GlycoGenesys, Inc.

OCR transcription for search; preserved printed pages are authoritative

Case 06-10214 Doc380 Filed 10/23/06 Entered 10/23/06 18:14:48 Desc Main
Document Page 1 of 19

UNITED STATES BANKRUPTCY COURT

FOR THE
DISTRICT OF MASSACHUSETTS

LOND Pd md Pond Pd Pad Panett Pt Ph Omak ad cd Pt nd nad Pt Pd Pd ed nd Pd dt Pd Pd ad Pad Ped mt Pond nt Pad Prd Pd Prt Pat

In re
GLYCOGENESYS, INC. f/k/a
SAFESCIENCE, INC. f/k/a Chapter 7
IGG INTERNATIONAL, INC., Case No. 06-10214-JNF
INTERNATIONAL GENE GROUP, INC.,, and (Jointly Administered)
SAFESCIENCE PRODUCTS, INC.,

Debtors

(rnd Com Cd ad Porat Cd Pat Pad eh Prat Pad Fd ad Pd Ot ad Pd Pd nd Pad Prd Pd ad Od Pd Pd Pad Pd Ph Pt Pad Paved Pd md Pd Pod

MEMORANDUM

I. INTRODUCTION

Several contested matters are before the Court: 1) the Chapter 7 Trustee’s Motion
to Assume and Assign Certain Executory Contracts; 2) the Motion by Chapter 7 Trustee for
Authority to Sell by Private Sale Certain Assets of the Debtors Free and Clear of All Liens,
Claims, Encumbrances and Interests; and 3) the Application of Dr. David Platt and Pro-
Pharmaceuticals for Allowance of Chapter 11 Administrative Claim. Dr. David Platt and
Pro-Pharmaceuticals, Inc. (collectively, “Dr. Platt”) filed an Objection to the Chapter 7
Trustee’s Motion to Assume and Assign. The Court heard the Motions on September 25,
2006. The Court conducted an evidentiary hearing with respect to the Motion to Assume
and Assign Certain Executory Contracts and Platt’s Objection on that day, as well as on
September 26, 2006 and October 4, 2006. Six witnesses, including the Chapter 7 Trustee and

Dr. David Platt, testified at the hearing and 17 exhibits were introduced into evidence.

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION

GPO

Case 06-10214 Doc380 Filed 10/23/06 Entered 10/23/06 18:14:48 Desc Main
Document Page 2 of 19

Through his Motion to Assume and Assign Certain Executory Contracts, the
Chapter 7 Trustee seeks to assume and assign over 50 executory contracts to Marlborough
Research & Development, Inc. (“Marlborough”), all as are described on Exhibit A to the
motion, including a License Agreement between International Gene Group, Inc. and Dr.
David Platt (the “License Agreement”). Through his Motion for Authority to Sell Certain
Assets of the Debtors, the Chapter 7 Trustee seeks to sell the Debtors’ right, title and
interest related to the Debtors’ intellectual property portfolio, including patents, patent
applications, trademarks, service marks and licenses, certain equipment, books, records,
electronic data, files and certain executory contracts related to the Debtors’ “GCS 100 drug
products, program or business,”all as described on Exhibit A to the motion.

There are two issues presented: 1) whether the Chapter 7 Trustee has sustained his
burden under 11 U.S.C. § 365(c)(1)(B) to demonstrate that the License Agreement may be
assumed and assigned without Dr. Platt’s consent in view of the restriction on
transferability in the License Agreement; and, 2) whether the Chapter 7 Trustee has
satisfied his burden under 11 U.S.C. § 365(b)(1)(A) and (B) to demonstrate that defaults in
the performance of obligations to Dr. Platt will be cured by the payment of cure costs,’ and
that Dr. Platt will be provided adequate assurance of future performance under the License
Agreement. The Court now makes its findings of fact and conclusions of law in

accordance with Fed. R. Bankr. P. 7052.

' The Trustee sets forth a cure cost of $240,000; Dr. Platt, in his Objection sets
forth cure costs of $250,518.40.

Case 06-10214 Doc380 Filed 10/23/06 Entered 10/23/06 18:14:48 Desc Main
Document Page 3 of 19

II. FACTS

GlycoGenesys, Inc. (“GlycoGenesys”) and its two non-operating, wholly-owned
subsidiaries, International Gene Group, Inc. and SafeScience Products, Inc.,7filed voluntary
Chapter 11 petitions on February 2, 2006. The Debtors are jointly administered pursuant
to an order of this Court dated February 16, 2006.° The Court allowed the Debtors’ Motion
for Joint Administration in which the Debtors represented that they were under common
management and control and that the Debtors were affiliates as that term is defined in 11
U.S.C. § 101(2) and as used in Fed. R. Bankr. P. 1015(b). With the assent of the Official
Committee of Unsecured Creditors, the Debtors filed motions to convert their Chapter 11
cases to Chapter 7 on May 31, 2006, and the United States Trustee appointed Mark G.
DeGiacomo the Chapter 7 Trustee for all three Debtors on June 1, 2006.

GlycoGenesys was a publicly-traded, biotechnology company focused on
carbohydrate-based drug development for the treatment of various forms of cancer. Its
leading drug candidate is a drug known as GCS-100LE, a refinement of a drug identified
as GCS-100. GCS-100LE is a compound with a substantially reduced amount of ethanol,
which has the potential to adversely interact with other chemotherapies. GCS-100LE was

being clinically tested when the Debtors filed their Chapter 11 petitions. Indeed, clinical

* To avoid confusion, this Memorandum will refer to the full corporate names of
all parties, other than GlycoGenesys, without abbreviation.

* The Debtors are not yet substantively consolidated, however, the Trustee
indicated at the evidentiary hearing his intention to file a motion for substantive
consolidation.

Case 06-10214 Doc380 Filed 10/23/06 Entered 10/23/06 18:14:48 Desc Main
Document Page 4 of 19

trials were taking place at the Dana Farber Cancer Institute in Boston, Massachusetts.

At the evidentiary hearing, the Trustee introduced Plaintiff’s Exhibit No. 10, a Form
10/A of IGG International, Inc., the prior name of GlycoGenesys, filed by IGG
International, Inc. with the Securities and Exchange Commission (“SEC”) on July 25, 1995
(the “Report”) which sets forth a corporate history of GlycoGenesys, its predecessors and
subsidiaries.* According to the Report, IGG International, Inc. was a developmental stage
enterprise formed under the laws of the State of Nevada under the name Alvarada, Inc.,
on April 6, 1987. On March 7, 1995, Alvarada, Inc. completed a reverse acquisition,
wherein the majority shareholders of International Gene Group, Inc., a Michigan
corporation founded by Dr. Platt in 1992, transferred their stock to Alvarada, Inc. for
majority control of Alvarada, Inc. On May 28,1995 Alvarada, Inc. changed its name to IGG
International, Inc. In 1998, IGG International, Inc. changed its name to SafeScience, Inc.
On May 31, 2000, the board of directors of SafeScience, Inc. ousted Platt from the company.
In October 2001, SafeScience, Inc. changed its name to GlycoGenesys.

Dr. Platt is a leader and innovator in the field of novel saccharides for the treatment
of various cancers. In March of 1993, he filed a patent application with the Patent and

Trademark Office (the “PTO”) with respect to a chemotherapeutic agent identified as

* The parties attempted to provide a corporate history of GlycoGenesys and its
subsidiaries in various pleadings and affidavits. However, the facts elicited from these
sources have proven ambiguous, partially because of the similarity of corporate names
in this matter and parties’ varying, and sometimes conflicting, use of abbreviations.
Accordingly, the Court will limit its recitation of the corporate history in this matter to
facts contained in the Report and testimony given at the evidentiary hearing.

4

Case 06-10214 Doc380 Filed 10/23/06 Entered 10/23/06 18:14:48 Desc Main
Document Page 5 of 19

“Modified Pectin.” The Application, known as the 487 Application, is the subject of an
interference proceeding pending in the PTO. The interference proceeding stems from the
filing, on or around July 7, 1994, of a patent application by Ayram Raz (“Raz” of the
Barbara Anne Karmanos Cancer Institute (“KCI”) of Wayne State University (“WSU”), and
Kenneth Pienta (“Pienta”) of the University of Michigan, with respect to a modified pectin
for the treatment of prostate cancer. Raz and Pienta eventually obtained a patent with
respect to their formulation which they assigned to WSU and KCI. The details of the
interference proceeding, as well as the chronology of events giving rise to the arbitration
proceeding initiated by GlycoGenesys and International Gene Group, Inc. against Dr. Platt
are detailed in the “Award of Arbitrator,” dated November 10, 2004. In sum, the
arbitration proceeding involved claims and counterclaims of the parties with respect to the
License Agreement which the Trustee now seeks to assume and assign.

On January 7, 1994 , Dr. Platt and International Gene Group, Inc., at present a
subsidiary of GlycoGenesys, entered into the License Agreement governed by Michigan
law. As determined by the Arbitrator, the License Agreement covered all patents and
patent applications listed in an appendix, “as well as any patents issuing from said
applications, and any divisions, continuations, continuations-in-part, or re-issues of said
patents and patent applications, improvements, as well as all foreign equivalents of the
foregoing.” Platt granted International Gene Group, Inc. “an exclusive worldwide, royalty-
bearing license to make, use, have made, sell, lease or otherwise transfer Licensed

Products,” defined as “all products whose manufacture, use operation is covered by an

Case 06-10214 Doc380 Filed 10/23/06 Entered 10/23/06 18:14:48 Desc Main
Document Page 6 of 19

unexpired claim of a Licensed Patent.” Additionally, International Gene Group, Inc. agreed
to “pay all filing fees, maintenance fees, costs of patent application preparation and
prosecution and take all other steps necessary to perfect and maintain the Licenced
Patents” and to make an annual minimum royalty payment in the sum of $50,000. The
License Agreement contains no express provisions requiring International Gene Group,
Inc. to commercialize the Licensed Patents. However, the Arbitrator determined that both
parties contemplated and anticipated that International Gene Group, Inc. would
commercialize the Licensed Patents because it had no other business in January of 1994.
The License Agreement provides that “ [t]he license granted hereunder shall be transferable
by IGG [International Gene Group, Inc.] to a successor in interest of all, or substantially all
of its business without the prior approval of Platt provided said successor agrees in writing
to be bound by the terms and conditions of this Agreement.” The License Agreement was
amended on April 14, 1999. The parties added several issued patents and pending patent
applications and extended from the sixth to the ninth calendar year the $50,000 minimum
royalty payment.

The Award of Arbitrator is significant for the reason that the Arbitrator made
important findings as to the rights and obligations of GlycoGenesys and International Gene
Group, Inc. on the one hand, and Dr. Platt, on the other. First, the Arbitrator found that
“GlycoGenesys conducts its business through two wholly-owned subsidiaries,
International Gene Group, Inc. and SafeScience Products, Inc.” Second, the Arbitrator

noted: “In contrast to many patent license agreements (including, for example, the contract

Case 06-10214 Doc380 Filed 10/23/06 Entered 10/23/06 18:14:48 Desc Main
Document Page 7 of 19

between GLGS [GlycoGenesys] and WSU/KCI), there is no express reference to control of

patent prosecution.” The Arbitrator added:

Ordinarily, when an inventor licenses a patent application, the inventor
retains the ultimate right to control prosecution, absent a contrary
contractual provision. The inventor stands behind the inventor’s oath, 35
US.C. § 115, and is responsible for observing the duty of candor, .e., duty to
disclose to the PTO information material to patentability. 37 CFR § 1.56.
Here, Platt did not expressly relinquish his right to control prosecution. ...
GLGS's [Glycogenesys] right to prosecute was subject to Platt’s right to
control and direct that prosecution.

The Arbitrator also noted that in the year before the commencement of the
Arbitration proceeding, GlycoGenesys tendered Platt a $50,000 royalty payment under the
License Agreement and Platt accepted the payment.

Following Dr. Platt’s departure from SafeScience, Inc., WSU/KCT entered a license
agreement, effective January 26, 2001, pursuant to which, according to the Arbitrator,
“WSU/KCI licensed to Safe Science[, Inc.] the Raz Patent (and other patents and
applications) in exchange for $2 million, an additional $3 million in milestone payments,
options to purchase SafeScience[, Inc.] equity and percentage royalties on certain sales.”
Additionally, SafeScience obtained the right to direct WSU/ KCI to amend the Raz Patent

or take any other action to avoid, overcome or terminate any interference proceeding

between the Raz Patent and the 487 Application.”

Around this time, SafeScience, Inc. discontinued its consumer and commercial
product lines which it had begun developing in 1996 and began examining alternatives for
its agricultural product line. Indeed, SafeScience, Inc. changed its name to GlycoGenesys

in October of 2001 to reflect the new focus of its business. By the time the Debtors filed their

7

Case 06-10214 Doc380 Filed 10/23/06 Entered 10/23/06 18:14:48 Desc Main
Document Page 8 of 19

Chapter 11 petitions, they had discontinued the development and marketing of agricultural
and chemically-safe consumer products. According to the Debtors, in pleadings filed with
this Court at the time of the filing, their business was comprised of two license agreements
for the use of intellectual property associated with the GCS-100 drug candidate. They

described the licenses as follows:

The licenses are with Wayne State University and the Barbara Ann Karmanos
Cancer Institute, and with David Platt, a co-founder, former director, and
Chief Executive Officer of the Company. GCS-100 has been evaluated in
previous clinical trials at low dose levels in patients with colorectal,
pancreatic, and other solid tumors with stable disease and partial response
documented. The Company has an ongoing Phase I dose escalation trial to
evaluate higher dose levels of GCS-100LE, alow ethanol formulation of GCS-
100, at Sharp Memorial Hospital, Clinical Oncology Research in San Diego,
California and the Arizona Cancer Center in both Tucson and Scottsdale,
Arizona. In addition, GCS-100LE is being evaluated in a Phase I/II trial for
multiple myeloma. This study has been initiated at the Dana-Farber Cancer
Institute in Boston, Massachusetts; Roswell Park Cancer Institute in Buffalo,
New York; and Emory’s Winship Cancer Institute, Atlanta, Georgia.

Although GlycoGenesys and its subsidiaries, which the Chapter 11 Debtors
represented were under common management and control,” had discontinued agricultural
and chemically-safe product lines, the Chapter 11 Debtors filed motions to sell to Plant
Defense Boosters certain finished inventory and raw material components of an anti-fungal
agricultural product and an EPA registration and trademark relating to a pest control
product for $50,000. In their Motion, they stated that, from 2001 through June of 2004, they

engaged in only “limited activities” with respect to their so-called Elexa product line solely

° See Motion by Debtors and Debtors-In-Possession for Entry of Order Directing
Joint Administration of Chapter 11 Cases.

Case 06-10214 Doc380 Filed 10/23/06 Entered 10/23/06 18:14:48 Desc Main
Document Page 9 of 19

to preserve its value.

Additionally, the Chapter 11 Debtors sold by way of a web auction certain
laboratory equipment and other personalty, realizing approximately $75,000 from the
online sales. While in Chapter 7, the Trustee abandoned certain personal property,
including cleaning supplies, plastic bottles, dispensers, used office furniture and
equipment, and non-clinical grade commercial GCS-100 and pectin located in Somerville,
Massachusetts and Allentown, Pennsylvania.

The Chapter 7 Trustee did not abandon, and, pursuant to the Motion for Authority
to Sell by Private Sale, now proposes to sell to Marlborough the Debtors’ clinical-grade
drug supplies located at Fisher Clinical Services, Inc., as well as all inventory, “all material
on stability, all bulk material, all other retains [sic], all raw material and all work in
progress for GCS 100LE and GCS-00 (including all prior formulations) within the care,
custody, or control of the Trustee.” These assets are denominated “GCS Inventory” in the
Purchase and Sale Agreement.

The Chapter 7 Trustee’s testimony and the testimony of John W. Burns (“Burns”),
the Chief Financial Officer of the Debtors at the time of their Chapter 11 filings, confirmed
the Chapter 11 Debtors’ prior representations, namely that in February of 2006 the Debtors’
business was developing GCS-100 and GCS-100LE and obtaining regulatory approval for
commercial distribution of pharmaceutical products associated with GCS-100 and GCS-
100LE after completion of clinical studies. Burns testified that in 2001 the business of

International Gene Group, Inc., as a subsidiary of Glycogenesys, became the primary

Case 06-10214 Doc380 Filed 10/23/06 Entered 10/23/06 18:14:48 Desc Main
Document Page 10 of 19

business of the parent company and, as noted above, that SafeScience changed its name to
GlycoGenesys to reflect the shift in focus of the company. Moreover, Burns testified that
International Gene Group, Inc. was funded by its parent and its only source of capital was
cash “downstreamed” by GlycoGenesys. International Gene Group, Inc. never raised any
money or generated any revenue on its own. Nevertheless, it filed separate tax returns,
and its Schedules of Assets and Liabilities show that it had limited debt and, other than
cash, it had only a single asset, namely the License Agreement with Dr. Platt. It listed just
two creditors with unsecured, nonpriority claims in unknown amounts - - the
Commonwealth of Massachusetts and Dr. Platt.

Burns further testified that the Debtors have retained approximately 6,000 vials of
GCS-100LE, an amount sufficient to begin clinical trials. Dr. George Tidmarsh
(“Tidmarsh”) and James Rolke (“Rolke”), the former manager of process development at
GlycoGenesys, elaborated upon Burns’ testimony discussing purposes and goals of the
various phases of clinical trials, as well as the availability and viability of the vials of GCS-
100 that can be used immediately in clinical trials.

Joseph Grimm (“Grimm”), the president of Marlborough, a “start-up” company,
testified extensively about his background in the biotechnology sector and his relationship
with Marlborough’s financial backers, Kevin Tang and Tang Capital Management, LLC,
which has a fund with over $100 million dedicated to launching small companies. Grimm
represented that he had 30-years of experience in finance and corporate development and

he further stated that he had been involved in “two IPO’s, and a number of secondary

10

Case 06-10214 Doc380 Filed 10/23/06 Entered 10/23/06 18:14:48 Desc Main
Document Page 11 of 19

offerings,” adding that he had also done “corporate partnering deals with Merck, J&J,
Wyeth, [and] Boston Scientific.” Grimm described the team he planned to have in place
if the Court were to approve the Trustee’s Motion, and he submitted certain financial
statements of Marlborough, including its projected cash flow. He did not have written
agreements with all members of his team, and testified that most members would be
compensated with an equity participation in the new venture. Grimm stated that he
planned to engage Tidmarsh, Rolke, Spiro Jamis, whom Grimm described as a “ pioneer”
in the biotechnology section, Karen Tuberty (“Tuberty”), a former director of hematology
and oncology at Wyeth, and Andy Magee (“Magee”), an analytical chemist.

Dr. Tidmarsh, who trained as a pediatrician and oncologist at Stanford University,
has impressive credentials as a clinician, research scientist and biotechnology entrepreneur.
For example, he founded Threshold Pharmaceuticals and with a $750,000 initial
investment, developed a drug known as Bexxar, which he brought from preclinical
development into the clinical trials, raising $41 million upon the signing of a licensing
agreement, and over $100 million ina secondary offering after the company became public.
Grimm testified that Dr. Tidmarsh would receive compensation in the form of equity and
would serve as the chief medical and scientific officer. Grimm described Turberty’s role
as that of a consultant for clinical and regulatory affairs at $225 per hour, while Rolke and
Magee would be employed for their expertise as chemists in the development of

pharmaceuticals.

Grimm testified about Marlborough’s financial statements. He indicated that Tang

11

Case 06-10214 Doc380 Filed 10/23/06 Entered 10/23/06 18:14:48 Desc Main
Document Page 12 of 19

Capital increased its initial funding and that the company would have “a starting point”
of $4.5 million in cash and that Marlborough recognized and budgeted for Dr. Platt’s
retention of control of the interference proceeding and the 487 Application. He added that
Marlborough had clearly identified its cure costs and would have cash at the end of
September 30, 2007 of $1.676 million even after the allocation of $1.41 million for clinical
drug trials, which would be predicated upon the assumption of the Debtors’ executory
contract with Fisher Clinical Services, Inc. which is storing the vials of GCS-100LE needed
to conduct clinical trials. Moreover, Burns testified that a batch of GCS-100LE containing
approximately 2,000 vials would cost about $200,000 to produce.

Dr. Platt testified about the financial projections and team of scientists and managers
put together by Grimm. Although he opined that Marlborough had insufficient funds to
commercialize GCS-100 and he criticized Grimm’s management team, his testimony was
conclusory and inconsistent with his own experience as a biotechnology entrepreneur. It
was marked by obvious prejudice and hostility. In short, it was unpersuasive.

III. DISCUSSION

It is undisputed by the parties that the License Agreement is the property of
International Gene Group, Inc., the wholly-owned subsidiary of GlycoGenesys. See
Defendant's Exhibit B- Schedule B-Personal Property filed by debtor International Gene
Group, Inc.

Section 365 of the Bankruptcy Code provides in relevant part the following:

(a) Except as provided in . . . subsections (b), (c), and (d) of this section, the
trustee, subject to the court's approval, may assume or reject any executory

12

Case 06-10214 Doc380 Filed 10/23/06 Entered 10/23/06 18:14:48 Desc Main
Document Page 13 of 19

contract or unexpired lease of the debtor.

(b)(1) If there has been a default in an executory contract or unexpired lease
of the debtor, the trustee may not assume such contract or lease unless, at the
time of assumption of such contract or lease, the trustee--

(A) cures, or provides adequate assurance that the trustee will
promptly cure, such default other than a default that is a
breach of a provision relating to the satisfaction of any
provision (other than a penalty rate or penalty provision)
relating to a default arising from any failure to perform
nonmonetary obligations under an unexpired lease of real
property, if it is impossible for the trustee to cure such default

by performing nonmonetary acts at and after the time of
assumption, ...

(B) compensates, or provides adequate assurance that the
trustee will promptly compensate, a party other than the
debtor to such contract or lease, for any actual pecuniary loss
to such party resulting from such default; and

(C) provides adequate assurance of future performance under
such contract or lease. ...

(c) The trustee may not assume or assign any executory contract or
unexpired lease of the debtor, whether or not such contract or lease 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 or lease from accepting performance from or
rendering performance to an entity other than the debtor or the debtor
in possession, whether or not such contract or lease prohibits or
restricts assignment of rights or delegation of duties; and

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

(f)(1) Except as provided in subsections (b) and (c) of this section,
notwithstanding a provision in an executory contract or unexpired lease of
the debtor, or in applicable law, that prohibits, restricts, or conditions the
assignment of such contract or lease, the trustee may assign such contract or
lease under paragraph (2) of this subsection.

13

Case 06-10214 Doc380 Filed 10/23/06 Entered 10/23/06 18:14:48 Desc Main
Document Page 14 of 19

(2) The trustee may assign an executory contract or unexpired lease of the
debtor only if--

(A) the trustee assumes such contract or lease in accordance
with the provisions of this section; and
(B) adequate assurance of future performance by the assignee
of such contract or lease is provided, whether or not there has
been a default in such contract or lease.

11 US.C. § 365(b), (c), and (f)(emphasis added). Because Dr. Platt does not consent to the
transfer of the License Agreement to Marlborough, this Court must consider whether the
terms of the License Agreement and/or applicable law excuse Dr. Platt from accepting
performance from or rendering performance to an entity other than debtor International
Gene Group, Inc. Generally, under federal common law, non-exclusive patent licenses are

not assignable in the absence of express language. Stenograph Corp. v. Fulkerson, 972 F.2d

726, 729 n.2 (7th Cir. 1992). See generally Everex Sys., Inc. v. Cadtrak Corp. (In re CFLC,

Inc.), 89 F.3d 673, 679 (9th Cir. 1996). In the instant case, Dr. Platt granted International
Gene Group, Inc. an exclusive license with the respect to the patent products and the

License Agreement expressly permits assignment subject to the restriction discussed below.

Cf. Institut Pasteur v. Cambridge Biotech Corp., 104 F.3d 489 (1st Cir. 1997), cert. denied, 521

U.S. 1120 (1997). The Court concludes that federal common law does not preclude the

Trustee from assuming and assigning the License Agreement. See Murray v. Franke-Misal

Technologies Group, LLC. (In re Supernatural Foods, LLC), 268 B.R. 759 (Bankr. M.D. La.

2001).

The Court must determine whether Dr. Platt is excused from accepting

performance from or rendering performance to Marlborough, the proposed assignee of the

14

Case 06-10214 Doc380 Filed 10/23/06 Entered 10/23/06 18:14:48 Desc Main
Document Page 15 of 19

License Agreement, or whether the express terms of the License Agreement provide for
his consent to the assignment under the circumstances of this case. As noted above, the
License Agreement contains a restriction on its assignment. It provides: “[t]he license
granted hereunder shall be transferable by [International Gene Group, Inc.] to a successor
in interest of all, or substantially all of its business without prior approval of Platt provided
said successor agrees in writing to be bound by the terms and conditions of this
Agreement.”

Dr. Platt argues that because International Gene Group, Inc. was a non-operating
subsidiary of GlycoGenesys with a single asset, other than cash, the License Agreement
cannot be transferred because there can be no successor in interest to “all, or substantially
all of its business.” He maintains that International Gene Group, Inc. was not , and is not
“in business.” Dr. Platt contends that prior to the bankruptcy, International Gene Group,
Inc. transferred substantially all of its business operations and assets, except the License
Agreement, to its corporate parent, GlycoGenesys, leaving the License Agreement
“stranded” in the subsidiary. He points out that following the bankruptcy filing, the
Debtors and the Trustee sold or abandoned certain equipment, furniture, inventory, raw
materials and other personal property of the Debtors. Accordingly, the proposed
assumption and assignment of the remaining License Agreement is a sale of a “left-over”
asset which can not be considered a sale of “all or substantially all of the business” as
required by the License Agreement as a condition of transferability.

The Chapter 7 Trustee maintains that Dr. Platt has consented to the assignment to

15

Case 06-10214 Doc380 Filed 10/23/06 Entered 10/23/06 18:14:48 Desc Main
Document Page 16 of 19

Marlborough because the sale and assignment does constitute a transfer of all of
International Gene Group, Inc.’s business. Both parties agree that 11 U.S.C. § 365(c)(1)(A)
applies, and that Dr. Platt cannot be compelled from accepting performance from any
entity other than International Gene Group, Inc., except in accordance with the express
terms of the License Agreement. Thus, the threshold issue presented is whether the current
proposed sale is a sale of all or substantially all of the business of International Gene
Group, Inc. and/or the Debtors and thus the License Agreement can be assigned over Dr.
Platt’s objection.

Although the parties agree that Michigan law applies to the interpretation of the
License Agreement, neither the parties nor the Court were able to locate any decisions
interpreting the meaning of the term “substantially all of the business” under Michigan
law. Michigan law, however, does require that interpretation of a contract begin with the
plain meaning of the contract's language, that construction of a contract should effectuate
the parties’ intent, and that a contract’s terms should be interpreted in accordance with

commonly used meanings. See Henderson v. State Farm & Cas. Co., 460 Mich. 348, 596

N.W. 2d 190 (1999); Old Kent Bank v. Sobczak, 243 Mich. Ct. App. 57, 620 N.W. 2d 663

(2000).

Applying these principles, the Court rejects Dr. Platt’s narrow view of the business
of International Gene Group, Inc. and GlycoGenesys. The Court finds that Dr. Platt’s
argument elevates form over substance and ignores the reality of how the Debtors

operated. As Burns testified, the Debtors operated under common management and

16

Case 06-10214 Doc380 Filed 10/23/06 Entered 10/23/06 18:14:48 Desc Main
Document Page 17 of 19

control, and funds obtained by International Gene Group, Inc. were “downstreamed” from
GlycoGenesys. The evidence demonstrated that the Debtors’ business primarily consisted
of the development and commercialization of carbohydrate-based cancer drugs, in
particular GCS-100 and GCS-100LE, which were developed, manufactured, and the subject
of clinical trials pursuant to the patents licensed to International Gene Group, Inc. under
the License Agreement. The Debtors were still in the process of developing these drugs
when they commenced their Chapter 11 cases. The main businesses, including
International Gene Group, Inc., of the Debtors and the majority of their assets consisted of
the intellectual property and the inventory of carbohydrate-based cancer therapies. The
assets sold by the Debtors during the pendency of the Chapter 11 cases were not integral
to the development or commercialization of GCS-100 or GCS-100LE. Certain assets sold
related to the agricultural and pesticide consumer product lines of SafeScience, Inc. Other
assets sold were laboratory equipment and office furniture used by the Debtors in their
laboratory operations. The equipment was not essential to the Debtors’ development of
its pharmaceutical products which were manufactured by a third party.

It is also significant that Dr. Platt has accepted GlycoGenesys’s performance in the
form of payment of royalties on behalf of International Gene Group, Inc. Dr. Platt testified
that he founded International Gene Group, Inc. in 1992. At the time he executed the
License Agreement in 1994, he was the licensor and, according to his testimony at the
evidentiary hearing, he controlled the licensee. He acted simultaneously for both parties

to the License Agreement. Had he wanted to foreclose any possibility of the transfer of the

17

Case 06-10214 Doc380 Filed 10/23/06 Entered 10/23/06 18:14:48 Desc Main
Document Page 18 of 19

License Agreement, as its drafter, he could have done so. The language of the License
Agreement cannot be used to circumvent the reality of the Debtors’ business both before
and after the bankruptcy filings. International Gene Group, Inc.’s and GlycoGenesys’s
businesses were and are one and the same, and the Debtors collectively may transfer the
License Agreement to Marlborough without violating either Michigan law or the
provisions of 11 U.S.C. § 365(c).

The Court finds that the Trustee has satisfied that burden under 11 U.S.C. § 365(b)(1)
and (f)(2), which provisions require “adequate assurance of future performance” of an
executory contract, such as the License Agreement, which is the subject of a proposed
assignment. The term is not defined in the Bankruptcy Code. Courts interpreting the
requirement have adopted a pragmatic approach, focusing on the assignee’s “ability to

fulfill the financial obligations” under the contract. See, e.g., In re Martin Paint Stores, 199

B.R. 258 (Bankr. S.D. N. Y. 1996); Carlisle Homes, Inc. v. Azzari (In re Carlisle Homes, Inc.),

103 B.R. 524 (Bankr. D. N. J. 1988). Thus, it is appropriate to evaluate the financial
condition of the assignee and the likelihood that the non-debtor party will receive the

benefit of its bargain from the assignee. See Inre Casual Male Corp., 120 B.R. 256, 264-65

(Bankr. D. Mass. 1990).

In the present case the evidence is unrebutted that Marlborough, although a start-up
company, has sufficient cash to satisfy the cure costs and provide adequate assurance of
payment of Dr. Platt’s royalties. The Trustee, through his own testimony as well as the

testimony of Grimm, Tidmarsh and Rolke about Marlborough’s business plan, financing,

18

Case 06-10214 Doc380 Filed 10/23/06 Entered 10/23/06 18:14:48 Desc Main
Document Page 19 of 19

and scientific expertise, has established adequate assurance of Marlborough’s future
performance under the License Agreement. Grimm, in particular, recognized and testified
that Marlborough has budgeted sufficient funds to pay all filing fees, maintenance fees,
costs of patent application preparation and prosecution and can take all other steps
necessary to perfect and maintain the Licensed Patents; that it has budgeted sufficient sums
for the “reasonable costs” associated with Dr. Platt’s extension of “all reasonable and
necessary cooperation” in connection with efforts to enforce his rights under the License
Agreement; that it can and will make the $50,000 minimum royalty payments; and that it
will otherwise comply with the terms of the License Agreement.
IV. CONCLUSION

In accordance with the foregoing, the Court shall enter an order overruling Dr.
Platt’s Objection and granting the Chapter 7 Trustee’s Motion to Assume and Assign
Certain Executory Contracts and the Motion by Chapter 7 Trustee for Authority to Sell by
Private Sale Certain Assets of the Debtors Free and clear of All Liens, Claims,

Encumbrances and Interests.

By the Court,

ror) | Germs

Joan N. Feeney
United States Bankruptcy oe

Dated: October 23, 2006

ce: William J. Hanlon, Esq., Thomas Van Gel, Esq., Mark G. DeGiacomo, Esq., Robert L.
Eisenbach, III, Esq., Andre Z. Schwartz, Esq.

19