EXHIBIT B
ROYALTY AGREEMENT
This ROYALTY AGREEMENT is made effective this 7th day of November,
1986 by and between VIRAGEN, INC., a Delaware Corporation, having its
principal offices at 0000 Xxxx 00xx Xxxxxx, Xxxxxxx, Xxxxxxx 00000
(hereinafter referred to as "Viragen") and Medicore, Inc., a Florida
corporation with its principal offices at 0000 Xxxx 00xx Xxxxxx, Xxxxxxx,
Xxxxxxx 00000, (hereinafter referred to as "Medicore"):
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Viragen, has been engaged in biomedical research and
development and the manufacture of various immunological and biomedical
products including interferon (which term includes any interferons
whether it is made naturally or through genetic engineering processes
now or hereafter developed) and transfer factor and products using
interferon and transfer factor;
WHEREAS, Viragen recognizes the fact that Medicore (formerly
Automated Medical Laboratories, Inc.) had established Viragen and
financed Viragen since its inception in 1980 through advances, loans and
equity offerings, and provided Viragen with the raw materials and
facilities necessary for its research and development in the immuno-
logicial and biomedical field and acknowledges and recognizes the
assistance of Medicore;
1
WHEREAS, Viragen hereby in consideration for Medicore's efforts and
services wishes to provide Medicore with a royalty with regard to sales
of interferon and transfer factor and products using interferon and
transfer factor;
WHEREAS, Medicore is interested in obtaining a royalty fee with
regard to interferon, transfer factor and products using interferon and
transfer factor.
NOW THEREFORE, for in consideration of the mutual covenants contained
herein and in consideration of the financing and operational efforts
provided to Viragen by Medicore and the establishing of Viragen by
Medicore as otherwise set forth herein and above, and for ten dollars
($10.00) in hand paid by Viragen to Medicore and for other good and
valuable consideration from Medicore to Viragen, including but not
limited to deferrment of certain liabilities owing from Viragen to
Medicore, Viragen hereby agrees to grant a royalty fee with respect to
interferon, transfer factor and products using interferon and transfer
factor as otherwise set forth in this Royalty Agreement as follows:
ARTICLE 1 - Definitions
-----------------------
1.01 - In the terms defined herein, the singular shall include the
plural and vice-versa.
1.02 - "Interferon" shall mean and include a protein substance
currently characterized as a viral neutralizing
2
protein substance, whether produced naturally by lymphocytes, connective
(fibroblast) tissue, including alpha, beta, and gamma interferon, and
whether produced naturally or through a genetic engineering process.
1.03 - "Transfer Factor" shall mean and include any lymphokine which
exhibits specific biological activity for the protection of the body from
viruses which is now recognized as mobilizing the natural immunological
defense system of the body, whether the transfer factor is produced
naturally from lymphokines or from other natural substances or whether
produced through genetic engineering technology.
1.04 - "Licensed Product" shall mean Interferon, Transfer Factor and
all products or any substance or group of substances which involve and
include Interferon or Transfer Factor or any part of which product or any
substance or group of substances includes Interferon or Transfer Factor.
1.05 - "Net Sales" shall mean the gross selling price by Viragen and
sub-licensees for the sale of any Licensed Product(s), less trade discounts
allowed, credits for claims or allowances, refunds, returns and recalls.
In the event that Viragen or any subsidiary or sub-licensee or affiliated
company sells a Licensed Product in combination with other products ("Other
Products') which are not Licensed Product(s), Net Sales for purposes of
royalty payments on the combination shall be calculated by multiplying the
gross
3
selling price on the combination by the fraction A/A + B, where A is
Viragen's costs of all Licensed Product(s) in the combination, and B
is Viragen's costs of all Other Products in the combination, each A and
B to be Viragen's costs of the material product components, exclusive of
bottling, packaging and similar handling charges.
The Licensed Product is considered sold hereunder when billed out
or if not billed out, when shipped or mailed or otherwise delivered, or
when paid for, if paid for before delivery. All sales shall be bona fide,
arms-length transactions.
1.06 - "Related Company" shall mean an organization of which more
than fifty (50%) percent of the voting stock is controlled or owned, directly or
indirectly, by either party to this Royalty Agreement; or an organization,
which, directly or indirectly, owns or controls more than fifty (50%) percent of
the voting stock of either party to this Royalty Agreement; or an organization,
the majority ownership of which is, directly or indirectly, common to the
majority ownership of either party to this Royalty Agreement.
1.07 - "Viragen" shall mean and include, unless the context otherwise
indicates, every Related Company of Viragen and any and all sub-licensees
of Viragen with respect to the Licensed Product(s).
1.08 - "Territory" shall mean the entire world.
4
ARTICLE II - Payments and Royalties
-----------------------------------
2.01 - In consideration for Medicore having established Viragen and
providing the facilities and financing for Viragen to engage in the
research, development and production of Licensed Product(s) and in con-
sideration of the advances and loans made by Medicore to Viragen and the
deferrment of the immediate repayment of the same, Viragen hereby grants
a royalty to Medicore and agrees and shall pay to Medicore a royalty fee
as follows:
(a) Ten (10%) percent of the annual Net Sales of Licensed Product(s)
sold in the Territory by Viragen up to and on the first Twenty Million
Dollars ($20,000,000) of such sales; and
(b) Five (5%) percent of the annual Net Sales of Licensed Product(s)
sold in a Territory by Viragen in excess of Twenty Million Dollars
($20,000,000) of such sales.
2.02 - The obligation of Viragen to pay to Medicore under this
Royalty Agreement shall be imposed once with respect to the same unit of
the Licensed Product(s), even through the manufacture, use and/or sale
may occur in one or more countries. Sales between Viragen and any Related
Company shall not be subject to royalty so long as the Related Company is
not the end user of the Licensed Product(s), in which case the royalty
payment shall be based upon the resale of the Licensed Product(s) by the
Related Company.
5
If the Realted Company is the end user, such sales to a Related Company
shall be subject to the royalty payment as provided in this Article II,
and said royalty shall be based on retail prices that such Licensed
Product(s) would be sold to unrelated third parties.
2.03 - Annual Net Sales will be Net Sales which transpire during
each year of the life of this Royalty Agreement, commencing and each year
being measured from the anniversary date to anniversary date from the
effective date of this Royalty Agreement.
2.04 - Viragen agrees that any income, withholding or other similar
tax levied by any country, state or jurisdiction on payments to Medicore
under this Royalty Agreement shall be born by Viragen.
2.05 - This Royalty Agreement shall not be deemed or construed as any
repayment of indebtedness of Viragen to Medicore, nor as any interest
payment on any such indebtedness, such indebtedness and interest being
reflected in a subordinated three year secured promissory note from
Viragen to Medicore dated the same date as this Royalty Agreement.
ARTICLE III - Term
------------------
3.01 - This Royalty Agreement shall commence as of the date first
written above and shall be for a period of ten years from such date;
provided, however, that if Viragen has Licensed Product(s) and does not
use its best efforts to market the same or otherwise obtain approval for
Licensed
6
Product(s), then during such period that any Licensed Product(s) was not
pursued with the best efforts of Viragen for approval for commercialization,
and after commercialization Viragen did not use its best efforts to market
said Licensed Product(s), whether to avoid making royalty payments to
Medicore pursuant to his Royalty Agreement or otherwise, this Agreement
shall be so extended for an additional period equal to such period that
Viragen did not use its best efforts to seek approval and/or marketing of
such Licensed Product(s) as contemplated herein.
3.02 - The failure of any party to exercise or enforce any right
granted in this Royalty Agreement shall not be deemed to be a waiver of
such right or operate to bar the exercise or enforcement thereof at any
time or times thereafter.
ARTICLE IV - Infringement
-------------------------
4.01 - Medicore shall have no responsibility whatsoever with respect
to any infringement claims, whether by a third party or Viragen (or
customers of Viragen), in the manufacture, use or sale of any Licensed
Product(s), or claim by Viragen against third-parties charging infringement
of any patents, patent pendings, or other proprietary rights whatsoever
with respect to the Licensed Product(s) or any part or process involved
therein, and Viragen hereby indemnities and holds harmless Medicore from
and against and and all losses,
7
claims, damages, liabilities, causes of action, judgments, settlements,
royalty payments, accounting, or related liabilities in connection with
any such charges of infringement as contemplated herein including any
reasonable counsel fees that may be incurred by Medicore in defending
itself or participating in any investigation with regard to the subject
matter of this Section 4.01.
4.02 - Viragen also assumes responsibility for any personal or property
injury arising from the manufacture, sale and use of the Licensed Product(s)
and in no circumstances shall Medicore assume responsibility for the
Licensed Product(s) manufactured, used and sold by Viragen or its
customers, and Viragen agrees and will indemnify and hold Medicore harmless
against any and all liability, damage, loss, cost or expense based upon
the manufacure and production, use and sale of the Licensed Product(s)
including any reasonable counsel fees that may be incurred by Medicore in
defending itself or participating in any investigation with regard to the
subject matter of this Section 4.02.
ARTICLE V - Reports and Times of Payment
----------------------------------------
5.01 - Viragen shall keep complete and accurate records of all Net
Sales with respect to which royalties are payable to Medicore pursuant to
this Royalty Agreement. Sixty (60) days following the close of each
quarter of the year in
8
which Net Sales are made and for which royalties are due to Medicore in
accordance with the terms of this Royalty Agreement, Viragen shall submit
to Medicore a written report setting forth Net Sales and calculations of
the amounts of royalties due and payable pursuant to Article II hereof
with respect to said quarter. This report shall set forth information
regarding gross sales and deductions in such reasonable detail as to allow
Medicore to verify the Net Sales and royalty calculation. Each report
shall be accompanied by the amount of royalty payment shown by the report
to then be due to Medicore.
5.02 - Medicore shall have the right to nominate at its cost, an
independent certified public accountant (or the equivalent in foreign
countries) acceptable to and approved by Viragen, which approval and
acceptance shall not be unreasonably withheld, who shall have access to
the records of Viragen during reasonable business hours for the purpose of
verifying the royalties due Medicore herein; provided that this right may
not exercised more than once in any six-month period. Said accountant
shall disclose to Medicore only information relating to the accuracy of
the royalty reports and the royalty payments made according to this
Royalty Agreement. Exercise of this right shall be effected by giving
Viragen sixty (60) days written notice. Once the records for any period
have been audited and the auditor has verified the royalties then due to
Medicore for
9
that quarter or that year, as the case may be, and the royalties have
been paid, the records for that period will not be re-audited. Particular
documents, from which the accounting required herein need not be retained
more than six (6) months after completion of any audit thereof, if an audit
has been requested; nor more than two (2) years from the date of their
origin; no more than one (1) year after the date of termination of this
Royalty Agreement.
5.03 - Royalty payments required to be made to Medicore as provided
for herein shall be determined in the national currency for the sale on
which the royalty was made. The royalty payments accruing on sales in any
country shall then be converted to United States currency at the official
rate of exchange in each country on the date royalties are paid, and
payments shall be made in the United States currency to the account of
Medicore and sent to Medicore, Inc.
Xxxxxx X. Xxxxxx
Senior Vice President/Treasurer
Medicore, Inc.
0000 Xxxx 00xx Xxxxxx
Xxxxxxx, XX 00000
or any other party Medicore designates in writing to Viragen.
ARTICLE VI - Miscellaneous
--------------------------
6.01 - This Agreement and the royalty fees granted herein shall be
binding upon, and shall unure to the benefit of, successors of the parties
hereto, or to an assignee of all the good will and entire business and
assets of a party hereto.
10
6.02 - All communications, reports, payments, and notices required by
this Royalty Agreement by one party to the other shall be addressed to the
parties at their respective addresses set forth below or to such other
addresses within the United States as requested by either party by notice
in writing to the other:
If to Viragen: Viragen, Inc.
0000 Xxxx 00xx Xxxxxx
Xxxxxxx, XX 00000
Attn: Xx. Xxxx Xxxxxxx
With a copy to: Xxxxx X. Xxxxxxxxx, Esq
Xxxxxxxxx Xxxxxxxxx Xxxxxxxxx
& Tannenhauser
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
If to Medicore: Medicore, Inc.
0000 Xxxx 00xx Xxxxxx
Xxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx
Senior Vice President/
Treasurer
With a copy to: Xxxxxxxx X. Xxxxx, Esq.
000 Xxxxxxx Xxxxxx
Xxxxxxxxx Xxxxxxx, XX 00000
All such notices, reports, payments and communications shall be made
by first class mail, postage pre-paid, and shall be considered made as of
the date of the deposit with the United States Post Office if sent by
registered or certified mail.
6.03 - This Royalty Agreement is acknowledged to have been made and
shall be construed in accordance with the laws of the State of Florida.
11
6.04 - The undersigned represent that they hold the designated offices
with the respective parties hereto, that they are duly authorized to execute
this Royalty Agreement and thereby bind their respective parties to its
terms and provisions and that any request and approval of their superiors
or any committee or board has been obtained.
6.05 - This Royalty Agreement constitutes the entire understanding
between the parties with respect to the subject matter hereof and shall
supercede all previous communications, representations, understandings and
agreements, either oral or written, between the parties or any official
representative thereof with respect to the subject of this Royalty
Agreement. It is expressley understood that there has not been made to
either party hereto any inducement either oral or written to enter this
Royalty Agreement other than the terms hereof.
6.06 - Nothing in this Royalty Agreement shall be construed to
constitute, create, give effect or otherwise imply a joint venture, part-
nership, principal-agent or formal business organization of any kind
between the parties.
6.07 - All captions herein are for convenience only, and shall not
be interpreted as having any substantive meaning.
12
IN WITNESS WHEREOF, Viragen, Inc. and Medicore, Inc. have caused this
Royalty Agreement to be duly executed, in duplicate, as o he date and year
first above written.
ATTEST: MEDICORE, INC.
/s/ Xxxxxxxx X. Xxxxx By: /s/ Xxxxxx X. Xxxxxxxx
---------------------------- ------------------------------
XXXXXXXX. XXXXX XXXXXX X. XXXXXXXX President
ATTEST: VIRAGEN, INC.
/s/ Xxxxxx X. Xxxxxx By: /s/ Xxxx Xxxxxxx
--------------------------- ------------------------------
XXXXXX X. XXXXXX XXXX XXXXXXX
Secretary Vice President
