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EXHIBIT 10.10
SUB-LICENSE AGREEMENT
This SUB-LICENSE AGREEMENT ("Agreement") is made as of May 27,
1999, between Y.S. LABORATORIES, INC. ("Y.S.") and FOUNTAIN PHARMACUTICALS,
INC. ("Fountain").
WHEREAS, Fountain desires to sub-license certain proprietary
information, technology and patents including solutions, ointments, creams and
lotions, and particular ingredients utilized to develop such products. The
particular proprietary information, technology and patents (hereinafter "the
Technology") are more fully detailed in Patents numbered 5,015,474 and
5,248,501 previously issued to Xxxxxxx X. Xxxxxxx, M.D., and assigned to
Xxxxxxx Pharmaceuticals, Inc. ("Xxxxxxx") by virtue of assignments on or about
March 26, 1990 and March 11, 1991. The Patents are attached hereto as Exhibit
"A." Xxxxxxx entered into a License Agreement with Y.S. on or about March 20,
1993, which granted a non-exclusive, transferable world-wide license to make,
modify and sell certain products using Xxxxxxx'x proprietary information and
technology, and effective May 1, 1999 Xxxxxxx entered into a First Amendment to
the License Agreement which granted an exclusive, transferable, worldwide
license, with rights to manufacture, modify and sell Products for use as
topical epidermal skin care products, including products for lips and skin,
that utilize Xxxxxxx'x proprietary information, technology, and the Patents
described above. (The License Agreement and the First Amendment to License
Agreement are collectively referred to hereafter as "the License Agreement" and
are attached as Exhibit "B.")
1. Representations and Warranties.
A. Y.S. is a validly formed Delaware corporation in good standing
and properly capitalized to carry on its business purposes. Y.S. represents and
warrants that it lawfully and properly acquired the Technology from Xxxxxxx by
virtue of the License Agreement, previously referenced as Exhibit "B" herein,
and the terms of which are incorporated in this Sub-License Agreement.
B. Y.S. further represents and warrants that it has the right to
grant a sub-license to Fountain to use the Technology for purposes of
manufacturing, modifying and selling Products for use as topical epidermal skin
care products, including products for lips and skin, that utilize the
Technology (collectively the "Licensed Uses"), and such sub-license does not
conflict with the rights of any third parties, including rights regarding the
Technology or any contracts or agreements arising hereunder. Y.S. further
represents and warrants that Y.S. does not currently license the Technology of
the Patents to any third parties for the Licensed Uses. Y.S. acknowledges that
Fountain is relying upon the representations of Y.S. in connection with this
Agreement and in expending substantial financial and human resources to
test-market the Yerba Santa products and to enter into any market channel as
defined in Paragraph 2.D., herein.
C. Y.S. agrees to defend, indemnify and hold harmless Fountain in
connection with any claims brought by or against Fountain or any damages which
Fountain may
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suffer (including legal fees) by virtue of any claim that this sub-license
violates the rights of a third party or the parties to this Agreement. Xxxxxxx
X. Xxxxxxx, M.D. and Xxxxx Xxxxxxx, M.D., jointly and severally and as the
owners of all of the outstanding shares of stock of Y.S., personally agree to
defend, indemnify and hold harmless Fountain in connection with any claims
brought by or against Fountain or any damages which Fountain may suffer
(including legal fees) by virtue of any claim that this sub-license violated
the rights of a third party or parties to this Agreement; provided however,
Xxxxxxx Xxxxxxx'x and Xxxxx Xxxxxxx'x maximum obligation to pay costs of
defense, indemnification, and holding Fountain harmless is an aggregate of the
dollar amount equal to the amounts paid by Fountain to Y.S. pursuant to this
Agreement.
2. Terms of Sub-License.
A. Pursuant to the terms of this Sub-License Agreement, Y.S. grants
to Fountain an exclusive license, within the territory of the United States of
America ("xxx Xxxxxxxxx"), to use the Technology for the Licensed Uses.
B. There shall be no further licensing of the Technology or patents
to any third parties for the Licensed Uses within the Territory absent the
express written consent of Fountain.
X. Xxxxxxxx is granted this Sub-License for use of the Technology
for the Licensed Uses within the Territory for a period of eighteen months from
the date of the execution of this Sub-License Agreement. The parties agree that
within such initial eighteen month time frame, Fountain at its sole election,
may elect to extend the time period of this License for an additional six
months to complete its pursuit of test market activities in order to test the
viability and marketability of Fountain's proposed Yerba Santa products.
Fountain's election to extend the period of the License for an additional six
months shall be effective upon the condition that Fountain has, during the
first eighteen months of the term of this Sub-License Agreement expended a
material amount of funds and/or resources in a test market for the specific
marketing channel. In consideration for the instant sub-license, Fountain shall
pay to Y.S. $100,000 upon Y.S.' execution of this Agreement and for Fountain's
exclusive right to test the viability of the Yerba Santa skin care concept in
the following marketing channels: direct response/infomercial, aesthetician,
multi-level, physician (all specialty and retail).
In addition to the $100,000 payment, Fountain shall pay to Y.S.
a royalty of eight percent (8%) of the net sales of Fountain Products using the
Licensed Technology in pursuit of the test market activities. The royalty
payments shall be as provided in Paragraph I of this Section 2. Fountain
acknowledges that Y.S. will continue to use the Technology for the manufacture
and selling of products directly to the physician market and in connection with
direct response advertisements in print, cable television, and electronic
commerce to further xxxxxx its existing skin care business and clinic.
D. In the event, based upon Fountain's market studies, Fountain
elects to enter the U.S. market with respect to the above-referenced marketing
channels, Fountain agrees to pay Y.S. $100,000 for each such market channel
selected as an advance against royalties. Additionally, upon making the
election to enter a marketing channel, Fountain shall grant to Y.S.
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an option to purchase one percent (1%) of the outstanding shares of Fountain
for each such market channel selected for expansion. Such option shall be based
upon one percent (1%) of the issued and outstanding stock of Fountain as of the
date such election to enter the particular marketing channel is made by
Fountain and shall be at a share price as of the close of trading on the
particular day in which such election is made. In the event no such shares of
Fountain were traded as of that date, the applicable option price shall be
based upon the last effectuated trade of Fountain shares. Additionally, any
such options awarded under the provisions of this Sub-License Agreement shall
be consistent with Fountain's stock option plan which shall be provided to Y.S.
prior to the execution of the instant Sub-License Agreement. Fountain will
promptly notify Y.S. upon making the election to enter into each marketing
channel.
E. In the event Fountain does not elect to enter a particular
market channel within eighteen months of the execution of this Agreement, or
any extension, Fountain's license to use the Technology in connection with the
particular market channel expires and the remaining rights for the use of
Technology and marketing of products to the particular marketing channel shall
revert back to Y.S.
F. In the event Fountain properly elects to enter a particular
marketing channel, and pays such advance in accordance with the terms of this
Agreement and issues the necessary stock options, Fountain shall have the
exclusive right to extend the term of this Sub-License Agreement for the
applicable marketing channel for a term expiring with the latest expiration of
Patents numbered 5,015,474 and 5,248,501, whichever patent expires latest. This
Sub-License Agreement is subject to early termination for each marketing
channel, in the sole discretion of Y.S., if Fountain fails to pay the minimum
annual royalties as described in Paragraph H of this Section 2.
G. For each such marketing channel elected and entered into by
virtue of the terms of this Sub-License Agreement, Fountain will pay to Y.S. a
royalty on net sales during the term of this Agreement according to the
following schedule. Eight percent (8%) on the first $10,000,000 of net sales;
seven percent (7%) on sales of $10,000,001 to $20,000,000; six percent (6%) on
sales of $20,000,001 to $30,000,000; and five percent (5%) on any such net
sales in excess of $40,000,000. Net sales shall be defined under this Agreement
as the gross amount invoiced for products, less normal and customary trade
quantity, cash discounts permitted or paid, credits and allowances granted on
account of price adjustments, billing errors or rejection or return of goods,
commissions allowed or paid to brokers or agents and any taxes, customs or
duties imposed in connection with the sale and shipment of such product, sales
tax, transportation charges or any other such charges specifically and directly
relating to the sale and distribution of the product.
H. In connection with each market channel elected for national
expansion by Fountain, Fountain agrees to pay Y.S. a minimum annual royalty of
$25,000 per calendar year for the market channel selected.
I. Royalty payments as described in Paragraphs C, G, and H, shall
be made in U.S. Dollars on a calendar quarterly basis within forth-five days
after the end of each calendar quarter. In connection with all royalty
payments, Fountain shall furnish to Y.S. a statement
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reflecting royalty payments made during the preceding quarter. Y.S. shall have
the right, at its expense, to inspect or have its authorized representative
inspect the books and records of Fountain upon a reasonable amount of advanced
notice and, in any event, not to exceed one time during any twelve month period
of the existing Sub-License Agreement. In the event that any inspection by Y.S.
established that any calendar quarter payment due to Y.S. has been underpaid,
Fountain shall promptly pay to Y.S. the amount of the underpayment together
with 10% interest from the due date to the date of payment; and, if the
underpayment is 5% or more of the total calendar quarter payment actually due,
Fountain shall pay to Y.S. all reasonable expenses incurred in the inspection
of the books and records of Fountain, establishing the amount of underpayment,
and the cost of collection including reasonable attorneys fees and accounting
fees. Likewise, in the event that any inspection by Y.S. confirms that Y.S. was
property paid, Y.S. shall pay to Fountain all reasonable expenses incurred by
Fountain in connection with establishing that the proper amount was paid to
Y.S., including reasonable attorneys' fees and accounting fees.
J. Moreover, Y.S. acknowledges that any payments due Xxxxxxx under
the terms of the License Agreement are the sole responsibility of Y.S. and that
Fountain shall have no obligation, express, implied or otherwise, to remit any
sum to Xxxxxxx. Further, Y.S. represents and warrants that it shall continue to
make all contractually required payments to Xxxxxxx under the terms and
conditions of the License Agreement. In the event Y.S. fails to make all
contractually required payments to Xxxxxxx under the terms and conditions of
the License Agreement, Y.S. shall promptly notify Fountain of such failure and
provide Fountain with the opportunity to cure any default and either seek
reimbursement from Y.S. or set-off any such amount advanced against future
royalty payments. Moreover, Y.S. shall provide notice to Fountain of any claim
by any property which impacts Fountain's exclusive rights as granted by the
terms of this Agreement.
K. In the event either party fails to perform the material
obligations hereunder and does not correct its failure within thirty days after
written notification for any such material breach, the non-breaching party may
upon thirty days written notice terminate this Sub-License Agreement and any
rights conferred thereunder.
3. General Provisions
A. This Sub-License Agreement supersedes all prior understandings
and agreements between them. This Sub-License Agreement may only be made in
writing and executed by all the parties hereto and shall be governed by the
laws of the State of California.
B. In connection with any disputes involving this Sub-License
Agreement, the parties agree that any such dispute shall be resolved before and
pursuant to the rules and provisions of the Judicial Arbitration Mediation
Services ("JAMS"). Any such dispute shall be heard in San Francisco,
California. The Arbitrator will have the discretion to determine a prevailing
party in the proceedings, and to award to the prevailing party reimbursement of
reasonable attorneys' fees and costs from the other party.
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C. The parties hereto acknowledge that the terms of this Agreement
shall be binding upon them, their predecessors, successors and assigns.
Y.S. LABORATORIES, INC.
Dated: May 27, 1999 /s/ Xxxxxxx X. Xxxxxxx, M.D.
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By: Xxxxxxx X. Xxxxxxx, M.D.
Its: President
FOUNTAIN PHARMACEUTICALS, INC.
Dated: May 27, 1999 /s/ Xxxxxx X. Xxxxxx
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By: Xxxxxx X. Xxxxxxx
Its: President/CEO
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