**Exhibit 10.18**

 

**OPTIONTO LICENSE INTELLECTUAL PROPERTY**

 

This **OPTION TO LICENSEINTELLECTUAL PROPERTY** (the “Agreement”) is dated as of December 31,2003 (the “Effective Date”), by and between

 

**PACGEN CELLCO, LLC (“Cellco”),**

**A California Limited Liability Companyas “Licensee”and**

**ADVANCED CELL TECHNOLOGY, INC (“ACT”)**

**A Delaware Corporationas “Licensor”**

 

Licensee and Licensor aresometimes hereinafter referred to as “Cellco” and “ACT”, respectively,collectively as the “Parties,” or individually, as a “Party”.

 

**WITNESSETH:**

 

WHEREAS,ACT wishes to License, and Cellco wishes to acquire a license to certainintellectual property of ACT embodied in patents and/or patent applicationsfiled with the United States Patent and Trademark Office and certain proprietarytechniques and know-how, all as more particularly described herein and referredto as the “IP” herein; and

 

WHEREAS,the exact scope and terms of the licenses that are the subject of thisAgreement will require a period of due diligence and investigation to defineaccurately, and the creation of a formal licensing agreement will also requiretime to prepare;

 

NOW,THEREFORE, in consideration of the mutual covenants and other considerationdescribed herein and for other good and valuable consideration, the receipt andsufficiency of which are hereby acknowledged, the Parties hereto covenant andagree that ACT will grant to Cellco an option to license the IP on the termsset forth below.

 

1.               **Option Fee.**  As consideration for the option herein grantedto a non-exclusive right to license the IP on the terms outlined herein, Cellcoshall pay non-refundable fees totaling $75,000, payable as follows:

a)              $40,000upon execution of this Letter of Intent and completion of the 10 day DueDiligence period specified in paragraph 3 hereof, which sum shall be non-refundable;and

b)             $35,000upon execution of the Definitive Agreement described in paragraph 4 hereof.

Suchfees shall be in addition to the Licensing Fee, Royalties, and MinimumRoyalties specified herein.  ShouldCellco fail or elect not to make any of the payments specified in subparagraphs(a) or (b) above, this Agreement shall terminate and neither Partyshall have any further rights hereunder.

 

2.               **Licensing Fee**.  In the event Cellco elects to enter into anon-exclusive license from ACT, Cellco shall pay a $300,000 non-refundablelicensing fee as follows:

 

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a)              $100,000in cash upon completion of the training required by paragraph 16 hereof; and

 

b)             $200,000in a promissory note convertible into equity in Cellco.  The note shall automatically convert at thesame per share value into the same type of securities offered by Cellco in itsfirst round of financing whereby an independent third-party investor (or groupof investors) invests at least $5 million in Cellco.

 

3.               **Due Diligence Period**.  Upon execution hereof, ACT shall makeavailable to Cellco such information as shall be necessary for Cellco toevaluate and analyze the IP.  Cellcoshall then have a due diligence period of 10 business days from the date ofsuch delivery to perform its due diligence review.  All such review materials and informationshall be subject to the terms of a Non-disclosure and Confidentiality agreementmutually satisfactory to the Parties.  ACT shall notify Cellco of any infringementsor other material events affecting the IP that it knows of or becomes aware ofduring the due diligence period.

 

4.               **Definitive Agreement**.  Following the Due Diligence Period, theParties shall commence diligently and in good faith to draft and execute aDefinitive Agreement for the licensing of the IP, which Definitive Agreement shallbe completed within 45 days of the end of the Due Diligence Period.

 

5.               **No Publicity**.  Neither the Cellco nor ACT, nor any otherperson directly involved with the due diligence, shall release any informationor statements regarding the potential licensing relationship between the Cellcoand ACT to the press or any other person not directly involved with the duediligence or financing efforts of the Parties until the Definitive Agreement issigned.

 

6.               **Scope**.  The scope of the license shall be a**non-exclusive worldwide license to theIP, as defined below, for the life of any patents involved and for the economiclife of any non-patented proprietary information covered by the license.

 

7.               **Definition of IP**.  “IP” means the various technologies, processesand methods from Advanced Cell Technology (ACT) used to produce human embryonicstem (hES) cells from mammalian cultured inner cell mass (CICM) cells,including the technology known as**somaticcell nuclear transfer (SCNT).

 

Thismethod is described in patents held by the University of Massachusetts, AmherstCampus and exclusively licensed to ACT, including specifically the claims foundin US patents 5,945,577 and 6,235,970.  IPalso includes the rights to use these technologies, methods and processes toproduce mammalian embryonic stem (ES) cells and to produce from those mammalianembryonic cells, differentiated cells for human therapeutic purposes or forcommercial research purposes, including drug screening assays.

 

IPshall also include other technologies to produce pluripotent cells including EScells, including the rights to use these technologies to produce differentiatedhuman cells for human diagnostic and therapeutic purposes and/or for commercialresearch purposes, including drug screening assays.  These other technologies include:

 

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a)              Thetechnology known as “parthenogenesis” to produce parthenogenetic embryos asdescribed in US patent application 20030129745.

 

b)             Thetechnology known as “De-differentiation” to produce pluripotent cells fromfully differentiated somatic cells as described in US pat apps.  20030044976.

 

c)              Forpurposes of this Agreement, IP shall include commercial rights to any existingpotential research products (“Existing Research Products”), including reagents,produced by ACT in the course of its in-house research.  An example of this is the proprietary culturemedium developed by ACT in the course of the development of ACT’s proprietaryOoplasmic transfer technology.

 

8.               **Fields**.  The manufacture and selling of human cells (1) forcommercial research use, including drug testing and basic research, and (2) fortherapeutic and diagnostic use in the treatment of human (a) diabetes and (b) liverdiseases.

 

9.               **Conversion to Exclusive Licenses**.  TheParties anticipate that to render the licenses commercially viable, Cellco mayrequire exclusivity as to one or all of the Fields.  Cellco shall therefore have the right for aperiod of 30 months following execution of the Definitive Agreement to convertits non-exclusive license to an exclusive license upon payment of additionallicense fees in the amount of $300,000, $100,000 to be paid in****cash and $200,000 to be paid in the formof equity in Cellco, for each of the three Fields described as numbers1, 2(a) and 2(b) under “Fields” above.  Equity shall be in the form of common stock,valued as of the date of the most recent round of outside financing.

 

10.         **Right****to Negotiatefor Additional Fields**.  ACTagrees that prior to granting to a third party any exclusive or non-exclusivelicense with respect to therapeutic or diagnostic use of IP relating to thetreatment of human (a) heart disease or (b) neuronal disease it willoffer to Cellco a first right to negotiate for such rights for a period of 90days and if it thereafter elects to grant a non-exclusive license to a thirdfor either of these additional fields, it will offer to Cellco a non-exclusivelicense on comparable terms.

 

11.         **Right to Sublicense for Manufacture and Sale**.  ACTagrees to allow Cellco the right to grant sublicenses to third parties for thelimited purpose of manufacturing and sale of products derived from the IPlicensed herein on behalf of or under contract to Cellco.

 

12.         **Royalties**.  Cellco shall pay ACTroyalties (the “Royalties”) equal to the following percentages of collected netsales**(“net sales” being definedas**gross sales less rebates,refunds or discounts) received by Cellco or its affiliates from commercialapplication of the IP made, provided, distributed, sold or manufactureddirectly by Cellco or its affiliates:

a)              6%on therapeutics

b)             3%on diagnostics

c)              10%on commercial research use.

 

The Royaltiesshall be payable quarterly, commencing on the first day of the calendar quarterfollowing the first date of receipt by Cellco or its affiliates of revenues andquarterly thereafter for revenues received in the second preceding quarter.

 

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13.         **Minimum Royalties**.  Commencing 12 months following the executionof the Definitive Agreement, Cellco shall pay to ACT a minimum royalty feeequal to the difference between total Royalties actually paid in the preceding12 months and the following minimum amounts:

a)              At12 months, $25,000;

b)             At24 months, $50,000;

c)              At36 months, $75,000;

d)             At48 months, $100,000;

e)              Annuallythereafter, $100,000.

Uponthe exercise of the right to convert from a non-exclusive to an exclusivelicense with respect to any of the Fields, the minimum annual royalty shallbecome $100,000 in lieu of the minimums set forth above.

 

14.         **Minimum R&D Requirements**.  Commencing 24 months from the date of the DefinitiveAgreement, Cellco shall be required to invest a minimum of $200,000 per year inresearch and development of the Fields covered by this Agreement in order tomaintain the non-exclusive license rights granted hereunder.  In the event Cellco exercises its right toconvert any of its non-exclusive licenses to exclusive licenses as providedherein, such minimum research and development investment shall be increased to$400,000 per year, commencing with the date of such conversion to exclusiverights.

 

15.         **Milestone Payments**.  In the event Cellco exercises its right toconvert its license for human therapeutic applications as defined in items 2(a) or2(b) of paragraph 8 hereof, it shall pay additional MilestonePayments totaling $2,500,000 on the following schedule:

a)              $500,000upon the launch of the first commercial product;

b)             $1,000,000upon reaching $5,000,000 in sales from one or both product Fields;

c)              $1,000,000upon reaching $10,000,000 in sales from one or both product Fields.

These payments shall be in addition to theroyalties specified in paragraph 12 hereof, but shall not apply to diagnosticor commercial research uses.

 

16.         **Technical Training and Technology Transfer**. ACT shall work with Cellco in good faithto provide the necessary training for up to a total of 60 days, at Cellcoand/or ACT’s facilities, necessary to allow Cellco to utilize the IP.  Cellco shall pay to ACT all reasonable andcustomary fees and expenses for such training and technology transfer.

 

17.         **Other Provisions**.  The Parties recognize that the DefinitiveAgreement will require other provisions not delineated herein and agree tonegotiate in good faith commercially reasonable terms and conditions to dealwith such requirements, which shall be included in the Definitive Agreement.

 

18.         **Termination**.  Either party may terminate this Agreement ifthe Definitive Agreement has not been signed within the time period specifiedin Paragraph 4 hereof unless failure to sign has been caused by delays causedby the other Party or a failure to negotiate in good faith.

 

19.         **Other Provisions**.  The Parties recognize that the DefinitiveAgreement will require other provisions not delineated herein and agree tonegotiate in good faith commercially reasonable terms and conditions to dealwith such requirements.

 

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20.         **Conditions to Closing**.  The****closing of the non-exclusive license willbe conditioned upon:

 

a)              Theapproval of the Board of Directors of ACT and Cellco.

b)             Executionby ACT and Cellco of the Definitive Agreements.

 

21.         **Non-Exclusive Dealing**.  Subject to the rights granted by ACT herein,nothing in this Agreement shall be construed as granting Cellco any exclusiverights, nor prevent ACT from engaging in negotiations with other partiesregarding transactions relating to any subject matter herein.

 

22.         **Merger of Joint Venture Agreement**.  The Parties acknowledge that a significantinducement to both Parties to enter into this Agreement is the possibility thata merger or joint venture of the Parties can be effected that will create asignificantly more powerful company than either Party acting alone.  The Parties therefore agree to work togetherin good faith during the Due Diligence Period to seek agreement on the terms ofsuch a merger or joint venture; provided, however, that the success or failureof such merger or joint venture efforts shall not affect in any way thevalidity of this Agreement or the rights of the Parties hereto.

 

IN WITNESS WHEREOF, eachof the Parties hereto has caused this Agreement to be executed on its behalf asof the date first above written.

 

 
| ADVANCED CELL TECHOLOGY,  INC.  a Delaware corporation | PACGEN CELLCO, LLC  a California limited liability Company |
|--------------------------------------------------------|------------------------------------------------------------|
|                                                   |                                                       |
|                                                   |                                                       |
| By:                                                    | /s/ Michael D. West                                        |   | By: | /s/ Kenneth Aldrich |   |
| Michael D. West                                        | Kenneth Aldrich                                            |
| Chairman                                               |                                                       | Managing Member |
|                                                        |                                                            |  |  |  |  |  |

 

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