Exhibit 10.43

 

 

lICENSE aGREEMENT

 

This License Agreement (the “Agreement”) is made effective as of January 1, 1997
by and between SILIPOS INC. (“Licensee”) and GERALD P. ZOOK (“Licensor”).

 

R E C I T A L S:

 

A.            Licensor represents that he is the owner of the entire right,
title and interest in and to (1) an invention entitled “Foot Protector
Incorporating a Viscoelastic Gel,” which is disclosed and claimed in United
States Patent No. 5,497,789, which issued on March 12, 1996; (2) an invention
entitled “Viscoelastic Gel Foot Padding and Medicating Device,” which is
disclosed and claimed in United States Patent No. 5,098,421, which issued on
March 24, 1992; and (3) an invention entitled “Affixable Padding Material Using
Gelatinous Viscoelastic Polymer,” which is disclosed and claimed in United
States Patent No 4,842,931, which issued on June 27, 1989.

 

B.            Licensor represents that he is the owner of the entire right,
title and interest in and to (I) an invention entitled “Topical Drug Delivery
System,” which is disclosed and claimed in United States Patent No. 5,415,866,
which issued on May 16, 1995; (2) an invention entitled “Topical Medicating
Device,” which is disclosed and claimed in United States Patent No. 5,330,452,
which issued on July 19, 1994; (3) an invention entitled “Medicating Device for
Nails and Adjacent Tissue,” which is disclosed and claimed in United States
Patent No. 5,181,914, which issued on January 26, 1993; and (4) an invention
entitled “Drug Delivery System for the Removal of Dermal Lesions,” which is
disclosed and claimed in United States Patent No. 5,167,649, which issued on
December 1, 1992.

 

C.            Licensee wishes to obtain from Licensor and Licensor wishes to
grant to Licensee:

 

1.             A license under United States Patents No. 5,497,789; 5,098,421;
4,842,931; 5,415,866; 5,330,452; 5,181,914; and 5,167,649 (hereinafter referred
to as the “Zook Patents”) and

 

2.             A license for all future patents on which Licensor is an inventor
or co-inventor, subject to the limitations herein contained.

 

D.            Licensee desires that Licensor not compete with Licensee in
certain fields of use, as defined hereinbelow.

 

 

CERTIFIED TRUE COPY

 

 

 

/s/ Wayne S. Harger

 

BY WAYNE S. HARGER

 

NOTARY PUBLIC, OREGON

 

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E.             Licensee wishes to sell and manufacture products covered by the
Zook Patents, and

 

F.             The parties desire to settle that certain lawsuit filed by
Licensor against Licensee and exchange mutual releases.

 

AGREEMENT

 

Now, therefore, based upon the mutual consideration by each to be derived, the
sufficiency of which is hereby acknowledged, the parties agree as follows:

 

1.             Recitals.  The recital paragraphs hereinabove are incorporated
herein and conclusively deemed true.

 

2.             Definitions.  Whenever they are used in this Agreement, the
following capitalized terms shall have the meanings defined in Section 2, as
follows:

 

2.1           “Effective Date” means January 1, 1997.

 

2.2           “Elastomer Products” mean all products sold by Silipos, on or
after the Effective Date, made with any elastomer covered by United States
Patent No. 4,369,284 or United States Patent No. 4,618,213 or with any similar
mineral oil-based material.  Products made or sold by Silipos that are
silicone-based or derivatives are not within the category “Elastomer Products.”

 

2.3           “Exclusive License” means the exclusive License granted to
Licensee by Licensor pursuant to Section 3.1 of this Agreement.

 

2.4           “Existing Silipos Products” means all products (except
silicone-based products or derivatives) sold by Silipos as of the Effective
Date, all of which products Silipos represents are listed on Schedule 1 attached
hereto and made a part hereof.

 

2.5           “Field of Use” means any of the following areas of intended use
for which products excluding Medicated Devices may be sold or offered for sale
by Licensee:  padding, friction, pressure, abrasion, sheer, shock reduction,
skin protection, skin moisturization, and scar management.

 

2.6           “Future Silipos Products” means any products of a type first sold
by Silipos after the Effective Date of this Agreement.

 

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2.7           “Initial Term” means the time period from the Effective Date
through June 14, 2005.

 

2.8           “Medicated Device Patents” means, collectively, United States
Patents No. 5,167,649, 5,181,914, 5,330,452, and 5,415,866 and any reissues or
extensions thereof and any continuations, continuations-in-part, or divisional
applications and any corresponding Licensor foreign patents and foreign patent
applications describing or claiming any of the inventions recited in any of the
foregoing existing or future patents.

 

2.9           “Medicated Devices” are devices which contain medicinal agents.

 

2.10         “Net Sales Price” means Silipos’ invoice sales price (in U.S. 
dollars) for a Silipos Product (and not for any other component or product) and
excludes sales, excise, use, and V.A.T.  taxes; freight; returns; import duties;
and customary trade discounts.

 

2.11         “Non-Exclusive License” means the non-exclusive license granted to
Licensee by Licensor pursuant to Section 3.2 of this Agreement.

 

2.12         “Non-Medicated Device Patents” means, collectively,  United States
Patents No. 5,497,789; 5,093,421; and 4,842,931 and any reissues or extensions
thereof and any continuations, continuations-in-part, or divisional applications
and any corresponding Licensor foreign patents and foreign patent applications
describing or claiming any of the inventions recited in any of the foregoing
existing or future patents.

 

2.13         “Silipos Products” means, collectively, the Existing Silipos
Products and Future Silipos Products.

 

2.14         “Valid and enforceable” in reference to any patent claim means that
the patent claim has not been declared invalid or unenforceable by a final,
non-appealable decision of a court, agency, or tribunal of competent
jurisdiction.

 

2.15         “Zook Patents” means, collectively, the Medicated Device Patents
and the Non-Medicated Device Patents.

 

3.             License Grant.

 

3.1           Exclusive License.  Subject to the terms and conditions of this
Agreement.  Licensor hereby grants to Licensee an exclusive license, with right
to grant sublicenses, under each of the Non-Medicated Device Patents to make,
have

 

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made, use, import, offer to sell, sell and/or otherwise transfer, within the
Field of Use, Silipos Products covered by any of the Non-Medicated Device
Patents and within the Field of Use to otherwise practice the inventions covered
by any of the Non-Medicated Device Patents.  Licensor acknowledges that Licensee
has the right to make, have made, use, import, offer to sell, and sell anywhere
in the world Silipos Products within the Field of Use.  Licensee may authorize
others to distribute Silipos Products manufactured by or for the order of
Licensee.  Licensor further hereby grants to Licensee’s distributors, sales
representatives, and customers the right to use Silipos Products purchased
directly or indirectly from Licensee.  Notwithstanding the foregoing, Licensor
shall retain the right to make, have made, use, import, offer to sell, sell,
and/or otherwise transfer Medicated Devices, to the extent such devices may be
covered by one or more patent claims of the Non-Medicated Device Patents and
subject to the non-competition provisions in Section 7 of this Agreement.

 

3.2           Non-Exclusive License.  Subject to the terms and conditions of
this Agreement, Licensor hereby grants to Licensee, whether within or without
the Field of Use, a worldwide non-exclusive license, under each of the Medicated
Device Patents, to make, have made, use, import, offer to sell, sell and/or
otherwise transfer Silipos Products that are Medicated Devices and to otherwise
practice the inventions covered by any of such patents in connection with the
manufacture, use, or sale of Silipos Products that are Medicated Devices, to the
extent such Medicated Devices are covered by one or more valid and enforceable
claims of the Zook Patents.

 

3.3           Future Licenses.  Licensor also agrees to grant Licensee an
exclusive license within the Field of Use under any future patents on which
Licensor is an inventor or co-inventor excluding patents primarily covering
Medicated Devices.  Licensor also agrees to grant Licensee a worldwide
non-exclusive license, whether within or without the Field of Use, under any
future patents on which Licensor is an inventor or co-inventor primarily
covering Medicated Devices or similar products.  Licensor agrees to execute and
deliver any documents that may be necessary to confirm such future licenses and
Sections 3.1 and 3.2 of this Agreement, as appropriate, shall thereby be deemed
amended to incorporate such future license.  Licensor’s obligations to license
future patents to Licensee in accordance with this paragraph shall apply only to
patents the application for which was filed on or before June 14, 2005,
provided, however, that any continuation, continuation-in-part, divisional, or
reissue application and any request for reexamination shall be treated for this
purpose as having been filed on or before June 14, 2005 if at least one
application in the U.S.  Patent and Trademark Office (“PTO”) history of the
patent was filed on or before June 14, 2005.

 

3.4           No Assistance.  Licensor shall be solely responsible for payment
of any and all patent maintenance fees and any other expenses payable to or
associated

 

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with the U.S. Patent and Trademark Office or any foreign equivalent thereof, but
shall have no obligation to furnish any equipment, information, or advice to
Licensee to enable Licensee to exploit the license rights granted hereunder.

 

4.             Royalty.

 

4.1           Royalty During Initial Term.  In consideration of the rights and
licenses granted herein under the Zook Patents, during the Initial Term of this
Agreement Licensee shall pay to Licensor in U.S.  dollars in the manner set
forth in Section 5.1 of this Agreement a royalty equal to four percent (4%) of
the Net Sales Price for each Silipos Product sold in any sale or other transfer,
provided that the specific Silipos Product sold or otherwise transferred is
covered (both as a matter of proper claim construction and as a matter of the
geographic scope of the relevant patent) by one or more valid and enforceable
claims of any of the Zook Patents.  In consideration of know-how provided at and
before June 1990, during the Initial Term Licensee shall pay to Licensor in
U.S.  dollars in the manner set forth in Section 5.1 of this Agreement a royalty
equal to four percent (4%) of the Net Sales Price for Elastomer Products sold in
any sale or other transfer, whether the sale or other transfer occurs within or
without the United States.  The royalty stated in the second sentence of this
Section 4.1 is not conditioned upon or subject to the enforceability or validity
of United States Patent No. 4,369,284 or United States Patent No. 4,618,213 or
any of the Zook Patents.

 

4.2           Post Initial Term Royalty.  After expiration of the Initial Term,
with respect to the licenses granted under Sections 3.1 and 3.2 of this
Agreement, Licensee shall pay to Licensor, in the manner set forth in Section
5.1 of this Agreement, a royalty equal to four percent (4%) of the Net Sales
Price for Silipos Products sold in any sale or other transfer, provided that the
specific Silipos Product sold is covered (both as a matter of proper claim
construction and as a matter of the geographic scope of the relevant patent) by
one or more valid and enforceable claims of any of the Zook Patents.  This
royalty obligation shall continue with respect to each specific Silipos Product
until expiration of the applicable patent or proper termination of the
respective license granted in this Agreement with respect to such Silipos
Product, whichever comes first.  After the Initial Term, Licensee shall have no
further obligation to pay royalties to Licensor under a specific Zook Patent
with respect to a specific Silipos Product after the date, if any, on which the
Zook Patent or the applicable claims thereof are held invalid or unenforceable. 
The four percent (4%) royalty obligation with respect to possible future patents
of Licensor shall continue for so long as Licensee makes, has made, uses,
imports, offers to sell, sells, or otherwise transfers devices covered by one or
more claims of the future patent(s), as long as the future patent or patents or
the applicable claims thereof remain valid and enforceable.

 

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4.3           Minimum Annual Royalty During Initial Term.  Notwithstanding any
other provision in this Agreement, as long as neither party has terminated this
Agreement during the Initial Term, Licensee’s total royalty payments for each
successive twelve (12) month period commencing on the Effective Date shall be
not less than $100,000.00.  If the cumulative monthly royalty payments under
this License Agreement during a respective twelve (12) month period of the
Initial Term have not reached the agreed minimum sum, Licensee is to pay the
difference within thirty (30) days of the end of the twelve (12) month period in
question.  This $100,000.00 minimum annual royalty provision shall terminate
effective June 14, 2005; and for the period of less than twelve (12) months that
ends on June 14, 2005, the minimum annual royalty shall be that percentage of
$100,000.00 determined by dividing the number of days in the partial twelve (12)
month period by three hundred sixty-five (365).

 

4.4           Minimum Annual Royalty After Initial Term.  As long as neither
party has properly terminated this Agreement, Licensee’s total royalty payments
for the licenses collectively granted herein for each successive twelve (12)
month period commencing after the Initial Term shall be not less than
$112,500.00.  If the cumulative monthly royalty payments under this License
Agreement during a respective twelve (12) month period after the Initial Term
have not reached the agreed minimum sum, Licensee is to pay the difference
within thirty (30) days of the end of the twelve (12) month period in question. 
This minimum annual royalty provision shall terminate upon the earliest of the
following dates: (a) the date on which U.S. Patent No. 5,497,789 expires; (b)
the date Licensor terminates this Agreement in strict accordance with the
remedies provided in Section 11; and (c) the date when Licensee (after twelve
(12) months prior notice to Licensor) elects to terminate its patent licenses
under the seven patents identified in Recitals A. and B.  In the event of
termination of the minimum annual royalty provided for in this Section 4.4 at a
point other than the end of a twelve (12) month period, the minimum annual
royalty shall be that percentage of $112,500.00 determined by dividing the
number of days in the less-than-twelve-month period by three hundred sixty-five
(365).

 

4.5           No Cumulative Royalty.  Notwithstanding any other provision
contained in this Agreement to the contrary (except the Minimum Annual Royalty
provisions of Sections 4.3 and 4.4 above), Licensor is to receive (at most) only
a single four percent (4%) royalty in connection with a sale of a Silipos
Product by Licensee or a sublicensee, not one four percent (4%) royalty under
one part of this License Agreement and a separate royalty under some other part
of this License Agreement and not one four percent (4%) royalty under one Zook
Patent and another four percent (4%) royalty under another Zook Patent.

 

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5.             Reporting, Payment, Records.

 

5.1           Payment.  Within forty (40) days after the end of each month,
Licensee shall report in writing to Licensor the number of Silipos Products sold
or otherwise transferred by Licensee during the month for which payment is due
under the above paragraphs, the Net Sales Price received therefor, and the
royalty payable to Licensor therefor, and shall pay to Licensor the royalty
reported due.  The form of the record previously supplied by Licensee to
Licensor that showed relevant sales for the month of August 1996, a copy of
which is attached hereto as Attachment 1, is acceptable to Licensor as the form
of report required by this paragraph.  “Net Sales Price received therefor” is
intended to make the timing on Licensee’s obligation to pay Licensor a royalty
coincide with the month of actual receipt of sales revenue by Licensee.

 

5.2           Records Audit.  Licensee shall keep accurate records containing
all data reasonably required for the computation and verification of the amounts
to be paid and the information to be reported to Licensor under this Agreement. 
Licensee shall permit an independent accounting firm designated by Licensor to
audit such records at Licensee’s principal place of business (or such other site
as Licensee may reasonably designate) during normal business hours upon
reasonable advance notice to Licensee and not more frequently than once per
year.  The auditor must sign a nondisclosure agreement in form reasonably
acceptable to Licensee.  If Licensor elects not to have an independent
accounting firm audit such records in any year, the right to ask for such an
audit for such year shall carry forward, except that no audit may go back
further than thirty-six (36) months from the date of an audit request.  Under no
circumstances shall Licensor request an audit for periods prior to the Effective
Date of this License Agreement.  All costs and expenses incurred by Licensor for
audit of Licensee’s records shall be borne by Licensor unless the audit
discovers errors or omissions more than ten percent (10%) in Licensee’s favor,
in which case the costs and expenses, up to a maximum of $3,000.00, shall be
borne by Licensee.  If such an audit discloses a discrepancy between the amounts
reported and paid by Licensee and what should have been reported and paid,
Licensee shall have the right to its own audit, at Licensee’s expense, within
sixty (60) days after notice from Licensor of the discrepancy.  If the auditors
agree on the amount of the discrepancy, Licensee shall pay the shortfall in full
within thirty (30) days if Licensor has been underpaid and Licensor shall repay
the overpayment in full within thirty (30) days if Licensor has been overpaid. 
If the auditors do not agree on the amount of the discrepancy, the dispute shall
be submitted to binding arbitration in accordance with the arbitration
provisions of Section 15.1 of this Agreement.

 

5.3           Reports of New Products.  By January 15 of each calendar year,
starting with 1998 and continuing until this Agreement terminates, Licensee
shall

 

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provide written notice to Licensor of any new products introduced by Licensee
during the previous calendar year that are subject to the provisions of this
Agreement.

 

5.4           Products Within Scope of Zook Patents.  Licensee believes that the
Existing Silipos Products that are listed (organized by patent number) on
Schedule 2 attached hereto are the only Existing Silipos Products that are
within the scope of one or more of the claims of the respective Zook Patents
listed on Schedule 2.  On or before June 14, 2004, Licensee may provide a
written list to Licensor, which shall be organized by patent number as in
Schedule 2, of any additional or different Silipos Products that Licensee
believes at that time are within the scope of one or more of the claims of the
Zook Patents.  On or before September 13, 2004, Licensor shall give written
notice to Licensee indicating whether Licensor concurs with Licensee’s list or
contends that the list should have different or additional Silipos Products on
it, and Licensor’s list shall state which claim(s) of the patent(s) in question
cover each respective Silipos Product on the list.  If Licensor does not furnish
his own list, Schedule 2 or Licensee’s superseding list (if any) shall be
conclusive on both parties insofar as defining which Silipos Products are
covered and not covered by which Zook Patents, provided that it shall not be
conclusive as to Licensor with respect to any product the existence of which
Licensee had never previously disclosed to Licensor.  Any disagreement about
what Silipos Products are covered by what Zook Patent(s) shall be resolved by
discussion and agreement between the parties or, if necessary, by binding
arbitration in accordance with Section 15.2 of this Agreement.  The reason for
Licensor’s list (if any) of covered products and claims by which the products
are covered is to inform Licensee before June 14, 2005, which Silipos Products
the Licensor will contend he is entitled to have a royalty continue on after the
end of the Initial Term.  Licensor shall not have the right, for the period of
time with respect to which this License Agreement is in effect, to contend that
any act of manufacture, transfer, use, offering to sell, sale, or importation
with respect to any Silipos Product was an infringing act (as long as the
existence of the Silipos Product in question had been previously disclosed to
Licensee) if Licensor has given no prior written notice to Licensee in
accordance with this Section that Licensor contended that the specific Silipos
Product was covered by a stated claim or claims of a Zook Patent.

 

6.             Representations and Warranties.

 

6.1           Authority.  Each of Licensee and Licensor represents and warrants
that the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
on its behalf by all requisite corporate action, that it or he has the full
right, power and authority to enter into this Agreement and to carry out the
terms of this Agreement and that it or he has duly executed and delivered this
Agreement and that this Agreement is a valid and binding obligation of it or him
enforceable in accordance with its terms, except as

 

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enforceability may be limited or otherwise affected by (a) any bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or similar
statute, rule, regulation or other law affecting the enforcement of creditors’
rights and remedies generally or (b) the unavailability of, or any limitation on
the availability of, any particular right or remedy (whether in a proceeding in
equity or at law) because of the discretion of a court or because of any
equitable principle, public policy, procedural requirement or requirement as to
commercial reasonableness, conscionability or good faith.

 

6.2           No Consent.  Each of Licensee and Licensor represents and warrants
that no approval, consent, authorization, order, designation or declaration of
any court or regulatory authority or governmental body is required to be
obtained by it or him, nor is any filing or registration required to be made
therewith by it or him for the consummation by it or him of the transactions
contemplated under this Agreement.

 

6.3           Ownership.  Licensor warrants that he (a) owns all of the Zook
Patents, free and clear of all liens, encumbrances and assignments; (b) has the
right and power to grant to Licensee the licenses granted herein; (c) has not
made any agreement with another in conflict with the rights granted herein; (d)
has not been put on notice of infringing any third party’s patent(s); (e) is not
aware that any Existing Silipos Product would infringe a third party’s patent,
with the exception that use of an Applied Elastomerics, Inc. elastomer in a
Silipos Product might require a license from John Chen or Applied Elastomerics,
Inc.; (f) has no knowledge that any Zook Patent is unenforceable; and (g) is
unaware of any act or omission, public use, or sale that would create a bar to
patent validity or coverage, even to the Zook Patents already granted. 
Notwithstanding any provision herein contained, Licensor makes no warranty with
respect to the validity of any present or future Zook Patent.

 

7.             Noncompetition and Noninterference.  Licensor agrees not to
compete in the future against Licensee anywhere in the world in Licensee’s Field
of Use with products that are the same or substantially similar in material
characteristics (i.e., intended use, appearance, elongation or hardness) to the
Silipos Products.  Licensor’s obligation not to compete shall terminate at such
time as Licensee no longer has an exclusive license from Licensor under any of
the Non-Medicated Device Patents.  Licensor agrees that Licensor shall refrain
from any and all interference with Licensee and the conduct by Licensee of its
business and shall not refer to Silipos in any communication with any trade
organization or publication applicable to any Silipos Product or anyone doing
business with Silipos, including without limitation a vendor, customer, or
competitor of Silipos, where the effect of such reference is to disparage
Silipos or any Silipos Product, provided, however, that nothing in this
paragraph is intended to limit the pursuit by Licensor of any legal or equitable
remedy available to Licensor as a result of the occurrence of any default by
Licensee under this Agreement.  If Licensor has any issue or concern (other than
an imminent threat to

 

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health) about Licensee or any of Licensee’s products that Licensor wants to take
up with the U.S.  Food and Drug Administration (“FDA”), Licensor will give
Licensee notice of the issue or concern at least 60 days before contacting the
FDA, unless more prompt notice or reporting to the FDA is required by law. 
Licensee agrees not to disparage Licensor or any of the Zook Patents.

 

8.             Infringement.  If Licensee becomes aware of infringement of any
of the Zook Patents by a third party, Licensee may notify Licensor in writing
and Licensor shall decide within sixty (60) days thereafter whether Licensor
will take steps to end the infringement and at the time of the decision notify
Licensee of what decision Licensor reached.  Initially Licensor shall retain the
sole right, but not the obligation, at its sole discretion, to prosecute
infringement of any of the Zook Patents licensed to Licensee under this
Agreement.  Prior to initiating any such proceeding, Licensor will inform
Licensee and will keep Licensee reasonably advised of developments in the
proceeding.  Thereafter, if Licensor does not assert an infringement claim,
Licensee shall have the right, at its sole discretion, to assert an infringement
claim or counterclaim against an infringer and to require Licensor to join with
Licensee as a party in asserting such claim or counterclaim.  Until June 14,
2005, the attorneys’ fees and other expenses of any such litigation which
Licensee undertakes shall be paid by Licensee and Licensor in shares of 96% and
4%, respectively, and any proceeds of such infringement litigation shall be
divided between them on the same 96%-4% basis.  For infringement litigation
commenced by Licensee after June 14, 2005, to which Licensor is a party, the
expenses and the proceeds shall be split on a 50-50 basis.  Any litigation
expenses or litigation proceeds that arise after June 14, 2005, shall be shared
on the basis that applied between the parties when the underlying litigation
began.  If Licensee becomes involved in any proceeding involving any of the Zook
Patents, Licensor agrees, notwithstanding Section 3.4, to cooperate fully with
Licensee, at Licensor’s expense, insofar as providing documents, testimony,
expertise, and any other nonfinancial assistance reasonably requested.  Licensee
shall have no obligation to assert or join with Licensor in asserting
infringement against any person or entity, whether the alleged infringement is
inside or outside the Field of Use.  If Licensor becomes involved in any
proceeding involving any of the Zook Patents, Licensee agrees to cooperate fully
with Licensor, at Licensee’s expense, insofar as providing documents, testimony,
expertise, and any other nonfinancial assistance reasonably requested.

 

9.             Other Patent-Related Litigation.  If any person or entity shall
assert in a pleading against Licensee that any of the Zook Patents is invalid or
unenforceable, Licensee shall have the right to tender to Licensor the defense
against those claims.  If Licensor declines to defend against that claim or
those claims, Licensee shall have no obligation to defend against that claim or
those claims.

 

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10.           Limitation of Liability: IN NO EVENT SHALL EITHER PARTY BE LIABLE
TO THE OTHER FOR ANY INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES
ARISING OUT OF THIS AGREEMENT OR ANY PERFORMANCE HEREUNDER, EVEN IF SUCH PARTY
HAS ADVANCE NOTICE OF THE POSSIBILITY OF SUCH DAMAGES.

 

11.           Default and Remedies.

 

11.1         Licensee shall be in default if Licensee fails to pay monies as
required in this Agreement, including:

 

11.1.1      Failure to pay the monthly royalty payments, when due, as defined in
Section 5.1 above.  In the event of default as defined in this paragraph,
Licensor shall have the following remedies upon written notice to Licensee
specifying the nature of such default and Licensee’s failure to cure said
default within thirty (30) days thereof: i) terminate all licenses granted by
Licensor to Licensee and ii) bring an arbitration proceeding for damages.  In
the event of a default as defined in this paragraph, Licensee shall pay a late
fee equal to three percent (3%) of the principal amount of the monies that have
not been paid within the forty (40) day period provided in Section 5.1, even if
the default is cured by Licensee within the thirty (30) day cure period allowed.

 

11.1.2      Failure to pay any applicable minimum annual royalty payment, when
due, as defined in Section 4.3 or Section 4.4 above.  In the event of default as
defined in this paragraph, Licensor shall have the following remedies upon
written notice to Licensee specifying the nature of such default and Licensee’s
failure to cure said default within sixty (60) days thereof: i) terminate all
licenses granted by Licensor to Licensee and ii) bring an arbitration proceeding
for damages.  In the event of a default as defined in this paragraph, Licensee
shall pay a late fee equal to three percent (3%) of the principal amount of the
monies that have not been paid within the required period, even if the default
is cured by Licensee within the sixty (60) day cure period allowed, provided,
however, that in the event that any audit of the records of Licensee discloses
an underpayment of royalties, the three percent (3%) late fee shall not apply,
unless the underpayment is not corrected within sixty (60) days after it is
finally determined (by agreement or by arbitration) that there was in fact an
underpayment.

 

11.1.3      Failure to pay the arrearage according to the terms of the
Promissory Note attached as Exhibit A hereto within any applicable grace
period.  In the event of default as defined in this paragraph, Licensor shall
have the following remedies: i) the right to assert all remedies contained in
the Promissory Note, including but not limited to the right to accelerate the
balance owing; ii) the right to

 

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terminate, upon sixty (60) days’ prior written notice to Licensee and the
failure to cure said default within the sixty (60) day period, all licenses
granted by Licensor to Licensee; and iii) the right to bring an arbitration
proceeding for damages and collect, in addition to other sums due, a late fee
equal to three percent (3%) of the principal amount of the monies that were not
paid within the required time.

 

11.2         Licensee shall be in default if Licensee fails to account or permit
audit of accounting as required by this Agreement, including:

 

11.2.1      Failure to provide a timely monthly accounting of sales subject to
this Agreement, in the form required.  In the event of default as defined in
this paragraph and failure to cure such default within sixty (60) days after
receipt by Licensee of written notice specifying the nature of such default,
Licensor shall have the following remedy: the right to collect a late reporting
fee equal to the greater of either (a) $100 or (b) three percent (3%) of any
unpaid royalty on the sales during the month subject to accounting for which the
report was not provided as required.

 

11.2.2      Failure to permit audit upon request in accordance with the
provisions of this Agreement.  In the event of default as defined in this
paragraph, Licensor shall have the following remedies: i) the right to
terminate, upon sixty (60) days’ prior written notice to Licensee and the
failure to cure said default within the sixty (60) day period, all licenses
granted by Licensor to Licensee; and ii) the right to bring an arbitration
proceeding to compel an audit.  Notwithstanding the foregoing, if there is a
good faith dispute about Licensor’s right to audit or any aspect of the exercise
of that right, the dispute shall be resolved, by arbitration if necessary,
before Licensee’s right to cure by permitting the requested audit shall have
expired.

 

11.3         Upon the failure of Licensee to perform any of the other terms,
promises, or covenants of this Agreement and upon the expiration of sixty (60)
days after written notice of such failure specifying the nature thereof is given
to Licensee by Licensor and Licensee has failed to substantially cure the same,
or if by reason of its nature the failure can be remedied but not within such
sixty (60) day period, the Licensee fails to proceed with reasonable diligence
after receipt of such notice to cure the failure or fails to continue with
reasonable diligence its efforts to cure the failure, Licensee shall be in
default.  In the event of default as defined in this paragraph, Licensor shall
have the following remedies: the right to bring an arbitration proceeding to
collect damages or to compel compliance by Licensee with the terms, promises, or
covenants that Licensee has failed to perform.

 

11.4         Upon the failure of Licensor to perform any of the terms, promises,
or covenants of this Agreement and upon the expiration of sixty (60) days after
written notice of such failure specifying the nature thereof is given to
Licensor by Licensee

 

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and Licensor has failed to substantially cure the same, or if by reason of its
nature the failure can be remedied but not within such sixty (60) day period,
the Licensor fails to proceed with reasonable diligence after receipt of such
notice to cure the failure or fails to continue with reasonable diligence his
efforts to cure the failure, Licensor shall be in default.  In the event of
default as defined in this paragraph, Licensee shall have the following
remedies: the right to bring an arbitration proceeding to collect damages or to
compel compliance by Licensor with the terms, promises, or covenants that
Licensor has failed to perform.

 

11.5         In the event that Licensor rightfully exercises the default remedy
of terminating the licenses granted in this License Agreement, the parties
agree:

 

11.5.1      The termination shall terminate any and all interests and claims of
Licensee by virtue of this Agreement, whether such interest or claim is existing
or prospective.  Such termination shall, at the election of Licensor, also
terminate any sublicense or assignment made by Licensee, whether or not Licensor
has consented to such sublicense or assignment.

 

11.5.2      All obligations and indebtedness of Licensee to Licensor arising out
of this Agreement prior to the date of such termination shall survive such
termination.

 

11.5.3      Licensor may grant licenses to third parties for any term, longer or
shorter than the term of this Agreement, upon any reasonable terms and
conditions.  However, Licensor shall have no obligation to grant licenses.

 

11.5.4      Licensor shall be entitled to collect as damages the minimum
$100,000.00 per year royalty payment specified in Section 4.3 for as many years
prior to June 14, 2005 as this Agreement has been in force, to the extent those
minimum annual payments have not been made; and Licensor shall be entitled to
collect as damages the minimum $112,500.00 per year royalty payment specified in
Section 4.4 for as many years after June 14, 2005, as this Agreement has been in
force, to the extent those minimum annual payments have not been made.

 

11.6         Phase-In.  Because this Agreement was signed in February 1997,
weeks after the Effective Date, notwithstanding any time limits stated elsewhere
in this Agreement, for the first quarter of 1997 Licensor shall have a grace
period of sixty (60) additional days above and beyond all time limits that would
otherwise apply, provided, however, that the foregoing super grace period shall
not relax Licensee’s obligations as far as timely payment of the Promissory Note
attached as Exhibit A.

 

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12.           Implied Duties.  Licensor and Licensee agree to deal fairly and in
good faith with each other in the performance of this Agreement.  Licensor
agrees that Licensee does not owe Licensee any “best efforts” duty or other duty
to maximize the sale or other distribution of Silipos Products, whether covered
by Zook Patents or made with visco-elastic material.  In particular, Licensor
shall have no right to complain in any respect whatsoever, other than to claim
breach of an express provision of this License Agreement, about how Licensee is
marketing any Silipos Products on which Licensor is entitled to royalties,
because the parties have agreed on a minimum annual royalty provision, as stated
above, in lieu of trying to define what implied duties Licensee might have to
Licensor.  If there is a good faith dispute about either party’s rights or
obligations under the duty of good faith and fair dealing, the dispute shall be
resolved, by arbitration if necessary, before Licensor’s right to terminate this
Agreement shall exist or Licensee’s right to cure shall expire.

 

13.           Term, Termination.

 

13.1         Term.  This Agreement is effective as of the Effective Date and
shall expire in accordance with the provisions stated elsewhere in this
Agreement.

 

13.2         Termination By Licensor.  This Agreement and the licenses granted
hereunder may be terminated by Licensor only in strict accordance with the
Licensor’s remedies stated herein.

 

13.3         Termination By Licensee.  Licensee shall have the right upon twelve
(12) months’ prior written notice to terminate any or all of the licenses
granted under Sections 3.1, 3.2, or 3.3 of this Agreement, provided, however,
that no such termination may be effective before June 14, 2005; and, after any
such termination becomes effective, Licensee shall have no further obligation to
Licensor with respect to such terminated license or licenses except as to any
monies accrued but unpaid prior to the effective date of such termination. 
Licensee agrees to pay royalties to Licensor during such twelve (12) month
period as provided in this Agreement.

 

13.4         Effect of Termination.  Upon the termination of this Agreement by
Licensor as a permitted remedy for default by the Licensee, Licensee shall
notify Licensor of the inventory of Silipos Products that it has on hand for
which a royalty would be payable upon the sale or other disposition thereof
under the provisions of this Agreement, and Licensee shall then have a twelve
(12) month license to sell that inventory, provided that Licensee pays royalties
for those Silipos Products and renders reports to Licensor for those Silipos
Products as provided for in this Agreement.  The terms of this Agreement that by
their context are meant to survive termination of this Agreement shall so
survive.  Licensee shall be required to destroy any inventory that

 

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remains after the expiration of this post-termination license, if the sale of
such remaining inventory would be unlawful without a license from Licensor.

 

13.5         Retention Period for Books and Records.  Licensee shall retain all
books and records that would be used to account for the royalty payments due to
Licensor until such books and records are at least three years old.

 

14.           Confidentiality.  Licensor and Licensee can disclose that “Silipos
has licensed Dr. Zook’s patents.”  Licensee and Licensor otherwise agree to keep
the terms of this License Agreement strictly confidential and not disclose the
terms to anyone, including Mr. John Chen and Applied Elastomerics, Inc., except
to the extent either party is or may be required by law to disclose any
provision, in which case the disclosure shall be no more extensive than
required.  Notwithstanding the foregoing, Licensor can share with the persons
with whom or the entities with which he is working with respect to Medicated
Devices the portions of the License Agreement that will be of concern to them,
as long as they sign in advance and provide to Silipos a nondisclosure
agreement, in form reasonably acceptable to Silipos, for any information
provided to them.

 

15.           Arbitration.

 

15.1         Arbitration Not Involving the Scope of a Zook Patent.  Any dispute
arising out of or related to this Agreement, whether sounding in tort or
contract or otherwise (including but not limited to any claim of
misrepresentation, concealment, negligence, fraud, breach of implied duty,
etc.), which is not settled by amicable agreement of the parties shall be
determined by binding arbitration.  The arbitration shall be held in the state
of New York in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, to the extent those rules are not inconsistent with
anything in this Agreement.  The decision of the arbitrator or arbitrators shall
be final and binding, and judgment on the award may be entered in any court
having jurisdiction.  Nothing in this Agreement to arbitrate shall prohibit
either party from seeking injunctive relief, including a temporary restraining
order or a preliminary injunction, in a court of competent jurisdiction.

 

15.2         Arbitration Involving Issue of Scope of One or More Zook Patents. 
Any arbitration convened pursuant to Section 5.4 shall be governed by Section
15.1 except as amended by this Section 15.2.  The arbitration shall be conducted
in the state of New York with three patent lawyers as the arbitrators.  The
decision of two or more arbitrators will be the decision of the panel.  The
expenses of the arbitrators and any fees paid or payable to the American
Arbitration Association shall be split equally between Licensor and Licensee. 
Regardless of the outcome of the arbitration, the parties shall each bear their
own legal, travel, expert witness, and other expenses

 

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for the arbitration and for the confirmation of the award in court and on any
appeal thereof.  The right to seek injunctive relief in a court of competent
jurisdiction shall not apply to the detriment of the parties’ agreement to
arbitrate issues of patent coverage.

 

16.           Legal Expenses.  In the event any arbitration proceeding is
commenced pursuant to Section 15.1 to interpret or enforce any provision of this
Agreement or adjudicate any claim of breach of this Agreement, the prevailing
party in such arbitration proceeding shall be entitled to recover a reasonable
attorneys’ fee in connection with such arbitration proceeding and for the
confirmation of the award in court and on any appeal thereof.  The fee in
connection with such arbitration proceeding is to be set by the arbitrator or
arbitrators, and the fee in connection with any court confirmation of the award
is to be set by the court or courts, in addition to costs and disbursements
allowed by law.

 

17.           Waiver.  The failure of either party to enforce at any time any
provision of this Agreement shall not be construed as a waiver of such provision
or the right thereafter to enforce each and every provision.  No waiver by
either party, either express or implied, of any breach of any of the provisions
of this Agreement shall be construed as a waiver of any other breach of such
term or condition or of any other term or condition.

 

18.           Severability.  If any provision of this Agreement shall be held by
an arbitrator or a court of competent jurisdiction to be invalid or
unenforceable in any respect for any reason and the determination is no longer
subject to judicial review or appeal, the validity and enforceability of any
such provision in any other respect and of the remaining provisions of this
Agreement shall not be in any way impaired.

 

19.           Governing Law.  This Agreement and the rights of the parties
hereunder shall be governed by and construed in accordance with the laws of the
State of New York exclusive of choice of law rules.

 

20.           Release.  Licensor hereby releases Licensee and its distributors,
customers, and suppliers from any and all liability resulting from the
manufacture, use, sale, or offer to sell of Existing Silipos Products which may
have infringed any of the Zook Patents prior to the Effective Date.

 

21.           Notices.  All notices required or authorized by this Agreement
shall be given in writing delivered by hand or certified mail, postage and fees
prepaid, to a party at the address indicated below or to such other address as a
party may specify by notice in accordance with this section.  All notices shall
be effective upon receipt.

 

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Licensee:

 

Licensor:

 

 

 

Mr.  Joel Bickel

 

Gerald P. Zook

Silipos Inc.

 

c/o Bruce C. Moore

366 Madison Avenue

 

P.O.  Box 11833

New York, NY 10017

 

Eugene, OR 97440

 

22.           Assignment.

 

22.1         The rights granted Licensee under this Agreement may not be
assigned without the prior written consent of Licensor.  Licensor shall not
unreasonably withhold consent.  The test for “reasonableness” as used in this
Section shall be an objective test that considers the following attributes: (a)
the proposed assignee’s financial condition as compared to the financial
condition of Licensee and (b) the proposed assignee’s ability to undertake and
perform the business activities that Licensee performs in marketing and selling
products which are subject to royalties under this Agreement.  Nothing in this
Section 22.1 shall entitle Licensor to seek or demand, as a condition for
Licensor’s consent, a share of any consideration to be paid to Licensee in a
sale or assignment.

 

22.2         Any assignment or transfer of the rights granted to Licensee under
this Agreement shall be subject to the rights of Licensor under this Agreement;
and any assignee or transferee shall be bound to all the terms, conditions and
obligations of this Agreement; and Licensor shall remain obligated to Licensee
for the performance of all terms, conditions, and covenants of Licensor in this
Agreement.

 

22.3         Any assignment or transfer of any of the Zook Patents by Licensor
shall be subject to the rights of Licensee under this Agreement.

 

22.4         Each party will promptly notify the other of any actual or proposed
assignment or transfer of rights under this Agreement.  If a proposed assignee
requests confidentiality, Licensor shall agree to any reasonable confidentiality
provisions submitted by Licensee or the prospective assignee.

 

23.           Sublicenses.  Any sublicense that is granted by Licensee pursuant
to this Agreement shall obligate the sublicensee to provide Licensee with
information sufficient to enable Licensee to provide Licensor with reports and
payments equivalent to what Licensee would have provided if Licensee had done
the business that the sublicensee did, provided, however, that Licensee shall
have an additional thirty (30) days to account to Licensor for reporting and
royalty payment purposes for any business done by the sublicensee pursuant to
the sublicense.

 

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24.           Product Marking.  Licensee agrees to mark all products made or
sold pursuant to any license granted by this Agreement with the word “Patent” or
“Pat.” together with the number(s) of the applicable licensed Zook Patent(s) in
the manner prescribed in 35 U.S.C. § 287.  In addition, all promotional,
packaging, and advertising material shall include appropriate patent notice(s). 
Notwithstanding the preceding two sentences, Licensee shall have the right to
use up its existing packaging material and promotional literature and to sell
its inventory existing on the Effective Date of this Agreement.

 

25.           Binding Effect.  This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their heirs, administrators, successors,
and assigns and shall also be binding upon subsidiaries and affiliates of the
parties.

 

26.           Discontinued Products.  Licensee agrees to promptly notify
Licensor if Licensee discontinues the manufacture or sale of any product on
which Licensor previously received a royalty.

 

27.           Products Liability Insurance.  Silipos represents that as of the
Effective Date of this Agreement it carries products liability insurance in
amounts it believes to be adequate.  Silipos will periodically review its
products liability insurance coverage and make such coverage decisions
(including the decision to purchase no such insurance) as it deems in its best
interests.  Silipos agrees to hold Dr. Zook harmless from any products liability
claim made against Dr. Zook for a product sold by Silipos, but this
hold-harmless shall be effective only to the extent that Silipos has products
liability insurance that would apply to the claim in question and then only to
the extent (if any) that such insurance would permit Silipos to have entered
into this provision with Dr. Zook and to the extent (if any) that the insurance
funds the conditional hold-harmless obligation.  Notwithstanding the foregoing,
if Silipos decides not to purchase products liability insurance for a given year
and a products liability claim for a product sold by Silipos is made
against Dr. Zook that would have been covered by such insurance if it had been
purchased, Silipos shall be obligated to hold Dr. Zook harmless from the
products liability claim, without regard to what the limit(s) would have been on
the insurance if it had been purchased.

 

28.           Entire Agreement.  This Agreement contains the entire agreement
between the parties relating to the subject matter.  All prior agreements and
all prior negotiations relating to the same subject are hereby superseded.  This
Agreement may

 

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not be modified except by a written document signed by an authorized
representative of each party.

 

silipos inc.

 

gerald p. zook

 

 

 

 

By:

  /s/ [ILLEGIBLE]

 

By:

  /s/ Gerald P. Zook

 

 

Title:

President/CEO

 

Title:

D.P.M., R. Ph.

 

 

Date:

[ILLEGIBLE]

 

Date:

7-12-1997

 

 

 

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