The Honorable Janet C. Hall, District Judge, United States District Court for the *

District of Connecticut, sitting by designation.

07-0050-cv

Vacold LLC v. Cerami

1 UNITED STATES COURT OF APPEALS

2 FOR THE SECOND CIRCUIT

3

4 August Term 2007

5

6

7 (Argued: March 14, 2008 Decided: October 2, 2008)

8

9 Docket No. 07-0050-cv

10

11 _____________________________________

12

13 VACOLD LLC, IMMUNOTHERAPY, INC.,

14 Plaintiffs-Appellants,

15

16 -v.-

17

18 ANTHONY CERAMI, CARLA CERAMI, VLN LLC

19 and CERAMI CONSULTING CORPORATION,

20 Defendants-Appellees.

21 _____________________________________

22

23 Before: B.D. PARKER, LIVINGSTON, Circuit Judges, and

24 HALL, District Judge.

*

25

26 Former 50% shareholder of Applied Vaccine Technologies, Inc. sued the

27 other 50% shareholder and its principals for securities fraud after the latter

28 purchased the former’s stock, allegedly omitting material facts in connection

29 with the purchase. The United States District Court for the Southern District

30 of New York, Richard M. Berman, J., granted partial summary judgment in

31 favor of the defendants, holding that the omission did not become material until
2

1 after the parties had entered into an agreement committing them to the

2 purchase and sale, thereby terminating their disclose-or-abstain duty under

3 Rule 10b-5 of the Securities Exchange Act of 1934. The remaining claims were

4 resolved at trial. Plaintiffs appeal the grant of partial summary judgment, and

5 we affirm. Judge Hall dissents in a separate opinion.

6 FRANKLIN B. VELIE, Sullivan & Worcester LLP, New York,

7 NY (Eric J. Grannis, Law Offices of Eric J. Grannis, New

8 York, NY, on the brief), for Plaintiffs-Appellants.

9

10 MARK J. HYLAND (Jeffrey M. Dine, Ellen E. Lafferty, on the

11 brief), Seward & Kissel LLP, New York, NY, for Defendants12 Appellees.

13

14 LIVINGSTON, Circuit Judge:

15 Immunotherapy, Inc. and its successor in interest, Vacold LLC (together,

16 “Immunotherapy”), appeal from a judgment of the United States District Court

17 for the Southern District of New York (Richard M. Berman, J.) in favor of

18 Immunotherapy’s former business partner, Cerami Consulting Corporation

19 (“CCC”) and its affiliates, Anthony Cerami, Carla Cerami, and VLN LLC

20 (“VLN”), on claims of securities fraud and related state law causes of action.

21 Because we conclude that the parties’ agreement of April 9, 1999, constituted a

22 definitive agreement to buy and sell the stock described in that agreement, the

23 defendants were under no duty of disclosure after that date. See Radiation

24 Dynamics, Inc. v. Goldmuntz, 464 F.2d 876, 890-91 (2d Cir. 1972). We therefore
3

1 affirm.

2

3 BACKGROUND

4 In November 1997, CCC and Immunotherapy agreed to collaborate on

5 three biomedical research projects. One of the projects was the development of

6 a virtual lymph node — “a tiny tubular capsule . . . inserted under a patient’s

7 skin in order to trigger certain reactions in the patient’s immune system.”

8 Vacold LLC v. Cerami, No. 00 Civ. 4024 (AGS), 2001 WL 167704, at *1 n.1

9 (S.D.N.Y. Feb. 16. 2001). Their efforts proved fruitful. By October 1998, officers

10 of CCC and Immunotherapy had filed a patent application relating to virtual

11 lymph node technology, and CCC and Immunotherapy had formed a new entity,

12 later renamed Applied Vaccine Technologies, Inc. (“AVT”), to commercialize their

13 developments. CCC and Immunotherapy each received 50% of AVT’s 100,000

14 shares of stock. Mr. Cerami and Immunotherapy’s Chief Executive Officer, C.

15 Leonard Gordon, became co-chief executives of AVT, and Ms. Cerami became a

16 vice president of AVT.

17 Immunotherapy was a thinly capitalized startup that did not have enough

18 cash to survive as a going concern much past the end of 1998. While AVT was

19 trying to obtain financing or a development partner so it could independently

20 fund its operations and bring its product to market, Immunotherapy began to
4

1 think about how to wind up its operations and distribute its assets, including its

2 50,000 shares of AVT.

3 On October 16, 1998 — only eight days after AVT was capitalized —

4 Gordon wrote to Mr. Cerami that Immunotherapy was running out of money and

5 intended to liquidate by the end of 1998, inviting a discussion about how AVT

6 might assist Immunotherapy in its windup. Apparently dissatisfied with their

7 relationship, CCC did not wish to pursue joint development of the virtual lymph

8 node with Immunotherapy. Discussions between Immunotherapy and CCC over

9 the following two months therefore centered around the structure of what Ms.

10 Cerami referred to as the “divorce settlement” between Immunotherapy and

11 CCC. They discussed three “settlement” possibilities: (1) Immunotherapy might

12 purchase CCC’s AVT stock; (2) CCC might purchase Immunotherapy’s AVT

13 stock; and (3) some third party might acquire AVT. After the new year, they

14 began to pursue the second of these options in earnest.

15 On January 19, 1999, CCC sent to David Dove, Immunotherapy’s Chief

16 Operating Officer, a two-page letter labeled a “confidential summary of discus17 sions.” According to the letter, the parties contemplated that, by April 16, 1999,

18 a not-yet-in-existence subsidiary of CCC — referred to in the parties’ correspon19 dence as NewCo, which ultimately became defendant VLN — would purchase

20 Immunotherapy’s AVT stock for $1 million plus an ongoing royalty based on the
5

1 proceeds from sales of virtual lymph node products and license fees derived from

2 the virtual lymph node technology. The proposal was expressly conditioned upon

3 CCC’s obtaining financing at terms acceptable to CCC. Additionally, the parties

4 stated their expectation that they would prepare, negotiate, and execute a

5 definitive purchase agreement reflecting the above terms and also containing

6 “customary” representations, warranties, conditions, and covenants. The letter

7 concluded with the following statement, printed in boldfaced text:

8 The understandings contained herein do not constitute

9 a binding agreement among the parties hereto but

10 merely express a confidential summary of the current

11 discussions with respect to the Transaction, and the

12 understandings contained herein shall only become

13 binding when definitive agreements are executed.

14 Over the next few weeks, CCC, Immunotherapy, and their attorneys

15 exchanged less-than-cordial letters regarding the January 19 proposal.

16 Immunotherapy objected principally to the financing condition, which, in its

17 view, gave CCC too much optionality in that its obligation to purchase was

18 conditioned on its ability to obtain financing that it deemed suitable, with no

19 consequences to flow from its failure to go forward. A new draft of the divorce

20 settlement, which emerged on February 3, attempted to address this concern.

21 This draft, a three-page letter described as setting forth “on a confidential basis

22 . . . the terms which [CCC] and [Immunotherapy] ha[d] been discussing,”

23 provided for the same purchase price of $1 million plus ongoing royalties. It
6

1 added a minimum annual royalty of $50,000. It also stated that if CCC were

2 unable to obtain financing for the purchase price by May 1, the parties “agree[d]

3 to divide each area of use of the [virtual lymph node] technology between them

4 in a fair and equitable manner.” The letter concluded with the same boldface

5 disclaimer of the letter’s nonbinding nature as appeared in the January 19 draft.

6 Finally, the letter bore a signature block in which Immunotherapy could — but

7 did not — indicate its acceptance and agreement.

8 The parties again exchanged comments, this time more congenially,

9 principally regarding the minimum royalty obligation and the division of the

10 virtual lymph node technology should CCC be unable to obtain financing. In

11 particular, Dove asked for greater specificity in the procedure by which CCC and

12 Immunotherapy would divide the use of the technology should CCC fail to

13 purchase Immunotherapy’s AVT stock. Dove’s letter insisted that the division

14 of the technology “be decided upon now as part of this agreement,” “become

15 effective upon expiration” of CCC’s deadline for obtaining financing, and “be

16 binding as to [CCC’s] making efforts to finance, and as to . . . the plan [for

17 dividing the technology] if [CCC] fails to purchase [the] AVT interests.”

18 A more elaborate draft followed on March 16. This one, four pages in

19 length and again styled a “confidential summary of discussions,” set forth a

20 mechanism through which CCC and Immunotherapy would divide the market
7

1 if CCC could not finance its purchase: with Immunotherapy picking first, the

2 parties would alternate choosing from eight enumerated market segments until

3 each claimed three, and each party would agree not to compete in the other’s

4 three segments but could enter any other segment. This draft also altered the

5 date by which CCC had to obtain financing, specifying that if CCC were unable

6 to obtain financing for the purchase price by April 1 — a deadline that would be

7 extended to May 1 if an investor promised CCC by April 1 that it would provide

8 financing — “then the parties . . . agree[d] to divide each area of use as provided

9 in th[e] letter.” The draft did not contain the boldfaced disclaimer language that

10 the previous drafts contained, but like the February 3 draft, it bore a signature

11 block that was left unsigned.

12 The negotiations began to pick up speed. CCC and Immunotherapy

13 exchanged fourth and fifth drafts — each after only brief comments — on March

14 22 and March 31, respectively. Each was again labeled a “confidential summary

15 of discussions,” each again bore a signature block, and as before, Immunotherapy

16 did not sign either one. These drafts also made clear that the arrangement by

17 which CCC and Immunotherapy would divide the market for the virtual lymph

18 node would not be triggered if the parties’ failure to consummate the transaction

19 was occasioned by Immunotherapy’s “refusal to comply with the provisions” of

20 the agreement. After the fifth draft, Dove sent back what he referred to as “only
8

1 a few minor changes,” including an instruction to change the opening paragraph

2 of the letter so that it was styled a “letter agreement” rather than a “summary

3 of discussions.” On April 9, CCC sent back a new draft, which had grown to six

4 pages, that included this change. Gordon signed this letter agreement, which

5 we reprint as an appendix to this opinion, on behalf of Immunotherapy. He

6 dated it April 9, and he sent two copies to CCC’s attorney with a request that he

7 have both copies fully executed. 

8 Paragraph 3 of the April 9 agreement stated, in accord with the previous

9 drafts, that the transaction was expressly conditioned upon CCC’s obtaining

10 financing. It expressly forbade CCC from securing this financing from Coulter

11 Pharmaceutical Corporation, with which Immunotherapy had prior dealings.

12 Aside from this prohibition, however, the agreement imposed no restriction on

13 the potential sources to which CCC might turn for financing, nor did it require

14 that CCC identify the nature or source of any financing it secured. 

15 Paragraph 4 of the April 9 agreement stated, as had all the previous

16 drafts, that CCC and Immunotherapy planned to prepare, negotiate, and

17 execute, “in connection with the acquisition of the shares,” a “standard” stock

18 purchase agreement containing various representations, warranties, and closing

19 conditions, and obtain two related legal opinions. These documents were

20 prepared between April 9 and June 1. The parties executed the stock purchase
 The June 1 agreement thus did not include a so-called “full disclosure representation” 1

or “10b-5 representation,” according to which the parties represented to each other — on pain

of post-closing indemnification for breach — that neither of them had made any misstatement

or omission of material fact in connection with the stock purchase, with respect to AVT’s

business, or otherwise. Also absent was the obverse, a so-called “nonreliance clause,” according to which the parties disclaimed reliance on any information not explicitly represented in

or incorporated into the purchase agreement. See generally Mark Betzen & Richard Meamber,

Rule 10b-5 and Related Considerations in Acquisition Agreements, Metropolitan Corp. Couns.,

Aug. 2004, at 10, available at http://www.metrocorpcounsel.com/pdf/2004/August/10.pdf (discussing 10b-5 representations, nonreliance clauses, and other aspects of the interplay between

acquisition agreements and Rule 10b-5).

9

1 agreement, exactly as contemplated by paragraph 4 of the April 9 agreement, on

2 June 1 — the day the stock transfer occurred. In the stock purchase agreement,

3 Immunotherapy made the following representations, all of which were qualified

4 by its knowledge, with respect to AVT: (1) its AVT shares were validly issued

5 and free of encumbrances; (2) AVT had no outstanding equity interests other

6 than its 100,000 shares of stock; (3) AVT did not have undisclosed liabilities that

7 would have a material adverse effect, as defined in the agreement; (4) AVT had

8 not suffered a material adverse effect; (5) AVT’s business was not being

9 conducted in violation of law to any material extent; and (6) AVT had clear title

10 to its patent application and was not infringing or allegedly infringing any third11 party proprietary rights. For its part, CCC represented to Immunotherapy that,

12 to its knowledge, AVT did not have any undisclosed liabilities that would have

13 a material adverse effect and had not otherwise suffered a material adverse

14 effect. CCC made no other representations with respect to AVT.1

15 Paragraph 5 of the April 9 agreement further provided that a document
10

1 would be “prepared, negotiated and executed” at closing, specifying arrange2 ments for the transfer of technology between Immunotherapy and NewCo, the

3 not-yet-in-existence CCC subsidiary that came to be known as VLN. This

4 closing document was to contain specific provisions requiring, in substance, that

5 Immunotherapy transfer the virtual lymph node technology to NewCo, Immuno6 therapy’s principal employees consult for NewCo, and NewCo and Immuno7 therapy keep each other’s proprietary information in confidence and not solicit

8 each other’s employees. In exchange, NewCo was to pay the agreed-upon royalty

9 to Immunotherapy: 1.5% of the net sales of all virtual lymph node products plus

10 8.5% of the net proceeds of any license, joint venture, or similar arrangement

11 concerning the virtual lymph node, subject to a minimum annual royalty of

12 $50,000 for ten years. On June 1, the parties executed this agreement — again,

13 exactly as contemplated in the April 9 agreement.

14 This dispute began the year following the purchase and sale of the AVT

15 stock. Pursuant to the arrangement the parties had made for ongoing royalty

16 payments, Immunotherapy had the right to inspect VLN’s records to ensure that

17 VLN complied with its obligation to pay royalties. Immunotherapy exercised its

18 inspection right in early 2000 and did not like what it found. It learned that on

19 June 1, 1999, AVT had entered into a development, licensing, and financing

20 agreement with a subsidiary of leading pharmaceutical company Johnson &
11

1 Johnson. Pursuant to this agreement, VLN and AVT immediately received $3

2 million in fees, $1 million of which was used to fund CCC’s purchase of

3 Immunotherapy’s AVT stock. The agreement also provided that VLN and AVT

4 would receive $2 million in research funding over the following two years, up to

5 $13 million in payments for achieving certain product development milestones,

6 and the potential for large royalties based upon the future sales of virtual lymph

7 node products.

8 Perhaps regretting that it had sold its stock for only $1 million, Immuno9 therapy sued CCC, VLN, and the Ceramis in the United States District Court

10 for the Southern District of New York for securities fraud. The gravamen of

11 Immunotherapy’s claim was that the defendants violated section 10(b) of the

12 Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. § 78j(b), and

13 Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, by purchasing AVT

14 stock from Immunotherapy on June 1 without disclosing the deal with Johnson

15 & Johnson’s subsidiary. Immunotherapy also alleged that essentially the same

16 conduct gave rise to liability on theories of common law fraud, negligent

17 misrepresentation, breach of fiduciary duty, unjust enrichment, prima facie tort,

18 and controlling person liability under section 20(a) of the Exchange Act, 15

19 U.S.C. § 78t(a).

20 In its initial pleading, Immunotherapy expressly affirmed that the parties
12

1 “reached an agreement, memorialized in a letter dated April 9, 1999,” that a

2 subsidiary of CCC would acquire Immunotherapy’s AVT stock for “$1 million

3 plus ongoing royalties of 1.5% on the sale of Virtual Lymph Node products and

4 8.5% of net proceeds from any licensee, sublicensee or joint venture for the

5 Virtual Lymph Node Technology.” (Compl. ¶ 23.) The late Judge Schwartz, who

6 presided over the case until his death in 2003, granted the defendants’ motion

7 to dismiss without prejudice, holding that the April 9 letter agreement bound the

8 parties to purchase and sell the AVT stock, thereby precluding a Rule 10b-5

9 claim based on a failure to disclose material information allegedly occurring

10 after April 9. Vacold LLC v. Cerami, No. 00 Civ. 4024 (AGS), 2002 WL 193157

11 (S.D.N.Y. Feb. 7, 2002); see also Vacold LLC v. Cerami, No. 00 Civ. 4024 (AGS),

12 2002 WL 442240 (S.D.N.Y. Mar. 5, 2002) (amending the order of dismissal).

13 Immunotherapy then amended its complaint to allege violations of section

14 10(b) and Rule 10b-5 in connection with both the April 9 letter agreement and

15 the June 1 stock purchase agreement. First, it alleged that the defendants

16 omitted a material fact in connection with their purchase on April 9 by failing

17 to disclose the substance and progress of their negotiations with Johnson &

18 Johnson occurring before April 9. Second, it alleged for the first time that the

19 April 9 agreement did not bind the parties to purchase and sell the stock, so that

20 the defendants were obliged to disclose material facts arising thereafter. The
13

1 amended complaint alleged that the defendants omitted a material fact in

2 connection with their purchase, which closed on or after June 1, by failing to

3 disclose the deal with Johnson & Johnson’s subsidiary, as well as all other

4 material facts concerning the Johnson & Johnson deal arising before the

5 purchase closed.

6 The parties cross-moved for summary judgment. Judge Berman, to whom

7 the case had by then been transferred, granted summary judgment to the

8 defendants on the claims alleging securities fraud in connection with the June

9 1 stock purchase agreement. Specifically, he concluded that Judge Schwartz’s

10 prior order, which was binding in accordance with the law-of-the-case doctrine,

11 had decided that because the April 9 agreement bound the parties to purchase

12 and sell the AVT stock, the defendants were liable either in connection with the

13 April 9 agreement or not at all. With respect to the April 9 agreement, however,

14 he found a triable issue, namely, whether the defendants’ failure to disclose the

15 state of negotiations with Johnson & Johnson prior to April 9, when the parties

16 entered into the agreement, was a material omission. The parties tried the

17 surviving claims before a jury, which found for the defendants. Immunotherapy

18 now appeals, seeking reversal of the district court’s decision that the April 9

19 letter agreement was a binding preliminary agreement that obligated the parties

20 to purchase and sell the AVT stock.
14

1

2 DISCUSSION

3 We review a grant of summary judgment de novo, construing the evidence

4 in the light most favorable to the nonmovant and drawing all reasonable factual

5 inferences in the nonmovant’s favor. Summary judgment is appropriate only if

6 there is no genuine issue of material fact and the moving party is entitled to a

7 judgment as a matter of law. Allianz Ins. Co. v. Lerner, 416 F.3d 109, 113 (2d

8 Cir. 2005).

9 Section 10(b) of the Exchange Act makes unlawful the “use or

10 employ[ment], in connection with the purchase or sale of any security . . . , any

11 manipulative or deceptive device or contrivance in contravention of such rules

12 and regulations as the [SEC] may prescribe as necessary or appropriate.” 15

13 U.S.C. § 78j(b). Rule 10b-5, which implements section 10(b), provides as follows:

14 It shall be unlawful for any person, directly or indi15 rectly, by the use of any means or instrumentality of

16 interstate commerce, or of the mails or of any facility of

17 any national securities exchange,

18 (a) To employ any device, scheme, or artifice to defraud,

19 (b) To make any untrue statement of a material fact or

20 to omit to state a material fact necessary in order to

21 make the statements made, in the light of the

22 circumstances under which they were made, not

23 misleading, or

24 (c) To engage in any act, practice, or course of business

25 which operates or would operate as a fraud or deceit
15

1 upon any person,

2 in connection with the purchase or sale of any security.

3 17 C.F.R. § 240.10b-5.

4 To prevail in a Rule 10b-5 action based on subsection (b), a plaintiff must

5 prove that “in connection with the purchase or sale of securities, the defendant,

6 acting with scienter, made a false material representation or omitted to disclose

7 material information and that plaintiff’s reliance on defendant’s action caused

8 [plaintiff] injury.” Press v. Chem. Inv. Servs. Corp., 166 F.3d 529, 534 (2d Cir.

9 1999) (alteration in original) (quoting ZVI Trading Corp. Employees’ Money

10 Purchase Pension Plan & Trust v. Ross (In re Time Warner Inc. Sec. Litig.), 9

11 F.3d 259, 264 (2d Cir. 1993)).

12 However, one who buys securities is not required to disclose material

13 information “merely because a reasonable [seller] would very much like to know

14 [it].” ZVI Trading, 9 F.3d at 267. “Rather, an omission is actionable under the

15 securities laws only when the [buyer] is subject to a duty to disclose the omitted

16 facts.” Id. This duty is known as the disclose-or-abstain duty because it refers

17 to the rule that “one with a fiduciary or similar duty to hold material nonpublic

18 information in confidence must either ‘disclose or abstain’ with regard to

19 trading.” United States v. Teicher, 987 F.2d 112, 120 (2d Cir. 1993) (citing

20 Chiarella v. United States, 445 U.S. 222, 227 (1980)); see also SEC v. Tex. Gulf
16

1 Sulphur Co., 401 F.2d 833, 848 (2d Cir. 1968) (en banc) (“[A]nyone in possession

2 of material inside information must either disclose it . . . , or, if he is disabled

3 from disclosing it in order to protect a corporate confidence, or he chooses not to

4 do so, must abstain from trading in . . . the securities concerned while such

5 inside information remains undisclosed.”). The issue raised in this appeal is

6 whether the Ceramis were subject to the disclose-or-abstain duty with respect

7 to events that transpired between April 9, 1999, and June 1, 1999.

8 When an investor in a publicly traded stock places an order to buy or sell

9 stock, the trade is generally executed within moments, leaving no lapse of time

10 between the parties’ commitment and the transaction’s execution. See, e.g.,

11 Radiation Dynamics, 464 F.2d at 890. But when the parties promise to execute

12 a transaction long before they actually execute it, the question arises: for

13 purposes of Rule 10b-5, did the “purchase or sale” occur when the parties

14 committed to execute the transaction, or did it occur when one party tendered its

15 securities and the other its money? In Radiation Dynamics, we determined that

16 the answer is the former. The “‘purchase or sale’ of securities within the

17 meaning of Rule 10b-5 is to be determined as the time when the parties to the

18 transaction are committed to one another,” even if the exchange of money and

19 shares happens at a later time. Id. at 891. This rule holds even if the later

20 exchange of money and securities is contingent upon the occurrence of future
17

1 events, such as the satisfaction of a financing condition, at least when the contin2 gency is not so unlikely that it renders the stock transaction extremely

3 speculative. See Yoder v. Orthomolecular Nutrition Inst., Inc., 751 F.2d 555, 559

4 & n.4 (2d Cir. 1985).

5 Thus, if the April 9 agreement bound the parties to purchase and sell the

6 AVT stock, then the Ceramis cannot be liable under Rule 10b-5 for having failed

7 to disclose material information on June 1 because they had no disclose-or8 abstain duty after April 9 — regardless of whether the ultimate closing of the

9 transaction was subject to a future contingency. If the parties did not become

10 committed to one another until June, however, then CCC and the Ceramis can

11 potentially be held liable on the basis of their failure to disclose material facts

12 that they knew on June 1. Therefore, the dispositive question, to which we now

13 turn, is whether the April 9 agreement created a binding obligation.

14

15 I. Preliminary Matters

16 A. Waiver

17 The Ceramis argue that the following release clause in the June 1 stock

18 purchase agreement bars Immunotherapy from asserting its Rule 10b-5 claim:

19 Subject to the occurrence of the Closing, [Immuno20 therapy] hereby waives and discharges any claims it

21 may have against [AVT] or against [CCC or VLN] as of

22 the Closing Date, other than those arising pursuant to
18

1 this Agreement or the [technology transfer agreement]

2 or pursuant to any document contemplated by this

3 Agreement to be delivered by [AVT, CCC, or VLN].

4 We disagree. In at least some contexts, we have given effect to nonreliance

5 clauses that limit the scope of the representations or omissions that can form the

6 basis for a Rule 10b-5 claim. But we do not give effect to contractual language,

7 such as the language here, purporting to be a general waiver or release of Rule

8 10b-5 liability altogether. See Exchange Act § 29(a), 15 U.S.C. § 78cc(a) (“Any

9 condition, stipulation, or provision binding any person to waive compliance with

10 any provision of this chapter or of any rule or regulation thereunder, or of any

11 rule of an exchange required thereby shall be void.”); Harsco Corp. v. Segui, 91

12 F.3d 337, 343-44 (2d Cir. 1996); Citibank, N.A. v. Itochu Int’l Inc., No. 01 Civ.

13 6007 (GBD), 2003 WL 1797847, at *2-3 (S.D.N.Y. Apr. 4, 2003). Accordingly,

14 Immunotherapy has not waived its claim.

15 B. Law Applicable to Contract Interpretation

16 The April 9 agreement lacks a choice-of-law clause. The district court

17 assumed, without objection from the parties, that New York law governed the

18 agreement’s interpretation. We do the same. See Schwimmer v. Allstate Ins.

19 Co., 176 F.3d 648, 650 (2d Cir. 1999) (finding the choice-of-law issue waived

20 when the defendant “fail[ed] to bring to the attention of the district court the

21 potential applicability of [another jurisdiction’s] law”); cf. Schiavone v. Pearce,
19

1 79 F.3d 248, 252 (2d Cir. 1996) (“A purchase agreement entered into in New

2 York, with closing contemplated in New York, is to be interpreted under New

3 York law.”).

4 C. Appropriateness of Summary Judgment

5 We next turn to the question whether this case presents genuine issues of

6 material fact that would render summary judgment improper. Immunotherapy

7 argues that the April 9 agreement is susceptible of multiple interpretations and

8 that a jury should decide which interpretation the parties intended. We

9 disagree.

10 Under New York law, whether a binding agreement exists is a legal issue,

11 not a factual one. Shann v. Dunk, 84 F.3d 73, 77 (2d Cir. 1996); Ronan Assocs.,

12 Inc. v. Local 94-94A-94B, Int’l Union of Operating Eng’rs, 24 F.3d 447, 449 (2d

13 Cir. 1994). This case does not present disputes about whether particular

14 communications were sent, whether particular words were uttered, or whether

15 the parties entered into prior oral agreements. None of the facts is disputed, and

16 nothing remains for a jury to resolve. The dispute, instead, is about the legal

17 significance of those facts.

18 Immunotherapy cites Crellin Technologies, Inc. v. Equipmentlease Corp.,

19 18 F.3d 1 (1st Cir. 1994), for the proposition that “so long as the evidence does

20 not point unerringly in a single direction but is capable of supporting conflicting
20

1 inferences, the question of whether a contract has been formed . . . is a question

2 of fact.” Id. at 7. Although this proposition is true, it is subject to a qualifica3 tion. Specifically, “where ‘the evidentiary foundation for determining the

4 formation of the parties’ contract [is] either undisputed or consist[s] of writings,’

5 contract formation is . . . a question of law.” TLT Constr. Corp. v. RI, Inc., 484

6 F.3d 130, 135 (1st Cir. 2007) (alterations in original) (quoting Lambert v. Kysar,

7 983 F.2d 1110, 1114 n.4 (1st Cir. 1993)). Here, of course, the evidentiary

8 foundation consists entirely of writings. The exception that TLT Construction

9 describes is on all fours with the present case. Summary judgment is therefore

10 appropriate. See Arcadian Phosphates, Inc. v. Arcadian Corp., 884 F.2d 69, 73

11 (2d Cir. 1989) (“Where ‘a question of intention is determinable by written

12 agreements, the question is one of the law, appropriately decided . . . on a motion

13 for summary judgment.’” (omission in original) (quoting Mallad Constr. Corp.

14 v. County Fed. Sav. & Loan Ass’n, 32 N.Y.2d 285, 291, 298 N.E.2d 96, 100, 344

15 N.Y.S.2d 925, 930 (1973))); cf. TLT Constr., 484 F.3d at 135-36 (“[W]ith faxes,

16 phone discussions, and multiple draft contracts going back and forth over nearly

17 eight months, it is worth taking a step back to recall that ‘[t]here is no surer way

18 to find out what parties meant, than to see what they have done.’” (second

19 alteration in original) (quoting Pittsfield & N. Adams R.R. Corp. v. Boston &

20 Albany R.R. Co., 260 Mass. 390, 398, 157 N.E. 611, 614 (1927))).
21

1 II. The April 9 Agreement

2 By its plain terms, the April 9 agreement contemplates the preparation

3 and execution of additional documentation, namely, a stock purchase agreement

4 and a technology transfer agreement. The April 9 agreement therefore belongs

5 to a class of agreements known as “preliminary agreements, which . . . provide

6 for the execution of more formal agreements.” Adjustrite Sys., Inc. v. GAB Bus.

7 Servs., Inc., 145 F.3d 543, 547 (2d Cir. 1998). Under New York law, “[o]rdinar8 ily, where the parties contemplate further negotiations and the execution of a

9 formal instrument, a preliminary agreement does not create a binding contract.”

10 Id. at 548; see also Shann, 84 F.3d at 77 (“Ordinarily, preliminary manifesta11 tions of assent that require further negotiation and further contracts do not

12 create binding obligations.”). “In some circumstances, however, preliminary

13 agreements can create binding obligations.” Adjustrite, 145 F.3d at 548; see also

14 Shann, 84 F.3d at 77 (“[I]f a preliminary agreement clearly manifests such

15 intention, it can create binding obligations.”). The questions for us, then, are: (1)

16 whether the April 9 agreement created binding obligations; and (2) if so, whether

17 those obligations included a commitment to buy and sell the AVT stock, thereby

18 terminating CCC’s disclose-or-abstain duty on April 9. We conclude, for the

19 reasons set forth below, that the answer to both questions is “yes.”
22

1 A. Was the April 9 Agreement Legally Binding?

2 “[B]inding preliminary agreements fall into one of two categories.”

3 Adjustrite, 145 F.3d at 548. Agreements within the first category are type I

4 preliminary agreements — “fully binding preliminary agreement[s], which [are]

5 created when the parties agree on all the points that require negotiation

6 (including whether to be bound) but agree to memorialize their agreement in a

7 more formal document.” Id.; see also Shann, 84 F.3d at 77 (“Type I is where all

8 essential terms have been agreed upon in the preliminary contract, no disputed

9 issues are perceived to remain, and a further contract is envisioned primarily to

10 satisfy formalities.”). Agreements of this type render the parties “fully bound to

11 carry out the terms of the agreement even if the formal instrument is never

12 executed.” Adjustrite, 145 F.3d at 548. Agreements within the second category

13 are type II preliminary agreements — “‘binding preliminary commitment[s]’”

14 that are “binding only to a certain degree” because “the parties agree on certain

15 major terms, but leave other terms open for further negotiation.” Id.; see also

16 Shann, 84 F.3d at 77 (“Type II is where the parties recognize the existence of

17 open terms, even major ones, but, having agreed on certain important terms,

18 agree to bind themselves to negotiate in good faith to work out the terms

19 remaining open.”). These agreements “do[] not commit the parties to their

20 ultimate contractual objective.” Adjustrite, 145 F.3d at 548 (quoting Teachers
 When considering whether an agreement is a type I preliminary agreement, we 2

analyze: (i) “whether there is an expressed reservation of the right not to be bound in the

absence of a writing”; (ii) “whether there has been partial performance of the contract”; (iii)

“whether all of the terms of the alleged contract have been agreed upon”; and (iv) “whether the

agreement at issue is the type of contract that is usually committed to writing.” Brown v.

Cara, 420 F.3d 148, 154 (2d Cir. 2005). And when considering whether an agreement is a type

II preliminary agreement, we analyze: (i) “whether the intent to be bound is revealed by the

language of the agreement”; (ii) “the context of the negotiations”; (iii) “the existence of open

terms”; (iv) “partial performance”; and (v) “the necessity of putting the agreement in final

form, as indicated by the customary form of such transactions.” Id. at 157.

23

1 Ins. & Annuity Ass’n of Am. v. Tribune Co., 670 F. Supp. 491, 498 (S.D.N.Y.

2 1987) (Leval, J.)) (internal quotation mark omitted). Rather, they bind the

3 parties “to the obligation to negotiate the open issues in good faith in an attempt

4 to reach the . . . objective within the agreed framework.” Id. (quoting Tribune,

5 670 F. Supp. at 498) (internal quotation mark omitted). If the parties “fail to

6 reach such a final agreement after making a good faith effort to do so, there is

7 no further obligation.” Id.

8 The April 9 agreement bound the parties to purchase and sell the AVT

9 stock, thus obviating any duty of disclosure on the part of CCC after April 9, if

10 it constituted a type I agreement, but not if it constituted a type II arrangement

11 or was, in the alternative, not binding in any respect. We have identified four

12 factors to analyze when considering whether an agreement is a type I prelimi13 nary agreement, and five factors to analyze when considering whether an

14 agreement is a type II preliminary agreement. Some of the factors from the two 2

15 sets are neither relevant nor helpful in the present context. For example, one
24

1 factor common to both sets — whether the parties have partially performed the

2 agreement, evidencing after the fact their intention to be bound at the time of

3 the alleged agreement — needs no extended discussion here because the record

4 clearly shows that both parties fully executed their obligations under the April

5 9 agreement. Similarly, whether the agreement is of the type usually reduced

6 to writing, another factor common to both sets, does not aid our analysis because

7 we cannot discern what is usual in this context. Although a “million-dollar

8 acquisition” involving the purchase of business assets “ordinarily would be

9 committed . . . to a formal contract complete with representations and

10 warranties and the other standard provisions usually found in sophisticated,

11 formal contracts,” Adjustrite, 145 F.3d at 551, this case does not involve the

12 ordinary situation in which an outside investor acquires stock in, or acquires the

13 business of, another entity. Rather, the Ceramis, who were already insiders and

14 affiliates of AVT, acquired the stock of AVT that they did not already own from

15 Immunotherapy, another affiliate, which retained no continuing ownership

16 interest. In this context, and based on the record before us, this factor is of little

17 help.

18 As for the other factors, some duplicate or overlap with each other, and we

19 therefore address both type I and type II agreements in the same discussion. In

20 doing so, we remain mindful that these factors help us identify categories of facts
25

1 that are often useful in resolving disputes of this sort, but they do not provide us

2 with a talismanic scorecard. The ultimate issue, as always, “is the intent of the

3 parties: whether the parties intended to be bound, and if so, to what extent.” Id.

4 at 548-49.

5 1. The Language of the Agreement

6 We begin, as we usually do, with the language of the agreement. In

7 particular, we ask whether the agreement expressly states that the parties will

8 not be bound in the absence of a further, definitive written instrument. See

9 Brown v. Cara, 420 F.3d 148, 154 (2d Cir. 2005); Adjustrite, 145 F.3d at 549. We

10 find no such reservation here. The April 9 agreement is six pages long and titled

11 a “letter agreement.” It is not a proposal, a draft, an expression of desires, or a

12 memorandum of understanding. Cf. Brown, 420 F.3d at 154 (two-page

13 “memorandum of understanding” held not to be a type I preliminary agreement);

14 Adjustrite, 145 F.3d at 549 (two-page “proposal” that stated “desires” held

15 nonbinding); Winston v. Mediafare Entm’t Corp., 777 F.2d 78, 81 (2d Cir. 1985)

16 (“proposed agreement” held nonbinding). Neither did the April 9 agreement

17 speak in “decidedly non-committal” language “suggesting, at most, a promise to

18 ‘work together.’” Brown, 420 F.3d at 154. Rather, it specified, in considerable

19 detail, the performance that it required of each party. Just as importantly, it

20 specified in equal detail what would become of the virtual lymph node technology
26

1 if CCC were unable to obtain financing by May 1, and thus unable to purchase

2 Immunotherapy’s stock on June 1.

3 Immunotherapy asks us to place great weight on the fact that the

4 agreement reads, “[s]ubject to the terms and conditions hereof, it is presently

5 contemplated that [CCC] would purchase the 50,000 shares . . . for an aggregate

6 purchase price of $1,000,000,” rather than, for example, “it is agreed” that CCC

7 would do so, subject to financing. In Immunotherapy’s view, the words

8 “presently contemplated” clearly manifest the parties’ intent not to be bound.

9 We disagree. To be sure, “a manifestation of intention that a promise shall not

10 affect legal relations may prevent the formation of a contract.” Restatement

11 (Second) of Contracts § 21 (1981). The phrase “presently contemplate,” however,

12 is not such a manifestation. Cf. id. § 21 cmt. b, illus. 3-4 (statements that an

13 instrument “‘constitutes no contract,’” “‘confers no legal right,’” or “is not to be

14 a legal agreement or subject to legal jurisdiction in the law courts” negate

15 binding obligations). Every contract that calls for future performance contem16 plates that performance, and every such contract speaks of the parties’ present

17 intentions at the time they enter into it. In this context, it is clear that

18 “contemplate” means “anticipate doing or performing,” “plan on,” and “intend”

19 — not “view mentally with continued thoughtfulness” or “muse or ponder about.”

20 Webster’s Third New International Dictionary 491 (2002).
27

1 Even a brief survey of publicly available transaction agreements confirms

2 the ubiquitous use of phrases such as “transaction contemplated by this Agree3 ment” in written instruments of sale and acquisition. See, e.g., Millennium

4 Pharms., Inc., Current Report (Form 8-K) ex. 2.1 (Apr. 10, 2008), available at

5 http://www.sec.gov/Archives/edgar/data/1002637/000104746908004416/a2184

6 684zex-2_1.htm (“transactions contemplated by this Agreement,” “transactions

7 contemplated hereby,” and similar phrases used twenty-two times in Takeda

8 Pharmaceutical’s agreement to acquire Millennium Pharmaceuticals); Bear

9 Stearns Cos., Current Report (Form 8-K) ex. 2.1 (Mar. 20, 2008), available at

10 http://www.sec.gov/Archives/edgar/data/19617/000089882208000301/mergera

11 greement2.htm (sixty times in JPMorgan Chase’s agreement to acquire Bear

12 Stearns); Int’l Paper Co., Current Report (Form 8-K) ex. 10.1 (Mar. 24, 2008),

13 available at http://www.sec.gov/Archives/edgar/data/51434/000119312508061570

14 /dex101.htm (thirty-one times in International Paper’s agreement to purchase

15 several businesses from Weyerhaeuser Co.); ChoicePoint Inc., Current Report

16 (Form 8-K) ex. 2.1 (Feb. 22, 2008), available at http://www.sec.gov/Archives/edga

17 r/data/1040596/000119312508035585/dex21.htm (sixty-three times in Reed

18 Elsevier Group PLC’s agreement to acquire ChoicePoint); Countrywide Fin.

19 Corp., Current Report (Form 8-K) ex. 2.1 (Jan. 17, 2008), available at

20 http://www.sec.gov/Archives/edgar/data/25191/000089882208000107/exhibit2
28

1 1.htm (sixty-eight times in Bank of America’s agreement to acquire Country2 wide). We have no reason to think here that the parties intended to deviate from

3 this established usage.

4 We note, in addition, that courts also have had occasion to use the term

5 “contemplate” to describe the future performance called for under a binding

6 contract. For example, the doctrine of anticipatory breach allows a contracting

7 party to sue before performance is due if the other party repudiates its

8 contractual duties. N.Y. U.C.C. § 2-610; Norcon Power Partners, L.P. v. Niagara

9 Mohawk Power Corp., 92 N.Y.2d 458, 462-63, 705 N.E.2d 656, 659, 682 N.Y.S.2d

10 664, 667 (1998). New York courts have described this doctrine as “applicable to

11 bilateral contracts which contemplate some future performance.” Am. List Corp.

12 v. U.S. News & World Report, Inc., 75 N.Y.2d 38, 44, 549 N.E.2d 1161, 1164, 550

13 N.Y.S.2d 590, 593 (1989) (emphasis added); accord Gardiner Int’l, Inc. v. J.W.

14 Townsend & Assocs., Inc., 13 A.D.3d 246, 247, 788 N.Y.S.2d 312, 314 (2004)

15 (emphasis added). If “contemplate” were a magic word that signaled the lack of

16 a binding obligation, then a party could not invoke the doctrine of anticipatory

17 breach on the basis of contemplated performance. One cannot sue based on a

18 repudiation of performance that is not, in fact, required.

19 Our conclusion draws considerable support from the April 9 agreement’s

20 drafting history, which we are both permitted and required to consider. See
29

1 Winston, 777 F.2d at 80-81 (in “determin[ing] whether the parties intended to

2 be bound,” we consider “‘correspondence [and] other preliminary or partially

3 complete writings’” (quoting Restatement (Second) of Contracts § 27 cmt. c));

4 Brown Bros. Elec. Contractors, Inc. v. Beam Constr. Corp., 41 N.Y.2d 397, 399-

5 400, 361 N.E.2d 999, 1001, 393 N.Y.S.2d 350, 351-52 (1977); Morgan Servs., Inc.

6 v. Abrams, 21 A.D.3d 1284, 1285, 801 N.Y.S.2d 457, 457-58 (2005). The April 9

7 agreement was styled a “letter agreement,” whereas all five previous drafts were

8 styled a “summary of discussions” or the like. The April 9 agreement was signed

9 by Immunotherapy’s chairman, whereas all five previous drafts were not. The

10 April 9 agreement was not followed by any further back-and-forth, whereas all

11 five previous drafts were soon followed by further negotiations. Moreover, the

12 early drafts expressly and conspicuously stated that they were not intended to

13 be binding, but this language is absent from the April 9 agreement. Immuno14 therapy asks us to consider the “presently contemplated” language in a vacuum,

15 but this is not how we are to view it. Rather, we look at this language and the

16 April 9 agreement as a whole, in light of the totality of the circumstances, which

17 includes the five prior drafts. See Brown Bros., 41 N.Y.2d at 399-400, 361

18 N.E.2d at 1001, 393 N.Y.S.2d at 352 (“In determining whether the parties

19 entered into a contractual agreement . . . disproportionate emphasis is not to be

20 put on any single act, phrase or other expression, but, instead, on the totality of
30

1 all of these, given the attendant circumstances . . . .”). Considering all this, we

2 find it inescapable that the parties meant for the April 9 agreement to be not a

3 summary of discussions, but a binding expression of their intent with regard to

4 the transfer of Immunotherapy’s AVT stock.

5 2. Context of the Negotiations

6 The second factor here, the context of the negotiations, is helpful in

7 distinguishing type II agreements from the fully binding commitments that

8 constitute type I arrangements. An agreement is likely to be a type II prelimi9 nary agreement, and not a fully binding type I preliminary agreement, when it

10 is “subject to numerous contingencies that ha[ve] the potential to dramatically

11 affect planning, execution, and management” of the ultimate contractual

12 objective. Brown, 420 F.3d at 158; see also Tribune, 670 F. Supp. at 500-01.

13 Parties enter into type II agreements — committing themselves to good-faith

14 efforts to reach agreement on the remaining terms, but not to the ultimate

15 objective — when they seek to “preserv[e] flexibility in the face of future uncer16 tainty” rather than establish “determinative methodologies” that will apply to

17 future contingencies. Brown, 420 F.3d at 158.

18 Here, this factor favors the conclusion that the April 9 agreement was of

19 the type I variety — a definite agreement to buy and sell the AVT stock, subject

20 to CCC’s ability to secure financing. The parties foresaw that their transaction
31

1 had the potential to be affected by a future contingency, namely, CCC’s failure

2 to obtain the needed financing. They chose to establish a determinate

3 framework, rather than a flexible one, to address that contingency. The April

4 9 agreement thus expressly provided that Immunotherapy and CCC would

5 divide the market for the virtual lymph node technology if CCC was unable to

6 purchase Immunotherapy’s AVT stock. Immunotherapy, moreover, was the

7 party that strongly desired that the provisions related to the division of the

8 technology “be binding as to [CCC’s] making efforts to finance, and as to . . . the

9 plan [for dividing the technology] if [CCC] fails to purchase [the] AVT interests.”

10 Indeed, the parties’ correspondence indicates that Immunotherapy, anxious to

11 wind up its affairs, adamantly insisted that the technology-splitting arrange12 ment have legal force upon expiration of CCC’s deadline for obtaining financing,

13 and before the June 1 closing date. The context of the negotiations thus strongly

14 suggests that the parties sought determinateness and certainty in the April 9

15 agreement, not flexibility and optionality subject to the parties’ good-faith efforts

16 to reach agreement as to open issues.

17 3. Open Terms

18 The existence of open terms “is always a factor tending against the

19 conclusion that the parties have reached a binding agreement,” Tribune, 670 F.

20 Supp. at 499, and indeed, there is a “‘strong presumption against finding binding
32

1 obligation[s]’” in an agreement that “‘include[s] open terms . . . and expressly

2 anticipate[s] future preparation and execution of contract documents,’”

3 Arcadian, 884 F.2d at 73 (quoting Tribune, 670 F. Supp. at 499). At the same

4 time, the parties’ intent is ultimately controlling: if the parties intended to be

5 bound despite the presence of open terms, “courts should not frustrate their

6 achieving that objective or disappoint legitimately bargained contract expecta7 tions,” Tribune, 670 F. Supp. at 499, provided that the agreement is not so

8 “fragmentary” as to be “incapable of sustaining binding legal obligation,” id. at

9 497.

10 If a preliminary agreement contains “no issues outstanding that were

11 perceived by the parties as requiring negotiation, their agreement should be seen

12 as a[] Type I binding obligation,” Shann, 84 F.3d at 82, notwithstanding that the

13 parties may intend to memorialize their understanding in more formal

14 documents, Adjustrite, 145 F.3d at 548. But if, in contrast, the parties enter into

15 a preliminary agreement perceiving that open issues remain to be worked out

16 and intending simply to bind themselves to good-faith efforts at further

17 negotiation, then the preliminary agreement, if an agreement at all, is a type II

18 obligation. Id.

19 Here, nothing in the record reveals that the parties left anything for

20 further negotiation, nor does the record show that the parties in fact negotiated
33

1 anything between April 9 and June 1. In its Local Civil Rule 56.1 statement of

2 disputed facts opposing the Ceramis’ motion for summary judgment, Immuno3 therapy pointed to paragraphs 4 and 5 of the April 9 agreement in contending

4 that it “contained full paragraphs setting forth open terms that had to be

5 negotiated to both parties’ satisfaction, including no fewer than twelve

6 contractual elements to be negotiated.” The record, however, belies the assertion

7 that anything had to be negotiated regarding these elements. To the contrary,

8 the April 9 agreement referred to the undrafted stock purchase agreement, as

9 well as the representations and warranties to be contained therein, as “stan10 dard.” And paragraph 5 of the April 9 agreement specifically set forth the

11 substance of the provisions to be included in the technology transfer document

12 to be executed at closing.

13 The April 9 agreement itself thus strongly suggests that “[a]lthough the

14 parties recognized that the final contract would include additional ‘boilerplate,’

15 they foresaw no disputes relating to the boilerplate.” Shann, 84 F.3d at 77. In

16 such a circumstance, the task of formalizing contract documentation does not

17 negate the finding of a type I agreement, so long as the parties “viewed their

18 contract as . . . a binding Type I agreement . . . in which everything had been

19 agreed and all that remained was the need for lawyers’ embellishments.” Id. at

20 77-78.
34

1 We see nothing in the record to undercut the conclusion that CCC and

2 Immunotherapy so viewed the April 9 agreement. Although the record is replete

3 with drafts, markups, and comments to the document that eventually became

4 the April 9 agreement, it is wholly silent regarding the parties’ interactions after

5 April 9. Immunotherapy has failed to point to evidence that, for example, the

6 parties had ongoing negotiations after April 9 and hence more remained to be

7 done besides adding lawyers’ embellishments. We therefore see no evidence

8 from which we could conclude that the parties left material terms of their

9 agreement open to further negotiation. See Celotex Corp. v. Catrett, 477 U.S.

10 317, 322-23 (1986) (when the burden of proof falls on the nonmoving party,

11 summary judgment is appropriate if there is insufficient evidence to support an

12 element of the claim).

13 B. Did the April 9 Agreement Bind CCC To Buy,

14 and Immunotherapy To Sell, the AVT Stock?

15 Immunotherapy argues that even if the April 9 agreement was binding in

16 some respects, it did not bind the parties to purchase and sell the stock, thus

17 taking the case outside the holding of Radiation Dynamics that Rule 10b-5

18 disclosure duties are extinguished when there is a firm commitment to such an

19 exchange. Immunotherapy points to paragraph 7 of the agreement, which

20 provides in relevant part that “[CCC] and Immuno[therapy] agree to split the

21 use of the Virtual Lymph Node technology in humans in the event and only in
35

1 the event [CCC] or its affiliate does not purchase the AVT shares from

2 Immuno[therapy] as provided in this letter, unless such failure to purchase is

3 caused by Immuno[therapy’s] refusal to comply with the provisions of this

4 letter.” Immunotherapy reads this provision as creating options for both parties.

5 CCC could either tender $1,000,000 or agree to divide the market. Once CCC

6 tendered the money, Immunotherapy could either tender its stock or choose to

7 forgo dividing the market.

8 Immunotherapy’s suggested reading, however, is inconsistent with the

9 language of paragraph 7 itself, which affirms that a decision on Immuno10 therapy’s part not to tender its shares would have been a “refusal to comply with

11 the provisions of th[e] letter,” meaning a breach, not a contractually afforded

12 election to forgo dividing the market. Moreover, Immunotherapy’s suggested

13 reading requires us to construe the contract to preclude CCC from compelling

14 Immunotherapy to tender its stock through a specific performance decree.

15 Urging this construction, Immunotherapy invokes the maxim inclusio unius est

16 exclusio alteris to argue that paragraph 7 operates as a limitation of remedies

17 that precludes both a decree of specific performance ordering Immunotherapy

18 to tender and an award of damages. We disagree because the inclusio unius

19 principle does not operate so broadly in this context.

20 New York courts routinely award specific performance in cases involving
36

1 the conveyance of stock in privately held corporations. See, e.g., In re Fontana

2 D’Oro Foods, 65 N.Y.2d 886, 888, 482 N.E.2d 1216, 1217, 493 N.Y.S.2d 300, 301

3 (1985); Waddle v. Cabana, 250 N.Y. 18, 26, 114 N.E. 1054, 1056 (1917);

4 Haymarket LLC v. D.G. Jewellery of Can. Ltd., 290 A.D.2d 318, 319, 736

5 N.Y.S.2d 356, 358 (2002). They appear willing, at least in some circumstances,

6 to recognize limitations on available remedies, but they do so only when the

7 contract “contains a clause specifically setting forth the remedies available to the

8 buyer if the seller is unable to satisfy a stated condition.” 101123 LLC v. Solis

9 Realty LLC, 23 A.D.3d 107, 108, 801 N.Y.S.2d 31, 31-32 (2005) (emphasis added).

10 For example, the court in 101123 LLC found the following limitation of liability

11 to be sufficiently specific to preclude an award of specific performance absent a

12 willful breach by the seller:

13 In the event that Seller [breaches], the sole liability

14 of Seller will be to instruct the Escrow Agent to return

15 to Purchaser the Contract Deposit . . . ; provided,

16 however, that if Seller wilfully [breaches], Purchaser

17 shall have the right to bring an action for specific

18 performance against Seller and exercise any other

19 remedies at law or in equity.

20 Id. at 108-09, 801 N.Y.S.2d at 32 (internal quotation marks omitted).

21 The April 9 agreement, however, contains no language indicating that

22 paragraph 7 — or any other provision — provides CCC’s sole or exclusive

23 remedy. Instead, the April 9 agreement is far more closely analogous to the
37

1 contract at issue in Papa Gino’s of America, Inc. v. Plaza at Latham Associates,

2 135 A.D.2d 74, 524 N.Y.S.2d 536 (1988). The contract at issue there, a

3 commercial lease, contained the following clause: “Landlord shall not lease to

4 any other store premises whose main business is the sale of pizza. . . . If

5 Landlord leases to a store in violation of this paragraph Tenant shall pay a

6 [specified lower amount of rent] . . . .” Id. at 76, 542 N.Y.S.2d at 538 (omissions

7 in original) (emphasis omitted). The landlord argued that, as long as it agreed

8 to accept the lower amount of rent, it was free to lease the premises to another

9 pizza shop. The court disagreed, holding that the clause did not prevent the

10 tenant from obtaining specific performance to prevent the landlord from leasing

11 to another pizza shop. As the court held, “[t]he provision in question did not

12 reserve an option for [the landlord’s] unilateral election.” Id. Rather, the lower

13 amount of rent was a liquidated damages provision; because “[t]here was no

14 language in the lease agreement that [the lower amount] of rent was to be [the

15 tenant’s] only remedy,” the tenant was able to obtain specific performance. Id.

16 Similarly, to the extent that paragraph 7 of the April 9 agreement has any

17 effect at all on the remedies available to either party, it is no more than a

18 provision that would liquidate damages if Immunotherapy refused to tender its

19 shares. It cannot, however, be a limitation of liability that would preclude

20 specific performance or create a unilateral option for Immunotherapy. Although
38

1 a liquidated damages provision precludes a party from recovering lost profits

2 and other measures of damages, see U.S. Fid. & Guar. Co. v. Braspetro Oil Servs.

3 Co., 369 F.3d 34, 71 (2d Cir. 2004); Sure-Trip, Inc. v. Westinghouse Eng’g, 47

4 F.3d 526, 534-35 (2d Cir. 1995); J.R. Stevenson Corp. v. County of Westchester,

5 113 A.D.2d 918, 921, 493 N.Y.S.2d 819, 823 (1985); Restatement (Second) of

6 Contracts § 347 cmt. a, it does not prevent a party from seeking specific

7 performance, absent an express provision to this effect. See Rubinstein v. Rubin8 stein, 23 N.Y.2d 293, 298, 244 N.E.2d 49, 52, 296 N.Y.S.2d 354, 358 (1968) (“For

9 there to be a complete bar to equitable relief there must be something more, such

10 as explicit language in the contract that the liquidated damages provision was

11 to be the sole remedy.”); Papa Gino’s, 135 A.D.2d at 76, 524 N.Y.S.2d at 538 (“[A]

12 liquidated damages clause does not bar the equitable relief of specific perfor13 mance unless there is explicit language that it is to be the sole remedy for a

14 breach.” (citations omitted)); Restatement (Second) of Contracts § 361 (“Specific

15 performance . . . may be granted to enforce a duty even though there is a

16 provision for liquidated damages for breach of that duty.”). Accordingly, nothing

17 would have prevented CCC from suing for specific performance. It follows that

18 the April 9 agreement bound the parties to purchase and sell the AVT stock,

19 thus placing this case within the ambit of Radiation Dynamics.

20
39

1 CONCLUSION

2 Securities transactions involving a long delay between the agreement and

3 the tendering of consideration are commonplace. When a party wants to protect

4 itself against unknown or unforeseen risks between the signing and the closing,

5 it should negotiate for contractual guarantees against these risks. Immuno6 therapy did not do so, and it now seeks solace elsewhere. The securities laws do

7 not provide the sort of relief for seller’s remorse that Immunotherapy seeks,

8 however, and we accordingly affirm the judgment of the district court.
40

1 J. HALL, District Judge, DISSENTING:

2 There is much in the majority opinion with which I agree. The majority

3 appropriately concludes that we must apply the Radiation Dynamics framework

4 to evaluate the securities issues in this case. It correctly recognizes that CCC’s

5 liability under Rule 10b-5 turns on whether or not CCC became committed to

6 purchase Immunotherapy’s shares in AVT on April 9, 1999, and then decides to

7 apply New York contract law to that question. Finally, the majority properly

8 concludes that, under New York law, the April 9 agreement constituted a

9 “binding” agreement.

10 Where I part ways with the majority is with respect to its conclusion that

11 the April 9 agreement was a binding Type I agreement, rather than a binding

12 Type II agreement. Because the parties had only a Type II agreement, I

13 respectfully dissent.

14 I.

15 To understand why the parties had only a Type II agreement, it is

16 important to review the differences between Type I and Type II agreements.

17 Type I agreements are “fully binding[,] preliminary agreements.” Adjustrite

18 Sys., Inc. v. GAB Bus. Servs., Inc., 145 F.3d 543, 548 (2d Cir. 1998). These

19 agreements are created when the parties have agreed on all points requiring
 Of course, sometimes a preliminary “agreement” will fit into neither of these

4

categories. That is, in some cases the manifestation of mutual assent will be so indefinite,

and the number of material terms left open will be so large, that the contract is completely

unenforceable. Tractebel Energy Mktg., Inc. v. AEP Power Mktg., Inc., 487 F.3d 89, 95 (2d

Cir. 2007).

41

1 negotiation, but have not yet memorialized everything in writing; they agree to

2 do so later in a more formal document. Id. A Type I agreement is preliminary

3 in name only: it is fully enforceable, despite the fact that the parties expect more

4 formalities to occur at a later stage. Id.

5 By contrast, Type II agreements are binding, but in a different way. These

6 agreements are created “when the parties agree on certain major terms, but

7 leave other terms open for future negotiation.” Id. Type II agreements do not

8 actually commit the parties to their contractual objectives, but instead merely

9 commit the parties to complete negotiation of the remaining issues in good faith,

10 and within the confines of their preliminary commitment. Id. Importantly, if

11 a complete contract is not ultimately agreed upon, “the parties may abandon the

12 transaction as long as they have made a good faith effort to close the deal.” Id. 4

13 It is also possible for an agreement to be a hybrid between a Type I and

14 Type II agreement. Such hybrid contracts are characterized by complete

15 agreement on certain issues, and a lack of agreement on other, independent

16 issues which the parties have agreed to resolve at a later date. Where there is
To determine if there is a Type I agreement, courts weigh the following factors: 5

(1) whether there is an expressed reservation of the right not

to be bound in the absence of a writing;

(2) whether there has been partial performance of the contract;

(3) whether all of the terms of the alleged contract have been

agreed upon; and

(4) whether the agreement at issue is the type of contract that

is usually committed to writing.

Brown, 420 F.3d at 454 (citing Adjustrite, 145 F.3d at 549). By contrast, to determine if

there is a Type II agreement, courts examine:

42

1 agreement, these contracts are fully enforceable, and where there is not yet full

2 agreement, these contracts impose an obligation to conduct future negotiations

3 in good faith. See Brown v. Cara, 420 F.3d 148, 156 (2d Cir. 2005).

4 Although there are important analytical differences between Type I and

5 Type II agreements, policing the boundaries between the two is not always a

6 simple task. Part of the problem stems from the fact that courts have developed

7 one multi-factor test for identifying Type I agreements, and a second multi-factor

8 test for identifying Type II agreements. See Brown, 420 F.3d at 154-58. These

9 tests are helpful for determining when an agreement is not binding at all,

10 because if an agreement fits into neither category, clearly it is a non-binding

11 agreement. When deciding whether there is a Type I or a Type II agreement,

12 however, the multi-factor tests become difficult to apply because they examine

13 several similar factors. The key is to identify those factors that help distin 5
(1) whether the intent to be bound is revealed by the language

of the agreement;

(2) the context of the negotiations;

(3) the existence of open terms;

(4) partial performance; and

(5) the necessity of putting the agreement in final form, as

indicated by the customary form of such transactions.

Id. at 157 (citing Arcadian Phosphates, Inc. v. Arcadian Corp., 884 F.2d 69, 72 (2d Cir.

1989)).

43

1 guish Type I agreements from Type II agreements, rather than those factors that

2 distinguish Type I and Type II agreements from nonbinding agreements.

3 II.

4 There is a “strong presumption” against finding a Type I agreement

5 when the agreement “include[s] open terms, call[s] for future approvals[,] and

6 expressly anticipate[s] future preparation and execution of contract docu7 ments.” Arcadian Phosphates, Inc. v. Arcadian Corp., 884 F.2d 69, 73 (2d Cir.

8 1989); see also Brown, 420 F.3d at 154. The April 9 agreement easily quali9 fies for this strong presumption. It explicitly included open terms and

10 explicitly called for future negotiations. The agreement expressly declared

11 that the parties “expect that” various documents “will be prepared, negotiated

12 and executed,” including the actual stock purchase agreement that would

13 operate to transfer Immunotherapy's AVT shares.

14 The majority declines to apply any presumption against Type I agree-
44

1 ments because it believes that “nothing in the record reveals that the parties

2 left anything for future negotiation, nor does the record show that the parties

3 in fact negotiated anything between April 9 and June 1.” Ante, at 33. 

4 However, the agreement expressly declared that the stock purchase agree5 ment was still to be negotiated; coupling that with the fact that the stock

6 purchase agreement was later drafted at the very least creates an inference

7 that future negotiations took place. While the record contains no extrinsic

8 evidence that negotiations actually took place, we must determine whether,

9 at the time the parties entered into the April 9 agreement, they believed that

10 future negotiations would be needed. There is no better indication of that

11 belief than the fact that they actually expressed that belief in their agree12 ment.

13 The majority nonetheless emphasizes that the terms of the stock

14 purchase agreement were to be “standard.” April 9 Agreement at 3. The

15 majority then cites Shann v. Dunk, 84 F.3d 73 (2d Cir. 1996), to argue that a

16 contract will not necessarily become a Type II agreement by virtue of the fact

17 that the parties needed to fill in the gaps with additional boilerplate. See id.

18 at 77-78.

19 The majority is correct that an agreement will not necessarily become a
45

1 Type II agreement simply because the parties leave some additional

2 “boilerplate” to be drafted. But Shann also makes clear that the key question

3 is how the parties viewed that boilerplate. If “everything had been agreed

4 and all that remained was the need for lawyers’ embellishments,” the agree5 ment would be a binding Type I agreement. Id. at 78. If instead the parties

6 had simply agreed on “all the important terms,” and had then “agreed to

7 negotiate in good faith over any differences that might arise relating to the

8 undrafted boilerplate,” the agreement would be a Type II agreement. Id.

9 Assuming, arguendo, that the majority has correctly identified the

10 missing terms as “boilerplate,” the agreement still expressly stated that this

11 “boilerplate” remained to be negotiated. As a result, it is still appropriate to

12 apply a “strong presumption” against finding a Type I agreement.

13 III.

14 Once it is clear that this court must apply a “strong presumption”

15 against finding a Type I agreement, the only question remaining is whether

16 other factors point so compellingly to a Type I agreement, rather than a Type

17 II agreement, that this presumption can be overcome. No such evidence has

18 been presented that would entitle the defendants to summary judgment.

19 First, the majority rests on the fact that the April 9 agreement contains
 It should also be noted that the parties referred to the stock purchase as a 6

“potential acquisition,” rather than as something more definitive.

46

1 no language expressly stating that the parties will not be bound by the

2 agreement. From this, the majority concludes that the April 9 agreement was

3 meant to be binding. In the majority’s view, that conclusion gets further

4 support from the agreement’s drafting history, during which it evolved from a

5 “summary of discussions” into a “letter agreement.”

6 The language of the agreement, and its drafting history, certainly

7 confirm that the parties intended for the agreement to be “binding.” But this

8 conclusion does little to address the most important question in the case:

9 what kind of binding agreement did the parties enter into? Indeed, if the

10 parties had intended to enter into a binding Type II agreement, one also

11 would not expect to see language in the contract expressly stating that the

12 parties had no intention to be bound. See Brown, 420 F.3d at 154 (“Where

13 there is no language [in an agreement] that may be read to bind the parties to

14 the ultimate goal, an explicit reservation [of the right not to be bound] would

15 serve no purpose.”). Similarly, calling the April 9 agreement an “agreement”

16 is just as consistent with a Type II contract as it is with a Type I contract.

17 Furthermore, the majority dismisses the language in the agreement

18 stating that the stock purchase was “presently contemplated.” The fact that 6
The majority also relies on several publicly available transaction agreements to 7

make its case. These agreements were not cited by any of the parties, and they are not

part of the record. The majority appears to use them to establish an “industry practice” of

the use of the term “contemplated,” notwithstanding that these documents were all created

roughly nine years after the agreement at issue in this case.

In any event, these transaction documents do not bolster the majority’s position. 

Although they do make use of the term “contemplated,” they elsewhere contain definitive

statements that make clear the fully binding nature of the transaction. See, e.g.,

Millennium Pharms., Inc., Agreement and Plan of Merger (Form 8-K) (Apr. 10, 2008) at 1,

4, available at

http://www.sec.gov/Archives/edgar/data/1002637/000104746908004416/a2184684zex-2_1.ht

m, (“Subject to the terms and conditions set forth in this Agreement . . . Merger Sub shall

. . . commence the Offer . . . . The Company hereby approves of and consents to the Offer

. . . .”) (emphasis added); J.P Morgan Chase & Co., Agreement and Plan of Merger (Form 8-

K) (Mar. 20, 2008) at 1, available at

http://www.sec.gov/Archives/edgar/data/19617/000089882208000301/mergeragreement2.ht

m (“Subject to the terms and conditions of this Agreement . . . Merger Sub shall merge with

and into Company”) (emphasis added); Int’l Paper Co., Purchase Agreement (Form 8-K)

(Mar. 20, 2008) at 1, available at

http://www.sec.gov/Archives/edgar/data/51434/000119312508061570/dex101.htm, (“Upon

the terms and subject to the conditions of this Agreement . . . Seller shall . . . sell, transfer,

assign and deliver to Purchaser, and Purchaser shall purchase, acquire and accept from

Seller . . . all of Seller’s. . . title and interest in . . . all of the Transferred Assets . . . .”)

(emphasis added); ChoicePoint Inc., Agreement and Plan of Merger (Form 8-K) (Feb. 22,

2008) at 1, available at

http://www.sec.gov/Archives/edgar/data/1040596/000119312508035585/dex21.htm, (“Upon

the terms and subject to the conditions set forth in this Agreement, at the Effective Time

. . . Merger Sub shall be merged with and into the Company . . . .”) (emphasis added);

Countrywide Fin. Corp., Agreement and Plan of Merger (Form 8-K) (Jan 17, 2008) at 1,

available at

47

1 the parties chose this phrasing, rather than something more definitive, raises

2 further doubts regarding the extent to which the parties intended to be bound

3 by the agreement. Saying that an agreement is “presently contemplated”

4 makes a great deal of sense in a Type II agreement, where the most impor5 tant terms have been agreed to, but further negotiations are still required. It

6 makes much less sense to use this language in a Type I agreement.7
http://www.sec.gov/Archives/edgar/data/25191/000089882208000107/exhibit21.htm,

(“Subject to the terms and conditions of this Agreement, . . . Company shall merge with

and into Merger Sub.”) (emphasis added). Immunotherapy’s agreement did not contain

any such definitive language requiring that the actual stock purchase “shall” take place.

48

1 The majority also relies on the context of the negotiations to support its

2 conclusion that the parties had entered into a Type I agreement. In the

3 majority’s view, because the negotiations did not take place under a cloud of

4 uncertainty, that lack of uncertainty is a factor weighing against a finding of

5 a Type II agreement.

6 When parties negotiate a contract in the face of significant uncertainty,

7 that uncertainty may be one factor that contributes to a finding that there is

8 a Type II agreement. See id. at 158. But there is absolutely nothing in

9 Brown that suggests that the presence of such uncertainty is required, or

10 even common, for Type II agreements. Indeed, the Brown court simply

11 concluded that such conditions were “consistent” with a Type II agreement. 

12 Id.

13 In any event, the majority does not consider the limited extent of the

14 “certainty” that the parties were operating under. It is true enough that the

15 parties created a relatively elaborate “contingency plan” to deal with the

16 possibility that the stock transfer would not be completed. Yet the majority

17 fails to explain why this element of certainty carries particular persuasive
 As discussed in Part I, it is possible for parties to create an agreement that 8

constitutes a Type I agreement as to some issues, while consisting only of a Type II

agreement as to other issues. The certainty that the majority has identified may well be a

factor supporting a conclusion that the parties had a Type I agreement insofar as they had

agreed to divorce, one way or another. It is not a particularly persuasive factor supporting

a conclusion that the parties had a Type I agreement with respect to the stock transfer.

 Undoubtedly, this uncertainty stemmed in part from questions about CCC’s ability 9

to obtain the necessary financing. But this uncertainty also could have stemmed from

doubts over whether the parties would be able to successfully negotiate the stilloutstanding issues. There is nothing in the contingency plan that excludes the latter

scenario as one of the sources of uncertainty.

49

1 force. If anything, the presence of the “contingency plan” reveals that the 8

2 parties were quite unsure about whether or not the stock purchase was

3 actually going to take place – an uncertainty that is quite consistent with a

4 conclusion that the parties had a Type II agreement with regard to the

5 transfer of AVT’s stock.9

6 IV.

7 There is nothing in the majority’s discussion, or in CCC’s briefs, that I

8 believe adequately explains why the April 9 agreement is better viewed as a

9 binding Type I agreement, rather than a binding Type II agreement. My own

10 review also reveals nothing in the April 9 agreement, or in the record, that

11 can overcome the mandatory “strong presumption” against finding a Type I

12 agreement. Because of this, I conclude that the April 9 agreement was a Type

13 II agreement that did not actually require the parties to consummate the
 Because I reach this conclusion, I view the majority’s discussion of damages 10

versus specific performance to be unnecessary. If CCC was entitled to specific performance

of the agreement, it would only be entitled to force Immunotherapy to do what it had

promised, i.e., the most CCC could do would be to force Immunotherapy to engage in good

faith negotiations.

 Of course, those negotiations would still have been carefully circumscribed by 11

various provisions in the April 9 agreement. It is not clear whether, as part of these good

faith negotiations, Immunotherapy would have been able to obtain any leverage if it had

been aware of the Johnson & Johnson deal. Accordingly, it may well be the case that

Immunotherapy’s Rule10b-5 claim should fail on the grounds that it suffered no damages

from the non-disclosure. The district court never reached that issue because it thought it

was bound by the “law of the case” doctrine. On appeal, the parties have not discussed

that issue in their briefs. I would therefore vacate the judgment and remand the case to

allow the district court to consider that issue in the first instance.

50

1 stock transaction. Instead, the agreement merely required the parties to 10

2 engage in good faith negotiations concerning a final agreement for CCC to

3 purchase Immunotherapy’s shares. I therefore respectfully dissent. 11
51

1 APPENDIX

2 CERAMI CONSULTING CORPORATION

3 765 Old Saw Mill Road

4 Tarrytown, New York 10591

5

6 April 9, 1999

7

8 David Dove, MD

9 Chief Operating Officer

10 Immunotherapy, Inc.

11 360 Lexington Avenue

12 New York, New York 10017

13

14 Dear David:

15 The following is a confidential letter agreement between Cerami

16 Consulting Corporation (“Cerami Consulting”) and Immunotherapy, Inc.

17 (“Immuno”), regarding the potential acquisition (the “Transaction”) of all right,

18 title and interest in Applied Vaccine Technologies Corp. (“AVT”) owned by

19 Immuno and its affiliates.

20 1. Subject to the terms and conditions hereof, it is presently contemplated that

21 Cerami Consulting would purchase the 50,000 shares of AVT common stock

22 owned by Immuno or its affiliates for an aggregate purchase price of

23 $1,000,000 in cash. Cerami Consulting plans to liquidate AVT and transfer

24 the assets and liabilities of AVT to a new company to be formed by Cerami

25 Consulting or its designee (“NewCo”).

26 2. Contemporaneously with the closing of the Transaction, Immuno will enter

27 into agreements with NewCo pursuant to which Immuno and its successors

28 will transfer to NewCo any and all notes, memoranda, scientific findings and

29 electronic media in any way documenting or relating to the formation,

30 development and improvement of the Virtual Lymph Node Technology (as

31 defined below) in the possession of Immuno, its successors, its employees or

32 its affiliates. Immuno will enter into such non-terminable consulting and

33 cooperation agreements as NewCo shall reasonably request, provided that,

34 Immuno shall not be required to incur any additional expense or obligation
52

1 in connection with any such agreements (collectively, the “Technology

2 Transfer Agreements”). In consideration for such agreements, NewCo will

3 grant to Immuno:

4 a. a royalty of 1.5% on the net sales of all Virtual Lymph Node products

5 (“products” shall mean any Virtual Lymph Node product which such

6 product shall include any product that combines multiple technologies into

7 a single marketable product that cannot function without the benefit of

8 the Virtual Lymph Node technology (e.g., a combination of a vaccine and

9 the Virtual Lymph Node)) made by Newco and 8.5% of the net proceeds

10 received from all any [sic] license, sublicensee, or joint venture for the

11 Virtual Lymph Node or its products (the “Virtual Lymph Node” means the

12 right, title and interest in the Patent Application filed March 2, 1998,

13 Serial No. 09/033402 and any continuations, continuations in part,

14 divisions, subdivisions and any patents issued pursuant thereto (the

15 “Patent Application”)) (together, the “Royalty”); provided, however, that

16 licensing fees received from third parties will not count as proceeds

17 received from sales of Virtual Lymph Node products.

18 b. In each year, commencing on the first anniversary of the closing date,

19 NewCo will pay to Immuno (or its successors and assigns) a minimum

20 Royalty of $50,000 per year for each of the ten years following the closing

21 date. To the extent that the cumulative amount of minimum payments

22 exceed the total amount of royalties due under clause 2.a. from time to

23 time, the excess shall be carried forward as a credit and applied to the

24 extent that royalties in any individual year exceed the minimum Royalty

25 for such year (such minimum payment would be deducted from any future

26 Royalty payment, e.g. if in year one there were no Royalties then NewCo

27 would pay the minimum Royalty amount to Immuno and then if in year

28 two there were Royalty payments owing to Immuno of $100,000, the first

29 years’ [sic] minimum Royalty payment would be credited against such

30 amount and the balance of $50,000 would be paid to Immuno.).

31 c. Immuno shall obtain a world-wide, non-exclusive right to license the

32 Patent Application for free in the event, and only in the event, that NewCo

33 fails to make its minimum royalty payments after the second anniversary

34 of the closing date of the Transactions.
53

1 3. Immuno understands and acknowledges that the Transaction is subject to

2 and conditioned upon Cerami Consulting obtaining financing at terms with

3 a tax consequences [sic] acceptable to Cerami Consulting in its sole discretion

4 on or before April 1, 1999 (the “Financing”); provided, however, that the date

5 shall be extended to May 1, 1999 if, on or prior to April 1, 1999, Cerami

6 Consulting (or its financing party) states in writing to you that a closing is

7 scheduled prior to June 1, 1999 with a credit worthy person to invest not less

8 than $1,000,000 in Cermi [sic] Consulting, AVT or Newco. Cerami Con9 sulting will not obtain the Financing from Coulter Pharmaceutical Corpora10 tion. Each party shall agree to use best efforts to minimize the tax costs of

11 the transaction and close the transaction prior to June 1, 1999. Cerami

12 Consulting shall promptly notify Immuno in the event that Cermai [sic]

13 Consulting is not able to obtain financing. In the event that Cerami

14 Consulting is unable to obtain the Financing on or before April 1, 1999, then

15 the parties to this letter agree to divide each area of use as provided in this

16 letter.

17 4. The parties expect that the following documents will be prepared, negotiated

18 and executed in connection with the acquisition of the shares.

19 a. a standard stock purchase agreement from Cerami Consulting to acquire

20 the shares of AVT owned by Immuno, including, but not limited to:

21 b. a mechanism for Cerami Consulting to acquire all shares of AVT held by

22 Immuno;

23 c. standard representations and warranties from Immuno and its affiliates

24 including, organization and capitalization, authorization of transactions,

25 non-contravention, subsidiaries, financial statements, absence of undis26 closed liabilities, litigation, title to assets, legal compliance, intellectual

27 property and brokers;

28 d. representations from Cerami Consulting and NewCo including, organi29 zation, authorization of transaction, financing, no restriction against

30 purchase of stock and brokers;

31 e. conditions to closing including, payment of purchase price, consents,

32 absence of litigation, resolution of the matters concerning Amnon Gonenne
54

1 including any restraining orders, representations being true and correct,

2 governmental filings, due diligence and release of liens (if any);

3 f. legal opinion from this law firm to Immuno stating that Newco (or Cerami

4 Consulting depending on the structure) is duly organized, duly authorized

5 to enter into the transaction agreements, and that such contracts are

6 enforceable against Newco (or Cerami Consulting, as the case may be).

7 Such opinion shall contain assumptions and exceptions typical of other

8 opinions delivered by this law firm in similar situations; and

9 g. as a condition to closing a legal opinion from Immuno’s outside counsel in

10 form and content satisfactory to Cerami Consulting regarding the legality

11 and enforceability of the Transaction under New York and Delaware law.

12 5. The parties expect that a document with the following provisions will be

13 prepared, negotiated and executed in connection with the Technology

14 Transfer Agreements:

15 a. transfer of the notes and technical information concerning the Virtual

16 Lymph Node to NewCo;

17 b. consulting services to be provided by Immuno, its successors, its employ18 ees, including Cohava Gelber, and other scientists as reasonably requested

19 by NewCo;

20 c. payment of the Royalty and the minimum Royalty amounts by NewCo to

21 Immuno or its successors and assigns;

22 d. mutual non solicit and confidentiality from Immuno and Cerami

23 Consulting or NewCo and their key employees and an agreement to keep

24 confidential techniques used which involve the Virtual Lymph Node for

25 discovering new antigens and antibodies, including an agreement not

26 share with third parties any techniques developed exclusively by Immuno

27 for such discovery;

28 e. a non-compete agreement and such non-solicit agreements from each of

29 Len Gordon, David Dove and Cohava Gelber for a period of 2 and one half

30 years following the closing date (such agreement will permit Immuno to
55

1 discover antigens and antibodies as provided below). Such non-compete

2 shall be in addition to, and no way limit [sic] (even after expiration of such

3 non-compete agreements) NewCo’s right of ownership, including the right

4 to modify, the Patent Application and future patent thereof.

5 6. As of the date hereof, Cerami Consulting and Immuno shall have the co6 exclusive, world wide right to use the Virtual Lymph Node for the discovery

7 of antigens and antibodies using non human animals (the “Discovery

8 Products”). In the event the Transaction is consummated, NewCo shall grant

9 Immuno a world-wide, non exclusive (as opposed to co-exclusive), non

10 transferable, license to use the Virtual Lymph Node for the discovery

11 Discovery Products [sic]. NewCo shall receive a royalty of 1% on the net sales

12 of all Discovery Products and 5.0% of the net proceeds received from all third

13 party licenses; provided, however, that licensing fees received from third

14 parties will not count as proceeds received from sales of Discovery Products.

15 No minimum royalty would apply.

16 7. Cerami Consulting and Immuno agree to split the use of the Virtual Lymph

17 Node technology in humans in the event, and only in the event, Cerami

18 Consulting or its affiliate does not purchase the AVT shares from Immuno as

19 provided in this letter, unless such failure to purchase is caused by Immuno’s

20 refusal to comply with the provisions of this letter, in the following manner:

21 a. The parties will alternate choosing from the following list until each has

22 chosen three areas. Immuno shall choose first. The areas are 1. Infectious

23 disease; 2. Cancer; 3. Autoimmune disease; 4. Allergy; 5. Solid Organ

24 Transplant; 6. Bone Marrow Transplant; 7. Cardiovascular disease; and

25 8. Metabolic Disease.

26 b. Each party will give the other party a non competition agreement with

27 respect to the other party’s choices.

28 c. Each party is free to develop and compete in any areas other than the

29 three exclusive areas of the other.

30 d. The royalty split shall provide reasonable protection to each party to

31 ensure that license fees are being accounted for accurately.
56

1

2

3 Very truly yours,

4

5 CERAMI CONSULTING CORPORATION

6

7 By: 

8 Anthony Cerami

9 President

10

11

12 Accepted and agreed to as of this 9th day of April, 1999:

13

14 IMMUNOTHERAPY, INC.

15

16 By: /s/ C. Leonard Gordon

17 Name: C. Leonard Gordon

18 Title: Chairman

19