 

During the nine months ended September 30, 2011, we closed fifteen private placement financings which raised gross proceeds of $1,510,000. We issued 3,020,000 shares of our common stock and warrants to purchase 3,020,000 shares of common stock in these transactions.  The purchase price paid by the investors was $.50 for each unit. The warrants expire December 31, 2018 and are

 

41



Table of Contents

 

exercisable at $.50 per share. Each of the investors was an accredited investor.  In connection with the issuance of the units, we relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended.

 

On October 3, 2011, we closed a private placement which raised gross proceeds of $693,500. We issued 1,387,000 shares of our common stock and warrants to purchase 1,387,000 shares of common stock in these transactions.  The purchase price paid by the investors was $.50 for each unit. The warrants expire December 31, 2018 and are exercisable at $.50 per share. Each of the investors was an accredited investor.  In connection with the issuance of the units, we relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended.

 

On November 28, 2011, we closed a private placement which raised gross proceeds of $110,000. We issued 220,000 shares of our common stock and warrants to purchase 220,000 shares of common stock in this transaction.  The purchase price paid by the investors was $.50 for each unit. The warrants expire December 31, 2018 and are exercisable at $.50 per share. Each of the investors was an accredited investor.  In connection with the issuance of the units, we relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended.

 

On December 16, 2011, we closed a private placement which raised gross proceeds of $260,000. We issued 520,000 shares of our common stock and warrants to purchase 520,000 shares of common stock in this transaction.  In addition, we issued 35,000 shares of common stock and warrants to purchase 35,000 shares of common stock as a finder’s fee.  The purchase price paid by the investors was $.50 for each unit. The warrants expire December 31, 2018 and are exercisable at $.50 per share. Each of the investors was an accredited investor.  In connection with the issuance of the units, we relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended.

 

On February 10, 2012, we closed a private placement which raised gross proceeds of $800,000.  We issued 1,600,000 shares of our common stock and warrants to purchase 1,600,000 shares of common stock in this transaction.  In addition, we issued 74,700 shares of common stock and warrants to purchase 74,700 shares of common stock as a finder’s fee.  The purchase price paid by the investors was $.50 for each unit. The warrants expire December 31, 2018 and are exercisable at $.50 per share. Each of the investors was an accredited investor.  In connection with the issuance of the units, we relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended.

 

ITEM 11. DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED.

 

General

 

As of February 9, 2012, our authorized capital stock consisted of 100,000,000 million shares of common stock, $0.0001 par value per share, and 20,000,000 million shares of preferred stock, $0.001 par value per share. Our board of directors may establish the rights and preferences of the preferred stock from time to time. As of February 9, 2012, there are 65,172,157 shares of our common stock issued and outstanding and 95,600 shares of Series A convertible preferred stock are issued and outstanding.

 

Common Stock

 

Holders of our common stock are entitled to one vote per share. Our certificate of incorporation does not provide for cumulative voting. Holders of our common stock are entitled to receive ratably such dividends, if any, as may be declared by our board of directors out of legally available funds. However, the current policy of our board of directors is to retain earnings, if any, for the operation and expansion of the company and, the consent of the holders of our series A convertible preferred stock is required for the payment of any such dividends on our common stock. Upon liquidation, dissolution or winding-up, the holders of our common stock are entitled to share ratably in all of our assets which are legally available for distribution, after payment of or provision for all liabilities and the liquidation preference of any outstanding Series A convertible preferred stock. The holders of our common stock have no preemptive, subscription, redemption or conversion rights.

 

Preferred Stock

 

Our certificate of incorporation provides that our board of directors is authorized to provide for the issuance of shares of preferred stock in one or more series and, by filing a certificate of designations pursuant to the applicable law of the State of Delaware (hereinafter referred to as a “Preferred Stock Designation”), to establish from time to time for each such series the number of shares to be included in each such series and to fix the designations, powers, rights and preferences of the shares of each such series, and the qualifications, limitations and restrictions thereof. The authority of the board of directors with respect to each series of Preferred Stock includes, but is not limited to, determination of the following:

 

·                       the designation of the series, which may be by distinguishing number, letter or title;

·                       the number of shares of the series, which number the board of directors may thereafter (except where otherwise provided in the Preferred Stock Designation) increase or decrease (but not below the number of shares thereof then outstanding);

·                       whether dividends, if any, shall be paid, and, if paid, the date or dates upon which, or other times at which, such dividends shall be payable, whether such dividends shall be cumulative or noncumulative, the rate of such dividends (which may be variable) and the relative preference in payment of dividends of such series;

·                       the redemption provisions and price or prices, if any, for shares of the series;

·                       the terms and amounts of any sinking fund or similar fund provided for the purchase or redemption of shares of the series;

·                       the amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of our corporation;

·                       whether the shares of the series shall be convertible into shares of any other class or series, or any other security, of our corporation or any other corporation, and, if so, the specification of such other class or series of such other security, the conversion price or prices, or rate or rates, any adjustments thereto, the date or dates on which such shares shall be convertible and all other terms and conditions upon which such conversion may be made;

·                       restrictions on the issuance of shares of the same series or of any other class or series; and

·                       the voting rights, if any, of the holders of shares of the series.

 

42



Table of Contents

 

On July 13, 2005, we closed a private placement of 277,100 shares of Series A Convertible Preferred Stock (the “Series A Convertible Preferred Stock”) and 386,651 warrants to certain investors for aggregate gross proceeds of $2,771,000 pursuant to a Securities Purchase Agreement dated as of July 13, 2005. The warrants sold to the Investors are immediately exercisable at $3.25 per share and are exercisable at any time within five years from the date of issuance. These investor warrants had a fair value of $567,085 on the date of issuance using a market price of $2.40 on that date. In addition we paid an aggregate $277,102 and issued an aggregate 105,432 warrants to purchase common stock to certain selling agents. The warrants issued to the selling agents are immediately exercisable at $2.50 per share and will expire five years after issuance. The material terms of the Series A Convertible Preferred Stock consist of:

 

1)          Dividends. Holders of the Series A Convertible Preferred Stock shall be entitled to receive cumulative dividends at the rate per share of 4% per annum, payable quarterly on March 31, June 30, September 30 and December 31, beginning with September 30, 2005. Dividends shall be payable, at our sole election, in cash or shares of common stock. As of December 31, 2009 we had recorded $76,480 in accrued cumulative unpaid preferred stock dividends. Preferred stock dividends of $38,240 for each of the years end December 31, 2009 and 2008 were recorded on the consolidated statements of operations.  As of September 30, 2011 and December 31, 2010, we had recorded $143,400 and $114,720, respectively, in accrued cumulative unpaid preferred stock dividends which included $28,680 and $38,240 for the nine months ended September 30, 2011 and the year ended December 31, 2010, respectively.

 

2)          Voting Rights. Shares of the Series A Convertible Preferred Stock shall have no voting rights. However, so long as any shares of Series A Convertible Preferred Stock are outstanding, we shall not, without the affirmative vote of the holders of the shares of Series A Convertible Preferred Stock then outstanding, (a) adversely change the powers, preferences or rights given to the Series A Convertible Preferred Stock, (b) authorize or create any class of stock senior or equal to the Series A Convertible Preferred Stock, (c) amend its articles of incorporation or other charter documents, so as to affect adversely any rights of the holders of Series A Convertible Preferred Stock or (d) increase the authorized number of shares of Series A Convertible Preferred Stock.

 

3)          Liquidation. Upon any liquidation, dissolution or winding-up of our company, the holders of the Series A Convertible Preferred Stock shall be entitled to receive an amount equal to the Stated Value per share, which is $10 per share plus any accrued and unpaid dividends.

 

4)          Conversion Rights. Each share of Series A Convertible Preferred Stock shall be convertible at the option of the holder into that number of shares of common stock determined by dividing the Stated Value, currently $10 per share, by the conversion price, originally $2.15 per share.

 

5)          Automatic Conversion .  Beginning July 13, 2006, if the price of the common stock equals $4.30 per share for 20 consecutive trading days, and an average of 50,000 shares of common stock per day shall have been traded during the 20 trading days, we shall have the right to deliver a notice to the holders of the Series A Convertible Preferred Stock, to convert any portion of the shares of Series A Convertible Preferred Stock into shares of Common Stock at the conversion price.

 

Stock Options

 

As of February 10, 2012 we had 17,761,151 stock options issued and outstanding, of which 9,413,486 are exercisable.

 

Warrants

 

As of February 10, 2012 we had 21,608,843 warrants outstanding, all of which are exercisable.

 

Transfer Agent and Registrar

 

The transfer agent and registrar for our common stock is Broadridge Corporate Issuer Solutions, Inc.

 

ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

 

Indemnification of Directors and Officers

 

Section 145 of the Delaware General Corporation Law (“DGCL”) provides, in general, that a corporation incorporated under the laws of the State of Delaware, such as we are, may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than a derivative action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or

 

43


 


Table of Contents

 

not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. In the case of a derivative action, a Delaware corporation may indemnify any such person against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification will be made in respect of any claim, issue or matter as to which such person will have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of the State of Delaware or any other court in which such action was brought determines such person is fairly and reasonably entitled to indemnity for such expenses.

 

Our Certificate of Incorporation and Bylaws provide that we will indemnify our directors, officers, employees and agents to the extent and in the manner permitted by the provisions of the DGCL, as amended from time to time, subject to any permissible expansion or limitation of such indemnification, as may be set forth in any stockholders’ or directors’ resolution or by contract.

 

Any repeal or modification of these provisions approved by our stockholders shall be prospective only, and shall not adversely affect any limitation on the liability of any of our directors or officers existing as of the time of such repeal or modification.

 

We are also permitted to apply for insurance on behalf of any director, officer, employee or other agent for liability arising out of his actions, whether or not the DGCL would permit indemnification.

 

Anti-Takeover Effect of Certain By-Law Provisions

 

Certain provisions of our By-Laws are intended to strengthen the Board’s position in the event of a hostile takeover attempt. These provisions have the following effects:

 

·           they provide that only business brought before an annual meeting by the Board or by a stockholder who complies with the procedures set forth in the By-Laws may be transacted at an annual meeting of stockholders; and

 

·           they provide for advance notice of certain stockholder actions, such as the nomination of directors and stockholder proposals.

 

Disclosure of Commission Position on Indemnification for Securities Act Liabilities

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to our directors, officers and persons controlling us, we have been advised that it is the Securities and Exchange Commission’s opinion that such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable.

 

ITEM 13. FINANCIAL STATEMENTS

 

See Item 15 — “Financial Statements and Exhibits.”

 

ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

None .

 

44



Table of Contents

 

ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.

 

(a)       The following financial statements are being filed as a part of this registration statement.

 

TrovaGene, Inc.

Index to Consolidated Financial Statements

 

Report of Independent Registered Public Accounting Firm

F-2

 

 

Consolidated Balance Sheets as of December 31, 2010 and 2009

F-3

 

 

Consolidated Statements of Operations for each of the two years in the period ended December 31, 2010 and for the period from August 4, 1999 (Inception) to December 31, 2010

F-4

 

 

Consolidated Statements of Stockholders’ Equity (Deficiency) for the period from August 4, 1999 (Inception) to December 31, 2010

F-5

 

 

Consolidated Statements of Cash Flows for years ended December 31, 2010 and 2009 and for the period from August 4, 1999 (Inception) to December 31, 2010

F-11

 

 

Notes to Consolidated Financial Statements

F-13

 

 

Condensed Consolidated Balance Sheets — September 30, 2011 (unaudited) and December 31, 2010

F-42

 

 

Condensed Consolidated Statements of Operations — Three and Nine Months ended September 30, 2011 and September 30, 2010 and for the period from August 4, 1999 (Inception) to September 30, 2011 (unaudited)

F-43

 

 

Condensed Consolidated Statements of Stockholders’ Equity (Deficiency)— period from August 4, 1999 (Inception) to September 30, 2011 (unaudited)

F-44

 

 

Condensed Consolidated Statements of Cash Flows — Nine Months ended September 30, 2011 and September 30, 2010 and for the period from August 4, 1999 (Inception) to September 30, 2011 (unaudited)

F-45

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

F-46

 

45



Table of Contents

 

(b) Exhibits

 

Exhibit
Number

 

Description

 

 

 

2.1

 

Agreement and Plan of Merger by and among TrovaGene, Inc., E Acq corp. and Etherogen, Inc. dated as of August 6, 2010*

 

 

 

3.1

 

Amended and Restated Certificate of Incorporation of TrovaGene, Inc.*

 

 

 

3.2

 

By-Laws of TrovaGene, Inc.*

 

 

 

4.1

 

Form of Common Stock Certificate of TrovaGene, Inc.*

 

 

 

4.2

 

2004 Stock Option Plan (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on July 19, 2004).+

 

 

 

10.1

 

Employment Agreement between TrovaGene, Inc. and David Robbins dated October 7, 2011.*+

 

 

 

10.2

 

Executive Agreement between TrovaGene, Inc. and Antonius Schuh dated October 4, 2011.*+

 

 

 

10.3

 

Summary of Terms of Lease Agreement dated as of October 28, 2009 between TrovaGene, Inc. and BMR-Sorrento West LLC.

 

 

 

10.4

 

Form of First Amendment to Standard Industrial Net Lease dated September 28, 2011 between TrovaGene, Inc. and BMR-Sorrento West LLC.

 

 

 

10.5

 

Form of Second Amendment to Standard Industrial Net Lease dated October 2011 between TrovaGene, Inc. and BMR-Sorrento West LLC.

 

 

 

10.6

 

Co-Exclusive Sublicense Agreement dated October 22, 2007 between TrovaGene, Inc. and Asuragen, Inc.

 

 

 

10.7

 

Amendment to Co-Exclusive Sublicense Agreement dated June 1, 2010 between TrovaGene, Inc. and Asuragen, Inc.

 

 

 

10.8

 

Sublicense Agreement dated as of August 27, 2007 between TrovaGene, Inc. and Ipsogen SAS.

 

 

 

10.9

 

Amendment to Co-Exclusive Sublicense Agreement dated as of September 1, 2010 between TrovaGene, Inc. and Ipsogen SAS.

 

 

 

10.10

 

Sublicense Agreement dated as of January 8, 2008 between TrovaGene, Inc. and Warnex Medical Laboratories.

 

 

 

10.11

 

Sublicense Agreement dated as of July 20, 2011 between TrovaGene, Inc. and Fairview Health Services..

 

 

 

10.12

 

Asset Purchase Agreement dated as of January 18, 2011 by and between TrovaGene, Inc. and TTFactor S.r.l.

 

 

 

10.13

 

Sublicense Agreement dated as of December 1, 2008 by and between TrovaGene, Inc. and InVivoScribe Technologies, Inc.

 

 

 

10.14

 

Sublicense Agreement dated as of August 25, 2008 by and between TrovaGene, Inc. and Laboratory Corporation of America Holdings.

 

 

 

10.15

 

Form of Sublicense Agreement effective as of February 8, 2011 by and between TrovaGene, Inc. and MLL Munchner Leukamielabor GmbH.

 

 

 

10.16

 

Sublicense Agreement effective as of June 15, 2010 by and between TrovaGene, Inc. and Skyline Diagnostics BV.

 

 

 

10.17

 

Asset Purchase Agreement dated as of January 6, 2012 by and among TrovaGene, Inc. and MultiGEN Diagnostics Inc. (incorporated by reference to Exhibit 10.1 to Form 8-K filed February 3, 2012).

 

 

 

10.18

 

Amendment No. 1 to Asset Purchase Agreement dated as of February 1, 2012 by and among TrovaGene, Inc. and MultiGEN Diagnostics Inc. (incorporated by reference to Exhibit 10.2 to Form 8-K filed February 3, 2012).

 

 

 

10.19

 

Reagent Supply Agreement dated as of February 1, 2012 by and among TrovaGene, Inc. and MultiGEN Diagnostics Inc. (incorporated by reference to Exhibit 10.3 to Form 8-K filed February 3, 2012).

 

 

 

10.20

 

Exclusive License Agreement effective as of December 12, 2011 by and between Columbia University and TrovaGene, Inc.

 

 

 

10.21

 

Form of Exclusive License Agreement effective as of October 2011 by and between Gianluca Gaidano, Robert Foa and Davide Rossi and TrovaGene, Inc.

 

 

 

10.22

 

Executive Agreement between TrovaGene, Inc. and Steve Zaniboni dated February 1, 2012.+

 

 

 

10.23

 

Exclusive License Agreement effective as of May 2006 by and between Brunangelo Falini, Cristina Mecucci and TrovaGene, Inc.

 

 

 

10.24

 

Form of First Amendment to Exclusive License Agreement effective as of August 2010 by and among Brunangelo Falini, Cristina Mecucci and TrovaGene, Inc.

 

 

 

14

 

Code of Business Conduct and Ethics Amended and Restated 2011.*

 

 

 

21

 

List of Subsidiaries.*

 

 

 

23.1

 

Consent of Independent Registered Public Accounting Firm

 


 

* Previously filed.

 

+ Indicates a management contract or compensatory plan or arrangement

 

46



Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

TrovaGene, Inc.

 

 

 

 

By:

/s/ Antonius Schuh, Ph.D

 

Name:

Antonius Schuh, Ph.D

 

 

 

 

Title:

Chief Executive Officer

 

Date: February 14, 2012

 

47



Table of Contents

 

TROVAGENE, INC.

(A Development Stage Company)

 

Index to Consolidated Financial Statements

 

Report of Independent Registered Public Accounting Firm

F-2

 

 

Consolidated Balance Sheets as of December 31, 2010 and 2009

F-3

 

 

Consolidated Statements of Operations for each of the two years in the period ended December 31, 2010 and for the period

 

from August 4, 1999 (Inception) to December 31, 2010

F-4

 

 

Consolidated Statements of Stockholders’ Equity (Deficiency) for the period from August 4, 1999 (Inception) to December 31, 2010

F-5

 

 

Consolidated Statements of Cash Flows for years ended December 31, 2010 and 2009, and for the period from August 4, 1999 (Inception) to December 31, 2010

F-11

 

 

Notes to Consolidated Financial Statements

F-13

 

 

Condensed Consolidated Balance Sheets — September 30, 2011 (unaudited) and December 31, 2010

F-42

 

 

Condensed Consolidated Statements of Operations — Three and Nine Months ended September 30, 2011 and September 30, 2010 and for the period from August 4, 1999 (Inception) to September 30, 2011 (unaudited)

F-43

 

 

Condensed Consolidated Statements of Stockholder’s Equity (Deficiency)—period from August 4, 1999 (Inception) to September 30, 2011 (unaudited)

F-44

 

 

Condensed Consolidated Statements of Cash Flows — Nine Months ended September 30, 2011 and September 30, 2010 and for the period from August 4, 1999 (Inception) to September 30, 2011 (unaudited)

F-45

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

F-46

 

F-1



Table of Contents

 

Report of Independent Registered Public Accounting Firm

 

Board of Directors and Stockholders

TrovaGene, Inc.

San Diego, CA

 

We have audited the accompanying consolidated balance sheets of TrovaGene, Inc. and Subsidiaries (a development stage company) as of December 31, 2010 and 2009 and the related consolidated statements of operations, stockholders’ equity (deficiency), and cash flows for each of the two years in the period ended December 31, 2010 and for the period from August 4, 1999 (inception) to December 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TrovaGene, Inc. and Subsidiaries at December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2010 and the period from August 4, 1999 (inception) to December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ BDO USA, LLP

 

New York, New York

 

November 23, 2011

 

 

F-2



Table of Contents

 

TrovaGene, Inc. and Subsidiaries

(A Development Stage Company)

Consolidated Balance Sheets

 

 

 

December 31, 2010

 

December 31, 2009

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

58,703

 

$

545,166

 

Accounts receivable

 

75,000

 

27,965

 

Prepaid expenses and other current assets

 

151,032

 

75,531

 

Total current assets

 

284,735

 

648,662

 

Property and equipment, net

 

31,260

 

11,901

 

Other assets

 

196,229

 

101,297

 

 

 

$

512,224

 

$

761,860

 

Liabilities and Stockholders’ Deficiency

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

637,863

 

$

826,316

 

Interest payable

 

28,639

 

29,025

 

Accrued expenses

 

420,099

 

236,801

 

Convertible debentures

 

2,335,050

 

2,113,677

 

Total current liabilities

 

3,421,651

 

3,205,819

 

Derivative financial instruments

 

2,085,938

 

1,342,750

 

Commitments and Contingencies

 

 

 

 

 

Stockholders’ deficiency

 

 

 

 

 

Preferred stock, $0.001 par value, 20,000,000 shares authorized, 95,600 shares outstanding at December 31, 2010 and 2009, designated as Series A Convertible Preferred Stock with liquidation preference of $956,000 at December 31, 2010 and 2009

 

96

 

96

 

Common stock, $0.0001 par value, 100,000,000 shares authorized, 52,610,713 and 35,211,908 issued and outstanding at December 31, 2010 and December 31, 2009, respectively

 

5,261

 

3,521

 

Additional paid-in capital

 

36,320,257

 

32,043,275

 

Deficit accumulated during development stage

 

(41,320,979

)

(35,833,601

)

Total stockholders’ deficiency

 

(4,995,365

)

(3,786,709

)

 

 

$

512,224

 

$

761,860

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-3



Table of Contents

 

TrovaGene, Inc. and Subsidiaries

(A Development Stage Company)

Consolidated Statements of Operations

 

 

 

For the years ended December 31,

 

For the period
August 4, 1999
(Inception) to

 

 

 

2010

 

2009

 

December 31, 2010

 

Royalty income

 

255,665

 

153,994

 

417,374

 

License fees

 

10,000

 

500,000

 

1,333,175

 

Total revenues

 

$

265,665

 

$

653,994

 

$

1,750,549

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

1,024,159

 

562,212

 

14,618,468

 

Purchased in-process research and development expense-related party

 

2,666,869

 

 

2,666,869

 

General and administrative

 

1,953,925

 

1,660,688

 

20,217,041

 

Total operating expenses

 

5,644,953

 

2,222,900

 

37,502,378

 

Operating loss

 

(5,379,288

)

(1,568,906

)

(35,751,829

)

Other income (expense):

 

 

 

 

 

 

 

Interest income

 

182

 

 

266,712

 

Interest expense

 

(115,585

)

(160,981

)

(1,268,736

)

Amortization of deferred debt costs and original issue discount

 

(221,373

)

(202,926

)

(2,346,330

)

Change in fair value of derivative instruments

 

266,926

 

273,382

 

1,055,333

 

Liquidated damages and other forbearance agreement settlement costs

 

 

(824,376

)

(1,758,111

)

Net loss

 

(5,449,138

)

(2,483,807

)

(39,802,961

)

Items attributed to preferred stock:

 

 

 

 

 

 

 

Preferred stock dividend

 

(38,240

)

(38,240

)

(269,677

)

Cumulative effect of early adoption of ASC 815-40 on November 1, 2006

 

 

 

 

(455,385

)

Series A convertible preferred stock beneficial conversion feature accreted as a dividend

 

 

 

(792,956

)

Net loss attributable to common stockholders

 

$

(5,487,378

)

$

(2,522,049

)

$

(41,320,979

)

Weighted average shares of common stock outstanding:

 

 

 

 

 

 

 

Basic and diluted

 

42,952,748

 

31,178,310

 

 

 

Net loss per common share:

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.13

)

$

(0.1

)

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-4



Table of Contents

 

TrovaGene, Inc. and Subsidiaries
(A Development Stage Company)

Consolidated Statements of Stockholders’ Equity (Deficiency)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred

 

Accumulated

 

Total

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Stock

 

During

 

Stockholders’

 

 

 

Common Stock

 

Treasury Shares

 

Paid-In

 

Based

 

Development

 

Equity

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Compensation

 

Stage

 

(Deficiency)

 

Balance, August 4, 1999 (Inception)

 

0

 

$

0

 

0

 

$

0

 

$

0

 

$

0

 

$

0

 

$

0

 

Issuance of common stock to founders for cash at $0.0002 per share

 

222,000,000

 

22,200

 

 

 

 

 

19,800

 

 

 

 

 

42,000

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,760

)

(14,760

)

Balance, January 31, 2000

 

222,000,000

 

22,200

 

0

 

0

 

19,800

 

0

 

(14,760

)

27,240

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(267,599

)

(267,599

)

Balance, January 31, 2001

 

222,000,000

 

22,200

 

0

 

0

 

19,800

 

0

 

(282,359

)

(240,359

)

Capital contribution of cash

 

 

 

 

 

 

 

 

 

45,188

 

 

 

 

 

45,188

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(524,224

)

(524,224

)

Balance, January 31, 2002

 

222,000,000

 

22,200

 

0

 

0

 

64,988

 

0

 

(806,583

)

(719,395

)

Issuance of common stock for cash at $0.0005 per share

 

7,548,000

 

755

 

 

 

 

 

2,645

 

 

 

 

 

3,400

 

Capital contribution of cash

 

*

 

 

 

 

 

 

 

2,500

 

 

 

 

 

2,500

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(481,609

)

(481,609

)

Balance, January 31, 2003

 

229,548,000

 

22,955

 

0

 

0

 

70,133

 

0

 

(1,288,192

)

(1,195,104

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(383,021

)

(383,021

)

Balance, January 31, 2004

 

229,548,000

 

22,955

 

0

 

0

 

70,133

 

0

 

(1,671,213

)

(1,578,125

)

Waiver of founders’ deferred compensation

 

 

 

 

 

 

 

 

 

1,655,031

 

 

 

 

 

1,655,031

 

Private placement of common stock

 

2,645,210

 

265

 

 

 

 

 

2,512,685

 

 

 

 

 

2,512,950

 

Redemption of shares held by Panetta Partners, Inc.

 

(218,862,474

)

(21,886

)

 

 

 

 

(478,114

)

 

 

 

 

(500,000

)

Costs associated with recapitalization

 

 

 

 

 

 

 

 

 

(301,499

)

 

 

 

 

(301,499

)

Share exchange with founders

 

2,258,001

 

226

 

 

 

 

 

(226

)

 

 

 

 

0

 

Issuance of treasury shares

 

 

 

 

 

350,000

 

35

 

(35

)

 

 

 

 

0

 

Issuance of treasury shares to escrow

 

350,000

 

35

 

(350,000

)

(35

)

0

 

 

 

 

 

0

 

Issuance of common stock and warrants for cash at $1.95 per share

 

1,368,154

 

136

 

 

 

 

 

2,667,764

 

 

 

 

 

2,667,900

 

Issuance of 123,659 warrants to selling agents

 

 

 

 

 

 

 

 

 

403,038

 

 

 

 

 

403,038

 

Finders warrants charged to cost of capital

 

 

 

 

 

 

 

 

 

(403,038

)

 

 

 

 

(403,038

)

Deferred stock-based compensation

 

 

 

 

 

 

 

 

 

1,937,500

 

(1,937,500

)

 

 

0

 

Amortization of deferred stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

245,697

 

 

 

245,697

 

Options issued to consultants

 

 

 

 

 

 

 

 

 

1,229,568

 

 

 

 

 

1,229,568

 

Warrants issued to consultants

 

 

 

 

 

 

 

 

 

2,630,440

 

 

 

 

 

2,630,440

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,371,027

)

(5,371,027

)

Balance, January 31, 2005

 

17,306,891

 

$

1,731

 

0

 

$

0

 

$

11,923,247

 

$

(1,691,803

)

$

(7,042,240

)

$

3,190,935

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-5



Table of Contents

 

TrovaGene, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Stockholders’ Equity (Deficiency) (Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred

 

Accumulated

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Stock

 

During

 

Stockholders’

 

 

 

Preferred Stock

 

Common Stock

 

Treasury Shares

 

Paid-In

 

Based

 

Development

 

Equity

 

 

 

Shares  

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Compensation

 

Stage

 

(Deficiency)

 

Balance, January 31, 2005

 

0

 

$

0

 

17,306,891

 

$

1,731

 

0

 

$

0

 

$

11,923,247

 

$

(1,691,803

)

$

(7,042,240

)

$

3,190,935

 

Private placement of common stock

 

 

 

 

 

102,564

 

10

 

 

 

 

 

199,990

 

 

 

 

 

200,000

 

Payment of selling agents fees and expenses in cash

 

 

 

 

 

 

 

 

 

 

 

 

 

(179,600

)

 

 

 

 

(179,600

)

Common stock issued to selling agents

 

 

 

 

 

24,461

 

2

 

 

 

 

 

(2

)

 

 

 

 

0

 

Private placement of common stock

 

 

 

 

 

1,515,384

 

152

 

 

 

 

 

2,954,847

 

 

 

 

 

2,954,999

 

Payment of selling agents fees and expenses in cash

 

 

 

 

 

 

 

 

 

 

 

 

 

(298,000

)

 

 

 

 

(298,000

)

Issuance of 121,231 warrants issued to selling agents

 

 

 

 

 

 

 

 

 

 

 

 

 

222,188

 

 

 

 

 

222,188

 

Selling agents warrants charged to cost of capital

 

 

 

 

 

 

 

 

 

 

 

 

 

(222,188

)

 

 

 

 

(222,188

)

Private placement of preferred stock and warrants for cash at $10.00 per share (restated)

 

277,100

 

277

 

 

 

 

 

 

 

 

 

2,770,723

 

 

 

 

 

2,771,000

 

Accretion of preferred stock dividends (restated)

 

 

 

 

 

 

 

 

 

 

 

 

 

792,956

 

 

 

(792,956

)

0

 

Value of warrants reclassified to derivative financial instrument liability

 

 

 

 

 

 

 

 

 

 

 

 

 

(567,085

)

 

 

 

 

(567,085

)

Payment of selling agents fees and expenses in cash

 

 

 

 

 

 

 

 

 

 

 

 

 

(277,102

)

 

 

 

 

(277,102

)

Issuance of 105,432 warrants issued to selling agents

 

 

 

 

 

 

 

 

 

 

 

 

 

167,397

 

 

 

 

 

167,397

 

Selling agents warrants charged to cost of capital

 

 

 

 

 

 

 

 

 

 

 

 

 

(167,397

)

 

 

 

 

(167,397

)

Return of treasury shares from escrow

 

 

 

 

 

(350,000

)

(35

)

350,000

 

35

 

 

 

 

 

 

 

0

 

Retirement of treasury shares

 

 

 

 

 

 

 

 

 

(350,000

)

(35

)

35

 

 

 

 

 

0

 

Common stock issued for services

 

 

 

 

 

5,000

 

0

 

 

 

 

 

16,500

 

 

 

 

 

16,500

 

Stock-based compensation expense for non-employees

 

 

 

 

 

 

 

 

 

 

 

 

 

2,928,298

 

 

 

 

 

2,928,298

 

Amortization of deferred stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

645,832

 

 

 

645,832

 

Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(60,741

)

(60,741

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,844,326

)

(7,844,326

)

Balance, January 31, 2006 (restated)

 

277,100

 

$

277

 

18,604,300

 

$

1,860

 

0

 

$

0

 

$

20,264,807

 

$

(1,045,971

)

$

(15,740,263

)

$

3,480,710

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-6



Table of Contents

 

TrovaGene, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Stockholders’ Equity (Deficiency) (Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred

 

Accumulated

 

Total

 

Temporary Equity—

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Stock

 

During

 

Stockholders’

 

Unregistered

 

 

 

Preferred Stock

 

Common Stock

 

Paid-In

 

Based

 

Development

 

Equity

 

Common Stock

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Compensation

 

Stage

 

(Deficiency)

 

Shares

 

Amount

 

Balance, January 31, 2006 (restated)

 

277,100

 

$

277

 

18,604,300

 

$

1,860

 

$

20,264,807

 

$

(1,045,971

)

$

(15,740,263

)

$

3,480,710

 

 

$

 

Conversion of Series A preferred stock and issuance of common stock

 

(174,000

)

(174

)

826,431

 

83

 

91

 

 

 

 

 

 

 

 

Implementation of ASC 718

 

 

 

 

 

 

 

 

 

(1,045,971

)

1,045,971

 

 

 

0

 

 

 

 

 

Private placement of common stock

 

 

 

 

 

754,721

 

75

 

943,326

 

 

 

 

 

943,401

 

 

 

 

 

Payment of selling agents fees and expenses in cash

 

 

 

 

 

 

 

 

 

(118,341

)

 

 

 

 

(118,341

)

 

 

 

 

Issuance of 94,672 warrants to selling agents

 

 

 

 

 

 

 

 

 

55,568

 

 

 

 

 

55,568

 

 

 

 

 

Selling agents warrants charged to cost of apital

 

 

 

 

 

 

 

 

 

(55,568

)

 

 

 

 

(55,568

)

 

 

 

 

Issuance of common stock and warrants for cash at $1.00 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,000,000

 

1,000,000

 

Payment of finders fees and expenses in cash

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(80,000

)

Value of warrants classified as derivative financial instrument liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,000

)

Issuance of 164,550 units to finder

 

 

 

 

 

 

 

 

 

167,856

 

 

 

 

 

167,856

 

 

 

 

 

Common Stock issued for services

 

 

 

 

 

8,696

 

1

 

9,565

 

 

 

 

 

9,566

 

 

 

 

 

Value attributed to warrants issued with 6% convertible debentures

 

 

 

 

 

 

 

 

 

1,991,822

 

 

 

 

 

1,991,822

 

 

 

 

 

Reclassification of derivative financial instruments to stockholders’ equity upon adoption of ASC 815-40

 

 

 

 

 

 

 

 

 

567,085

 

 

 

(455,385

)

111,700

 

 

 

 

 

Warrants issued for services

 

 

 

 

 

 

 

 

 

101,131

 

 

 

 

 

101,131

 

 

 

 

 

Donated services

 

 

 

 

 

 

 

 

 

62,500

 

 

 

 

 

62,500

 

 

 

 

 

Stock based compensation

 

 

 

 

 

 

 

 

 

1,572,545

 

 

 

 

 

1,572,545

 

 

 

 

 

Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

(59,164

)

(59,164

)

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,134,067

)

(7,134,067

)

 

 

 

 

Balance, January 31, 2007

 

103,100

 

$

103

 

20,194,148

 

$

2,019

 

$

24,516,416

 

$

0

 

$

(23,388,879

)

$

1,129,659

 

1,000,000

 

$

905,000

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-7



Table of Contents

 

TrovaGene, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Stockholders’ Equity (Deficiency) (Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

Total

 

Temporary Equity—

 

 

 

 

 

 

 

 

 

 

 

Additional

 

During

 

Stockholders’

 

Unregistered

 

 

 

Preferred Stock

 

Common Stock

 

Paid-In

 

Development

 

Equity

 

Common Stock

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Stage

 

(Deficiency)

 

Shares

 

Amount

 

Balance, January 31, 2007

 

103,100

 

$

103

 

20,194,148

 

$

2,019

 

$

24,516,416

 

$

(23,388,879

)

1,129,659

 

1,000,000

 

$

905,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of preferred stock to common stock

 

(7,500

)

(7

)

46,875

 

5

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Private placement of common stock

 

 

 

 

 

1,700,000

 

170

 

849,830

 

 

 

850,000

 

 

 

 

 

Payment of selling agent fees and expenses

 

 

 

 

 

 

 

 

 

(51,733

)

 

 

(51,733

)

 

 

 

 

Issuance of warrants to selling agents

 

 

 

 

 

 

 

 

 

45,403

 

 

 

45,403

 

 

 

 

 

Selling agent warrants charged to cost of capital

 

 

 

 

 

 

 

 

 

(45,403

)

 

 

(45,403

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liability — warrants at issuance

 

 

 

 

 

 

 

 

 

(45,371

)

 

 

(45,371

)

 

 

 

 

Donated services

 

 

 

 

 

 

 

 

 

275,000

 

 

 

275,000

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

914,847

 

 

 

914,847

 

 

 

 

 

Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

(35,054

)

(35,054

)

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,683,141

)

(4,683,141

)

 

 

 

 

Balance, December 31, 2007

 

95,600

 

$

96

 

21,941,023

 

$

2,194

 

$

26,458,991

 

$

(28,107,074

)

(1,645,793

)

1,000,000

 

$

905,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification of common stock initially recorded as temporary equity

 

 

 

 

 

1,000,000

 

100

 

904,900

 

 

 

905,000

 

(1,000,000

)

(905,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Private placement of common stock

 

 

 

 

 

1,984,091

 

198

 

1,144,802

 

 

 

1,145,000

 

 

 

 

 

Payment of selling agents fees and expenses

 

 

 

 

 

 

 

 

 

(74,500

)

 

 

(74,500

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of debenture to common stock

 

 

 

 

 

187,282

 

19

 

93,622

 

 

 

93,641

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liability — warrants at issuance

 

 

 

 

 

 

 

 

 

(201,122

)

 

 

(201,122

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Donated services

 

 

 

 

 

 

 

 

 

390,750

 

 

 

390,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

 

 

 

 

 

 

 

543,697

 

 

 

543,697

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

(38,240

)

(38,240

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(5,166,240

)

(5,166,240

)

 

 

 

 

Balance, December 31, 2008

 

95,600

 

$

96

 

25,112,396

 

$

2,511

 

$

29,261,140

 

$

(33,311,554

)

$

(4,047,807

)

0

 

$

0

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-8



Table of Contents

 

TrovaGene, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Stockholders’ Equity (Deficiency) (Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

Total

 

 

 

 

 

 

 

 

 

 

 

Additional

 

During

 

Stockholders’

 

 

 

Preferred Stock

 

Common Stock

 

Paid-In

 

Development

 

Equity

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Stage

 

(Deficiency)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December, 31, 2008

 

95,600

 

$

96

 

25,112,396

 

$

2,511

 

$

29,261,140

 

$

(33,311,554

)

$

(4,047,807

)

Issuance of shares of common stock in connection with convertible debenture forbearance agreement

 

 

 

 

 

5,437,472

 

544

 

1,739,415

 

 

 

1,739,959

 

Issuance of shares of common stock in payment of convertible debenture interest

 

 

 

 

 

360,881

 

36

 

112,255

 

 

 

112,291

 

Private placements of common stock

 

 

 

 

 

2,930,000

 

293

 

1,464,707

 

 

 

1,465,000

 

Issuance of common stock pursuant to a non-exclusive selling agent’s agreement ‘

 

 

 

 

 

413,379

 

41

 

306,696

 

 

 

306,737

 

Issuance of shares of common stock re settlement for consulting services rendered

 

 

 

 

 

957,780

 

96

 

478,794

 

 

 

478,890

 

Stock based compensation expense

 

 

 

 

 

 

 

 

 

177,836

 

 

 

177,836

 

Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

(38,240

)

(38,240

)

Derivative liability — warrants and price protected units upon issuance

 

 

 

 

 

 

 

 

 

(1,497,568

)

 

 

(1,497,568

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(2,483,807

)

(2,483,807

)

Balance, December 31, 2009

 

95,600

 

$

96

 

35,211,908

 

$

3,521

 

$

32,043,275

 

$

(35,833,601

)

$

(3,786,709

)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-9



Table of Contents

 

TrovaGene, Inc. and Subsidiaries

(A Development Stage Company)

Consolidated Statements of Stockholders’ Equity (Deficiency) (Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

Preferred Stock

 

Common Stock

 

Additional
Paid-In

 

Deficit
During

Development

 

Total
Stockholders’
Equity

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Stage

 

(Deficiency)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2009

 

95,600

 

$

96

 

35,211,908

 

$

3,521

 

32,043,275

 

(35,833,601

)

$

(3,786,709

)

Issuance of shares of common stock in payment of convertible debenture interest

 

 

 

 

 

513,712

 

51

 

115,920

 

 

 

115,971

 

Issuance of common stock to selling agents

 

 

 

 

 

476,000

 

48

 

(48

)

 

 

 

Private placement of units

 

 

 

 

 

3,469,400

 

347

 

1,734,353

 

 

 

1,734,700

 

Derivative liabilitiy — price protected units upon issuance

 

 

 

 

 

 

 

 

 

(1,010,114

)

 

 

(1,010,114

)

Consulting services settled via issuance of stock

 

 

 

 

 

425,000

 

43

 

212,457

 

 

 

212,500

 

Shares issued in settlement of legal fees

 

 

 

 

 

175,439

 

17

 

99,983

 

 

 

100,000

 

Stock issued in payment of deferred salary to former CEO

 

 

 

 

 

76,472

 

8

 

28,338

 

 

 

28,346

 

Shares issued in connection with Agreement & Plan of Merger with Etherogen, Inc,

 

 

 

 

 

12,262,782

 

1,226

 

2,770,163

 

 

 

2,771,389

 

Stock Based Compensation expense

 

 

 

 

 

 

 

 

 

325,930

 

 

 

325,930

 

Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

(38,240

)

(38,240

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(5,449,138

)

(5,449,138

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2010

 

95,600

 

$

96

 

52,610,713

 

$

5,261

 

36,320,257

 

$

(41,320,979

)

$

(4,995,365

)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-10



Table of Contents

 

TrovaGene, Inc. and Subsidiaries

(A Development Stage Company)

 

Consolidated Statements of Cash Flows

 

 

 

Twelve months
ended December 31,
2010

 

Twelve months
ended December 31,
2009

 

For the period
August 4, 1999
(Inception) to
December 31, 2010

 

 

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

 

 

Net loss

 

$

(5,449,138

)

$

(2,483,807

)

$

(39,802,961

)

 

 

 

 

 

 

 

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

8,388

 

54,554

 

211,514

 

Stock based compensation expense

 

325,930

 

177,836

 

11,229,346

 

 

 

 

 

 

 

 

 

Founders’ compensation contributed to equity

 

 

 

1,655,031

 

 

 

 

 

 

 

 

 

Donated services contributed to equity

 

 

 

829,381

 

 

 

 

 

 

 

 

 

Settlement of consulting services in stock

 

 

478,890

 

478,890

 

Amortization of deferred debt costs and original issue discount

 

221,373

 

202,926

 

2,346,330

 

Liquidated damages and other forbearance agreement settlement costs paid in stock

 

 

824,376

 

1,758,111

 

 

 

 

 

 

 

 

 

Interest expense on convertible debentures paid in stock

 

115,585

 

141,416

 

700,561

 

 

 

 

 

 

 

 

 

Change in fair value of financial instruments

 

(266,926

)

(273,382

)

(1,055,333

)

 

 

 

 

 

 

 

 

Purchased In Process Research and Development expense-related party

 

2,666,869

 

 

2,666,869

 

Stock issued in connection with payment of deferred salary

 

28,346

 

 

28,346

 

Stock issued in connection with settlement of legal fees

 

100,000

 

 

100,000

 

Stock issued in connection with consulting services

 

112,500

 

 

112,500

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Increase in other assets

 

9,768

 

(45,384

)

(91,529

)

Increase in accounts receivable

 

(47,035

)

(8,877

)

(75,000

)

Increase in prepaid expenses

 

(75,501

)

(19,931

)

(151,032

)

Increase (decrease) in accounts payable and accrued expenses

 

161,125

 

(283,123

)

912,185

 

Net cash used in operating activities

 

(2,088,716

)

(1,234,506

)

(18,146,791

)

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

Assets acquired in Etherogen, Inc. merger

 

(104,700

)

 

(104,700

)

Capital expenditures

 

(27,747

)

(11,901

)

(242,775

)

Net cash used in investing activities

 

(132,447

)

(11,901

)

(347,475

)

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

Proceeds from sale of 6% convertible debenture

 

 

164,550

 

2,335,050

 

Debt issuance costs

 

 

 

(297,104

)

Proceeds from sale of common stock and units, net of expenses

 

1,734,700

 

1,465,000

 

14,858,505

 

Proceeds from a non-exclusive selling agent’s agreement

 

 

142,187

 

142,187

 

Note (repayment)

 

 

(120,000

)

 

Costs associated with recapitalization

 

 

 

(362,819

)

Proceeds from sale of preferred stock

 

 

 

2,771,000

 

Payment of finders’ fee on preferred stock

 

 

 

(277,102

)

Redemption of common stock

 

 

 

(500,000

)

Payment of preferred stock dividends

 

 

 

(116,718

)

Net cash provided by financing activities

 

1,734,700

 

1,651,736

 

18,552,969

 

Net change in cash and equivalent-(decrease)increase

 

(486,463

)

405,329

 

58,703

 

Cash and cash equivalents—Beginning of period

 

545,166

 

139,837

 

 

Cash and cash equivalents—End of period

 

$

58,703

 

$

545,166

 

$

58,703

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-11



Table of Contents

 

TrovaGene, Inc. and Subsidiaries
(A Development Stage Company)

 

Consolidated Statements of Cash Flows - Continued

 

 

 

Twelve months
ended December 31,
2010

 

Twelve months
ended December 31,
2009

 

For the period
August 4, 1999
(Inception) to
December 31, 2010

 

Supplementary disclosure of cash flow activity:

 

 

 

 

 

 

 

Cash paid for taxes

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

Conversion of 174,000 shares of preferred stock into 826,431 shares of common stock:

 

 

 

 

 

 

 

Surrender of 174,000 shares of preferred stock

 

$

 

$

 

$

(1,740,000

)

Issuance of 826,431 shares of common stock

 

 

 

$

1,740,000

 

Series A Preferred beneficial conversion feature accreted as a dividend

 

 

 

$

792,956

 

Preferred stock dividends accrued

 

$

38,240

 

$

38,240

 

$

114,720

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-12



Table of Contents

 

TrovaGene, Inc. and Subsidiaries

(A Development Stage Company)

 

Notes to Consolidated Financial Statements

 

1. Business Overview

 

TrovaGene, Inc. (“Trovagene” or the “Company”) (formerly known as Xenomics, Inc. until its name was changed in January 2009, is a development stage molecular diagnostic company that focuses on the development and marketing of urine-based nucleic acid tests for patient/disease screening and monitoring.  The Company’s novel tests predominantly use transrenal DNA (Tr-DNA) and transrenal RNA (Tr-RNA).  TrovaGene’s primary focus is to leverage its urine-based (i.e. transrenal) testing platform to facilitate improvements in Women’s Healthcare.  Tr-DNAs and Tr-RNAs are fragments of nucleic acids derived from dying cells inside the body. The intact DNA is fragmented in dying cells and released in the blood stream. These fragments have been shown to cross the kidney barrier and are detected in urine. In addition, there is evidence that some species of RNA or their fragments are stable enough to cross the renal barrier. These RNA can also be isolated from urine, detected and analyzed. The Company’s technology is applicable to all transrenal nucleic acids (Tr-NA). TrovaGene’s patented technology uses safe, non-invasive, cost effective and simple urine collection and can be applied to a broad range of testing including: prenatal genetic testing, infectious diseases, tumor detection and monitoring, tissue transplantation, forensic identification and for patient selection in clinical trials.  TrovaGene believes that its technology is ideally suited to be used in developing molecular diagnostic assays that will allow physicians to provide very simple, non-invasive and convenient screening and monitoring tests for their patients by identifying specific biomarkers involved in the disease process.  The Company’s novel assays will facilitate much improved testing compliance resulting in earlier diagnosis of disease, more targeted treatment which will be more cost effective, and improvements in the quality of life for the patient.

 

In 2010, TrovaGene acquired a highly sensitive CMOS detection technology for DNA, RNA as well as proteins (See Note 4). A key advantage of this technology is that it is extremely sensitive and does not require amplification (i.e. use of PCR Polymerase Chain Reaction) of nucleic acids. Therefore, it reduces the complexity and cost of molecular diagnostics as it will not require significant equipment purchases or amplification training, and as such may open up new markets for molecular diagnostics such as hospitals and independent labs that currently do not perform high complexity assays such as those requiring PCR.  TrovaGene feels that this detection technology is highly complementary and synergistic with its transrenal technology, and may eventually be positioned in certain situations as a standalone molecular diagnostic device. In this regard, TrovaGene plans to leverage this novel CMOS technology toward the development of unique Women’s Healthcare diagnostics and has finalized the system architecture, operating procedure and software specifications.

 

As a mechanism to generate steady annual cash flow, in 2006 TrovaGene licensed a new DNA-based biomarker (NPM1) specific for a subtype of acute myeloid leukemia (AML); this marker provides valuable information and insights as to disease prognosis and monitoring for minimal residual disease (MRD). Testing for NPM1 mutations has been added to AML practice guidelines by the National Comprehensive Cancer Network (NCCN).  TrovaGene has signed licenses incorporating this biomarker with Sequenom, Inc. which was terminated in March 2011 and with Ipsogen (Europe) and Asuragen (US), who have developed and are manufacturing test kits for sale to labs from which TrovaGene earns a royalty.  TrovaGene has also signed non-exclusive royalty bearing licenses with various labs including LabCorp (US), InVivo Scribe (US), Skyline (Europe), MLL (Europe) and Warnex (Canada), who will be providing lab testing services for this marker.  TrovaGene is actively seeking to sign additional royalty bearing non-exclusive license agreements with additional labs to provide this testing service.

 

Since inception on August 4, 1999, TrovaGene’s efforts have been principally devoted to research and development, securing and protecting patents and raising capital. From inception through December 31, 2010, the Company has sustained cumulative net losses attributed to common stockholders of $42,320,979.  The Company’s losses have resulted primarily from expenditures incurred in connection with research and development activities, stock based compensation expense, patent filing and maintenance expenses, outside accounting and legal services and regulatory, scientific and financial consulting fees, amortization and liquidated damages. From inception through December 31, 2010, the Company has generated only limited licensing revenue from operations and expects to incur additional losses to perform further research and development activities.

 

TrovaGene’s product development efforts are in their early stages and the Company cannot make estimates of the costs or the time they will take to complete. The risk of completion of any program is high because of the many uncertainties

 

F-13



Table of Contents

 

involved in bringing new tests to market including the long duration of clinical testing, the specific performance of proposed products under stringent protocols, the applicable regulatory approval and review cycles, the nature and timing of costs, and competing technologies being developed by organizations with significantly greater resources.

 

2. Basis of Presentation and Going Concern

 

The accompanying consolidated financial statements of TrovaGene, which include its wholly owned subsidiary Xenomics, Inc., a California corporation (“ Xenomics Sub”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All intercompany balances and transactions have been eliminated. Certain items in the comparable prior period’s financial statements have been reclassified to conform to the current period’s presentation.

 

Going Concern

 

TrovaGene’s consolidated financial statements as of December 31, 2010 have been prepared under the assumption that the Company will continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to generate additional revenue. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company will be required to raise additional capital within the next twelve months to complete the development and commercialization of current product candidates and to continue to fund operations at its current cash expenditure levels.

 

Cash used in operating activities was $2,088,716 and $1,234,506 for the twelve months ended December 31, 2010 and 2009, respectively. During the twelve months ended December 31, 2010 and 2009 the Company incurred net losses attributable to common stockholders of $5,487,378 and $2,522,049, respectively.

 

To date, TrovaGene’s sources of cash have been primarily limited to the sale of debt and equity securities. Net cash provided by financing activities for the twelve months ended December 31, 2010 and 2009 was $1,734,700, and $1,651,736, respectively. The Company cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that the Company can raise additional funds by issuing equity securities, the Company’s stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact the Company’s ability to conduct its business.

 

If the Company is unable to raise additional capital when required or on acceptable terms, it may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more of its product candidates. The Company may also be required to:

 

·       Seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; and

 

·       Relinquish licenses or otherwise dispose of rights to technologies, product candidates or products that the Company would otherwise seek to develop or commercialize themselves, on unfavorable terms.

 

The Company has approximately $561,000 of cash in the bank at November 23, 2011. Based on the Company’s projections of future ordinary expenses and expected receipts the Company has enough cash to pay expenses through April of 2012.

 

Restatements

 

During the year ended January 31, 2006 and through March 13, 2006, the Company received several comment letters from the Securities and Exchange Commission in connection with its Form SB-2 which was filed in August 2005. While responding to those comment letters, the Company determined that financial statements for the twelve months ended January 31, 2005 and the quarterly periods within the nine months ended October 31, 2005 required restatement. Consequently, the Company amended its Annual Report on Form 10-KSB for the year ended January 31, 2005 and its Quarterly Reports on Form 10-QSB for the three months ended April 30, 2005, July 31, 2005, and October 31, 2005. Such restatements related to the accounting for the Company’s acquisition of Xenomics Sub, deferred founders’ compensation contributed to capital, stock based compensation expense, and derivative financial instruments and are described in the Company’s Amendment No. 5 to Form SB-2 filed with the Commission on March 15, 2006.

 

In connection with the preparation of this Form 10 the Company determined that the following inaccuracies were reflected in the financial statements included in the Company’s Annual Report on Form 10-KSB for the year ended January 31, 2006 and the Company’s Quarterly Report on Form 10-QSB for the three months ended July 31, 2005, October 31, 2005, April 30, 2006, July 31, 2006, and October 31, 2006 in connection with the issuance of Series A Convertible Preferred Stock on July 13, 2005:

 

a)     The accounting for the classification of amounts between par value and additional paid-in-capital, and

 

b)     The calculation of the value of the beneficial conversion feature.

 

F-14



Table of Contents

 

Consequently, the following adjustments have been made:

 

a)     Preferred stock was reduced by $2,203,638 with a corresponding increase to additional paid-in-capital of $2,674,385 and a decrease of $470,747 to retained earnings. There was no impact upon operating results.

b)     The beneficial conversion feature was revised from $322,209 to $792,956. The total impact of this restatement on the Company’s statement of operations was to increase the net loss attributable to common stockholders for the year ended January 31, 2006 by $470,747 or $0.02 per share.

 

The Company and audit committee discussed the above errors and adjustments with our current independent registered public accounting firms and have determined that a restatement for the year ended January 31, 2006 was necessary to be reflected in this Form 10. The effect of this restatement is reflected in the consolidated statements of operations and stockholders’ equity (deficiency) for the period August 4, 1999 (inception) to December 31, 2010.

 

Change in fiscal year end

 

In 2007, we changed our fiscal year end from January 31 to December 31.

 

3. Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

Cash and cash equivalents consist of checking accounts and money market funds as of December 31, 2010 and December 31, 2009 on deposit with U.S. commercial banks, which at any point in time, may exceed federally insured limits. The FDIC has increased insured limits per depositor per insured bank. The Company regularly monitors the financial condition of the institutions at which it has depositary accounts. The risk of loss is nominal.

 

Royalty and License Revenues

 

Under the Company’s royalty and license agreements payments are received which include minimum royalty and milestone payments as well as license fees. License fees are recognized when earned. Royalty income is recorded in the same period as the sales that generated such income. Milestone payments are recognized in the period when the milestone is achieved.

 

Allowance for Doubtful Accounts

 

The Company reviews the collectability of accounts receivable based on an assessment of historic experience, current economic conditions, and other collection indicators. At December 31, 2010 and 2009, the Company has not recorded an allowance for doubtful accounts. When accounts are determined to be uncollectible, they are written off against the reserve balance and the reserve is reassessed. When payments are received on reserved accounts, they are applied to the individual’s account and the reserve is reassessed.

 

Derivative Financial Instruments-Warrants

 

The Company has issued common stock warrants in connection with the execution of certain equity financings. Such warrants are classified as derivative liabilities under the provisions of FASB ASC 815 Derivatives and Hedging (“ASC 815”) and are recorded at their fair market value as of each reporting period. Such warrants do not meet the exemption that a contract should not be considered a derivative instrument if it is (1) indexed to its own stock and (2) classified in stockholders’ equity. Changes in fair value of derivative liabilities are recorded in the consolidated statement of operations under the caption “Change in fair value of derivative instruments.”

 

The fair value of warrants is determined using the Black-Scholes option-pricing model using assumptions regarding volatility of our common share price, remaining life of the warrant, and risk-free interest rates at each period end. The Company thus uses model-derived valuations where inputs are observable in active markets to determine the fair value and accordingly classify such warrants in Level 3 per ASC 820. At December 31, 2009 and 2010, the fair value of such warrants was $740,617 and $609,155, respectively, which we classified as derivative financial instruments liability on its balance sheet.

 

The Company has issued units that were price protected during the years ended December 31, 2010 and 2009, respectively. Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, TrovaGene has determined that these price protected units issued in connection with the private placements must be recorded as derivative liabilities with a charge to additional paid in capital. The fair value of these price protected units was estimated using the binomial option pricing model. The binomial model requires the input of variable inputs over time, including the expected stock price volatility, the expected price multiple at which unit holders are likely to exercise their warrants and the expected forfeiture rate. The Company uses historical data to estimate forfeiture rate and expected stock price volatility within the binomial model. The risk-free rate for periods within the contractual life of the warrant is based on the U.S. Treasury yield curve in

 

F-15



Table of Contents

 

effect at the date of grant for the expected term of the warrant. At December 31, 2010 and 2009, the fair value of such warrants was $1,476,783 and $602,133, respectively, which the Company classified as a derivative financial instruments liability on its balance sheet.

 

At December 31, 2010 and 2009, the total fair value of the above warrants, valued using the Black-Scholes option-pricing model and the Binomial option pricing model was $2,085,938 and $1,342,750 which is classified as derivative financial instruments’ liability on our balance sheet.

 

Stock-Based Compensation

 

The Company relies heavily on incentive compensation in the form of stock options to recruit, retain and motivate directors, executive officers, employees and consultants. Incentive compensation in the form of stock options are designed to provide long-term incentives, develop and maintain an ownership stake and conserve cash during our development stage.

 

ASC Topic 718 “Compensation—Stock Compensation” requires companies to measure the cost of employee services received in exchange for the award of equity instruments based on the estimated fair value of the award at the date of grant which requires management to make certain assumptions with respect to selected model inputs. The expense is to be recognized over the period during which an employee is required to provide services in exchange for the award.

 

ASC Topic 718 did not change the way TrovaGene accounts for non-employee stock-based compensation. TrovaGene continues to account for shares of common stock, stock options and warrants issued to non-employees based on the fair value of the stock option or warrant, using the Black-Scholes options pricing model, if that value is more reliably measurable than the fair value of the consideration or services received.  The Company accounts for equity instruments granted to non-employees in accordance with ASC Topic 505-50 “ Equity-Based Payment to Non-Employees” whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Accordingly the fair value of these options is being “marked to market” quarterly until the measurement date is determined.

 

In accordance with ASC Topic 718 stock-based compensation expense related to TrovaGene’s share-based compensation arrangements attributable to employees and non-employees is being recorded as a component of general and administrative expense and research and development expense in accordance with the guidance of Staff Accounting Bulletin 107, Topic 14, paragraph F , Classification of Compensation Expense Associated with Share-Based Payment Arrangements (“SAB 107”).

 

The estimated fair value of employee options on the date of grant was determined by using the Black-Scholes option valuation model which requires management to make certain assumptions with respect to selected model inputs.  The risk-free interest rate assumption is based upon observed U.S. Treasury interest rates appropriate for the expected term of the individual stock options. The Company has not paid any dividends on common stock since its inception and does not anticipate paying dividends on its common stock in the foreseeable future. The computation of the expected option term is based on expectations regarding future exercises of options which generally vest over three years and have a ten year life. The expected volatility is based on the historical volatility of the Company’s stock.  Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company estimated future unvested option forfeitures based upon its historical experience and has incorporated this rate in determining the fair value of employee option grants.

 

Fair value of financial instruments

 

The Company has adopted FASB ASC 820 Fair Value Measurements and Disclosures (“ASC 820”) for financial assets and liabilities that are required to be measured at fair value, and non-financial assets and liabilities that are not required to be measured at fair value on a recurring basis. Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and debentures. These financial instruments are stated at their respective historical carrying amounts which approximate fair value due to their short term nature.

 

In accordance with Accounting Standards Codification (“ASC”) subtopic 820-10, the Company measures certain assets and liabilities at fair value on a recurring basis using the three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.  The three tiers include:

 

·               Level 1 — Quoted prices for identical instruments in active markets.

·               Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations where inputs are observable or where significant value drivers are observable.

·               Level 3 — Instruments where significant value drivers are unobservable to third parties.

 

F-16



Table of Contents

 

Property, equipment and depreciation and amortization

 

Expenditures for additions, renewals and improvements are capitalized at cost. Depreciation and amortization is generally computed on a straight-line method based on the estimated useful lives of the related assets. Amortization of leasehold improvemens is computed based on the shorter of the life of the asset or the term of the lease. The estimated useful lives of the major classes of depreciable assets are 3 to 5 years for lab equipment and furniture and fixtures. Expenditures for repairs and maintenance are charged to operations as incurred.

 

Income Taxes

 

Trovagene has not filed any Federal tax returns since inception. The amount of any tax liability that could arise since inception is undetermined at this time, however, the Company believes that because it has sustained losses since inception, the amount of any tax liability, if any, that could arise would be immaterial to the Company’s Consolidated Financial Statements.  The Company intends to record a valuation allowance against any deferred tax assets upon the filing of its tax returns to the extent that it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. As a result there are no income tax benefits reflected in the consolidated statements of operations to offset pre-tax losses.

 

Contingencies

 

In the normal course of business, TrovaGene is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations, shareholder lawsuits, product and environmental liability, and tax matters. In accordance with FASB ASC Topic 450, Accounting for Contingencies , TrovaGene records such loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. TrovaGene, in accordance with this guidance, does not recognize gain contingencies until realized.

 

Research and Development

 

Research and development costs, which include expenditures in connection with an in-house research and development laboratory, salaries and staff costs, application and filing for regulatory approval of proposed products, purchased in-process research and development, regulatory and scientific consulting fees, as well as contract research, insurance and FDA consultants, are accounted for in accordance with ASC Topic 730-10-55-2, Research and Development. Also, as prescribed by this guidance, patent filing and maintenance expenses are considered legal in nature and therefore classified as general and administrative expense, if any.

 

TrovaGene does not currently have any commercial molecular diagnostic products, and does not expect to have such for several years if at all. Accordingly our research and development costs are expensed as incurred. While certain of our research and development costs may have future benefits, our policy of expensing all research and development expenditures is predicated on the fact that TrovaGene has no history of successful commercialization of molecular diagnostic products to base any estimate of the number of future periods that would be benefited.

 

In June 2007, the EITF of the FASB reached a consensus on ASC Topic 730, Research and Development which requires that non-refundable advance payments for goods or services that will be used or rendered for future research and development activities should be deferred and capitalized. As the related goods are delivered or the services are performed, or when the goods or services are no longer expected to be provided, the deferred amounts would be recognized as an expense. TrovaGene adopted ASC Topic 730 on January 1, 2008 and the adoption did not have a material effect on our consolidated financial position, results of operations or cash flows.

 

Net Loss Per Share

 

Basic and diluted net loss per share is presented in conformity with ASC Topic 260, Earnings per Share , for all periods presented. In accordance with this guide, basic and diluted net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted-average common shares outstanding during the period. Diluted weighted-average shares are the same as basic weighted-average shares because shares issuable pursuant to the exercise of

 

F-17



Table of Contents

 

stock options would have been antidilutive. For the years ended December 31, 2010 and December 31, 2009 the following outstanding stock options and other common stock equivalents were excluded from the calculation of diluted loss per share because the effect was antidilutive.

 

 

 

12/31/10

 

12/31/09

 

 

 

 

 

 

 

Stock options

 

14,457,651

 

14,762,651

 

Warrants

 

15,774,338

 

12,678,377

 

Conversion of preferred stock

 

597,500

 

597,500

 

Conversion of debentures

 

4,670,100

 

4,670,100

 

Total dilutive instruments

 

35,499,589

 

32,708,628

 

 

Share-Based Payments

 

In accordance with ASC Topic 718 stock-based compensation expense related to TrovaGene’s share-based compensation arrangements attributable to employees and non-employees is being recorded as a component of general and administrative expense and research and development expense in accordance with the guidance of Staff Accounting Bulletin 107 , Topic 14, paragraph F , Classification of Compensation Expense Associated with Share-Based Payment Arrangements (“SAB 107”).  See Note 7.

 

Recent Accounting Pronouncements

 

In May 2011, FASB issued Accounting Standards Update (ASU) No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and International Financial Reporting Standards (Topic 820) - Fair Value Measurement”. The new guidance relates to fair value measurements, related disclosures and consistent meaning of the term “fair value” in US GAAP and International Financial Reporting Standards. The amendment clarifies how to apply the existing fair value measurements and disclosures. For fair value measurements classified within Level 3, an entity is required to disclose quantitative information about the unobservable inputs. A reporting entity is also required to disclose additional information like valuation processes, a narrative description of the sensitivity of the fair value measurements to changes in unobservable inputs and the interrelationships between those unobservable inputs. The amendments specified in ASU 2011-04 were effective upon issuance. The adoption of this standard did not have a material effect on the Company’s results of operations or its financial position.

 

In April 2010, the FASB issued ASU 2010-13, “Compensation—Stock Compensation (Topic 718)—Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades.” ASU 2010-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in ASU 2010-13 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. TrovaGene expects the adoption of this standard will not have a material effect on its results of operation or its financial position.

 

In February 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-09, “Subsequent Events (Topic 855)—Amendments to Certain Recognition and Disclosure Requirements.” ASU 2010-09 requires an entity that is an SEC filer to

 

F-18



Table of Contents

 

evaluate subsequent events through the date that the financial statements are issued and removes the requirement that an SEC filer disclose the date through which subsequent events have been evaluated. ASC 2010-09 was effective upon issuance. The adoption of this standard had no effect on its results of operation or its financial position.

 

In January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”). ASU 2010-06 includes new disclosure requirements related to fair value measurements, including transfers in and out of Levels 1 and 2 and information about purchases, sales, issuances and settlements for Level 3 fair value measurements. This update also clarifies existing disclosure requirements relating to levels of disaggregation and disclosures of inputs and valuation techniques. The adoption of ASU 2010-06 did not have a material impact on the Company’s financial statements.

 

4. Merger Activities

 

On August 4, 1999, Xenomics, a California corporation (“Xenomics Sub”) was incorporated by its founders and promoters, L. David Tomei, Samuil Umansky and Hovsep Melkonyan. Xenomics Sub was organized in order to develop and commercialize Tr-DNA technology. Since inception, Xenomics Sub’s efforts have been principally devoted to research and development, securing and protecting our patents and raising capital.

 

On April 26, 2002, Used Kar Parts, Inc. (the “Company”) was incorporated in the State of Florida and planned to develop an on-line marketplace for used car parts.

 

On February 24, 2004, the Company’s then principal shareholder and control person entered into a Capital Stock Purchase Agreement with Panetta Partners Ltd., a limited partnership affiliated with the Company’s former Co-Chairman and current director, Gabriele M. Cerrone, pursuant to which Panetta purchased approximately 97% of the Company’s outstanding shares of common stock at the time.

 

On April 12, 2004, the founders of Xenomics Sub consisting of Messrs. Tomei, Umansky and Melkonyan,who are no longer with the Company, contributed $1,655,031 in deferred compensation to Xenomics Sub stockholders’ equity.

 

On July 2, 2004, Used Kar Parts, Inc. acquired all of the outstanding common stock of Xenomics Sub by issuing 2,258,001 shares of Used Kar Parts, Inc. common stock to Xenomics Sub’s five shareholders (the “Exchange”). The Exchange was made according to the terms of a Securities Exchange Agreement dated May 18, 2004. For accounting purposes, the acquisition has been treated as an acquisition of Used Kar Parts, Inc. by Xenomics Sub and as a recapitalization of Xenomics Sub. Accordingly, the historical financial statements prior to July 2, 2004 are those of Xenomics Sub.

 

In connection with the Exchange, Used Kar Parts, Inc.:

 

1)              Redeemed 1,971,734 shares (218,862,474 shares post-split shares) from Panetta Partners Ltd., a principal shareholder, for $500,000 or $0.0023 per share.

 

2)              Amended its articles of incorporation to change its corporate name to “Xenomics, Inc.” and to split its stock outstanding 111 for 1 (effective July 26, 2004), immediately following the redemption.

 

3)              Entered into employment agreements with two of the former Xenomics Sub shareholders and a consulting agreement with one of the former Xenomics Sub shareholders.

 

4)              Entered into a Voting Agreement with certain investors, the former Xenomics Sub shareholders and certain principal shareholders.

 

5)              Entered into a Technology Acquisition Agreement with the former Xenomics Sub shareholders under which Xenomics granted an option to the former Xenomics Sub holders to re-purchase Xenomics Sub technology if Xenomics fails to apply at least 50% of the net proceeds of financing it raises to the development of Xenomics Sub technology during the period ending July 1, 2006 in exchange for all Xenomics shares and share equivalents held by the former Xenomics Sub holders at the time such option is exercised. This agreement was terminated on June 30, 2006.

 

6)              Issued and transferred 350,000 shares of common stock to be held in escrow, in the name of the Company, to cover any undisclosed liabilities of Xenomics Sub. Such shares were treated as treasury shares. The escrow period was for one year to July 2, 2005 at which time a determination of liability was determined to be none and the shares were released.

 

In connection with the merger and recapitalization of the Company, the Company incurred costs of $301,499 which was accounted for as a reduction of additional paid in capital.

 

F-19



Table of Contents

 

On August 6, 2010, TrovaGene acquired all of the outstanding common stock of Etherogen, Inc. (“Etherogen”), a related party, in exchange for 12,262,782 shares of TrovaGene common stock pursuant to the terms of the Agreement and Plan of Merger dated August 10, 2010 among TrovaGene, E ACQ Corp. and Etherogen.  The fair value of the shares issued to effect the Merger was $2,771,389, based on the fair value of TrovaGene’s common stock on the date of the Merger.

 

The Merger was accounted for as an acquisition of assets for accounting purposes primarily because there were no processes acquired. The assets acquired consisted primarily of diminimus property, plant and equipment, patents, trademarks and other intellectual property, and in-process research and development. In addition, the Company assumed a note in the amount of $104,700 which was converted into shares on the date of acquisition. In accordance with ASC Topic 805, Business Combinations, the Company recorded the total fair value of an intangible asset related to the patent of $104,700 on the Company’s consolidated balance sheet. The excess of the fair value of the consideration issued over the fair value of the net assets acquired was $2,666,869. The total excess of the fair value of the net assets acquired and the conversion of the note was recorded as purchased in process research and development expense-related party on the Company’s consolidated statement of operations.

 

5 . P roperty and Equipment

 

Fixed assets consist of laboratory, testing and computer equipment and fixtures stated at cost. Depreciation and amortization expense for the years ended December 31, 2010 and 2009 and for the period August 4, 1999 (inception) to December 31, 2010 was $8,388, $54,554 and $211,514, respectively. Property and equipment consisted of the following:

 

 

 

December 31,

 

December 31,

 

 

 

2010

 

2009

 

Furniture and fixtures

 

$

 28,763

 

$

 6,157

 

 

 

 

 

 

 

Leasehold Improvements

 

11,207

 

8,671

 

 

 

 

 

 

 

Laboratory equipment

 

202,804

 

200,199

 

 

 

 

 

 

 

 

 

242,774

 

215,027

 

 

 

 

 

 

 

Less—accumulated depreciation and amortization

 

(211,514

)

 (203,126

)

 

 

 

 

 

 

Property and equipment, net

 

$

 31,260

 

$

 11,901

 

 

6. Stockholders’ Equity (Deficiency)

 

All share and per share amounts have been restated to reflect the 111 for 1 stock split which was effective July 26, 2004 as described in Note 4.

 

(A) Common Stock

 

On July 2, 2004 the Company completed a private placement of 2,645,210 shares of its common stock for aggregate proceeds of $2,512,950, or $0.95 per share. The sale was made to 17 accredited investors directly by the Company without any general solicitation or broker and thus no selling agents’ fee were paid.

 

F-20



Table of Contents

 

On January 10, 2005 TrovaGene entered into a service agreement with Trilogy Capital Partners, Inc. (“Trilogy”) pursuant to which Trilogy provided marketing, financial, and public relations services. Pursuant to this service agreement, TrovaGene issued warrants to Trilogy to purchase 1,000,000 shares of Common Stock of TrovaGene at an exercise price of $2.95 per share. The exercise price was determined to be consistent with the price of the warrants being offered to purchasers as part of an investment unit in the then operative private placement memorandum. The warrants issued to Trilogy were exercisable upon issuance and expired on January 10, 2008. The fair value of the Trilogy warrants using the Black-Scholes methodology was $2,630,440 which was immediately expensed. The following inputs to the Black-Scholes option pricing model were used to determine fair value: (i) stock price $4.20 per share (ii) no dividend (iii) risk free interest rate 4.5% (iv) volatility of 80%. This service agreement was terminated by TrovaGene on June 12, 2006.

 

On January 28, 2005 the Company closed the first tranche of a private placement selling 1,368,154 shares of common stock and 342,039 warrants to certain investors (the “Investors”). The securities were sold as a unit at a price of $1.95 per unit for aggregate proceeds of $2,667,900. Each Unit consisted of one share of common stock and one quarter of a warrant to purchase one quarter share of common stock. The Investor warrants are immediately exercisable at $2.95 per share and are exercisable at any time within five years from the date of issuance. The fair value of these Investor warrants using a market price of $4.20 per share on the date of issuance was $1,198,373 using Black Scholes assumptions of 80% volatility, a risk free interest rate of 4.25%, no dividend, and an expected life of 5 years. The fair value of the Investor warrants was recorded as additional paid in capital during the year ended January 31, 2005. The Company also issued an aggregate 123,659 warrants to purchase common stock to various selling agents, which were immediately exercisable at $2.15 per share and expired five years after issuance. The selling agent warrants had a fair value of $403,038 on the date of issuance and this amount was recorded as a cost of raising capital.

 

On February 5, 2005 the Company completed the second tranche of the private placement described above selling an additional 102,564 shares of common stock and 25,642 warrants to the Investors at a price of $1.95 per unit for aggregate proceeds of $200,000. In addition, the Company paid an aggregate $179,600 in cash and issued 24,461 shares of common stock to certain selling agents, in lieu of cash, which had a fair value of $47,699 capitalized at $1.95 per share. The Investor and selling agent warrants have the same terms as the warrants described above issued in the first tranche.

 

In connection with the offer and sale of securities to the Investors the Company also entered into a Registration Rights Agreement, dated as of January 28, 2005, with the Investors pursuant to which the Company agreed to file, within 120 days after the closing, a registration statement covering the resale of the shares of common stock sold to the Investors and the shares of common stock issuable upon exercise of the Warrants issued to the Investors. In the event a registration statement covering such shares of Common Stock was not filed with the SEC by the 120 th day after the final closing of the Offering (May 28, 2005), the Company shall have paid to the investors, at the Company’s option in cash or common stock, an amount equal to 0.1125% of the gross proceeds raised in the Offering for each 30 day period that the registration statement is not filed with the SEC. On August 1, 2005 the Company filed a Form SB-2 registration statement with the Securities and Exchange Commission and the resulting liquidated damages in the amount of $16,304 was paid to the Investors and charged to other expense. Pursuant to this January 28, 2005 Registration Rights Agreement there are no additional liquidated damages for failure to have the registration statement declared effective by a specified date, or for failure to maintain its effectiveness for any specified period of time.

 

On April 7, 2005, the Company closed the third and final tranche of the private placement described above of 1,515,384 shares of common stock and 378,846 warrants to certain additional Investors. The securities were sold as a unit at a price of $1.95 per unit for aggregate proceeds of $2,954,999. The warrants issued to the selling agents were immediately exercisable at $2.15 per share and will expire five years after issuance. The warrants issued to Investors have the same terms as the warrants described above issued in the first tranche.

 

Each unit consisted of one share of common stock and a warrant to purchase one quarter share of common stock. The warrants are immediately exercisable at $2.95 per share and are exercisable at any time within five years from the date of issuance. The fair value of these Investor warrants using a market price of $2.61 per share on the date of issuance date was $694,335 using Black Scholes assumptions of 80% volatility, a risk free interest rate of 4.25%, no dividend, and an expected life of 5 years. The fair value of the Investor warrants was recorded as additional paid in capital during the year ended January 31, 2006.

 

The Company paid an aggregate $298,000 and issued an aggregate 121,231 warrants to purchase common stock to a selling agent. The warrants issued to the selling agent were immediately exercisable at $2.15 per share, expire five years after issuance. The warrants had a fair value of $222,188 on the date of issuance and this amount was recorded as a cost of raising capital. These April 7, 2005 Investors became parties to the same Registration Rights Agreement as the January 28, 2005 Investors.

 

Pursuant to ASC Topic 815-40, the warrants issued in the three tranches described above were classified as permanent equity and the fair value of $222,188 of the selling agent warrants upon issuance was recorded as additional paid in capital.

 

F-21



Table of Contents

 

On July 20, 2006, the Company issued 640,000 shares of common stock and 320,000 warrants at $1.25 per unit and received gross proceeds of $800,000. Each unit consisted of one share of common stock and one-half a warrant to purchase one-half a share of common stock. The warrants have an exercise price of $2.00 per share and expire on July 20, 2008. In connection with this transaction, the Company paid $104,000 and issued 83,200 warrants to a selling agent. The warrants issued to selling agents have the same terms as those issued to the purchasers of common stock.

 

On August 14, 2006, the Company issued 114,721 shares of common stock and 57,361 warrants at $1.25 per unit and received gross proceeds of $143,401. Each unit consisted of one share of common stock and half a warrant to purchase half a share of common stock. The warrants have an exercise price of $2.00 per share and expire on August 14, 2008. In connection with this transaction, the Company paid $14,341 and issued 11,472 warrants to a selling agent. The warrants have the same terms as those issued to the purchasers of common stock.

 

Pursuant to the provisions of ASC 815-40, “ Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock ,” the warrants issued to the selling agents on July 20, 2006 and August 14, 2006 were classified as permanent equity and the fair value allocated to such warrants upon issuance of $55,568 was recorded as additional paid in capital.

 

Under the terms of the securities purchase agreement applicable to the issuance of common stock and warrants on July 20, 2006 and August 14, 2006, the Company agreed to: a) file a registration statement on or before October 18, 2006 covering the resale of the shares of the common stock and the underlying shares of the common stock issuable upon exercise of the warrants; b) use commercially reasonable efforts to cause the registration statement to be declared effective by the SEC no later than November 17, 2006 if there was no review of the registration statement performed by the SEC or December 16, 2006 if there was a review performed by the SEC; and c) use commercially reasonable efforts to keep the registration statement continuously effective.  If any of the above obligations are not met (a “Breach”), the Company shall pay monthly liquidated damages in an amount equal to 1% of the gross proceeds of the amount raised in these offering for the period from the date of a breach until it is cured.  Such liquidated damages may not exceed 8% of the gross proceeds or $75,472.  As of the date of these financial statements, a registration statement has not been filed and the Company has recorded liquidated damages of $75,472 through December 31, 2010.

 

On December 21, 2006, the Company closed a private placement of 1,000,000 shares of common stock and 500,000 warrants to an institutional investor for aggregate gross proceeds of $1,000,000 pursuant to a Securities Purchase Agreement dated as of December 21, 2006. The warrants were immediately exercisable at $1.25 per share, are exercisable at any time within six (6) months from the date of issuance, and were recorded at their fair value of $15,000. The Company paid an aggregate $80,000 to a selling agent. Proceeds from the issuance of these instruments were allocated to common stock and warrants based upon their relative fair value. This resulted in an allocation of $905,000 to temporary equity (see below) and $15,000 to the warrants classified as derivative financial instruments. Under the terms of the Securities Purchase Agreement applicable to the issuance of common stock and warrants on December 21, 2006, the Company has an obligation to file a registration statement covering the resale of the shares of the common stock and the underlying shares of the common stock issuable upon exercise of the warrants on or prior to 15 days after the earlier of a financing or a series of financings wherein the Company raises an aggregate of $5,000,000 or May 14, 2007.  Additionally, the Company has the obligation to use commercially reasonable efforts to cause the registration statement to be declared effective no later than 45 days after it is filed. However, the Securities Purchase Agreement is silent as to any penalties or liquidated damages if the obligations described above are not met.  Consequently, since the Company’s ability to meet the above obligations are not within its control and the penalties are not determinable and could result in the Company having to settle in cash, they were classified as temporary equity in accordance with the provisions of ASC Topic 480 Distinguishing Liabilities from Equity . The warrants were marked to market from $15,000 to $20,000 at January 31, 2007, with $5,000 recorded as a change in fair value of derivative financial instruments.

 

On May 21, 2007, the Company modified the terms of the warrants issued in connection with the December 21, 2006 private placement and extended the term of those warrants from June 21, 2007 to August 21, 2007. This had an immaterial impact on the consolidated financial statements.

 

On February 15, 2008 the common shares were no longer deemed “Registrable Securities” under the Securities Purchase Agreement because of newly enacted shorter Rule 144 holding requirements which removed the requirement for registration and the eliminated risk of a cash settlement. Accordingly, the Company reclassified the common stock to permanent equity on that date.

 

On October 12, 2007 and October 16, 2007, the Company closed private placements of 1,400,000 shares and 300,000 shares of common stock, respectively, for aggregate gross proceeds of $850,000. The Company issued a five year warrant to purchase 100,000 shares of common stock at an exercise price of $0.50 per share to a selling agent. Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, the Company has determined that the warrants issued in connection with this private placement must be recorded as derivative liabilities with a charge to additional paid in capital. The fair value of these warrants on the date of issuance was $45,371.This derivative liability has been marked to market at

 

F-22


 


Table of Contents

 

the end of each reporting period.The change in fair value for the years ended December 31, 2010 and 2009 and inception (August 4, 1999) to December 31, 2010 was a loss of ($23,979), a gain of $17,550 and a gain of $18,938, respectively.

 

The Company paid $51,733 to a selling agent in connection with this transaction and issued warrants to purchase 100,000 shares of common stock at an exercise price of $0.50 per share which expire five years after issuance. The selling agent warrants had a fair value of $45,403 on the date of issuance and this amount was charged to additional paid in capital as a cost of raising capital.

 

On February 1, 2008, the Company sold a private placement of 1,075,000 shares of common stock and 322,500 warrants to investors for aggregate gross proceeds of $645,000 pursuant to a Securities Purchase Agreement dated as of February 1, 2008 (the “Private Placement”). The warrants have a two-year term and are exercisable at prices of $0.75 per share in the first year and $1.50 per share in the second year.  Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, the Company has determined that the warrants issued in connection with this private placement must be recorded as derivative liabilities with a charge to additional paid in capital. The fair value of these warrants on the date of issuance was $60,295.This derivative liability has been marked to market at the end of each reporting period. The change in fair value for the years ended December 31, 2010 and 2009 and inception (August 4, 1999) to December 31, 2010 was $0 gain or loss, a gain of $51 and a gain of $60,295, respectively.

 

On June 12, 2008, the Company raised an additional $500,000 from an investor, less a total of $74, 500 for selling agent fees and expenses in connection with this transaction, of which $350,000 was invested at the closing and an additional $150,000 was to be invested on or before August 15, 2008. The purchase price for the 909,091 shares was $.55 per share, and the investor received warrants to purchase up to 454,545 shares of the Company’s common stock at a price of $.75 per share. The warrants have a three-year term and are exercisable at a price of $0.75 per share.  Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, the Company has determined that the warrants issued in connection with this registered direct offering must be recorded as derivative liabilities with a charge to additional paid in capital. The fair value of these warrants on the dates of issuance was $80,632. This derivative liability has been marked to market at the end of each reporting period. The change in fair value for the years ended December 31, 2010 and 2009 and inception (August 4, 1999) to December 31, 2010 was a gain on valuation of $85,326, a loss of ($86,410) and a gain of $43,552, respectively.

 

On June 9, 2009 and July 2, 2009, the Company closed two private placement financings which raised gross proceeds of $275,000. The Company issued 550,000 shares of its common stock and warrants to purchase 550,000 shares of common stock. The purchase price paid by the investors was $.50 for each unit. The warrants expire after five years and are exercisable at $.70 per share. These were price-protected units and therefore are derivative liabilities in accordance with ASC Topic 815-40 to be valued using the binomial option method.

 

During the period from October 2, 2009 to December 16, 2009 the Company closed seven private placement financings which raised gross proceeds of $1,190,000. The Company issued 2,380,000 shares of its common stock and warrants to purchase 2,380,000 shares of common stock. The purchase price paid by the investor was $.50 for each unit. The warrants expire after six to nine years and are exercisable at $.50 per share. These were price-protected units and therefore are derivative liabilities in accordance with ASC Topic 815-40 to be valued using the binomial option method.

 

On August 19, 2009 in accordance with a debt conversion agreement for settlement of consulting services rendered by Gabriele Cerrone the Company issued 957,780 units consisting of 957,780 shares of common stock and warrants to purchase 957,780 shares of common stock, in settlement of a $478,890 obligation related to a consulting agreement with Gabriele M. Cerrone. The total fair value of the stock and warrants was $478,890 based on a price of $.50 per unit. Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, TrovaGene has determined that the warrants issued in connection with this transaction should not be recorded as a derivative liability and have been recorded as equity. See Note 13, Related Party Transactions.

 

On June 30, 2009 and October 2, 2009, in accordance with an exchange agreement, a selling agent invested $164,550 in exchange for the issuance of a) 413,379 shares of common stock, b) warrants to purchase 418,854 shares of common stock and c) $164,550 of 6% convertible debenture. The warrants expire in three years and are exercisable at $.50 per share. Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, TrovaGene has determined that the warrants issued in connection with this transaction should not be recorded as a derivative liability and have been recorded as equity . The fair value of the common stock and warrants issued above totaled $306,737 and was charged to operations as consideration for services rendered, with a corresponding credit to additional paid in capital.

 

During the twelve months ended December 31, 2010, 476,000 shares of common stock were issued to a shareholder as finders’ fees in accordance with a Board of Directors resolution dated November 6, 2009. The issuance of these shares was recorded as a cost of capital and had only a nominal par value effect on total stockholders’ equity.

 

In connection with the merger with Etherogen, Inc. in August 2010 the Company issued 12,262,782 shares of common stock, which shares had a fair value of $2,711,389 at issuance (see Note 4).

 

F-23



Table of Contents

 

During the year ended December 31, 2010, the Company closed twelve private placement financings which raised gross proceeds of $1,734,700. The Company issued 3,469,400 shares of its common stock and warrants to purchase 3,469,400 shares of common stock in these transactions. The purchase price paid by the investors was $.50 for each unit. The warrants expire after eight years and are exercisable at $.50 per share. These were price-protected units and therefore are derivative liabilities in accordance with ASC Topic 815-40 to be valued using the binomial option method.

 

During the year ended December 31, 2010, the Company issued 425,000 shares and warrants to purchase 425,000 shares of common stock in connection with consulting agreements. The fair value used to measure compensation expense was $.50 for each unit, based on recent private placement transactions, totaling $212,500. The warrants expire after eight-nine years and are exercisable at $.50 per share.  These were price-protected units and therefore are derivative liabilities in accordance with ASC Topic 815-40 to be valued using the binomial option method. A total of $112,500 was charged to general and administrative expense in the Company’s consolidated statements of operations in 2010. The remainder of $100,000 was accrued and charged to general and administrative expense in the year ended December 31, 2009.

 

In July of 2010, 76,472 shares of common stock were issued to a former CEO in settlement of a severance obligation totaling $28,346, which amount was charged to general and administrative expense in the Company’s consolidated statement of operations.

 

In August of 2010 the Company issued 175,439 shares of common stock in settlement of $100,000 of legal fees, which amount was charged to general and administrative expense in the Company’s consolidated statements of operations.

 

(B)    Warrants

 

During the twelve months ended December 31, 2010 and 2009 the Company issued the following warrants to purchase shares of common stock:

 

 

 

Number
of
Warrants

 

Weighted
Average
Exercise
price

 

Term

 

Warrants Outstanding 12/31/2008

 

8,790,598

 

$

0.96

 

5 years

 

 

 

 

 

 

 

 

 

Granted

 

3,887,779

 

$

0.50

 

3-9 years

 

 

 

 

 

 

 

 

 

Warrants Outstanding 12/31/2009

 

12,678,377

 

$

0.79

 

3-9 years

 

 

 

 

 

 

 

 

 

Granted

 

4,709,654

 

$

0.50

 

8 years

 

 

 

 

 

 

 

 

 

Expired

 

(1,613,693

)

$

2.25

 

 

 

 

 

 

 

 

 

 

 

Warrants Outstanding 12/31/2010

 

15,774,338

 

$

0.54

 

3-9 years

 

 

On May 10, 2006, the Company entered into a license agreement wherein it obtained the exclusive rights for the genetic marker for Acute Myeloid Leukemia and intends to utilize these rights for the development of new diagnostic tools. In connection with this agreement, the Company paid $70,000 to the licensor and agreed to pay an additional $100,000 upon FDA approval of a commercial product based upon this technology and royalties of 3% of net sales and/or 10% of any sublicense income. Additionally, the Company paid a selling agent fee of $100,000 and issued warrants for the purchase of 100,000 shares of common stock at $1.80 per share. These warrants expire June 29, 2014. The value of these warrants was

 

F-24



Table of Contents

 

determined to be $101,131 utilizing the Black Scholes model. The value of these warrants combined with the cash payments aggregated $271,131 and was immediately expensed and classified as a research and development expense.

 

On November 30, 2006, the Compensation Committee, in recognition of the technical assistance to be provided by Dr. Sidransky, granted warrants to purchase 300,000 shares of common stock at an exercise price of $0.65 for a period of ten years. Such warrants vest in equal amounts on the first and second anniversary dates of the grant. The Company has estimated the fair value of these warrants as of the grant date to be $172,505. This fair value was fully expensed by December 31, 2008. On November 19, 2008, Dr. Sidransky resigned his position as a member of the Board of Directors. All previously unvested options, of 150,000, were terminated on this date.

 

On December 20, 2006, the Compensation Committee, in connection with services provided pursuant to a consulting agreement with Mr. Cerrone, granted him warrants which vested immediately to purchase 353,570 shares of common stock at an exercise price of $0.70 for a period of ten years. The Company has estimated the fair value of these warrants as of the grant date to be $182,271 based on the Black-Scholes option pricing model. The assumptions used were as follows: (i) stock price at date of grant-$.70, (ii) term-10 years, (iii) volatility-100% and (iv) risk free interest rate-4.57%. This fair value was fully expensed as stock based compensation by January 31, 2007.

 

On October 29, 2008, the Company entered into a license agreement with Sequenom, Inc. In connection with this agreement, the Company issued a warrant to purchase 438,956 shares of the Company’s common stock at an exercise price of $.75 per share. The warrant expires October 29, 2013. The Company has determined that the warrant meets the criteria of a derivative liability in accordance with ASC 815-40 effective January 1, 2009. The estimated the fair value of this warrant as of the grant date was $60,195, which was charged to additional paid-in-capital in 2008, based on the Black-Scholes option pricing model. The assumptions used were as follows: (i) stock price at date of grant-$.31, (ii) term-5 years, (iii) volatility-75% and (iv) risk-free interest rate-2.77%. This fair value was expensed beginning in the fourth quarter of 2008 and charged to general and administrative expense with the offset to additional paid-in-capital. The amounts charged to general and administrative expense in the years ended December 31, 2010 and 2009 and from August 4, 1999 (Inception) to December 31, 2010 were losses of $119,024, $60,586 and $60,578, respectively. See Note 12.

 

The Company granted 4,709,654 and 2,930,000 warrants that were price protected during the years ended December 31, 2010 and 2009, respectively. These warrants had an exercise price of $.50 per share and had expiration dates ranging from June 30, 2014 to December 31, 2018.  The fair value of these warrants was estimated using the binomial option pricing model. The binomial model requires the input of variable inputs over time, including the expected stock price volatility, the expected price multiple at which warrant holders are likely to exercise their warrants and the expected forfeiture rate. The Company uses historical data to estimate forfeiture rate and expected stock price volatility within the binomial model. The risk-free rate for periods within the contractual life of the warrant is based on the U.S. Treasury yield curve in effect at the date of grant for the expected term of the warrant. See Note 8.

 

(C)   Series A Convertible Preferred Stock

 

On July 13, 2005, the Company closed a private placement of 277,100 shares of Series A Convertible Preferred Stock (the “Series A Convertible Preferred Stock”) and 386,651 warrants to certain investors for aggregate gross proceeds of $2,771,000 pursuant to a Securities Purchase Agreement dated as of July 13, 2005. The warrants sold to the Investors are immediately exercisable at $3.25 per share and are exercisable at any time within five years from the date of issuance. These investor warrants had a fair value of $567,085 on the date of issuance using a market price of $2.40 on that date. In addition the Company paid an aggregate $277,102 and issued an aggregate 105,432 warrants to purchase common stock to certain selling agents. The warrants issued to the selling agents are immediately exercisable at $2.50 per share and will expire five years after issuance. The selling agent warrants had a fair value of $167,397 on the date of issuance and this amount was recorded as a cost of raising capital.

 

The material terms of the Series A Convertible Preferred Stock consist of:

 

1)           Dividends. Holders of the Series A Convertible Preferred Stock shall be entitled to receive cumulative dividends at the rate per share of 4% per annum, payable quarterly on March 31, June 30, September 30 and December 31, beginning with September 30, 2005. Dividends shall be payable, at the Company’s sole election, in cash or shares of common stock. As of December 31, 2010 and 2009, the Company had recorded $114,720 and $76,480, respectively, in accrued cumulative unpaid preferred stock dividends, included in Accrued Expenses in the Company’s consolidated balance sheets, and $38,240 was recorded for each of the years ended December 31, 2010, 2009 and 2008.

 

2)           Voting Rights. Shares of the Series A Convertible Preferred Stock shall have no voting rights. However, so long as any shares of Series A Convertible Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the holders of the shares of Series A Convertible Preferred Stock then outstanding, (a) adversely change the powers, preferences or rights given to the Series A Convertible Preferred Stock, (b) authorize or create any class of stock senior or equal to the Series A Convertible Preferred Stock, (c) amend its articles of incorporation or other charter documents, so as to affect adversely any rights of the holders of Series A Convertible Preferred Stock or (d) increase the authorized number of shares of Series A Convertible Preferred Stock.

 

3)           Liquidation. Upon any liquidation, dissolution or winding-up of the Company, the holders of the Series A Convertible Preferred Stock shall be entitled to receive an amount equal to the Stated Value per share, which is $10 per share plus any accrued and unpaid dividends.

 

4)           Conversion Rights. Each share of Series A Convertible Preferred Stock shall be convertible at the option of the holder into that number of shares of common stock determined by dividing the Stated Value, currently $10 per share, by the conversion price, originally $2.15 per share.

 

5)           Registration Rights .  In connection with the offer and sale of the Series A Convertible Preferred Stock the Company also entered into a Registration Rights Agreement pursuant to which the Company agreed to file a registration statement covering the resale of the common stock attributable to conversion of Series A Convertible Preferred Stock and the shares of common stock issuable upon exercise of the preferred warrants, within 30 days of the closing date and declared effective by October 25, 2005. In the event a registration statement covering such shares of common stock was not filed within 30 days of the closing date, the Company would pay to the investors an amount equal to 0.125% of the gross proceeds raised in the Offering for each 30 day period that the registration statement was not filed. In the event a registration statement covering such shares of common stock was not declared effective by October 25, 2005 Company will pay to the investors, at the Company’s option in cash or common

 

F-25



Table of Contents

 

stock, an amount equal to 1% of the gross proceeds raised in the Offering for each 30 day period that the registration statement was not declared effective by the SEC. The registration statement was filed on August 1, 2005 and was not declared effective until March 17, 2006. The resulting liquidated damages of $181,279 related to the registration statement not being declared effective until March 17, 2006 was recorded in the amounts of $62,601 and $118,678 during the years ended January 31, 2007 and 2006, respectively, as other expense. These amounts were paid in full as of January 31, 2007.

 

6)           Subsequent Equity Sales .  The conversion price is subject to adjustment for dilutive issuances for a period of 12 months beginning upon registration of the common stock underlying the Series A Convertible Preferred Stock. The relevant registration statement became effective March 17, 2006 and during the following twelve month period the conversion price was adjusted to $1.60 per share.

 

7)           Automatic Conversion .  Beginning July 13, 2006, if the price of the common stock equals $4.30 per share for 20 consecutive trading days, and an average of 50,000 shares of common stock per day shall have been traded during the 20 trading days, the Company shall have the right to deliver a notice to the holders of the Series A Convertible Preferred Stock, to convert any portion of the shares of Series A Convertible Preferred Stock into shares of Common Stock at the conversion price. As of the date of these financial statements, such conditions have not been met.

 

As per ASC 470-20 “Application of Issue 98-5 to Certain Convertible Instruments” the Company evaluated if the instrument has a beneficial conversion feature. The cash purchase and existing conversion rights were found to contain a beneficial conversion feature totaling $792,956 and the preferred stock was further discounted by this amount. The beneficial conversion amount was then accreted back to the preferred stock because the preferred stock was 100% convertible immediately. The total amount accreted back to the preferred as a dividend and charged to Deficit Accumulated during Development Stage was $792,956.

 

The fair value of the warrants issued in connection with this transaction was $567,085 on the date of issuance. This amount was recorded as a liability in accordance with ASC 815-40 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,”   because the cash liquidated damages were unlimited, which was tantamount to a cash settlement. These warrants have been marked-to-market and the liability has been adjusted with a corresponding change or benefit recorded in the statement of operations through October 31, 2006. As of November 1, 2006, the Company early adopted ASC 825-20 “Registration Payment Arrangements” which allows for registration payment arrangements to be accounted for separately in accordance with ASC 450”Contingencies”. Therefore, the financial instrument subject to the registration payment arrangement shall be recognized and measured without regard to the contingent obligation to transfer consideration pursuant to registration payment arrangement. As a result of the adoption of ASC 825-20, the Company reclassified the liability related to these warrants, ($111,700 at November 1, 2006) to equity in the amount of $567,085, with the remainder of $455,385 being adjusted to accumulated deficit. There were no additional liquidated damages required to be accrued as of January 31, 2007. During the twelve months ending January 31, 2007 and 2006 and inception to date, the Company recorded a net benefit for the change in fair value of this derivative financial instrument of $293,929, $161,456 and $455,385, respectively.

 

During the twelve months ended January 31, 2007, 174,000 shares of Series A Convertible Preferred Stock were converted into 826,431 shares of common stock. During the eleven months ended December 31, 2007, an additional 7,500 shares of preferred stock were converted into 46,875 shares of common stock.  As of December 31, 2010 and 2009 there remained 95,600 shares of Series A Convertible Preferred Stock outstanding.

 

(D) Convertible Debentures

 

On November 14, 2006, the Company sold $2,225,500 aggregate principal amount of newly authorized 6% convertible debentures due November 14, 2008 (the “Debenture” or “Debentures”) and issued warrants for the purchase of 4,046,364 shares of the Company’s common stock at an exercise price of $0.70 per share, subject to adjustment for certain dilutive issuances and are exercisable at any time on or prior to the sixth anniversary date of issuance. The debentures paid interest at the rate of 6% per annum, payable semi-annually on April 1 and November 1 of each year beginning November 1, 2007. The Company may, in its discretion, elect to pay interest on the Debentures in cash or in shares of its common stock, subject to certain conditions related to the market for shares of its common stock and the registration of the shares issuable upon

 

F-26



Table of Contents

 

conversion of the Debentures under the Securities Act. The debentures were convertible at any time at the option of the holder into shares of the Company’s common stock at an initial price of $0.55 per share, subject to adjustment for certain dilutive issuances. As a result of the October 2007 private placements the anti-dilution provisions in the Debentures and the warrants were triggered. As a result, the conversion price of the debentures and the exercise price of the warrants were reduced to $0.50 per share and the number of common shares issuable upon conversion of the debentures and exercise of the warrants increased to 4,451,000 and 5,664,910, respectively.

 

The Company incurred debt issuance costs totaling $464,960. Such costs were deferred and amortized over the two year life of the Debentures through November 2008.

 

In connection with the issuance of the Debentures, the Company entered into a registration rights agreement with the purchasers of the Debentures. The registration rights agreement grants registration rights to holders of shares of the Company’s common stock issuable upon conversion of the convertible debentures and upon exercise of the warrants. Pursuant to the registration rights agreement, the Company was required to file a registration statement under the Securities Act covering the resale of the registrable securities on or prior to the 15 th calendar day following the earlier of May 14, 2007 or the completion of an additional $5,000,000 of sales of securities. To the extent a registration statement was not filed prior to the 15 th calendar day the following the earlier of May 14, 2007 or the completion of an additional $5,000,000 of sales of securities, the Company was obligated to pay liquidated damages in the amount of 1.5% of the aggregate proceeds for each thirty day period until a registration statement is filed up to a maximum amount of 24% or $520,920. The Company did not file a registration statement by May 14, 2007, and recorded the maximum liquidated damages of $520,920 as of that date.

 

In accordance with ASC 815-40, as a result of the anti-dilution provisions in the conversion option and the warrants these instruments were classified as liabilities.  At the time of issuance the Company recorded an original issue discount of $1,991,882, which was calculated based on the $1,157,260 fair value of the conversion option and the $834,562 fair value of the warrants.  This discount was amortized to interest expense utilizing the interest method through the original maturity date of the debentures, November 14, 2008.

 

In connection with the debenture transaction, the Company issued a warrant to a finder, exercisable for 164,550 units, consisting of one share of common stock and one six-year warrant to purchase one share of common stock at an initial exercise price of $0.70 per share, subject to certain adjustments. The initial exercise price of the warrant was $0.55 per unit, subject to certain adjustments. The estimated fair value of the warrant of $167,856 on the date of issuance was amortized to interest expense utilizing the interest method through the maturity date of the debentures, November 14, 2008.

 

On November 14, 2008, the maturity date of the Debentures, the Company failed to pay the aggregate principal amount of $2,170,500, plus interest and penalties.  Such failure represented an Event of Default under the Debentures Agreement. The Debenture holders also claimed other Events of Default under the Debentures. On January 30, 2009, the Company entered into a Forbearance Agreement with the holders of the Company’s Debentures.

 

Pursuant to the Forbearance Agreement, the Company issued 5,437,472 shares of its common stock to the Debenture holders in full settlement of amounts claimed due for interest, penalties, late fees and liquidated damages totaling $2,042,205.  The fair value of the shares on January 30, 2009 was $0.32 based on quoted market prices totaling $1,739,959.  The difference between the carrying value of the interest, penalties, late fees and liquidated damages and the fair value of the shares of $302,246 was recorded as settlement costs on the statement of operations.

 

The aggregate initial principal amount of $2,170,500 plus two additional issuances of $164,550 in 2009 due under the Debentures remained outstanding totaling $2,335,050.  Other significant provisions of the Forbearance Agreement included the following:

 

·               An extension of the Debentures’ maturity date to December 31, 2010

 

·               An increase in the interest rate payable on the Debentures from 6% to 11%

 

·               The payment of interest in the form of Company common stock on a quarterly basis

 

·               Rights of certain holders of a majority of the Debentures regarding the appointment of two persons to the Company’s Board of Directors

 

·               Conditions regarding the determination of compensation to be paid to the Company’s officers and directors

 

F-27



Table of Contents

 

·               A total of 6,083,763 shares of common stock purchase warrants, expiring November 14, 2012, continued to be outstanding.

 

The carrying value of the debenture before modification in the amount of $2,335,050 was exchanged for the fair value of the new debt in the amount $1,910,710 and the difference of $424,299 was recorded as a gain in the statement of operations.

 

During the twelve months ended December 31, 2010 and 2009, the Company incurred interest expense of $256,856 and $244,656, respectively, that was paid in 1,003,021 shares. The total value of the shares was $256,901 based on the stock price allocation in the fair value of the price protected units issued during the years ended December 31, 2010 and 2009. The difference in the fair value of the consideration given and the amounts due to the debenture holder was $141,271 and $103,340 for the years ended December 31, 2010 and 2009, respectively, recorded as a reduction of the interest expense in the Company’s Consolidated Statements of Operations.

 

On July 18, 2011 the Company settled with the holders of the Debentures by converting the amounts outstanding by issuing 4,670,100 shares of common stock pursuant to a note and warrant agreement and the Company issued an additional 467,010 shares of common stock to the Debenture Holders as consideration to extinguish their debt. This resulted in a $1.2 million gain on extinguishment based on the fair value of the stock being $0.22 a share as of the date of the transaction.  In addition, the 6,083,763 warrants, originally issued in 2006 with the debentures with an expiration date of November 12, 2012, were exchanged for 6,083,763 new warrants with a new expiration date of December 31, 2017.  The additional charge for this modification to the expiration date was $581,503 which offset the gain, resulting in a net gain on extinguishment of $623,383 for the three and nine months ended September 30, 2011 on the Consolidated Statements of Operations.

 

The 6,083,763 warrants originally issued in 2006 with an expiration date of November 12, 2012 were exchanged for 6,083,763 new warrants with a new expiration date of December 31, 2017.

 

(E)  Former Chief Executive Warrants

 

On November 14, 2006, the Company also issued to the Company’s former Chief Executive (the “holder”) and the lead investor in the debenture financing, a warrant to purchase up to an aggregate of 3,500,000 units, containing one share of its common stock and one warrant, at an initial purchase price of $0.55 per unit; provided, on or prior to the time of exercise, the Company receives an aggregate of $5.0 million of financing (“the financing condition”) in addition to the above. If the financing condition was not attained on or before May 17, 2007, these lead investor’s warrants would terminate and be of no further force or effect.

 

On November 30, 2006 the Company amended the November 14, 2006 warrant to allow the holder to purchase until December 31, 2007 up to an aggregate 6,363,636 units, each containing one share of common stock and one common stock purchase warrant, at an initial purchase price of $0.55 per unit; provided, on or prior to the time of exercise, the Company attained the Financing Condition. The common stock purchase warrants had an initial exercise price, subject to certain adjustments, of $0.70 per share and were exercisable at any time prior to the sixth anniversary date of the grant. If the Financing Condition was not fulfilled on or before August 31, 2007, the amended and restated warrant would terminate and be of no further force or effect.

 

On November 30, 2006, the Company also entered into a warrant and put option agreement with the Company’s former Chief Executive . The warrant and put option agreement allows the holder thereof to purchase up to 2,727,272 additional units as described above until December 31, 2007, at an initial purchase price of $0.55 per Unit, provided, on or prior to the time of exercise, the Financing Condition was attained. The fair value of this warrant at the date of grant was $2,108,647. Upon written notice from the Company at any time after June 1, 2007 and ending the earlier of the satisfaction of the Financing Condition or December 31, 2007, the holder would, within 30 days from the date designated in the notice, purchase the number of Units specified in such notice up to the Maximum Put Amount divided by the applicable exercise price. The Maximum Put Amount was defined as the sum of $5,000,000 less the amount from the sale of securities during the period beginning on December 1, 2006 to the date of measurement including any such sales pursuant to the Company’s prior exercise in part of the put option on or before August 31, 2007. In no event shall the Maximum Put Amount exceed $500,000 in a period of thirty calendar days or $1,500,000 in the aggregate. If the Financing Condition was not fulfilled on or before August 31, 2007, the warrant and put option agreement would terminate and be of no further force or effect. Because the performance condition related to the above was not met no expense was recorded by the Company.

 

F-28



Table of Contents

 

On August 29, 2007, the Company and the former Chief Executive of the Company entered into an amendment (the “Amendment”) to the Warrant and Put Option Agreement originally dated as of November 30, 2006 pursuant to which the Amendment extended the date the holder of the warrant has the right to purchase up to an aggregate 2,727,272 units, each containing one share of common stock and one common stock purchase warrant, at an initial purchase price of $0.55 per unit to June 30, 2008 from December 31, 2007. Such warrant was only exercisable, provided, on or prior to the time of exercise, the Financing Condition was attained. The Amendment also extended the date the Financing Condition must be met to February 29, 2008 from August 31, 2007. If the Financing Condition had not been met on or before such date, the Warrant and Put Option Agreement would terminate and be of no further force or effect.

 

In addition, on August 29, 2007, the Company and the former Chief Executive entered into an amendment (the “Amended Warrant Agreement”) to the Amended and Restated Warrant Agreement originally dated as of November 30, 2006 pursuant to which the Amended Warrant Agreement extended the date the holder of the warrant had the right to purchase up to an aggregate 6,363,636 units, each containing one share of common stock and one common stock purchase warrant, at an initial purchase price of $0.55 per unit to June 30, 2008 from December 31, 2007. The Amended Warrant Agreement also extended the date the Financing Condition must be met to February 29, 2008 from August 31, 2007. If the Financing Condition had not been met on or before such date, the Amended and Restated Warrant Agreement shall terminate and be of no further force or effect.

 

In connection with the June 12, 2008 financing, the Company entered into Amendment No. 7 , dated as of June 12, 2008, to the Warrant and Put Option Agreement originally dated as of November 30, 2006. This Amendment No. 7 extended to September 1, 2008, the date on which the Company may, at its sole discretion, exercise a put option (the “Put Option”) to require the former Chief Executive (who is the Lead Investor under the warrant agreement) to invest in the Company up to an additional $1,500,000 for the purchase of common stock at a purchase price of $.55 per share (the “Shares”). The Amendment No. 7 also credits the former Chief Executive with amounts raised to reduce his obligation under the Put Option, so that the Put Option obligation is, as of this time, reduced to $1,150,000. This extension of the put option did not have any impact on the Company’s financial statements. See Note 13, Related Party Transactions.

 

Concurrent with completing the Forbearance Agreement, See Note (D) above, the Company and Dr. Gianluigi Longinotti-Buitoni, the Company’s former Chief Executive, entered into a mutual release agreement under which each party delivered general releases of the other, including releases of the Company from contracts and claims related to Dr. Longinotti-Buitoni’s service to the Company and a release by the Company of its rights under the Warrant and Put Option Agreement between the parties originally dated as of November 30, 2006, as amended (the “Warrant Agreement”), including any rights resulting from the October 2, 2007 exercise by the Company of its put option under the Warrant Agreement.

 

7. Stock Option Plan

 

In June 2004 the Company adopted the TrovaGene Stock Option Plan, as amended (the “Plan”). The Plan authorizes the grant of stock options to directors, eligible employees, including executive officers and consultants. Generally, vesting for options granted under the Plan is determined at the time of grant, and options expire after a 10-year period. Options are granted at an exercise price not less than the fair market value at the date of grant.

 

On April 4, 2006, at the Company’s annual meeting, stockholders approved a proposal to increase the number of shares available for grant under the Plan from 5,000,000 to 12,000,000. In December 2009, the Board authorized an increase in the number of shares to be issued pursuant to the 2004 Stock Option Plan, as amended, from 12,000,000 to 22,000,000. The options granted under the Plan may be either “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended or non-qualified stock options at the discretion of the Board of Directors.

 

On May 24, 2005, the Compensation Committee, in recognition of the substantial time and effort to the Company’s affairs during the prior twelve months by each of Gabriele M. Cerrone, former Co-Chairman, L. David Tomei, former Co-Chairman and President of SpaXen Italia, srl, our former joint venture with the Spallanzani National Institute for Infectious Diseases in Rome, Italy, Samuil Umansky, former President and the late Hovsep Melkonyan, former Vice President, Research, accelerated the vesting of outstanding stock options dated June 24, 2004 previously granted to each such officers in the amounts of 1,050,000, 1,012,500, 1,012,500 and 675,000, respectively, so that such options vested as of May 24, 2005. The acceleration did not result in the affected employees (Mr. Umansky and Mr. Melkonyan) being able to exercise options that would have otherwise expired unexercised, therefore no change to the original accounting treatment was required under ASC 505-50 “ Equity-Based Payments to Non-Employees “.

 

In addition, in May of 2005 the Compensation Committee granted additional nonqualified stock options to Messrs. Cerrone, Tomei, Umansky and Melkonyan in the amounts of 240,000, 255,000, 225,000 and 75,000, respectively,

 

F-29



Table of Contents

 

pursuant to the Plan, as an additional incentive to perform in the future on behalf of the Company and its stockholders. Such options were exercisable at $2.50 per share with 33-1/3% of the options granted to each officer vesting on each of the first three anniversaries of the date of grant. The options pertaining to Messer’s Umansky and Melkonyan remain valid and exercisable until their expiration date of May 2015 as stipulated in the 2010 settlement agreement (see Note 12). The options for Messrs. Cerrone and Tomei were fully vested by May of 2008. Mr. Tomei left the Company in November 2006, and in accordance with his stock option agreement his options expired in November 2010. The stock based compensation expense for all of the options issued in May 2005 totaled $1,045,846 for the three years ended December 31, 2008 and inception to December 31, 2010.

 

The acceleration of these options fixed the measurement date prior to the original vesting therefore the Company expensed the remaining balance of deferred stock based compensation attributable to those options totaling $3,197,694 during the year ended January 31, 2006.

 

On June 1, 2007, Gianluigi Longinotti-Buitoni, the Company’s former Chief Executive , and Dr. David Sidransky, an independent director, entered into consulting agreements with the Company wherein they would provide strategic planning, fund raising, management, and technology development services over a three year period beginning June 1, 2007. Compensation would be in form of options to purchase 1,000,000 and 640,000 shares, respectively, of common stock at an exercise price of $0.79 per share for a period of ten years. Such options vested in varying amounts depending upon level of assistance the individuals provided to the Company and the attainment of certain revenue and per share value thresholds. The fair value of these options as of the date of the grant, assuming Mr. Buitoni and Dr. Sidransky provided assistance to the Company over a three year period and all thresholds were attained, were approximately $358,000 and $229,000 for Messers. Longinotti-Buitoni and Sidransky, respectively, utilizing the Black-Scholes model.The stock based compensation expense recorded was $0 for the years ended December 31, 2010 and 2009 and for inception to date has been approximately $179,000 and $115,000 for Mr. Buitoni and Dr. Sidransky, respectively. On November 19, 2008, Mr. Buitoni and Dr. Sidransky resigned their positions as members of the Board of Directors. All previously unvested options, which numbered 666,667 and 426,667 for Mr. Buitoni and Dr. Sidransky, respectively, were terminated on this date.

 

In November 2010, Mr. Umansky, the estate of the late Mr. Melkonyan and Kira Scheinerman settled their employment lawsuits against the Company which included the issuance of stock options. See Note 12.

 

Stock-based compensation has been recognized in operating results as follows:

 

 

 

Years ended December 31,

 

 

 

December 31,

 

December 31,

 

 

 

2010

 

2009

 

Employees—included in research and development

 

$

86,040

 

$

21,611

 

Employees—included in general and administrative

 

180,051

 

133,240

 

 

 

 

 

 

 

Subtotal employee stock based compensation

 

266,091

 

154,851

 

 

 

 

 

 

 

Non-employees—included in research and development

 

 

 

Non-employees—included in general and administrative

 

59,839

 

22,985

 

 

 

 

 

 

 

Subtotal non-employee stock based compensation

 

59,839

 

22,985

 

 

 

 

 

 

 

Total stock-based compensation expense

 

$

325,930

 

$

177,836

 

 

F-30


 


Table of Contents

 

The estimated fair value of stock option awards was determined on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions during the years indicated below:

 

 

 

Years ended December 31,

 

 

 

2010

 

2009

 

Risk-free interest rate

 

1.46%-2.30%

 

1.79%-2.48%

 

Dividend yield

 

 

 

Expected volatility

 

100%

 

75%

 

Expected term (in years)

 

5.0 yrs

 

5.0 yrs

 

Stock price

 

$.22-$.23

 

$.23-$.25

 

 

Risk-free interest rate —Based on the daily yield curve rates for U.S. Treasury obligations with maturities which correspond to the expected term of the Company’s stock options.

 

Dividend yield —Trovagene has not paid any dividends on common stock since its inception and does not anticipate paying dividends on its common stock in the foreseeable future.

 

Expected volatility —Based on the historical volatility of Trovagene’s stock.

 

Expected term —Trovagene has had no stock options exercised since inception. The expected option term represents the period that stock-based awards are expected to be outstanding based on the simplified method provided in Staff Accounting Bulletin (“SAB”) No. 107, Share-Based Payment , (“SAB No. 107”), which averages an award’s weighted-average vesting period and expected term for “plain vanilla” share options. Under SAB No. 107, options are considered to be “plain vanilla” if they have the following basic characteristics: (i) granted “at-the-money”; (ii) exercisability is conditioned upon service through the vesting date; (iii) termination of service prior to vesting results in forfeiture; (iv) limited exercise period following termination of service; and (v) options are non-transferable and non-hedgeable.

 

Forfeitures —ASC Topic 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Trovagene estimated future unvested option forfeitures based on historical experience of 20%.

 

The weighted-average fair value per share of all options granted during the twelve months ended December 31, 2010 and December 31, 2009 estimated as of the grant date using the Black-Scholes option valuation model was $0.28 and $.27 per share, respectively.

 

The unrecognized compensation cost related to non-vested employee stock options outstanding at December 31, 2010 and December 31, 2009 was $363,455 and $344,346, respectively. The weighted-average remaining contractual term at December 31, 2010 for options outstanding and vested options is 6.7 and 5.7 years, respectively.

 

A summary of stock option activity and of changes in stock options outstanding is presented below:

 

 

 

Number of
Options

 

Exercise Price
Per Share

 

Weighted
Average
Exercise
Price Per Share

 

Intrinsic Value

 

Balance outstanding, December 31, 2008

 

6,177,651

 

$0.50 to $2.50

 

$

1.43

 

$

51,429

 

Granted

 

8,585,000

 

$.50

 

$

.50

 

 

 

Exercised

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

Balance outstanding, December 31, 2009

 

14,762,651

 

$0.50 to $2.50

 

$

.89

 

$

2,197,679

 

Granted

 

2,160,000

 

$.50-$.75

 

$

.57

 

 

 

Exercised

 

 

 

 

 

 

Forfeited

 

(2,465,000

)

$.50

 

$

.50

 

 

 

Balance outstanding, December 31, 2010

 

14,457,651

 

$0.50 to 2.50

 

$

.90

 

$

143,500

 

 

 

 

 

 

 

 

 

 

 

Exercisable at December 31, 2010

 

9,415,151

 

$0.50 to 2.50

 

$

1.11

 

$

65,250

 

 

F-31



Table of Contents

 

ASC Topic 718 requires that cash flows resulting from tax deductions in excess of the cumulative compensation cost recognized for options exercised (excess tax benefits) be classified as cash inflows from financing activities and cash outflows from operating activities. Due to TrovaGene’s accumulated deficit position, no tax benefits have been recognized in the cash flow statement.

 

8. Derivative Financial Instruments

 

Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, Contracts in Entity’s Own Equity, TrovaGene has determined that certain warrants issued in connection with the private placements must be recorded as derivative liabilities with a charge to additional paid in capital. In accordance with ASC Topic 815-40, the warrants are also being re-measured at each balance sheet date based on estimated fair value, and any resultant changes in fair value is being recorded in the Company’s statement of operations. The Company estimates the fair value of (i) certain of these warrants using the Black-Scholes option pricing model and (ii) estimates the fair value of the price protected units using the Binomial option pricing model in order to determine the associated derivative instrument liability and change in fair value described above.

 

The range of assumptions used to determine the fair value of the warrants valued using the Black-Scholes option pricing model during the periods indicated was:

 

 

 

Twelve months ended
December 31, 2010

 

Twelve months ended
December 31, 2009

 

Estimated fair value of warrant

 

$0.50 to$2.50

 

$0.50 to$2.50

 

Expected warrant term

 

5 years

 

5 years

 

Risk-free interest rate

 

.19-1.02%

 

.04-1.72%

 

Expected volatility

 

100%

 

75%

 

Dividend yield

 

0%

 

0%

 

 

Expected volatility is based on historical volatility of Trovagene’s common stock. The warrants have a transferability provision and based on guidance provided in SAB 107 for instruments issued with such a provision, TrovaGene used the full contractual term as the expected term of the warrants. The risk free rate is based on the U.S. Treasury security rates consistent with the expected remaining term of the warrants at each balance sheet date.

 

The following table sets forth the components of changes in the Company’s derivative financial instruments liability balance, valued using the Black-Scholes option pricing method, for the periods indicated:

 

F-32



Table of Contents

 

Date

 

Description

 

Warrants

 

Derivative
Instrument
Liability

 

1/1/2009

 

Opening balance

 

7,399,405

 

$

1,002,841

 

 

 

 

 

 

 

 

 

3/31/2009

 

Change in fair value of warrants during the quarter recognized as a loss in the statement of operations

 

 

$

576,837

 

 

 

 

 

 

 

 

 

3/31/2009

 

Balance of derivative financial instruments liability

 

7,399,405

 

$

1,579,678

 

6/30/2009

 

Change in fair value of warrants during the quarter recognized as income in the statement of operations

 

 

$

(934,789

)

 

 

 

 

 

 

 

 

6/30/2009

 

Balance of derivative financial instruments liability

 

7,399,405

 

$

644,889

 

9/30/2009

 

Change in fair value of warrants during the quarter recognized as a loss in the statement of operations

 

 

$

18,895

 

9/30/2009

 

Balance of derivative financial instruments liability

 

7,399,405

 

$

663,784

 

12/31/2009

 

Change in fair value of warrants during the quarter recognized as a loss in the statement of operations

 

 

$

76,833

 

12/31/2009

 

Balance of derivative financial instruments liability

 

7,399,405

 

$

740,617

 

3/31/2010

 

Change in fair value of warrants during the quarter recognized as income in the statement of operations

 

 

$

(266,632

)

3/31/2010

 

Balance of derivative financial instruments liability

 

7,399,405

 

$

473,985

 

6/30/2010

 

Warrants expiration

 

(322,500

)

 

 

 

 

 

 

 

 

 

6/30/2010

 

Change in fair value of warrants during the quarter recognized as income in the statement of operations

 

 

$

(168,439

)

 

 

 

 

 

 

 

 

6/30/2010

 

Balance of derivative financial instruments liability

 

7,076,905

 

$

305,546

 

 

 

 

 

 

 

 

 

9/30/2010

 

Change in fair value of warrants during the quarter recognized as a loss in the statement of operations

 

 

$

347,425

 

 

 

 

 

 

 

 

 

9/30/2010

 

Balance of derivative financial instruments liability

 

7,076,905

 

$

652,971

 

 

 

 

 

 

 

 

 

12/31/2010

 

Change in fair value of warrants during the quarter recognized as income in the statement of operations

 

 

$

(43,816

)

 

 

 

 

 

 

 

 

12/31/2010

 

Balance of derivative financial instruments liability

 

7,076,905

 

$

609,155

 

 

During the years ended December 31, 2010 and 2009, Company issued 4,709,654 and 2,930,000 units at $.50 per unit. The units had a per unit price protection clause whereby from the date of issuance until the earlier of (i) thirty months from the final Closing or (ii) the closing date of a Subsequent Financing which generates within a one year period an amount equal to or in excess of $5,000,000, if the Company shall issue any Common Stock or Common Stock Equivalents, in a Subsequent Financing at an effective price per share less than the Per Unit Purchase Price, the Company shall issue to such the number of additional Units equal to (a) the Subscription Amount Investor at the Closing divided by the Discounted Purchase Price, less (b) the Units issued to such Investor at the Closing. Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, Contracts in Entity’s Own Equity, TrovaGene has determined that these price protected units issued in connection with the private placements must be recorded as derivative liabilities with a charge to additional paid in capital. The price protected unit’s warrants had an exercise price of $.50 per share and had expiration dates ranging from June 30, 2014 to December 31, 2018. The fair value of these price protected units was estimated using the binomial option pricing model. The binomial model requires the input of variable inputs over time, including the expected stock price volatility, the expected price multiple at which unit holders are likely to exercise their warrants and the expected forfeiture rate. The Company uses historical data to estimate forfeiture rate and expected stock price volatility within the binomial model. The risk-free rate for periods within the contractual life of the warrant is based on the U.S. Treasury yield curve in effect at the date of grant for the expected term of the warrant.

 

The fair value of the warrants granted during the two years ended December 31, 2010 was estimated using the following weighted average assumptions:

 

 

 

2010

 

2009

 

Range of risk-free interest rates

 

.29% to 1.39%

 

1.31% to 1.81%

 

Range of expected volatility

 

60 to 100%

 

75%

 

Expected fair value of the stock

 

$.22-$.23

 

$.23-$.33

 

Weighted average remaining contractual life

 

1.86 years

 

2.45 years

 

Expected warrant term

 

5 years

 

5 years

 

 

F-33



Table of Contents

 

The weighted average remaining contractual term of all of the Company’s warrants outstanding at December 31, 2010 and 2009 was five and six years, respectively.

 

The following table sets forth the components of changes in the Company’s derivative financial instruments liability balance, valued using the Binomial option pricing method, for the periods indicated:

 

 

 

 

 

 

 

Change In

 

 

 

 

 

 

 

 

 

Fair value

 

 

 

 

 

 

 

 

 

of Derivative

 

 

 

 

 

 

 

 

 

Liability

 

 

 

 

 

Number of

 

 

 

For Previously

 

Ending

 

 

 

Price Protected

 

 

 

Outstanding

 

Balance

 

 

 

Units at

 

Derivative Liability

 

Price Protected

 

Derivative

 

Quarter

 

Issuance

 

For Issued Units

 

Units(1)

 

Liability

 

Beginning balance

 

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

Quarter ended 6/30/ 2009

 

50,000

 

9,622

 

0

 

9,622

 

 

 

 

 

 

 

 

 

 

 

Quarter ended 9/30/ 2009

 

500,000

 

91,611

 

(269

)

100,964

 

 

 

 

 

 

 

 

 

 

 

Quarter ended 12/31/ 2009

 

2,380,000

 

512,058

 

(10,889

)

602,133

 

 

 

 

 

 

 

 

 

 

 

Total at 12/31/ 2009

 

2,930,000

 

613,291

 

(11,158

)

602,133

 

 

 

 

 

 

 

 

 

 

 

Quarter ended 3/31/ 2010

 

863,000

 

188,331

 

(20,716

)

769,748

 

 

 

 

 

 

 

 

 

 

 

Quarter ended 6/30/ 2010

 

993,000

 

214,186

 

(29,485

)

954,449

 

 

 

 

 

 

 

 

 

 

 

Quarter ended 9/30/ 2010

 

2,628,654

 

559,862

 

(37,247

)

1,477,064

 

 

 

 

 

 

 

 

 

 

 

Quarter ended 12/31/ 2010

 

225,000

 

47,736

 

(48,017

)

$

1,476,783

 

 

 

 

 

 

 

 

 

 

 

Total at 12/31/10

 

7,639,654

 

$

1,623,406

 

$

(146,623

)

$

1,476,783

 

 

The total derivative liability for the Company at December 31, 2010 and 2009 was $2,085,938 and $1,342,750, respectively.

 

F-34



Table of Contents

 

9. Fair Value Measurements

 

The following table presents the Company’s liabilities that are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as of December 31, 2010 and 2009:

 

Description 

 

Quoted Prices
in Active
Markets for
Identical Assets
and Liabilities
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Balance as of
December 31,
2010

 

Derivative liabilities related to Warrants

 

$

 

$

 

$

2,085,938

 

$

2,085,938

 

 

Description 

 

Quoted Prices
in Active
Markets for
Identical Assets
and Liabilities
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Balance as of
December 31,
2009

 

Derivative liabilities related to Warrants

 

$

 

$

 

$

1,342,750

 

$

1,342,750

 

 

The following table sets forth a summary of changes in the fair value of the Company’s Level 3 liabilities for the twelve months ended December 31, 2010 and 2009:

 

Description 

 

Balance at
December 31,
2009

 

Fair Value of
warrants upon
issuance

 

Unrealized
(gains) or
losses

 

Balance as of
December 31,
2010

 

Derivative liabilities related to Warrants

 

$

1,342,750

 

$

1,010,114

 

$

(266,926

)

$

2,085,938

 

 

Description 

 

Balance at
December 31,
2008

 

Fair Value of
warrants upon
issuance

 

Unrealized
(gains) or
losses

 

Balance as of
December 31,
2009

 

Derivative liabilities related to Warrants

 

$

118,564

 

$

1,497,568

 

$

(273,382

)

$

1,342,750

 

 

F-35



Table of Contents

 

The unrealized gains or losses on the derivative liabilities are recorded as a change in fair value of derivative liabilities in the Company’s statement of operations. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. At each reporting period, the Company reviews the assets and liabilities that are subject to ASC Topic 815-40. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as Level 3.

 

10. Income Taxes

 

Trovagene has not filed any Federal tax returns since inception. The amount of any tax liability that could arise since inception is undetermined at this time, however, the Company believes that because it has sustained losses since inception, the amount of any tax liability, if any, that could arise would be immaterial to the Company’s Consolidated Financial Statements.

 

Because Trovagene has not filed any Federal income tax returns it is still calculating the amount of its net operating loss carryforwards (“NOLs”). At December 31, 2010, Trovagene has estimated Federal NOL’s of approximately $18 Million. This estimate is based upon the Company’s cash used in operating activities since inception. We are not assured that when we file our Federal tax returns that the estimated NOL’s above can be substantiated.

 

Any net deferred tax assets will be fully offset by a valuation allowance due to uncertainties regarding realization of benefits from these future tax deductions.  The utilization of these NOLs is subject to limitations based on significant past and future changes in ownership of Trovogene pursuant to Internal Revenue Code Section 382.

 

The Company does not believe there are any other material deferred tax items. Due to the significant doubt related to Trovagene’s ability to continue as a going concern and utilize its deferred tax assets, a valuation allowance for the full amount of the deferred tax assets has been established at December 31, 2010. As a result of this valuation allowance there are no income tax benefits reflected in the consolidated statements of operations to offset pre-tax losses.

 

The provisions of ASC 740-10-30-7, Accounting for Income Taxes were adopted by Trovagene on January 1, 2007 and had no effect on Trovagene’s financial position, cash flows or results of operations upon adoption, as Trovagene did not have any unrecognized tax benefits. Trovagene’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense and none have been incurred to date. Xenomics Europa LTD, a company formed in the United Kingdom during the year ended January 31, 2007, did not file the required Form 5471 with the Internal Revenue Service. The potential exposure for not filing the Form 5471 is estimated to be approximately $40,000 plus interest and penalties.

 

11. SpaXen Joint Venture

 

In March, 2004, TrovaGene organized a joint venture with the Spallanzani National Institute for Infectious Diseases (Instituto Nazionale per le Malattie Infettive, “INMI”) in Rome, Italy, in the form of a research and development company named SpaXen Italia, S.R.L (“SpaXen”). In laboratories provided to SpaXen within INMI, SpaXen scientists worked to apply the Tr-DNA technology to a broad variety of infectious diseases. Shares of SpaXen were held 50% by INMI and 50% by TrovaGene.

 

The Company did not consolidate the operating results of SpaXen pursuant to the provisions of ASC Topic 810- Consolidation of Variable Interest Entities , since INMI, not TrovaGene, is the primary beneficiary given the Shareholder Agreement stipulates that:

 

1)                                      Any surplus found to exist following liquidation of SpaXen was the exclusive property of INMI,

 

2)                                      Any newly developed intellectual property and patents thereon were the property of INMI,

 

F-36



Table of Contents

 

3)                                      The patent originally contributed by TrovaGene was returned to TrovaGene, and

 

4)                                      SpaXen was managed by a three person Board of Directors to which TrovaGene could only appoint one representative. This provided TrovaGene with a measure of oversight but it did not provide effective control.

 

Effective March 27, 2007, Dr. Tomei, founder and former Co-Chairman of the Board and Chief Executive Officer of the Company, resigned from his position of President and member of the Consiglio of SpaXen. SpaXen was being managed by a sole managing director who was an employee of INMI.

 

In January 2008, SpaXen was liquidated. This had no impact on the Company’s financial statements.

 

12. Commitments and Contingencies

 

License Agreements

 

On May 10, 2006, the Company entered into a license agreement Drs. Falini and Mecucci, wherein it obtained the exclusive rights for the genetic marker for Acute Myeloid Leukemia (AML) and intends to utilize these rights for the development of new diagnostic tools. In connection with this agreement, the Company paid $70,000 to Drs. Falini and Mecucci and is obligated to pay royalties of 6% of royalty revenues and/or 10% of any sublicense income. During the years ended December 31, 2010 and 2009 and from inception (August 4, 1999) to December 31, 2010 the Company recorded license fee expenses of approximately $23,000, $0 and $23,000, respectively.

 

Additionally, the Company paid $100,000 and issued warrants for the purchase of 100,000 shares of common stock at $1.80 per share as a finder’s fee to an independent third party. These warrants had a value of $101,131 on the date of issuance utilizing the Black- Scholes model and expire June 29, 2014. All such payments and the value of the warrants were immediately expensed as research and development expenses.

 

During August 2007, the Company signed a licensing agreement with IPSOGEN SAS, a leading molecular diagnostics company with operations in France and the United States for the co-exclusive rights to develop, manufacture and market, research and diagnostic products for the stratification and monitoring of patients with acute myeloid leukemia (AML). Upon execution of this agreement, IPSOGEN paid an initial licensing fee of $120,000 and may make milestone payments upon the attainment of certain regulatory and commercial milestones. IPSOGEN will also pay the Company a royalty on any net revenues during the term of the agreement, subject to certain minimums. During the years ended December 31, 2010, 2009 and from inception (August 4, 1999) to December 31, 2010 the Company recorded royalty and license fee revenues of approximately $40,000, $27,000 and $227,000, respectively. During the years ended December 31, 2010 and 2009 and from inception (August 4, 1999) to December 31, 2010 the Company recorded license fee expenses of approximately $0, $3,700 and $3,700 respectively.

 

In October 2007, the Company signed a licensing agreement with ASURAGEN, Inc. for the co-exclusive rights to develop, manufacture and market, research and diagnostic products for the stratification and monitoring of patients with AML. ASURAGEN paid an initial licensing fee of $120,000 upon execution of the agreement and may make future payments to the Company upon the attainment of certain regulatory and commercial milestones. ASURAGEN will also pay the Company a royalty on any net revenues during the term of the agreement, subject to certain minimums. During the years ended December 31, 2010 and 2009 and from inception (August 4, 1999) to December 31, 2010 the Company recorded royalty and license fee revenues of approximately $50,000, $27,000 and $297,000, respectively. During the years ended December 31, 2010 and 2009 and from inception (August 4, 1999) to December 31, 2010 the Company recorded license fee expenses of approximately $0, $5,800 and $15,800 respectively.

 

In January 2008, the Company signed a licensing agreement with Warnex Medical Laboratories for the non-exclusive rights to develop, manufacture and market, research and diagnostic products for the stratification and monitoring of patients with AML. Warnex Medical Laboratories will pay the Company a royalty on any net revenues during the term of the agreement.  The Company has not received any royalty and license fee revenues nor recorded any license fee expenses in connection with this license agreement.

 

In August 2008, the Company signed a licensing agreement with LabCorp for the non-exclusive rights to develop, manufacture and market, research and diagnostic products for the stratification and monitoring of patients with AML. LabCorp paid an initial licensing fee of $20,000 upon execution of the agreement. LabCorp will also pay the Company a royalty on any net revenues during the term of the agreement, subject to certain minimums.  During the years ended December 31, 2010, 2009 and from inception (August 4, 1999) to December 31, 2010 the Company recorded royalty and license fee revenues of approximately $27,000, $0 and $47,000, respectively. During the years ended December 31, 2010 and 2009 and from inception (August 4, 1999) to December 31, 2010, the Company has not recorded any license fee expenses.

 

F-37



Table of Contents

 

In October 2008, the Company signed a licensing agreement with Sequenom, Inc. for the rights to three patents for the methods for detection of nucleic acid sequences in urine. Sequenom paid an initial licensing fee of $1 million upon execution of the agreement. Sequenom will also pay the Company a royalty on any net revenues during the term of the agreement, subject to certain minimums. In March 2011, Sequenom notified the Company, in accordance with the agreement, that it was terminating the agreement effective after 60 days. The Company has also billed Sequenom for its prorata share of the minimum royalties due in 2011. During the years ended December 31, 2010 and 2009 and from inception (August 4, 1999) to December 31, 2010 the Company recorded royalty and license fee revenues of approximately $139,000, $0 and $1,139,000, respectively. During the years ended December 31, 2010, 2009 and from inception (August 4, 1999) to December 31, 2010, the Company has not recorded any license fee expenses.

 

In December 2008, the Company signed a licensing agreement with InVivoScribe Technologies, Inc. for the co-exclusive rights to develop, manufacture and market, research and diagnostic products for the stratification and monitoring of patients with AML. InVivoScribe Technologies paid an initial licensing fee of $10,000 upon execution of the agreement. InVivoScribe Technologies will also pay the Company a royalty on any net revenues during the term of the agreement, subject to certain minimums.  During the years ended December 31, 2010 and 2009 and from inception (August 4, 1999) to December 31, 2010, the Company recorded royalty and license fee revenues of approximately $0, $0 and $10,000, respectively. During the years ended December 31, 2010 and 2009 and from inception (August 4, 1999) to December 31, 2010, the Company has not recorded any license fee expenses.

 

In June 2010, the Company signed a licensing agreement with Skyline Diagnostics BV for the non-exclusive rights to develop, commercialize and market, research and diagnostic laboratory services for the stratification and monitoring of patients with AML. Skyline Diagnostics BV paid an initial licensing fee of $10,000 upon execution of the agreement and may make future payments to the Company upon the attainment of certain regulatory and commercial milestones. Skyline Diagnostics BV will also pay the Company a royalty on any net revenues during the term of the agreement, subject to certain minimums.  During the years ended December 31, 2010 and 2009 and from inception (August 4, 1999) to December 31, 2010, the Company recorded royalty and license fee revenues of approximately $10,000 $0 and $10,000, respectively. During the years ended December 31, 2010 and 2009 and from inception (August 4, 1999) to December 31, 2010, the Company has not recorded any license fee expenses.

 

In total, during the years ended December 31, 2010 and 2009, the Company recorded $0 and $600,000 of up-front license fees and $265,665 and $53,994 of royalty income, respectively. From inception (August 4, 1999) to December 31, 2010, the Company recorded $1,410,000 of license fees and $340,549 of royalty income.

 

Litigation

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

 

We are not currently a party to any material legal proceedings.

 

F-38



Table of Contents

 

Employment and Consulting Agreements

 

On June 24, 2005, TrovaGene entered into an agreement with Gabriele M. Cerrone, the Company’s former Co-Chairman, to serve as a consultant for a term of three years effective July 1, 2005 with automatic renewal for successive one year periods unless either party gives notice to the other not to renew the agreement. The duties of Mr. Cerrone pursuant to the agreement consist of business development, strategic planning, capital markets and corporate financing consulting advice. Mr. Cerrone’s compensation under the agreement was $16,500 per month. Pursuant to the agreement the Company paid Mr. Cerrone a $50,000 signing bonus in July 2005. In August 2009, the Company and Mr. Cerrone ageed to terminate this consulting agreement. The fair value of the amount owed (“the obligation”) to Mr. Cerrone was determined to be $478,890, as approved by the Board of Directors. In settlement of the obligation the Company issued to Mr. Cerrone 957,780 units, consisting of 957,780 shares of the Company’s common stock and 957,780 warrants to purchase 957,780 shares of common stock of the Company, calculated by dividing the obligation by $.50 per share, as approved by the Board of Directors. Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, TrovaGene has determined that the warrants issued in connection with these warrants should not be recorded as derivative liabilities.

 

In April 2009, pursuant to a written consent of the majority of the shareholders, Thomas Adams was appointed as Chairman of the Board and was given delegated duties as the most senior executive officer of the Company until a Chief Executive Officer was appointed. Mr. Adams was granted 4,800,000 ten year options to purchase shares of the Company’s stock at $0.50 a share which vest in three equal annual installments on April 6, 2010, 2011 and 2012 provided he is still a director, officer or consultant and was retained as a consultant for a term three years at an annual amount of $100,000. The fair value of the options at the date of grant was $427,736 and were expensed over the vesting term in accordance with ASC 505-50. As of December 31, 2010, 1,600,000 options were vested. During the years ended December 31, 2010 and 2009, the Company recorded stock based compensation in the amount of approximately $143,000 and $101,000, respectively. In addition, the Company recorded $100,000 accrual relating to the consulting arrangement for the year ended December 31, 2009.

 

In March 2010, the Board of Directors in an Unanimous Written Consent agreed to settle the amount of $100,000 in full due to Thomas Adams by issuing 200,000 units with each unit consisting of one share of common stock and one warrant to purchase shares of common stock at $0.50 a unit.

 

On August 10, 2011, the Company and Tom Adams entered into an agreement to: (i) terminate the consulting arrangement and to consider the 200,000 units issued in March 2010 as full payment for his services under the consulting arrangement (ii) amend and restate his April 2009 option agreement by replacing the 4,800,000 options granted with 1,822,500 new options with the following terms:

 

a)                             New grant date of August 5, 2011

b)                             Exercise price of $0.53 per share

c)                              800,000 options vested immediately, with the remaining 340,833 to vest on August 5, 2012, 340,833 to vest on August 5, 2013 and 340,834 to vest on August 5, 2014 provided he continues to provide services to the Company.

d)                             Ten year option life, expiring August 5, 2021 or within 90 days of termination

 

The Company accounted for this amendment to the option agreement by recording stock based compensation through August 10, 2011 and recorded a total amount of $292,000 under the original option agreement. The Company fair valued the new options on August 10, 2011 using the black scholes valuation method and the fair value of the new options was $175,000. 800,000 of the options were vested immediately and the Company recorded $77,000 of stock based compensation on the date of grant and recorded an additional $5,000 totaling $82,000 under the new option agreement for the three and nine months ended September 30, 2011 in accordance with ASC 505-50.

 

Consulting Agreements

 

(i)                                   On December 6, 2010, the Company entered into an agreement with a consultant to introduce the Company to various technologies that he becomes aware of from time to time. As consideration for his services the Company issued 150,000 units upon the execution of the agreement. Each unit consisted of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock and were immediately vested. In addition, the Company will grant an additional 350,000 units upon the achievement of certain milestones. In the three and nine months ended September 30, 2011, the Company issued 25,000 and 50,000 units, respectively upon achieving certain milestones which were immediately vested. The Company recorded research and development expense of $12,500 and $25,000 in the three and nine months ended September 30, 2011, respectively. The warrants have an exercise price of $.50 per share expiring on December 31, 2018. The above units were price protected and therefore the warrants were recorded as derivative liabilities and the change in fair value was recorded in the three and nine months ended September 30, 2011 in accordance with ASC Topic 815-40.

 

(ii)                                On September 19, 2011 the Company entered into a consulting agreement whereby the Company retained the services of an independent management consultant who will provide consulting and advisory services to the Company. As compensation for the consultant’s services, the Company issued 300,000 units in the three months ended September 30, 2011 with each unit consisting of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock which were immediately vested. The Company recorded general and administrative expense of $150,000 in the three and nine months ended September 30, 2011. The agreement terminates six months from the effective date. The warrants have an exercise price of $.50 per share expiring on December 31, 2018. The above units were price protected and therefore the warrants issued were recorded as derivative liabilities and the change in fair value was recorded in the three and nine months ended September 30, 2011 in accordance with ASC Topic 815-40.

 

Deferred Founders Compensation

 

On August 15, 2000 Dr. Tomei, Mr. Umansky and Mr. Melkonyan (collectively the “Founders”) entered into employment agreements with the Company pursuant to which each Founder contributed 100% of their time to the Company with payment of their compensation deferred until the Company was sufficiently funded, sold or merged with another company.

 

In accordance with SAB 107, Topic 5, section T, the value of services performed by the Founders and principal shareholders was recorded as a liability and compensation expense. On April 12, 2004, in contemplation of entering into the Securities Exchange Agreement with Used Kar Parts, Inc. the Founders terminated their agreements, waiving any claims to be paid deferred compensation. On April 12, 2004, $1,655,031 of deferred Founders’ compensation liability, which had accumulated since August 15, 2000, was deemed an equity contribution and converted to additional paid-in-capital.

 

Lease Agreements

 

a)                                      On September 15, 2004, the Company entered into a seven year lease for its previous corporate headquarters in New York City with an average annual rent of approximately $78,000 through September 30, 2011. On July 28, 2008, the Company entered into a License Agreement with Synergy Pharmaceuticals, Inc.(“Synergy”) for a portion of the above premises commencing on August 1,2008 and ending on September 30,2008 for a license fee of $9,000. On July 28, 2009, the Company assigned its rights, title and interest in the above lease to Synergy. As a result of this assignment, Synergy has assumed all of the obligations of the lease. Simultaneously with the lease assignment, Synergy delivered a check in the amount of $12,926 as a security deposit for meeting its obligations under the aforementioned lease.

 

b)                                      On September 1, 2004, the Company entered a two year lease for laboratory space in New Jersey, with an approximate annual rent of $125,000 through August 31, 2006. On August 26, 2009, the company entered into a Lease Settlement Agreement (“Settlement”) with the landlord. Under the terms of the Settlement the Company agreed to pay the landlord the sum of $15,000 in full satisfaction of its obligations under the lease. The company also assigned to the landlord ownership of all the tangible property, laboratory equipment and other such equipment located at the premises.

 

c)                                       On October 28, 2009, the Company entered a three year and two months lease, commencing January 1, 2010, for its current corporate headquarters located in San Diego, California with an average annual rent of approximately $132,000 through February 28, 2013. A security deposit in the amount of $65,472 was paid to the landlord.

 

d)                                      During the years ended December 31, 2010 and 2009 total rent expense was approximately $151,000 and $155,000 respectively. The Company is also party to various operating lease agreements for office equipment.

 

Total annual commitments under current lease agreements for each of the twelve months ended December 31, are as follows:

 

2011

 

$

127,776

 

2012

 

135,168

 

2013

 

22,704

 

Total

 

$

285,648

 

 

F-39



Table of Contents

 

Settlement Agreements

 

In November 2010, Mr. Umansky and the estate of the late Mr. Melkonyan settled their employment lawsuits against the Company as follows:

 

A)                                    1) Mr. Umansky received cash payments totaling $150,000 payable in six equal installments of $25,000 commencing December 1, 2010 and ending May 1, 2011.

 

2)                                      Stock options, fully vested, to purchase a total of 450,000 shares of Common Stock, $.001 par value, with an exercise price of $.50 per share and expiring November 1, 2020. The stock based compensation expense associated with these options of $81,901, using the Black Scholes fair value method, is included in Stockholders’ Equity (Deficiency) for the year ended December 31, 2010.

 

3)                                      At the closing Mr. Umansky received an additional sum of $75,000 as a partial reimbursement of legal fees.

 

B)                                    1) Mr. Melkonyan’s estate received cash payments totaling $50,000 payable in six equal installments of $8,333.34 commencing December 1, 2010 and ending May 1, 2011.

 

2)                                      Stock options, fully vested, to purchase a total of 200,000 shares of Common Stock, $.001 par value, with an exercise price of $.50 per share and expiring November 1, 2020. The stock based compensation expense associated with these options of $36,401, using the Black Scholes fair value method, is included in Stockholders’ Equity (Deficiency) for the year ended December 31, 2010.

 

As of December 31, 2010, $225,000 has been expensed in general and administrative expenses in the consolidated statements of operations. At December 31, 2010, $133,333 was outstanding and accrued for.

 

In November 2010, the Company entered into a Mutual Release, Settlement and Indemnification Agreement with Kira Sheinerman with respect to an action against the Company. As a result of this agreement, Ms.Sheinerman received a fully vested stock option, expiring November 17, 2020, to purchase a total of (i) 50,000 shares of Common Stock, $.001 par value, with an exercise price of $.50 per share and (ii) 75,000 shares of Common Stock, $.001 par value, with an exercise price of $.75 per share. The stock based compensation associated with these options totaling $13,211, using the Black Scholes fair value method, is included in Stockholders’ Equity (Deficiency) for the year ended December 31, 2010.

 

EMPLOYEE BENEFIT PLANS

 

Defined Contribution Plan

 

The Company has a retirement savings plan under Section 401(k) of the Internal Revenue Code covering its employees. The plan allows employees to defer, up to the maximum allowed, a % of their income on a pre-tax basis through contributions to the plans, plus any employee of the age of 55 can participate in the caught-up dollars as allowed by IRS codes. The Company also has a Roth investment plan that is taken after taxes. The Company does not currently make matching contributions.

 

13. Related Party Transactions

 

Gabriele M. Cerrone, the Company’s former Co-Chairman, served as a consultant to the Company from June 27, 2005 until June 2008 and is affiliated with Panetta Partners Ltd. Transactions between the Company and Mr. Cerrone and Panetta Partners, Ltd. are disclosed in Note 4, Merger Activities , Note 6, Stockholders’Equity (Deficiency), Note 7, Stock Option Plan and Note 12, Commitments and Contingencies: Employment and Consulting Agreements.

 

Gianluigi Longinotti-Buitoni was appointed Executive Chairman on November 14, 2006 and served without cash compensation. For financial statement reporting purposes, the Company estimated the value of his services for the period from November 14, 2006 through January 31, 2007, for the eleven months ended December 31, 2007 and for the twelve months ended December 31, 2008 to be $62,500, $275,000 and $300,000, respectively, and recorded an expense in the above periods for those amounts with corresponding increases to additional paid in capital. See Note 6, Stockholders’ Equity (Deficiency) .

 

Stanley Tennant, a director of the company, and a Debenture holder in the principal amount of $137,500 received 338,126 shares of common stock relating to the Forbearance Agreement. R. Merrill Hunter, a principal stockholder of the company, and a Debenture holder in the principal amount of $550,000 received 1,352,504 shares of common stock relating to the Forbearance Agreement.

 

See Note 12 relating to Thomas Adams, Chairman of the Board, consulting arrangement.

 

14. Subsequent Events

 

A)          On July 20, 2011, Dr. Andreas Braun, Trovagene’s Acting President and CEO, tendered his resignation effective August 5, 2011. The Company owes Dr. Braun $51,923 in deferred compensation as of the date of his resignation.

 

B)          On August 10, 2011, the Company and Thomas Adams, Chairman of the Board of Directors, agreed to: (i) terminate the consulting arrangement between Thomas Adams and the Company and (ii) amend and restate his April 21, 2009 stock option agreement. See Item 12 above.

 

C)          During the period from July 1 to October 21, 2011 the Company closed seven private placement financings which raised gross proceeds of $1,228,500. The Company issued 2,457,000 shares of its common stock and warrants to purchase 2,457,800 shares of common stock in these transactions. The purchase price paid by the investors was $.50 for each unit. The warrants expire after eight years and are exercisable at $.50 per share. Based upon the Company’s analysis of the criteria

 

F-40



Table of Contents

 

contained in ASC Topic 815-40, TrovaGene has determined that the units, which are price protected, issued in connection with these private placements should be recorded as derivative liabilities.

 

D)            On October 4, 2011, the Company entered into an executive agreement with Antonius Schuh, Ph.D. in which he agreed to serve as Chief Executive Officer.  The term of the agreement is effective as of October 4, 2011 and continues until October 4, 2015 and is automatically renewed for successive one year periods at the end to each term.  Dr. Schuh’s compensation is $275,000 per year.  Dr. Schuh is eligible to receive a cash bonus of up to 50% of his base salary per year based on meeting certain performance objectives and bonus criteria.  Upon entering the agreement, Dr. Schuh was granted 3,800,000 non-qualified stock options which have an exercise price of $0.50 per share and vest annually in equal amounts over a period of four years Dr. Schuh is also eligible to receive a realization bonus upon the occurrence of either of the following events, whichever occurs earlier;

 

(i)                                      In the event that during the term of the agreement, for a period of 90 consecutive trading days, the market price of the common stock is $1.25 or more and the volume of the common stock daily trading volume is $125,000 or more, we shall pay or issue Dr. Schuh a bonus in an amount of $3,466,466 in either cash or registered common stock or a combination thereof as mutually agreed by Dr. Schuh and us; or

 

(ii)                                   In the event that during the term of the agreement, a change of control occurs where the per share enterprise value of our company equals or exceeds $1.25 per share, we shall pay Dr. Schuh a bonus in an amount determined by multiplying the enterprise value by 4.0%.  In the event in a change of control the per share enterprise value exceeds a minimum of $2.40 per share, $3.80 per share or $5.00 per share, Dr. Schuh shall receive a bonus in an amount determined by multiplying the incremental enterprise value by 2.5%, 2.0% or 1.5%, respectively.

 

If the executive agreement is terminated for cause or as a result of Dr. Schuh’s death or permanent disability or if Dr. Schuh terminates his agreement voluntarily, Dr. Schuh shall receive a lump sum equal to (i) any portion of unpaid base compensation then due for periods prior to termination, (ii) any bonus or realization bonus earned but not yet paid through the date of termination and (iii) all expenses reasonably incurred by Dr. Schuh prior to date of termination.  If the executive agreement is terminated without cause Dr. Schuh shall receive a severance payment equal to base compensation for three months if termination occurs ten months after the effective date of the agreement and six months if termination occurs subsequent to ten months from the effective date.  If the executive agreement is terminated as a result of a change of control, Dr. Schuh shall receive a severance payment equal to base compensation for twelve months and all unvested stock options shall immediately vest and become fully exercisable for a period of six months following the date of termination.

 

On December 26, 2005, TrovaGene entered into a letter agreement with David Robbins, Ph.D. to serve as Vice President of Product Development for a term of three years. Mr. Robbins received a grant of 100,000 incentive stock options with an exercise price of $1.86 per share which vested in equal amounts over a period of three years beginning January 3, 2007. The agreement contained a provision pursuant to which all of the unvested stock options would vest in the event there was a change in control of the Company. The above options were fully vested at January 31, 2009. On October 7, 2011, the Company entered into an employment agreement with Dr. Robbins, Ph.D. in which he agreed to serve as Vice President, Research and Development.  The term of the agreement is effective as of October 7, 2011 and continues until October 7, 2012 and is automatically renewed for successive one year periods at the end to each term.  Dr. Robbins’ salary is $195,000 per year.  Dr. Robbins is eligible to receive a cash bonus of up to 25% of his base salary per year at the discretion of the Compensation Committee.  If the employment agreement is terminated without cause, Dr. Robbins shall be entitled to a severance payment equal to three months of base salary.

 

F-41



Table of Contents

 

TrovaGene, Inc. and Subsidiaries

 

(A development stage company)

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

Unaudited
September 30,

2011

 

December 31,
2010

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

157,467

 

$

58,703

 

Accounts receivable

 

91,508

 

75,000

 

Prepaid expenses

 

42,618

 

151,032

 

Total current assets

 

291,593

 

284,735

 

Property and equipment, net

 

25,081

 

31,260

 

Other assets

 

174,581

 

196,229

 

 

 

$

491,255

 

$

512,224

 

 

 

 

 

 

 

Liabilities and Stockholders’ Deficency

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

747,881

 

$

637,863

 

Interest payable

 

 

28,639

 

Accrued expenses

 

403,278

 

420,099

 

Convertible debentures

 

 

2,335,050

 

Total current liabilities

 

1,151,159

 

3,421,651

 

Derivative financial instruments

 

2,983,546

 

2,085,938

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

Stockholders’ deficiency

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 20,000,000 shares authorized, 95,600 shares outstanding at September 30, 2011 and December 31, 2010, designated as Series A Convertible Preferred Stock with liquidation preference of $956,000 at September 30, 2011 and December 31, 2010

 

96

 

96

 

 

 

 

 

 

 

Common stock, $0.0001 par value, 100,000,000 shares authorized, 62,260,157 and 52,610,713 issued and outstanding at September 30, 2011 and December 31, 2010, respectively

 

6,226

 

5,261

 

 

 

 

 

 

 

Additional paid-in capital

 

38,691,762

 

36,320,257

 

Deficit accumulated during development stage

 

(42,341,534

)

(41,320,979

)

Total stockholders’ deficiency

 

(3,643,450

)

(4,995,365

)

 

 

 

 

 

 

 

 

$

491,255

 

$

512,224

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

F-42



Table of Contents

 

TrovaGene, Inc. and Subsidiaries

 

(A development stage company)

Condensed Consolidated Statements of Operations

 

(Unaudited)

 

 

 

 

 

 

 

August 4, 1999

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(Inception) to

 

 

 

2011

 

2010

 

2011

 

2010

 

September 30, 2011

 

Royalty income

 

55,000

 

32,569

 

203,946

 

40,684

 

621,320

 

License fees

 

 

 

20,000

 

10,000

 

1,353,174

 

Total revenues

 

$

55,000

 

$

32,569

 

$

223,946

 

$

50,684

 

$

1,974,494

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

200,924

 

229,527

 

602,228

 

651,011

 

15,220,696

 

Purchased in-process research and development expense-related party

 

 

2,666,869

 

 

2,666,869

 

2,666,869

 

General and administrative

 

586,230

 

371,887

 

1,721,301

 

1,292,591

 

21,938,340

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

(732,154

)

(3,235,714

)

(2,099,583

)

(4,559,787

)

(37,851,411

)

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

9

 

173

 

9

 

266,884

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(29,025

)

(56,637

)

(86,946

)

(1,325,373

)

Amortization of deferred debt costs and original issue discount

 

 

 

 

 

(2,346,330

)

Change in fair value of derivative instruments—warrants

 

118,040

 

(310,178

)

540,789

 

175,095

 

1,596,122

 

Net gain on extinguishment of debt

 

623,383

 

 

623,383

 

 

 

623,383

 

Liquidated damages and other forbearance agreement settlement costs

 

 

 

 

 

(1,758,111

)

Net income (loss)

 

9,269

 

(3,574,908

)

(991,875

)

(4,471,629

)

(40,794,836

)

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock dividend

 

(9,560

)

(9,560

)

(28,680

)

(28,680

)

(298,357

)

Series A Convertible Preferred stock conversion rate change accreted as a dividend

 

 

 

 

 

(792,956

)

Cumulative effect of early adopting ASC Topic 815-40

 

 

 

 

 

(455,385

)

Net loss available to common stockholders

 

$

(291

)

$

(3,584,468

)

$

(1,020,555

)

$

(4,500,309

)

$

(42,341,534

)

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) PER COMMON SHARE-BASIC AND DILUTED:

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

.00

 

$

(.08

)

$

(.02

)

$

(.11

)

 

 

Weighted average shares outstanding:

 

60,102,569

 

46,561,765

 

56,406,967

 

39,610,551

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

F-43



Table of Contents

 

TrovaGene, Inc. and Subsidiaries

 

(A development stage company)

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

Preferred

 

Preferred

 

Common

 

Common

 

Additional

 

During

 

Total

 

 

 

Stock

 

Stock

 

Stock

 

Stock

 

Paid-In

 

Development

 

Stockholders’

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Stage

 

Deficiency

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2010

 

95,600

 

$

96

 

52,610,713

 

$

5,261

 

$

36,320,257

 

$

(41,320,979

)

$

(4,995,365

)

Issuance of shares of common stock in payment of convertible debenture interest in accordance with Forbearance Agreement

 

 

 

 

 

385,284

 

38

 

85,237

 

 

 

85,275

 

Private placement of units

 

 

 

 

 

3,020,000

 

302

 

1,509,698

 

 

 

1,510,000

 

Derivative liability-fair value of warrants and price protected units issued

 

 

 

 

 

 

 

 

 

(856,894

)

 

 

(856,894

)

Shares issued in connection with Board Compensation

 

 

 

 

 

250,500

 

25

 

125,225

 

 

 

125,250

 

Issuance of common stock to selling agent

 

 

 

 

 

506,550

 

51

 

(51

)

 

 

 

Issuance of common stock in connection with consulting services

 

 

 

 

 

350,000

 

35

 

174,965

 

 

 

175,000

 

Stock issued in connection with conversion of convertible debentures

 

 

 

 

 

5,137,110

 

514

 

1,129,650

 

 

 

1,130,164

 

Stock based compensation

 

 

 

 

 

 

 

 

 

203,675

 

 

 

203,675

 

Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

(28,680

)

(28,680

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(991,875

)

(991,875

)

Balance, September 30, 2011

 

95,600

 

$

96

 

62,260,157

 

$

6,226

 

$

38,691,762

 

$

(42,341,534

)

$

(3,643,450

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

F-44



Table of Contents

 

TrovaGene, Inc. and Subsidiaries

(A development stage company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

For the nine months ended September 30,

 

For the period
August 4, 1999 (Inception) to

 

 

 

2011

 

2010

 

September 30, 2011

 

Operating activities

 

 

 

 

 

 

 

Net loss

 

$

(991,875

)

$

(4,471,629

)

$

(40,794,836

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

7,708

 

5,939

 

219,223

 

Amortization of debt discount

 

 

 

166,029

 

166,029

 

Stock based compensation expense

 

203,675

 

176,939

 

11,433,022

 

Founders’ compensation contributed to equity

 

 

 

1,655,031

 

Donated services contributed to equity

 

 

 

829,381

 

Settlement of consulting services per debt conversion agreement

 

 

 

478,890

 

Accretion of debt discount to interest expense

 

 

 

2,346,330

 

Liquidated damages and other forbearance agreement settlement costs paid in stock

 

 

 

1,758,111

 

Interest expense on convertible debentures paid in stock

 

56,637

 

86,946

 

757,198

 

Change in fair value of derivative instruments

 

(540,789

)

(175,095

)

(1,596,122

)

Purchased in-process research and development expense-related party

 

 

2,666, 869

 

2,666,869

 

Stocks issued in connection with severance pay

 

 

28,346

 

28,346

 

Stocks issued in connection with settlement of legal fees

 

 

100,000

 

100,000

 

Stocks issued in connection with consulting services

 

175,000

 

 

287,500

 

Net gain on extinguishment of debt

 

(623,383

)

 

 

(623,383

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Decrease (increase) in other assets

 

21,648

 

(95,434

)

(69,881

)

 

 

 

 

 

 

 

 

(Increase) decrease in accounts receivable

 

(16,508

)

7,944

 

(91,508

)

 

 

 

 

 

 

 

 

Decrease (increase) in prepaid expenses

 

108,414

 

(52,063

)

(42,618

)

 

 

 

 

 

 

 

 

Increase (decrease) in accounts payable and accrued expenses

 

189,766

 

(137,416

)

935,919

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

(1,409,707

)

(1,692,625

)

(19,556,499

)

Investing activities:

 

 

 

 

 

 

 

Assets acquired in Etherogen, Inc. merger

 

 

 

(104,700

)

Acquisition of equipment

 

(1,529

)

(27,747

)

(244,303

)

Net cash used in investing activities

 

(1,529

)

(27,747

)

(349,003

)

Financing activities

 

 

 

 

 

 

 

Proceeds from sale of 6% convertible debenture

 

 

 

2,335,050

 

Debt issuance costs

 

 

 

(297,104

)

Proceeds from private placements of common stock and units, net of expenses

 

1,510,000

 

1,734,700

 

16,368,505

 

Proceeds from an exchange agreement

 

 

 

142,187

 

Costs associated with recapitalization

 

 

 

(362,849

)

Proceeds from sale of preferred stock

 

 

 

2,771,000

 

Payment of finders’ fee on preferred stock

 

 

 

(277,102

)

Redemption of common stock

 

 

 

(500,000

)

Payment of preferred stock dividends

 

 

 

(116,718

)

Net cash provided by financing activities

 

1,510,000

 

1,734,700

 

20,062,969

 

Net change in cash and equivalent-increase

 

98,764

 

14,328

 

157,467

 

Cash and cash equivalents—Beginning of period

 

58,703

 

545,166

 

 

Cash and cash equivalents—End of period

 

$

157,467

 

559,494

 

$

157,467

 

Supplementary disclosure of cash flow activity:

 

 

 

 

 

 

 

Cash paid for taxes

 

$

 

$

 

$

 

Cash paid for interest

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

Conversion of 174,000 shares of preferred stock into 826,431 shares of common stock:

 

 

 

 

 

 

 

Surrender of 174,000 shares of preferred stock

 

$

 

$

 

$

(1,740,000

)

Issuance of 826,431 shares of common stock

 

 

 

$

1,740,000

 

Series A Preferred beneficial conversion feature accreted as a dividend

 

 

 

$

792,956

 

Stock issued in connection with conversion of convertible debentures

 

$

1,130,164

 

 

$

1,130,164

 

Stock issued in connection with Board Compensation

 

$

125,250

 

 

 

$

125,250

 

Preferred stock dividends accrued

 

$

28,680

 

$

28,680

 

$

143,400

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

F-45



Table of Contents

 

TrovaGene, Inc.

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements

 

1.                Condensed Consolidated Financial Statements

 

The accompanying unaudited condensed consolidated financial statements of TrovaGene, which include its wholly owned subsidiary Xenomics, Inc., a California corporation (“ Xenomics Sub”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All intercompany balances and transactions have been eliminated. Certain items in the comparable prior period’s financial statements have been reclassified to conform to the current period’s presentation. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements as of December 31, 2010 and December 31, 2009 and from inception (August 4, 1999) to December 31, 2010 and for each of the two years ended December 31, 2010 included in this Form 10. Certain items in the prior year’s financial statements have been reclassified to conform to the current year’s presentation. All intercompany balances and transactions have been eliminated. The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at September 30, 2011, and for all periods presented herein, have been made. The results of operations for the periods ended September 30, 2011 and 2010 are not necessarily indicative of the operating results for the full year.

 

Going Concern

 

TrovaGene’s consolidated financial statements as of September 30, 2011 and December 31, 2010 have been prepared under the assumption that the Company will continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to generate revenue. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company will be required to raise additional capital within the next twelve months to complete the development and commercialization of current product candidates and to continue to fund operations at its current cash expenditure levels.

 

Cash used in operating activities was $1,409,707 and $1,692,625 for the nine months ended September 30, 2011 and 2010 respectively. During the nine months ended September 30, 2011 and 2010 the Company recorded net losses attributable to common stockholders of $1,020,555 and $4,500,309, respectively.

 

To date, TrovaGene’s sources of cash have been primarily limited to the sale of debt and equity securities. Net cash provided by financing activities for the nine months ended September 30, 2011 and 2010 was $1,510,000 and $1,734,700, respectively. The Company cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that the Company can raise additional funds by issuing equity securities, the Company’s stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact the Company’s ability to conduct its business.

 

If the Company is unable to raise additional capital when required or on acceptable terms, it may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more of its product candidates. The Company may also be required to:

 

·   Seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; and

 

·   Relinquish licenses or otherwise dispose of rights to technologies, product candidates or products that the Company would otherwise seek to develop or commercialize themselves, on unfavorable terms.

 

As of September 30, 2011, TrovaGene had an accumulated deficit of $42,341,534 and expects to incur significant and increasing operating losses for the next several years.

 

The Company has approximately $714,000 of cash in the bank at December 27, 2011. Based on the Company’s projections of future ordinary expenses and expected receipts the Company has enough cash to pay expenses through April of 2012.

 

2. Net Loss Per Share

 

Basic and diluted net loss per share is presented in conformity with ASC Topic 260, Earnings per Share , for all periods presented. In accordance with this guide, basic and diluted net income/loss per common share was determined by dividing net income/loss applicable to common stockholders by the weighted-average common shares outstanding during the period.

 

F-46



Table of Contents

 

Diluted weighted-average shares are the same as basic weighted-average shares when the shares issuable pursuant to the exercise of dilutive instruments would have been antidilutive.

 

For the three and nine months ended September 30, 2011 and 2010, certain of the outstanding stock options and other common stock equivalents were excluded from the calculation of diluted income per share because the effect was anti-dilutive. The amounts excluded in the three and nine months ended September 30, 2011 and 2010 were 31,608,494 and 34,499,589, respectively. Basic and diluted weighted average units outstanding were the same.

 

3.                Accounting for Share-Based Payments

 

Stock Options

 

ASC Topic 718 “Compensation—Stock Compensation” requires companies to measure the cost of employee services received in exchange for the award of equity instruments based on the estimated fair value of the award at the date of grant. The expense is to be recognized over the period during which an employee is required to provide services in exchange for the award. ASC Topic 718 did not change the way TrovaGene accounts for non-employee stock-based compensation. TrovaGene accounts for shares of common stock, stock options and warrants issued to non-employees based on the fair value of the stock, stock option or warrant, if that value is more reliably measurable than the fair value of the consideration or services received. The Company accounts for stock options issued and vesting to non-employees in accordance with ASC Topic 505-50 “ Equity-Based Payment to Non-Employees” whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Accordingly the fair value of these options is being “marked to market” quarterly until the measurement date is determined.

 

Stock-based compensation expense related to TrovaGene options have been recognized in operating results as follow:

 

 

 

Three Months
Ended September 30,

 

Nine Months
Ended September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Employees—included in research and development

 

$

2,314

 

$

2,314

 

$

6,943

 

$

6,943

 

Employees—included in general and administrative

 

11,562

 

15,727

 

35,375

 

27,884

 

Non-employees—included in research and development

 

 

 

 

 

Non-employees—included in general and administrative

 

69,094

 

47,371

 

161,357

 

142,112

 

 

 

 

 

 

 

 

 

 

 

Total stock-based compensation expense

 

$

82,970

 

$

65,412

 

$

203,675

 

$

176,939

 

 

F-47



Table of Contents

 

The unrecognized compensation cost related to non-vested employee stock options outstanding at September 30, 2011 and 2010, net of expected forfeitures, was $187,521 and $298,043, respectively, to be recognized over a weighted-average remaining vesting period of approximately 5.0 years and 5.4 years, respectively. This unrecognized compensation cost does not include amounts related to stock options which vest upon change of control.

 

The estimated fair value of stock option awards was determined on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions during the following periods indicated.

 

 

 

Nine Months
Ended
September
30, 2011

 

Nine Months
Ended
September
30, 2010

 

Risk-free interest rate

 

.85

%

1.46

%

Dividend yield

 

N/A

 

N/A

 

Expected volatility

 

90

%

100

%

Expected term (in years)

 

5.0 yrs.

 

5.0 yrs.

 

 

A summary of stock option activity and of changes in stock options outstanding under the Plan is presented below:

 

 

 

Number of
Options

 

Exercise Price
Per Share

 

Weighted Average
Exercise Price
Per Share

 

Intrinsic
Value

 

Balance outstanding, December 31, 2010

 

14, 457,651

 

$

0. 50 - 2.50

 

$

0.90

 

$

65,250

 

Granted

 

84,000

 

$

0.50

 

$

0.50

 

 

Exercised

 

 

 

 

 

 

Forfeited

 

(2,977,500

)

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance outstanding, September 30, 2011

 

11,564,151

 

$

0.50 - 2.50

 

$

0.96

 

$

0

 

 

 

 

 

 

 

 

 

 

 

Exercisable at September 30, 2011

 

8,824,818

 

$

0.50 - 2.50

 

$

1. 10

 

$

0

 

 

Warrants

 

The Company issued 350,000 warrants, whose weighted average exercise price was $.50 per share, in the nine months ended September 30, 2011 which were issued in connection with consulting services.

 

F-48



Table of Contents

 

4.                Stockholder’s Deficiency

 

During the nine months ended September 30, 2011, the Company issued 256,856 shares of common stock as interest on the convertible debentures and in accordance with the Forbearance Agreement. The amount charged to interest expense was $56,637 based on $.22 per share issued, determined by the price paid by investors for the common stock component of the price protected units, and is included in the Consolidated Statements of Operations.

 

During the nine months ended September 30, 2011, the Company closed fifteen private placement financings which raised gross proceeds of $1,510,000. The Company issued 3,020,000 shares of its common stock and warrants to purchase 3,020,000 shares of common stock. The purchase price paid by the investor was $.50 for each unit, determined by the price paid by investors in recent private placements.  The warrants expire after eight years and are exercisable at $.50 per share. Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, TrovaGene has determined that the warrants issued in connection with these private placements should be recorded as derivative liabilities since they are all price protected.

 

During the nine months ended September 30, 2011, the Company issued 250,500 units to four outside directors consisting of 250,500 shares of common stock and warrants to purchase 250,500 shares of common stock. The warrants have an exercise price of $0.50 per share, are immediately exercisable and expire December 31, 2018. The issuance of these units was in full settlement of accrued director fees payable as of December 31, 2010 totaling $125,250 based on $.50 per share issued, determined by the price paid by investors in recent private placements.  This value of the services received was deemed to be the most accurate measure of fair value in accordance with ASC Topic 718 “Compensation—Stock Compensation”. Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, TrovaGene has recorded stock based compensation and the warrants issued in connection with the above transaction have been accounted for as equity.

 

During the nine months ended September 30, 2011, the Company issued 506,550 units to a selling agents consisting of 506,550 shares of common stock and warrants to purchase 506,550 shares of common stock. The warrants have an exercise price of $0.50 per share, are immediately exercisable and expire December 31, 2018.  The units were issued as a finder’s fee in connection with certain private placements closed during the nine months ended September 30, 2011. The issuance of these units was treated as a non-compensatory cost of capital. Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, TrovaGene has determined that the warrants issued in connection with these private placements should be recorded as derivative liabilities since they are all price protected. The fair value is disclosed in Note 5.

 

During the nine months ended September 30, 2011, the Company issued 350,000 shares and warrants to purchase 350,000 of common stock in connection with a consulting agreement. The fair value used to measure compensation expense was $.50 for each unit determined by the price paid by investors in recent private placements. The warrants expire after eight-nine years and are exercisable at $.50 per share. Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, TrovaGene has determined that the warrants issued in connection with the issuance above should be recorded as derivative liabilities since they are price protected. The fair value is disclosed in Note 5.

 

F-49



Table of Contents

 

5.  Derivative Financial Instruments

 

Effective January 1, 2009, the Company adopted provisions of ASC Topic 815-40, “Derivatives and Hedging: Contracts in Entity’s Own Equity” (“ASC Topic 815-40”). ASC Topic 815-40 clarifies the determination of whether an instrument issued by an entity (or an embedded feature in the instrument) is indexed to an entity’s own stock, which would qualify as a scope exception under ASC Topic 815-10.

 

Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, Trovagene has determined that the warrants issued in connection with certain of its private placements and with its debentures must be recorded as derivative liabilities. Accordingly the warrants are also being re-measured at each balance sheet date based on estimated fair value, and any resultant changes in fair value is being recorded in the Company’s statement of operations.

 

The Company estimates the fair value of the warrants issued in connection with certain of its private placements and with its debentures using the Black-Scholes model in order to determine the associated derivative instrument liability and change in fair value described above. The range of assumptions used to determine the fair value of the warrants at the end of each period of September 30, 2011 and September 30, 2010 were indicated as follows:

 

 

 

Nine Months Ended
September 30, 2011

 

Nine Months Ended
September 30, 2010

 

Estimated fair value of Trovagene common stock

 

$

.22

 

$

.23

 

Expected warrant term

 

5 years

 

5 years

 

Risk-free interest rate

 

.2.04

%

66

%

Expected volatility

 

90

%

100

%

Dividend yield

 

 

 

 

 

 

 

 

 

 

Estimated fair value of the stock is based on a Black-Scholes based apportionment of the unit price paid for the shares and warrants issued in Trovagene’s private placements, which resulting stock prices were deemed to be arms-length negotiated prices. Expected volatility is based on historical volatility of Trovagene’s common stock. The warrants have a transferability provision and based on guidance provided in SAB 107 for instruments issued with such a provision, Trovagene used the full contractual term as the expected term of the warrants. The risk free rate is based on the U.S. Treasury security rates for maturities consistent with the expected remaining term of the warrants.

 

On July 18, 2011 the Company settled with the holders of the Debentures by converting the amounts outstanding by issuing 4,670,100 shares of common stock pursuant to a note and warrant agreement and the Company issued an additional 467,010 shares of common stock to the Debenture Holders as consideration to extinguish their debt. This resulted in a $1.2 million gain on extinguishment based on the fair value of the stock being $0.22 a share as of the date of the transaction.  In addition, the 6,083,763 warrants, originally issued in 2006 with the debentures with an expiration date of November 12, 2012, were exchanged for 6,083,763 new warrants with a new expiration date of December 31, 2017.  The additional charge for this modification to the expiration date was $581,503 which offset the gain, resulting in a net gain on extinguishment of $623,383 in the three and nine months ended September 30, 2011 on the Consolidated Statements of Operations.

 

Certain of Trovagene’s warrants issued during the nine months ended September 30, 2011 and 2010 contained a price protection clause, similar to certain of the 2009 and 2010 private placements, which required the Company to use a binomial model to determine fair value. The price protection clause is effective on 11,766,704 warrants in the event of a subsequent equity sale at a price lower than $.50 per share of common stock, for a period of two years from date of issuance. The input assumptions to this methodology were as follows:

 

 

 

Nine Months Ended
September 30, 2011

 

Nine Months Ended
September 30, 2010

 

Estimated fair value of Trovagene common stock

 

$

.22

 

$

.23

 

Expected warrant term

 

5-9 years

 

5-9 years

 

Risk-free interest rate

 

1.43-2.80

%

2.05-3.73

%

Expected volatility

 

90

%

90

%

Dividend yield

 

 

 

 

 

 

 

 

 

 

F-50



Table of Contents

 

The following table sets forth the components of changes in the Company’s derivative financial instruments liability balance, valued using the Black-Scholes option pricing method, for the periods indicated:

 

Date

 

Description

 

Warrants

 

Derivative
Instrument
Liability

 

 

 

 

 

 

 

 

 

12/31/2010

 

Balance of derivative financial instruments liability

 

7,076,905

 

$

609,155

 

 

 

 

 

 

 

 

 

3/31/2011

 

Change in fair value of warrants during the quarter recognized as a gain in the statement of operations

 

 

(141,193

)

 

 

 

 

 

 

 

 

3/31/2011

 

Balance of derivative financial instruments liability

 

7,076,905

 

$

467,962

 

6/30/2011

 

Change in fair value of warrants during the quarter recognized as a gain in the statement of operations

 

 

(143,555

)

6/30/2011

 

Balance of derivative financial instruments liability

 

7,076,905

 

$

324,407

 

9/30/2011

 

Change in fair value of warrants during the quarter recognized as a loss in the statement of operations

 

 

$

555,730

 

9/30/2011

 

Balance of derivative financial instruments liability

 

7,076,905

 

880,137

 

 

The total change in fair value of the derivatives above include the $581,503 charge, resulting from the modification of the 6,083,763 warrants relating to the note and warrant exchange agreement the Company entered into on July 18, 2011 with the debenture holders, that was offset against the gain on extinguishment on the consolidated statement of operations.

 

The following table sets forth the components of changes in the Company’s derivative financial instruments liability balance, valued using the Binomial option pricing method, for the periods indicated:

 

 

 

 

 

 

 

Change In

 

 

 

 

 

 

 

 

 

Fair value

 

 

 

 

 

 

 

 

 

of Derivative

 

 

 

 

 

 

 

 

 

Liability

 

Ending

 

 

 

Number of

 

 

 

For Previously

 

Ending

 

 

 

Price Protected

 

 

 

Outstanding

 

Balance

 

 

 

Units at

 

Derivative Liability

 

Price Protected

 

Derivative

 

Quarter

 

Issuance (1)

 

For Issued Units (1)

 

Units(1)

 

Liability (1)

 

 

 

 

 

 

 

 

 

 

 

Total at 12/31/10

 

7,639,654

 

$

1,623,406

 

$

(146,623

)

$

1,476,783

 

Quarter ended 3/31/ 2011

 

1,522,500

 

320,791

 

(55,139

)

1,742,435

 

Quarter ended 6/30/ 2011

 

775,000

 

161,260

 

(82,862

)

$

1,820,833

 

Quarter ended 9/30/ 2011

 

1,829,550

 

374,843

 

(92,267

)

$

2,103,409

 

 

 

 

 

 

 

 

 

 

 

 

 

11,766,704

 

$

2,480,300

 

$

(376,891

)

$

2,103,409

 

 


(1) Associated with price protected rights of units purchased.

 

F-51



Table of Contents

 

The total derivative liability for the Company at September 30, 2011 was $2,983,546.

 

6. Fair Value Measurements

 

Fair value of financial instruments

 

The Company has adopted FASB ASC 820 Fair Value Measurements and Disclosures (“ASC 820”) for financial assets and liabilities that are required to be measured at fair value, and non-financial assets and liabilities that are not required to be measured at fair value on a recurring basis. Financial instruments consist of cash and cash equivalents, accounts receivable and accounts payable. These financial instruments are stated at their respective historical carrying amounts which approximate fair value due to their short term nature.

 

The following tables presents the Company’s liabilities that are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as of December 31, 2010 and September 30, 2011:

 

Description

 

Quoted Prices
in
Active
Markets
for Identical
Assets and
Liabilities
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Balance as of
December 31, 2010

 

Derivative liabilities related to Warrants

 

$

 

$

 

$

2,085,938

 

$

2,085,938

 

 

Description

 

Quoted Prices
in
Active
Markets
for Identical
Assets and
Liabilities
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Balance as of
September 30,
2011

 

Derivative liabilities related to Warrants

 

$

 

$

 

$

2,983,546

 

$

2,983,546

 

 

The following table sets forth a summary of changes in the fair value of the Company’s Level 3 liabilities for the nine months ended September 30, 2011:

 

Description 

 

Balance at
December 31,
2010

 

Fair Value of
Warrants Exercised
and Reclassified to
Additional Paid in
Capital

 

Fair value of
New Warrants
Issued During
the Period

 

Unrealized
(gains) or
losses

 

Balance as of
September 30,
2011

 

Derivative liabilities related to Warrants

 

$

2,085,938

 

$

 

$

856,894

 

$

40,714

 

$

2,983,546

 

 

The unrealized gains or losses on the derivative liabilities are recorded as a change in fair value of derivative liabilities in the Company’s statement of operations. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. At each reporting period, the Company reviews the assets and liabilities that are subject to ASC Topic 815-40. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as Level 3.

 

7.        Licensing Agreements

 

In February 2011, the Company signed a licensing agreement with MLL Munchner Leukamie Labor (“MLL”) for the non-exclusive rights to develop, manufacture and market, research and diagnostic products for the stratification and monitoring of patients with AML. MLL paid an initial licensing fee of $20,000 upon execution of the agreement which was recorded as licensing income in the consolidated financial statements.  MLL will also pay the Company a royalty on any net revenues during the term of the agreement, subject to certain minimums.

 

8. Commitments

 

A)   On July 20, 2011, Dr. Andreas Braun, Trovagene’s Acting President and CEO, tendered his resignation effective August 5, 2011. The Company owes Dr. Braun $51,923 in deferred compensation as of the date of his resignation.

 

B)   In April 2009, pursuant to a written consent of the majority of the shareholders, Thomas Adams was appointed as Chairman of the Board and was given delegated duties as the most senior executive officer of the Company until a Chief Executive Officer was appointed. Mr. Adams was granted 4,800,000 ten year options to purchase shares of the Company’s stock at $0.50 a share which vest in three equal annual installments on April 6, 2010, 2011 and 2012 provided he is still a director, officer or consultant and was retained as a consultant for a term three years at an annual amount of $100,000. The fair value of the options at the date of grant was $427,736 and were expensed over the vesting term in accordance with ASC 505-50. As of December 31, 2010, 1,600,000 options were vested. During the years ended December 31, 2010 and 2009, the Company recorded stock based compensation in the amount of approximately $143,000 and $101,000, respectively. In addition, the Company recorded $100,000 accrual relating to the consulting arrangement for the year ended December 31, 2009.

 

In March 2010, the Board of Directors in an Unanimous Written Consent agreed to settle the amount of $100,000 in full due to Thomas Adams by issuing 200,000 units with each unit consisting of one share of common stock and one warrant to purchase shares of common stock at $0.50 a unit.

 

On August 10, 2011, the Company and Tom Adams entered into an agreement to: (i) terminate the consulting arrangement and to consider the 200,000 units issued in March 2010 as full payment for his services under the consulting arrangement (ii) amend and restate his April 2009 option agreement by replacing the 4,800,000 options granted with 1,822,500 new options with the following terms:

 

a)              New grant date of August 5, 2011

b)              Exercise price of $0.53 per share

c)              800,000 options vested immediately, with the remaining 340,833 to vest on August 5, 2012, 340,833 to vest on August 5, 2013 and 340,834 to vest on August 5, 2014 provided he continues to provide services to the Company.

d)              Ten year option life, expiring August 5, 2021 or within 90 days of termination

 

The Company accounted for this amendment to the option agreement by recording stock based compensation through August 10, 2011 and recorded a total amount of $292,000 under the original option agreement. The Company fair valued the new options on August 10, 2011 using the black scholes valuation method and the fair value of the new options was $175,000. 800,000 of the options were vested immediately and the Company recorded $77,000 of stock based compensation on the date of grant and recorded an additional $5,000 totaling $82,000 under the new option agreement for the three and nine months ended September 30, 2011 in accordance with ASC 505-50.

 

(C)   Consulting Agreements

 

(i)                    On December 6, 2010, the Company entered into an agreement with a consultant to introduce the Company to various technologies that he becomes aware of from time to time. As consideration for his services the Company issued 150,000 units upon the execution of the agreement. Each unit consisted of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock and were immediately vested. In addition, the Company will grant an additional 350,000 units upon the achievement of certain milestones. In the three and nine months ended September 30, 2011, the Company issued 25,000 and 50,000 units, respectively upon achieving certain milestones which were immediately vested. The Company recorded research and development expense of $12,500 and $25,000 in the three and nine months ended September 30, 2011, respectively. The warrants have an exercise price of $.50 per share expiring on December 31, 2018. The above units were price protected and therefore the warrants were recorded as derivative liabilities and the change in fair value was recorded in the three and nine months ended September 30, 2011 in accordance with ASC Topic 815-40.

 

(ii)                 On September 19, 2011 the Company entered into a consulting agreement whereby the Company retained the services of an independent management consultant who will provide consulting and advisory services to the Company. As compensation for the consultant’s services, the Company issued 300,000 units in the three months ended September 30, 2011 with each unit consisting of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock which were immediately vested. The Company recorded general and administrative expense of $150,000 in the three and nine months ended September 30, 2011. The agreement terminates six months from the effective date. The warrants have an exercise price of $.50 per share expiring on December 31, 2018. The above units were price protected and therefore the warrants issued were recorded as derivative liabilities and the change in fair value was recorded in the three and nine months ended September 30, 2011 in accordance with ASC Topic 815-40.

 

F-52



Table of Contents

 

9.         Subsequent Events

 

(A)  During the period from October 1 to December 6, 2011 the Company closed two private placement financings which raised gross proceeds of $803,500. The Company issued 1,607,000 shares of its common stock and warrants to purchase 1,607,000 shares of common stock in these transactions. The purchase price paid by the investors was $.50 for each unit. The warrants expire after eight years and are exercisable at $.50 per share. Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, TrovaGene has determined that the units, which are price protected,  issued in connection with these private placements should be recorded as derivative liabilities.

 

(B)   On October 4, 2011, TrovaGene entered into an executive agreement with Antonius Schuh, Ph.D. in which he agreed to serve as Chief Executive Officer.  The term of the agreement is effective as of October 4, 2011 and continues until October 4, 2015 and is automatically renewed for successive one year periods at the end to each term.  Dr. Schuh’s compensation is $275,000 per year.  Dr. Schuh is eligible to receive a cash bonus of up to 50% of his base salary per year based on meeting certain performance objectives and bonus criteria.  Upon entering the agreement, Dr. Schuh was granted 3,800,000 non-qualified stock options which have an exercise price of $0.50 per share and vest annually in equal amounts over a period of four years Dr. Schuh is also eligible to receive a realization bonus upon the occurrence of either of the following events, whichever occurs earlier;

 

(j)                    In the event that during the term of the agreement, for a period of 90 consecutive trading days, the market price of the common stock is $1.25 or more and the volume of the common stock daily trading volume is $125,000 or more, we shall pay or issue Dr. Schuh a bonus in an amount of $3,466,466 in either cash or registered common stock or a combination thereof as mutually agreed by Dr. Schuh and us; or

 

(ii)                 In the event that during the term of the agreement, a change of control occurs where the per share enterprise value of our company equals or exceeds $1.25 per share, we shall pay Dr. Schuh a bonus in an amount determined by multiplying the enterprise value by 4.0%.  In the event in a change of control the per share enterprise value exceeds a minimum of $2.40 per share, $3.80 per share or $5.00 per share, Dr. Schuh shall receive a bonus in an amount determined by multiplying the incremental enterprise value by 2.5%, 2.0% or 1.5%, respectively.

 

If the executive agreement is terminated for cause or as a result of Dr. Schuh’s death or permanent disability or if Dr. Schuh terminates his agreement voluntarily, Dr. Schuh shall receive a lump sum equal to (i) any portion of unpaid base compensation then due for periods prior to termination, (ii) any bonus or realization bonus earned but not yet paid through the date of termination and (iii) all expenses reasonably incurred by Dr. Schuh prior to date of termination.  If the executive agreement is terminated without cause Dr. Schuh shall receive a severance payment equal to base compensation for three months if termination occurs ten months after the effective date of the agreement and six months if termination occurs subsequent to ten months from the effective date.  If the executive agreement is terminated as a result of a change of control, Dr. Schuh shall receive a severance payment equal to base compensation for twelve months and all unvested stock options shall immediately vest and become fully exercisable for a period of six months following the date of termination.

 

On December 26, 2005, TrovaGene entered into a letter agreement with David Robbins, Ph.D. to serve as Vice President of Product Development for a term of three years. Mr. Robbins received a grant of 100,000 incentive stock options with an exercise price of $1.86 per share which vested in equal amounts over a period of three years beginning January 3, 2007. The agreement contained a provision pursuant to which all of the unvested stock options would vest in the event there was a change in control of the Company. The above options were fully vested at January 31, 2009. On October 7, 2011, TrovaGene entered into an employment agreement with Dr. Robbins, Ph.D. in which he agreed to serve as Vice President, Research and Development.  The term of the agreement is effective as of October 7, 2011 and continues until October 7, 2012 and is automatically renewed for successive one year periods at the end to each term.  Dr. Robbins’ salary is $195,000 per year.  Dr. Robbins is eligible to receive a cash bonus of up to 25% of his base salary per year at the discretion of the Compensation Committee.  If the employment agreement is terminated without cause, Dr. Robbins shall be entitled to a severance payment equal to three months of base salary.

 

(C) During the period from July 1 to December 29, 2011 the Company closed fourteen private placement financings which raised gross proceeds of $1,598,500. The Company issued 3,197,000 shares of its common stock and warrants to purchase 3,197,000 shares of common stock in these transactions. In addition, the Company issued 35,000 shares of common stock of the Company and warrants to purchase 35,000 shares of common stock as a finder’s fee. The purchase price paid by the investors was $.50 for each unit. The warrants expire after eight years and are exercisable at $.50 per share.

 

F-53


 

Exhibit 10.3

 

Summary of Terms for Lease Agreement

 

·       Address :         11055 FlintKote Ave. San Diego, Cal

A free standing 19,914 Sq. Ft. Building

 

·       Premises :      5280 sq. ft. located at Suites B & C

First right of Refusal for Suite A (Approx. 3200 sq. ft.)

 

·       Term : 39 months with option for 2 additional years

 

·       Commencement : December 1, 2009

 

·       Base Rent: The base rent shall be charged upon the per square foot, per month, triple-net(NNN) amount as follows:

 

Months 1-3

$-0- (Base Rent Abated)

 

 

Months 4-15

$9,678 per month ($1.85/SF)

 

 

Months 15-27

$10,824 per month ($2.05/SF)

 

 

Months 28-39

$11,352 per month ($2.15/SF)

 

 

·       Monthly NNN:

$.45 ($2376 monthly)

 

 

·       Security Deposit :

$13,728 due at signing of lease

 

·       Furniture:      Free use of available furniture during term of lease

 

·       Lease Renewal after initial term capped at 4% increase.

 


Exhibit 10.4

 

FIRST AMENDMENT TO STANDARD INDUSTRIAL NET LEASE

 

THIS FIRST AMENDMENT TO STANDARD INDUSTRIAL NET LEASE (this “ Amendment ”) is entered into as of this 28 th  day of September, 2011 (“ Execution Date ”), by and between BMR-SORRENTO WEST LLC, a Delaware limited liability company (“ Landlord ,” as successor-in-interest to JBC Sorrento West, LLC, a California limited liability company (“ Original Landlord ”)), and TROVAGENE, INC., a Delaware corporation (“ Tenant ,” as successor-by-merger to Xenomics, Inc., a Florida corporation (“ Original Tenant ”)).

 

RECITALS

 

A.             WHEREAS, Original Landlord and Original Tenant entered into that certain Standard Industrial Net Lease dated as of October 28, 2009 and Addendum to Standard Industrial Net Lease attached thereto (as the same may have been amended, supplemented or modified from time to time, collectively, the “ Lease , whereby Tenant leases certain premises consisting of approximately 5,280 Rentable Square Feet, commonly known as known as Suites B and C (the “ Current Premises ”) from Landlord in one of the buildings at 11055 Flintkote Avenue in San Diego, California (the “ Building ”);

 

B.             WHEREAS, Tenant desires to lease from Landlord and Landlord desires to lease to Tenant additional space located at 11055 Flintkote Avenue, San Diego, California, consisting of approximately two thousand seven hundred sixty-one (2,761) Rentable Square Feet, commonly known as Suite A, as depicted on Exhibit A attached hereto (the “ Additional Premises ”); and

 

C.             WHEREAS, Landlord and Tenant desire to modify and amend the Lease only in the respects and on the conditions hereinafter stated.

 

AGREEMENT

 

NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:

 

1.              Definitions . For purposes of this Amendment, capitalized terms shall have the meanings ascribed to them in the Lease unless otherwise defined herein. The Lease, as amended by this Amendment, is referred to herein as the “ Amended Lease ”.

 

2.              Lease of Additional Premises . Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Additional Premises as of the Additional Premises Term Commencement Date (as defined below) for use by Tenant in accordance with the Permitted Use and in accordance with the terms and conditions of the Amended Lease. From and after the Execution Date, the “ Premises ,” as defined in the Amended Lease, shall (a) consist of the Current Premises and the Additional Premises and (b) contain approximately eight thousand forty-one (8,041) Rentable Square Feet.

 



 

3.              Term . The Expiration Date is hereby changed to the date that is thirty-nine (39) months after the Execution Date. The Term for the Additional Premises shall commence on the Execution Date and expire on the Expiration Date. The period from the Execution Date through the Expiration Date is referred to herein as the “ Additional Premises Term ”.

 

4.              Minimum Monthly Rent . Notwithstanding anything in the Amended Lease to the contrary, Tenant shall pay to Landlord Minimum Monthly Rent with respect to the Additional Premises, commencing on the Execution Date, in accordance with the below chart.

 

 

 

 

 

Minimum Monthly

 

 

 

Annual

 

 

 

Rentable Square

 

Rent per Rentable

 

Minimum

 

Minimum

 

Dates

 

Feet

 

Square Foot

 

Monthly Rent

 

Monthly Rent

 

Months 1 — 3

 

2,761

 

$0.00 monthly

 

$

0.00

 

N/A

 

Months 4 —15

 

2,761

 

$2.25 monthly

 

$

6,212.25

 

$

74,547.00

 

Months 16 — 27

 

2,761

 

$2.32 monthly

 

$

6,405.52

 

$

76,866.24

 

Months 28 — 39

 

2,761

 

$2.39 monthly

 

$

6.598.79

 

$

79,185.48

 

 

5.              Security Deposit . Tenant’s right to apply a portion of the Security Deposit to Minimum Monthly Rent due for March 2012 and September 2012 as detailed in Section 28 of the Addendum to Standard Industrial Net Lease is hereby deleted and of no further force or effect.

 

6.              Additional Rent . In addition to Minimum Monthly Rent, from and after the Additional Premises Term Commencement Date, Tenant shall pay to Landlord, Additional Rent (as defined in the Lease) with respect to the Additional Premises and all other amounts that Tenant assumes or agrees to pay under the provisions of the Lease with respect to the Additional Premises that are owed to Landlord, including any and all other sums that may become due by reason of any default of Tenant or failure on Tenant’s part to comply with the agreements, terms, covenants and conditions of the Lease to be performed by Tenant, after notice and the lapse of any applicable cure periods.

 

7.              Tenant’s Pro Rata Share . Notwithstanding anything in the Amended Lease to the contrary, from and after the Execution Date, Tenant’s Share shall equal Tenant’s Pro Rata Shares of the Building and the Project set forth in the table below, subject to further modification in accordance with the Amended Lease. Accordingly, Tenant’s Percentage set forth in Section 1.7 of the Lease is hereby deleted and replaced with the following chart:

 

2



 

Definition or Provision

 

Means the Following (As of the Additional 
Premises Term Commencement Date)

Approximate Rentable Square Footage of Current Premises

 

5,280 square feet

Approximate Rentable Square Footage of Additional Premises

 

2,761 square feet

Approximate Rentable Square Footage of Premises

 

8,041 square feet

Approximate Rentable Square Footage of Building

 

19,914 square feet

Approximate Rentable Square Footage of Project

 

163,799 square feet

Tenant’s Pro Rata Share of Building

 

40.38%

Tenant’s Pro Rata Share of Project

 

4.91%

 

8.              HVAC Maintenance . The following language from Section 7.2 of the Lease shall be deleted in its entirety and of no further force and effect: “Landlord shall keep in force a preventive maintenance contract providing for the regular (at least quarterly) inspection and maintenance of the heating and air conditioning system (including leaks around ducts, pipes, vents, and other parts of the air conditioning) by a reputable licensed heating and air conditioning contractor acceptable to Landlord and the cost of such maintenance shall be passed through to Tenant as an Operating Cost. Tenant shall pay its Share of such maintenance and repair costs incurred by Landlord, to the extent such obligation exceeds any amount thereof impounded under Section 4.4, within fifteen (15) days after receipt of a statement from Landlord . The following language shall be added to the end of Section 7.1 of the Lease:

 

“Tenant shall keep in force a preventive maintenance contract providing for the regular (at least quarterly) inspection and maintenance of the heating and air conditioning system (including leaks around ducts, pipes, vents, and other parts of the air conditioning) by a reputable licensed heating and air conditioning contractor acceptable to Landlord and the cost of such maintenance shall be paid directly by Tenant.”

 

9.              Parking . Tenant shall be entitled to Tenant’s Share of parking.

 

10.            Right of First Offer . Section 26 of the Lease is hereby deleted in its entirety and is of no further force or effect.

 

3



 

11.            Address for Notices . Landlord’s address for notices set forth in Section 1.1 of the Lease is hereby replaced with the following:

 

BMR-Sorrento West LLC

17190 Bernardo Center Drive

San Diego, California 92128

Attn: Vice President, Real Estate Counsel

 

12.            Condition of Premises . Tenant acknowledges that (a) it is fully familiar with the condition of the Additional Premises and, notwithstanding anything contained in the Amended Lease to the contrary, agrees to take the same in its condition “as is” as of the first day of the Additional Premises Term, and (b) Landlord shall have no obligation to alter, repair or otherwise prepare (i) the Current Premises for Tenant’s continued occupancy or (ii) the Additional Premises for Tenant’s occupancy for the Additional Premises Term, or to pay for any improvements to the Current Premises or Additional Premises, except (w) as may be expressly provided in the Amended Lease, (x) that Landlord shall install a door to the laboratory portion of the Additional Premises, (y) that Landlord shall patch a hole in the drywall in the office portion of the Additional Premises and (z) that Landlord shall replace any missing ceiling tiles in the laboratory portion of the Additional Premises.

 

13.            Broker . Tenant represents and warrants that it has not dealt with any broker or agent in the negotiation for or the obtaining of this Amendment (“ Broker ”), and agrees to indemnify, defend and hold Landlord harmless from any and all cost or liability for compensation claimed by any such broker or agent employed or engaged by it or claiming to have been employed or engaged by it.

 

14.            No Default . Tenant represents, warrants and covenants that, to the best of Tenant’s knowledge, Landlord and Tenant are not in default of any of their respective obligations under the Lease and no event has occurred that, with the passage of time or the giving of notice (or both) would constitute a default by either Landlord or Tenant thereunder.

 

15.            Effect of Amendment . Except as modified by this Amendment, the Lease and all the covenants, agreements, terms, provisions and conditions thereof shall remain in full force and effect and are hereby ratified and affirmed. The covenants, agreements, terms, provisions and conditions contained in this Amendment shall bind and inure to the benefit of the parties hereto and their respective successors and, except as otherwise provided in the Lease, their respective assigns. In the event of any conflict between the terms contained in this Amendment and the Lease, the terms herein contained shall supersede and control the obligations and liabilities of the parties. From and after the date hereof, the term “Lease” as used in the Lease shall mean the Lease, as modified by this Amendment.

 

16.            Miscellaneous . This Amendment becomes effective only upon execution and delivery hereof by Landlord and Tenant. The captions of the paragraphs and subparagraphs in this Amendment are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof. All exhibits hereto are incorporated herein by reference. Submission of this instrument for examination or signature by Tenant does not

 

4



 

constitute a reservation of or option for a lease, and shall not be effective as a lease, lease amendment or otherwise until execution by and delivery to both Landlord and Tenant.

 

17.            Counterparts . This Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document.

 

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

5



 

IN WITNESS WHEREOF, Landlord and Tenant have hereunto set their hands as of the date and year first above written, and acknowledge that they possess the requisite authority to enter into this transaction and to execute this Amendment.

 

LANDLORD :

 

 

 

BMR-SORRENTO WEST LLC,

 

a Delaware limited liability company

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

 

TENANT :

 

 

 

TROVAGENE, INC.,

 

a Delaware corporation

 

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 


Exhibit 10.5

 

SECOND AMENDMENT TO STANDARD INDUSTRIAL NET LEASE

 

THIS SECOND AMENDMENT TO STANDARD INDUSTRIAL NET LEASE (this “ Amendment ”) is entered into as of this day of October, 2011 (“ Execution Date ”), by and between BMR-SORRENTO WEST LLC, a Delaware limited liability company (“ Landlord ,” as successor-in-interest to JBC Sorrento West, LLC, a California limited liability company (“ Original Landlord ”)), and TROVAGENE, INC., a Delaware corporation (“ Tenant ,” as successor-by-merger to Xenomics, Inc., a Florida corporation (“ Original Tenant ”)).

 

RECITALS

 

A.          WHEREAS, Original Landlord and Original Tenant entered into that certain Standard Industrial Net Lease dated as of October 28, 2009 and Addendum to Standard Industrial Net Lease attached thereto (collectively, the “ Original Lease ”), as amended by that certain First Amendment to Standard Industrial Net Lease dated as of September 28, 2011 (the “ First Amendment ” and, together with the Original Lease, and as the same may have been further amended, amended and restated, supplemented or modified from time to time, the “ Lease ”), whereby Tenant leases certain premises consisting of a total of approximately eight thousand forty-one (8,041) Rentable Square Feet and comprised of the following spaces: (i) the “ Current Premises ” consisting approximately five thousand two hundred eighty (5,280) Rentable Square Feet, commonly known as known as Suites B and C and (ii) the “ Additional Premises ” consisting of approximately two thousand seven hundred sixty-one (2,761) Rentable Square Feet, commonly known as Suite A (the “ Additional Premises ” and, together with the Current Premises, the “ Premises ”) from Landlord in the building at 11055 Flintkote Avenue in San Diego, California (the “ Building ”);

 

B.           WHEREAS, Landlord and Tenant desire to establish the Minimum Monthly Rent with respect to the Current Premises during the Additional Premises Term (as defined in the First Amendment); and

 

C.           WHEREAS, Landlord and Tenant desire to modify and amend the Lease only in the respects and on the conditions hereinafter stated.

 

AGREEMENT

 

NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:

 

1.           Definitions . For purposes of this Amendment, capitalized terms shall have the meanings ascribed to them in the Lease unless otherwise defined herein.

 

2.           Minimum Monthly Rent . Tenant shall pay to Landlord Minimum Monthly Rent with respect to Current Premises, on the dates and in the amounts set forth in the chart below:

 



 

 

 

 

 

 

 

Annual

 

 

 

Rentable

 

Minimum

 

Minimum

 

Dates

 

Square Feet

 

Monthly Rent

 

Monthly Rent

 

March 1, 2013 — February 28, 2014

 

5,280

 

$

11,693

 

$

140,316

 

March 1, 2014 — December 27, 2014

 

5,280

 

$

12,044

 

$

144,528

 

 

3.        Additional Rent . In addition to Minimum Monthly Rent, during the Additional Premises Term, Tenant shall pay to Landlord, Additional Rent (as defined in the Lease) with respect to the Current Premises and all other amounts that Tenant assumes or agrees to pay under the provisions of the Lease with respect to the Current Premises that are owed to Landlord, including any and all other sums that may become due by reason of any default of Tenant or failure on Tenant’s part to comply with the agreements, terms, covenants and conditions of the Lease to be performed by Tenant, after notice and the lapse of any applicable cure periods.

 

4.        Condition of Premises . Tenant acknowledges that (a) it is in possession of and is fully familiar with the condition of the Premises and, notwithstanding anything contained in the Lease to the contrary, agrees to take the same in its condition “as is”, and (b) Landlord shall have no obligation to alter, repair or otherwise prepare the Premises for Tenant’s continued occupancy or to pay for any improvements to the Premises, except as may be expressly provided in the Lease.

 

5.        Additional Premises Term Commencement Date . All references to the “Additional Premises Term Commencement Date” in the First Amendment (a) are hereby deleted and replaced with “Execution Date” and (b) shall mean and refer to the Execution Date defined in the First Amendment (i.e. September 28, 2011).

 

6.        Broker . Tenant represents and warrants that it has not dealt with any broker or agent in the negotiation for or the obtaining of this Amendment and agrees to indemnify, defend and hold Landlord harmless from any and all cost or liability for compensation claimed by any such broker or agent employed or engaged by it or claiming to have been employed or engaged by it.

 

7.        No Default . Tenant represents, warrants and covenants that, to the best of Tenant’s knowledge, Landlord and Tenant are not in default of any of their respective obligations under the Lease and no event has occurred that, with the passage of time or the giving of notice (or both) would constitute a default by either Landlord or Tenant thereunder.

 

8.        Effect of Amendment . Except as modified by this Amendment, the Lease and all the covenants, agreements, terms, provisions and conditions thereof shall remain in full force and effect and are hereby ratified and affirmed. The covenants, agreements, terms, provisions and conditions contained in this Amendment shall bind and inure to the benefit of the parties hereto and their respective successors and, except as otherwise provided in the Lease, their respective

 

2



 

assigns. In the event of any conflict between the terms contained in this Amendment and the Lease, the terms herein contained shall supersede and control the obligations and liabilities of the parties. From and after the date hereof, the term “Lease” as used in the Lease shall mean the Lease, as modified by this Amendment.

 

9.          Miscellaneous . This Amendment becomes effective only upon execution and delivery hereof by Landlord and Tenant. The captions of the paragraphs and subparagraphs in this Amendment are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof. All exhibits hereto are incorporated herein by reference. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and shall not be effective as a lease, lease amendment or otherwise until execution by and delivery to both Landlord and Tenant.

 

10.        Counterparts . This Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document.

 

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

3



 

IN WITNESS WHEREOF, Landlord and Tenant have hereunto set their hands as of the date and year first above written, and acknowledge that they possess the requisite authority to enter into this transaction and to execute this Amendment.

 

LANDLORD :

 

 

 

BMR-SORRENTO WEST LLC,

 

a Delaware limited liability company

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

 

TENANT :

 

 

 

TROVAGENE, INC.,

 

a Delaware corporation

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 


Exhibit 10.6

 

CO-EXCLUSIVE SUBLICENSE AGREEMENT

 

THIS CO-EXCLUSIVE SUBLICENSE AGREEMENT (“Agreement”) effective as of the date of last signature below (the “Effective Date”) is by and between XENOMICS, Inc., a Florida corporation having its principal office at 420 Lexington Avenue Suite 1701 New York, NY 10170 USA, United States of America (“XENOMICS”) and ASURAGEN, Inc., a Delaware corporation having its principal office at 2150 Woodward, Suite 100, Austin, TX 78744 (“ASURAGEN”).

 

WITNESSETH:

 

WHEREAS, XENOMICS is the exclusive licensee of the Patent Rights (as defined below) relating to the Field (as defined below) under the Exclusive License Agreement (as defined below) and is willing to grant to ASURAGEN a royalty-bearing co-exclusive Sublicense (as defined below) in the Territory to use such Patent Rights in the Field on the terms and conditions set forth herein;

 

WHEREAS, ASURAGEN desires to obtain the Sublicense described above on the terms and conditions set forth herein; and

 

WHEREAS, XENOMICS is willing to grant ASURAGEN such co-exclusive Sublicense under the Patent Rights on the terms and conditions set forth herein;

 

NOW THEREFORE, in consideration of the mutual covenants herein contained and intending to be legally bound hereby, the parties hereto agree as follows:

 

ARTICLE 1. DEFINITIONS

 

1.1            “Affiliate(s)” shall mean any corporation or other business entity which controls, is controlled by, or is under common control with a party to this Agreement, “control” meaning the ownership, direct or indirect, of fifty percent (50%) or more of the voting stock or analogous interest in such corporation or other business entity.

 

1.2            “Exclusive License Agreement” shall mean the exclusive license agreement dated May 2006 (and any amendments thereto) by and between XENOMICS on the one hand, and Brunangelo Falini and Cristina Mecucci (jointly “Original Licensor”) on the other hand.

 

1.3            “Field” shall mean diagnostic products that assay for nucleophosmin protein (“NPM1”) mutants, corresponding nucleic acid sequences and uses thereof, including research use only (“RUO”), analyte specific reagent (“ASR”) and in vitro diagnostic (“IVD”) products. For the avoidance of doubt, the Field specifically excludes laboratory service testing and therapeutic uses.

 

1.4            “Laboratory Services” shall mean services performed by reference laboratories in the Territory.

 

1



 

1.5            “Net Revenues” shall mean revenues collected for the Products sold by ASURAGEN or its Affiliate(s) hereunder to non-Affiliate third parties less the sum of the following:

 

(a)            volume, formulary or other discounts allowed in amounts customary in the trade;

(b)            sale and/or use taxes directly imposed and with reference to particular sales;

(c)            outbound transportation and insurance charges on shipping of the Product prepaid or allowed; and

(d)            amounts allowed or credited on returns.

 

No deductions shall be made for commissions paid to individuals whether they are with independent sales agents or regularly employed by ASURAGEN and its Affiliate(s) and on their payroll, or for cost of collections.

 

In the case where the Product is one component of an overall product, the Net Revenues from such product shall be calculated by using the average selling price for the Product for the previous twelve (12) month period.

 

1.6            “Patent Rights” shall mean Patent Application PCT/IT 2005000634 filed October 28, 2005 entitled “Nucleophosmin protein (NPM) mutants, corresponding gene sequences and uses thereof” (published as WO 2006/046270), and foreign equivalents, as well as all continuations, divisions, reissues, re-examinations, renewals, or extensions of such patents subject to the rights granted by Original Licensor to XENOMICS pursuant to the Exclusive License Agreement, as limited by this Agreement, and any related improvements necessary for Products in the Field.

 

1.7            “Product(s)” shall mean any product or part thereof that when made, have made, used, offered to sell, sold, distributed, or marketed in the Territory would infringe on any Valid Claim of the Patent Rights absent the Sublicense herein granted.

 

1.8            “Service” shall mean any service or part thereof that when used, commercialized or marketed in the Territory would infringe on any Valid Claim of the Patent Rights absent the Sublicense herein granted.

 

1.9            “Term” shall mean from the Effective Date until the expiration or abandonment of all the Patent Rights.

 

1.10          “Territory” shall mean all countries in the world.

 

1.11          “Valid Claim” shall mean a claim of an unexpired patent of the Patent Rights that has neither been withdrawn, canceled, or disclaimed, nor held invalid or unenforceable by a court of competent jurisdiction in an unappealed or unappealable decision.

 

2



 

ARTICLE 2. GRANT OF RIGHTS

 

2.1            XENOMICS hereby grants to ASURAGEN, subject to all the terms and conditions of this Agreement a co-exclusive, royalty-bearing Sublicense in the Territory in the Field during the Term. “Sublicense” as used herein means a license to use the Patent Rights to i) make, have made, use, offer to sell, sell, distribute, have distributed, and market the Products in the Field ii) use, develop, practice, commercialize, and otherwise fully exploit the Services. The term “co-exclusive” as used under this Agreement shall operate to mean that only two sub-licensees (or one sub-licensee and Licensee) shall be authorized to sell Products and Services in any country in Territory, provided ASURAGEN complies with the other terms of this Agreement. ASURAGEN shall have no right to further sublicense.

 

2.2            ASURAGEN shall have no right during the Term to use the Patent Rights to offer Laboratory Services or use Patent Rights in any way for development and commercialization of therapeutic products. If, however, XENOMICS grants a sublicense to the Patent Rights in the field of Laboratory Services to a third party (“Lab Services Licensee”), XENOMICS agrees to use commercially reasonable best efforts to contractually obligate such Lab Services Licensee to purchase all of its requirements of Products from ASURAGEN or the other sub-licensee to the Patent Rights in the Field as described in Section 2.1 to the extent that ASURAGEN or such other sub-licensee’s Products have received FDA approval, CE marking, or other equivalent regulatory approval.

 

2.3            ASURAGEN acknowledges and agrees that the Sublicense granted to it hereunder is subject to the terms and conditions of the Exclusive License Agreement.

 

2.4            XENOMICS agrees that to the extent it grants to a third party any other co-exclusive sublicense in the Territory, such co-exclusive sublicense shall be granted on terms no more favorable than granted to ASURAGEN pursuant to this Agreement (“Third Party Licensee”). Prior to XENOMICS entering into a co-exclusive sublicense with a Third Party Licensee during the term of this Agreement, ASURAGEN must agree in writing that the terms of Third Party Licensee co-exclusive sublicense are no more favorable as set forth in this section, ASURAGEN’S agreement not to be unreasonably withheld.

 

ASURAGEN acknowledges that the terms negotiated in the IPSOGEN Agreement are equivalent for the purposes of this section.

 

ARTICLE 3. DUE DILIGENCE

 

3.              ASURAGEN shall use diligent efforts to develop, seek registration and sell a Product into the commercial market as soon as practicable, consistent with sound and reasonable business practice and judgment.

 

3



 

ARTICLE 4. PAYMENTS

 

4.1            ASURAGEN shall pay to XENOMICS during the Term a royalty on Net Revenues as follows:

 

Annual Sales

 

Royalty Rate

 

 

 

 

 

0-$1,000,000

 

3

%

$1,000,001-$5,000,000

 

4

%

>$5,000,000

 

6

%

 

For clarity :

 

(1)      3% royalty rate shall apply to the first $1,000,000 of sales in an annual accounting period, the 4% royalty rate shall apply to the next $4,000,000 of sales in the same annual accounting period, and the 6% royalty rate shall apply to sales in excess of $5,000,000 in the same annual accounting period.

 

(2)      Royalties will commence on sale of first Product or Service in any category (RUO, ASR, IVD) and shall be payable quarterly.

 

4.2            ASURAGEN shall pay to XENOMICS an initial licensing fee of $120,000 USD within five (5) business days of the Effective Date.

 

4.3            ASURAGEN shall pay to XENOMICS the following milestones:

 

(1) $150,000 upon issuance of the first patent in a country in the Territory where there are Net Revenues or first occurrence of Net Revenues in a country in the Territory where a patent has issued, with one or more claims that cover substantially the same subject matter as the claims pending in Patent Rights as of the Effective Date;

 

(2) $50,000 upon regulatory approval of a Product or Service; and

 

(3) $100,000 payable 6 months after the first commercial sale of a Product or Service.

 

4.4            In each calendar year during the Term of this Agreement, the royalties due to XENOMICS from ASURAGEN under Section 4.1 hereof, in the aggregate, shall equal or exceed the following amounts:

 

Year of Research Product Launch

 

Minimum Royalty Payment (United States dollars)

 

1 st  Year

 

10,000

 

2 nd  Year

 

25,000

 

3 rd  Year and each Year thereafter

 

50,000

 

 

4



 

If the actual royalty payments to XENOMICS in any calendar year are less than the minimum payment required for that year hereunder, ASURAGEN shall pay XENOMICS the difference between the actual payment and the minimum payment in full satisfaction of its obligations under this Section 4.2, provided such minimum payment is made to XENOMICS within thirty (30) days after the conclusion of each year.

 

ARTICLE 5. REPORTS AND RECORDS

 

5.1            ASURAGEN shall maintain and cause its Affiliate(s) to maintain true, accurate and complete books of account, records and files containing an accurate record of all data reasonably necessary for the full computation and verification of sales and the determination of the amounts payable under Article 4 hereof for a period of three (3) years following the period of each report required by Section 5.2 below.

 

5.2            After the first commercial sale of the Products, ASURAGEN shall deliver to XENOMICS each year true and accurate reports, giving such particulars of the business conducted by ASURAGEN and its Affiliate(s) during the preceding year under this Agreement as shall be pertinent to a royalty accounting hereunder. These shall include the following:

 

(a)            total revenues collected from customers for the Products sold by ASURAGEN and its Affiliate(s);

(b)            deductions applicable as provided in Section 1.5;

(c)            total royalties due; and

(d)            amounts of withholding taxes.

 

5.3            Said books and records shall be kept at ASURAGEN’s and/or its Affiliate(s) principal place of business and shall be in accordance with generally accepted accounting principles, consistently applied. Said books and records, to the extent not previously audited, shall be available no more than once in any calendar year for inspection and copying by an independent certified public accountant under obligations of confidentiality as least as restrictive as those set forth in Article 13, selected by XENOMICS and reasonably acceptable to ASURAGEN and/or its Affiliate(s), upon ten (10) business days advance notice and during regular business hours solely for the purpose of determining the correctness of any report and/or payment made under this Agreement. XENOMICS shall pay the fees and expenses of the accountant engaged to perform the audit, unless such audit reveals an underpayment of five percent (5%) or more for the period examined, in which case ASURAGEN shall pay the fees and expenses of the accountant. If, however, the report demonstrates that there has been an overpayment by ASURAGEN to XENOMICS, XENOMICS agrees to immediately refund such amounts to ASURAGEN.

 

5.4            ASURAGEN shall pay to XENOMICS the actual royalties due and payable as provided for in Section 4.2 on a quarterly basis. If no actual royalties are due, ASURAGEN shall so report, and shall make pay the Minimum Royalty Payment.

 

5



 

ARTICLE 6. PATENT PROSECUTION; INFRINGEMENT

 

6.1            (a) The prosecution, filing and maintenance of the Patent Rights in the Territory shall be managed by XENOMICS. Xenomics acknowledges and agrees that the nucleotide sequence claims set forth in the patent application as claims 16-35 and 56-71 as further described in the Patent Rights (the “NA Claims”) are of potential value to ASURAGEN. Within thirty (30) days of the Effective Date, Xenomics agrees to file a divisional application in the USPTO and the EPO requesting examination of the NA Claims and agrees to use commercially reasonable efforts to pursue the NA Claims. Xenomics agrees to renegotiate the terms of this Agreement if XENOMICS is unable to secure issuance of a Valid Claim that covers an ASURAGEN product within five (5) years of the Effective Date.

 

(b) XENOMICS agrees (i) to keep ASURAGEN timely informed as to the filing, prosecution, and maintenance of the Patent Rights, (ii) provide ASURAGEN copies of all documents relevant to any such filing, prosecution, and maintenance, (iii) allow ASURAGEN reasonable opportunity to comment and advise on documents to be filed with any patent office which would affect the Patent Rights, and (iv) give good faith consideration to the comments and advice of ASURAGEN.

 

6.2            Intentionally left blank.

 

6.3            (a) ASURAGEN agrees to provide XENOMICS with prompt written notice after becoming aware of any infringement of any of the Patent Rights in the Field and of any available evidence thereof. If XENOMICS elects not to prosecute such third party infringement of the Patent Rights, the Parties shall in good faith discuss royalty reductions or a re-negotiation of this Agreement.

 

(b) XENOMICS shall have the first right, but not the obligation, under its control and at its expense, to prosecute any third party infringement of the Patent Rights or to defend the Patent Rights in any declaratory judgment action brought by a third party which alleges the invalidity, unenforceability or non-infringement of any Patent Rights. At Xenomics sole expense, ASURAGEN agrees to reasonably cooperate fully in any action under this Section 6.3(b).

 

ARTICLE 7. TERM AND TERMINATION

 

7.1            If XENOMICS, acting reasonably, determines that ASURAGEN has ceased to develop or to carry on the sale of the Products or Services, XENOMICS may notify the ASURAGEN in writing of such determination (the “Notice Date”). ASURAGEN shall thereafter have three (3) months the Notice Date to demonstrate to XENOMICS’s satisfaction that it has resumed such business. If XENOMICS is not satisfied that ASURAGEN has resumed such business, XENOMICS may, in XENOMICS’ sole discretion, either terminate this Sublicense or convert the co-exclusive Sublicense granted to ASURAGEN hereunder to a non-exclusive Sublicense immediately by written notice to ASURAGEN (the

 

6



 

“Conversion Date”). The parties agree that if any of the milestone payments set forth in Section 4.3 become due after the Notice Date that payment of such milestone payment shall be suspended until such time as XENOMICS decides whether or not to (i) maintain the Sublicense as a co-exclusive, (ii) terminate the Sublicense or (iii) convert the Sublicense to a non-exclusive. If XENOMICS terminates or converts the Sublicense to a non-exclusive, the suspended milestone payments described above shall not be owed by ASURAGEN. If, however, XENOMICS decides to maintain the Sublicense as a co-exclusive, ASURAGEN shall immediately pay any such suspended milestone payments. In the event that XENOMICS converts the Sublicense to non-exclusive, the parties agree (i) none of the milestones described in Section 4.3 shall be owed after the Conversion Date, (ii) to renegotiate the terms of the Agreement in good faith, and (iii) any amounts paid prior to the Conversion Date shall be nonrefundable.

 

7.2            Should ASURAGEN fail to pay XENOMICS any amounts due hereunder, XENOMICS shall have the right to terminate this Agreement on forty-five (45) days prior written notice, unless ASURAGEN shall pay XENOMICS within said forty-five (45) day period such delinquent amounts and interest within said period.

 

7.3            ASURAGEN shall have the right to terminate this Agreement and all rights, privileges and the Sublicense granted hereunder at any time upon thirty (30) days prior written notice to XENOMICS.

 

7.4            Upon any material breach or default of this Agreement by either party, including without limitation ASURAGEN’s material failure to comply with Section 3 hereof, the other party shall have the right to terminate this Agreement upon sixty (60) days written notice to the breaching/defaulting party. Such termination shall become effective immediately at the conclusion of such notice period unless the breaching/defaulting party shall have cured any such breach or default prior to the expiration of said sixty (60) day period.

 

7.5            Upon termination of this Agreement for any reason, nothing herein shall be construed to release either party from any obligation that matured prior to the effective date of such termination. The provisions of Articles 4 (with respect to any payments outstanding as of the termination date), 5, 6, 7, 8, 9, 10, 11, 13, 15, 18 and 20, shall survive the expiration or any earlier termination of this Agreement.

 

ARTICLE 8. INDEMNIFICATION

 

8.1            XENOMICS agrees to indemnify, hold harmless and defend ASURAGEN, its Affiliates, agents and employees from and against any and all liabilities, losses, damages, costs, fees and expenses, including reasonable legal expenses and attorneys’ fees (collectively, “Losses”) arising out of suits, claims, actions, or demands, brought or made by a third party (“Third Party Claim”) against ASURAGEN, its Affiliates, agents and employees, based on breach of XENOMICS’s warranties under Article 9 below, except to the extent such Losses or Third Party Claims result from the negligence or willful misconduct of ASURAGEN or a breach of ASURAGEN’s warranties under Article 9 below.

 

7



 

8.2            ASURAGEN agrees to indemnify, hold harmless and defend XENOMICS, its Affiliates, agents and employees from and against any and all Losses arising out of any Third Party Claims against XENOMICS, its Affiliates, agents and employees based on (i) ASURAGEN’S breach of ASURAGEN’s warranties under Article 9 below, or (ii) the manufacture, use, handling, storage, sale or other disposition of Products or Services by ASURAGEN, its Affiliates, agents, employees or sublicensees, all except to the extent such Losses or Third Party Claims result from the negligence or willful misconduct of XENOMICS, or a breach of XENOMICS’s warranties under Article 9 below.

 

ARTICLE 9. REPRESENTATIONS, WARRANTIES AND DISCLAIMERS

 

9.1            XENOMICS represents and warrants to ASURAGEN (i) that it has the right to sublicense the Patent Rights in Territory and that XENOMICS has received the appropriate written authorization from the Original Licensors to enter into this Agreement, and (ii) that, subject to the Exclusive License Agreement, it has the right and power to extend the rights and the Sublicense granted herein and to perform its obligations hereunder, and (iii) that this Agreement is a valid and binding agreement, enforceable in accordance with its terms.

 

9.2            ASURAGEN hereby represents and warrants to XENOMICS that it has the right and power to enter into this Agreement and to perform its obligations, and that this Agreement is a valid and binding agreement, enforceable in accordance with its terms. ASURAGEN agrees that it shall comply and cause its Affiliate(s) to comply with all applicable local laws and regulations in Territory relating to the design, sale, use, delivery in commerce and promotion of the Products and Services.

 

9.3            EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN SECTION 9, XENOMICS MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY PATENT RIGHT, TRADEMARK, SOFTWARE, NON-PUBLIC OR OTHER INFORMATION, OR TANGIBLE RESEARCH PROPERTY, LICENSED OR OTHERWISE PROVIDED TO SUBLICENSEE HEREUNDER AND HEREBY DISCLAIMS THE SAME. XENOMICS DOES NOT WARRANT THE VALIDITY OF THE PATENT RIGHTS SUBLICENSED HEREUNDER AND MAKES NO REPRESENTATION WHATSOEVER WITH REGARD TO THE SCOPE OF THE SUBLICENSED PATENT RIGHTS OR THAT SUCH PATENT RIGHTS MAY BE EXPLOITED BY SUBLICENSEE OR ITS AFFILIATE(S) WITHOUT INFRINGING ON OTHER PATENTS.

 

9.4            NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, XENOMICS ADDITIONALLY DISCLAIMS ALL OBLIGATIONS ON THE PART OF XENOMICS FOR DAMAGES, INCLUDING BUT NOT LIMITED TO DIRECT, INDIRECT, SPECIAL AND CONSEQUENTIAL DAMAGES, ATTORNEYS’ AND

 

8



 

EXPERTS’ FEES AND EXPENSES, AND COURT COSTS ARISING OUT OF OR IN CONNECTION WITH THE MANUFACTURE, USE, DELIVERY, SALE AND PROVISION OF THE PRODUCTS UNDER THIS AGREEMENT. SUBLICENSEE ASSUMES ALL RESPONSIBILITY AND LIABILITY FOR ANY LOSS OR DAMAGES CAUSED BY THE PRODUCTS MANUFACTURED, USED, DELIVERED, SOLD OR PROVIDED BY SUBLICENSEE AND ITS AFFILIATE(S) THAT ARE SUBJECT TO THIS AGREEMENT UNLESS THE SAME HAS RESULTED FROM ANY MATERIAL BREACH OF AN OBLIGATION, REPRESENTATION, WARRANTY BY XENOMICS UNDER THIS AGREEMENT OR ACTION, INACTIONS, OR MISREPRESENTATIONS ON THE PART OF XENOMICS.

 

ARTICLE 10. NOTICE

 

10.1                            Any consent, notice or report required or permitted to be given or made under this Agreement shall be in writing, delivered (i) by certified or registered mail (postage prepaid, return receipt requested), (ii) by facsimile (and promptly confirmed by personal delivery, courier or next business day service of a nationally recognized courier service of good repute), (iii) by a next business day service of a nationally recognized courier service of good repute (with evidence of delivery) or (iv) by courier (postage prepaid and signature required), and in any case addressed to the other party at its address set forth in this Article 10, and shall be effective upon receipt by the addressee.

 

10.2                            Reports, notices and other communication from ASURAGEN to XENOMICS as provided hereunder shall be sent to:

 

XENOMICS Inc.

Attention:

Chairman

 

420 Lexington Avenue Suite 1701

 

New York, NY 10170

 

USA

With a copy to:

 

 

Ivor Elrifi

 

MINTZ LEVIN

 

666 Third Avenue

 

New York, NY 10017

 

or to such other individual or address as shall hereafter be furnished by written notice to ASURAGEN in accordance with this Article 10.

 

9



 

10.3         Reports, notices and other communications from XENOMICS to ASURAGEN as provided hereunder shall be sent to:

 

ASURAGEN, Inc.

Attention:

Corporate Business Development

 

Asuragen, Inc.

 

2150 Woodward, Ste. 100

 

Austin, Texas 78744

 

 

With a copy to:

General Counsel

 

Asuragen, Inc.

 

2150 Woodward, Ste. 100

 

Austin, Texas 78744

 

or to such other individual or address as shall hereafter be furnished by written notice to XENOMICS in accordance with this Article 10.

 

ARTICLE 11. DISPUTE RESOLUTION

 

11.1.                         Any dispute, controversy or claim arising under, out of or relating to this contract and any subsequent amendments of this contract, including, without limitation, its formation, validity, binding effect, interpretation, performance, breach or termination, as well as non-contractual claims, shall be submitted to mediation in accordance with the World Intellectual Property Organization (“WIPO”) Mediation Rules. The place of mediation shall be New York, NY. The language to be used in the mediation shall be English.

 

11.2                            If, and to the extent that, any such dispute, controversy or claim has not been settled pursuant to the mediation within 60 days of the commencement of the mediation, it shall, upon the filing of a Request for Arbitration by either party, be referred to and finally determined by arbitration in accordance with the WIPO Expedited Arbitration Rules. Alternatively, if, before the expiration of the said period of 60 days, either party fails to participate or to continue to participate in the mediation, the dispute, controversy or claim shall, upon the filing of a Request for Arbitration by the other party, be referred to and finally determined by arbitration in accordance with the WIPO Expedited Arbitration Rules. The place of arbitration shall be New York, NY. The language to be used in the arbitral proceedings shall be English. The dispute, controversy or claim referred to arbitration shall be decided in accordance with the laws of Delaware.

 

11.3                            Notwithstanding the foregoing, nothing in this Article shall be construed to waive any rights or timely performance of any obligations existing under this Agreement.

 

ARTICLE 12. RESTRICTION ON USE OF NAME

 

12.1                            ASURAGEN shall neither use nor cause its Affiliate(s) to use the name of XENOMICS, its directors, officers, trustees, Affiliate(s), employees, or any adaptations thereof, in any

 

10



 

advertising, promotion or sale literature without the prior written consent of XENOMICS. With respect to reports to public agencies that are required by law, ASURAGEN shall provide XENOMICS with a reasonable opportunity to review the use of its name in such reports reasonably in advance of submission. Notwithstanding the foregoing, the parties agree that Asuragen may issue a press release regarding this Agreement subject to XENOMICS prior written approval, such approval not to be unreasonably withheld.

 

12.2                            ASURAGEN shall neither disclose nor cause its Affiliate(s) to disclose this Agreement or any of the terms or conditions of this Agreement to any third party without the prior written consent of XENOMICS except (i) ASURAGEN may disclose this Agreement and its terms and conditions to potential investors wherein such investors are subject to obligations of confidentiality at least as restrictive as those set forth in this Agreement, or (ii) to the extent required to comply with applicable laws or regulations; provided that, ASURAGEN delivers prior written notice to XENOMICS of any disclosure required by applicable laws or regulations and takes all reasonable and lawful actions to obtain confidential treatment for such disclosure and, if possible, to minimize the extent of such disclosure.

 

ARTICLE 13. CONFIDENTIALITY

 

13.1                            During the term of this Agreement, each party (the “disclosing party”) may communicate to the other party (the “receiving party”) information which it considers to be confidential (“Confidential Information”). All Confidential Information shall be specifically designated as confidential. Such Confidential Information may include, without limitation, trade secrets, know-how, inventions, technical data or specifications, testing methods, business or financial information, research and development activities, product and marketing plans, and customer and supplier information. Confidential Information that is disclosed in writing shall be marked with a legend indicating its confidential status. Confidential Information that is disclosed orally or visually shall be documented in a written notice prepared by the disclosing party and delivered to the receiving party within thirty (30) days of the date of disclosure; such notice shall summarize the Confidential Information disclosed to the receiving party and reference to the time and place of disclosure.

 

13.2                            The receiving party agrees that it shall: (a) maintain all Confidential Information in strict confidence, except that the receiving party may disclose or permit the disclosure of any Confidential Information to its directors, officers, employees, consultants, and advisors who are obligated to maintain the confidential nature of such Confidential Information and who need to know such Confidential Information for the purpose set forth in this Agreement; (b) use all Confidential Information solely for the purpose set forth in this Agreement; and (c) allow its directors, officers, employees, consultants, and advisors to reproduce the Confidential Information only to the extent necessary to effect the purposes set forth in this Agreement, with all such reproductions being considered Confidential Information.

 

11



 

13.3                            The obligations of the receiving party under Section 13.2 above shall not apply to the extent that the receiving party can demonstrate that certain Confidential Information: (a) was in the public domain prior to the time of its disclosure under this Agreement; (b) entered the public domain after the time of its disclosure under this Agreement through means other than an unauthorized disclosure resulting from an act or omission by the receiving party; (c) was independently developed or discovered by receiving party without use of the Confidential Information; or (d) is or was disclosed to the receiving party at any time, whether prior to or after the time of its disclosure under this Agreement, by a third party having no fiduciary relationship with the disclosing party and having no obligation of confidentiality with respect to such Confidential Information

 

13.4                            If a receiving party is required by judicial or administrative process to disclose the Confidential Information of the disclosing party, such receiving party shall notify such disclosing party and allow such disclosing party a reasonable time to oppose such process.

 

13.5                            The obligations set forth in this Article 13 shall remain in effect for a period of five (5) years after the expiration or the earlier termination of this Agreement.

 

ARTICLE 14. PATENT MARKING

 

14.                                  If required by laws or regulations, ASURAGEN agrees to mark any Products, promotional material, technical literature and the like with all applicable patent numbers, and where appropriate, to indicate “Patent Pending” status in accordance with each applicable country’s patent laws.

 

ARTICLE 15. INDEPENDENT CONTRACTOR

 

15.                                  For the purpose of this Agreement and all services to be provided hereunder, both parties shall be, and shall be deemed to be, independent contractors and not agents or employees of the other. Neither party shall have authority to make any statements, representations or commitments of any kind, or to take any action, that will be binding on the other party.

 

ARTICLE 16. SEVERABILITY

 

16.                                  If any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby unless the invalid provisions are of such essential importance to this Agreement that it is to be reasonably assumed that the parties would not have entered into this Agreement without the invalid provisions.

 

12



 

ARTICLE 17. NON-ASSIGNABILITY

 

17.                                  Neither this Agreement nor any part hereof shall be assignable by either party without the express prior written consent of the other, which shall not be unreasonably withheld. Any attempted assignment without such consent shall be void.

 

ARTICLE 18. ENTIRE AGREEMENT

 

18.                                  This Agreement constitutes the entire agreement between the parties with respect to the subject matter and supersedes any prior agreements and understandings between the parties relating to the subject matter hereof. No verbal agreement, conversation or representation between any officers, agents or employees of the parties hereto either before or after the execution of this Agreement shall affect or modify any of the terms or obligations herein contained.

 

ARTICLE 19. MODIFICATIONS IN WRITING

 

19.                                  No change, modification, extension, termination or waiver of this Agreement, or any of the provisions herein contained, shall be valid unless made in writing and signed by a duly authorized representative of each party.

 

ARTICLE 20. GOVERNING LAW

 

20.                                  The validity and interpretation of this Agreement and the legal reactions of the parties to it shall be governed by the laws of Delaware, without regard to the conflict of laws provisions thereunder, except that questions affecting the construction and effect of any patent shall be determined by the law of the country in which the patent was granted.

 

ARTICLE 21. CAPTIONS

 

21.                                  The captions are provided for convenience and are not to be used in construing this Agreement.

 

ARTICLE 22. CONSTRUCTION

 

22.                                  Each of the parties agrees that this Agreement is the result of mutual negotiation and therefore the language herein shall not be presumptively construed against either of them.

 

ARTICLE 23. COUNTERPARTS

 

23.                                  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument.

 

13



 

ARTICLE 24. BINDING EFFECT

 

24.                                  This Agreement shall be binding upon and inure to the benefit of the parties and their respective permitted successors and assigns.

 

ARTICLE 25. FORCE MAJEURE

 

25.                                  If either party’s performance of any obligation under this Agreement is prevented, restricted, interfered with or delayed by reason of any force majeure cause such as floods, fires, riots, insurrections, explosions, other natural disasters or serious labor disputes beyond the reasonable control of the party required to perform, the party so affected, upon giving written notice and written evidence of such force majeure to the other party, shall be excused from such performance to the extent of such prevention, restriction, interference, or delay; provided that the affected party shall use its commercial reasonable efforts to avoid or remove such causes of non-performance and shall continue performance with the utmost dispatch whenever the force majeure is removed.

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives as of the date first above written.

 

XENOMICS, INC.

ASURAGEN, INC.

 

 

 

 

By

/s/ David J. Robbins

 

By:

/s/ Rolland D. Carlson

 

 

 

 

 

 

Date:

10-19-07

 

Date:

October 22, 2007

 

 

 

Name:

David J. Robbins

Name:

Rolland D. Carlson

 

 

 

Title:

Vice President

Title:

President

 

14


Exhibit 10.7

 

AMENDMENT TO CO-EXCLUSIVE SUBLICENSE AGREEMENT

 

This Amendment (“Amendment”), is made June 1, 2010 (the “ Effective Date ”) between Asuragen, Inc. (“ASURAGEN”), a Delaware corporation having its principal offices at 2150 Woodward, Suite 100, Austin, Texas 78744, and Trovagene, Inc. (“TROVAGENE”), a Delaware corporation having its principal place of business at 11055 Flintkote Ave., San Diego, CA 92121, which collectively may be referred to herein as the “ Parties ” and individually as a “ Party ”.

 

RECITALS

 

WHEREAS, TROVAGENE is the named exclusive licensee of Patent Rights by virtue the merger of Xenomics, Inc., with and into TrovaGene, Inc. and TrovaGene, Inc. is the surviving entity.

 

WHEREAS, TROVAGENE and ASURAGEN are Parties to a CO-EXCLUSIVE SUBLICENSE AGREEMENT (“Agreement”) executed October 22, 2007 in which ASURAGEN is granted certain of those Patent Rights, and

 

WHEREAS, the Parties, by mutual agreement, wish to modify the terms of the Agreement.

 

NOW THEREFORE, for the consideration herein expressed, as well as consideration of the covenants, conditions and undertakings hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree to amend the Agreement as follows:

 

AMENDMENT

 

1.   DEFINITIONS

 

A.  Section 1.3 of the Agreement is hereby amended to read as follows:

 

“Field” shall mean diagnostic products that assay for nucleophosmin protein (“NPM1”) mutants, corresponding nucleic acid sequences and uses thereof, including research use only (“RUO”), analyte specific reagent (“ASR”) and in vitro diagnostics (“IVD”) products. For the avoidance of doubt, the Field specifically excludes therapeutic uses.

 

B.  Section 1.11 of the Agreement is hereby amended to read as follows:

 

Valid Claim shall mean a claim of an unexpired patent or pending patent application of the Patent Rights that has neither been withdrawn, canceled, or disclaimed, nor held invalid or unenforceable by a court of competent jurisdiction in an unappealed or unappealable decision.

 

1



 

C.  Section 1.12 is hereby added to the Agreement.

 

“Notice Recipient” means any third party with which Trovagene or Xenomics or their representatives communicated either orally or in writing wherein such communication included (i) an assertion or suggestion that such third party does or may require a license from Trovagene or Xenomics to perform laboratory testing services, together with (ii) an assertion or suggestion that an Asuragen Product does not convey to such third party a right to use such Asuragen Product.

 

2.   GRANT OF RIGHTS

 

A.  Section 2.2 of the Agreement is hereby amended to read as follows:

 

ASURAGEN shall have no right during the Term to sublicense the Patent rights to a 3 rd  party, use the Patent Rights to offer Laboratory Services, or use Patent Rights in any way for development and commercialization of therapeutic products. Not withstanding the foregoing, the sublicensed rights do specifically include the right to convey Patent Rights to ASURAGEN customers for the purposes of offering or performing Laboratory Services based on use of ASURAGEN Products. The Parties agree that the sublicensed rights referred to above shall extend to Asuragen customers that purchased Product from Asuragen any time on or after October 22, 2007. In addition, Trovagene agrees to send to all Notice Recipients within ten (10) days of the Effective Date of this Amendment, a letter indicating that the Notice Recipient will not be required to obtain any additional licenses from Trovagene to use an Asuragen Product or Service. Such letter shall be substantially in the form set forth in Exhibit A.

 

B.  The second paragraph of Section 2.4 of the Agreement is hereby deleted in its entirety.

 

3.    PAYMENTS

 

A.  Section 4.1 of the Agreement is hereby amended to read as follows:

 

ASURAGEN shall pay to TROVAGENE during the Term a royalty on Net Revenues as follows:

 

4.1.1 A royalty of (a) 20% of Net Revenues or (b) eighteen (18) dollars per test contained within a Product, whichever is the larger amount, on Products sold in the United States of America and its Territories with no specific regulatory labeling, labeled for “research use only” (RUO), labeled as Analyte Specific Reagents (ASR), or labeled “investigational use only”(IUO) (the “Uncleared Products”). If, however, the royalty payment on Uncleared Products made in any quarter as described in Section 5.4 is greater than 30% of the Net Revenues of the Uncleared Products in such quarter, the Parties agree that royalty for Uncleared Products for that quarter shall be reduced and calculated to equal 30% of Net Revenues of such Uncleared

 

2



 

Products. If, during any four consecutive quarters, Asuragen is calculated to be paying an average royalty for Uncleared Products of greater than 20% of Net Revenues of Uncleared Products, the Parties agree to meet, either telephonically or in person, to discuss the reduction of the royalty rates for Uncleared Products as set forth above.

 

4.1.2 A royalty of 9% of Net Revenues for Products sold in the United States of America and its Territories with labeling indicating the Product has received FDA clearance for market,

 

4.1.3 A royalty of 9% of Net Revenues for Products sold ex-U.S. direct to end users and 1.3 x Net Revenues for Products sold to 3 rd  party distributors for sale outside the U.S.

 

For Clarity:

 

(1) For Products sold to 3 rd  party distributors, ASURAGEN will calculate Net Revenues by multiplying the net transfer price of Products to the distributor by 1.3.

 

4.1.4 The amended royalty rates are payable quarterly and commence on sales beginning June 1, 2010 and are not retroactive to the Effective Date of the Agreement.

 

B.  Section 4.3 of the Agreement shall be replaced with the following:

 

(1)   $150,000 upon issuance of the first patent in a country in the Territory where there are Net Revenues or first occurrence of Net Revenues in a country in the Territory where a patent has issued, with one or more claims that cover substantially the same subject matter as the claims pending in Patent Rights as of the Effective Date of the Agreement. Trovagene agrees that the foregoing obligations shall not apply to Italian patent No. 0001351453 attached as Exhibit B.

 

(2)   $50,000 upon FDA clearance of a Product; and

 

(3)   $100,000 payable 6 months after the first commercial sale of the Product or Service. Trovagene acknowledges and agrees that the payment obligation of $100,000 set forth in this Section has been fully satisfied.

 

4. NOTICE

 

A.  Section 10.2 of the Agreement is hereby amended to read as follows:

 

Reports, notices and other communication from ASURAGEN to TROVAGENE as provided hereunder shall be sent to:

 

TROVAGENE Inc.

 

 

Attention:

CEO

 

 

11055 Flintkote Ave.

 

 

Suite B

 

 

San Diego, CA 92121

 

3



 

 

With a copy to:

 

 

 

Ivor Elrifi

 

 

MINTZ LEVIN

 

 

666 Third Avenue

 

 

New York, NY 10017

 

or to such other individual or address as shall hereafter be furnished by written notice to ASURAGEN in accordance with this Article 10.

 

IN WITNESS WHEREOF, ASURAGEN and TROVAGENE have caused this Amendment to be executed by their duly authorized representatives as of the date first written above.

 

ASURAGEN, Inc.

 

 

 

By:

/s/ Rolland D. Carlson

 

 

Rolland D. Carlson, President

 

 

 

 

 

 

 

TROVAGENE, Inc.

 

 

 

By:

/s/ Bruce A. Huebner

 

 

Bruce A. Huebner, President & CEO

 

 

4


Exhibit 10.8

 

SUBLICENSE AGREEMENT

 

THIS SUBLICENSE AGREEMENT (“Agreement”) effective as of August 27, 2007 (the “Effective Date”) is by and between XENOMICS Inc, a Florida corporation having its principal office at 420 Lexington Avenue Suite 1701 New York, NY 10170 USA, United States of America (“XENOMICS”) and IPSOGEN SAS, a French corporation having its principal office at Luminy Biotech Enterprises Case 923, 163 Avenue de Luminy 13288 Marseille cedex 9 France (“IPSOGEN”).

 

WITNESSETH:

 

WHEREAS, XENOMICS is the exclusive licensee of the Patent Rights (as defined below) relating to the Field (as defined below) under the Exclusive License Agreement (as defined below) and is willing to grant to IPSOGEN a royalty-bearing Sublicense (as defined below) in the Territory to use such Patent Rights in the Field on the terms and conditions set forth herein;

 

WHEREAS, IPSOGEN desires to obtain the Sublicense described above on the terms and conditions set forth herein; and

 

WHEREAS, XENOMICS is willing to grant IPSOGEN such Sublicense under the Patent Rights on the terms and conditions set forth herein;

 

NOW THEREFORE, in consideration of the mutual covenants herein contained and intending to be legally bound hereby, the parties hereto agree as follows:

 

ARTICLE 1. DEFINITIONS

 

1.1                                  “Affiliate(s)” shall mean any corporation or other business entity which controls, is controlled by, or is under common control with a party to this Agreement, “control” meaning the ownership, direct or indirect, of fifty percent (50%) or more of the voting stock or analogous interest in such corporation or other business entity.

 

1.2                                  “Exclusive License Agreement” shall mean the exclusive license agreement dated May 2006 (and any amendments thereto) by and between XENOMICS on the one hand, and Brunangelo Falini and Cristina Mecucci (jointly “Original Licensor”) on the other hand.

 

1.3                                  “Field” shall mean diagnosis, including monitoring of minimal residual disease, of nucleophosmin protein (“NPM1”) mutations in bone marrow or blood cells. The Field specifically excludes IVD Laboratory Services testing and use of NPM1 as a drug target. The term “diagnosis” includes the RUO (Research Use Only), IVD (in Vitro Diagnostic) and ASR (“Analyte specific reagent”) fields.

 

1.4                                  “Laboratory Services” shall mean services performed by reference laboratories in the Territory.

 

1.5                                  “Net Revenues” shall mean billings for the Products sold by IPSOGEN or its

 

1



 

Affiliate(s) hereunder to non-Affiliate third parties less the sum of the following:

 

(a)                                                 volume, formulary or other discounts allowed in amounts customary in the trade;

(b)                                                sale and/or use taxes directly imposed and with reference to particular sales;

(c)                                                 outbound transportation and insurance charges on shipping of the Product prepaid or allowed; and

(d)                                                amounts allowed or credited on returns.

 

No deductions shall be made for commissions paid to individuals whether they are with independent sales agents or regularly employed by IPSOGEN and its Affiliate(s) and on their payroll, or for cost of collections. The Product shall be considered “sold” when billed out or invoiced.

 

1.6                                  “Patent Rights” shall mean Patent Application PCT/IT2005/000634 filed October 28, 2005 entitled “Nucleophosmin protein (NPM) mutants, corresponding gene sequences and uses thereof” (published as WO 2006/046270), and foreign equivalents, as well as all continuations, divisions, reissues, re-examinations, renewals, or extensions of such patents subject to the rights granted by Original Licensor to XENOMICS pursuant to the Exclusive License Agreement, as limited by this Agreement.

 

1.7                                  “Product(s)” shall mean any product or part thereof that when made, have made, used, offered to sell, sold or marketed in the Territory would infringe on any Valid Claim of the Patent Rights absent the Sublicense herein granted.

 

1.8                                  “Service” shall mean any service or part thereof that when used, commercialized or marketed in the Territory would infringe on any Valid Claim of the Patent Rights absent the Sublicense herein granted.

 

1.9                                  “Term” shall mean from the Effective Date until the expiration or abandonment of all the Patent Rights.

 

1.10                            “Territory” shall mean Europe, USA, Japan, Canada, South & Central America, including Mexico, Middle East, and Australia. Europe consists of Albania, Andorra, Austria, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Macedonia, Malta, Moldova, Monaco, Montenegro, Netherlands, Norway, Poland, Portugal, Romania, Russia, San Marino, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Ukraine, United Kingdom, and Vatican City. The Middle East consists of Bahrain, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, the Palestinian territories, Qatar, Saudi Arabia, Sudan, Somalia, Syria, Turkey, the United Arab Emirates, and Yemen.

 

1.11                            “Valid Claim” shall mean a claim of an unexpired patent of the Patent Rights that has neither been withdrawn, canceled, or disclaimed, nor held invalid or unenforceable by a court of competent jurisdiction in an unappealed or unappealable decision.

 

2



 

ARTICLE 2. GRANT OF RIGHTS

 

2.1                                  XENOMICS hereby grants to IPSOGEN, subject to all the terms and conditions of this Agreement a co-exclusive, royalty-bearing Sublicense in the Territory in the Field during the Term. “Sublicense” as used herein means a license to use the Patent Rights to i) make, have made, use, offer to sell, sell and market the Products in the Field ii) use, develop, practice, commercialize, and otherwise fully exploit the Services. The term “co-exclusive” as used under this Agreement shall operate to mean that only two sub-licensees shall be authorized to sell Products and Services in any country in Territory, provided IPSOGEN complies with the other terms of this Agreement. IPSOGEN shall have no right to further sublicense. IPSOGEN will be informed of any changes in the identity of its co-exclusive competitor if any such changes are made known to XENOMICS.

 

2.2                                  IPSOGEN shall have no right during the Term to offer Laboratory Services or use Patent Rights in any way for development and commercialization of therapeutic products.

 

2.3                                  IPSOGEN acknowledges and agrees that the Sublicense granted to it hereunder is subject to the terms and conditions of the Exclusive License Agreement.

 

2.4                                  XENOMICS agrees that to the extent it grants to a third party any other co-exclusive sub-license in the Territory, such co-exclusive sublicense shall be granted on terms no more favorable than granted to IPSOGEN pursuant to this Agreement. IPSOGEN acknowledges that the terms negotiated in the ASURAGEN co-exclusive sublicense agreement (attached) on the Patent Rights are equivalent for the purposes of this section. Any changes made to the Asuragen contract as attached cannot be more favorable to Asuragen.

 

ARTICLE 3. DUE DILIGENCE

 

3.1                                  IPSOGEN shall use diligent efforts to develop, seek registration and sell licensed products derived from the Patent Rights into the commercial market as soon as practicable, consistent with sound and reasonable business practice and judgment, and shall provide XENOMICS with yearly reports within thirty (30) days following the close of each calendar year.

 

3.2                                  XENOMICS shall provide IPSOGEN with the technical information in its possession that may be useful for the development of a Product or Service in the Field. Such technical information shall at least include protocols for NPM1 mutation diagnosis and follow-up as well as verbal assistance that IPSOGEN may from time to time request from XENOMICS. XENOMICS scientists shall be credited for their contributions as appropriate.

 

3



 

ARTICLE 4. PAYMENTS

 

4.1                                  IPSOGEN shall pay to XENOMICS during the Term a royalty of ten percent (10%) on Net Revenues. Royalty payments will commence on sale of first product in any category (RUO, ASR, IVD) and shall be payable quarterly.

 

4.2                                  IPSOGEN shall pay to XENOMICS an initial licensing fee of $120,000 USD upon execution of this Agreement.

 

4.3                                  IPSOGEN shall pay to XENOMICS the following milestones:

 

(1)                $150,000 upon issuance of a patent by the European Patent Office or the US patent office with one or more claims that cover substantially the same subject matter as the claims pending in Patent Rights as of the Effective Date;

 

(2)           $40,000 upon regulatory approval of a Product or Service; and

 

(3)           $40,000 payable 6 months after the first commercial sale of a Product or Service.

 

4.4                                  Beginning from the date of the first Product Launch date, in each year during the Term of this Agreement, the royalties due to XENOMICS from IPSOGEN under Section 4.1 hereof, in the aggregate, shall equal or exceed the following amounts:

 

 

 

Minimum Royalty Payment (United States

Anniversary of Product Launch

 

dollars)

1 st  Year

 

10,000

2 nd  Year

 

25,000

3 rd  Year and each Year thereafter

 

50,000

 

If the actual royalty payments to XENOMICS in any year are less than the minimum payment required for that year hereunder, IPSOGEN shall pay XENOMICS the difference between the actual payment and the minimum payment in full satisfaction of its obligations under this Section 4.1, provided such minimum payment is made to XENOMICS within thirty (30) days after the conclusion of each calendar quarter. If, after 2010, royalty payments to XENOMICS do not exceed the Minimum Royalty Payment in any two consecutive years, then XENOMICS may terminate the Sublicense.

 

4.5                                  If IPSOGEN reasonably determines that to i) make, have made, use, offer to sell, sell or market the Products in the Field ii) use, develop, practice, commercialize, and otherwise fully exploit the Services throughout the Territory infringes patent rights of a third party that are granted in the Territory, and as a result thereof, IPSOGEN enters into a license and pays a royalty for such patent rights or is required by court order or otherwise to pay a royalty to a third party, then such royalty payment shall be creditable against the royalties and the other considerations owed to IPSOGEN hereunder, but in no event shall such sums paid to XENOMICS be reduced by more than twenty-five percent (25%) and in no event shall payment ever be reduced below the Minimum Royalty Payment.

 

4



 

ARTICLE 5. REPORTS AND RECORDS

 

5.1                                  IPSOGEN shall maintain and cause its Affiliate(s) to maintain true, accurate and complete books of account, records and files containing an accurate record of all data reasonably necessary for the full computation and verification of sales and the determination of the amounts payable under Article 4 hereof for a period of at least five (5) years following the period of each report required by Section 5.2 below.

 

5.2                                  After the first commercial sale of the Products, IPSOGEN shall deliver to XENOMICS each year true and accurate reports, giving such particulars of the business conducted by IPSOGEN and its Affiliate(s) during the preceding year under this Agreement as shall be pertinent to a royalty accounting hereunder. These shall include at least the following:

 

(a)                                        number of the Products sold by IPSOGEN and its Affiliate(s);

(b)                                       total sales amounts invoiced to customers for the Products sold by IPSOGEN and its Affiliate(s);

(c)                                        deductions applicable as provided in Section 1.5;

(d)                                       total royalties due; and

(e)                                        amounts of withholding taxes.

 

5.3                                  Said books and records shall be kept at IPSOGEN’s and/or its Affiliate(s) principal place of business and shall be in accordance with generally accepted accounting principles, consistently applied. Said books and records, to the extent not previously audited, shall be available for inspection and copying by an independent certified public accountant selected by XENOMICS and reasonably acceptable to IPSOGEN and/or its Affiliate(s), upon ten (10) business days advance notice and during regular business hours in order to enable XENOMICS to ascertain the correctness of any report and/or payment made under this Agreement. XENOMICS shall pay the fees and expenses of the accountant engaged to perform the audit, unless such audit reveals an underpayment of five percent (5%) or more for the period examined, in which case IPSOGEN shall pay all reasonable costs and expenses incurred by XENOMICS in the course of making such determination, including, without limitation, the fees and expenses of the accountant.

 

5.4                                  IPSOGEN shall pay to XENOMICS the actual royalties due and payable as provided for in Section 4.1 on a quarterly basis. If no actual royalties are due, IPSOGEN shall so report, and shall make pay the Minimum Royalty Payment.

 

ARTICLE 6. PATENT PROSECUTION; INFRINGEMENT

 

6.1                                  The prosecution, filing and maintenance of the Patent Rights in the Territory shall be managed by XENOMICS. XENOMICS agrees to renegotiate the terms of this Agreement if XENOMICS is unable to secure issuance of one or more claims that cover substantially the same subject matter as the claims pending in Patent Rights as of the Effective Date in one or more patents in the Territory.

 

5



 

6.2                                  XENOMICS will file, prosecute and maintain any patent applications directed to improvements on inventions that are related to Patent Rights (“New Inventions”), whether owned solely or jointly with IPSOGEN and IPSOGEN shall cooperate with XENOMICS in the filing, prosecution and maintenance of all such New Inventions. Such cooperation includes, without limitation, (a) promptly executing all papers and instruments or requiring its employees to execute such papers and instruments as reasonable and appropriate so as to enable XENOMICS to file, prosecute and maintain such New Inventions in any country; and (b) promptly informing XENOMICS of matters that may affect the preparation, filing, prosecution or maintenance of any such New Inventions.

 

6.3                                  (a) IPSOGEN agrees to provide XENOMICS with prompt written notice after becoming aware of any infringement of any of the Patent Rights or New Inventions in the Field and of any available evidence thereof.

 

(b) XENOMICS shall have the right, but not the obligation, under its control and at its sole expense, to prosecute any third party infringement of the Patent Rights or New Inventions or to defend the Patent Rights or New Inventions in any declaratory judgment action brought by a third party which alleges the invalidity, unenforceability or non-infringement of any Patent Rights. IPSOGEN agrees to cooperate fully in any action under this Section 6.3, provided that XENOMICS reimburses material costs and expenses incurred with providing such assistance.

 

ARTICLE 7. TERM AND TERMINATION

 

7.1                                  If XENOMICS, acting reasonably, determines that IPSOGEN has ceased to develop or to carry on the sale of the Products or Services, XENOMICS may notify the IPSOGEN in writing of such determination. IPSOGEN shall thereafter have three (3) months from its receipt of such notice to demonstrate to XENOMICS’s satisfaction that it has resumed such business. If XENOMICS is not satisfied that IPSOGEN has resumed such business, XENOMICS may, in XENOMICS’ sole discretion, either terminate this Sublicense or convert the co-exclusive Sublicense granted to IPSOGEN hereunder to a non-exclusive Sublicense immediately by written notice to IPSOGEN.

 

7.2                                  Should IPSOGEN fail to pay XENOMICS any amounts due hereunder, XENOMICS shall have the right to terminate this Agreement on forty-five (45) days prior written notice, unless IPSOGEN shall pay XENOMICS within said forty-five (45) day period such delinquent amounts and interest within said period.

 

7.3                                  IPSOGEN shall have the right to terminate this Agreement and all rights, privileges and the Sublicense granted hereunder at any time upon sixty (60) days prior written notice to XENOMICS.

 

7.4                                  Upon any material breach or default of this Agreement by either party, including without limitation IPSOGEN’s material failure to comply with Section 3 hereof, the other party shall have the right to terminate this Agreement upon sixty (60) days written notice to the breaching/defaulting party. Such termination shall become effective

 

6



 

immediately at the conclusion of such notice period unless the breaching/defaulting party shall have cured any such breach or default prior to the expiration of said sixty (60) day period.

 

7.5                                  Upon termination of this Agreement for any reason, nothing herein shall be construed to release either party from any obligation that matured prior to the effective date of such termination. The provisions of Articles 4 (with respect to any payments outstanding as of the termination date), 5, 6, 7, 8, 9, 10, 11, 13, 15, 18 and 20, shall survive the expiration or any earlier termination of this Agreement.

 

ARTICLE 8. INDEMNIFICATION

 

8.1                                  XENOMICS agrees to indemnify, hold harmless and defend IPSOGEN, its Affiliates, agents and employees from and against any and all liabilities, losses, damages, costs, fees and expenses, including reasonable legal expenses and attorneys’ fees (collectively, “Losses”) arising out of suits, claims, actions, or demands, brought or made by a third party (“Third Party Claim”) against IPSOGEN, its Affiliates, agents and employees, based on breach of XENOMICS’s warranties under Article 9 below, except to the extent such Losses or Third Party Claims result from the negligence or wilful misconduct of IPSOGEN or a breach of IPSOGEN’s warranties under Article 9 below.

 

8.2                                  IPSOGEN agrees to indemnify, hold harmless and defend XENOMICS, its Affiliates, agents and employees from and against any and all Losses arising out of any Third Party Claims against XENOMICS, its Affiliates, agents and employees based on (i) IPSOGEN’S breach of IPSOGEN’s warranties under Article 9 below, or (ii) the manufacture, use, handling, storage, sale or other disposition of Products or Services by IPSOGEN, its Affiliates, agents, employees or sublicensees, all except to the extent such Losses or Third Party Claims result from the negligence or wilful misconduct of XENOMICS, or a breach of XENOMICS’s warranties under Article 9 below.

 

ARTICLE 9. REPRESENTATIONS, WARRANTIES AND DISCLAIMERS

 

9.1                                  XENOMICS represents and warrants to IPSOGEN (i) that it has the right to sublicense the Patent Rights in Territory and that XENOMICS has received the appropriate written authorization from the Original Licensors to enter into this Agreement, and (ii) that, subject to the Exclusive License Agreement, it has the right and power to extend the rights and the Sublicense granted herein and to perform its obligations hereunder, and (iii) that this Agreement is a valid and binding agreement, enforceable in accordance with its terms.

 

9.2                                  IPSOGEN hereby represents and warrants to XENOMICS that it has the right and power to enter into this Agreement and to perform its obligations, and that this Agreement is a valid and binding agreement, enforceable in accordance with its terms. IPSOGEN agrees that it shall comply and cause its Affiliate(s) to comply with all applicable local laws and regulations in Territory relating to the design, sale, use, delivery in commerce and promotion of the Products and Services.

 

7



 

9.3                                  EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN SECTION 9, XENOMICS MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY PATENT RIGHT, TRADEMARK, SOFTWARE, NON-PUBLIC OR OTHER INFORMATION, OR TANGIBLE RESEARCH PROPERTY, LICENSED OR OTHERWISE PROVIDED TO SUBLICENSEE HEREUNDER AND HEREBY DISCLAIMS THE SAME. XENOMICS DOES NOT WARRANT THE VALIDITY OF THE PATENT RIGHTS SUBLICENSED HEREUNDER AND MAKES NO REPRESENTATION WHATSOEVER WITH REGARD TO THE SCOPE OF THE SUBLICENSED PATENT RIGHTS OR THAT SUCH PATENT RIGHTS MAY BE EXPLOITED BY SUBLICENSEE OR ITS AFFILIATE(S) WITHOUT INFRINGING ON OTHER PATENTS.

 

9.4                                  NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, XENOMICS ADDITIONALLY DISCLAIMS ALL OBLIGATIONS ON THE PART OF XENOMICS FOR DAMAGES, INCLUDING BUT NOT LIMITED TO DIRECT, INDIRECT, SPECIAL AND CONSEQUENTIAL DAMAGES, ATTORNEYS’ AND EXPERTS’ FEES AND EXPENSES, AND COURT COSTS ARISING OUT OF OR IN CONNECTION WITH THE MANUFACTURE, USE, DELIVERY, SALE AND PROVISION OF THE PRODUCTS UNDER THIS AGREEMENT. SUBLICENSEE ASSUMES ALL RESPONSIBILITY AND LIABILITY FOR ANY LOSS OR DAMAGES CAUSED BY THE PRODUCTS MANUFACTURED, USED, DELIVERED, SOLD OR PROVIDED BY SUBLICENSEE AND ITS AFFILIATE(S) THAT ARE SUBJECT TO THIS AGREEMENT UNLESS THE SAME HAS RESULTED FROM ANY MATERIAL BREACH OF AN OBLIGATION, REPRESENTATION, WARRANTY BY XENOMICS UNDER THIS AGREEMENT OR ACTION, INACTIONS, OR MISREPRESENTATIONS ON THE PART OF XENOMICS.

 

ARTICLE 10. NOTICE

 

10.1                            Any consent, notice or report required or permitted to be given or made under this Agreement shall be in writing, delivered (i) by certified or registered mail (postage prepaid, return receipt requested), (ii) by facsimile (and promptly confirmed by personal delivery, courier or next business day service of a nationally recognized courier service of good repute), (iii) by a next business day service of a nationally recognized courier service of good repute (with evidence of delivery) or (iv) by courier (postage prepaid and signature required), and in any case addressed to the other party at its address set forth in this Article 10, and shall be effective upon receipt by the addressee.

 

10.2                            Reports, notices and other communication from IPSOGEN to XENOMICS as provided hereunder shall be sent to:

 

XENOMICS Inc

Attention:                                                      Chairman
420 Lexington Avenue Suite 1701
New York, NY 10170
USA

With a copy to:

Ivor Elrifi

MINTZ LEVIN

 

8



 

666 Third Avenue

New York, NY 10017

 

or to such other individual or address as shall hereafter be furnished by written notice to IPSOGEN in accordance with this Article 10.

 

10.3                            Reports, notices and other communications from XENOMICS to IPSOGEN as provided hereunder shall be sent to:

 

Ipsogen SAS

 

 

Attention:

 

Vincent FERT (or his successor)

 

 

Luminy Biotech Enterprises

 

 

Case 923

 

 

163 Avenue de Luminy

 

 

13288 Marseille cedex 9 France

 

or to such other individual or address as shall hereafter be furnished by written notice to XENOMICS in accordance with this Article 10.

 

ARTICLE 11. DISPUTE RESOLUTION

 

11.1.                         Any dispute, controversy or claim arising under, out of or relating to this contract and any subsequent amendments of this contract, including, without limitation, its formation, validity, binding effect, interpretation, performance, breach or termination, as well as non-contractual claims, shall be submitted to mediation in accordance with the World Intellectual Property Organization (“WIPO”) Mediation Rules. The place of mediation shall be Geneva, Switzerland. The language to be used in the mediation shall be English.

 

11.2                            If, and to the extent that, any such dispute, controversy or claim has not been settled pursuant to the mediation within 60 days of the commencement of the mediation, it shall, upon the filing of a Request for Arbitration by either party, be referred to and finally determined by arbitration in accordance with the WIPO Expedited Arbitration Rules. Alternatively, if, before the expiration of the said period of 60 days, either party fails to participate or to continue to participate in the mediation, the dispute, controversy or claim shall, upon the filing of a Request for Arbitration by the other party, be referred to and finally determined by arbitration in accordance with the WIPO Expedited Arbitration Rules. The place of arbitration shall be Paris, France if initiated by XENOMICS, or the New York, USA if initiated by IPSOGEN. The language to be used in the arbitral proceedings shall be English. The dispute, controversy or claim referred to arbitration shall be decided in accordance with the laws of England and Wales.

 

11.3                            Notwithstanding the foregoing, nothing in this Article shall be construed to waive any rights or timely performance of any obligations existing under this Agreement.

 

9



 

ARTICLE 12. RESTRICTION ON USE OF NAME

 

12.1                            IPSOGEN shall neither use nor cause its Affiliate(s) to use the name of XENOMICS, its directors, officers, trustees, Affiliate(s), employees, or any adaptations thereof, in any advertising, promotion or sale literature without the prior written consent of XENOMICS. With respect to reports to public agencies that are required by law, IPSOGEN shall provide XENOMICS with a reasonable opportunity to review the use of its name in such reports reasonably in advance of submission.

 

12.2                            IPSOGEN shall neither disclose nor cause its Affiliate(s) to disclose this Agreement or any of the terms or conditions of this Agreement to any third party without the prior written consent of XENOMICS except and to the extent required to comply with applicable laws or regulations; provided that, IPSOGEN delivers prior written notice to XENOMICS of any disclosure required by applicable laws or regulations and takes all reasonable and lawful actions to obtain confidential treatment for such disclosure and, if possible, to minimize the extent of such disclosure.

 

ARTICLE 13. CONFIDENTIALITY

 

13.1                            During the term of this Agreement, each party (the “disclosing party”) may communicate to the other party (the “receiving party”) information which it considers to be confidential (“Confidential Information”). All Confidential Information shall be specifically designated as confidential. Such Confidential Information may include, without limitation, trade secrets, know-how, inventions, technical data or specifications, testing methods, business or financial information, research and development activities, product and marketing plans, and customer and supplier information. Confidential Information that is disclosed in writing shall be marked with a legend indicating its confidential status. Confidential Information that is disclosed orally or visually shall be documented in a written notice prepared by the disclosing party and delivered to the receiving party within thirty (30) days of the date of disclosure; such notice shall summarize the Confidential Information disclosed to the receiving party and reference to the time and place of disclosure.

 

13.2                            The receiving party agrees that it shall: (a) maintain all Confidential Information in strict confidence, except that the receiving party may disclose or permit the disclosure of any Confidential Information to its directors, officers, employees, consultants, and advisors who are obligated to maintain the confidential nature of such Confidential Information and who need to know such Confidential Information for the purpose set forth in this Agreement; (b) use all Confidential Information solely for the purpose set forth in this Agreement; and (c) allow its directors, officers, employees, consultants, and advisors to reproduce the Confidential Information only to the extent necessary to effect the purposes set forth in this Agreement, with all such reproductions being considered Confidential Information.

 

13.3                            The obligations of the receiving party under Section 13.2 above shall not apply to the extent that the receiving party can demonstrate that certain Confidential Information: (a)

 

10



 

was in the public domain prior to the time of its disclosure under this Agreement; (b) entered the public domain after the time of its disclosure under this Agreement through means other than an unauthorized disclosure resulting from an act or omission by the receiving party; (c) was independently developed or discovered by receiving party without use of the Confidential Information; (d) is or was disclosed to the receiving party at any time, whether prior to or after the time of its disclosure under this Agreement, by a third party having no fiduciary relationship with the disclosing party and having no obligation of confidentiality with respect to such Confidential Information; or (e) is required to be disclosed to comply with application laws or regulation, or with a court or administrative order, provided that, the disclosing party receives prior written notice of such disclosure and that the receiving party takes all reasonable and lawful actions to obtain confidential treatment for such disclosure and, if possible, to minimize the extent of such disclosure.

 

13.4.                         The obligations set forth in this Article 13 shall remain in effect for a period of five (5) years after the expiration or the earlier termination of this Agreement.

 

ARTICLE 14. PATENT MARKING

 

14.                                  If required by laws or regulations, IPSOGEN agrees to mark any Products, promotional material, technical literature and the like with all applicable patent numbers, and where appropriate, to indicate “Patent Pending” status in accordance with each applicable country’s patent laws.

 

ARTICLE 15. INDEPENDENT CONTRACTOR

 

15.                                  For the purpose of this Agreement and all services to be provided hereunder, both parties shall be, and shall be deemed to be, independent contractors and not agents or employees of the other. Neither party shall have authority to make any statements, representations or commitments of any kind, or to take any action, that will be binding on the other party.

 

ARTICLE 16. SEVERABILITY

 

16.                                  If any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby unless the invalid provisions are of such essential importance to this Agreement that it is to be reasonably assumed that the parties would not have entered into this Agreement without the invalid provisions.

 

ARTICLE 17. NON-ASSIGNABILITY

 

17.                                  Neither this Agreement nor any part hereof shall be assignable by either party without the express prior written consent of the other, which shall not be unreasonably withheld. Any attempted assignment without such consent shall be void.

 

11



 

ARTICLE 18. ENTIRE AGREEMENT

 

18.                                  This Agreement constitutes the entire agreement between the parties with respect to the subject matter and supersedes any prior agreements and understandings between the parties relating to the subject matter hereof. No verbal agreement, conversation or representation between any officers, agents or employees of the parties hereto either before or after the execution of this Agreement shall affect or modify any of the terms or obligations herein contained.

 

ARTICLE 19. MODIFICATIONS IN WRITING

 

19.                                  No change, modification, extension, termination or waiver of this Agreement, or any of the provisions herein contained, shall be valid unless made in writing and signed by a duly authorized representative of each party.

 

ARTICLE 20. GOVERNING LAW

 

20.                                  The validity and interpretation of this Agreement and the legal reactions of the parties to it shall be governed by the laws of England and Wales, without regard to the conflict of laws provisions thereunder, except that questions affecting the construction and effect of any patent shall be determined by the law of the country in which the patent was granted.

 

ARTICLE 21. CAPTIONS

 

21.                                  The captions are provided for convenience and are not to be used in construing this Agreement.

 

ARTICLE 22. CONSTRUCTION

 

22.                                  Each of the parties agrees that this Agreement is the result of mutual negotiation and therefore the language herein shall not be presumptively construed against either of them.

 

ARTICLE 23. COUNTERPARTS

 

23.                                  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument.

 

ARTICLE 24. BINDING EFFECT

 

24.                                  This Agreement shall be binding upon and inure to the benefit of the parties and their respective permitted successors and assigns.

 

ARTICLE 25. FORCE MAJEURE

 

25.                                  If either party’s performance of any obligation under this Agreement is prevented, restricted, interfered with or delayed by reason of any force majeure cause such as floods, fires, riots, insurrections, explosions, other natural disasters or serious labor disputes beyond the reasonable control of the party required to perform, the party so

 

12



 

affected, upon giving written notice and written evidence of such force majeure to the other party, shall be excused from such performance to the extent of such prevention, restriction, interference, or delay; provided that the affected party shall use its commercial reasonable efforts to avoid or remove such causes of non-performance and shall continue performance with the utmost dispatch whenever the force majeure is removed.

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives as of the date first above written.

 

XENOMICS INC

 

IPSOGEN SAS

 

 

 

 

 

 

By:

/s/ David J. Robbins

 

By:

/s/ Vincent Fert

 

 

 

 

 

Name:

David J. Robbins, Ph.D.

 

Name:

Vincent Fert

 

 

 

 

 

Title:

Vice President, Product Development

 

Title:

CEO

 

13


Exhibit 10.9

 

AMENDMENT TO CO-EXCLUSIVE SUBLICENSE AGREEMENT

 

This Amendment (“Amendment”), is made September 1, 2010 (the “ Effective Date ”) between Ipsogen SAS, a French corporation having its principal office at Luminy Biotech Enterprises Case 923, 163 Avenue de Luminy 13288 Marseille cedex 9 France (IPSOGEN”), and Trovagene, Inc. (“TROVAGENE”), a Delaware corporation having its principal place of business at 11055 Flintkote Ave., San Diego, CA 92121, which collectively may be referred to herein as the “ Parties and individually as a “ Party ”.

 

RECITALS

 

WHEREAS, TROVAGENE is the named exclusive licensee of Patent Rights by virtue of the merger of Xenomics, Inc., with and into TrovaGene, Inc. and TrovaGene, Inc. is the surviving entity.

 

WHEREAS, TROVAGENE and IPSOGEN are Parties to a CO-EXCLUSIVE SUBLICENSE AGREEMENT (“Agreement”) executed August 27, 2007 in which Ipsogen is granted certain of those Patent Rights, and

 

WHEREAS, the Parties, by mutual agreement, wish to modify the terms of the Agreement.

 

NOW THEREFORE, for the consideration herein expressed, as well as consideration of the covenants, conditions and undertakings hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree to amend the Agreement as follows:

 

AMENDMENT

 

1.   DEFINITIONS

 

A.  Section 1.3 of the Agreement is hereby amended to read as follows:

 

“Field” shall mean diagnostic products that assay for nucleophosmin protein (“NPM1”) mutants, corresponding nucleic acid sequences and uses thereof, including research use only (“RUO”), analyte specific reagent (“ASR”) and in vitro diagnostics (“IVD”) products. For the avoidance of doubt, the Field specifically excludes therapeutic uses.

 

B.  Section 1.10 of the Agreement is hereby amended to read as follows:

 

“Territory” shall mean all countries in the world covered by any Patent Rights

 

1



 

C.  Section 1.12 is hereby added to the Agreement.

 

“Notice Recipient” means any third party with which TROVAGENE or Xenomics or their representatives communicated either orally or in writing wherein such communication included (i) an assertion or suggestion that such third party does or may require a license from TROVAGENE or Xenomics to perform laboratory testing services, together with (ii) an assertion or suggestion that an IPSOGEN Product does not convey to such third party a right to use such IPSOGEN Product.

 

2.   GRANT OF RIGHTS

 

A.  Section 2.2 of the Agreement is hereby amended to read as follows:

 

IPSOGEN shall have no right during the Term to sublicense the Patent rights to a 3 rd party, use the Patent Rights to offer Laboratory Services, or use Patent Rights in any way for development and commercialization of therapeutic products. Notwithstanding the foregoing, the sublicensed rights do specifically include the right to convey Patent Rights to IPSOGEN customers for the purposes of offering or performing Laboratory Services based on use of IPSOGEN Products. The Parties agree that the sublicensed rights referred to above shall extend to IPSOGEN customers that purchased Product from IPSOGEN any time on or after August 27, 2007. In addition, TROVAGENE agrees to provide IPSOGEN within ten (10) days of the Effective Date of this Amendment, an example letter that TrovaGene may send to the Notice Recipient indicating that the Notice Recipient will not be required to obtain any additional licenses from TROVAGENE to use an IPSOGEN Product or Service. Such letter shall be substantially in the form set forth in Exhibit A.

 

B.  Section 2.4 of the Agreement is hereby deleted in its entirety.

 

3.   PAYMENTS

 

A.  Section 4.1 of the Agreement is hereby amended to read as follows:

 

IPSOGEN shall pay to TROVAGENE during the Term prior to September 1, 2010, a royalty of ten percent (10%) on Net Revenues. Royalty payments will commence onsale of first product in any category and shall be payable quarterly.

 

4.1.1 Beginning September 1, 2010, a royalty of (a) 20% of Net Revenues or (b) eighteen (18) dollars per test, whichever is the larger amount, on Products sold in the United States of America and its Territories with no specific regulatory labeling, labeled for “research use only” (RUO), labeled as Analyte Specific Reagents (ASR), or labeled “investigational use only”(IUO) (the “Uncleared Products”). If, however, the royalty payment on Uncleared Products made in any quarter as described in Section 5.4 is greater than 30% of the Net Revenues of the Uncleared Products in such quarter, the Parties agree that royalty for Uncleared Products for that quarter shall be reduced and calculated to equal 30% of Net Revenues of such Uncleared Products. If, during any four consecutive quarters, IPSOGEN is calculated to be

 

2



 

paying an average royalty for Uncleared Products of greater than 20% of Net Revenues of Uncleared Products, the Parties agree to meet, either telephonically or in person, to negotiate in good faith the reduction of the royalty rates for Uncleared Products as set forth above.

 

4.1.2 A royalty of 10% of Net Revenues for Products sold in the United States of America and its Territories with labeling indicating the Product has received FDA clearance for market,

 

4.1.3 A royalty of 10% of Net Revenues for Products sold ex-U.S.

 

4.1.4 The amended royalty are payable quarterly and commence on sales beginning September 1, 2010 and are not retroactive to the Effective Date of the Agreement.

 

4.4 The Minimum Royalty payment(United States dollars) will be reduced beginning in the 3 rd  year to $40,000. The minimum royalty payment for the 4 th  year will also be $40,000. The minimum royalty payment for the 5 th  year and each Year thereafter will be $50,000.

 

4.   NOTICE

 

A.  Section 10.2 of the Agreement is hereby amended to read as follows:

 

Reports, notices and other communication from IPSOGEN to TROVAGENE as provided hereunder shall be sent to:

 

TROVAGENE Inc.

 

Attention:

PRESIDENT

 

11055 Flintkote Ave.

 

Suite B

 

San Diego, CA 92121

 

 

 

 

With a copy to:

 

 

Ivor Elrifi

 

MINTZ LEVIN

 

666 Third Avenue

 

New York, NY 10017

 

or to such other individual or address as shall hereafter be furnished by written notice to IPSOGEN in accordance with this Article 10.

 

3



 

IN WITNESS WHEREOF, IPSOGEN and TROVAGENE have caused this Amendment to be executed by their duly authorized representatives as of the date first written above.

 

 

IPSOGEN SAS.

 

 

By: Vincent Fert, CEO

 

/s/ Vincent Fert

 

 

 

 

 

TROVAGENE, Inc.

 

 

 

By: Andreas Braun, Acting President

 

/s/ A. Braun

 

 

4


Exhibit 10.10

 

SUBLICENSE AGREEMENT

 

THIS SUBLICENSE AGREEMENT (“Agreement”) effective as of January 8, 2008 (the “Effective Date”) is by and between XENOMICS Inc, a Florida corporation having its principal office at 420 Lexington Avenue Suite 1701 New York, NY 10170 USA, United States of America (“XENOMICS”) and WARNEX MEDICAL LABORATORIES a division of WARNEX INC., a Canadian corporation having its principal office at 3885 boul. Industriel, Laval (Quebec), Canada H7L 4S3 (“WARNEX”).

 

WITNESSETH:

 

WHEREAS, XENOMICS is the exclusive licensee of the Patent Rights (as defined below) relating to the Field (as defined below) under the Exclusive License Agreement (as defined below) and is willing to grant to WARNEX a royalty-bearing Sublicense (as defined below) in the Territory to use such Patent Rights in the Field on the terms and conditions set forth herein;

 

WHEREAS, WARNEX desires to obtain the Sublicense described above on the terms and conditions set forth herein; and

 

WHEREAS, XENOMICS is willing to grant WARNEX such Sublicense under the Patent Rights on the terms and conditions set forth herein;

 

NOW THEREFORE, in consideration of the mutual covenants herein contained and intending to be legally bound hereby, the parties hereto agree as follows:

 

ARTICLE 1. DEFINITIONS

 

1.1            “Affiliate(s)” shall mean any corporation or other business entity which controls, is controlled by, or is under common control with a party to this Agreement, “control” meaning the ownership, direct or indirect, of fifty percent (50%) or more of the voting stock or analogous interest in such corporation or other business entity.

 

1.2            “Exclusive License Agreement” shall mean the exclusive license agreement dated May 2006 (and any amendments thereto) by and between XENOMICS on the one hand, and Brunagelo Falini and Cristina Mecucci (jointly “Original Licensor”) on the other hand.

 

1.3            “Field” shall mean diagnosis, including monitoring of minimal residual disease, of nucleophosmin protein (“NPM1”) mutations in bone marrow or blood cells. The Field specifically includes IVD Laboratory Services testing and use of NPM1 as a drug target.

 

1.4            “Laboratory Services” shall mean Services performed by reference laboratories in the Territory.

 

1.5            “Net Revenues” shall mean the gross amount received by WARNEX for the Services sold by WARNEX or its Affiliate(s) hereunder to non-Affiliate third parties less the sum of the following:

 



 

(a)            volume, formulary or other discounts allowed in amounts customary in the trade;

(b)            sale and/or use taxes, duties and any other governmental charges directly imposed and with reference to particular sales;

(c)            amounts allowed or credited on returns;

(d)            transport and insurance charges, if separately itemized on the invoice and paid by the customer.

 

No deductions shall be made for commissions paid to individuals whether they are with independent sales agents or regularly employed by WARNEX and its Affiliate(s) and on their payroll, or for cost of collections. The Laboratory Services shall be considered “sold” when billed out or invoiced.

 

1.6            “Patent Rights” shall mean Patent Application PCT/IT2005/000634 filed October 28, 2005 entitled “Nucleophosmin protein (NPM) mutants, corresponding gene sequences and uses thereof” (published as WO 2006/046270), and foreign equivalents, including Canadian Patent Application 2585965 as well as all continuations, divisions, reissues, reexaminations, renewals, or extensions of such patents subject to the rights granted by Original Licensor to XENOMICS pursuant to the Exclusive License Agreement, as limited by this Agreement.

 

1.7            “Product(s)” shall mean any product or part thereof that when made, have made, used, offered to sell, sold or marketed in the Territory would infringe on any Valid Claim of the Patent Rights absent the Sublicense herein granted.

 

1.8            “Service” shall mean any service or part thereof that when used, commercialized or marketed in the Territory would infringe on any Valid Claim of the Patent Rights absent the Sublicense herein granted. This includes methods used to determine the presence of Nucleophosmin protein (NPM) mutants: diagnosis; monitoring of minimal residual disease; prognostic evaluation; monitoring of therapy of acute myeloid leukaemia (AML) for commercial testing and for clinical trials.

 

1.9            “Term” shall mean from the Effective Date until the expiration or abandonment of all the Patent Rights.

 

1.10          “Territory” shall mean Canada.

 

1.11          “Valid Claim” shall mean a claim of an unexpired patent of the Patent Rights that has neither been withdrawn, canceled, or disclaimed, nor held invalid or unenforceable by a court of competent jurisdiction in an unappealed or unappealable decision.

 

ARTICLE 2. GRANT OF RIGHTS

 

2.1            XENOMICS hereby grants to WARNEX, subject to all the terms and conditions of this Agreement a non-exclusive, royalty-bearing Sublicense in the Territory in the Field during the Term. “Sublicense” as used herein means a license to use the Patent Rights to i) make,

 



 

have made, use, offer to sell, sell and market the Laboratory Services in the Field, and ii) use, develop, practice, commercialize, and otherwise fully exploit the Services. WARNEX shall have no right to further sublicense.

 

2.2            WARNEX shall have no right during the Term to make, have made, offer to sell, sell and market Products in the Field or use Patent Rights in any way for development and commercialization of therapeutic products.

 

ARTICLE 3. DUE DILIGENCE

 

3.1            WARNEX shall use diligent efforts to develop and sell licensed Laboratory Services according to applicable Canadian provincial regulations derived from the Patent Rights into the commercial market as soon as practicable, consistent with sound and reasonable business practice and judgment, and shall provide XENOMICS with yearly reports within thirty (30) days following the close of each calendar year.

 

3.2            XENOMICS shall provide WARNEX with the technical information in its possession that may be useful for the development of a Service, including development of a suitable assay, in the Field. Such technical information shall at least include protocols for NPM1 mutation diagnosis and follow-up as well as verbal assistance that WARNEX may from time to time request from XENOMICS. If publications are made, XENOMICS scientists shall be credited for their contributions as appropriate.

 

3.3            WARNEX shall purchase its requirements for Products approved for IVD by Health Canada or those components of Laboratory Services in the Field that are covered by Patent Rights from Co-exclusive Product rights holders Asuragen and/or Ipsogen. Notwithstanding the above, WARNEX shall be under no obligation to purchase Products from Asuragen and/or Ipsogen should the Products not receive and maintain Health Canada approval, or in the event that, in WARNEX’s reasonable opinion, the Products are offered by Asuragen and/or Ipsogen at a price which does not permit WARNEX to maintain acceptable margins.

 

ARTICLE 4. PAYMENTS

 

4.1            WARNEX shall pay to XENOMICS during the Term a royalty of ten percent (10%) on Net Revenues and shall apply for all sales of Laboratory Services. Royalty payments will commence on sale of the first Laboratory Service and shall be payable quarterly.

 

4.2            In the instance that a third party seeks to obtain exclusive rights from XENOMICS to the Field in the Territory during the Term, WARNEX will have the option to negotiate with XENOMICS to convert the agreement to an exclusive license.

 

ARTICLE 5. REPORTS AND RECORDS

 

5.1            WARNEX shall maintain and cause its Affiliate(s) to maintain true, accurate and complete books of account, records and files containing an accurate record of all data reasonably necessary for the full computation and verification of sales and the determination of the

 



 

amounts payable under Article 4 hereof for a period of at least five (5) years following the period of each report required by Section 5.2 below.

 

5.2            After the first commercial sale of the Laboratory Services, WARNEX shall deliver to XENOMICS within ninety (90) days following each calendar year true and accurate reports, giving such particulars of the business conducted by WARNEX and its Affiliate(s) during the preceding year under this Agreement as shall be pertinent to a royalty accounting hereunder. These shall include at least the following:

 

(a)            number of the Laboratory Services sold by WARNEX and its Affiliate(s) and paid by customers;

(b)            total sales amounts received from customers for the Laboratory Services sold by WARNEX and its Affiliate(s);

(c)            deductions applicable as provided in Section 1.5;

(d)            total royalties due; and

(e)            amounts of withholding taxes.

 

5.3            Said books and records shall be kept at WARNEX’s and/or its Affiliate(s) principal place of business and shall be in accordance with generally accepted accounting principles, consistently applied. Said books and records, to the extent not previously audited, shall be available for inspection and copying by an independent certified public accountant selected by XENOMICS and reasonably acceptable to WARNEX and/or its Affiliate(s), upon ten (10) business days advance notice and during regular business hours in order to enable XENOMICS to ascertain the correctness of any report and/or payment made under this Agreement. XENOMICS shall pay the fees and expenses of the accountant engaged to perform the audit, unless such audit reveals an underpayment of five percent (5%) or more for the period examined, in which case WARNEX shall pay all reasonable costs and expenses incurred by XENOMICS in the course of making such determination, including, without limitation, the fees and expenses of the accountant.

 

5.4            WARNEX shall pay to XENOMICS the actual royalties due and payable as provided for in Section 4.1 on a quarterly basis. If no actual royalties are due, WARNEX shall so report.

 

ARTICLE 6. PATENT PROSECUTION; INFRINGEMENT

 

6.1            The prosecution, filing and maintenance of the Patent Rights in the Territory shall be managed by XENOMICS.

 

6.2            XENOMICS will file, prosecute and maintain any patent applications directed to improvements on inventions that are related to Patent Rights (“New Inventions”), whether owned solely or jointly with WARNEX and WARNEX shall cooperate with XENOMICS in the filing, prosecution and maintenance of all such New Inventions. Such cooperation includes, without limitation, (a) promptly executing all papers and instruments or requiring its employees to execute such papers and instruments as reasonable and appropriate so as to enable XENOMICS to file, prosecute and maintain such New Inventions in any country;

 



 

and (b) promptly informing XENOMICS of matters that may affect the preparation, filing, prosecution or maintenance of any such New Inventions.

 

6.3            (a) WARNEX agrees to provide XENOMICS with prompt written notice after becoming aware of any infringement of any of the Patent Rights or New Inventions in the Field and of any available evidence thereof.

 

(b)   XENOMICS shall have the right, but not the obligation, under its control and at its sole expense, to prosecute any third party infringement of the Patent Rights or New Inventions or to defend the Patent Rights or New Inventions in any declaratory judgment action brought by a third party which alleges the invalidity, unenforceability or non-infringement of any Patent Rights. WARNEX agrees to cooperate fully in any action under this Section 6.3, provided that XENOMICS reimburses material costs and expenses incurred with providing such assistance.

 

6.4            XENOMICS hereby undertakes to notify WARNEX promptly should the Patent Rights lapse for failing to meet a deadline, should the Original Licensor and/or XENOMICS decide to stop pursuing the Patent Rights or should the Patent Rights not be allowed by the Canadian Patent Office for any reason.

 

ARTICLE 7. TERM AND TERMINATION

 

7.1            Should WARNEX fail to pay XENOMICS any amounts due hereunder, XENOMICS shall have the right to terminate this Agreement on forty-five (45) days prior written notice, unless WARNEX shall pay XENOMICS within said forty-five (45) day period such delinquent amounts and interest within said period.

 

7.2            WARNEX shall have the right to terminate this Agreement and all rights, privileges and the Sublicense granted hereunder at any time upon sixty (60) days prior written notice to XENOMICS.

 

7.3            Upon any material breach or default of this Agreement by either party, including without limitation WARNEX’s material failure to comply with Section 3 hereof, the other party shall have the right to terminate this Agreement upon sixty (60) days written notice to the breaching/defaulting party. Such termination shall become effective immediately at the conclusion of such notice period unless the breaching/defaulting party shall have cured any such breach or default prior to the expiration of said sixty (60) day period.

 

7.4            Upon termination of this Agreement for any reason, nothing herein shall be construed to release either party from any obligation that matured prior to the effective date of such termination. The provisions of Articles 4 (with respect to any payments outstanding as of the termination date), 5, 6, 7, 8, 9, 10, 11, 13, 15, 18, 20 and 26, shall survive the expiration or any earlier termination of this Agreement.

 



 

ARTICLE 8. INDEMNIFICATION

 

8.1            XENOMICS agrees to indemnify, hold harmless and defend WARNEX, its Affiliates, agents and employees from and against any and all liabilities, losses, damages, costs, fees and expenses, including reasonable legal expenses and attorneys’ fees (collectively, “Losses”) arising out of suits, claims, actions, or demands, brought or made by a third party (“Third Party Claim”) against WARNEX, its Affiliates, agents and employees, based on breach of XENOMICS’s warranties under Article 9 below, except to the extent such Losses or Third Party Claims result from the negligence or wilful misconduct of WARNEX or a breach of WARNEX’s warranties under Article 9 below.

 

8.2            WARNEX agrees to indemnify, hold harmless and defend XENOMICS, its Affiliates, agents and employees from and against any and all Losses arising out of any Third Party Claims against XENOMICS, its Affiliates, agents and employees based on (i) WARNEX’S breach of WARNEX’s warranties under Article 9 below, or (ii) the manufacture, use, handling, storage, sale or other disposition of Laboratory Services by WARNEX, its Affiliates, agents, employees or sublicensees, all except to the extent such Losses or Third Party Claims result from the negligence or wilful misconduct of XENOMICS, or a breach of XENOMICS’s warranties under Article 9 below.

 

ARTICLE 9. REPRESENTATIONS, WARRANTIES AND DISCLAIMERS

 

9.1            XENOMICS represents and warrants to WARNEX (i) that it has the right to sublicense the Patent Rights in Territory and that XENOMICS has received the appropriate written authorization from the Original Licensors to enter into this Agreement, and (ii) that it has the right and power to extend the rights and the Sublicense granted herein and to perform its obligations hereunder, (iii) that this Agreement is a valid and binding agreement, enforceable in accordance with its terms, (iv) that it is not in default under the Exclusive License Agreement, and there has not occurred any event which, with a lapse of time or giving of notice, or both, would constitute such a default. There has not been any default by any party or dispute between XENOMICS and any party under the Exclusive License Agreement, (v) as of the Effective Date, it has no actual knowledge of any conflict of any kind with any inventor(s) listed or any of the owner of the Patent Rights, which may restrict it from entering into this Agreement, granting the rights or fulfilling its obligations hereunder, (vi) as of the Effective Date, the Patent Rights are in good standing and have not lapsed for failing to meet a deadline and they have diligently been prosecuted and maintained, (vii) As of the Effective Date no person has challenged by way of a notice in writing the validity of any claim comprised within the Patent Rights, and (viii) as of the Effective Date there are no judicial, arbitral, regulatory or administrative proceedings or investigations, claims, actions or suits relating to the inventions disclosed in the Patent or their use, making, commercialization, practice or any other exploitation thereof pending against the Original Licensors, XENOMICS, its Affiliates or any of XENOMICS’ sublicensees in any court or by or before any governmental body or agency and, to the best of XENOMICS’ knowledge, no such judicial, arbitral, regulatory or administrative

 



 

proceedings or investigations, actions or suits have been threatened agains the Original Licensors, XENOMICS, its Affiliates or any of XENOMICS’ sublicensees.

 

9.2            WARNEX hereby represents and warrants to XENOMICS that it has the right and power to enter into this Agreement and to perform its obligations, and that this Agreement is a valid and binding agreement, enforceable in accordance with its terms. WARNEX agrees that it shall comply and cause its Affiliate(s) to comply with all applicable local laws and regulations in Territory relating to the design, sale, use, delivery in commerce and promotion of the Laboratory Services.

 

9.3            EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN SECTION 9, XENOMICS MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY PATENT RIGHT, TRADEMARK, SOFTWARE, NON-PUBLIC OR OTHER INFORMATION, OR TANGIBLE RESEARCH PROPERTY, LICENSED OR OTHERWISE PROVIDED TO SUBLICENSEE HEREUNDER AND HEREBY DISCLAIMS THE SAME. XENOMICS DOES NOT WARRANT THE VALIDITY OF THE PATENT RIGHTS SUBLICENSED HEREUNDER AND MAKES NO REPRESENTATION WHATSOEVER WITH REGARD TO THE SCOPE OF THE SUBLICENSED PATENT RIGHTS OR THAT SUCH PATENT RIGHTS MAY BE EXPLOITED BY SUBLICENSEE OR ITS AFFILIATE(S) WITHOUT INFRINGING ON OTHER PATENTS.

 

9.4            NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT. SUBLICENSEE ASSUMES ALL RESPONSIBILITY AND LIABILITY FOR ANY LOSS OR DAMAGES CAUSED BY THE PRODUCTS MANUFACTURED, USED, DELIVERED, SOLD OR PROVIDED BY SUBLICENSEE AND ITS AFFILIATE(S) THAT ARE SUBJECT TO THIS AGREEMENT UNLESS THE SAME HAS RESULTED FROM ANY MATERIAL BREACH OF AN OBLIGATION, REPRESENTATION, WARRANTY BY XENOMICS UNDER THIS AGREEMENT OR ACTION, INACTIONS, OR MISREPRESENTATIONS ON THE PART OF XENOMICS.

 

ARTICLE 10. NOTICE

 

10.1          Any consent, notice or report required or permitted to be given or made under this Agreement shall be in writing, delivered (i) by certified or registered mail (postage prepaid, return receipt requested), (ii) by facsimile (and promptly confirmed by personal delivery, courier or next business day service of a nationally recognized courier service of good repute), (iii) by a next business day service of a nationally recognized courier service of good repute (with evidence of delivery) or (iv) by courier (postage prepaid and signature required), and in any case addressed to the other party at its address set forth in this Article 10, and shall be effective upon receipt by the addressee.

 



 

10.2          Reports, notices and other communication from WARNEX to XENOMICS as provided hereunder shall be sent to:

 

 

XENOMICS Inc

 

Attention:

Chairman

 

 

420 Lexington Avenue Suite 1701

 

 

New York, NY 10170

 

 

USA

 

With a copy to:

 

 

 

Ivor Elrifi

 

 

MINTZ LEVIN

 

 

666 Third Avenue

 

 

New York, NY 10017

 

or to such other individual or address as shall hereafter be furnished by written notice to WARNEX in accordance with this Article 10.

 

10.3          Reports, notices and other communications from XENOMICS to WARNEX as provided hereunder shall be sent to:

 

 

Warnex Medical Laboratories, a division of Warnex Inc.

 

Attention:

Yvan P. Côté (or his successor)

 

 

3885 Industriel Blvd.

 

 

Laval, Quebec, H7L 4S3

 

 

Canada

 

 

With a copy to: Vice-President Legal affairs

 

 

Warnex Inc.

 

 

3885 Industrial Blvd.

 

 

Laval, Quebec, H7L 4S3

 

 

Canada

 

or to such other individual or address as shall hereafter be furnished by written notice to XENOMICS in accordance with this Article 10.

 

ARTICLE 11. DISPUTE RESOLUTION

 

11.1.         Any dispute, controversy or claim arising under, out of or relating to this contract and any subsequent amendments of this contract, including, without limitation, its formation, validity, binding effect, interpretation, performance, breach or termination, as well as non-contractual claims, shall be submitted to mediation in accordance with the World Intellectual Property Organization (“WIPO”) Mediation Rules. The place of mediation shall be Boston, USA. The language to be used in the mediation shall be English.

 



 

11.2          If, and to the extent that, any such dispute, controversy or claim has not been settled pursuant to the mediation within 60 days of the commencement of the mediation, it shall, upon the filing of a Request for Arbitration by either party, be referred to and finally determined by arbitration in accordance with the WIPO Expedited Arbitration Rules. Alternatively, if, before the expiration of the said period of 60 days, either party fails to participate or to continue to participate in the mediation, the dispute, controversy or claim shall, upon the filing of a Request for Arbitration by the other party, be referred to and finally determined by arbitration in accordance with the WIPO Expedited Arbitration Rules. The place of arbitration shall be Boston, USA. The language to be used in the arbitral proceedings shall be English. The dispute, controversy or claim referred to arbitration shall be decided in accordance with the laws of Massachusetts, USA.

 

11.3          Notwithstanding the foregoing, nothing in this Article shall be construed to waive any rights or timely performance of any obligations existing under this Agreement.

 

ARTICLE 12. RESTRICTION ON USE OF NAME

 

12.1          WARNEX shall neither use nor cause its Affiliate(s) to use the name of XENOMICS, its directors, officers, trustees, Affiliate(s), employees, or any adaptations thereof, in any advertising, promotion or sale literature without the prior written consent of XENOMICS. With respect to reports to public agencies that are required by law, WARNEX shall provide XENOMICS with a reasonable opportunity to review the use of its name in such reports reasonably in advance of submission.

 

12.2          WARNEX shall neither disclose nor cause its Affiliate(s) to disclose this Agreement or any of the terms or conditions of this Agreement to any third party without the prior written consent of XENOMICS except and to the extent required to comply with applicable laws or regulations; provided that, WARNEX delivers prior written notice to XENOMICS of any disclosure required by applicable laws or regulations and takes all reasonable and lawful actions to obtain confidential treatment for such disclosure and, if possible, to minimize the extent of such disclosure.

 

ARTICLE 13. CONFIDENTIALITY

 

13.1          During the term of this Agreement, each party (the “disclosing party”) may communicate to the other party (the “receiving party”) information which it considers to be confidential (“Confidential Information”). All Confidential Information shall be specifically designated as confidential. Such Confidential Information may include, without limitation, trade secrets, know-how, inventions, technical data or specifications, testing methods, business or financial information, research and development activities, product and marketing plans, and customer and supplier information. Confidential Information that is disclosed orally or visually shall be documented in a written notice prepared by the disclosing party and delivered to the receiving party within thirty (30) days of the date of disclosure; such notice shall summarize the Confidential Information disclosed to the receiving party and reference to the time and place of disclosure.

 



 

13.2          The receiving party agrees that it shall: (a) maintain all Confidential Information in strict confidence, except that the receiving party may disclose or permit the disclosure of any Confidential Information to its directors, officers, employees, consultants, and advisors who are obligated to maintain the confidential nature of such Confidential Information and who need to know such Confidential Information for the purpose set forth in this Agreement; (b) use all Confidential Information solely for the purpose set forth in this Agreement; and (c) allow its directors, officers, employees, consultants, and advisors to reproduce the Confidential Information only to the extent necessary to effect the purposes set forth in this Agreement, with all such reproductions being considered Confidential Information.

 

13.3          The obligations of the receiving party under Section 13.2 above shall not apply to the extent that the receiving party can demonstrate that certain Confidential Information: (a) was in the public domain prior to the time of its disclosure under this Agreement; (b) entered the public domain after the time of its disclosure under this Agreement through means other than an unauthorized disclosure resulting from an act or omission by the receiving party; (c) was independently developed or discovered by receiving party without use of the Confidential Information; (d) is or was disclosed to the receiving party at any time, whether prior to or after the time of its disclosure under this Agreement, by a third party having no fiduciary relationship with the disclosing party and having no obligation of confidentiality with respect to such Confidential Information; or (e) is required to be disclosed to comply with application laws or regulation, or with a court or administrative order, provided that, the disclosing party receives prior written notice of such disclosure and that the receiving party takes all reasonable and lawful actions to obtain confidential treatment for such disclosure and, if possible, to minimize the extent of such disclosure.

 

13.4.         The obligations set forth in this Article 13 shall remain in effect for a period of five (5) years after the expiration or the earlier termination of this Agreement.

 

ARTICLE 14. PATENT MARKING

 

14.            If required by laws or regulations, WARNEX agrees to mark any Laboratory Services, reports, testing results, promotional material, technical literature and the like with all applicable patent numbers, and where appropriate, to indicate “Patent Pending” status in accordance with each applicable country’s patent laws.

 

ARTICLE 15. INDEPENDENT CONTRACTOR

 

15.   For the purpose of this Agreement and all services to be provided hereunder, both parties shall be, and shall be deemed to be, independent contractors and not agents or employees of the other. Neither party shall have authority to make any statements, representations or commitments of any kind, or to take any action, that will be binding on the other party.

 



 

ARTICLE 16. SEVERABILITY

 

16.            I f any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby unless the invalid provisions are of such essential importance to this Agreement that it is to be reasonably assumed that the parties would not have entered into this Agreement without the invalid provisions.

 

ARTICLE 17. NON-ASSIGNABILITY

 

17.            N either this Agreement nor any part hereof shall be assignable by either party without the express prior written consent of the other, which shall not be unreasonably withheld. Any attempted assignment without such consent shall be void. A change in control of WARNEX shall not be considered as an assignment of this Agreement and therefore shall not require the prior written consent of XENOMICS. For the purpose of this Article 17, “change in control” shall mean the occurrence of any transaction that results in the sale of more than 50% of the current outstanding issued shares or interests of Warnex to a third party, or the sale of all or substantially all of the assets of Warnex.

 

ARTICLE 18. ENTIRE AGREEMENT

 

18.            T his Agreement constitutes the entire agreement between the parties with respect to the subject matter and supersedes any prior agreements and understandings between the parties relating to the subject matter hereof. No verbal agreement, conversation or representation between any officers, agents or employees of the parties hereto either before or after the execution of this Agreement shall affect or modify any of the terms or obligations herein contained.

 

ARTICLE 19. MODIFICATIONS IN WRITING

 

19.            N o change, modification, extension, termination or waiver of this Agreement, or any of the provisions herein contained, shall be valid unless made in writing and signed by a duly authorized representative of each party.

 

ARTICLE 20. GOVERNING LAW

 

20.            T he validity and interpretation of this Agreement and the legal reactions of the parties to it shall be governed by the laws of Massachusetts, USA, without regard to the conflict of laws provisions thereunder, except that questions affecting the construction and effect of any patent shall be determined by the law of the country in which the patent was granted.

 



 

ARTICLE 21. CAPTIONS

 

21.            T he captions are provided for convenience and are not to be used in construing this Agreement.

 

ARTICLE 22. CONSTRUCTION

 

22.            E ach of the parties agrees that this Agreement is the result of mutual negotiation and therefore the language herein shall not be presumptively construed against either of them.

 

ARTICLE 23. COUNTERPARTS

 

23.            T his Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument.

 

ARTICLE 24. BINDING EFFECT

 

24.            T his Agreement shall be binding upon and inure to the benefit of the parties and their respective permitted successors and assigns.

 

ARTICLE 25. FORCE MAJEURE

 

25. If either party’s performance of any obligation under this Agreement is prevented, restricted, interfered with or delayed by reason of any force majeure cause such as floods, fires, riots, insurrections, explosions, other natural disasters or serious labor disputes beyond the reasonable control of the party required to perform, the party so affected, upon giving written notice and written evidence of such force majeure to the other party, shall be excused from such performance to the extent of such prevention, restriction, interference, or delay; provided that the affected party shall use its commercial reasonable efforts to avoid or remove such causes of non-performance and shall continue performance with the utmost dispatch whenever the force majeure is removed.

 

[The signature page follows]

 



 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives as of the date first above written.

 

XENOMICS INC

WARNEX MEDICAL

 

LABORATORIES, A

 

DIVISION OF WARNEX INC.

 

 

By:

/s/ David J. Robbins

By:

/s/ Mark J. Busgang

 

 

 

 

Name:

David J. Robbins, Ph.D.

Name:

Mark J. Busgang

 

 

 

 

 

 

 

 

Title:

Vice President, Product Development

Title:

President & Chief Executive Officer

 

 

 

 

 

 

 

 

 

By:

/s/ Yvan P. Côté

 

 

 

 

Name:

Yvan P. Côté, Ph.D.

 

 

 

 

 

 

 

Title :

Vice President & General Manager

 


Exhibit 10.11

 

TROVAGENE SUBLICENSE AGREEMENT FOR NPM1 TESTING
WITH FAIRVIEW HEALTH SERVICES
FV CONTRACT # FV2011-152

 

THIS SUBLICENSE AGREEMENT (“Agreement”) effective as of 7-20-2011 (the “Effective Date”) is by and between TROVAGENE Inc, a Delaware corporation having its principal office at 11055 Flintkote Ave, Suite B, San Diego, CA 92121 (“TROVAGENE”), and Fairview Health Services, a fully integrated health care company that is a Minnesota nonprofit corporation which is tax-exempt under federal law (“Company” or “Fairview”), located at 2450 Riverside Avenue, Minneapolis, MN 55454.

 

WITNESSETH:

 

WHEREAS, TROVAGENE is the exclusive licensee of the Patent Rights (as defined below) relating to the Field (as defined below) under the Exclusive License Agreement (as defined below) and is willing to grant to Fairview a royalty-bearing Sublicense (as defined below) in the Territory to use such Patent Rights in the Field on the terms and conditions set forth herein;

 

WHEREAS, Fairview desires to obtain the Sublicense described above on the terms and conditions set forth herein; and

 

WHEREAS, TROVAGENE is willing to grant Fairview such Sublicense under the Patent Rights on the terms and conditions set forth herein;

 

NOW THEREFORE, in consideration of the mutual covenants herein contained and intending to be legally bound hereby, the parties hereto agree as follows:

 

ARTICLE 1. DEFINITIONS

 

1.1                                  “Affiliate(s)” shall mean any corporation or other business entity which controls, is controlled by, or is under common control with a party to this Agreement, “control” meaning the ownership, direct or indirect, of fifty percent (50%) or more of the voting stock or analogous interest in such corporation or other business entity.

 

1.2                                  “Exclusive License Agreement” shall mean the exclusive license agreement dated May 2006 (and any amendments thereto) by and between TROVAGENE on the one hand, and Brunagelo Falini and Cristina Mecucci (jointly “Original Licensor”) on the other hand.

 

1.3                                  “Field” shall mean Laboratory Services for testing nucleophosmin protein (“NPM1”) nucleic acid mutations, including the monitoring of minimal residual disease, in all human sample specimens. For avoidance of doubt, the Field strictly includes molecular testing.

 

1.4                                  “Laboratory Services” shall mean all reference laboratory services for which Fairview invoices third parties, receives compensation or earns revenue, related to any and all

 



 

NPM 1 nucleic acid analysis, or part thereof, offered to any non-Affiliate third parties under the Granted Rights as defined in Section 2.1, performed by Fairview or by Fairview authorized or subcontracted reference laboratories in the Territory, which services that when offered, used, performed or commercialized or marketed in the Territory would infringe on any Valid Claim of the Patent Rights absent the Sublicense herein granted.

 

1.5                                  “Net Revenues” shall mean the gross amount received by Fairview or its Affiliate(s) for the Laboratory Services sold by Fairview or its Affiliate(s) pursuant to the Granted Rights as defined in Section 2.1 hereunder to non-Affiliate third parties less the sum of the following:

 

(a)                                   volume formulary or other discounts allowed in amounts customary in the trade;

 

(b)                                  sale and/or use taxes, duties and any other governmental charges directly imposed and with reference to particular sales;

 

(c)                                   amounts allowed or credited on returns;

 

(d)                                  transport and insurance charges, if separately itemized on the invoice and paid by the customer.

 

No deductions shall be made for commissions paid to individuals whether they are with independent sales agents or regularly employed by Fairview and its Affiliate(s) and on their payroll, or for cost of collections. The Laboratory Services shall be considered “Sold” when billed out or invoiced.

 

1.6                                  “Patent Rights” shall mean Patent Application PCT/lT 2005/000634 filed October 28, 2005 entitled “Nucleophosmin protein (NPM) mutants, corresponding gene sequences and uses thereof ” (published as WO 2006/046270), subject to the rights granted by Original Licensor to TROVAGENE pursuant to the Exclusive License Agreement, as limited by this Agreement.

 

1.7                                  “Term” shall mean from the Effective Date until the expiration or abandonment of all the Patent Rights, and subject to the termination rights set forth in Article 7.

 

1.8                                  “Territory” shall mean within the State of Minnesota, United States of America, for Laboratory Services.

 

1.9                                  “Valid Claim” shall mean a claim of an unexpired patent of the Patent Rights that has neither been withdrawn, canceled, or disclaimed, nor held invalid or unenforceable by a court of competent jurisdiction in an unappealed or unappealable decision.

 

ARTICLE 2. GRANT OF RIGHTS

 

2.1                                  TROVAGENE hereby grants to Fairview and Fairview Affiliates, subject to all the terns and conditions of this Agreement a non-exclusive, royalty-bearing Sublicense under the Patient Rights in the Territory in the Field during the Term (“ Granted Rights”). “Sublicense” as used herein means a license to use the Patent Rights to i) make, have

 



 

made, use, offer to sell, sell and market the Laboratory Services in the Field and in the Territory. Fairview shall have no right to further sublicense. Notwithstanding anything to the contrary contained in this Sublicense Agreement, Fairview and Fairview Affiliates as part of the Granted Rights shall be able to use the Patent Rights to perform the Laboratory Services within the Territory, on any and all samples provided to it for testing or for any other purposes consistent with this Agreement, from anywhere in the World.

 

2.2                                  Fairview shall have no right during the Term to make, have made, offer to sell, sell and market Products in the Field or use Patent Rights in any way for development and commercialization of therapeutic products other than under the rights granted pursuant to Article 2.1. For avoidance of doubt, Fairview shall not have the right under this license to offer to sell, sell and market any test kits or components thereof to any third parties.

 

ARTICLE 3. DUE DILIGENCE

 

3.1                                  Fairview shall provide TROVAGENE with sales and status reports and payments within thirty (30) days following the close of each calendar quarter as defined delivery beginning with the calendar year in which the first Net Revenues from Laboratory Services are Sold.

 

ARTICLE 4. PAYMENTS

 

4.1                                  In consideration for the Granted Rights provided to Fairview, Fairview shall pay to TROVAGENE during the Term a royalty of ten percent (10%) of Net Revenues. Royalty payments will commence on sale of the first Laboratory Service after signing of the Agreement and shall be payable quarterly. If no actual royalties are due for any quarter, Fairview shall so report.

 

4.2                                  Fairview shall pay to TROVAGENE an initial licensing fee of $10,000 USD within thirty (30) days following the Effective Date of this Agreement.

 

4.3                                  Starting from the date of the first sale of Laboratory Services in the Territory after signing of the Agreement, the royalties due to TROVAGENE from Fairview under Section 4.1 hereof, in the aggregate, shall equal or exceed one thousand ($1,000) for each calendar year. Within thirty (30) days from the end of the fourth (4 th ) quarter of each and every calendar year from the date of first sale in the Territory during the Term, Fairview shall perform an accounting and will report in writing to TROVAGENE the sum of actual royalties paid against Net Revenues in the Territory for said calendar year as required in 4.1 above and, if the actual royalties paid for said calendar year pursuant to said report are less than the minimum royalty due pursuant to 4.3, Fairview will pay the difference between the sum of the actual royalties paid in the Territory and the annual minimum royalty amount. Said payment due to TROVAGENE will be payable no later than the immediately following January 31 st . For the avoidance of doubt, in calendar 2011, the royalties due under this section 4.3 shall be payable for the third and fourth quarters of

 



 

2011 and not for the first and second quarters of 2011. The minimum royalty shall equal five hundred ($500) for the remaining quarters of 2011.

 

ARTICLE 5. REPORTS AND RECORDS

 

5.1                                  Fairview shall maintain and cause its Affiliate(s) to maintain true, accurate and complete books of account, records and files containing an accurate record of all data reasonably necessary for the full computation and verification of sales and the determination of the amounts payable under Article 4 hereof for a period of at least five (5) years following the period of each report required by Section 5.2 below.

 

5.2                                  After the first commercial sale of the Laboratory Services, Fairview shall deliver to TROVAGENE within thirty (30) days following each calendar quarter true and accurate reports, giving such particulars of the business conducted by Fairview and its Affiliate(s) during the preceding quarter under this Agreement as shall be pertinent to a royalty accounting hereunder regarding the Granted Rights pursuant to Section 2.1. These reports shall include at least the following:

 

(a)                                   number of the Laboratory Services sold by Fairview and its Affiliate(s) and paid by customers;

 

(b)                                  total revenues received from customers for the Laboratory Services sold by Fairview and its Affiliate(s);

 

(c)                                   deductions applicable as provided in Section 1.5;

 

(d)                                  total royalties due.

 

5.3                                  Said books and records shall be kept at Fairview’s and/or its Affiliate(s) principal place of business and shall be in accordance with generally accepted accounting principles, consistently applied. Said books and records, to the extent not previously audited, shall be available for inspection and copying by an independent certified public accountant selected by TROVAGENE and reasonably acceptable to Fairview and/or its Affiliate(s), upon thirty (30) business days advance notice and during regular business hours, and upon signing reasonable documentation to insure the privacy of any and all patient related information, in order to enable TROVAGENE to ascertain the correctness of any report and/or payment made under this Agreement. TROVAGENE shall pay the fees and expenses of the accountant engaged to perform the audit, unless such audit reveals an underpayment of five percent (5%) or more for the period examined, in which case Fairview shall pay all reasonable costs and expenses incurred by TROVAGENE in the course of making such determination, including, without limitation, the fees and expenses of the accountant and attorney’s fees if any incurred to enforce TROVAGENE rights. Audits should be no more than twice a year, preferably no more often than once each year. It should be scheduled during normal business hours and the audit should not interfere with operations of Fairview or the department. The auditors should be subject to Fairview’s policies while on Fairview’s premises so long as said policies do not interfere with the timely completion of the audit. Fairview should also require that

 



 

TROVAGENE should be responsible for the auditor’s actions while on Fairview’s premises. Fairview shall have present a Fairview employee to monitor the audit, and also shall have the right to review, and contest, if applicable the audit results. If Fairview disputes the audit results then the parties shall designate a manager or above to meet and try to resolve the issue, and if the issue is not resolved at that level then the parties may escalate the dispute to the Vice President or higher or opt to arbitrate the issue. If the dispute is resolved by the parties and it is determined that the underpayment is less than 5%, then each party shall bear its own costs.

 

ARTICLE 6. PATENT PROSECUTION; INFRINGEMENT

 

6.1                                  The prosecution, filing and maintenance of the Patent Rights in the Territory shall be managed by TROVAGENE.

 

6.2                                  TROVAGENE hereby undertakes to notify Fairview promptly should the Patent Rights lapse for failing to meet a deadline, should the Original Licensor and/or TROVAGENE decide to stop pursuing the Patent Rights or should the Patent Rights not be allowed by the US Patent Office for any reason.

 

6.3                                  Fairview agrees to provide TROVAGENE with prompt written notice after becoming aware of any infringement of any of the Patent Rights or New Inventions in the Field and of any available evidence thereof.

 

ARTICLE 7. TERM AND TERMINATION

 

7.1                                  Should Fairview fail to pay TROVAGENE any amounts due hereunder, TROVAGENE shall have the right to terminate this Agreement on thirty (30) days prior written notice, unless Fairview shall pay TROVAGENE within said thirty (30) day period such delinquent amounts and interest within said period. If Fairview in good faith disputes the payment amount or any portion thereof then TROVAGENE cannot terminate the agreement until the dispute is resolved and Fairview does not pay the amount determined to be due and owing within thirty (30) business days.

 

7.2                                  Fairview shall have the right to terminate this Agreement and all rights, privileges and the Sublicense granted hereunder at any time upon ninety (90) days prior written notice to TROVAGENE. Should Fairview elect to terminate this Agreement, Fairview will report and pay within thirty (30) days of the termination date all outstanding royalties or payments due as defined in Section 4 and shall have no right to reclaim any royalty or fee payments previously made under this Sublicense.

 

7.3                                  Upon any breach or default of this Agreement by either party, including without limitation Fairview’s material failure to comply with Section 3 hereof, the other party shall have the right to terminate this Agreement upon thirty (30) days written notice to the breaching/defaulting party. Such termination shall become effective immediately at the conclusion of such notice period unless the breaching/defaulting party shall have cured any such breach or default prior to the expiration of said thirty (30) day period.

 



 

7.4                                  Upon termination of this Agreement for any reason, nothing herein shall be construed to release either party from any obligation that matured prior to the effective date of such termination. The provisions of Articles 4 (with respect to any payments outstanding as of the termination date), 5,6,7,8,9,10,11,13,15,18,20 and 25, shall survive the expiration or any earlier termination of this Agreement.

 

ARTICLE 8. INDEMNIFICATION

 

8.1                                  TROVAGENE agrees to indemnify, hold harmless and defend Fairview, its Affiliates, agents and employees from and against any and all liabilities, losses, damages, costs, fees and expenses, including reasonable legal expenses and attorneys’ fees (collectively, “Losses”) arising out of suits, claims, actions, or demands, brought or made by a third party (“Third Party Claim”) against Fairview, its Affiliates, agents and employees, based on breach of TROVAGENE’s warranties under Article 9 below, except to the extent such Losses or Third Party Claims result from the negligence or wilful misconduct of Fairview or a breach of Fairview’s warranties under Article 9 below.

 

TROVAGENE shall in addition to the foregoing indemnify, hold harmless and defend Fairview, its Affiliates, agents and employees from and against any and all liabilities, losses, damages, costs, fees and expenses, including reasonable legal expenses and attorneys’ fees and also including treble damages or punitive damages, if applicable (collectively, “Losses”), solely as it arises out of any claim of infringement of Patent Rights, arising out of use by Fairview of any Laboratory Services, provided that TROVAGENE is prornptly notified in writing of such claim or of the commencement of such suit or proceeding, as the case may be, and is given authority, information, and reasonable assistance for defense or settlement thereof; and provided further that Fairview shall not settle such claim, suit or proceeding nor incur any cost or expense without the prior written consent of TROVAGENE, such consent not to be unreasonably withheld. Furthermore, in the event Fairview is enjoined from using the Patent Rights TROVAGENE shall: (i) secure a license of the Patent Rights that allows Fairview to continue to use the Patent Rights under the sublicense; (ii) shall modify the Patent Rights so that they become non-infringing, so long as the modification does not materially alter the operation or the performance of the Patent Rights; or (iii) replace the Patent Rights with a functionally equivalent, non-infringing item. If none of the foregoing remedies work then either the Agreement will need to be terminated or the parties will need to negotiate a revised royalty rate.

 

8.2                                  Fairview agrees to indemnify, hold harmless and defend TROVAGENE, its Affiliates, agents and employees from and against any and all Losses arising out of any Third Party Claims against TROVAGENE, its Affiliates, agents and employees based on (i) Fairview’S breach of Fairview’s warranties under Article 9 below, or (ii) the manufacture, use, handling, storage, sale or other disposition of Laboratory Services by Fairview, its Affiliates, agents or employees all except to the extent such Losses or Third Party Claims result from the negligence or wilful misconduct of TROVAGENE, or a breach of TROVAGENE’s warranties under Article 9 below.

 



 

ARTICLE 9. REPRESENTATIONS, WARRANTIES AND DISCLAIMERS

 

9.1                                  TROVAGENE represents and warrants to Fairview (i) that it has the right to sublicense the Patent Rights in Territory and that TROVAGENE has received the appropriate written authorization from the Original Licensors to enter into this Agreement, and (ii) that it has the right and power to extend the rights and the Sublicense granted herein and to perform its obligations hereunder, (iii) that this Agreement is a valid and binding agreement, enforceable in accordance with its terms, (iv) that it is not in default under the Exclusive License Agreement, and there has not occurred any event which, with a lapse of time or giving of notice, or both, would constitute such a default. There has not been any default by any party or dispute between TROVAGENE and any party under the Exclusive License Agreement, (v) as of the Effective Date, it has no actual knowledge of any conflict of any kind with any inventor(s) listed or any of the owner of the Patent Rights, which may restrict it from entering into this Agreement, granting the rights or fulfilling its obligations hereunder, (vi) as of the Effective Date, the Patent Rights are in good standing and have not lapsed for failing to meet a deadline and they have diligently been prosecuted and maintained, (vii) as of the Effective Date no person has challenged by way of a notice in writing the validity of any claim comprised within the Patent Rights, and (viii) as of the Effective Date there are no judicial, arbitral, regulatory or administrative proceedings or investigations, claims, actions or suits relating to the inventions disclosed in the Patent or their use, making, commercialization, practice or any other exploitation thereof pending against the Original Licensors, TROVAGENE, its Affiliates or any of TROVAGENE’ sublicensees in any court or by or before any governmental body or agency and, to the best of TROVAGENE’ knowledge, no such judicial, arbitral, regulatory or administrative proceedings or investigations, actions or suits have been threatened against the Original Licensors, TROVAGENE, its Affiliates or any of TROVAGENE’ sublicensees.

 

9.2                                  Fairview hereby represents and warrants to TROVAGENE that it has the right and power to enter into this Agreement and to perform its obligations, and that this Agreement is a valid and binding agreement, enforceable in accordance with its terms. Fairview agrees that it shall comply and cause its Affiliate(s) to comply with all applicable local laws and regulations in Territory relating to the design, sale, use, delivery in commerce and promotion of the Laboratory Services.

 

9.3                                  TROVAGENE represents and warrants that it is not aware of any legal deficiencies of the patent licensed hereunder. It particularly represents and warrants that it is not aware of any third party’s prior use rights, or of a dependency of the licensed patent on third party’s patents. However, EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN SECTION 9, TROVAGENE MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY PATENT RIGHT, TRADEMARK, SOFTWARE, NON-PUBLIC OR OTHER INFORMATION, OR TANGIBLE RESEARCH PROPERTY, LICENSED OR OTHERWISE PROVIDED TO SUBLICENSEE HEREUNDER AND HEREBY DISCLAIMS THE SAME. TROVAGENE DOES NOT WARRANT THE VALIDITY OF THE PATENT RIGHTS SUBLICENSED HEREUNDER AND MAKES NO REPRESENTATION WHATSOEVER

 



 

WITH REGARD TO THE SCOPE OF THE SUBLICENSED PATENT RIGHTS OR THAT SUCH PATENT RIGHTS MAY BE EXPLOITED BY SUBLICENSEE OR ITS AFFILIATE(S) WITHOUT INFRINGING ON OTHER PATENTS.

 

9.4                                  EXCEPT AS SET FORTH BELOW, NO PARTY SHALL BE LIABLE TO ANY OTHER PARTY OR ANY THIRD PARTY TO WHOM LICENSED SERVICES ARE RENDERED PURSUANT TO SECTION 2.1, IN CONTRACT, TORT, NEGLIGENCE, BREACH OF STATUTORY DUTY OR OTHERWISE FOR ANY LOSS, DAMAGE, COST OR EXPENSE OF AN INDIRECT OR CONSEQUENTIAL NATURE (INCLUDING ANY ECONOMIC LOSS OR OTHER LOSS OF TURNOVER, PROFITS, BUSINESS OR GOODWILL) ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE SUBJECT MATTER OF THIS AGREEMENT.

 

THIS SECTION 9.4 SHALL NOT APPLY TO ANY DAMAGES ARISING OUT OF (a) SECTION 8 INDEMNIFICATION, (B) ARTICLE 9, (C) ARTICLE 13 CONFIDENTIALITY, (E) MATERIAL BREACH OF ANY OTHER OBLIGATION, REPRESENTATION, WARRANTY BY TROVAGENE UNDER THIS AGREEMENT, OR ACTION, INACTIONS OR MISREPRESENTATIONS OF TROVAGENE AND (F) GROSS NEGLIGENCE AND/OR WILLFUL MISCONDUCT OF A PARTY’S EMPLOYEES OR AGENTS.

 

ARTICLE 10. NOTICE

 

10.1                            Any consent, notice or report required or permitted to be given or made under this Agreement shall be in writing, delivered (i) by certified or registered mail (postage prepaid, return receipt requested), (ii) by facsimile (and promptly confirmed by personal delivery, courier or next business day service of a nationally recognized courier service of good repute), (iii) by a next business day service of a nationally recognized courier service of good repute (with evidence of delivery) or (iv) by courier (postage prepaid and signature required), and in any case addressed to the other party at its address set forth in this Article 10, and shall be effective upon receipt by the addressee.

 

10.2                            Reports, notices and other communication from SUB to TROVAGENE as provided hereunder shall be sent to:

 

TROVAGENE, Inc.

Attention:

CEO

 

11055 Flintkote Ave., Suite B

 

San Diego, CA 92121

 

USA

 

 

With a copy to:

 

Ivor Elrifi

 

MINTZ LEVIN

 

666 Third Avenue

 

New York, NY 10017

 

or to such other individual or address as shall hereafter be furnished by written notice to Fairview in accordance with this Article 10.

 



 

Reports, notices and other communications from TROVAGENE to SUB as provided hereunder shall be sent to:

 

Company Name

Attention:

Karin Libby

 

Director of Laboratory Operations

 

University of Minnesota Medical Center, Fairview

 

University of Minnesota Amplatz Children’s Hospital

 

MMC # 198

 

420 Delaware St. SE

 

Minneapolis, MN 55455

 

 

With a copy to:

 

Michele Gregor

 

Fairview Health Services

 

400 Stinson Blvd.

 

Minneapolis, MN 55413

 

or to such other individual or address as shall hereafter be furnished by written notice to TROVAGENE in accordance with this Article 10.

 

ARTICLE 11. DISPUTE RESOLUTION

 

11.1.                         Any dispute, controversy or claim arising under, out of or relating to this contract and any subsequent amendments of this contract, including, without limitation, its formation, validity, binding effect, interpretation, performance, breach or termination, as well as non-contractual claims, shall be submitted to mediation in accordance with the World Intellectual Property Organization (“WIPO”) Mediation Rules. The place of mediation shall be Minneapolis, MN. The language to be used in the mediation shall be English.

 

11.2                            If, and to the extent that, any such dispute, controversy or claim has not been settled pursuant to the mediation within 60 days of the commencement of the mediation, it shall, upon the filing of a Request for Arbitration by either party, be referred to and finally determined by arbitration in accordance with the WIPO Expedited Arbitration Rules. Alternatively, if, before the expiration of the said period of 60 days, either party fails to participate or to continue to participate in the mediation, the dispute, controversy or claim shall, upon the filing of a Request for Arbitration by the other party, be referred to and finally determined by arbitration in accordance with the WIPO Expedited Arbitration Rules. The place of arbitration shall be Minnesota, MN. The language to be used in the arbitral proceedings shall be English. The dispute, controversy or claim referred to arbitration shall be decided in accordance with the laws of Minnesota, MN.

 

11.3                            Notwithstanding the foregoing, nothing in this Article be construed to waive any rights or timely performance of any obligations existing under this Agreement.

 



 

ARTICLE 12. RESTRICTION ON USE OF NAME

 

12.1                            Fairview shall neither use nor cause its Affiliate(s) to use the name of TROVAGENE, its directors, officers, trustees, Affiliate(s), employees, or any adaptations thereof, in any advertising, promotion or sale literature without the prior written consent of TROVAGENE. With respect to reports to public agencies that are required by law, Fairview shall provide TROVAGENE with a reasonable opportunity to review the use of its name in such reports reasonably in advance of submission.

 

12.2                            Fairview shall neither disclose nor cause its Affiliate(s) to disclose this Agreement or any of the terms or conditions of this Agreement to any third party without the prior written consent of TROVAGENE except to announce that Fairview and its Affiliates are licensed to lawfully accept and test NPM1 samples, and to the extent required to comply with applicable laws or regulations; provided that, Fairview delivers prior written notice to TROVAGENE of any disclosure required by applicable laws or regulations and takes all reasonable and lawful actions to obtain confidential treatment for such disclosure and, if possible, to minimize the extent of such disclosure.

 

ARTICLE 13. CONFIDENTIALITY

 

13.1                           During the term of this Agreement, each party (the “disclosing party”) may communicate to the other party (the “receiving party”) information which it considers to be confidential (“Confidential Information”). All Confidential Information shall be specifically designated as confidential. Such Confidential information may include, without limitation, trade secrets, know-how, inventions, technical data or specifications, testing methods, business or financial information, research and development activities, product and marketing plans, and customer and supplier information. Confidential Information that is disclosed orally or visually shall be documented in a written notice prepared by the disclosing party and delivered to the receiving party within thirty (30) days of the date of disclosure; such notice shall summarize the Confidential Information disclosed to the receiving party and reference to the time and place of disclosure.

 

13.2                            The receiving party agrees that it shall: (a) maintain all Confidential Information in strict confidence, except that the receiving party may disclose or permit the disclosure of any Confidential Information to its directors, officers, employees, consultants, and advisors who are obligated to maintain the confidential nature of such Confidential Information and who need to know such Confidential Information for the purpose set forth in this Agreement; (b) use all Confidential Information solely for the purpose set forth in this Agreement; and (c) allow its directors, officers, employees, consultants, and advisors to reproduce the Confidential Information only to the extent necessary to effect the purposes set forth in this Agreement, with all such reproductions being considered Confidential Information.

 

13.3                            The obligations of the receiving party under Section 13.2 above shall not apply to the extent that the receiving party can demonstrate that certain Confidential Information: (a) was in the public domain prior to the time of its disclosure under this Agreement; (b)

 



 

entered the public domain after the time of its disclosure under this Agreement through means other than an unauthorized disclosure resulting from an act or omission by the receiving party; (c) was independently developed or discovered by receiving party without use of the Confidential Information; (d) is or was disclosed to the receiving party at any time, whether prior to or after the time of its disclosure under this Agreement, by a third party having no fiduciary relationship with the disclosing party and having no obligation of confidentiality with respect to such Confidential Information; or (e) is required to be disclosed to comply with application laws or regulation, or with a court or administrative order, provided that, the disclosing party receives prior written notice of such disclosure and that the receiving party takes all reasonable and lawful actions to obtain confidential treatment for such disclosure and, if possible, to minimize the extent of such disclosure.

 

13.4.                    The obligations set forth in this Article 13 shall remain in effect for a period of five (5) years after the expiration or the earlier termination of this Agreement.

 

ARTICLE 14. PATENT MARKING

 

14.                                  If required by laws or regulations, Fairview agrees to mark any Laboratory Services, reports, testing results, promotional material, technical literature and the like with all applicable patent numbers, and where appropriate, to indicate “Patent Pending” status in accordance with each applicable country’s patent laws.

 

ARTICLE 15. INDEPENDENT CONTRACTOR

 

15.                                  For the purpose of this Agreement and all services to be provided hereunder, both parties shall be, and shall be deemed to be, independent contractors and not agents or employees of the other. Neither party shall have authority to make any statements, representations or commitments of any kind, or to take any action, that will be binding on the other party.

 

ARTICLE 16. SEVERABILITY

 

16.                                  If any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby unless the invalid provisions are of such essential importance to this Agreement that it is to be reasonably assumed that the parties would not have entered into this Agreement without the invalid provisions.

 

ARTICLE 17. NON-ASSIGNABILITY

 

17.                                  Neither this Agreement nor any license granted under this Agreement shall be assignable by Fairview without the express prior written consent of TROVAGENE. Any attempted assignment without such consent shall be void.

 



 

ARTICLE 18. ENTIRE AGREEMENT

 

18.                                       This Agreement constitutes the entire agreement between the parties with respect to the subject matter and supersedes any prior agreements and understandings between the parties relating to the subject matter hereof. No verbal agreement, conversation or representation between any officers, agents or employees of the parties hereto either before or after the execution of this Agreement shall affect or modify any of the terms or obligations herein contained.

 

ARTICLE 19. MODIFICATIONS IN WRITING

 

19.                                       No change, modification, extension, termination or waiver of this Agreement, or any of the provisions herein contained, shall be valid unless made in writing and signed by a duly authorized representative of each party.

 

ARTICLE 20. GOVERNING LAW

 

20.                                       The validity and interpretation of this Agreement and the legal reactions of the parties to it shall be governed by the laws of Minnesota, USA, without regard to the conflict of laws provisions thereunder, except that questions affecting the construction and effect of any patent shall be determined by the law of the country in which the patent was granted.

 

ARTICLE 21. CAPTIONS

 

21.                                       The captions are provided for convenience and are not to be used in construing this Agreement.

 

ARTICLE 22. CONSTRUCTION

 

22.                                       Each of the parties agrees that this Agreement is the result of mutual negotiation and therefore the language herein shall not be presumptively construed against either of them.

 

ARTICLE 23. COUNTERPARTS

 

23.                                       This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument.

 

ARTICLE 24. BINDING EFFECT

 

24.                                       This Agreement shall be binding upon and inure to the benefit of the parties and their respective permitted successors and assigns.

 



 

ARTICLE 25. FORCE MAJEURE

 

25.                                       If either party’s performance of any obligation under this Agreement is prevented, restricted, interfered with or delayed by reason of any force majeure cause such as floods, fires, riots, insurrections, explosions, other natural disasters or serious labor disputes beyond the reasonable control of the party required to perform, the party so affected, upon giving written notice and written evidence of such force majeure to the other party, shall be excused from such performance to the extent of such prevention, restriction, interference, or delay; provided that the affected party shall use its commercial reasonable efforts to avoid or remove such causes of non-performance and shall continue performance with the utmost dispatch whenever the force majeure is removed. Any such force majeure shall not excuse any monetary failure or late payment obligation.

 

[The signature page follows]

 



 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives as of the date first above written.

 

TROVAGENE, INC

 

FAIRVIEW HEALTH SERVICES

 

 

 

 

 

 

 

 

 

 

By:

/s/ Dr. Andreas Braun

 

By:

/s/ LeAnn R. Born

 

 

 

 

 

 

 

 

 

 

Name:

Dr. Andreas Braun

 

Name:

LeAnn R. Born

 

 

 

 

 

 

 

 

 

 

Title:

Acting Pres. & CEO

 

Title:

V P Supply Chain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

/s/ Daniel M. Fromm

 

 

 

 

 

 

 

 

 

Daniel M. Fromm

 

 

 

 

 

 

 

 

 

CFO

 

 

 

 

 

 

 

 

 

7-13-2011

 


Exhibit 10.12

 

ASSET PURCHASE AGREEMENT

 

THIS ASSET PURCHASE AGREEMENT (together with all annexes, exhibits, schedules and other documents attached hereto, hereinafter referred to as the (“ Agreement ”) dated as of January 18, 2011 (the “ Execution Date ”) is made by and between TrovaGene, Inc, a Delaware corporation (“Buyer”), and TTFactor S.r.l., an Italy-based company (“Seller”). Capitalized terms used herein and not otherwise defined shall have the meanings set forth in Section 7.1 hereof.

 

RECITALS

 

WHEREAS, Seller is a technology transfer company, which acts in name and on behalf of the European Institute of Oncology (“EIO”), a comprehensive research center involved in the development and application of genomics to research in basic and translational oncology;

 

WHEREAS, Buyer is a United States-based diagnostics company focused on the development and commercialization of products for diagnosis and prognoses of disease;

 

WHEREAS Buyer owns patent rights to the NPM1 biomarker for the diagnosis and prognosis of leukemia and desires to produce and commercialize a monoclonal antibody targeting said biomarker (“Antibody”).

 

WHEREAS, Seller has developed and is the owner of a hybridoma able to produce Antibody (the “ Product ”);

 

WHEREAS, Seller desires to sell the Product to Buyer, and Buyer desires to purchase such Product from Seller, on the terms and conditions set forth herein; and

 

NOW THEREFORE, for and in consideration of the premises, mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and agreed, and intending to be legally bound, the parties agree as follows:

 

ARTICLE I

 

ASSETS, LIABILITIES AND PURCHASE PRICE

 

1.1            Purchase and Sale of Product.

 

(a) At the Execution Date, upon the terms and subject to the conditions set forth in this Agreement and in consideration of the Purchase Price paid to Seller by Buyer, Seller will grant, sell, transfer, convey, assign and deliver (“ Transfer ”) to Buyer, and Buyer will purchase, acquire and accept from Seller the Product information, including product description, technical specifications, applications and storage instructions as detailed in Appendix 1.and all title and interest in the Product subject to the conditions of Section 1.3.

 

(b) Notwithstanding the provisions of Section 1.1 (a) Seller will retain the right to use Product for research purposes. For avoidance of doubt, Seller will not retain any rights to use Product for any commercial use or purposes including but not limited to the license, distribution, marketing or sale of Product to any third parties.

 

1



 

1.2            Liabilities.

 

(a)  Buyer and Seller each hereby acknowledge and agree that Buyer shall not be responsible or assume, or agree to or be obligated to pay, satisfy, perform or otherwise discharge any Liabilities of Seller (or any predecessor of Seller or any prior owner of all or part of the Product) or any Liability of the Product Business which arose prior to the Execution Date_(“Excluded Liabilities”). Such Excluded Liabilities shall include all claims, actions, litigations and proceedings relating to any or all of the foregoing and all costs and expenses incurred therein.

 

1.3            Commercial Efforts by Buyer :

 

(a)   Buyer shall use commercially reasonable efforts to make commercially available the Antibody as soon as practicable, consistent with sound and reasonable business practice and judgment and in any case within 18 months from the Execution Date of the Agreement. The failure to comply with this clause 1.3 will lead to termination of the Agreement with the effect of Section 5.2 (b).

 

1.4            Purchase Price. In consideration for the Transfer of the title and interest in Product as provided for herein, Buyer will pay to Seller:

 

(a)   The sum of Ten Thousand United States Dollars ($10,000) as an upfront fee (“Upfront Fee”) payable at the Execution Date.

 

(b)  In any calendar year during the period of seven years commencing with the first sale of Antibody (“Royalty Obligation Period”), annual royalties on a country-by-country basis in the aggregate amount of ten percent (10%) of all royalties received by Buyer from licensees pursuant to any licenses of rights to the Antibody (“Licensee Royalties”);

 

i       Licensee Royalties will be calculated on each June 1 st  and December 1 st  (each date being an “Accounting Period”) during the Royalty Obligation Period. Within forty-five (45) days from the end of any Accounting Period during the Royalty Obligation Period, Buyer will provide to Seller a Licensee Royalties report (“Report”) that will list Licensee Royalties paid during said Accounting Period. If Seller has no comments on such Report, Seller shall send an invoice to Buyer pursuant to the Report and Section 1.4 (b).

 

ii      The period during which Buyer is required to pay the Licensee Royalties under Section 1.4 (b) with respect to Licensee Royalties is the Royalty Obligation Period on a country by country basis. Upon completion of the Royalty Obligation Period on a country by country basis, this Agreement will be fully-paid-up and royalty free and Buyer shall have no further obligations under Section 1.4 for each said country.

 

(c)   Ten percent (10%) of all cash consideration received by Buyer from licensees as an upfront license fee pursuant to any licenses of rights to the Product. Said upfront license fee is defined as a cash payment made to Buyer from licensees on the date the license agreement becomes fully executed.

 

(d)  Seven percent (7%) of all cash consideration received by Buyer from licensees as milestone payments pursuant to any licenses of rights to the Product.

 

(e)   It is understood between the Parties that in case Buyer transfers the right, title and interest of the Product to any third party by agreements other than license agreements, Buyer will pay to Seller (i) ten percent (10%) of any cash consideration received from said third party in the form of royalties,

 

2



 

(ii) ten percent (10%) of any cash consideration received from said third party in the form of an upfront fee and (iii) seven percent (7%) received from said third party in the form of milestone payments. Payment obligations of Buyer and Seller under 1.4 (e) (i) will be consistent with 1.4 (b).

 

1.5            Payment Terms

 

(a)   Buyer will make all payments required to be made to Seller under this Agreement in United States Dollars by wire transfer or immediately available funds to a bank account of Seller as designated by Seller. Buyer shall have no obligation to pay royalties to Seller pursuant to Section 1.4 (b) until and unless a valid invoice has been properly sent pursuant to Section 1.4 (b) (i).

 

1.6            Third Party Consents.

 

(a)   Prior to executing the Agreement, Buyer and Seller shall cooperate and use their respective commercially reasonable efforts in obtaining any consents (both from Third Parties and from Governmental or Regulatory Authorities) necessary or required for the Transfer of the Product from Seller to Buyer.

 

ARTICLE II

 

REPRESENTATIONS AND WARRANTIES OF SELLER

 

Seller hereby represents and warrants to Buyer, as of the date hereof and as of the Execution Date, as follows:

 

2.1            Corporate Power and Authority . Seller is a technology transfer company duly organized, validly existing, and in good standing under the laws of Italy. Seller has good and valid title to the Product free and clear of any Encumbrances and has full power and authority and full right, title and interest to sell the Product to Buyer on behalf of EIO. Upon consummation of the transaction contemplated hereby, Buyer will have acquired good and valid title to the Product free and clear of any Encumbrances. Seller has not received any notice of any adverse claims of ownership to or right to use the Product, and to Seller’s knowledge, no facts or circumstances exist at the Execution Date which would provide a reasonable basis for any such adverse claim of ownership or right to use the Product. Notwithstanding the foregoing, both Buyer and Seller acknowledge that no patent, application for patent or any other form of legal protection covering Product exists as of the Execution Date.

 

2.2            NO WARRANTIES ON THE PRODUCT: THE PRODUCT IS EXPERIMENTAL IN NATURE AND IS PROVIDED “AS IS” WITHOUT ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PUPORSE OR ANY OTHER WARRANTY, EXPRESS, OR IMPLIED.

 

2.3            IN NO EVENT SHALL SELLER BE LIABLE FOR SPECIAL, INDIRECT, INCIDENT, PUNITIVE OR CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION, LOST PROFITS, REGARDLESS OF WHETHER THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

 

2.4            Third Party Intellectual Property Rights .

 

(a)   To the best knowledge of Seller, (i) the Product is not involved in any litigation, reissue, interference, reexamination or opposition, (ii) there has been no threat or other indication that any such proceeding

 

3



 

will hereafter be commenced, and (iii) the development, manufacture, marketing, use, sale, distribution, import, export or other commercial exploitation of the Product do not infringe upon, misappropriate, violate or otherwise constitute the unauthorized use of the Intellectual Property rights of any third party; and (iv) no right, license, lease, consent, or other agreement is required with any third party with respect to the Product.

 

(b)  Seller has, with respect to the Product, taken reasonable measures and precautions to protect and maintain its trade secrets and other confidential information in confidence and Seller’s employees, consultants, and vendors who had access to such confidential information were each parties to written confidentiality agreements with Seller with respect thereto.

 

2.5            Product Records, Reports and Data.

 

(a)   Seller shall, at the Execution Date, provide Buyer with detailed technical information regarding the application of the Product. Buyer shall utilize these information to compile product datasheets for issue with the Product upon sale and to promote the Product to perspective customers.

 

2.6            No Other Representations and Warranties . EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS ARTICLE II, SELLER MAKES NO EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY, AND SELLER HEREBY DISCLAIMS ANY SUCH REPRESENTATION OR WARRANTY WITH RESPECT TO THE EXECUTION AND DELIVERY OF THIS AGREEMENT AND THE CONSUMMATION OF THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF BUYER

 

Buyer hereby represents and warrants to Seller, as of the date hereof and as of the Execution Date, as follows:

 

3.1            Corporate Power and Authority . Buyer is a company duly formed, validly existing and in good standing under the laws of the state of Delaware, USA. Buyer has full company power and authority to (i) conduct its business as it is now being conducted, (ii) to execute and deliver this Agreement, (iii) perform its obligations hereunder and (iv) purchase the Product and consummate the transactions contemplated herein and therein.

 

ARTICLE IV

 

COVENANTS

 

4.1            No Solicitation of Proposals . Unless Agreement is terminated pursuant to Section 5.1, Seller shall not solicit, initiate, encourage or entertain any inquiries or proposals, discuss, engage in or negotiate with, provide any information or documentation to, consider the merits of any inquiries or proposals from or enter into any arrangement, understanding or agreement with any Person (other than Buyer) relating to any transaction involving, in whole or in part, the Product, or that would otherwise compromise Buyer’s or Seller’s ability to consummate the transaction contemplated in this Agreement.

 

4



 

ARTICLE V

 

TERMINATION

 

5.1            Termination . This Agreement may be terminated at any time as follows:

 

(a) By either Buyer or Seller in case of non-fulfillment of the obligations of the Agreement.

 

(b) By Seller in case of non-compliance of Buyer with the conditions described in Section 1.3 of this Agreement.

 

5.2            Effect of Termination .

 

(a)    Liability . In the event of termination of this Agreement as provided in Section 5.1 (a) hereof, this Agreement shall immediately become void and there shall be no further Liability on the part of Buyer or Seller.

 

(b)   In the event of termination of this Agreement as provided in Section 5.1 (b) hereof, this Agreement shall immediately become void and Buyer shall return Product to Seller for independent commercial exploitation of the Product.

 

(c)    In the event of termination of this Agreement by Buyer pursuant to Section 5.1 hereof, the provisions referred to under Sections 1.4 (b), (c), (d) and (e) will survive.

 

(d)   Fees and Expenses . Except as otherwise expressly provided in this Agreement, all fees and expenses incurred in connection with this Agreement and the transaction contemplated hereby shall be paid by the party incurring such expenses.

 

ARTICLE VI

 

INDEMNIFICATION

 

6.1            Seller’s Indemnification Obligations

 

(a)    Seller shall defend and hold harmless Buyer and its Affiliates and their respective officers, managers, directors, agents, employees and representatives (collectively, the “ Buyer Indemnities ”) from and against any and all losses, costs, claims, Liabilities, damages, lawsuits, fines, penalties, judgments, assessments, demands and expenses (including attorneys’, accountants’ and other professionals’ fees), and all amounts paid in the investigation, defense or settlement of any of the foregoing (collectively, “ Losses ”) they may suffer, sustain or incur to the extent that such Losses are based on, result from or arise in connection with the breach of any representation or warranty made by Seller in Article II hereof or any of its obligations set forth under this Agreement.

 

6.2            Buyer’s Indemnification Obligations

 

(a)    Buyer shall indemnify, defend and hold harmless Seller and its Affiliates and their respective officers, managers, directors, agents, employees and representatives (collectively, the “Seller Indemnities ”) from and against any and all losses, costs, claims, Liabilities, damages, lawsuits, fines, penalties, judgments, assessments, demands and expenses (including attorneys’, accountants’ and other professionals’ fees), and all amounts paid in the investigation, defense or settlement of any of

 

5



 

the foregoing (collectively, “ Losses ”) they may suffer, sustain or incur to the extent that such Losses are based on, result from or arise in connection with the breach of any representation or warranty made by Buyer in Article III hereof or any of its obligations set forth under this Agreement.

 

ARTICLE VII

 

MISCELLANEOUS PROVISIONS

 

7.1            Definitions .

 

For purposes of this Agreement, the following terms shall have the meanings specified below:

 

Affiliate ” means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person, and the term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person.

 

Business Day ” means any day other than a Saturday, a Sunday or a day on which banking institutions in New York, New York are authorized by Law to close.

 

Encumbrance ” means any lien, pledge, hypothecation, assessment, charge, escrow, mortgage, prior assignment, title retention agreement, indenture, deed of trust, levy, easement, right of way, servitude, security interest, encumbrance, equity, trust, equitable interest, claim, preference, right of possession, lease, tenancy, license, encroachment, covenant, infringement, interference, order, proxy, option, right of first refusal, community property interest, legend, defect, impediment, exception, reservation, limitation, preemptive right, impairment, imperfection of title, conditional sale, condition or restriction of any nature, whether or not relating to the extension of credit or the borrowing of money, whether imposed by Agreement, Law, equity or otherwise.

 

Governmental or Regulatory Authority ” means any foreign, domestic, federal, territorial, state or local court, tribunal or arbitral body, governmental authority, quasi-governmental authority or instrumentality, or any regulatory, administrative or other agency, or any political or other subdivision, department, intermediary, carrier, commission or branch of any of the foregoing.

 

Law ” means any law (both common and statutory law and civil and criminal law), rule, regulation, regulatory code (including, without limitation, statutory instruments, guidance notes, circulars and decisions), standard, ordinance, treaty, convention, directive or other pronouncement having the effect of law of any foreign jurisdiction, the Switzerland, county, city or other political subdivision or of any Governmental or Regulatory Authority.

 

Liability ” means, collectively, any tax, debt, commitment, obligation, claim, damage, duty or liability of any kind, character or nature, whether known or unknown, asserted or unasserted, direct or indirect, secured or unsecured, fixed, absolute or contingent, matured or unmatured, accrued or unaccrued, liquidated or unliquidated, whether in contract, tort, strict liability or otherwise, including any product liability, regardless of whether such debt, obligation, duty or liability would be required to be disclosed on a balance sheet prepared in accordance with generally accepted accounting principles and regardless of whether such debt, obligation, duty or liability is immediately due and payable, regardless of when asserted.

 

6



 

Person ” shall be construed broadly and shall include an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a Governmental or Regulatory Authority (or any department, agency or political subdivision thereof).

 

7.2            Notices . Notices required or permitted under this Agreement shall be in writing and sent by overnight express mail (e.g., FedEx), or by facsimile confirmed by overnight express mail (e.g., FedEx), (failure of such confirmation shall not affect the validity of such notice by facsimile to the extent the receipt of such notice is confirmed by the act of the receiving party (e.g., a facsimile of the receiving party submitting its receipt of such notice) and shall be deemed to have been properly served to the addressee upon receipt of such written communication, to the following addresses of the parties:

 

If to Seller:

 

TTFactor S.r.l., Via Adamello 16, 20139 Milan Italy. Attention to Daniela Bellomo, General Manager

 

If to Buyer:

 

TrovaGene, Inc, 11055 Flintkote Ave., Suite B San Diego, California 92121 Attention: Office of the CEO

 

7.3            Dispute Resolution .

 

(a)   Subject to Section 7.3(b) , any dispute, controversy or claim arising under, out of or in connection with this Agreement, or the breach, termination or validity thereof, including any subsequent amendments thereto (a “ Dispute ”), shall be referred to and finally settled by arbitration in accordance with the arbitration rules of the International Chamber of Commerce (“ICC”) then in effect (the “ Rules”), according to the following terms and conditions:

 

i       the arbitrators shall decide any dispute in accordance with Swiss Law, including, without limitation damages, specific performance, or other injunctive relief;

 

ii     the arbitration will be held in Geneva, Switzerland.

 

(b)   In the event of a Dispute, the parties shall first use all commercially reasonable efforts to settle the Dispute. To this end, they shall consult and negotiate with each other, in good faith and understanding of their mutual interests, to reach a just and equitable solution satisfactory to all parties. If for any reason, the parties have not settled the Dispute by negotiation within forty-five (45) days of receipt by a party of written notice of a Dispute, on the demand of any party, the Dispute shall be referred to arbitration.

 

(c)   Nothing in this Agreement limits the right of either party, prior to the appointment of the arbitral tribunal, to seek to obtain in any court of competent jurisdiction any interim relief or provisional remedy, including injunctive relief. Seeking or obtaining any interim relief or provisional remedy in a court will not be deemed a breach or waiver of this Agreement to arbitrate. Without prejudice to such provisional remedies as may be available under the jurisdiction of a court, the arbitral tribunal shall have full authority to grant provisional remedies and to direct the parties to request that any court modify or vacate any temporary or preliminary relief issued by such court, and to award damages for the failure of any party to respect the arbitral tribunal’s orders to that effect.

 

(d)   If any arbitration is brought to resolve a Dispute, the successful or prevailing party shall be entitled to recover the costs of the arbitration including the fees and expenses of the arbitrators and the ICC and

 

7



 

the reasonable attorneys’ fees of the prevailing party, in addition to any other relief to which it or they may be entitled. The arbitrators shall consider, in determining the prevailing party which party obtains relief which most nearly reflects the remedy or relief which such party sought on each claim submitted to arbitration and shall apportion the costs accordingly.

 

7.4            Interpretation . When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. Whenever the words “include,” “includes” or “including” are used in this Agreement they shall be deemed to be followed by the words “without limitation.” Each of Buyer and Seller will be referred to herein individually as a “party” and collectively as “parties” (except where the context otherwise requires).

 

7.5            Amendment . This Agreement may be modified only by a written instrument executed by the parties hereto specifically referencing this Agreement.

 

7.6            Entire Agreement . The agreement of the parties, which is comprised of this Agreement, sets forth the entire agreement and understanding between the parties and supersedes any prior agreement or understanding, written or oral, relating to the subject matter of this Agreement.

 

7.7            Assignment . This Agreement may not be assigned by either party without the prior written consent of the other party, provided , however , that either party shall have the right to assign its rights and obligations under this Agreement to any of its Affiliates or to any Third Party successor to all or substantially all of its entire business. In no event shall any assignment hereof to any Affiliate or Third Party be deemed to relieve the assigning party of its liabilities or obligations to the other party under this Agreement, and the assigning party expressly acknowledges and agrees that it shall remain fully and unconditionally obligated and responsible for the full and complete performance of all of its obligations under the terms and conditions of this Agreement.

 

7.8            Waiver . The waiver by either party of a breach or a default of any provision of this Agreement by the other party shall not be construed as a waiver of any succeeding breach of the same or any other provision, nor shall any delay or omission on the part of either party to exercise or avail itself of any right, power or privilege that it has or may have hereunder operate as a waiver of any right, power or privilege by such party.

 

7.9            Severability . If any part of this Agreement is declared invalid by any legally governing authority having jurisdiction over either party, then such declaration shall not affect the remainder of the Agreement and the parties shall revise the invalidated part in a manner that will render such provision valid without impairing the parties’ original intent.

 

7.10          Governing Law . This Agreement shall be governed by and construed in accordance with the laws of Switzerland without regard to its conflicts of laws principles that would mandate the application of the laws of another jurisdiction.

 

7.11          Headings . The headings are placed herein merely as a matter of convenience and shall not affect the construction or interpretation of any of the provisions of this Agreement.

 

7.12          Execution in Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Each of the parties agrees to accept and be bound by facsimile or PDF signatures hereto.

 

7.13          Relationship of the Parties . In making and performing this Agreement, the parties are acting, and intend to be treated, as independent entities and nothing contained in this Agreement shall be construed or implied to create an agency, partnership, joint venture, or employer and employee relationship between

 

8



 

Buyer and Seller. Except as otherwise expressly provided herein, neither party may make any representation, warranty or commitment, whether express or implied, on behalf of or incur any charges or expenses for or in the name of the other party. No party shall be liable for the act of any other party unless such act is expressly authorized in writing by both parties hereto.

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.

 

TROVAGENE, INC

TTFactor S.r.l

 

 

 

By:

/s/ Kerry N. Segal                              1/18/11

By:

Daniela Bellomo

 

 

 

 

 

 

/s/ Daniela Bellomo

Title:

Chief Business Officer

Title:

General Manager

 

 

 

 

 

By:

Pier Giuseppe Pelicci

 

 

 

 

/s/ Pier Giuseppe Pelicci

 

Title:

President

 

9


Exhibit 10.13

 

SUBLICENSE AGREEMENT

 

THIS SUBLICENSE AGREEMENT (“Agreement”) effective as of December 1, 2008 (the “Effective Date”) is by and between XENOMICS Inc, a Florida corporation having its principal office at 1 Deer Park Drive, Suite F, Monmouth Junction, NJ 08852 USA (“XENOMICS”), and InVivoScribe Technologies, Inc., a privately held corporation having its principal office at 6330 Nancy Ridge Drive, Suite 106, San Diego, CA 92121 USA (“IVS”).

 

WITNESSETH:

 

WHEREAS, XENOMICS is the exclusive licensee of the Patent Rights (as defined below) relating to the Field (as defined below) under the Exclusive License Agreement (as defined below) and is willing to grant to IVS a royalty-bearing Sublicense (as defined below) in the Territory to use such Patent Rights in the Field on the terms and conditions set forth herein;

 

WHEREAS, IVS desires to obtain the Sublicense described above on the terms and conditions set forth herein; and

 

WHEREAS, XENOMICS is willing to grant IVS such Sublicense under the Patent Rights on the terms and conditions set forth herein;

 

NOW THEREFORE, in consideration of the mutual covenants herein contained and intending to be legally bound hereby, the parties hereto agree as follows:

 

ARTICLE 1. DEFINITIONS

 

1.1            “Affiliate(s)” shall mean any corporation or other business entity which controls, is controlled by, or is under common control with a party to this Agreement, “control” meaning the ownership, direct or indirect, of fifty percent (50%) or more of the voting stock or analogous interest in such corporation or other business entity.

 

1.2            “Exclusive License Agreement” shall mean the exclusive license agreement dated May 2006 (and any amendments thereto) by and between XENOMICS on the one hand, and Brunagelo Falini and Cristina Mecucci (jointly “Original Licensor”) on the other hand.

 

1.3            “Field” shall mean identification and diagnosis, including monitoring of minimal residual disease, of nucleophosmin protein (“NPM1”) mutations in bone marrow, blood cells, and other cellular specimens. Specifically excluded is testing of urine or any other cell free specimen. The Field specifically includes IVD Laboratory Services testing and use of NPM1 as a drug target.

 

1.4            “Laboratory Services” shall mean Services performed by reference laboratories in the Territory.

 

1.5            ‘‘Net Revenues” shall mean the gross amount received by IVS for the Services sold by IVS or its Affiliate(s) hereunder to non-Affiliate third parties less the sum of the following:

 



 

(a)            volume, formulary or other discounts allowed in amounts customary in the trade;

(b)            sale and/or use taxes, duties and any other governmental charges directly imposed and with reference to particular sales;

(c)            amounts allowed or credited on returns;

(d)            transport and insurance charges, if separately itemized on the invoice and paid by the customer.

 

No deductions shall be made for commissions paid to individuals whether they are with independent sales agents or regularly employed by IVS and its Affiliate(s) and on their payroll, or for cost of collections. The Laboratory Services shall be considered “sold” when billed out or invoiced.

 

1.6            “Patent Rights” shall mean Patent Application PCT/IT2005/000634 filed October 28, 2005 entitled “Nucleophosmin protein (NPM) mutants, corresponding gene sequences and uses thereof” (published as WO 2006/046270), and foreign equivalents, including Canadian Patent Application 2585965 as well as all continuations, divisions, reissues, reexaminations, renewals, or extensions of such patents subject to the rights granted by Original Licensor to XENOMICS pursuant to the Exclusive License Agreement, as limited by this Agreement.

 

1.7            “Product(s)” shall mean any product or part thereof that when made, have made, used, offered to sell, sold or marketed in the Territory would infringe on any Valid Claim of the Patent Rights absent the Sublicense herein granted.

 

1.8            “Services” shall mean any service or part thereof that when used, commercialized or marketed in the Territory would infringe on any Valid Claim of the Patent Rights absent the Sublicense herein granted. This includes methods used to determine the presence of Nucleophosmin protein (NPM) mutants: diagnosis; monitoring of minimal residual disease; prognostic evaluation; monitoring of therapy of acute myeloid leukaemia (AML) for commercial testing and for clinical trials.

 

1.9            “Term” shall mean from the Effective Date until the expiration or abandonment of all the Patent Rights.

 

1.10          “Territory” shall mean the United States, Canada, and Europe for commercial testing, and Worldwide for clinical trials.

 

1.11          “Valid Claim” shall mean a claim of an unexpired patent of the Patent Rights that has neither been withdrawn, canceled, or disclaimed, nor held invalid or unenforceable by a court of competent jurisdiction in an unappealed or unappealable decision.

 

ARTICLE 2. GRANT OF RIGHTS

 

2.1            XENOMICS hereby grants to IVS and IVS Affiliates, subject to all the terms and conditions of this Agreement a non-exclusive, royalty-bearing Sublicense in the Territory in the Field during the Term. “Sublicense” as used herein means a license to use the

 



 

Patent Rights to i) make, have made, use, offer to sell, sell and market the Laboratory Services in the Field, and ii) use, develop, practice, commercialize, and otherwise fully exploit the Services. IVS shall have no right to further sublicense.

 

2.2            IVS shall have no right during the Term to make, have made, offer to sell, sell and market Products in the Field or use Patent Rights in any way for development and commercialization of therapeutic products.

 

ARTICLE 3. DUE DILIGENCE

 

3.1            IVS shall use diligent efforts to develop and sell licensed Laboratory Services according to any and all applicable FDA and other regulations ( e.g ., applicable Canadian provincial regulations in Canada) derived from the Patent Rights into the commercial market as soon as practicable, consistent with sound and reasonable business practice and judgment.

 

3.2            XENOMICS shall provide IVS with the technical information in its possession that may be useful for the development of Services, including development of a suitable assay, in the Field. Such technical information shall at least include protocols for NPM1 mutation diagnosis and follow-up as well as verbal assistance that IVS may from time to time request from XENOMICS. If publications are made, XENOMICS scientists shall be credited for their contributions as appropriate.

 

3.3            IVS shall use, when available, Products approved for IVD by FDA for commercial testing in the US, Health Canada in Canada, CE marking or other relevant regulatory approval that demonstrate equivalent performance characteristics of laboratory-developed Laboratory Services offered by IVS prior to the Products receiving relevant regulatory approval.

 

ARTICLE 4. PAYMENTS

 

4.1            IVS shall pay to XENOMICS during the Term a royalty of ten percent (10%) on Net Revenues and shall apply for all sales of Laboratory Services. Royalty payments will commence on sale of the first Laboratory Service and shall be payable quarterly.

 

4.2            IVS shall pay to XENOMICS an initial licensing fee of $10,000 USD within thirty (30) days following the Effective Date of this Agreement.

 

4.3            Beginning from the date of the first commercial launch date, in each year during the Term of this Agreement, the royalties due to XENOMICS from IVS under Section 4.1 hereof, in the aggregate, shall equal or exceed the following amounts:

 

Anniversary of Product Launch

 

Minimum Royalty Payment (US Dollars)

 

1 st  Year

 

5,000

 

2 nd  Year

 

20,000

 

3 rd  Year and each Year thereafter

 

25,000

 

 



 

If the actual royalty payments to XENOMICS in any year are less than the minimum payment required for that year hereunder, IVS shall pay XENOMICS the difference between the actual payment and the minimum payment in full satisfaction of its obligations under this Section 4.1, provided such minimum payment is made to XENOMICS with the next scheduled quarterly royalty payment that follows the conclusion of that year.

 

ARTICLE 5. REPORTS AND RECORDS

 

5.1            IVS shall maintain and cause its Affiliate(s) to maintain true, accurate and complete books of account, records and files containing an accurate record of all data reasonably necessary for the full computation and verification of sales and the determination of the amounts payable under Article 4 hereof for a period of at least five (5) years following the period of each report required by Section 5.2 below.

 

5.2            After the first commercial sale of the Laboratory Services, IVS shall deliver to XENOMICS within thirty (30) days following each calendar quarter true and accurate reports, giving such particulars of the business conducted by IVS and its Affiliate(s) during the preceding quarter under this Agreement as shall be pertinent to a royalty accounting hereunder. These shall include at least the following:

 

(a)            number of the Laboratory Services sold by IVS and its Affiliate(s) and paid by customers;

(b)            total sales amounts received from customers for the Laboratory Services sold by IVS and its Affiliate(s);

(c)            deductions applicable as provided in Section 1.5;

(d)            total royalties due; and

(e)            amounts of withholding taxes.

 

5.3            Said books and records shall be kept at IVS’s and/or its Affiliate(s) principal place of business and shall be in accordance with generally accepted accounting principles, consistently applied. Said books and records, to the extent not previously audited, shall be available for inspection and copying by an independent certified public accountant selected by XENOMICS and reasonably acceptable to IVS and/or its Affiliate(s), upon ten (10) business days advance notice and during regular business hours, and upon signing reasonable documentation to insure the privacy of any and all patient related information, in order to enable XENOMICS to ascertain the correctness of any report and/or payment made under this Agreement. XENOMICS shall pay the fees and expenses of the accountant engaged to perform the audit, unless such audit reveals an underpayment of five percent (5%) or more for the period examined, in which case IVS shall pay all reasonable costs and expenses incurred by XENOMICS in the course of making such determination, including, without limitation, the fees and expenses of the accountant and attorney’s fees if any incurred to enforce XENOMICS rights.

 

5.4            IVS shall pay to XENOMICS the actual royalties due and payable as provided for in Section 4.1 on a quarterly basis. If no actual royalties are due, IVS shall so report.

 



 

ARTICLE 6. PATENT PROSECUTION; INFRINGEMENT

 

6.1            The prosecution, filing and maintenance of the Patent Rights in the Territory shall be managed by XENOMICS.

 

6.2            XENOMICS will file, prosecute and maintain any patent applications directed to improvements on inventions that are related to Patent Rights (“New Inventions”), whether owned solely or jointly with IVS and IVS shall cooperate with XENOMICS in the filing, prosecution and maintenance of all such New Inventions. Such cooperation includes, without limitation, (a) promptly executing all papers and instruments or requiring its employees to execute such papers and instruments as reasonable and appropriate so as to enable XENOMICS to file, prosecute and maintain such New Inventions in any country; and (b) promptly informing XENOMICS of matters that may affect the preparation, filing, prosecution or maintenance of any such New Inventions.

 

6.3            (a) IVS agrees to provide XENOMICS with prompt written notice after becoming aware of any infringement of any of the Patent Rights or New Inventions in the Field and of any available evidence thereof.

 

(b) XENOMICS shall have the right, but not the obligation, under its control and at its sole expense, to prosecute any third party infringement of the Patent Rights or New Inventions or to defend the Patent Rights or New Inventions in any declaratory judgment action brought by a third party which alleges the invalidity, unenforceability or non-infringement of any Patent Rights. IVS agrees to cooperate fully in any action under this Section 6.3, provided that XENOMICS reimburses material costs and expenses incurred with providing such assistance.

 

6.4            XENOMICS hereby undertakes to notify IVS promptly should the Patent Rights lapse for failing to meet a deadline, should the Original Licensor and/or XENOMICS decide to slop pursuing the Patent Rights or should the Patent Rights not be allowed by the US Patent Office for any reason.

 

ARTICLE 7. TERM AND TERMINATION

 

7.1            Should IVS fail to pay XENOMICS any amounts due hereunder, XENOMICS shall have the right to terminate this Agreement on ten (10) days prior written notice, unless IVS shall pay XENOMICS within said ten (10) day period such delinquent amounts and interest within said period.

 

7.2            IVS shall have the right to terminate this Agreement and all rights, privileges and the Sublicense granted hereunder at any time upon ninety (90) days prior written notice to XENOMICS.

 



 

7.3            Upon any breach or default of this Agreement by either party, including without limitation IVS’s material failure to comply with Section 3 hereof, the other party shall have the right to terminate this Agreement upon thirty (30) days written notice to the breaching/defaulting party. Such termination shall become effective immediately at the conclusion of such notice period unless the breaching/defaulting party shall have cured any such breach or default prior to the expiration of said thirty (30) day period.

 

7.4            Upon termination of this Agreement for any reason, nothing herein shall be construed to release either party from any obligation that matured prior to the effective date of such termination. The provisions of Articles 4 (with respect to any payments outstanding as of the termination date), 5, 6, 7, 8, 9, 10, 11, 13, 15, 18, 20 and 25, shall survive the expiration or any earlier termination of this Agreement.

 

ARTICLE 8. INDEMNIFICATION

 

8.1            XENOMICS agrees to indemnify, hold harmless and defend IVS, its Affiliates, agents and employees from and against any and all liabilities, losses, damages, costs, fees and expenses, including reasonable legal expenses and attorneys’ fees (collectively, “Losses”) arising out of suits, claims, actions, or demands, brought or made by a third party (“Third Party Claim”) against IVS, its Affiliates, agents and employees, based on breach of XENOMICS’s warranties under Article 9 below, except to the extent such Losses or Third Party Claims result from the negligence or wilful misconduct of IVS or a breach of IVS’s warranties under Article 9 below.

 

8.2            IVS agrees to indemnify, hold harmless and defend XENOMICS, its Affiliates, agents and employees from and against any and all Losses arising out of any Third Party Claims against XENOMICS, its Affiliates, agents and employees based on (i) IVS’S breach of IVS’s warranties under Article 9 below, or (ii) the manufacture, use, handling, storage, sale or other disposition of Laboratory Services by IVS, its Affiliates, agents, employees or sublicensees, all except to the extent such Losses or Third Party Claims result from the negligence or wilful misconduct of XENOMICS, or a breach of XENOMICS’s warranties under Article 9 below.

 

ARTICLE 9. REPRESENTATIONS, WARRANTIES AND DISCLAIMERS

 

9.1            XENOMICS represents and warrants to IVS (i) that it has the right to sublicense the Patent Rights in Territory and that XENOMICS has received the appropriate written authorization from the Original Licensors to enter into this Agreement, and (ii) that it has the right and power to extend the rights and the Sublicense granted herein and to perform its obligations hereunder, (iii) that this Agreement is a valid and binding agreement, enforceable in accordance with its terms, (iv) that it is not in default under the Exclusive License Agreement, and there has not occurred any event which, with a lapse of time or giving of notice, or both, would constitute such a default. There has not been any default by any party or dispute between XENOMICS and any party under the Exclusive License Agreement, (v) as of the Effective Date, it has no actual knowledge of any conflict of any kind with any inventor(s) listed or any of the owner of the Patent Rights, which may

 



 

restrict it from entering into this Agreement, granting the rights or fulfilling its obligations hereunder, (vi) as of the Effective Date, the Patent Rights are in good standing and have not lapsed for failing to meet a deadline and they have diligently been prosecuted and maintained, (vii) As of the Effective Date no person has challenged by way of a notice in writing the validity of any claim comprised within the Patent Rights, and (viii) as of the Effective Date there are no judicial, arbitral, regulatory or administrative proceedings or investigations, claims, actions or suits relating to the inventions disclosed in the Patent or their use, making, commercialization, practice or any other exploitation thereof pending against the Original Licensors, XENOMICS, its Affiliates or any of XENOMICS’ sublicensees in any court or by or before any governmental body or agency and, to the best of XENOMICS’ knowledge, no such judicial, arbitral, regulatory or administrative proceedings or investigations, actions or suits have been threatened agains the Original Licensors, XENOMICS, its Affiliates or any of XENOMICS’ sublicensees.

 

9.2            IVS hereby represents and warrants to XENOMICS that it has the right and power to enter into this Agreement and to perform its obligations, and that this Agreement is a valid and binding agreement, enforceable in accordance with its terms. IVS agrees that it shall comply and cause its Affiliate(s) to comply with all applicable local laws and regulations in Territory relating to the design, sale, use, delivery in commerce and promotion of me Laboratory Services.

 

9.3            EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN SECTION 9, XENOMICS MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY PATENT RIGHT, TRADEMARK, SOFTWARE, NON-PUBLIC OR OTHER INFORMATION, OR TANGIBLE RESEARCH PROPERTY, LICENSED OR OTHERWISE PROVIDED TO SUBLICENSEE HEREUNDER AND HEREBY DISCLAIMS THE SAME. XENOMICS DOES NOT WARRANT THE VALIDITY OF THE PATENT RIGHTS SUBLICENSED HEREUNDER AND MAKES NO REPRESENTATION WHATSOEVER WITH REGARD TO THE SCOPE OF THE SUBLICENSED PATENT RIGHTS OR THAT SUCH PATENT RIGHTS MAY BE EXPLOITED BY SUBLICENSEE OR ITS AFFILIATE(S) WITHOUT INFRINGING ON OTHER PATENTS.

 

9.4            NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT. SUBLICENSEE ASSUMES ALL RESPONSIBILITY AND LIABILITY FOR ANY LOSS OR DAMAGES CAUSED BY THE PRODUCTS MANUFACTURED, USED, DELIVERED, SOLD OR PROVIDED BY SUBLICENSEE AND ITS AFFILIATE(S) THAT ARE SUBJECT TO THIS AGREEMENT UNLESS THE SAME HAS RESULTED FROM ANY MATERIAL BREACH OF AN OBLIGATION, REPRESENTATION, WARRANTY BY XENOMICS UNDER THIS AGREEMENT OR ACTION, INACTIONS, OR MISREPRESENTATIONS ON THE PART OF XENOMICS.

 



 

ARTICLE 10. NOTICE

 

10.1          Any consent, notice or report required or permitted to be given or made under this Agreement shall be in writing, delivered (i) by certified or registered mail (postage prepaid, return receipt requested), (ii) by facsimile (and promptly confirmed by personal delivery, courier or next business day service of a nationally recognized courier service of good repute), (iii) by a next business day service of a nationally recognized courier service of good repute (with evidence of delivery) or (iv) by courier (postage prepaid and signature required), and in any case addressed to the other party at its address set forth in this Article 10, and shall be effective upon receipt by the addressee.

 

10.2          Reports, notices and other communication from IVS to XENOMICS as provided hereunder shall be sent to:

 

XENOMICS, Inc.

 

Attention :

Chairman

 

 

1 Deer Park Drive, Suite F

 

 

Monmouth Junction, NJ 08852

 

 

USA

 

 

 

 

With a copy to:

 

 

Ivor Elrifi

 

 

MINTZ LEVIN

 

 

666 Third Avenue

 

 

New York, NY 10017

 

 

or to such other individual or address as shall hereafter be furnished by written notice to IVS in accordance with this Article 10.

 

Reports, notices and other communications from XENOMICS to IVS as provided hereunder shall be sent to:

 

INVIVOSCRIBE TECHNOLOGIES, Inc.

 

Attention:

Jeffrey E. Miller, PhD.

 

 

President and CEO

 

 

InVivoScribe Technologies, Inc.

 

 

6330 Nancy Ridge Dr., Suite 106

 

 

San Diego CA 92121

 

 

 

 

With a copy to:

 

 

James B. Isaacs Jr., Esq.

 

 

InVivoScribe Technologies, Inc.

 

 

6330 Nancy Ridge Dr., Suite 106

 

 

San Diego CA 92121

 

 

or to such other individual or address as shall hereafter be furnished by written notice to XENOMICS in accordance with this Article 10.

 



 

ARTICLE 11. DISPUTE RESOLUTION

 

11.1.         Any dispute, controversy or claim arising under, out of or relating to this contract and any subsequent amendments of this contract, including, without limitation, its formation, validity, binding effect, interpretation, performance, breach or termination, as well as non-contractual claims, shall be submitted to mediation in accordance with the World Intellectual Property Organization (“WIPO”) Mediation Rules. The place of mediation shall be New York, USA. The language to be used in the mediation shall be English.

 

11.2          If, and to the extent that, any such dispute, controversy or claim has not been settled pursuant to the mediation within 60 days of the commencement of the mediation, it shall, upon the filing of a Request for Arbitration by either party, be referred to and finally determined by arbitration in accordance with the WIPO Expedited Arbitration Rules. Alternatively, if, before the expiration of the said period of 60 days, either party fails to participate or to continue to participate in the mediation, the dispute, controversy or claim shall, upon the filing of a Request for Arbitration by the other party, be referred to and finally determined by arbitration in accordance with the WIPO Expedited Arbitration Rules. The place of arbitration shall be New York, USA. The language to be used in the arbitral proceedings shall be English. The dispute, controversy or claim referred to arbitration shall be decided in accordance with the laws of New York, USA.

 

11.3          Notwithstanding the foregoing, nothing in this Article shall be construed to waive any rights or timely performance of any obligations existing under this Agreement.

 

ARTICLE 12. RESTRICTION ON USE OF NAME

 

12.1          IVS shall neither use nor cause its Affiliate(s) to use the name of XENOMICS, its directors, officers, trustees, Affiliate(s), employees, or any adaptations thereof, in any advertising, promotion or sale literature without the prior written consent of XENOMICS. With respect to reports to public agencies that are required by law, IVS shall provide XENOMICS with a reasonable opportunity to review the use of its name in such reports reasonably in advance of submission.

 

12.2          IVS shall neither disclose nor cause its Affiliate(s) to disclose this Agreement or any of the terms or conditions of this Agreement to any third party without the prior written consent of XENOMICS except to announce that IVS and its Affiliates are licensed to lawfully accept and test NPM1 samples, and to the extent required to comply with applicable laws or regulations; provided that, IVS delivers prior written notice to XENOMICS of any disclosure required by applicable laws or regulations and takes all reasonable and lawful actions to obtain confidential treatment for such disclosure and, if possible, to minimize the extent of such disclosure.

 

ARTICLE 13. CONFIDENTIALITY

 

13.1          During the term of this Agreement, each party (the “disclosing party”) may communicate to the other party (the “receiving party”) information which it considers to be confidential

 



 

(“Confidential Information”). All Confidential Information shall be specifically designated as confidential. Such Confidential Information may include, without limitation, trade secrets, know-how, inventions, technical data or specifications, testing methods, business or financial information, research and development activities, product and marketing plans, and customer and supplier information. Confidential Information that is disclosed orally or visually shall be documented in a written notice prepared by the disclosing party and delivered to the receiving party within thirty (30) days of the date of disclosure; such notice shall summarize the Confidential Information disclosed to the receiving party and reference to the time and place of disclosure.

 

13.2          The receiving party agrees that it shall: (a) maintain all Confidential Information in strict confidence, except that the receiving party may disclose or permit the disclosure of any Confidential Information to its directors, officers, employees, consultants, and advisors who are obligated to maintain the confidential nature of such Confidential Information and who need to know such Confidential Information for the purpose set forth in this Agreement; (b) use all Confidential Information solely for the purpose set forth in this Agreement; and (c) allow its directors, officers, employees, consultants, and advisors to reproduce the Confidential Information only to the extent necessary to effect the purposes set forth in this Agreement, with all such reproductions being considered Confidential Information.

 

13.3          The obligations of the receiving party under Section 13.2 above shall not apply to the extent that the receiving party can demonstrate that certain Confidential Information: (a) was in the public domain prior to the time of its disclosure under this Agreement; (b) entered the public domain after the time of its disclosure under this Agreement through means other than an unauthorized disclosure resulting from an act or omission by the receiving party; (c) was independently developed or discovered by receiving party without use of the Confidential Information; (d) is or was disclosed to the receiving party at any time, whether prior to or after the time of its disclosure under this Agreement, by a third party having no fiduciary relationship with the disclosing party and having no obligation of confidentiality with respect to such Confidential Information; or (e) is required to be disclosed to comply with application laws or regulation, or with a court or administrative order, provided that, the disclosing party receives prior written notice of such disclosure and that the receiving party takes all reasonable and lawful actions to obtain confidential treatment for such disclosure and, if possible, to minimize the extent of such disclosure.

 

13.4.         The obligations set forth in this Article 13 shall remain in effect for a period of five (5) years after the expiration or the earlier termination of this Agreement.

 

ARTICLE 14. PATENT MARKING

 

14.            If required by laws or regulations, IVS agrees to mark any Laboratory Services, reports, testing results, promotional material, technical literature and the like with all applicable

 



 

patent numbers, and where appropriate, to indicate “Patent Pending” status in accordance with each applicable country’s patent laws.

 

ARTICLE 15. INDEPENDENT CONTRACTOR

 

15.    For the purpose of this Agreement and all services to be provided hereunder, both parties shall be, and shall be deemed to be, independent contractors and not agents or employees of the other. Neither party shall have authority to make any statements, representations or commitments of any kind, or to take any action, that will be binding on the other party.

 

ARTICLE 16. SEVERABILITY

 

16.            If any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby unless the invalid provisions are of such essential importance to this Agreement that it is to be reasonably assumed that the parties would not have entered into this Agreement without the invalid provisions.

 

ARTICLE 17. NON-ASSIGNABILITY

 

17.            Neither this Agreement nor any license granted under this Agreement shall be assignable by IVS without the express prior written consent of XENOMICS. Any attempted assignment without such consent shall be void.

 

ARTICLE 18. ENTIRE AGREEMENT

 

18.            This Agreement constitutes the entire agreement between the parties with respect to the subject matter and supersedes any prior agreements and understandings between the parties relating to the subject matter hereof. No verbal agreement, conversation or representation between any officers, agents or employees of the parties hereto either before or after the execution of this Agreement shall affect or modify any of the terms or obligations herein contained.

 

ARTICLE 19. MODIFICATIONS IN WRITING

 

19.            No change, modification, extension, termination or waiver of this Agreement, or any of the provisions herein contained, shall be valid unless made in writing and signed by a duly authorized representative of each party.

 

ARTICLE 20. GOVERNING LAW

 

20.            The validity and interpretation of this Agreement and the legal reactions of the parties to it shall be governed by the laws of New York, USA, without regard to the conflict of

 



 

laws provisions thereunder, except that questions affecting the construction and effect of any patent shall be determined by the law of the country in which the patent was granted.

 

ARTICLE 21. CAPTIONS

 

21.            The captions are provided for convenience and are not to be used in construing this Agreement.

 

ARTICLE 22. CONSTRUCTION

 

22.            Each of the parties agrees that this Agreement is the result of mutual negotiation and therefore the language herein shall not be presumptively construed against either of them.

 

ARTICLE 23. COUNTERPARTS

 

23.            This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument.

 

ARTICLE 24. BINDING EFFECT

 

24.            This Agreement shall be binding upon and inure to the benefit of the parties and their respective permitted successors and assigns.

 

ARTICLE 25. FORCE MAJEURE

 

25.    If either party’s performance of any obligation under this Agreement is prevented, restricted, interfered with or delayed by reason of any force majeure cause such as floods, fires, riots, insurrections, explosions, other natural disasters or serious labor disputes beyond the reasonable control of the party required to perform, the party so affected, upon giving written notice and written evidence of such force majeure to the other party, shall be excused from such performance to the extent of such prevention, restriction, interference, or delay; provided that the affected party shall use its commercial reasonable efforts to avoid or remove such causes of non-performance and shall continue performance with the utmost dispatch whenever the force majeure is removed. Any such force majeure shall not excuse any monetary failure or late payment obligation.

 

[The signature page follows]

 



 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives as of the date first above written.

 

XENOMICS, INC

 

INVIVOSCRIBE TECHNOLOGIES INC.

 

 

 

 

 

 

By:

/s/ David J. Robbins

 

By:

/s/ Jeffrey E.Miller

 

 

 

 

 

Name:

David J. Robbins, Ph.D.

 

Name:

Jeffrey E.Miller, Ph.D.

 

 

 

 

 

Title:

Vice President, Product Development

 

Title:

President & CEO

 


Exhibit 10.14

 

SUBLICENSE AGREEMENT

 

THIS SUBLICENSE AGREEMENT (“Agreement”) effective as of August 25, 2008 (the “Effective Date”) is by and between XENOMICS Inc, a Florida corporation having its principal office at 420 Lexington Avenue Suite 1701 New York, NY 10170 USA, United States of America (“XENOMICS”) and Laboratory Corporation of America Holdings, a Delaware corporation (“LABCORP”).

 

WITNESSETH:

 

WHEREAS, XENOMICS is the exclusive licensee of the Patent Rights (as defined below) relating to the Field (as defined below) under the Exclusive License Agreement (as defined below) and is willing to grant to LABCORP a royalty-bearing Sublicense (as defined below) in the Territory to use such Patent Rights in the Field on the terms and conditions set forth herein;

 

WHEREAS, LABCORP desires to obtain the Sublicense described above on the terms and conditions set forth herein; and

 

WHEREAS, XENOMICS is willing to grant LABCORP such Sublicense under the Patent Rights on the terms and conditions set forth herein;

 

NOW THEREFORE, in consideration of the mutual covenants herein contained and intending to be legally bound hereby, the parties hereto agree as follows:

 

ARTICLE 1. DEFINITIONS

 

1.1            “Affiliate(s)” shall mean any corporation or other business entity which controls, is controlled by, or is under common control with a party to this Agreement, “control” meaning the ownership, direct or indirect, of fifty percent (50%) or more of the voting stock or analogous interest in such corporation or other business entity.

 

1.2            “Exclusive License Agreement” shall mean the exclusive license agreement dated May 2006 (and any amendments thereto) by and between XENOMICS on the one hand, and Brunagelo Falini and Cristina Mecucci (jointly “Original Licensor”) on the other hand, included as Exhibit A.

 

1.3            “Field” shall mean the field of laboratory testing services and products, including without limitation, diagnosis, including monitoring of minimal residual disease, of nucleophosmin protein (“NPM1”) mutations in bone marrow or blood cells. The Field specifically includes IVD Laboratory Services testing and use of NPM1 as a drug target.

 

1.4            “Laboratory Services” shall mean Services performed by reference laboratories in the Territory, including but not limited to in-house developed laboratory tests developed pursuant to the Clinical Laboratory Improvement Amendments of 1988.

 



 

1.5            “Net Revenues” shall mean the fee-for-service amount actually earned by LABCORP from non-Affiliate third parties for the Services sold by LABCORP or its Affiliate(s) hereunder less the sum of the following:

 

(a)            volume, formulary or other discounts allowed in amounts customary in the trade;

(b)            sale and/or use taxes, duties and any other governmental charges directly imposed and with reference to particular sales;

(c)            amounts allowed or credited on returns;

(d)            transport and insurance charges, if separately itemized on the invoice and paid by the customer;

(e)            bad debt as reserved on LABCORP’s books (up to maximum of 6%) from clients/payors, based on the actual experience of LABCORP.

 

No deductions shall be made for commissions paid to individuals whether they are with independent sales agents or regularly employed by LABCORP and its Affiliate(s) and on their payroll, or for cost of collections. The Laboratory Services shall be considered “sold” when billed out or invoiced.

 

1.6            “Patent Rights” shall mean Patent Application PCT/IT2005/000634 filed October 28, 2005 entitled “Nucleophosmin protein (NPM) mutants, corresponding gene sequences and uses thereof” (published as WO 2006/046270), and foreign equivalents, including Canadian Patent Application 2585965 as well as all continuations, divisions, reissues, re-examinations, renewals, or extensions of such patents subject to the rights granted by Original Licensor to XENOMICS pursuant to the Exclusive License Agreement, as limited by this Agreement.

 

1.7            “Product(s)” shall mean any product or part thereof that when made, have made, used, offered to sell, sold or marketed in the Territory would infringe on any Valid Claim of the Patent Rights absent the Sublicense herein granted.

 

1.8            “Service” shall mean any service or part thereof that when used, commercialized or marketed in the Territory would infringe on any Valid Claim of the Patent Rights absent the Sublicense herein granted. This includes methods used to determine the presence of Nucleophosmin protein (NPM) mutants: diagnosis; monitoring of minimal residual disease; prognostic evaluation; monitoring of therapy of acute myeloid leukaemia (AML) for commercial testing and for clinical trials.

 

1.9            “Term” shall mean from the Effective Date until the later of (i) the ten (10) year anniversary of the Effective Date, or (ii) the date none of the Patent Rights contain a Valid Claim in the Territory that reads on a product or service offered by LABCORP or its Affiliates in the Field pursuant to this Agreement.

 

1.10          “Territory” shall mean the United States and Canada for commercial testing, and Worldwide for clinical trials.

 



 

1.11          “Valid Claim” shall mean any claim from (i) an issued, unexpired, unlapsed patent of the Patent Rights to the extent that it has not been held invalid or unenforceable by a decision of a court or other government agency, or to the extent that it has not been disclaimed, denied or admitted to be invalid or unenforceable through reissue or disclaimer or otherwise; or (ii) a patent application included within the Patent Rights to the extent that it has not been canceled, withdrawn or abandoned; that has not been pending for more than (a) five (5) years following the Effective Date. XENOMICS agrees to act in good faith in connection with filing and prosecuting patent applications hereunder and not to file or prosecute patent applications hereunder for the sole purpose of extending the pendency of claims within patent applications.

 

ARTICLE 2. GRANT OF RIGHTS

 

2.1            XENOMICS hereby grants to LABCORP, subject to all the terms and conditions of this Agreement a non-exclusive, royalty-bearing Sublicense in the Territory in the Field during the Term. “Sublicense” as used herein means a license to use the Patent Rights to i) make, have made, use, offer to sell, sell and market the Laboratory Services in the Field, and ii) use, develop, practice, commercialize, and otherwise fully exploit the Services. LABCORP shall have no right to further sublicense.

 

2.2            LABCORP shall have no right during the Term to make, have made, offer to sell, sell and market Products in the Field or use Patent Rights in any way for development and commercialization of therapeutic products by LABCORP. For the avoidance of doubt, this limitation does not in any way preclude LABCORP from performing Services or use Patent Rights for clinical trials.

 

2.3            Upon termination of this Agreement for any reason by XENOMICS, LABCORP, provided it is not in default, shall have the right to seek a license directly from the Original Licensor for the Field of use granted to LABCORP by XENOMICS and on terms and conditions that are substantially similar and no less favorable to either party that the terms and conditions set forth herein.

 

ARTICLE 3. DUE DILIGENCE

 

3.1            LABCORP shall use reasonable diligent efforts to develop and sell licensed Laboratory Services according to applicable FDA and other regulations (applicable Canadian provincial regulations in Canada) derived from the Patent Rights into the commercial market as soon as practicable, consistent with sound and reasonable business practice and judgment.

 

3.2            XENOMICS shall provide LABCORP with the technical information in its possession that may be useful for the development of a Service, including development of a suitable assay, in the Field. Such technical information shall at least include protocols for NPM1 mutation diagnosis and follow-up as well as

 



 

verbal assistance that LABCORP may from time to time request from XENOMICS. If publications are made, XENOMICS scientists shall be credited for their contributions as appropriate.

 

3.3            LABCORP shall use, when available, Products approved or cleared by FDA in the US, Health Canada in Canada, CE marking or other relevant regulatory approval that demonstrate equivalent performance characteristics of laboratory-developed Laboratory Services offered by LABCORP prior to the Products receiving relevant regulatory approval.

 

ARTICLE 4. PAYMENTS

 

4.1            LABCORP shall pay to XENOMICS during the Term a royalty of ten percent (10%) on Net Revenues and shall apply for all sales of Laboratory Services. Royalty payments will commence on sale of the first Laboratory Service and shall be payable quarterly.

 

XENOMICS agrees that to the extent it grants to a third party any other sublicense in the Territory to use the Patent Rights in the Field on substantially similar terms and conditions set forth herein, such sublicense shall contain a royalty no more favorable than those granted to LABCORP pursuant to this Agreement.

 

4.2            LABCORP shall pay to XENOMICS an initial licensing fee of $20,000 USD within thirty (30) days following the Effective Date of this Agreement.

 

4.3            Beginning from the date of the first sale of the Laboratory Service (“Minimum Royalty Commencement Date”), LABCORP will pay XENOMICS minimum yearly royalties during the Term in the amounts and on the schedule indicated below:

 

Year 1 following the Minimum Royalty Commencement Date: $10,000

Year 2 following the Minimum Royalty Commencement Date: $10,000

Year 3 following the Minimum Royalty Commencement Date: $15,000

Year 4 following the Minimum Royalty Commencement Date: $20,000

Year 5 following the Minimum Royalty Commencement Date and each year thereafter: $25,000

 

If the actual royalty payments to XENOMICS in any year are less than the minimum payment required for that year hereunder, LABCORP shall pay XENOMICS the difference between the actual payment and the minimum payment in full satisfaction of its obligations under this Section 4.1, provided such minimum payment is made to XENOMICS with the next scheduled quarterly royalty payment that follows the conclusion of that year.

 



 

ARTICLE 5. REPORTS AND RECORDS

 

5.1            LABCORP shall maintain and cause its Affiliate(s) to maintain true, accurate and complete books of account, records and files containing an accurate record of all data reasonably necessary for the full computation and verification of sales and the determination of the amounts payable under Article 4 hereof for a period of at least three (3) years following the period of each report required by Section 5.2 below.

 

5.2            Following the sale of the first Laboratory Service, LABCORP shall deliver to XENOMICS within thirty (30) days following each calendar quarter true and accurate reports, giving such particulars of the business conducted by LABCORP and its Affiliate(s) during the preceding quarter under this Agreement as shall be pertinent to a royalty accounting hereunder. These shall include the following:

 

(a)            number of the Laboratory Services sold by LABCORP and its Affiliate(s) and paid by customers;

(b)            total sales amounts received from customers for the Laboratory Services sold by LABCORP and its Affiliate(s);

(c)            deductions applicable as provided in Section 1.5;

(d)            total royalties due; and

(e)            amounts of withholding taxes.

 

5.3            Said books and records shall be kept at LABCORP’s and/or its Affiliate(s) principal place of business and shall be in accordance with generally accepted accounting principles, consistently applied. Said books and records, to the extent not previously audited, shall be available for inspection and copying by an independent certified public accountant selected by XENOMICS and reasonably acceptable to LABCORP and/or its Affiliate(s), upon ten (10) business days advance notice and during regular business hours (in a manner that does not unreasonably interfere with LABCORP’s operations) in order to enable XENOMICS to ascertain the correctness of any report and/or payment made under this Agreement. XENOMICS shall pay the fees and expenses of the accountant engaged to perform the audit, unless such audit reveals an underpayment of five percent (5%) or more for the period examined, in which case LABCORP shall pay all reasonable costs and expenses incurred by XENOMICS in the course of making such determination, including, without limitation, the fees and expenses of the accountant and attorney’s fees if any incurred to enforce XENOMICS rights.

 

5.4            LABCORP shall pay to XENOMICS the actual royalties due and payable as provided for in Section 4.1 on a quarterly basis. If no actual royalties are due, LABCORP shall so report.

 



 

ARTICLE 6. PATENT PROSECUTION; INFRINGEMENT

 

6.1            The prosecution, filing and maintenance of the Patent Rights in the Territory shall be managed by XENOMICS.

 

6.2            XENOMICS will file, prosecute and maintain any patent applications directed to improvements on inventions that are related to Patent Rights (“New Inventions”), whether owned solely or jointly with LABCORP and LABCORP shall cooperate with XENOMICS in the filing, prosecution and maintenance of all such New Inventions. Such cooperation includes, without limitation, (a) promptly executing all papers and instruments or requiring its employees to execute such papers and instruments as reasonable and appropriate so as to enable XENOMICS to file, prosecute and maintain such New Inventions in any country; and (b) promptly informing XENOMICS of matters that may affect the preparation, filing, prosecution or maintenance of any such New Inventions.

 

6.3            (a) LABCORP agrees to provide XENOMICS with written notice as soon as practicable after becoming aware of any infringement of any of the Patent Rights or New Inventions in the Field and of any available evidence thereof.

 

(b)    XENOMICS shall have the right, but not the obligation, under its control and at its sole expense, to prosecute any third party infringement of the Patent Rights or New Inventions or to defend the Patent Rights or New Inventions in any declaratory judgment action brought by a third party which alleges the invalidity, unenforceability or non-infringement of any Patent Rights. LABCORP agrees to cooperate fully in any action under this Section 6.3, provided that XENOMICS reimburses material costs and expenses incurred with providing such assistance.

 

6.4            XENOMICS hereby undertakes to notify LABCORP promptly should the Patent Rights lapse for failing to meet a deadline, should the Original Licensor and/or XENOMICS decide to stop pursuing the Patent Rights or should the Patent Rights not be allowed by the US Patent Office for any reason.

 

ARTICLE 7. TERM AND TERMINATION

 

7.1            Should LABCORP fail to pay XENOMICS any amounts due hereunder, XENOMICS shall have the right to terminate this Agreement on thirty (30) days prior written notice, unless LABCORP shall pay XENOMICS within said thirty (30) day period such delinquent amounts and interest within said period.

 

7.2            LABCORP shall have the right to terminate this Agreement and all rights, privileges and the Sublicense granted hereunder at any time upon ninety (90) days prior written notice to XENOMICS.

 

7.3            Upon any breach or default of this Agreement by either party, including without limitation LABCORP’s material failure to comply with Section 3 hereof, the other

 



 

party shall have the right to terminate this Agreement upon thirty (30) days written notice to the breaching/defaulting party. Such termination shall become effective immediately at the conclusion of such notice period unless the breaching/defaulting party shall have cured any such breach or default prior to the expiration of said thirty (30) day period.

 

7.4            Upon termination of this Agreement for any reason, nothing herein shall be construed to release either party from any obligation that matured prior to the effective date of such termination. The provisions of Articles 4 (with respect to any payments outstanding as of the termination date), 5, 6, 7, 8, 9, 10, 11, 13, 15, 18, 20 and 25, shall survive the expiration or any earlier termination of this Agreement.

 

ARTICLE 8. INDEMNIFICATION

 

8.1            XENOMICS agrees to indemnify, hold harmless and defend LABCORP, its Affiliates, agents and employees from and against any and all liabilities, losses, damages, costs, fees and expenses, including reasonable legal expenses and attorneys’ fees (collectively, “Losses”) arising out of suits, claims, actions, or demands, brought or made by a third party (“Third Party Claim”) against LABCORP, its Affiliates, agents and employees, based on breach of XENOMICS’s warranties under Article 9 below, except to the extent such Losses or Third Party Claims result from the negligence or wilful misconduct of LABCORP or a breach of LABCORP’s warranties under Article 9 below.

 

8.2            LABCORP agrees to indemnify, hold harmless and defend XENOMICS, its Affiliates, agents and employees from and against any and all Losses arising out of any Third Party Claims against XENOMICS, its Affiliates, agents and employees based on (i) LABCORP’S breach of LABCORP’s warranties under Article 9 below, or (ii) the manufacture, use, handling, storage, sale or other disposition of Laboratory Services by LABCORP, its Affiliates, agents, employees or sublicensees, all except to the extent such Losses or Third Party Claims result from the negligence or wilful misconduct of XENOMICS, or a breach of XENOMICS’s warranties under Article 9 below.

 

ARTICLE 9. REPRESENTATIONS, WARRANTIES AND DISCLAIMERS

 

9.1            XENOMICS represents and warrants to LABCORP (i) that it has the right to sublicense the Patent Rights in Territory and that XENOMICS has received the appropriate written authorization from the Original Licensors to enter into this Agreement, and (ii) that it has the right and power to extend the rights and the Sublicense granted herein and to perform its obligations hereunder, (iii) that this Agreement is a valid and binding agreement, enforceable in accordance with its terms, (iv) that it is not in default under the Exclusive License Agreement, and there has not occurred any event which, with a lapse of time or giving of notice, or both, would constitute such a default. There has not been any default by any

 



 

party or dispute between XENOMICS and any party under the Exclusive License Agreement, (v) as of the Effective Date, it has no actual knowledge of any conflict of any kind with any inventor(s) listed or any of the owner of the Patent Rights, which may restrict it from entering into this Agreement, granting the rights or fulfilling its obligations hereunder, (vi) as of the Effective Date, the Patent Rights are in good standing and have not lapsed for failing to meet a deadline and they have diligently been prosecuted and maintained, (vii) As of the Effective Date no person has challenged by way of a notice in writing the validity of any claim comprised within the Patent Rights, and (viii) as of the Effective Date there are no judicial, arbitral, regulatory or administrative proceedings or investigations, claims, actions or suits relating to the inventions disclosed in the Patent or their use, making, commercialization, practice or any other exploitation thereof pending against the Original Licensors, XENOMICS, its Affiliates or any of XENOMICS’ sublicensees in any court or by or before any governmental body or agency and, to the best of XENOMICS’ knowledge, no such judicial, arbitral, regulatory or administrative proceedings or investigations, actions or suits have been threatened against the Original Licensors, XENOMICS, its Affiliates or any of XENOMICS’ sublicensees.

 

9.2            LABCORP hereby represents and warrants to XENOMICS that it has the right and power to enter into this Agreement and to perform its obligations, and that this Agreement is a valid and binding agreement, enforceable in accordance with its terms. LABCORP agrees that it shall comply and cause its Affiliate(s) to comply with all applicable local laws and regulations in Territory relating to the design, sale, use, delivery in commerce and promotion of the Laboratory Services.

 

9.3            EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN SECTION 9, XENOMICS MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY PATENT RIGHT, TRADEMARK, SOFTWARE, NON-PUBLIC OR OTHER INFORMATION, OR TANGIBLE RESEARCH PROPERTY, LICENSED OR OTHERWISE PROVIDED TO SUBLICENSEE HEREUNDER AND HEREBY DISCLAIMS THE SAME. XENOMICS DOES NOT WARRANT THE VALIDITY OF THE PATENT RIGHTS SUBLICENSED HEREUNDER AND MAKES NO REPRESENTATION WHATSOEVER WITH REGARD TO THE SCOPE OF THE SUBLICENSED PATENT RIGHTS OR THAT SUCH PATENT RIGHTS MAY BE EXPLOITED BY SUBLICENSEE OR ITS AFFILIATE(S) WITHOUT INFRINGING ON OTHER PATENTS.

 

9.4            NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT. SUBLICENSEE ASSUMES ALL RESPONSIBILITY AND LIABILITY FOR ANY LOSS OR DAMAGES CAUSED BY THE PRODUCTS MANUFACTURED, USED, DELIVERED, SOLD OR PROVIDED BY SUBLICENSEE AND ITS AFFILIATE(S) THAT ARE SUBJECT TO THIS AGREEMENT UNLESS THE SAME HAS RESULTED FROM ANY MATERIAL

 



 

BREACH OF AN OBLIGATION, REPRESENTATION, WARRANTY BY XENOMICS UNDER THIS AGREEMENT OR ACTION, INACTIONS, OR MISREPRESENTATIONS ON THE PART OF XENOMICS.

 

ARTICLE 10. NOTICE

 

10.1          Any consent, notice or report required or permitted to be given or made under this Agreement shall be in writing, delivered (i) by certified or registered mail (postage prepaid, return receipt requested), (ii) by facsimile (and promptly confirmed by personal delivery, courier or next business day service of a nationally recognized courier service of good repute), (iii) by a next business day service of a nationally recognized courier service of good repute (with evidence of delivery) or (iv) by courier (postage prepaid and signature required), and in any case addressed to the other party at its address set forth in this Article 10, and shall be effective upon receipt by the addressee.

 

10.2          Reports, notices and other communication from LABCORP to XENOMICS as provided hereunder shall be sent to:

 

XENOMICS Inc

Attention:

Chairman

 

1 Deer Park Drive

 

Suite F

 

Monmouth Junction, NJ 08852

 

USA

With a copy to:

 

 

Ivor Elrifi

 

MINTZ LEVIN

 

666 Third Avenue

 

New York, NY 10017

 

or to such other individual or address as shall hereafter be furnished by written notice to LABCORP in accordance with this Article 10.

 



 

10.3          Reports, notices and other communications from XENOMICS to LABCORP as provided hereunder shall be sent to:

 

LABORATORY CORPORATION OF AMERICA HOLDINGS

Attention:

Laboratory Corporation of America Holdings

 

Vice President, Licensing & Corporate Affairs

 

128 E. Maple Ave.

 

Burlington, NC 27215

 

 

 

 

With a copy to:

Laboratory Corporation of America Holdings

 

430 South Spring Street

 

Burlington, North Carolina 27215

 

Attention: Law Department

 

or to such other individual or address as shall hereafter be furnished by written notice to XENOMICS in accordance with this Article 10.

 

ARTICLE 11. DISPUTE RESOLUTION

 

11.1.         Any dispute, controversy or claim arising under, out of or relating to this contract and any subsequent amendments of this contract, including, without limitation, its formation, validity, binding effect, interpretation, performance, breach or termination, as well as non-contractual claims, shall be submitted to mediation in accordance with the World Intellectual Property Organization (“WIPO”) Mediation Rules. The place of mediation shall be New York, USA. The language to be used in the mediation shall be English.

 

11.2          If, and to the extent that, any such dispute, controversy or claim has not been settled pursuant to the mediation within 60 days of the commencement of the mediation, it shall, upon the filing of a Request for Arbitration by either party, be referred to and finally determined by arbitration in accordance with the WIPO Expedited Arbitration Rules. Alternatively, if, before the expiration of the said period of 60 days, either party fails to participate or to continue to participate in the mediation, the dispute, controversy or claim shall, upon the filing of a Request for Arbitration by the other party, be referred to and finally determined by arbitration in accordance with the WIPO Expedited Arbitration Rules. The place of arbitration shall be New York, USA. The language to be used in the arbitral proceedings shall be English. The dispute, controversy or claim referred to arbitration shall be decided in accordance with the laws of New York, USA.

 

11.3          Notwithstanding the foregoing, nothing in this Article shall be construed to waive any rights or timely performance of any obligations existing under this Agreement.

 



 

ARTICLE 12. RESTRICTION ON USE OF NAME

 

12.1          Neither party shall use nor cause its Affiliate(s) to use the name of the other party, its directors, officers, trustees, Affiliate(s), employees, or any adaptations thereof, in any advertising, promotion or sale literature without the prior written consent of such party. With respect to reports to public agencies that are required by law, LABCORP shall provide XENOMICS with a reasonable opportunity to review the use of its name in such reports reasonably in advance of submission.

 

12.2          LABCORP shall neither disclose nor cause its Affiliate(s) to disclose this Agreement or any of the terms or conditions of this Agreement to any third party without the prior written consent of XENOMICS except and to the extent required to comply with applicable laws or regulations; provided that, LABCORP delivers prior written notice to XENOMICS of any disclosure required by applicable laws or regulations and takes all reasonable and lawful actions to obtain confidential treatment for such disclosure and, if possible, to minimize the extent of such disclosure.

 

ARTICLE 13. CONFIDENTIALITY

 

13.1          During the term of this Agreement, each party (the “disclosing party”) may communicate to the other party (the “receiving party”) information which it considers to be confidential (“Confidential Information”). All Confidential Information shall be specifically designated as confidential. Such Confidential Information may include, without limitation, trade secrets, know-how, inventions, technical data or specifications, testing methods, business or financial information, research and development activities, product and marketing plans, and customer and supplier information. Confidential Information that is disclosed orally or visually shall be documented in a written notice prepared by the disclosing party and delivered to the receiving party within thirty (30) days of the date of disclosure; such notice shall summarize the Confidential Information disclosed to the receiving party and reference to the time and place of disclosure.

 

13.2          The receiving party agrees that it shall: (a) maintain all Confidential Information in strict confidence, except that the receiving party may disclose or permit the disclosure of any Confidential Information to its directors, officers, employees, consultants, and advisors who are obligated to maintain the confidential nature of such Confidential Information and who need to know such Confidential Information for the purpose set forth in this Agreement; (b) use all Confidential Information solely for the purpose set forth in this Agreement; and (c) allow its directors, officers, employees, consultants, and advisors to reproduce the Confidential Information only to the extent necessary to effect the purposes set forth in this Agreement, with all such reproductions being considered Confidential Information.

 



 

13.3          The obligations of the receiving party under Section 13.2 above shall not apply to the extent that the receiving party can demonstrate that certain Confidential Information: (a) was in the public domain prior to the time of its disclosure under this Agreement; (b) entered the public domain after the time of its disclosure under this Agreement through means other than an unauthorized disclosure resulting from an act or omission by the receiving party; (c) was independently developed or discovered by receiving party without use of the Confidential Information; (d) is or was disclosed to the receiving party at any time, whether prior to or after the time of its disclosure under this Agreement, by a third party having no fiduciary relationship with the disclosing party and having no obligation of confidentiality with respect to such Confidential Information; or (e) is required to be disclosed to comply with application laws or regulation, or with a court or administrative order, provided that, the disclosing party receives prior written notice of such disclosure and that the receiving party takes all reasonable and lawful actions to obtain confidential treatment for such disclosure and, if possible, to minimize the extent of such disclosure.

 

13.4.         The obligations set forth in this Article 13 shall remain in effect for a period of five (5) years after the expiration or the earlier termination of this Agreement.

 

ARTICLE 14. PATENT MARKING

 

14.            If required by laws or regulations, consistent with its customary practice LABCORP agrees to mark any Laboratory Services, reports, testing results, promotional material, technical literature and the like with all applicable patent numbers, and where appropriate, to indicate “Patent Pending” status in accordance with each applicable country’s patent laws.

 

ARTICLE 15. INDEPENDENT CONTRACTOR

 

15.    For the purpose of this Agreement and all services to be provided hereunder, both parties shall be, and shall be deemed to be, independent contractors and not agents or employees of the other. Neither party shall have authority to make any statements, representations or commitments of any kind, or to take any action, that will be binding on the other party.

 

ARTICLE 16. SEVERABILITY

 

16.            If any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby unless the invalid provisions are of such essential importance to this Agreement that it is to be reasonably assumed that the parties would not have entered into this Agreement without the invalid provisions.

 



 

ARTICLE 17. NON-ASSIGNABILITY

 

17.            Neither this Agreement nor any license granted under this Agreement shall be assignable by LABCORP without the express prior written consent of XENOMICS. Any attempted assignment without such consent shall be void.

 

ARTICLE 18. ENTIRE AGREEMENT

 

18.            This Agreement constitutes the entire agreement between the parties with respect to the subject matter and supersedes any prior agreements and understandings between the parties relating to the subject matter hereof. No verbal agreement, conversation or representation between any officers, agents or employees of the parties hereto either before or after the execution of this Agreement shall affect or modify any of the terms or obligations herein contained.

 

ARTICLE 19. MODIFICATIONS IN WRITING

 

19.            No change, modification, extension, termination or waiver of this Agreement, or any of the provisions herein contained, shall be valid unless made in writing and signed by a duly authorized representative of each party.

 

ARTICLE 20. GOVERNING LAW

 

20.            The validity and interpretation of this Agreement and the legal reactions of the parties to it shall be governed by the laws of New York, USA, without regard to the conflict of laws provisions thereunder, except that questions affecting the construction and effect of any patent shall be determined by the law of the country in which the patent was granted.

 

ARTICLE 21. CAPTIONS

 

21.            The captions are provided for convenience and are not to be used in construing this Agreement.

 

ARTICLE 22. CONSTRUCTION

 

22.            Each of the parties agrees that this Agreement is the result of mutual negotiation and therefore the language herein shall not be presumptively construed against either of them.

 

ARTICLE 23. COUNTERPARTS

 

23.            This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument.

 

ARTICLE 24. BINDING EFFECT

 

24.            This Agreement shall be binding upon and inure to the benefit of the parties and

 



 

their respective permitted successors and assigns.

 

ARTICLE 25. FORCE MAJEURE

 

25.    If either party’s performance of any obligation under this Agreement is prevented, restricted, interfered with or delayed by reason of any force majeure cause such as floods, fires, riots, insurrections, explosions, other natural disasters or serious labor disputes beyond the reasonable control of the party required to perform, the party so affected, upon giving written notice and written evidence of such force majeure to the other party, shall be excused from such performance to the extent of such prevention, restriction, interference, or delay; provided that the affected party shall use its commercial reasonable efforts to avoid or remove such causes of non-performance and shall continue performance with the utmost dispatch whenever the force majeure is removed. Any such force majeure shall not excuse any monetary failure or late payment obligation.

 

[The signature page follows]

 



 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives as of the date first above written.

 

 

XENOMICS INC

 

 

LABORATORY CORPORATION
OF AMERICA HOLDINGS

 

 

 

 

 

By:

/s/ David J. Robbins

 

By:

/s/ Bradford T. Smith

 

 

 

 

 

Name:

David J. Robbins, Ph.D.

 

Name:

Bradford T. Smith

 

 

 

Title:

Vice President, Product Development

 

Title:

Executive Vice President

 

 


Exhibit 10.15

 

SUBLICENSE AGREEMENT

THIS SUBLICENSE AGREEMENT (“Agreement”) effective as of February 8, 2011 (the “Effective Date”) is by and between TROVAGENE Inc, a New York corporation having its principal office at 11055 Flintkote Ave, Suite B, San Diego, CA 92121 USA (“TROVAGENE”), and MLL Münchner Leukämielabor GmbH, a German corporation having its principal office at Max-Lebsche-Platz 31 81377 München GERMANY (“MLL”).

 

WITNESSETH:

 

WHEREAS, TROVAGENE is the exclusive licensee of the Patent Rights (as defined below) relating to the Field (as defined below) under the Exclusive License Agreement (as defined below) and is willing to grant to MLL a royalty-bearing Sublicense (as defined below) in the Territory to use such Patent Rights in the Field on the terms and conditions set forth herein;

 

WHEREAS, MLL desires to obtain the Sublicense described above on the terms and conditions set forth herein; and

 

WHEREAS, TROVAGENE is willing to grant MLL such Sublicense under the Patent Rights on the terms and conditions set forth herein;

 

NOW THEREFORE, in consideration of the mutual covenants herein contained and intending to be legally bound hereby, the parties hereto agree as follows:

 

ARTICLE 1. DEFINITIONS

 

1.1           “Affiliate(s)” shall mean any corporation or other business entity which controls, is controlled by, or is under common control with a party to this Agreement, “control” meaning the ownership, direct or indirect, of fifty percent (50%) or more of the voting stock or analogous interest in such corporation or other business entity.

 

1.2           “Exclusive License Agreement” shall mean the exclusive license agreement dated May 2006 (and any amendments thereto) by and between TROVAGENE on the one hand, and Brunagelo Falini and Cristina Mecucci (jointly “Original Licensor”) on the other hand.

 

1.3           “Field” shall mean screening for nucleophosmin protein (“NPM1”) nucleic acid mutations, including the monitoring of minimal residual disease, in all human sample specimens. For avoidance of doubt, the Field strictly includes molecular screening.

 

1.4           “Laboratory Services” shall mean reference laboratory services strictly related to any and all nucleic acid analysis, or part thereof, offered to any non-Affiliate third parties under the Granted Rights as defined in Section 2.1, performed by MLL or by MLL authorized or subcontracted reference laboratories in the Territory, namely

 

·        Services according to § 4 of the currently valid German Medical Fee Schedule (Gebührenordnung für Ärzte - GOÄ) in connection with No. 3922 of the Attachment of the GOÄ, respectively, where applicable,

 



 

·                      Services according to No. 11321 of the currently valid Unified Valuation Standards of the National Association of Statutory Health Insurance Physicians (Einheitlicher Bewertungsmaßstab der Kassenärztlichen Bundesvereinigung — EBM),

 

·       Services involving clinical trials for therapeutics

 

·       Services involving any research collaborations

 

·       Any other services for which MLL is compensated or earns revenue

 

which services that when offered, used, performed or commercialized or marketed in the Territory would infringe on any Valid Claim of he Patent Rights absent the Sublicense herein granted.

 

1.5           “Net Revenues” shall mean the gross amount received by MLL or its Affiliate(s) for the Laboratory Services offered by MLL or its Affiliate(s) pursuant to the Granted Rights as defined in Section 2.1 hereunder to non-Affiliate third parties less the following acceptable deductions:

 

(a)           Volume or other discounts allowed in amounts customary in the trade;

(b)                                      sale and/or use taxes and VAT, duties and any other governmental charges directly imposed and with reference to particular sales;

(c)           amounts allowed or credited on returns;

(d)                                     transportation and freight charges, including insurance and handling fees, if separately itemized on the invoice and paid by the customer.

 

No deductions shall be made for commissions paid to individuals whether they are with independent sales agents or regularly employed by MLL and its Affiliate(s) and on their payroll. The Laboratory Services shall be considered “sold” when billed out or invoiced by MLL or its Affiliates. TrovaGene reserves the right to request documentation for all said deductions.

 

1.6                                  “Patent Rights” shall mean European Patent Application 07021463.0 filed October 28, 2005 entitled “Nucleophosmin protein (NPM) mutants, corresponding gene sequences and uses thereof” (published as 1 944 316 A1), as well as all divisions, re-issues after patent restriction procedures including limitation, opposition and nullification procedures, renewals, time and/or territory extensions of such patent subject to the rights granted by Original Licensor to TROVAGENE pursuant to the Exclusive License Agreement, as limited by this Agreement.

 

1.7                                  “Product(s)” shall mean any tangible product, including but not limited to test kits and all components and parts thereof that when made, have made, used, offered to sell, sold or marketed in the Territory would infringe on any Valid Claim of the Patent Rights.

 

1.8                                 “Term” shall mean from the Effective Date until the expiration or abandonment of all the Patent Rights.

 



 

1.9           “Territory” shall mean all countries in Europe.

 

1.10                            “Valid Claim” shall mean a claim of an unexpired patent or patent application of the Patent Rights that has neither been withdrawn, canceled, or disclaimed, nor held invalid or unenforceable by a court of competent jurisdiction in an unappealed or unappealable decision.

 

ARTICLE 2. GRANT OF RIGHTS

 

2.1                                  TROVAGENE hereby grants to MLL and MLL Affiliates, subject to all the terms and conditions of this Agreement a non-exclusive, royalty-bearing Sublicense under the Patent Rights in the Territory in the Field during the Term (“Granted Rights”). “Sublicense” as used herein means a license to use the Patent Rights to make, have made, use, offer to sell, sell and market the Laboratory Services in the Field and in the Territory. MLL shall have no right to further sublicense.

 

2.2                                  MLL shall have no right during the Term to make, have made, offer to sell, sell and market Products in the Field or use Patent Rights in any way for the development or commercialization of therapeutic products other than under the rights granted pursuant to Article 2.1. For avoidance of doubt, MLL shall not have the right under this license to offer to sell, sell and market any test kits or components thereof to any third parties.

 

ARTICLE 3. DUE DILIGENCE

 

3.1                                  MLL shall use diligent efforts to develop and sell licensed Laboratory Services according to any and all applicable government regulations derived from the Patent Rights into the commercial market as soon as practicable, consistent with sound and reasonable business practice and judgment, and shall provide TROVAGENE with sales and status reports and payments within sixty (60) days following the close of each calendar quarter as defined below beginning with the calendar year in which the first Net Revenues from Laboratory Services are “sold”.

 

ARTICLE 4. PAYMENTS

 

4.1                                  In consideration of the Granted Rights provided to MLL, MLL shall pay to TROVAGENE a royalty of thirteen percent (13%) of Net Revenues from the date of first sale in the Territory until December 31 st  of that same calendar year and thirteen percent (13%) of Net Revenues for each full calendar year thereafter, on a country by country basis. Said Net Revenues and royalties shall apply to all Laboratory Services in each country of the Territory. For purposes of clarification and as an example, if the date of first commercial sale in a given country in the Territory occurs on April 15 th  2011, a royalty of thirteen percent (13%) will be payable based on Net Revenues in said country from April 15 th , 2011 until December 31 st , 2011, and a royalty of thirteen percent (13%) will be payable based on Net Revenues in said country for all full calendar years

 



 

thereafter during the Term.

 

Royalty payments will commence on sale of the first Laboratory Service after signing of the Agreement and shall be payable quarterly. Royalties shall be paid in US dollars. Conversion of the Euro or any other currency into US Dollars shall be made at the official exchange rate as published by the European Central Bank at the exchange rate prevailing on the day before the royalty due is paid by MLL to TROVAGENE.

 

4.2                                  MLL shall pay to TROVAGENE an initial licensing fee of twenty thousand ($20,000) USD within thirty (30) days following the Effective Date of this Agreement.

 

4.3                                  Starting from the date of the first sale of Laboratory Services in the Territory after signing of the Agreement until December 31 st  of the same calendar year, the royalties due to TROVAGENE from MLL under Section 4.1 hereof, in the aggregate, shall equal or exceed fifteen thousand ($15,000) for said calendar year. In each subsequent calendar year during the Term of this Agreement, the royalties due to TROVAGENE from MLL under Section 4.1 hereof, in the aggregate, shall equal or exceed twenty thousand ($20,000). Within thirty (30) days from the end of the fourth (4 th ) quarter of each and every calendar year from the date of first sale in the Territory during the Term, MLL shall perform an accounting and will report in writing to TrovaGene the sum of actual royalties paid against Net Revenues in the Territory for said calendar year as required in 4.1 above and, if the actual royalties paid for said calendar year pursuant to said report are less than the minimum royalty due pursuant to 4.3, MLL will pay the difference between the sum of the actual royalties paid in the Territory and the annual minimum royalty amount. Said payment due to TROVAGENE will be payable within thirty (30) days from the end of each calendar year.

 

ARTICLE 5. REPORTS AND RECORDS

 

5.1                                  MLL shall maintain and cause its Affiliate(s) to maintain true, accurate and complete books of account, records and files containing an accurate record of all data reasonably necessary for the full computation and verification of sales and the determination of the amounts payable under Article 4 hereof for a period of at least five (5) years following the period of each report required by Section 5.2 below.

 

5.2                                  After the first commercial sale of the Laboratory Services, MLL shall deliver to TROVAGENE within thirty (30) days following each calendar quarter true and accurate reports, giving such particulars of the business conducted by MLL and its Affiliate(s) during the preceding quarter under this Agreement as shall be pertinent to a royalty accounting hereunder regarding the Granted Rights pursuant to Section 2.1. These reports shall include at least the following:

 

(a)                                   quantity of the Laboratory Services sold by MLL and its Affiliate(s) and paid by customers either directly or indirectly through appointed or subcontracted third party laboratories;

 



 

(b)                                  gross sales amounts received from customers for the Laboratory Services sold by MLL and its Affiliate(s);

(c)           itemized list of deductions applicable pursuant to Section 1.5;

(d)           total royalties due to TROVAGENE; and

 

5.3                                  Said books and records shall be kept at MLL’s and/or its Affiliate(s) principal place of business and shall be in accordance with generally accepted accounting principles, consistently applied. Said books and records shall be available for inspection and copying by an independent certified public accountant selected by TROVAGENE and reasonably acceptable to MLL and/or its Affiliate(s), upon ten (10) business days advance notice and during regular business hours in order to enable TROVAGENE to ascertain the correctness of any report and/or payment made under this Agreement. TROVAGENE shall pay the fees and expenses of the accountant engaged to perform the audit, unless such audit reveals an underpayment of five percent (5%) or more for the period examined, in which case MLL shall pay within thirty (30) days all reasonable costs and expenses incurred by TROVAGENE in the course of making such determination, including, without limitation, the fees and expenses of the accountant and attorney’s fees if any incurred to enforce TROVAGENE rights.

 

5.4                                  MLL shall pay to TROVAGENE the actual royalties due and payable as provided for in Section 4.1 on a quarterly basis. If no actual royalties are due, MLL shall so report.

 

ARTICLE 6. PATENT PROSECUTION; INFRINGEMENT

 

6.1                                  The prosecution, filing and maintenance of the Patent Rights in the Territory shall be managed by TROVAGENE.

 

6.2                                  (a) “Improvements of the Patent Rights” are such improvements which fall within the scope of the Patent Rights, independent as to whether a patent protection can be obtained for such improvements or not.

 

(b) TROVAGENE will file, prosecute and maintain any patent applications directed to any and all Improvements of the Patent Rights (“New Inventions”) and be the owner of such Improvements and MLL shall cooperate with TROVAGENE in the filing, prosecution and maintenance of all such Improvements. Such cooperation includes, without limitation, (a) promptly executing all papers and instruments or requiring its employees to execute such papers and instruments as reasonable and appropriate so as to enable TROVAGENE to file, prosecute and maintain such Improvements in any country; and (b) promptly informing TROVAGENE about any Improvement and of matters that may affect the preparation, filing, prosecution or maintenance of any such Improvements.

 

(c) TROVAGENE shall grant MLL licenses to Improvements if MLL so desires, providing MLL notifies TROVAGENE of said desire within 45 days from the date MLL

 



 

is notified in writing of such Improvements. The parties shall in good faith agree upon the details of the conditions of such new licenses.

 

6.3                                  (a) “Developments of the Patent Rights” (or “Developments”) are new inventions outside of the Field, being not within the scope of the licensed patent, for which one of the parties has obtained independent patent protection.

 

(b) MLL and TROVAGENE shall inform each other about all Developments and the party that has obtained patent protection for said Developments shall grant the other party licenses to said Developments if the party so desires, providing the party desiring a license notifies the patent holder of said desire within 45 days from the date notification is provided in writing of such Developments. The parties shall in good faith agree upon the details and the conditions of such new licenses.

 

(c) The conditions concerning the ownership, protection, exploitation and utilization of joint Developments are to be determined/negotiated by the parties in good faith. Depending upon the party’s participation in the respective Development, this party shall have the right to be mentioned as joint inventor/applicant.

 

6.4                                  (a) MLL agrees to provide TROVAGENE with prompt written notice after becoming aware of any infringement of any of the Patent Rights in the Field and of any available evidence thereof.

 

(b) TROVAGENE shall have the right, but not the obligation, under its control and at its sole expense, to prosecute any third party infringement of the Patent Rights or New Inventions or to defend the Patent Rights or New Inventions in any declaratory judgment action brought by a third party which alleges the invalidity, unenforceability or non-infringement of any Patent Rights. MLL agrees to assist in any action under this Section 6.3, provided that TROVAGENE reimburses all out of pocket costs and expenses incurred with providing such assistance.

 

ARTICLE 7. TERM AND TERMINATION

 

7.1                                  Should MLL fail to pay TROVAGENE any amounts due hereunder, TROVAGENE shall have the right to terminate this Agreement on thirty (30) days prior written notice, unless MLL shall pay TROVAGENE within said thirty (30) day period such delinquent amounts and interest within said period.

 

7.2                                  MLL shall have the right to terminate this Agreement and all rights, privileges and the Sublicense granted hereunder at any time upon ninety (90) days prior written notice to TROVAGENE. Should MLL elect to terminate this Agreement, MLL will report and pay within sixty (60) days of the termination date all outstanding royalties or fees due as

 



 

defined in Section 4 and shall have no right to reclaim any royalty or fee payments previously made under this Sublicense.

 

7.3                                  Upon any breach or default of this Agreement by either party, including without limitation MLL’s material failure to comply with Section 3 hereof, the other party shall have the right to terminate this Agreement upon thirty (30) days written notice to the breaching/defaulting party. Such termination shall become effective immediately at the conclusion of such notice period unless the breaching/defaulting party shall have cured any such breach or default prior to the expiration of said thirty (30) day period.

 

7.4                                  Upon termination of this Agreement for any reason, nothing herein shall be construed to release either party from any obligation that matured prior to the effective date of such termination. The provisions of Articles 4 (with respect to any payments outstanding as of the termination date), 5, 6, 7, 8, 9, 10, 11, 13, 15, 18, and 20, shall survive the expiration or any earlier termination of this Agreement.

 

7.5                                  Irrespective of the above provisions in Article 7, MLL shall have the right to terminate this agreement within thirty (30) days from a final declaration of invalidity of the Patent Rights, which is in this respect at least the EP application regarding “Nucleophosmin protein (NPM) mutants, corresponding gene sequences and uses thereof” (published as 1 944 316 A1). Furthermore, from the date of a first instance decision on the invalidation of the Patent Rights, which is in this respect at least the EP application regarding “Nucleophosmin protein (NPM) mutants, corresponding gene sequences and uses thereof” (published as 1 944 316 A1), MLL shall have the right to request from TROVAGENE for the time being an adjustment of the royalties - depending on the scope of the invalidation or limitation. The resulting temporary royalty payment reduction shall be reimbursed depending on the scope of the revived Patent Rights.

 

ARTICLE 8. INDEMNIFICATION

 

8.1                                  TROVAGENE agrees to indemnify, hold harmless and defend MLL, its Affiliates, agents and employees from and against any and all liabilities, losses, damages, costs, fees and expenses, including reasonable legal expenses and attorneys’ fees (collectively, “Losses”) arising out of suits, claims, actions, or demands, brought or made by a third party (“Third Party Claim”) against MLL, its Affiliates, agents and employees, based on breach of TROVAGENE’s warranties under Article 9 below, except to the extent such Losses or Third Party Claims result from the negligence or wilful misconduct of MLL or a breach of MLL’s warranties under Article 9 below.

 

8.2                                  MLL agrees to indemnify, hold harmless and defend TROVAGENE, its Affiliates, agents and employees from and against any and all Losses arising out of any Third Party Claims against TROVAGENE, its Affiliates, agents and employees based on (i) breach of MLL’s warranties under Article 9 below, or (ii) the manufacture, offering, use, handling, storage,

 



 

sale or other disposition of Laboratory Services by MLL, its Affiliates, agents, or employees, all except to the extent such Losses or Third Party Claims result from the negligence or wilful misconduct of TROVAGENE, or a breach of TROVAGENE’s warranties under Article 9 below.

 

ARTICLE 9. REPRESENTATIONS, WARRANTIES AND DISCLAIMERS

 

9.1                                  TROVAGENE represents and warrants to MLL (i) that it has the right to Sublicense the Patent Rights in Territory, and (ii) that it has the right and power to extend the rights and the Sublicense granted herein and to perform its obligations hereunder, (iii) that this Agreement is a valid and binding agreement, enforceable in accordance with its terms, (iv) that it is not in default under the Exclusive License Agreement, and there has not occurred any event which, with a lapse of time or giving of notice, or both, would constitute such a default, (v) as of the Effective Date, it has no actual knowledge of any conflict of any kind with any inventor(s) listed or any of the owners of the Patent Rights, which may restrict it from entering into this Agreement, granting the rights or fulfilling its obligations hereunder, (vi) as of the Effective Date, the Patent Rights are in good standing and have not lapsed for failing to meet a deadline and they have diligently been prosecuted and maintained, (vii) as of the Effective Date no person has challenged by way of a notice in writing the validity of any claim comprised within the Patent Rights, and (viii) as of the Effective Date, to TROVAGENE’s knowledge there are no judicial, arbitral, regulatory or administrative proceedings or investigations, claims, actions or suits relating to the inventions disclosed in the Patent or their use, making, commercialization, practice or any other exploitation thereof pending against the Original Licensors, TROVAGENE, its Affiliates or any of TROVAGENE’s sublicensees in any court or by or before any governmental body or agency and, to the best of TROVAGENE’s knowledge, no such judicial, arbitral, regulatory or administrative proceedings or investigations, actions or suits have been threatened against the Original Licensors, TROVAGENE, its Affiliates or any of TROVAGENE’ sublicensees.

 

9.2                                  MLL hereby represents and warrants to TROVAGENE that it has the right and power to enter into this Agreement and to perform its obligations, and that this Agreement is a valid and binding agreement, enforceable in accordance with its terms. MLL agrees that it shall comply and cause its Affiliate(s) and subcontractors to comply with all applicable local laws and regulations in Territory relating to the design, offering, sale, use, delivery in commerce and promotion of the Laboratory Services. MLL also agrees to use diligent efforts to market and sell said Laboratory Services consistent with those efforts it uses to market and sell its’ other products with similar market potential.

 

9.3                                  TROVAGENE represents and warrants that it is not aware of any legal deficiencies of the patent licensed hereunder. It particularly represents and warrants that it is not aware of any third party’s prior use rights, or of a dependency of the licensed patent on third party’s patents. However, except as otherwise expressly set forth in Section 9, TROVAGENE makes no warranty, express or implied, including, without limitation, any implied warranties of merchantability or of fitness for a particular purpose with respect to

 



 

any patent right, trademark, software, non-public or other information, or tangible research property, licensed or otherwise provided to MLL hereunder and hereby disclaims the same. TROVAGENE does not warrant the validity of the Patent Rights sublicensed hereunder and makes no representation whatsoever with regard to the scope of the sublicensed Patent Rights or that such Patent Rights may be exploited by sublicensee or its affiliate(s) without infringing on other patents.

 

9.4            Notwithstanding any other provision of this Agreement, in no event will either party be liable for any indirect, special or consequential damages, arising out of or in connection with this Agreement. MLL assumes all responsibility and liability for any loss or damages caused by the products manufactured, used, delivered, sold or provided by MLL and its affiliate(s) that are subject to this Agreement unless the same has resulted from any material breach of an obligation, representation, warranty by TROVAGENE under this Agreement or action, inactions, or misrepresentations on the part of TROVAGENE.

 

ARTICLE 10. NOTICE

 

10.1          Any consent, notice or report required or permitted to be given or made under this Agreement shall be in writing, delivered (i) by certified or registered mail (postage prepaid, return receipt requested), (ii) by facsimile (and promptly confirmed by personal delivery, courier or next business day service of a nationally recognized courier service of good repute), or (iii) by courier (postage prepaid and signature required), and in any case addressed to the other party at its address set forth in this Article 10, and shall be effective upon receipt by the addressee.

 

10.2          Reports, notices and other communication from MLL to TROVAGENE as provided hereunder shall be sent to:

 

 

TROVAGENE, Inc.

 

Attention:

CEO

 

 

11055 Flintkote Ave., Suite B

 

 

San Diego, CA 92121

 

 

USA

 

 

 

 

With a copy to:

 

Ivor Elrifi

 

MINTZ LEVIN

 

666 Third Avenue

 

New York, NY 10017

 

or to such other individual or address as shall hereafter be furnished by written notice to MLL in accordance with this Article 10.

 

Reports, notices and other communications from TROVAGENE to MLL as provided hereunder shall be sent to:

 



 

 

MLL Münchner Leukämielabor GmbH

 

Attention:

 

 

Max-Lebsche-Platz 31

 

 

81377 München

 

 

GERMANY

 

 

 

 

With a copy to:

 

or to such other individual or address as shall hereafter be furnished by written notice to TROVAGENE in accordance with this Article 10.

 

ARTICLE 11. DISPUTE RESOLUTION

 

11.1.         Any dispute, controversy or claim arising under, out of or relating to this contract and any subsequent amendments of this contract, including, without limitation, its formation, validity, binding effect, interpretation, performance, breach or termination, as well as non-contractual claims, shall be submitted to mediation in accordance with the World Intellectual Property Organization (“WIPO”) Mediation Rules. The place of mediation shall be New York, USA. The language to be used in the mediation shall be English.

 

11.2          If, and to the extent that, any such dispute, controversy or claim has not been settled pursuant to the mediation within 60 days of the commencement of the mediation, it shall, upon the filing of a Request for Arbitration by either party, be referred to and finally determined by arbitration in accordance with the WIPO Expedited Arbitration Rules. Alternatively, if, before the expiration of the said period of 60 days, either party fails to participate or to continue to participate in the mediation, the dispute, controversy or claim shall, upon the filing of a Request for Arbitration by the other party, be referred to and finally determined by arbitration in accordance with the WIPO Expedited Arbitration Rules. The place of arbitration shall be New York, USA. The language to be used in the arbitral proceedings shall be English. The dispute, controversy or claim referred to arbitration shall be decided in accordance with the laws of New York, USA.

 

11.3          Notwithstanding the foregoing, nothing in this Article shall be construed to waive any rights or timely performance of any obligations existing under this Agreement.

 

ARTICLE 12. RESTRICTION ON USE OF NAME

 

12.1          MLL shall neither use nor cause its Affiliate(s) to use the name of TROVAGENE, its directors, officers, trustees, Affiliate(s), employees, or any adaptations thereof, in any advertising, promotion or sale literature without the prior written consent of TROVAGENE. With respect to reports to public agencies that are required by law, MLL shall provide TROVAGENE with a reasonable opportunity to review the use of its name

 



 

in such reports reasonably in advance of submission. The aforesaid shall be valid in vice versa for TROVAGENE regarding the name of MLL.

 

12.2          Each party shall neither disclose nor cause its Affiliate(s) to disclose this Agreement or any of the terms or conditions of this Agreement to any third party without the prior written consent of the other party, except regarding MLL to announce that MLL and its Affiliates are licensed to lawfully accept and test NPM1 samples, and to the extent required to comply with applicable laws or regulations; provided that, the disclosing party delivers prior written notice to the other party of any disclosure required by applicable laws or regulations and takes all reasonable and lawful actions to obtain confidential treatment for such disclosure and, if possible, to minimize the extent of such disclosure. Notwithstanding the foregoing, TROVAGENE may issue a press release announcing this Agreement, providing TROVAGENE provides MLL with at least thirty (30) days to review and provide comments on said press release prior to issuance.

 

ARTICLE 13. CONFIDENTIALITY

 

13.1          During the term of this Agreement, each party (the “disclosing party”) may communicate to the other party (the “receiving party”) information which it considers to be confidential (“Confidential Information”). All Confidential Information shall be specifically designated as confidential. Such Confidential Information may include, without limitation, trade secrets, know-how, inventions, technical data or specifications, testing methods, business or financial information, research and development activities, product and marketing plans, and customer and supplier information. Confidential Information that is disclosed orally or visually shall be documented in a written notice prepared by the disclosing party and delivered to the receiving party within thirty (30) days of the date of disclosure; such notice shall summarize the Confidential Information disclosed to the receiving party and reference to the time and place of disclosure.

 

13.2          The receiving party agrees that it shall: (a) maintain all Confidential Information in strict confidence, except that the receiving party may disclose or permit the disclosure of any Confidential Information to its directors, officers, employees, consultants, and advisors who are obligated to maintain the confidential nature of such Confidential Information and who need to know such Confidential Information for the purpose set forth in this Agreement; (b) use all Confidential Information solely for the purpose set forth in this Agreement; and (c) allow its directors, officers, employees, consultants, and advisors to reproduce the Confidential Information only to the extent necessary to effect the purposes set forth in this Agreement, with all such reproductions being considered Confidential Information.

 

13.3          The obligations of the receiving party under Section 13.2 above shall not apply to the extent that the receiving party can demonstrate that certain Confidential Information: (a) was in the public domain prior to the time of its disclosure under this Agreement; (b) entered the public domain after the time of its disclosure under this Agreement through means other than an unauthorized disclosure resulting from an act or omission by the

 



 

receiving party; (c) was independently developed or discovered by receiving party without use of the Confidential Information; (d) is or was disclosed to the receiving party at any time, whether prior to or after the time of its disclosure under this Agreement, by a third party having no fiduciary relationship with the disclosing party and having no obligation of confidentiality with respect to such Confidential Information; or (e) is required to be disclosed to comply with application laws or regulation, or with a court or administrative order, provided that, the disclosing party receives prior written notice of such disclosure and that the receiving party takes all reasonable and lawful actions to obtain confidential treatment for such disclosure and, if possible, to minimize the extent of such disclosure.

 

13.4.         The obligations set forth in this Article 13 shall remain in effect for a period of five (5) years after the expiration or the earlier termination of this Agreement.

 

ARTICLE 14. PATENT MARKING

 

14.            If required by laws or regulations, MLL agrees to mark any Laboratory Services, reports, testing results, promotional material, technical literature and the like with all applicable patent numbers, and where appropriate, to indicate “Patent Pending” status in accordance with each applicable country’s patent laws.

 

ARTICLE 15. INDEPENDENT CONTRACTOR

 

15.    For the purpose of this Agreement and all services to be provided hereunder, both parties shall be, and shall be deemed to be, independent contractors and not agents or employees of the other. Neither party shall have authority to make any statements, representations or commitments of any kind, or to take any action, that will be binding on the other party.

 

ARTICLE 16. SEVERABILITY

 

16.            If any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby unless the invalid provisions are of such essential importance to this Agreement that it is to be reasonably assumed that the parties would not have entered into this Agreement without the invalid provisions.

 

ARTICLE 17. NON-ASSIGNABILITY

 

17.            Neither this Agreement nor any license granted under this Agreement shall be assignable by MLL without the express prior written consent of TROVAGENE. Any attempted assignment without such consent shall be void.

 



 

ARTICLE 18. ENTIRE AGREEMENT

 

18.            This Agreement constitutes the entire agreement between the parties with respect to the subject matter and supersedes any prior agreements and understandings between the parties relating to the subject matter hereof. No verbal agreement, conversation or representation between any officers, agents or employees of the parties hereto either before or after the execution of this Agreement shall affect or modify any of the terms or obligations herein contained.

 

ARTICLE 19. MODIFICATIONS IN WRITING

 

19.            No change, modification, extension, termination or waiver of this Agreement, or any of the provisions herein contained, shall be valid unless made in writing and signed by a duly authorized representative of each party.

 

ARTICLE 20. GOVERNING LAW

 

20.            The validity and interpretation of this Agreement and the legal reactions of the parties to it shall be governed by the laws of New York, USA, without regard to the conflict of laws provisions thereunder, except that questions affecting the construction and effect of any patent shall be determined by the law of the country in which the patent was granted.

 

ARTICLE 21. CAPTIONS

 

21.            The captions are provided for convenience and are not to be used in construing this Agreement.

 

ARTICLE 22. CONSTRUCTION

 

22.            Each of the parties agrees that this Agreement is the result of mutual negotiation and therefore the language herein shall not be presumptively construed against either of them.

 

ARTICLE 23. COUNTERPARTS

 

23.            This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument.

 



 

ARTICLE 24. BINDING EFFECT

 

24.            This Agreement shall be binding upon and inure to the benefit of the parties and their respective permitted successors and assigns.

 

ARTICLE 25. FORCE MAJEURE

 

25. If either party’s performance of any obligation under this Agreement is prevented, restricted, interfered with or delayed by reason of any force majeure cause such as floods, fires, riots, insurrections, explosions, other natural disasters or serious labor disputes beyond the reasonable control of the party required to perform, the party so affected, upon giving written notice and written evidence of such force majeure to the other party, shall be excused from such performance to the extent of such prevention, restriction, interference, or delay; provided that the affected party shall use its commercial reasonable efforts to avoid or remove such causes of non-performance and shall continue performance with the utmost dispatch whenever the force majeure is removed. Any such force majeure shall not excuse any monetary failure or late payment obligation.

 

[The signature page follows]

 



 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives as of the date first above written.

 

TROVAGENE, INC

 

MLL Münchner Leukämielabor GmbH

 

 

 

 

 

 

By:

 

 

By:

 

 

 

 

 

 

 

 

 

 

 

Name:

 

 

Name:

 

 

 

 

 

 

 

 

 

 

 

Title:

 

 

Title:

 

 


Exhibit 10.16

 

SUBLICENSE AGREEMENT

 

THIS SUBLICENSE AGREEMENT (“Agreement”) effective as of June 15, 2010 (the “Effective Date”) is by and between TROVAGENE Inc, a New York corporation having its principal office at 11055 Flintkote Ave, Suite B, San Diego CA 92121, United States of America (“TROVAGENE”) and Skyline Diagnostics BV, a Dutch corporation having its principal office at Erasmus University Medical Center, Dr. Molewaterplein 50, EE 19-71, 3015 GD Rotterdam, The Netherlands (“SKYLINE”).

 

WITNESSETH:

 

WHEREAS, TROVAGENE is the exclusive licensee of the Patent Rights (as defined below) relating to the Field (as defined below) under the Exclusive License Agreement (as defined below) and is willing to grant to SKYLINE a royalty-bearing Sublicense (as defined below) in the Territory to use such Patent Rights in the Field on the terms and conditions set forth herein;

 

WHEREAS, SKYLINE has developed and is the owner of the AML Profiler® platform, a dedicated diagnostic microarray based on the Affymetrix GeneChip platform;

 

WHEREAS, SKYLINE desires to obtain the Sublicense described above and to extend its AML Profiler ® with methods to detect mutations in NPM1 on the terms and conditions set forth herein; and

 

WHEREAS, TROVAGENE is willing to grant SKYLINE such Sublicense under the Patent Rights on the terms and conditions set forth herein;

 

NOW THEREFORE, in consideration of the mutual covenants herein contained and intending to be legally bound hereby, the parties hereto agree as follows:

 

ARTICLE 1. DEFINITIONS

 

1.1            “Affiliate(s)” shall mean any corporation or other business entity which controls, is controlled by, or is under common control with a party to this Agreement; “control” meaning the ownership, direct or indirect, of fifty percent (50%) or more of the voting stock or analogous interest in such corporation or other business entity.

 

1.2            “AML Profiler®” shall mean the SKYLINE owned dedicated diagnostic microarray based on, for example, the Affymetrix GeneChip platform, as manufactured by Affymetrix (USA), for the detection of several chromosomal aberrations, gene mutations and the expression of relevant prognostic genes in samples from patients with Acute Myeloid Leukemia. For the avoidance of doubt, AML Profiler® also includes any future, upgraded, updated, successor and/or

 

1



 

otherwise amended devices SKYLINE makes or has made for the testing of AML Profiler® in patient samples.

 

1.3            “Exclusive License Agreement” shall mean the exclusive license agreement dated May 2006 (and any amendments thereto) by and between TROVAGENE on the one hand, and Brunagelo Falini and Cristina Mecucci (jointly “Original Licensor”) on the other hand.

 

1.4            “Field” shall mean Laboratory Services rendered for the testing, analysis, and interpretation of nucleophosmin (nucleolar phosphoprotein B23 numatrin) mutations as defined by Patent Rights (NPM) in human clinical samples including using the AML Profiler®.

 

1.5            “Laboratory Services” shall mean any fee for reference laboratory service, or part thereof, performed by SKYLINE or by SKYLINE authorized or subcontracted reference laboratories in the Territory that when used, commercialized or marketed in the Territory would infringe on any Valid Claim of the Patent Rights absent the Sublicense herein granted. This includes the use of the AML Profiler® in methods to test for and analyze NPM mutations but is not limited to the use of AML Profiler® by Affymetrix or another third party.

 

1.6            “Net Revenues” shall mean the gross amount received by SKYLINE or its Affiliate(s) for the Laboratory Services sold to non-Affiliate third parties less the following acceptable deductions:

 

(a)            volume or other discounts allowed in amounts customary in the trade;

(b)            sale and/or use taxes and VAT, duties and any other governmental charges directly imposed and with reference to particular sales;

(c)            amounts allowed or credited on returns;

(d)            bad debts as described below;

(e)            transportation and freight charges, including insurance and handling fees, to the extent they are included in the price charged by SKYLINE or its Affiliate(s).

 

Bad debts for which loyalties have been paid or are to be paid may be deducted from the Net Revenues; bad debt are considered sales invoiced and not paid within a period of twelve (12) months after the date of invoice. Any royalties paid against bad debts, may be deducted from the amount payable over the subsequent Reporting Period. At no time shall a deduction for bad debt exceed 5% of Gross Revenue.

 

No deductions shall be made for commissions paid to individuals whether they are with independent sales agents or regularly employed by SKYLINE and its Affiliate(s) and on their payroll. The Services shall be considered “sold” when billed out or invoiced by SKYLINE or its Affiliate.

 

2



 

1.7            “Patent Rights” shall mean Patent Application PCT/IT2005/000634 filed October 28, 2005 entitled “Nucleophosmin protein (NPM) mutants, corresponding gene sequences and uses thereof” (published as WO 2006/046270), and foreign equivalents, including Canadian Patent Application 2585965 as well as all continuations, divisions, reissues, re-examinations, renewals, or extensions of such patents subject to the rights granted by Original Licensor to TROVAGENE pursuant to the Exclusive License Agreement including any improvements to the Patent Rights or improvement Patent Rights, which come into TROVAGENE right to use and sublicense as limited by this Agreement.

 

1.8            “Product(s)” shall mean any product or part thereof that when made, have made, used, offered to sell, sold or marketed in the Territory would infringe on any Valid Claim of the Patent Rights absent the Sublicense herein granted.

 

1.9            “Term” shall mean from the Effective Date until the expiration or abandonment of all the Patent Rights.

 

1.10          “Territory” shall mean either, a) the country of The Netherlands, b) “Europe” which shall be defined as including all countries of the European Union, Switzerland, Norway, Liechtenstein, and Iceland, c) all countries of the World excluding the United States and its Territories (herein after “United States”), or d) all countries of the World. At any given point during the Term of this Agreement the definition of Territory will be determined by the current status of the options exercised by SKYLINE as provided in 4.2 — 4.5 and 7.2 below.

 

1.11          “Valid Claim” shall mean a claim of an unexpired patent or patent application of the Patent Rights that has neither been withdrawn, canceled, or disclaimed, nor held invalid or unenforceable by a court of competent jurisdiction in an unappealed or unappealable decision.

 

ARTICLE 2. GRANT OF RIGHTS

 

2.1            TROVAGENE hereby grants to SKYLINE, subject to all the terms and conditions of this Agreement a non-exclusive, royalty-bearing Sublicense under the Patent Rights in the Territory in the Field during the Term. “Sublicense” as used herein means a license to use the Patent Rights to i) make, have made, use, offer to sell, sell and market the Laboratory Services in the Field, ii) make or have made the AML Profiler® with features for NPM1 analysis for use in Laboratory Services and iii) use, develop, practice, commercialize, and otherwise fully exploit the Laboratory Services and to have the Laboratory Services or part thereof carried out by or subcontracted to third party laboratories appointed by SKYLINE. For purposes of clarity the rights granted herein include the right for SKYLINE to provide the AML Profiler® for NPM1 analysis at no charge as well as other materials to the subcontracted lab, methods and know-how necessary for a third party subcontracted lab to perform the testing of the sample, but in all such cases,

 

3



 

SKYLINE is responsible for the analysis, interpretation, billing for and reporting of results to the subcontracted laboratory for the Laboratory Services. Any fees or costs incurred by SKYLINE related to work performed by subcontractors in the course of Laboratory Services are to be borne solely by SKYLINE and shall not be deducted when calculating Net Revenues.

 

SKYLINE shall have no right to further sublicense and any third party subcontracted lab utilizing the AML Profiler®, materials, methods, and other know-how provided by SKYLINE to perform the test may do so solely for the purposes of sending the AML Profiler® data to SKYLINE for analysis, interpretation and reporting. SKLYINE may report results to the subcontracted lab and invoice the subcontracted lab for the Laboratory Services.

 

2.2            SKYLINE shall have no right during the Term to make, have made, offer to sell, sell and market Products in the Field or use Patent Rights in any way for development and commercialization of therapeutic products other than the rights granted for the Laboratory Services and pursuant to Article 2.1. For the purposes of clarity, this Sublicense specifically excludes the right to sell the AML Profiler® or any other Product(s) that when used would cause an infringement on a Valid Claim.

 

ARTICLE 3. DUE DILIGENCE

 

3.1            SKYLINE shall use diligent efforts to develop and sell licensed Laboratory Services derived from the Patent Rights into the commercial market as soon as practicable, consistent with sound and reasonable business practice and judgment, and shall provide TROVAGENE with reports and payments within sixty (60) days following the close of each Reporting Period as defined below beginning with the calendar year in which the first commercial sale of Laboratory Services have been effectuated.

 

ARTICLE 4. PAYMENTS

 

4.1            In consideration of a non-exclusive license under the Patent Rights SKYLINE shall pay to TROVAGENE a royalty of (a) one percent (1%) on Net Revenues or (b) $20 per reported test, whichever is the greater. Such royalty payments shall apply for all sales of Laboratory Services in each country of the Territory where such Valid Claims to the Patent Rights exists. Royalty payments will commence on sale of the first Laboratory Service. Royalties shall be paid in US dollars. Conversion of the Euro or any other currency into US Dollars shall be made at the official exchange rate as published by the European Central Bank at the exchange rate prevailing on the day before the royalty due is paid by SKYLINE to TROVAGENE.

 

4



 

4.2            Upon execution of this Sublicense Agreement, and within 30 days of the Effective Date, SKYLINE will pay TROVAGENE a one time upfront fee in the amount of $10,000 and Territory will be defined as a) the country of The Netherlands.

 

4.3            SKYLINE will pay TROVAGENE an additional one time milestone fee in the amount of $20,000 upon (a) receiving CE mark clearance for marketing the AML Profiler® in Europe, which includes the featuring of NPM1 analysis, or (b) first sale of Laboratory Services in Europe in a country other than the Netherlands at which time Territory will be defined as b) Europe including all countries of the European Union, Switzerland, Norway, Liechtenstein, and Iceland.

 

4.4            SKYLINE, at its sole discretion, may expand the definition of Territory to c) all countries of the World excluding the United States and will pay TROVAGENE an additional one-time milestone fee in the amount of $20,000 upon commencement of Laboratory Services in the first country outside Europe, excluding the United States, for which Valid Claims to the Patent Rights exist.

 

4.5            SKYLINE, at its sole discretion, may expand the definition of Territory to d) all countries of the World and will pay TROVAGENE an additional one-time milestone fee in the amount of $30,000 upon commencement of Laboratory Services in the United States.

 

4.5.1         Beginning from the date of the first sale of Laboratory Services in the United States SKYLINE will be obligated to pay annual minimum royalties in the amounts shown in the table below based on Net Revenues of Laboratory Services in the United States. Each year, in the quarter following the anniversary of the commencement of Laboratory Services in the United States, SKYLINE will report the sum of actual royalties paid against Net Revenues from Laboratory Services in the United States as required in 4.1 above and, if the actual royalties paid are less than the minimum royalty due for that year, will pay the difference between the sum of the actual royalties paid for Laboratory Services in the United States and the annual minimum royalty due for that year.

 

Annual Schedule for United States

 

Minimum Royalty Due

 

1 st  year of Laboratory Services

 

$

10,000

 

2 nd  Year of laboratory Services

 

$

15,000

 

3 rd  year of Laboratory Services and each year thereafter

 

$

20,000

 

 

4.6            In the event no Valid Claim in the Patent Rights are granted, exist, or the Valid Claims are abandoned in a country of the Territory or in the event the Laboratory Services do not fall under a Valid Claim in the Patent Rights, SKYLINE shall no longer owe TROVAGENE any royalties on Net Revenues for any such country of the Territory. In such case (s) any such country of the Territory is then excluded

 

5



 

from royalty reporting and payments, SKYLINE will have no right to reclaim any royalty or fee payments previously made under this Sublicense.

 

4.7            In the event of any proceeding or suit (“Suit”) before any court, agency, or tribunal involving the validity, infringement or enforceability of any Valid Claim, the development and use is enjoined or otherwise prohibited, SKYLINE may for the period from the date of the filing of such Suit to the date of such injunction or prohibition from which no appeal can be taken or is taken, uphold royalty payment. If in the proceeding of such Suit any such Valid Claim has been held valid or not infringing or enforceable by a final judgment, decree or decision from which no appeal can be taken or for which no appeal is taken, the upheld royalty amounts shall be paid to TROVAGENE within 30 days of such judgment. If any such Valid Claims have been held invalid or not infringed or unenforceable by a final judgment, decree or decision from which no appeal can be taken or no appeal is taken, SKYLINE will be free of any future royalty obligation hereunder.

 

4.8            TROVAGENE agrees that to the extent it grants a new Sublicense under the Patent Rights to a third party such terms and conditions shall be substantially similar to those for which SKYLINE has been granted the Sublicense based on Territory and Field.

 

ARTICLE 5. REPORTS AND RECORDS

 

5.1            SKYLINE shall maintain and cause its Affiliate(s) to maintain true, accurate and complete books of account, records and files containing an accurate record of all data reasonably necessary for the full computation and verification of sales and the determination of the amounts payable under Article 4 hereof for a period of at least three (3) years following the period of each report required by Section 5.2 below.

 

5.2            After the first commercial sale of the Laboratory Services, SKYLINE shall deliver to TROVAGENE within sixty (60) days following the close of each Reporting Period true and accurate reports, giving such particulars of the business conducted by SKYLINE and its Affiliate(s) during the preceding Reporting Period under this Agreement as shall be pertinent to a royalty and fee accounting hereunder. The Reporting Period and Payments of royalties are due as follows:

 

5.2.1        To the extent that Net Revenues are recorded only in The Netherlands the Reporting Period shall be annually.

 

5.2.2         At the commencement of Net Revenues recorded in any country other than The Netherlands within Europe the Reporting Period shall be semi-annually for all countries.

 

5.2.3         At the commencement of Net Revenues recorded outside of the Europe the Reporting Period shall be quarterly for all countries.

 

These reports shall include at least the following:

 

6



 

(a)            number of the Laboratory Services sold in each country by SKYLINE and its Affiliate(s) and paid by customers either directly or indirectly through appointed third party laboratories;

(b)            Gross sales of any invoices that include any amounts received from customers for the Laboratory Services sold by SKYLINE and its Affiliate(s)

(c)            deductions applicable as provided in Section 1.6 including those for bad debt;

(d)            total royalties and fees due; and

(e)            amounts of withholding taxes.

 

5.3            Said books and records shall be kept at SKYLINE’s and/or its Affiliate(s) principal place of business and shall be in accordance with generally accepted accounting principles, consistently applied. Said books and records, to the extent not previously audited, shall be available for inspection and copying by an independent certified public accountant selected by TROVAGENE and reasonably acceptable to SKYLINE and/or its Affiliate(s), upon ten (10) business days advance notice and during regular business hours for the sole purpose to enable TROVAGENE to ascertain the correctness of any report and/or payment made under this Agreement. TROVAGENE shall pay the fees and expenses of the accountant engaged to perform the audit, unless such audit reveals an undisputed underpayment of five percent (5%) or more for the period examined, in which case SKYLINE shall pay within thirty (30) days the reasonable fees and expenses charged by the accountant in addition to any amounts due. Any overpayment established by the accountant shall be reimbursed by TROVAGENE within thirty (30) days from the day of the accountant’s report.

 

5.4            SKYLINE shall pay to TROVAGENE the actual royalties due and payable as provided for in Sections 4.1 and 5.2. If no actual royalties are due, SKYLINE shall so report.

 

ARTICLE 6. PATENT PROSECUTION; INFRINGEMENT

 

6.1            The prosecution, filing and maintenance of the Patent Rights in the Territory shall be the responsibility of and managed by TROVAGENE. TROVAGENE shall, twice yearly in June and December, submit to SKYLINE a full report relating to the Patent Rights, the rights granted, opposition procedures and the like for the Territory. TROVAGENE warrants and represents to use all reasonable efforts to pursue the patent applications in each country of the Territory diligently and to obtain patents at the earliest time possible in each country of the Territory.

 

6.2            In the event of any invention made by SKYLINE relating to the licensed Patent Rights (“New Inventions”), SKYLINE will be the owner of such New Inventions and has the right to file, prosecute and maintain any patent for such New

 

7



 

Inventions in any country of its choice. Prior to any filings or applications for New Inventions SKYLINE will provide TROVAGENE with ninety (90) days written notice of its intent to file or pursue protection for such New Invention for the purposes of providing TROVAGENE the opportunity to negotiate in good faith rights or terms to participate in such action. Any such New Invention does explicitly not include any future, upgraded, updated, successor and/or otherwise amended microarray in connection with the AML Profiler®.

 

In the event the parties agree on TROVAGENE filing, prosecuting and maintaining any patent applications directed to such New Inventions that are related to Patent Rights and the terms thereto whether owned solely or jointly with SKYLINE, SKYLINE shall cooperate with TROVAGENE in the filing, prosecution and maintenance of all such New inventions. Such cooperation includes, without limitation, (a) promptly executing all papers and instruments or requiring its employees to execute such papers and instruments as reasonable and appropriate so as to enable TROVAGENE to file, prosecute and maintain such New Inventions in any country; and (b) promptly informing TROVAGENE of matters that may affect the preparation, filing, prosecution or maintenance of any such New Inventions.

 

6.3        (a)       SKYLINE agrees to provide TROVAGENE with prompt written notice after becoming aware of any infringement of any of the Patent Rights or New Inventions (if such New Inventions are filed in TROVAGENE’ name) in the Field and of any available evidence thereof.

 

(b)   TROVAGENE shall have the right, but not the obligation, under its control and at its sole expense, to prosecute any third party infringement of the Patent Rights or New Inventions filed in its name or to defend the Patent Rights or New Inventions filed in its name in any declaratory judgment action brought by a third party which alleges the invalidity, unenforceability or non-infringement of any Patent Rights. SKYLINE agrees to cooperate fully in any action under this Section 6.3, provided that TROVAGENE reimburses material costs and expenses incurred with providing such assistance. At all times SKYLINE, at its discretion is entitled to join in such action of TROVAGNE with its own counsel, reasonably acceptable to TROVAGENE, at its own cost. If TROVAGENE does not commence a particular infringement action within ninety (90) days, SKYLINE, after notifying TROVAGENE in writing shall have the right, but not the obligation, to bring such infringement action at its own expense and under its full control. TROVAGENE agrees to cooperate fully in any such action brought by SKYLINE.

 

(c)   If no action is brought by either party, SKYLINE is free from any future royalty obligation hereunder in respect of the country in which such infringement takes place.

 

8



 

6.4            TROVAGENE hereby undertakes to notify SKYLINE promptly should the Patent Rights lapse for failing to meet a deadline, should the Original Licensor and/or TROVAGENE decide to stop pursuing the Patent Rights or should the Patent Rights not be allowed in any country of the Territory for any reason, and SKYLINE will be free of any royalty obligation hereunder.

 

6.5            If during the term of this Agreement either party receives notice, claim, or proceedings from any third party alleging infringement of that third party’s intellectual property as a result of either party’s activities in relation to this Agreement or use and exploitation of the Patent Rights licensed hereunder, the party receiving notice shall (i) forthwith notify the other party of such notice, claim or proceeding; (ii) make no admission of liability; (iii) SKYLINE shall give TROVAGENE the conduct of defense of such claims or proceedings including the right to settle and (iv) SKYLINE shall uphold any royalty payment, until a final decision has been taken either by court or through settlement.

 

ARTICLE 7. TERM AND TERMINATION

 

7.1            Should SKYLINE fail to pay TROVAGENE any amounts due hereunder, TROVAGENE shall have the right to terminate this Agreement on forty-five (45) days prior written notice, unless SKYLINE shall pay TROVAGENE within said forty-five (45) day period such delinquent amounts and interest within said period.

 

7.2            SKYLINE shall have the right to terminate this Agreement and all rights, privileges and the Sublicense granted hereunder at any time upon sixty (60) days prior written notice to TROVAGENE. Should SKYLINE elect to terminate this Agreement SKYLINE will report and pay within sixty (60) days of the termination date all outstanding royalties or fees due as defined in Section 4 and shall have no right to reclaim any royalty or fee payments previously made under this Sublicense.

 

SKYLINE shall have the right to terminate only that portion of this Agreement and all the rights, privileges and the Sublicense granted hereunder as included and defined in 4.5 above by providing written notice to TROVAGENE. Upon such notice the definition of Territory shall revert to c) all the countries of the World excluding the United States, and SKYLINE shall report and pay within sixty (60) days of the notice of termination all outstanding royalties due including a prorated minimum royalty. The prorated minimum royalty will be calculated based on the notification date of termination against the anniversary date as defined in 4.5.1 above and applied as a percentage against the minimum royalty due for that year for Laboratory Services in the United States.

 

7.3            Upon any material breach or default of this Agreement by either party, including without limitation SKYLINE’s material failure to comply with Section 3 hereof,

 

9



 

the other party shall have the right to terminate this Agreement upon sixty (60) days written notice to the breaching/defaulting party. Such termination shall become effective immediately at the conclusion of such notice period unless the breaching/defaulting party shall have cured any such breach or default prior to the expiration of said sixty (60) day period.

 

7.4                                  Upon termination of this Agreement for any reason, nothing herein shall be construed to release either party from any obligation that matured prior to the effective date of such termination. The provisions of Articles 4 (with respect to any payments outstanding as of the termination date), 5, (only for one year after termination of the Agreement). 6, 7, 8, 9, 10, 11, 13, 15, 18, and 20, shall survive the expiration or any earlier termination of this Agreement.

 

ARTICLE 8. INDEMNIFICATION

 

8.1                                  TROVAGENE agrees to indemnify, hold harmless and defend SKYLINE, its Affiliates, agents and employees from and against any and all liabilities, losses, damages, costs, fees and expenses, including reasonable legal expenses and attorneys’ fees (collectively, “Losses”) arising out of suits, claims, actions, or demands, brought or made by a third party (“Third Party Claim”) against SKYLINE, its Affiliates, subcontractors, agents and employees, based on breach of TROVAGENE’s warranties under Article 9 below, except to the extent such Losses or Third Party Claims result from the negligence or wilful misconduct of SKYLINE, its Affiliates, subcontractors, agents and employees or a breach of SKYLINE’s warranties under Article 9 below.

 

8.2                                  SKYLINE agrees to indemnify, hold harmless and defend TROVAGENE, its Affiliates, agents and employees from and against any and all Losses arising out of any Third Party Claims against TROVAGENE, its Affiliates, agents and employees based on (i) SKYLINE’S breach of SKYLINE’s warranties under Article 9 below, or (ii) the manufacture, use, handling, storage, sale or other disposition of Laboratory Services by SKYLINE, its Affiliates, agents, and employees, all except to the extent such Losses or Third Party Claims result from the negligence or wilful misconduct of TROVAGENE, or a breach of TROVAGENE’s warranties under Article 9 below.

 

ARTICLE 9. REPRESENTATIONS, WARRANTIES AND DISCLAIMERS

 

9.1                                  TROVAGENE represents and warrants to SKYLINE (i) that it has the right to sublicense the Patent Rights in Territory and that TROVAGENE has received the appropriate written authorization from the Original Licensors to enter into this Agreement, and (ii) that it has the right and power to extend the rights and the Sublicense granted herein and to perform its obligations hereunder, (iii) that this Agreement is a valid and binding agreement, enforceable in accordance with its

 

10



 

terms, (iv) that it is not and shall during the term of this Agreement not be in default under the Exclusive License Agreement, and there has not occurred any event which, with a lapse of time or giving of notice, or both, would constitute such a default, (v) that it shall not terminate or amend, during the term of this Agreement, the Exclusive License Agreement to the detriment of SKYLINE. There has not been any default by any party or dispute between TROVAGENE and any party under the Exclusive License Agreement, (v) as of the Effective Date, it has no actual knowledge of any conflict of any kind with any inventor(s) listed or any of the owner of the Patent Rights, which may restrict it from entering into this Agreement, granting the rights or fulfilling its obligations hereunder, (vi) as of the Effective Date, the Patent Rights are in good standing and have not lapsed for failing to meet a deadline and they have diligently been prosecuted and maintained, (vii) as of the Effective Date no person has challenged by way of a notice in writing the validity of any claim comprised within the Patent Rights, and (viii) as of the Effective Date there are no judicial, arbitral, regulatory or administrative proceedings or investigations, claims, actions or suits relating to the inventions disclosed in the Patent or their use, making, commercialization, practice or any other exploitation thereof pending against the Original Licensors, their Co-exclusive Product-right holders or, TROVAGENE, its Affiliates or any of TROVAGENE, sublicensees in any court or by or before any governmental body or agency and, to the best of TROVAGENE’ knowledge, no such judicial, arbitral, regulatory or administrative proceedings or investigations, actions or suits have been threatened against the Original Licensors, their Co-exclusive Product-right holders, TROVAGENE, its Affiliates or any of TROVAGENE’s sublicensees and; ix) the use of the AML Profiler® including features for NPM analysis manufactured by Affymetrix (USA) as a component of the laboratory developed test which is being provided as a Laboratory Service does not conflict with any of the rights under the Patent Rights of the Co-exclusive Product-right holders or any other party.

 

9.2                                  SKYLINE hereby represents and warrants to TROVAGENE that it has the right and power to enter into this Agreement and to perform its obligations, and that this Agreement is a valid and binding agreement, enforceable in accordance with its terms. SKYLINE agrees that it shall comply and cause its Affiliate(s) to comply with all applicable local laws and regulations in Territory relating to the design, sale, use, delivery in commerce and promotion of the Laboratory Services.

 

9.3                                  EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN SECTION 9, TROVAGENE MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY PATENT RIGHT, TRADEMARK, SOFTWARE, NON-PUBLIC OR OTHER INFORMATION, OR TANGIBLE RESEARCH PROPERTY, LICENSED OR OTHER WISE PROVIDED TO SUBLICENSEE HEREUNDER AND HEREBY DISCLAIMS THE SAME. TROVAGENE DOES NOT WARRANT THE VALIDITY OF THE PATENT RIGHTS SUBLICENSED HEREUNDER AND MAKES NO REPRESENTATION WHATSOEVER WITH REGARD TO THE SCOPE OF THE SUBLICENSED

 

11



 

PATENT RIGHTS OR THAT SUCH PATENT RIGHTS MAY BE EXPLOITED BY SUBLICENSEE OR ITS AFFILIATE (S) WITHOUT INFRINGING ON OTHER PATENTS.

 

9.4                                  NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT. SUBLICENSEE ASSUMES ALL RESPONSIBILITY AND LIABILITY FOR ANY LOSS OR DAMAGES CAUSED BY THE LABORATORY SERVICES, USED, DELIVERED, SOLD OR PROVIDED BY SUBLICENSEE AND ITS AFFILIATE(S) AND APPOINTEES THAT ARE SUBJECT TO THIS AGREEMENT UNLESS THE SAME HAS RESULTED FROM ANY MATERIAL BREACH OF AN OBLIGATION, REPRESENTATION, WARRANTY BY TROVAGENE UNDER THIS AGREEMENT OR ACTION, INACTIONS, OR MISREPRESENTATIONS ON THE PART OF TROVAGENE.

 

ARTICLE 10. NOTICE

 

10.1                            Any consent, notice or report required or permitted to be given or made under this Agreement shall be in writing, delivered (i) by certified or registered mail (postage prepaid, return receipt requested), (ii) by facsimile (and promptly confirmed by personal delivery or overnight courier or (iii) by courier (postage prepaid and signature required), and in any case addressed to the other party at its address set forth in this Article 10, and shall be effective upon receipt by the addressee.

 

10.2                            Reports, notices and other communication from SKYLINE to TROVAGENE as provided hereunder shall be sent to:

 

TROVAGENE Inc

Attention:                                          CFO

11055 Flintkote Ave.

Suite B

San Diego, CA 92121

USA

With a copy to:

Ivor Elrifi

MINTZ LEVIN

666 Third Avenue

New York, NY 10017

 

or to such other individual or address as shall hereafter be furnished by written notice to SKYLINE in accordance with this Article 10.

 

10.3                            Reports, notices and other communications from TROVAGENE to SKYLINE as provided hereunder shall be sent to:

 

12



 

Skyline Diagnostics BV

 

 

Attention:

Dr. Henk Viëtor (or his successor)

 

 

 

Erasmus University Medical Center

 

 

 

Dr. Molewaterplein 50, EE 19-71

 

 

 

3015 GD Rotterdam

 

 

 

The Netherlands

 

 

 

 

 

 

With a copy to:

 

 

 

 

SKYLINE BV.

 

 

 

Erasmus University Medical Center

 

 

 

Dr. Molewaterplein 50, EE 19-71

 

 

 

3015 GD Rotterdam

 

 

 

The Netherlands

 

 

 

or to such other individual or address as shall hereafter be furnished by written notice to TROVAGENE in accordance with this Article 10.

 

ARTICLE 11. DISPUTE RESOLUTION

 

11.1.                         Any dispute, controversy or claim arising under, out of or relating to this contract and any subsequent amendments of this contract, including, without limitation, its formation, validity, binding effect, interpretation, performance, breach or termination, as well as non-contractual claims, shall be submitted to mediation in accordance with the World intellectual Property Organization (“WIPO”) Mediation Rules. The place of mediation shall be Geneva, Switzerland. The language to be used in the mediation shall be English.

 

11.2                            If, and to the extent that, any such dispute, controversy or claim has not been settled pursuant to the mediation within 60 days of the commencement of the mediation, it shall, upon the filing of a Request for Arbitration by either party, be referred to and finally determined by arbitration in accordance with the WIPO Expedited Arbitration Rules. Alternatively, if, before the expiration of the said period of 60 days, either party fails to participate or to continue to participate in the mediation, the dispute, controversy or claim shall, upon the filing of a Request for Arbitration by the other party, be referred to and finally determined by arbitration in accordance with the WIPO Expedited Arbitration Rules. The place of arbitration shall be Geneva, Switzerland. The language to be used in the arbitral proceedings shall be English. The dispute, controversy or claim referred to arbitration shall be decided in accordance with the laws of New York, USA.

 

11.3                            Notwithstanding the foregoing, nothing in this Article shall he construed to waive any rights or timely performance of any obligations existing under this Agreement.

 

13



 

ARTICLE 12. RESTRICTION ON USE OF NAME

 

12.1                            SKYLINE shall neither use nor cause its Affiliate(s) to use the name of TROVAGENE, its directors, officers, trustees, Affiliate(s), employees, or any adaptations thereof, in any advertising, promotion or sale literature without the prior written consent of TROVAGENE. With respect to reports to public agencies that are required by law, SKYLINE shall provide TROVAGENE with a reasonable opportunity to review the use of its name in such reports reasonably in advance of submission.

 

12.2                            SKYLINE shall neither disclose nor cause its Affiliate (s) to disclose this Agreement or any of the terms or conditions of this Agreement to any third party without the prior written consent of TROVAGENE except and to the extent required to comply with applicable laws or regulations; provided that, SKYLINE delivers prior written notice to TROVAGENE of any disclosure required by applicable laws or regulations and takes all reasonable and lawful actions to obtain confidential treatment for such disclosure and, if possible, to minimize the extent of such disclosure.

 

ARTICLE 13. CONFIDENTIALITY

 

13.1                            During the term of this Agreement, each party (the “disclosing party”) may communicate to the other party (the “receiving party”) information which it considers to be confidential (“Confidential Information”). All Confidential Information shall be specifically designated as confidential. Such Confidential Information may include, without limitation, trade secrets, know-how, inventions, technical data or specifications, testing methods, business or financial information, research and development activities, product and marketing plans, and customer and supplier information. Confidential Information that is disclosed orally or visually shall be documented in a written notice prepared by the disclosing party and delivered to the receiving party within thirty (30) days of the date of disclosure; such notice shall summarize the Confidential Information disclosed to the receiving party and reference to the time and place of disclosure.

 

13.2                            The receiving party agrees that it shall: (a) maintain all Confidential Information in strict confidence, except that the receiving party may disclose or permit the disclosure of any Confidential Information to its directors, officers, employees, consultants, and advisors who are obligated to maintain the confidential nature of such Confidential Information and who need to know such Confidential Information for the purpose set forth in this Agreement; (b) use all Confidential Information solely for the purpose set forth in this Agreement; and (c) allow its directors, officers, employees, consultants, and advisors to reproduce the Confidential Information only to the extent necessary to effect the purposes set

 

14



 

forth in this Agreement, with all such reproductions being considered Confidential Information.

 

13.3                            The obligations of the receiving party under Section 13.2 above shall not apply to the extent that the receiving party can demonstrate that certain Confidential Information: (a) was in the public domain prior to the time of its disclosure under this Agreement; (b) entered the public domain after the time of its disclosure under this Agreement through means other than an unauthorized disclosure resulting from an act or omission by the receiving party; (c) was independently developed or discovered by receiving party without use or the Confidential Information; (d) is or was disclosed to the receiving party at any time, whether prior to or after the time of its disclosure under this Agreement, by a third party having no fiduciary relationship with the disclosing party and having no obligation of confidentiality with respect to such Confidential Information; or (e) is required to be disclosed to comply with application laws or regulation, or with a court or administrative order, provided that, the disclosing party receives prior written notice of such disclosure and that the receiving party takes all reasonable and lawful actions to obtain confidential treatment for such disclosure and, if possible, to minimize the extent of such disclosure.

 

13.4.                         The obligations set forth in this Article 13 shall remain in effect for a period of five (5) years after the expiration or the earlier termination of this Agreement.

 

ARTICLE 14. PATENT MARKING

 

14.                                  If required by laws or regulations, SKYLINE agrees to mark any Laboratory Services, reports, testing results, promotional material, technical literature and the like with all applicable patent numbers, and where appropriate, to indicate “Patent Pending” status in accordance with each applicable country’s patent laws.

 

ARTICLE 15. INDEPENDENT CONTRACTOR

 

15.                                  For the purpose of this Agreement and all services to be provided hereunder, both parties shall be, and shall be deemed to be, independent contractors and not agents or employees of the other. Neither party shall have authority to make any statements, representations or commitments of any kind, or to take any action, that will be binding on the other party.

 

ARTICLE 16. SEVERABILITY

 

16.                                  If any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby

 

15



 

unless the invalid provisions are of such essential importance to this Agreement that it is to be reasonably assumed that the parties would not have entered into this Agreement without the invalid provisions.

 

ARTICLE 17. NON-ASSIGNABILITY

 

17.                                  Neither this Agreement nor any part hereof shall be assignable by either party without the express prior written consent of the other, which shall not be unreasonably withheld. Any attempted assignment without such consent shall be void. A change in control of SKYLINE shall not be considered as an assignment of this Agreement and therefore shall not require the prior written consent of TROVAGENE. For the purpose of this Article 17, “change in control” shall mean the occurrence of any transaction that results in the sale of more than 50% of the current outstanding issued shares or interests of SKYLINE to a third party, or the sale of all or substantially all of the assets of SKYLINE.

 

ARTICLE 18. ENTIRE AGREEMENT

 

18.                                  This Agreement constitutes the entire agreement between the parties with respect to the subject matter and supersedes any prior agreements and understandings between the parties relating to the subject matter hereof. No verbal agreement, conversation or representation between any officers, agents or employees of the parties hereto either before or after the execution of this Agreement shall affect or modify any of the terms or obligations herein contained.

 

ARTICLE 19. MODIFICATIONS IN WRITING

 

19.                                  No change, modification, extension, termination or waiver of this Agreement, or any of the provisions herein contained, shall be valid unless made in writing and signed by a duly authorized representative of each party.

 

ARTICLE 20. GOVERNING LAW

 

20.                                  The validity and interpretation of this Agreement and the legal reactions of the parties to it shall be governed by the laws of the State of New York, USA, without regard to the conflict of laws provisions thereunder, except that questions affecting the construction and effect of any patent shall be determined by the law of the country in which the patent was granted.

 

16



 

ARTICLE 21. CAPTIONS

 

21.                                  The captions are provided for convenience and are not to be used in construing this Agreement.

 

ARTICLE 22. CONSTRUCTION

 

22.                                  Each of the parties agrees that this Agreement is the result of mutual negotiation and therefore the language herein shall not be presumptively construed against either of them.

 

ARTICLE 23. COUNTERPARTS

 

23.                                  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument.

 

ARTICLE 24. BINDING EFFECT

 

24.                                  This Agreement shall be binding upon and inure to the benefit of the parties and their respective permitted successors and assigns.

 

ARTICLE 25. FORCE MAJEURE

 

25.                                  If either party’s performance of any obligation under this Agreement is prevented, restricted, interfered with or delayed by reason of any force majeure cause such as floods, fires, riots, insurrections, explosions, other natural disasters or serious labor disputes beyond the reasonable control of the party required to perform, the party so affected, upon giving written notice and written evidence of such force majeure to the other party, shall be excused from such performance to the extent of such prevention, restriction, interference, or delay; provided that the affected party shall use its commercial reasonable efforts to avoid or remove such causes of non-performance and shall continue performance with the utmost dispatch whenever the force majcure is removed.

 

[The signature page follows]

 

17



 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives as of the date first above Written.

 

TROVAGENE INC

 

SKYLINE DIAGNOSTICS BV

 

 

 

 

 

 

 

 

By:

/s/ Bruce Huebner

 

By:

/s/ Henk Viëtor

 

 

 

 

 

Name:

Bruce Huebner

 

Name:

Henk Viëtor

 

 

 

 

 

Title:

President & CEO

 

Title:

CEO

 

18


Exhibit 10.20

 

EXCLUSIVE LICENSE AGREEMENT

 

This Exclusive License Agreement (this “ Agreement ”) is made effective as of December 12, 2011 (the “ Effective Date ”) by and between Columbia University, 412 Low Memorial Library 535 West 116th St., Mail Code 4308, New York, NY 10027 (“ Licensor ”), and Trovagene, Inc., located at 11055 Flintkote Ave., Suite B, San Diego, CA 92121 (“ Licensee ”). Licensor and Licensee are each hereafter referred to individually as a “ Party ” and together as the “ Parties ”.

 

WHEREAS, Licensor is the owner of or otherwise controls certain proprietary Licensed Patents (as defined below); and

 

WHEREAS, Licensee desires to obtain an exclusive license from Licensor under Licensor’s rights to Licensed Patents to develop and commercialize Licensed Products; and

 

WHEREAS, Licensor desires to grant such license to Licensee on the terms and subject to the conditions of this Agreement.

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereby agree as follows.

 

1.                                       DEFINITIONS

 

Whenever used in the Agreement with an initial capital letter, the terms defined in this Article 1 shall have the meanings specified.

 

1.1                                  Affiliate ” shall mean” shall mean any corporation or other entity that, as of the Effective Date, directly or indirectly controls, is controlled by, or is under common control with, another corporation or entity. Control means direct or indirect ownership of, or other beneficial interest in, fifty percent (50%) or more of the voting stock, other voting interest, or income of a corporation or other entity.

 

1.2                                  Confidential Information ” shall mean with respect to a Party (the “ Receiving Party ”), all information which is disclosed by the other Party (the “ Disclosing Party ”) to the Receiving Party hereunder or to any of its employees, consultants, Affiliates, licensees or sublicensees, except to the extent that the Receiving Party can demonstrate by written record or other suitable physical evidence that such information, (a) as of the date of disclosure is demonstrably known to the Receiving Party or its Affiliates other than by virtue of a prior confidential disclosure to such Party or its Affiliates; (b) as of the date of disclosure is in, or subsequently enters, the public domain, through no fault or omission of the Receiving Party; (c) is obtained from a Third Party having a lawful right to make such disclosure free from any obligation of confidentiality to the Disclosing Party; or (d) is independently developed by or for the Receiving Party without reference to or reliance upon any Confidential Information of the Disclosing Party.

 

1.3                                  First Commercial Sale ” shall mean, on a country-by-country basis, the date of the first arm’s length transaction, transfer or disposition for value to a Third Party of a

 

1



 

Licensed Product pursuant to regulatory approval in a Major Market by or on behalf of Licensee or any Affiliate or Sublicensee of Licensee in such country.

 

1.4                                  FDA ” shall mean the United States Food and Drug Administration and any successor agency or authority thereto.

 

1.5                                  Indemnitees ” and “ Indemnifying Party ” shall mean a Party, its Affiliates and their respective directors, officers, employees, stockholders and agents and their respective successors, heirs and assigns.

 

1.6                                  Licensed Field ” shall mean all fields of use.

 

1.7                                  Licensed Patent Rights ” shall mean any of the patents and patent applications described in Schedule A attached hereto, and any divisional, continuation, continuation-in-part (to the extent that the continuation-in-part is entitled to the priority date of an initial patent or patent application which is the subject of this Agreement), reissue, reexamination, confirmation, revalidation, registration, patent of addition, renewal, extension or substitute thereof, or any patent issuing therefrom or any supplementary protection certificates related thereto.

 

1.8                                  Licensed Product ” shall mean any product sold by or on behalf of Licensee or its Affiliates or Sublicensees that, absent the license in the Licensed Field provided in this Agreement, would be an infringement of a Valid Claim of the Licensed Patent Rights.

 

1.9                                  Major Market ” shall mean the Unites States, European Union, or Japan.

 

1.10                            Net Sales ” shall mean the amount received by Licensee for all Licensed Products sold by Licensee, its Affiliates or Sublicensees to Third Parties throughout the Territory during each calendar quarter, less the following amounts actually incurred or actually paid by Licensee or its Affiliates or Sublicensees during such calendar quarter with respect to sales of Licensed Products regardless of the calendar quarter in which such sales were made: (a) normal and customary quantity and/or cash discounts and sales returns and allowances, including, without limitation, those granted on account of price adjustments, billing errors, rejected goods, damaged goods, returns, rebates actually allowed and taken, administrative or other fees or reimbursements or similar payments to wholesalers or other distributors, buying groups, or other institutions; (b) sales commission fees paid to Third Parties (excluding sales personnel, sales representatives and sales agents who are employees or consultants of the selling party); (c) freight, postage, shipping, and insurance expenses (if separately identified in such invoice and not paid by a Third Party customer); (d) customs or excise duties or other duties directly imposed and related to the sales making up the gross invoice amount; (e) any rebates or similar payments made with respect to sales paid for by any governmental or regulatory authority such as, by way of illustration and not in limitation of the parties’ rights hereunder, Federal or state Medicaid, Medicare or similar state program or equivalent foreign governmental program; (f) sales and other taxes and duties directly related to the sale, to the extent that such items are included in the gross invoice price (but not including taxes assessed against the income derived from such sale); (g) fully loaded manufacturing costs, materials, labor, overhead and costs of distribution.

 

2



 

“Net Sales” shall not include sales or transfers between Licensee and its Affiliates or Sublicensees, unless the Licensed Product is consumed by the Affiliate or Sublicensee.

 

1.11                            Regulatory Approval ” shall mean any and all approvals (including pricing and reimbursement approvals), product and establishment licenses, registrations or authorizations of any kind of the FDA or any Foreign Regulatory Authority necessary for the development, pre-clinical and/or human clinical testing, manufacture, quality testing, supply, use, storage, importation, export, transport, marketing and sale of a Licensed Product (or any component thereof) for use in the Field in any country or other jurisdiction in the Territory.

 

1.12                            Term ” shall mean, with respect to each Licensed Product, the period commencing on the Effective Date and continuing on a country-by-country, and product-by-product basis until last to expire of the Licensed Patent Rights covering the Licensed Product.

 

1.13                            Sublicensee ” shall mean any Third Party to whom Licensee grants a sublicense of some or all of the rights granted to Licensee under this Agreement.

 

1.14                            Territory ” shall mean all countries and jurisdictions of the world.

 

1.15                            Third Party ” shall mean any person or entity other than Licensee, Licensor and their respective Affiliates.

 

1.16                            Valid Claim ” shall mean a claim in an issued, unexpired patent or in a pending patent application within the Licensed Patent Rights that (a) has not been finally cancelled, withdrawn, abandoned or rejected by any administrative agency or other body of competent jurisdiction. (b) has not been revoked, held invalid, or declared unpatentable or unenforceable in a decision of a court or other body of competent jurisdiction that is unappealable or unappealed within the time allowed for appeal, (c) has not been rendered unenforceable through disclaimer or otherwise, and (d) is not lost through an interference proceeding.

 

2.                                       GRANT OF RIGHTS

 

2.1                                  License to Licensee .

 

2.1.1                         Grant of License . Licensor hereby grants to Licensee an exclusive license under Licensor’s rights (even as to Licensor, but subject to 2.1.3), including the right to grant sublicenses in accordance with Section 2.1.2, to the Licensed Patent Rights to develop, have developed, make, have made, use, have used, sell, offer for sale, have sold, import, have imported, export and have exported, Licensed Products in the Territory, for any and all uses within the Licensed Field, subject to the terms and conditions of this Agreement.

 

2.1.2                         Right to Sublicense . Licensee shall have the right to grant sublicenses to any Sublicensee to all or any portion of its rights under the license granted pursuant to this Section 2. Licensee to provide Columbia with written notice within thirty (30) days of any sublicenses granted to any Sublicensee.

 

3



 

2.1.3                         Retained Rights . Subject to the other terms of this Agreement, Licensor retain the right to use and practice the Licensed Patent Rights in the Field for academic research and educational purposes and to permit other non-profit entities or individuals to practice and use such Licensed Patents Rights for academic research and educational purposes in the Field. Columbia shall obtain from all entities or individuals who are given permission to practice and use such Licensed Patents Rights an agreement in writing to limit such use to academic research and educational purposes.

 

2.2          All rights not specifically granted herein are reserved to Columbia. Except as expressly provided under this Section 2, no right or license is granted (expressly or by implication or estoppel) by Columbia to Company or its Affiliates or Sublicensees under any tangible or intellectual property, materials, patent, patent application, trademark, copyright, trade secret, know-how, technical information, data or other proprietary right.

 

3.                                       COMMERCIALIZATION OF LICENSED PRODUCTS.

 

3.1                                  Commercialization .

 

3.1.1                         Responsibility . From and after the Effective Date, Licensee shall have full control and authority over the development and commercialization of Licensed Products in the Licensed Field in the Territory. Licensee shall own all data, results and all other information arising from any such activities under this Agreement. All activities relating to development and commercialization under this Agreement shall be undertaken at Licensee’s sole cost and expense.

 

3.1.2                         Diligence . Licensee will exercise commercially reasonable efforts to develop a Licensed Product that incorporates the Licensed Patent Rights or Licensed Technology, such commercially reasonable efforts to take into account the competitiveness of the marketplace, the proprietary position of the Licensed Product, the relative potential safety and efficacy of the Licensed Product, the cost of goods and availability of capacity to manufacture and supply the Licensed Product at commercial scale, the profitability of the applicable Licensed Product, and other relevant factors including, without limitation, technical, legal, scientific or medical factors.

 

4.                                       PAYMENTS

 

4.1                                  License Fee . In consideration of the grant of the license described in Section 2.1 hereof, Licensee hereby agrees to pay Licensor (collectively, not individually) an upfront license fee in the amount of One Thousand Dollars ($1,000), which shall be paid within 30 days of the execution of this Agreement.

 

4.2                                  Royalty Payments . In further consideration of the grant of the license by Licensor hereunder and subject to the other terms and conditions of this Agreement, Licensee shall make royalty payments to Licensor (collectively, not individually) in the amount of 0.5% on Net Sales if such sales are made by or on behalf of Licensee or its Affiliates or in the amount of 5% on sublicense income received by Licensee if sales are made by Sublicensee. Royalty payments shall commence on date of first Commercial Sale (payable quarterly in arrears) and

 

4



 

shall expire on a country by country basis upon expiry of the Licensed Patent Rights in that country.

 

4.5                                  Reports and Payments .

 

Within thirty (30) days after the first business day of each calendar quarter of each License Year of this Agreement, Company shall submit to Columbia a written report with respect to the preceding calendar quarter (the “Payment Report”) stating:

 

(i)                                      Gross and Net Sales of Products by Company, Sublicensees, Designees and their Affiliates during such quarter, together with detailed information sufficient to permit Columbia to verify the accuracy of reported Net Sales, including Product names, country where manufactured, country where sold, actual selling price, units sold, an identification of all Patent claims that any Patent Product is Covered By, and an identification of Materials and Technical Information used or incorporated in the discovery, development, manufacture, use, sale, offering for sale, importation, exportation, distribution, rental or lease of any Other Product;

 

(ii)                                   Amounts accruing to, and amounts received by, Company from its Sublicensees during such quarter together with the respective payment reports received by Company from any Sublicensees; and

 

(iii)                                A calculation under Section 4 of the amounts due to Columbia, making reference to the applicable subsection thereof.

 

Simultaneously with the submission of each Payment Report, Company shall make payments to Columbia of the amounts due for the calendar quarter covered by the Payment Report. Payment shall be by check payable to The Trustees of Columbia University in the City of New York and sent to the following address:

 

The Trustees of Columbia University in the City of New York

Columbia Technology Ventures

P.O. Box 1394

New York, NY 10008-1394

 

or to such other address as Columbia may specify by notice hereunder, or, if requested by Columbia, by wire transfer of immediately available funds by Company to:

 

Wells Fargo Bank

375 Park Avenue, 6th Floor

MAC J0127-063

New York NY 10152

 

(This is the bank’s address not Columbia University’s. Do not use this address for correspondence to Columbia University.)

Routing/Transit (ABA) #: 121000248 (use for domestic wires)

Swift #: WFBIUS6S (use for foreign wires)

CHIPS UID: 0407

Columbia Account #: 2000039431790

 

5



 

Beneficiary: Columbia University FBO Tech Ventures, Finance

Other identifying info: include invoice #, contract #

ACH Routing/Transit (ABA) #: 026012881

 

or to such other bank and account identified by notice to Company by Columbia. Company is required to send the quarterly royalty statement whether or not royalty payments are due.

 

Within thirty (30) days after the date of termination or expiration of this Agreement, Company shall pay Columbia any and all amounts that are due pursuant to this Agreement as of the date of such termination or expiration, together with a Payment Report for such payment in accordance with Section 4.5 hereof, except that such Payment Report shall cover the period from the end of the last calendar quarter prior to termination or expiration to the date of termination or expiration. Nothing in the foregoing shall be deemed to satisfy any of Company’s other obligations under this Agreement upon termination or expiration.

 

With respect to revenues obtained by Company in foreign countries, Company shall make royalty payments to Columbia in the United States in United States Dollars. Royalty payments for transactions outside the United States shall first be determined in the currency of the country in which they are earned, and then converted to United States dollars using the buying rates of exchange quoted by Citibank, N.A. (or its successor) in New York, New York for the last business day of the calendar quarter in which the royalties were earned. Any and all loss of exchange value, taxes, or other expenses incurred in the transfer or conversion of foreign currency into U.S. dollars, and any income, remittance, or other taxes on such royalties required to be withheld at the source shall be the exclusive responsibility of Company, and shall not be used to decrease the amount of royalties due to Columbia. Royalty statements shall show sales both in the local currency and US dollars, with the exchange rate used clearly stated.

 

Company shall maintain at its principal office usual books of account and records showing its actions under this Agreement, and sufficient to determine Company’s compliance with its obligations hereunder. Upon reasonable notice, but not more than once per calendar year, Columbia may have a certified public accountant or auditor, and an attorney (each as to whom Company has no reasonable objection) inspect and copy such books and records for purposes of verifying the accuracy of the amounts paid under this Agreement. The review may cover a period of not more than seven (7) years before the first day of the calendar quarter in which the review is requested. In the event that such review shows that Company has underpaid royalties by five percent (5%) or more with respect to any calendar quarter, or if such underpayment is in excess of $5,000.00 for any calendar quarter, or an aggregate of $10,000 for any calendar year, Company shall pay, within ten days after demand by Columbia, the costs and expenses of such review (including the fees charged by Columbia’s accountant and attorney involved in the review), in addition to amount of any underpayment and any interest thereon. Company agrees to cooperate fully with Columbia’s accountant or auditor and attorney in connection with any such review. During the review, Company shall provide Columbia’s accountant or auditor and attorney with all information reasonably requested, including without limitation, information relating to sales, inventory, manufacturing, purchasing, transfer records, customer lists, invoices, purchase orders, sales orders, shipping documentation, third-party royalty reports, cost information, pricing policies, and agreements with third parties (including Sublicensees, Designees, Affiliates of Company, Sublicensees and Designees, and customers).

 

6



 

Notwithstanding anything to the contrary in this Agreement, and without limiting any of Columbia’s rights and remedies hereunder, any payment required hereunder that is made late (including unpaid portions of amounts due) shall bear interest, compounded monthly, at the rate of 9% per annum. Any interest charged or paid in excess of the maximum rate permitted by applicable law shall be deemed the result of a mistake and interest paid in excess of the maximum rate shall be credited or refunded (at the Company’s option) to Company.

 

Company shall reimburse Columbia for any costs and expenses incurred in connection with collecting on any arrears of Company with respect to its payment and reimbursement obligations under this Agreement (such as Section 1 1 b of this Agreement), including the costs of engaging any collection agency for such purpose.

 

5.                                       TREATMENT OF CONFIDENTIAL INFORMATION

 

5.1                                  Confidential Obligations . Licensor and Licensee each recognize that the other Party’s Confidential Information constitutes highly valuable and proprietary confidential information. Licensor and Licensee each agree that during the Term and for five (5) years thereafter, it will keep confidential, and will cause its employees, consultants, Affiliates and sublicensees to keep confidential, all Confidential Information of the other Party. Neither Licensor nor Licensee nor any of their respective employees, consultants, Affiliates or sublicensees shall use Confidential Information of the other Party for any purpose whatsoever other than exercising any rights granted to it or reserved by it hereunder. Without limiting the foregoing, each Party may disclose information to the extent such disclosure is reasonably necessary to (a) file and prosecute patent applications and/or maintain patents which are filed or prosecuted in accordance with the provisions of this Agreement, (b) file, prosecute or defend litigation in accordance with the provisions of this Agreement, or (c) comply with applicable laws, regulations or court orders; provided, however, that if a Party is required to make any such disclosure of the other Party’s Confidential Information in connection with any of the foregoing, it will give reasonable advance notice to the other Party of such disclosure requirement and will use reasonable efforts to cooperate with such other Party in efforts to secure confidential treatment of such information required to be disclosed.

 

5.2                                  Limited Disclosure and u se . Licensor and Licensee each agree that any disclosure of the other Party’s Confidential Information to any officer, employee, consultant or agent of the other Party or any of its Affiliates or Sublicensees shall be made only if and to the extent necessary to carry out its rights and responsibilities under this Agreement, shall be limited to the maximum extent possible consistent with such rights and responsibilities and shall only be made to the extent any such persons are bound by written confidentiality obligations to maintain the confidentiality thereof and not to use such Confidential Information except as expressly permitted by this Agreement. Licensor and Licensee each further agree not to disclose or transfer the other Party’s Confidential Information to any Third Parties under any circumstance without the prior written approval from the other Party (such approval not to be unreasonably withheld), except as otherwise required by law, and except as otherwise expressly permitted by this Agreement. Each Party shall take such action, and shall cause its Affiliates or Sublicensees to take such action, to preserve the confidentiality of each other’s Confidential Information as it would customarily take to preserve the confidentiality of its own Confidential

 

7



 

Information, using, in all such circumstances, not less than reasonable care. Each Party, upon the request of the other Party, will return all the Confidential Information disclosed or transferred to it by the other Party pursuant to this Agreement, including all copies and extracts of documents and all manifestations in whatever form, within sixty (60) days of such request or, if earlier, the termination or expiration of this Agreement; provided however, that a Party may retain (a) any Confidential Information of the other Party relating to any license which expressly survives such termination and (b) one (1) copy of all other Confidential Information in inactive archives solely for the purpose of establishing the contents thereof.

 

5.3                                  Publicity . Neither Party may publicly disclose the existence or terms or any other matter of fact regarding this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed; provided, however, that either Party may make such a disclosure (a) to the extent required by law or (b) with respect to Licensee, to any prospective Sublicensees or transferees or to investors, prospective investors, lenders and other potential financing sources who are obligated to keep such information confidential.

 

6.                                       PROVISIONS CONCERNING THE FILING, PROSECUTION AND MAINTENANCE OF PATENT RIGHTS

 

6.1                                  Patent Filing, Prosecution and Maintenance . Subject to the other terms of this Section 6.1, Licensee shall be responsible for preparing, filing, prosecuting, obtaining and maintaining at its sole cost, expense and discretion, all Licensed Patent Rights in the Territory using patent counsel chosen by Licensee. Licensee shall direct such outside counsel to keep both parties informed of its activities related to the Licensed Patent Rights, to copy both Parties on all material prosecution filings and activities and to reasonably consider and incorporate the comments of each Party with respect thereto. Notwithstanding the dispute resolution procedures set forth in Article 10.1, in the event of disagreement between the Parties over a course of action with respect to prosecution, the following procedure shall control: (i) the Parties shall first engage in good faith discussions to resolve the issue, and Licensee will reasonably consider Licensor’s comments and concerns; and (ii) if, despite such good faith efforts, the Parties are unable to reach agreement on a course of action hereunder, Licensee shall have final decision-making authority. The Parties agree that consultation between the Parties relating to the Licensed Patent Rights under this Section 6.1 shall be pursuant to a common interest in the validity, enforceability and scope of the Licensed Patent Rights. If Licensee determines that it desires to abandon prosecution of a patent application and/or patent in Licensed Patent Rights in a particular country, it will give at least sixty (60) days’ written notice to Licensor (but in any event not less than ninety (90) days’ written notice prior to any due date for response to a Patent Office action). Licensor shall thereafter have the right to assume complete control of all further patent prosecution in that country at its sole expense. Licensee shall at the request of Licensor freely execute any documents necessary to vest the maximum legally-permissible control of the applicable patent application(s) or patent(s) in Licensee (e.g., by assignment or exclusive license).

 

8



 

6.2                                  Notice of Infringement . i f either Party learns of any actual, alleged or threatened infringement by a Third Party of any Licensed Patent Rights under this Agreement, such Party shall promptly notify the other Party and shall provide such other Party with available evidence of such infringement.

 

6.3                                  Infringement of Patent Rights . Licensee shall have the first right (but not the obligation), at its own expense and with legal counsel of its own choice, to bring suit (or take other appropriate legal action) against any actual, alleged or threatened infringement of the Licensed Patent Rights in the Licensed Field. Licensor shall have the right, at its own expense, to be represented in any such action by Licensee using counsel of Licensor’s own choice; provided, however, that under no circumstances shall the foregoing affect the right of Licensee to control the suit as described in the first sentence of this Section 6.3. Any damages, monetary awards or other amounts recovered, whether by judgment or settlement, pursuant to any suit, proceeding or other legal action taken under this Section 6.3, shall be allocated as follows: (i) first, the Parties shall be reimbursed, on a pro rata basis, for all costs incurred in connection with such proceeding paid by the Parties; and (ii) second, any remainder that represents compensation for lost sales, a reasonable royalty or lost profits with respect to a Licensed Product, shall be retained by or paid to Licensee; provided, however, that any such amounts shall be subject to the royalty obligations set forth in Section 4.2. If Licensee brings any such action or proceeding hereunder, Licensor agrees to he joined, at Licensee’s expense, as Party plaintiff if necessary to prosecute such action or proceeding, and to give Licensee reasonable assistance and authority to file and prosecute the suit.

 

7.                                       REPRESENTATIONS AND WARRANTIES; LIMITED LIABILITY

 

7.1                                  Licensor Representations . Licensor represents and warrants to Licensee that as of the Effective Date and to the knowledge of its Office of Technology Ventures:

 

(a)                              the execution and delivery of this Agreement and the performance of the transactions contemplated hereby have been duly authorized by all appropriate Licensor corporate action;

 

(b)                             this Agreement is a legal and valid obligation binding upon Licensor and enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by the Parties does not materially conflict with any written agreement or written instrument to which Licensor is a Party or by which it is bound;

 

(c)                              as of the Effective Date (i) the named inventor Raul Rabadan on the Licensed Patent filed with any patent office has assigned or is under an obligation to assign all of his right, title and interest in and to such inventions claimed in the Licensed Patent Rights to Columbia; and (ii) no claim, action, case, suit, litigation, arbitration, inquiry or proceeding is pending or threatened by any Third Party, that seeks to challenge Columbia’s ownership of the Licensed Patent Rights or the ability of Columbia to grant the licenses hereunder. ;

 

7.2                                  Licensee Representations . Licensee represents and warrants to Licensor that:

 

9



 

(a)                              the execution and delivery of this Agreement and the performance of the transactions contemplated hereby have been duly authorized by all appropriate Licensee corporate action; and

 

(b)                             this Agreement is a legal and valid obligation binding upon Licensee and enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by the Parties does not conflict with any agreement, instrument or understanding to which Licensee is a Party of or by which it is bound.

 

7.3                                  No Warranties . LICENSOR IS LICENSING THE LICENSED PATENT RIGHTS ON AN “ AS IS ” BASIS. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY OTHER REPRESENTATION OR EXTENDS ANY ADDITIONAL WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED INCLUDING BUT NOT LIMITED TO: ANY WARRANTIES OF MERCHANTABILITY, TITLE, FITNESS, ADEQUACY OR SUITABILITY FOR A PARTICULAR PURPOSE, USE OR RESULT; ANY WARRANTIES AS TO THE VALIDITY OF ANY PATENT; AND ANY WARRANTIES OF FREEDOM FROM INFRINGEMENT OF ANY DOMESTIC OR FOREIGN PATENTS, COPYRIGHTS, TRADE SECRETS OR OTHER PROPRIETARY RIGHTS OF ANY PARTY.

 

7.4                                  In no event shall Licensor have any liability to Licensee, Sublicensees, or Affiliates of the foregoing, or any Third Party arising out of the use, operation or application of the Licensed Patents Rights or anything discovered, developed, manufactured, used, sold, offered for sale, imported, exported, distributed, rented, leased or otherwise disposed of under any license granted hereunder by Licensee, Sublicensees, or Affiliates of the foregoing, or any Third Party for any reason. In no event shall Licensor’s liability to Licensee exceed the payments made to Licensor by Licensee under this Agreement.

 

7.5                                  In no event will either Party be liable to the other or any Third Party, for any consequential, incidental, special or indirect damages (including, but not limited to, from any destruction to property or from any loss of use, revenue, profit, time or good will) based on activity arising out of or related to this Agreement, whether pursuant to a claim of breach of contract or any other claim of any type.

 

8.                                       INDEMNIFICATION

 

8.1                                  Indemnification .

 

8.1.1                         Licensee Indemnity . Licensee shall indemnify, defend and hold harmless Licensor, its Affiliates and their respective directors, officers, employees, stockholders and agents and their respective successors, heirs and assigns (the “ Licensor Indemnitees ”) from and against any liability, damage, loss or expense (including reasonable attorneys’ fees and expenses of litigation) incurred by or imposed upon such Licensor Indemnitees, or any of them, in connection with any Third Party claims, suits, actions, demands or judgments to the extent arising out of (a) the development, testing, production, manufacture, supply, promotion, import, sale or use by any person of any Licensed Product (or any component thereof) manufactured or sold by Licensee or any Affiliate or Sublicensee under this Agreement, (b) any material breach

 

10



 

of this Agreement by Licensee, or (c) the negligence or willful misconduct on the part of Licensee, except to the extent caused byLicensor’s gross negligence or willful misconduct.

 

8.2                                  Indemnification Procedures . In the event that any Indemnitee is seeking indemnification under Section 8.1 above from Licensee (the “ Indemnifying Party ”), the Licensor shall notify the Indemnifying Party of such claim with respect to such Indemnitee as soon as reasonably practicable after the Indemnitee receives notice of the claim, and Licensee (on behalf of itself and such Indemnitee) shall permit the Indemnifying Party to assume direction and control of the defense of the claim (including the right to settle the claim solely for monetary consideration) and shall cooperate as requested (at the expense of the Indemnifying Party) in the defense of the claim. The indemnification obligations under Article 8 shall not apply to any harm suffered as a direct result of any delay in notice to the Indemnifying Party hereunder or to amounts paid in settlement of any claim, demand, action or other proceeding if such settlement is effected without the consent of the Indemnifying Party, which consent shall not be withheld or delayed unreasonably. The Indemnitee, its employees and agents, shall reasonably cooperate with the Indemnifying Party and its legal representatives in the investigation of any claim, demand, action or other proceeding covered by Section 8.1.

 

9.                                       TERM AND TERMINATION

 

9.1                                  Term; Expiration . The term of this Agreement (“ Term ”) shall expire upon the expiration of the last patent to expire in Licensed Patent Rights. Upon the expiration of the Term of this Agreement, Licensee shall have a fully paid-up, irrevocable, freely transferable and sublicensable license in the Territory under the Licensed Patent Rights to develop, have developed, make, have made, use, have used, sell, have sold, offer for sale, import and have imported any and all Licensed Products.

 

9.2                                  Termination Rights for Breach and Voluntary Termination .

 

9.2.1                         Termination for Breach . Subject to the other terms of this Agreement, this Agreement and the rights and options granted herein may be terminated by either Party upon any material breach by the other Party of any material obligation or condition, effective ninety (90) days after giving written notice to the breaching Party of such termination in the case of any other breach, which notice shall describe such breach in reasonable detail. The foregoing notwithstanding, if such material breach is cured or remedied or shown to be non-existent or not to be material within the aforesaid ninety (90) day period, the notice shall be automatically withdrawn and of no effect.

 

9.2.2                         Voluntary Termination . Licensee shall have the right to terminate this Agreement at any time for commercially reasonable reason (such as a reasonable belief by Licensee that it is not commercially or scientifically appropriate to further develop the Licensed Patent Rights and Licensed Technology) upon prior written notice to Licensor.

 

9.3                                  Termination for Bankruptcy . In the event that either Party files for protection under bankruptcy laws, makes an assignment for the benefit of creditors, appoints or suffers appointment of a receiver or trustee over its property, files a petition under any

 

11



 

bankruptcy or insolvency act or has any such petition filed against it which is not discharged within sixty (60) days of the filing thereof, then the other Party may terminate this Agreement effective immediately upon written notice to such Party.

 

9.4                                  Effects of Termination .

 

9.4.1                         Termination for Licensee Breach . Upon any termination of this Agreement by Licensor under Section 9.2.1 by Licensee or pursuant to Section 9.2.2, as of the effective date of such termination all relevant licenses and sublicenses granted by Licensor to Licensee hereunder shall terminate automatically. Notwithstanding the foregoing, (a) no such termination of this Agreement shall be construed as a termination of any valid sublicense of any Sublicensee hereunder, and thereafter each such Sublicensee shall be considered a direct licensee of Licensor, provided that (i) such Sublicensee is then in full compliance with all terms and conditions of its sublicense and agrees to perform all obligations of the sublicense agreement for the benefit of Columbia, (ii) all accrued payments obligations to Licensor have been paid, (iii) Columbia’s obligations under such sublicense is consistent with and does not exceed Columbia’s obligations to Company under this Agreement, and (iv)such Sublicensee agrees in writing to assume all applicable obligations of Licensee under this Agreement, and (b) Licensee and its Affiliates and Sublicensees shall have the right, for twelve (12) months or such longer time period on which the Parties mutually agree in writing, to sell or otherwise dispose of all Licensed Products then on hand, with royalties to be paid to Licensor on all Net Sales of such Licensed Products as provided for in this Agreement.

 

9.4.2                         Termination for Licensor Breach . Upon any termination of this Agreement by Licensee under Section 9.2.1 or 9.3, as of the effective date of such termination, Licensee thereafter automatically shall have a fully sublicensable and transferable, fully paid up, exclusive license in the Territory under the Licensed Patent Rights, to develop, have developed, make, have made, use, have used, sell, have sold, offer for sale, import and have imported any and all Licensed Products in the Territory.

 

9.5                                  Remedies . Except as otherwise expressly set forth in this Agreement, the termination provisions of this Article 9 are in addition to any other relief and remedies available to either Party at law.

 

9.6                                  Surviving Provisions . Notwithstanding any provision herein to the contrary, the rights and obligations of the Parties set forth in Sections 2.2, 4.5, 5, 6, 7, 8, 9.4, 10, and 11 (to the extent relevant) as well as any rights or obligations otherwise accrued hereunder prior to termination or expiration (including any accrued payment obligations), shall survive the expiration or termination of the Term. Without limiting the generality of the foregoing, Licensee shall have no obligation to make any payment to Licensor that has not accrued prior to the effective date of any termination or expiration of this Agreement, but shall remain liable for all such payment obligations accruing prior to the effective date of such termination or expiration.

 

12



 

10.                                DISPUTES

 

10.1                            Dispute Resolution . In the event of any controversy or claim arising out of or relating to any provision of this Agreement or the breach thereof, the parties shall try to settle such conflict amicably between themselves.

 

10.2                            Except as otherwise expressly provided herein, the Parties agree that any dispute not resolved internally by the Parties pursuant to this Section 10.1, shall be resolved through binding arbitration in accordance with the then prevailing Commercial Arbitration Rules of the American Arbitration Association, except as modified in this Agreement, applying the substantive law specified in Section 11.3. A Party may initiate an arbitration by written notice to the other Party of its intention to arbitrate, and such demand notice shall specify in reasonable detail the nature of the dispute. Each Party shall select one (1) arbitrator, and the two (2) arbitrators so selected shall choose a third arbitrator (and all such arbitrators shall be experienced in the development and commercialization of biotechnology/pharmaceutical products) to resolve the dispute, and all three (3) shall serve as neutrals. If a Party fails to nominate its arbitrator, or if the Parties’ arbitrators cannot agree on the third arbitrator, the necessary appointments shall be made in accordance with the then prevailing Commercial Arbitration Rules. Each Party agrees to use reasonable efforts to make all of its current employees available, if reasonably needed, and agrees that the arbitrators may deem any party as “necessary.” The arbitrators shall be instructed and required to render a written, binding, non appealable resolution and award on each issue that clearly states the basis upon which such resolution and award is made. Each Party agrees that, notwithstanding any provision of applicable law or of this Agreement, it will not request, and the arbitrators shall have no authority to award, punitive or exemplary damages against any Party. The written resolution and award shall be delivered to the Parties as expeditiously as possible, but in no event more than ninety (90) days after conclusion of the hearing, unless otherwise agreed by the Parties. Judgment upon such award may be entered in any competent court or application may be made to any competent court for judicial acceptance of such an award and order for enforcement. The award of the arbitration tribunal shall be final. In the event Licensee requests arbitration, the arbitration proceedings shall be conducted in New York, NY; in the event Licensor requests arbitration, the arbitration proceedings shall be conducted in San Diego, California. The Parties agree that they shall share equally the cost of the arbitration filing and hearing fees, and the cost of the arbitrator. Each Party shall bear its own attorneys’ fees and associated costs and expenses.Notwithstanding the foregoing, either Party may, without recourse to arbitration, assert against the other Party a third Party claim or cross-claim in any action brought by a third Party, to which the subject matter of this Agreement may be relevant.

 

10.3                            Subject Matter Exclusion . Notwithstanding the provisions of Section 10.2, any dispute not resolved internally by the Parties pursuant to Section 10.1 that involves the validity, enforceability or infringement of a Licensed Patent Right (a) that is issued in the United States shall be subject to actions before the United States Patent and Trademark Office and/or submitted exclusively to the federal court located in the jurisdiction of the district where any of the defendants resides; and (b) that is issued in any other country shall be brought before an appropriate regulatory or administrative body or court in that country, and the Parties hereby consent to the jurisdiction and venue of such courts and bodies.

 

13



 

11.                                MISCELLANEOUS

 

11.1                            Notification . All notices, requests and other communications hereunder shall be in writing, shall be addressed to the receiving Party’s address set forth below or to such other address as a Party may designate by notice hereunder, and shall be either (i) delivered by hand, (ii) made by facsimile transmission (to be followed with written confirmation sent by nationally-recognized overnight courier service, providing evidence of receipt), (iii) sent by nationally-recognized overnight courier service providing evidence of receipt, or (iv) sent by registered or certified mail, return receipt requested, postage prepaid. The addresses and other contact information for the parties are as follows:

 

If to Licensor:

Columbia University

Executive Director

Columbia Technology Ventures

Columbia University

80 Claremont Avenue, #4F, Mail Code

9606New York, NY 10027-5712

Telephone: (212) 854-8444

Facsimile: (212) 854-8643

 

 

If to Licensee:

Trovagene, Inc.

11055 Flintkote Ave., Suite B,

San Diego, CA 92121

Tel: 858 217 4838

Fax: 858 217 4768

Attention: President

 

All notices, requests and other communications hereunder shall be deemed to have been given either (i) if by hand, at the time of the delivery thereof to the receiving Party at the address of such Party set forth above, (ii) if made by telecopy or facsimile transmission, at the time that receipt thereof has been acknowledged by the recipient, (iii) if sent by nationally-recognized overnight courier, on the day such notice is delivered to the recipient, or (iv) if sent by registered or certified mail, on the fifth (5 th ) business day following the day such mailing is made.

 

11.2                            Language . This Agreement has been prepared in the English language and the English language shall control its interpretation.

 

11.3                            Governing Law and Venue . This Agreement will be construed and interpreted in accordance with the laws of the State of New York and the venue of any action brought shall be in New York, New York.

 

11.4                            Limitations . Except as expressly set forth in this Agreement, neither Party grants to the other Party any right or license to any of its intellectual property.

 

14



 

11.5                            Entire Agreement . This is the entire Agreement between the Parties with respect to the subject matter hereof and supersedes all prior representations, understandings and agreements between the Parties with respect to the subject matter hereof. No modification shall be effective unless in writing with specific reference to this Agreement and signed by the Parties.

 

11.6                            Waiver . The terms or conditions of this Agreement may be waived only by a written instrument executed by the Party waiving compliance. The failure of either Party at any time or times to require performance of any provision hereof shall in no manner affect its rights at a later time to enforce the same. No waiver by either Party of any condition or term shall be deemed as a continuing waiver of such condition or term or of another condition or term.

 

11.7                            Headings . Section and subsection headings are inserted for convenience of reference only and do not form part of this Agreement.

 

11.8                            Assignment . Neither this Agreement nor any right or obligation hereunder may be assigned, delegated or otherwise transferred, in whole or part, by Licensor without the prior express written consent of Licensee. Any permitted assignee shall assume in writing all obligations of assignor under this Agreement. Any purported assignment in violation of this Section 11.8 shall be void. Licensee may freely assign, the rights granted under this Agreement by sending notice of such assignment with a copy of the permitted assignees written agreement to assume and be bound by this Agreement to the Licensor. The terms and conditions of this Agreement shall be binding upon and inure to the benefit of the permitted successors and assigns of the parties.

 

11.9                            Force Majeure . Neither Party shall be liable for failure of or delay in performing obligations set forth in this Agreement, and neither shall be deemed in breach of its obligations, if such failure or delay is due to natural disasters or any causes beyond the reasonable control of such Party. In event of such force majeure, the Party affected thereby shall use reasonable efforts to cure or overcome the same and resume performance of its obligations hereunder.

 

11.10                      Construction . The Parties hereto acknowledge and agree that: (i) each Party and its counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to its revision; (ii) the rule of construction to the effect that any ambiguities are resolved against the drafting Party shall not be employed in the interpretation of this Agreement; and (iii) the terms and provisions of this Agreement shall be construed fairly as to all Parties hereto and not in favor of or against any Party, regardless of which Party was generally responsible for the preparation of this Agreement.

 

11.11                      Severability . If any provision(s) of this Agreement are or become invalid, are ruled illegal by any court of competent jurisdiction or are deemed unenforceable under then current applicable law from time to time in effect during the Term hereof, it is the intention of the Parties that the remainder of this Agreement shall not be affected thereby provided that a Party’s rights under this Agreement are not thereby materially diminished, The Parties hereto covenant and agree to renegotiate any such term, covenant or application thereof in good faith

 

15



 

in order to provide a reasonably acceptable alternative to the term, covenant or condition of this Agreement or the application thereof that is invalid, illegal or unenforceable, it being the intent of the Parties that the basic purposes of this Agreement are to be effectuated.

 

11.12                      Status . Nothing in this Agreement is intended or shall be deemed to constitute a partner, agency, employer-employee, or joint venture relationship between the Parties.

 

11.13                      Section 365(n) . All licenses granted under this Agreement are deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of right to “intellectual property” as defined in Section 101 of such Code. The Parties agree that Licensee may fully exercise all of its rights and elections under the U.S. Bankruptcy Code, regardless of whether either Party files for bankruptcy in the United States or other jurisdiction. The Parties further agree that, in the event Licensee elects to retain its rights as a licensee under such Code, Licensee shall be entitled to complete access to any technology licensed to it hereunder and all embodiments of such technology. Such embodiments of the technology shall be delivered to the Licensee not later than:

 

(a)                                   the commencement of bankruptcy proceedings against the licensor, upon written request, unless the licensor elects to perform its obligations under the Agreement, or

 

(b)                                  if not delivered under Section 11.13(a) above, upon the rejection of this Agreement by or on behalf of Licensee, upon written request.

 

11.14                      Further Assurances . Each Party agrees to execute, acknowledge and deliver such further instructions, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

 

11.15                      Counterparts . This Agreement may be executed simultaneously in one or more counterparts, and by facsimile or electronic transmission, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

[Remainder of page intentionally left blank]

 

16



 

1N WITNESS WHEREOF, the Parties have caused this Exclusive License Agreement to be executed by their duly authorized representative.

 

 

LICENSOR:

 

 

 

 

 

 

 

 

By:

/s/ Orin Herskowitz

 

 

 

Name:

Orin Herskowitz

 

 

 

Title:

Executive Director
VP of i ntellectual Property
And Technology Transfer
Columbia Technology Ventures

 

 

 

TTs #: 40692

 

 

 

licensee:

 

 

 

 

 

TROVAGENE, INC.

 

 

 

 

 

 

 

 

By:

/s/ Gabriel Cerrone

 

 

Name:

Gabriel Cerrone

 

 

Title:

Director

 

 

 

17



 

Schedule A

 

Licensed Patent Rights

 

USSN 61/484330, filed May 10, 2011, entitled Hairy Cell Leukemia Biomarkers and Methods of Using Same.

 


Exhibit 10.21

 

EXCLUSIVE LICENSE AGREEMENT

 

This Exclusive License Agreement (this “ Agreement ”) is made effective as of October —, 2011 (the “ Effective Date ”) by and between Gianluca Gaidano, an individual residing at Via Dolores Bello, Novara, Italy, Robert Foa’, an individual residing at Corso Trieste 90, Rome, Italy, and Davide Rossi, an individual residing at via Garibaldi 29, Fontaneto D’agogna, Italy (collectively “ Licensor ”), and Trovagene, Inc., located at 11055 Flintkote Ave., Suite B, San Diego, CA 92121 (“ Licensee ”). Licensor and Licensee are each hereafter referred to individually as a “ Party ” and together as the “ Parties ”.

 

WHEREAS, Licensor is the owner of or otherwise controls certain proprietary Licensed Patents and Licensed Technology (as defined below); and

 

WHEREAS, Licensee desires to obtain an exclusive license from Licensor under such Licensed Patents and Licensed Technology to develop and commercialize Licensed Products; and

 

WHEREAS, Licensor desires to grant such license to Licensee on the terms and subject to the conditions of this Agreement.

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereby agree as follows.

 

1.              DEFINITIONS

 

Whenever used in the Agreement with an initial capital letter, the terms defined in this Article 1 shall have the meanings specified.

 

1.1            Confidential Information ” shall mean with respect to a Party (the “ Receiving Party ”), all information which is disclosed by the other Party (the “ Disclosing Party ”) to the Receiving Party hereunder or to any of its employees, consultants, affiliates, licensees or sublicensees, except to the extent that the Receiving Party can demonstrate by written record or other suitable physical evidence that such information, (a) as of the date of disclosure is demonstrably known to the Receiving Party or its affiliates other than by virtue of a prior confidential disclosure to such Party or its affiliates; (b) as of the date of disclosure is in, or subsequently enters, the public domain, through no fault or omission of the Receiving Party; (c) is obtained from a Third Party having a lawful right to make such disclosure free from any obligation of confidentiality to the Disclosing Party; or (d) is independently developed by or for the Receiving Party without reference to or reliance upon any Confidential Information of the Disclosing Party.

 

1.2            First Commercial Sale ” shall mean, on a country-by-country basis, the date of the first arm’s length transaction, transfer or disposition for value to a Third Party of a Licensed Product pursuant to regulatory approval in a Major Market by or on behalf of Licensee or any affiliate or Sublicensee of Licensee in such country.

 

1



 

1.3            FDA ” shall mean the United States Food and Drug Administration and any successor agency or authority thereto.

 

1.4            Improvements ” shall mean any enhancement, invention or discovery created or identified or controlled by Licensor during the Term, which constitutes an improvement to the subject matter of the Licensed Patent Rights or Licensed Technology.

 

1.5            Indemnitees ” and “ Indemnifying Party ” shall mean a Party, its affiliates and their respective directors, officers, employees, stockholders and agents and their respective successors, heirs and assigns.

 

1.6            Licensed Field ” shall mean all fields of use.

 

1.7            Licensed Patent Rights ” shall mean any of the patents and patent applications described in Schedule A attached hereto, and any divisional, continuation, continuation-in-part (to the extent that the continuation-in-part is entitled to the priority date of an initial patent or patent application which is the subject of this Agreement), reissue, reexamination, confirmation, revalidation, registration, patent of addition, renewal, extension or substitute thereof, or any patent issuing therefrom or any supplementary protection certificates related thereto.

 

1.8            Licensed Product ” shall mean any product sold by Licensee or its affiliates or Sublicensees that, absent the license in the Licensed Field provided in this Agreement, would be an infringement of a Valid Claim of the Licensed Patent Rights.

 

1.9            Licensed Technology ” shall mean and include all Technology, whether or not patentable, including but not limited to, techniques and materials, controlled by Licensor as of the Effective Date or which becomes controlled by Licensor during the Term that (a) is related to any patent or patent application included in the Licensed Patent Rights and (b) is necessary or useful for Licensee to practice the license granted to it hereunder.

 

1.10          Major Market ” shall mean the Unites States, European Union, or Japan.

 

1.11          Net Sales ” shall mean the amount received by Licensee for all Licensed Products sold by Licensee, its affiliates or Sublicensees to Third Parties throughout the Territory during each calendar quarter, less the following amounts incurred or paid by Licensee or its affiliates or Sublicensees during such calendar quarter with respect to sales of Licensed Products regardless of the calendar quarter in which such sales were made: (a) normal and customary quantity and/or cash discounts and sales returns and allowances, including, without limitation, those granted on account of price adjustments, billing errors, rejected goods, damaged goods, returns, rebates actually allowed and taken, administrative or other fees or reimbursements or similar payments to wholesalers or other distributors, buying groups, or other institutions; (b) sales commission fees paid to Third Parties; (c) freight, postage, shipping, and insurance expenses (if separately identified in such invoice); (d) customs or excise duties or other duties directly imposed and related to the sales making up the gross invoice amount; (e) any rebates or similar payments made with respect to sales paid for by any governmental or regulatory authority such as, by way of illustration and not in limitation of the parties’ rights hereunder, Federal or state Medicaid, Medicare or similar state program or equivalent foreign

 

2



 

governmental program; (f) sales and other taxes and duties directly related to the sale, to the extent that such items are included in the gross invoice price (but not including taxes assessed against the income derived from such sale); (g) fully loaded manufacturing costs, materials, labor, overhead and costs of distribution and (h) any amounts paid to Third Parties as licensing, royalties or similar fees.

 

“Net Sales” shall not include sales or transfers between Licensee and its affiliates or Sublicensees, unless the Licensed Product is consumed by the affiliate or Sublicensee.

 

1.12          Regulatory Approval ” shall mean any and all approvals (including pricing and reimbursement approvals), product and establishment licenses, registrations or authorizations of any kind of the FDA or any Foreign Regulatory Authority necessary for the development, pre-clinical and/or human clinical testing, manufacture, quality testing, supply, use, storage, importation, export, transport, marketing and sale of a Licensed Product (or any component thereof) for use in the Field in any country or other jurisdiction in the Territory.

 

1.13          Term ” shall mean, with respect to each Licensed Product, the period commencing on the Effective Date and continuing on a country-by-country, and product-by product basis until last to expire of the Licensed Patent Rights covering the Licensed Product.

 

1.14          Sublicensee ” shall mean any Third Party to whom Licensee grants a sublicense of some or all of the rights granted to Licensee under this Agreement.

 

1.15          Technology ” shall mean and include any and all unpatented, proprietary ideas, inventions, discoveries, Confidential Information, data, results, formulae, designs, specifications, methods, processes, techniques, ideas, know-how, technical information (including, without limitation, structural and functional information), process information, pre-clinical information, clinical information, and any and all proprietary control and manufacturing data and materials.

 

1.16          Territory ” shall mean all countries and jurisdictions of the world.

 

1.17          Third Party ” shall mean any person or entity other than Licensee, Licensor and their respective affiliates.

 

1.18          Valid Claim ” shall mean a claim in an issued, unexpired patent or in a pending patent application within the Licensed Patent Rights that (a) has not been finally cancelled, withdrawn, abandoned or rejected by any administrative agency or other body of competent jurisdiction, (b) has not been revoked, held invalid, or declared unpatentable or unenforceable in a decision of a court or other body of competent jurisdiction that is unappealable or unappealed within the time allowed for appeal, (c) has not been rendered unenforceable through disclaimer or otherwise, and (d) is not lost through an interference proceeding.

 

3



 

2.              GRANT OF RIGHTS

 

2.1            License to Licensee .

 

2.1.1         Grant of License . Licensor hereby grants to Licensee an exclusive license (even as to Licensor), including the right to grant sublicenses in accordance with Section 2.1.2, under the Licensed Patent Rights and Licensed Technology and Licensor’s interest in any Improvements, to develop, have developed, make, have made, use, have used, sell, offer for sale, have sold, import, have imported, export and have exported, Licensed Products and to practice the Licensed Technology in the Territory, for any and all uses within the Licensed Field, subject to the terms and conditions of this Agreement.

 

2.1.2         Right to Sublicense . Licensee shall have the right to grant sublicenses to any Sublicensee to all or any portion of its rights under the license granted pursuant to this Section 2.

 

2.1.3         Retained Rights . Subject to the other terms of this Agreement, Licensor retains no right to use the Licensed Technology or practice the Licensed Patent Rights or to use Licensor’s interest in Improvements

 

2.2            Right of First Refusal . In the event that Licensor decides to sell or otherwise convey or encumber some or all of the Licensed Patent Rights, Licensed Technology or Improvements (subject, of course, to this Agreement), Licensor shall provide prior written notice of the same to Licensee and offer Licensee the option (the “ Option ”) to acquire such intellectual property. Licensee shall have ninety (90) days thereafter to indicate to Licensor whether it would like to exercise its option (the “ Option Period ”). If Licensee does not give Licensor notice of its exercise of the Option before the end of the Option Period, or if Licensee indicates in writing to Licensor that it does not intend to exercise the Option, then Licensor shall be free to sell, convey or encumber such intellectual property, subject to Licensee’s other rights under this Agreement. If Licensee provides Licensor written notice of its desire to exercise the Option, then the Parties shall immediately engage in good faith negotiation of an intellectual property transfer agreement. If the Parties are not able, despite their good faith efforts, to agree on terms within one-hundred eighty (180) days after initiation of such negotiations, then Licensor shall be free to seek other third-Party buyers provided that such buyers shall not be offered such rights on terms better than those last offered to Licensee.

 

3.              COMMERCIALIZATION OF LICENSED PRODUCTS.

 

3.1            Commercialization .

 

3.1.1         Responsibility . From and after the Effective Date, Licensee shall have full control and authority over the development and commercialization of Licensed Products in the Licensed Field in the Territory. Licensee shall own all data, results and all other information arising from any such activities under this Agreement. All activities relating to development and commercialization under this Agreement shall be undertaken at Licensee’s sole cost and expense.

 

3.1.2         Diligence . Licensee will exercise commercially reasonable efforts to develop a Licensed Product that incorporates the Licensed Patent Rights or Licensed Technology, such commercially reasonable efforts to take into account the competitiveness of the marketplace, the proprietary position of the Licensed Product, the relative potential safety

 

4



 

and efficacy of the Licensed Product, the cost of goods and availability of capacity to manufacture and supply the Licensed Product at commercial scale, the profitability of the applicable Licensed Product, and other relevant factors including, without limitation, technical, legal, scientific or medical factors.

 

4.              PAYMENTS

 

4.1            License Fee . In consideration of the grant of the license described in Section 2.1 hereof, Licensee hereby agrees to pay Licensor (individually) an upfront license fee in the amount of One Thousand Dollars ($1,000), which shall be paid within 30 days of the execution of this Agreement.

 

4.2            Royalty Payments . In further consideration of the grant of the license by Licensor hereunder and subject to the other terms and conditions of this Agreement, Licensee shall make royalty payments to Licensor (collectively, not individually) in the amount of 1.0% on Net Sales if such sales are made by Licensee or in the amount of 8% on sublicense income received by Licensee if sales are made by Sublicensee. Royalty payments shall commence on date of first Commercial Sale (payable quarterly in arrears) and shall expire on a country by country basis upon expiry of the Licensed Patent Rights in that country.

 

5.              TREATMENT OF CONFIDENTIAL INFORMATION

 

5.1            Confidential Obligations . Licensor and Licensee each recognize that the other Party’s Confidential Information constitutes highly valuable and proprietary confidential information. Licensor and Licensee each agree that during the Term and for five (5) years thereafter, it will keep confidential, and will cause its employees, consultants, affiliates and sublicensees to keep confidential, all Confidential Information of the other Party. Neither Licensor nor Licensee nor any of their respective employees, consultants, affiliates or sublicensees shall use Confidential Information of the other Party for any purpose whatsoever other than exercising any rights granted to it or reserved by it hereunder. Without limiting the foregoing, each Party may disclose information to the extent such disclosure is reasonably necessary to (a) file and prosecute patent applications and/or maintain patents which are filed or prosecuted in accordance with the provisions of this Agreement, (b) file, prosecute or defend litigation in accordance with the provisions of this Agreement, or (c) comply with applicable laws, regulations or court orders; provided, however, that if a Party is required to make any such disclosure of the other Party’s Confidential Information in connection with any of the foregoing, it will give reasonable advance notice to the other Party of such disclosure requirement and will use reasonable efforts to cooperate with such other Party in efforts to secure confidential treatment of such information required to be disclosed.

 

5.2            Limited Disclosure and Use . Licensor and Licensee each agree that any disclosure of the other Party’s Confidential Information to any officer, employee, consultant or agent of the other Party or any of its affiliates or Sublicensees shall be made only if and to the extent necessary to carry out its rights and responsibilities under this Agreement, shall be limited to the maximum extent possible consistent with such rights and responsibilities and shall

 

5



 

only be made to the extent any such persons are bound by written confidentiality obligations to maintain the confidentiality thereof and not to use such Confidential Information except as expressly permitted by this Agreement. Licensor and Licensee each further agree not to disclose or transfer the other Party’s Confidential Information to any Third Parties under any circumstance without the prior written approval from the other Party (such approval not to be unreasonably withheld), except as otherwise required by law, and except as otherwise expressly permitted by this Agreement. Each Party shall take such action, and shall cause its affiliates or Sublicensees to take such action, to preserve the confidentiality of each other’s Confidential Information as it would customarily take to preserve the confidentiality of its own Confidential Information, using, in all such circumstances, not less than reasonable care. Each Party, upon the request of the other Party, will return all the Confidential Information disclosed or transferred to it by the other Party pursuant to this Agreement, including all copies and extracts of documents and all manifestations in whatever form, within sixty (60) days of such request or, if earlier, the termination or expiration of this Agreement; provided however, that a Party may retain (a) any Confidential Information of the other Party relating to any license which expressly survives such termination and (b) one (1) copy of all other Confidential Information in inactive archives solely for the purpose of establishing the contents thereof.

 

5.3            Publicity . Neither Party may publicly disclose the existence or terms or any other matter of fact regarding this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed; provided, however, that either Party may make such a disclosure (a) to the extent required by law or (b) with respect to Licensee, to any prospective Sublicensees or transferees or to investors, prospective investors, lenders and other potential financing sources who are obligated to keep such information confidential. Notwithstanding the foregoing, Licensee shall be free to issue one or more press releases without the consent of Licensor to announce the execution of this Agreement and major milestones relating thereto.

 

5.4            Publication . Regarding publications relating to Licensed Technology and Improvements, Licensor and Licensee agree that Licensor will provide Licensee with notice of planned publications and draft copies of such publications as far in advance of submission deadlines as practical and Licensee will communicate to Licensor any concerns regarding the content of such draft copies as soon as practical after receipt. The purpose of this dialogue is to identify and resolve any issues as far in advance of submission deadlines as possible and to provide the Licensor with the opportunity to prepare and file the necessary paperwork to protect information of a proprietary nature.

 

6.              PROVISIONS CONCERNING THE FILING, PROSECUTION AND MAINTENANCE OF PATENT RIGHTS

 

6.1            Patent Filing, Prosecution and Maintenance . Subject to the other terms of this Section 6.1, Licensee shall be responsible for preparing, filing, prosecuting, obtaining and maintaining at its sole cost, expense and discretion, all Licensed Patent Rights, and any patent rights in Licensed Technology or Improvements in the Territory using patent counsel chosen by Licensee.

 

6



 

6.2            Notice of Infringement . If either Party learns of any actual, alleged or threatened infringement by a Third Party of any Licensed Patent Rights under this Agreement, such Party shall promptly notify the other Party and shall provide such other Party with available evidence of such infringement.

 

Infringement of Patent Rights . Licensee shall have the first right (but not the obligation), at its own expense and with legal counsel of its own choice, to bring suit (or take other appropriate legal action) against any actual, alleged or threatened infringement of the Licensed Patent Rights in the Licensed Field. Licensor shall have the right, at its own expense, to be represented in any such action by Licensee using counsel of Licensor’s own choice; provided, however, that under no circumstances shall the foregoing affect the right of Licensee to control the suit as described in the first sentence of this Section 6.3. Any damages, monetary awards or other amounts recovered, whether by judgment or settlement, pursuant to any suit, proceeding or other legal action taken under this Section 6.3, shall belong to Licensee. If Licensee brings any such action or proceeding hereunder, Licensor agrees to be joined as Party plaintiff if necessary to prosecute such action or proceeding, and to give Licensee reasonable assistance and authority to file and prosecute the suit.

 

7.              REPRESENTATIONS AND WARRANTIES

 

7.1            Licensor Representations . Licensor represents and warrants to Licensee that:

 

(a)            the execution and delivery of this Agreement and the performance of the transactions contemplated hereby have been duly authorized by all appropriate Licensor corporate action;

 

(b)            this Agreement is a legal and valid obligation binding upon Licensor and enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by the Parties does not conflict with any agreement, instrument or understanding to which Licensor is a Party or by which it is bound;

 

(c)            Licensor has the full right and legal capacity to grant the rights granted to Licensee hereunder without violating the rights of any Third Party;

 

(d)            Licensor is the owner and inventor of the Licensed Patent Rights and Licensed Technology. No other entity, nor any institutions with which Licensor is affiliated have any rights to the Licensed Patent Rights and Licensed Technology;

 

(e)            Licensor is not aware of any Third Party patent, patent application or other intellectual property rights that would be infringed (i) by practicing Licensed Technology, or (ii) by making, using, offering for sale, selling or importing Licensed Products; and

 

(f)             Licensor is not aware of any infringement or misappropriation by a Third Party of the Licensed Patent Rights or Licensed Technology.

 

7



 

7.2            Licensee Representations . Licensee represents and warrants to Licensor that:

 

(a)            the execution and delivery of this Agreement and the performance of the transactions contemplated hereby have been duly authorized by all appropriate Licensee corporate action; and

 

(b)            this Agreement is a legal and valid obligation binding upon Licensee and enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by the Parties does not conflict with any agreement, instrument or understanding to which Licensee is a Party of or by which it is bound.

 

7.3            No Warranties . Nothing in this Agreement is or shall be construed as a warranty or representation that anything made, used, sold or otherwise disposed of under any license granted pursuant to this Agreement is or will be free from infringement of patents, copyrights, and other rights of third parties. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY OTHER REPRESENTATION OR EXTENDS ANY ADDITIONAL WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED.

 

8.              INDEMNIFICATION

 

8.1            Indemnification.

 

8.1.1         Licensee Indemnity . Licensee shall indemnify, defend and hold harmless Licensor, its affiliates and their respective directors, officers, employees, stockholders and agents and their respective successors, heirs and assigns (the “ Licensor Indemnitees ”) from and against any liability, damage, loss or expense (including reasonable attorneys’ fees and expenses of litigation) incurred by or imposed upon such Licensor Indemnitees, or any of them, in connection with any Third Party claims, suits, actions, demands or judgments to the extent arising out of (a) the development, testing, production, manufacture, supply, promotion, import, sale or use by any person of any Licensed Product (or any component thereof) manufactured or sold by Licensee or any affiliate or Sublicensee under this Agreement, (b) any material breach of this Agreement by Licensee, or (c) the negligence or willful misconduct on the part of Licensee, except to the extent of Licensor’s responsibility therefor under Section 8.1.2 below.

 

8.1.2         Licensor Indemnity . Licensor shall indemnify, defend and hold harmless Licensee, its affiliates and their respective directors, officers, employees, and agents, and their respective successors, heirs and assigns (the “ Licensee Indemnitees ”), from and against any liability, damage, loss or expense (including reasonable attorneys’ fees and expenses of litigation) incurred by or imposed upon such Licensee Indemnitees, or any of them, in connection with any Third Party claims, suits, actions, demands or judgments, including, without limitation, personal injury and product liability matters (but excluding any patent infringement matters, which are governed by Section 6 above), to the extent arising out of (a) any actions or omissions of Licensor under this Agreement, (b) any material breach of this Agreement by Licensor, or (c) the negligence or willful misconduct on the part of Licensor. The Parties agree

 

8


 

 


 

that any liability of Licensors pursuant to this section shall not exceed the sums received by Licensors pursuant to this Agreement.

 

8.2            Indemnification Procedures . In the event that any Indemnitee is seeking indemnification under Section 8.1 above from a Party (the “ Indemnifying Party ”), the other Party shall notify the Indemnifying Party of such claim with respect to such Indemnitee as soon as reasonably practicable after the Indemnitee receives notice of the claim, and the Party (on behalf of itself and such Indemnitee) shall permit the Indemnifying Party to assume direction and control of the defense of the claim (including the right to settle the claim solely for monetary consideration) and shall cooperate as requested (at the expense of the Indemnifying Party) in the defense of the claim. The indemnification obligations under Article 8 shall not apply to any harm suffered as a direct result of any delay in notice to the Indemnifying Party hereunder or to amounts paid in settlement of any claim, demand, action or other proceeding if such settlement is effected without the consent of the Indemnifying Party, which consent shall not be withheld or delayed unreasonably. The Indemnitee, its employees and agents, shall reasonably cooperate with the Indemnifying Party and its legal representatives in the investigation of any claim, demand, action or other proceeding covered by Section 8.1.

 

9.              TERM AND TERMINATION

 

9.1            Term; Expiration . The term of this Agreement (“ Term ”) shall expire upon the expiration of the last patent to expire in Licensed Patent Rights. Upon the expiration of the Term of this Agreement, Licensee shall have a fully paid-up, irrevocable, freely transferable and sublicensable license in the Territory under the Licensed Patent Rights and Licensed Technology, to develop, have developed, make, have made, use, have used, sell, have sold, offer for sale, import and have imported any and all Licensed Products.

 

9.2            Termination Rights for Breach and Voluntary Termination .

 

9.2.1         Termination for Breach . Subject to the other terms of this Agreement, this Agreement and the rights and options granted herein may be terminated by either Party upon any material breach by the other Party of any material obligation or condition, effective ninety (90) days after giving written notice to the breaching Party of such termination in the case of any other breach, which notice shall describe such breach in reasonable detail. The foregoing notwithstanding, if such material breach is cured or remedied or shown to be non-existent or not to be material within the aforesaid ninety (90) day period, the notice shall be automatically withdrawn and of no effect.

 

9.2.2         Voluntary Termination . Licensee shall have the right to terminate this Agreement at any time for commercially reasonable reason (such as a reasonable belief by Licensee that it is not commercially or scientifically appropriate to further develop the Licensed Patent Rights and Licensed Technology) upon prior written notice to Licensor.

 

9.3            Termination for Bankruptcy . In the event that either Party files for protection under bankruptcy laws, makes an assignment for the benefit of creditors, appoints or suffers appointment of a receiver or trustee over its property, files a petition under any bankruptcy or insolvency act or has any such petition filed against it which is not discharged

 

9



 

within sixty (60) days of the filing thereof, then the other Party may terminate this Agreement effective immediately upon written notice to such Party.

 

9.4            Effects of Termination .

 

9.4.1         Termination for Licensee Breach . Upon any termination of this Agreement by Licensor under Section 9.2.1 by Licensee pursuant to Section 9.2.2, as of the effective date of such termination all relevant licenses and sublicenses granted by Licensor to Licensee hereunder shall terminate automatically. Notwithstanding the foregoing, (a) no such termination of this Agreement shall be construed as a termination of any valid sublicense of any Sublicensee hereunder, and thereafter each such Sublicensee shall be considered a direct licensee of Licensor, provided that (i) such Sublicensee is then in full compliance with all terms and conditions of its sublicense, (ii) all accrued payments obligations to Licensor have been paid, and (iii) such Sublicensee agrees in writing to assume all applicable obligations of Licensee under this Agreement, and (b) Licensee and its affiliates and Sublicensees shall have the right, for twelve (12) months or such longer time period on which the Parties mutually agree in writing, to sell or otherwise dispose of all Licensed Products then on hand, with royalties to be paid to Licensor on all Net Sales of such Licensed Products as provided for in this Agreement.

 

9.4.2         Termination for Licensor Breach . Upon any termination of this Agreement by Licensee under Section 9.2.1 or 9.3, as of the effective date of such termination, Licensee thereafter automatically shall have a fully sublicensable and transferable, fully paid up, exclusive license in the Territory under the Licensed Patent Rights and Licensed Technology, to develop, have developed, make, have made, use, have used, sell, have sold, offer for sale, import and have imported any and all Licensed Products and to practice the Licensed Technology in the Territory.

 

9.5            Remedies . Except as otherwise expressly set forth in this Agreement, the termination provisions of this Article 9 are in addition to any other relief and remedies available to either Party at law.

 

9.6            Surviving Provisions . Notwithstanding any provision herein to the contrary, the rights and obligations of the Parties set forth in Sections 2.2, 4.7, 5, 6, 7, 8, 9.4, 10, and 11 (to the extent relevant) as well as any rights or obligations otherwise accrued hereunder (including any accrued payment obligations), shall survive the expiration or termination of the Term. Without limiting the generality of the foregoing, Licensee shall have no obligation to make any payment to Licensor that has not accrued prior to the effective date of any termination of this Agreement, but shall remain liable for all such payment obligations accruing prior to the effective date of such termination.

 

10.            DISPUTES

 

10.1          Dispute Resolution . In the event of any controversy or claim arising out of or relating to any provision of this Agreement or the breach thereof, the parties shall try to settle such conflict amicably between themselves. Subject to the limitation stated in the final sentence of this Section 10.1, any such conflict which the parties are unable to resolve promptly shall be settled through arbitration conducted in accordance with the rules of the International Chamber

 

10



 

of Commerce in Paris. The demand for arbitration shall be filed within a reasonable time after the controversy or claim has arisen, and in no event after the date upon which institution of legal proceedings based on such controversy or claim would be barred by the applicable statute of limitation. Such arbitration shall be held in New York, New York. The award through arbitration shall be final and binding. Either Party may enter any such award in a court having jurisdiction or may make application to such court for judicial acceptance of the award and an order of enforcement, as the case may be. Notwithstanding the foregoing, either Party may, without recourse to arbitration, assert against the other Party a third Party claim or cross-claim in any action brought by a third Party, to which the subject matter of this Agreement may be relevant.

 

11.            MISCELLANEOUS

 

11.1          Notification . All notices, requests and other communications hereunder shall be in writing, shall be addressed to the receiving Party’s address set forth below or to such other address as a Party may designate by notice hereunder, and shall be either (i) delivered by hand, (ii) made by facsimile transmission (to be followed with written confirmation sent by nationally-recognized overnight courier service, providing evidence of receipt), (iii) sent by nationally-recognized overnight courier service providing evidence of receipt, or (iv) sent by registered or certified mail, return receipt requested, postage prepaid. The addresses and other contact information for the parties are as follows:

 

If to Licensor:

 

 

 

If to Licensee:

Trovagene, Inc.

 

11055 Flintkote Ave., Suite B,

 

San Diego, CA 92121

 

Tel: 858 217 4838

 

Fax: 858 217 4768

 

Attention: President

 

 

With a copy to:

Mintz, Levin, Cohn, Ferris, Glovsky, and

 

Popeo, P.C.

 

The Chrysler Center

 

666 Third Avenue, 24 th  Floor

 

New York, NY 10017

 

Tel: (212) 692-6840

 

Fax: (212) 983-3115

 

Attention: Ivor Elrifi, Esq.

 

All notices, requests and other communications hereunder shall be deemed to have been given either (i) if by hand, at the time of the delivery thereof to the receiving Party at the address

 

11



 

of such Party set forth above, (ii) if made by telecopy or facsimile transmission, at the time that receipt thereof has been acknowledged by the recipient, (iii) if sent by nationally-recognized overnight courier, on the day such notice is delivered to the recipient, or (iv) if sent by registered or certified mail, on the fifth (5 th ) business day following the day such mailing is made.

 

11.2          Language . This Agreement has been prepared in the English language and the English language shall control its interpretation.

 

11.3          Governing Law and Venue . This Agreement will be construed and interpreted in accordance with the laws of the State of New York and the venue of any action brought shall be in New York, New York.

 

11.4          Limitations . Except as expressly set forth in this Agreement, neither Party grants to the other Party any right or license to any of its intellectual property.

 

11.5          Entire Agreement . This is the entire Agreement between the Parties with respect to the subject matter hereof and supersedes all prior representations, understandings and agreements between the Parties with respect to the subject matter hereof. No modification shall be effective unless in writing with specific reference to this Agreement and signed by the Parties.

 

11.6          Waiver . The terms or conditions of this Agreement may be waived only by a written instrument executed by the Party waiving compliance. The failure of either Party at any time or times to require performance of any provision hereof shall in no manner affect its rights at a later time to enforce the same. No waiver by either Party of any condition or term shall be deemed as a continuing waiver of such condition or term or of another condition or term.

 

11.7          Headings . Section and subsection headings are inserted for convenience of reference only and do not form part of this Agreement.

 

11.8          Assignment . Neither this Agreement nor any right or obligation hereunder may be assigned, delegated or otherwise transferred, in whole or part, by Licensor without the prior express written consent of Licensee. Any permitted assignee shall assume all obligations of its assignor under this Agreement. Any purported assignment in violation of this Section 11.8 shall be void. Licensee may freely assign, transfer or sublicense the rights granted under this Agreement by sending notice of such assignment, transfer or sublicense to the Licensor. The terms and conditions of this Agreement shall be binding upon and inure to the benefit of the permitted successors and assigns of the parties.

 

11.9          Force Majeure . Neither Party shall be liable for failure of or delay in performing obligations set forth in this Agreement, and neither shall be deemed in breach of its obligations, if such failure or delay is due to natural disasters or any causes beyond the reasonable control of such Party. In event of such force majeure, the Party affected thereby shall use reasonable efforts to cure or overcome the same and resume performance of its obligations hereunder.

 

12



 

11.10        Construction . The Parties hereto acknowledge and agree that: (i) each Party and its counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to its revision; (ii) the rule of construction to the effect that any ambiguities are resolved against the drafting Party shall not be employed in the interpretation of this Agreement; and (iii) the terms and provisions of this Agreement shall be construed fairly as to all Parties hereto and not in favor of or against any Party, regardless of which Party was generally responsible for the preparation of this Agreement.

 

11.11        Severability . If any provision(s) of this Agreement are or become invalid, are ruled illegal by any court of competent jurisdiction or are deemed unenforceable under then current applicable law from time to time in effect during the Term hereof, it is the intention of the Parties that the remainder of this Agreement shall not be affected thereby provided that a Party’s rights under this Agreement are not thereby materially diminished. The Parties hereto covenant and agree to renegotiate any such term, covenant or application thereof in good faith in order to provide a reasonably acceptable alternative to the term, covenant or condition of this Agreement or the application thereof that is invalid, illegal or unenforceable, it being the intent of the Parties that the basic purposes of this Agreement are to be effectuated.

 

11.12        Status . Nothing in this Agreement is intended or shall be deemed to constitute a partner, agency, employer-employee, or joint venture relationship between the Parties.

 

11.13        Section 365(n) . All licenses granted under this Agreement are deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of right to “intellectual property” as defined in Section 101 of such Code. The Parties agree that Licensee may fully exercise all of its rights and elections under the U.S. Bankruptcy Code, regardless of whether either Party files for bankruptcy in the United States or other jurisdiction. The Parties further agree that, in the event Licensee elects to retain its rights as a licensee under such Code, Licensee shall be entitled to complete access to any technology licensed to it hereunder and all embodiments of such technology. Such embodiments of the technology shall be delivered to the Licensee not later than:

 

(a) the commencement of bankruptcy proceedings against the licensor, upon written request, unless the licensor elects to perform its obligations under the Agreement, or

 

(b) if not delivered under Section 11.14 above, upon the rejection of this Agreement by or on behalf of Licensee, upon written request.

 

11.14        Further Assurances . Each Party agrees to execute, acknowledge and deliver such further instructions, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

 

11.15        Counterparts . This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

13



 

[Remainder of page intentionally left blank]

 

14



 

IN WITNESS WHEREOF, the Parties have caused this Exclusive License Agreement to be executed by their duly authorized representative.

 

 

LICENSOR :

 

 

 

By:

 

 

 

Name:  Gianluca Gaidano, an individual

 

 

 

 

 

 

 

By:

 

 

 

Name:  Robert Foa’, an individual

 

 

 

 

 

 

 

By:

 

 

 

Name:  Davide Rossi, an individual

 

 

 

 

 

LICENSEE:

 

 

 

TROVAGENE, INC.

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

15



 

Schedule A

 

Licensed Patent Rights

 

USSN 61/540618, filed September 29, 2011, entitled Mutations in sf3b1 and chronic lymphoblastic leukemia.

 

E-B-16


 

 

Exhibit 10.22

 

EXECUTIVE AGREEMENT

 

This Executive Agreement (the “ Agreement ”) is made and entered into effective as of February 1, 2012 (the “ Effective Date ”), by and between Steve Zaniboni (the “ Executive ”) and TrovaGene, Inc., a Delaware corporation (the “ Company ”).

 

R E C I T A L S

 

A.                                    WHEREAS, the Company wishes to retain Executive as its Chief Financial Officer; and

 

B.                                      WHEREAS, Executive is a Managing Partner of Global Source Ventures LLC, an investment firm (together with its successors and assigns, “GSV”), and serves as director, officer and/or consultant of or to various entities; and

 

C.                                      WHEREAS, in order to provide Executive with the financial security and sufficient encouragement to become retained by the Company, the Board of Directors of the Company (the “ Board ”) believes that it is in the best interests of the Company to provide Executive and GSV, as applicable, with certain engagement terms and severance benefits as set forth herein.

 

AGREEMENT

 

In consideration of the mutual covenants herein contained and the engagement of Executive by the Company, the parties agree as follows:

 

1.                            Definition of Terms . The following terms referred to in this Agreement shall have the following meanings:

 

(a)                                   Cause ” shall mean any of the following: (i) the commission of an act of fraud, embezzlement or material dishonesty which is intended to result in substantial personal enrichment of Executive in connection with Executive’s engagement with the Company; (ii) Executive’s conviction of, or plea of nolo contendere , to a crime constituting a felony (other than traffic-related offenses); (iii) Executive’s gross negligence that is materially injurious to the Company; (iv) a material breach of Executive’s proprietary information agreement that is materially injurious to the Company; or (v) Executive’s (1) material failure to perform his duties as an officer of the Company, and (2) failure to “cure” any such failure within thirty (30) days after receipt of written notice from the Company delineating the specific acts that constituted such material failure and the specific actions necessary, if any, to “cure” such failure.

 

(b)                                  Change of Control ” shall mean the occurrence of any of the following events:

 

(i)                                 the date on which any “person” (as such term is used in Sections

 



 

13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)) obtains “beneficial ownership” (as defined in Rule 13d-3 of the Exchange Act) or a pecuniary interest in fifty percent (50%) or more of the combined voting power of the Company’s then outstanding securities (“ Voting Stock ”);

 

(ii)           the consummation of a merger, consolidation, reorganization, or similar transaction involving the Company, other than a transaction: (1) in which substantially all of the holders of the Voting Stock immediately prior to such transaction hold or receive directly or indirectly fifty percent (50%) or more of the voting stock of the resulting entity or a parent company thereof, in substantially the same proportions as their ownership of the Company immediately prior to the transaction; or (2) in which the holders of the Company’s capital stock immediately before such transaction will, immediately after such transaction, hold as a group on a fully diluted basis the ability to elect at least a majority of the authorized directors of the surviving entity (or a parent company); or

 

(iii)        there is consummated a sale, lease, license or disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries, other than a sale, lease, license or disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries to an entity, fifty percent (50%) or more of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale, lease, license or disposition.

 

(c)                                   Disability ” means totally and permanently disabled as defined in the Company’s disability benefit plan applicable to senior executive officers as in effect on the date thereof.

 

(d)                                  Good Reason ” shall mean without Executive’s express written consent any of the following: (i) a significant reduction of Executive’s duties, position or responsibilities relative to Executive’s duties, position or responsibilities in effect immediately prior to such reduction, or the removal of Executive from such position, duties or responsibilities; (ii) a reduction of Executive’s compensation as in effect immediately prior to such reduction; (iii) the relocation of Executive to a facility or a location more than twenty-five (25) miles from the Company’s then current principal location; (iv) a material breach by the Company of this Agreement or any other agreement with Executive that is not corrected within fifteen (15) days after written notice from Executive (or such earlier date that the Company has notice of such material breach); or (v) the failure of the Company to obtain the written assumption of this Agreement by any successor contemplated in Section 11 below.

 

2.                            Duties and Scope of Position . During the Engagement Term (as defined below), Executive will serve as Chief Financial Officer of the Company, reporting to the Chief Executive Officer and the Board of Directors, and assuming and discharging such responsibilities as are commensurate with Executive’s position. During the Engagement Term, Executive will provide services in a manner that will faithfully and diligently further the business of the Company and will devote a substantial portion of Executive’s business time, attention and energy thereto with Executive working for the Company a minimum of 4 days per week. Notwithstanding the

 

2



 

foregoing, nothing in this Agreement shall restrict Executive from managing his investments, other business affairs and other matters or serving on civic or charitable boards or committees, provided that no such activities unduly interfere with the performance of his obligations under this Agreement, provided that Executive shall honor the non competition and non solicitation terms as per Section 13 below. During the Engagement Term, Executive agrees to disclose to the Company those other companies of which he is a member of the Board of Directors, an executive officer, or a consultant.

 

3.                            Term. The term of Executive’s engagement under this Agreement shall commence as of February 1, 2012 (the “Effective Date”) and shall continue until February 1, 2013, unless earlier terminated in accordance with Section 8 hereof. The term of Executive’s engagement shall be automatically renewed for successive one (1) year periods until the Executive or the Company delivers to the other party a written notice of their intent not to renew the “Engagement Term,” such written notice to be delivered at least sixty (60) days prior to the expiration of the then-effective “Engagement Term as that term is defined below. The period commencing as of the Effective Date and ending February 1, 2013 or such later date to which the term of Executive’s engagement under the Agreement shall have been extended is referred to herein as the “ Engagement Term “ and the end of the Engagement Term is referred to herein as the “Expiration Date.”

 

4.                            Base Compensation. The Company shall pay to Executive or assigns a base compensation (the “ Base Compensation ”) of $200,000 per year (prorated for any partial year), payable in equal bimonthly installments directly to Executive’s partnership, GSV, unless otherwise specified in writing by Executive to the Company. In addition, each year during the term of this Agreement, Executive shall be reviewed for purposes of determining the appropriateness of increasing his Base Compensation hereunder. Executive bears responsibility for payment of payroll taxes and similar assessments as required by law. Executive agrees that no benefits will be provided to the Executive by the Company. For purposes of the Agreement, the term “ Base Compensation ” as of any point in time shall refer to the Base Compensation as adjusted pursuant to this Section 4.

 

5.                            Target Bonus. In addition to his Base Compensation, Executive shall be given the opportunity to earn an annual bonus (the “ Bonus ”) of up to 50% of Base Compensation, payable to GSV unless otherwise directed in writing by the Executive to the Company. The Bonus shall be earned by Executive upon the Company’s achievement of performance milestones for a fiscal year (in each case, the “ Target Year ”) to be mutually agreed upon by the Executive and the Board or its compensation committee. In the event Executive is retained by the Company for less than the full Target Year for which a Bonus is earned pursuant to this Section 5, Executive shall be entitled to receive a pro-rated Bonus for such Target Year based on the number of days Executive was retained by the Company during such Target Year divided by 365. The determinations of the Board or its compensation committee with respect to Bonuses will be final and binding.

 

6.                            Stock Option Grant.  1,000,000 non-qualified stock options (the “Initial Options”) shall be granted to Executive under SEC rule 701 and pursuant to the Company’s stock option plan upon commencement of the Engagement Term. Such options will have an exercise price equal to $0.60 per share and will vest annually in equal amounts over a period of 4 years, with

 

3



 

250,000 shares vesting on each one-year anniversary of the date of grant. The option agreement will include (i) a Change of Control provision whereby as of immediately prior to a Change of Control of the Company, all of the stock options will vest and become fully exercisable and a termination provision whereby in the event Executive’s engagement is terminated voluntarily or for Cause by the Company, the unvested stock options will expire forthwith but if such engagement is terminated for any other reason (except death or Disability), the options may not be exercised at any time later than six (6) months after such termination of Executive’s engagement, and (ii) a provision that permits Executive to freely transfer the Initial Options to GSV or any other affiliate of Executive at any time. If Executive’s engagement is terminated by death or Disability, the options may be exercised within a period of one (1) year after such termination.

 

7.                            Termination .

 

(a)                                   Termination by the Company . Subject to the obligations of the Company set forth in Section 8, the Company may terminate Executive’s engagement at any time and for any reason (or no reason), and with or without Cause, and without prejudice to any other right or remedy to which the Company or Executive may be entitled at law or in equity or under this Agreement. Notwithstanding the foregoing, after ten (10) months from the Effective Date, in the event the Company desires to terminate the Executive’s engagement without Cause, the Company shall give the Executive not less than sixty (60) days advance written notice. Executive’s engagement shall terminate automatically in the event of his death.

 

(b)                                  Termination by Executive. Executive may voluntarily terminate the Engagement Term upon sixty (60) days’ prior written notice for any reason or no reason.

 

(c)                                   Termination for Death or Disability . Subject to the obligations of the Company set forth in Section 8, Executive’s engagement shall terminate automatically upon his death. Subject to the obligations of the Company set forth in Section 8, in the event Executive is unable to perform his duties as a result of Disability during the Engagement Term, the Company shall have the right to terminate the engagement of Executive by providing written notice of the effective date of such termination.

 

8.                            Payments Upon Termination of Engagement .

 

(a)                                   Termination for Cause, Death or Disability or Termination by Executive . In the event that Executive’s engagement hereunder is terminated during the Engagement Term by the Company for Cause pursuant to Section 7(a), as a result of Executive’s death or Disability pursuant to Section 7(c), or voluntarily by Executive, the Company shall compensate Executive (or in the case of death, Executive’s estate) as follows: on the date of termination the Company shall pay GSV (or to the Executive, if the Executive instructs the Company in writing) a lump sum amount equal to (i) any portion of unpaid Base Compensation then due for periods prior to the effective date of termination; (ii) any Bonus earned and not yet paid through the date of termination; and (iii) within 2-1/2 months following submission of proper expense reports by Executive or Executive’s estate, all expenses reasonably and necessarily incurred by Executive in connection with the business of the Company prior to the date of termination.

 

4



 

(b)                                  Termination by Company Without Cause . In the event that Executive’s engagement is terminated during the Engagement Term by the Company without Cause pursuant to Section 7(a), the Company shall compensate Executive as follows:

 

(i)              on the date of termination, the Company shall pay GSV (or to the Executive, if the Executive instructs the Company in writing) a lump sum amount equal to (A) any portion of unpaid Base Compensation then due for periods prior to the effective date of termination; (B) any Bonus earned and not yet paid through the date of termination; and (C) within 2-1/2 months following submission of proper expense reports by Executive, all expenses reasonably and necessarily incurred by Executive in connection with the business of the Company prior to the date of termination; and, provided that Executive executes a written release, substantially in the form attached hereto as Exhibit “B”, of any and all claims against the Company and all related parties with respect to all matters arising out of Executive’s engagement by the Company, (a) for a period of ten (10) months after the Effective Date, the Company shall pay GSV (or to the Executive, if the Executive instructs the Company in writing) the Base Compensation for three (3) months from the date of termination and (b) thereafter, the Company shall pay GSV (or to the Executive, if the Executive instructs the Company in writing) the Base Compensation for six (6) months from the date of termination. In the event Executive’s engagement is terminated without Cause and a Change of Control of the Company occurs within six (6) months of such termination, Executive also shall be entitled to the severance benefits set forth under Section 8(c).

 

(c)                                   Termination in the Context of a Change of Control . Notwithstanding anything in Section 8(a) or 8(b) to the contrary, in the event of Executive’s termination of engagement with the Company either (i) by the Company without Cause at any time within six (6) months prior to the consummation of a Change of Control if, prior to or as of such termination, a Change of Control transaction was Pending (as defined in Section 8(d) below) at any time during such six (6)-month period, (ii) by Executive for Good Reason at any time within twelve (12) months after the consummation of a Change of Control, or (iii) by the Company without Cause at any time within twelve (12) months after the consummation of a Change of Control, then, Executive shall be entitled to the following payments and other benefits:

 

(i)              on the date of termination (except as specified in clause (D)), the Company shall pay GSV (or to the Executive, if the Executive instructs the Company in writing) a lump sum amount equal to (A) any portion of unpaid Base Compensation then due for periods prior to the effective date of termination; (B) any Bonus earned and not yet paid through the date of termination; and (D) within 2-1/2 months following submission of proper expense reports by Executive, all expenses reasonably and necessarily incurred by Executive in connection with the business of the Company prior to the date of termination;

 

(ii)           on the date of termination the Company shall pay to GSV (or to the Executive, if the Executive instructs the Company in writing) a lump sum amount equal to twelve (12) months of Executive’s Base Compensation then in effect as of the day of termination;

 

5



 

(iii)        notwithstanding any provision of any stock incentive plan, stock option agreement, restricted stock agreement or other agreement relating to capital stock of the Company, all of the shares that are then unvested shall immediately vest and, with respect to all options, warrants and other convertible securities of the Company beneficially held by Executive, become fully exercisable for (A) a period of six months following the date of termination only if at the time of such termination there is a Change of Control transaction Pending (as defined in Section 8(d) below) or (B) if clause (A) does not apply, then such period of time set forth in the agreement evidencing the security; and

 

(iv)       Severance benefits under this Section 8(c) and Section 8(b) above shall be mutually exclusive and severance under one such section shall prohibit severance under the other.

 

(d)                                  Definition of “Pending.” For purposes of Section 8(c), a Change of Control transaction shall be deemed to be “ Pending ” each time any of the following circumstances exist: (A) the Company and a third party have entered into a confidentiality agreement that has been signed by a duly-authorized officer of the Company and that is related to a potential Change of Control transaction; or (B) the Company has received a written expression of interest from a third party, including a binding or non-binding term sheet or letter of intent, related to a potential Change of Control transaction.

 

9.                            Indemnification .  (a)   Executive agrees that if the Company is made a party, or is threatened to be made a party, to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by a governmental or regulatory body (a “Proceeding”), with respect to payroll, withholding, benefits or related matters pursuant to  this Agreement, the Company shall be indemnified and held harmless by Executive against all cost, expense, liability and loss (including, without limitation, reasonable attorney’s fees, judgments, fines, penalties, taxes and amounts paid or to be paid in settlement) reasonably incurred or suffered by the Company.  The Executive shall advance to the Company all reasonable costs and expenses incurred by it in connection with a Proceeding within 20 days after receipt by the Executive of a written request, with appropriate documentation, for such advance.

 

(b)                              Promptly after receipt by the Company of notice of any claim or the commencement of any action or proceeding with respect to which the Company is entitled to indemnity hereunder, the Company shall notify the Executive in writing of such claim or the commencement of such action or proceeding, and the Executive shall (i) assume the defense of such action or proceeding, (ii) employ counsel reasonably satisfactory to the Company and (iii) pay the reasonable fees and expenses of such counsel.  Notwithstanding the preceding sentence, the Company shall be entitled to employ counsel separate from counsel for the Executive and from any other party in such action if the Company reasonably determines that a conflict of interest exists, or may exist, which makes representation by counsel chosen by the Executive not advisable.  In such event, the Executive shall pay, to the extent permitted by law, the reasonable fees and disbursements of such separate counsel for the Company.

 

6



 

10.                      Successors . Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets or otherwise pursuant to a Change of Control shall assume the Company’s obligations under this Agreement and agree expressly in writing to perform the Company’s obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets (including any parent company to the Company), whether or not in connection with a Change of Control, which becomes bound by the terms of this Agreement by operation of law or otherwise.

 

11.                      Notices . Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered (if to the Company, addressed to its Secretary at the Company’s principal place of business on a non-holiday weekday between the hours of 9 a.m. and 5 p.m.; if to Executive, via personal service to his last known residence) or three business days following the date it is mailed by U.S. registered or certified mail, return receipt requested and postage prepaid.

 

12.                      Confidential Information.                        Executive recognizes and acknowledges that by reason of Executive’s engagement by and service to the Company before, during and, if applicable, after the Engagement Term, Executive will have access to certain confidential and proprietary information relating to the Company’s business, which may include, but is not limited to, trade secrets, trade “know-how,” product development techniques and plans, formulas, customer lists and addresses, financing services, funding programs, cost and pricing information, marketing and sales techniques, strategy and programs, computer programs and software and financial information (collectively referred to herein as “ Confidential Information ”). Executive acknowledges that such Confidential Information is a valuable and unique asset of the Company and Executive covenants that he will not, unless expressly authorized in writing by the Company, at any time during the course of Executive’s engagement use any Confidential Information or divulge or disclose any Confidential Information to any person, firm or corporation except in connection with the performance of Executive’s duties for and on behalf of the Company and in a manner consistent with the Company’s policies regarding Confidential Information. Executive also covenants that at any time after the termination of such engagement, directly or indirectly, he will not use any Confidential Information or divulge or disclose any Confidential Information to any person, firm or corporation, unless such information is in the public domain through no fault of Executive or except when required to do so by a court of law, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order Executive to divulge, disclose or make accessible such information. All written Confidential Information (including, without limitation, in any computer or other electronic format) which comes into Executive’s possession during the course of Executive’s engagement shall remain the property of the Company. Unless expressly authorized in writing by the Company, Executive shall not remove any written Confidential Information from the Company’s premises, except in connection with the performance of Executive’s duties for and on

 

7



 

behalf of the Company and in a manner consistent with the Company’s policies regarding Confidential Information. Upon termination of Executive’s engagement, the Executive agrees to immediately return to the Company all written Confidential Information (including, without limitation, in any computer or other electronic format) in Executive’s possession. As a condition of Executive’s engagement with the Company and in order to protect the Company’s interest in such proprietary information, the Company shall require Executive’s execution of a Confidentiality Agreement and Inventions Agreement in the form attached hereto as Exhibit “A” , and incorporated herein by this reference

 

13.                      Non-Competition; Non-Solicitation .

 

(a)                                   Non-Compete . The Executive hereby covenants and agrees that during the Engagement Term and for a period of one year following the Expiration Date, the Executive will not, without the prior written consent of the Company, directly or indirectly, on his own behalf or in the service or on behalf of others, whether or not for compensation, engage in any business activity, or have any interest in any person, firm, corporation or business, through a subsidiary or parent entity or other entity (whether as a shareholder, agent, joint venturer, security holder, trustee, partner, Executive, creditor lending credit or money for the purpose of establishing or operating any such business, partner or otherwise) with any Competing Business in the Covered Area. For the purpose of this Section 13(a), (i) “ Competing Business ” means any medical diagnostic company, any contract manufacturer, any research laboratory or other company or entity (whether or not organized for profit) that has, or is seeking to develop, one or more products or therapies that is related to trans renal DNA and (ii) “ Covered Area ” means all geographical areas of the United States and other foreign jurisdictions where Company then has offices and/or sells its products directly or indirectly through distributors and/or other sales agents. Notwithstanding the foregoing, the Executive may own shares of companies whose securities are publicly traded, so long as ownership of such securities do not constitute more than one percent (1%) of the outstanding securities of any such company.

 

(b)                                  Non-Solicitation . The Executive further agrees that during the Engagement Term and for a period of one (1) year from the Expiration Date, the Executive will not divert any business of the Company and/or its affiliates or any customers or suppliers of the Company and/or the Company’s and/or its affiliates’ business to any other person, entity or competitor, or induce or attempt to induce, directly or indirectly, any person to leave his or her employment with the Company and/or its affiliates; provided, however, that the foregoing provisions shall not apply to a general advertisement or solicitation program that is not specifically targeted at such employees.

 

(c)       Remedies . The Executive acknowledges and agrees that his obligations provided herein are necessary and reasonable in order to protect the Company and its affiliates and their respective business and the Executive expressly agrees that monetary damages would be inadequate to compensate the Company and/or its affiliates for any breach by the Executive of his covenants and agreements set forth herein. Accordingly, the Executive agrees and acknowledges that any such violation or threatened violation of this Section 13 will cause irreparable injury to the Company and that, in addition to any other remedies that may be available, in law, in equity or otherwise, the Company and its affiliates shall be entitled to obtain

 

8



 

injunctive relief against the threatened breach of this Section 13 or the continuation of any such breach by the Executive without the necessity of proving actual damages.

 

14.                      Engagement Relationship . Executive’s engagement with the Company will be “at will,” meaning that either Executive or the Company may terminate Executive’s engagement at any time and for any reason, with or without Cause or Good Reason. Any contrary representations that may have been made to Executive are superseded by this Agreement. This is the full and complete agreement between Executive and the Company on this term. Although Executive’s duties, title, compensation and benefits, as well as the Company’s personnel policies and procedures, may change from time to time, the “at will” nature of Executive’s engagement may only be changed in an express written agreement signed by Executive and a duly authorized officer of the Company (other than Executive).

 

15.                      Miscellaneous Provisions .

 

(a)                                   Modifications; No Waiver . No provision of this Agreement may be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by Executive and by an authorized officer of the Company (other than Executive). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

 

(b)                                  Entire Agreement . This Agreement supersedes all prior agreements and understandings between the parties, oral or written. No modification, termination or attempted waiver shall be valid unless in writing, signed by the party against whom such modification, termination or waiver is sought to be enforced.

 

(c)                                   Choice of Law . The validity, interpretation, construction and performance of this Agreement shall be governed by the internal substantive laws, but not the conflicts of law rules, of the State of California.

 

(d)                                  Severability . The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.

 

(e)                                   Counterparts . This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, and may be delivered by facsimile or other electronic means, but all of which shall be deemed originals and taken together will constitute one and the same Agreement.

 

(f)                                     Headings . The headings of the Articles and Sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof.

 

(g)                                  Construction of Agreement . In the event of a conflict between the text of the Agreement and any summary, description or other information regarding the Agreement, the text of the Agreement shall control.

 

9



 

IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written.

 

 

COMPANY:

TrovaGene, Inc.

 

 

 

By:

/s/ Antonius Schuh

 

 

 

Name:

Antonius Schuh

 

 

 

Title:

Chief Executive Officer

 

 

 

 

EXECUTIVE:

/s/ Steve Zaniboni

 

Steve Zaniboni

 


Exhibit 10.23

 

EXCLUSIVE LICENSE AGREEMENT

 

This Exclusive License Agreement (this “ Agreement ”) is made effective as of May   , 2006 (the “ Effective Date ”) by and between Brunangelo Falini, an individual residing at 5/f Via San Giuseppe, 06100, Perugia, Italy, (“ Falini ”), Cristina Mecucci, an individual residing at Strada S. Martino dei Colli-Castiglion della valle 2, 06076 Perugia, Italy (“ Mecucc i”) (each of Falini and Mecucci are individually and together, “ Licensor ”), and Xenomics, Inc., located at 420 Lexington Avenue, New York, New York 10017 (“ Licensee ”). Licensor and Licensee are each hereafter referred to individually as a “ Party ” and together as the “ Parties ”.

 

WHEREAS, Licensor is the owner of or otherwise controls certain proprietary Licensed Patents and Licensed Technology (as defined below); and

 

WHEREAS, Licensee desires to obtain an exclusive license from Licensor under such Licensed Patents and Licensed Technology to develop and commercialize Licensed Products; and

 

WHEREAS, Licensor desires to grant such license to Licensee on the terms and subject to the conditions of this Agreement.

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereby agree as follows.

 

1.              DEFINITIONS

 

Whenever used in the Agreement with an initial capital letter, the terms defined in this Article 1 shall have the meanings specified.

 

1.1            Confidential Information ” shall mean with respect to a Party (the “ Receiving Party ”), all information which is disclosed by the other Party (the “ Disclosing Party ”) to the Receiving Party hereunder or to any of its employees, consultants, affiliates, licensees or sublicensees, except to the extent that the Receiving Party can demonstrate by written record or other suitable physical evidence that such information, (a) as of the date of disclosure is demonstrably known to the Receiving Party or its affiliates other than by virtue of a prior confidential disclosure to such Party or its affiliates; (b) as of the date of disclosure is in, or subsequently enters, the public domain, through no fault or omission of the Receiving Party; (c) is obtained from a Third Party having a lawful right to make such disclosure free from any obligation of confidentiality to the Disclosing Party; or (d) is independently developed by or for the Receiving Party without reference to or reliance upon any Confidential Information of the Disclosing Party.

 

1.2            First Commercial Sale ” shall mean, on a country-by-country basis, the date of the first arm’s length transaction, transfer or disposition for value to a Third Party of a Licensed Product pursuant to regulatory approval in a Major Market by or on behalf of Licensee or any affiliate or Sublicensee of Licensee in such country.

 

Initials

 

1



 

1.3            FDA ” shall mean the United States Food and Drug Administration and any successor agency or authority thereto.

 

1.4            Improvements ” shall mean any enhancement, invention or discovery created or identified or controlled by Licensor during the Royalty Term, which constitutes an improvement to the subject matter of the Licensed Patent Rights or Licensed Technology.

 

1.5            Indemnitees ” and “ Indemnifying Party ” shall mean a Party, its affiliates and their respective directors, officers, employees, stockholders and agents and their respective successors, heirs and assigns.

 

1.6            Licensed Field ” shall mean all fields of use.

 

1.7            Licensed Patent Rights ” shall mean any of the patents and patent applications described in Schedule A attached hereto, and any divisional, continuation, continuation-in-part (to the extent that the continuation-in-part is entitled to the priority date of an initial patent or patent application which is the subject of this Agreement), reissue, reexamination, confirmation, revalidation, registration, patent of addition, renewal, extension or substitute thereof, or any patent issuing therefrom or any supplementary protection certificates related thereto.

 

1.8            Licensed Product ” shall mean any product sold by Licensee or its affiliates or Sublicensees that, absent the license in the Licensed Field provided in this Agreement, would be an infringement of a Valid Claim of the Licensed Patent Rights.

 

1.9            Licensed Technology ” shall mean and include all Technology, whether or not patentable, including but not limited to, techniques and materials, controlled by Licensor as of the Effective Date or which becomes controlled by Licensor during the Royalty Term that (a) is related to any patent or patent application included in the Licensed Patent Rights and (b) is necessary or useful for Licensee to practice the license granted to it hereunder.

 

1.10          Major Market ” shall mean the Unites States, European Union, or Japan.

 

1.11          Net Sales ” shall mean the amount received by Licensee for all Licensed Products sold by Licensee, its affiliates or Sublicensees to Third Parties throughout the Territory during each calendar quarter, less the following amounts incurred or paid by Licensee or its affiliates or Sublicensees during such calendar quarter with respect to sales of Licensed Products regardless of the calendar quarter in which such sales were made: (a) normal and customary quantity and/or cash discounts and sales returns and allowances, including, without limitation, those granted on account of price adjustments, billing errors, rejected goods, damaged goods, returns, rebates actually allowed and taken, administrative or other fees or reimbursements of similar payments to wholesalers or other distributors, buying groups, or other institutions; (b) sales commission fees paid to Third Parties; (c) freight, postage, shipping, and insurance expenses (if separately identified in such invoice); (d) customs or excise duties or other duties directly imposed and related to the sales making up the gross invoice amount; (e) any rebates or similar payments made with respect to sales paid for by any governmental or regulatory authority such as, by way of illustration and not in limitation of the parties’ rights hereunder, Federal or state Medicaid, Medicare or similar state program or equivalent foreign governmental program; (f) sales and other taxes and duties directly related to the sale, to the extent that such items are included in the gross invoice price (but not including taxes assessed against the income derived from such sale); (g) fully loaded manufacturing costs, materials, labor, overhead and costs of distribution and (h) any amounts paid to Third Parties as licensing, royalties or similar fees.

 



 

“Net Sales” shall not include sales or transfers between Licensee and its affiliates or Sublicensees, unless the Licensed Product is consumed by the affiliate or Sublicensee.

 

1.12          ‘‘ Regulatory Approval ” shall mean any and all approvals (including pricing and reimbursement approvals), product and establishment licenses, registrations or authorizations of any kind of the FDA or any Foreign Regulatory Authority necessary for the development, pre-clinical and/or human clinical testing, manufacture, quality testing, supply, use, storage, importation, export, transport, marketing and sale of a Licensed Product (or any component thereof) for use in the Field in any country or other jurisdiction in the Territory.

 

1.13          Royalty Term ” shall mean, with respect to each Licensed Product, the period commencing on the Effective Date and continuing on a country-by-country, and product-by-product basis until last to expire of the Licensed Patent Rights covering the Licensed Product.

 

1.14          Sublicensee ” shall mean any Third Party to whom Licensee grants a sublicense of some or all of the rights granted to Licensee under this Agreement.

 

1.15          Technology ” shall mean and include any and all unpatented, proprietary ideas, inventions, discoveries, Confidential Information, data, results, formulae, designs, specifications, methods, processes, techniques, ideas, know-how, technical information (including, without limitation, structural and functional information), process information, pre-clinical information, clinical information, and any and all proprietary control and manufacturing data and materials.

 

1.16          Term ” shall mean the period commencing on the Effective Date and continuing until the expiration or termination of this Agreement in accordance with the terms hereof.

 

1.17          Territory ” shall mean all countries and jurisdictions of the world.

 

1.18          Third Party ” shall mean any person or entity other than Licensee, Licensor and their respective affiliates.

 

1.19          Valid Claim ” shall mean a claim in an issued, unexpired patent or in a pending patent application within the Licensed Patent Rights that (a) has not been finally cancelled, withdrawn, abandoned or rejected by any administrative agency or other body of competent jurisdiction, (b) has not been revoked, held invalid, or declared unpatentable or unenforceable in a decision of a court or other body of competent jurisdiction that is unappealable or unappealed within the time allowed for appeal, (c) has not been rendered unenforceable through disclaimer or otherwise, and (d) is not lost through an interference proceeding.

 

3



 

2.              GRANT OF RIGHTS

 

2.1            License to Licensee .

 

2.1.1            Grant of License . Licensor hereby grants to Licensee an exclusive, royalty-bearing license, including the right to grant sublicenses in accordance with Section 2.1.2, under the Licensed Patent Rights and Licensed Technology and Licensor’s interest in any Improvements, to develop, have developed, make, have made, use, have used, sell, offer for sale, have sold, import, have imported, export and have exported, Licensed Products and to practice the Licensed Technology in the Territory, for any and all uses within the Licensed Field, subject to the terms and conditions of this Agreement.

 

2.1.2            Right to Sublicense . Licensee shall have the right to grant sublicenses to any Sublicensee to all or any portion of its rights under the license granted pursuant to this Section 2.

 

2.1.3            Retained Rights . Subject to the other terms of this Agreement, Licensor retains no right to use the Licensed Technology or practice the Licensed Patent Rights or to use Licensor’s interest in Improvements

 

2.2            Right of First Refusal . In the event that Licensor decides to sell or otherwise convey or encumber some or all of the Licensed Patent Rights, Licensed Technology or Improvements (subject, of course, to this Agreement), Licensor shall provide prior written notice of the same to Licensee and offer Licensee the option (the “ Option ”) to acquire such intellectual property. Licensee shall have ninety (90) days thereafter to indicate to Licensor whether it would like to exercise its option (the “ Option Period ”). If Licensee does not give Licensor notice of its exercise of the Option before the end of the Option Period, or if Licensee indicates in writing to Licensor that it does not intend to exercise the Option, then Licensor shall be free to sell, convey or encumber such intellectual property, subject to Licensee’s other rights under this Agreement. If Licensee provides Licensor written notice of its desire to exercise the Option, then the Parties shall immediately engage in good faith negotiation of an intellectual property transfer agreement. If the Parties are not able, despite their good faith efforts, to agree on terms within one-hundred eighty (180) days after initiation of such negotiations, then Licensor shall be free to seek other third-Party buyers provided that such buyers shall not be offered such rights on terms better than those last offered to Licensee.

 

3.              DEVELOPMENT AND COMMERCIALIZATION OF LICENSED PRODUCTS.

 

3.1            Commercialization .

 

3.1.1         Responsibility . From and after the Effective Date, Licensee shall have full control and authority over the development and commercialization of Licensed Products in the Licensed Field in the Territory. Licensee shall own all data, results and all other information arising from any such activities under this Agreement. All activities relating to development and commercialization under this Agreement shall be undertaken at Licensee’s sole cost and expense.

 

4



 

3.1.2         Diligence . During twenty-four (24) months after the Effective Date (the “ Diligence Period ”), Licensee will exercise commercially reasonable efforts to develop a Licensed Product that incorporates the Licensed Patent Rights or Licensed Technology, such commercially reasonable efforts to take into account the competitiveness of the marketplace, the proprietary position of the Licensed Product, the relative potential safety and efficacy of the Licensed Product, the cost of goods and availability of capacity to manufacture and supply the Licensed Product at commercial scale, the profitability of the applicable Licensed Product, and other relevant factors including, without limitation, technical, legal, scientific or medical factors. The Diligence Period will be automatically extended by another twenty-four (24) months if Licensee has exercise commercially reasonable efforts to develop a Licensed Product during the Diligence Period.

 

3.1.3         Option . If Licensee does not exercise commercially reasonable efforts to develop Licensed Product within the Diligence Period as set forth in Section 3.1.2 above, Licensor shall have the option to buy back the rights to commercialize the Licensed Product (the “ Buy-Back Option ”). The Buy Back option shall be exercisable by written notice for a period of sixty (60) days after the expiration of the Diligence Period, and upon reasonable reimbursement of all development costs and any reasonable amounts disbursed to third parties in connection with the development of Licensed Product by Licensee during the Diligence Period.

 

3.2        Updates and Reports . Licensee shall provide Licensor with brief written reports no less frequently than bi-annually from the Effective Date until the date of the First Commercial Sale (commencing with the first anniversary of the Effective Date) summarizing Licensee’s efforts to develop and commercialize a Licensed Product hereunder.

 

3.3        Samples . Within a reasonable time after the Effective Date, Licensor shall provide to Licensee samples of blood and bone marrow from fifteen (15) patients so that Licensee may develop Licensed Product as provided for in this Agreement.

 

4.              PAYMENTS AND ROYALTIES

 

4.1           License Fee and Reimbursement of Patent Costs . In consideration of the grant of the license described in Section 2.1 hereof, Licensee hereby agrees to pay Licensor an upfront license described in Section 2.1 hereof, Licensee hereby agrees to pay Licensor an upfront license fee in the amount of Seventy Thousand Dollars ($70,000), of which Thirty-Five Thousand Dollars ($35,000) shall be paid within 30 days of the execution of  this Agreement and Thirty-Five Thousand Dollars ($35,000) shall be paid within 60 days of the of the execution of this Agreement as payment of license fee and reimbursement for sunk patent costs.

 

4.2           Milestone Payments . In further consideration of the grant of the license by Licensor hereunder  and subject  to the other terms and conditions of this Agreement, Licensee shall make a payment to Licensor of One Hundred Thousand Dollars ($100,000) within thirty (30) days of the initial occurrence of the first Regulatory Approval for a Licensed Product in by Licensee or its Affiliates or Sublicenses.

 

4.3            It is hereby acknowledged and agreed that any milestone payment made pursuant to this Section 4.3 shall be made only once, with respect to the first achievement of the relevant milestone for the first Licensed Product, regardless of how many times such milestone

 

5



 

is achieved by Licensed Products and regardless of how many times a particular Licensed Product achieves such milestones.

 

4.4            Payment of Royalties; Royalty Rates; Minimum Royalties

 

4.4.1          Royalty Payments   In further consideration of the grant of the license by Licensor hereunder, and subject to the other terms of this Agreement (including the remainder of this Section 4), commencing on the date of the First Commercial Sale of each Licensed Product in each country in the Territory and continuing for the duration of the Royalty Term in such country, Licensee shall pay to Licensor a royalty equal to three percent (3%) of Net Sales of any Licensed Product sold by Licensee and/or its affiliates and/or Sublicensees in such country in the Territory.

 

4.5           Sublicense Income .  In addition to all other fees set forth above, During the Royalty Term, Licensee shall pay Licensor ten percent (10%) of all Sublicense Income received pursuant to any sublicenses of Licensed Patent Rights relating to Licensed Products.

 

4.5.1           Sublicense Income ” shall mean all payments received by Licensee from its Sublicensees as consideration for the grant by Licensee of a sublicense pursuant to Section 2.1.2, excluding (a) payments made by a Sublicensee in consideration of the issuance of equity or debt securities of Licensee and (b) payments made by a Sublicensee which are required to be used to support or fund research and development activities to be undertaken by Licensee pursuant to a budget for sponsored research which has been agreed to with the Sublicensee and based on full-time equivalent or other cost-accounting methodologies that are consistent with then current industry practices.

 

4.6            Third Party Royalty Offset . In the event that in any royalty period, Licensee, in order to exploit the license granted to it under Section 2.1 of this Agreement in any country, actually makes royalty payments to one or more Third Parties (“ Third Party Payments”) as consideration for a license to an issued patent or patents, or if it becomes known to the Parties that the entirety of the Licensed Patents or Licensed Technology is not wholly-owned by Licensor as set forth in Section 7.1(d), then Licensee shall have the right to reduce the royalties otherwise due to Licensor pursuant to Section 4.3 and 4.4 above for such Licensed Product by the amount of such Third Party Payments.

 

4.7            Payment Terms .

 

4.7.1           Payment of Royalties . Unless otherwise expressly provided, Licensee shall make any royalty payments owed to Licensor hereunder in arrears, within thirty (30) days from the end of each quarter in which such payment accrues. For purposes of determining when a sale of any Licensed Product occurs under this Agreement, the sale shall be deemed to occur on the date the Licensed Product is invoiced and paid for in full by the purchaser. Each royalty payment shall be accompanied by a report for each country in the Territory in which sales of Licensed Products occurred in the calendar quarter covered by such statement, specifying: the gross sales (if available) and Net Sales in each country’s currency; the applicable royalty rate under this Agreement; the royalties payable in each country’s currency, including an accounting of deductions taken in the calculation of Net Sales; the applicable

 

6



 

exchange rate to convert from each country’s currency to United States Dollars under this Section and the royalties payable in United States Dollars.

 

4.7.2         Accounting . All payments hereunder shall be made in the United States in United States Dollars. Conversion of foreign currency to United States Dollars shall be made at the conversion rate existing in the United States (as reported in The Wall Street Journal ) on the last business day of the quarter immediately preceding the applicable calendar quarter. If The Wall Street Journal ceases to be published, then the rate of exchange to be used shall be that reported in such other business publication of national circulation in the United States as the Parties reasonably agree.

 

4.7.3         Tax Withholding; Restrictions on Payment . Licensee shall make any applicable withholding or other required tax or duty payments due on behalf of Licensor and shall provide Licensor upon request with such written documentation regarding any such payment as available to Licensee relating to an application by Licensor for a foreign tax credit for such payment with the United States Internal Revenue Service.

 

4.8        Records Retention; Review .

 

4.8.1         Royalties . Commencing as of the date of First Commercial Sale of the first Licensed Product hereunder, Licensee and its affiliates and Sublicensees shall keep for at least two (2) years from the end of the calendar year to which they pertain, complete and accurate records of sales by Licensee or its affiliates and Sublicensees, as the case may be, of each Licensed Product, in sufficient detail to allow the accuracy of the payments hereunder to be confirmed.

 

4.8.2         Review . At the request of Licensor, which shall not be made more frequently than once per calendar year during the Term, upon at least thirty (30) days’ prior written notice from Licensor, and at the expense of Licensor (except as otherwise provided herein), Licensee shall permit, under a confidentiality agreement with terms no less onerous than those hereunder, an independent certified public accountant reasonably selected by Licensor and reasonably acceptable to Licensee to inspect (during regular business hours) the relevant records required to be maintained by Licensee under this Section 4.8.

 

5.              TREATMENT OF CONFIDENTIAL INFORMATION

 

5.1            Confidential Obligations . Licensor and Licensee each recognize that the other Party’s Confidential Information constitutes highly valuable and proprietary confidential information. Licensor and Licensee each agree that during the Royalty Term and for five (5) years thereafter, it will keep confidential, and will cause its employees, consultants, affiliates and sublicensees to keep confidential, all Confidential Information of the other Party. Neither Licensor nor Licensee nor any of their respective employees, consultants, affiliates or sublicensees shall use Confidential Information of the other Party for any purpose whatsoever other than exercising any rights granted to it or reserved by it hereunder. Without limiting the foregoing, each Party may disclose information to the extent such disclosure is reasonably necessary to (a) file and prosecute patent applications and/or maintain patents which are filed or prosecuted in accordance with the provisions of this Agreement, (b) file, prosecute or defend

 

7



 

litigation in accordance with the provisions of this Agreement, or (c) comply with applicable laws, regulations or court orders; provided, however, that if a Party is required to make any such disclosure of the other Party’s Confidential Information in connection with any of the foregoing, it will give reasonable advance notice to the other Party of such disclosure requirement and will use reasonable efforts to cooperate with such other Party in efforts to secure confidential treatment of such information required to be disclosed.

 

5.2        Limited Disclosure and Use . Licensor and Licensee each agree that any disclosure of the other Party’s Confidential Information to any officer, employee, consultant or agent of the other Party or any of its affiliates or Sublicensees shall be made only if and to the extent necessary to carry out its rights and responsibilities under this Agreement, shall be limited to the maximum extent possible consistent with such rights and responsibilities and shall only be made to the extent any such persons are bound by written confidentiality obligations to maintain the confidentiality thereof and not to use such Confidential Information except as expressly permitted by this Agreement. Licensor and Licensee each further agree not to disclose or transfer the other Party’s Confidential Information to any Third Parties under any circumstance without the prior written approval from the other Party (such approval not to be unreasonably withheld), except as otherwise required by law, and except as otherwise expressly permitted by this Agreement. Each Party shall take such action, and shall cause its affiliates or Sublicensees to take such action, to preserve the confidentiality of each other’s Confidential Information as it would customarily take to preserve the confidentiality of its own Confidential Information, using, in all such circumstances, not less than reasonable care. Each Party, upon the request of the other Party, will return all the Confidential Information disclosed or transferred to it by the other Party pursuant to this Agreement, including all copies and extracts of documents and all manifestations in whatever form, within sixty (60) days of such request or, if earlier, the termination or expiration of this Agreement; provided however, that a Party may retain (a) any Confidential Information of the other Party relating to any license which expressly survives such termination and (b) one (1) copy of all other Confidential Information in inactive archives solely for the purpose of establishing the contents thereof.

 

5.3        Publicity . Neither Party may publicly disclose the existence or terms or any other matter of fact regarding this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed; provided, however, that either Party may make such a disclosure (a) to the extent required by law or (b) with respect to Licensee, to any prospective Sublicensees or transferees or to investors, prospective investors, lenders and other potential financing sources who are obligated to keep such information confidential. Notwithstanding the foregoing, Licensee shall be free to issue one or more press releases without the consent of Licensor to announce the execution of this Agreement and major milestones relating thereto.

 

5.4        Publication .

 

5.4.1         Regarding Improvements, Licensor and Licensee agree as follows:

 

(a)            Licensor will provide Licensee with notice of planned publications and draft copies of such publications as far in advance of submission deadlines as practical and Licensee will communicate to Licensor any concerns regarding the content

 

8



 

of such draft copies as soon as practical after receipt. The purpose of this dialogue is to identify and resolve any issues as far in advance of submission deadlines as possible.

 

(b)       When Licensor provides Licensee with final draft of a planned publication, Licensee will have three (3) business days to review and approve such draft.

 

(c)       At Licensee’s discretion, submission of a proposed publication may be delayed for an additional thirty (30) days at any time during the periods described in Section 5.4.1 (a) and (b) above to provide the Licensor with the opportunity to prepare and file the necessary paperwork to protect information of a proprietary nature.

 

5.4.2 Regarding previously published material relating to the Licensed Patent Rights or Licensed Technology:

 

(a)       At the Licensor’s discretion, Licensor will provide Licensee with notice of planned publications and draft copies of such publications as far in advance of submission deadlines as practical and Licensee will communicate to Licensor any concerns regarding the content of such draft copies as soon as practical after receipt. The purpose of this dialogue is to identify and resolve any issues as far in advance of submission deadlines as possible.

 

(b)       When Licensor provides Licensee with final draft of a planned publication, Licensee will have three (3) business days to review and approve.

 

(c)       At Licensee’s discretion, submission of a proposed publication may be delayed for an additional thirty (30) days at any time during the periods described in 5.4.2 (a) and (b) above to provide the Licensor with the opportunity to prepare and file the necessary paperwork to protect information of a proprietary nature.

 

5.4.3    Licensee is aware that Licensor, after filing the Italian Patent, distributed some constructs to some laboratories worldwide that could be used for publication by third parties. Licensor shall inform the laboratories mentioned above about its obligations under this Agreement.

 

6.             PROVISIONS CONCERNING THE FILING, PROSECUTION AND MAINTENANCE OF PATENT RIGHTS

 

6.1       Patent Filing, Prosecution and Maintenance . Subject to the other terms of this Section 6.1, Licensee shall be responsible for preparing, filing, prosecuting, obtaining and maintaining at its sole cost, expense and discretion, all Licensed Patent Rights, and any patent rights in Licensed Technology or Improvements in the Territory using patent counsel chosen by Licensee.

 

6.2       Notice of Infringement . If, during the Royalty Term, either Party learns of any actual, alleged or threatened infringement by a Third Party of any Licensed Patent Rights under this Agreement, such Party shall promptly notify the other Party and shall provide such other Party with available evidence of such infringement.

 

9



 

6.3       Infringement of Patent Rights . Licensee shall have the first right (but not the obligation), at its own expense and with legal counsel of its own choice, to bring suit (or take other appropriate legal action) against any actual, alleged or threatened infringement of the Licensed Patent Rights in the Licensed Field. Licensor shall have the right, at its own expense, to be represented in any such action by Licensee using counsel of Licensor’s own choice; provided, however, that under no circumstances shall the foregoing affect the right of Licensee to control the suit as described in the first sentence of this Section 6.3. Any damages, monetary awards or other amounts recovered, whether by judgment or settlement, pursuant to any suit, proceeding or other legal action taken under this Section 6.3, shall applied as follows:

 

(a)           first, to reimburse the cost of Licensee for its reasonable costs and expenses (including reasonable attorneys’ fees and costs) incurred in prosecuting such enforcement action;

 

(b)           second, to Licensee in reimbursement for lost sales (net of royalties) associated with Licensed Products and to Licensor in reimbursement for lost royalties owing hereunder based on such lost sales; and

 

(c)           third, to reimburse the costs of Licensor for its reasonable costs and expenses (including reasonable attorneys’ fees and costs) incurred in prosecuting such enforcement action.

 

If Licensee brings any such action or proceeding hereunder, Licensor agrees to be joined as Party plaintiff if necessary to prosecute such action or proceeding, and to give Licensee reasonable assistance and authority to file and prosecute the suit.

 

7.                                       REPRESENTATIONS AND WARRANTIES

 

7.1       Licensor Representations . Licensor represents and warrants to Licensee that:

 

(a)           the execution and delivery of this Agreement and the performance of the transactions contemplated hereby have been duly authorized by all appropriate Licensor corporate action;

 

(b)           this Agreement is a legal and valid obligation binding upon Licensor and enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by the Parties does not conflict with any agreement, instrument or understanding to which Licensor is a Party or by which it is bound;

 

(c)           Licensor has the full right and legal capacity to grant the rights granted to Licensee hereunder without violating the rights of any Third Party;

 

(d)           Licensed Patent Rights have been properly filed and prosecuted and Licensor is the sole owner and inventor of the Licensed Patent Rights and Licensed Technology. No other entity, nor any institutions with which Falini and Mecucci are affiliated have any rights to the Licensed Patent Rights and Licensed Technology;

 

10



 

(e)           Licensor is not aware of any Third Party patent, patent application or other intellectual property rights that would be infringed (i) by practicing Licensed Technology, or (ii) by making, using, offering for sale, selling or importing Licensed Products; and

 

(f)            Licensor is not aware of any infringement or misappropriation by a Third Party of the Licensed Patent Rights or Licensed Technology.

 

7.2       Licensee Representations . Licensee represents and warrants to Licensor that:

 

(a)           the execution and delivery of this Agreement and the performance of the transactions contemplated hereby have been duly authorized by all appropriate Licensee corporate action; and

 

(b)           this Agreement is a legal and valid obligation binding upon Licensee and enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by the Parties does not conflict with any agreement, instrument or understanding to which Licensee is a Party of or by which it is bound.

 

7.3       No Warranties . Nothing in this Agreement is or shall be construed as a warranty or representation that anything made, used, sold or otherwise disposed of under any license granted pursuant to this Agreement is or will be free from infringement of patents, copyrights, and other rights of third parties. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY OTHER REPRESENTATION OR EXTENDS ANY ADDITIONAL WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED.

 

8.                                       INDEMNIFICATION

 

8.1       Indemnification.

 

8.1.1    Licensee Indemnity . Licensee shall indemnify, defend and hold harmless Licensor, its affiliates and their respective directors, officers, employees, stockholders and agents and their respective successors, heirs and assigns (the “ Licensor Indemnitees ”) from and against any liability, damage, loss or expense (including reasonable attorneys’ fees and expenses of litigation) incurred by or imposed upon such Licensor Indemnitees, or any of them, in connection with any Third Party claims, suits, actions, demands or judgments to the extent arising out of (a) the development, testing, production, manufacture, supply, promotion, import, sale or use by any person of any Licensed Product (or any component thereof) manufactured or sold by Licensee or any affiliate or Sublicensee under this Agreement, (b) any material breach of this Agreement by Licensee, or (c) the negligence or willful misconduct on the part of Licensee, except to the extent of Licensor’s responsibility therefor under Section 8.1.2 below.

 

8.1.2    Licensor Indemnity . Licensor shall indemnify, defend and hold harmless Licensee, its affiliates and their respective directors, officers, employees, and agents, and their respective successors, heirs and assigns (the “ Licensee Indemnitees ”), from and against any liability, damage, loss or expense (including reasonable attorneys’ fees and expenses of

 

11



 

litigation) incurred by or imposed upon such Licensee Indemnitees, or any of them, in connection with any Third Party claims, suits, actions, demands or judgments, including, without limitation, personal injury and product liability matters (but excluding any patent infringement matters, which are governed by Section 6 above), to the extent arising out of (a) any actions or omissions of Licensor under this Agreement, (b) any material breach of this Agreement by Licensor, or (c) the negligence or willful misconduct on the part of Licensor. The Parties agree that any liability of Licensors pursuant to this section shall not exceed the sums received by Licensors pursuant to this Agreement.

 

8.2       Indemnification Procedures . In the event that any Indemnitee is seeking indemnification under Section 8.1 above from a Party (the “ Indemnifying Party ”), the other Party shall notify the Indemnifying Party of such claim with respect to such Indemnitee as soon as reasonably practicable after the Indemnitee receives notice of the claim, and the Party (on behalf of itself and such Indemnitee) shall permit the Indemnifying Party to assume direction and control of the defense of the claim (including the right to settle the claim solely for monetary consideration) and shall cooperate as requested (at the expense of the Indemnifying Party) in the defense of the claim. The indemnification obligations under Article 8 shall not apply to any harm suffered as a direct result of any delay in notice to the Indemnifying Party hereunder or to amounts paid in settlement of any claim, demand, action or other proceeding if such settlement is effected without the consent of the Indemnifying Party, which consent shall not be withheld or delayed unreasonably. The Indemnitee, its employees and agents, shall reasonably cooperate with the Indemnifying Party and its legal representatives in the investigation of any claim, demand, action or other proceeding covered by Section 8.1.

 

9.                                       TERM AND TERMINATION

 

9.1       Term; Expiration . The term of this Agreement (“ Term ”) shall expire upon the expiration of the final payment obligation under Section 4 above. Upon the expiration of the Term of this Agreement, Licensee shall have a fully paid-up, irrevocable, freely transferable and sublicensable license in the Territory under the Licensed Patent Rights and Licensed Technology, to develop, have developed, make, have made, use, have used, sell, have sold, offer for sale, import and have imported any and all Licensed Products.

 

9.2       Termination Rights for Breach and Voluntary Termination .

 

9.2.1    Termination for Breach . Subject to the other terms of this Agreement, this Agreement and the rights and options granted herein may be terminated by either Party upon any material breach by the other Party of any material obligation or condition, effective ninety (90) days after giving written notice to the breaching Party of such termination in the case of any other breach, which notice shall describe such breach in reasonable detail. The foregoing notwithstanding, if such material breach is cured or remedied or shown to be non-existent or not to be material within the aforesaid ninety (90) day period, the notice shall be automatically withdrawn and of no effect.

 

9.2.2    Voluntary Termination . Licensee shall have the right to terminate this Agreement at any time for commercially reasonable reason (such as a reasonable belief by

 

12



 

Licensee that it is not commercially or scientifically appropriate to further develop the Licensed Patent Rights and Licensed Technology) upon prior written notice to Licensor.

 

9.3       Termination for Bankruptcy . In the event that either Party files for protection under bankruptcy laws, makes an assignment for the benefit of creditors, appoints or suffers appointment of a receiver or trustee over its property, files a petition under any bankruptcy or insolvency act or has any such petition filed against it which is not discharged within sixty (60) days of the filing thereof, then the other Party may terminate this Agreement effective immediately upon written notice to such Party.

 

9.4       Effects of Termination .

 

9.4.1    Termination for Licensee Breach . Upon any termination of this Agreement by Licensor under Section 9.2.1 by Licensee pursuant to Section 9.2.2, as of the effective date of such termination all relevant licenses and sublicenses granted by Licensor to Licensee hereunder shall terminate automatically. Notwithstanding the foregoing, (a) no such termination of this Agreement shall be construed as a termination of any valid sublicense of any Sublicensee hereunder, and thereafter each such Sublicensee shall be considered a direct licensee of Licensor, provided that (i) such Sublicensee is then in full compliance with all terms and conditions of its sublicense, (ii) all accrued payments obligations to Licensor have been paid, and (iii) such Sublicensee agrees in writing to assume all applicable obligations of Licensee under this Agreement, and (b) Licensee and its affiliates and Sublicensees shall have the right, for twelve (12) months or such longer time period on which the Parties mutually agree in writing, to sell or otherwise dispose of all Licensed Products then on hand, with royalties to be paid to Licensor on all Net Sales of such Licensed Products as provided for in this Agreement.

 

9.4.2    Termination for Licensor Breach . Upon any termination of this Agreement by Licensee under Section 9.2.1 or 9.3, as of the effective date of such termination, Licensee thereafter automatically shall have a fully sublicensable and transferable, fully paid up, exclusive license in the Territory under the Licensed Patent Rights and Licensed Technology, to develop, have developed, make, have made, use, have used, sell, have sold, offer for sale, import and have imported any and all Licensed Products and to practice the Licensed Technology in the Territory.

 

9.5       Remedies . Except as otherwise expressly set forth in this Agreement, the termination provisions of this Article 9 are in addition to any other relief and remedies available to either Party at law.

 

9.6       Surviving Provisions . Notwithstanding any provision herein to the contrary, the rights and obligations of the Parties set forth in Sections 2.2, 4.7, 5, 6, 7, 8, 9.4, 10, and 11 (to the extent relevant) as well as any rights or obligations otherwise accrued hereunder (including any accrued payment obligations), shall survive the expiration or termination of the Term. Without limiting the generality of the foregoing, Licensee shall have no obligation to make any payment to Licensor that has not accrued prior to the effective date of any termination of this Agreement, but shall remain liable for all such payment obligations accruing prior to the effective date of such termination.

 

13



 

10.                                DISPUTES

 

10.1     Dispute Resolution . In the event of any controversy or claim arising out of or relating to any provision of this Agreement or the breach thereof, the parties shall try to settle such conflict amicably between themselves. Subject to the limitation stated in the final sentence of this Section 10.1, any such conflict which the parties are unable to resolve promptly shall be settled through arbitration conducted in accordance with the rules of the International Chamber of Commerce in Paris. The demand for arbitration shall be filed within a reasonable time after the controversy or claim has arisen, and in no event after the date upon which institution of legal proceedings based on such controversy or claim would be barred by the applicable statute of limitation. Such arbitration shall be held in New York, New York. The award through arbitration shall be final and binding. Either Party may enter any such award in a court having jurisdiction or may make application to such court for judicial acceptance of the award and an order of enforcement, as the case may be. Notwithstanding the foregoing, either Party may, without recourse to arbitration, assert against the other Party a third Party claim or cross-claim in any action brought by a third Party, to which the subject matter of this Agreement may be relevant.

 

11.                                MISCELLANEOUS

 

11.1     Notification . All notices, requests and other communications hereunder shall be in writing, shall be addressed to the receiving Party’s address set forth below or to such other address as a Party may designate by notice hereunder, and shall be either (i) delivered by hand, (ii) made by facsimile transmission (to be followed with written confirmation sent by nationally-recognized overnight courier service, providing evidence of receipt), (iii) sent by nationally-recognized overnight courier service providing evidence of receipt, or (iv) sent by registered or certified mail, return receipt requested, postage prepaid. The addresses and other contact information for the parties are as follows:

 

If to Licensor:

Falini :

 

Brunangelo Falini,

 

5/f Via San Giuseppe,

 

06100, Perugia, Italy

 

 

 

and

 

 

 

Mecucci :

 

Cristina Mecucci

 

Strada S. Martino dei Colli-Castiglion della

 

valle 2

 

06076 Perugia, Italy

 

 

With a copy to:

Lexico Srl

 

28, Via Cacciatori delle Alpi

 

06124 Perugia, Italia

 

Tel: 075.573 3451

 

14



 

 

Fax: 075 572 18 86

 

Attention: Emanuele Montelione

 

 

If to Licensee:

Xenomics, Inc.

 

420 Lexington Avenue - Suite 1701

 

New York, NY 10170

 

Tel: 212-297-0808

 

Fax: 212-297-1888

 

Attention: President

 

 

With a copy to:

Mintz, Levin, Cohn, Ferris, Glovsky, and

 

Popeo, P.C.

 

The Chrysler Center

 

666 Third Avenue, 24 th  Floor

 

New York, NY 10017

 

Tel: (212) 692-6796

 

Fax: (212) 983-3115

 

Attention: Ivor Elrifi, Esq.

 

All notices, requests and other communications hereunder shall be deemed to have been given either (i) if by hand, at the time of the delivery thereof to the receiving Party at the address of such Party set forth above, (ii) if made by telecopy or facsimile transmission, at the time that receipt thereof has been acknowledged by the recipient, (iii) if sent by nationally-recognized overnight courier, on the day such notice is delivered to the recipient, or (iv) if sent by registered or certified mail, on the fifth (5 th ) business day following the day such mailing is made.

 

11.2     Language . This Agreement has been prepared in the English language and the English language shall control its interpretation.

 

11.3     Governing Law and Venue . This Agreement will be construed and interpreted in accordance with the laws of the State of New York and the venue of any action brought shall be in New York, New York

 

11.4     Limitations . Except as expressly set forth in this Agreement, neither Party grants to the other Party any right or license to any of its intellectual property.

 

11.5     Entire Agreement . This is the entire Agreement between the Parties with respect to the subject matter hereof and supersedes all prior representations, understandings and agreements between the Parties with respect to the subject matter hereof. No modification shall be effective unless in writing with specific reference to this Agreement and signed by the Parties.

 

11.6     Waiver . The terms or conditions of this Agreement may be waived only by a written instrument executed by the Party waiving compliance. The failure of either Party at any time or times to require performance of any provision hereof shall in no manner affect its rights at a later time to enforce the same. No waiver by either Party of any condition or term

 

15



 

shall be deemed as a continuing waiver of such condition or term or of another condition or term.

 

11.7     Headings . Section and subsection headings are inserted for convenience of reference only and do not form part of this Agreement.

 

11.8     Assignment . Neither this Agreement nor any right or obligation hereunder may be assigned, delegated or otherwise transferred, in whole or part, by Licensor without the prior express written consent of Licensee. Any permitted assignee shall assume all obligations of its assignor under this Agreement. Any purported assignment in violation of this Section 11.8 shall be void. Licensee may freely assign, transfer or sublicense the rights granted under this Agreement by sending notice of such assignment, transfer or sublicense to the Licensor. The terms and conditions of this Agreement shall be binding upon and inure to the benefit of the permitted successors and assigns of the parties.

 

11.9     Force Majeure . Neither Party shall be liable for failure of or delay in performing obligations set forth in this Agreement, and neither shall be deemed in breach of its obligations, if such failure or delay is due to natural disasters or any causes beyond the reasonable control of such Party. In event of such force majeure, the Party affected thereby shall use reasonable efforts to cure or overcome the same and resume performance of its obligations hereunder.

 

11.10   Construction . The Parties hereto acknowledge and agree that: (i) each Party and its counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to its revision; (ii) the rule of construction to the effect that any ambiguities are resolved against the drafting Party shall not be employed in the interpretation of this Agreement; and (iii) the terms and provisions of this Agreement shall be construed fairly as to all Parties hereto and not in favor of or against any Party, regardless of which Party was generally responsible for the preparation of this Agreement.

 

11.11   Severability . If any provision(s) of this Agreement are or become invalid, are ruled illegal by any court of competent jurisdiction or are deemed unenforceable under then current applicable law from time to time in effect during the Term hereof, it is the intention of the Parties that the remainder of this Agreement shall not be affected thereby provided that a Party’s rights under this Agreement are not thereby materially diminished. The Parties hereto covenant and agree to renegotiate any such term, covenant or application thereof in good faith in order to provide a reasonably acceptable alternative to the term, covenant or condition of this Agreement or the application thereof that is invalid, illegal or unenforceable, it being the intent of the Parties that the basic purposes of this Agreement are to be effectuated.

 

11.12   Status . Nothing in this Agreement is intended or shall be deemed to constitute a partner, agency, employer-employee, or joint venture relationship between the Parties.

 

11.13   Section 365(n) . All licenses granted under this Agreement are deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of right to “intellectual property” as defined in Section 101 of such Code. The Parties agree that Licensee may fully

 

16



 

exercise all of its rights and elections under the U.S. Bankruptcy Code, regardless of whether either Party files for bankruptcy in the United States or other jurisdiction. The Parties further agree that, in the event Licensee elects to retain its rights as a licensee under such Code, Licensee shall be entitled to complete access to any technology licensed to it hereunder and all embodiments of such technology. Such embodiments of the technology shall be delivered to the Licensee not later than:

 

(a)       the commencement of bankruptcy proceedings against the licensor, upon written request, unless the licensor elects to perform its obligations under the Agreement, or

 

(b)       if not delivered under Section 11.14 above, upon the rejection of this Agreement by or on behalf of Licensee, upon written request.

 

11.14   Further Assurances . Each Party agrees to execute, acknowledge and deliver such further instructions, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

 

11.15   Counterparts . This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

[Remainder of page intentionally left blank]

 

17



 

IN WITNESS WHEREOF, the Parties have caused this Exclusive License Agreement to be executed by their duly authorized representative.

 

 

LICENSOR:

 

 

 

 

 

 

 

By:

/s/ Brunangelo Falini

 

 

Name: Brunangelo Falini, an individual

 

 

 

 

 

 

 

By:

/s/ Cristina Mecucci

 

 

Name: Cristina Mecucci, an individual

 

 

 

 

LICENSEE:

 

 

 

 

XENOMICS, INC.

 

 

 

 

 

 

 

By:

/s/ Frederick Larcombe

 

Name:

Frederick Larcombe

 

Title:

Chief Financial Officer

 

 

18



 

Schedule A

 

Licensed Patent Rights

 

PCT/IT05/000634, filed on October 28, 2005, claiming priority to Italian Patent Application No. RM2004A000534, filed on October 29, 2004 (and any counterparts worldwide as described in Licensed Patent Rights).

 

E-B-19


Exhibit 10.24

 

FIRST AMENDMENT TO EXCLUSIVE LICENSE AGREEMENT

 

This First Amendment to Exclusive License Agreement (“ Amendment ”) is made effective as of August     , 2010 (“ Amendment Effective Date ”) by and among Brunangelo Falini, an individual residing at 5/f Via San Giuseppi, 06100, Perugia, Italy (“ Falini ”), Cristina Mecucci, an individual residing at Strada S. Martino dei Colli-Castiglion della valle 2, 06076, Perugia, Italy (“ Mecucci ”) (each of Falini and Mecucci are individually and together, “ Licensor ”) and TrovaGene, Inc., having a place of business at 11055 Flintkote Avenue, San Diego, California 92121, USA (“ Licensee ”).

 

RECITALS

 

A.                     Licensor and Xenomics, Inc. entered into that certain Exclusive License Agreement effective as of May, 2006 (“ Agreement ”).

 

B.                       Xenomics, Inc. changed its name to TrovaGene, Inc. in March, 2010.

 

C.                       Licensee and Licensor now desire to amend the Agreement on the terms and conditions set forth in the Agreement and this Amendment.

 

NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties intending to be legally bound agree as follows:

 

1.             Amendment of Milestone and Royalty Terms .  Section 4.2, Section 4.3 and Section 4.4 of the Agreement are each deleted in their entirety and shall be indicated as “intentionally left blank”.

 

2.             Sublicensing Income .   Section 4.5 of the Agreement is deleted in its entirety and replaced with the following:

 

4.5           Sublicense Income . During the Royalty Term, Licensee shall pay Licensor (i) ten percent (10%) of all Sublicense Income received pursuant to any sublicenses of Licensed Patent Rights relating to Licensed Products, and (ii) six percent (6%) of all Sublicensee Royalties received pursuant to any sublicenses of Licensed Patent Rights relating to Licensed Products.

 

4.5.1  “ Sublicense Income ” shall mean all payments received by Licensee from its Sublicensees as consideration for the grant by Licensee of a sublicense pursuant to Section 2.1.2, excluding (a) payments made by a Sublicensee in consideration of the issuance of equity or debt securities of Licensee (b) payments made by a Sublicensee which are required to be used to support or fund research and development activities to be undertaken by Licensee pursuant to a budget for sponsored research which has been agreed to with the Sublicensee and based on full-time equivalent or other cost-accounting

 

1



 

methodologies that are consistent with then current industry practices and (c) Sublicense Royalties.

 

New Section 4.5.2 is added to the Agreement as follows:

 

4.5.2        “ Sublicense Royalties shall mean all royalty payments received by Licensee from Sublicensees (including minimum annual royalties) payable pursuant to the grant by Licensee of a sublicense pursuant to Section 2.1.2, and excluding Sublicense Income.

 

3.             Payment of Royalties .  Section 1.11 and Section 4.7.1 of the Agreement are each amended as follows, with additions indicated by double underline , and deletions indicated by strikethrough :

 

1.11 Net Sales” shall mean the amount received by Licensee for all Licensed Products sold by Licensee, its affiliates or Sublicensees to Third Parties throughout the Territory during each calendar quarter year , less the following amounts incurred or paid by Licensee or its affiliates or Sublicensees during such calendar quarter year with respect to sales of Licensed Products regardless of the calendar quarter year in which such sales were made: (a) normal and customary quantity and/or cash discounts and sales returns and allowances, including, without limitation, those granted on account of price adjustments, billing errors, rejected goods, damaged goods, returns, rebates actually allowed and taken, administrative or other fees or reimbursements or similar payments to wholesalers or other distributors, buying groups, or other institutions; (b) sales commission fees paid to Third Parties; (c) freight, postage, shipping, and insurance expenses (if separately identified in such invoice); (d) customs or excise duties or other duties directly imposed and related to the sales making up the gross invoice amount; (e) any rebates or similar payments made with respect to sales paid for by any governmental or regulatory authority such as, by way of illustration and not in limitation of the parties’ rights hereunder, Federal or state Medicaid, Medicare or similar state program or equivalent foreign governmental program; (f) sales and other taxes and duties directly related to the sale, to the extent that such items are included in the gross invoice price (but not including taxes assessed against the income derived from such sale); (g) fully loaded manufacturing costs, materials, labor, overhead and costs of distribution and (h) any amounts paid to Third Parties as licensing, royalties or similar fees.   “Net Sales” shall not include sales or transfers between Licensee and its affiliates or Sublicensees, unless the Licensed Product is consumed by the affiliate or Sublicensee.

 

4.7.1        Payment of Royalties .  Unless otherwise expressly provided, Licensee shall make any royalty payments owed to Licensor hereunder in arrears, within sixty (60) days from the end of each quarter calendar year in which such payment accrues.  For purposes of determining when a sale of any Licensed Product occurs under this Agreement, the sale shall be deemed to occur on the date the Licensed Product is invoiced and paid for in full by the purchaser.  Each royalty payment shall be accompanied by a report for each country in the Territory in which sales of Licensed Products occurred in the calendar quarter year covered by such statement, specifying:  the gross sales (if available) and Net Sales in each country’s currency; the applicable royalty rate

 

2



 

under this Agreement; the royalties payable in each country’s currency, including an accounting of deductions taken in the calculation of Net Sales; the applicable exchange rate to convert from each country’s currency to United States Dollars under this Section and the royalties payable in United States Dollars.

 

4.             No Other Changes .  All other terms and conditions of the Agreement not modified in this Amendment will remain in full force and effect as provided for in the Agreement.  All capitalized terms used herein shall have the meanings set forth in the Agreement, except as otherwise defined in this Amendment.

 

IN WITNESS WHEREOF, the Parties have caused this First Amendment to Exclusive License Agreement to be executed by their duly authorized representative.

 

LICENSOR :

 

 

By:

 

 

 

Brunangelo Falini, an individual

 

 

 

 

 

 

 

By:

 

 

 

Cristina Mecucci, an individual

 

 

 

 

 

 

 

LICENSEE :

 

 

 

TROVAGENE, INC.

 

 

 

 

 

By:

 

 

Name:

 

Title:

 

 

3


Exhibit 23.1

 

Consent of Independent Registered Public Accounting Firm

 

Trovagene, Inc.

San Diego, CA

 

We hereby consent to the use in Amendment No.2 to the Registration Statement on Form 10 of our report dated November 23, 2011, relating to the consolidated financial statements of Trovagene, Inc. which is contained in Amendment No. 2 to the Registration Statement on Form 10.  Our report contains an explanatory paragraph regarding the Company’s ability to continue as a going concern.

 

 

/s/ BDO USA, LLP

New York, New York

 

February 14, 2012