License Agreement

LICENSE AGREEMENT


This is an Agreement, entered into as of December 1, 1995 (the "Effective Date"), between and among Zila, Inc., a Delaware corporation, and Zila Pharmaceuticals, Inc., a Nevada corporation, each with its principal place of business at 5227 North 7th Street, Phoenix, Arizona 85014, U.S.A. (collectively, "Zila"), and The Procter & Gamble Company Inc., an Ohio corporation, with its principal place of business at One Procter & Gamble Plaza, Cincinnati, Ohio 45201 ("P&G" or "Licensee").


Zila is the owner of or has acquired rights in and to certain patents and trademarks;


Licensee wishes to obtain from Zila, and Zila is willing to grant to Licensee, a license under such patents and trademarks on the terms and conditions of this Agreement;


NOW, THEREFORE, for and in consideration of the mutual covenants herein, it is hereby agreed by and between the parties as follows:


1. Definitions. As used herein the following terms have the following meanings:


1.1 "AFFILIATE" means any wholly-owned (directly or indirectly) subsidiary or branch of Licensee which conducts business within the Territory and which makes, has made, uses or sells Licensed Products. The term "Licensee" shall be deemed to include all such Affiliates.


1.2 "ASSETS" means the Licensed Patents, Know-how, Licensed Marks and Product Registrations.


1.3 "COMMENCEMENT OF SALE" means, with respect to any country in the Territory, the date of the first commercial sale, as evidenced by an invoice, of the Licensed Product by Licensee in such country following the Regulatory Approval Date; provided, however, that in no event shall the Commencement of Sale in any country be later than one hundred twenty (120) days after the Regulatory Approval Date in such country.


1.4 "COMPETITIVE PRODUCT" means any commercially available and government approved oral cancer detection and screening system using a stain rinse with toluidine blue dye. As used in the preceding sentence and Section 5.5.2, "commercially available" in any country shall mean that such product has at least two (2) of the following characteristics: such product is (i) advertised, marketed or promoted in such country, (ii) found in more than twenty (20) dental offices in such country or (iii) reimbursed by any third party health or insurance plans (including government plans) in such country, with Licensee having the responsibility to provide Zila with written notice of any such product being "commercially available" containing credible evidence of same which may include copies of advertisements, price lists, promotional materials, or written reports from Licensee's employees calling on dentists. As used in the first sentence of this Section 1.4, "government approved" means that such product may be sold pursuant to applicable national or international law, regulation, practice, treaty, judicial ruling or directive.


1.5 "CONTRACT(S)" means any agreement, contract, license, commitment, understanding or similar relationship which relates to the Assets.


1.6 "FDA" means the United States Food and Drug Administration.


1.7 "IMPROVEMENT(S)" means any and all ideas, inventions, Know-how, concepts, and reductions to practice thereof, relating to possible additions, changes or developments relating to the Licensed Products, including the manufacturing, testing, safety, efficacy, indications and use thereof for any and all indications/uses.


1.8 "KNOW-HOW" means information, material, documents, data, and specifications respecting the making, using, marketing and regulatory approval of the Licensed Products, as comprehensively listed in Schedule 1.8 attached hereto and any future changes, developments and Improvements thereof.


1.9 "LIABILITY" or "LIABILITIES" means any liability, indebtedness, claim, loss, obligation or responsibility, fixed or unfixed, secured or unsecured, absolute, contingent or otherwise.


2
1.10 "LICENSED MARKS" means those trademarks and associated trade dress specified in Schedule 1.10 to this Agreement as may be amended from time to time by agreement of the parties which includes all registrations of pending applications for, all common law rights in and goodwill represented by, the name ORASCREEN in each country within the Territory and each country which may be added to the Territory as provided for in this Agreement.


1.11 "LICENSED PATENTS" means each patent and patent application identified in Schedule 1.11 of this Agreement, including continuations, divisions and re-examinations and reissues thereof, international and foreign applications corresponding thereto or derived therefrom, each patent issuing upon a patent application referred to above and all other patent applications and patents owned or controlled by Zila which would be infringed by the manufacture, sale or use of the Licensed Products in the Territory.


1.12 "LICENSED PRODUCTS" means oral cancer detection and screening systems using a liquid stain or stain rinse covered by or the use or manufacture of which is covered by the Licensed Patents and/or the Know-how provided by Zila to Licensee hereunder. The ingredients, formula, test methods and specifications for the Licensed Products to be adhered to in the manufacture of same to comply with the Product Registrations are set forth in Schedule 1.12 attached hereto.


1.13 "LIEN" means any mortgage, lien, pledge, charge, lease, security interest, license, claim, restriction, encumbrance, limitation, marital interest or any other defect of title of any kind in respect to the Assets.


1.14 "NET SALES" means the invoice price to customers of Licensee for sales of Licensed Products in the ordinary course of business, as recorded in Licensee's audited financial statements in accordance with GAAP, less deductions from such invoice price for: (1) refunds actually allowed or taken for rejected or returned Licensed Products, (2) excise, use, value added and sales taxes, to the extent included in the amounts invoiced, (3) customs, duties and other imposts, to the extent included in the amounts invoiced, (4) quantity discounts actually allowed or taken, (5) off- invoice allowances, actually allowed or taken, (6) credits on account of retroactive price reductions, actually allowed or taken, (7) promotional dollars which effectively reduce the price paid by Licensee's customers for the Licensed Products, (8) cost of insurance, billed to and paid by the customer, (9) cost of transportation, billed to and paid by the customer, and (10) rebates required by government rule, regulation, program or fiat, to the extent that any such rebates may be paid or allowed by Licensee. In determining the Net Sales in each country, on a country-bycountry basis, the local currency shall be converted to U.S. dollars quarterly, as of the last day of each calendar quarter, based on applicable currency conversion rates then in effect as reported by Chemical Bank, and in a manner consistent with Licensee's audited financial statements and GAAP; accordingly, the Net Sales figures set forth in Section 5.5 and Minimum Royalties are stated in U.S. dollars. Licensed Products shall be deemed to be sold when shipped. For purposes of this definition: (i) Net Sales shall not be imputed, nor deductions made, for samples, free goods or other marketing programs pursuant to which Licensee dispenses Licensed Products without charge in order to induce sales; and (ii) Zila will not be entitled to any compensation on Licensee's sales to Affiliates.


1.15 "PAPER NDA" means a New Drug Application (NDA) submitted under section 505 (b) (2) of the Federal Food Drug and Cosmetic Act (21 U.S.C. ss. 355 (b) (2)), the efficacy section of which does not rely upon any clinical studies in which Zila was the listed sponsor of the study pursuant to an Investigational New Drug (IND) exemption. This term is being used for convenience in drafting. The NDA contemplated by the parties, in addition to relying upon relevant published literature, may contain unpublished non-clinical toxicology data, unpublished manuscripts (scheduled for publication in the near future) of clinical trials in which Zila provided partial funding and may subsequently obtain ownership and/or exclusive rights of access, details of investigator records regarding clinical trials even though such details are not intended to be published, and other data (except for clinical data explicitly sponsored by Zila pursuant to an IND) that would not meet a narrow definition of a paper NDA as it might be defined for other purposes.


1.16 "PRODUCT REGISTRATIONS" means the applications for regulatory approval and the approvals for the same, allowing the marketing and sale of the Licensed Products within the countries in the Territory.


2 3


1.17 "REGULATORY APPROVAL DATE" in a country shall mean the date sixty (60) days after the date of receipt by Licensee of documentary proof that Zila has received the required regulatory approval authorizing the marketing and sale of a Licensed Product in that country by Licensee.


1.18 "TERRITORY" shall initially mean those countries listed in Schedule 1.18 hereto. Pursuant to a License Agreement dated March 27, 1995 between Zila and Block Drug, Inc. ("Block"), Zila has granted Block an option (the "Block Option") to take an exclusive license for the following countries: Germany, France, Spain, Italy, Belgium/Luxembourg, Holland and Sweden (the "Western European Countries"). If the Block Option is terminated, the Western European Countries shall be included within the Territory upon payment by Licensee to Zila of the license fee provided in Section 5.4 hereof. Although Canada is not included in the Territory, Zila agrees that it will not enter into any license of the Licensed Patents and Know-how with any third party to make, use or sell Licensed Products in Canada prior to January 1, 1997, unless such license is terminable by Zila upon not less than ninety (90) days' notice by Zila to the licensee thereunder.


1.19 "YEAR" shall mean for any country each successive twelve (12) month period with the first such period ending twelve (12) months after the first day of the calendar month during which Minimum Royalties in such country commence pursuant to Section 5.5.3.


2. License Grant.


2.1 Subject to the terms and conditions of this Agreement, Zila grants to Licensee a sole and exclusive license (even as to Zila) under the Licensed Patents and Know-how to make, have made, use and sell the Licensed Products within the Territory.


2.2 Licensee shall not sell the Licensed Products outside of the Territory or knowingly sell the Licensed Products to others for resale outside of the Territory.


2.3 Licensee may sublicense the rights obtained under this Agreement to a third party for purposes of manufacturing and/or packaging, in whole or in part, the Licensed Products only for sale by Licensee in the Territory; provided however, that Licensee shall remain primarily liable to Zila.


2.4 Subject to the terms and conditions of this Agreement, Zila grants to Licensee a sole and exclusive license (even as to Zila) to use the Licensed Marks in connection with Licensed Products sold within the Territory pursuant to this Agreement.


2.5 Licensee shall have the right to use marks other than Licensed Marks in connection with Licensed Products.


2.6 Licensee shall use commercially reasonable efforts to promote the Licensed Products in the Territory, consistent with Licensee's commercially reasonable business judgment.


2.7 Licensee shall be fully responsible for and obligated to Zila to ensure the performance of this Agreement in all respects by Affiliates of Licensee.


3. Use of the Licensed Marks.


3.1 Licensee acknowledges that Zila is the exclusive owner of the Licensed Marks, and that all of its uses of the Licensed Marks shall inure to the benefit of Zila. Licensee agrees not to do anything or cause anything to be done, which contests, impairs, or tends to contest or impair any of Zila's rights in the Licensed Marks.


3.2 Upon termination of this Agreement with respect to any country in the Territory or deletion of such country from the Territory as provided herein prior to the expiration of the full term set forth in Section 9 below, Licensee will immediately cease all use of the Licensed Marks in any such country other than the sale or other disposition of Licensee's inventory of the Licensed Products, and, in such event, Licensee shall not thereafter adopt or use the Licensed Marks or any confusingly similar words or mark without Zila's prior written consent. If Licensee is


3 4


then using marks other than the Licensed Marks, Licensee shall transfer all of Licensee's right title and interest in and to such marks in such country to Zila; provided however, that Licensee shall not be required to transfer any right, title or interest in any mark which is also used by Licensee with products sold by Licensee other than the Licensed Products. In addition to the above obligations, upon termination of this Agreement with respect to any country in the territory wherein Licensee has registered a Licensed Mark or deletion of such country from the Territory as provided herein prior to the expiration of the full term set forth in Section 9 below, Licensee shall transfer all Licensee's right title and interest in and to such Licensed Mark in such country to Zila.


3.3 Upon expiration of the full term of this Agreement with respect to any country in the Territory, if this Agreement has not first been terminated with respect to such country or such country has not first been deleted from the Territory as provided herein, Licensee will thereafter, and without any further action of the parties hereto, own all right, title and interest in and to the Licensed Marks in such country, and Zila shall take all actions as are reasonably necessary or as reasonably requested by Licensee to reflect such ownership, including but not limited to the execution of an assignment thereof in form and substance acceptable to Licensee.


3.4 Licensee agrees that it will not use the Licensed Marks in any manner which tends to damage the goodwill associated with the Licensed Marks.


3.5 Licensee may use the Licensed Marks only on such Licensed Products that:


3.5.1 meet the specifications set forth in Schedule 1.12 as may be amended in writing by the parties from time to time;


3.5.2 are manufactured in accordance with "good manufacturing practices" as defined in the rules and regulations of the FDA; and


3.5.3 are manufactured, sold, distributed and advertised in accordance with all applicable laws and regulations (international, national, federal, state, local or otherwise), and in compliance with any regulatory agency that has jurisdiction.


3.6 Licensee agrees to cooperate with Zila in facilitating Zila's review of such standards of quality, to permit reasonable inspection of Licensee's operation, and to supply Zila with specimens of all uses of the Licensed Marks upon request; provided, however, that Licensee shall not be required to perform any such actions in a manner which unreasonably interferes with the conduct of Licensee's business.


4. Know-how and Provision of Component Materials.


4.1 Licensee shall not use the Know-how other than in connection with making, using and selling of Licensed Products under this Agreement.


4.2 At the request of either party, once every calendar quarter (or at such other interval or intervals as are mutually agreed to by the parties) during the term hereof, personnel of Zila and Licensee shall meet to discuss marketing of the Licensed Products.


4.3 The parties acknowledge that certain aspects of the Know-how provided by one party to the other under this Agreement may consist of confidential and proprietary information or data of the providing party which is not readily ascertainable by proper means and which derives economic value, actual or potential, from not being generally known. Each party, therefore, agrees to hold such material and information provided by the other in confidence (applying the same standard of care used in protecting the confidentiality of its own proprietary information), not to make use thereof other than for performance hereunder, and not to release or disclose such material or information to another party without prior written consent of the other party to this agreement. All items of Know-how and other confidential information provided by one party under this Agreement to the other party shall be deemed


4 5


to be confidential and proprietary information or data, unless the receiving party can show, by written record, that the item of Know-how or other confidential information: (a) at the time of disclosure is generally known to the public or, after disclosure, becomes generally known to the public other than through fault of the receiving party; (b) is already in the receiving party's possession at the time of disclosure, and was not impermissibly acquired directly or indirectly from the disclosing party; (c) later received on a non-confidential basis from a third party having the right to impart such information; or (d) is independently developed by the receiving party.


5. Fees.


5.1 Effective as of the Effective Date and on the first day of each month thereafter until the month after the submission of the Paper NDA to the FDA, in a form approved by Licensee, such approval not to be unreasonably withheld, Licensee shall make payments to Zila in the amount of * * * * as non-refundable licensing fees for the Territory.


5.2 Commencing on the first day of the month after the month during which the Paper NDA is accepted for filing by the FDA, and on the first day of and each month thereafter until the Paper NDA is approved by the FDA, the Licensee shall make payments to Zila in the amount of * * * * as non-refundable licensing fees for the Territory; provided, however, that Licensee's payment obligations under Section 5.1 and 5.2 shall cease at such time as the aggregate payments thereunder equal * * * *.


5.3 Upon approval of the Paper NDA by the FDA, subject to Section 9.5.2 hereof, Licensee shall pay to Zila an additional non-refundable licensing fee for the Territory in the amount of * * * *, less the amounts previously paid by the Licensee to Zila under Sections 5.1 and 5.2.


5.4 In addition, upon termination of the Block Option, Licensee shall pay to Zila an additional non-refundable licensing fee of * * * * for the Western European Countries, contingent upon Zila being able to re-acquire the right to grant Licensee an exclusive license in such countries, and Licensee agrees to accept such countries as part of the Territory.


5.5 During the initial term hereof as set forth in Section 9.1 below, Licensee shall pay to Zila royalties in U.S. dollars as follows:


5.5.1 * * * * of Net Sales of the Products in the United States, Canada and the Western European Countries which are included within the Territory and * * * * of Net Sales in all other countries within the Territory; provided, however, that Licensee shall be entitled to a credit against the royalties which would otherwise be payable to Zila hereunder in an amount equal to * * * * of Net Sales until such time as the aggregate amount of such credit equals those costs incurred by Licensee to obtain FDA approval of the Licensed Products, which costs have been approved in advance by Zila (such approval not to be unreasonably withheld), not to exceed in the aggregate SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($750,000). Prior to taking any credit provided hereunder, Licensee shall submit to Zila reasonable evidence of any costs incurred by Licensee as to which credit is claimed.


5.5.2 * * * * of Net Sales in any country in the Territory where a Competitive Product is commercially available, with such lower royalties commencing thirty (30) days after Licensee has provided Zila the notice specified in Section 1.4 that such Competitive Product is first commercially available in such country and ending when such Competitive Product is no longer commercially available in such country. A Competitive Product shall be deemed to be no longer commercially available in a country within the Territory thirty (30) days after Zila has provided to Licensee by written notice credible evidence that the specific conditions identified by Licensee as demonstrating that a Competitive Product has become commercially available in such country have changed in such a manner as to no longer support the conclusion that a product remains a Competitive Product in such country as defined herein.


- -------------------------------------------------------------------------------- * * * * Confidential Portion has been ommitted and filed separately with the Commission.


5 6


5.5.3 In no case shall the royalties paid by Licensee to Zila in any Year in respect of any country within the Territory be less than the Minimum Royalties set forth in Schedule 5.5.3 for that year, beginning with the Commencement of Sale in such country; provided, however, that the Minimum Royalties for any country shall be reduced by * * * * for any portion of any Year during which reduced royalties are in effect under Section 5.5.2. In the event actual royalties paid by Licensee to Zila based upon Net Sales for any Year in any country are less than the Minimum Royalties required, Licensee may pay any deficiency to Zila within thirty (30) days after receipt by Licensee of written notice from Zila of the amount of any deficiency. If Licensee does not pay such deficiency within such period, Zila may delete such country from the Territory by written notice to Licensee.


6. Regulatory Approval.


6.1 The parties agree to use their commercially reasonable efforts to obtain any and all regulatory approvals required for the marketing and sale of the Licensed Products in the United States as soon as practicable hereafter.


The following is a list of activities required for FDA approval and start of manufacture of Licensed Product as well as the party having primary r ...