SUPPLY AND SERVICES AGREEMENT

 

                                                                    Exhibit 10.3

 

                                                                  EXECUTION COPY

 

                          SUPPLY AND SERVICES AGREEMENT

 

         THIS SUPPLY AND SERVICES AGREEMENT is entered into as of December 19,

2005 (the "Effective Date") by and between PROTEIN POLYMER TECHNOLOGIES, INC., a

Delaware corporation ("Company") and SURGICA CORPORATION, a Delaware corporation

("Surgica"). Company and Surgica are each hereinafter referred to as a "Party"

and collectively as the "Parties".

 

                              W I T N E S S E T H:

 

         WHEREAS, Company and Surgica have entered into an Asset Purchase Option

Agreement, dated as of November 23, 2005 (the "Option Agreement"), pursuant to

which Company, among other things, obtained the right to purchase from Surgica

substantially all of the assets of Surgica then existing or thereafter acquired

through the date of the exercise of the Option (as that term is defined in the

Option Agreement);

 

         WHEREAS, in connection with the Option Agreement and this Agreement,

the Parties are entering into a separate License Agreement of even date herewith

(the "License Agreement") wherein Company acquires from Surgica an exclusive

license to Intellectual Property for use in the Field;

 

         WHEREAS, Surgica has experience in the development of Products and has,

or will have as a result of the Parties fulfilling their obligations hereunder,

the facilities, equipment, employees, materials and other resources to

accomplish development and manufacturing activities, on behalf of Company, with

respect to the Intellectual Property; and

 

         WHEREAS, as partial consideration offered by Surgica to induce Company

to enter into the Option Agreement, Surgica desires to supply certain services

and manufactured goods and materials to Company and receive certain services

from Company.

 

         NOW, THEREFORE, in consideration of the premises and mutual covenants

and agreements herein set forth and for other good and valuable consideration,

the receipt and adequacy of which are hereby acknowledged, the Parties hereto

hereby agree as follows:

 

1.     Definitions. All capitalized terms used but not defined in this Agreement

shall have the meanings ascribed thereto in the License Agreement. The following

terms shall have the meanings set forth below:

 

      1.1    "Clinical Use" shall mean use in humans.

 

      1.2    "Deliverable" shall mean services, materials or items to be

delivered by one Party to the other under this Agreement pursuant to a Project

Plan.

 

      1.3 "Delivery Dates" shall mean the delivery dates for specific orders of

Product as may be specified by Company in its reasonable discretion in a Project

Plan or Order.

 

      1.4 "ECA" means the European Competent Authorities, any Notified Bodies,

or any successor agencies responsible for European Regulatory Approvals.

 

 

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      1.5 "Surgica Financial Difficulty" shall mean the occurrence of: (a)

filing in any court pursuant to any statute, a petition in bankruptcy or

insolvency or for reorganization in bankruptcy or for an arrangement or for the

appointment of a receiver or trustee for such Party of its assets; (b) being

served with an involuntary petition against it, filed in any insolvency

proceeding, and where such petition has not been dismissed within sixty (60)

days after the filing thereof; (d) proposing or being a party to any

dissolution; or (e) making an assignment for the benefit of creditors.

 

      1.6 "Fully-Burdened Cost" shall mean all of the direct and proportional

indirect costs and expenses for providing the specified Product or services,

including but not limited to raw materials and supplies, labor, equipment,

utilities, facilities and overhead as determined according to generally accepted

accounting principles (GAAP) consistently applied. Specifically, with respect to

Company's Fully-Burdened Costs, such Fully-Burdened Costs shall include, without

limitation, amounts paid to Surgica pursuant to the applicable budgets provided

for herein.

 

      1.7 "Governmental Body" means any: (a) nation, principality, state,

commonwealth, province, territory, county, municipality, district or other

jurisdiction of any nature; (b) federal, state, local, municipal, foreign or

other government; (c) governmental or quasi-governmental authority of any nature

(including any governmental division, subdivision, department, agency, bureau,

branch, office, commission, council, board, instrumentality, officer, official,

representative, organization, unit, body or entity and any court or other

tribunal); (d) multi-national organization or body; or (e) individual, entity or

body exercising, or entitled to exercise, any executive, legislative, judicial,

administrative, regulatory, police, military or taxing authority or power of any

nature.

 

      1.8 "Non-Clinical Use" shall mean use other than in humans.

 

      1.9 "Company Facilities" shall mean Company's offices and laboratory space

located at 10655 Sorrento Valley Road, San Diego, California 92121 or, in the

event Company no longer maintains offices and laboratory space at such address,

such new address as Company shall maintain offices and/or laboratory space.

 

      1.10 "Company's Technology" shall mean all inventions, discoveries,

know-how, works of authorship, methods, processes, data, information,

technology, research tools, techniques, processes, methods, compositions,

tangible materials (including, without limitation, vectors, proteins, assays and

the like), formulas and all other scientific or technical information or

materials, in whatever form, and all rights embodied in intellectual property

therein and thereto anywhere in the world, that are owned, controlled or

licensed-in by Company (excluding any Intellectual Property licensed-in from

Surgica or its Affiliates) and Company's Confidential Information, and all

embodiments thereof.

 

      1.11 "Cost of Goods Sold" or "COGS" shall have the definition set forth in

Section 5.5.1.3.

 

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      1.12 "Product" shall mean Products as defined in the License Agreement

provided by Surgica to Company that are set forth in the applicable Project Plan

or Order under this Agreement.

 

      1.13 "Project" shall mean a project referred to in Section 2 below and as

further defined in each Project Plan (defined in Section 2.2 below).

 

      1.14 "Project Technology" shall mean all inventions, discoveries,

know-how, works of authorship, methods, processes, data, information,

technology, research tools, techniques, processes, methods, compositions,

tangible materials, formulas and all other scientific or technical information

or materials, in whatever form, that are invented, discovered, developed or

otherwise generated by either Party, their respective Affiliates or both Parties

jointly during and in the course of the obligations set forth herein and in each

Project Plan hereunder, and conducted pursuant hereto and thereto, and all

rights embodied in intellectual property therein and thereto anywhere in the

world.

 

      1.15 "Regulatory Agency" means (a) the FDA, (b) the ECA, or (c) any other

Governmental Body with regulatory authority similar to the FDA or ECA in any

other jurisdiction anywhere in the world.

 

      1.16 "Regulatory Approval" shall mean with respect to any country, filing

for and receipt of all regulatory agency or other registrations, clearances and

approvals required in such country in respect of Product for any purpose

specified in this Agreement or, if no purpose is specified, to enable Product to

be manufactured, offered for sale, sold and distributed, and for Non-Clinical

Use or Clinical Use to take place, in such country.

 

      1.17 "Surgica's Technology" shall mean all inventions, discoveries,

know-how, works of authorship, methods, processes, data, information,

technology, research tools, techniques, processes, methods, compositions,

tangible materials, formulas and all other scientific or technical information

or materials, in whatever form, and all rights embodied in Intellectual Property

therein and thereto anywhere in the world, that are owned, controlled or

licensed-in by Surgica (excluding any intellectual property licensed-in from

Company or its Affiliates) and Surgica's Confidential Information, and all

embodiments thereof.

 

      1.18 "Surgica Budget" shall mean the currently approved budget for

Surgica's operations under approved Project Plans.

 

2.     Project Development.

 

      2.1   Management Committee; Project Coordinators. As of the Effective Date,

the Parties have formed a Management Committee (the "Committee") to oversee the

Parties' rights and obligations under this Agreement. Each Party shall designate

in Exhibit A attached hereto one (1) individual who will be the initial "Project

Coordinator" for such Party and up to two (2) representatives (each, a

"Representative"). Together, the Project Coordinators shall (a) serve on the

Committee, (b) have management authority, (c) facilitate day-to-day

communications between the Parties, (d) monitor the schedules and progress of,

and have responsibility for, the work performed under this Agreement, (e)

receive and submit requests for information and/or assistance, (f) supervise the

exchange of Confidential Information (defined in Section 10 below),

 

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and (g) designate its authority to one or more of the responsibilities listed in

clauses (a) through (f) above to its respective representative(s). Company's

Project Coordinator shall serve as the chair person of the Management Committee.

The Project Coordinators will meet (including telephonically) as is required by,

or reasonably desirable to, Company to discuss the progress of the development

effort for each Project and, if applicable, to exchange information and

Deliverables. Neither Party's Project Coordinator is authorized to amend, alter

or extend this Agreement in any manner. All disputes concerning one or more

Projects shall be resolved by the chair person of the Management Committee. Each

Party may change its Project Coordinator and/or Representative(s) at any time,

and from time to time, by giving the other Party prior written notice.

 

      2.2   Preparation of Project Plan. For each Project that the Parties

undertake under this Agreement, the Committee shall prepare a project plan

("Project Plan") setting forth the goals and objectives of, and Surgica's budget

for, the Project, identified with respect to the Parties' responsibilities. The

Parties agree that the Project Plan shall automatically, without any further

action by the Parties, incorporate the terms and conditions of this Agreement.

The Project Plan shall be reviewed quarterly by the Committee and may be

amended, but only if such amendment is in writing and signed by each Project

Coordinator. In the event of any conflict between any terms of this Agreement

and the terms set forth in any Project Plan, the terms of this Agreement shall

govern.

 

      2.3   Project Plan No. 1. Prior to the Effective Date, the Parties shall

agree upon a Project Plan (which shall be adopted by the Committee upon the

Effective Date) under which Surgica shall [*****] as more specifically set

forth in Schedule 2.3 attached hereto ("Project Plan No. 1"). Surgica shall use

commercially reasonable efforts to (i) collaborate with and assist Company with

obtaining all necessary certifications and Regulatory Approval concerning

Project Plan No. 1; and (ii) provide data and technical support as reasonably

requested by Company in connection with Company's fulfillment of its obligations

under Project Plan No. 1.

 

      2.4   Surgica Budget. As of the Effective Date, the Parties agree that the

Project Plan No. 1 Budget shall be the Surgica Budget for the first year under

this Agreement. Every six (6) months, the Committee shall prepare an updated

budget for the succeeding twelve (12) months, taking into consideration progress

against the Sales Forecast and each Project Plan. The updated Surgica Budget

shall be approved in writing by the Company's Project Coordinator.

Notwithstanding the foregoing, the Surgica Budget may be adjusted from time to

time, and at any time, upon the prior written approval of Company's Project

Coordinator. According to the Surgica Budget then in effect, Surgica shall

invoice company monthly in advance and Company shall pay Surgica the invoiced

amount within ten (10) days.

 

      2.5   Surgica Budget Reconciliation. No later than fifteen (15) days after

the conclusion of each calendar quarter, Surgica shall complete a review of its

actual expenses under the applicable Project Plan(s) and reconcile and compare

such actual expenses against the sum of all payments (including, without

limitation, any credits that result from the reconciliation of the Surgica

Budget from any prior calendar quarter(s)) made during the calendar quarter just

 

 

[*****] Material is confidential and has been omitted and filed separately with

the Securities and Exchange Commission.

 

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concluded by Company (i) pursuant to the Surgica Budget, and (ii) that were made

to Surgica or on behalf of Surgica, to a third party, that, in Company's sole

discretion, were reasonably necessary or desirable to reduce the risk of an

event of a Surgica Financial Difficulty ("Budget Payments"). Surgica shall

provide an accurate report of the results of its review to Company upon

completion. If Company's Budget Payments exceed Surgica's actual expenses

(including any amounts paid by Company on behalf of Surgica) during the reviewed

calendar quarter, Company may apply the difference (i.e., the amount of Budget

Payments that was in excess of Surgica's actual expenses during the reviewed

period) to its next Budget Payment(s) to Surgica.

 

      2.6   Submission of Project Proposals for Additional Projects. Either Party

may submit to the Project Coordinators a project proposal describing the

Project, the work to be performed, and to the extent then determinable, a

preliminary development schedule. The Project Coordinators shall each promptly

review and evaluate the project proposal. If the Project Coordinators each agree

to pursue the subject matter of the proposal, the Committee shall prepare a

Project Plan. Approval of a Project Plan shall be effective only if the

president and/or chief executive officer of each Party approves the Project Plan

in writing. Each Project Coordinator will notify the other of approval or

rejection of a Project Plan or may propose modifications to a Project Plan. Any

Project Plan not approved by both Parties within thirty (30) days following

submission shall be deemed rejected. Upon the approval of any additional Project

Plan, the Surgica Budget shall be revised as required, subject to the prior

written approval of Company's Project Coordinator.

 

      2.7   Development Obligations. Each Party shall use its commercially

reasonable efforts to undertake and complete each Project in accordance with,

and substantially on the schedule specified in, the applicable Project Plan.

Notwithstanding the foregoing, prior to the expiration of the Option Period (as

that term is defined in the Option Agreement), Surgica shall prioritize and

utilize one hundred percent of its resources to and for the work performed under

this Agreement. Company shall provide Surgica with a monthly statement

describing Company's Fully-Burdened Costs incurred under this Agreement.

 

      2.8   Acceptance by Company.

           ---------------------

 

           2.8.1 When Surgica has completed a Deliverable due under a Project

Plan, Surgica shall deliver it to Company. Company may reject a Deliverable by

providing Surgica with a written notice describing the Deliverable's failure to

meet a material requirement stated in the applicable Project Plan (a

"Nonconformity").

 

           2.8.2 Following rejection of a Deliverable pursuant to this Agreement

due to a Nonconformity, Surgica will use commercially reasonable efforts to

promptly correct such Nonconformity. When it has made the necessary corrections,

Surgica will again deliver the Deliverable to Company and the

acceptance/rejection/correction provisions of Section 2.6.1 above shall be

reapplied until the Deliverable is accepted; provided, however, that upon the

third or any subsequent rejection, Company may terminate this Agreement by

thirty (30) days prior written notice unless the Deliverable is accepted during

the notice period.

 

      2.9   Costs and Expenses. Except as otherwise provided herein, each Party

shall bear its own costs and expenses incurred by it in performing work under

this Agreement.

 

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       2.10   Site Visits. For purposes of reviewing the progress of any Project,

the Parties may facilitate an exchange of technical personnel to work on-site at

each other's facilities. Company shall be free to visit those portions of

Surgica's facilities where work on the Project is being conducted. Such visits

shall be at reasonable intervals following reasonable notice during regular

business hours. Each Party shall indemnify and hold the other Party harmless

from and against any liability arising from the activities of its employees in

the other Party's facilities.

 

      2.11 Project Delays; Project Failure. If at any time during the course of

any Project, either Party (the "Delaying Party") anticipates that it will not be

able to meet any milestone or other target or deadline for which it is

responsible by the date set forth on the applicable Project Plan or established

by the Management Committee, the Delaying Party shall so notify the other Party

(the "Affected Party") in writing specifying the reasons for delay. From and

after such notice, the Parties shall cooperate and use diligent efforts to solve

the problems identified, and the milestone dates or other deadlines may, with

the Affected Party's written approval, be set back for as long a period as is

required to solve the problems so identified; provided, however, that if for any

reason other than due to the fault of Company, Surgica fails or will fail to

complete a milestone or other target or deadline, then Company may terminate

this Agreement immediately on written notice pursuant to Section 12 below.

 

      2.12 Inventory Services. Surgica shall provide inventory services to

Company including, without limitation, reasonable facilities to store inventory

of Product developed and/or manufactured hereunder.

 

3.     Ownership.

 

      3.1   Company's Technology and Project Technology. Except as expressly and

unambiguously licensed herein or in the License Agreement, as between the

Parties, Company shall retain and exclusively own all rights, title and interest

(including all intellectual property and proprietary rights throughout the

world) in and to Company's Technology and the Project Technology, and any and

all improvements, modifications and derivative works thereof created hereunder

(by whomever produced).

 

           3.1.1 Assignment. Surgica agrees to assign and does hereby assign to

Company all rights, title and interest including, without limitation, copyright

rights, patent rights, trade secret rights, mask work rights and all other

intellectual property and proprietary rights that Surgica may have or acquire

throughout the world in and to any improvements, modifications and derivative

works of Company's Technology or the Project Technology made, conceived or

reduced to practice, alone or with others, during the course of development

under this Agreement or any Project Plan. The foregoing shall apply to all

rights of every kind and character whatsoever throughout the world, whether or

not such rights are now existing or come into existence hereafter, and whether

or not such rights are now known, recognized or contemplated. Surgica agrees to

perform, during and after the term of this Agreement, all acts deemed necessary

or desirable by Company to permit and assist it in evidencing, recording and

perfecting such assignment and to enforce, maintain and defend the rights being

assigned hereunder. In connection with such assignment, Surgica irrevocably

designates and appoints Company its agent and attorney-in-fact to act for and in

its behalf to execute, register and file any applications, and to perform all

other lawfully permitted acts, to further the registration,

 

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prosecution and issuance of copyrights, patents, trademarks and similar

protections with the same legal force and effect as if executed by Surgica.

 

      3.2   Surgica's Technology. As between the Parties, Surgica shall retain

and exclusively own all title to and, except as expressly and unambiguously

licensed herein or in the License Agreement, all rights and interest (including

all intellectual property and proprietary rights throughout the world) in

Surgica's Technology and any and all improvements, modifications and derivative

works thereof (by whomever produced).

 

      3.3   Protective Filings. Company shall have the exclusive right and be

responsible for determining whether and to what extent to file applications for

copyrights, patents, trademarks and similar protections and to maintain any

issued copyrights, trademarks, patents and similar protections (and all

divisions, continuations, continuations in part, reissues, reexaminations or

extensions thereof) anywhere in the world relating to Company's Technology, the

Project Technology and, to the extent it is licensed to Company hereunder or

pursuant to the License Agreement, Surgica's Technology. Surgica shall fully

cooperate with Company as may be necessary for the preparation, filing and

prosecution of each such application and for maintenance, renewal and defense of

each copyright, trademark, patent or similar protection granted, including

executing all documents and maintaining and furnishing all records reasonably

necessary to perform such acts concerning the Project Technology and/or

Surgica's Technology. Company shall provide Surgica with a complete copy of each

patent application and all communications received from, or sent to, the United

States Patent and Trademark Office and foreign government patent offices

concerning Surgica's Technology, to the extent applicable.

 

      3.4   Regulatory Approvals. Company shall be responsible for all filings

with Regulatory Agencies related to Product throughout the world. All regulatory

submissions and Regulatory Approvals concerning Company's Technology, the

Project Technology and, to the extent it is licensed to Company hereunder or

pursuant to the License Agreement, Surgica's Technology, shall be held by and in

the name of Company or its designees.

 

4.     License Grant.

 

      4.1   By Company. Subject to all of the terms and conditions of this

Agreement and any Project Plan, Company hereby grants to Surgica a royalty-free,

non-exclusive, non-transferable, non-sublicensable and worldwide license for the

term of this Agreement to:

 

           4.1.1 make, use, reproduce, modify and create any derivative works of

any Project Technology; and

 

           4.1.2 make, use, reproduce, modify and create derivative works of

Company's Technology solely for the purpose of performing its development

obligations pursuant to this Agreement and strictly in accordance with, and

subject to the limitations set forth in, the applicable Project Plan.

 

      4.2 By Surgica. Subject to all of the terms and conditions of this

Agreement and any Project Plan, Surgica hereby grants to Company:

 

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           4.2.1 a non-exclusive, non-transferable, non-sublicensable,

royalty-free and worldwide license for the term of this Agreement to make, have

made, use, reproduce, modify and create derivative works of Surgica's Technology

for the purpose of performing its development obligations pursuant to this

Agreement and strictly in accordance with the applicable Project Plan.

 

5.     Supply of Products; Post-Supply Obligations.

 

      5.1 Supply. Surgica, within the limitations contained in this Section 5,

shall exclusively sell to Company such quantities of Product for Clinical Use as

Company may order through a purchase order ("Order"), subject to the terms

thereof. Surgica shall provide to Company Product for Non-Clinical Use as may be

reasonably requested by Company from time to time.

 

      5.2   Quantity.

           --------

 

           5.2.1 Within ten (10) days of Effective Date, with respect to each

Product described in Project Plan No. 1, Company shall deliver to Surgica a

good-faith forecast of Company's estimated quantity requirements for such

Product for the succeeding twelve (12) months (the "Sales Forecast"), which

Company shall update quarterly. With respect to Product developed pursuant to

additional Project Plans, Company shall provide such forecast no later than

three (3) months prior to the anticipated date of Regulatory Approval. Surgica

shall reasonably manage its capacity, resources and inventory to ensure a supply

of Product in inventory to completely and timely satisfy Company's estimates and

forecasts. The failure of Surgica to supply Company with Product pursuant to the

Sales Forecast shall be a material breach of this Agreement.

 

      5.3   Delivery.

           --------

 

           5.3.1 Prior to the release of any Product lot into Surgica's

inventory for Clinical Use, Surgica shall (a) provide to Company all documents

necessary (or reasonably requested by Company) to permit Company to confirm that

the applicable lot meets the applicable specifications, including without

limitation copies of all certificates, reports, test results or other

information produced by Surgica, or by a third party consultant or contractor at

Surgica's request, and (b) obtain written approval from Company that Company has

reviewed and is satisfied that the applicable lot meets such specifications.

 

           5.3.2 All Products ordered pursuant to an Order shall be delivered to

Company or its designee(s) as specified in the Order, F.O.B. Surgica's plant or

other place of shipment. Surgica shall deliver Product by the applicable

Delivery Dates and assist