License Agreement
The Company entered in to a Patent and Technology License Agreement (the “License Agreement”) with the Albert Einstein College of Medicine of Yeshiva University, Massachusetts Institute of Technology, Cornell University, and the IFO-Regina Elena Cancer Institute (together the “Licensors”) during August 2010. In conjunction with entering into the License Agreement, the Company also entered into a Stock Subscription Agreement (the “Subscription Agreement”) and a Stockholders Agreement (the “Stockholders Agreement”) with the Licensors, which included provisions such as participation rights in future financings, co-sale rights, and certain limited anti-dilution rights. The License Agreement grants the Company a world-wide exclusive license to materials and methods for use in the diagnosis and treatment of metastatic spread of solid tumor cancers. In return, the Company has agreed to grant Company equity to the Licensors, to reimburse the Licensors patent expenses thus far incurred, to pay all future patent expenses, pay a royalty on any sales of product using licensed technology, as well as certain minimum royalties and milestone payments.
Pursuant to the License Agreement, we are also obligated to make the following royalties and payments to the Licensors:
| • | Royalty payment of a specified percentage of net sales. |
| • | Royalty payment of minimum of a specified percentage of net sales in case MetaStat pays royalties to unaffiliated third parties for patent rights. |
| • | Issue 30% of MBM’s outstanding common stock to the Licensors calculated on a fully diluted, as converted basis. Accordingly, on August 26, 2010 MBM issued 3,290,570 common shares valued at $74,786. |
| • | Non-refundable license fee of $25,000 upon execution of License Agreement. |
| • | License maintenance fee of $30,000 on each of the first, second, third and fourth anniversary of the License Agreement. The payment may be credited against royalties made during the twelve month period. |
| • | License maintenance fee of $50,000, and $75,000 on the fifth and sixth anniversaries of the License Agreement, respectively. Each payment may be credited against royalties made during each such twelve month period. |
| • | License maintenance fee of $100,000 on the seventh and each subsequent anniversary of the License Agreement. Each payment may be credited against royalties made during each such twelve month period. |
Anti-dilution Rights for Common Stock
Pursuant to the Subscription Agreement, the Company is obligated, for no additional consideration, to issue additional shares of common stock to the Licensors to ensure that (i) Albert Einstein College of Medicine’s and MIT’s ownership in MetaStat does not fall below 5% of our outstanding common stock (ii) IFO’s ownership in MetaStat does not fall below 3.33% of our outstanding common stock, and (iii) Cornell’s ownership in MetaStat does not fall below 1.67% of our outstanding common stock until certain funding thresholds are reached by the Company. The Licensors were not required to pay additional consideration for these shares. We recorded the fair value of the additional shares of common stock issued under this provision as a consulting expense in the period they were earned. MBM issued 160,158 shares as a result of this antidilution right (see Note 5). The Company has met the funding target mentioned above and the anti-dilution rights under the Subscription Agreement have terminated.
As of February 27, 2012, the Subscription Agreement and the Stockholders Agreement have been terminated.
Second License Agreement and Third License Agreement
Additionally, effective in March 2012, we entered into two additional license agreements with Einstein. The second license agreement with Einstein (the “Second License Agreement”) and the third license agreement with Einstein (the “Third License Agreement”) both cover pending patent applications, patent disclosures, cell lines and technology surrounding discoveries in the understanding of the underlying mechanisms of systemic metastasis in solid epithelial cancers. The Second License Agreement and the Third License Agreement both require certain customary payments such as a license signing fee, reimbursement of patent expenses, annual license maintenance fees, milestone payments, and the payment of royalties on sales of products or services covered under such agreements.
Pursuant to the Second License Agreement, we are also obligated to make the following royalties and payments to the Einstein:
| • | Royalty payment of a specified percentage of net sales. |
| • | Royalty payment of minimum of a specified percentage of net sales in case MetaStat pays royalties to unaffiliated third parties for patent rights. |
| • | Non-refundable license fee of $15,000 upon execution of Second License Agreement. |
| • | License maintenance fee of $12,000 on each of the first and second anniversary of the Second License Agreement. The payment may be credited against royalties made during the twelve month period. |
| • | License maintenance fee of $30,000, on each of the third, and forth anniversary of the Second License Agreement and $50,000 on the fifth anniversary of the Second License Agreement and $75,000 on the sixth anniversary of the Second License Agreement, respectively. Each payment may be credited against royalties made during each such twelve month period. |
| • | License maintenance fee of $100,000 on the seventh and each subsequent anniversary of the Second License Agreement. Each payment may be credited against royalties made during each such twelve month period. |
Pursuant to the Third License Agreement, we are also obligated to make the following royalties and payments to the Einstein:
| • | Royalty payment of a specified percentage of net sales. |
| • | Royalty payment of minimum of a specified percentage of net sales in case MetaStat pays royalties to unaffiliated third parties for patent rights. |
| • | Non-refundable license fee of $15,000 upon execution of Third License Agreement. |
| • | License maintenance fee of $12,000 on each of the first and second anniversary of the Third License Agreement. The payment may be credited against royalties made during the twelve month period. |
| • | License maintenance fee of $30,000, on each of the third, and forth anniversary of the Third License Agreement and $50,000 on the fifth anniversary of the Third License Agreement and $75,000 on the sixth anniversary of the Third License Agreement, respectively. Each payment may be credited against royalties made during each such twelve month period. |
| • | License maintenance fee of $100,000 on the seventh and each subsequent anniversary of the Third License Agreement. Each payment may be credited against royalties made during each such twelve month period. |
Sponsored Research Agreement
On April 14, 2011 the Company entered into a Sponsored Research Agreement with Albert Einstein College of Medicine of Yeshiva University (AECOM) and Cornell University for and on behalf of its Joan and Sanford I. Weill Medical College (Cornell) for a 500 patient Large Population Validation study of its MetaSite Breast™. The purposes of the Large Population Validation study are to (i) study the association between TMEM or MetaSite count at initial diagnosis of invasive ductal carcinoma of the breast and risk of systemic metastasis, and (ii) identify a cut-point for TMEM or MetaSite count that differentiates best between those who develop systemic metastasis and those who do not, and to calculate the sensitivity and specificity of these cut-points. In consideration for the study, we were required to pay $202,798 to Cornell and $514,756 to Einstein for an aggregate amount of $717,554. On September 12, 2012, we entered into a formal amendment to the Sponsored Research Agreement to expand the scope of the research to include a comparison of TMEM or MetaSite count with the IHFC4 score. The consideration for the study was amended to 169,513.76 to Cornell and $595,928.86 to Einstein in the aggregate. The Large Population Validation study was completed in January 2013 and all outstanding payments have been satisfied and connection with the Sponsored Research Agreement, as amended.