Petition for Writ of Certiorari — Institut Pasteur v. Cambridge Biotech Corp., 117 S. Ct. 2511 (1997) (No. 96-1698)

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Supreme Court, U.S.

FILED

4 961698 APR 17 1997

No. OFFICE OF THE CLERK

IN THE

Supreme Court of the United States

October Term, 1996

INSTITUT PASTEUR AND PASTEUR SANOFI

DIAGNOSTICS,

Petitioners,

CAMBRIDGE BIOTECH CORPORATION,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

PETITION FOR A WRIT OF CERTIORARI

PAUL E. STANZLER

Attorney of Record

JEFFREY D. STERNKLAR

MICHAEL R. GOTTFRIED

BURNS & LEVINSON LLP

125 Summer Street

Boston, Massachusetts 02110

(617) 345-3000

Attorneys for Petitioners

Institut Pasteur and

Pasteur Sanofi Diagnostics

BATEMAN & SLADE. INC BOSTON. MASSACHUSETTS

QUESTIONS PRESENTED FOR REVIEW

I. Notwithstanding the conflicting decisions among

various Circuit Courts of Appeals, does § 365(c)(1)(A) of the

Bankruptcy Code prohibit a debtor in possession from

assuming executory contracts, (here non-exclusive patent

licenses which are nonassignable under federal law), because,

as the statute provides, assumption is prohibited “if applicable

law excuses a party, other than the debtor, to such [licenses]

from accepting performance from or rendering

performance to an entity other than the debtor or the debtor in

possession, whether or not such [licenses] . . . prohibit[ ] or

restrict[ ] assignment of rights or delegation of duties. . . .?”

II. In light of the numerous conflicting opinions among

the various Circuit Courts of Appeals regarding the proper

interpretation of 11 U.S.C. § 365(c)(1)(A), did the Court of

Appeals for the First Circuit err in its decision below by

reading a “benefit-of-the-bargain” test into that statute, under

which the debtor in possession may assume executory

contracts unless the nondebtor party proves that it will not

receive the full benefit of its bargain after assumption by the

debtor in possession?

Ill. Whether the Court of Appeals for the First Circuit

erred in placing the burden of proof on the nondebtor, rather

than on the debtor, on issues of whether the debtor in

possession is prohibited from assuming nonassignable

executory contracts under 11 U.S.C. § 365?

TABLE OF CONTENTS

Questions presented for WN es ee

TR OF COIR cscccsicericninissscianiiiasncrenaalappanibiaiaeiiiiatiets

Teds OE MI vevcincnsccicinsscannmancmeantiaen

Statement pursuant to Supreme Court Rule 29.6 .............

Citation of the reports of opinions and orders

entered in this case by the Courts..................cscccssssseeeeees

Statement of basis for jUTISGICHION ..............:cceeeeceeeeeeeseeees

Statutes Involved in thiS CASES .........0.csccsesescarevesesnssasssoosse

eee OF TG CI iscosincsisccceesiscnbidictneiadaanaseaeeenbieis

I. The conflict among the circuits and the

important federal law issue presented ..................000+4

A. The decision of the Court of Appeals for

the First Circuit below conflicts with the

decisions of other Courts of Appeals...................

B. The issue raised in this appeal is an important

Sentnd- OE GENE FRO a veceneicovnsninsithansseciatibiahasilanlasiinies

ili

TABLE OF CONTENTS (CONTINUED)

Page

C. Particular important questions arising from the

First Circuit’s interpretation of § 365(C)........++++++ 15

Il. The First Circuit’s holding conflicts with the

reasoning of this Court’s precedent regarding the

burden of proof under § 365 .......::::ssseesesee siepniniies 19

CONCIUSION ........c.ssesecessssssesesseeseeresssncessnnesenessssnsnsesnsnesenes 21

APPENGix .....seseresserresserensneseensnrenenrensesenenees follows Conclusion

TABLE OF AUTHORITIES

CASES:

Bowers v. Lake Superior Contracting & Dredging,

149 F. 983 (8th Cir. 1906)......ccessesesseresssenenersssersneneens 6n

Catron v. Breeden (In re Catron), 158 B.R. 629

(E.D. Va. 1993), aff'd in unpublished opinion

1994 WL 258400, 25 F.3d 1039 (4th Cir. 1994)...... 9n, 10

Delightful Music, Ltd. v. Taylor (In re Taylor),

913 F.2d 102 (3rd Cir. 1990).......cseereseceereerssrsesres 8, 14n

TABLE OF AUTHORITIES (CONTINUED)

Page

Dewsnup v. Timm, 502 U.S. 410 (1992) woccceeeseeesees 15n

Gilson v. Republic of Ireland, 787 F.2d 655

Siiice Nellis: SPENI aiccheniclsionipiaticicaihacnc ec Sag aI 6n

Gould v. Antonelli (In re Antonelli), 148 B.R. 443

(D. Md. 1992), aff'd without written opinion, 4

Sk Pe CN lt AR cccnsdthakartatcridaneocubaeie anise 9n, 11, 13

Hapgood v. Hewitt, 119 U.S. 226 (1886).......cccccsseesees 6n

In re Adana Mortgage Bankers, Inc., 12 B.R. 977

CROW: BE Ea SIA, SNe eicdsv estas soeavtacecasioos estes ekciscacaene 9n

In re American Ship Building Co., Inc., 164 B.R.

SB CMOS, MDD. Fite, 199A acco cccccssnscoinasnsseivvsinivccsessss On

In re Anglo Energy Limited, 41 B.R. 337 (Bankr.

CREA: OF. Fs Ee iatisenisinhseasenssnelaumumbakconcicanerts A. 19

In re Cambridge Biotech Corp., No. 94-43054-JFQ,

(Bankr. D. Mass. July 18, 1996)..............cccocsossossscsorsere ]

In re Cardinal Industries, 116 B.R. 964 (Bankr. D.

SD: RON abainsaeivebiciabiilidodasluatipbanietieaicca is Gates’ 14n

In re Carolina Parachute Corp., 108 B.R. 100

CRS AE + ORG. 5. SETA IRUM Dee) srieannel EAR IIe Pree Ne ck oa On

TABLE OF AUTHORITIES (CONTINUED)

Page

In re CFLC, Inc., 174 B.R. 119 (N.D. Cal. 1994),

aff'd sub. nom., Everex Systems, Inc. v.

Cadtrack Corporation (In re CFLC, Inc.), 89

F.3d 673 (9th Cir. 1996) (“CFLC I’) .......s00+++. 3, 6n, 8, 13, 17

In re Fastrax, Inc., 129 B.R. 274 (Bankr. M.D. Fla.

1991) ...ccscscsesesessseccsssscscsencscscssnsecscosscussnsssonsneresansnsenscecaes On

In re Hartec Enterprises, Inc., 117 B.R. 865 (Bankr.

W.D. Tex. 1990)....cccsssscsscssserseressersseseessssessreerenssseaesens 9n

In re James Cable Partners L.P., 27 F.3d 534

(11th Cir, 1994) .....ceccsssessseneessnsnssecnsensnennencansnsensnesnenses 8,14

In re Pennsylvania Peer Review Organization, Inc.,

50 B.R. 640 (Bankr. M.D. Pa. 1985).....scscssecesseseneesesees 9n

In re Pioneer Ford Sales, Inc., 729 F.2d 27

(Ast Cir. 1984).....cccccseccesesserseensnssnsnsensnsncanenensenensens 5, 8, 10, 18

In re Taylor Manufacturing, Inc., 6 B.R. 370 (Bank.

N.D. Ga. 1980) .....eccscssccsssseseseeseneensssessnreseessenenesseenanees 14n

In re West Electronics, Inc., 852 F.2d 79

(1988) ..ccccssssscsssescerseesssenscsssasssersesseseneneneenseees 7, 8, 13, 14n

TABLE OF AUTHORITIES (CONTINUED)

Page

Institut Pasteur v. Cambridge Biotech Corp.,

(In re Cambridge Biotech Corp.), Civ. No.

96-40176-NMG, (D. Mass. Sept. 27, EPO er hicinnsecianse ]

Institut Pasteur v. Cambridge Biotech Corp.

(In re Cambridge Biotech Corp.), 104 F.3d 489

43 e . | SRM CIN GOR Me wile Pee Le EARS ]

Lane & Bodley Co. v. Locke, 150 U.S. 193

UEIIIGF cconensestiiessentsespulgislcenindagebicnapa manta ie eee tena 6n

Leonard v. General Motors Corp. (In re Headquarters

Dodge, Inc.), 13 F.3d 674 (3d Cir. 1993) ....cccccccssecsossee, 8n

Metropolitan Airports Commission v. Northwest

Airlines, (In re Midway Airlines, Inc.), 6 F.3d

OPS (70 CR. FOR) cites ee 8n

New York v. Saper, 336 U.S. 328 ( SOT Pitch capstemicinbes 14n

N.L.R.B. v. Bildisco and Bildisco, 465 U.S.

FES CIOOD) ccicciniahiviniciotaaaniiece the 7, 13n, 15n, 19, 20

Patterson v. Shumate, 504 U.S. 753 PERE cntancanichcees 11, 15n

Pension Benefit Guaranty Corp. v. Braniff Airways,

Inc. (In re Braniff Airways, Inc.), 700 F.2d 935

(Sth Cir.), reh den., 705 F.2d 450 (5th Cir. | 8n

Vii

TABLE OF AUTHORITIES (CONTINUED)

Page

Rieser v. Dayton Country Club Co. (In re Magness),

972 F.2d 689 (6th Cir. 1992)..........escseresreeseerrenees 8n, 11

Stenograph Corp. v. Fulkerson, 972 F.2d 726

(7th Cir. 1992) .......cccsssrsrercrsecsesscssessrsrssscsesssnsessssevenees 6n

Summit Investment and Development Corp. v.

LeRoux (In re LeRoux), 69 F.3d 608 (1st Cir.

1995)....cosccenseoseasescescesnrcessscrsoseosencevesenevenssneesoonesssasonss passim

Texaco, Inc. v. Louisiana Land and Exploration

Co., 136 B.R. 658 (Bankr. M.D. La 1992)...........00. 9n, 14n

Troy Iron & Nail Factory v. Corning, 55 U.S.

193 (1852) ...ccrccccccsecessssvsencesesvosesensorsosessensensssvesersecooronses 6n

Unarco Industries, Inc. v. Kelly Co., Inc., 465

F.2d 1303 (7th Cir. 1972), cert. denied, 410

U.S. 929 (1973) ..rasrcscoosssrocecceccccvscerscsersecnsessosssesencsonesses 6n

Wood Harvester Co. v. Minneapolis-Esterly Harvester

Co., 61 F. 256 (8th Cir. 1894) ..........ccecssrsssresseserersees 6n

STATUTES

Page

BF DAN ROU ctiihesh meonenctenvacianscs ag ee Passim

BR MERI EAI heoveiniccedscnie Scie ks ae 3

oe Sr @ SOM i niesirccicniininicesuicgie Te 4

28 U.S.C. § RRMA Dh sseuhemssnets seviisiassuiedicns cess ae 2

PY ley BAU aetionicnandcienisg cus 6n

Supreme Court Rules SIALD) BIE (6) oesssessrscssescecsonsess..,... 2

MISCELLANEOUS

Macey and Sacca, Reconciling Sections 365(c)(1)

and (f)(1) of the Bankruptcy Code: Should Anti-

Assignment Laws Prohibit Assumption of

Contracts by a Debtor in Possession?, 100 Com.

L.J. 117 (Summer Ree chisisittnnenec rk 5, 10, 11, 18n

King, Assuming and Assigning Executory Contracts:

A History of Indeterminate Applicable Law’, 70

Am. Bankr. L.J. 95 PE TI acco 6, 10, 11

Washington Airport Act, 7 D.C. Code §§1101-1107....... 8n

‘

]

STATEMENT PURSUANT TO

SUPREME COURT RULE 29.6

1. Appellant/Petitioner Institut Pasteur (“IP”): There is

no parent company of IP. The subsidiaries of IP are Institut

Pasteur de Bangui, Institut Pasteur of Dakar, Institut Pasteur

de Madagascar, Institut Pasteur of French Guyana, Institut

Pasteur of Guadeloupe, Institut Pasteur of Cambodia, Institut

Pasteur of New Caledonia and Appellant/Petitioner Pasteur

Sanofi Diagnostics.

2. Appellant/Petitioner Pasteur Sanofi Diagnostics

(“PSD”): The majority shareholder of PSD is Sanofi, S.A.

The nonwholly owned subsidiaries of PSD are Adil

Instruments, S.A., Blood Virus Diagnostics, Pasteur Sanofi

Diagnostics, L., Pasteur Sanofi Diagnostics, S.A., Sanofi

Diagnostics, Sanofi Pacific Diagnostics, Ltd., Sanofi

Fujirebio.

CITATION OF THE REPORTS OF OPINIONS AND

ORDERS ENTERED IN THIS CASE BY THE COURTS

The First Circuit Court of Appeals opinion is Jnstitut

Pasteur v. Cambridge Biotech Corp. (In re Cambridge

Biotech Corp.), 104 F.3d 489 (1st Cir. 1997). The relevant

District Court Memorandum and Order, Jnstitut Pasteur v.

Cambridge Biotech Corp., (In re Cambridge Biotech Corp.),

Civ. No. 96-40176-NMG, (D. Mass. Sept. 27, 1996) is

unpublished and appears in the appendix submitted with this

petition. The relevant Bankruptcy Court order, Jn re

Cambridge Biotech Corp., No. 94-43054-JFQ, (Bankr. D.

Mass. July 18, 1996), is unpublished and also appears in the

appendix.

STATEMENT OF BASIS FOR JURISDICTION

January 17, 1997 is the date the judgment sought to be

reviewed was entered. There are no orders respecting

rehearing or an extension of time to file the petition for a writ

of certiorari. This Court has jurisdiction to review on a writ of

certiorari the judgment in question pursuant to 28 U.S.C. §

1254(1). Supreme Court Rules 29.4(b) and (c) are

inapplicable.

STATUTES INVOLVED IN THIS CASE

11 U.S.C. §§ 365, 1107

28 U.S.C. §§158(d), 1254(1)

35 U.S.C. §261

STATEMENT OF THE CASE

Cambridge Biotech Corporation (“CBC”) and Petitioner

PSD are parties to two nonexclusive cross license agreements

(“Licenses”) related to patented technology useful in the

detection of the Human Immunodeficiency Virus Type 2

(“HIV2”) that causes Acquired Immune Deficiency Syndrome

(“AIDS”)'. CBC filed a voluntary petition under chapter 11 of

the United States Bankruptcy Code, 11 U.S.C. §§101-1330, as

amended. In July, 1996, the United States Bankruptcy Court

! Petitioner IP is the owner of the patents at issue here. IP has granted PSD

an exclusive license to practice the patented technology in certain geographic areas

only. PSD subsequently entered into the Licenses with CBC.

ne eee

for the District of Massachusetts confirmed CBC’s plan of

reorganization (the “Plan”.

The Plan purports to permit CBC to assume the Licenses

under 11 U.S.C. § 365(a),” and to transfer its rights under the

Licenses to bioMérieux Vitek, Inc. (the “Buyer”) under the

guise of a sale of all of CBC’s stock to the Buyer.

Specifically, CBC sought to sell its so-called “Retroviral

Business” (i.e., its diagnostic business) to the Buyer under the

Plan. The technology that is the subject of the Licenses was

contemplated to be transferred as part of the sale of the

Retroviral Business. However, as the Licenses state, and as

145 years of federal jurisprudence has held without exception,”

nonexclusive patent licenses cannot be assigned without the

consent of the licensor, even where as here the licensee is a

debtor in a bankruptcy case. See, In re CFLC, Inc., 174 B.R.

119 (N.D. Cal. 1994), aff'd sub. nom., Everex Systems, Inc. v.

Cadtrak Corporation (In re CFLC, Inc.), 89 F.3d 673 (9th Cir.

1996) (“CFLC I’). Here PSD did not and does not consent to

the assignment of the Licenses. Thus CBC confronted a

dilemma, since it sought to transfer the Licenses as part of the

sale of the Retroviral Business to the Buyer.

Solely to evade the long-standing prohibition against

assignment of nonexclusive patent licenses such as the

Licenses, CBC’s Plan contorts CBC’s corporate structure to

2 11 U.S.C. § 365(a) permits a bankruptcy trustee to assume executory

contracts under certain circumstances. CBC, a debtor in possession, nevertheless

shares the same power to assume executory contracts. 11 U.S.C. § 1107 confers

the powers of a trustee with respect to executory contracts under § 365(c) on

debtors in possession.

3 See note 5, infra.

effect an indirect transfer of the Licenses.’ According to

CBC’s Plan, all of CBC’s remaining operations other than the

Retroviral Business were spun off into a newly formed

corporation named Aquila Biopharmaceuticals, _ Inc.

(“Aquila”). Shorm of everything except the Retroviral

Business, CBC issued new stock in itself to Aquila as part of

its Plan, and Aquila sold that stock to the Buyer. Thus the

Licenses were transferred to the Buyer in what amounts to an

actual assignment under the guise of a stock sale, even though

the Licenses cannot be assigned outright.

CBC concedes the Plan effects an assumption of the

Licenses, but claims the stock sale to the Buyer is not an

assignment. Petitioners assert that 11 U.S.C. § 365(c)(1)(A)

prohibits the assumption of the Licenses, so even if the

transaction involved assumption (but not assignment) of the

Licenses, the Plan should not have been confirmed.

Petitioners appealed the order confirming the Plan, seeking

only the limited relief of vacating, modifying or reversing that

order to the extent it permits CBC to assume the Licenses.

The United States Court of Appeals for the First Circuit

affirmed the affirmance of the United States District Court for

the District of Massachusetts of the order confirming the Plan.

The First Circuit exercised jurisdiction pursuant to 28 U.S.C.

§ 158(d). The First Circuit believed it was bound by its earlier

opinion in Summit Investment and Development Corp. v.

LeRoux (In re LeRoux), 69 F.3d 608 (Ist Cir. 1995)

(hereinafter “LeRoux’”) to conclude that notwithstanding the

4 Petitioners repeatedly have argued that CBC and the Buyer intentionally

structured this transaction so that superficially it appears to be a complicated stock

sale rather than an outright assignment and asset sale, to evade the prohibition

against assignment of the Licenses. CBC and the Buyer have never denied this,

and have never provided an alternative reason for this structure.

language of § 365(c), applicable law is irrelevant to a

determination of whether CBC could assume the Licenses.

The First Circuit did not cite to, or explain, why it relied upon

LeRoux rather than its earlier opinion in Jn re Pioneer Ford

Sales, Inc., 729 F.2d 27 (ist Cir. 1984) (Breyer, J.). In

Pioneer Ford Sales, Justice Breyer, then sitting on the First

Circuit, wrote that § 365(c) prohibits assumption where

applicable law renders the contract nonassignable. In this

case, the First Circuit ruled, consistently with LeRoux and

inconsistently with Pioneer Ford Sales, that CBC could

assume the Licenses, notwithstanding applicable

nonbankruptcy law prohibiting nonconsensual assignment of

the Licenses, since Petitioners failed to demonstrate they

would be deprived of the benefit of their bargain if CBC

assumed the Licenses.

ARGUMENT

I. THE CONFLICT AMONG THE CIRCUITS AND THE IMPORTANT

FEDERAL LAW ISSUE PRESENTED

The issue of the proper application of 11 U.S.C. § 365(c)

to limit the powers of a debtor in possession to assume and

assign executory contracts has been among the “more

mysterious and confusing in all the Bankruptcy Code and

predictably [creates] litigation.” Macey and Sacca,

Reconciling Sections 365(c)(1) and (f)(1) of the Bankruptcy

Code: Should Anti-Assignment Laws Prohibit Assumption of

Contracts by a Debtor in Possession?, 100 Com. L.J. 117

(Summer 1995). “Virtually every time a Court of Appeal has

addressed the issue, a unique analysis has resulted.” Macey &

Sacca, supra at 117. There exists “a divergence of approaches

almost as numerous as the cases found.” King, Assuming and

Assigning Executory Contracts: A History of Indeterminate

‘Applicable Law’, 70 Am. Bankr. L.J. 95 (Spring 1996).

The Petitioners ask this Court to interpret section 365(c)

of the Bankruptcy Code to resolve these numerous, conflicting

interpretations of that statute by various United States Circuit

Courts of Appeals, and to establish an interpretation more in

line with the clear statutory language than the interpretation

promulgated by the First Circuit. 11 U.S.C. § 365 permits a

debtor in possession to assume and assign executory contracts

under certain circumstances. However, the power to assume

and assign executory contracts is not unlimited. 11 U.S.C.

§ 365(c)(1)(A) prohibits assumption or assignment where

applicable nonbankruptcy law prohibits the debtor in

possession from assigning the contract without the consent of

the nondebtor party, “whether or not” the contract prohibits or

restricts assignment.

The Petitioners contend that federal law prohibiting the

assignment of patent licenses,’ absent the consent of the

5 An unbroken string of federal court opinions unanimously have held for at

least 145 years that “a nonexclusive licensee of a patent has only a personal and

not a property interest in the patent and that this personal right cannot be assigned

unless the patent owner authorizes the assignment or the license itself permits

assignment.” Everex Systems, Inc. v. Cadtrak Corporation (In re CFLC. Inc.), 89

F.3d 673, 679 (9th Cir. 1996), (quoting Gilson v. Republic of Ireland, 787 F.2d

655, 658 (D.C. Cir. 1986)) (citations omitted). See also, Lane & Bodley Co. v.

Locke, 150 U.S. 193 (1893); Hapgood v. Hewitt, 119 U.S. 226 (1886); Troy Iron

& Nail Factory v. Corning, 55 U.S. 193 ( 1852); Unarco Industries, Inc. v. Kelly

Co. Inc., 465 F.2d 1303, 1306 (7th Cir. 1972), cert. denied, 410 U.S. 929 (1973);

Bowers v. Lake Superior Contracting & Dredging, 149 F. 983 (8th Cir. 1906);

Wood Harvester Co. v. Minneapolis-Esterly Harvester Co., 61 F. 256 (8th Cir.

1894); Stenograph Corp. v. Fulkerson, 972 F.2d 726, 729 n.2 (7th Cir. 1992).

Consistently, Congress has expressly legislated the personal nature of patents and

patent rights. 35 U.S.C. § 261 (“patents shall have the attributes of personal

property”).

licensor, constitutes “applicable law” triggering

§ 365(c)(1)(A)’s° plain language prohibition against

assuming or assigning executory contracts without consent of

the nondebtor party. The Court below, however, held that

§ 365(c)(1)(A) would prohibit assumption only if the

Petitioners proved that they would not receive the “full

benefit of [their] bargain” upon assumption. The Court held

further that the Petitioners would, in fact, receive the benefit

of their bargain in the event of assumption by the debtor in

possession, and therefore § 365(c) does not prohibit CBC

from assuming the Licenses.

This result contravenes the clear language of the statute.

The First Circuit’s decision conflicts with decisions of other

Circuit Courts of Appeals, which prohibit assumption of

executory contracts where “applicable” nonbankruptcy law

prohibits assignment. In addition, the decision below

improperly places the burden of proving the propriety of

assuming or rejecting an executory contract under § 365(c) on

the nondebtor party, in contravention of legal precedent from

this Court placing the burden proof with respect to such

issues on the debtor in possession. See N.L.R.B. v. Bildisco

and Bildisco, 465 U.S. 513, 526 (1984).

A. The decision of the Court of Appeals for the First

Circuit below conflicts with the decisions of other

Courts of Appeals.

The decision of the First Circuit below squarely conflicts

with the decision of the Third Circuit Court of Appeals in Jn re

6 Unless otherwise indicated, all statutory references are to the United States

Bankruptcy Code, 11 U.S.C. §§ 101-1130, as amended.

West Electronics, Inc., 852 F.2d 79 (1988) (applying plain

language of § 365(c) to hold that contract between debtor in

possession and federal government could not be assumed since

contract is nonassignable under applicable nonbankruptcy

law). See also, Everex Systems, Inc. v. Cadtrak Corporation

(In re CFLC, Inc.), 89 F.3d 673 (9th Cir. 1996) (hereinafter

“CFLC II’) (patent licenses are nonassignable under

applicable law, and thus § 365(c) prohibits assumption and

assignment of nonexclusive patent license); Jn re James Cable

Partners L.P., 27 F.3d 534 (11th Cir. 1994) (§ 365(c) prohibits

assumption or assignment where applicable law specifically

prohibits assignment of the contract); Delightful Music, Ltd. v.

Taylor (In re Taylor), 913 F.2d 102 (3rd Cir. 1990); Jn re

Pioneer Ford Sales, Inc., 729 F.2d 27 (1st Cir. 1984) (Breyer,

J.) (assumption prohibited if applicable law prohibits

assignment). ?

7 Other circuit court cases with divergent and conflicting interpretations of

§365 include LeRoux, 69 F.3d 608 (applicable law irrelevant; assumption

permitted unless nondebtor party demonstrates it will be deprived of the full

benefit of its bargain); Leonard v. General Motors Corp. (In re Headquarters

Dodge, Inc.), 13 F.3d 674 (3d Cir. 1993) (vacating and remanding case with

instructions to determine if contract at issue is “personal services” contract that is

nonassignable under applicable law, and hence nonassumable under § 365(c));

Metropolitan Airports Commission v. Northwest Airlines, (In re Midway Airlines,

Inc.), 6 F.3d 492 (7th Cir. 1993) (determining “applicable law” has different

meanings in § 36S(c) and § 365(f)); Rieser v. Dayton Country Club Co. (In re

Magness), 972 F.2d 689 (6th Cir. 1992) (declining to follow First Circuit in

Pioneer Ford Sales), Pension Benefit Guaranty Corp. v. Braniff Airways, Inc. (In

re Braniff Airways, Inc.), 700 F.2d 935 (Sth Cir.), reh den., 705 F.2d 450 (Sth Cir.

1983) (under plain language of § 365(c), Washington Airport Act, 7 D.C. Code

§§ 1101-1107, constituted “applicable law,” triggering the § 365(c) prohibition

against assuming or assigning executory contracts).

Indeed, as noted above, a comparison of Pioneer Ford Sales, on the one

hand, and LeRoux and the opinion below in this case on the other indicates,

The Third Circuit’s West opinion represents a focal point

against which most of the opinions compare themselves. In

West, the debtor, a government contractor, sought an order

compelling the government to make progress payments under

different panels of the First Circuit conflict with each other. Similarly, the Fourth

Circuit has affirmed per curiam two lower court decisions nine months apart that

reached opposite results. Compare, Gould v. Antonelli (In re Antonelli), 148 B.R.

443 (D. Md. 1992), aff'd without written opinion, 4 F.3d 984 (4th Cir. 1993)

(permitting assumption in face of “applicable law” prohibiting assignment) with

Catron v. Breeden (In re Catron), 158 B.R. 629 (E.D. Va. 1993), aff'd in

unpublished opinion 1994 WL 258400, 25 F.3d 1039 (4th Cir. 1994) (assumption

prohibited because “applicable law” prohibited assignment). Pursuant to Fourth

Circuit internal operating procedures, citation of unpublished opinions is

disfavored. Thus, the decision of the Fourth Circuit in Catron as reported at 25

F.3d 1039 (4th Cir. 1994) states only that the lower court decision was affirmed.

The unpublished opinion, which affirmed for the reasons set forth in the District

Court opinion, can be found at the Westlaw citation.

Lower courts similarly are at odds. See, e.g., In re American Ship Building

Co., Inc., 164 B.R. 358 (Bankr. M.D. Fla. 1994) (debtor permitted to assume

contract to build ships for United States Navy over objection of United States);

Texaco, Inc. v. Louisiana Land and Exploration Co., 136 B.R. 658 (Bankr. M.D.

La 1992) (debtor permitted to assume mineral leases with Louisiana, over the

objection of the state, despite state statute prohibiting assignments of state mineral

leases without consent of state); Jn re Fastrax, Inc., 129 B.R. 274 (Bankr. M.D.

Fla. 1991) (debtor permitted to assume a contract with a subcontractor to its prime

contract with the United States Air Force over objection of United States, where

federal statute rendered contract nonassignable without consent of United States);

In re Hartec Enterprises, Inc., 117 B.R. 865 (Bankr. W.D. Tex. 1990) (debtor

permitted to assume a contract with the United States Defenses Logistics Agency

for the production of tractors used to tow heavy armaments and aircraft over

objection of the United States); Jn re Carolina Parachute Corp., 108 B.R. 100

(M.D. N.C. 1989) (debtor not permitted to assume contract which was otherwise

unassignable under “applicable” Government Contract law); Jn re Pennsylvania

Peer Review Organization, Inc., 50 B.R. 640 (Bankr. M.D. Pa. 1985); Jn re Adana

Mortgage Bankers, Inc., 12 B.R. 977 (Bankr. N.D. Ga. 1980) (guaranty agreements

which were unassignable under federal statute governing the Government Nationa!

Mortgage Association triggered the § 365(c) prohibition against assumption or

assignment).

the contract notwithstanding the existence of certain defaults

by the debtor. The debtor claimed it had the ability to cure the

defaults and assume the contract, and thus the default should

not prevent the government from making the requested

progress payments. The government cross-moved for relief

from the automatic stay to terminate the contract. The

bankruptcy court denied both motions as premature. The court

indicated the debtor had the capacity to cure the default and

should be given the opportunity to establish that it could

perform. Similarly, the district court on appeal affirmed the

bankruptcy court, reasoning that the contract, while executory,

could be assumed by the debtor subject to cure of the defaults.

The Third Circuit reversed both the district and

bankruptcy courts, ruling that since applicable nonbankruptcy

law prohibited the debtor from assigning the contract over the

government’s objection, section 365(c)(1)(A) prohibited the

debtor from assuming the contract. Thus, the court ruled, the

government was entitled to relief from the automatic Stay to

terminate the contract since section 365(c)(1)(A) prohibits the

Debtor from assigning it.

A number of Circuit Courts of Appeals have followed the

Third Circuit’s West opinion or are consistent with it. See, In

re Pioneer Ford Sales, 729 F.2d at 29 (First Circuit); CFLC J/,

89 F.3d 673 (Ninth Circuit); and Catron, 158 B.R. 629 (Fourth

Circuit). Some commentators and subsequent opinions,

however, have criticized West. See, Macey & Sacca, 100

Com. L.J. at 121. Even the critics, however, recognize that the

West holding is the holding most faithful to the actual text of

§ 365(c). King, 70 Am. Bankr. L.J. at 111-12 n.78. Those

cases rejecting West, and permitting assumption even where

applicable law renders contracts nonassignable, have been

criticized as imposing a judicial gloss on § 365(c) that is

inconsistent with the actual text of § 365(c). Macey & Sacca,

100 Com. L.J. at 125; see also, Patterson v. Shumate, 504

U.S. 753, 766-67 (1992) (Scalia, J., concurring) (criticizing

interpretive approaches to the Bankruptcy Code that stray

from the text of the statute).

The cases that do not follow West are difficult to

categorize. King, supra, suggests at least seven different

approaches adopted by the Courts. The cases that decline to

follow West focus upon the use of the phrase “applicable law”

in both § 365(c) and § 365(f). Section 365(f) states that

“except as provided in subsection (c) of this section,

notwithstanding a provision in an executory contract ... or in

applicable law, that prohibits, restricts or conditions the

assignment of such contract ... the trustee may assign such

contract or lease ...” if certain conditions are met. Although

§ 365(f) speaks only of assignment, and not assumption, the

confusion arises because § 365(c), the recognized exception to

§ 365(f), appears to resuscitate in full the very anti-assignment

“applicable law” which § 365(f) nullifies. See, Rieser v.

Dayton Country Club Co. (In re Magness),972 F.2d 689, 698

(6th Cir. 1992) (Guy, J., concurring). The attempts to

reconcile § 365(c) and § 365(f) create the context in which the

courts, including the First Circuit below in this case, have

conflicted with West and with each other.

The confusion caused by this welter of divergent and

conflicting authorities has been so deep and difficult that it has

lead at least one district court to discard statutory analysis

entirely. In Jn re Antonelli, 148 B.R. 443, 447 (D. Md. 1992),

aff'd, 4 F.3d 984 (4th Cir. 1993) (mem.), District Judge Motz

crystallized the depth of the difficulties caused by the

conflicting and irreconcilable opinions:

Having outlined the issues, I cannot say with

any sense of intellectual honesty that I believe

that traditional approaches to legal analysis will

lead to a principled conclusion. In my view the

reality is that in attempting to accommodate

competing policy interests, all of which are of

substantial weight, Congress has _ enacted

statutes which impose conflicting mandates and

has created a statutory scheme leaving

interstices which the courts necessarily must fill

on a case by case basis. Under these

circumstances I will not ornament my holding

with a facade of precedent or references to what

I deem to be inconclusive statutory language.

Rather, I will simply state that I have concluded

that here the Bankruptcy Court correctly found

that the Plan properly balances the

countervailing interests of expediting

bankruptcy proceedings and maximizing the

bankruptcy estate, on the one hand, and

assuring fairness to non-debtor parties, on the

other.

Id. at 447.

This deep uncertainty and conflict as expressed by Judge

Motz cries out for dispositive review and decision by this

Court so that debtors and nondebtors alike can know with

some certainty what it is that § 365(c) permits and what it does

not. This case provides this Court with the opportunity to

resolve this dispute once and for all.

B. The issue raised in this appeal is an important issue

of federal law

11 U.S.C. §365(c) governs how the courts balance

bankruptcy law policies with other important policies arising

under nonbankruptcy law. Thus, defining the limits imposed

by § 365(c) upon the powers of a debtor in possession to

assume or assign executory contracts is an important issue of

federal law that is worthy of resolution by this Court. This

case squarely presents this Court with the opportunity to

determine whether the bankruptcy policy of maximizing assets

to creditors takes precedence over competing important federal

policies, and if it does, the extent to which bankruptcy policy

takes precedence.®

As Judge Motz noted in the passage from Antonelli

quoted above, the conflict among the cases is deep and

intractable precisely because the competing policy interests

underlying the conflict are all of “substantial weight.” Jd. The

Courts have sought to balance the bankruptcy policy of

maximizing assets for creditors with other policy interests that

§ 365(c) seeks to promote. Some Courts (particularly the

Ninth and Third Circuits) have concluded § 365(c) means

these nonbankruptcy laws and policies override the bankruptcy

policy of maximization of asset values for creditors. See, e.g.,

In re West Electronics, Inc., 852 F.2d 79; CFLC II, supra. Yet

other courts, including the First Circuit in this case below,

have reached the opposite conclusion. Other Circuits have

8 This case is similar in this regard to the circumstances presented in NLRB

v. Bildisco & Bildisco, 465 U.S. 513 (1984), where this Court granted certiorari to

consider conflicting interpretations of the proper balance under § 365 between

bankruptcy policy and federal labor law policies regarding collective bargaining

agreements.

adopted an approach close to West, emphasizing the

nonbankruptcy policy, but seek a middle ground by limiting

assumption or assignment only where there is some indication

the nonbankruptcy policy is particularized rather than general.

See e.g., In re James Cable Partners, Inc., 27 F.3d 534 (11th

Cir. 1994) (enforcing nonbankruptcy law only where there is a

specific prohibition against assignment of the contract at issue,

rather than general contract law prohibiting assignment).

However, the sheer volume of cases addressing this issue

demonstrates that the issue arises regularly in cases involving

conflicts between bankruptcy policies and many other

important competing policies and laws. Among the cases

where the issue has been addressed have been cases where

debtors or trustees have sought to assume nonassignable

partnership agreements,” government contracts,’? cable tele-

vision franchise agreements,'! mineral leases, personal

service contracts!? and, of course, nonexclusive patent

licenses. The breadth of § 365(c), applying to all executory

contracts and unexpired leases of the debtor, means the issue

arises frequently and will recur repeatedly. Thus resolution of

this issue will facilitate the administration of cases in

bankruptcy. See, New York v. Saper, 336 U.S. 328 (1949)

9 LeRoux, 69 F.3d 608; In re Cardinal Industries, 116 B.R. 964 (Bankr. D.

Ohio 1990).

10 Jn re West, 852 F.2d 79.

11 James Cable Partners, L.P., 27 F.3d 534.

12 Texaco, Inc. v. Louisiana Land and Exploration Co., 136 B.R. 658

(Bankr. M.D. Loan Advance. 1992).

13 Delightful Music, Lid. v. Taylor (In re Taylor) 913 F.2d 102 (3rd Cir.

1990); Jn re Taylor Manufacturing, Inc., 6 B.R. 370 (Bank. N.D. Ga. 1980).

Cee

(Court grants certiorari because the conflict related to a matter

“of importance in the administration of the Bankruptcy Act”).

C. Particular important questions arising from the First

Circuit's interpretation of § 365(c).

Whatever ambiguities may exist in the use of the phrase

“applicable law” in § 365(c), it cannot mean that applicable

law is irrelevant and should be ignored simply because the

identical phrase appears in § 365(f). Yet that is precisely what

the First Circuit’s decision below means. In the course of

interpreting § 365(c), the First Circuit has effectively rewritten

it to delete the words “applicable law” from the statute. |

As aresult of the judicial gloss imposed upon § 365(c) by

the First Circuit in LeRoux and in the decision in this case

below, in the First Circuit § 365(c) prohibits a debtor in

possession from assuming an executory contract only where

the nondebtor party proves” it will be deprived of the full

benefit of its bargain if the contract is assumed.

14 Recent Supreme Court authority anticipated difficulties such as those

involved in this case might arise from efforts to interpret the Bankruptcy Code.

Compare, Dewsnup v. Timm, 502 U.S. 410 (1992) (phrase “allowed secured claim”

appearing in 11 U.S.C. § 506(a) interpreted without reference to meaning of the

identical phrase in 1] U.S.C. § 506(d)) with Patterson v. Shumate, 504 U.S. 753

(1992) (term “applicable nonbankruptcy law” in 11 U.S.C. § 541(c)(2) interpreted

with reference to meaning of identical phrase appearing elsewhere in Bankruptcy

Code), see particularly Jd., 504 U.S. at 766-67 (Scalia, J., concurring) (criticizing

interpretive approaches that stray from text of Bankruptcy Code).

15 As discussed below, by placing the burden of proof on the nondebtor

party, the First Circuit’s opinion conflicts with the reasoning of this Court's

decision in Bildisco, and is inconsistent with well established law predating the

enactment of the 1978 Bankruptcy Code that holds the debtor, and not the

nondebtor party, has the burden of proof on the issues relevant to whether

assumption should be permitted.

This “benefit of the bargain” test turns § 365(c) on its

head. The text of 11 U.S.C. § 365(c) focuses the inquiry away

from the contract, as 11 U.S.C. § 365(c) operates by its terms

“whether or not” the contract prohibits assignment. In order to

determine the bargain to which the nondebtor party is entitled

under the First Circuit’s holding, however, a court must look

not to applicable law, as directed by the text of § 365(c), but

rather to the contract, notwithstanding 11 U.S.C. § 365(c)’s

admonition that assumption is prohibited “whether or not” the

contract prohibits assignment.

The First Circuit’s reasoning below exposes how far from

the actual text of § 365(c) that Court has strayed. The First

Circuit devoted substantial attention to the contract

language, '° not to applicable law despite § 365(c), and found

that the terms of the Licenses control whether CBC may

assume the Licenses. The First Circuit has reduced the

analysis of whether § 365(c) prohibits assignment to an

analysis that differs little from classical state law contract

analysis. In the parlance of contract analysis, only if there is a

breach or potential breach of contract arising from the

assumption would the First Circuit prohibit assignment, even

though whether there has been a breach of the contract, or

whether Petitioners would be deprived of the full benefit of

16 The First Circuit’s analysis of the Licenses not only is misplaced under

§ 365(c), it is in certain instances inconsistent with the plain language of the

Licenses. For example, the First Circuit's decision twice states the clearly

erroneous conclusion that the Licenses permit CBC “to incorporate [Petitioners’]

HIV2 procedures into any diagnostic kits sold by CBC in the United States,

Canada, Mexico, Australia, New Zealand and elsewhere.” 104 F.3d at 490. In

point of fact, the Licenses prohibit CBC from incorporating Petitioners’

technology in kits sold in those countries. Licenses, see infra app. E § 2.1 and

exh. A-C; and app. F §2.1 and exh. A-C.

their bargain, are not relevant considerations under the actual

language of § 365(c).

In this case, the Court has particularly disturbed well-

settled patent law policies in its interpretation of § 365(c). The

nonbankruptcy policy at issue is the continued viability of 145

years of umanimous federal jurisprudence prohibiting

nonconsensual assignments of nonexclusive patent licenses.

The First Circuit’s ruling creates a loophole through which

bankrupt patent licensees may evade the long-standing federal

prohibition against nonconsensual assignments of

nonexclusive patent licenses, simply by structuring the

transaction as requiring assumption, but not an outright

assignment, of the patent license, and structuring the

transaction as a stock sale.

The decision of the Court of Appeals below turns §365(c)

on its head, and is a blueprint, a practice point, for

practitioners to use to evade and render meaningless the long-

standing federal prohibition against nonconsensual

assignments of patent licenses. It is crucial to patent licensors

that this Court close the loophole created by the opinion

below, since it is the ability to control the identity of the party

practicing the patented technology that is at the heart of what

it is a patent licensor of a nonexclusive patent license holds.

CFLC II, 89 F.3d at 679. By eviscerating that ability and that

control, a licensor of a nonexclusive patent license effectively

loses its patent rights altogether, since by granting a license to

anyone, the license is available to all interested parties through

the expediency of the stock transaction blessed by the First

Circuit below.

Moreover, other subsections of §365 reveal the difficulties

with the First Circuit’s opinion below. Interpreting 11 U.S.C.

§ 365(c) as requiring an analysis of whether the nondebtor

party will be deprived of the benefit of its bargain by

assumption or assignment renders 11 U.S.C. § 365(b)(1)(C)

and 11 U.S.C. §365(f) (2)(B) redundant. 11 U.S.C.

§ 365(b)(1)(C) is a limitation on the debtor in possession’s

power to assume a contract where there has been a default in

the contract. The contract cannot be assumed unless the

debtor in possession “provides adequate assurance of future

performance.” Similarly, 11 U.S.C. § 365(f)(2)(B) prevents

assignment of a contract (regardless of whether there has been

an earlier default) “unless adequate assurance of future

performance by the assignee of such contract . . . is provided.”

The requirement of adequate assurance of future

performance is redundant with the First Circuit’s requirement

of a showing that the nondebtor party will not be deprived of

the benefit of its bargain. Sections 365(b)(1)(C) and

365(f)(2)(B) would be unnecessary if Congress intended

§ 365(c) to apply except where the nondebtor party would be

deprived of the benefit of its bargain by assumption. -

The First Circuit’s benefit of the bargain test thus (i)

diverts attention away from applicable law, as mandated by

§ 365(c) and the First Circuit’s own Pioneer Ford Sales, Inc.

opinion, and focuses instead on the contract, (ii) may produce

a result at least facially conflicting with 11 U.S.C. § 365(f)

where, as here, the nondebtor’s power to prohibit assignments

and other transfers is a central element of the bargain, (iii) is

untethered to the two elements the text of 11 U.S.C. § 365(c)

emphasizes, namely the identity of the party who will perform

17 Indeed, Macey & Sacca argue for Congressional amendment to 11 U.S.C.

§ 365 because they argue other provisions of 11 U.S.C. § 365 adequately protect

the nondebtor party, and thus 11 U.S.C. § 365(c), as it exists now, is an

unnecessary limitation on the power to assume contracts. Macey & Sacca at 130-

31. Until any such amendment, however, 11 U.S.C. § 365(c) clearly operates to

prohibit either assumption or assignment of the Licenses.

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iii ct, Sah Sein

the contract and whether applicable nonbankruptcy law

excuses the nondebtor party from accepting performance from

a third party, and (iv) may render 11 U.S.C. § 365(b)(1)(C)

surplusage.

Ul. THE First Circult’s HOLDING CONFLICTS WITH THE

REASONING OF THIS COURT’S PRECEDENT REGARDING

THE BURDEN OF PROOF UNDER § 365

In LeRoux and in the case below, the First Circuit

imposed the burden of proof on the nondebtor on the issues

involved in determining whether assumption should be

permitted. In so doing, the First Circuit’s ruling conflicts with

well established bankruptcy law precedent, and with the

reasoning of this Court’s opinion in Bildisco, supra.

Prior to LeRoux and this case below, the well established

law was that the debtor, rather than the nondebtor party, had

the burden of proof on all issues relating to any proposed

assumption or assignment of an executory contract. Jn re

Anglo Energy Limited, 41 B.R. 337, 340 (Bankr. S.D. N.Y.

1984) (court notes debtor has burden to demonstrate

assumption or rejection would benefit the estate under

bankruptcy code and former bankruptcy act). Consistently

with this precedent, this Court, in Bildisco, 465 U.S. at 526,

defined what must be demonstrated in order for a debtor to

reject a collective bargaining agreement. This Court reasoned

that it is the debtor in possession, and not the nondebtor party,

that must make the required showing. In Bildisco, the Court

ruled that in order to reject a collective bargaining agreement

under § 365(a) of the Bankruptcy Code, the debtor, not the

nondebtor party, bears the burden of proving that the contract

will burden the estate, and that after careful scrutiny, the

equities balance in favor of rejecting the contract. 465 U.S. at

526. The nature of this test further emphasizes that it is the

debtor, and not the nondebtor party, that has the burden of

proof to make the requisite showing under § 365.

Without explanation, however, the First Circuit purports

to impose the burden of proof upon the nondebtor party (here

Petitioners) to demonstrate they will not be deprived of the

benefit of their bargain. Indeed, CBC takes advantage of this

change by arguing Petitioners, and not CBC, must make the

requisite showing under LeRoux. Petitioners lost this appeal at

the District Court level on the grounds it failed to meet this

burden of proof transferred by the First Circuit to Petitioners.

District Court Memorandum Order, see infra app. C at 30c.

This case presents this Court with the Opportunity to clarify

that, consistent with Bildisco, the burden of proof on issues

relating to assumption and rejection of executory contracts

under § 365 remains with the debtor and should not be

transferred to the nondebtor party.

: CONCLUSION

For all of the foregoing reasons, Petitioners pray that this

Court review this case by wnit of certiorari.

Respectfully submitted,

Paul E. Stanzler*

q *Attorney of Record

; Jeffrey D. Sternklar

i Michael R. Gottfried

: BURNS & LEVINSON LLP

; 125 Summer Street

; Boston, MA 02110

(617) 345-3000

;

Attorneys for Petitioners

Institut Pasteur and

Pasteur Sanofi Diagnostics

April 16, 1997

APPENDIX TABLE OF CONTENTS

Page

Appendix A

Opinion of the United States Court of Appeals

for the First Circuit dated January 17, 1997..............0 la

Appendix B

Judgment of the United States Court of Appeals

for the First Circuit entered January 17, 1997............... 15a

Appendix C

Memorandum and Order of the United States

District Court District of Massachusetts....................008- 16a

Appendix D

Recitals of the United States Bankruptcy Court

for the District of Massachusetts ...............ssccscseseseesseees 34a

Appendix E

Royalty-Free Cross License Agreement...........::::sssce0 59a

Appendix F

Royalty-Bearing Cross License Agreement ................+: 71a

Appendix G .

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Appendix A.

United States Court of Appeals

For the First Circuit

No. 96-2028

INSTITUT PASTEUR AND PASTEUR SANOFI

DIAGNOSTICS,

Appellants,

Vv.

CAMBRIDGE BIOTECH CORPORATION,

Appellee.

APPEAL FROM THE UNITED STATES DISTRICT

COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Nathaniel M. Gorton, U.S. District Judge]

Before

Cyr, Boudin and Lynch,

Circuit Judges.

Jeffrey D. Sternklar, with whom Michael Gottfried and

Burns & Levinson LLP were on brief for appellants.

Joseph F. Ryan, with whom Jeffrey L. Jonas, Anthony L.

Gray, Andrew_P. Strehle and Brown, Rudnick, Freed «

Gesmer, P.C. were on brief for appellee.

January 17, 1997

CYR, Circuit Judge. Unsuccessful in their intermediate

appeal to the district court, Institut Pasteur and Pasteur Sanofi

Diagnostics [collectively: “Pasteur”] again appeal from the

bankruptcy court order which confirmed the chapter 11

reorganization plan (“Plan”) proposed by debtor-in-possession

Cambridge Biotech Corporation (“CBC”), the holder of two

licenses to utilize Pasteur patents. The Plan provision central

to the present dispute calls for the sale of all CBC stock to a

subsidiary of bioMerieux Vitek, Inc. (“bioMerieux”), a major

competitor of appellant Pasteur. Finding no error, we affirm.

BACKGROUND

CBC manufactures and sells retroviral diagnostic tests for

detecting the human immunodeficiency virus (HIV) associated

with AIDS. Its HIV diagnostics division annually generates

approximately $14 million in revenues. Institut Pasteur, a

nonprofit French foundation engaged in AIDS-related research

and development, owns various patented procedures for

diagnosing HIV Virus Type 2 (“HIV2 procedures”). Pasteur

Sanofi Diagnostics holds the exclusive right to use and

sublicense Institut Pasteur’s patents.

In October 1989, CBC and Pasteur entered into mutual

cross-license agreements, whereby each acquired a

nonexclusive perpetual license to use some of the technology

patented or licensed by the other. Specifically, CBC acquired

the right to incorporate Pasteur’s HIV2 procedures into any

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diagnostic kits sold by CBC in the United States, Canada,

Mexico, Australia, New Zealand and elsewhere

Each cross-license broadly prohibits the licensee from

assigning or sublicensing to others. See Royalty-Free Cross-

License, at § 7.1; Royalty-Bearing Cross-License, at § 8.1

(“[N]o other person shall acquire or have any right under or by

virtue of this Agreement.”). Nevertheless, either Pasteur or

CBC was authorized to “extend to its Affiliated Companies

the benefits of this Agreement so that such party shall remain

responsible with regard [to] all [license] obligations.” Id. §

1.4. “Affiliated Company” is defined as “an organization

which controls or is controlled by a party or an organization

which is under common control with a party.” Id.

CBC filed its chapter 11 petition on July 7, 1994, and

thereafter continued to operate its retroviral diagnostic testing

business as debtor-in-possession. Its reorganization plan

proposed that CBC assume both cross-licenses, see 11 U.S.C.

§ 365 (executory contracts),” continue to operate its retroviral

diagnostics division utilizing Pasteur’s patented HIV2

procedures, and sell all CBC stock to a subsidiary of

bioMerieux, a giant French biotechnology corporation and

Pasteur’s direct competitor in international biotechnology

sales. Pasteur previously had licensed bioMerieux to use its

HIV2 procedures, but the earlier license related to a single

product manufactured by bioMerieux (i.¢., bioMerieux’s

VIDAS automated immunoassay test system), and applied

only to VIDAS sales in markets other than the United States,

1 These cross-licenses expressly provide that Massachusetts law governs

their interpretation. See Royalty-Free Cross-License, at § 9; Royalty-Bearing

Cross-License, at § 10.

2 The parties agree that the cross-licenses are “executory contracts,” since

substantial performance remains due by both parties. See Summit Inv. & Dev.

Corp. v. Leroux (In re Leroux), 69 F.3d 608, 610 n.3 (1st Cir. 1995).

Canada, Mexico, Australia, and New Zealand, markets

expressly encompassed within the CBC cross-licenses.

Not surprisingly, in due course Pasteur objected to the

Plan. Citing Bankruptcy Code § 365(c), 11 U.S.C. § 365(c), it

contended that the proposed sale of CBC’s stock to

bioMerieux amounted to CBC’s assumption of the patent

cross-licenses and their de facto “assignment” to a third party

in contravention of the presumption of nonassignability

ordained by the federal common law of patents, as well as the

explicit nonassignability provision contained in the cross-

licenses. Isabelle Bressac, Pasteur’s licensing director,

attested that Pasteur would not have granted its competitor,

bioMerieux, or a subsidiary, a patent license under the terms

allowed CBC.

The bankruptcy court authorized CBC to assume the

cross-licenses over Pasteur’s objection. It ruled that the

proposed sale of CBC stock to bioMerieux did not constitute a

de facto “assignment” of the cross-licenses to bioMerieux, but

merely an assumption of the cross-licenses by the reorganized

debtor under new Ownership, and that Bankruptcy Code §

365(c) enabled CBC to assume the cross-licenses as debtor-in-

possession because the prepetition licensing relationship

between Pasteur and CBC was neither “unique” nor

“something in the category of a personal services contract.” In

re Cambridge Biotech Corp., No. 94-43054, slip op. at 17-18,

24 (Bankr. D. Mass. Sept. 18, 1996); Tr. 176-77.2 The district

court upheld the bankruptcy court ruling on intermediate

appeal.

3 The bankruptcy court further found that the Plan had been proposed in

good faith, see 11 U.S.C. § 1129(a)(3), and that the stock sale to bioMerieux had

been negotiated in good faith and at arm’s length. In re Cambridge Biotech Corp.,

No. 94-43054, slip op. at 7, 12.

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DISCUSSION

A. Appellate Jurisdiction

Citing our decision in Rochman v. Northeast Utils. Serv.

Group (In re Public Serv. Co. of N.H.), 963 F.2d 469 (1st Cir.)

(“Public Service”), cert. denied, 506 U.S. 908 (1992), CBC

now moves to dismiss the appeal for lack of appellate

jurisdiction. It contends that Pasteur failed to pursue all

available remedies for preserving a temporary stay of the

confirmation order pending appeal after this court lifted the

temporary stay on October 9, 1996. See Trone v. Roberts

Farms, Inc. (In re Roberts Farms, Inc.), 652 F.2d 793, 798 (9th

Cir. 1981) (noting that appellant should file motion to stay

judgment with Circuit Justice if necessary). Since CBC

substantially consummated its Plan on October 21, 1996, it

argues that Pasteur can no longer be afforded complete relief

because neither this court nor the bankruptcy court has

jurisdiction over the many third parties affected by, and much

of the res distributed pursuant to, the consummated Plan.

Finally, CBC argues, no court can now provide Pasteur with

meaningful partial relief, such as selective rescission of the

stock sale or the cross-license assumption/assignment

provisions, because retention of these cross-licenses by CBC

is indispensable to any successful reorganization of its

4 A series of stays had prevented CBC from consummating the Plan by

August 2, 1996, as scheduled, and a final consummation date was set for October

31, 1996. In early October, CBC asked this court to vacate the pending stay,

claiming that further delay threatened irreparable injury. It represented that almost

half its employees had quit during the preceding year, jittery clients had begun to

cancel contracts, and that its revenues had declined by 10%.

retroviral diagnostics business, and, from bioMerieux’s

standpoint, is a “deal-busting” component of the Plan. See

Plan § IX.B.2.a (“{P]rovisions of the Confirmation Order are

nonseverable and mutually dependent.”). We disagree.

Contrary to CBC's Suggestion, our Public Service

decision does not reduce to the simplistic theme that appellate

courts invariably are deprived of jurisdiction by the lack (or

premature dissolution) of a stay which results in substantial

plan consummation prior to final disposition of the appeal.

Rather, we rested our decision in Public Service primarily on

two circumstantial considerations. See In re Andreuccetti, 975

F.2d 413, 418 (7th Cir. 1992) (noting that Public Service

contemplates that “‘[t]he court should reach a determination

upon close consideration of the relief sought in light of the

facts of the particular case”) (citation omitted).

First, the equities weighed heavily against the appellants

in Public Service, who repeatedly and inexplicably failed to

avail themselves of interlocutory appeals from earlier denials

of their requests for Stay by the courts below. As a

consequence of their notable lack of diligence, a full sixteen

months had elapsed from the date of confirmation, during

which “implementation of the confirmed plan proceeded

apace.” In re Public Serv., 963 F.2d at 472. In contrast,

Pasteur assiduously preserved its Stay throughout the three-

month period which elapsed following confirmation, and, on

the day this court dissolved the temporary stay, we expedited

the Pasteur appeal.

Second, Public Service involved extraordinarily intricate

Plan provisions, as well as a multi-billion dollar enterprise,

with the result that any attempted Plan dismantling following

the substantial and unexcused lapses by appellants would have

produced “‘a nightmarish situation tor the bankruptcy court on

remand.’” Id. at 474 (citation omitted); see, e.g., Baker &

Drake, Inc. v. Public Serv. Comm’n of Nev., 35 F.3d 1348,

1351-52 (9th Cir. 1994) (finding appellate jurisdiction, and

noting that reorganization plan at issue was “not a complex,

billion-dollar affair” like the plans in Trone and Public

Service). Although the CBC Plan is not without its own

complexities, CBC is a much less compiex enterprise than

Public Service, and its Plan was substantially consummated

much more recently in relation to the date of appeal.”

We need not resolve the jurisdictional challenge urged

upon us by CBC, however, since the merits of Pasteur’s

contention — that CBC’s assumption of the cross-licenses and

its sale of stock to the bioMerieux subsidiary contravene

Bankruptcy Code § 365(c) — are readily dispatched. See

Casco N. Bank. N.A. v. DN Assocs. (In_re DN Assocs.), 3

F.3d 512, 515 (1st Cir. 1993) (noting that appellate court may

bypass jurisdictional questions where appeal would falter on

merits even assuming jurisdiction) (citing Norton v. Mathews,

427 U.S. 524, 532 (1976)).

Mi Bits IR Leal DA ht SARS at Sa OCP Nite a Ai ah COR EDT tei aed Bn le. ee

B. The Merits°

Pasteur argues that the CBC Plan effects a de facto

assignment of its two cross-licenses to bioMerieux, contrary to

Bankruptcy Code § 365(c)(1) which provides as follows:

;

5 The equitable and pragmatic tests employed in Public Service are

symbiotic. See In re UNR Indus., 20 F.3d 766, 769 (7th Cir.), cert. denied, 115 S.

Ct. 509 (1994) (“There is a big difference between inability to alter the outcome

(real mootness) and unwillingness to alter the outcome (‘equitable mootness’),”

and “[ujsing one word for two different concepts breeds confusion”; instead,

appellate courts ultimately must ask “whether it is prudent to upset the plan or

reorganization at this late date.”) (citations omitted).

6 We review the district court’s conclusions of law de novo and the

bankruptcy court’s findings of fact for clear error only. See Petit v. Fessenden, 80

F.3d 29, 32 (ist Cir. 1996).

The trustee [viz., CBC]’ may not assume or assign

any executory contract... , whether or not such

contract .. . prohibits or restricts assignment of

nghts or delegation of duties, if —

(1)(A) applicable law excuses a party [ ] other

than the debtor{ ] [viz., Pasteur] to such

contract .. . from accepting performance from

or rendering performance to an entity other than

the debtor or the debtor in possession, whether

or not such contract . . . prohibits or restricts

assumption or assignment; and

(B) such party [viz., Pasteur] does not consent

to such assumption or assignment

11 U.S.C. § 365(c)(1).

Pasteur argues that in order to encourage optimum

product innovation the federal common law of patents

presumes that patent licensees, such as CBC, may not

sublicense to third parties absent the patent holder’s consent.

See, ¢.g., Commissioner v. Sunnen, 333 U.S. 591, 609 (1948).

This federal common law rule of presumptive nonassignability

thus qualifies as an “applicable law,” within the meaning of

Bankruptcy Code § 365(c)(1)(A), which precludes Pasteur

from being compelled to accept performance from any entity

other than CBC — eg., bioMerieux’s subsidiary — and

7 As debtor-in-possession, CBC has substantially the same rights and powers

as a chapter 11 trustee, including the power to assume executory contracts under

Bankruptcy Code § 365. See 11 U.S.C. § 1107.

AT Raed Mant

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‘

therefore prevents CBC from either assuming or assigning

these cross-licenses. See Everex Sys., Inc. v. Cadtrak Corp

(In_re CFLC, Inc.), 89 F.3d 673, 679-80 (9th Cir. 1996)

(federal patent law of nonassignability preempts state law

relating to patent license assignability). Further, says Pasteur,

even assuming that section 365(c) might allow a debtor simply

to assume the cross-licenses without a subsequent assignment

to a third-party, CBC formally structured this Plan transaction

as an assumption by the debtor-in-possession, whereas in

substance it was an assignment of the cross-licenses to

bioMerieux, a complete stranger to the original cross-licensing

agreements.

These contentions are foreclosed by our decision in

ummit Inv. & Dev. Corp. v. Leroux (In re Leroux), 69 F.3d

608 (ist Cir. 1995), which analyzed and _ interpreted

companion Bankruptcy Code subsections 365(c) and (e) and

their relevant legislative history.” As in the present case, in

Leroux we were urged to interpret subsections 365(c) and (¢)

as mandating a “hypothetical test.” Under such an approach,

the chapter 11 debtor would lose its option to assume the

contract, even though it never intended to assign the contract

to another entity, if either the particular executory contract or

8 See Williams v. Ashland Eng’g Co., 45 F.3d 588, §92 (ist Cir.) (“In a

multi-panel circuit, newly constituted panels are, for the most part, bound by prior

panel decisions closely on point.”), cert. denied, 116 S. Ct..51 (1995).

9 Bankruptcy Code § 365(e)(2)(A) provides that a statutory or contractual

termination provision, which ts contingent upon the filing of a bankruptcy petition,

may be enforceable in bankruptcy if the “applicable law excuses a party, other than

the debtor, to such contract or lease from accepting performance from or rendering

performance to the trustee or to an assignee of such contract or lease, whether or

not such contract or lease prohibits or restricts assignment of nights or delegation of

duties: and (ii) such party does not consent to such assumption or assignment . . . .”

11 U.S.C. § 365(e)(2)(A) (emphasis added).

10a

the applicable nonbankruptcy law purported to terminate the

contract automatically upon the filing of the chapter 1]

petition or to preclude its assignment to an entity not a party to

the contract. Id. at 612.

We rejected the proposed hypothetical test in Leroux,

holding instead that subsections 365(c) and (e) contemplate a

case-by-case inquiry into whether the nondebtor party (viz.,

Pasteur) actually was being “forced to accept performance

under its executory contract from someone other than the

debtor party with whom it origianlly contracted.” Id. Where

the particular transaction envisions that the debtor-in-

possession would assume and continue to perform under an

executory contract, the bankruptcy court cannot simply

presume as a matter of law that the debtor-in-possession is a

legal entity materially distinct from the pre-petition debtor

with whom the nondebtor party (viz., Pasteur) contracted. Id.

at 613-14 (citing H.R. Rep. No. 1995, 96th Cong., 2d Sess. §

27(b) (1980); NLRB v. Bildisco & Bildisco, 465 U.S. 513,

528 (1984)). Rather, “sensitive to the rights of the nondebtor

party (viz., Pasteur),” the bankruptcy court must focus on the

performance actually to be rendered by the debtor-in-

possession with a view to ensuring that the nondebtor party

(viz., Pasteur) will receive “the full benefit of [its] bargain.”

Id. at 612-13 (citing S. Rep. No. 989, 95th Cong., 2d Sess. 59

(1978), reprinted in 1980 U.S.C.C.A.N. 5787, 5845).

Given the pragmatic “actual performance” test adopted in

Leroux, the ultimate findings of fact and conclusions of law

made by the bankruptcy court!° below did not constitute error.

10 We are not persuaded by Pasteur’s contention that the failure to cite

Leroux in the confirmation order indicates that the bankruptcy court failed to

follow it. Pasteur itself cited Leroux at the July 1996 confirmation hearing, and the

bankruptcy court’s ultimate findings faithfully track its model.

lla

CBC simply does not occupy the same position as the debtor

in CFLC, Inc., 89 F.3d 673 (9th cir. 1996), upon which

Pasteur relies most heavily. The Plan in CFLC, Inc.

unmistakably provided for an outright assignment of the

debtor’s patent license to an entirely different corporation with

which the patent holder Cadtrak Corporation had never

contracted. Id. at 679-80. By contrast, CBC all along has

conducted, and proposes to continue, its retroviral diagnostic

enterprise as the same corporate entity which functioned

prepetition, while utilizing Pasteur’s HIV2 procedures in that

same prepetition endeavor.

Pasteur nonetheless insists that the reorganized CBC is

different than the prepetition entity, not due merely to its

chapter 11 filing but because it is now owned by a different

legal entity than before — namely, bioMerieux’s subsidiary

qua CBC shareholder. Pasteur’s contention finds no support,

however, either in Massachusetts law, see supra note 1, or in

the cross-license provisions it negotiated.

Stock sales are not mergers whereby outright title and

ownership of the licensee-corporation’s assets (including its

patent licenses) pass to the acquiring corporation. Rather, as a

corporation, CBC “is a legal entity distinct from its

shareholders.” Seagram Distillers Co. v. Alcoholic Beverages

Control Comm’n, 519 N.E.2d 276, 281 (Mass. 1988) (citing 6

William M. Fletcher, Cyclopedia of Corporations § 2456

(1979 & Supp. 1986)). Absent compelling grounds for

disregarding its corporate form, therefore, CBC’s separate

legal identity, and its ownership of the patent cross-licenses,

survive without interruption notwithstanding repeated and

even drastic changes in its ownership. See id. (holding that

corporation’s sale of all its capital stock does not alter its

identity, nor effect a transfer of the corporation’s executory

contracts or licenses); see also PPG Indus. v. Guardian Indus.

12a

Corp., 597 F.2d 1090, 1096 (6th Cir.), cert. denied, 444 U.S.

930 (1979) (same; distinguishing mere sale of stock from a

transfer of patent license as part of corporate merger wherein

merging licensee ends its corporate existence). Pasteur cites

no apposite authority to the contrary.

Furthermore, Pasteur’s position finds no support in the

negotiated terms of its cross-licenses. As the patent holder —

and given CBC’s corporate form and the governing

Massachusetts law, supra — Pasteur was free to negotiate

restrictions on CBC’s continuing rights under the cross-

licenses based on changes in its stock ownership or corporate

control. See id. at 1095 (parties may override law of merger

by negotiating express patent license provision); see also

Seagram, 519 N.E.2d at 280-81."! Nevertheless, these cross-

licenses contain no provision either limiting or terminating

CBC’s rights in the event its stock ownership were to change

hands. The generic nonassignability provisions found in these

cross-licenses, see, e.¢., Royalty-Free Cross-License, at § 7.1

(“This Agreement . . . has been made solely for the benefit of

the parties hereto” and “no other person shall acquire or have

any right under or by virtue of this Agreement.”), plainly do

not address the circumstance presented here. Rather, these

nonassignability provisions simply beg the essential question,

which is whether bioMerieux’s subsidiary, by virtue of its

acquisition of CBC stock, terminated CBC’s rights under the

cross-licenses. Interpreted as Pasteur proposes, CBC’s own

rights under the cross-licenses would terminate with any

change in the identity of any CBC stockholder.

11 Notwithstanding Pasteur’s reliance on the important policy goals

animating the federal common law of patents, the product-innovation theme

Promoted under patent law may well be accommodated by allowing patent holders

to control sublicensing through negotiated contract restrictions.

= Pel ee OPE Oe as

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13a

Other cross-license provisions directly undercut Pasteur’s

interpretation as well. See Willitts v. Roman Catholic

Archbishop of Boston, 581 N.E.2d 475, 478 (Mass. 1991)

(noting that a contract must be interpreted as a whole). These

cross-licenses explicitly authorize CBC to share its license

rights with any “affiliated company,” which on its face

presumably encompasses a parent corporation such as

bioMerieux’s subsidiary. Cross-Licenses, at § 1.4 (defining

“Affiliated Company” as “an organization which controls... a

party or an organization which is under common contro! with

a party”); see supra Section I. Yet more importantly, CBC

insisted upon a provision which would afford it the unilateral

right to terminate any sublicense Pasteur might extend to a

company called Genetic Systems “if control of Genetic

Systems shall . . . be acquired, directly or indirectly, by any

person or group of connected persons or company not having

such control at the date hereof, by reconstruction,

amalgamation, acquisition of shares or assets or otherwise.”

Royalty-Free Cross-license, at § 2.3 (emphasis added); see

PPG Indus., 597 F.2d at 1096 (noting that patent holder’s

express reservation of change-of-stock-ownership condition in

two patent licenses suggested its intention not to reserve

condition in nine other patent licenses); see also Plumbers &

Steamfitters Local 150 v. Vertex Constr. Co., 932 F.2d 1443,

1449 (11th Cir. 1991) (“[T]he doctrine of expressio unius est

exclusio alterius instructs that when certain matters are

mentioned in a contract, other similar matters not mentioned

were intended to be excluded.”). Taken together, these

provisions persuade us that Pasteur foresaw, or reasonably

should have foreseen, that CBC might undergo changes of

stock ownership which would not alter its corporate legal

l4a

identity, but nonetheless chose not to condition the continued

viability of its cross-licenses accordingly, '

Ill

CONCLUSION

As CBC remains in all material respects the legal entity

with which Pasteur freely contracted, Pasteur has not made the

required individualized showing that it is or will be deprived

of “the full benefit of [its] bargain,” Leroux, 69 F.2d at 612-

13, under the ruling challenged on appeal. Accordingly, the

district court judgment is affirmed and costs are awarded to

appellee.

So ordered.

12 Lastly, Pasteur misplaces reliance upon In re Alltech Plastics, Inc., 5

U.S.P.Q.2d 1806 (Bankr. W.D. Tenn. 1987), where it was held that section 365(c)

precluded an entity, which had acquired the corporate debtor’s stock pursuant to a

chapter 11 reorganization plan, from exercising the debtor's rights under a

prepetition patent license. Following the conversion of its Original chapter 1]

reorganization case to a chapter 7 liquidation, Alltech discontinued all operations

and discharged its employees. Before the debtor once again converted to chapter

11, its trustee liquidated virtually all its assets, except for its patent license. Noting

that plan confirmation is a fact-intensive, equity-based inquiry, id. at 1813, the

bankruptcy court characterized the sale of Alltech’s stock to Fluoropak Container

Corporation as a de facto assignment of the patent license to a noncontracting

party. It so held because unlike CBC, Alltech had ceased to exist except as a

“shell.” Id. at 1807 & 1810 (noting that “shell” emerging after Alltech’s chapter 7

conversion “is in reality a different entity than the prepetition Debtor”). The

bankruptcy court specifically observed that the “attempted innovative rebirth of a

corporate shell is not analogous to a sale of stock by an active corporation,” id. at

1810-11, and that “the present case is distinguished from one where the

reorganizing debtor, operating continuously and in good standing with its licensor,

Seeks to approve the sale of its stock [to a third party],” id. at 1812. The

bankruptcy court further noted that the lack of demonstrated expertise on the part

of Fluoropak, in utilizing the patented Process to manufacture toxic-materia!

containers, likewise posed a serious public safety risk. Id. These distinguishing

circumstances make Alltech inapposite.

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15a

Appendix B.

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

No. 96-2028

INSTITUT PASTEUR AND PASTEUR SANOFI

DIAGNOSTICS,

Appellants,

CAMBRIDGE BIOTECH CORPORATION,

Appellee.

JUDGMENT

Entered: January 17, 1997

This cause came on to be heard on appeal from the United

States District Court for the District of Massachusetts, and was

argued by counsel.

Upon consideration whereof, it is now here ordered,

adjudged and decreed as follows: The judgment of the

distict court is affirmed. Costs awarded to appellee.

By The Court

WILLIAM H. NG

Clerk.

[cc: Messrs. Sternklar & Ryan]

16a

Appendix C.

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

INSTITUT PASTEUR AND PASTEUR SANOFI

~——

DIAGNOSTICS,

Appellants

v. )Civil Action

No. 96-40176-NMG

CAMBRIDGE BIOTECH CORPORATION, )

Appellee )

)

IN RE: CAMBRIDGE BIOTECH CORPORATION )

Debtor )

) DOCKETED

MEMORANDUM AND ORDER

GORTON, J.

Appellants, Institut Pasteur (“IP”) and Pasteur Sanofi

Diagnostics (“PSD”) , collectively referred to as “Pasteur,”

appeal from an Order of the United States Bankruptcy Court

confirming the plan of reorganization of the debtor,

Cambridge Biotech Corporation (“CBC” or “debtor”) . Pasteur

contends that confirmation of the plan contravened 1] US.C.

§ 1129(a)(1) because the plan unlawfully permits the

assumption and assignment of certain cross-licenses, in

violation of 11 U.S.C. 365(c)(1)(A). This court has

jurisdiction over the appeal pursuant to 28 U.S.C. § 158(a).

For the reasons that follow, this Court affirms the Order of the

Bankruptcy Court.

Pesca

Ln eS Fae ee

A OB AB a hl aah 2

ao Rar lly Loh MEW ORE ER LE aii. teehee

Sp. aie

COR inthe” BSE IA ce OE EOL SS neh,

17a

I. Factual and Procedural Background

A. The Parties

CBC is a biotechnology company with facilities in

Worcester, Massachusetts and Rockville, Maryland. CBC’s

operations include two principal lines of business: 1) a

biopharmaceutical business that develops, manufactures, and

sells vaccines and related products, and 2) a diagnostics

business that manufactures and sells diagnostic tests to detect

the presence of specific disease-causing organisms.’ Most of

CBC’s revenues are derived from the diagnostics business.

IP, a French foundation, discovered and was granted

certain patents pertaining to the HIV virus. PSD holds an

exclusive license to practice and to commercialize IP’s

patented technology by entering into appropriate sublicense

agreements with respect to the patents.

B. The Cross-Licenses

In October, 1989, Pasteur entered into two cross-license

agreements with CBC concerning the manufacture and sale of

diagnostic tests for the detection of the HIV virus associated

with AIDS. One of the licenses is a royalty-bearing license,

while the other is a royalty-free license. Pursuant to the

licenses, Pasteur granted CBC nonexclusive rights to practice

1 The diagnostics business itself is comprised of two components: 1) an

“enterics” business which focuses on diagnosis of gastrointestinal and other

diseases, and 2) a “retroviral” business which focuses on the diagnosis of diseases

caused by retroviruses, principally the HIV virus.

18a

IP’s patented technology in certain geographical areas. The

licenses include provisions that they:

[are] not assignable without the prior written consent

of all the parties hereto and [have] been made solely

for the benefit of the parties hereto, their respective

successors and permitted assigns, and no other person

shall acquire or have any right under or by virtue of

[these] Agreement(s].

See § 7.1 of the Royalty-Free License, Appendix (“App.”) at

7; § 8.1 of the Royalty-Bearing License, App. at 17.

C. CBC’s Plan of Reorganization

On July 7, 1994, CBC filed a voluntary petition for relief

pursuant to Chapter 11 of the United States Bankruptcy Code.

Pursuant to the Debtor's Plan of Reorganization (“the Plan”’),

all of CBC’s operations other than its retroviral business will

be spun off into a newly-formed corporation, Aquila Biophar-

maceuticals, Inc. (“Aquila”), which will be owned by CBC’s

existing creditors and shareholders.° Pursuant to the Plan,

CBC will then issue new stock in itself to Aquila, and Aquila

3 In anticipation of Plan confirmation, CBC sold its enterics business to

Meridian Diagnostics, Inc. for $5.7 million in cash on July 24, 1996,

19a

will - sell all CBC stock to bioMérieux Vitek, Inc.

(“bioMérieux”) for $5.85 million in cash.“

After consummation of the Plan, CBC will continue to

operate its manufacturing business in Rockville and retain its

existing employees there, as well as all inventory and

equipment. The Maryland real estate will, however, be leased

from Aquila rather than owned by CBC. CBC will retain all

intellectual property relating to retroviruses, which includes

the patent licenses entered into between Pasteur and CBC, as

well as 38 other licenses and sublicense agreements.

Assumption by CBC of all such licenses and sublicenses,

together with certain supply and other agreements, is a

condition of the bioMérieux transaction.

D. bioMérieux’s Relationship to Pasteur

The buyer of CBC’s stock, bioMérieux Vitek, is a

subsidiary of bioMérieux S.A., a large French biotechnology

corporation with sales of nearly $500,000,000 in 1995 and a

significant market share in the infectious disease diagnostics

market outside of the United States. bioMérieux S.A.’s

principal products are two diagnostic instruments known as

4 The Master Acquisition Agreement among Aquila, CBC and bioMérieux

provides, at § 1.2 that the parties “may agree to restructure the transactions

provided for herein in the form of an asset purchase in the event that effectiveness

of the Plan were to be unreasonably delayed and restructuring of the transaction

provided an alternative satisfactory to each, subject to Bankruptcy Court approval.”

App. at 39. In addition, the Agreement provides, at § 2.3(f), that, at closing,

Aquila must deliver an opinion of Coopers & Lybrand “to the effect that the

consummation of the transactions will . . . cause the sale of the [CBC stock] to be

treated as a sale of assets [for tax purposes].” App. at 42.

20a

“VIDAS” and “VITEK.” The VIDAS instrument--which

consists of an automated test system that can test for a number

of infectious agents--is used principally by hospitals and small

laboratories. The VITEK instrument is an automated test

system that processes samples of biological materials to

identify diseases which may be present. Affidavit of Isabelle

Bressac (“Bressac Aff.”), App. at 831.

Pasteur has granted a license to bioMérieux S.A. to test

for HIV Type 2 in most areas of the world (with the exception

of the United States, Canada, Australia, Mexico, New Zealand

and India), but only as part of the VIDAS-system used by

bioMérieux. Id. That license is thus limited both

geographically and by the applications of the patented

technology that may be practiced by bioMérieux S.A. As

consideration for the license, bioMérieux S.A. paid Pasteur the

equivalent of approximately $650,000 and continues to pay a

15% royalty on net sales. Id.*

E. Proceedings in the Bankruptcy Court

5 Pasteur explains the dual limitations of the license with bioMérieux S.A. as

follows:

As a normal business practice, [Pasteur] typically attempts to receive

rights to technology owned by its licensees to obtain desired

technology in return for and as part of any license it gives for HIV2

patents. The extent of the technology it receives, and the royalty rate it

pays for technology it receives and is paid for the HIV2 patents,

depends upon the scope of the HIV2 license it negotiates in good faith

and at arms length to provide to third parties. On certain occasions the

HIV2 licenses [Pasteur] grants are limited in scope, both in the

applications to which the patented technology may be practiced and the

geographical territories in which the patented technology may be

practiced.

Appellants, Brief at 10.

2la

On July 9, 1996, Pasteur filed an objection to the Plan,

contending that 11 U.S.C. § 365(c) prohibited both the

iH assumption and assignment of the cross-licenses that were the

subject of the October 1989 license agreements without its

consent. The Bankruptcy Court overruled Pasteur’s Objection

and, in the Confirmation Order issued by that Court on July

18, 1996, ruled as follows:

The assumption of the Royalty-Free Cross License

Agreement and the Royalty-Bearing Cross-License,

. . . aS proposed in the Plan, is approved.

— ee ee ee ee

The objections of [Pasteur] to confirmation of the

Plan and to the assumption of the [cross-licenses] are

overruled. In that connection, the Court concludes

that (1) there is no “assignment” of the [cross-

licenses} within the meaning of Section 365(f) of the

Bankruptcy Code effected by the assumption of such

agreements as proposed under the Plan; (2) to the

extent that the stock sale to bioMérieux is considered

to give rise to an “assignment” of the [cross-licenses],

Section 365(f) of the [Code] permits the assignment;

(3) the cited cases holding that patent licenses are

non-assignable constitute applicable law prohibiting,

restricting or conditioning assignment that is

overridden by Section 365(f) . . .; (4) Section 365(c)

i of the Code does not preclude assumption or

assignment of the [cross-licenses] as the agreements

represent a business transaction that does not

evidence a unique relationship between [Pasteur] and

CBC; and (5) CBC and bioMérieux have provided

adequate assurance of future performance of the

[cross-licenses].

seb iS. Gat aia a te ee tice

22a

Confirmation Order at § 34(h).

This appeal followed.

Il. Standard of Review

The Bankruptcy Court’s findings of fact are reviewed

under the “clearly erroneous” standard and its conclusions of

law are reviewed de novo. Fed.R.BankrP. 8013; In re

Winthrop Old Farm Nurseries, Inc., 50 F.3d 72, 73 (ist Cir.

1995).

II. Analysis

The Bankruptcy Code generally grants a trustee in

bankruptcy the authority to assume or to reject executory

contracts. 11 U.S.C. § 365. As summarized recently by the

Ninth Circuit Court of Appeals:

Ordinarily, a trustee may take either of these actions

without the consent of the other party to the contract

. .. and notwithstanding a provision in the [contract]

that purports to restrict assignment. See 11 U.S.C. §§

365(a) & (f)(1) . . . . Once a contract has been

assumed, the trustee can assign it. 11 U.S.C. § 365(f).

The trustee's power, however, is not absolute, and

both § 365(a), which authorizes assumption, and §

365(f), which authorizes assignment, are expressly

subject to an exception provided in § 365(c).....

in re CFLC, Inc., 89 F. 3d 673, 676 (9th Cir. 1996) (internal

citation, quotation and footnote omitted; emphasis in original).

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23a

A. The Exception to the General Rule of Assumption

and Assignment

Subsection 365(c)(1) prohibits assumption or assignment

over the objection of the other party to the contract when

“applicable law” excuses the other party “from accepting

performance from or rendering performance to an entity other

than the debtor.”

In its brief and again at oral argument, Pasteur

repetitiously argued that “144 years of unanimous federal

jurisprudence” prohibit the transactions contemplated by the

Plan. Representative of that body of law is In re CFLC, Inc.,

supra, an appeal decided one day after the Bankruptcy Court

confirmed the Plan in the instant case. In CFLC, the debtor

(“CFLC”) entered into a patent license agreement with

Cadtrak Corporation (“Cadtrak”). In consideration of a one-

time payment of $290,000, Cadtrak granted CFLC a royalty-

free, worldwide, nonexclusive license to use certain computer

graphics technology on which Cadtrak held a patent.

6 Subsection 365(c) provides that:

The trustee may not assume or assign any executory contract of the

debtor, whether or not such contract prohibits or restricts assignment of

rights or delegation of duties, if-

(1)(A) applicable law excuses a party, other than the debtor, to such

contract . . . from accepting performance from or rendering performance

to an entity other than the . . . debtor in possession, whether or not such

contract or lease prohibits or restricts assignment or rights or delegation

or duties; and

(B) such party does not consent to such assumption or assignment.

24a

In 1993, CFLC commenced a Chapter 11 proceeding. In

the course of the bankruptcy proceeding, the debtor sold

certain divisions, subsidiaries and property , and thereafter

sought and obtained the Bankruptcy Court’s approval to sell

“substantially all” of its remaining assets (i.e., its remaining

operating assets, certain intangible assets such as its name and

goodwill, and certain contract rights) to Yside Corporation

(“Yside”). 89 F.3d at 675.’ Under the terms of the sales

agreement, CFLC was required to assign to Yside executory

contracts designated by Yside.

In January, 1994, CFLC filed a motion in its Chapter 11

proceeding to assume executory contracts--including the

Cadtrak patent license--and to assign them to Yside. Cadtrak

opposed the assignment. The Bankruptcy Court held that the

Cadtrak license was not assignable without Cadtrak’s consent

and eventually allowed CFLC’s motion as to all contracts

except the Cadtrak license. The District Court affirmed the

Bankruptcy Court’s ruling, and CFLC appealed to the Ninth

Circuit Court of Appeals.

The Court of Appeals first observed that the

determination of whether § 365(c) bars assumption and

assignment of the nonexclusive patent license turned on

whether or not “applicable law” excuses the non-debtor party

to the contract from accepting performance from, or rendering

performance to, anyone other than the debtor. After surveying

the judicial landscape, and, in particular, opinions in the Sixth

and Seventh Circuits, the CFLC Court determined that the

“applicable law” for purposes of § 365(c) was federal common

law, not state law. 89 F.3d at 679; see also PPG Industries,

Inc. v. Guardian Industries Corp., 597 F.2d 1090, 1093 (6th

Cir.), cert. denied, 444 U.S. 930 (1978); Unarco Industries,

7 Yside eventually changed its name to Everex Systems, Inc., but, for the

sake of simplicity, the buyer will continue to be referred to as Yside.

25a

Inc. v. Kelley Co., 465 F.2d 1303, 1306 (7th Cir. 1972), cert.

denied, 410 U.S. 929 (1973).

Having determined that federal common law applied, the

Ninth Circuit next concluded that, pursuant to such law, patent

licenses are personal and nonassignable unless expressly made

assignable. 89 F.3d at 679; see also Gilson v. Republic of

Ireland, 787 F.2d 655, 658 (D.C. Cir. 1986) (“It is well settled

that a non-exclusive licensee of a patent has only a personal

and not a property interest in the patent and that this personal

right cannot be assigned unless the patent owner authorizes the

assignment or the license itself permits assignment.”); PPG

Industries, 597 F.2d at 1093; Unarco, 465 F.2d at 1306. The

CFLC Court explained that:

[A]llowing states to allow free assignability--of

nonexclusive patent licenses would undermine the

reward that encourages invention because a party

seeking to use the patented invention could either

seek a license from the patent holder or seek an

assignment of an existing patent license from a

licensee. In essence, every licensee would become a

potential competitor with the licensor-patent holder in

the market for licenses under the patents. And while

the patent holder could presumably control the

absolute number of licenses in existence under a free

assignability regime, it would lose the very important

ability to control the identity of its licensees. Thus,

any license a patent holder granted--even to the

smallest firm in the product market most remote from

its own--would be fraught with the danger that the

licensee would assign it to the patent holder's most

serious competitor, a party whom the patent holder

itself might be absolutely unwilling to license.

26a

89 F. 3d at. 679 (emphasis in original) Accordingly, the CFLC

Court concluded that, because “federal law makes

[nonexclusive patent] licenses personal and assignable only

with the consent of the licensor, the Cadtrak license is not

assumable and assignable in bankruptcy under 11 U.S.C. §

365(c).” 89 F.3d at 680.

Pasteur therefore submits that a straightforward

application of § 365(c) and the rationale of CFLC to the case

at bar compels the conclusion that the cross-licenses between

Pasteur and CBC are neither assumable nor assignable. This

Court cannot agree that such a result is mandated here,

however, inasmuch as the First Circuit Court of Appeals has

provided relevant guidance with respect to the statutory

interpretation and application of 365(c).

B. The First Circuit Court of Appeals’ Application of the

Exception

In the recent case of Summit Investment and

Development Corp. v. Leroux, 69 F.3d 608 (Ist Cir. 1995), the

First Circuit specifically addressed and applied 11 U.S.C. §

365(e)(2)(A). That subsection is one of two express

exceptions to the general ban of ipso facto provisions found in

§ 365(e)(1) of the Bankruptcy Code. Noting that the

language of § 365(e)(2)(A) closely tracks that of § 365(c)(1)

and that both subsections address interrelated concerns, the

First Circuit observed that “[a] proper construction of §

365(e)(2)(A) requires consideration of companion section 365

8 The ipso facto provision at issue in Leroux purported to convert a general

partner's interest in a limited partnership into a limited partnership interest upon the

mere act of filing for bankruptcy.

shiedtltielh capes

tes

27a

(c)....” 69 F.3d at 612.” The Court then noted that “it is...

plausible to construe [§§ 365(e)(2)(A) and 365(c)(1)(A)] as

requiring an actual showing .. . that the nondebtor party [ ]

would not . . . be placed at the mercy of the debtor party by

what amounts to an actual “assignment” of the debtor party’s

contract rights.” Id. (emphasis in original).

Deeming the statutory language ambiguous, the Leroux

Court proceeded to examine its legislative history, which

commented that:

[T]his section [i.e., § 365] will require the courts to be

sensitive to the rights of the non-debtor party to

executory contracts and unexpired leases. If the trustee

is to assume a contract or lease, the court will have to

ensure that the trustee’s performance under the contract

gives the other contracting party the full benefit of his

bargain.

9 Section 365(e)(2)(A) provides that:

Paragraph (1) of [§ 365(e)] does not apply to an executory contract... of

the debtor, whether or not such contract . . . prohibits or restricts

assignment of rights or delegation of duties, if--

(A)(i) applicable law excuses a party, other than the debtor, to such

contract . . . from accepting performance from or rendering performance

to the trustee or to an assignee of such contract, . . . whether or not such

contract . . . prohibits or restricts assignment or rights or delegation or

duties; and

(ii) such party does not consent to such assumption or assignment... .

11 U.S.C. § 365(e)(2)(A).

28a

S.Rep. No. 989, 95th Cong., 2d Sess. 59 (1978) (quoted in

Leroux, 69 F.3d at 612-13). The First Circuit then interpreted

the legislative history as

suggesting that Congress . . . contemplated a case-by-

case inquiry into the actual consequences--to the non-

debtor party--of permitting [ ] executory contracts to be

performed by the debtor party following the institution

of bankruptcy proceedings. In other words, where a

debtor or debtor in possession bears the burden of

performance under an executory contract, the

nondebtor party to whom performance is due must

make an individualized showing that it would not

receive the “full benefit of its bargain” were an entity

to be substituted for the debtor from whom

performance is due.

Leroux, 69 F.3d at 613 (emphasis supplied).

In view of the foregoing, this Court interprets Leroux as

requiring, in this Circuit, that the nondebtor party (i.e.,

Pasteur) make an “individualized showing” that it would not

receive the full benefit of its bargain after the assumption of

the patent license. The imposition of such a requirement

conforms with logic inasmuch as a per_se rule of non-

assumability of an executory contract by debtors in possession

would automatically extinguish the value of assets in the

debtor’s estate and divest them of the benefit of contracts they

could retain outside of bankruptcy.'° See NLRB v. Bildisco &

10 Such a rule would have a particularly draconian effect here where it

would cause the automatic termination of Pasteur’s patent license to CBC but leave

in tact CBC’s cross patent license to Pasteur which was the consideration for the

former.

Se dele a BRN RR AUER i : oT

Ox peohe unensrds pawidls kale Rd SREY.

29a

Bildisco, 465 U.S. 513, 528 (1984) (a debtor in possession is

“empowered by the Bankruptcy Code to deal with its contracts

and property in a manner it could not have done absent the

bankruptcy filing.’’).

Having determined that, by virtue of the holding in

Leroux, Pasteur bears the burden of making an “individualized

showing” that it will be deprived of the benefit of its bargain

(see 69 F.3d at 613), this Court next considers whether the

Bankruptcy Court erred in concluding that the cross-licenses

may be assumed by the Debtor. As a preliminary matter, it is

noted that the Bankruptcy Court is best positioned to weizh all

of the facts and evidence and to make the fact-sensitive

determination of whether Pasteur bore its burden of showing

that it would not receive the benefit of its bargain.

Upon this Court’s review of the record, it appears that the

only evidence offered by Pasteur at the confirmation hearing

that it will not receive the benefit of its bargain under the

Leroux standard was the affidavit of Isabelle Bressac

(“Bressac”), Pasteur”’s Director of Licensing. That affidavit

states that Pasteur has already granted a limited license to

bioMérieux with respect to the patents covered by the cross-

licenses and speculates that bioMérieux might breach that

agreement by acquiring stock in CBC. App. at 830-832.

Based upon that sparse evidence, this Court cannot

conclude that the Bankruptcy Court clearly erred in

determining that Pasteur failed to demonstrate that it would

not obtain the benefit of its bargain with CBC. No evidence

was adduced below to demonstrate that the cross-licenses

depend in any manner upon the identity, size, skill or know-

how of the parties. Indeed, the cross-licenses are apparently

matters of mutual convenience because CBC and Pasteur each

own certain patent nights that the other party needs to make

and sell its own HIV test kits. Accordingly, this Court agrees

30a

with the Bankruptcy Court's determination that “This is not the

kind of unique relationship that poses problems... [TJhis is a

business relationship. It’s not something in the Category of a

personal services contract.” Transcript of Confirmation

Hearing, App. at 1374.

C. Stock Sale or Disguised Assignment

Pasteur next argues that the Bankruptcy Court erred in

ruling that the stock sale to bioMérieux in connection with the

Plan of Reorganization is not a disguised or indirect

assignment of the patent licenses. Pasteur contends that, by

focusing on the substance, rather than the form, of the

transaction, one is compelled to conclude that the stock sale in

reality constitutes an assignment. The principal case relied

upon by Pasteur in support of that argument is In re Alltech

Plastics, Inc. , 5 U.S.P.Q.2d 1806 (Bankr. W.D. Tenn. 1987)

("Alltech II”,), in which the Bankruptcy Court confronted the

issue of:

whether [a] plan [of reorganization] may be confirmed

. when it provides for the transfer of all of the

Debtor’s stock to a new owner... . and the only

significant (if not only) asset is a patent license granted

to the debtor by [the licensor], which objects to the

confirmation of the plan.'!

11 Alltech II was decided nine months after In re Alltech .Plastics, Inc., 71

B.R. 686 (Bankr. W.D. Tenn. 1987) (“Alltech I”), in which the Bankruptcy Court

held that a Chapter 7 trustee could not, in exchange for $100,000, assume and

assign a patent license. The debtor had been granted a license to use a patented

procedure to manufacture plastic containers. Upon the filing of its Chapter 7

petition, debtor was approached by another company (“Fluoropak”) with an offer

to purchase the patent license rights. The patentee/licensor contested the proposal

on the grounds that “patent law and 11 U.S.C. § 365(c) prohibit such a transfer and

sn alii he 3 ini

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bracelet nie oe

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3la

_ In refusing to confirm the proposed plan, the Bankruptcy

Court in Alltech II applied the federal rule--that patent licenses

are personal and not assignable unless expressly made so--to

the substance, rather than to the form, of the transaction before

it. 5 U.S.P.Q.2d at 1812. The Alltech II Court thus concluded

that “the transfer of (debtor’s) patent license to the Principals

of FluoroPak absent [the licensor’s] consent would constitute a

breach of the license agreement and infringement of the

[patent holder’s] rights. . . .” Id. at 1811. In reaching that

conclusion, the Court noted that: 1) the debtor corporation was

not operating and had no viable existence, 2) employed no

employees, 3) had no equipment, and 4) had no corporate

assets other than the lone patent license. Id. at 1811-12.

For several reasons, this Court concludes that Alltech II is

inapposite to the case at bar. First, whereas the debtor

corporation in that case was not operating and had no viable

existence, employees, equipment, or corporate assets (other

than the patent license), the situation in the case at bar is

Fluoropak cannot provide adequate assurance of future performance.” 71] B.R. at

687.

After reviewing the established federal common law ruie that patent licenses

are personal in nature and not assignable unless expressly made so, the Alltech |

court concluded that:

the Trustee in this instance does not have the power to assign the patent

license absent consent from the licensor, for even subsection (f) [of §

365] excepts from its provisions the types of agreements contemplated

by [§ 365(c)).

71 B.R. at 689.

Following the Bankruptcy Court’s refusal to permit the Chapter 7 Trustee to

assume and assign the patent license in Alltech I, the case was converted to a

Chapter 11 bankruptcy. Pursuant to the proposed plan of reorganization, the

debtor was to assume the patent license and then all shareholders in the debtor

were to sell their stock to Fluoropak in exchange for $85,000.

iia i

32a

dramatically different. Indeed, CDC is now and will continue

to be after the stock sale a multi-million dollar business replete

with manufacturing operations, at least 66 employees,

inventory, equipment, and an array of intellectual property that

includes over 38 technology licenses. See Affidavit of Brian

Armstrong dated August 8, 1996 at 9] 2-3.

Second, in contrast to Alltech II, in which the Bankruptcy

Court expressed concern both that the proposed reorganization

plan was an attempt to circumvent prior court orders denying

outright assignment and that the plan was not proposed in

good faith, Judge Queenan has found here that CBC is not in

default of its obligations under the cross-licenses and that the

Plan was proposed in good faith. Confirmation Order at 71 5,

26. Finally, the Alltech II Court itself suggested that the result

it reached might be different in a case such as CBC’s:

The (situation in Alltech II] is factually distinguished

from one where a reorganizing debtor, operating

continuously and in good standing with its licensor,

seeks to-approve the sale of its stock.

5 U.S.P.Q.2d at 1813; see also id. at 1810 (“[T]his attempted

innovative rebirth of a corporate shell is not analogous to a

sale of stock by an active corporation.”).

In summary, in view of the clear differences between the

situation in Alltech and the case at bar, this Court concludes

that the Bankruptcy Court did not err in its determination that

the stock sale contemplated by the Plan is not in reality a

“veiled” assignment. To the contrary, the instant case

involves the acquisition of the shares of a debtor company that

will assume and retain patent licenses in connection with its

ongoing business. Pursuant to those cross-licenses, Pasteur

will continue to reap the benefit of its bargained-for access to

33a

the Debtor’s technology, as well as the receipt of royalties to

be paid by CBC.

ORDER

For the foregoing reasons, the order of the Bankruptcy

Court confirming the Plan of Reorganization of the Debtor,

Cambridge Biotech Corporation, is AFFIRMED and Pasteur’s

appeal from that order is DISMISSED.

So Ordered.

/s/

Nathaniel M. Gorton

United States District Judge

DATED: September 27, 1996

34a

Appendix D.

UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF MASSACHUSETTS

In re: ) Chapter 11

CAMBRIDGE BIOTECH CORPORATION, _)

Debtor ) Case No. 94-43054-JFQ

FINDINGS OF FACT AND CONCLUSIONS OF LAW

RELATING TO, AND ORDER UNDER 11 U.S.C. §1129(a)

AND (b) CONFIRMING AMENDED (MAY 17, 1996

REORGANIZATION PLAN OF CAMBRIDGE BIOTECH

CORPORATION AS FURTHER AMENDED AS OF MAY

20, 1996, AND AS MODIFIED UNDER U.S.C. § 1127 AS

OF JULY 15, 1996

RECITALS

WHEREAS, Cambridge Biotech Corporation, debtor

and debtor-in-possession (“CBC”’), has filed with the Court the

Amended (May 17, 1996) Reorganization Plan Of Cambridge

Biotech Corporation As Further Amended As of May 20, 1996

(the “Plan”),' and the Disclosure Statement With Respect to

, All capitalized terms not otherwise defined in this Confirmation Order

have the meanings ascribed to them in the Plan. References to the Plan in this

Confirmation Order shall mean prior to July 15,1996, the Amended (May 17,1996)

Reorganization Plan of Cambridge Biotech Corporation. As Further Amended as

of May 20, 1996, and shall mean, on and after July 15, 1996, the Amended (May

17, 1996) Reorganization Plan of Cambridge Biotech Corporation As Further

Amended as of May 20, 1996, and as modified by the modifications (the

Pn Oe ND Ne

35a

Amended (May 17, 1996) Reorganization Plan Of Cambridge

Biotech Corporation As Further Amended As Of May 20,

1996 (the “Disclosure Statement”);

WHEREAS, on May 17, 1996, the Court entered an

Order, as amended, that, among other things, (i) approved the

Disclosure Statement in all respects, and (ii) approved the

form of notice of the Confirmation hearing (scheduled by the

Court for July 15, 1996), and established certain procedures

for filing and service of objections to the Plan (the “Disclosure

Statement Notice Order’’); and

WHEREAS, the Disclosure Statement Notice Order and

Disclosure Statement were transmitted on or before June 5,

1996 to all holders of Claims and Interests and other parties in

interest in accordance with Bankruptcy Rule 3017(d) and the

Disclosure Statement Notice Order, as set forth in the

Declarations of Service By Mail (6) of Patricia Corbin, each

dated June 6, 1996 and filed with the Court on June 14, 1996;

and

WHEREAS, CBC filed the Declaration Of Edward L. Erb

Certifying The Ballots Accepting And Rejecting The Debtor’s

Proposed Plan of Reorganization, attesting to the results of

voting on the Plan (the “Voting Results Report”); and

WHEREAS, on July 15, 1996 CBC filed its

Memorandum In Support Of Confirmation Of The Plan with

supporting affidavits and reports, including the affidavits of

Alison Taunton-Rigby, Stephen J. DiPalma, Fritz Casselman,

and Brian Armstrong, and the Mehta and Isaly Report

(collectively, the “Confirmation Supporting Materials”; and

“Modifications) set forth in the Motion of Cambridge Biotech Corporation

Pursuant to Section 1127 of the Bankruptcy Code and Fed. R. Bankr. P. 3019 for

Approval of Modifications to Plan (the “Motion for Approval of Modifications”).

Sethninneneeee

36a

WHEREAS, objections or purported objections to

confirmation of the Plan (including objections to CBC’s

assumption, assumption and assignment, or rejection of certain

executory contracts and unexpired leases) were filed by

numerous parties; and

WHEREAS, on July 15, 1996 CBC filed its Motion For

Approval of Modifications, seeking a determination that

certain technical, non-substantive and other modifications to

the Plan made under Section 1127(a) of the Bankruptcy Code

did not require additional disclosure under Section 1125 of the

Code or resolicitation of acceptances and rejections under

Section 1126 of the Bankruptcy Code (the “Modifications

Requires’’);

WHEREAS, pursuant to Section 1128(a) of the

Bankruptcy Code, the Court held the Confirmation Hearing on

July 15, 1996;

NOW, THEREFORE, based upon the Court’s review of

the documents previously filed with the Court including the

Confirmation Supporting Materials, the Voting Results

Report, and the Modifications Request; and upon all of the

evidence proffered to, adduced at, memoranda and objections

filed in connection with, and arguments of counsel made at the

Confirmation Hearing, and after due deliberation thereon; and

upon the entire record of this Chapter 11 case, as applicable:

FINDINGS OF FACT AND CONCLUSIONS OF LAW

IT IS HEREBY FOUND AND DETERMINED that”

2 Findings of fact shall be construed as conclusions of law and conclusions

of law shall be construed as findings of fact when appropriate. See Fed. R. Bankr.

P. 7052.

tn a no

37a

1. Core Proceeding (28 U.S.C. §157(b)(2)). Confirmation

of the Plan is a core proceeding under 28 U.S.C. § 157(b)(2).

2. Transmittal and Mailing of Materials: Notice. The

Disclosure Statement, the Plan, the Ballots, and the

Disclosure Statement Notice Order were transmitted and

served in accordance with the Court’s Orders and the

Bankruptcy Rules, and such transmittal and service were

adequate and sufficient. Adequate and sufficient notice of the

Confirmation Hearing and the other bar dates and hearings

described in the Disclosure Statement Notice Order was

given in compliance with the Bankruptcy Rules and this

Court’s Order, and no further notice is required.

liance with tcy Code (11 U.S.C.

§1129(a)(1). The Plan complies with the applicable

provisions of the Bankruptcy Code, thereby satisfying

Section 1129(a)(1) of the Bankruptcy Code.

a) Proper Classification (11 U.S.C. §1122, 1123

(a)(1)). The Plan designates five (5) Classes of Claims and

one (1) Class of Interests. The Claims and Interests placed in

each class are substantially similar to other Claims or Interests,

as the case may be, in each such Class, and such classification

is therefore consistent with Section 1122 of the Bankruptcy

Code. Valid business and legal reasons exist for the various

Classes of Claims and Interests created under the Plan, and

such Classes do not unfairly discriminate between holders of

Claims or Interests. Thus, the Plan satisfies Section

1123(a)(1) of the Bankruptcy Code.

b) Specified Treatment of Unimpaired Classes (11

U.S.C. §1123(a)(2)). the Plan specifies that Classes 1 and 3

are not impaired under the Plan, thereby satisfying Section

1123(a)(2) of the Bankruptcy Code.

c) Specified Treatment of Impaired Classes (11

U.S.C. §1123(a)(3)). Sections II.C (Impaired Claims) and

38a

III.D (Impaired Interests) of the Plan specify the treatment of

impaired Classes 2.01, 4, 5 and 6, thereby satisfying Section

1123(a)(3) of the Bankruptcy Code.

* d) No Discrimination (11 U.S.C. a)(4)). The

Plan provides for the same treatment for each Claim or Interest

in each respective Class unless the holder of a particular Claim

or Interest has agreed to a less favorable treatment of such

Claim or Interest, thereby Satisfying Section 1123(a)(4) of the

Bankruptcy Code.

e) Implementation of the Plan (11 USC.

§1123(a)(5)). Article IV of the Plan provides adequate and

proper means for implementation of the Plan, thereby

satisfying Section 1123(a)(5) of the Bankruptcy Code.

Among other things, Article IV provides for:

i) CBC’s sale of the Enterics Business, free and

clear of liens, encumbrances, Claims and Interests prior

to the Confirmation Date. (On June 19, 1996, the

Court approved such a sale to Meridian Diagnostics,

Inc. for approximately $5,700,000.00 in cash, which

sale closed on June 24, 1996).

li) CBC’s organization of Aquila under

Delaware law, with New Common Stock (5,000,000

shares) and related Rights to be issued by Aquila and

delivered to the Disbursing Agent on the

Consummation Date in exchange for all Interests in

CBC and certain Claims against CBC, with CBC to

issue 100 shares of CBC Common Stock to Aquila in

exchange for those Interests, thereby becoming a

wholly-owned subsidiary of Aquila.

lil) The distribution of the assets of

Biopharmaceutical Business to Aquila as the sole

stockholder of CBC on the Consummation Date.

39a

iv) Immediately after giving effect to these

transactions, Aquila’s sale of all the issued and

outstanding stock of CBC (including the Retroviral

Business) to bioMérieux Vitek, Inc. (“bioMérieux”) for

$6,500,000.00 in cash.

v) A Rights Offering. Each share of Aquila

New Common Stock distributed pursuant to the Plan

on account of an Allowed Class 4 or Class 5 Claim, an

Allowed Class 6 Interest or a Postpetition Incentive

Stock Claim shall carry with it a transferable night (a

“Right”). Each Right entitles the holder to purchase

one (1) Unit, each Unit consisting of one share of New

Common Stock and one warrant to purchase one (1)

share of New Common Stock (a “Warrant”). In

addition, each holder of a Right (or beneficial owner in

the case of securities held in street name) who has fully

exercised his basic right to purchase one Unit for each

Right received (an “Eligible Rights Holder’) also will

have the right to purchase any desired number of Units

that have not been subscribed for by the holders of

other Rights (the “Oversubscription Rights”), subject

to proration if oversubscribed. The Unit subscription

price under the Rights will be a dollar amount of less

than 100% of the Reorganization Value, as determined

by Aquila. However, Aquila reserves the night to

reduce the subscription price for the Units in certain

circumstances.

f) Nonvoting Equity Securities: _ Appropriate

Distribution of Voting Power (11 U.S.C. §1123(a)(6)).

Pursuant to the Plan, Aquila’s Certificate of Incorporation

prohibits the issuance of nonvoting equity securities. The

holders of shares of New Common Stock, after the

Consummation Date, will vote as a single class on the basis of

40a

one vote per share of New Common Stock. Section

1123(a)(6) of the Bankruptcy Code is thereby satisfied.

g) Selection Of Officers And Di rs (11 U.S.C.

$1123(a)(7)). The provisions of the Plan and Aquila’s

Certificate of Incorporation and Bylaws regarding the manner

of selection of officers and directors of Aquila are consistent

with the interests of creditors and equity security holders and

with public policy, thereby Satisfying Section 1123(a)(7) of

the Bankruptcy Code.

4. CBC’s Compliance With The B ode (11

U.S.C. §1129(a)(2)). CBC has complied with the applicable

provisions of the Bankruptcy Code, thereby satisfying Section

1129(a)(2) of the Bankrtupcy Code. Specifically:

a) CBC is a corporation organized under the laws of

the State of Delaware, and is a proper debtor under Section

109 of the Bankruptcy Code.

b) On July 7, 1994, CBC filed a Chapter 11 petition

pursuant to Section 301 of the Bankruptcy Code.

c) the Court has jurisdiction over this Chapter 11

case pursuant to 28 U.S.C. §1334.

d) Venue of this case is proper in this district

pursuant to 28 U.S.C. §1408.

e) CBC is a proper proponent of the Plan pursuant to

Section 1121(a) of the Bankruptcy Code.

f) CBC has acted in accordance with all orders of the

Court entered during the Chapter 11 Case.

g) CBC has complied with the applicable provisions

of the Bankruptcy Code, the Bankruptcy Rules, and the

Disclosure Statement Notice Order in transmitting the Plan,

Disclosure Statement, Ballots and related documents and

notices and in soliciting and tabulating votes on the Plan.

5. Plan Proposed In Good Faith (11 U.S.C. §1129(a)(3)).

CBC has proposed the Plan in good faith and not by any

4la

means forbidden by law, thereby satisfying Section 1129(a)(3)

of the Bankruptcy Code.

6. Payments For Services Or Costs And Expenses (11

U.S.C. §1129(a)(4)). Any payment made or to be made by

CBC for services or for costs and expenses in or in connection

with the Chapter 11 Case, or in connection with the Plan and

incident to the Chapter 11 Case, has been approved by, or is

subject to the approval of, the Court as reasonable, thereby

satisfying Section 1129(a)(4) of the Bankruptcy Code.

7. Directors, Officers, and Insiders (11 U.S.C.

§1129(a)(5)). CBC has complied with Section 1129(a)(5) of

the Bankruptcy Code. Specifically:

a) To the extent known at this time, CBC has

disclosed the identity and affiliations of any individual

proposed to serve, after confirmation of the Plan, as a director

or officer of Aquila and the appointment to, or continuance in,

such office of such individual is consistent with the interests of

creditors and equity security holders and with public policy.

b) To the extent known at this time, CBC has

disclosed the identity of any insider who will be employed or

retained by Aquila and the nature of such person’s

compensation, to the extent known.

c) The members of the initial board of directors of

Aquila shall be the following:

Class I Directors:

John Nelson

Elliott Hillback

Class II Director:

Alison Taunton-Rigby

42a

Class III Directors:

Jeffrey Beaver

Keith Dorrington

8. No Rate Changes (11 U.S.C. _§1129(a)(6)). No

governmental regulatory commission has jurisdiction over the

rates charged by CBC. Thus, the Plan does not provide for the

change in any rates which require regulatory approval, thereby

satisfying Section 1129(a)(6) of the Bankruptcy Code.

9. Best Interests Of Creditors Test (11 U.S.C.

§1129(a)(7)). The Plan satisfies Section 1129(a)(7) of the

Bankruptcy Code. Specifically:

a) The methodology used and assumptions made in

connection with the liquidation analysis contained in the

Disclosure Statement and the Confirmation Supporting

Materials are reasonable.

b) Each holder of a Claim or holder of an Interest in

each impaired Class either has accepted the Plan or will likely

receive or retain under the Plan on account of such Claim or

Interest property of a value, as of the effective date of the Plan,

that is not less than the amount that such holder would receive

or retain if CBC were liquidated under Chapter 7 of the

Bankruptcy Code on such date. No Class has made an

election under Section 1111(b)(2) of the Bankruptcy Code.

10. Acceptance By Certain Classes (11 U.S.C.

§1129(a)(8)). Except as set forth in paragraph 16 below, each

Class of Claims or Interests has accepted the Plan or is not

impaired under the Plan. Because not all impaired Classes of

Claims and Interests have accepted the Plan, the requirements

of Section 1129(a)(8) have not been met, thus requiring

application of Section 1129(b) of the Bankruptcy Code.

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Pa re eee

43a

11. Treatment Of Administrative And Tax Claims (11

U.S.C. §1129(a)(9)). The treatment of Administrative Claims

and Other Priority Claims under Sections III.A.1 and IiI.B.1 of

the Plan satisfies the requirements of Section 1129(a)(9)(A)

and (B) of the Bankruptcy Code, and the treatment of Priority

Tax Claims under Section III.A.2 of the Plan satisfies the

requirements of Section 1129(a)(9)(C) of the Bankruptcy

Code.

12. Acceptance By Impaired Classes (11 U.S.C.

§1129(a)(10)). At least one Class of Claims (Class 2.01) that

is impaired under the Plan has accepted the Plan, determined

without including any acceptance of the Plan by any insider of

CBC holding a Claim in such Class, thereby satisfying Section

1129(a)(10) of the Bankruptcy Code.

Feasibility (11 U.S.C. §1129(a)(11)). Reasonable

prospects exist that Aquila will achieve financial stability and

success. Consequently, confirmation of the Plan is not likely

to be followed by the liquidation or the need for further

financial reorganizations of Aquila, thereby satisfying Section

1129(a)(11) of the Bankruptcy Code.

14. Payment Of Fees (11 U.S.C. §1129(a)(12)). All fees

payable under 28 U.S.C. §1930 have been paid or will be paid

as Administrative Claims on the Consummation Date pursuant

to Section I.A.1 of the Plan, thereby satisfying Section

1129(a)(12) of the Bankruptcy Code.

15. Continuation Of Retiree Benefits (11 U.S.C.

§1129(a)(13)). Because CBC does not have any qualifying

plan, fund or program, Section 1129(a)(13) of the Bankruptcy

Code is satisfied.

16. Fair And Equitable: No Unfair Discrimination (11

U.S.C. _§1129(b)). Class 4 (General Unsecured Claims

Exceeding $500.00) is an impaired Class of Unsecured

Claims. Pursuant to Section 1129(b) of the Bankruptcy Code,

i aman aaa A i a

44a

the Court finds that the Plan does not discriminate unfairly,

and is fair and equitable, with respect ot Class 4 Claims.

Specifically, the Plan provides that each holder of an Allowed

Class 4 Claim is entitled to receive, as of the Consummation

Date, Aquila New Common Stock of a value equal to its

Allowed Class 4 Claim.

Thus, the Plan satisfies Section 1129(b) as to Class 4 as

described above. No other impaired Class has not accepted

the Plan.

(7. Principal Purpose Of Plan (U.S.C. §1129(d)). The

principal purpose of the Plan is not the avoidance of taxes or

the avoidance of the application of Section 5 of the Securities

Act of 1933, and no governmental unii has objected to

confirmation of the Plan.

18. Settlement of Securities Class Action. As described

in Article XIII of the Plan, the Securities Class Settlement

Agreements are, in all respects, fair and reasonable and in the

best interests of CBC, its Estate, and its creditors and equity

security holders, considering the potential costs of litigation

and the uncertainty of the outcome of such disputes. In

connection therewith, to the extent that, in reliance on the

Securities Class Settlement Agreements, the law firms Rabin

& Garland and/or Shapiro, Grace, Haber & Urmy, counsel to

the Securities Class Plaintiffs, filed a complaint commencing

Cambridge Biotech Corp. v. Deloitte & Touche (C.A. No. 96-

1480-A, Suffolk Superior Court), such action was appropriate

as to CBC.

19. Objections. All objections to confirmation filed with

this Court have been withdrawn or settled, or have been and/or

hereby are overruled.

20. Modifications. The modifications of the Plan set

forth in the Modifications Request do not materially adversely

affect any creditor, equity security holder, or other party in

ee ees

a a

45a

interest. As such, under Bankruptcy Rule 3019, these

modifications do not require additional disclosure under

Section 1125 of the Bankruptcy Code or resolicitation of

acceptances or rejections of the Plan under Section 1126 of the

Bankruptcy Code, nor do they require that holders of Claims

or Interests be afforded an opportunity to change previously

cast acceptances or rejections of the Plan, and the Plan

(including such modifications) is deemed accepted by all

creditors and equity security holders who previously accepted

the Plan.

21. Good Faith Solicitation (11 U.S.C. §1125(e)).

Solicitation of acceptances of the Plan and participation in the

offer, issuance and sale of the New Common Stock Rights

under the Plan by CBC, Aquila, the Creditors Committee, the

Equity Committee, and their respective agents, attorneys and

advisors has been in good faith and in compliance with the

applicable provisions of the Bankruptcy Code.

22. Retroviral Sale Negotiated In Good Faith. the

Retroviral Sale in all respects was negotiated in good faith and

at arm’s length between CBC, Aquila and bioMérieux Vitek,

Inc. and, upon consummation of such sale, bioMérieux shall

be deemed to have purchased in good faith.

23. Transfers Of Property. The transfers of property by

CBC to Aquila and the revesting of property in Reorganized

CBC to take place on the Consummation Date (1) are legal,

valid and effective transfers of property, (ii) vest Reorganized

CBC and Aquila with good title to such property free and clear

of all liens, charges, Claims, encumbrances, or Interests,

except as expressly provided in the Plan or this Confirmation

Order, (iii) do not constitute avoidable transfers under the

Bankruptcy Code or under applicable nonbankruptcy law, and

(iv) do not and shall not subject Reorganized CBC or Aquila

to any liability by reason of such transfers under the

46a

Bankruptcy Code or under applicable nonbankruptcy law,

including, without limitation, any laws affecting successor or

transferee liability.

24. No Liquidation. The Plan does not provide for the

liquidation of all or substantially all of the property of CBC.

25. Business Jud t As To Executory Contracts. The

assumption, rejection and assignment of executory contracts

and unexpired leases as proposed under the Plan is based on

CBC’s reasonable business judgment.

26. Assumed Executory Contracts. As to all executory

contracts and unexpired leases set forth on Exhibit G to the

Plan, there are no defaults or breaches by CBC, or if such

defaults or breaches exist, CBC, as of the Confirmation Date,

has (a) cured, or provided adequate assurance that any such

default or breach shall be promptly cured, (b) compensated, or

provided adequate assurance that it will promptly compensate

the non-debtor party for any actual pecuniary loss to such non-

debtor party resulting from such default or breach, and (c)

provided adequate assurance of future performance under such

contract or lease. The amount required to cure shall be as set

forth on Exhibit G to the Plan except as otherwise provided

herein.

27. Assigned Executory Contracts. As to all executory

contracts and unexpired leases set forth on Exhibit I to the

Plan, such contracts or leases are being assumed under the

Plan, and Aquila, the proposed assignee, has provided

adequate assurance of future performance under the contract or

lease.

28. Code §1145 Exemption. Except with respect to an

entity which is an underwriter as defined in Section 1145(b) of

the Bankruptcy Code, the New Common Stock and Rights

(including the shares of New Common Stock issuable upon

exercise of the Rights, the Warrants, and shares of New

area

as eee

——

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Common Stock issuable upon exercise of the Warrants) to be

issued under the Plan are exempt from registration under the

Securities Act of 1933, pursuant to Section 1145 of the

Bankruptcy Code.

29. Issuance of New Common Stock and Rights. The

New Common Stock and the Rights are being issued

principally in exchange for Claims against or Interests in CBC,

or for an Administrative Expense as provided in Section

1145(a)(1) of the Bankruptcy Code.

30. Reorganization Value. The Reorganization Value,

meaning the estimated value per share of the New Common

Stock to be issued on the Consummation Date, after giving

effect to the transactions contemplated to occur under the Plan

on or prior to the Consummation Date, is $9.50.

DECREES

NOW, THEREFORE, IT IS HEREBY ORDERED

THAT,

31. Co ation. The Plan, a copy of which is attached

hereto as Exhibit A (with the Modifications Request), is

hereby confirmed, and all acceptances and rejections

previously cast for or against the Plan are hereby deemed to

constitute acceptances or rejections of the Plan as modified

by this Order and the Modifications, and all parties in interest

are authorized and empowered or enjoined, as the case may

be to act in accordance with its terms.

32. Objections. Each of the objections (including

objections to CBC’s assumption, assumption and

assignment, or rejection of executory contracts or unexpired

leases) to confirmation of the Plan, which has not been

withdrawn, waived, or settled, and all reservations of rights

included therein, are overruled, except as specifically set

48a

forth herein. To the extent that pleadings filed by individuals

or entities constitute objections to confirmation of the Plan

have not been withdrawn, waived, or settled, they are

overruled.

33. Provisions Of Plan And Order _Nonseverable And

Mutually Dependent. The provisions of the Plan and this

Confirmation Order, including the findings of fact and

conclusions of law set forth herein, are nonseverable and

mutually dependent.

34. Executory Contracts And Unexpired Leases. Except

with respect to the so-called Schedule H License as described

in subparagraph (c) below, assumption, rejection and

assignment of executory contracts and unexpired leases as

proposed by CBC under the Plan is hereby approved. All

executory contracts or unexpired leases as assumed by CBC

during the Chapter 11 Case or under the Plan shall remain in

full force and effect for the benefit of Reorganized CBC,

except to the extent assigned to Aquila, in which case they

shall remain in full force and effect for Aquila’s benefit,

notwithstanding any provision in such executory contract or

unexpired lease (including those described in Sections

365(b)(2) and (f) of the Bankruptcy Code) which prohibits

Such assignment or transfer or that enables or requires

termination of such executory contract or unexpired lease.

a) Alfa Laval. Alfa Laval Agri AB’s motions to

compel compulsory arbitration, to stay CBC’s omnibus

objection to allowance of claims as it pertains to Alfa Laval’s

claim and to defer portions of the Plan are denied. Alfa

Laval’s objections to assumption and assignment of

executory contract and confirmation of the Plan are

overruled. Specifically, the Court finds that arbitration here

would interfere with and impair CBC’s reorganization. A

one-day evidentiary hearing on the amount, if any, which

49a

CBC must pay to Cure monetory defaults (which are found to

be the only defaults to be cured) under the Alfa Laval

executory contract(s) will be held on October 28, 1996 at

9:00 am. The amount in controversy is limited to

$700,000.00.

b) Cottingham. Hugh V. Cottingham’s objection to

assumption of executory contract and confirmation of the

Plan are overruled. A one-half day evidentiary hearing on the

amount, if any, which CBC must pay to Cure monetary

defaults (which are found to be the only defaults to be cured)

under the Cottingham executory contract(s) will be held on

September 24, 1996 at 2:00 p.m. The amount in controversy

is limited to $352,516.00.

c) Behring. CBC is hereby authorized to reject the

Syva Company Cambridge Biotech Corporation

Development and Supply Agreement dated June 29, 1992

(the “Tom Patent License”) attached as Schedule J to the D/S

Agreement.

The Debtor may not assume the License

Agreement dated June 29, 1992 attached as Schedule H (the

“Schedule H License”) to the D/S Agreement. Accordingly,

the Schedule H License is deemed rejected as part of the D/S

Agreement.

The Debtor’s rejection of the D/S Agreement

effects a rejection of the Schedule H License and all terms of

the D/S Agreement, including, without limitation, Section 3.7

of the D/S Agreement.

Whether any Claim arising from the rejection of

the Schedule H License is subsumed within the Claim

previously determined with respect to the rejection of the D/S

Agreement is not determined by this Order.

50a

There are no license rights under Section 3.7 of

the D/S Agreement that Behring may elect to retain under

Seection 365(n)(1)(B) of the Bankruptcy Code.

Behring’s other objections to the treatment of its

executory contracts under the Plan, and its objections to

confirmation of the Plan are overruled.

The Debtor shall reserve Cash in the amount of

51% of $1,000,000.00 in the Distribution Reserve on account

of Behring’s Disputed Claim.

d) OT/BN. The objections of OT/BN to assumption

and assignment of executory contract(s) and confirmation

were withdrawn pursuant to a stipulation filed with the Court

at the Confirmation Hearing. The assumption and assignment

of the OT/BN executory contract(s), as proposed in the Plan,

are approved.

e) Harvard. The objection of the President and

Fellows of Harvard College was withdrawn pursuant to a

stipulation, the terms of which were reported by counsel for

the parties at the Confirmation Hearing. The amount which

CBC must pay to Cure monetary defaults (which are agreed to

be the only defaults required to be cured) is $241,654. 1 1, plus

an amount to be agreed by the parties in good faith with

respect to so-called “Reference Lab Sales” as set forth in a

letter dated July 12, 1996 from Dr. Tonequzzo of Harvard to

Stephen DiPalma of CBC. The assumption of the Harvard

executory contract(s), as proposed in the Plan, is approved,

and Harvard has further agreed that CBC may grant

sublicenses to Aquila for vaccine, therapeutic, and related

research use fields of use only, with the right to sublicense, as

provided in the Retroviral Business Purchase Agreement.

f) Deloitte & Touche. The Objection to confirmation

of Deloitte & Touche is overruled.

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22 coun bribe” Lat bon e6 Jha ceeds sith Bin as aca alla a itl ere ae Fe ts

S5la

g) Selfcare. The limited objection to assumption of

executory contract(s) of Selfcare, Inc. is overruled. The

assumption of the Selfcare, Inc. executory contract(s), as

propesed in the Plan, is approved.

h) DP. The assumption of the Royalty-Free Cross-

License Agreement and the Royalty-Bearing Cross-License

Agreement, each dated October 25, 1989, between the Debtor

and Diagnostics Pasteur (now, Pasteur Sanofi Diagnostics

(“PSD”)) (together, the “DP-CBC Agreements”), as proposed

in the Plan, is approved.

The objections of PSD and Institut Pasteur (“IP’’)

to confirmation of the Plan and to the assumption of the DP-

CBC Agreements are overruled. In that connection, the Court

concludes that (1) there is no “assignment” of the DP-CBC

Agreements within the meaning of Section 365(f) of the

Bankruptcy Code effected by the assumption of such

agreements as proposed under the Plan; (2) to the extent that

the stock sale to bioMérieux is considered to give rise to an

“assignment” of the DP-CBC Agreements, Section 365(f) of

the Bankruptcy Code permits the assignment; (3) the cited

cases holding that patent licenses are non-assignable constitute

applicable law prohibiting, restricting or conditioning

assignment that is overridden by Section 365(f) of the

Bankruptcy Code; (4) Section 365(c) of the Bankruptcy Code

does not preclude assumption or assignment of the DP-CBC

Agreements as the agreements represent a business transaction

that does not evidence a unique relationship between PSD and

CBC; and (5) CBC and bioMérieux have provided adequate

assurance of future performance of the DP-CBC Agreements.

I) F.Casselman. The objection of Frederick V.

Casselman to assumption of executory contract was

withdrawn. The assumption and assignment of the F.

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Casselman executory contract, as proposed in the Plan, is

approved.

j) Sienna Biotech. The objection of Sienna Biotech,

Inc. (“Sienna”) to assumption and assignment of executory

contract was withdrawn. As agreed between the parties, CBC

will assume and assign to Aquila the confidentiality rights

provided in the November 12, 1992 Option Agreement

between Sienna and CBC, but will not assume or assign the

option nghts provided therein.

k) WBDC. The objection of Worcester Business

Development Corporation (“WBDC”) to assumption and

assignment of unexpired lease was withdrawn. As agreed

between the parties, CBC will cure any and all defaults under

the unexpired lease with WBDC by paying $205,000.00 to

WBDC. The assumption and assignment of this unexpired

lease, as proposed in the Plan, is approved.

I) U.S. Trustee. The objection to confirmation of the

United States Trustee, as raised in the Confirmation Hearing,

is overruled.

35. Discharge And Injunction.

a) Except as expressly provided in the Plan, and

subject to the occurrence of the Consummation Date, CBC is

discharged and released effective on the Confirmation Date

(i.e., the date of the Order) from any “debt” (as that term is

defined in Section 101(12) of the Bankruptcy Code), and

CBC’s liability in respect thereof is extinguished completely,

whether such debt was reduced to judgment, liquidated or

unliquidated, contingent or noncontingent, asserted or

unasserted, fixed or unfixed, matured or unmatured, disputed

or undisputed, legal or equitable, or known or unknown, or

arising from any agreement of CBC that has either been

assumed or rejected in the Chapter 11 Case or pursuant to the

Plan, and CBC is further discharged and released effective on

POUNCE AD te bab OT

53a

the Confirmation Date from any debts incurred before the

Confirmation Date or from any conduct of CBC prior to the

Confirmation Date, or that otherwise arose before the

Confirmation Date, including, without limitation, all interest,

if any, on any such debts, whether such interest accured before

or after the Petition Date. Except as provided in the Plan, any

judgment at any time obtained, to the extent that such

judgment is a determination of personal liability of CBC with

respect to any debt discharged hereunder, is hereby rendered

null and void.

b) The commencement or continuation of any action

or the employment of process with respect to any debt

discharged hereunder, or the assertion of any default under an

executory contract or unexpired lease in contravention of

Decretal Paragraph 34 hereof, or any act to collect, recover, or

offset any debt discharged hereunder as a personal liability of

CBC or from properties of CBC shall be, and hereby are,

forever enjoined.

36. Termination of Interests. Except as expressly

provided in the Plan, all Interests are terminated effective upon

the Consummation Date.

37. Rule 9019(a) Settlement. The Securities Class

Settlement Agreements are approved. In approving the

settlement embodied therein as fair and reasonable, the Court

has considered, among other things, the likelihood that the

Securities Class Claims could successfully be asserted, and the

amount thereof, the effect of Section 510 of the Bankruptcy

Code on such Claims, that General Unsecured Claims are

being paid in full, that many holders of Class 6 Old Common

Stock Interests may also be holders of Class 5 Securities Class

Claims, and the view of the Equity Committee. The

settlement has facilitated the creation and implementation of

54a

the Plan and benefits CBC, its Estate, creditors and equity

security holders.

38. Approval Of Initial Officers, Directors. Pursuant to

Section 1129(a)(5)(A)(ii) of the Bankruptcy Code, this Court

approves as consistent with the interests of creditors and

equity security holders and with public policy the selection

and election of (a) the individuals set forth in paragraph 7c

hereof as directors of Aquila as of the Consummation Date,

and (b) the individuals set forth in Section VILF of the

Disclosure Statement as executive officers of Aquila as of the

Consummation Date, in each case with any resignations that

may have occurred to date. Without further event or action by

any Person (other than the occurrence of the Consummation

Date), each of the individuals referred to above shall become a

director or officer, as the case may be, of Aquila, as of the

Consummation Date. Nothing set forth herein shall prevent

any of the foregoing individuals from resigning as an officer

or director, as the case may be, without further Order of this

Court. If a vacancy in the board of directors of Aquila occurs

for any reason following the Confirmation Date, such vacancy

shall be filled in accordance with the Aquila Certificate of

Incorporation and Bylaws, as the case may be.

39. General Authorizations. CBC and/or Aquila are

hereby authorized and empowered pursuant to Section 1142(b)

of the Bankruptcy Code to:

a) Execute and deliver, and take such action as is

necessary to effectuate the terms of, the instruments,

securities, agreements, and documents in substantially the

form of such instruments, securities, agreements, or

documents attached as exhibits to the Plan or Disclosure

Statement, or to be filed with this Court on or before the

Consummation Date, including all annexes and exhibits

attached to the foregoing; provided, however, that CBC and/or

RMA ae Dam rene BRA

55a

Aquila may make such additional ministerial changes as CBC

and/or Aquila’s management deems necessary, without notice

and a hearing under Section 1127(b) of the Bankruptcy Code

or disclosure or resolicitation under Section 1127(c) of the

Bankruptcy Code, as long as such changes do not materially

affect the rights of any party in interest.

b) Execute and deliver such instruments and

documents, and take such other action as may be necessary to

effectuate the sale of the Retroviral Business contemplated by

the Plan on or before the Consummation Date.

c) Issue, execute, deliver, file, and record any

documents, court papers, or pleadings, and to take any and all

actions as may be necessary or desirable to implement, effect,

or consummate the transactions contemplated by the Plan

whether or not specifically referred to in the Plan or related

documents and without further application to or order of this

Court.

d) Issue the securities and other instruments

contemplated by the Plan, including the New Common Stock,

the Rights, and the Warrants, all as described in Section IV.E

and Article VI of the Plan.

e) File with the appropriate Secretaries of State the

Certificate of Incorporation of Aquila (and any amendments

thereto) and any qualification to do business as a foreign

corporation.

f) Adopt the Bylaws of Aquila.

40. Authoriztions Relating to Retroviral Sale. CBC and

Aquila are hereby authorized, empowered, and directed

pursuant to Section 1142(b) of the Bankruptcy Code to

consummate the sale of the Retroviral Business on

substantially the terms described in the Disclosure Statement

and the Plan.

41. Authorizations Under Delaware Law.

56a

(a) Aquila and each of the officers of Aquila is

authorized, empowered, and directed pursuant to Section 303

of the Delaware General Corporation Law, to take any and all

actions necessary or desirable to implement the transactions

contemplated and provided by the Plan, the Disclosure

Statement, and this Confirmation Order as permitted by

Delaware General Corporation Law, including, without.

limitation:

i) to constitute the board of directors of Aquila

as contemplated and provided by Section IV.F of the Plan and

paragraph 7(c) hereof;

li) to constitute the officers of Aquila as

contemplated and provided by Section IV.F of the Plan and

Section VI.M of the Disclosure Statement;

iii) to amend the Aquila Certificate of

Incorporation as contemplated and provided by the Plan; and

iv) to amend the Aquila Bylaws as contemplated

and provided by the Plan.

(b) As provided in Section 303 of the Delaware

General Corporation Law, each of the foregoing actions may

be effected without further action of the directors or

stockholders of Aquila.

42. Cancellation Of Old Common Stock. Effective as of

the Record Date (i.e., the Consummation Date), the Old

Common Stock shall be canceled and be deemed null and void

Effective as of the Record Date, no further transfers of the Old

Common Stock shall be recognized, and distributions on the

Initial Distribution Date shall be made in accordance with the

ownership records as of the close of business on the Record

Date.

43. Exemption From Stamp Taxes. Pursuant to Section

1146(c) of the Bankruptcy Code, the issuance, transfer, or

exchange of any security, or the making, delivery, filing, or

LPO a GE ay ns SA a,

57a

recording of any instrument of transfer under the Plan shall not

be taxed under any law imposing a recording tax, stamp tax,

transfer tax, or similar tax.

44. Payment of Administrative Claims. On the

Consummation Date, Aquila shall pay in Cash (or as otherwise

provided in the Plan) all Allowed Administrative Claims

entitled to priority under Section 507(a)(1) of the Bankruptcy

Code, unless the holder of such a Claim agrees or has agreed

to different treatment, and Reorganized CBC shall have no

liability for such Claims.

45. Retention Of Jurisdiction. This Court shall retain

jurisdiction in accordance with the terms of Article XII of the

Plan, the other provisions of this Confirmation Order, and

Section 1142 of the Bankruptcy Code, including, without

limiation, to hear and determine CBC’s Motion Under 11

U.S.C. §363 For Approval Of Agreement For Sale Of

Sublicense Rights And Amendment To Sublicense, filed on

July 15, 1996, with respect to approval of an agreement

between CBC and Abbott Laboratories.

46. Notice Of Entry Of Confirmation Order. In

accordance with Bankruptcy Rules 2002 and 3020(c), on or

within ten (10) days after the Consummation Date, Aquila (or

its agents) shall give notice of the entry of this Confirmation

Order (the “Notice of Confirmation”), by United States first

class mail postage prepaid to (a) the United States Trustee, (b)

counsel for the Official Committees appointed in this Chapter

11 case, (c) the Securities and Exchange Commission at

Washington, D.C., (d) the District Director of Internal

Revenue (Boston), (e) the United States Attorney for the

District of Massachusetts, (f) the United States Secretary of

the Treasury, (g) entities who objected to confirmation of the

Plan, (h) entities who requested notices under Bankruptcy

Rule 2002, (I) The First National Bank of Boston (as the

58a

transfer agent or Rights Agent), (j) all holders of Allowed

Claims or Disputed Claims, and (k) all holders of Old

Common Stock of record as of the Consummation Date.

47. Sufficiency Of Notice tion. Mailing of

the Notice of Confirmation in the time and manner as set forth

in the preceding Paragraphs are adequate and Satisfy the

requirements of Bankruptcy Rules 2002 and 3020(c), and no

further notice is necessary.

48. Stays. All requests for Stays of this Order are denied,

49. Confirmation Hearing Findings an onclusions.

The Court’s subsidiary findings and conclusions dictated into

the record at the Confirmation Hearing are incorporated herein

by reference.

Dated: Worcester, Massachusetts

July 18, 1996

/s/

The Honorable James F. Queenan, Jr.

United States Bankruptcy Judge

St Sn ee

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Appendix E.

Rev. 3 18/09/89

ROYALTY-FREE CROSS LICENSE AGREEMENT

Agreement made this 25th day of October 1989 by and

between CAMBRIDGE BIOSCIENCE CORPORATION, a

company organized under the laws of the State of Delaware

(United States) with a principal place of business at 363

Plantation Street, Biotechnology Research Park, Worcester,

Ma 01605, United States (hereinafter referred to as “CBC”)

and DIAGNOSTICS PASTEUR, a company (société

anonyme) organized under the laws of France with a principal

place of business at 3 Boulevard Raymond Poincaré, 92430

Marnes La Coquette, France (hereinafter referred to as “DP”).

ARTICLE 1 - DEFINITIONS

1.1.- “Licensed Patents” shall mean those unexpired letters

patent owned by or licensed to CBS or DP respectively

as set forth in Exhibit A, B and C attached hereto and

made a part of this Agreement, and any letters patent

granted on the basis of the patent applications setforth in

Exhibit A, B and C respectively or on the basis of any

divisions, continuations, or continuations-in-part of any

such applications and any reissue or extension of any

such letters patent, and any confirmation patent,

registration patent or patent of addition based on any

such letters patent.

1.2. - “Licensed Products” shail mean diagnostic products in a

finished form the manufacture, use and/or sale of which

60a

would infringe a Valid Claim of Licensed Patents owned

by the licensing party. The question whether a valid

claim is infringed will be discussed by the parties in

good faith if necessary.

A product in a “finished form” includes but is not

limited to (I) a diagnostic kit or (ii) an aggregation of

reagents formulated and packaged specifically for use

with a designated instrument, which reagents include all

reagents necessary to measure the target analyte but

need not include reagents common to more than one test

performed on the instrument (such as wash solution or

diluent).

1.3. - “Valid Claim” shall mean a claim in a Licensed Patent

which claim has not been disclaimed or held invalid in a

non-appealed or unappealable final decision rendered by

a court of competent jurisdiction.

1.4. - “Affiliated Company” shall mean an organization which

controls or is controlled by a party or an organization

which is under common control with a party hereto

and/or an organization qualifying as above (control shall

mean direct or indirect legal or beneficial Ownership of

51 % or more of the voting stock). Unless the contrary

is clearly indicated by the text hereof in every instance

of this Agreement it is understood that reference to a

party includes Affiliated Companies of such party as

well. And that such party may extend to its Affiliated

Companies the benefits of this Agreement so that such

party shall remain responsible with regard all obligations

placed upon such party by the basis of this Agreement.

For the purposes of this Agreement, the parties confirm

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that the companies SANOFI DIAGNOSTICS and

DIAGNOSTIC TRANSFUSION, two companies within

the SANOFI Group, shall be deemed to be Affiliated

Companies of DP, as long as their relationship remain

unchanged.

“GSC Territory” shall mean the United States, Canada,

Mexico, Australia, New Zealand and India.

ARTI 2 - LICENS

2.1. - Both CBS and DP herewith grant to each other a

2.2. -

perpetual non-exclusive license, without the nght to

sublicense, for the sole purpose of manufacturing, using

and/or selling Licensed Products and/or for or on behalf

of the licensee (CBS or DP as the case may be) having

manufactured and/or used and/or under a distributorship

agreement with a third party having sold Licensed

Products, under their Licensed Patents as defined herein

and as enclosed in Exhibit A and Exhibit B respectively,

in the territory covered by those Licensed Patents and

for the life of the related letters patent.

The license granted to CBS by DP under paragraph 2.1.

shall be automatically extended under the Licensed

Patents as defined herein and as enclosed in Exhibit C

upon recovery by DP from GENETIC SYSTEMS of the

right to practice DP’s letter patent included in Exhibit C,

which DP shall use its best efforts to recover. DP

represents that it is currently discussing such recovery

with GENETIC SYSTEMS and will inform CBS with

the progress and results of such discussions.

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2.3. - The license granted to DP by CBS under paragraph 2.1.

shall be automatically extended with the right to

sublicense to GENETIC SYSTEMS for the GSC

Territory upon extension of the license granted to CBS

as set forth under paragraph 2.2., under the condition

that DP waives its right under paragraph 4.2. of this

Agreement so that such paragraph 4.2. shall be null and

void as of the date of coming into force of this

Agreement.

Notwithstanding the foregoing, CBS reserves the right

to terminate any sublicense granted to GENETIC

SYSTEMS forthwith by notice in writing to DP if

control of GENETIC SYSTEMS and/or of such

sublicense shall without the consent of CBS be acquired,

directly or indirectly, by any person or group of

connected persons or company not having such control

at the date hereof, by reconstruction, amalgation,

merger, acquisition of shares or assets or otherwise.

ARTICLE 3 - KNOW-HOW AND TESTS

3.1. - It is herewith agreed between the two parties that this

Agreement does not include any exchange of know-how

at all. It is furthermore agreed that either party shall

develop its own testing, using its own formats and/or

formats of third parties.

ARTICLE 4 - ROYALTY

4.1. - The cross-licensing set forth in Article 2 is the

consideration for the reciprocal licenses and accordingly

63a

the licenses granted under that Article 2 are fee-free and

royalty-free.

4.2. - As sole exception to paragraph 4.1. and subject to

paragraph 2.3., DP reserves the right exercisable at its

sole discretion in compliance with the existing

agreements between DP and GENETIC SYSTEMS at

any time during the term of this Agreement by notice to

CBS, to elect that a 6 % (six percent) royalty rate shall

be substituted to the royalty-free terms set forth in

paragraph 4.1. Should DP elect to exercize that right the

6 % royalty rate shall come in force, under the

provisions described in Exhibit D, as of the beginning of

a one year period prior to such election, but in no event

prior to the date of coming into force of this Agreement.

ARTICLE 5 - WARRANTY AND PATENT POLICY

5.1. - Each party covenants, warrants and represents to the

other party that it has and will have the full right and

power to grant licenses to that other party as set forth in

this Agreement.

5.2. - The parties agree that their respective rights to enforce

their respective Licensed Patents against third parties

shall be as follows:

5.2.1. In any country in which a party would, but for

the license granted herein, be precluded from practicing

‘its patent, the holder of the dominant patent shall have

the sole right to determine whether and under what

terms third party may make, use or sell Licensed

Products subject to the provisions of paragraph 2.3.

64a

5.2.2. In any country in which neither party’s patent

shall have issued or neither party’s patent shall dominate

the other’s, each party shall be free to license its patents

to third parties on such terms as it shall determine.

5.2.3. Any license or sublicense granted by a party to its

patents shall be subject to section 5.2.1.

ARTICLE 6 - COMING INTO FORCE

6.1. - This Agreement has come in force and effect thirty days

after the date first above written and shall exist until the

expiration of the last to expire of the Licensed Patents.

6.2. - Each party hereby irrevocably waives its rights,

including royalty payments, under its Licensed Patents

as regards any manufacture, use or sale of Licensed

Products performed by the other party before the

effective date of this Agreement.

ARTICLE 7 - MISCELLANEOUS

7.1. - This Agreement is not assignable without the prior

written consent of all the parties hereto and has been

made solely for the benefit of the parties hereto, their

respective successors and permitted assigns, and no

other person shall acquire or have any right under or by

virtue of this Agreement.

7.2, - This Agreement contains the entire understandings

among the parties hereto with respect to the transactions

contemplated herein, and no party shall be bound by, or

65a

shall be deemed to have made, any representations and

warranties except those contained in this Agreement.

7.3. - All notices, requests, reports, demands and other

communications made or given under the terms of this

Agreement or in connection herewith shall be in writing

in English and shall be either personally delivered,

transmitted by postage prepaid, registered or certified

mail (air mail if international), or by telex, fax or cable

(confirmed in writing by postage prepaid, registered or

certified mail-air if international), and shall be addressed

to the appropriate party at the address first set out above

(Attention: President) or to such other address or place

as such party may from time to time designate.

7.4. - Institut Pasteur and the President and Fellows of Harvard

College, by executing this Agreement each hereby

signifies its assent to the terms hereof and agrees to take

no action intended frustrate the operation of this

Agreement.

ARTICLE 8 - TERMINATION

Each party shall have the right to terminate this Agreement by

registered letter to the other party by giving sixty (60) days

notice in the event of a substantial breach of any of the articles

of this Agreement provided, however, such breach is not

rectified within sixty (60) days of receipt of the letter of

termination.

66a

ARTICLE 9 - APPLICABLE LAW AND JURISDICTION

This Agreement is governed by and construed in accordance

with the laws of Commonwealth of Massachusetts (United

States), without giving effect to the principles of conflicts of

laws. Should any controversy exist or arise under the present

Agreement, it is herewith agreed that the parties shall bring it

before the courts in the country of the respective defendant.

In witness whereof the parties hereto have caused this

Agreement to be duly executed as of the day and year above

written.

CAMBRIDGE BIOSCIENCE CORPORATION DIAGNOSTICS PASTEUR

by: Patrick J. Leonard by: Christian POLICARD

title: Chief Operating Officer title: Président Directeur

Général

For approval: For approval:

The President and Fellows of INSTITUT PASTEUR

HARVARD COLLEGE

by: Joyce Brinton, Director by: Maxime SCHWARTZ

title: Office for Patents Copyrights title: Directeur

and Licensing

Harvard University

67a

EXHIBIT A

to the Royalty-Free Cross License Agreement

between CAMBRIDGE BI TENCE CORPORATION and

DIAGNOSTIC PASTEUR

CBS’s letters patent

The letters patent included in this Exhibit A are owned by the

President and Fellows of Harvard College having offices at the

Office for Patents, Copyrights and Licensing, University

Place, 124 Mt. Auburn Street, Suite 256, CAMBRIDGE, Ma

02138 and licensed to CBS on an exclusive worldwide basis.

coun patent application publication

number number

1-GP110120 U.S.

US. S.N. 056,134 4,725,669

Canadian 1,247,082

Europe 85905989.1

68a

EXHIBIT B

to the Royalty-Free Cross License Agreement

between CAMBRIDGE BIOSCIENCE CORPORATION and

DIAGNOSTICS PASTEUR

DP’s letters patent

The letters patent included in this Exhibit B are owned by

INSTITUT PASTEUR, a French foundation, having offices at

28 rue du Docteur Roux, 75015 PARIS, France and licensed to

DP on an exclusive worldwide basis.

worldwide except

the Exclusive Territory of GENETIC SYSTEMS

coun patent application publication

number number

1 - GP.110/120

France 84.16013 2.571.968

Argentina 301994 236441

Brazil

Denmark 284986

Europe: 85.905.513.9

designating DE,

AT, BE, FR, IT,

LI, LU, NL, GB,

SE, CH

Greece 852522 852522

Ireland 238785

Japan 50485385

Korea (South) 86700374

69a

EXHIBIT B (continued)

to the Royalty-Free Cross License .Agreement

I IENCE CORPORATION and

between CAMBRID

DIA ICS PASTE

count patent application

number

Portugal 81338

Spain 548048

557357

557358

Unicn of

African 58708

Countries

Zaire 873.034

South Africa 803495

publication

number

81338

548048

557357

557358

70a

EXHIBIT C

to the Royalty-Free ss Li e€ ent

between CAMB E BI N RPORA d

DIAGNOSTICS PASTE

DP’s letters patent

The letters patent included in this Exhibit C are owned by

INSTITUT PASTEUR, a French foundation, having offices at

28 rue du Docteur Roux, 75015 PARIS, France and licensed to

DP on an exclusive worldwide basis and sublicensed to

GENETIC SYSTEMS, a Delaware corporation (United

States), 3005 First Avenue, Seattle, Washington, United

States.

countries within

the Exclusive Territory of GENETIC SYSTEMS

country patent application publication

number number

1 - GP 110/120

Australia 5061785

Canada 493377

Mexico 34

New Zealand 213889

USA 158,652 CIP

771,248

273,635 CIP

7la

Appendix F.

Rev. 3 18/09/89

ROYALTY-BEARING CROSS LICENSE AGREEMENT

Agreement made this 25th day of October 1989 by and

between CAMBRIDGE BIOSCIENCE CORPORATION, a

company organized under the laws of the State of Delaware

(United States) with a principal place of business at 365

Plantation Street, Biotechnology Research Park, Worcester,

Ma 01605, United States (hereinafter referred to as “CBS’’)

and DIAGNOSTICS PASTEUR, a company (société

anonyme) organized under the laws of France with a principal

place of business at 3 Boulevard Raymond Poincaré, 92430

Marnes La Coquette, France (hereinafter referred to as “DP”’).

ARTICLE 1 - DEFINITIONS

1.1.- “Licensed Patents” shall mean those unexpired letters

patent owned by or licensed to CBS or DP respectively

as set forth in Exhibit A, B and C attached hereto and

made a part of this Agreement, and any letters patent

granted on the basis of the patent applications setforth in

Exhibit A, B and C respectively or on the basis of any

divisions, continuations, or continuations-in-part of any

such applications and any reissue or extension of any

such letters patent, and any confirmation patent,

registration patent or patent of addition based on any

such letters patent.

1.2. - “Licensed Products” shall mean diagnostic products in a

finished form the manufacture, use and/or sale of which

Bde

1.4, -

72a

would infringe a Valid Claim of Licensed Patents owned

by the licensing party. The question whether a valid

claim is infringed will be discussed by the parties in

good faith if necessary,

A product in a “finished form” includes but is not

limited to (i) a diagnostic kit or (ii) an aggregation of

reagents formulated and packaged specifically for use

with a designated instrument, which reagents include all

reagents necessary to measure the target analyte but

need not include reagents common to more than one test

performed on the instrument (such as wash solution or

diluent).

“Valid Claim”

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